Final answer:
The plumber employed by a plumbing and heating company is the least likely to be audited by the IRS due to their straightforward tax situation and taxes being withheld at source, as opposed to others with more complex tax situations or histories of deficiencies. Option 4.
Step-by-step explanation:
In terms of probability, the taxpayer who would be least likely to be audited by the IRS is the plumber employed by a plumbing and heating company. This conclusion is based on the nature of the income sources and the behavior of the taxpayer. Historically, the IRS is more likely to audit individuals with complex tax situations or those with a history of tax deficiencies. Taxpayer 2, who has been audited several times before and found to have tax deficiencies, is likely to be audited again due to their past history. Taxpayer 3, a sole proprietor, might face an audit due to the complexities of self-employment income reporting. Meanwhile, taxpayers 1 and 5, who have received large sums either from gambling or from a legal award, might draw IRS attention due to the significant transactions involved. Option 4.
However, the taxpayer who is just an employee, such as the employed plumber, usually has their taxes withheld at source and faces a straightforward tax situation, making an audit much less likely. Therefore, in the context of the IRS focusing its limited resources, the employed plumber would have the lowest odds of an audit.
The chance of an IRS audit for tax returns reporting more than $25,000 in income is around 2 percent per year. Using a Poisson distribution, one could model the number of audits expected over a period of time.