The IRS said it audited more than 1million individuals in fiscal 2012 for the sixth year in a row, collecting more than $50 billion for the third consecutive year. While those numbers might seem high, audit rates are really quite low. The IRS’ audit rate is roughly 1.03 % of all tax returns filed.
The IRS generally has kept up its audit activity despite a $305,000,000 budget cut that reduced full-time staffing by 8 % over the past two years, including 6 % in the enforcement area over the past year. That 1.03 % audit rate last year was almost double the level of a decade earlier.
Certain activities and behaviors can put you in greater danger of being Audited by the IRS.
High income is one. “Audits in the upper-income ranges remained substantially higher than other categories,” the IRS stated in a recent report. Of people with less than $200,000 in income, 0.94 % faced an audit. That jumped to 12.14 % of those earning at least $1 million.
Certain business categories are another. The IRS said it’s taking a closer look at “flow-through entities,” which include partnerships and Subchapter-S corporations. Audit rates in both areas have increased in recent years, though they both remain slightly lower than 0.5 %.
Then there are big corporations. Of those with assets of at least $250,000, more than 29% got audited in fiscal 2012, which ended last Sept. 30.
Self-employed individuals who file Schedule C also face an elevated risk of audit. One curiosity: Those Schedule-C filers earning between $100,000 and $200,000 actually had worse odds, with 4.3% of returns audited, compared with those earning more money, where the audit rate was 3.8%.
The IRS has gotten more reward-focused about the taxpayers selected for audit.
“Like all smart businesses, the IRS wants to turn a profit these days,” according to a commentary by the National Association of Enrolled Agents, an organization of licensed of return-preparation specialists.“Currently, tax returns are selected for audit based on the chance that the IRS will find enough errors or missing income to generate additional taxes — and perhaps penalty and interest.”
We will continue this discussion in Are You an IRS Audit Target? Part II.
Are you Being Audited by the IRS?
Contact the Tax Lawyers at Marini & Associates, P.A.
or Toll Free at 888-8TaxAid (888 882-9243).