Every year, the IRS provides valuable tax return information in its "Data Book." (IRS Publication 55B) This year is no exception. The IRS recently released the data for its 2010 fiscal year spanning Oct. 1, 2009, through Sept. 30, 2010. (IRS Internal News Release 2011-27)
Alert: Tax audits of individual taxpayers overall went up. Other significant changes were revealed for taxpayers with total positive income (TPI) between $200,000 and $1 million, businesses with gross receipts of $25,000 and higher and individuals claiming the earned income credit (EIC). Here's the lowdown:
|Audit rates for small corporations|
|Corporate size||Fiscal year 2009||Fiscal year 2010|
|Assets of $250,000 to $1 million||1.3%||1.4%|
|Assets of $1 million to $5 million||1.8%||1.7%|
|Assets of $5 million to $10 million||2.7%||3.0%|
|Assets of $10 million or more||14.5%||14.5%|
- Individuals: Of the 142,823,105 total individual income tax returns filed, 1,581,394 were audited. This works out to approximately 1.10%. The rate for the previous year was 1.00%. Of the total number of individual income tax returns audited in 2010, 473,999 (30%) were for returns with an EIC claim (down from 35.64% of all audited returns for 2009). Only 21.7% of the individual audits were conducted by revenue agents, tax compliance officers, tax examiners and revenue officer examiners (down from 22.8%). The bulk of the audits (about 78.3%) were correspondence audits (up from 77.1%).
- High-income taxpayers: For returns showing TPI of $200,000 to $1 million, 2.5% of returns not showing business activity were audited (up from 2.3%), while 2.9% of returns showing business activity were audited (down from 3.1%). For returns with TPI of $1 million or more, 8.4%, were audited--2% higher than the 6.4% audit rate for 2009.
- Businesses: For business returns (other than farm returns) showing total gross receipts of $100,000 to $200,000, 4.7% of returns were audited in 2010 (up from 4.2%). For business returns (other than farm returns) showing total gross receipts of $200,000 or more, 3.3% of returns were audited in 2010 (up from 3.2% in 2009).
The audit rates for all corporate returns, other than S corporations, were 1.4% (up from 1.3%). Audit rates for C corporations varied by size and rose for corporations with assets of $5 million or more (see box). For partnership and S corp returns, the audit rate was 0.4%, the same as the prior year.
- Math errors: Of the roughly 10.5 million math error notices the IRS issued for individual 2009 returns, 60.8% were attributable to the Making Work Pay Credit (MWPC). Of the total math error notices, 9% were for errors in calculating other taxes--including errors relating to self-employment tax, alternative minimum tax and household employment tax--while 4.9% were related to exemptions, 4.4% to the EIC, 4.1% to the standard/ itemized deduction and 1.3% to the first-time homebuyer credit.
- Penalties: In 2009, the IRS assessed 27.1 million civil penalties against individual taxpayers (up from 26.4 million civil penalties assessed in the previous year. Of the 2010 penalties, 57.3% were assessed for failure to pay, 27.3% for underpayment of estimated tax and 13% for delinquency. For business taxpayers, a total of 1,145,931 civil penalty assessments were made (up from 970,098). Of those, 42.1% were assessments for failure to pay or underpayment of estimated tax.
- Offers-in-compromise: In 2010, 57,000 offers-in-compromise were received by the IRS (up from 52,000). Of those, 14,000 were accepted (up from 11,000).
- Criminal cases: The IRS launched 4,706 criminal investigations in 2010. There were 3,034 referrals for prosecution and 2,184 convictions. Of those sentenced, 81.5% were incarcerated (including imprisonment, home confinement, electronic monitoring or a combination). To compare, in 2009 the IRS initiated 4,121 criminal investigations with 2,570 referrals for prosecution. Of those sentenced, 81.2% were incarcerated.
Reprinted with permission from The Tax Strategist, May 2011. For continuing advice on this and numerous other tax strategies, go to www.TaxStrategist.net. Receive 2 FREE Bonus reports and a 40% discount on The Tax Strategist when you use Promo Code WN0013.