By Ken Berry
It's not who you are or what you do, but how much you earn, as far as the Internal Revenue Service (IRS) is concerned. New data released by the IRS indicates that the chances of being audited increase dramatically if your income reaches into seven figures. On the flip side, taxpayers earning less than $200,000 can rest a little easier.
The IRS data on individual audits in the latest report was limited to just three categories of income: those reporting incomes of less than $200,000 annually, those reporting incomes of $200,000 and higher, and those reporting incomes of $1 million and higher.
For taxpayers earning more than $1 million annually, the audit rate was approximately 12 percent in 2011, up substantially from 8 percent in 2010, and double the 6 percent rate in 2009. Conversely, the audit rate for those earning less than $200,000 has stayed close to the 1 percent level in recent years. The IRS says that 4 percent of taxpayers earning more than $200,000 were audited in 2011, up from approximately 3 percent for the previous five years.
But the IRS maintains that the disparity in the audit rates between the super-rich and other taxpayers isn't politically motivated. Steven Miller, deputy IRS commissioner for services and enforcement, said in an interview that the higher audit rates for high-income individuals are designed to "assure that those at the lower end of the spectrum know that those at the higher end of the spectrum are subject to the same rules and enforcement as everyone else."
"We base our audit decisions on tax issues, nothing else", added IRS spokeswoman Michelle Eldridge. "We don't play politics here."
Overall, the IRS audited nearly 1.6 million of 141 million individual returns in 2011, slightly higher than a 1 percent rate. Although that isn't too frightening, the rate has been growing steadily since 2001, when only 0.6 percent of all taxpayers were audited.
Some other insights into the data provided by the IRS are revealing. For instance:
- The IRS said that it audited a higher proportion of large corporations than smaller ones. In 2011, 1 percent of corporations with assets under $10 million were audited as opposed to 28 percent for corporations with assets of $250 million and higher.
- In 2011, the IRS garnisheed wages or seized money from bank accounts 3.7 million times, put liens on property 1 million times and seized 776 pieces of property.
- Approximately 77 percent of individual returns were filed electronically in 2011, up from 69 percent in 2010.
- Seventy percent of telephone callers to the IRS taxpayer information service got through in 2011. That's slightly lower than the 74 percent of callers who were able to connect in 2010.
- The IRS claims that the information it provided over the telephone to taxpayers was accurate 93 percent of the time, the same as its claim for previous year.
- The IRS website has been plenty busy: It was visited 319 million times in 2011.
Moral of the story: Take your cue from the latest IRS report – Fiscal Year 2011 Enforcement and Service Results. Be prepared for even greater scrutiny of your high-earning clients' returns.