Wednesday, February 22, 2012

IRS audits of higher income taxpayers increase



Doeren Mayhew 
 
IRS audits of higher income taxpayers increase


The IRS audited one in eight individuals with incomes over $1 million in fiscal year (FY) 2011. While the overall audit coverage rate for individuals remained steady at just over one percent, the audit coverage rate for higher-income individuals experienced growth in FY 2011. This trend, however, could be slowed by IRS budget cuts. Congress appropriated $305 million less for the IRS in FY 2012 compared to FY 2011.

Higher income Individuals
The audit coverage rate for individuals with incomes under $200,000 was 1.04 percent in FY 2010 and fell to 1.02 percent in FY 2011. However, the audit coverage rate for individuals with incomes $200,000 and higher increased from 3.10 percent in FY 2010 to 3.93 percent in FY 2011.

Significant gains in audit coverage came in audits of individuals with incomes $1 million or more. The audit coverage rate for those millionaires increased from 8.36 percent in FY 2010 to 12.48 percent in FY 2011.
Field audits of individuals with incomes $200,000 and higher increased from 58,521 in FY 2010 to 78,392 in FY 2011. Field audits of individuals with incomes $1 million and higher increased from 16,509 in FY 2010 to 20,475 in FY 2011.


Businesses
Examinations of business returns in FY 2011 decreased compared to FY 2010. Overall, the IRS examined 9,869,358 business returns (all types of businesses) in FY 2011. That number was 9,941,289 in FY 2010.


Corporations.  Corporations with assets $10 million and higher had the highest audit coverage rate at 17.64 percent in FY 2011 (16.58 percent in FY 2010). Within the large corporation category, the audit coverage rate was highest for corporations with assets $250 million or higher, at 27.6 percent for FY 2011. The audit coverage rate for small corporations (corporations with assets under $10 million) was 1.02 percent in FY 2011 compared to 0.94 percent in FY 2010.


Partnerships/S Corps.  The audit coverage rate for partnerships in FY 2011 was 0.40 percent, compared to 0.36 percent in FY 2010. The audit coverage rate also increased for S corps (0.42 percent in FY 2011 compared to 0.37 percent in FY 2010).


Please feel free to call this office for a more targeted explanation of how these developments may impact your operations.



If and only to the extent that this publication contains contributions from tax professionals who are subject to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, the publisher, on behalf of those contributors, hereby states that any U.S. federal tax advice that is contained in such contributions was not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.

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