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The AP wire released a story last week revealing just how common it is for millionaires to be audited compared to those earning less than $200K.
In fact a reported, “1 in 8 people earning at least $1 million annually was audited by the Internal Revenue Service last year, making them far likelier to be examined than those making below $200,000,” according to IRS data released last Thursday.
The article continues on to say that just 1 in 100 individuals earning less than $200,000 had their income tax returns examined.
The 12 percent of millionaire earners audited in 2011 was appreciably higher than the 8 percent who were audited in 2010. IRS officials said the high ratio was part of an effort to demonstrate that tax laws are applied fairly.
“That has been something we’ve concentrated on to assure that there’s equity in the system, 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,” Steven Miller, deputy IRS commissioner for services and enforcement, said in an interview.
In recent weeks, the President and congressional Democrats have sought to boost taxes on the wealthy as a way to pay for jobs programs, a theme they are expected to continue in this presidential and congressional election year. IRS spokeswoman Michelle Eldridge said the growing portion of millionaire earners’ returns audited is not related to politics.
“The IRS is an agency of civil servants, and we base our audit decisions on tax issues — nothing else. We don’t play politics here,” she said.
Between 2004 and 2009, the percentage of millionaire earners audited ranged between 5 and 7 percent.
The data was divided into only three categories of income: below $200,000, $200,000 and up, and $1 million and higher.
About 1 in 25 people earning $200,000 and more was audited in 2011.
The IRS also audited a greater proportion of large corporations than smaller ones, the data shows.
Last year, 1 percent of corporations with assets under $10 million were audited. Among corporations with assets of $250 million and up, 28 percent were audited.
The IRS said its enforcement efforts to collect all taxes owed — which include audits, court cases and other activities — netted $55 billion last year. That is nearly $3 billion less than the previous year, which Miller attributed to a falloff in estate taxes and corporations writing off their losses.
All together, the IRS audited nearly 1.6 million of the 141 million individual income tax returns that were filed. In 2010 — the most recent year available — more than 8 in 10 individuals audited ended up paying additional taxes.
So, are you prepared? If you are audited the burden of proof lies on you. While you might not be able to avoid an audit, you can make it less painful by following a few simple rules.
You should always keep accurate records showing travel, entertainment, meals, seminars, medical, auto and other business deductions you might take. They should contain specific information like the date, amount, reason for the expense, and the names of people who accompanied you.
If you don’t think it’ll happen to you, then think again. You are in the highest risk category for an audit if you are self-employed, or involved with a pass through entity such as a partnership, S-corporation or an LLC. Your risk also increases if you’re a corporation with reported income of over $200,000.
Taking the time to keep accurate records from the start can save you a tremendous amount of time and hopefully money if and when you are involved in an audit.
If you need help determining whether or not your corporate records may be lacking the proper documentation to successfully pass an audit, give us a call. No matter how far behind you might be, we can help you accomplish total corporate compliance and asset protection.
Speak to a corporate consultant at 1-800-648-0966 or drop us a line.
