The Internal Revenue Service (IRS) has stated that it wants to increase its focus on high-income taxpayers. Thus far, it appears they are following through. The IRS recently released its Data Book, a publication that provides information on the tax audit rate for various income levels. According to this report, the rate of federal tax audits for those with an income of $500,000 to $1 million was 0.6%. Although this may seem like a low number, it is more than double that of those from $200,000 to $500,000 which was reported at 0.2%. The audit rate for those with $1 million to $5 million was even more at 1.3%, 2% for those with $5 million to $10 million and a whopping 8.7% for taxpayers with $10 million or more.
It is important to note that these numbers are likely low. The IRS explains that the information within the Data Book can change as the agency can conduct an audit at a later date. When it comes to high-income taxpayers, the feds state they often initiate their examination at least three years after the taxpayer filed their return. This means the numbers reported above could be even higher as the IRS increases its workforce in coming months.
Has the IRS reached its goal?
As noted above, the agency recently stated it plans to hire additional agents. It is likely the agency will use these agents to continue these efforts.
What should I do if I am the subject of a federal tax audit?
It is important to take the matter seriously. We provided some steps that can help when in this situation in a previous post, available here.
A tax audit can result in more than just a financial penalty. Depending on the allegations, the feds could push for imprisonment. This is generally an option if they can establish that the accused to steps to intentionally avoid their tax obligations.
As noted above, the feds can look back to previous tax returns. The exact reach varies depending on the circumstances. It is important to take steps to protect your rights. The attorneys at Goldburd McCone have experience with tax matters like this and can advocate for your interests from the initial contact through litigation, if necessary.