The Internal Revenue Service in 2011 audited 29.93 percent of taxpayers who reported more than $10 million of income, according to statistics released today.
That’s up from an audit rate of 18.38 percent in 2010 and 10.60 percent in 2009 for a group that consists of 0.01 percent of taxpayers. Overall, the agency’s rate of audits for individual taxpayers stayed constant at 1.11 percent.
Joe Perry, partner-in-charge of tax services at the accounting firm Marcum LLP in New York, said he has seen a ten-fold increase in clients being audited, including at least five under the more intense scrutiny of a new IRS task force that is targeting high net-worth taxpayers.
“Those are very time consuming and costly,” said Perry, who represents several clients with incomes exceeding $10 million. “It’s worse than a root canal.”
The IRS statistics cover audits conducted in fiscal year 2011, which generally corresponds to returns filed during 2010.
For U.S. taxpayers with adjusted gross incomes between $5 million and $10 million, the audit rate rose to 20.75 percent from 11.55 percent. People making between $200,000 and $500,000 were audited at a 2.66 percent rate.
Quicker to Audit
The IRS is quicker to audit individual returns than in the past, sometimes contacting people within months of their return being filed, Perry said.
In some cases, the IRS requires taxpayers to produce and prove every item on their return including such things as their children’s Social Security numbers. Perry said the firm has also seen an increase in so-called correspondence audits, where the IRS will send a letter asking a taxpayer to verify a specific item on the return such as charitable deductions.
In 2009, the IRS created a special unit to examine the tax returns of high-wealth individuals.
“We will take a unified look at the entire web of business entities controlled by a high-wealth individual, which will enable us to better assess the risk such arrangements pose to tax compliance and the integrity of our tax system,” IRS Commissioner Douglas Shulman said in a December 2009 speech. “We want to better understand the entire economic picture of the enterprise controlled by the wealthy individual and to assess the tax compliance of that overall enterprise.”