The IRS is pumping up the volume of audits of ‘rich’ taxpayers as part of a increased attempt to clamp down on tax evasion as well as so-called “legal tax avoidance.”
According to the bureau’s latest update for the year ended Sept. 30, the percentage of taxpayers who were audited increased in every category of adjusted gross income above $500,000, compared with a year earlier.
“The biggest jumps came at the top of the income ladder. About 18% of Americans earning at least $10 million were audited in fiscal 2010, up from 11% in fiscal 2009, according to the IRS. For those earning $500,000 to $1 million, the audit rate rose to 3.4% from 2.8%.”
Accountants and tax preparers said the IRS’s heightened scrutiny of wealthier taxpayers is in sharp contrast to the agency’s audit practices during the previous decade.
David Lifson, an accountant in New York for Crowe Horwath LLP, said the number of audits among his high-earning clients has “at least doubled, if not tripled” in the past two years. The audits often are “correspondence” exams in which a series of letters is exchanged. Such exams account for more than 70% of IRS audits of individuals.
“They are touching a broader group of high-income taxpayers, asking about one or two issues at a time,” Mr. Lifson said. Common issues include high deductions for mortgage interest and charitable gifts.
In 2009, IRS Commissioner Doug Shulman announced limited amnesty for U.S. taxpayers with undeclared offshore accounts, as well as creation of the agency’s Global High Wealth Industry group, known as the “wealth squad,” to undertake detailed audits of the highly affluent.