The highly targeted and most commonly audited taxpayers earn in excess of $10 million and the IRS audited 30% of taxpayers within this income bracket in 2011. This was an 18% increase from the previous year. As a result, many high income earners have reasons to be concerned about the possibility of an IRS audit.
Other taxpayers who are likely to get audited were those who made between $5 and $10 million in 2011. An increase was also recorded among taxpayers who earned between $1 million and $5 million (there were 12% as opposed to the 6.7% that faced auditors the previous year).
Also, 5.4% of the $500,000-$1 million earners were audited, increasing from 3.4% in 2010. Despite the increase in audit cases, these figures are still low. According to the IRS, 1.1% of individual tax returns are targeted by the IRS with the high income earner targeted most.
The listed statistics are not to be confused with the IRS Global High Wealth Industry Group. This Group was launched in 2009 and focuses mostly on assets as opposed to incomes. Taxpayers are likely to be scrutinized if they own assets worth $10 million or more. Auditors may first focus on the conventional Form 1040 but gradually mirror on excise taxes, gift transfers, and charitable donations-related issues.
The IRS employs a meticulous approach when auditing high income earners. They don’t leave any stone unturned, as they spread and even review family companies and gifts amongst others. To boost chances of spotting and successfully auditing large and more advanced business enterprises and individuals, the IRS uses some of the most experianced auditors, who will demand for documentation for almost everything owned, plus incomes and expenditures. It is therefore, important that you keep your receipts and tax related documentation.
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