Perhaps unsurprisingly to many California residents, the IRS has recently stepped up its efforts with regard to audits of the wealthiest Americans. The largest increase was for those taxpayers who make more than $10 million per year, although significant increases were also seen for those making between $500,000 and $1 million. Of course, it is important to keep in mind that no matter one's income, IRS audits are not out of the question.
Overall, the IRS reportedly audited 1.1 percent of all individual tax returns in 2011. That means that a little more than one out of every 100 taxpayers were the subject of an IRS audit. However, depending on the income group, there were marked increases in the number of audits performed in 2011 versus 2010.
About 30 percent of all Americans earning $10 million or more were audited in 2011, up from 18 percent in the previous year. Of those earning between $5 million and $10 million, 21 percent were audited versus 12 percent in 2010, and the percentages for taxpayers who earned between $1 million and $5 million were 12 percent and 6.7 percent, respectively. As may be expected, the smallest increase was among those who earned between $500,000 and $1 million. Only 5.4 percent of taxpayers in that income group were audited, up from 3.4 percent previously.
Regardless of a person's income, an audit from the IRS can be a daunting experience. Often, the audit is simply the result of a good-faith mistake on a tax form, or the audit could be the result of an error on the part of the IRS. Still, it may is advisable for California residents of any income group to keep their finances and tax returns organized, lest one of those dreaded notices appears in the mail. And in that case, taxpayers will want to be fully aware of their rights.
Source: Wall Street Journal, "IRS Ramps Up Audits of Wealthiest," Damian Paletta, March 22, 2012