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Saturday, March 24, 2012

IRS Increased Audit Rate of Richest Americans by 63% in 2011

Data Book CoverThe IRS has released the 2011 IRS Data Book (84 pages).  The big news is the 62.8% increase in the audit rate on the wealthiest taxpayers, to an all-time high of 30%:

The IRS expanded its audits of Americans earning more than $500,000 last year, with a stark increase for those making more than $1 million.

The agency, in an annual report released Thursday, said it performed audits in the year ended Sept. 30 on 5.4% of the tax returns of Americans who made between $500,000 and $1 million in 2010. That was up from 3.4% of this group who were audited the previous year.

The jump was even bigger for those making between $1 million and $5 million, with 12% of this group audited last year, up from 6.7% the previous year. For those making between $5 million and $10 million, 21% were audited in 2011, compared with just 12% last year.

The most heavily audited group, as a percentage of filers, were Americans who reported making more than $10 million, with 30% of this group audited last year, up from 18% of these filers the year before.

The IRS said it audited just 1.1% of all individual tax returns last year and 1.5% of corporate tax returns. The chances of being audited were much higher for those making more money. {Click on chart to enlarge.] ...

WSJ

Despite doing more audits of the wealthy, the IRS hasn't seen a big spike in the income it collects from those who it finds aren't paying their taxes correctly. In fiscal 2011, the IRS collected $31.1 billion in what it calls "enforcement revenue," which includes taxes, interest, and penalties from multiple years. That was up from $29.1 billion in fiscal 2010.

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Comments

All well and good for the IRS but I suggest a richer source of additional revenue is available from correcting the in agency error rate.

Posted by: Bill | Mar 25, 2012 5:36:07 AM

The reported numbers, while sounding impressive, are fundamentally misleading. Two factors contributed to the increase. First, the base number of overall returns in the category (the denominator)declined from 388,763 to 291,831. Second, the actual number of returns audited (the numerator) increased from 32,494 to 36,422 - an increase of 3,928 returns. The real story, is the modest increase of 3,928 returns - a 12% increase from last year.

I could not find support for Bloomberg's 30% claim in the 2011 Data Book. I would greatly appreciate it if someone knows where it is located and shares this piece of information with me.

Thank you.

Posted by: Arthur Acevedo | Mar 25, 2012 11:29:53 AM

The reported numbers, while sounding impressive, are fundamentally misleading. Two factors contributed to the increase. First, the base number of overall returns in the category (the denominator)declined from 388,763 to 291,831. Second, the actual number of returns audited (the numerator) increased from 32,494 to 36,422 - an increase of 3,928 returns. The real story, is the modest increase of 3,928 returns - a 12% increase from last year.

I could not find support for Bloomberg's 30% claim in the 2011 Data Book. I would greatly appreciate it if someone knows where it is located and shares this piece of information with me.

Thank you.

Posted by: Arthur Acevedo | Mar 25, 2012 11:58:37 AM