As promised to my business and tax readers, here are some more statistics on who gets audits. The information is courtesy of the IRS:
2007 turned out to have the highest IRS examination rate increase since 1998. That statistically sounds big and once we see the numbers we will see that it is relatively big.
Seventy-eight percent (that is 78%) of IRS examinations affected individuals with incomes less than $100,000 in 2007. That means that the IRS goes after everybody and not just the rich. Statistically that makes sense since proportionally to the general public there are less people making more than 100K than less.
Over 1.3 million audits were made on taxpayers earning less than $50,000 annually. Again, that is an eye opening figure if nothing else to quash the myth that the IRS doesn’t go after smaller potatoes.
WHAT DOES THE IRS DO OR WHAT KIND OF AUDITS AND STUFF COULD YOU BE LOOKING AT?
• Correspondence Audits: Letter from IRS or state authority 1,073,224 in 2007
• Field Examination: In-person review of your tax return 311,339 in 2007
• Change in Tax Liability: Result of examination by the IRS changing what you owe
• Levies: Garnishments (holds) against your wages and/or bank accounts 3,757,190 in 2007
• Liens: Garnishments (holds) against your real property i.e home, land, car etc. – 683,659 in 2007
• Collections: IRS collected $23.5 billion from examinations and $31.8 billion from Levies and Liens in 2007
• Indictments: IRS files criminal charges
• 90% Conviction Rate of People indicted in 2007
• 22 months was the average sentence handed down for the convictions
All that means is that you need to watch your filing dates, respond to IRS and state letters in a timely manner and keep great records. One of the biggest reasons that the IRS collects so much from letters is that a lot of people just don’t bother to respond within the time limit that the IRS asks you to (which is generally 60 days). I can’t tell you how many times people come to me with a letter that was actually not a problem but because they didn’t respond in a timely manner got nailed with what the IRS decided.
Eesh.
Also please make sure you send in all the forms you need to if you are doing a return by mail especially amended returns. One of the leading causes for rejections or audit letters is incomplete filing. A common one is where you are suppose to attach a list of your myriad stock trade transactions and you forget to send them into the IRS.
Also as a heads-up, expect the IRS to do more audits on EITC and Schedule Cs. They are working hard on cracking down on fraud in both those areas.
Don’t be bashful about getting a copy of my book, Practical Money Making, for ideas for making extra cash during the depression we are in either. Good luck and may the holidays be happy for you!
Kim Isaac Greenblatt
As promised, some statistics on who gets an IRS audit.