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Downside of wealth: More tax audits

The IRS has increased the rate of audits, and nearly 30% of the very rich got their returns examined in 2011. That compares with 1% of taxpayers overall.

By MSN Money Partner Mar 29, 2012 7:37PM

This post is by Richard Rubin and Margaret Collins of Bloomberg.


The Internal Revenue Service in 2011 audited 29.9% of taxpayers who reported more than $10 million of income, according to new statistics.


That’s up from an audit rate of 18.4% in 2010 and 10.6% in 2009 for a group that consists of 0.01% of taxpayers. Overall, the agency’s rate of audits for individual taxpayers stayed constant at 1.1%.


Joe Perry, partner-in-charge of tax services at the accounting firm Marcum in New York, said he has seen a tenfold increase in clients being audited, including at least five under the more intense scrutiny of a new IRS task force that is targeting high net worth taxpayers.


"Those are very time-consuming and costly," said Perry, who represents several clients with incomes exceeding $10 million. "It’s worse than a root canal." (Post continues below video.)

The IRS statistics cover audits conducted in fiscal 2011, which generally corresponds to returns filed during 2010.


For U.S. taxpayers with adjusted gross incomes between $5 million and $10 million, the audit rate rose to 20.8% from 11.55%. People making between $200,000 and $500,000 were audited at a 2.7% rate.


The IRS is quicker to audit individual returns than in the past, sometimes contacting people within months of their return being filed, Perry said. In some cases, the IRS requires taxpayers to produce and prove every item on their returns, including such things as their children’s Social Security numbers. Perry said his firm has also seen an increase in so-called correspondence audits, where the IRS will send a letter asking a taxpayer to verify a specific item on the return, such as charitable deductions.


In 2009, the IRS created a special unit to examine the tax returns of high-wealth individuals.


"We will take a unified look at the entire web of business entities controlled by a high-wealth individual, which will enable us to better assess the risk such arrangements pose to tax compliance and the integrity of our tax system," IRS Commissioner Douglas Shulman said in a December 2009 speech. "We want to better understand the entire economic picture of the enterprise controlled by the wealthy individual and to assess the tax compliance of that overall enterprise."


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Mar 30, 2012 12:49PM

You know author you are so right. I made 20 million last year and i got audited. I proved to the IRS that i should have only been taxed 15% capital gains taxes because my income is based off stock options my company gives me. I work basiclly for free, only making $1 a year. Good thing i could afford to hire the best accountant in my town. Paying her only $1500 to avoid having to pay 20%  more in taxes. Sheese, lay off me tax man!

Apr 16, 2012 7:41AM
There we go again. The IRS buffoons harassing the jobs creators instead of concentrating on servicing their customers and promoting customer satisfaction. They are wasting my tax dollars, creating unnecessary expense for the jobs creators, as well as discriminating against them, and challenging the excellent work of their tax experts. Looks like we are ripe for another "reform" of the IRS, lets get some Republican congressmen on board. Everyone should pay their fair share, make just one tax rate for all. 
Mar 30, 2012 10:22AM



Seriously, it must be so terribly inconveniencing for the accountants.

Apr 16, 2012 11:37AM
The IRS is only a government agency; it runs on rules and regulations. Their computer is geared to flag returns that just don't juive. But the problem is, the agency still needs leg work to get the job done. This is where it has its bigest problems--someone has entered the wrong information in the computer--with excessive penalties and interest.  Remember, the buden of proof is on you. It is up to you, to streighten the mess out !  As the  Penalties and interest, keep on going up and up! This happened with two corporations I once established and controled.  We were making our quarterly payments to the IRS regularly as reguired--and then paying the balance owed at the end of the year. Everything was going fine, until we received a notifacation the IRS haden't received any quarterly filing for the year.  It was now November, and end of the year was comming up fast.  He had to streighten this out fast!.  My in house accountant pulled up our quarterly filingss, and they showed our payments had been made--but like I said--it is up to the taxpayer to solve these mysteies, not the IRS.  We contacted the 800 number attached.  [A] Mis so-in-so listed as contact--told us to wait for her to get back to us. In the mean time, we started getting our quarterly check back from the IRS, but they were now their checks, not our original checks, but the amounts were correct, which was fine.  My accountent called the lady we had been dealing with at the IRS, and her advise was to cash the checks and hold them in our bank accout, until she steirghtened out this mess... WRONG!  I had my accountant put them in our safe, until we, trusting the the IRS figured out what had happened and what to do?  We waited until thew end of the year not knowing if we should close out the year, or not.  I had to do something, I couldn't wait any longer. We filed our return,, but didn't send any money, since they only sent it back in the past.  While waiting for the IRS get back to us--this went on until February, the net year, when our quarterlies were comming due again. We finally found out the lady who was handling our case, had quit.  All the files she had been working on, were strun out on her desk and no one had touched themin months.  The next theng we know, IRS agents come to our door, in force; demanding their money, some 100,000 dollars... Immediately!  ..Or else, they were going to padlock our doors, ceasing us from doing business!  Now hears the rub; it turned out the IRS had put our monies into a corperation we were not using at the time.  The numbers were close, but someone, someway, transposed those  numbers.  The computer did what it was supposed to do; automatically kick back the monies.  Forunitly, I had the brains to keep those checks on hand and not cashed them. The lesson to be learned here is; don't trust the IRS, never!   Don't wait on them, either -- Solve the problem yourself.  Use common sense, because they don't !   THEIR government employees, not some COMPUTER . . . And THAT '  is where the IRS problems stem from . . .  Employees who are not careful, or their facisious...or don't really care!
Apr 2, 2012 11:35AM
Upside of wealth they could afford to pay their taxes and they still come out way ahead than the middle class. Whats a few millions more if they have a take home pay of 20 millions plus.
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