Tax Alerts - April 2012
April 2012 PDF
April 2012 Articles
- Latest IRS Data Book Shows Jump in Higher-income/Small Business Audit Rates
- IRS Expands Fresh Start Initiative to Help Economically-distressed Taxpayers
- Contemporaneous Tax Records – Are You Keeping Up?
- How Do I - Amend a Return
- FAQ - What is a Disregarded Entity?
- April 2012 Tax Compliance Calendar
- Transfer of Winning Lottery Ticket to S Corp is Taxable Gift
- Unmarried Co-owners Must Apply Single Mortgage Interest Limit
- Individual Adjusted Gross Income Rebounds
- Change of Accounting Rules/Audit Instructions Issued on New Repair Rules
- 2012 Vehicle Depreciation Dollar Limits Increase
The just-released 2011 IRS Data Book provides statistical information on IRS examinations, collections and other activities for the most recent fiscal year ended in 2011. The 2011 Data Book statistics, when compared to the 2010 version, shows, among other things, a notable increase in the odds of being audited within several high-income categories.
Individual taxpayers collectively were audited at a 1.1% rate over the FY 2011 period, based on 1,564,690 audited returns out of the 140,837,499 returns that were filed. While this rate is about the same as in 2010, variations occurred within the income ranges. An uptick was particularly noticeable in the upper brackets (see statistics, below).
Both correspondence and field audits were counted within the statistics. Correspondence audits accounted for 75% of all audits for FY 2011 (down from 77.1% in FY 2010), while audits conducted face-to-face by revenue agents were only 25% of the total, albeit representing an increase from the 21.7% level in FY 2010. Business returns and higher-income individuals are more likely to experience an audit by a revenue agent; while correspondence audits are generally single-issue audits, a revenue agent is likely to explore other issues "while he or she is there."
Examination Coverage: Individuals
The following audit statistics taken from the FY 2011 Data Book (and contrasted with FY 2010 Data Book stats) show an increase in the audit rate especially in proportion to adjusted gross income (AGI) level:
- No AGI: 3.42% (3.19% in 2010)
- Under $25K: 1.22% (1.18% in 2010)
- $25K-$50K: 0.73% (0.73% in 2010)
- $50K-$75K: 0.83% (0.78% in 2010)
- $75K-$100K: 0.82% (0.64% in 2010)
- $100K-$200K: 1.00% (0.71% in 2010)
- $200K-$500K: 2.66% (1.92% in 2010)
- $500K-$1M: 5.38% (3.37% in 2010)
- $1M-$5M: 11.80% (6.67% in 2010)
- $5M-$10M: 20.75% (11.55% in 2010)
- $10M and over: 29.93% (18.38% in 2010)
Examination Coverage: Business Returns
For individual income tax returns that include business income (other than farm returns), the 2011 audit rate statistics based upon business income (total gross receipts) reveals the IRS's recognition that audits of small business returns yield proportionately higher deficiency amounts:
- Gross receipts under $25K: 1.3% (1.2% in 2010)
- Gross receipts $25K to $100K: 2.9% (2.5% in 2010)
- Gross receipts $100K to $200K: 4.3% (4.7% in 2010)
- Gross receipts over $200K: 3.8% (3.3% in 2010)
The difference in audit rates between returns with and without business income, as measured by total positive income of at least $200K and under $1M provide further evidence of the IRS's tendency toward auditing business returns: 3.6% for returns with business income versus 3.2% without in FY 2011 (2.9% versus 2.5% in FY 2010).
The audit rates for corporations are consistent with the deficiency experience that the IRS has had examining corporations of varying sizes. Some selected audit rates include:
- For small corporations showing total assets of $250K to $1M, the audit rate for FY 2011 was 1.6% (1.4% in 2010); $1M to $5 million, the rate was 1.9% (1.7% in 2010), and for $5M to $10M, the rate was 2.6% (3% in 2010).
- For larger corporations showing total assets of $10M-$50M, the audit rate was 13.3% (13.4% in 2010) in contrast to those at the top end with total assets from $5B to $20B (50.5% (45.3% in 2010)).
- For S corporations and partnerships, the overall audit rate was 0.4% (same as in 2010), in contrast to an overall 1.5% rate for corporations (1.4% in 2010).
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