Friday, November 04, 2005

Odds-On Favorite

For many years, audit activity by the IRS declined. It is now on the increase and is showing results.

In a statement released by IRS Commissioner Mark Everson, he notes that for the fiscal year ended September 30th:
  • Enforcement revenues – the monies the IRS gets from collection, examination, and document matching activities – increased by 10% to a record $47.3 billion.

  • Total individual returns audited increased by over 20% to 1,216,000 from 1,008,000 in 2004. The number completed is back to a level last achieved in 1998.

  • Audits of individuals with incomes over $100,000 surpassed 221,000, the highest figure in 10 years, and well over double the 92,000 completed in fiscal year 2001. The coverage rate in this category is still too low, but at 1.58% is double what it was four years ago.

  • Audits of small businesses organized as corporations turned up after years of decline. 17,867 were completed in 2005 against 7,294 a year earlier.
The dirty little secret that tax practitioners have been aware of for some time was that audit activity was at such a low level it was economically rational for taxpayers to play "audit roulette." Apparently, the House is determined to reset the odds.

Appended to the Commissioner's statement is a chart which shows the dramatic increases in the level of audits and taxes collected.

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