Tuesday, April 04, 2006

Update About Audit Rate

A week or two ago, the IRS released the stats on the number of audits they carried out last year per income group. The commissioner stated that audits of high income taxpayer had increased significantly in the last ten years. (Note: I just went to the IRS website but was unable to find the press release I read last month with detailed this clearly, but here is a link to the commish mentioning audit rates in brief). CNN reported on the audit rates, and the numbers they put up showed an equal percentage of audits between the highest income group of taxpayers and the lowest income group of taxpayers. The number was something like 1.5% of each group was audited.

When I saw those numbers I was a little shocked. No one likes the IRS as much as me, but I was a little angry that the IRS was spending it's resources auditing the little guys. I admit that poorer taxpayer are probably more likely to make mistakes on their tax returns, mainly, it seems to me, because they have to file their own taxes and don't have the money to pay a professional tax-preparer. So I can see that there may be more honest mistakes per capita among lower income taxpayers.

But people pulling in $20-25k per year have not traditionally been the people trying to defraud the IRS through complex fraud schemes. And the payoff for the IRS in auditing low income taxpayers can't be that high. So based on the original report, I was angry.

But look at this report from Transactional Records Access Clearinghouse (TRAC). 184,054 taxpayers reported income of more than $1,000,000. Of these, 30 were audited. Wow.

On first blush, this is very disturbing. But a thought occurred to me: I wonder how many of the low income group audits were of individuals who were in the lowest group only because of a massive attempt to hide or recharacterize income. In other words, how many people who reported $25k of income actually bring in a hundred thousand or two and intentionally misreport it?

I don't know the answer to this. But I will assume (because of my affection for the IRS) that this accounts for the high number of audits of "low" income taxpayers.


Blogger Xeno said...

I'm just wish I has enough money to hide from the IRS.

6:51 PM  

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