The IRS is taking a closer look at higher-income taxpayers after coming under sharp criticism in Congress over its lagging audit numbers.
Recent reports found that audit rates were lower for wealthier taxpayers. This is partly because, for lower-income and Earned Income Tax Credit (EITC) taxpayers, the IRS is often able to use automated technology to spot discrepancies. Higher-income cases are a bit more complicated.
Audit rates for EITC recipients and those earning less than $50,000 remained stable because they are generally processed through correspondence audits which require information such as income, marital status, and relationships to dependents and children claimed. Complexities in managing these audits include lower literacy rates, limited English proficiency, unbanked households, transitory households, and single parent, multigenerational, and cohabiting households with shared custody agreements. In addition, taxpayers who are subjected to correspondence audits are only given a toll-free phone number. Many low-income taxpayers don’t receive any professional tax assistance during the correspondence audit process
The process of auditing high-income taxpayers has been hindered due to the IRS’s current resource constraints; they have fewer staff members with the necessary expertise to conduct complicated audits of taxpayers who use sophisticated, complex strategies. These limitations mean that enforcement for high net-worth individuals, large corporations, and complex partnership structures is lower than in the past.
The IRS is working to mobilize their agents with a clear focus on increasing their auditing percentage goals–and they may have their eye on you! If you want to avoid the inconvenience of an audit, call C&B at 201.787.6542.