Tax-Audit Risk Rises With Your Income

Your chances of being audited are pretty good if you’re wealthy. They’re not bad if you’re not.
About 1 in 16 taxpayers with income of $1 million and higher was audited last year, a 33 percent increase from the previous year.

“If you’re earning that kind of money and we notice a problem, you’re going to hear from us,” IRS Commissioner Mark W. Everson said in a statement on the agency’s enforcement figures for the 2006 fiscal year.

But it’s not just those in the financial stratosphere who face increased IRS scrutiny.
Audits of taxpayers with incomes above $100,000 were up 18 percent from 2005, the highest figure in more than a decade. Audits of certain businesses, especially “S” corporations and partnerships, increased by 34 percent, though audits of larger corporations — with assets over $10 million — were down slightly.

Overall, audits of individual taxpayers were up by 6 percent in 2006; total individual returns audited were 1.3 million, for an average individual audit risk of about 1 in 100.

Not every audit means a “field” audit, a face-to-face meeting with an IRS agent. Some are correspondence audits — essentially a letter from the IRS to clear up discrepancies or apparent inaccuracies.