Buchanan Law Group
March 17, 2009
Happy Tax Season (and St. Patrick's Day)!
In this Law Note, we introduce you to some of the data just released by the IRS
concerning (among other things) the likelihood that you will be audited. If you
have any questions about this or another topic affecting you or your business, please
give us a call at (415) 395-4700 or learn more about us at www.buchananlaw.com
Introduction. Sometimes, how aggressive a position a taxpayer is willing to take
can depend upon how likely it is that the position on a return will be audited.
The IRS has just released statistical data for tax year 2008, which identifies how
many tax returns it audits and which returns receive the most attention. The information
is published in its 2008 Data Book (Pub 55B), which you can find at the IRS's website
(www.irs.gov), or obtain from BLG in pdf format with an e-mail request. While there
is always a risk of being audited, the information provided by the IRS gives us
an idea of what the IRS considers audit-worthy.
Individual Returns. Only 1% of individual returns were audited last year. Of those
· 36.2% were selected on the basis of an earned income tax credit claim;
· 22.3% of the audits were conducted by actual in-person visits by agents, etc.,
while the rest were handled through correspondence; and
· 11% of the returns examined in person by agents, and 15% of the returns examined
in correspondence audits, were accepted as filed after examination.
The more money you make, the more likely you will be audited. For returns with
total income of at least $200,000 and under $1 million, the audit rate was 2.6%
for non-business returns and 2.8% for business returns. For returns with total income
of $1 million or more, the audit rate jumped to 5.6%.
Entity Returns. The audit rates for entities were as follows:
· Fiduciary (estate and trust income tax returns) - 0.1%
· Corporations with less than $10 million of assets - 1.0%
· Corporations with $10 million or more of assets - 15.3%
· S corporations - 0.4%
· Partnerships - 0.4%
· Estate tax returns - 8.1%
· Gift tax returns - 0.4%
Penalties. Of the individual taxpayers, IRS mainly imposed civil penalties for
failure to pay (57.6%) and underpayment of estimated tax (28.3%). On the corporation
side, 82.6% of the audited taxpayers were penalized for either failure to pay or
underpayment of estimated tax.
Thank you for taking the time to view this Law Note. There is much more information
in the IRS Data Book than presented here, to include more detailed information concerning
examinations, the average additional tax penalties assessed, and information concerning
criminal penalties including jail time. We hope you find this synopsis of the information
useful. If you have any questions, please do not hesitate to contact us.
Buchanan Law Group
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