Where will the IRS focus this year’s audits?

BVWireIssue #55-1
April 4, 2007

One of the best ways to gauge audits for a coming tax season is to evaluate the Service’s enforcement activities over the preceding term, which it publishes once a year.  The most recent information, for fiscal year ending Sept. 2006 (posted by Dean Dorton & Ford, www.deandortonford.com) confirms the trend toward heightened enforcement:

  • The number of field audits increased nearly 23% over the prior year.
  • Audits of individuals with income of $1 million or more increased 33%. Taxpayers in that category had a 1 in 16 chance of being audited.
  • Audits of individuals with income of $100,000 or more increased 18% to more than 257,000, reaching their highest level in more than a decade.
  • Audits of S corporations increased 34% to almost 14,000, and audits of partnerships increased 15% to almost 10,000.

The nonprofit sector is also a target: The IRS is sending some pretty strong signals these days that it is going to be looking hard at compensation and benefit levels for nonprofit executives,” says GuideStar.org, which noted the just-released IRS report on its Executive Compensation Initiative Project.  Of particular interest, although the report found high compensation in “many cases, generally they were substantiated based on appropriate comparability data.”   In compiling its report, the IRS developed new compliance contact techniques, which the Service plans to use in particular industries in the future “to better assess and understand compliance levels and…to identify and concentrate our efforts on noncompliant taxpayers.”

Please let us know if you have any comments about this article or enhancements you would like to see.