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What are your audit odds? IRS gives clues

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in Small Business Tax

The IRS has released the new “2009 Data Book.” (IRS Internal News IR-2010-30) Technically, the 2009 Data Book covers Uncle Sam’s fiscal year spanning Oct. 1, 2008, through Sept. 30, 2009. 

Alert: The Data Book shows how many returns the IRS audited in that year, what types of returns were audited and the number and dollar amount of civil penalties and criminal investigations.

You might be able to use this information to steer clear of danger.

The statistics in the Data Book provide answers to some common questions:

What are the audit rates for individuals? The IRS said that 138.8 million individual returns were filed during the 2009 fiscal year. Of those, 1.46 million were audited, for an audit rate of approximately 1%. This is essentially the same audit rate the IRS reported for the 2008 fiscal year.

The 2009 Data Book also revealed that 22.8% of individual audits were conducted by its staffers. The remaining audits were less harrowing “correspondence audits” handled through the mail. These audits figures are essentially the same as in 2008. 

Did audit rates increase for high-income taxpayers? Yes. For instance, the audit rate for individuals with returns showing a total positive income (TPI) between $200,000 and $1 million was 2.3%. The figure almost tripled to 6.4% for those with a TPI above $1 million. In comparison, the rate for individuals with a TPI above $1 million was 5.6% in 2008.

What are the audit rates for corporations? It depends on the corporation’s size. The overall audit rate for corporations (other than S corporations) in 2009 was 1.3% (the same as 2008). Here’s the breakdown based on their assets:

  • $250,000 to $1 million, the rate was 1.3% (down from 1.4%).
  • $1 million to $5 million, the rate was 1.8% (down from 2%).
  • $5 million to $10 million, the rate was 2.7% (down from 3.1%).
  • $10 million or higher, the rate was 14.5% in 2009 (down from 15.3%).

The audit rate for S corps was 0.4% (the same as 2008).

How many civil penalties were assessed? The IRS imposed 26.39 million civil penalties against individuals in 2008 (down from 30.22 million). Of these, 54.71% were for failure to pay, 28.67% were for underpayment of estimated tax and 14.42% were for delinquency.

The IRS also imposed 970,098 civil penalties against corporations. Of these, 55.8% were either for failure to pay or underpayment of estimated tax. Note: The data were compiled differently than in prior years, making it difficult to compare 2009 figures to 2008. 

Tip: Find the 2009 Data Book and related materials at  www.irs.gov/taxstats/article/0,,id=102174,00.html.

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