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Individual Enforcement

By: Robert E. McKenzie ©2011

 

3.20    The total number of audits of individual returns increased in 2010. Those who earned less than $200,000 had about a 1 percent chance of being audited. Those with incomes of $200,000 and more had about a 3 percent chance of being audited.

Total Individual Returns              
  FY 2001 FY 2002 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010
Field 202,515 205,134 247,235 302,785 311,339 310,429 326,249 342,762
Corres-pond 529,241 538,747 968,073 981,165 1,073,224 1,081,152 1,099,639 1,238,632
                 
Total                
Exam 731,756 743,881 1,215,308 1,283,950 1,384,563 1,391,581 1,425,888 1,581,394
                 
Cover-age 0.58% 0.57% 0.93% 0.97% 1.03% 1.01% 1.03% 1.11%
                 

 

Income Under $200,000

  FY 2006 FY 2007 FY 2008 FY 2009 FY 2010
Field 266,726 267,699 256,854 269,865 284,241
Correspondence 929,666 1,011,315 1,003,976 1,010,870 1,144,178
Total Examinations 1,196,392 1,279,014 1,260,830 1,280,735 1,428,419
Returns Filed in Prior year 128,875,395 130,600,177 133,407,479 133,924,956 137,892,685
Coverage 0.93% 0.98% 0.95% 0.96% 1.04%

 

Income $200,000 and Higher

  FY 2006 FY 2007 FY 2008 FY 2009 FY 2010
Field 36,059 43,640 53,575 56,384 58,521
Correspondence 51,499 61,909 77,176 88,769 94,454
Total Examinations 87,558 105,549 130,751 145,153 152,975
Returns Filed in Prior CY* 3,400,435 3,942,702 4,442,156 5,024,714 4,930,420
Coverage 2.57% 2.68% 2.94% 2.89% 3.10%

 

Millionaires

3.30 Meanwhile, taxpayers with incomes of more than $1 million had an 8.36 percent chance of being audited, up from 6.42 percent the year before. The number of audits for millionaires increased to 32,494 from 21,874 in 2008. The ranks of millionaires decreased by nearly 50,000 taxpayers in 2010 to 388,763 taxpayers.

Income $1 Million and Higher

  FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010
Field 5,857 7,166 9,459 12,259 12,233 15,730 16,509
Correspondence 3,719 5,669 4,728 10,941 9,641 12,619 15,985
Total Exams 9,576 12,835 14,187 23,200 21,874 28,349 32,494
Returns Filed in Prior 190,372 210,280 270,161 339,138 392,776 441,715 388,763
Coverage 5.03% 6.10% 5.25% 6.84% 5.57% 6.42% 8.36%

 

Businesses

3.40    On the business front, the overall number of audits decreased slightly, and dropped as a percentage of businesses that submitted a tax return. More emphasis was placed on medium and large corporations, as audit rates decreased slightly for those companies with more than $10 million in assets and increased slightly for those with less than $10 million in assets. According to 2010 IRS enforcement data released by the IRS it audited 14.16% of returns of corporations with assets of $10 million or more. That is the lowest audit coverage level since 2003 and down from a 20% coverage rate in 2005.

The tax audit rates of the largest companies are less than half what they were 20 years ago while more small and mid-size businesses are coming under scrutiny, according to an organization that monitors the Internal Revenue Service. The Syracuse University-based Transactional Records Access Clearinghouse has described a “historic collapse” in audits for corporations holding assets of $250 million or more. About 26 percent of them were audited in the 2007 budget year compared with 34 percent in 2006 and 43 percent in 2005.

Examination –Business Return Closures and Coverage Rates (1)

  FY 2001 FY 2002 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010
Total Returns Examined 40,557 40,287 52,149 59,516 59,823 58,144 58,067
Returns Filed in Prior 7,384,600 7,576,681 8,722,410 9,072,828 9,530,662 9,951,648 9,949,946
Coverage 0.55% 0.53% 0.60% 0.66% 0.63% 0.58% 0.58%
               
Small Corporation Returns              
(Assets Under $10 Million) FY 2001 FY 2002 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010
Returns Examined 14,332 14,655 17,849 20,020 20,580 18,298 19,127
Returns Filed in Prior CY* 2,372,900 2,329,479 2,230,024 2,171,144 2,166,197 2,146,400 2,039,625
Coverage 0.60% 0.63% 0.80% 0.92% 0.95% 0.85% 0.94%
               
Large Corporation Returns              
(Assets $10 Million and Higher) FY 2001 FY 2002 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010
Returns Examined 8,718 8,443 10,578 9,644 9,406 9,536 10,207
Returns Filed in Prior CY* 57,800 59,602 56,847 57,357 61,641 65,546 72,076
Coverage 15.10% 14.20% 18.60% 16.80% 15.26% 14.55% 14.16%
               
Subchapter S Returns              
Form 1120-S FY 2001 FY 2002 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010
Returns Examined 12,437 11,646 13,970 17,657 16,634 17,455 16,327
Returns Filed in Prior CY* 2,887,100 3,022,589 3,715,249 3,909,730 4,155,830 4,390,857 4,414,662
Coverage 0.43% 0.39% 0.38% 0.45% 0.40% 0.40% 0.37%
               
Partnership Returns              
(Form 1065) FY 2001 FY 2002 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010
Returns Examined 5,070 5,543 9,752 12,195 13,203 12,855 12,406
Returns Filed in Prior CY* 2,066,800 2,165,011 2,720,290 2,934,597 3,146,994 3,348,845 3,423,583
Coverage 0.25% 0.26% 0.36% 0.42% 0.42% 0.38% 0.36%
               

 

 

Examination – Large Corporation Return Closures and Coverage Rates

  FY 2001 FY 2002 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010
Total Returns Examined 8,718 8,443 10,829 10,578 9,644 9,406 9,536 10,207
Returns Filed in Prior CY 57,800 59,602 54,091 56,877 57,357 61,641 65,546 72,076
Coverage 15.10% 14.20% 20.00% 18.60% 0.66% 0.63% 0.58% 0.58%
                 
                 
By Asset Class                
  FY 2001 FY 2002 FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 FY 2010
$10 Million < $50 Million                
Returns Examined 3,071 2,540 3,535 4,218 4,473 3,833 3,473 4,307
Coverage 9.70% 7.80% 12.30% 14.20% 15.00% 11.70% 10.10% 10,95%
$50 Million < $100 Million                
Returns Examined 973 865 1,148 999 801 893 1,158 1,259
Coverage 12.30% 10.70% 16.40% 13.80% 11.40% 11.70% 14.30% 14.02%
$100 Million < $250 Million                
Returns Examined 1,369 1,289 1,287 1,085 946 1,026 1,134 1,191
Coverage 17.60% 16.00% 17.50% 14.00% 12.10% 12.80% 13.60% 13.15%
$250 Million and Higher                
Returns Examined 3,305 3,749 4,859 4,276 3,424 3,654 3,771 3,450
Coverage 32.10% 34.40% 44.10% 35.20% 27.20% 27.40% 25.70% 23.44%
                 
                   

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