Posted on: Friday, March 12, 2004

Tax audits target higher incomes

By Mary Dalrymple
Associated Press

WASHINGTON — The IRS increased its audits of individuals and couples making more than $100,000 last year, focusing most of the extra attention on people making $250,000 or more.

Still, even high-income tax-payers faced low odds of being called upon to document their expenses and deductions. Despite the 24 percent increase for taxpayers who earned $100,000 or more, the Internal Revenue Service audited only one out of every 95 returns filed by big earners.

"If you look at overall audit rates, they're still too low," IRS Commissioner Mark Everson said yesterday. He said the statistics nevertheless indicate the agency arrested the decline that began in 1998, when Congress ordered the IRS to shift its focus from enforcement to taxpayer service.

Individuals at all income levels faced slightly higher chances of an audit last year. Overall, the IRS examined one out of 153 returns last year, compared with one out of 174 the previous year. The audit rate still lags behind the rates in the mid-1990s when the agency looked at about one out of 60 individual returns.

In an effort to best use its money and staff, the IRS has focused its search for unpaid taxes on high-income individuals, corporations and income hidden in offshore accounts. The IRS last year reaped $35.5 billion through collection efforts last year.

Audits of the nation's largest corporations, nevertheless, decreased for the eighth consecutive year. About 12 percent of corporations with assets over $10 million were audited, compared with more than 14 percent the year before. Audits for small and midsize businesses also dropped slightly.

Everson said the decline in corporate audits reflects the complexity of those tax returns. He promised that the agency can reverse the trend if Congress honors its request for a 10 percent increase in its enforcement budget.

The IRS has asked for $393 million to add more than 5,000 employees to the enforcement staff. Everson said the budget fell short this year, but the agency chose to make small cuts across the board instead of making deep slices into the enforcement budget.

The report also showed that the IRS uses levies, liens and seizures more frequently but not as often as before the 1998 restructuring.