The tax attorneys at Nardone Law Group in Columbus, Ohio routinely defend individual taxpayers and businesses in Internal Revenue Service’s audits and examinations. The IRS has broad authority and tools available to examine individual and business tax returns. In fact, the IRS has recently taken steps to implement its high-income and high-wealth strategy. This high-income and high-wealth strategy simply means that the IRS intends to audit and examine more high-income taxpayers than ever before. Thus, not only did the top one-percenters already pay over 40% of the taxes in this great country, the IRS and the current defunct administration wants the high-income taxpayers to pay more. Yet, this same administration has failed to provide the IRS with the necessary resources to do so. And, in many instances, this administration has stripped the IRS from its ability to do so. These issues were highlighted in the Treasury Inspector General for Tax Administration’s September 18, 2015 Report, titled Improvements are Needed in Resource Allocation and Management Controls for Audits of High-Income Taxpayers.
As detailed in the table below, although the IRS initially increased its audit coverage of high-income taxpayers, the percentage of high-income taxpayers audited dropped in most income levels from fiscal year 2010 to fiscal year 2014. See the chart below. Thus, not surprising from this administration, one hand of the government announces broad and sweeping changes to its audit and exam functions of high-income taxpayers, while the other hand removes the IRS’ ability to follow through with the broad and sweeping changes, by un-funding the IRS and stripping it of its ability to audit and examine taxpayers effectively. See the report below:
Percentage of High-Income Tax Return Audits by Adjusted Gross Income During Fiscal Years 2010, 2013, and 2014
What is also not surprising is that the audit coverage of filed individual high-income tax returns completed in fiscal year 2014 reveals that the IRS provides increased audit coverage as the percentage of each total positive income range as the high-income taxpayer’s total positive income increases. See the chart below:
Audit Coverage of Filed Individual High-Income Tax Returns Completed in Fiscal Years 2014 by TPI Level
Although at first glance, the chart and the IRS strategy seems to make sense. You increase the percentage of audits based upon the amount of income earned. The understanding there is that the returns become more complex as income earned increases, which justifies a higher percentage. But, what the chart reveals is that the IRS conducted 66-percent more audits of taxpayers earning less than $600,000, in comparison to those taxpayers earning in excess of $600,000. Again, it really makes no sense. If the IRS is going to audit or examine more high income earning taxpayers, with little resources to do so, then it should focus on those in excess of $600,000. As an example, the IRS only examined 6,309 taxpayers that made over $5,000,000. Yet, the IRS examined 62,159 returns of taxpayers making between $200,000 and less than $400,000. Where do you think more complexity exists, and where do you think more changes would potentially occur? Certainly, there would be more changes in those returns of taxpayers making more than $5,000,000. Yet, the IRS spends its limited resources on tax returns that likely have very little changes. See the Treasury Inspector General for Tax Administration’s September 18, 2015 Report.
Contact Nardone Law Group
If the IRS, Ohio Department of Taxation, or other taxing authority has contacted you or your business to be audited or examined, do not go at it alone. You should contact the tax attorneys at Nardone Law Group. We have vast experience representing individuals and businesses in IRS audits, exams, appeals, United States Tax Court, and other courts. Contact us today for a consultation.