Audit rates of millionaires nearly double

@CNNMoney March 23, 2012: 8:32 AM ET
Tax audit rates of millionaires nearly double

NEW YORK (CNNMoney) -- The more money you have, the more the IRS wants you.

Millionaires were nearly twice as likely to receive a tax audit last year as they were the previous year, according to data released by the IRS this week.

Overall 1.1% of taxpayers were audited last year; that's about the same as in 2010. But for taxpayers with income between $1 million and $5 million, the number jumped to 12% -- up from about 7%.

The IRS audited 21% of taxpayers with income between $5 million and $10 million, up from 12% in 2010. And 30% of the nation's highest earners -- reporting income of $10 million or more -- were dealt audits. That's up from about 18% in the previous year.

The IRS said its recent offshore tax evasion initiatives have contributed to the jump in audits of millionaires, since many offshore tax evaders are high-income earners. This year, the agency is offering taxpayers a reduction in penalties and no jail time for a limited window of time if they fess up to having offshore accounts.

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But part of the crackdown on millionaires is likely political as well, said Timothy Gagnon, assistant academic specialist of Accounting at Northeastern University.

"There's so much controversy about Romney's low tax bracket and a lot more attention in the press about the millionaires being favored," he said. "It seems like the IRS is trying to show that it's paying more attention to millionaires and that their chance of an audit is higher than the average person."

Plus, the agency is trying to boost its own revenue, and there's typically a lot more money to recoup from auditing millionaires versus middle- or low- income earners, said Gagnon.

Tax returns also tend to become increasingly complicated as income rises, because there is more to report when your money is spread out across different items like real estate, foreign accounts and businesses -- increasing the chance of error.

Even if you haven't quite hit the $1 million income mark, you were still at a slightly higher risk of an audit last year. The IRS audited about 5% of taxpayers with income between $500,000 and $1 million last year -- up from 3% in 2010.

Audit rates for income levels below $500,000, however, remained relatively steady. If you reported income between $100,000 and $200,000 last year, you had about a 1% chance of an audit. If your income was between $25,000 and $100,000, your odds of getting audited were less than 1%.

But taxpayers on the other end of the spectrum -- reporting the least amount of income -- were at a higher risk of getting audited than taxpayers in the middle. If you reported income of less than $25,000 but more than $1, your chance of an audit was a little over 1%. And if you reported no income, you had about a 3% chance of being audited last year. To top of page

 
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