Chances of Being Audited

What the Rise in IRS Audits Means For You

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It’s the word that strikes fear into people everywhere: audit.

And audits are up . . . well, at least for some prominent groups of people.

In 2011, one in eight of the country’s millionaires were audited, a rate not seen since 2004. Similarly, audits were up for those making $200,000 a year or more — one in 25 of whom were audited in 2011. According to CNN Money, it was the third year in a row the IRS increased its efforts to uncover tax fraud.

As you might guess, the chances that the IRS will audit someone making less than $200,000 is a lot lower.

Audits Get a Bad Rap

Before we go any further, we should clarify for those less familiar with the workings of the tax system that a tax audit isn’t a condemnation. It just means that the IRS conducts an official investigation into the finances of a business or individual in order to detect any foul play or accidental oversights in their taxes.

Audits are dreaded by honest folk (not to mention those deliberately operating outside the law) because of the hassle involved in dredging up past paperwork and because of the fear that the IRS will uncover a mistake that necessitates immediate payment to the government.

Why Now?

What with the perspective induced by the realization that Americans make up an entire half of the global one percent, "millionaire" holds even more weight. But it's nothing compared to "offshore accounts," which set our imaginations aflame.

We mention it because the IRS is taking particular in interest in offshore accounts, which are disproportionately held by wealthy people looking for tax shelters. This new focus might contribute to the increase in millionaires being investigated. In fact, the IRS is being rather generous in that it's offering reduced penalties and no jail time to taxpayers who confess to having offshore accounts. (The offer stands for a limited time only.)

But if one in eight millionaires were audited last year, should nonmillionaires start gathering their files? Perhaps not: in 2011, only one in 98 taxpayers earning less than $200,000 per year was audited.

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