The Internal Revenue Service in 2011 (2010 tax year filings) overall audit rate stayed constant for individual taxpayers at 1.1%. For those earning between $200-500K it is at 2.66%. Of note since 2009 has been the significant increase in audits for the following groups:

–> an increase in audits of 29.9% for taxpayers with $10 million in income (in 2010 it was 18.3% and 10.6% in 2009).This is a group that consists of 0.01 percent of taxpayers. In addition, the IRS has implemented a more a more intense IRS task force audit that is more time consuming and costly.

–> an increase of 20.75% (from 11.55%) for those with Adjusted Gross Incomes (AGI) of $5-10 million.

Interestingly many tax prepares claim that the IRS is quicker to audit individual returns than in the past, sometimes contacting people within months of their return being filed. In some cases, “correspondence audits” are the norm, where the IRS will send a letter asking a taxpayer to verify a specific item on the return such as charitable deductions.

This change started in 2009 when the IRS created a special unit to examine the tax returns of high-wealth individuals. “We will take a unified look at the entire web of business entities controlled by a high-wealth individual, which will enable us to better assess the risk such arrangements pose to tax compliance and the integrity of our tax system,” IRS Commissioner Douglas Shulman said in a December 2009 speech. “We want to better understand the entire economic picture of the enterprise controlled by the wealthy individual and to assess the tax compliance of that overall enterprise.”

=============== March 23, 2012 – Credit: Bloomberg News online