Audit Risk Highest on $10Million+ Income

Recently released data from the IRS shows that 19% of  income tax returns showing an Adjusted Gross Income (AGI) of $10,000,000 or more were examined in 2010 even though they were just .01% of all returns submitted that year. That’s a pretty good odds for being audited, unfortunately. Though you might consider yourself fortunate enough to be in that tax bracket!

If your AGI was just a step below, from $5,000,000 to $10,000,000 — you’re a bit better off, audit-wise.  Just 12% of those returns were examined by the IRS while they were the same percentage (.01) of the total tax returns. Great reason to shift some income into next year to stay below the dreaded $10 million level. Ah, to have such problems…

Examination rates continue to plummet as for mere millionaire earners, it is a comparatively meager 3% – 6%, depending on how far over the fence your pot o’ gold extends this particular year.

While middle class and upper middle-class are very fuzzy terms, I can tell you that taxpayers with an AGI from $50,000  – $200,000 face very similar examination rates,  around 3/4 of a percentage point on average. This group includes about 55% of  all tax returns submitted.

Audit rates actually go up on tax returns showing an AGI from $1 to $25,000. That is 40% of tax returns and just about 1% of them got looked at by the IRS. The last category as reported by the IRS is “No Adjusted Gross Income,” which includes a negative AGI, presumably from a net loss. These suspicious returns,  just 2% of those submitted, had an audit rate of more than 3%.

What have we learned?

  • The IRS trusts the middle class most
  • It’s better to make $8,000,000 than $11,000,000, and
  • Try not to show a negative income on your return


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