by Brian Mahany
According to statistics just released from the IRS, audits of those earning $10 million or more reached record levels last year – 18.4%. That percentage is nearly double the 10.6% audited in fiscal 2009 and represents a trend in recent years to target high earners for audit.
It’s not just the super wealthy seeing more audits, there was a large jump for those earning between $5 and $10 million too.
The trend in 2011 is expected to continue. The IRS now has a special unit focusing on global high net wealth individuals. An anticipated increase in audits of those suspected of unreported offshore income and accounts – mostly wealthy individuals – will likely mean these high audit percentage figures continue through 2011 and 2012.
Why the focus on the wealthy? There are many reasons. First, the IRS began hiring more staff two years ago to focus on top earners. 2010 saw the first results from the new IRS global high net wealth unit.
The 2009 offshore amnesty (voluntary disclosure initiative I) caused some very wealthy individuals to come forward in an effort to avoid prosecution. This year’s offshore amnesty is likely to cause even more to come forward. These amnesty applications frequently result in audits.
Finally, there is a lingering perception by the public that the rich simply aren’t required to pay taxes. The current administration is sensitive to those beliefs and has directed the Service to audit more wealthy individuals.
The increase in audits likely means more business for accountants that specialize in audit defense. If you are selected for an audit and have unreported income or offshore accounts, talk to your accountant about hiring a lawyer. Even if you earned little or no income from an offshore account, the simple existence of an unreported foreign bank account could be a felony and could easily land you in prison.
A criminal tax lawyer can hire your accountant under the attorney client privilege and help you avoid prosecution.
The odds of audit are pretty high this year if you have significant income or offshore wealth. If you are returns aren’t squeaky clean, find an accountant that understands audit defense.
Brian Mahany is a former revenue commissioner, law enforcement agent and assistant attorney general – tax. For the last several years he has been in private practice helping accountants, individuals and businesses with tax problems. He and his firm, Mahany & Ertl, handle a wide variety of tax matters. For a confidential consultation, contact Brian at (414) 704-6731 or via email, .