Are You Ready to Be Audited?

by Veronique de Rugy

That’s the question asked by the Wall Street Journal this morning. As for the question of whether you will be, the answer is that if you’re wealthy, it’s becoming more likely. The number of audits is going down for taxpayers making less than $200,000, but it is increasing for those making more than that. It is also increasing sharply for taxpayers with income above $1 million, with nearly 1 in 9 of those taxpayers audited in 2013 compared to 1 in 15 in 2009. Here is the data:

One does wonder whether that is part of the soak-the-rich mentality that is so prevalent in this administration. After all, if you can’t get more revenue out of high-income earners by imposing higher tax rates on them, you may get some by targeting them for audits, as the Journal notes:

The increase was particularly sharp for people earning $1 million or more. . . .

“It’s as though they’d rather audit 10 high-income people and get something, rather than 25 cash businesses and get nothing” because the owners can’t pay, says Janet Hagy, a certified public accountant in Austin, Texas.

The bad news for those targeted for an audit is that, as I have mentioned before, the IRS is becoming more and more unresponsive to taxpayers in need of answers about their taxes. According to the IRS, this year some 18 million taxpayers’ phone calls — or about 40 percent of the total it receives — will remain unanswered, and the wait time for those who do get through will be about 25 minutes in 2014, up from 17 minutes in 2013, 10 minutes in 2010, and 2.6 minutes in 2004. And don’t count on your letters to be answered any faster, since it will take about 45 days to get any response for most requests by mail. 

Meanwhile as I have mentioned before, the IRS is doing very little to address the very large problem of improper payments for programs it administers, such as the Earned Income Tax Credit. More than $12 billion a year is improperly spent through the EITC; or roughly 22 percent of the overall amount spent on the program. Go figure.