03 / 26 / 13

IRS Increasing Examinations on High-Income Taxpayers

From the Accounting Today article on March 26, 2013.  The IRS released its 2012 IRS Data Book on Monday, providing a snapshot of agency activities for the fiscal year. The report describes activities conducted by the IRS from Oct. 1, 2011, to Sept. 30, 2012, and includes information about returns filed, taxes collected, enforcement, taxpayer assistance and the IRS budget and workforce, among others.

The IRS said it examined just under 1 percent of all tax returns filed and about 1 percent of all individual income tax returns during fiscal year 2012. “Overall, in FY 2012, individual income tax returns in higher AGI classes were more likely to be examined than returns in lower AGI classes,” said the IRS.

The IRS examined about 12.1 percent of the 337,477 tax returns reporting income of $1 million or more, compared to 2.8 percent of those reporting at least $200,000 and under $1 million, and 0.4 percent of those reporting income under $200,000 who didn’t file a Schedule C, E, F or Schedule 2106, and 1.1 percent of those with income under $200,000 and filing Schedule E or Form 2106. Of the 1.5 million individual tax returns examined, nearly 54,000 resulted in additional refunds. In addition, the IRS examined 1.6 percent of corporation income tax returns, excluding S corporation returns, in fiscal 2012.

During fiscal year 2012, the IRS collected almost $2.5 trillion in federal revenue and processed 237 million returns, of which almost 145 million were filed electronically. Out of the 146 million individual income tax returns filed, almost 81 percent were e-filed. More than 120 million individual income tax return filers received a tax refund, which totaled almost $322.7 billion. On average, the IRS spent 48 cents to collect $100 in tax revenue during the fiscal year, the lowest cost since 2008. The IRS also provided taxpayer assistance through 372 million visits to IRS.gov and assisted almost 97 million taxpayers through its toll-free telephone helpline or at walk-in sites.

“In 2012, the IRS responded to many challenging situations, providing assistance to taxpayers in a variety of circumstances,” wrote IRS Acting Commissioner Steven T. Miller, summing up the year. “For example, we gave filing and payment relief to victims of Hurricane Isaac and later Hurricane Sandy. We also continued to add flexibilities to our collection program under the Fresh Start initiative, to help taxpayers facing economic hardships.”

However, Miller acknowledged that one of the biggest challenges confronting the IRS today is tax refund fraud caused by identity theft. “The IRS has more than doubled the number of staff dedicated to preventing refund fraud and assisting taxpayers victimized by identity theft, with more than 3,000 employees working in this area,” he noted. “As a result of these increased efforts, the IRS during FY 2012 was able to prevent the issuance of more than 3 million fraudulent refunds worth more than $20 billion. Despite these efforts, much more work remains on identity theft as well as on overall refund fraud.”

Miller also noted that the IRS made significant progress last year on international enforcement, specifically in its efforts to combat the practice of illegally hiding assets and income in offshore accounts. “We have continued our two-pronged approach: offering a voluntary disclosure program for those who want to come in and get right with the government, while at the same time pursuing tax evaders and the promoters and banks assisting them,” he said.

** This is an Accounting Today article published 3/26/2013.