The Internal Revenue Service recently released a report which indicates that they are auditing tax returns for high-earning Taxpayers much more aggressively than they have in the past several years. All income categories reflected an increase in audit rates from 2021 to 2022. However, the biggest increase can be seen on high-income returns. The IRS states that “Substantially all experienced field revenue agents are focused on high-income individuals and their related entities.” This totals approximately 6,500 agents.
From September 2021 to present, audit rates have doubled for taxpayers in income categories above $100,000, raising to 0.6%. Taxpayers who make between $1,000,000 and $5,000,000 have a 1.3% increased chance of audit. Taxpayers who make between $5m-$10m have a 2% risk of audit. Taxpayers who make more than $10 million have an 8% chance of audit currently.
Audit activity had slowed over the last several years as the IRS’ funding limited their ability to invest time and resources into audits. However, in the last few months, the IRS is now actively working to correct this.
Taxpayers can typically be selected for audit up to 3 years from the date the return was filed. It is not uncommon for audits to be initiated a few years after the return is filed. Keep in mind that these Audit Statute Expiration Dates do not apply in situations where fraud or tax evasion are at issue.
If you are considered a high-income earner, be aware that you may be subject to audit on your 2019-2021 returns. Now is the time to ensure you have all accurate data on filed tax returns and have all necessary records to substantiate the data provided on the returns.
