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Irs Audit: People
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A visit from the IRS in the way of an IRS audit has got to be about the most frightening thing that can happen to most Americans. Whether you are considering IRS fraud or not, the Bureau of Internal Revenue has great power in the United States. Evasion of taxes, IRS fraud, and other crimes are all handled very seriously and when IRS fraud is discovered either by an audit or by non-filing, high fines and even prison can be expected. In recent years the number of IRS audits has actually come down and they conduct an audit in about 1 of every 200 people. And then 1 in 5 of those get out without having to pay a dime. But for the other unlucky 4 in 5 that get fined, the IRS can be very severe, so the general public is justified in being apprehensive.
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The IRS audited 221,000 Americans making over $100,000 last year, twice the number audited in 2001. If you earn a high income your chances of being audited by the Internal Revenue Service just went up. One of the reasons the IRS targets people in higher tax brackets is that they are more likely to recover unpaid taxes from these individuals. In November of 2005 the IRS Commissioner stated that coverage of high income earners was still too low despite the large increase in audits. Earning over $100,000 a year may not guarantee an audit but the mere fact that you did raises your tax audit odds.
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Rossotti explained that most people who have a face-to-face audit with the IRS will have a limited-scope audit. The limited-scope audit covers only the specific areas identified by the auditor. As many as 30,000 taxpayers will be randomly selected for limited-scope audits under NRP.
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An IRS audit can happen to anyone at virtually any point in time. Yet, there are some people that are more likely to be audited than others. If you are one of these, then you should be sure that all of your information is accurate and records are being kept in case you are contacted by the IRS for an audit.
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The IRS has announced they are going after and auditing S corporations. S corporations don't pay tax, the taxable income is passed down to the shareholder level and tax is paid there. What a lot of people have "discovered" is that the taxable income passed down to the shareholder level is not subject to the 15.3% Social Security taxes. Meaning that they do not pay themselves a salary, they take a 100% dividend and save 15.3% . WATCH OUT! The IRS is aware of this scheme and auditing companies like crazy.
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People who run their own businesses are ... likely to be targeted for an IRS audit. If you notice that accountants, lawyers and doctors tend to be audited, many of them run their own businesses and are responsible for their own bookkeeping.
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