Have You Ever Been Audited?

If your answer to that question is yes, then you make up a small percentage of taxpayers. You also know that it can be a time consuming activity and cause you frustration from start to finish. The IRS recently issued its annual data book, which provides statistical data on its fiscal year 2010 activities, and sheds some light on just who is getting audited out there.

Over 140 million individual income tax returns with a filing requirement were filed for 2009. Out of that amount a total of 1,581,394 were audited. Over 1.5 million audits sound like a lot, but it only represents about 1% of the total tax returns. Of those audits, only 21.7% of the individual audits were conducted by revenue agents, tax compliance officers, tax examiners and revenue office examiners. The remainder of the the audits were correspondence/mail audits.

Not surprisingly, your chances of being audited increase as your income increases. The audit percentages are as follows in respect to income levels:

• .71% for those returns with adjusted gross income (AGI) between $100,000 and $200,000



• 1.92% for those with $200,000 to $500,000 of AGI



• 6.67% for those with at least $1 million but less than $5 million of AGI
  

The audit rates for business returns were as follows:

• For all corporate returns other than Form 1120S, 1.4%



• For partnership and S corporation returns, the audit rate was .4%



• For corporations, size matters (values below indicate total assets reported):






• $250,000 to $1.4 million, 1.4%



• $1-$5 million, 1.7%



• $5-$10 million, 3%



• $10-$50 million, 13.4%



• $250-$500 million, 16.1%



• $5-$20 billion, 45.3%



• $20 billion or more, 98%

Penalties. IRS assessed 27.1 million civil penalties against individual taxpayers. Of the 2010 assessments, the "top three" penalties in percentage terms were 57.3% for failure to pay, 27.3% for underpayment of estimated tax, and 13% for delinquency. On the business side, there were a total of 1,145,931 civil penalty assessments and 42.1% of these assessments were for either failure to pay or underpayment of estimated tax.

Criminal Cases. IRS initiated 4,706 criminal investigations in 2010 There were 3,034 referrals for prosecution and 2,184 convictions. Of those sentences, 81.5% were incarcerated (a term that includes imprisonment, home confinement, electronic monitoring, or a combination thereof).

For more direct access to related information, please follow the 2010 Data Book (Pub 55B) link: http://www.irs.gove/pub/irs-soi/10databk.pdf

brad@mcarthurco.com

704.544.8429

Cumbersome 1099 Rules Repealed

In mid April, President Obama signed the Comprehensive 1099 Taxpayer Protection and Replacement of Exchange Subsidy Overpayments Act of 2011. The Act repeals the provision of the Health Care Act of 2010 requiring 1099 reporting for the gross proceeds from the disposition of property. The Act also repeals the provision of the Health Care Act expanding the 1099 reporting rules to cover payments to corporations. However, the 1099 reporting requirements of §1041(a) continue to apply (as was the case prior to the Health Care Act) to payments made for attorneys' fees, and amounts paid to a corporation that provides medical or health care services.

The Act also repeals the provision of the Small Business Jobs Act of 2010 providing that landlords are considered to be in a trade or business and are therefore, required to file 1099s. In other words, under the Act, the general information reporting requirement for payments of $600 or more does not apply to persons who receive rental income from real estate who are not otherwise engaged in the trade or business of renting property. Therefore, the treatment of a person as engaged in a trade or business for purposes of the 1099 reporting requirement, based solely upon the receipt of rental income from real estate, is repealed.

All of the repealed items above were retroactively effective to January 1, 2011.

brad@mcarthurco.com
704.5448429