As reported in a statement issued by IRS Commissioner Mark W. Everson, IRS has continued its strong audit enforcement efforts for Fiscal Year 2006. Principally because of a strong rise in collections, enforcement revenues—the monies from collection, examination, and document matching activities—has increased 3% to a record $48.7 billion.
Individual enforcement. For the 2006 fiscal year that ended Sept. 30, total individual returns audited increased by over 6% to 1,293,681 from 1,215,000 in 2005. This is the highest number since '98. While correspondence or letter exams increased, there was an even bigger increase of nearly 23% from the previous year in the traditional, sit-down field audits.
As an important part of its enforcement effort, IRS has targeted high-income taxpayers. Audits of individuals with income of $1,000,000 and higher increased to 17,015 from 12,835, a nearly 33% increase. This translates into about 1 in every 16 of these taxpayers being audited last year. In addition, audits of individuals with incomes over $100,000 exceeded 257,000, an 18% increase from 2005. This is the highest figure in more than a decade.
Business enforcement. IRS has placed more emphasis in the area of flow-through returns involving S corporations and partnerships. Efforts to review S corporations and partnerships increased while other IRS activity involving small business and large corporations remained relatively stable. Audits of S corporation returns increased to 13,984 from 10,417, a 34% increase; this is the highest level since 2000. Audits of partnerships increased to 9,777 from 8,489, a 15% increase; this is the highest level since '98.
Audits of small businesses organized as corporations remained about the same: 17,871 audits were completed in 2006, up slightly from 17,858 in 2005. Audits of larger corporations—those with assets over $10 million—declined by 2.2%, to 10,591 from 10,829 in 2005.
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