IRS Stepped Up Audits of Rich Last Year

The Internal Revenue Service (search) stepped up audits of high-income taxpayers last year as the agency continued its search for unpaid taxes among those most likely to evade the collectors.

Audits of taxpayers earning $100,000 or more increased 24 percent in 2003, the IRS said Thursday. IRS Commissioner Mark Everson (search) said much of the increase occurred among taxpayers who earned $250,000 or more.

"It's as simple as this. People should pay what they owe," Everson said. "I believe this can and must be done without compromising taxpayer rights."

In an effort to concentrate scarce audit resources in the most fruitful places, the IRS has focused its enforcement efforts on high-income taxpayers, corporations and offshore tax-evasion schemes.

Corporate audits (searchnevertheless fell last year for small and midsize businesses, as well as large corporations. Slightly more than 12 percent of the largest corporations were audited last year, down from 14 percent the year before.

Revenue from IRS collection activities hit its highest level in a decade, signaling a reversal in the decline that began when Congress ordered the agency to turn its attention from audits to taxpayer service. Collections increased 9 percent to $35.5 billion.

Overall audits for individuals increased more than 15 percent from the previous year, though the odds remain low that a taxpayer's return might be selected for audit. About 1 percent of tax returns among high-income individuals and couples were audited. The IRS examined only about two-thirds of 1 percent of returns reporting income of less than $100,000.

Many taxpayers get a letter from the IRS if they make a math error, underreport their income or fail to file a return. The IRS sent 9 million letters to taxpayers with those problems.

The president has asked Congress to increase the IRS budget for enforcement activities next year. The extra money would allow the agencies to hire 5,000 new auditors, tax collectors and criminal investigators. About two-thirds of the money would be devoted to examining corporations, high-income taxpayers and criminal investigations.

Other details from the audit report show that the number of levies, or property seizures, increased more than 30 percent. Criminal prosecutions begun against taxpayers increased 32 percent.