The federal tax code provides numerous ways for businesses and successful individuals to minimize their tax obligations. Credits, deductions and a host of other special tax rules make it possible to honestly report income levels and financial circumstances and still avoid certain tax obligations.
Typically, those with higher incomes and more streams of income are at greater risk of making mistakes on their income tax returns due to the complexity of the rules that apply. Audits can be challenging for those with a variety of assets and multiple streams of income. According to a recent review, higher earners have less reason to worry about an audit currently.
High-income audit rates are down
When looking at the tax controversies that lead to IRS audits, it is possible to identify trends in audits that can give insight into the enforcement priorities of the IRS. Currently, high earners are at relatively low risk of an audit.
Data from the IRS shows that audits of those who make more than $5 million dropped by 66% between 2010 and 2019, and the trend does not seem to have changed. Of course, audits do still occur, even if the risk is lower. Discrepancies in paperwork, undisclosed income and the misuse of tax rules can all trigger a broader audit in addition to a notice of unpaid taxes.
Those facing a federal income tax controversy generally need guidance to understand if a mistake occurred and evaluate their options for resolving the problem at issue. Retaining legal guidance when facing an audit is often the best option available and can help people understand not only why the IRS chose to audit them but also their rights throughout the audit process.