The US Internal Revenue Service intends to increase the number of tax audits it carries out on wealthy individuals and the self-employed next year as the agency, which has just won approval for an increase in its budget, continues to step up its enforcement and compliance activities.
According to the Wall Street Journal, focusing primarily on taxpayers with annual incomes of $100,000 or more, IRS agents will continue to close down those who promote and purchase abusive tax shelter plans and undertake complex financial transactions which, in the eyes of the tax collector, have no economic purpose other than to avoid tax.
The IRS will also be particularly interested in taxpayers who have financial dealings offshore, such as trusts and insurance policies, while self-employed taxpayers dealing largely in cash will become a target for the agency's enforcement officers in the coming year.
IRS Commissioner Mark W. Everson told the WSJ that such enforcement activities are intended to ensure that the tax burden continues to be distributed fairly among the various income groups.
"Average Americans don't want to feel that the big guy gets away with something just because he's rich," he explained.
The IRS audited about 1.2 million individual income tax returns in the year ending September 30. This represents a 20% increase on the previous year. However, IRS figures suggest that taxpayers earning $100,000 per year or more stand little chance of being audited. In the 2005 fiscal year, 1.58% of this group were audited, a slight improvement on the 1.25% that were audited in 2004, but lower than the 3.21% who were examined in 1996.
The IRS routinely argues that it needs more money to fight tax evasion, and it has got its way in the recently-passed fiscal 2006 Treasury appropriations bill, which allocated to the agency $10.7 billion, a $434 million increase over 2005. The bill includes $7 billion for general enforcement activities, an 8% increase from 2005.
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