IRS Audits in 2020 Were Down Overall, But Millionaires Weren’t As Fortunate
An IRS audit isn’t fun, even if you literally have receipts. It’s tedious and may lead to the payment of back taxes, a fine or, in extreme cases, prison time. For many years, the IRS didn’t consider income when selecting returns to audit. As there are far more middle-class folks than rich ones, the middle class were more likely to be audited.
MarketWatch reports that the number of audits and amount of back taxes recovered declined in 2020. The IRS conducted 509,917 audits last fiscal year and billed for $12.9 billion in back taxes. This is down from over 771,000 in 2019 and 1.5 million in 2010.
Although there were fewer audits overall, 10,890 of those audits were of people who reported $1 million or more in income. This represents 2.14% of all audits. Only 1% of Americans reported adjusted gross income over $540,009, so these taxpayers were disproportionately targeted. In 2018, only 889 of those with an income above $1 million were audited.
Some of this reflects a shrinking IRS, which has 20% fewer staff members than it had in 2010. It also reflects a shift in thinking by the current presidential administration. By targeting those who have more income, the thought is that additional revenue can be recovered to chip at the federal deficit.
While middle-class taxpayers can breathe a little easier, the rich cannot. Pro tip: the IRS examiners have already heard the excuse that tax records were destroyed in a basement flood. Keep your receipts, as you may need them.
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Last updated: June 25, 2021