As Connecticut residents continue to roll through tax season and prepare to file both individual and, if applicable, business-related tax documents; some may have this dreaded five-letter word on their minds—audit. Obviously, not one wants or plans to be audited and there are numerous tips, some of which are likely true, about how to avoid being selected for an audit.
Two factors that, statistically-speaking, appear to greatly increase the likelihood that an Internal Revenue Service audit is in your future center on how much money you make and also how your wealth is structured.
Regarding the high-asset factor, the IRS basically announced that it was planning to target and more closely scrutinize wealthy Americans when, in 2009, it formed a specialized group within the agency known as the Global High Wealth Industry Group. The group has since been given several nicknames including the Rich Squad and the IRS employees who lead the group are trained to review the myriad of complicated business, asset, investment and trust structures that are commonly utilized by wealthy Americans to shield assets from tax liabilities and penalties.
According to an April 4, 2013 CNBC article, individuals with "taxable incomes of $1 million or more were audited nearly 12 times more often than the population as a whole." What's more, from the IRS’ perspective, these audits were highly successful with some $4.8 billion being recovered during the 2012 fiscal year alone.
Since this time, additional funding and budget cuts have forced the IRS to make staffing cuts, including some of those agents who conducted audits. While such cuts likely mean reductions in the number of audit that the agency will be able to conduct this year, it's never a good idea to test your odds and gamble against the IRS.
Individuals who have been notified of an impending audit or who fear that certain aspects related to their personal or business' wealth or structure may trigger an audit, are advised to seek the advice and assistance of a tax attorney.
Source: Forbes, "Worst Lottery To Win Is IRS Audit Lottery, So Decrease Your Odds," Robert W. Wood, Feb. 1, 2016