For the third consecutive year, the IRS has increased the audit rate for taxpayers making more than $1,000,000. According to IRS enforcement statistics released last week, 12.5% of high-income taxpayers making a million dollars or more during the 2011 fiscal year were audited. The one out of 8 millionaires audited for last year nearly doubles the 2009 rate of one out of 15.

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The leap in audit rates among the nation's top earners this year can be largely associated with the increased IRS attention to offshore tax evaders over the past few years.

This year, the IRS has authorized a penalty reduction and no jail time for a specified window of time, on the condition that offshore tax evaders confess to having offshore accounts. 

Taxpayers with an income of or greater than $200,000 per year are also at greater risk of being audited. Of these high-income taxpayers, a reported 4% were audited in 2011. According to IRS statistics, the percentage of audits in 2010 for high-income earners was at approximately three percent, or one in 32 taxpayers.

Far less likely than high-income taxpayers to be audited last year, were those reporting less than $200,000 in income. A reported one in 98 of these taxpayers were audited last year.

In all, 1.6 million returns from the year 2010 were audited during 2011. Although the number of millionaires audited last year rose, the IRS's enforcement revenue still fell 4% to $55 billion.

If you are a high-income earner, contact Givner & Kaye to discuss income tax planning and strategies to avoid income tax audits. (310) 207-8008