Make Less Than $200K? You Probably Weren't Audited

IRS report shows millionaires audited much more frequently than middle class.

December 23, 2009, 10:06 AM

Dec. 23, 2009 — -- Wish you earned more than $200,000 a year? Here's at least one reason to be grateful if you don't: your chances of getting audited are extremely low.

If the income you listed on your tax return last year was less than $200,000, your chances of being audited were less than one percent in the 2009 fiscal year -- 0.96 percent to be exact, according to an Internal Revenue Service report released this week.

Of the nearly 134 million returns with incomes below $200,000, fewer than 1.3 million were audited, according to IRS enforcement statistics. Overall, 1.03 percent of Americans filing returns experienced IRS audits.

For the nation's rich, the news was more sobering: those reporting incomes of $1 million and more were audited at a rate of 6.42 percent, while those with incomes between $200,000 and $1 million saw audit rates of 2.89 percent.

"The IRS runs a balanced program targeted to areas of highest enforcement risk with a goal of maintaining faith and fairness in the tax system," IRS spokesman Eric Smith said in an e-mail to "Typically, more complex returns have more potential problems."

The number of audits rose among all income brackets since last year, but millionaires saw the greatest increase -- from 21,874 to 28,349 returns, an increase of nearly 30 percent. The number of audits for those earning less than $200,000 rose just 1.6 percent over last year.

On the business side, larger corporations were more likely than smaller ones to be audited in the '09 fiscal year. Fewer than 15 percent of corporations with assets of more than $10 million were audited while corporations with assets valued below $10 million were audited at a rate of just 0.85 percent.

The news that America's poor have such miniscule chances of being audited likely comes as cold comfort to the working poor who have already experienced audits.

That includes Rachel Porcaro, 32, a single mother of two, who spent more than a year fighting off an Internal Revenue Service demand that the Seattle woman pay the government $16,000 -- more than three-quarters of her then-annual salary as a hair dresser.

Earned Income Tax Credit Raises Red Flags

The agency, Porcaro said, alleged that she failed to report sources of taxable income outside her hair dresser's salary on her 2006 and 2007 tax returns.

What drove the IRS to that conclusion? The fact that, according to their statistics, Porcaro, who earned just under $19,000 in 2006, couldn't possibly afford to raise her children on her salary alone.

"The tax compliance officer pulled out an Excel spreadsheet printout and said something to the effect of … (that) IRS data showed that it takes $36,000 to support a family of three in Seattle," said tax manager Dante J. Driver, an accountant who worked with Porcaro to appeal the IRS's claim. "It looked and smelled like she was getting audited for being too poor."

The IRS declined to offer comment on the case to, saying that federal privacy laws forbid the agency to discuss individual cases.

Porcaro, who said she receives no child support payments and owns neither a home nor a car, says there's a good reason she can afford to support her two sons -- she lives with her parents and pays just $400 in rent for a basement apartment in their Seattle home. It was her father who helped Porcaro get Driver's help in appealing the IRS decision.

"Without my parents' help, my kids wouldn't be in such a healthy environment," she told "I can afford to put decent clothes on their backs and food on the table."

But that explanation didn't help Porcaro's case, which was first reported by The Seattle Times. The IRS, Driver and Porcaro said, argued that Porcaro shouldn't qualify for the earned income tax credit (EITC), a tax credit for the country's working poor.

The credit has been often criticized as being a frequent target for fraud. In a recent Government Accountability Office report, the government described EITC fraud as an "evolving challenge." In the 2009 fiscal year, the IRS collected $3.2 billion through audits related to the earned income tax credit, according to the GAO.

Lawyering Up

By last summer, working with Driver, Porcaro and the IRS reached a resolution: the two sides agreed that she would pay just $1,600 to the IRS instead of $16,000.

Porcaro said she wonders what happens to others like her who don't have the means to "lawyer up."

"If I didn't have my family's support, I would have tossed my hands up," she said. "I wouldn't have been able to prove to them anything on my own."

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