What are your chances for being audited? IRS's 2010 data book provides some clues

The IRS has issued its annual data book, which provides statistical data on its fiscal year (FY) 2010 activities. As this article explains, the data book provides valuable information about how many tax returns IRS examines (audits), and what categories of returns IRS is focusing its resources on, as well as data on other enforcement activities, such as collections. The figures and percentages in this article compare returns filed in calendar year 2009 and audited in FY 2010 to returns filed in calendar year 2008 and audited in FY 2009.

What are the chances of being audited? Of the 142,823,105 total individual income tax returns with a filing requirement, 1,581,394 were audited. This works out to roughly 1.1%, a bit higher than the 1% rate for the previous year. Of the total number of individual income tax returns audited in FY 2010, 473,999 (30%) were for returns with an earned income tax credit (EITC) claim, a decrease from the 35.64% of all audited returns for FY 2009.
Only 21.7% of the individual audits were conducted by revenue agents, tax compliance officers, tax examiners and revenue officer examiners; the bulk of the audits (about 78.3%) were correspondence audits. The percentages for FY 2009 were 22.8% and 77.1% respectively.
Following are selected audit rates for individuals not claiming the EITC:
• For business returns other than farm returns showing total gross receipts of $100,000 to $200,000, 4.7% of returns were audited in FY 2010, up from 4.2% in FY 2009.
• For business returns other than farm returns showing total gross receipts of $200,000 or more, 3.3% of returns were audited in FY 2010, versus 3.2% in FY 2009.
• Of the returns showing farm (Schedule F) income, .4% were audited in FY 2010 versus .3% in FY 2009.
• For returns showing total positive income of $200,000 to $1 million, 2.5% of returns not showing business activity were audited, and 2.9% of returns showing business activity were audited; for FY 2009, these percentages were 2.3% and 3.1% respectively.
• For FY 2010, the audit rate for returns with total positive income of $1 million or more was 8.4%, a substantial increase from the 6.4% rate in FY 2009.
Not surprisingly, examination coverage increases for higher income earners. For example, the percentage was .71% for those returns with adjusted gross income (AGI) between $100,000 and $200,000 (up from .67% for FY 2009), and 1.92% for those with $200,000 to $500,000 of AGI (up slightly from 1.86% for FY 2009). Exam coverage increased to 6.67% for those with at least $1 million but less than $5 million of AGI (up from 5.35% for FY 2008). Similarly, coverage increased for those with at least $5 million but less than $10 million of AGI, as well as for those with AGI of $10 million or more.
The audit rates for business returns were as follows:
• For all corporate returns other than Form 1120S, 1.4%, versus 1.3% for the year before.
• For small corporations with total assets of: $250,000 to $1 million, 1.4%; $1–$5 million, 1.7%; and $5–10 million, 3%. For FY 2009, the percentages were, respectively, 1.3%, 1.8%, and 2.7%.
• For large corporations with total assets of $10 million or more, the overall audit rate was 16.6%, up from 14.5% for FY 2009. The audit rate for these corporations increased with the size of the entity. For example, the audit rates were 13.4% for those with total assets of $10–$50 million (up from 10.1% for FY 2009); 16.1% for those with $250–$500 million (versus 15.8% for FY 2009); 45.3% for those with $5–20 billion (down from 48.7% for FY 2009), and 98% for those with $20 billion or more (down from 100% for FY 2009).
• For partnership and S corporation returns, the audit rate was .4%, the same as for the year before.
IRS's activity on other fronts.

Medical & Dental Expenses

After spending the weekend playing in the dirt at Quartsite Arizona, along with thousands of other motorhomers, I am back at my desk today, and loe and behold a tax tip from the IRS just came to my computer.  I always wonder if the IRS highlights certain areas that they know they will be looking at closely on these tax tips or ????  Anyway I thought I would list their six points aboue medical and dental and you can make up your own mind.
1. In 2010 you can only deduct the amount by which your total medical expenses for the year exceed 7.5% of your adjusted gross income.  This calculation is on Schedule A of Form 1040.
2. The medical expenses you can include are the qualified medical expenses you pay for yourself, your spouse and your dependents.  If you share custody of a child you can deduct only the amount that you pay out of pocket for the childs medical expenses.
3. To deduct a medical expense for the tax year 2010, it needed to be paid in that year.  If you have an expense and are reimbursed for some of it you cannot include the reimbursed part of the expense.
4. Medical expenses include payments for the diagnosis, cure, mitigation, treatment or prevention of disease, or treatment affecting any structure or function of the body. If you have prescription drugs the cost of them can be deducted, plus any insulin paid for which does not require a prescription.
5. You can deduct mileage or other transportation costs which are primarily for and essential to medical care that qualify as medical expenses The actual fare for a taxi, bus, train, or ambulance may be deducted. If you use your car you can deduct the actual out of pocket expense or you can deduct the standard medical rate for medical expenses.
6. Distributions from Health Savings Accounts, and withdrawals from Flexible Spending Arrangements may be tax free if you pay qualified medical expenses.

If you want more information on deductible medical expenses please visit the IRS website at www.irs.gov and look for publications 502 and 969.

IRS says up to 350,000 tax rebate checks wrong

According to this article on tax rebate checks:

Up to 350,000 households aren't getting the $300 per child owed them as part of their economic stimulus rebate payments, the Internal Revenue Service said Thursday.

The tax agency says taxpayer human error and computer glitches were responsible for the problem affecting a tiny percentage of the 130 million taxpayers expected to benefit from the refunds the government began sending out last month.

IRS spokesman Terry Lemons said the agency was confident it had identified all the people affected by the mistake. He said the IRS will send letters to those who missed out on the refund and that checks for the child credit will be mailed out in July. People need not contact the IRS or file additional paperwork, he said.

Tax rebates start showing up in bank accounts

WASHINGTON - The government began depositing tax rebate checks in thousands of bank accounts on Monday as the stimulus program aimed at giving the ailing economy a jump-start got under way early.

The Internal Revenue Service started making the direct deposits on Monday with the goal of completing 800,000 payments each day over the first three days of this week. No deposits will be made Thursday while the IRS prepares a big batch of 5 million direct deposits scheduled on Friday.

The IRS had expected to begin the program in May but was able to start a few days earlier by utilizing a computer system that can process payments on a daily basis. The government's paper checks will start going out on May 9, a week earlier than previously announced.

The rebates, which are expected to reach 130 million households, range up to $600 for an individual and $1,200 for married couples plus $300 for eligible children younger than 17.

IRS spends $42 million mailing letters re: rebate checks

At a cost of nearly $42 million, the IRS wants you to know: Your check is almost in the mail.
The Internal Revenue Service is spending the money on letters to alert taxpayers to expect rebate checks as part of the economic stimulus plan.

The notices are going out this month to an estimated 130 million households who filed returns for the 2006 tax year, at a cost $41.8 million, IRS spokesman John Lipold confirmed.

That works out to about 32 cents to print, process and mail each letter. It doesn't include the tab for another round of mailings planned for those who didn't file tax returns last year but may still qualify for a rebate.

Democrats accused the Bush administration of wasting time and postage.

"There are countless better uses for $42 million than a self-congratulatory mailer that gives the president a pat on the back for an idea that wasn't even his," Sen. Charles Schumer said Friday, arguing the IRS could more effectively spend the money to catch tax cheats.

Keith Hennessey, director of the president's National Economic Council, said the letters are being sent to explain how the tax rebates will work.

"Any time you do something as a government tens of millions of times, there is ample room for people to get confused. And so if you're going to have tens of millions of taxpayers getting checks, you want to get the information out so that you have as few people as possible confused about what's happening, they understand what's coming, and it reduces the number of incoming requests that IRS and Treasury have to figure out how to deal with it," said Hennessey.

"Dear Taxpayer," the letters will begin, going on to say the IRS is pleased to inform the recipient that Congress passed and President Bush signed into law a plan that will provide payments of up to $600 for individuals who qualify or $1,200 for married couples filing jointly. The rebates are the centerpiece of a $168 billion economic stimulus package.

The actual rebate checks are scheduled to go out starting in May, after the IRS has finished separately mailing out routine refunds for the 2007 tax year.

The letters will be a reminder that people need to file a 2007 tax return so they will receive the rebate if they are eligible for it.

Similar notices will go out later to some Social Security recipients and those who receive veterans benefits — groups that often do not file tax returns.

For those people to get a rebate check, they will need to file a tax return if they received at least $3,000 from a combination of certain Social Security benefits, veterans benefits and earned income. The minimum payment for this group will be $300 for an individual and $600 for a couple filing jointly.

Not everyone will be eligible. Singles with income of more than $75,000 and couples with more than $150,000 get only partial rebates, if any.

People who earn less than $3,000, illegal immigrants and anyone who does not file a tax return will miss out. Singles with incomes exceeding $87,000 and couples with incomes exceeding $174,000 also won't qualify, although those caps rise by $6,000 per child.