No one wants to face an IRS audit. But the chances of you finding yourself answering the taxman's questions rise substantially if the agency considers you to be wealthy. Why? Because auditing those who earn more provides greater return on investment for the IRS:
Wealthy taxpayers are more likely to use complex financial arrangements to manage their money, and audits are needed to keep them in compliance and paying their fair share under the law.
But the inspector general said the agency needs to home in on whom it considers to be high-income taxpayers deserving of special scrutiny, to make sure it’s really going after the people who are hiding the most money and where the agency gets the best return on investment.
For example, every hour spent auditing a taxpayer with $5 million in income finds about $4,545 owed. But auditing someone making $200,000 produces $605 an hour.
“Because there are more taxpayers in the $200,000 to $399,999 range than in higher income ranges, it appears that the IRS is spending most of its audit resources on auditing tax returns with potentially lower productivity,” Deputy Inspector General Michael E. McKenney said in the report.
That's a rather cold blooded way to decide who gets an audit. And it's also unusual behavior when matched against other government activities:
it’s the opposite of how the Obama administration has handled immigration enforcement, in which deportation agents have been ordered not to bother with whole classes of illegal immigrants under the belief that it’s not worth the time and effort.
The lesson: if you have money, be it from owning a small business, an inheritance, an insurance settlement, prudent savings and investment...whatever: the IRS could take a very keen interest in your tax returns, because it believes it can squeeze you for a little bit more.
But if you're an illegal immigrant, no worries, and have a nice day.