IRS steps up audits on high-income taxpayers

WASHINGTON -- The Internal Revenue Service audited more high-income taxpayers in fiscal 2002 and collected $32.6 billion in unpaid taxes through traditional audits and newer programs aimed at taxpayers who never file a return or underreport their income.

The number of audits targeted at individuals who make more than $100,000 went up more than 22 percent, reflecting the beginning of a new enforcement strategy focused on those most likely to evade tax collectors. That includes companies that promote or use abusive tax schemes, individuals who hide money in offshore accounts and filers who abuse low-income tax credits.

"The IRS is committed to ensuring everyone pays a fair share, including those who have the resources to move money offshore or engage in abusive schemes or shelters," said acting IRS commissioner Bob Wenzel.

In an effort to flush out individuals who hide their incomes in offshore accounts, the IRS offered a limited amnesty program for those suspected of using foreign credit and debit cards to hide their income. The individuals have until April 15 to come forward and avoid criminal charges.

The likelihood of anyone getting audited remained low last year and slipped slightly from the previous year. Only 1 in 174 returns were audited in fiscal 2002. By comparison, almost 1 in 60 returns -- or 1.67 percent -- were audited in fiscal 1996.

But millions of taxpayers heard from the IRS when they failed to file a return or made a math error. Many more were contacted when their returns showed less income than the documents filed to the IRS by their employers and financial institutions.

The IRS sent out 1 million more letters under these programs than the previous year. IRS officials say these enforcement systems are less complicated and more efficient than traditional audits.

After spending several years complying with congressional orders to improve their customer service, the IRS has recently put more of its time and money into making sure individuals and companies comply with tax laws.

Other details from the audit report show:

-- The number of levies, or property seizures, increased nearly 50 percent.

-- The number of liens increased nearly 15 percent.

-- Audits of taxpayers making less than $100,000 declined slightly.

-- Corporations with less than $10 million in assets saw their audit rate increase slightly.

-- Audit rates of corporations declined to 14 percent. The rate had been nearly 26 percent in 1995.