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Wealthy Americans at a lower risk of being audited

On Behalf of | May 22, 2019 | Tax Audits

In fiscal year 2018, Georgia taxpayers and others who made at least $10 million saw their audit rate fall to 6.66%. In fiscal year 2017, the audit rate for those making at least $10 million that year was 14.52%. Audit rates also dropped for those who made between $1 million and less than $10 million in fiscal year 2018. This cut in audit rates for higher earners comes after the tax code overhaul in 2017.

While audit rates dropped for many wealthy taxpayers, those who made more than $10 million were still among the most likely to be audited. In addition to fewer audits, the IRS also collected less in gift taxes because of changes to the tax code. Specifically, the law allowed individuals to exempt up to $11.2 million in gifts as of 2018 with married couples allowed to exempt up to $22.4 million.

In fiscal year 2018, the government only collected $1.2 billion in gift taxes as opposed to the $1.9 billion the year before. In 2025, exemptions are expected to revert back to the levels seen before the tax code changes. However, the IRS says that it won’t make an effort to claw back any savings obtained based on actions taken before then. There is a 40 percent tax on all assets that exceed the exemption amount.

Individuals may receive a tax audit for a variety of reasons. For instance, they may have failed to report income, paid too little in estimated taxes or took other actions that were outside of the tax code. If a person is audited, it may be a good idea to hire an attorney to help with the case. An attorney may negotiate directly with the IRS, and that could increase the possibility of a favorable outcome.