Enrolled Agent Tax Preparer Clients With Large Incomes Likely to Require Audit Defense

February 17, 2012 by  Filed under: Taxes 

According to recently released IRS data, one in eight people earning at least $1,000,000 per year experiences a tax examination. These individuals are therefore far more likely audit candidates than people earning less than $200,000 annually. Still, 1 of every 100 taxpayers in the latter category were audited by the IRS in 2011.

The usual complexity of tax preparation for high-income earners calls for seeking professional help from an enrolled agents list. These tax experts are even more valuable to people with large incomes due to the risk of IRS audit. The 12 percent audit rate for million dollar earners in 2011 is a considerable increase above the 8 percent audited in 2010.

The IRS claims that the higher audit ratio is an effort to apply fairness to tax enforcement. A more likely reason for pursuing a greater percentage of taxpayers with large incomes is that they have the money to pay assessments from uncovering tax reporting errors. An enrolled agent tax preparer is better trained to limit mistakes on returns and knows how to organize high-income taxpayers for the likelihood of IRS audit.

The IRS audited nearly 1.6 million of the 141 million individual income tax returns filed in 2011. According to data from 2010, 8 of every 10 audited individuals ended up paying additional taxes. Much of the problems for taxpayers is probably substantiation of expenses. This is where enrolled agent training becomes most helpful. People relying upon the expertise of an EA develop better record keeping systems. Taxpayers with the greatest incomes require the most documentation.

The audit rate for tax returns with a million dollars of income has steadily risen in recent years. The percentage of taxpayers in this category audited by the IRS between 2004 and 2009 ranged from only 5 to 7 percent.

Individuals with large incomes now need highly skilled tax preparation plus groundwork for potential audit defense. Fortunately, the magnitude of ability derived from an enrolled agent study course meets these criteria. That foundation is also applicable to people earning less than $1,000,000 per year but more than $200,000. The IRS audited about 1 of every 25 taxpayers in this category during 2011.

Of the $2.3 trillion of tax revenue collected in 2011, $55 billion was gathered from IRS enforcement efforts. This includes audits as well as court cases and other measures. Some other IRS statistics provide further evidence that becoming an enrolled agent is a sound move for any tax practitioner. That is, the IRS garnished wages and seized funds from levies of bank accounts in 2011 on 3.7 million occasions. This is a lot of people who can benefit from EA representation before the IRS.

IRS Circular 230 Disclosure

Pursuant to the requirements of the Internal Revenue Service Circular 230, we inform you that, to the extent any advice relating to a Federal tax issue is contained in this communication, including in any attachments, it was not written or intended to be used, and cannot be used, for the purpose of (a) avoiding any tax related penalties that may be imposed on you or any other person under the Internal Revenue Code, or (b) promoting, marketing or recommending to another person any transaction or matter addressed in this communication.

Fast Forward Academy is a leading publisher of education for enrolled agents list and tax professionals. Access to free questions for the enrolled agent tax preparer is available on their website.

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