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Chances of Getting Audited by IRS Lowest in Years
By Stephen Ohlemacher, Associated Press
WASHINGTON (AP) -- As millions of Americans race to meet Tuesday's tax deadline, their chances of getting audited are lower than they have been in years.
Budget cuts and new responsibilities are straining the Internal Revenue Service's ability to police tax returns. This year, the IRS will have fewer agents auditing returns than at any time since at least the 1980s.
Taxpayer services are suffering, too, with millions of phone calls to the IRS going unanswered.
"We keep going after the people who look like the worst of the bad guys," IRS Commissioner John Koskinen said in an interview. "But there are going to be some people that we should catch, either in terms of collecting the revenue from them or prosecuting them, that we're not going to catch."
Better technology is helping to offset some budget cuts.
If you report making $40,000 in wages and your employer tells the IRS you made $50,000, the agency's computers probably will catch that. The same is true for investment income and many common deductions that are reported to the IRS by financial institutions.
But if you operate a business that deals in cash, with income or expenses that are not independently reported to the IRS, your chances of getting caught are lower than they have been in years.
Last year, the IRS audited less than 1 percent of all returns from individuals, the lowest rate since 2005. This year, Koskinen said, "The numbers will go down."
Koskinen was confirmed as IRS commissioner in December. He took over an agency under siege on several fronts.
Last year, the IRS acknowledged agents improperly singled out conservative groups for extra scrutiny when they applied for tax-exempt status from 2010 to 2012. The revelation has led to five ongoing investigations, including three by congressional committees, and outraged lawmakers who control the agency's budget.
The IRS also is implementing large parts of President Barack Obama's health law, including enforcing the mandate that most people get health insurance. Republicans in Congress abhor the law, putting another bull's-eye on the agency's back.
The animosity is reflected in the IRS budget, which has declined from $12.1 billion in 2010 to $11.3 billion in the current budget year.
Obama has proposed a 10 percent increase for next year; Republicans are balking.
Rep. Ander Crenshaw, R-Fla., chairman of the House subcommittee that oversees the IRS budget, called the request "both meaningless and pointless" because it exceeds spending caps already set by Congress.
Koskinen said he suspects some people think that if they cut funds to the IRS, the agency won't be able to implement the health law. They're wrong, he said.
The IRS is legally obligated to enforce the health law, Koskinen said. That means budget savings will have to be found elsewhere.
Koskinen said he can cut spending in three areas: enforcement, taxpayer services and technology. Technology upgrades can only be put off for so long, he said, so enforcement and taxpayer services are suffering.
Last year, only 61 percent of taxpayers calling the IRS for help got it. This year, Koskinen said he expects the numbers to be similar. To help free up operators, callers with complicated tax questions are directed to the agency's website.
"The problem with complicated questions is they take longer," Koskinen said.
Your chances of getting audited vary greatly, based on your income. The more you make, the more likely you are to get a letter from the IRS.
Only 0.9 percent of people making less than $200,000 were audited last year. That's the lowest rate since the IRS began publishing the statistic in 2006.
By contrast, 10.9 percent of people making $1 million or more were audited. That's the lowest rate since 2010.
Only 0.6 percent of business returns were audited, but the rate varied greatly depending on the size of the business. About 16 percent of corporations with more than $10 million in assets were audited.
Most people don't have much of an opportunity to cheat on their taxes, said Elizabeth Maresca, a former IRS lawyer who now teaches law at Fordham University.
Your employer probably reports your wages to the IRS, your bank reports interest income, your broker reports investment income and your lender reports the amount of interest you paid on your mortgage.
"Anybody who's an employee, who gets paid by an employer, has a limited ability to take risks on their tax returns," Maresca said. "I think people who own their own business or are self-employed have a much greater opportunity (to cheat), and I think the IRS knows that, too."
One flag for the IRS is when your deductions or expenses don't match your income, said Joseph Perry, the partner in charge of tax and business services at Marcum LLP, an accounting firm. For example, if you deduct $70,000 in real estate taxes and mortgage interest, but only report $100,000 in income.
"That would at least beg the question, how are you living?" Perry said.
Koskinen said the IRS could scrutinize more returns - and collect billions more in revenue - with more resources. The president's budget proposal says the IRS would collect an additional $6 for every $1 increase in the agency's enforcement budget.
Koskinen said he makes that argument all the time, but for some reason, it's not playing well in Congress.
"I say that and everybody shrugs and goes on about their business," Koskinen said. "I have not figured out either philosophically or psychologically why nobody seems to care whether we collect the revenue or not."
Follow Stephen Ohlemacher on Twitter: http://twitter.com/stephenatap
More Business News
Last Update on November 25, 2014 18:10 GMT
WASHINGTON (AP) -- The U.S. economy grew at a solid 3.9 percent annual rate in the July-September period, even faster than first reported, giving the country its strongest back-to-back quarters of growth in more than a decade.
The Commerce Department says the third quarter growth rate climbed from an initial estimate of 3.5 percent because of greater spending by consumers and businesses. The figure followed a 4.6 percent surge in the spring, which resulted in the biggest consecutive quarters of growth since 2003.
Analysts believe growth could slow to around 2.5 percent in the current quarter but then accelerate again in 2015. They expect growth of around 3 percent, representing a sustained acceleration in activity six years after the Great Recession.
PARIS (AP) -- A major international organization is calling on Europe to relax its fiscal rules and for governments to spend more money, saying Europe's sluggishness is dragging down the global economy.
Tuesday's report by the Organization for Economic Cooperation and Development, a gathering of the world's richest countries, says Europe has consistently underperformed economically and risks remaining economically stagnant unless demand picks up. The report also calls for major reforms in Japan, saying its debt is unsustainable.
EU requirements that members keep budget deficits below 3 percent of GDP are coming under increasing pressure as the bloc's economy fails to pick up.
Germany, a fierce defender of the budget rules, was taken to task in the report, which called on the government to invest more in childcare and infrastructure.
WASHINGTON (AP) -- A fresh survey finds U.S. consumer confidence down in November following a big gain in the previous month.
The Conference Board says its consumer confidence index fell to 88.7 in November, down from a seven-year high of 94.5 in October.
Conference Board economist Lynn Franco says that the decline primarily reflects reduced optimism in the short-term outlook, as consumers expressed less confidence in current business conditions and the present state of the job market.
But she adds that expectations about future income remain virtually unchanged. With gas prices falling, this should help boost holiday sales.
NEW YORK FED-HOUSEHOLD DEBT
WASHINGTON (AP) -- Americans are slowly but steadily borrowing more money, bringing to an end a five-year effort to cut household debt that has slowed consumer spending and the economy.
The Federal Reserve Bank of New York says total household debt increased $78 billion in the July-September quarter to $11.7 trillion, led by rising mortgage and auto loans. That is the fourth increase in household debt in the past five quarters.
Total debt is still below the peak of nearly $12.7 trillion reached in the third quarter of 2008. But it has risen 5 percent since bottoming out in the second quarter of last year.
The sustained increase is a sign that Americans are more confident and willing to spend more, trends that could fuel faster economic growth.
WASHINGTON (AP) -- U.S. home prices rose in September at the slowest pace in more than two years, reflecting modest sales gains and a rising number of available homes.
The Standard & Poor's/Case-Shiller 20-city home price index rose 4.9 percent in September from 12 months earlier. But that's down from 5.6 percent in August and the smallest gain since October 2012.
Home price gains have slowed this year after rapid, double-digit increases in the previous two years. Investors helped drive the strong gains by bidding up prices but have started to cut back on their purchases.
The Case-Shiller index covers roughly half of U.S. homes. The index measures prices compared with those in January 2000 and creates a three-month moving average. The September figures are the latest available.
NEW YORK (AP) -- U.S. bank earnings rose 7.3 percent in the July-September quarter from a year earlier, as banks reduced their expenses and continued to lend out more money, which help drive up revenue.
The data issued Thursday by the Federal Deposit Insurance Corp. showed a robust picture as the banking industry continues to recover from the financial crisis that struck six years ago.
Banks and other financial institutions insured by the FDIC earned $38.7 billion in the third quarter, up from $36.1 billion a year ago. The percentage of unprofitable banks fell to 6.4 percent of institutions, versus 8.7 percent a year ago.
The agency said the number of "problem banks" fell to 329 during the quarter, the lowest since the first quarter of 2009. Only two insured banks failed last quarter.
NEW YORK (AP) -- Thanksgiving could be the best day to shop all year.
An analysis of sales data and store circulars contradicts conventional wisdom that Black Friday is when shoppers can get the most and biggest sales of the year.
Turns out, shoppers will find more discounted items in stores that are open on Thanksgiving. An analysis of promotions for The Associated Press by researcher MarketTrack, for example, shows a total of 86 laptops and tablets deeply discounted as door buster deals at Best Buy, Wal-Mart and others on the holiday compared with just nine on Black Friday.
And on the Web, discounts will be deeper on the holiday. Adobe, which tracks data on 4,500 retail web sites, finds online prices on Thanksgiving are expected to be about 24 percent cheaper compared with 23 percent on Black Friday and 20 percent on Cyber Monday.
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