By Diana Olick D.C. Correspondent
CNBC
updated 11/19/2004 5:26:58 PM ET 2004-11-19T22:26:58

The Internal Revenue Service is gearing up for tax season. And while it may be a kinder, gentler IRS these days, the agency is still coming after you — especially if you make a lot of money. Audits overall are up 19 percent, but for the wealthier they’re a lot more frequent.

That's the result of a new study by the IRS, which defines "high income" as over $100,000 a year. That target includes some relatively modest, two-income white-collar types. 

The IRS checked their math 40 percent more this year than last year, bringing the total number of audits to 195,200 individuals.  That's a 74 percent increase over 2002 but actually well below the last peak period in 1996 when 210,000 individuals were audited.

“It's hard to be any fewer audits of high income or low income taxpayers than the audits that they've had or not have over the past few years,” said Former IRS Commissioner Donald Alexander. “The IRS has been a toothless tiger and people know that.”

But individuals aren’t the only targets.  On the corporate side, the IRS is shifting its watchful eye from small businesses, which Alexander calls a hotbed of tax avoidance, to large corporations.

More than 4,400 companies with assets of at least $250,000 were audited in 2004. That's up 32.5 percent from last year. Put another way, the audit rate in 2004 was 40 percent, up from 30 percent in 2003.  The audit rate for small businesses — or companies with assets less than $10 million — dropped 46 percent during the same period. 

But those numbers may be deceptive, since it takes the IRS three years to complete an audit. So those 2004 corporate numbers may really cover corporate tax returns filed in 2000 or 2001.

“Part of it is attributable to the fact that more corporations were making money than not making money during the period,” said Alexander. “They filed those returns, and when a corporation shows an enormous net operating loss why should the IRS bother to audit it in that particular year?”

The IRS says it took in $43.1 billion in enforcement revenue in 2004 — $5.5 billion more than last year. So, according to commissioner Mark Everson, that would seem to make added funding for the IRS enforcement well worth the investment. The president's 2005 budget proposal calls for a 10 percent increase in IRS enforcement funding. But Everson admits that request is not faring particularly well with Congress

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