The IRS is greatly expanding civil and criminal tax audits including: unreported income, fraudulent tax deductions, failure to file tax returns, or filing false tax returns.

Treasury/IRS Funding
Congress passed an omnibus FY 2008 appropriations bill, the Consolidated Appropriations Act, 2008 (H.R. 2764) on December 19, 2007. The omnibus bill includes funding for Treasury and the IRS in FY 2008.

Treasury’s FY 2008 budget is $12 billion, of which $10.9 billion is allocated for the IRS, a $300 million increase over the FY 2007 IRS budget. The IRS budget includes $4.8 billion for enforcement activities, $2.2 billion for taxpayer services, $3.7 billion for operations support of enforcement, taxpayer service, and other functions, and $267 million for business systems modernization. The budget includes $177 billion for the Taxpayer Advocate Service and $7.4 million for the IRS to increase its in-house collection capacity.

Last year, some 1.2 million taxpayers were audited.

IRS reports increase in audits and taxpayer services for fiscal 2007

The IRS reports that it continues to make strong progress in a number of key enforcement areas. Recently published statistics show the number of audits increased in all areas in fiscal 2007, the number of e-filers has increased, and the usage of the IRS Web site is increasing as well.
During 2007 the IRS audited 84 percent more returns of individuals with incomes of $1 million or more than during 2006. Overall, enforcement revenue reached $59.2 billion, up from $48.7 billion in 2006 and nearly $34.1 billion in 2002.
Highlights of the enforcement and services numbers for fiscal year 2007, which ended on September 30, include:

Individuals

Audit rates increased in 2007, both for overall individual rates and for higher-income taxpayers.

• Audits of individuals with incomes of $1 million or more increased from 17,015 during fiscal year 2006 to 31,382 during fiscal year 2007, an increase of 84 percent. One out of 11 individuals with incomes of $1 million or more faced an audit in 2007.
• Overall, the total individual returns audited increased by 7 percent to 1,384,563 in 2007 from 1,293,681 in 2006. That's the highest number since 1998.
• Audits of individuals with incomes over $200,000 reached 113,105 returns, up 29.2 percent from the prior year total of 87,885.
• The IRS increased audits of individual returns with income of $100,000 or more, auditing 293,188 of these returns in 2007, up 13.7 percent from last year's total of 257,851.
• The IRS filed 3.8 million levies and almost 700,000 liens during 2007, an increase from the previous year and a substantial increase from five years earlier.

Businesses

In the business arena, the IRS continued efforts to review more returns of flow-through entities – partnerships and S Corporations. The agency's business numbers reflect that they have placed more emphasis in the growing area of these flow-through returns. While large corporate audits are down slightly, they have increased their focus on mid-market corporations – those with assets between $10 million and $50 million dollars. The IRS enforcement budget in 2007 was similar to the budget in 2006, and in times of flat budgets, the agency states that it cannot increase activity across the board but must address the areas where there is growth and potential risk.

• Audits of S Corporations increased to 17,681 during 2007, up 26 percent from the prior year's total of 13,984.
• Audits of partnerships increased to 12,195 during 2007, up almost 25 percent from the prior year's total of 9,777.
• Audits of mid-market corporations increased to 4,473, up 6 percent from last year's total of 4,218.
• Audits of businesses in general rose to 59,516, an increase of almost 14 percent from the prior year's total of 52,223.
• Although the audits of large corporations dipped slightly in 2007 to 9,644 audits, the number of audits is up 14 percent from the fiscal year 2002 level.
  

The above was reported in AccountingWeb.com 1/24/08 (click link for complete article.)

If the case reaches actual prosecution, there is this sobering fact:  The IRS reports it had a conviction rate last year of 91.5 percent.

	Number of Returns (000)	AGI (000,000)	Income Taxes Paid (000,000)	Group's % Share of Total AGI	Group's % Share of Total Taxes
All Taxpayers	132,612	7,507,958	934,703	100.00	100.00
Top 1%	1,326	1,591,711	368,132	21.20	39.38
Top 5%	6,631	2,683,934	557,759	35.75	59.67
Top 10%	13,261	3,487,010	657,085	46.44	70.30
Top 25%	33,153	5,069,455	803,772	67.52	85.99
Top 50%	66,306	6,544,824	906,028	87.17	96.93
Bottom 50%	66,306	963,134	28,675	12.83	3.07

* The average tax rate for the bottom 50% is drawn from a related IRS spreadsheet.