More Americans than ever before are being audited, as the Internal Revenue Service is working hard to collect every single dollar it can.
The total number of individual returns audited last year increased 7% from 2006, shooting to 1.38 million from 1.29 million.
Tax audits, in which returns are scrutinized to ensure accuracy, are an attempt to account for the shortfall in government income from taxes. The IRS recently estimated the gap between what taxpayers owe and what the government actually collects to be roughly $312 billion to $353 billion per year.
The IRS keeps its formula for auditing, also known as the Discriminate Information Function System, under lock and key.
While you may not know exactly what prompts the IRS to pull a return out of the stack, a few factors can increase the likelihood that the tax man will take a second look.
A high income ups your odds of catching unwanted attention, and the deeper your pockets get, the more attractive you become in the eyes of the auditor.
In 2007, the IRS audited 29.2% more individuals making over $200,000 than it did in 2006. And for those lucky few, one out of every 11 individuals with incomes of $1 million or more faced an audit last year.
The more money you earn, the higher the chance that you have some mistake in your reported income, and the more valuable that potential miscalculation is to the IRS.
Steep expenses are another factor that will send a return under the magnifying glass of an auditor. If anything seems excessive, the IRS will take a closer look.
A carelessly finished return, either incomplete