Audits by the Internal Revenue Service of the tax returns of millionaires nosedived in the just-ended fiscal year, according to a new report.

IRS data obtained and analyzed by Syracuse University’s Transactional Records Access Clearinghouse found a sharp decline from fiscal year 2007 to fiscal year 2008. The TRAC report noted that the plummeting rate contrasted with a 2008 press release in which the IRS claimed it was making “strong progress in a number of key enforcement areas,” especially for “individuals with incomes of $1 million or more.”

The IRS data shows that the audit rate on the 300,000-plus returns reporting incomes of more than $1 million was substantially down last year — dropping at least 19 percent. But because of admitted agency accounting errors and two sets of conflicting numbers that the IRS published on March 13, 2009, the actual extent of this decline may be much larger.

Given the lag between when income is received, when a return is filed, and when it becomes subject to audit, the drop in the audits occurred for those returns with income earned at the height of the real estate boom, just before the economy turned sour.

IRS figures released to TRAC indicate that agency audits of taxpayers reporting a total positive income of $1 million or more — involving both face-to-face audits and agency correspondence contacts — fell to only 5.6 per 100 returns filed in FY 2008. This rate would represent a 19 percent drop from the previous year. TRAC said that the full extent of the decline was confirmed by an IRS spokesman.

On the same day, however, the IRS published on its Web site a second set of figures suggesting that the millionaire audit rates last year may have plummeted even more than the spokesman had acknowledged. These new figures reported that only 4.4 (not 5.6) out of every 100 returns with a million or more in adjusted gross income had been audited last year. This figure would indicate that in the last year the millionaire audit rate actually had declined by at least 36 percent.

Face-to-face audit rates for this group have sunk to at best the same level as five years ago, before the IRS announced that it intended to target these high-income tax returns for increased scrutiny. Now only around three out of every 100 returns receive regular audits.

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