The Internal Revenue Service is stepping up audits of wealthier taxpayers as part of a multiyear effort to crack down on tax avoidance.

If you’re a high-earning taxpayer, with an adjusted gross income of more than $500,000 – well, first, congratulations! and second – beware. It appears that the IRS may be gunning for you. As the Wall Street Journal recently reported in their MarketWatch section, the IRS is stepping up audits of wealthier taxpayers as part of their offensive to crack down on tax avoidance.

According to the IRS’s most recent statistical report, audits are increasing on most high income groups and increase as the tax brackets get greater.

The percentage of taxpayers who were audited increased in every category of adjusted gross income above $500,000, compared with a year earlier. The biggest jumps came at the top of the income ladder. About 18% of Americans earning at least $10 million were audited in fiscal 2010, up from 11% in fiscal 2009, according to the IRS. For those earning $500,000 to $1 million, the audit rate rose to 3.4% from 2.8%.

The audits are often “correspondence” exams in which a series of letters is exchanged. Such exams account for more than 70 percent of IRS audits of individuals. The lesson here is “documentation.” Be sure you and your tax advisor(s) retain records and can document every item on your tax return.

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