IRS audits over 12% of tax returns of people who report more than $1 million in income.

From the Investment News/Bloomberg. It is the third straight year that the percent of returns audited in that group rose.

Big changes are coming on the tax scene, and you know it. The Bush-era tax cuts of 2001 and 2003 will both expire at the end of this year. The Republicans talked so much about how bad the federal debt was, that it will be hard for them to turn around and say that millionaires and billionaires should keep those temporary cuts—ones which never paid for themselves.

You know, it’s funny that the discussion or argument will be about whether to extend them even more, or let them expire. But I would like to add a third possibility, which is throw on a surtax to collect back some of the previous tax cuts that clearly did not boost the economy. “Supply side” is some kind of joke, so why should the regular taxpayer, who makes a million over a lifetime maybe, have to pick up the difference?

The audit rate for people making under $200,000 a year is very small. Here, the kind of things that screw you up are the deliberate hiding of income/nonreporting, and nonfiling.

The U.S. treasury has that overall gap of about $1 trillion a year. The tax gap is estimated at $400 billion. This is the money they don’t collect through voluntary assessment–our filing system–and either try to get by other enforcement efforts or, usually, just forgo.

I was interested to see that Americans abroad might be in for a special treat if they don’t file. There is a proposal to deny passport renewals to people who “forget” to file a tax return.

[Update 1/11/12: Here is a link to the GAO study about not renewing passports when people don’t file.]