Lifetime payouts to nonspouse IRA beneficiary.            In a private letter ruling, the IRS has allowed a nonspouse beneficiary of an individual retirement account (IRA) to salvage lifetime payouts even though she failed an essential rule requiring distributions to begin by the end of the year following that of the IRA owner’s death.  Generally, where an IRA owner dies before he must start taking annual required minimum distributions, the IRA must be distributed to a nonspouse beneficiary either within five years of the owner’s death, or over the life or life expectancy of the designated beneficiary.  To qualify for the latter alternative, the distributions must begin no later than one year after the owner’s death.  However, the IRS allowed the beneficiary, who made up her missed annual required minimum distributions and paid a penalty excise tax, to avoid the tough five-year payout rule.  This was an extremely favorable result for the taxpayer, which allowed her to avoid quickly depleting the IRA (and by so doing, having to likely pay more taxes, sooner).  The ruling illustrates the hazards of not receiving expert tax advice when dealing with post-death IRA distributions.

        Chances of being audited.  The IRS has issued its annual data book, which provides statistical data on its fiscal year 2007 activities, including how many tax returns it examined (audits), and what categories of returns it focused its resources on.  Out of a total of 135 million individual returns filed in calendar year 2006, about 1,384,563 individual income tax returns (1.0%) were audited during fiscal year 2007, slightly more than those examined in the prior year.  Of the 1.5 million individual farm returns that showed gross receipts from farming (Schedule F), only 5,705 (0.4%) were audited in 2007.  For returns with total positive income of at least $200,000 and under $1 million, the audit rate was 2% for nonbusiness returns and 2.9% for business returns; for returns of $1 million or more, the audit rate was 9.3%.  The audit rate for corporations with less than $10 million of assets was 0.9% (up from 0.8% in the prior year); and for corporations with $10 million or more of assets, it was 16.8% (down from 18.6%).  The audit rate for S corporations was 0.5% (up from 0.38% for the prior year); and for partnerships it was 0.4% (up from 0.36%).