The Internal Revenue Service plans to audit 18 percent fewer businesses with assets of at least $10 million in fiscal year 2013, compared to fiscal 2011.
Tax professionals with larger companies may be breathing a bit easier. The Internal Revenue Service plans to audit 18 percent fewer businesses with assets of at least $10 million in fiscal year 2013, compared to fiscal 2011. Moreover, this doesn’t account for any further reductions in audit activity due to sequestration. This is according to information obtained from the Service through a Freedom of Information Act request made by Syracuse University’s Transactional Records Access Clearinghouse (TRAC). TRAC is a data gathering and research organization focused on the staffing, spending and enforcement activities of the federal government.
In fact, the planned number of audits in every category—except individuals—is expected to fall from the 2011 numbers. For instance, the number of Subchapter S examinations is expected to decline by 37 percent, while the number of partnership audits will drop by 17 percent. Conversely, the number of individual audits is expected to jump by more than 60 percent.
Over the past 20 years, IRS staffing has declined, even as the number of returns filed has jumped, TRAC data shows. For instance, the number of IRS employees was just under 118,000 in 1992, and fell to 90,280 in 2012. At the same time, the number of returns filed jumped from about 113 million to 143.4 million.
While the number of audits increased from 1.2 million to 1.48 million over this period, the increase was concentrated in correspondence audits. The number of face-to-face audits dropped from 745,000 in 1992, or about 6.6 per 1,000 returns, to 358,000 in 2012, or 2.5 per 1,000 returns. Conversely, the number of correspondence audits more than doubled over the same period, rising from 459,000 to 1.1 million, or from 4.1 per 1,000 returns to 7.8.
At the same time, it’s helpful to note that another report, a 2012 report by the Congressional Research Office, “Tax Gap, Tax Compliance, and Proposed Legislation in the 112th Congress,” found that staffing for key enforcement occupations rose between fiscal 2001 and 2011, increasing from 20,203 to 22,184. Enforcement revenues collected also jumped, rising from $33.8 billion on 2001 to $55.2 billion in 2011.
The CRS report found an overall noncompliance rate among U.S. taxpayers of 16.9 percent, with a net tax gap of $385 billion. The gap is primarily a result of the under-reporting of taxpayers’ tax liabilities, although the non-filing of tax returns and underpayment of taxes also comes into play.
Clearly, $385 billion is a nice chunk of change. Even so, Americans are among the most compliant in the world when it comes to paying their taxes, as this post on Reason, a publication of the Reason Foundation, points out. While 83.1 percent of Americans pay what they’re supposed to, just 75.38 percent of the French and 67.72 percent of Germans can say the same.