Our Thoughts: IRS Business Audits Plummet Due to Budget Cuts

“The Internal Revenue Service’s audits of business tax returns have declined steeply in recent years, thanks to successive rounds of budget cuts, according to a new analysis. Syracuse University’s Transactional Records Access Clearinghouse, or TRAC, analyzed the IRS’s records from fiscal year 2010 through fiscal year 2015 and found revenue agent hours aimed at corporations with $250 million or more in assets have declined 34 percent, while unreported taxes uncovered by the IRS that would otherwise have been lost to the government dropped 64 percent.

The declines were even steeper for the largest corporations, those with $20 billion or more in assets.  Even more recent data through February of 2016 indicate that business audits of large companies are running 22 percent lower this year than for the same period last year.

As a result, the potential loss in government revenue amounts to $15 billion or more a year.

Congress agreed last December to add $290 million to the IRS’s budget for fiscal year 2016 (for a total of $11.23 billion) after five years of budget cuts, but the budget increases were earmarked toward improving taxpayer service, combating identity theft, and improving cybersecurity, but not for auditing taxpayers.”

From: http://www.accountingtoday.com/news/tax-practice/irs-business-audits-plummet-due-to-budget-cuts-77510-1.html

Our Thoughts…

Not only that … an IRS person told me yesterday, this is just the start. There will be more cut backs after tax season because more budget cuts are scheduled to cut in then. That means we’ll have more trouble resolving issues the IRS causes, but maybe they won’t cause as many issues.

When the IRS comes in to audit, they think everyone is cheating and it’s their job to find out how they’re doing it. This can be very unnerving for everyone involved. They just scare people to death. And that’s no way to govern.

Professional tax preparers are the glue holding the system together. 99% of taxpayers are honest. They don’t cheat.  And decent legitimate professionals help make sure they don’t. Their professional organizations police them. That obviously works pretty good.

Overall, audits aren’t productive. The idea was that auditing would bring in more than it cost because so many people cheated. But, a year ago the head of San Francisco’s IRS office told some associates, it costs the IRS more to keep the doors open than everything they bring in on audits & penalties. And this headline is proof positive.

So maybe it’s time to rethink the IRS? Do we really need an IRS that costs us more than they bring in? Penalties, audits not enough to cover costs.

If the IRS stopped all their audit activity today, we would save money.

Maybe we should do that?


Reference: http://trac.syr.edu/tracirs/latest/416/