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But large companies are less likely than ever to be audited, while small ones are bearing the brunt of the IRS's enforcement activity.
Sarah Johnson, CFO.com | US
April 28, 2008
The Internal Revenue Service reviewed more corporate tax returns filed during the government's 2007 fiscal year than it had the previous year, which contributed to a 22 percent boost in revenue from enforcement activities. One of every 75 companies had its tax filing audited, according to the Treasury Inspector General for Tax Administration.
But while last year continued a recent trend of more audits — they were up 4 percent for returns filed last year — the current level is a far cry from the one in 48 corporate tax audits that were made for returns filed in fiscal-year 1998.
In its annual report on the IRS, made public on Monday, TIGTA also confirms previous reports that smaller companies are more likely to hear from IRS examiners than their larger brethren. While the number of audited corporate tax returns reflecting less than $10 million in assets increased by more than 12 percent, tax-return reviews for corporations with $250 million or more in assets decreased by almost 20 percent.
Earlier this month, Transactional Records Access Clearinghouse (TRAC), which tracks the IRS, also noted the growing discrepancy between the audit rates for small and large companies. The Syracuse University-affiliated organization claimed the IRS is also spending less time reviewing large corporate audits. According to TRAC, the IRS has allowed these lopsided rates on purpose; by concentrating on smaller corporations that take less time to audit, its revenue agents can realize a higher rate of corporate audits overall.
To be sure, the IRS has made strides in improving its enforcement numbers, according to the TIGTA report, improving the gap between the amount collectible and the amount actually collected. That improvement came even though IRS staff levels have decreased over the last decade, which has been partly mitigated by organizational changes at the agency. At the same time, a higher number of tax returns have been filed — an increase of almost 12 percent in the past 10 years.
Despite those concessions, the agency has been dogged by criticism that it is not doing enough; last year, the U.S. Government Accountability Office said tax-law enforcement is one of the of the federal government's most high-risk areas.
TIGTA reported that the percentage of all tax returns examined by the IRS increased by 9 percent for returns filed in fiscal-year 2007, which brought the government $59.2 billion in revenue. In the past five years, the IRS has increased the amount of enforcement revenue it has collected by 74 percent.