IRS Audits Boost Corporate Tax Receipts

''I think there's little doubt that they're showing more revenue from compliance activities.''
Stephen TaubJuly 12, 2005

Collection of corporate taxes by the U.S. government climbed nearly 44 percent in 2004, to $189.4 billion, due in large part to increased aggressiveness by Internal Revenue Service auditors, reported Bloomberg.

Those increased collections could help narrow this year’s budget deficit by as much as $90 billion, to $325 billion, the wire service added. Although the Bush Administration gives much of the credit to economic growth resulting from the president’s massive first-term tax cuts, Bloomberg observed that the recent inflows are also due to other causes, such as a one-year tax amnesty designed to encourage U.S. multinationals to repatriate money earned abroad.

A tougher and more vigilant Internal Revenue Service is also playing a big role, suggested a number of tax experts. “There’s no doubt about it. The IRS auditors are more aggressive,” former IRS Commissioner Larry Gibbs told the wire service. “I think there’s little doubt that they’re showing more revenue from compliance activities.”

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Bloomberg pointed out that the IRS has not provided a breakdown of how much additional revenue its increased audits have generated this year. The wire service did note, however, that in the fiscal year ending September 30, 2004, expanded audits boosted collection of unpaid taxes by 14.6 percent, to $43.1 billion.

“The IRS has made a big push to bring audits more up to date,” said Timothy McCormally, executive director of Tax Executives Institute, an association of tax officials from the 1,000 largest U.S. companies, according to the wire service. “Corporate taxpayers are settling cases and years on an accelerated basis.” Businesses have become more inclined to settle tax disputes, observed Bloomberg, because the IRS has ramped up scrutiny of high-risk areas such as tax shelters and transfer pricing arrangements.

The wire service noted that when IRS Commissioner Mark Everson was sworn in two years ago, he made it a top priority to increase audits of high-income individuals and corporations. In fact, the agency now encourages agents to issue more summonses for documents when they find corporate taxpayers to be uncooperative, according to the wire service, citing Deborah Nolan, the IRS official in charge of auditing large and midsize businesses.