IRS Audits Down 22 Percent Compared With Last Year

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March 16 — The IRS conducted about 22 percent fewer audits of large businesses in the first five months of fiscal year 2016 than the agency did in the same time period last year, failing to meet benchmarks set by the agency, according to a report from a Syracuse University group.

Internal management reports indicate the Internal Revenue Service hoped to see audit levels by the Large Business and International Division decrease by only 2 percent, according to a report from the Transactional Records Access Clearinghouse at Syracuse University. The report cited numbers from the memos, but didn't disclose the documents. TRAC obtains documents through Freedom of Information Act requests.

LB&I has conducted fewer audits in recent years as the agency has undergone budget cuts and the unit's staffing levels have fallen by 19 percent. Large C corporations have seen some of the biggest audit decreases as the agency has shifted toward examining partnerships (35 DTR G-1, 2/23/16).

“There are many different ways to look at our exam and revenue figures,” the IRS said in a March 16 e-mailed statement to Bloomberg BNA. “From any perspective, it's clear these numbers add up to a long-term trend of fewer audits and less enforcement revenue.”

The report, which compared data from October through February from fiscal years 2015 and 2016, said the agency conducted 3,447 audits so far this fiscal year, down from 4,401 audits last year. The agency set targets of how much to increase or decrease audits of mid-sized corporations ($10 million to $250 million in assets), large corporations (more than $250 million in assets), partnerships, foreign corporations and S corporations.

Compliance Concerns

LB&I expected to audit fewer large and mid-sized corporations and partnerships during the first months of 2016, the report said, though the agency set higher goals for S corporations and foreign corporations.

The IRS shifted its focus “because of its concerns over tax noncompliance by these firms,” the March 15 TRAC report said. “LB&I targets were to increase the number of audits in these two categories by 10 percent and 20 percent, respectively. However, so far the numbers of audits are lagging below last year's pace—down 58 percent for foreign corps and down 20 percent for S corporations.”

The IRS said it expects downward audit trends to continue this year. The Obama administration's fiscal year 2017 budget request would help boost IRS enforcement levels and critical staffing in exam, collection and taxpayer services, the agency statement said.

To contact the reporter on this story: Laura Davison in Washington at ldavison@bna.com
To contact the editor responsible for this story: Brett Ferguson at bferguson@bna.com