Taxes

The IRS Hasn't Been Going After as Many Taxpayers as Before. Why?


The IRS Hasn't Been Going After as Many Taxpayers as Before. Why?

Photograph by Stephen Mallon/Getty Images

There’s a bit of good news today for IRS haters. Congress has been starving the agency of funds for the last three years, Bloomberg News‘ Richard Rubin reports. And that rationing has had a direct impact on the IRS’s policing of taxpayers.

The IRS’s budget took almost a 3 percent hit from fiscal years 2010 to 2012, according to a just-released report (PDF) from the inspector general for the Treasury Department. The cuts forced the IRS to trim 8,000 full-time workers from its rolls, 5,000 of whom were auditors. Those layoffs amounted to a 14 percent reduction in the agency’s enforcement staff, which caused the money that the IRS collects through audits to fall off by 13 percent.

So did this cause the IRS to choose its targets differently? Yes. A few interesting take-aways:

• Policing of corporations jumped 15 percent, compared to 2009. One in 61 corporate returns went under the IRS’s magnifying glass last year. And over the past five years, audits of businesses with assets of $50 million to $250 million increased by more than 77 percent.

• S corporations and partnerships are getting more scrutiny. The IRS audited 1 in 206 S corporations in fiscal 2012, compared to 1 in 270 in fiscal 2010—that’s a 33 percent jump. Meanwhile, the number of returns filed by partnerships that the IRS audited between fiscal 2010 and fiscal 2012 increased 35 percent.

• Audits of individuals fell from 2011 and 2012. Last year the agency audited 1 in 97 individual returns.

• And the IRS let more estate tax returns slide through without a closer look. It audited 10 percent fewer of those returns last year.

There’s no way to know whether those particular trends will continue. The agency’s ability to crack down on delinquent taxpayers will probably be hampered. One big factor: budget squabbles in Congress. Republicans in the House want to chop 24 percent from the agency’s 2014 budget; President Obama wants to pad the budget by 9 percent. Plus the sheer complexity of the IRS’s mission keeps increasing. It is responsible for enforcing 50 provisions in Obamacare and hasn’t received additional funding from Congress for the task, according to the Treasury inspector general. And the Supreme Court’s decision to strike down the Defense of Marriage Act earlier this year piled even more work onto the IRS’s proverbial plate.

Hinman is an associate editor for Bloomberg Businessweek.

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