Sunday, April 13, 2008

IRS audits of big corporations down 66%

Hmmm.... The IRS is auditing fewer big corporations, but it is finding more in unpaid taxes from the firms it does audit. Does this mean that big corporations, having realized they are much less likely to be audited, are taking much greater liberties with U.S. tax laws?

When the Bush Administration refuses to adequately fund the IRS, the IRS does what it can with the resources it is provided -- and that means doing more quicker audits of individuals and small businesses, and fewer longer audits of large corporations.


IRS eases pressure on Big U.S. companies, study says
By Lynnley Browning
April 13, 2008 | International Herald Tribune

Most Americans dread tax season. But corporate America seems to have less to fear from the Internal Revenue Service than it used to, according to a new study.

The IRS's scrutiny of the biggest U.S. companies is running at a 20-year low, according to the study, conducted by Transactional Records Access Clearinghouse, or TRAC, a research group affiliated with Syracuse University.

The study, made public Sunday, points to "a historic collapse in audits." It found that major corporations - defined as those with assets of at least $250 million - have about a one in four chance of being audited, down from about three in four in 1990.

Individuals have about a 10 percent chance of being audited, more than double the odds in 2000, according to the IRS.

The study's findings stand in sharp contrast to the tough talk coming out of the IRS in recent years. The report suggests that the agency is shifting its focus away from big corporations to small companies, private partnerships and other private entities, a move that tax lawyers said was consistent with trends they were seeing.

But IRS officials, who reviewed the report prior to its release, said Friday that TRAC misinterpreted a basic shift in corporate America in recent years. Companies of all sizes, as well as wealthy individuals, have embraced certain partnerships and other opaque entities in an effort to minimize taxes, the officials said.

Sometimes those arrangements cross the line into tax abuse. Because large companies increasingly use such partnerships, the IRS has stepped up scrutiny of these entities.

"These aren't mom-and-pop grocery stores we're auditing," said Barry Shott, a deputy IRS commissioner.

The IRS has not reduced its scrutiny of large corporations, he said. Instead, it is focusing on the private partnerships some of these companies use to avoid paying taxes.

Shott said the IRS supplied data to TRAC but that the group, which gathers information from government agencies under the Freedom of Information Act, misinterpreted it. TRAC, which has gone to court to force the IRS to turn over more detailed data on audits, stood by its findings.

While the report singled out the IRS's increased focus on partnerships, it also said that the agency was increasingly targeting smaller corporations, or those with no more than $50 million in assets. Such companies require less time and money to investigate, something that is important to the IRS, which has long complained that it is underfinanced. Such investigations, however, typically bring in fewer unpaid tax dollars than audits of large corporations.

"I'm still trying to find my jaw on the ground from the finding that audit rates for the big boys are plummeting," said Dean Zerbe, the national managing director of Alliant Group, a tax planning company. While corporations account for a small percentage of all taxes paid to the U.S. government, their share of the total has been rising in recent years.

Last year, corporations of all sizes accounted for nearly 23 percent of all federal income taxes paid, or around $395 billion, according to previously-released data from TRAC. That is up significantly from 2001, when corporations accounted for 13.7 percent of all taxes paid, an all-time low. Individuals paid the rest.

The IRS is bringing in more money from corporations of all sizes through its audits. Last year it brought in over $59 billion in unpaid tax revenues, according to statistics from the agency. That is nearly double the level of 1998 and is consistent with a steady climb since then.

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