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It's all at the IRS!!


IRS continues audit trend away from large corporations and toward smaller businesses

The Internal Revenue Service (IRS) has reduced the number of hours agents spend auditing corporations with assets of $250 million or more by one-third since 2005 and increased the number of hours spent on audits of companies with assets of less than $10 million by 30 percent, according to a report bythe Transactional Records Access Clearinghouse (TRAC), a nonpartisan research group affiliated with Syracuse University.

This trend in IRS priorities will not yield greater revenue gains. Data show that audits of larger corporations produce significantly higher returns per audit hour – $9,354, for audits of large corporations compared to $1,025 for small to mid-size companies. Revenue per audit hour for large companies increased from $6,594 in the five-year period revenue from audits of small to mid-size companies actually decreased in 2009 from the $1,294 reported for 2005.

IRS statistics show 94 percent of tax underreporting comes from large companies, with only 6 percent coming from small companies, the study reports.

The authors of the study, TRAC co-directors Susan Long and David Burnham, find that that the current political context makes this shift even more puzzling. "The dramatic collapse in the auditing of those corporations with assets of $250 million or more has occurred during a period of increasing national concerns about growing federal deficits, growing public distrust of big business, and intense worry about the extent of white collar crime personified by executives like the investment adviser, Bernard Madoff."

Other statistics based on data provided to TRAC confirm the trend. The number of large corporate audits has fallen from 4,693 in 2005 to 3,675 in 2009. The audit rate of these companies has also fallen, from 43 percent of all returns in 2005 to 25 percent in 2009. While the total number of returns filed by large corporations has increased from 11,027 to 14,683 since 2005, the number of large company returns filed but not audited has decreased significantly, from 57 percent of returns not audited in 2005 to 75 percent of returns not audited in 2009.

Susan Long, co-director of TRAC and faculty member at Syracuse University's Whitman School of Management told AccountingWEB that that the trend could not be explained by a shortage of resources, because the IRS was hiring more staff during the period. "The IRS also was not responding to return growth, since where returns were growing fastest -- larger corporations -- they were cutting back the most, and where returns were declining -- smaller corporations -- they were expanding their audit hours."