IRS News

The IRS is blaming a shrinking budget and a dwindling staff as the reasons why audits of individuals have dropped to their lowest level in 13 years.

In fiscal year 2016, just 0.7 percent of individual taxpayers were audited, either in person or by mail, which is the lowest audit rate since 2003, the Associated Press reported.

The IRS audited a little more than 1 million individual tax returns in 2016, the fewest amount since 2004. The number of audits declined 16 percent from the year before, marking the sixth straight year of declines.

High-income taxpayers still stand the greatest chance of being audited. The IRS audited 1.7 percent of returns that reported more than $200,000 in income and 5.8 percent of returns that reported more than $1 million in income. But both audit rates were down from the previous year, the AP said.

The IRS points to its budget – or lack thereof – as to why there aren’t as many audits as before. Money for the agency shrunk from $12.2 billion in 2010 to $11.2 billion last year. And now President Trump has proposed a 14.1 percent cut to the IRS for the fiscal year that begins in October, reducing the agency’s budget to $9.65 billion, the New York Times reported.

Since 2010, more than 17,000 full-time employees have left the IRS, and according to a speech by Commissioner John Koskinen last year, 5,000 of those were enforcement personnel. The IRS has since bumped that number up to 7,000 enforcement agents who were lost.

“Not surprisingly, audit revenue has continued to decline as well. In cutting the IRS budget, historical collection results suggest that the government is forgoing more than $5 billion a year in enforcement revenue, just to achieve savings of a few hundred million dollars,” Koskinen said in a speech before the National Press Club in March 2016. “In weakening our compliance programs, these cuts also create risk for our system of voluntary compliance.”

So, with the audit rate as low as it is, is it safe for people to cheat on their taxes? Craig Smalley, EA, a columnist with AccountingWEB, said he would never advise a client to gamble with the IRS.

“Don’t be fooled by the low audit rate. The IRS has had its funding slashed every year for the last four years. They are just adapting,” he said. “They are still tasked with having to raise the same or even more revenue than in the past. The office audit rate and field audit rate are low, but there are a ton of correspondence audits. I’ve had to deal with IRS Criminal Investigation three times in my career, and it wasn’t pretty. I had to get a criminal lawyer both times to make sure that I did everything by the book in my representation of the client. If people only knew what they were gambling with, they wouldn’t bother.”

 

Source: ACCOUNTING WEB