IRS Business Audits Declined Through First Half of 2004

November 4, 2004 -- Despite repeated promises from the Internal Revenue Service that it was going to crackdown on corporate tax violators, the pace of business audits performed by the agency slid in the first half of fiscal year 2004, according to an analysis by Syracuse University.

Data obtained from the IRS by the Transactional Records Access Clearinghouse at Syracuse showed that there were 7,794 business audits performed between October 1, 2003, and March 31, 2004, the first half of the government's fiscal year. This represented a 26% decrease from the fiscal 2003 pace, according to TRAC's analysis. The IRS disputes the figures, claiming they don't account for seasonal fluctuations. The tax agency has said it expects 2004 collections to exceed $40 billion, a 10% increase over 2003.

The analysis found that the average time spent on each audit by the IRS fell by 6%. Moreover, the biggest companies received significantly less attention than in 2003. The time per audit of companies with assets in excess of $250 million fell by one-third. TRAC asserts that this trend has resulted in a reduction in the thoroughness of audits of large corporations.

The figures show that the IRS, at least in the first half, reduced the number of audits performed on the smallest businesses, or those with assets valued under $10 million. Through the first six months of the fiscal year, the IRS audited 3,757 such businesses, down 45%. However, the time spent on each audit increased 17%.

Conversely, mid-sized businesses, defined as those with assets between $10 million and $50 million, experienced a much higher degree of scrutiny, with 1,390 audits, up 40%. TRAC attributes the shift in attention away from the largest companies to mid-sized companies to the fact that they take less time and resources to perform.

The Syracuse researchers contend that their findings "conflict with a series of statements made by IRS Commissioner Mark W. Everson asserting that the IRS had halted the long decline in the government's efforts to police corporate non-compliance."

Meanwhile, the IRS has been fighting for additional resources. The Bush administration requested $4.6 billion this year in funding for IRS enforcement, compared to $4.2 billion in the 2004 budget. Legislation has not been agreed upon, as the House approved $4.28 billion and the Senate passed $4.56 billion.

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