More Audits And Tougher Sentences Will Have A 'Significant Impact' On IRS Tax Gap, Study Says

by Leroy Baker, Tax-News.com, New York

04 June 2004

A study conducted by a senior economist at the California Institute of Technology at Pasedena has suggested that the IRS could collect an additional $19 billion in revenue by doubling the number of taxpayer audits it undertakes.

Discussing the conclusions of his findings at an IRS research conference on Wednesday, Professor Jeffrey Dubin observed that boosting audit rates would have an “important fiscal impact” and make a significant contribution towards narrowing the $200 billion ‘tax gap’ in uncollected taxes.

Professor Dubin’s study also mooted the idea of doubling sentences for tax and money laundering offences, which he claimed would bring in an extra $17 billion in tax revenues for the IRS.

The agency has been the subject of heavy criticism recently for allowing a sharp fall in the number of audits it carries out, particularly on larger businesses.

Recent research by Syracuse University's Transactional Records Access Clearinghouse revealed that audits for business taxpayers are down from a level of three per thousand five years ago, to two audits per thousand in fiscal 2003, whilst the decline in face-to-face audits for all corporations fell from fifteen per thousand in 1999 to seven per thousand in 2003.

Since undergoing a major restructuring exercise in 1997, the IRS has reduced the number of revenue agents examining tax returns from 18,000 in 1995 to 13,000 in 2002.

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