Research Indicates Decline In IRS Corporate Audits

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

14 April 2004

A new study conducted by Syracuse University has found that the number of business audits undertaken by the Internal Revenue Service continues to decline, appearing to contradict claims by the IRS that it is getting tougher on enforcement.

According to the research, compiled by Syracuse University's Transactional Records Access Clearinghouse, audits for business taxpayers are down from three per thousand five years ago, to two audits per thousand in the 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.

For larger corporations (those with $250 million or more in assets), the audit rate dropped to 290 per thousand in 2003 from 347 in 1999. Decline was also witnessed in the audit rates for ‘pass through’ entities from 4.5 per thousand in 1999 to 3.2 per thousand in 2003.

“These and a number of other such measures - documented by the agency's own data - indicate that the actual performance of the IRS differs in significant ways from some of the Bush Administration's claims when it comes to cracking down on corporate scofflaws,” the institution argued.

It added that “in addition to the continuing decline in a variety of audit programs aimed at businesses, information collected separately by the Justice Department and the courts show that federal tax prosecutions have also continued their long slide, now totalling about half what they were a decade ago and one third lower than what they were five years ago.”

However, the IRS responded to the research by suggesting that the figures used were incomplete.

"The study does not paint a full picture of IRS activity on corporations," the agency commented in a statement on Monday, adding that: "The IRS acknowledges that corporate audits have fallen in recent years, but the study overlooks key reasons for the decline."

The Revenue blames the decline on the length of time needed to resolve complex corporate tax shelter cases, which diverted resources away from company audits last year.

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