US Financial Services Firms Less Likely To Undergo Tax Audits, TRAC Study Finds

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

12 April 2005

A study by Syracuse University's Transactional Records Access Clearinghouse (TRAC) has found that America’s banking, credit and insurance firms are far less likely to be audited by the Internal Revenue Service than businesses in other sectors of the economy.

Focusing on corporations with more than $250 million in assets, TRAC found that fewer than one in five firms classified as financial services companies were audited in the fiscal years from 2002 through 2004.

According to the study, this comparatively low audit rate contrasts sharply with other industries. For example, three out of five large firms in the technology, media and communications sector were audited by the IRS during this period, while four out five firms in the retail, food, healthcare and pharmaceuticals industries, and all companies in the agriculture, mining, construction, manufacturing and transportation sectors were audited.

However, taken as a whole, TRAC found that one in three large firms were audited, a rate far higher than for all US corporations regardless of size, where the audit rate is less than one in one hundred. The report also concluded that the audit rate dropped by 11% last year, and that the total number of audits conducted last year was three times lower than a decade ago.

TRAC additionally revealed that civil penalties and fraud filings against corporations were much lower last year then in the past. In the fiscal year 2004, civil tax fraud investigations were assessed against 132 corporations, and negligence penalties assessed against 25 out of some 2.5 million corporations, according to the report.

The findings run counter to the claims by the IRS that it is winning the enforcement battle, and the agency was quick to dismiss the report, arguing that it is misleading to compare banks and financial services firms with companies from different industries.

"The conclusions drawn by the TRAC analysis are not accurate," stated Deborah Nolan, IRS commissioner for the large and midsize business division, according to Dow Jones Newswires.

"It is not the same as a manufacturing concern with the same amount of assets. The bank might be very low risk. So in that sense, it creates an apples and oranges comparison,” she added.

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