Thursday, May 21, 2009

IRS Audits of Large Companies Decline for 3rd Year in Row

From the Wall Street

Internal Revenue Service audits of large corporations fell for the third straight year, as the tax agency focused scarce resources on the growing area of partnership returns and the very largest corporations.

According to 2008 IRS enforcement data released Monday, the IRS audited 15.3% of returns of corporations with assets of $10 million or more. That is the lowest audit coverage level since 2003 and down from a 20% coverage rate in 2005.

Audits of corporations with assets of $50 million and higher increased, however. The IRS also continued to direct examination resources towards partnerships, auditing about 1,000 more partnership returns than it did in 2007, an 8% increase. The number of partnerships filing returns has grown by about two-thirds over the last 10 years.

IRS Deputy Commissioner Linda Stiff said 2008 was "a very challenging year," where the agency saw a decline in enforcement staffing levels of about 2%.

In addition, some enforcement staff were re-directed to help field calls from taxpayers related to tax rebates that Congress ordered as part of economic stimulus legislation.

The "IRS is very proud of what we were able to accomplish. It's been a solid year in the enforcement arena, and we continued to build on the success of earlier years," Ms. Stiff said in an interview.

Overall, the IRS collected $56.4 billion from enforcement efforts in 2008, which would be a record but for 2007's high-water mark $59.2 billion in collections.

Dean Zerbe, national managing director of the alliantgroup LP, said the decline in overall large corporation audit coverage is disturbing given what he says is a shift in IRS resources towards more of a focus on small and medium-sized firms.

Audits of small and mid-sized firms don't produce as much tax revenue, and about one-third of the time produce no change in taxes assessed, according to Mr. Zerbe. "They spend a lot of time doing root canals on people who are basically compliant," he said.

Alliantgroup represents small and mid-sized firms in disputes with the IRS.

Individual audits remained about the same as in 2007, with about 1.4 million returns audited, or about 1% of total individual returns.

Taxpayers with income of $200,000 or above had about a 3% chance of being audited. Those with income of $1 million and above stood a 5.6% chance of being audited, down from 6.8% coverage in 2007.

Ms. Stiff said the IRS will continue in 2009 the same level of focus on individuals with incomes above $200,000. With respect to business returns, the agency will continue to give more scrutiny to the largest corporations, and will intensify examinations with respect to employment taxes, she said.

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