IRS Audits of Firms Decline, Study Says

The Internal Revenue Service audited fewer corporations, small businesses and partnerships last year but more individual taxpayers, according to a study of government data.

Syracuse University’s Transactional Records Access Clearinghouse, in its analysis of IRS data, concluded that the audit rate for businesses of all sizes slid slightly in 2003 to 2.1 audits for every 1,000 businesses, down from 2.2 audits per 1,000 businesses the previous year.

At the same time, the IRS audited 14% more individual tax returns. The audit rate for individuals increased last year to 6.5 audits for every 1,000 taxpayers.

Official audit rates released by the IRS last month show a similar trend.

Researchers said the declining audits of businesses exposes a flaw in the administration’s tough stance against corporate wrongdoing.

“These and a number of other 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 claims when it comes to cracking down on corporate scofflaws,” the report said.

Researchers point specifically to declining audits of the largest corporations and a type of business organization that passes income and taxes on to its shareholders or partners -- an arrangement found to have been improperly used in some corporate accounting scandals.

IRS Commissioner Mark Everson said the agency’s broad attack on corporate tax evasion did not show up in the audit numbers.

“Am I satisfied with the numbers? No. I want to see them go up,” he said. “I’m not surprised that that’s lagging the other indicators. And while I think it’s an important indicator, it doesn’t tell the whole story.”

Some advocates said the trend appeared troubling.

“What struck me first was the commissioner earlier this week said that they’d increased enforcement and then I look at these numbers and say, ‘What is he talking about?’ ” said David Keating, senior counselor for the National Taxpayers Union. “It really opens up a credibility gap.”

In a detailed written response, the IRS said the study ignored the reasons for the decline in corporate audits and other enforcement actions taken against businesses.

The IRS said the decline can be attributed partly to the explosive growth in tax shelters, which make audits more intricate and time-consuming. Tax collectors worked more than 2,200 corporate tax shelter returns in 2003.

The agency’s workforce has shrunk while its workload has grown, the IRS said.

The agency has been criticized for shifting money from tax enforcement to pay for other administrative costs. Everson said he has reversed that practice and expects the agency will have hired 250 more agents by autumn.