Why US corporations are paying billions less than they owe in taxes
The IRS is losing out on tens of billions of dollars in tax revenues from large corporations thanks to insufficient resources.
A new research paper examining the effect of diminished IRS resources on the audit process for publicly traded companies estimates that corporate taxpayers would have been forced to cough up an additional $34.3 billion, or more, if the agency had an extra $13.7 billion in overall enforcement resources.
That accounts for more than 19 percent of the overall tax gap from 2002 through 2014.
In fact, researchers even say that their estimate of potential corporate tax collections may be on the low side.
“It is possible that the total net cash inflow given an additional $13.7 billion in total enforcement expenditures could be much larger given that our estimate does not include additional collections from audits of small corporations, individuals or foreign entities, and it does not reflect the impact of IRS resources on the probability of audit,” they wrote in the paper.
While the IRS makes a smaller number of challenges with fewer resources, it is effective on collections after appeals, suggesting “fewer resources leads the scope of the audit to be limited to taxpayer positions supported by the weakest facts,” researchers concluded.
The study used audit examination data for tax return years 2000 through 2010.
Funding for the IRS has been on the decline. Between fiscal 2010 and 2017, the agency’s funding levels declined by about 20 percent. In 2018 the agency’s budget saw a slight uptick, including $320 million to implement Republicans’ sweeping overhaul of the U.S. tax code.
The IRS lost about 18,000 full-time positions between 2010 and the start of 2018. In 2017 alone, 6,801 permanent jobs were lost. The number of auditors has dropped about 30 percent since 2010 –falling under 10,000 for the first time since 1953 last year – to 9,510, according to ProPublica.
The fact that some corporations pay little in federal taxes has become a rallying point for Democrats on the 2020 campaign trail, for everyone from former Vice President Joe Biden to independent Vermont Sen. Bernie Sanders. Massachusetts Sen. Elizabeth Warren even put out a plan that would end the ability of companies to circumvent their federal tax liabilities. E-commerce giant Amazon has become a frequent target for lawmakers, who like to mention it as one of the large corporations that pays nothing in federal income taxes. Amazon, however, maintains that it has paid everything it owes both at home and abroad.