IRS audits fall to lowest level since 2002

By IRSFOXBusiness

IRS too understaffed to handle GOP tax overhaul?

Former IRS Commissioner Mark Everson on the impact of the Republicans' tax reform plan.

The number of Americans audited by the Internal Revenue Service (IRS) last year declined to its lowest level since 2002.

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The IRS screened just 0.62% of individual returns in 2017 as taxpayer audits dropped for the sixth year in a row, the agency said, as reported by The Wall Street Journal. Of high-income households, which are expected to be audited at a higher rate, just 4.37% of returns were scrutinized last year, while the rate for taxpayers with incomes below $200,000 was 0.59%.

Throughout fiscal year 2016, the overall number of individual tax returns audited by the IRS dropped to 0.7%, which was the lowest level in more than a decade at the time. About 1 million returns were analyzed, representing a 16% decline over the year prior and a decrease of more than 33% since 2011.

In 2017, business audits also declined, with just 0.44% of all businesses having their documents assessed last year.

Two former IRS commissioners told FOX Business earlier this year that during their tenures, 2003-2007 and 2011-2012, respectively, the number of audits were already beginning to drop.

Since fiscal year 2010, IRS funding levels have declined by about 20%, according to National Taxpayer Advocate Nina Olson. The agency received $11.2 billion in funds during the last fiscal year, and the Trump administration’s initial budget blueprint for 2018 aimed to cut another $239 million. Coloring some perceptions of the agency on Capitol Hill is the Tea Party targeting scandal, which drew widespread public attention in 2013 when IRS official Lois Lerner admitted the agency was dissecting conservative groups’ applications for nonprofit status with greater scrutiny.

The final budget for 2018 increased funding slightly to $11.4 billion, which Olson said the agency needed in order to implement the GOP’s massive tax reform overhaul.

It is unlikely any of those additional funds, however, will be put toward increasing audits for this tax season. IRS enforcement staff declined 23% between 2010 and 2016, to 38,800 individuals, according to the Government Accountability Office, as reported by The Los Angeles Times.

According to the most recent report, spanning the years 2008 through 2010, the U.S. tax gap was $458 billion, or 18% of what was owed. Fifty-two billion dollars was eventually recovered, leaving the net value of the gap at $406 billion, which was largely the consequence of underreporting.

Meanwhile, the massive changes to the tax code indicate the chances of noncompliance, even if unintentional, are likely to rise going forward.

At some point, the lack of audits is going to start impacting whether people comply with the laws, former acting IRS commissioner in 2012 and national director of tax at the Alliantgroup Steven T. Miller told FOX Business in January.