IRS audit rate needs attention
Each year, many more Americans join the ranks of people who opt to file their federal, state and local tax returns electronically.
On the federal level, the arrival and growth of the generally less cumbersome electronic-filing option is part of the reason why some officials advocate a smaller Internal Revenue Service — smaller by way of the tax agency’s annual budget and also regarding its human staffing.
According to a May 21 Wall Street Journal article, the agency’s workforce declined 4 percent in 2018 and currently is 21 percent below what it was eight years ago. The number of examiners who perform audits shrunk 38 percent between 2010 and 2017.
According to the Government Accountability Office, the 2019 IRS budget, adjusted for inflation, is smaller than the agency’s Fiscal Year 2000 budget and 19 percent below peak funding in 2010.
President Donald Trump has proposed a 1.5 percent IRS budget increase for the fiscal year that begins on Oct. 1 — to $11.5 billion from $11.3 billion — but that includes a downpayment on improving the agency’s technology. Therefore, the general immediate impact from the total increase, if it wins congressional approval, might be less significant than many within the agency might hope.
That is a picture of where the agency stands, but a major component within that picture needs to start evoking a big uptick of concern — concern that unfortunately has been declining in recent years.
That focus for concern is the IRS’ audit rate, which, according to the Journal, reached its lowest mark since 2002 last year.
Last year, the IRS audited just 0.59 percent of individual tax returns, down from 0.62 percent the year before, marking the seventh consecutive annual decline. Amid that, audits of the highest-income households last year dropped to their lowest levels since the tax agency began reporting that data in 2008.
Then there is this interesting quote from the May 21 article:
“In Fiscal 2018, the IRS audited 6.66 percent of returns of filers with more than $10 million in adjusted gross income, down from 14.52 percent in 2017. Among households with income between $1 million and $5 million, the audit rate dropped to 2.21 percent from 3.52 percent.”
Concern about those numbers shouldn’t necessarily be rooted in suspicion that high-income earners, free from a larger percentage of audits, increasingly are trying to cheat big-time regarding their true tax obligation.
However, it must be wondered how much money the federal coffers actually are losing each year in part due to the declining audit rates and relaxed fears about the possibility of facing an audit.
The Trump administration is promoting a $15 billion decade-long increase in IRS enforcement funding that the agency believes would generate $47 billion in additional federal revenue. That is encouraging.
Nevertheless, differences remain between Republicans and Democrats over how the IRS is operating now and how it will operate, going forward.
Despite those differences, there is room for bipartisan agreement that the IRS audit rate needs to be ramped up to a more realistic rate of scrutiny.
Knowing that the audit rate is not declining but, rather, inching upward would help deter more taxpayers from trying to shortchange Uncle Sam by whatever means. A grossly anemic audit rate like the one now in place practically invites taxpayers to be careless, or worse.
Those aren’t attitudes that the government and IRS should be promoting.