Syracuse, N.Y. -- April 12 -- The key tax enforcement activities of the federal government -- individual audits, corporate audits and the criminal prosecution of tax fraud -- have substantially declined in the last few years, according to data obtained by the Transactional Records Access Clearinghouse (TRAC).
Contributing to the sharp decline, in what is considered one of government's most important functions, has been the shrinking size of the IRS. In the last 10 years, for example, the number of agency revenue agents and tax auditors dropped to 15,780 in 1998 from 19,813 in 1989.
For comprehensive information about how to obtain detailed information on the IRS's civil and criminal enforcement efforts on the World Wide Web -- based on data from the IRS, the Justice Department and the courts -- go to http://trac.syr.edu/media
The fall off in tax enforcement has been dramatic.
In fiscal year 1998, the district ("face-to-face") audit rate for all classes of individual taxpayers was the lowest in modern history -- less than half of one percent (0.46%). Although the drop from 1997 was quite steep, the percent of all returns audited has been in steady decline for many years. In 1981, for example, the general audit rate was three times what it was in 1998.
Again in 1998, the district audit rate for returns with a total positive income of $100,000 or more was only 1.13 percent. Although the IRS audit rate for wealthier individuals has fluctuated in recent years, the 1998 rate was less than half what it was in 1992.
IRS district audits of corporate tax returns also have declined -- dropping to just a shade more than two out of 100 in 1998. In 1992, almost three out of 100 corporate tax returns were audited. The decline was reported for all corporations, regardless of size. In 1998, for example, slightly more than one third (37%) of the corporations in the IRS's largest grouping, those with $250 million or more in assets, were audited. In 1992, the IRS examined more than half (55%) of these giants.
When the IRS determines there has been a knowing violation of the tax laws, it sometimes asks the Justice Department to bring criminal charges against the alleged violator. IRS criminal matters fall into two broad categories, those involving traditional kinds of tax fraud and those brought against other kinds of criminals such as drug dealers and money launderers. According to records maintained by the United States Courts, the recent trend in tax fraud prosecutions is similar to that recorded in the agency's civil audits -- substantially down. Looking only at the last 10 years, filings have declined in every year but two, going from 1,190 in 1989 to only 766 in 1998.
Explanations for the drop in enforcement activities were varied. In addition to the absolute decline in staffing, the IRS said that there has been greater than average attrition among its more experienced personnel who have the special skills required for the auditing of corporations or wealthier individuals. Because most of the recent vociferous Congressional criticism of the agency came at the end of the 1998 fiscal year, it does not appear that this was a major factor in the declines recorded in the latest available data.
To improve the tax collection process, IRS administrators from time to time conduct special audit studies of various categories of taxpayers. Although these audits can have considerable public value, some members of Congress have raised questions about them, arguing that the selected taxpayers are being treated as unwilling guinea pigs. Despite the criticism and controversy, however, the IRS in recent years has conducted an increasing number of these information gathering audits. In 1992, there were 39,039 of them, (5%) of all audits undertaken by the IRS that year. By 1998, there were 70,380, almost (13%) of the total.
Corporate and individual audit rates in some parts of the country are three to five times higher than in other parts. And looked at over time, the annual audits rates in the different IRS districts change. During the last seven years, for example, the annual audit rate for individual taxpayers in Illinois, Midwest and North Central--three of the IRS's 33 districts--actually have gone up. In Northern Florida and the Carolinas, however, they have sharply declined.
TRAC is a non-partisan data gathering, research and data-distribution organization associated with Syracuse University. TRAC has been supported by the University, the Rockefeller Family Fund, the New York Times Company Foundation, the John S. and James L. Knight Foundation and many other organizations. TRAC's embargo on the tax enforcement and staffing information is intended to give news organizations adequate time to contact responsible government officials for their comments. For detailed information about where the latest data is available go to http://trac.syr.edu/media
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