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By MARY DALRYMPLE, AP Tax Writer
WASHINGTON - The Internal Revenue Service (news - web sites) 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, made available Sunday, concluded that the
audit rate for businesses of all sizes slid slightly last year 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 percent 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 in an interview that the agency's
broad attack on corporate tax evasion does 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 appears 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."
Chellie Pingree, president of Common Cause, a government watchdog group,
said the study suggests corporations are not paying their fair share.
"This is at a time when taxes have been drastically cut from the
wealthiest in the country, and there are very heavy, legitimate demands
on our government, between war in Iraq (news - web sites) and homeland
security," Pingree said.
In a detailed written response, the IRS said the study ignores 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. Each takes an average 7 1/2 months longer than other corporate
returns, and their number is growing.
The agency's work force 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. If the agency gets the budget requested by the president,
it will hire an additional 600 agents by the same time next year, he
said.
Audits and other enforcement activities declined sharply in the late
1990s when Congress mandated that tax collectors pay more attention
to customer service. Individual and corporate audits slid sharply.
The Syracuse University study concludes that audits of individuals
increased last year. Much of the increase occurred in correspondence
audits, not face-to-face meetings between revenue agents and taxpayers.
Researchers said the audits "by their very nature are comparatively
superficial."
The IRS said correspondence audits are faster and cheaper than traditional
audits. The average additional tax assessed in a correspondence audit
was $3,338 last year.
Keating said taxpayers take any communication with the IRS seriously.
"When you get a letter inquiring about a discrepancy ... you probably
feel that's an audit," Keating said. The IRS also has an extensive
program to match information on taxpayer returns with information submitted
by employers, banks and financial institutions, he said.
"People shouldn't look at these numbers and say, `I can put whatever
I want on the tax return.'"
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