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by Harry Rabb, C.P.A.
Special to Tropical Breeze
The tax audit rates of the largest
companies are less than half what they were 20 years ago while more
small and mid-size businesses are coming under scrutiny, according
to an organization that monitors the Internal Revenue Service.
The Syracuse University-based
Transactional Records Access Clearinghouse described what it said
was a "historic collapse" in audits for corporations holding assets
of $250 million or more. About 26 percent of them were audited in
the 2007 budget year compared with 34 percent in 2006 and 43
percent in 2005.
The IRS did not dispute the numbers, based
on agency data. But it strongly disagreed with suggestions it was
easing oversight of the biggest corporations.
Enforcement revenues from large companies
rose by one-third in 2007 from the previous year, from $10.6
billion to $14.2 billion, said IRS Deputy Commissioner Barry Shott,
who heads the Large and Mid-Size Business Division.
While the number of examinations has
declined, the IRS contends that what they are doing is focusing
resources better on where the noncompliance is.
The IRS has said the focus in recent years
has been on tax shelters and "extraordinarily complicated"
partnerships and S corporations where shareholders, rather than the
company, must report income or losses. Last year the IRS examined
17,700 "S" corporations, compared with 14,000 the previous year,
and 12,200 partnerships, compared with 9,800.
But the TRAC report concluded that the IRS
also was concentrating on regular small and mid-sized companies to
boost audit numbers.
"Moving the focus of the corporate
auditors away from the large corporations and toward the smaller
ones has been quite effective when it came to increasing the
overall number of these kinds of audits but actually was
counterproductive in financial terms," the researchers said.
The new IRS commissioner, Douglas Shulman,
said in a response that he intends to make "targeting noncompliance
with our tax laws ... a high priority."
According to IRS statistics, 15 percent,
or 4,473, of companies with $10 million to $50 million in assets
were examined in 2007. That compares with 12.3 percent, or 3,535
companies, that were audited in 2005.
In the same two years, the percentage of
audits of corporations in the $50 million to $100 million range
fell from 16.4 percent to 11.4 percent. For corporations in the
$100 million to $250 million range, the percentage dropped from
17.5 percent to 12.1 percent.
Among the largest corporations above $250
million in assets, 3,424 were audited in 2007, down from a peak of
4,859 in 2005.
TRAC also questioned the financial
benefits of the shift. The group said that last year the government
uncovered $682 in additional recommended taxes for every revenue
agent hour spent auditing the smallest corporations, compared with
$7,498 in additional taxes for audits of the largest
corporations.
The IRS Commissioner told the Senate
Finance Committee recently that audits of businesses in general
rose from 52,000 in 2006 to 59,500 in 2007.
He acknowledged that audits of the largest
corporations were down. But he said that "in times of flat budgets,
the agency cannot increase activity across the board, but must
address the areas where there is growth and potential risk."
He also cited a new program where larger
companies work with the IRS during the year so there will not be
disputes at tax-filing season. Participants in this program rose
from 17 in 2005 to 73 this budget year, he said.
The returns of these companies do not show
up in enforcement statistics, he said, but the collaboration can
avoid controversies that can go on for years.
Having more money was not necessarily an
advantage for individual taxpayers. The IRS said that last year it
audited 9.25 percent of those with incomes of more than $1 million,
compared with 6.3 percent in 2006. For those earning less than
$100,000, the chances of getting audited were less than 1
percent.
The tax agency said total enforcement
revenues in the 2007 budget year, from collections and appeals
activities were $59.2 billion, up from $48.7 billion the previous
year.
• • •
This information is provided as a public
service and should not be construed as individual accounting or tax
planning advice. For information on how these general principles
apply to your situation, please consult an accounting or tax
professional.
Harry Rabb is a C.P.A. and partner in
Cormier & Rabb, CPAs, Accounting, Tax and Consulting Services,
28163 U.S. Hwy. 19 N., Ste. 204, Clearwater. Call 727-796-2459.
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