GOP gift to higher income supporters - IRS audit rate will be going down due to Budget cuts

[Bill USA]

GOP insistence on dealing with the deficit only with cuts to programs and no revenue increases is impacting virtually all government agencies, including the IRS. Cutting the audit effort of course means that the TAX GAP will increase. The tax gap is the difference between what taxpayer actually owe the Government and what the Government actually collects in tax revenues.


http://www.usatoday.com/money/perfi/taxes/story/2012-04-02/IRS-examinations/54180938/1


Coping with federal budget cuts, a hiring freeze, staffing reductions, an increasingly complex tax code and a surge in tax refund identity fraud, the IRS has found it harder to fulfill its mission of detecting and stopping fraud while responding to taxpayer needs. Although the IRS increased the number and percentage of audits on all individual tax returns in the past decade, agency data show the rates plateaued at 1.1% in fiscal years 2010 and 2011.

At that rate, about one out of every 90 filers would be audited, said Michael Lacey, a Georgia Institute of Technology mathematics professor. A taxpayer would be more likely to roll six dice and have six unique numbers appear on the first roll than to be audited, said Lew Lefton, Internet technology chief at Georgia Tech's math school.

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the IRS has estimated the annual tax gap to be about $345 BILLION: http://www.ombwatch.org/node/11953

Update on Reducing the Federal Tax Gap and Improving Voluntary Compliance - Dept of Treasury

Tax Gap 2006 - $450 Billion - IRS: http://www.irs.gov/pub/newsroom/overview_tax_gap_2006.pdf

[kestrel91316]

1. I expect the audit rate on turnips aka Little People to go up. It always does.

[Fumesucker]

2. Much easier to audit little people..

They don't have fancy tax lawyers and accountants to go to bat for them, intimidation is far more effective.

[kestrel91316]

3. But it's a waste of money because the ROI is so small when you harrass poor people.

I know. They audited 3 years of my returns and found only an error in how I accounted for interest on debt. They got less $1000, when they were hoping for and expecting tens of thousands, if not hundreds of thousands, lol.

[Bill USA]

4. a review buy GAO concluded that the IRS recovers about $11 to $13 for every $1 spent auditing. And

yes, they audit the 'small fry' too much which represents a much lower return (or net loss) for the expense. But when you add in the recovery of taxes from audits of more complex returns it comes out to $11 to $13 per $1 of expense.

IRS Budget Cut Translates to Huge Tax Loss

Each dollar of the IRS budget results in revenue returned to the government, and a 2003 Government Accountability Office (GAO) report (GAO-03-299) indicates that there would be substantial returns on the dollar – from 11 to 13 dollars raised for every dollar spent – for precisely the kinds of enforcement activities that Everson says have been curtailed by budget cuts this year.

[Bill USA]

5. The big money to be recovered is in auditing tax evasion shemes by corporations & the very wealthy

IRS Can Improve Efforts to Address Tax Evasion by Networks of Businesses and Related Entities

Taxpayers can use networks to carry out a wide variety of legitimate business functions; however, networks also can be used to evade federal tax obligations. A network is a collection of entities linked through direct ownership or through common owners, associates, or shareholders. For example, a network may consist of a taxpayer who owns a corporation that does business with a partnership in which the same taxpayer is a majority shareholder.

Network-related federal tax evasion occurs when the network’s taxpayers improperly structure complex transactions among commonly held entities. This allows the taxpayers to shift expenses or hide income, resulting in lost federal revenue. In one recent example, the U.S. Court of Appeals for the Ninth Circuit held that a family used transactions between commonly owned entities to improperly eliminate $200 million in capital gains and avoid $4 million in taxes.1 The extent of network-related tax noncompliance has not been estimated, but in a 2007 tax compliance forum we sponsored with the Joint Committee on Taxation and the Congressional Budget Office, tax policy experts cited flows of income among related entities as a potentially large problem.2 Some of the participants also said the Internal Revenue Service (IRS) needed to be more innovative in auditing such flows.

IRS recognizes the risk posed by network-related tax evasion and is developing new tools and programs to better identify and pursue such evasion. For example, one new tool helps examiners graph the relationship among entities in a taxpayer’s network using information collected in an IRS database. IRS’s new tools and programs are in various stages of development—some have yet to be fully implemented—and their potential effectiveness is not known.
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But to go after these very complex schemes takes experts, time and money. When the IRS budget is cut it adversely impacts the IRS's ability to pursue these tax evasion artifices.