IRS Audits Fall to 11-Year Low

Why So Few Americans Are Being Audited

IRS Audits Fall to 11-Year Low
January 28, 2016

If you made a mistake on your 2014 tax return, you might be in luck. You were less likely to be audited by the Internal Revenue Service than at any time since 2004. The initial data shows that only 1.23 million taxpayers were audited during fiscal 2015, representing a 0.84% audit rate. As a result, the money recovered via audits fell to $7.32 billion, which is a whopping 41% drop in collections and the lowest take since 2002. Between 2005 and 2010, revenue from audits averaged approximately $14.7 billion per year.

The audit rate is down for a simple reason, according to IRS Commissioner John Koskinen. The IRS has fewer auditors (or "revenue agents", to use IRS nomenclature) while the number of taxpayers has increased in three of the last four years. Under those conditions, audit rates cannot do anything else but decline. The IRS estimates that they receive $4 in revenue for every $1 that the IRS consumes, and there are 22% fewer auditors at the IRS than there were five years ago

It is not as if the IRS could simply improve their efficiency to overcome for the lack of auditors. The IRS already uses algorithms and statistical formulas to focus resources on areas where non-compliance is more likely. For example, higher-income families and taxpayers who receive the Earned Income Tax Credit are more likely to be targeted.

Why doesn't the IRS simply hire more auditors? Congress has not appropriated enough money for the IRS to do so, according to Koskinen. The agency's request for $12.9 billion in funding was trimmed to $10.1 billion by a Republican-controlled Congress. They are still steaming from the IRS's 2013 focus on groups with Republican-sounding names and the subsequent Congressional hearings that produced lots of sound and fury but little results.

The disclosure of a massive data breach earlier this year certainly did not help the IRS make their case as the vigilant stewards of our tax money. Using IRS information on many thousands of taxpayers, cybercriminals made off with an estimated $39 million through filing fraudulent tax returns.

The funding problems with the IRS extend beyond auditors, as anyone seeking IRS help on their 2014 taxes can verify. Long lines at IRS offices and massive telephone hold times were common. Only 40% of the calls to the IRS were answered at all last year, and at one point, callers who were on hold for two hours or more would receive a "courtesy disconnect"— what most of us would call "being cut off." More than 8 million taxpayers experienced that particular headache. Constant callbacks only aggravated the traffic problem.

With resources likely to be limited next year as well, it seems reasonable that 2016 will be similar to 2015 with respect to the IRS. Tax help will be scarce, the audit rate will stay relatively low, and tax collections will stay low as well.

Isn't a lower number of audits good news for America? From a self-serving perspective, it may be. Nobody enjoys undergoing an audit. However, consider the larger perspective. If the IRS is not auditing a sufficient number of people, more people will get away with fraud, and even more people may be tempted to try. The corresponding loss of revenue eventually ends up as fewer government services or higher taxes spread out over the rest of us.

It is a lot more fun to root against the IRS, but do we really want tax cheats to get off scot-free? Most of us would say no.

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