The auditing of tax returns of big companies has decreased in the last few years even though the federal government has reiterated many times that it will crackdown on the big guys who are trying to decrease their tax liabilities. Last year, only one-fourth of the big league companies were audited.
The Transactional Records Access Clearinghouse, a neutral research group from the Syracuse University reported recently that the percentage of tax audits of big companies in 2009 was the lowest in last 20 years. The researchers had obtained this information under the Freedom of Information Act, which showed that there is ‘perverse quota system’ being followed by IRS internally that pushes auditors towards small and medium businesses and pulls them away from big companies.
According to the study, the practice by the IRS is surprising as the highest amount of misreported tax dollars per auditor hour are discovered while auditing big businesses. This clearly follows that more tax can be collected by focusing on big companies. Moreover, special funds have been given by the Congress in the last five years to IRS for hiring revenue agents who are specially trained to handle the complex returns of these businesses.
According to the New York Times, IRS has refuted the allegations made by the research group. It said that the survey is wrong, as it did not account for the increase in hours spent by the IRS agents in helping businesses before the filing of tax returns in order to weed out mistakes or underpayments. IRS spokesperson said that the statistics show that they have become more competent in getting unpaid taxes from the big businesses and the average tax money recovered by auditors per hour has on the contrary gone up.
Another problem in the study that has been pointed out by IRS is that 2005 has been taken as the base year. They point out that this base could be misleading as a big initiative was launched in that year for closing old cases.
There was a time when IRS used to ignore the big fish while looking for underpaid taxes. This trend changed when profits of big businesses increased sharply and IRS started giving attention to those who had the highest income.
There are many steps being taken in this direction by the Congress and IRS. According to the enforcement chief of IRS, there was 100% auditing of corporations whose assets were more than $20 billion. Further, it will soon be made compulsory for big companies to give a detailed statement with their tax returns that will need to give information on deductions, which could be questioned later.