Large U.S. corporations had a good tax-filing season in 2015. Firms with at least $10 million in assets faced the lowest IRS audit rates in at least a decade as the tax agency coped with staffing declines, new data show. Audit rates of tax-exempt organizations also fell to their lowest rate in more than ten years, the IRS statistics show, mirroring declines in audits of tax returns filed by individuals. As a result, IRS collections of audit-related revenue fell to $7.32 billion in fiscal year 2015, the lowest level in 13 years. The agency projects the collection decline will continue, affecting the overall federal budget, because enforcement personnel levels last year also dropped to the lowest headcount in more than a decade.
“No office in this organization has been untouched. What you’ve got is the lowest level of staffing in 20 years,” IRS Commissioner John Koskinen, saying it’s not feasible to fill enforcement gaps by transferring staffers from other offices. Koskinen blamed the outcome on IRS budget cuts that reduced the agency’s annual funding for several consecutive years until Congress approved a $290 million increase for the current period. Much of the increase was earmarked to improve taxpayer assistance programs that even IRS officials acknowledged had fallen to abysmal levels.
The new IRS data underscored that characterization, showing that just 38% of taxpayers managed to get through when they phoned the agency with tax questions during 2015. Hoping to convince Congress of the need for increased funding, the summary of the IRS’ proposed fiscal year 2017 budget categorizes fiscal allocations by specific services, including enforcement and taxpayer assistance. For instance, it outlines a nearly $90.5 million proposal that would add 699 full-time staffers who would “handle more than 30,000 additional collection cases.” “We’re trying to get the appropriators to understand … what they get for what they pay” in additional budget funding,” said Koskinen. “The corollary is I want them to understand what the consequences are” when budget cuts are approved.
It could prove to be a hard sell, despite general acknowledgment that IRS tax-enforcement staffers produce more federal funding than their combined salary and benefits. During congressional budget hearings this month, lawmakers quizzed Koskinen about IRS projections that higher would improve taxpayer assistance levels during the 2016 tax-filing season. But they remained noncommittal so far on requests for additional budget hikes.