Volume 2 Issue 2006

The IRS had a banner audit year in 2005, Commissioner Mark Everson announced at a televised press conference on November 3, 2005.  Everson said that audits of high-income taxpayers, corporations and small businesses jumped dramatically, and the IRS collected an unprecedented $47.3 billion.

While audits of higher-income taxpayers and corporations received the most attention, the number of examinations jumped for every type of taxpayer in 2005. Of the 131 million individual tax returns filed in 2005, 1.2 million were examined, increasing the number of audits 20 percent over 2004. Audits of small businesses more-than doubled in 2005 from 2004, with 18,000 returns examined.

Special audit targets

"Our number one area of emphasis has been... high-income individuals and corporations," Everson explained at the press conference. He said that audits of businesses with more than $10 million increased 14 percent, bringing the total number of audits for those businesses to 20 percent. The IRS examined a staggering 45 percent of businesses with assets over $250 million.

Likewise, audits of individual taxpayers with over $100,000 in income are at a 10-year high in 2005, with more than 220,000 examinations completed. Commissioner Everson expressed concern that the figure was "still too low," despite being double the 2001 rate.

Deterrence

The IRS's increased enforcement efforts are not merely an effort to collection billions in unpaid tax revenues. Increasing the audit rate also has the benefit of deterring taxpayers who may have otherwise been tempted to underreport income or exaggerate deductions. The IRS pointed out that both fear and fairness play a role in closing the "tax gap" that currently sits at approximately $350 billion.

Customer service

Despite the IRS's newly restored focus on tax-law enforcement, Everson said in his press conference that the IRS took great pains to ensure customer service did not suffer in 2005. Everson noted, "We want to have a balanced approach. He reported that the IRS has success in its customer service including a 95 percent overall taxpayer satisfaction rating.