Internal Revenue Service enforcement revenues fell from $56.4 billion in fiscal year 2008 to $48.9 billion in FY 2009, the IRS Oversight Board said in its 2009 annual report to Congress, despite the fact that the number of audits performed increased, particularly for individuals with incomes exceeding $1 million.
The examination coverage rate for taxpayers with incomes greater than $1 million is six times higher than that for lower income taxpayers, the report said. Audits of individuals with incomes in excess of $1 million increased by 29 percent from FY 2008 to FY 2009.
Likewise, corporations with larger assets had a higher examination rate than corporations with smaller asset categories. Audits of corporations with assets of more than $10 million grew by 1.4 percent from FY 2008 to FY 2009, the report said.
However, because more corporate returns were filed, the coverage rate decreased from 15.3 percent to 14.5 percent.
“The IRS has been looking at more returns, but in terms of what they have collected in FY 2009, revenues fell from 2008, but they fell to more historic numbers,” Paul Cherecwich, IRS Oversight Board chairman told BNA May 12.
“In 2007 and 2008, we had a lot of tax shelter settlements that boosted revenue numbers way up. So examination results are back to being consistent with historical numbers,” he said.
Collections also dropped in the last two years, he said, most likely because of the economy. The IRS put more people in installment agreements, and allowed taxpayers to skip a payment, and there were a lot of companies that experienced losses, he said. “It's a little hard in a down economy to just look at what was collected in a particular year, because that doesn't really reflect the amount of work that is being done by the service,” he added.
The report also noted that FY 2009 saw a dramatic increase in the number of math error authority contacts, from 2.8 million in FY 2008 to 12 million in FY 2009. Approximately 75 percent of MEA notices in FY 2009 related to the recovery rebate credit, the report said, some of which included errors that were in the taxpayers' favor because they did not realize they were entitled to the credit.
Higher Volume of Toll-Free Calls
The report also said the service met most of its service goals for fiscal year 2009, but the most significant challenge was keeping up with the additional volume of calls on IRS toll-free telephone lines.
Not only has the level of service declined, but taxpayers also waited longer for assistance, the report said. The 2007 year was the most recent filing season during which the level of service exceeded 80 percent, the level that the Oversight Board considers to be a minimum acceptable level.
The report also described IRS's performance during the past year, as well as the agency's progress in meeting long-term goals through 2013.
The long-term goals include reducing the $290 billion tax gap—the difference between taxes owed and taxes paid—and improving the IRS Business Systems Modernization program, which the Government Accountability Office has designated as high-risk because of its dependence on obsolete automated systems.
The IRS made little measurable progress in correcting either of these weaknesses, the report said.
However, its initiatives on tax preparer identification and taxpayers who hide money in foreign jurisdictions provide hope for the future, the report said. The tax preparer initiative will help close the tax gap, the report said, while restructuring the Customer Account Data Engine program into CADE 2 will modernize technology and help the IRS complete the taxpayer account database.
Each of those actions “has the potential to change the relationship between the IRS and taxpayers in fundamental ways,” the report said. Whether the potential is achieved has yet to be seen, it added.
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