Syracuse, N.Y.--April 16--In a reversal of past
IRS practice, low income taxpayers now stand a greater
chance of being audited than higher income taxpayers.
Because wealthier taxpayers have more to hide from the
government and better opportunities for hiding it, the
IRS has historically focused its auditors on their financial
activities.
But in fiscal year 1999, the overall audit rate
on individual returns reporting $100,000 or more was $1.15%.
At the other end of the scale, the rate on simpler returns
reporting $25,000 or less was 1.36%. The same unusual
audit pattern held true for business returns.
As the audit rates for different income groups
were shifting, the proportion of individual taxpayers
who faced any kind of audit--either the more rigorous
district audits or the semi-automated service center audits--dropped
to its lowest rate in modern history, just under one percent
(0.90%). Corporations also were treated more gently with
the 1999 district audit rate falling to only 1.51%, half
what it was in 1992 (2.90%).
Two developments have contributed to the dramatic
shift in audit targets from the relatively rich to the
relatively poor. One was the congressional mandate that
the IRS reduce non-compliance in the Earned Income Credit
program, a special tax benefit for low-income Americans.
A second factor has been the substantial decline in the
size of the IRS during the Bush and Clinton administrations.
There were 31% fewer full-time IRS employees at the end
of 1999 than in 1988. (By contrast, the FBI today is larger
than at any time in its history.) With fewer IRS employees,
the face-to-face district audits essential for the examination
of larger and more complex returns have steadily slumped.
In 1981, for example, the rate for these more intense
kind of audits was five times higher than in 1999.
[For the latest comprehensive
data from the IRS, the Justice Department and the courts
about the the IRS's audit, collection and criminal enforcement
activities--as well as information about the agency's
taxpayer services--go to http://trac.syr.edu/media]
Individual taxpayers can face two kinds of audits--the
district "face to face" audit and the
semi-automated service center audit. While the district
audits long have been a focus of public concern, the impact
of service center audits is not insignificant. In 1999,
for example, the average additional taxes and penalties
resulting from service center audits on returns reporting
$25,000 or less was $2,171 and required only an hour per
"audit."
Many experts argue that the IRS can achieve significant
improvements in taxpayer compliance by offering taxpayers
better information about their responsibilities. With
this goal in mind, the IRS in recent years has increased
the proportion of its employees helping taxpayers. In
the last two years, for example, the number of IRS personnel
assigned to answering its toll free telephones went up
by 27%.
Collection. The audit is only one of many
IRS enforcement tools designed to encourage taxpayers
to meet their responsibilities. For cases where the agency
determines an individual has not paid what is owed the
government, it can undertake collection actions. Three
of the most common are the levy, the lien and the seizure.
The decline in these kinds of collection actions has been
precipitous. A levy, for example, is issued against the
assets of a taxpayer that are under the control of a third
party such as bank accounts or wages after it has been
determined that the individual owes taxes. In 1997, the
IRS issued 3.7 million levies. In 1999, it only issued
504,403, a drop of 86%. IRS seizures of real property
such as cars and jewelry declined by 98% in the same two-year
period. According to the GAO, Congressional approval of
the IRS Restructuring and Reform Act of 1998 was one of
the key elements responsible for the current drop in levies.
Regional Variation. There are numerous and sometimes
substantial variations in how the nation's tax laws are
enforced in different parts of the United States, even
after accounting for differences in the number of taxpayers.
Take 1998, for example. The audit rate on income tax returns
reporting $100,000 or more in the Los Angeles area was
five times higher than for the same group in Houston.
The report on simpler returns reporting $25,000 or less
in the Southwest district was seven times higher than
it was in Michigan. One quite dramatic technique used
by the IRS to collect taxes from delinquent taxpayers
is to seize their tangible assets, things like cars or
jewelry. The rate of such actions in upstate New York--the
number of seizures in relation to the number of taxpayer
delinquent accounts--was fourteen times higher than in
Central California.
TRAC is a non-partisan data gathering,
research and data-distribution organization associated
with Syracuse University. TRAC has been supported by the
University, the Rockefeller Family Fund, the New York
Times Company Foundation, the John S. and James L. Knight
Foundation and many other organizations. TRAC's embargo
on the tax enforcement and staffing information is intended
to give news organizations adequate time to contact responsible
government officials for their comments. For detailed
information about where the latest data is available go
to http://trac.syr.edu/media
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E-mail: trac@syr.edu
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S.E., 20003-4319 Tel. (202)544-8722
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