IRS Auditing of Big Corporations Plummets
Potential Annual Revenue Loss $15 Billion

Very timely enforcement information obtained from the Internal Revenue Service show that total revenue agent audit hours aimed at larger corporations — those with $250 million or more in assets — dropped by more than one third (34%) from FY 2010 to FY 2015[1].

Drop in Audit Time - Big Corporations
Drop in Recommended Additional Tax - Big Corporations
Figure 1. Drop in Audit Time and Recommended Additional Tax — Big Corporations

In the same period, the resulting additional taxes the agents uncovered that has been lost to the government dropped by almost two thirds (64%) — from $23.7 billion down to $8.5 billion — according to IRS data provided the Transactional Records Access Clearinghouse (TRAC) as result of several Freedom of Information Act (FOIA) lawsuits. See Figure 1.

Unless there has been a dramatic improvement in the way big corporations complied with complex requirements of the tax laws over the FY 2010 - 2015 period, this would mean that the potential loss to the government now amounts to at least $15 billion per year.

As startling as this record was for the bigger corporations, an examination focusing only on the absolute giants of the business world — those with $20 billion or more in assets — showed declines in audit attention that were even sharper. In fact, revenue agent audit time for this group in the FY 2010 - 2015 period were off by almost one half (47%) while the recommended additional taxes dropped by close to three quarters (71%). See Figure 2 and Table 1.

Drop in Audit Time - Giant Corporations
Drop in Recommended Additional Tax - Giant Corporations
Figure 2. Drop in Audit Time and Recommended Additional Tax — Giant Corporations
Table 1. IRS Attention to Auditing Big Corporations* Is Plummeting
IRS Revenue Agent Staff Years** Additional Taxes Recommended
Big Corp Giant Corp Big Corp Giant Corp
2010 1,439 613 $23,744,040,860 $13,427,538,117
2011 1,300 478 $23,844,838,955 $14,197,134,146
2012 1,337 510 $16,203,904,068 $9,967,868,575
2013 1,348 447 $14,810,715,689 $8,617,548,686
2014 1,118 385 $15,028,782,740 $8,675,766,755
2015 948 323 $8,450,782,665 $3,935,256,312
Change '15 vs '10 -34% -47% -64% -71%
* Big corporations are companies with assets of $250 million or more. Giant corporations are those with assets of $20 billion or more.
** A staff year is the equivalent of 2,000 audit hours.

This analysis of the latest audit and collection performance of the IRS — an essential component of the federal government — is one in a long series of unique special reports posted to TRAC's IRS website, stretching back as far as March 1997.

While the FY 2010 - 2015 decreases are disturbing by themselves, even more recent data through February of 2016 show that the number of business audits conducted by the agency's Large Business and International (LB&I) Division is running 22 percent lower this year than for the same period last year. Monthly internal management reports show the IRS had hoped to limit the further drop to just 2 percent when they set LB&I's targets for FY 2016.

IRS had also hoped during FY 2016 to shift more attention to the audits of foreign corporations and Subchapter S corporations with assets of $10 million or more because of its concerns over tax noncompliance by these firms. LB&I targets were to increase the number of audits in these two categories by 10 percent and 20 percent, respectively. However, so far the numbers of audits are lagging below last year's pace — down 58 percent for foreign corps and down 20 percent for S corporations. See Table 2. [Comparable figures for the FY 2010 - 2015 period are found in Table 3.]

Table 2. IRS Large Business & International Division Business Audits
(businesses with assets $10 million or more)

FY 2015 versus FY 2016*
Total Midsize Corp
($10 to $250 million)
Big Corp
($250 million+)
Foreign Corp S-Corp Partnerships
2015 Target 10,186 3,934 2,880 203 1,520 1,649
2016 Target 9,937 3,668 2,817 223 1,818 1,411
2015 Actual (thru Feb) 4,401 1,528 1,315 142 662 754
2016 Actual (thru Feb) 3,447 1,223 1,090 59 527 548
Change '16 vs '15:  
Targets -2% -7% -2% 10% 20% -14%
Actual (through Feb) -22% -20% -17% -58% -20% -27%
* Latest data covers first 5 months of FY 2016 (through February). For comparison actual data through first 5 months of FY 2015 also used.
Table 3. IRS Large Business & International Division Business Audits
(businesses with assets $10 million or more)

FY 2010 - FY 2015
Total Midsize Corp
($10 to $250 million)
Big Corp
($250 million+)
Foreign Corp S-Corp Partnerships
2010 14,422 6,523 3,302 244 1,977 2,376
2011 15,029 6,635 3,583 237 1,996 2,578
2012 15,511 6,381 3,942 412 2,253 2,523
2013 13,911 4,758 4,593 363 1,995 2,202
2014 11,293 3,796 3,603 321 1,724 1,849
2015 10,763 3,759 3,072 305 1,786 1,841
Change '15 vs '10 -25% -42% -7% 25% -10% -23%

Congressional Cutbacks in IRS Budgets

The IRS has had to cut back its audit time because of sharp and continuing congressional reductions in its annual appropriations. These budgetary cutbacks scaled down the number of IRS employees by 19 percent during the FY 2010 - 2015 period, lessening both taxpayer service and enforcement.

Even sharper cutbacks have occurred for its revenue agents — the individuals who audit complex business returns. In September 2010, the IRS had 14,749 revenue agents. Five years later in September 2015, the agency had 4,007 fewer revenue agents — a drop of 27 percent. See Table 4.

Table 4. IRS Budgetary Cutbacks
Reduce Number of Employees
Fiscal Year IRS Employees*
Total Revenue Agents
2010 94,428 14,749
2011 91,435 13,904
2012 89,956 13,072
2013 83,666 12,290
2014 78,185 11,503
2015 76,588 10,742
# Change '15 vs '10 -17,840 -4,007
% Change '15 vs '10 -19% -27%
*Office of Personnel Management (OPM) data for IRS employees on the payroll as of September 30 each year.

In an April statement to the Tax Policy Center, a non-partisan group associated with the Urban Institute and the Brookings Institution, IRS Commissioner John A. Koskinen criticized the continuing Congressional reductions in IRS audit and collection employees. In FY 2015 alone, he said, it will translate "into a loss for the government of at least $2 billion in revenue that otherwise would have been collected."

Koskinen further estimated the cuts meant a seven to eight billion dollar loss since FY 2010. "As some have called it," he told the gathered tax experts, the IRS staff reductions mandated by Congress "amounts to a tax cut for tax cheats."

The intense worry about the crumbling tax structure, however, was not limited to the current head of the agency. A few months ago, seven former commissioners[2] who had held the position under presidents Kennedy Johnson, Reagan, Bush, Clinton, and Bush wrote a joint letter to the House and Senate appropriations committees. "Over the last fifty years, none of us has ever witnessed anything like what has happened to the IRS appropriations over the last five years and the impact these appropriations reductions are having on our tax system," the seven said.

As noted above, the slashing of the agency's budget and the resulting declines in enforcement activities is not a one-year aberration. And in fact, the IRS Commissioner said that the IRS is now at its lowest funding level since FY 2008. But, he added, when expressed in inflation adjusted terms, the budget is actually comparable to the agency's situation in 1998.

The budget cuts have continued and the number of taxpayers has grown even while the Congress has ordered the agency to handle broad new responsibilities such as the tax-related provisions of the Affordable Care Act and the implementation of the Foreign Account Compliance Act.

Curiously, the last few years of successful attacks in Congress on the levels of IRS funding, and its sharply declining enforcement efforts, come at a time when there is a growing political concern about the expanding political powers wielded by the largest corporations and their effects on the workings of the economy. This worry about the power of corporations — expressed by political figures such as Senator Bernard Sanders (D-VT) and Senator Elizabeth Warren (D-MA) — has been paralleled with concerns about the increasing concentration of wealth in fewer and fewer hands.


[1] Today, the IRS spends less and less time on average for an audit of these big companies. However, for large corporations, it isn't so much whether they are audited but how thorough an audit is conducted. While the number of audits of big companies fell by only 7 percent (see Table 3 above), the time spent examining these company accounts dropped 34 percent.

[2] The November 9, 2015 letter's signatories were former IRS Commissioners Mortimer M. Caplin (1961-1964), Sheldon S. Cohen (1965-1969), Lawrence B. Gibbs (1986-1989), Fred T. Goldberg Jr. (1989-1992), Shirley D. Peterson (1992-1993), Margaret M. Richardson (1993-1997), and Charles O. Rossotti (1997-2002) (Tax Notes, "Former IRS Commissioners Call for Bigger IRS Budget," November 16, 2015).