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Do IRS Budget Cuts Mean Fewer Audits?

The IRS has learned to live lean since 2010, and no one seems to be complaining. At least, no one who makes less than $1 million dollars.

Budget slashes, enacted throughout the last five years¹, have reduced the IRS to a shell of its former self, and the powers-that-be must pick and choose their audits carefully. Naturally, high earners enjoy a higher likelihood of falling into The Taxman’s sights.

According to The Wall Street Journal, 2015 marked the lowest rate of taxpayer audits in ten years—an astonishing .84%—while the percentage of audited millionaires rose by 2.5%. 2014 saw 7.5% of millionaires audited; 2015 raised the percentage to 10%².  

IRS Commissioner John Koskinen cites the fact that the IRS now operates on its lowest budget since 1998, but there’s an added catch—there are now 27 million more tax returns to file than in the late 90s³. As a result, taxpayers experienced more frustration than usual trying to get IRS representatives on the phone in 2015. The cuts certainly present a mixed bag of results; here is the simplified version.

 

  • One-fifth of the IRS budget has been cut since 2010.
  • Last year marked a ten-year low in personal taxpayer audits—less than 1%.
  • Last year also presented historically bad “customer service.”
  • With fewer resources, the IRS must carefully choose whom it audits.
  • The lucrative target, $1 million dollar earners and up, reached a new high in audits—10%.

In reality, the worst result to the average American taxpayer is a prolonged wait on the phone—”Such cuts have made it nearly impossible for many taxpayers to reach the agency with questions,” said John Koskinen, as cited by CBS News. “Fewer than half of the calls placed to the IRS were answered in fiscal [year] 2015, and callers who did get through waited on hold for an average 23 minutes.”

While the thought of calling the IRS probably hasn’t crossed your mind, the additional 2.5% percent chance that high earners will be audited—from 7.5% to 10%— means your accountant should get busy soon. One in every ten millionaires? Those aren’t odds to be joked about.

The most insidious result of the budget cut remains: corporations and individuals engaging in tax fraud will have increasingly high chances of escaping unscathed. With corporate tax avoidance experiencing unprecedented levels of success, perhaps this isn’t the right time to wish for sweeping IRS budget cuts.

At any rate, American high net worth individuals are now the object of IRS affections.

 

  1. http://www.cbpp.org/research/federal-tax/irs-funding-cuts-continue-to-compromise-taxpayer-service-and-weaken-enforcement
  2. http://fortune.com/2016/02/23/irs-audits-millionaires/
  3. https://www.irs.gov/uac/Written-Testimony-of-IRS-Commissioner-Koskinen-before-the-House-Ways-and-Means-Committee

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