IRS Chief Pleads for Bigger Budget

IRS enforcement led to $43.1 billion in collections on a $10.2 billion budget last fiscal year, Commissioner Mark Everson said. (Ray Lustig -- The Washington Post)

Last fiscal year, the agency examined more than 1 million individual tax returns out of more than 130 million filed. That boosted the so-called audit rate to 0.77 percent, the highest level since 1999, when it was 0.90 percent. The rate hit a recent low of 0.49 percent in 2000.

The audit rate for individuals with annual incomes of $100,000 or more rose to 1.47 percent last year from 1.06 percent the year before, up from a recent low of 0.79 percent in 2001.

The rate for people with incomes below $100,000 rose to 0.70 percent last year from 0.61 percent the year before, after a low of 0.45 percent in 2000.

The agency last year recommended more than 3,000 criminal prosecutions of alleged tax violations, including money laundering and other white collar crimes, a nearly 20 percent increase over the year before.

Examinations of corporate tax returns fell, noted Susan Long, co-director of the Transactional Records Access Clearinghouse (TRAC) at Syracuse University, a research center and watchdog group.

The number of corporate tax returns examined fell 19 percent last year, to 16,850 from 20,733 the year before. The decline largely reflected a drop in the examination of returns filed by companies with less than $10 million in assets. That small-business audit rate has declined almost steadily, to 0.32 percent last year from a recent high of 2.22 percent in 1997.

Everson said the most recent decline in small-business examinations was the result of a decision to divert limited resources to auditing bigger companies and high-income individuals. He said he hopes to increase small-business audits in the current year.

The number of examinations of returns from bigger corporations -- those with assets worth $10 million or more -- rose 34 percent last year, while the audit rate rose to 16.81 percent, from 12.08 percent the year before.

Those examinations yielded $16.2 billion in proposed additional taxes in the last fiscal year, up from $13.1 billion the year before.

The average hours per audit spent on companies with assets of $10 million or more dropped 23 percent, even as they produced higher assessments, because of efficiency gains, said IRS spokesman Terry Lemons.

Everson acknowledged that there was a time not so long ago when some people in Washington thought IRS enforcement "was a bad word." But, he said, Congress "now does believe in an appropriate balance between enforcement and service."