Internal Revenue Commissioner Mark W. Everson called on Congress yesterday to boost the agency's funding by the full $500 million requested by President Bush, calling it a way to help shave the record federal budget deficit.
The agency collected $43.1 billion in tax revenue through enforcement activities, including individual audits, in the federal budget year that just ended Sept. 30, a 15 percent increase over the prior year, Everson told reporters at a news conference.
The IRS's enforcement revenue was thus about four times larger than its $10.2 billion budget, Everson said, urging Congress to increase the amount to $10.7 billion for the fiscal year that began Oct. 1.
"The IRS can do more, but it's important for Congress to support our efforts," Everson said, noting that the White House proposal for the agency "is not faring particularly well with Congress."
"I ask those involved to take another look and fully fund the president's request," he said.
Lawmakers working to craft numerous government funding bills appear unlikely to grant the Bush administration's full IRS funding request; both the House and Senate have separately approved smaller amounts. But the two chambers have not yet reconciled their differences and could change the numbers before a final agency budget is enacted.
"Investing in enforcement actually makes a contribution to deficit reduction," Everson said.
The IRS also is increasing its scrutiny of tax-exempt organizations, Everson said, including about 60 alleged to have been improperly involved in this year's political campaigns.
The agency received more than 100 complaints from individuals and members of Congress "from across the [political] spectrum" of alleged tax law violations by such groups, Everson said. A committee of IRS career professionals vetted the complaints and decided to pursue about 60, of which about a third involve religious organizations, he said.
IRS enforcement activities have climbed back gradually from the low levels reached after a series of congressional hearings in 1997 and 1998 aired allegations of overzealous and abusive agency collection efforts. Everson said he has no target audit rates in mind but believes the rates now are all "lower than where they should be."
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."