When Mark Everson took office in 2003 as commissioner of the
Internal Revenue Service, he promised that collecting underpaid corporate taxes
would be a top priority, and backed it up by increasing the number of large corporate
audits. Results were quickly realized, with additional recommended taxes doubling
in fiscal 2005 compared with the previous year (see “Crackdown,” January 2006). But now Syracuse University’s Transactional Records Access Clearinghouse (TRAC) suggests the effort may have run out of steam.
TRAC researchers found that “IRS revenue
agents are now spending substantially
more of their time on corporate audits that produce
no revenue for the government than they did in the
recent past.” They determined that, from fiscal 2005
to fiscal 2006, there was a “40
percent increase in the number
of corporate audit hours
that bore no fruit.”
For the nation’s largest
corporations — those with
assets of $250 million or
more — additional tax liabilities as a result of audits fell 15 percent in fiscal 2006.
Whereas $30.1 billion in additional taxes was sought
by IRS audit agents in 2005, only $25.5 billion was
claimed in 2006, a 15 percent decline.
The TRAC findings, however, do not impress
the IRS. “We don’t question TRAC’s numbers,” says
spokesman Bruce Friedland. “We just think that they
take a narrow view. Yes, the number of returns examined
did dip from 2005 to 2006, but it didn’t dip a lot.
And in the broader context, it’s a tremendous increase
from 2003.” In 2003, the number of large-corporation
returns examined stood at 7,125. Two years later, the
figure had reached 10,829 and eased back slightly in
2006 to 10,591.
But what if TRAC’s numbers indicate not a
waste of IRS time but an increase in corporate compliance?
That’s the possibility raised by Timothy J.
McCormally, executive director of the Tax Executives
Institute, a Washington, D.C.-based association of
6,800 tax specialists. McCormally notes that over the
past few years the IRS has taken many steps to encourage
accurate reporting of income, such as the adoption
of new forms and various dispute-resolution tools.
“All these things led companies to voluntarily
report income as taxable or not report income as nontaxable —
things that previously might not have been
reported,” he says. “For corporate tax executives to
read a report that says the IRS is leaving money on the
table doesn’t comport with reality — or at least their