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IRS audits drop to lowest point in decades

IRS audits drop to lowest point in decades
© Greg Nash

The proportion of taxpayers facing an IRS audit has dropped to the lowest point in decades, potentially depriving the government of billions of dollars in revenue.

The IRS reported this week that it audited just 0.45 percent of individual filers last year, less than half the level from 10 years ago and a fraction of the level seen in previous decades.

In its progress update, the IRS pointed to a steady decline in employees in recent years. From 2010 to 2019, it lost nearly 30,000 full time positions.

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“These losses directly correlate with a steady decline in the number of individual audits during the past nine years,” the report said.

It also noted that nearly 20,000 employees, representing 31 percent of its current workforce, are slated to retire in the coming five years, potentially leading to a significant knowledge and experience gap.

In a recent paper, former Treasury Secretary Larry Summers and University of Pennsylvania professor Natasha Sarin argued that the IRS could easily recoup $1 trillion over a decade by simply increasing audits, requiring more reporting and investing in information technology. Even that, they calculated, would be just 15 percent of an estimated $7.5 trillion in uncollected taxes over 10 years.

Every additional dollar put towards enforcement is estimated to yield $4 in revenues.

Senate Finance Committee Chairman Chuck GrassleyCharles (Chuck) Ernest GrassleySenate GOP open to confirming Yellen to be Biden's Treasury secretary Biden budget pick sparks battle with GOP Senate Grassley returns to Capitol after having coronavirus MORE (R-Iowa) said the decline followed a 20-year-old action plan he worked on aimed at stopping the IRS from "intimidating" small businesses. But he suggested would be open to increasing funding for the agency, and that his office has been in touch with the IRS about the low audit rates.

“We felt that small business was just being intimidated all the time by IRS,” Grassley said.

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“We started a long time ago down this road trying to send a message to the IRS, and if they could prove to us that they got that message, that they’re not just going to harass small businesses compared to the big corporation, I think they could get increased funding, and I know that increased funding would be beneficial,” he added.

In December, Congress approved an $11.5 billion budget for the IRS this year, which was a $207.5 million increase over 2019 but still billions below the funding it had just a decade ago.

The federal deficit is nearing $1 trillion, and the national debt has surpassed $23 trillion.

Democrats vying for the party’s 2020 nomination for president have cited increased enforcement as one approach for funding expensive proposals relating to health, education and climate.

—Updated at 3:49 p.m.