IRS Doing Fewer Business Audits Due to Budget Cuts

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The Internal Revenue Service is auditing the taxes of fewer businesses as a result of budget cuts in recent years.

IRS commissioner John Koskinen pointed to the impact of budget cuts on the agency’s ability to audit both individuals and businesses. “As with individual audit rates, we continue to see steep declines in corporate examinations as the IRS budget has declined during the last five years,” he said in a statement Monday.

“Overall business audits declined by 6 percent last year, dropping to the lowest level in eight years,” he added. “This trend continues across many of the corporate categories, with audit rates falling for the largest companies as well as well as smaller ones with assets under $10 million.”

Koskinen said some of the largest declines were seen among examinations of large corporations. “Audits for corporations with more than $10 million in assets fell by 20 percent between fiscal 2013 and 2014,” he added. “Audits for large corporations are now at the lowest rates in a decade.”

He pointed out that the declines coincide with a drop in the IRS budget and enforcement staffing. “The IRS budget has fallen by more than $1.2 billion in the last five years,” said Koskinen. “Like overall IRS staffing, the number of compliance employees who conduct audits has also fallen sharply during this period.”

Last week, Koskinen said during a speech in New York that audits for individual taxpayers last year dropped to the lowest level in five years (see Tax Filing Season Going Smooth despite IRS Budget Woes). The IRS audited 1.2 million individuals last year, down 150,000 from the prior year, he said. Koskinen put the number of auditors at 11,600, the lowest in a decade, due to budget cuts at the agency.

He is pushing for a budget increase at the agency. “The Administration’s 2016 budget request would add $2 billion,” Koskinen said Monday. “This would help the IRS stop this decline in enforcement efforts and help improve critical taxpayer services.”

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