Audits plummet as IRS loses agents because of budget cuts

WASHINGTON - As millions of Americans file their income tax returns, their chances of getting audited by the IRS rarely have been so low.

The number of people audited by the IRS in 2016 dropped for the sixth straight year, to just more than 1 million. The last time so few people were audited was 2004. Since then, the U.S. has added about 30 million people.

The IRS blames budget cuts as money for the agency shrank from $12.2 billion in 2010 to $11.2 billion last year. Over that period, the agency has lost more than 17,000 employees, including nearly 7,000 enforcement agents. A little more than 80,000 people work at the IRS.

IRS Commissioner John Koskinen said budget cuts are costing the federal government between $4 billion and $8 billion a year in uncollected taxes.

“We are the only agency if you give us more people and money, we give you more money back,” Koskinen said.

So is it safe to cheat on your taxes? Not necessarily, according to tax experts.

“I don’t think it’s open season for people to cheat,” said Joseph Perry, a partner at the accounting firm Marcum. “I think there are a certain group of people that will always try to push the envelope to get away with things that they think they can get away with.”

As Koskinen put it: “If you’re a taxpayer, you don’t want to roll the roulette wheel and have the little white ball land on your number because then we’re not very happy.”

Most people don’t have much of an opportunity to cheat on their taxes because the IRS collects a lot of information to verify taxpayers’ finances. Employers report wages, banks report interest, brokerages report capital gains, and lenders report mortgage interest.

In 2016, the number of people audited by the IRS dropped by 16 percent from the year before. Just 0.7 percent of individuals were audited, either in person or by mail. That’s the lowest audit rate since 2003.

The higher your income, the more likely you are to be audited. The IRS audited 1.7 percent of returns that reported more than $200,000 in income. Agents audited 5.8 percent of returns that reported more than $1 million in income.

Both audit rates were steep declines from the year before.

The most well-known audit in Washington is one on President Donald Trump, who has cited it in refusing to release his tax returns. The IRS, however, has said an audit would not prevent an individual from releasing the returns.

Corporate audits were down by 17 percent last year. Just 0.49 percent of corporations were audited, the lowest rate in at least a decade.