USA TODAY International Edition
Report: IRS cuts cost US billions
Government lost $ 34B in corporate collections
WASHINGTON – The federal government could have collected $ 34.3 billion more in taxes from the nation’s largest corporations by increasing IRS resources by less than half that amount, according to a new study.
That’s nearly 20% of the estimated gap between what corporations paid in taxes and what they owed from 2002 through 2014.
The report from the Indiana University Kelley School of Business is the first to quantify the amount of corporate tax revenue lost during the audit process for every dollar of IRS budget cuts, according to the school.
The number of federal tax examiners has declined by about one third since 2010.
“The scope of the audits is substantially reduced,” said Casey Schwab, an associate professor of accounting at the business school. “While the IRS appears to still target the most aggressive positions, they can’t audit as many positions within the return. They just don’t have the resources.”
Researchers looked at confidential IRS audit data from large, publiclytraded corporations for tax returns years 2000 through 2010. They estimated the government could have collected an additional $ 34.3 billion in taxes from those filings if they’d had $ 13.7 billion in additional resources.
And that estimate of lost revenue is potentially only a fraction of what the amount would have been if the study had included audit data from other businesses, individuals and foreign taxpayers.
Changes in IRS funding, however, are most likely to affect the corporate audit rate.
And researchers wanted to see how the IRS used its reduced resources on the audits they did conduct.
They concluded that when resources decline, the IRS finds fewer potential discrepancies and challenges a smaller amount of tax savings.
The IRS does, however, collect a greater proportion of the unpaid taxes it challenges.
That could mean that, with fewer resources, auditors are concentrating on the discrepancies that are harder for taxpayers to defend.
“The results suggest that they’re focusing their efforts on the weakest positions and the ones they think they can get the most bang for the buck all the way through the collection,” said Bridget Stomberg, an associate professor of accounting at the Kelley School of Business.
The IRS’ budget has been targeted in recent years for various reasons. Some who’ve advocated for the cuts argue that they force the IRS to become more efficient and to focus on core responsibilities.