Audit Rates Decrease As IRS Staffing Issues Emerge

According to a report released recently by the Government Accountability Office (GAO), it has been found that in recent years the IRS has been auditing fewer taxpayers since 2010, with audit rates for wealthier taxpayers decreasing the most. The IRS officials blame the decline in audit rates on staffing decreases and the fact that it takes more staff time and expertise to handle complex higher-income audits. From tax years 2010 to 2019, audit rates of individual income tax returns decreased for all income levels, according to the findings. On average, the audit rate for these returns decreased from 0.9% to 0.25%. However, while audit rates saw a greater decline for higher-income taxpayers, the IRS generally audited them at higher rates than lower-income taxpayers. 

The average number of hours spent per audit was generally stable for lower-income taxpayers but more than doubled for those with incomes of $200,000 and above. According to IRS officials, the greater complexity of higher-income audits and increased case transfers due to auditor attrition contributed to the time increase. In response to the report, the deputy commissioner of services and enforcement at the IRS, Douglas O’Donnell, commented that auditing requires auditors to appropriately respond to taxpayers with increasingly complex business and investment activities. The greater the complexity, the more sophistication, skill, and time to perform the necessary review of information and correctly apply the law. 

House Ways and Means Oversight Subcommittee chair Bill Pascrell, had requested the GAO report and criticized the findings. His office found that except for those with over $5 million in income, audits of the lowest-income taxpayers resulted in higher amounts of recommended tax per audit hour. The IRS collected about one-half of all recommended taxes between 2011 and 2020, with collection rates generally higher for those taxpayers with incomes under $200,000, including Earned Income Tax Credits (EITC) recipients. That is probably because the IRS conducts EITC audits before issuing refunds. According to the IRS, high-income audits are more likely to have recommended tax amounts that are abated or more challenging to collect fully.

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