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IRS to Cut Back on Individual, Corporate Audits in 2013

Author: Scarinci Hollenbeck, LLC

Date: April 22, 2013

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The Internal Revenue Service is seeking out strategies to maximize its efficiency on a lower budget, and this may translate to fewer individual and corporate audits in 2013, a new report suggests.

Documents obtained by a non-partisan watchdog group, Transactional Records Access Clearinghouse, revealed that the IRS plans to reduce the number of staffers it places in corporate auditing departments by 18 percent, compared to the number of employees in this department over the last two years. The companies that will face less scrutiny from the tax agency include those with assets of $10 million or more during fiscal year 2013.

IRS spokesman Anthony Burke noted that while the agency will pare back its auditing of large corporations due to fiscal constraints, its audit rate remains high. Burke added that roughly 17 percent of corporations with assets exceeding $10 million face investigations in 2012, according to Reuters.

Some analysts argue that the declining audit rates may facilitate greater tax law violations committed by corporate entities and high net-worth individuals.

“The fact that audits are down potentially means less compliance, which is going to produce very difficult choices in the year ahead,” said David Burnham, the co-director at TRAC.

According to the report, the IRS will reduce the time it spends auditing the nation’s largest corporations by 27 percent, and reduce its audits of individual taxpayers by 7 percent. Smaller entities, such as private equity firms, will also see less attention from the IRS, which plans to reduce the time it spends investigating wrongdoing by 17 percent. Further, the redistribution of staff to other areas and departments does not take into account the effects of the sequester and across the board spending cuts, which will be put in place following the end of tax filing season.

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