Fear a tax audit by IRS? Don't -- the odds are with you
Only 3% of Americans who earned at least $1 million last year were audited by the IRS.
It was once standard for big corporations to be audited, but now less than half get such extra scrutiny
The number of experienced IRS revenue agents has fallen by more than a third since 2010
Experts agree that wealthy Americans and large corporations were the biggest winners from last year's sharp cut in tax rates. But these groups are also benefiting from another shift in the nation's tax system: When it comes to an IRS audit, they have little to fear.
Of the roughly 504,000 people who earned at least $1 million in 2018, just over 3 percent were audited by the agency -- down sharply from previous years, according to new data out of Syracuse University. Since 2010, the number of audits of millionaires has declined by half.
The internal IRS data, obtained from the agency by Syracuse's Transactional Records Access Clearinghouse (TRAC) under a court order, also suggests big companies are getting a pass.
Corporate audits way down, too
More than half of the 633 largest companies in the U.S. -- those with at least $20 billion in assets -- escaped audits last year. By comparison, a decade ago the IRS routinely examined nearly all returns filed by corporations of this size. Last year was the first time the audit rate for these giants fell below 50 percent, TRAC's analysis found.
Susan Long, co-director of TRAC and a professor of managerial statistics at Syracuse, notes that IRS audits have declined across the board –- not just for the rich. That may cheer some taxpayers, but it also deprives the federal government of revenue it needs to fund other programs, shifts the tax burden to other Americans and undermines public faith in the U.S. tax system, she said.
In 2010, for example, audits of big corporations found nearly $24 billion in unreported taxes. By last year, that figure had fallen nearly in half.
The IRS didn't immediately return a request for comment on the findings.
"Cut, cut, cut"
The main reason the IRS is doing fewer audits: years of funding cuts. The agency has reduced its staffing from 100,000 employees in 2010 to just over 79,000. Adoption of the Tax Cuts and Job Act that went into effect last year has compounded the challenge for overworked IRS personnel -- as of last June, the agency had 3,000 fewer people on its payroll than it did the previous year, before the tax overhaul was passed.
"It's been a continual cut, cut, cut," Long said.
President Donald Trump's 2019 budget calls for the IRS to get $11.3 billion, up slightly from last year, but that is down from nearly $14 billion in 2010.
The number of IRS revenue agents -- seasoned staffers with the expertise to review the more complex returns typically filed by high income-earners and corporations -- has shrunk by more than a third since 2010.
And when the agency does single out a taxpayer for extra scrutiny, that's increasingly done via a letter in the mail, known as a "correspondence audit." That's a poor strategy for dealing with high-income tax dodgers, Long said.
The decrease in funding doesn't only curtail the IRS' ability to conduct audits -- it also coincides with a major step back in ferreting out tax evasion and other possible crimes. Since 2013, IRS referrals of taxpayers to other agencies for criminal prosecution have plunged by more than 60 percent, TRAC found. Convictions fell to an all-time low last year, with only 530 people convicted of tax fraud.
"The reality is that if you don't examine everyone, then you're going to have billions and billions of dollars -- typically most of that from upper-income people and large corporations -- that don't come in to the Treasury," Long said. "That leaves more that everybody else has to pay, and we see our [annual federal budget] deficits continue to rise."