IRS Loses Billions by Skipping Audits of Biggest Corporations, Report Says

The Internal Revenue Service's scrutiny of the largest U.S. companies has fallen dramatically since 2010, due to a combination of shrinking IRS budgets and a rise in the number of large corporations, according to a new report from Syracuse University researchers.

The largest American companies — those that reported more than $20 billion in assets— are classified as "corporate giants" by the IRS. In 2010, when the IRS first began using that classification, 96 percent of the country's 447 corporate giants were audited. In 2017, the IRS only audited 54 percent the 616 companies that now qualify for the designation. Researchers blame this drop in audits on a nearly 40 percent increase in the number of giants, combined with a nearly 35 percent fall in the number of IRS agents scrutinizing them. As a result, the U.S. Treasury could be missing out on billions of dollars in tax revenue it is rightfully owed by corporate America every year.

"Audits, and the thoroughness of those audits, have really gone down," Susan Long, the lead author of the report and the co-director of Syracuse University's Transactional Records Access Clearinghouse (TRAC) project, told Newsweek. "The IRS is really stretched for resources. This is a long standing problem."

It's a seemingly fixable problem, since an investment in new auditors pays for itself many times over. For example, auditors uncovered $10.4 billion owed to the government by 331 corporate giants last year, more than all revenue recovered from audits of individual taxpayers in 2017, said the report, which analyzed internal statistics provided by the IRS. The agency did not immediately respond to a request for comment.

That $10.4 billion represents $33 million in recovered revenue per agent. As the average salary of a revenue agent is just $106,696 a year, hiring new agents would seem to be a way to increase government revenue. But IRS staff is shrinking: there were 14,749 revenue agents on IRS payroll in 2010, and just 9,605 last year. In 2017, the IRS also devoted about half the time to each large corporate audit as it did in 2010, the report found.

Not surprisingly, the reduction in agents and audit times has coincided with a budget squeeze at the agency. In 2010, Congress appropriated $13.9 billion in funding for the agency. Last year that figure was just $11.5 billion, according to the nonpartisan Center on Budget and Policy Priorities.

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President Donald J. Trump signs the Tax Cut and Reform Bill in the Oval Office at The White House in Washington, D.C. on December 22, 2017 Getty

Instead of paring back the IRS's workload as funding dries up, Congress recently rewrote the tax code, reducing the top corporate tax rate from 35 to 21 percent. The job of implementing the new system will largely fall to the men and women at the IRS. Congress earmarked $320 million in the latest spending bill for implementing the new tax regime, but total funding for the agency has essentially remained flat from last year.

"The budget is already so tight, and then suddenly you handed them a new responsibility," Long said. "It's not the first time this happened. When Obamacare happened, the IRS had a lot of new responsibility. You're continuing to hand off of more responsibilities at the same time you're cutting resources."