A continuing decline in Internal Revenue Service audit rates could soon reverse course due to an influx of workers to conduct examinations and a plan to modernize technology at the agency.
The IRS Data Book released in May showed the audit rate for the largest corporations fell to just under 50% in 2018 from over 91% in 2013, and the rate for the highest-earning individuals dropped to 6.7% in 2018 compared with an audit rate of nearly 35% in 2015.
IRS officials have blamed the yearslong drop in audit rates on dwindling agency funding over the past nine years and staff retirements that drain the agency's knowledge base. However, the decline may soon be reversed due to developments that will likely give the IRS more resources than it has had in the past, according to Bryan C. Skarlatos, a partner at Kostelanetz & Fink LLP.
“I'm thinking things are going to start trending up,” he said. “It may take more than a year to get it up, but I think by 2020 you'll see audit rates go up.”
Skarlatos said the IRS Criminal Investigation division is hiring more agents for the first time since 2010, which indicates that enforcement may be on the rise. IRS Commissioner Chuck Rettig said in recent remarks that the agency is also hiring for its Large Business and International and Small Business/Self-Employed divisions, in the Office of Chief Counsel and for information technology positions in an effort to focus on enforcement and close the tax gap — revenue lost through taxpayer noncompliance.
If Rettig can increase compliance by even 1%, that would make a huge difference, Skarlatos said. But he said the agency cannot reduce the tax gap just through enforcement. The IRS also has to use tools such as education and outreach campaigns to encourage voluntary compliance, he said.
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