Tax Lawyer's Blog

In a recent post titled As Tax Gap Widens Expect IRS to Get Tougher on Non-Compliers we predicted that the IRS will in the next few years greatly accelerate it’s enforcement efforts. We cited two reasons for this:

1.  The recent bailout of the banking industry and companies like AIG make it even more incumbent on the government to raise revenue by closing the tax gap (i.e. enforcing compliance and collecting back taxes); and

2.  Even before there was any talk of bailouts, President-elect Obama had been making campaign promises to go after non-compliers and tax cheats.

The IRS has issued its enforcement results for 2007. Here is the preamble to the report:

The IRS continues to make strong progress in a number of key enforcement areas. The IRS is showing consistent improvements in areas critical to maintaining a fair, efficient tax system while bringing billions of additional dollars into the Treasury. At the same time, the agency continues to improve service to taxpayers.

The IRS enforcement efforts increased again in fiscal year 2007. For instance, during 2007 the IRS audited 84 percent more returns of individuals with incomes of $1 million or more than during 2006. Overall, enforcement revenue reached $59.2 billion, up from $48.7 billion in 2006 and nearly $34.1 billion in 2002.

Here are the 2007 IRS enforcement results:

Individuals

• Audit rates increased in 2007, both for overall individual rates and for higher-income taxpayers.
• Although the audits of large corporations dipped slightly in 2007 to 9,644 audits, the number of audits is up 14 percent from the fiscal year 2002 level.
• Audits of individuals with incomes of $1 million or more increased from 17,015 during fiscal year 2006 to 31,382 during fiscal year 2007, an increase of 84 percent. One out of 11 individuals with incomes of $1 million or more faced an audit in 2007.
• Overall, the total individual returns audited increased by 7 percent to 1,384,563 in 2007 from 1,293,681 in 2006. That’s the highest number since 1998.
• Audits of individuals with incomes over $200,000 reached 113,105 returns, up 29.2 percent from the prior year total of 87,885.
• The IRS increased audits of individual returns with income of $100,000 or more, auditing 293,188 of these returns in 2007, up 13.7 percent from last year’s total of 257,851.
• The IRS filed 3.8 million levies and almost 700,000 liens during 2007, an increase from the previous year and a substantial increase from five years earlier.

Businesses

• Audits of S Corporations increased to 17,681 during 2007, up 26 percent from the prior year’s total of 13,984.
• Audits of partnerships increased to 12,195 during 2007, up almost 25 percent from the prior year’s total of 9,777.
• Audits of mid-market corporations increased to 4,473, up 6 percent from last year’s total of 4,218.
• Audits of businesses in general rose to 59,516, an increase of almost 14 percent from the prior year’s total of 52,223.

In short, we have the making of a perfect storm for extremely aggressive tax enforcement efforts by the IRS in the coming years. Expect IRS collection enforcement efforts – audits, property levy and seizure, criminal investigations and prosecutions – to dramatically increase in 2009 and beyond.

Bookmark & Share: