IRS remains lax in tax enforcement, study shows

By Jonathan Weisman, Washington Post, 4/12/04

WASHINGTON — From face-to-face audits to criminal and civil penalties, tax law enforcement by the Internal Revenue Service last year continued its slide, according to new data that question recent Bush administration claims of a more vigilant IRS.

The data, compiled by Syracuse University’s Transactional Records Access Clearinghouse, singled out deficiencies in business tax auditing and enforcement. But even on individual tax returns, the IRS’s boasts of a clampdown may be inflated, university researchers say.

“The rhetoric is very different from the reality,” said David Burnham, co-director of the clearinghouse, which tracks a variety of federal law enforcement statistics.

IRS officials sharply disputed the assertion that administration officials have overstated their efforts.

“Our basic message is, we’ve arrested the decline in enforcement that started in the ’90s,” IRS Commissioner Mark Everson said.

But the IRS did not dispute the data, which it supplies annually to the Syracuse clearinghouse. And those statistics indicate that tax scofflaws still have little to fear.

Only 0.73 percent of business tax returns were audited in the fiscal year that ended Sept. 30, down from 0.88 percent in the previous year, TRAC found. In 1997, 2.62 percent of business tax filers could expect to be audited.

There was also a dramatic slide for corporations with assets of at least $250 million. Among those, audit rates slid to 28.98 percent last year from 33.68 percent in 2002. In 1995, more than half of such companies were audited.

From 1999 to 2003, the number of civil negligence penalties aimed at corporations fell from 62 to 12. Civil fraud penalties dropped to 170 last year from 247 in 1999. Tax prosecutions fell last year to 538, from 563 in 2002. Ten years ago, the IRS and Justice Department prosecuted more than 1,000 cases.

Everson said he was not surprised at the lag in corporate audit rates, given the growing sophistication of business tax dodges. Last year, IRS agents tackled more than 2,200 tax shelter returns, each of which took an average of 7 ½ months to unravel. The number of corporate cases that fell into the IRS’s “complex” category nearly doubled from 2002, IRS officials said.

The studies by Syracuse and by the oversight board are the two latest in a string of critical studies that have surfaced in recent weeks. Last month, the Treasury Department’s inspector general for tax administration found the IRS has routinely allowed even convicted tax criminals to evade paying the back taxes, interest and penalties that were part of their criminal sentences. Days later, Deputy Treasury Secretary Samuel Bodman told senators that an understaffed, overworked IRS walked away from more than 2 million delinquent tax accounts last year totaling nearly $16.5 billion.

This month, a General Accounting Office report concluded that roughly 60 percent of U.S.-based corporations paid no corporate income tax during the boom years between 1996 and 2000, precisely when tax payments should have risen with soaring profits.