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IRS Steps Up Enforcement and Audits of High-Income Taxpayers

Washington, D.C. (January 22, 2013)

By Michael Cohn

The Internal Revenue Service reported that audits of individuals topped 1 million in fiscal year 2012 for the sixth year in a row, a coverage rate of 1.03 percent of all tax returns filed, while audits in the upper income ranges remained substantially higher than other categories.

The IRS noted that it increased its examinations across all categories of business returns by more than 12 percent in fiscal 2012, with the largest increases coming in audits of flow-through entities, which include partnerships and Subchapter S corporations. Coverage rates exceeded 20 percent for the largest corporations.

The IRS also collected more than $50 billion in enforcement revenue in fiscal 2012, the third year in a row topping that figure. “The 2012 numbers were lower than 2010 and 2011, which were unusual years with enforcement dollars helped by large numbers of offshore tax cases coming in,” the IRS noted.

More than 38,000 disclosures of offshore accounts have been made to date through the IRS’s offshore voluntary disclosure programs, the IRS noted. In addition, the economic slowdown contributed to lower enforcement figures, as most enforcement dollars collected resulted from audits of returns for years during the slowdown.

Another factor behind the fiscal 2012 numbers reflected changes in agency staffing and budget resources, the IRS noted. After a nearly flat budget in fiscal 2011, the IRS’s fiscal 2012 budget was cut $305 million. The reduction affected the level of staffing available to deliver service and enforcement programs. Overall full-time staffing has declined by more than 8% over the last two years, and staffing for key enforcement occupations fell nearly 6 percent in the past year.

Also in fiscal year 2012, the IRS continued to confront the challenge of refund fraud caused by identity theft. The IRS more than doubled the number of staff dedicated to preventing refund fraud and assisting taxpayers victimized by identity theft, with more than 3,000 employees working in this area. As a result of these increased efforts, the IRS in fiscal 2012 was able to prevent the issuance of more than 3 million fraudulent refunds worth more than $20 billion, an increase from approximately 1.8 million refunds worth about $14 billion the previous year.

On the service side, the IRS said it saw continued strong growth in electronic filing by individuals, as the e-filing rate in fiscal 2012 exceeded 80 percent for the first time. Taxpayer interest in online interactions continued to increase as well, with Web page visits on IRS.gov up nearly 17 percent to 372 million.

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