Newly released data indicates that last year the InternalRevenue Service audited only about 15 percent of large financial servicescompanies - those with $250 million or more in assets - compared with 64percent of corporations of similar sizes.
The report, by Syracuse University's TransactionalRecords Access Clearinghouse, found that the financial services audits thatwere performed appear to have been less thorough than those in otherindustries. TRAC obtained the IRS data via a Freedom of Information Actrequest. A similar FOIA request by TRAC yielded a report last month that foundthat the audit rates for millionaires had plunged last fiscal year (see IRSAudit Rates for Millionaires Plummet).
The new report also found that when a financial servicescompany was audited, the thoroughness of the audit - measured by the averagehours the auditor spent - also was very different from audits of other types ofcompanies.
For example, focusing only on the largest companiesaudited -those with $20 billionor more in assets - audits for companies not in the financial sector averaged3,145 hours of direct examiner time. Despite the unique challenge ofunderstanding derivatives and the like, however, the audits for financialservices giants averaged 1,695 hours, about half the time of the typical auditfor companies of similar size.
According to the IRS, the data points in the TRACanalysis do not convey the full extent of the agency's audit activity in thefinancial services sector.
"The IRS maintains a vigorous, balanced enforcementprogram in the financial services sector," said a statement forwarded byIRS spokesman Anthony Burke. "The IRS spent nearly 1.2 million hoursauditing the financial services sector in 2008. Out of our five large corporatesectors, 28.8 percent of our audit time went to the financial services sector.The amount of time - and the number of audits - in the financial services areatopped that of the other industry sectors. This area will remain a priority forthe agency in the months and years ahead."
TRAC's report also found that fewer of the audits werebeing performed by the IRS agency group with special expertise in largefinancial services corporations, while the number performed by other IRS groupsmore than doubled since 2004.
During fiscal year 2004, the IRS's Financial ServicesGroup conducted most of the audits of the large financial services companies.But during the last five years the actual number of such audits declined by 27percent. In contrast, over the same five-year period, the audits completed oflarge financial companies by the four other non-financial industry groups morethan doubled, up by 131 percent.
"The end result: The group that is currently chargedwith the responsibility for policing the financial services sector is today notconducting the majority of audits of large financial servicescorporations," said the report. "This was true even for the largestof the large corporations, those with assets of $20 billion or more."
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