The number of corporate returns processed annually by the Internal Revenue Service fell 7 percent between January 2005 and December 2009, from almost 2.2 million to approximately 2 million, according to a new government report.

The report, by the Treasury Inspector General for Tax Administration, analyzed IRS data for fiscal years 2005 through 2009 to identify trends in the filings and audits of conventional small business corporate returns.

Despite the decrease in the number of filings, the amount of income taxes reported by corporate returns is significant. In 2009, IRS records show that approximately $11 billion in corporate income taxes was reported from about 542,000 corporate returns.

One factor that may be contributing to the modest decline in corporate return filings is the popularity of organizing a business as a partnership or Subchapter S corporation, which allows the partners and shareholders of these entities to avoid double taxation on business profits.

According to the IRS, the number of partnerships is expected to increase by 49 percent and the number of Subchapter S corporation filings is expected to increase by 39 percent between 2006 and 2015.

“This audit was part of TIGTA’s 2010 Annual Audit Plan to highlight the important role a National Research Program study could have in understanding what the filings and audits of corporate returns mean for tax compliance,” said TIGTA Inspector General J. Russell George in a statement. “If approved and implemented, the National Research Program study would evaluate the extent to which corporations and their shareholders comply with the tax laws.”

The IRS examines income tax returns to determine whether corporations and other taxpayers have voluntarily complied with tax laws and reported the proper amount of tax.

Despite continuing efforts to improve its examination process, examiners in the IRS’s Small Business/Self-Employed Division closed 32 percent of its corporate return examinations in fiscal year 2009 without recommending any adjustments. Examinations that result in no change to the tax reported can result in an inefficient use of limited examination resources and place an unnecessary burden on compliant taxpayers, the report noted.

TIGTA did not make any recommendations in this audit, and the IRS did not provide any comments in response to a draft of the audit.

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