While audits of high-income taxpayers have increased, the actual impact on compliance may be limited, according to a new report from the Treasury Inspector General for Tax Administration.
The inspector general found that while the Internal Revenue Service has increased its audits, the bulk of those have been conducted as correspondence examinations, which limit the issues the agency can address compared with a face‑to‑face examination. The report also said that the end compliance result could also be limited because more than half of all wealthy taxpayer assessments are not collected in a timely manner.
The audit coverage rate increased from 1.45 percent for the 2002 fiscal year to 3.52 percent in 2005. During that same period, face-to-face examinations increased by 25 percent, while correspondence examinations increased by 170 percent. Correspondingly, the percentage of audits conducted remotely rose 18 percentage points over the same three years, to 67 percent in 2005.
The report also noted that for 2004, the IRS assessed over $2.1 billion in additional taxes on wealthy taxpayers through audits. That figure includes assessments of $1.4 billion on taxpayers who did not respond to the IRS during correspondence examinations.
The full report is available at www.ustreas.gov/tigta/auditreports/2006reports/200630105fr.pdf.
Previously on WebCPA:
TIGTA: Tax Gap Could Exceed Projections (April 27, 2006)
TRAC: Only 30 Millionaires Sat Down for Audit in '05 (March 29, 2006)
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