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IRS is Behind on Implementing Speedy Corporate Audits

IRS is Behind on Implementing Speedy Corporate Audits

The TIGTA issued it's report on September 27, 2019 stating that the Internal Revenue Service isn’t effectively auditing corporations, despite a change in policy on how the agency was to conducts tax examinations, that was supposed to make the process more efficient.
Historically, the LB&I Division has used a variety of methods to identify tax returns for audit consideration, and upon selection, the taxpayer’s tax return would be subject to audit. However, the new campaign approach involves selecting returns by issue and focusing on that issue in the examination process. TIGTA performed this review to assess the LB&I Division’s methodology for the identification and selection of campaigns. In January 2017, the LB&I Division announced the first 13 issue-based compliance campaigns.
As of April 2019, a total of 53 campaigns have been announced.

The Campaign Program Was A Change To The LB&I Division’s Overall Workload Selection Process And Is A New Strategy In How It Plans To Identify, Select, And Examine Strategic Compliance Issues.

The LB&I Division initially set expectations that campaigns would significantly overtake traditional inventory selection methods. As of September 2018, only 6 percent of inventory had been generated by campaigns, with this percentage climbing to 15 percent by February 2019.

Initial campaigns were not focused on the most significant compliance issues facing the IRS. Some issues were selected from employee suggestions. Other issues were chosen because there was a compliance plan developed, with training already in place, or existing base of himknowledge available.

TIGTA found that issues for campaigns were not selected or prioritized based on past compliance results or potential impact on compliance. While it is early to assess the overall results of campaigns, the limited results available suggest that the LB&I Division’s limited resources would be better utilized working issues selected based on compliance risk. 

TIGTA's September 27, 2019 Report Found That
The IRS Is Only Using The New Audit Selection System
For About 15 Percent of its Audits of LB&I Companies.

The remaining audits are coming from old processes that take more time and cost more for the IRS to conduct. The agency in 2016 announced a new system for selecting cases to audit. The IRS said it would focus on examining high-risk transactions, rather than auditing a company’s entire tax return as part of an effort to more efficiently enforce tax laws.

The IRS is also failing to use the results of past audits to select and prioritize future cases to examine, the report said. The agency said it is using data to manage its audit caseload and that initial results shouldn’t be used to scrap the program. “We agree that these results, also described by IRS management as lackluster, should not be used to assess the success or failure of the program as a whole,” the IRS Office of Audit said in response to the Inspector General analysis.

The Report Illustrates How The IRS Has Struggled to Ensure Tax Compliance in Recent Years.

 The Number Of Revenue Agents Fell
to 2,923 in 2018, From 5,224 in 2010,
As Budget Cuts and Hiring Freezes Have Impeded The Agency’s Audit Capability.


“Given the diminished examination resources, the IRS should be even more focused on emphasizing areas that have the highest compliance risk,” the report said.

The IRS also said that staff and resources were allocated to work on implementing the 2017 tax law in 2018 and 2019, directing funds away from the audit program.

This isn’t the first time the IRS has received a negative report about how it is auditing corporations. In September, the Inspector General released a report saying IRS employees had collectively spent nearly 28,000 work days over a four-year period auditing mergers and acquisitions that ultimately yielded no additional tax revenue.

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Read more at: Tax Times blog

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