(Reuters) – U.S. tax authorities are doing fewer audits of big corporations than in the past, a research group charged, though the government said the report shines a light on the wrong metrics.
With the fastest growth — and highest potential revenue collection — among big companies, the good government group says the richest corporations are escaping scrutiny because the Internal Revenue Service is too focused on closing cases to meet internal performance targets.
“Cutting back the number of returns that you are auditing when that is the growth area would seem to be a move in the wrong direction,” said Sue Long, a professor of managerial statistics at the business school at Syracuse University and co-director of the Transactional Records Access Clearinghouse (TRAC), a research group that released the data.
Units within IRS have performance goals, though individual examiners do not.
IRS data shows it still examines the books at big companies more often than smaller ones, though it has been auditing a smaller percentage of big corporations.
In 2009, the Internal Revenue Service audited about 26 percent of corporations with assets of $250 million or more, compared with about 40 percent in 2004, according to the agency’s own data.
It opened the books of 10 percent of firms with assets between $10 million and $50 million in 2009, compared to about 9 percent in 2004.
“We do take significant exception to the conclusions that they’ve drawn,” said Frank Keith, an IRS spokesman, of the TRAC report.
Steven Miller, the agency’s deputy commissioner for Services and Enforcement, said that the IRS examines a full 100 percent of the really big companies — those with $20 billion or more in assets.
Miller also said the IRS audits about half of the firms with assets of between $5 and $20 billion. He didn’t have comparable data for prior years on that group.
TRAC looked at data in other ways, including the number of hours spent on cases that had been closed in any given year. They found that the IRS has cut by a third the hours it spends examining the books of companies with assets of $250 million and more, when compared with 2005.
Miller said the hourly data does not reflect volume because cases can take up to four years to complete and the measurement just looks at the year they are complete.
“It’s not indicative of our efforts in a given year,” he said. The current average time to close a corporate audit is close to 2 years, he noted.
He also said the large business group in IRS in the last two years hired 1,200 agents on top of the 5,000 already looking at big business. The IRS has about 13,000 revenue agents in total, examining individual and corporate returns.
Tax examiners could get a much bigger bang for their buck by putting a greater focus on big companies, TRAC said.
According to the group, which files detailed data requests from government agencies, auditors looking at bigger companies on average find underreporting of $10,000 per auditor hour, compared with findings of underreporting of $1,000 per auditor hour when smaller companies are examined.
(Editing by Andrew Hay)