WASHINGTON (AP) — As millions of Americans race to meet
Tuesday’s tax deadline, their chances of getting audited are lower than
they have been in years.
Budget cuts and new responsibilities are
straining the Internal Revenue Service’s ability to police tax returns.
This year, the IRS will have fewer agents auditing returns than at any
time since at least the 1980s.
Taxpayer services are suffering, too, with millions of phone calls to the IRS going unanswered.
"We
keep going after the people who look like the worst of the bad guys,"
IRS Commissioner John Koskinen said in an interview. "But there are
going to be some people that we should catch, either in terms of
collecting the revenue from them or prosecuting them, that we’re not
going to catch."
Better technology is helping to offset some budget cuts.
If
you report making $40,000 in wages and your employer tells the IRS you
made $50,000, the agency’s computers probably will catch that. The same
is true for investment income and many common deductions that are
reported to the IRS by financial institutions.
But if you operate a
business that deals in cash, with income or expenses that are not
independently reported to the IRS, your chances of getting caught are
lower than they have been in years.
Last year, the IRS audited
less than 1 percent of all returns from individuals, the lowest rate
since 2005. This year, Koskinen said, "The numbers will go down."
Koskinen was confirmed as IRS commissioner in December. He took over an agency under siege on several
fronts.
Last
year, the IRS acknowledged agents improperly singled out conservative
groups for extra scrutiny when they applied for tax-exempt status from
2010 to 2012. The revelation has led to five ongoing investigations,
including three by congressional committees, and outraged lawmakers who
control the agency’s budget.
The IRS also is implementing large
parts of President Barack Obama’s health law, including enforcing the
mandate that most people get health insurance. Republicans in Congress
abhor the law, putting another bull’s-eye on the agency’s back.
The
animosity is reflected in the IRS budget, which has declined from $12.1
billion in 2010 to $11.3 billion in the current budget year.
Obama has proposed a 10 percent increase for next year; Republicans are balking.
Rep.
Ander Crenshaw, R-Fla., chairman of the House subcommittee that
oversees the IRS budget, called the request "both meaningless and
pointless" because it exceeds spending caps already set by Congress.
Koskinen
said he suspects some people think that if they cut funds to the IRS,
the agency won’t be able to implement the health law. They’re wrong, he
said.
The IRS is legally obligated to enforce the health law,
Koskinen said. That means budget savings will have to be found
elsewhere.
Koskinen said he can cut spending in three areas:
enforcement, taxpayer services and technology. Technology upgrades can
only be put off for so long, he said, so enforcement and taxpayer
services are suffering.
Last year, only 61 percent of taxpayers
calling the IRS for help got it. This year, Koskinen said he expects the
numbers to be similar. To help free up operators, callers with
complicated tax questions are directed to the agency’s website.
"The problem with complicated questions is they take longer," Koskinen said.
Your
chances of getting audited vary greatly, based on your income. The more
you make, the more likely you are to get a letter from the IRS.
Only
0.9 percent of people making less than $200,000 were audited last year.
That’s the lowest rate since the IRS began publishing the statistic in
2006.
By contrast, 10.9 percent of people making $1 million or more were audited. That’s the lowest rate since
2010.
Only
0.6 percent of business returns were audited, but the rate varied
greatly depending on the size of the business. About 16 percent of
corporations with more than $10 million in assets were audited.
Most
people don’t have much of an opportunity to cheat on their taxes, said
Elizabeth Maresca, a former IRS lawyer who now teaches law at Fordham
University.
Your employer probably reports your wages to the IRS,
your bank reports interest income, your broker reports investment income
and your lender reports the amount of interest you paid on your
mortgage.
"Anybody who’s an employee, who gets paid by an
employer, has a limited ability to take risks on their tax returns,"
Maresca said. "I think people who own their own business or are
self-employed have a much greater opportunity (to cheat), and I think
the IRS knows that, too."
One flag for the IRS is when your
deductions or expenses don’t match your income, said Joseph Perry, the
partner in charge of tax and business services at Marcum LLP, an
accounting firm. For example, if you deduct $70,000 in real estate taxes
and mortgage interest, but only report $100,000 in income.
"That would at least beg the question, how are you living?" Perry said.
Koskinen
said the IRS could scrutinize more returns — and collect billions more
in revenue — with more resources. The president’s budget proposal says
the IRS would collect an additional $6 for every $1 increase in the
agency’s enforcement budget.
Koskinen said he makes that argument all the time, but for some reason, it’s not playing well in
Congress.
"I
say that and everybody shrugs and goes on about their business,"
Koskinen said. "I have not figured out either philosophically or
psychologically why nobody seems to care whether we collect the revenue
or not."
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