Look to Audit Bottom Line, Says IRS

Experience from its expanded number of audits of corporate returns will allow the IRS to work smarter in the future, the agency said, as it acknowledged spending more time on audits that came up empty of additional tax. The IRS rebutted a report in April by a research organization associated with Syracuse University that showed the percentage of large corporations audited—those with assets of $250 million or more—declined to 35% in 2006 from 44% in 2005, as did additional tax recommended as a result ( http://trac.syr.edu/tracirs). From 1996 to 2006, “nonproductive” audit hours more than tripled, said the research group, the Transactional Records Access Clearinghouse.

Audit-derived assessments, however, were up, the IRS said. Not only did the number of large corporate audits increase by 50% from fiscal 2003 to 2006, but revenues recommended from them doubled, from $13 billion to more than $26 billion.

“Any discussion about ‘no change rates’ is not complete without looking at the bottom line,” the IRS said, adding that even audits that don’t bring in more dollars can yield lessons for greater productivity by examiners going forward.