IRS may be missing out on billions from corporations


ATTENTION, APPROPRIATORS: New study results to be published in an American Accounting Association journal confirm assertions that funding cuts for the IRS have hindered collections by the revenue agency. Researchers found a far bigger loss in tax collections from audits of corporate tax returns by the IRS Large Business and International division than savings from reducing the IRS enforcement budget: They estimate the IRS could have raked in more than $34.3 billion from 2002 through 2014 with roughly $13.7 billion more in enforcement resources. The study, which used confidential tax information supplied by the IRS, notes the agency’s efficiency in catching underpayments when challenging corporate taxpayers with deficiencies despite limited resources, but concludes there’s an overall net decline in revenue from corporate audits as IRS resources decrease.

“This study contributes to the literature examining the strategic game between tax authorities and corporate taxpayers and has important implications for policymakers, particularly in light of recent IRS budget cuts,” wrote its authors, who came from Indiana University, Michigan State University and the University of Georgia. They added that their estimates “should be of interest to Congress when deciding the amount of resources to allocate to the IRS” and warned of other likely foregone revenue given that they didn’t include collections lost from audits of small corporations, pass-through entities, individuals or foreign taxpayers.

The IRS has undergone about a decade’s worth of spending reductions or flat funding, with supporters of the cuts arguing that they force the agency to streamline operations and better focus resources, while opponents argue the cuts are politically motivated. President Donald Trump’s fiscal 2020 budget proposal would up the IRS budget to nearly $11.9 billion, and the House went a bit further, passing a $700 million increase compared to fiscal 2019, to $12 billion. But senators with a say in IRS spending have yet to publicly weigh in with a funding amount, and some have expressed skepticism about raising it. House and Senate staffers are meeting throughout the August recess to discuss appropriations for the 2020 fiscal year. Lawmakers are scheduled to return to session Sept. 9.

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