Monday, March 23, 2009

Group says IRS audits of wealthy have plummeted

The Internal Revenue Service has counted auditing the wealthy among its top priorities and successes in recent years, yet the rate of such tax probes dropped significantly in 2008, according to a report by a Syracuse organization that tracks government data.

Using IRS figures, the report by Transactional Record Access Clearinghouse calculated at least a 19 percent drop in the audit rate of people with incomes of $1 million or more between 2008 and 2007 - a statistic confirmed by the IRS.

Beyond that, however, the two organizations' interpretations of these statistics diverge.

TRAC sharply criticized the tax agency in its report out today, noting the IRS had to revise downward the number of millionaire audits it recorded in two earlier years by as much as 35 percent. TRAC also questioned the IRS' methods of accounting and reporting its data.

The IRS, however, explained the revisions of its 2006 and 2007 audits as the result of a "regrettable" coding error that affected its published reports but not its operations. The agency maintains it still holds the scrutiny of millionaire tax returns as a high priority.

The decline in audits for the wealthy took place at the height of the real estate boom and at a time when returns submitted by people with incomes of $1 million or more were increasing, said Susan B. Long, co-director of TRAC.

"They [the IRS] have been really boasting about the need to increase the attention paid to high-income groups," Long said. "The public should know, is the agency achieving its stated goals? What are the facts?'"

TRAC said the IRS had published conflicting figures regarding millionaire audits recently. Using some of these figures, TRAC calculated the decline in such audits may have fallen by 36 percent - far more than the IRS' acknowledged drop of 19 percent.

Long wants to know whether the coding errors affected the IRS' ability to track the audits.

The IRS rejects the criticism. "In addition to our normal responsibilities on service and enforcement, we had to get 117 million additional payments to taxpayers," Bruce I. Friedland, an IRS spokesman said of 2008. "We had a tight budget and slight staffing declines in key enforcement positions."

The IRS says TRAC misinterpreted the data when it concluded that the drop in millionaire audits might be as high as 36 percent.

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