We shared in a previous post that the IRS has been operating with fewer resources, and as the budget cuts as a result of the sequester take effect, those resources will be dwindling further. Two recently-published articles point out that the reduction in resources are translating into fewer audits by the IRS.
The American Institute of CPAs has said that the IRS is reducing the number of audits it conducts in several key areas. According to data received from Transactional Records Access Clearinghouse (TRAC) the IRS is planning to reduce the amount of staff time it dedicates to auditing large businesses with assets over $10 million by 18% as compared to 2011.
Large corporations aren’t the only entities breathing a little easier. Average taxpayers can also expect a lower chance of being audited. Over the past 10 years, the IRS has reduced its individual taxpayer unit staff by 23%. This decrease in staffing has been attributed to an increase in correspondence audits, Form 1099 matching programs, and a broader math correction authority. Yet, according to data from the TRAC report, an individual’s chance of being audited has decreased by 7% from fiscal year 2011 to 2012 while the chance of a face-to-face audit dropped by 10% during that same time.
Further compounding a trend toward fewer IRS audits, spending cuts due to the sequester have made it even more difficult for the IRS to conduct its audits. In a recent article, CNN Money described the direct effects the sequester is having on the IRS. $600 million dollars were eliminated from its budget, forcing employees to take up to 7 furlough days this year. To date, five furlough days have been scheduled. It stands to reason that fewer days on the job will mean fewer days to initiate and conduct audits. If this turns out to be the case, it will support the general trend of fewer audits being conducted by the IRS.
Fewer audits being conducted means fewer headaches for more taxpayers. However, the best way to ward off an audit isn’t to hope for further cuts to the IRS budget or continued reductions in staffing. The best preparation is careful record keeping and making sure you understand and comply with the tax code.