The Internal Revenue Service fears that recent staff and financing cutbacks at the IRS have resulted in a proliferation of tax cheating. Failures to report income, over-zealous inflation of deductions, participation in tax shams, and ignoring computer-generated notices are just a few of the ways today's taxpayer deals with a steep tax bill.
Congress estimates tax cheating may be costing the Treasury $200 to $300 billion per year.
Changes in the IRS structure have resulted in a 46% drop in the percentage of tax returns being subjected to rigorous audits. Many returns that once were examined by revenue agents are now processed by computer. Letters recommending changes are prepared electronically and sent to taxpayers and frequently there is no follow-up by real people at the IRS.
The following statistics may seem startling:
- A taxpayer's chance of being audited is approximately 1 in 200.
- The number of notices sent to taxpayers has declined from 4.8 million per year in 1991 to 1.4 million in 2000.
- In 1991 IRS agents followed up on one third to one half of computer-generated notices that were ignored by taxpayers. Last year one in six notices was pursued.
- In 1991, 2,519 taxpayers were subjected to civil actions for failing to settle with the IRS; in 1999 the number dropped to 641.
- The number of taxpayers volunteering to settle with the IRS has increased 83 percent since reforms went into place in 1998. The average settlement is about 17 cents on the dollar.
- The backlog of unresolved offers has tripled to 87,500, overloading the agency's resources.
- The number of innocent spouse cases clogging the system has jumped from 3,000 in the four months prior to enactment of legislation making it easier for an innocent spouse to escape the other spouse's tax liability, to 43,000 cases now pending.
The IRS is beefing up enforcement efforts with plans to hire additional agents and a request for a 7% budget increase that will be delivered to Congress today.
Do you know what your chances are of being audited? Take a quick quiz and test your audit IQ.