The IRS Is Now Auditing Big Business Far Less, And Small Business Far More

The U.S. Internal Revenue Service has an interesting set of priorities these days. The IRS audited just 25% of major U.S. corporations in the fiscal year 2009, according to the Transactional Records Access Clearinghouse.


This is despite the fact that auditing large corporations is far more efficient, in terms of collecting missed taxes, than auditing the little guys:


So then why are they auditing the little guy more? For example, ABCNews reports here how they are increasing their resources for auditing America’s self-employed.

Furthermore, as the New York Times highlighted from TRAC’s work, TRAC believes there is a ‘perverse’ quota system that creates an incentive for the IRS to go hard on smaller tax payers:


The IRS unit responsible for smaller businesses is called the Small Business/Self Employed (SBSE) Division. Both groups have annual quotas broken down into monthly performance targets for businesses that are a part of their responsibilities. And for both the LMSB and the SBSE those businesses with fewer assets typically take less time to audit than those with more assets.

These quota pressures may well influence revenue agents and their managers when making their decisions about which business will be audited and which will not.

The result is the shift in priorities described. Resources targeting small firms of under $5 million in assets has surged 34% while the amount targeting those with $250 million or more has fallen 33%. Again, despite the higher efficiency achieved by going after larger companies as shown in the previous chart above.


Read the full report at TRAC for more >

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