IRS Questioned Over Corporate Auditing Lag

The U.S. Treasury Inspector General for Tax Administration is calling into question the Internal Revenue Service’s corporate auditing performance.

Bloomberg reported on Thursday (Oct. 24) that a report from the Treasury Inspector General for Tax Administration claims the IRS is not effectively auditing corporations following tax examination reform that was designed to accelerate auditing processes. The watchdog found that the IRS used the new tax examination methods in only 15 percent of audits of large and international corporations, according to reports, with the remaining conducted in the traditional manner.

The IRS first announced changes to its auditing methods in 2016, noting that the strategy enables the agency to zero-in on high-risk transactions rather than having to audit and analyze every transaction on a company’s tax return. But according to the report, the IRS rarely uses this new method and is not examining past audits in order to more efficiently prioritize which cases to more closely examine, Bloomberg said.

In response to the report, the IRS audit office said, “We agree that these results, also described by IRS management as lackluster, should not be used to assess the success or failure of the program as a whole.”

The report also noted that the Treasury Inspector General for Tax Administration’s analysis also highlights the IRS’ ongoing struggle to ensure tax compliance amid “budget cuts and hiring freezes.” It emphasized that more efficient auditing tactics are even more important in this context.

“Given the diminished examination resources, the IRS should be even more focused on emphasizing areas that have the highest compliance risk,” the report stated.

Pressure on the IRS to boost the efficiency of auditing processes comes amid global efforts to address corporate tax-dodging, with reports earlier this year in Yahoo! Finance predicting more IRS tax reforms ahead.

“There are a lot of breaks and loopholes that allow a company not to pay,” Steve Wamhoff, director of federal tax policy at the Institute of Taxation and Economic Policy, told the publication in May.