IRS Lets Mega Corporations Off The Tax Hook

Uncle Sam is doing fewer and fewer tax audits of huge corporations. These companies are, in theory, the firms that should pay enough to the IRS to help make a dent in the budget deficit.

According to the “TaxIRS” study done by Syracuse University, “Among corporations reporting assets of $250 million or more, the IRS since FY 2005 has cut back by a third (33 percent) the hours it spends examining their books. IRS has also sharply reduced the number of large corporate returns it examines — these audits have fallen by 22 percent since 2005.”

The figures are odd because Congress have given the IRS more money to check the books of the largest corporations. The agency often finds that the behemoths under-report what they have to pay. The TaxIRS research shows that “On an hour-by-hour basis, IRS audits of all corporations show that misreported tax dollars among the giants came to $9,354 per auditor hour, eight times higher than uncovered for the small and mid-size firms.”

The report blames IRS management for the lack of audits at America’s largest corporations. Employees in charge of reviewing tax returns spend too much time looking at people and small companies.

The reasons for the problem may go deeper than mismanagement. Reviews of the financial statements of the largest companies need sophisticated accounting skills. The government pays nothing close to what audit firms do. Those best qualified to do audits that may find tax payment shortfalls at big firms may be unwilling to work for the IRS due to its low pay.

Big companies are being passed over by IRS auditors because, as is often true with the government, the best people do not want to work for federal agencies when the pay packages are better elsewhere.

Douglas A. McIntyre