WASHINGTON – The federal government could have collected $34.3 billion more in taxes from the nation’s largest corporations by increasing IRS resources by less than half that amount, according to a new study.
That’s nearly 20% of the estimated gap between what corporations paid in taxes and what they owed from 2002 through 2014.
The report released by the Indiana University Kelley School of Business is the first to quantify the amount of corporate tax revenue lost during the audit process for every dollar of IRS budget cuts, according to the school.
The number of federal tax examiners has declined by about one third since 2010.
“The scope of the audits is substantially reduced,” said Casey Schwab, an associate professor of accounting at the business school. “While the IRS appears to still target the most aggressive positions, they can’t audit as many positions within the return. They just don’t have the resources.”.
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Researchers looked at confidential IRS audit data from large, publicly-traded corporations for tax returns years 2000 through 2010. They estimated the government could have collected an additional $34.3 billion in taxes from those filings if they’d had $13.7 billion in additional resources.
And that estimate of lost revenue is potentially only a fraction of what the amount would have been if the study had included audit data from other businesses, individuals and foreign taxpayers.
Changes in IRS funding, however, are most likely to affect the corporate audit rate.
And researchers wanted to see how the IRS used its reduced resources on the audits they did conduct.
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They concluded that when resources decline, the IRS finds fewer potential discrepancies and challenges a smaller amount of tax savings.
The IRS does, however, collect a greater proportion of the unpaid taxes it challenges. That could mean that, with fewer resources, auditors are concentrating on the discrepancies that are harder for taxpayers to defend.
“The results suggest that they’re focusing their efforts on the weakest positions and the ones they think they can get the most bang for the buck all the way through the collection,” said Bridget Stomberg, an associate professor of accounting at the Kelley School of Business.
The study, which has been accepted for publication by The Accounting Review, was conducted with Michigan State University assistant professor Michelle Nessa, and with Erin Towery, an associate professor at the University of Georgia and an academic research consultant to the IRS.
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The IRS’s budget has been targeted in recent years for various reasons. Some who’ve advocated for the cuts argue that they force the IRS to become more efficient and to focus on core responsibilities. But some critics of the cuts say they’re a politically motivated response to such actions as the IRS’ scrutiny of conservative group’s applications for tax-exempt status.
The report’s authors said the IRS is more efficient than the tax collection agencies of other developed countries, spending less on average in administration costs for the amount of revenue collected.
Still, the Tax Policy Center has estimated that the federal government failed to collect $41 billion in corporate taxes from 2008 through 2010.
If corporations are paying less taxes, Schwab said, that could potentially boost the economy.
“On the other hand,” he said, “there’s a notion that everyone should pay their fair share.”.
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