Over the last decade, the IRS budget has fallen by about 20% after accounting for inflation, according to the Treasury Department. That has cost the agency more than 17,000 enforcement employees since 2010, with the number of auditors focused on high-end evasion and large corporate cases falling by 35%, the department said.
Some of the increased funding the Biden administration has proposed would go toward hiring and training people to fill in those gaps.
Complex Returns
An auditor must be trained and on the job for at least two to three years in order to have the experience and expertise to audit complex returns, according to an IRS spokesman.
To immediately start increasing high-end audits, the IRS could move already-skilled auditors working on smaller cases to those more difficult returns, said John Dalrymple, a former deputy IRS commissioner for services and enforcement. But it’s important not to just focus attention on one specific area, because compliance in other places could slip, he said.
To recruit skilled talent the IRS will have to compete with the private sector. Faster recruitment and offering salaries above the normal pay scale for federal employees would help but would require Congress’s approval, said Olson, now executive director of the Center for Taxpayer Rights. The IRS already has this ability for IT positions.
The individuals and corporations the Biden administration is targeting are those with the resources to prolong the enforcement process. They’re also among the most complex returns.
Court Battles
Facebook Inc., for instance, is battling the IRS in court over a tax bill initially dating back to 2010 that could end up costing the social media giant more than $9 billion.
The IRS generally has three years from the date a tax return is due or filed to audit the return and charge additional tax, penalties, and interest. That can get pushed to six years if the taxpayer has a large amount of unreported income, and there’s no time limit if a taxpayer never filed a return or committed fraud.
For complex audits, which regularly involve several tax years at once, the IRS and taxpayers will often agree to extend beyond those time constraints. It’s not unusual for the process to drag on for several years after that, former officials said. After the audit has concluded taxpayers can challenge the IRS’s position in the agency’s internal appeals process or in court.
“Litigation can go another five-plus years beyond that easily,” Desmond said.
This article was provided by Bloomberg News.