Audit coverage statistics show a slight increase in audits of partnerships, but decreases in audits of large corporations and S corporations in fiscal year (FY) 2014. For all types of businesses, the FY 2014 audit coverage rate was 0.57 percent, representing a decline from 0.71 percent in FY 2012 and 0.61 percent in FY 2013. Audits of large corporations experienced the steepest decline, according to the IRS.
Unlike other categories, audits of partnerships increased in FY 2014. In FY 2013, the audit coverage rate for partnerships was 0.42 percent. The audit coverage rate for partnerships increased slightly to 0.43 percent in FY 2014.
Since FY 2007, the audit coverage rate for partnerships has been in the neighborhood of 0.40 percent, the IRS reported.
Large and small corporations
For large corporations (corporations with assets more than $10 million), the audit coverage rate in FY 2014 was 12.23 percent, compared to 15.84 percent in FY 2013 and 17.78 percent in FY 2012. The FY 2014 audit coverage rate was 0.95 percent for small corporations (corporations with assets less than $10 million). The rate was unchanged from FY 2013 but reflected a decline from FY 2012, when the audit coverage rate for small corporations was 1.12 percent.
IRS Commissioner John Koskinen highlighted the decline in audits of large corporations. Audits for corporations with more than $10 million in assets fell by 20 percent between FY 2013 and FY 2014, Koskinen said. According to Koskinen, audits for large corporations are at the lowest rates in a decade.
The IRS also reported that audits of S corporations declined. The audit coverage rate for S corporations in FY 2014 was 0.36 percent, reflecting a decline from 0.42 percent in FY 2013, and a decline from 0.48 percent in FY 2012.
Impact of budget cuts
Koskinen attributed the decline in audit coverage to recent cuts in the agency’s budget. The IRS budget has fallen by more than $1.2 billion in the last five years, Koskinen said. Like overall IRS staffing, the number of compliance employees who conduct audits has also fallen sharply during this period.
The Consolidated and Further Continuing Appropriations Act, 2015 reduced the agency’s FY 2015 budget by approximately $346 million. President Obama has proposed to fund the IRS at $12.9 billion for FY 2016, reflecting a $2 billion increase over FY 2015. This would help the IRS stop this decline in enforcement efforts and help improve critical taxpayer services, Koskinen predicted. Koskinen is scheduled to testify before House and Senate panels this week about the agency’s FY 2016 budget request.