IRS enforcement activities bring in record revenue for 2006

Commissioner says strides in enforcement of tax laws have not come at the expense of customer service.

The Internal Revenue Service boosted the revenue it gained through enforcement of tax laws by $1.4 billion in fiscal 2006, sharply increasing the number of individual and business audits conducted.

In a statement accompanying fiscal 2006 statistics, IRS Commissioner Mark Everson stressed that enforcement numbers have rebounded since the late 1990s. Enforcement had reached a low in 1999 after a series of hearings on the use of aggressive collection tactics, and passage of the 1998 IRS Restructuring and Reform Act.

Overall revenues from enforcement increased nearly 3 percent in fiscal 2006, to $48.7 billion from $47.3 billion the previous year.

Collections of taxes that filers have agreed they owe but did not voluntarily pay rose by $1.6 billion to $28.2 billion, representing a 6 percent increase over fiscal 2005 levels. The IRS used document matching, in which elements of returns are compared to centrally reported data such as payroll information and dividend amounts, to gain another $3.3 billion in revenues for fiscal 2006, marking a more than 6 percent increase over the previous year's $3.1 billion.

The IRS reported a drop, however, in audit-linked collections, from $17.7 billion to $17.2 billion in fiscal 2006, and attributed the change to a significant bump in last year's total due to a large settlement action on a tax scheme called "Son of Boss."

Everson stressed that the number of audits being conducted increased, with 6 percent more individuals being audited in fiscal 2006 than the previous year. This included a 23 percent jump in the number of face-to-face audits.

"If you earn more than $100,000 or you're a millionaire, you're a lot more likely to be audited these days than just a few years ago," Everson said, noting that audits of those making more than a million dollars rose almost 33 percent last year, while those making more than $100,000 were audited 18 percent more than the previous year.

S corporations, a category that includes some small companies, had a 34 percent increase in audits, while partnerships jumped 15 percent. Audits of large companies dipped 2.2 percent, while those of certain small businesses remained stable.

Audits of charitable organizations also rose significantly, according to the statement, up 43 percent over 2005 levels.

Everson said taxpayer services have not been sacrificed because of the renewed focus on enforcement activities, citing numbers that show stable levels of customer satisfaction and usage of Internet and toll-free resources, and an uptick in the use of online tools like e-filing and refund status checks.

Stakeholders including the National Taxpayer Advocate, the Treasury Inspector General for Tax Administration and the National Treasury Employees Union have questioned IRS moves to close some taxpayer assistance centers, though, contending that service concerns have not been addressed.

The fiscal 2006 figures show that while enforcement staffing increased by almost 5 percent over the previous year, to 21,185 people, it has yet to return to 1999 levels and remains below the 25,215 level of 1997.

In response to the IRS figures, NTEU President Colleen Kelley highlighted workforce concerns. "Productivity increases are terrific, and IRS employees are to be commended for the work that they do; however, you cannot get blood from a stone," Kelley said. "IRS will only make significant progress toward [collecting the full measure of taxes owed] if the administration asks Congress for more resources for frontline staffing in the 2007 fiscal year."

Kelley also urged the agency to abandon plans to outsource some debt collection. Earlier this year, Everson testified before lawmakers that agency employees could do the same work at lower cost, but he has said the agency does not have sufficient staff to carry it out.

An October projection suggested the outsourcing initiative may run into financial troubles during its trial phase, which is slated to run through the end of 2007.