By Ashlea Ebeling
The number of federal individual income tax returns examined by the Internal Revenue Service has continuously increased over the past five years, with 1 out of every 90 taxpayers examined in fiscal year 2010, according to a statistical report released today by the Treasury Inspector General for Tax Administration. That’s up 23 percent from fiscal year 2006, when 1 of every 103 individual returns was examined. Also, the IRS increased the overall use of enforcement tools (liens, levies, and seizures).
Blame Congress. TIGTA gives the IRS credit for having to operate in an environment of everchanging tax laws. The American Recovery and Reinvestment Act of 2009, for example, included 56 tax provisions (20 related to individual taxpayers), and The Worker, Homeownership, and Business Assistance Act of 2009 revised the First-Time Homebuyer Credit, causing untold confusion. More tax laws mean more to enforce; more changes mean it’s more likely taxpayers will mess up.
The uptick in enforcement is all for the greater good of maintaining a voluntary tax compliance system, the report says. IRS Oversight Board studies of taxpayer attitudes showed that fear of examination is a major factor influencing taxpayers to report taxes honestly. In 2010, 64 percent of taxpayers surveyed cited fear of examination as a factor that influenced their voluntary compliance (up from 63% in 2009). Yet an astonishing 12 percent of taxpayers believed that it was acceptable to cheat on their income taxes (down from 13 percent in fiscal year 2009).
One bit of good news for those fearing a full-blown audit is that you’re way more likely to get an audit by mail, although both in-person and by-mail examinations are up over last year. Only 1 out of every 503 individual returns filed got a face-to-face examination in fiscal 2010 (a 4 percent increase in coverage over fiscal year 2009), while 1 of every 110 returns got an audit by mail (a more than 8 percent increase over fiscal year2009).
What is perhaps the most troubling for taxpayers is the increased use of liens, levies and seizures. The use of liens has increased by 74 percent since fiscal year 2006, with this year’s increase the largest since fiscal year 2007. The total number of levies increased by 4 percent, and the total number of seizures increased 4 percent. National Taxpayer Advocate Nina E. Olson has argued that liens are inappropriate in some cases, given the impact the lien has on a delinquent’s ability to earn a living, pay off his tax bill and even stay off the public dole. Publicly filed liens can destroy credit and potentially wreck careers and businesses.
Enforcement revenue collected during fiscal year 2010 increased by 18 percent from $48.9 billion to $57.6 billion. This amount (not adjusted for inflation) is the first increase since fiscal year 2007. These numbers could be higher, but the collection folks are unable to work all of the existing accounts with current staffing, the report says. Sounds like a call for more compliance staff, and more exams. Watch out.