IRS’ funding level has sharply declined since 2010. Its employee head count has decreased significantly. At the same time its workload has been expanding, partly due to new programs such as health care reform and the complicated foreign account reporting rules, as well as its efforts to prevent fraudulent refunds from going to scammers who commit tax identity theft. Many are feeling the impact of the cuts… As both enforcement and service have waned. IRS is struggling on the enforcement front.Examinations are plummeting.
Last year’s audit rate of 0.96% for individuals was the lowest since 2005. Stated another way, the Service examined just one out of every 104 filed returns. And the individual audit rate for 2014 is expected to drop to 0.80%. Exam rates for partnerships, S firms and regular corporations are steadily falling, too.
A lot of filers are being let off the hook because of scarcer audit resources. For example, IRS recently admitted to Treasury inspectors that it is able to audit a mere 4% of ex-spouses who failed to report alimony that the payer deducted. Also, the agency is balking at going after overstatements of the retirement savings credit.