Back | August 31, 2011
Highlights of IRS FY 2010 Enforcement Efforts
The IRS increased its enforcement revenue in fiscal year 2010, audited more taxpayers and stepped up its hiring of enforcement personnel, the Treasury Inspector General for Tax Administration concluded in a recent report ("Trends in Compliance Activities Through Fiscal Year 2010," Reference No. 2011-30-071, released Aug. 17, 2011). Gross revenue collections held steady at $2.35 trillion from FY 2009 to FY 2010 but decreased by 15 percent from FY 2007 and FY 2008, when gross collections were $2.7 trillion, TIGTA reported.
Personnel
The number of IRS employees increased almost 4 percent from FY 2006 (103,800) to FY 2010 (107,600), while the number of enforcement personnel in IRS field offices increased by 19 percent, from 14,500 to 17,200 during the same period. In FY 2009, the IRS hired more than 2,000 revenue agents and tax compliance officers, and added nearly 1,300 agents and officers in FY 2010.
However, the IRS’s hiring of revenue officers faces the challenge of keeping pace with attrition and workload. The number of enforcement personnel actually dropped in FY 2007 and FY 2008, but then increased in FY 2009 and FY 2010. Planned hiring of revenue officers in FY 2011 and FY 2012 will barely cover the IRS’s estimated attrition losses, TIGTA concluded.
Comment: Revenue agents conduct face-to-face examinations of more complex returns. Revenue officers address collection issues. Tax compliance officers audit taxpayers through interviews at IRS field offices, while tax examiners conduct correspondence audits.
Collections
FY 2010 gross collections included approximately $1.2 trillion from individual taxes, $800 billion in employment taxes, and $300 billion in corporate taxes. The total collected of $2.35 trillion includes trust, estate, gift and excise taxes. Individual collections declined from $1.4 trillion in FY 2007 and FY 2008; employment taxes dropped from $900 billion; corporate taxes actually increased from the $200 billion collected in FY 2009.
Although gross collections have been dropping, enforcement revenue increased 18 percent in FY 2010, from $48.9 billion in FY 2009. This enforcement revenue included $6.3 billion collected by the IRS’s Collection Field function (CFf) and other collection personnel on taxpayer delinquent accounts (TDAs), matching the five-year high from FY 2007.
Comment: A TDA is a taxpayer’s balance-due account; a separate TDA exists for each delinquent tax period.
The average amount collected on TDAs per CFf staff year increased 4 percent to $462,368 in FY 2010, although TIGTA noted that this amount is a 19 percent decrease from the five-year high in FY 2007 of $567,733.
Comment: Although these are average figures, they suggest that IRS collection personnel collect substantial revenue and that hiring more enforcement personnel could lead to increases in revenues collected.
Delinquent Accounts
During FY 2010, the IRS received more TDAs than it closed, with the gap between receipts and disclosures increasing to 2.2 million accounts and the percentage of closures to receipts dropping to 72 percent. While the number of TDAs has fluctuated over the past five years, receipts have outnumbered closures in every year since FY 2006.
TIGTA pointed out that there have been large increases in the number of cases that were shelved or surveyed (lower priority delinquent accounts taken out of the collection inventory). Since FY 2006, the IRS has removed more than 4.8 million TDAs from inventory, with balance due amounts totaling $26 billion.
Comment: TIGTA concluded that decreases in the number of unassigned cases did not necessarily result from cases being worked and closed. TIGTA stated that the IRS’s strategy for reducing the tax gap largely depends on obtaining funding for additional compliance resources, as well as legislative changes.
Collection Tools
The IRS increased the overall use of liens, levies and seizures over the past year. Liens have increased 74 percent since FY 2006, from 630,000 to 1.1 million. The number of levies increased 4 percent during FY 2010, to approximately 3.6 million, although this is less than the levies for FY 2006 and FY 2007. Seizures increased 4 percent in FY 2010, to 605, but are lower than the five-year high of 676.
Comment: National Taxpayer Advocate Nina Olson has suggested that the IRS’s lien policies are counter-productive, making it harder for some taxpayers to pay their debts, rather than effectively protecting the IRS’s right to payment.
Examinations
TIGTA stressed the importance of conducting examinations and enforcing tax laws to maintaining voluntary compliance. The number of revenue agents and tax compliance officers, who conduct audits, increased by 4 percent from FY 2009 to FY 2010, to a total of 13,000 employees. The number of examiners in field offices has increased by 12 percent since FY 2006. The IRS appears to be getting immediate increases in productivity from the hiring of new personnel, despite expectations that it would take several years to realize any results.
With the staffing increases, the IRS audited the most tax returns in five years. The percentage of tax returns increased slightly in FY 2009 and by nearly 8 percent in FY 2010. From FY 2006, exams increased by 17 percent. The yield from audits increased in FY 2009 for individual, corporate and other tax returns but dropped for each of these categories in FY 2010.
While examinations can range from changing a single item by correspondence examination to a face-to-face interview and review of records, TIGTA noted that 73 percent of all examinations conducted in FY 2010 were by correspondence. The IRS also uses computer-matching and automated error checking to check the accuracy of tax returns. Although these often result in changes, they are not considered audits or reported as enforcement activity.
Examination Rates
Examination rates showed mixed results, TIGTA concluded. The number of individual returns examined increased by 23 percent from FY 2006 to FY 2010, from 1.284 million audits to 1.581 million audits. The percentage of individual returns examined increased from less than 1 percent in FY 2006 to 1.11 percent in FY 2010. More than 82 percent of the FY 2010 examinations were conducted by correspondence, although correspondence examinations increased by 8 percent from FY 2009. Only one of every 503 individual tax returns received a face-to-face examination in FY 2010, although coverage increased 4 percent over FY 2009.
FY 2010 audits of corporate income tax returns increased over 5 percent from FY 2009. The IRS audited 29,334 corporate returns in FY 2010 (one of every 72 filed), but it audited the most corporate returns in FY 2008 (29,986). TIGTA noted that the number of corporate returns has decreased by more than 8 percent during the five-year period.
Both partnership and S corporation return examination numbers dropped in FY 2010; however, TIGTA reported that filings were up substantially, with partnership return filings increasing 26 percent from FY 2006 to FY 2010, and S corporation filings increasing 19 percent over the same period. The overall audit rate for other returns (fiduciary, employment, excise tax, estate and gift taxes) was essentially level, with increases in gift, excise and fiduciary returns, offset by a decrease in estate tax returns.
Productivity
Examination productivity fluctuated. For revenue agents, it reached a five-year high of $50,600 per individual return in FY 2007, while hitting a five-year low of $37,500 in FY 2008. The yield declined slightly in FY 2010, after increasing in FY 2009. The yield for corporate returns dropped by nearly 10 percent in FY 2010.
No–change rates for individual returns increased in FY 2010, after declining from FY 2006 through FY 2009. Still, the overall 2010 no-change rates were 20 percent lower than FY 2006 rates.
Conclusion
TIGTA noted continuing challenges facing IRS enforcement, including changes to the Tax Code and maintaining a quality workforce. TIGTA tentatively concluded that the hiring and training of new personnel were bringing positive changes to the IRS’s enforcement efforts.
"The IRS increased its enforcement revenue in fiscal year 2010, audited more taxpayers, and stepped up its hiring of enforcement personnel."
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