IRS Corporate Audits Drop 71 Pct, Individual Audits Fall 65 Pct

The number of tax audits on corporations plunged amid the pandemic, with the IRS saying in the National Taxpayer Advocate’s “Objectives Report to Congress” report for Fiscal Year 2021 that it began 716 corporate examinations from April 1 to June 1 this year compared to 2,445 during the same time last year, a 71 percent drop.

The advocate also said in the report that examinations on individual tax returns fell to 5,013 from April 1 to June 1 this year compared to 14,188 during the same time last year, marking a 65 percent fall. Audits of partnership tax returns dropped by 79 percent, while employment tax return examinations fell 42 percent over the same timeframes.

“The IRS announced as part of its People First Initiative that between April 1 and July 15, 2020, it would not start new field, office, and correspondence examinations, unless deemed necessary to protect the government’s interest in preserving the applicable statute of limitations. It also announced the suspension of all in-person meetings in ongoing examinations,” the advocate said in the report.

The advocate also said that the IRS’ “near-shutdown” created challenges of taxpayers who were undergoing collection, particularly if they were aiming to take care of their tax debts.

“Taxpayers faced significant issues due to mail stoppage, suspension of notices, and inability to interact with the IRS in person and by phone. In the meantime, the interest and penalties continued to accrue on their debts,” the advocate noted.

The news comes as tax refund season has evolved into a nightmare for the IRS that reportedly has entire storage units with refund requests that have not been opened amid the pandemic. The agency is said to use many pieces of outdated equipment and much work is completed via paper to process the yearly returns for the whole country.

Last October, the U.S. Treasury Inspector General for Tax Administration raised questions over the business auditing performance of the agency. An October Treasury Inspector General for Tax Administration report contended that the agency was not effectively auditing companies subsequent to tax examination reform that was meant to speed up the auditing process.

The body reportedly discovered that the agency harnessed the new tax examination procedures in just 15 percent of audits of big and global corporations with the rest handled the traditional way.