IRS: Fewer audits mean $3B in lost tax revenue

IRS audits and other key enforcement programs "will operate well below historical levels" this fiscal year, the federal tax agency's chief told Congress Wednesday.

Tax examiners will perform 100,000 fewer audits, IRS Commissioner John Koskinen said in testimony for a House Ways and Means oversight subcommittee hearing on the agency's budget and operations.

"There will be similar declines in audits of high-wealth individuals, businesses and partnerships, along with an estimated 190,000 fewer collection activities," said Koskinen.

While fewer audits may seem like good news for most U.S. taxpayers, Koskinen warned the House panel that IRS estimates show "the government will lose almost $3 billion as a result."

IRS audit rates are already low. Just 0.6% of taxpayers whose adjusted gross income ranged from $50,000 to $75,000 were audited in federal fiscal year 2013, agency data shows. The comparable rate for those with incomes from $100,000 to $200,000 was 0.77%, the data shows.

But higher-earning taxpayers were somewhat more likely to face examination.

Those with adjusted gross income from $200,000 to $500,000 faced a 2.06% audit rate in fiscal year 2013, the IRS data shows. The rate jumped to 3.79% for those who earned from $500,000 to $1 million, and to 9.02% for adjusted gross income from $1 million to $5 million, the data shows.

Koskinen said in his testimony that tight IRS budgets in recent years raised "negative implications for taxpayers and the tax system." The agency's current budget is $11.29 billion, more than $850 million below the funding for fiscal year 2010. Over the same time period, the IRS lost nearly 10,000 full-time permanent employees, he said.

However, the agency oversaw a smooth 2014 tax-filing season, with more than 134 million individual tax returns received as of April 25, said Koskinen.

The subcommittee chair, Rep. Charles Boustany, R-La., applauded the IRS for initial reports suggested that the 2014 tax season was relatively f! ree of problems that marred some previous years.

But Boustany said the success came amid an investigation of allegations the IRS unfairly targeted conservative groups that applied for tax-exempt status.

"As the agency works to recover from the scandal, these kinds of successes will help the agency regain the trust of the American people," Boustany said in his opening statement. "It will be a long road, and how the IRS responds to the ongoing investigation will affect the pace of the recovery for better or worse."

Koskinen acknowledged that the issue triggered "a loss of confidence among taxpayers and particularly within Congress." He added that his job includes "minimizing risks and quickly solving management and operational problems" so taxpayers and Congress can be "confident that we are careful stewards" of budget resources.