A Slight Increase of Partnership Audits
The IRS is reporting that partnership audits have increased during the 2014 fiscal year. According to the IRS, there was a slight increase from the 2013 rate of 0.42 to 0.43 percent in 2014. To put the numbers in historical context in 2007, the audit rate for partnerships was 0.4 percent. While the increase in partnership audits was slight, it paints a different picture from the audit rate of other business structures.
Large and Small Corporation Audits Decline
According to the IRS, the audit rate has declined for large corporations (corporations with assets of more than $10 million). IRS Commissioner John Koskinen stated that audits for large corporations fell by 20% between fiscal year 2013 and 2014.
According to the IRS if you are operating a small corporation (a corporation with less than 10 million in assets), then you have slightly less than a 1% chance of being audited. The IRS reported the 2014 fiscal year audit coverage rate was the same as the prior fiscal year of 0.95%. In the 2012 fiscal year, the audit coverage rate for small corporations was 1.12 percent.
S Corporation Audits Down
If your business is an S corporation, you’d be glad to know that the audit rate has declined as well. The audit coverage rate for S corporations in the 2014 fiscal year was down from .42 percent in the prior year to 0.36 in the 2014 fiscal year.
Why are tax audits down?
According to IRS Commissioner Koskinen, the decline in audits is due to Congress’ budgetary cuts. The 2015 Consolidated and Further Continuing Appropriations Act reduced the IRS’s 2015 budget by approximately $346 million.
This is the fifth straight year in a row that the IRS’s budget has been reduced. Because of the lack of manpower, IRS business audits, with the exception of partnership audits, have declined to historic lows.
President Obama has proposed to fund the IRS at $12.9 billion for the 2016 fiscal year. Last week, Treasury Secretary Jack Lew and IRS Commissioner Koskinen testified before a Senate Appropriations Committee on the President’s 2016 Treasury Department budget request. They also discussed tax fraud, cyber security, taxpayer services, and small businesses.
When testifying Koskinen pointed out to Congress that the IRS is the “only agency where you give it money and it returns more money”. IRS Commissioner Koskinen predicted the extra funding would help the IRS stop the decline in enforcement efforts and improve critical taxpayer.
Contact a Tax Audit Lawyer
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