U.S. Internal Revenue Service Audits Decline

A report by the Treasury Inspector General for Tax Administration (TIGTA) provides data showing that the IRS examined only 991,000 tax returns (less than 1% of all returns) in fiscal 2018, and that the number of returns examined has declined by 28% since 2014. 

According to TIGTA, the IRS collected an all-time high amount of enforcement revenue of $59.4 billion in fiscal 2018. That increase, however, is largely due to increases in returns filed with a balance due, and other collections due to automated functions. Such collections amounted to more than half of all enforcement revenue.

As noted, actual examinations substantially declined. TIGTA attributes the decline to chronic underfunding of the IRS, as well as to factors such as the challenges presented in implementing the Tax Cuts and Jobs Act (TCJA).  The IRS budget has risen only 2% since 2014, from $11.2 billion to $11.4 billion, and has resulted in a decrease of 24% in the number of employees assigned to examination functions, and an overall decline of 4% in full time equivalent positions between fiscal 2017 and fiscal 2018.

TIGTA also noted that the 35-day government shutdown in fiscal 2019 likely will exacerbate this trend.

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How This Will Impact Mobility

Mobility programs involving home sales are increasingly unlikely to be audited, as are gross-up calculations and other employment-related tax determinations.  However, this does not mean that Worldwide ERC® members should, for example, abandon principles supporting non-taxability of properly conducted home sale programs. The IRS continues to identify particular issues for coordinated nation-wide audits, and might target relocation home sales if it were to determine that many companies are ignoring Rev. Rul. 2005-74.

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