IRS budget cuts are costing the U.S. government substantially more in tax collections than they save, according to a new study highlighted by USA Today.
Researchers at the Indiana University Kelley School of Business studied how IRS funding affects the agency’s audit process for publicly-traded corporations. Relying on confidential IRS audit data from tax return years 2000 through 2010, they found that the IRS could have increased collections from these companies by $34.3 billion if it had been provided with $13.7 billion in additional resources.
"The scope of the audits is substantially reduced," Casey Schwab, an associate professor of accounting at Kelley, said. "The IRS has fewer resources to actually dig into the details. While the IRS appears to still target the most aggressive positions, they can't audit as many positions within the return. They just don't have the resources."
That $34.3 billion in lost revenue represents nearly 20% of the estimated gap between what corporations paid in taxes and what they owed from 2002 through 2014. It is also “potentially only a fraction of what the amount would have been if the study had included audit data from other businesses, individuals and foreign taxpayers,” USA Today’s Maureen Groppe notes.