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Watchdog says IRS is ignoring potential corporate tax cheats

The Internal Revenue Service isn’t doing enough to audit corporate mergers and acquisitions and is wasting tens of thousands of days on cases that aren’t likely to generate more tax dollars, the agency’s watchdog said.

FILE photo shows a logo sign outside of the IRS headquarters. The federal agency isn’t doing enough to audit corporate mergers and acquisitions and is wasting tens of thousands of days on cases that aren’t likely to generate more tax dollars, the agency’s watchdog said.
FILE photo shows a logo sign outside of the IRS headquarters. The federal agency isn’t doing enough to audit corporate mergers and acquisitions and is wasting tens of thousands of days on cases that aren’t likely to generate more tax dollars, the agency’s watchdog said.Read moreKristoffer Tripplaar / MCT
    by Laura Davison, Bloomberg News, McClatchy-Tribune
    Published 

The Internal Revenue Service isn’t doing enough to audit corporate mergers and acquisitions and is wasting tens of thousands of days on cases that will not likely generate more tax dollars, the agency’s watchdog said.

IRS employees spent a collective 27,874 work days from fiscal years 2015 to 2018 examining corporate merger and acquisition issues that were ultimately not changed after the audit was completed, the Treasury inspector general for tax administration said in a report released Tuesday.

IRS auditors proposed about $296 million in underreported taxes tied to corporate transactions in 2018, the report said. That’s down from the $1.05 billion that examiners had proposed in 2015. The agency doesn’t necessarily collect that full amount because taxpayers can appeal their cases.

IRS data “indicate that M&A transactions remain an area of potential compliance risk with the potential for large adjustments, but a significant number of staff days are often spent concentrating on no- or low-risk M&A issues instead of M&A issues with audit potential,” the report said.

The agency’s management, in its response to the report, said it disagreed with the inspector general’s assessment that it needed a strategy to more effectively select cases to audit. The agency has sufficient processes in place and the rate of companies underreporting taxes from M&A is low, the IRS response said.

The report comes as IRS audit rates have fallen across the board in recent years. Individuals, businesses, and tax exempt organizations have all faced fewer examinations as the agency has lost staff as a result of budget cuts, according to the agency’s statistics.

The IRS has recently revamped its audit strategy to focus on high-risk areas where taxpayers are more likely to avoid taxes, such as offshore private banking and self-employment taxes.

The IRS also has been focusing on cryptocurrency tax avoidance in recent months. It sent more than 10,000 letters in July to taxpayers who may have not properly paid taxes on their holding, and a top official has said they will soon announce criminal tax evasion cases.