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COMMISSIONER EVERSON TOUTS INCREASED ENFORCEMENT

November 21, 2006

IRS Commissioner Everson issued a statement yesterday on IRS enforcement efforts for the government's fiscal year ended September 30, 2006. From the release:

The bottom line for our enforcement efforts shows that dollars collected rose again last year. There’s a strong trend line going up. Fiscal 2005 was a watershed year for us, with a number of big initiatives that helped push enforcement revenues up 10% to $47.3 billion. In Fiscal 2006, enforcement revenues – the monies we get from our collection, examination, and document matching activities – increased to a record $48.7 billion. Our exam dollars were down slightly this year because of the big bump from the Son of Boss settlement initiative in 2005. Even with that, our overall dollars collected jumped nearly 3% in 2006 principally because of a strong rise in collections.

The statement says that audits of individuals and S corporations are up:

If you earn more than $100,000 or you’re a millionaire, you’re a lot more likely to be audited these days than just a few years ago.

* Audits of individuals with income of $1,000,000 and higher increased to 17,015 from 12,835, a nearly 33% increase in just one year. About 1 in every 16 of these taxpayers faced audits last year. If you’re earning that kind of money and we notice a problem, you’re going to hear from us.

* Audits of individuals with incomes over $100,000 surpassed 257,000, an 18% increase from 2005. That’s the highest figure in more than a decade, and well over double the 92,000 completed in fiscal year 2001.

Pass-through entities are also getting hit hard:

Our business numbers reflect that we have placed more emphasis in the growing area of these flow-through returns involving S corporations and partnerships:

* Audits of S corporation returns increased to 13,984 from 10,417, a 34% increase. This is the highest level since 2000.

* For partnerships, audits of these flow-through returns increased to 9,777 from 8,489, a 15% increase. This category is at the highest level since 1998.

* Audits of small businesses organized as corporations remained about the same. 17,871 audits were completed in 2006, up slightly from 17,858 in 2005.Both of these figures are more than double the 7,294 audits of small businesses in 2004.

It seems that the IRS is paying special attention to pass-throughs that generate losses. Go figure.

The tax-exempt sector isn't being neglected, either:

* Our Exempt Organization area audited 7,079 returns this year, an increase of 43% from the previous year. We’re at the highest level since 2000.

* In addition to increased exam activity, we introduced a new program in 2004 using non-traditional compliance contacts to expand our enforcement presence within the tax-exempt community. These compliance contacts have been instrumental in addressing problem areas in sectors such as hospitals, executive compensation and credit counseling. In Fiscal 2006, we completed over 5,200 of these new compliance contacts, over and above the traditional examination program. This is a 31% increase from the previous year. Before 2004, we weren’t doing any of these contacts.

Getting down to brass knuckles tacks:

In our collection activities, levies and liens continue to top their 1998 levels. Levies increased by 36% to 3,742,276.Liens rose nearly 20% to 629,813.

The Commissioner tells a story of an IRS that has again found its footing after the tax-shelter wars of the 1990s and the taxpayer bill of rights hearings. It will be interesting to see whether these enforcement levels continue.

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