Upswing in audits not from personal contact with taxpayers, IRS official acknowledges

The Treasury Inspector General for Tax Administration (TIGTA) recently reported that the overall percentage of tax returns examined during fiscal year (FY) 2007 increased almost nine percent. However, the total dollar amount of uncollected liabilities increased to a 10-year high of $290 billion. During FY 2007, correspondence audits accounted for 83 percent of all IRS examinations. According to an IRS official, many taxpayers who undergo a correspondence examination do not even realize they are being audited.

Default assessments

The IRS's Automated Underreporter Program (AUR) had a "default assessment rate" of 64 percent in FY 2007, due to taxpayers not responding to IRS correspondence regarding their tax liability. The AUR Program is part of the IRS's Information Reporting Program (IRP) and is intended to reduce taxpayer burden and increase voluntary taxpayer compliance. The AUR Program has evolved as a compliance initiative, using third-party information returns to identify income and deductions that were not reported on tax returns.

A significant group of taxpayers have reportedly been successful in requesting that the IRS abate AUR determinations. In 2006, the IRS approved 88 percent of all abatement requests.

Another program with a high default assessment rate is the Automated Substitute for Return (ASFR) Program. The IRS's ASFR is a batch-processing application that performs complex computations and tax calculations enabling tax examiners to issue accurate notices and assessments based on IRP information and to resolve return individual taxpayer delinquency cases. The ASFR Program has a low collection percentage, however.

(ABA Tax Section Mtgs May 08)