May 19, 2009 / 3:36 PM / 10 years ago

IRS says focus on wealthy individuals, companies

WASHINGTON (Reuters) - The U.S. Internal Revenue Service is focusing its audits on wealthy individuals and corporations as part of a broader effort to increase enforcement, the agency chief told lawmakers on Tuesday.

IRS Commisioner Douglas Shulman at the Tax Council Policy Institute annual meeting in Washington, DC, February 25, 2009. REUTERS/Joshua Roberts

IRS Commissioner Douglas Shulman disputed a suggestion at a congressional hearing that the agency has been lax in going after rich people and big companies. He was responding to a lawmaker who cited big drops in audits of millionaires and large companies.

“Our long-term investment is to have a trend where wealthy individuals, large corporations, (those) who have really benefited from being in the United States, we’re going to make sure that they pay their taxes,” Shulman, an appointee of former president George W. Bush, told a U.S. House of Representatives Appropriations subcommittee hearing on the agency’s 2010 budget request.

Representative Jose Serrano, Democratic chairman of the subcommittee, cited data from Syracuse University that the IRS audit rate for millionaires fell 19 percent between fiscal 2007 and 2008 and fell 39 percent from 2005 to 2008 for big corporations.

“We think some of that is just wrong and some of it is looking at unfair comparisons,” Shulman said, adding there was a slight decline in the rate of audits of millionaires because the overall number of audits grew.

“They were overcounting their audits of millionaires,” said Sue Long, the statistician and professor at Syracuse’s Whitman School of Management who runs the database.

IRS data did confirm a major drop in audits of corporations with more than $250 million in assets in recent years. The rate fell from 44 percent in 2005 to 27 percent in 2008.

According to the IRS’s website, it audited about 5.6 percent of individuals making more than $1 million in fiscal year 2008, down from 6.8 percent in 2007, a drop of about 18 percent.

The 2008 rate was up slightly from 5 percent in 2004, the earliest year available by income class.

Serrano acknowledged that the problem began long before Shulman’s tenure, which began about a year ago: “Some of this obviously happened before you came on the job.”

Shulman has said enforcement of laws against international tax cheating is his top priority.

The U.S. government is now suing UBS AG to retrieve thousands of names of American clients who stashed money in secret accounts. The Swiss banking giant settled with the Department of Justice in February to avoid criminal charges after agreeing to pay a $780 million fine.

“For many years, some people have felt safe and some financial institutions have marketed ‘come and hide your assets here,’” Shulman told the lawmakers.

UBS is fighting the civil suit, claiming compliance would require UBS employees to commit fraud in Switzerland.

In March, the IRS began a six-month voluntary amnesty program to encourage individuals and companies evading U.S. taxes in offshore accounts to come clean in exchange for lower penalties and in most cases avoiding the risk of criminal prosecution.

“We’ve seen a significant uptick in our voluntary disclosure program,” Shulman said.

Reporting by Kim Dixon; Editing by Lisa Von Ahn, Andre Grenon, Gary Hill

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