Tom Herman had an interesting article in today’s Wall Street Journal about the low chance of getting audited by the IRS. It was nice to see Tom back to writing for the Journal, he used to be the WSJ Tax Report columnist and covered IRS whistleblowing. Tom starts the article off with a bang by saying:

Those who like to be, well, creative when filing out their federal income-tax returns may take cheer from the following.”

The article goes on to cover the seemingly ever decreasing rate of enforcement by the IRS.  IRS Commissioner John Koskinen is quoted as stating that the IRS budget is down $900 million from 2010.  Koskinen stated that “Exam rates are continuing their downward trend in all categories – individuals, small businesses and large corporations….”  These are great facts if you are a tax cheat; not so great for everybody else.

Now, more than ever, the need for tax whistleblowers is vital to the efficient enforcement of tax.  People with high-quality information about the underreporting of tax are an amazing resource to the IRS, especially in these tighter times.  Issue identification, the part of an audit where the IRS determines what issues to fully examine can eat up an audit budget fast.  The IRS is constantly working to reduce issue identification cost.  The creation of Schedule UTP and the recent announcement of LB&I Compliance Campaigns are a couple examples.  When an insider can point out the areas where an audit is most likely to bear fruit, the IRS is able to hone in and make the most of its enforcement budget. 

The IRS whistleblower program works (perhaps we will do a future blog on the number of millionaires we have helped create).  If you have information on tax underpayments we encourage you to seek assistance from a tax lawyer who can help you present it to the IRS in a way that shows the issues you have identified are a smart place to put the IRS’s enforcement dollars.  Together, we can help reduce tax underpayments even in the face of fewer IRS boots on the ground.

Lynam Knott