IRS Scrutiny of Major Corporations at 20-Year Low

According to a new report of the Transactional Records Access Clearinghouse, the I.R.S. has seen “a historic collapse in audits,” particularly of major corporations, which are being examined less frequently now than at any point in the last 20 years.

In my 2006 interview with tax reporter and author David Cay Johnston, we discussed the I.R.S.’s decreasing ability to bust up the tax dodges of corporations and the superrich. (We also discussed how the tax code is rigged to favor the wealthy and bilk the poor.)

An excerpt, after the jump.

MJ: You mention in [your book, Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich—And Cheat Everybody Else] that Congress has handcuffed the IRS to keep it from investigating tax loopholes used by what you call the “political donor class.” But you also mention that the IRS misappropriates its resources, frequently auditing people, often the poor, who try to stretch their tax deductions by some small amount.

DCJ: The bad actor here is Congress. Congress is supposed to fund the IRS, and it has been steadily reducing the number of auditors and tax collectors the IRS has at the very time that the tax system has become vastly more complicated. And of course the country continues to grow, so there’s an increasing number of tax returns coming in. The IRS responds by doing exactly what Congress expects of them. That shouldn’t surprise anyone. All bureaucracies do what they are told.

MJ: There are some pretty scandalous examples in your book of the IRS’ inability to go after tax cheats. For example, some people took out a full page newspaper ad broadcasting the fact that they didn’t believe in filing taxes, and hadn’t done so, and nothing happened.

DCJ: Eventually, after I wrote seventeen articles in the Times and sat in the IRS Commissioners office and had sharp words with him, they finally started indicting those people. They have tried eight people, so far, and they got convictions for all but one. But it took years of relentless coverage.

If someone ran an article on the front page of the morning newspaper saying, “Here are the addresses of the ten biggest drug dealers in city,” you can confidently know that the police are on their way to, at the minimum, roust these people. But the IRS did nothing in response to the initial report in which I gave them a roadmap to these people. And that’s because they pick almost all their investigative targets based on what the computer tells them. So if you don’t file a tax return, or you file one that appears to be normal—you say you made $90,000 and you have normal sorts of deductions, when in fact you made $50 million—the computer won’t identify you.

Read the full Q&A here.