We Don’t Need No Stinkin’ Audits!
Here’s a surprise: The IRS audits fewer financial-services companies than any other type of big company–even though it finds nearly double the tax cheating at financial companies when it does audit them.
These are the findings released today by TRAC, the Transactional Records Access Clearinghouse. From the report:
Overall, the large corporate sector–composed of those firms with $250 million or more in assets–hold 92% of all corporate assets and report 88% of all corporate income taxes. Dominating this large-corporation sector is what IRS calls the “financial services” industry. Currently three out of every four of all large corporate returns–10,186 out of 13,316–are filed by the financial services firms.
* Financial services corporations report about 33 percent of the total corporate income taxes from large companies
* the I.R.S. devotes only 15 percent of its corporate auditors to the financial-services industry.
The trend since 2000 has been for the IRS to devote fewer resources to this sector even as the financial-services industry grew and morphed into the fraud machine we now know it to be:
Curiously enough, considering the mounting problems now plaguing the financial sector, extremely timely information from the IRS shows that as recently as February 24, IRS managers still were not allocating more auditor time to this special group.
And, perhaps unsurprisingly, when the IRS does bother to audit these hedge funds, insurance companies, and investment banks, it finds more taxes are owed than when it looks at, say, car manufacturers or retail chains:
The disproportionate cutbacks in the resources allocated to the Financial Services group have occurred despite the fact that the audits it has completed have in recent years turned up ever higher amounts of tax underreporting than was uncovered by the units assigned to the four other industry groups.
. . . from FY 2001 to 2003 the additional taxes recommended by the other industry groups were all about the same–around $3,000 for each auditor hour. However, by FY 2004 the additional taxes recommended by Financial Services teams began to pull ahead of the amounts found by the other industry teams. And by FY 2008, the tax underreporting uncovered by Financial Sector teams amounted to over $11,000 per auditor hour–up 270% over from the beginning of this period.
These findings mirror TRAC’s widely reported (and weakly denied) findings from March 23 indicating that the “IRS audit rate for millionaires plummeted in the just-ended fiscal year, according to agency data.”
Treasury Secretary Tim Geithner (he is the boss of the IRS) must be laughing, like, so hard. One tax attorney has posted a musical tribute to Geithner’s own shaky relationship to tax honesty.