TO CATCH A CHEAT

No one likes to pay taxes, but most of us begrudgingly ensure the proper paperwork is filed by today. Increasingly, however, more and more people are not paying the taxes they owe and the Internal Revenue Service is doing less and less about it.

From 1996-2000, the number of individual tax returns audited by the IRS declined by more than 60 percent, according a review by the General Accounting Office, the investigative arm of Congress. The decline has continued in recent years. The lack of audits was across the board, according to the GAO, ensuring that individuals and businesses large and small get away without paying billions of dollars in taxes every year. While the number of tax returns filed has grown 12 percent in the last decade, the number of IRS review agents has dropped by a quarter. This emboldens those who are inclined to cheat because they know the odds are increasingly in their favor. The GAO found that those who fail to file tax returns was growing 31/2 times faster than the tax-filing population. For years, the IRS commissioner has said this trend would reverse. It has not.

And, despite recent rhetoric about ending corporate corruption, when the IRS does an audit, it is much more likely review the filings of individuals rather than corporations, according to a Syracuse University study. Last year, low-to middle-income individuals accounted for 82 percent of the agency’s reviews. Corporations with assets in excess of $250 million were only 0.5 percent of IRS audits. In addition, the corporate audit rate fell sharply from 2.9 percent of all corporate filers in 1992 to less than 1 percent in 2002. The IRS is also pursing large companies with less vigor than it used to. In 1993, more than 2,000 companies were assessed civil penalties for tax filing negligence. That number plummeted to just 22 cases in 2000. The tally of corporate offenders included a Dunkin’ Donuts franchise in Massachusetts and a flower wholesaler in California. The likes of Enron and Tyco are not on the list.

To further enrage law-abiding taxpayers, the tax rate for corporations has declined while individuals have been paying higher taxes. Last year, corporations paid 10.5 percent of all the taxes collected by the IRS. In 1973, they paid 16.4 percent, according to the New York Times. Since 1973, corporate incomes have risen 75 percent as fast as corporate profits. Individual income taxes, on the other hand, have grown 21 percent faster than adjusted gross incomes. That results in corporations keeping an additional 7 cents of each dollar of profit after taxes while individual keep 7 cents less of each dollar’s earnings after taxes.

The blame for the lack of review rests with both the agency and Congress. While the IRS has received increases in funding, that money has gone to streamline the agency – an effort that is behind schedule and over budget – rather than to chasing tax scofflaws. While having an efficient, friendly IRS is a worthy goal, ensuring that people pay the taxes they owe is a better one.