Enforcement Revenue Reaches Record in 2004
Prepared Remarks of IRS Commissioner Mark W. Everson
November 18, 2004
By now, you’ve all heard me talk about our working equation at the IRS, which is “Service Plus Enforcement Equals Compliance.” I want to take a couple minutes today to discuss the progress we’ve made in the past year on these important priorities.
We’ve spent a lot of time talking about enforcement since I became Commissioner 19 months ago. I’ll discuss our results in that area in a minute, but first I want to talk about our other priorities — taxpayer service and business modernization.
Taxpayer service is improving in key areas, and our modernization efforts are moving forward. Our modernization efforts are starting to bear real fruit on the service side. We are driving service improvements through the delivery of new technology.
Let me give a few examples:
- E-filing reached 61.5 million individual tax returns, that’s a 16 percent jump from 2003. Next year, we expect that over 50 percent of all individual taxpayers will file electronically.
- Web usage of IRS.gov continued to set records, with 142 million visits so far this year. That’s a 33 percent increase from last year.
- Visits to “Where’s My Refund” on IRS.gov reached 24 million this year. That’s a 41 percent increase over the 17 million uses recorded for all of 2003.
- We achieved the highest level of phone service in recent history and reduced by more than 20 percent the average amount of time taxpayers waited on the phone.
- For the first time in 40 years, the IRS started processing tax returns on a new computer system. The Customer Account Data Engine (CADE) began processing an initial set of 1040EZ tax returns this summer, the first step in the replacement of the IRS central database of taxpayer account information. No doubt we have a long way to go in this area, but we have taken a very important first step.
- We have just completed initial implementation of a new financial system, which will help the IRS run better.
Let me turn to enforcement.
The IRS brought in a record $43.1 billion in enforcement revenue in fiscal 2004. That’s an increase of $5.5 billion from the year before, or 15 percent.
Enforcement revenue reflects money brought into the Treasury from our audits, collection activity and document matching.
These results demonstrate funding the IRS is a sound investment. Compared against our overall budget of just over $10 billion, which includes all taxpayer service and education, our enforcement revenues yield a 4-1 direct return on every dollar invested in tax administration.
Let me run through some of the other enforcement results. These are figures for Fiscal Year 2004, which ended Sept. 30.
- Audits of high-income taxpayers — those earning $100,000 or more — topped 195,000. That’s a 40 percent increase from 2003 and a 74 percent increase from 2002.
- Total audits of all individual taxpayers topped 1 million for the first time since 1999. In 2004, we saw a nearly 19 percent increase from 2003 and almost a 36 percent jump from 2002.
- After years of decline, audits of the largest businesses — those corporations with assets of $10 million and over — climbed to 9,560. That’s up from a low of 7,125 from last year. One in six of these large corporations were audited in fiscal 2004.
- The number of levies — a key enforcement tool — issued topped 2 million, a 21 percent increase from 2003 and triple the number in 2001.
- Criminal investigation activity increased in several areas, including more than 3,000 recommended prosecutions, a nearly 20 percent jump. A big piece of this involves financial crimes, including money laundering and other white-collar crimes where we work cooperatively with the Department of Justice.
- One area where we need to do better is small businesses — those with less than $10 million in assets. The audits dropped to 7,290 in 2004 from 13,680 last year. The decline is due to several reasons, including diverting resources to auditing high-income individuals and labor-intensive abusive schemes. Staff time also went to the National Research Program, which will help the agency better identify audit cases.
As I’ve noted, we started to bring up the audits of large businesses this year. I expect to do the same for small businesses in 2005.
Overall, these audit rates, while we’ve made progress, are still too low. We have more work to do.
A vigorous enforcement program is important. The great majority of Americans pay their fair share of taxes. Americans deserve to feel confident that when they pay their taxes, neighbors and competitors are doing the same.
Let me return to the subject of enforcement activities and return on investment. Increasing audits, collections and criminal investigations has an impact beyond the direct enforcement revenues generated. When a doctor, a dentist, a construction worker or anyone else is audited, word gets around. And some people who might be tempted to play fast and loose will think twice.
The IRS can do more, but it’s important for Congress to support our efforts. The President’s 2005 budget proposal calls for a greater than 10 percent increase in our enforcement funding. Right now, that request is not faring particularly well with Congress. I ask those involved to take another look and fully fund the president’s request.
Thank you, and now I’ll take your questions.
Related Link: IRS enforcement revenue graph (PDF 16K)