The IRS Oversight Board recently released its 2009 annual report to Congress. The report evaluates the IRS’s performance during the 2009 fiscal year (FY), enumerates strategic challenges affecting tax administration, and provides measures the agency’s performance during FY 2009. According to the Oversight Board’s report, audits of individuals with incomes above $1 million grew 29 percent in FY 2009 compared to FY 2008. However, the number of audits of wealthy individuals represented only 2.58 percent of all individual audits in FY 2009.

Individuals In FY 2009, the IRS undertook 28,349 audits of individuals with incomes in excess of $1 million, according to the Oversight Board. In FY 2008, the number of audits of individuals with incomes above $1 million was 21,874. The difference between FY 2008 and FY 2009 represented a 29 percent increase, the Oversight Board reported.

In total, the IRS conducted 1,099,630 audits of individuals in FY 2009. The FY 2009 number of all individual audits was down slightly (-34,307) from FY 2008.

Corporations Audits of corporations with assets of more than $10 million also grew in FY 2009 compared to FY 2008, but at a slower rate than audits of individuals. The IRS undertook 9,406 audits of corporations with assets in excess of $10 million in FY 2009. That number rose to 9,536 audits of corporations with assets above $10 million in FY 2009. The growth rate in audits of corporations with assets of $10 million or more from FY 2008 and FY 2009 was 1.4 percent.

Tax administration
The Oversight Board warned that U.S. tax administration has two systemic weaknesses: the tax gap and archaic information technology. The tax gap, which is the difference between what taxpayers owe and what they actually pay, is estimated to be approximately $290 billion. The Board cautioned that this to be “unacceptably high.”

The Oversight Board also warned that the IRS relies on outdated technology. The agency uses obsolete automated systems for key operational and financial management functions, the Oversight Board reported. According to the Oversight Board, the IRS has made little progress in correcting these two weaknesses.

However, the Oversight Board found some changes. The IRS launched a return preparer oversight initiative earlier this year, which the Board predicted would increase compliance with the tax laws. The agency also has restructured its Customer Account Data Engine (CADE).

Customer service
The Oversight Board also added its voice to the recent chorus of criticism about poor customer service at the IRS. “For the past two years, the IRS toll-free telephone service has been characterized by constant resources and growing demand; the inevitable result of these two factors has been a decline in service levels,” the Oversight Board noted.