Why there may be fewer audits of large companies

In the past, being selected for an audit used to be a death knell for a business. Given the pervasive power of the IRS to investigate and review records, and then to institute penalties and interest that could cripple a business.

To make things worse, businesses can’t always predict when they will be audited. But there is a silver lining to this; the number of audits in total has declined in recent years. Essentially, the IRS has taken a different approach towards businesses with $250 million or more in assets.

An accountingtoday.com report indicates that audits of these companies have dropped by more than a third. The same has occurred with even larger companies. The IRS has initiated fewer investigations of companies worth more than $20 billion in 2016 compared to last year.

There are a few theories behind this trend. One is that there are fewer agents to perform investigations. Multiple budget cuts to the IRS is the likely culprit behind this reduction. Additionally, the additional record keeping requirements instituted through federal law has ostensibly given the IRS less of a reason to investigate potential tax cheats, especially when they are large companies.

Additionally, large enterprises commonly have their own legal departments to help in defending audits. In the legal world, companies don’t usually tangle with well-funded companies of their own ilk, and this rationale certainly could apply with how the IRS analyzes tax violators. So it is more likely that the IRS may pick on someone not their own size (for lack of a better phrase).

This means that smaller companies may see tax inquiries because they ostensibly are easier targets, and these companies can benefit from the guidance and experience of a tax attorney.