Fewer Audits Overall, Far More for the Very Largest Taxpayers
Coverage rates for corporations with more than $250 million in assets are projected near 22.6%, and for individuals reporting over $10 million of income near 16.5%, while overall examination rates fall.
The Internal Revenue Service is auditing fewer taxpayers than it used to, and auditing the largest ones far more intensively. Both statements describe the same enforcement strategy.
Projected coverage rates for large corporations — those with assets above $250 million — approach 22.6%, close to three times the level of 2019. For large, complex partnerships with assets above $10 million, the projected rate is around 1%, roughly ten times the historical figure. Individuals reporting total positive income above $10 million face projected rates near 16.5%.
Meanwhile overall audit rates continue to decline, particularly for field examinations.
The logic of concentration
An examination of a wage earner with a standard deduction costs the agency roughly what an examination of a large partnership costs, and recovers a tiny fraction as much. With a workforce reduced by more than a quarter, the arithmetic of where to deploy remaining examiners is not complicated.
The partnership figure is the most consequential. Complex partnership structures — layered entities holding real estate, private funds, operating businesses — have historically been nearly audit-proof because tracing income through the tiers took years of examiner time. Building the capacity to examine them was the central promise of the enforcement funding provided earlier this decade.
The technology piece
The agency has shifted selection toward analytics, using models to identify returns with characteristics associated with underreporting rather than relying on random selection.
That improves the hit rate. It also concentrates examination risk on taxpayers whose returns look statistically unusual, which is not identical to taxpayers who are actually noncompliant — a distinction that matters if you happen to have a legitimately unusual year.
What has not changed
The agency has maintained its stated commitment not to increase audit rates for lower-income taxpayers. That is a policy position rather than a statutory constraint, and it is worth noting that the most common audit at the bottom of the income distribution is an automated correspondence review of a refundable credit — cheap to run and, in aggregate, a substantial share of all examinations.
The unresolved question
Whether a smaller, more targeted enforcement operation collects more or less than a larger, broader one is genuinely contested. The concentration strategy raises revenue per examiner. It also reduces the general deterrent effect that comes from taxpayers believing anyone might be audited.
