Effects of Recent Reductions in the Internal Revenue Service’s Appropriations on Returns on Investment

From 2010 through 2019, funding for the Internal Revenue Service (IRS) dropped by 24 percent, after adjustment for inflation. As a consequence, the percentage of taxpayers who were audited fell by nearly half. In this paper, we use confidential IRS data to compare the returns on investments (ROI) for examinations that were initiated or in progress in 2010 and 2017.We find, on average, that the ROI fell slightly between those two years. The average ROIs increased for low-cost audits (those conducted through the mail) but generally declined for the more expensive audits that require face-to-face interactions with taxpayers and which cover more complicated issues.          

This report was originally published in the IRS Research Bulletin by the IRS Office of Research, Applied Analytics, and Statistics.