Each year the Internal Revenue Service (IRS) releases its Data Book, which details IRS activities during the past fiscal year. The Data Book contains many statistical tables which provide useful and interesting information for tax practitioners and taxpayers. The tables generally include information on IRS activities with respect to:
- Returns Filed, Taxes Collected and Refunds Issued
- Enforcement through Examinations, Information Reporting, Collections and Criminal Investigation
- Taxpayer Assistance
- Tax Exempt Activities, and
- IRS Budget and Workforce
The 2012 IRS Data Book contains a summary of IRS activities for the fiscal year beginning October 1, 2011 through September 30, 2012.
IRS Budget and Workforce
According to the 2012 Data Book, the IRS employed a total workforce of 97,941 full-time, part-time, and seasonal employees during fiscal year 2012. The IRS’ operating budget for its three core activities of taxpayer services, enforcement and operations support was $12.1 billion. According to the 2012 Data Book, the IRS collected more than $2.5 trillion in taxes. Therefore, per the Data Book, it costs taxpayers 48 cents, on average, for the IRS to collect $100 in tax revenues. Said another way, for every $1 the IRS spends, it collects $209.32 of tax revenues.
During fiscal year 2012, the IRS processed more than 237.3 million Federal tax returns and supplemental documents. Nearly 81 percent of individual tax returns were filed electronically.
The table below summarizes the number of returns filed by type of return for fiscal year 2012 based on information obtained from the 2012 Data Book.
Number of Returns Filed by Type, Fiscal Year 2012
|C or Other Corporation||2,262,961|
|S Corporation, Form 1120-S||4,579,669|
|Partnerships, Form 1065||3,625,937|
|Individuals, Form 1040 series||146,243,886|
|Estate and Trust, Form 1041||3,061,029|
|Individual Estimated Tax, Form 1040-ES||22,157,924|
|Estate and Trust Estimated Tax, Form 1041-ES||400,464|
|Total Income Tax Returns||182,331,870|
|Estate Tax, Form 706||26,859|
|Gift Tax, Form 709||249,451|
|Tax Exempt Organizations||1,367,434|
|Supplemental Forms and Documents||22,583,056|
|TOTAL UNITED STATES TAX RETURNS FILED||237,345,350|
As noted above, the IRS collected $2.5 trillion in gross tax revenue during fiscal year 2012 (unfortunately we spent $3.793 trillion). If you ever wonder where U.S. tax revenue comes from, the 2012 Data Book will provide you with detailed information as to the sources of U.S. tax receipts. The table below summarizes the detailed information concerning tax collections from the 2012 Data Book:
Tax Collections and Refunds by Type of Tax, Fiscal Year 2012
|Gross Collections||Refunds||Net Collections||% of Gross Collections|
Business Income Taxes (Corporations and UBIT)
|$ 281,461,580||$ 43,970,393||$ 237,491.187||11.15%|
|Individual and Estate and Trust Income Tax||1,387,836,515||324,060,446||1,063,776,069||54.98%|
|Estate and Gift Taxes||14,450,249||504,831||13,945,418||0.57%|
|UNITED STATES TOTALS||$ 2,524,320,134||$ 373,428,754||$ 2,150,891,380||100.00%|
By far, the largest source of tax receipts is from individual, estate and trust income taxes, accounting for nearly 55% of gross tax collections for fiscal year 2012.
Perhaps the most useful and interesting information to both tax practitioners and taxpayers alike is the data on enforcement and examinations. The data gives some insight as to the odds of the “audit lottery” and to those taxpayers that the IRS tends to examine. The 2012 Data Book summarizes IRS examination activities for returns filed in calendar year 2011, which would generally be 2010 tax returns for calendar year taxpayers.
During fiscal year 2012, the IRS examined 0.9 percent of all tax returns filed in calendar year 2011 (generally 2010 tax returns). The table below summarizes the 2012 Data Book’s details of IRS examination coverage for various types of returns for fiscal year 2012 and indicates how the IRS conducted the examinations (i.e. by field examination or by correspondence).
IRS Examination Coverage by Type of Return, Fiscal Year 2012
|Returns Filed in CY 2011||Number of Returns Examined||% of Return Covered||Field Exams||Correspondence Exams|
|Individual Income Tax Returns||143,399,737||1,481,966||1.03%||359,750||1,122,216|
|Corporation Income Tax Returns||1,999,266||32,701||1.64%||31,705||996|
|Estate and Trust Income Tax Returns||3,036,900||5,070||0.17%||632||4,438|
|Estate Tax Returns||12,582||3,762||29.90%||3,762||0|
|Gift Tax Returns||223,090||3,164||1.42%||3,164||0|
|Employment Tax Returns||29,371,428||66,997||0.23%||50,792||16,205|
|Excise Tax Returns||675,808||22,014||3.26%||19,979||2,035|
|Other Taxable Returns||1,054||187||867|
|Partnership Tax Returns||3,524,808||16,691||0.47%||11,852||4,839|
|S Corporation Tax Returns||4,469,329||21,658||0.48%||20,234||1,424|
|Other Non-Taxable Returns||2,621||123||2,498|
The following are some observations with respect to the “audit lottery” information contained in the fiscal year 2012 examination data:
- Overall, about 1.0 percent of individual income tax returns were examined in fiscal year 2012.
- There were more than 3 times as many individual correspondence exams as field examinations.
- Less than 1% of all individual tax returns reporting taxable incomes of between $25,000 and $200,000 were examined.
- Individual returns reporting business income were 3 to 4 times more likely to be audited than returns without business income.
- Returns reporting Earned Income Tax Credit (EITC) have a 2 or 3 times higher audit likelihood due to high levels of fraud in claiming the credit.
- Returns reporting positive incomes of $1,000,000 or more are 12 times more likely to be audited than the average individual tax return.
- Large C Corporations (balance sheets over $10 million) are nearly 18 times as likely as small corporations to be examined.
- Estates over $5,000,000 but under $10,000,000 are examined nearly 60 percent of the time, and estates over $10,000,000 are usually examined 100% of the time.
- A very small percentage (.5 percent) of partnership and S-corporation returns were examined in fiscal year 2012.
Information Reporting and Verification
The 2012 Data Book reports that the IRS received and processed 2.2 billion third party information returns during fiscal year 2012 (generally W-2 and 1099 forms). From these forms, the IRS initiated 4,525,000 contacts for underreported income that generated $7.12 billion in additional tax assessments. The IRS also used third party information returns to identify certain non-filers and to construct tax returns from third party information. During fiscal year 2012 under this program, the IRS closed 803,000 cases, resulting in $6.6 billion of additional tax assessments.
It should be noted that tax reform proposals from both the House and Senate include provisions to increase withholding and other third party reporting as a means of increasing tax compliance and reducing the Tax Gap. Thus, it appears Big Brother will be increasingly watching you!
Review the entire 2012 IRS Data Book.
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