The 5 Biggest Takeaways From the 2017 IRS Data Book
This week the Internal Revenue Service released the 2017 Data Book, a publication that offers a detailed look into the service over the last fiscal year. The new report describes the IRS’ activities from October 1, 2016 through September 30, 2017, including statistics on tax collections, enforcement measures, agency personnel, and more.
Some headline numbers: last year the IRS took in $3.4 trillion in taxes, paid out $436 billion in individual tax refunds, and audited 1.1 million tax returns. But those figures are just the start. Here are the five most salient takeaways contained in the 2017 IRS Data Book.
Net collections split evenly between individual and business taxes
In Fiscal Year 2017, 49.7% of net collections ($2.98 trillion) came from “Individual and estate and trust income taxes.” Individual taxpayers paid nearly $1.9 trillion in gross against $386 billion in refunds, netting out $1.5 trillion. The rest of the net collection was largely made of business income tax ($294 billion, 10% of total) and employment taxes—such as FICA and Social Security—which contributed $1.1 billion, 38% of the total.
2017’s $3.42 trillion gross tax collection compared to 2016’s $3.33 trillion—one of many areas in which the two years’ tax returns looked very much like one another.
Paid preparers filed more than half of all individual returns
Of more than 150 million individual tax returns filed in FY 2017, 60% (78.6 million) were “practitioner filed.” Paid preparation was especially popular in the nation’s largest two tax contributors, California and New York. In those two states, paid preparers were responsible for 68% and 70% of electronic filings, respectively.
The IRS is getting more efficient
In 2017, the cost of collecting $100 in tax revenue was $0.34, the lowest in 70 years. This was likely due to two factors. One, e-filing seems to be making a difference. 70.5% of all filings were returned electronically, an increase of 1.4% over 2016. Two, headcount at the agency is down 14.9% from 2012, with the agency employing a total of 76,832 full-time equivalent positions last year. The operational spend was $11.5 billion for 2017, down from more than $11.7 billion in 2016.
Audits continue to become less common and more efficient
The number of tax returns examined has been dropping steadily for the past five years. In FY 2012, the IRS examined 1.5 million individual returns. In FY 2017, it was just under 1 million—a decrease of one-third. This downward trend seems to be a result of e-filing, automation, and lower headcount. In 2017, 71% of audits were conducted via correspondence. Field audits were deployed for high-value examinations: they made up 29% of in-person field audits but recommended nearly $25 billion in additional taxes, compared to $5 billion in recommended additional tax for the correspondence audits.
Businesses under $10M were audited as infrequently as individual taxpayers
Not surprisingly, most IRS audits concentrated on large entities in 2017. Businesses with a balance sheet of more than $20 million were audited about 60% of the time, whereas individual taxpayers reporting income below $200,000 were audited 0.5% of the time—approximately the average across all returns filed in 2016. Notably, businesses with balance sheet returns under $10 million were subject to an audit rate of 0.7%, barely higher than that of individuals. (Businesses larger than that faced a median audit frequency of 7%, but it dramatically graduated towards the higher brackets.)
The IRS is getting smaller and more electronic. Whether that reflects in a workforce that is overworked or simply enjoying the efficiencies of automation, is a question left for tax attorneys and accountants. But as e-filing becomes more common, it’s likely that taxpayer errors will continue to decrease. The need for the IRS to examine returns will diminish, and consequently, the service itself will keep slimming down.