IRS Reports Sequester May Mean Fewer Audits

The Internal Revenue Service has been trying to close the multibillion-dollar tax gap through voluntary disclosure programs, amnesty initiatives and a higher number of audits in recent years. However, the recent across-the-board spending cuts that reduced the operating budgets of several federal agencies may have an impact on the tax agency's ability to go after tax law violators, the IRS reports.

Sequester Tax AuditsIn a staff memo obtained by ABC News, IRS Commissioner Steven Miller wrote that the spending cuts would not impact individual and business tax return processing or refunds. However, employee furloughs, reduced hours and fewer resources to train IRS workers may result in fewer audits as they will have less staff to perform the reviews, he noted. However, reduced auditing may only impact individual filers and self-employed business owners rather than corporations and offshore tax evaders.

The IRS has entered into a number of agreements with foreign governments to help them combat tax evasion committed by Americans, which may allow them to keep up their efforts without draining their budgets. In addition, those with offshore accounts typically offer the biggest potential for chipping away at the tax gap at a more significant level.

However, the sequester also impacted another area that greatly facilitated the detection and prosecution of offshore tax evaders and corporate tax law violations: the whistleblower program. The agency announced it will be cutting whistleblower rewards by 8.7 percent as a result of the cuts. Some analysts argue that the reduction may discourage informants from coming forward, which could lead to lost opportunities for the agency to catch violators and recoup lost income, interest and penalties.

The furloughs are expected to go into effect during the summer, following the end of tax season.

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