Fewer Large Corporations Audited by IRS

Report Says Internal Revenue Service Audits of Largest Corporations Declining
WASHINGTON (AP) -- The tax audit rates of the largest companies are less than half what they were 20 years ago while more small and mid-size businesses are coming under scrutiny, according to an organization that monitors the Internal Revenue Service.
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The Syracuse University-based Transactional Records Access Clearinghouse described what it said was a "historic collapse" in audits for corporations holding assets of $250 million or more. About 26 percent of them were audited in the 2007 budget year compared with 34 percent in 2006 and 43 percent in 2005.
The IRS did not dispute the numbers, based on agency data. But it strongly disagreed with suggestions it was easing oversight of the biggest corporations.
Enforcement revenues from large companies rose by one-third in 2007 from the previous year, from $10.6 billion to $14.2 billion, said IRS Deputy Commissioner Barry Shott, who heads the Large and Mid-Size Business Division.
While the number of examinations has declined, "what we are doing is focusing our resources better on where the noncompliance is," Shott said in an interview with The Associated Press.
Shott said the focus in recent years has been on tax shelters and `extraordinarily complicated" partnerships and S corporations where shareholders, rather than the company, must report income or losses. Last year the IRS examined 17,700 S corporations, compared with 14,000 the previous year, and 12,200 partnerships, compared with 9,800.
But the TRAC report concluded that the IRS also was concentrating on regular small and mid-sized companies to boost audit numbers.
"Moving the focus of the corporate auditors away from the large corporations and toward the smaller ones has been quite effective when it came to increasing the overall number of these kinds of audits but actually was counterproductive in financial terms," the researchers said.
The new IRS commissioner, Douglas Shulman, said in a response that he intends to make "targeting noncompliance with our tax laws ... a high priority."
According to IRS statistics, 15 percent, or 4,473, of companies with $10 million to $50 million in assets were examined in 2007. That compares with 12.3 percent, or 3,535 companies, that were audited in 2005.
In the same two years, the percentage of audits of corporations in the $50 million to $100 million range fell from 16.4 percent to 11.4 percent. For corporations in the $100 million to $250 million range, the percentage dropped from 17.5 percent to 12.1 percent .
Among the largest corporations above $250 million in assets, 3,424 were audited in 2007, down from a peak of 4,859 in 2005.
TRAC also questioned the financial benefits of the shift. The group said that last year the government uncovered $682 in additional recommended taxes for every revenue agent hour spent auditing the smallest corporations, compared with $7,498 in additional taxes for audits of the largest corporations.
Dean Zerbe, national managing director for Houston-based alliantgroup, which provides tax services for medium-sized companies, said his fear was that "in the IRS' zeal to show Congress improved numbers in corporate audit, it is America's small and medium businesses that are taking it on the chin."
Shulman told the Senate Finance Committee last week that audits of businesses in general rose from 52,000 in 2006 to 59,500 in 2007.
He acknowledged that audits of the largest corporations were down. But he said that "in times of flat budgets, the agency cannot increase activity across the board, but must address the areas where there is growth and potential risk."
Shott also cited a new program where larger companies work with the IRS during the year so there will not be disputes at tax-filing season. Participants in this program rose from 17 in 2005 to 73 this budget year, he said.
The returns of these companies do not show up in enforcement statistics, he said, but the collaboration can avoid controversies that can go on for years.
Having more money was not necessarily an advantage for individual taxpayers. The IRS said that last year it audited 9.25 percent of those with incomes of more than $1 million, compared with 6.3 percent in 2006. For those earning less than $100,000, the chances of getting audited were less than 1 percent.
The tax agency said total enforcement revenues in the 2007 budget year, from collections and appeals activities, were $59.2 billion, up from $48.7 billion the previous year.

American Airlines Gets FAA Clearance to Return All Grounded Jets to Service

DALLAS (AP) -- American Airlines on Saturday received clearance from federal aviation officials to return all of its 300 grounded jets to service, an airline spokesman said.
After 200 cancellations Saturday morning, Fort Worth-based American was running a full schedule by the afternoon with no cancellations, said spokesman Charley Wilson.
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Starting Tuesday, the nation's largest airline canceled nearly 3,300 flights, as it grounded 300 MD-80 jets to wrap wiring bundles to meet federal safety standards and prevent fires.
The cancellations stranded hundreds of thousands of people during the week.
American said 226 of its MD-80s were back in service by Friday morning. By noon on Saturday, the airline had received clearance to return all the remaining grounded jets to service, Wilson said.
The groundings had come as a surprise.
American officials said they thought they had the needed repair work completed two weeks ago when it scrubbed more than 400 flights, but the Federal Aviation Administration said the wiring still was not secured and stowed properly in wheel wells.
Gerard Arpey, chairman and chief executive of American parent AMR Corp., said the costs of the cancellations to American will run into the tens of millions of dollars -- including vouchers to reimburse stranded customers, overtime for maintenance crews and lost revenue. An analyst with Standard & Poor's estimated it could easily top $30 million.
Arpey said that neither American's mechanics nor the FAA were to blame for the groundings, and he said he took responsibility for the cancellations. He said the company would hire a consultant to help it comply with FAA safety rules in the future.
American's entire fleet averages 15 years in age, making it the second oldest in the industry behind Northwest Airlines, according to regulatory filings by the airlines.
Arpey said Thursday that American may accelerate the replacement of its MD-80s, but only because newer planes get better mileage, an important consideration with fuel at record prices. The CEO said the recent groundings were not a factor in the decision to replace MD-80s.

UW's role in local high-tech 'cluster'

Waterloo - What keeps 455 high-tech companies in Waterloo Region, and encourages more companies to put down roots here, isn’t the opportunity to be near their customers or suppliers, it’s “the embeddedness of the University of Waterloo” and the community’s culture, a trio of researchers say.Allison Bramwell, Jen Nelles and David A. Wolfe of the University of Toronto make that claim in an article published in the February issue of the British journal Regional Studies. It’s the most recent paper resulting from their continuing research into “industrial clusters” from Silicon Valley to Waterloo.The usual assumption is that companies in similar fields that are located near each other must do business together, but that isn’t necessarily so for Waterloo’s information and communications technology firms, their article says: “The interview data reveals that the focus of most economic activity — key customers, sources of supply, competitors, and important strategic partnerships — for the vast majority of firms occurs at the continental and/or global level. . . . Only very few have key local customers with whom they are in regular contact.”Then why stay in Waterloo? UW is a major reason: “Most firms indicated that it was a distinct advantage to be located in Waterloo because it provided a ready supply of ‘smart and competitively priced’ engineers and because the University of Waterloo is ‘one of the best universities in the world for computer engineering’. . . . Wilfrid Laurier University is regularly mentioned as a source for junior marketing and management people. . . . “Whether or not they have other linkages with the university, a clear majority of firms actively or regularly hire students from the co-op programme.”There’s more to UW’s involvement than just providing engineering graduates, and more than just research and technology transfer, says a long section of the article about “extra-firm institutional supports”.“While there are many formal relationships such as research contracts and funding of research chairs,” the Toronto authors say, “much of the knowledge exchange is more informal than formal. Interviewees cite the university not only as an important source of tech transfer and specialized skills, but also as providing both international cachet to the region, and simple social/professional networks.”In fact, research links may not always be strong, as some firms “reported difficulty in accessing what was available, not feeling ‘in the loop’, or had a perception that the research efforts at the university were focused on larger companies. . . .“Large, global firms that collaborate with the university on long-term, core research projects report that the primary benefit of their collaboration is ‘getting the first look’ at research results. They want to keep abreast of what is happening at the research level, even though they know they will not have any proprietary access to the [intellectual property].”The Waterloo area has something else besides universities, the article says: it has “a high degree of ‘civic capital’, as shown in “well-developed business associations, as well as a vibrant social network and sense of community”. In particular there’s Communitech, an association of companies that helps provide access to “peer-to-peer mentoring and knowledge sharing”, especially for people from smaller firms.“An important contributing factor to cluster development,” the article adds, “is the presence of local champions with a greater vision than single firm success.” It cites the large high-tech companies in the region — Research In Motion, Open Text, MKS, Descartes — that “try to give back and help local companies, and support the local universities”.Says the article: “The university is the ‘driving force’ in the cluster, and Communitech is the ‘uniting force’. . . . Whereas purely locational factors, based on demanding local customers, suppliers and competitors, cannot fully explain the Waterloo cluster, local institutions — primarily the University of Waterloo and the Communitech business association — overlaid with regional cultural characteristics provide the glue that attracts and holds innovative high-tech firms.”