A long-term decline in staffing, the need to assign compliance staff to customer service duties during the filing season and added responsibilities from the 1998 reform law all contributed to the drop, according to IRS Commissioner Charles O. Rossotti.

Audit rates have declined steadily over the past six years since the Revenue Protection actions of 1995 -- 1996, when Service Center correspondence audits caused the audit rate to peak, the IRS said.

"Clearly, the declines we've seen in the past few years need to stop or the fairness and effectiveness of our tax system will be undermined." Rossotti said, noting that the agency is "deeply concerned" about the decline.

Examinations -- Fiscal Year Totals

The IRS said the main factor in the decrease has been a decline in audit staff as the agency's workload has increased. Since peaking at 116,673 full-time employees (FTEs) in 1992, the agency's workforce has dropped 17 percent to just over 97,000 FTEs in 2000, while the number of returns filed has grown 13 percent to 230 million.

As a result of both the decline in staff and the need to develop and implement procedures to comply with the new taxpayer rights provisions, enforcement actions have dropped precipitously since the enactment of RRA '98. The number of levies, which stood at 2.7 million in 1995, plummeted to 219,778 last year, while the number of liens dropped to 287,517 from 798,677 in fiscal 1995. The IRS made just 174 seizures in 2000, down from 10,707 in 1995.

Rossotti hopes budget increases that will add 2,036 full-time employees will help stabilize audit and collection activity.

"We will not solve these problems in just one year," he added. "We need years of sustained budget support to reverse the effects of a decade-long decline in IRS staffing compounded by reliance on our archaic computer systems."

The agency also said that Reform and Restructuring Act of '98 created significant resource demands on its Exam and Collection staffs. Expanded programs, such as the innocent spouse provisions, required additional staff time for administration. Other provisions, such as the requirements for notifications of third parties, added more time for the completion of each exam and collection case.

Rossotti warned the public not to misinterpret the drop in enforcement action. "Although the number of audits may be down, it is not an excuse to ignore the nation's tax laws," he said. "People need to remember that the IRS still has an extensive system to catch people who don't report their income."

-- By Melissa Klein

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