IRS enforcement efforts raise record revenue

NEW YORK (CNNMoney.com) -- As a result of its crackdown efforts, the Internal Revenue Service generated a record $48.7 billion in revenue in fiscal year 2006, up 3 percent from a year earlier, according to a Government Accountability Office financial audit report released this week.

The IRS' enforcement efforts include individual, small business and corporate audits, settlement efforts intended to deter the use of abusive tax shelters, and criminal prosecution.

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The GAO found that in fiscal year 2006 there was a:

• 7 percent increase in individual audits
• 18 percent increase in high-income audits
• 8 percent increase in small-business audits
• 15 percent increase in collection case closures

The IRS has been very public about its desire to close the $345 billion tax gap, the estimated difference between taxes owed and taxes collected.

Eighty-three percent of the gap is due to underreporting of income, the GAO report notes. But the gap didn't result just from citizens and businesses choosing not to report some of their income. The IRS has noted that confusion over how to comply with complex tax laws also contributes to the gap.

According to the latest figures, out of the more than 220 million returns it processes every year, the agency audited 1.2 million tax returns last year. Among those, the audits of taxpayers earning more than $100,000 rose to 221,000, the highest number in 10 years.

"The IRS has and will continue to enforce the law across all sectors, but is focusing on corrosive activities of corporations, high-income taxpayers and other major violators of the tax code," the GAO report noted.

Recently, in a move that drew strong objections from National Taxpayer Advocate Nina Olson, among many others, the IRS began outsourcing some of its collection efforts to private debt collectors.

(Learn more about critics' objections and what you can expect if a private collection agency comes calling to collect back taxes.)

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