Chances of Getting Audited by IRS Lowest in Years
By Stephen Ohlemacher, Associated Press
WASHINGTON (AP) -- As millions of Americans race to meet Tuesday's tax deadline, their chances of getting audited are lower than they have been in years.
Budget cuts and new responsibilities are straining the Internal Revenue Service's ability to police tax returns. This year, the IRS will have fewer agents auditing returns than at any time since at least the 1980s.
Taxpayer services are suffering, too, with millions of phone calls to the IRS going unanswered.
"We keep going after the people who look like the worst of the bad guys," IRS Commissioner John Koskinen said in an interview. "But there are going to be some people that we should catch, either in terms of collecting the revenue from them or prosecuting them, that we're not going to catch."
Better technology is helping to offset some budget cuts.
If you report making $40,000 in wages and your employer tells the IRS you made $50,000, the agency's computers probably will catch that. The same is true for investment income and many common deductions that are reported to the IRS by financial institutions.
But if you operate a business that deals in cash, with income or expenses that are not independently reported to the IRS, your chances of getting caught are lower than they have been in years.
Last year, the IRS audited less than 1 percent of all returns from individuals, the lowest rate since 2005. This year, Koskinen said, "The numbers will go down."
Koskinen was confirmed as IRS commissioner in December. He took over an agency under siege on several fronts.
Last year, the IRS acknowledged agents improperly singled out conservative groups for extra scrutiny when they applied for tax-exempt status from 2010 to 2012. The revelation has led to five ongoing investigations, including three by congressional committees, and outraged lawmakers who control the agency's budget.
The IRS also is implementing large parts of President Barack Obama's health law, including enforcing the mandate that most people get health insurance. Republicans in Congress abhor the law, putting another bull's-eye on the agency's back.
The animosity is reflected in the IRS budget, which has declined from $12.1 billion in 2010 to $11.3 billion in the current budget year.
Obama has proposed a 10 percent increase for next year; Republicans are balking.
Rep. Ander Crenshaw, R-Fla., chairman of the House subcommittee that oversees the IRS budget, called the request "both meaningless and pointless" because it exceeds spending caps already set by Congress.
Koskinen said he suspects some people think that if they cut funds to the IRS, the agency won't be able to implement the health law. They're wrong, he said.
The IRS is legally obligated to enforce the health law, Koskinen said. That means budget savings will have to be found elsewhere.
Koskinen said he can cut spending in three areas: enforcement, taxpayer services and technology. Technology upgrades can only be put off for so long, he said, so enforcement and taxpayer services are suffering.
Last year, only 61 percent of taxpayers calling the IRS for help got it. This year, Koskinen said he expects the numbers to be similar. To help free up operators, callers with complicated tax questions are directed to the agency's website.
"The problem with complicated questions is they take longer," Koskinen said.
Your chances of getting audited vary greatly, based on your income. The more you make, the more likely you are to get a letter from the IRS.
Only 0.9 percent of people making less than $200,000 were audited last year. That's the lowest rate since the IRS began publishing the statistic in 2006.
By contrast, 10.9 percent of people making $1 million or more were audited. That's the lowest rate since 2010.
Only 0.6 percent of business returns were audited, but the rate varied greatly depending on the size of the business. About 16 percent of corporations with more than $10 million in assets were audited.
Most people don't have much of an opportunity to cheat on their taxes, said Elizabeth Maresca, a former IRS lawyer who now teaches law at Fordham University.
Your employer probably reports your wages to the IRS, your bank reports interest income, your broker reports investment income and your lender reports the amount of interest you paid on your mortgage.
"Anybody who's an employee, who gets paid by an employer, has a limited ability to take risks on their tax returns," Maresca said. "I think people who own their own business or are self-employed have a much greater opportunity (to cheat), and I think the IRS knows that, too."
One flag for the IRS is when your deductions or expenses don't match your income, said Joseph Perry, the partner in charge of tax and business services at Marcum LLP, an accounting firm. For example, if you deduct $70,000 in real estate taxes and mortgage interest, but only report $100,000 in income.
"That would at least beg the question, how are you living?" Perry said.
Koskinen said the IRS could scrutinize more returns - and collect billions more in revenue - with more resources. The president's budget proposal says the IRS would collect an additional $6 for every $1 increase in the agency's enforcement budget.
Koskinen said he makes that argument all the time, but for some reason, it's not playing well in Congress.
"I say that and everybody shrugs and goes on about their business," Koskinen said. "I have not figured out either philosophically or psychologically why nobody seems to care whether we collect the revenue or not."
Follow Stephen Ohlemacher on Twitter: http://twitter.com/stephenatap
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Last Update on October 07, 2015 07:31 GMT
ECONOMY-THE DAY AHEAD
WASHINGTON (AP) -- The lone government economic report expected today comes from the Federal Reserve, which will release consumer credit data for August this afternoon.
U.S. consumer borrowing climbed to a fresh record of $3.45 trillion in July. Economists described that as evidence that the U.S. economy should grow at a healthy pace in the second half of this year, with consumer spending accounting for nearly 70 percent of economic activity.
On the corporate earnings front, Monsanto reports quarterly financial results before the market opens.
WASHINGTON (AP) -- The Senate Finance Committee has opened an investigation into Volkswagen's use of a federal tax credit intended for fuel-efficient cars as the company's emissions-rigging scandal widens.
Sens. Orrin Hatch of Utah and Ron Wyden of Oregon say in a letter to Volkswagen on Tuesday that more than $50 million in tax subsidies may have gone to VW owners under false pretenses. Hatch, a Republican, chairs the Finance Committee. Wyden is its senior Democrat.
They said in the letter that the automaker's use of "defeat devices" in diesel passenger cars raises questions of whether officials lied to the U.S. government in certifying that the VW Jetta and other models met emissions standards needed for owners to claim the $1,300-per-vehicle tax credit.
The letter asks for a response by Oct. 30.
BERLIN (AP) -- Volkswagen's new chief executive says that a recall of cars with software at the center of the emissions-rigging scandal should start in January and the automaker aims to fix them all by the end of next year.
Volkswagen has said up to 11 million vehicles worldwide across several of its brands contain the diesel engine with the software used to cheat on U.S. emissions tests. CEO Matthias Mueller told the daily Frankfurter Allgemeine Zeitung: "It will hopefully be fewer, but in any case still far too many."
Mueller said in an interview published Wednesday that in most cases a software update will suffice to fix the problem but some vehicles could need new injectors and catalyzers.
He said: "If everything goes as planned, we can start the recall in January."
DETROIT (AP) -- Resale values are falling for Volkswagen diesels.
Kelley Blue Book says the average resale value of Volkswagens with two-liter diesel engines is down 13 percent since mid-September, when VW admitted it cheated on U.S. emissions tests using software installed on 11 million diesels worldwide.
Used car values often drop in the fall, since demand for them is stronger in the summer. But VW's diesel decline is unusually large. The price of gas-powered Volkswagens dropped 2 percent in the same period.
Kelley Blue Book calculated the average sale price of 2009-2015 VW diesels at dealer auctions between Sept. 1 and Oct. 1.
KBB residual value consultant Eric Ibara says past recalls indicate VW's residual values could return to normal by next year if VW fixes the problem and customers are satisfied.
SACRAMENTO, Calif. (AP) -- Female workers in California are getting new tools to challenge gender-based wage gaps under legislation signed by Gov. Jerry Brown.
The Democrat has signed legislation that supporters say enacts the strongest equal-pay protection in the nation.
The legislation by Democratic Sen. Hannah-Beth Jackson of Santa Barbara lets female employees allege pay discrimination based on the wages a company pays to male employees who do substantially similar work.
The legislation also puts the burden on employers to prove a man's higher pay is based on factors other than gender. And it protects workers from discrimination and retaliation if they ask questions about how much other people earn.
Brown also is considering legislation that bars employers from using previous salary information as justification for paying women less than their male co-workers.
MONTEREY SHALE-LESS OIL
SAN FRANCISCO (AP) -- A new study plays down the fracking potential of California's vast Monterey Shale oil deposits.
Federal energy experts in 2011 estimated the Monterey Shale formation overall to hold a staggering 14 billion barrels of recoverable oil.
A study out Tuesday by the U.S. Geological Survey is the latest to deflate those boom estimates. The new study says that the most productive part of the giant Monterey formation has just 21 million barrels of oil recoverable by fracking. That's in addition to 393 million barrels recoverable by conventional drilling.
The Monterey Shale not long ago was regarded as a game-changer in California, where Gov. Jerry Brown has resisted calls from environmentalists to ban fracking.
CHOLESTEROL DRUGS-PAYER ACCEPTANCE
UNDATED (AP) -- The nation's biggest pharmacy benefits manager is covering two new drugs that lower artery-clogging cholesterol but raise concern over prices that top $14,000 a year.
Express Scripts says it will pay for prescriptions of Amgen Inc.'s Repatha as well as Praluent from Sanofi and Regeneron Pharmaceuticals under a few conditions. It negotiated a discount, and it says prescriptions will require prior approval from one of its pharmacists before they are filled.
Express Scripts Holding Co. also is requiring the drugmakers to provide rebates if their prices rise more than a set amount each year.
The pharmacy benefits manager's decision comes as soaring drug prices draw criticism from patients, politicians and insurers and employers that generally pay most of the prescription bill.
U.S. regulators approved Repatha and Praluent earlier this summer.
DAILY FANTASY SPORTS
NEW YORK (AP) -- New York's attorney general has sent letters to daily fantasy sports websites DraftKings and FanDuel demanding they turn over details of any investigations into their employees.
The letters were prompted by media reports that a DraftKings employee may have had access to valuable company data before winning second place in a FanDuel contest. The incident is being likened to insider trading.
The companies say there's no evidence anyone misused internal company data.
Fantasy sports participants put together virtual teams based on real players and compete based on the players' statistics.
Meanwhile, ESPN is cutting sponsored DraftKings content from within shows but continues broadcasting commercials from the daily fantasy sports site. That's according to ESPN Outside the Lines host Bob Ley, who revealed the shift during his show Tuesday.
The industry considers daily fantasy a skilled game, not gambling. It is legal to play in all but five U.S. states.
LOUISVILLE, Ky. (AP) -- Shares of Yum Brands plunged in after-hours trading after the owner of KFC, Pizza Hut and Taco Bell cut its profit outlook for the year.
Citing a slower-than-expected comeback for its key China division, the company said it now expects full-year earnings per share to rise in the low-single-digit percentages, not the 10 percent it previously forecast. Its stores in China have been hurt by scares over food quality.
In the latest quarter, the company says sales in China rose just 2 percent at established locations. For the full year, the company said it expects China's overall sales at established locations to be negative.
In the U.S., Yum Brands says Taco Bell and KFC saw positive sales gains, while Pizza Hut remained relatively flat.
Not including one-time items, it earned $1 per share. Analysts surveyed by Zacks Investment Research had been expecting $1.07 per share.
Total revenue was $3.43 billion in the period, also missing Street forecasts.
SEOUL, South Korea (AP) -- Samsung Electronics says its third-quarter operating profit was up 80 percent from over a year earlier, a forecast-beating result likely stemming from strong sales of electronics components and a weakness in the local currency.
The South Korean smartphone maker says its operating profit for the July-September quarter was 7.3 trillion won ($6.3 billion).
The result shows that Samsung is on track for a recovery. Its operating profit has gained quarter to quarter for the past year since falling to 4.1 trillion won one year ago.
Sales rose 7 percent to 51 trillion won ($43.9 billion) for the quarter.
Samsung will announce its net profit and earnings breakdowns for each of its business divisions later this month.
WASHINGTON (AP) -- Power companies Exelon and Pepco have negotiated a settlement with District of Columbia officials on a proposed merger.
D.C. Mayor Muriel Bowser announced the settlement Tuesday. Bowser says that in addition to other terms, Exelon will invest $78 million in the city, up from a proposed $14 million. The city had previously rejected the companies' proposed $6.8 billion merger.
The companies had argued that the merger would stabilize electricity rates and enhance the reliability of electric and gas service. Opponents had argued the merger wouldn't benefit ratepayers.
The city was the only jurisdiction to reject the proposed merger between Chicago-based Exelon and Washington-based Pepco. Maryland and Delaware regulators approved the deal.
The settlement still has to be reviewed by District of Columbia regulators.
NEW YORK (AP) -- Protein and health bars at Wal-Mart are getting ready for prime time.
The world's largest retailer plans to expand its offering of bars like Special K and Clif beyond the over-the counter section to the more visible main grocery aisles of some of its stores, starting in January.
Wal-Mart is also considering eventually placing these nutritional bars near the cash registers.
Target Corp. announced last month that it's pushing granola bars and healthy grab-and-go snacks over candy at the checkout aisles in 30 of its stores.
And CVS Health is also adding more fresh foods and healthier snacks at many of its locations while moving bagged candy out of prime store space in the first aisle.
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