WASHINGTON – Almost 13,000 Maryland and Delaware tax returns were audited in 1998, putting those taxpayers through the often stressful ordeal of meeting Internal Revenue Service auditors face-to-face.
But imagine if those IRS agents actually moved into your home to audit your finances 365 days a year.
For the area’s largest corporations, that is a tax reality.
Companies like Lockheed Martin and Marriott are examples of businesses that are so big, teams of IRS agents actually move in to their offices to audit continually throughout the year, said Timothy J. McCormally, general counsel of the Tax Executives Institute.
“The IRS has a permanent status here and the state auditors are in and out,” at Lockheed Martin headquarters in Bethesda, said Jim Fetig, director of national media relations.
While that may seem disquieting, corporations in Maryland and Delaware can take comfort in the fact that they are audited at a lower rate than businesses in most other areas of the country.
According to data from the Transactional Records Access Clearinghouse, the Maryland and Delaware district of the IRS ranked fifth-lowest in the percentage of corporate audits it performed in 1998, when 1.49 percent of corporate returns were audited. The average among the 33 districts in the nation was 2.04 percent.
And over the past five years, corporate audits in the Maryland and Delaware district have declined and those audits have resulted in fewer tax-bill changes than audits in the rest of the nation.
But average taxes and penalties from a corporate audit in this district were third-highest in the nation, at $532,194.
The corporate-audit rate skyrockets when companies with more than $250 million in assets are involved, however, from 1.49 percent in Maryland and 2.04 percent in the nation to 29.7 percent and 37.3 percent respectively.
“Because of the complexity and size of the entity … the IRS agents go to the individual or company,” said Dom LaPonzina, chief spokesman for the Maryland and Delaware IRS district.
The IRS calls the process of going to a company’s headquarters or, in some Cases, moving in to their offices, a field audit.
“These are audits that can sometimes take months, sometimes years,” LaPonzina said.
McCormally estimated that of the 2,700 companies nationwide represented by the Tax Executives Institute, “1,800 are under audit every day by the IRS.”
“It is much more routine and regular for businesses to be audited … than individual taxpayers,” he said.
The IRS selects businesses for audits because their taxes are much more complex than individual income taxes, according to Bernie Phillips, a tax manager at the National Society of Accountants.
But while intricate tax laws may be prompting many audits, Phillips says the IRS targets big businesses for another reason.
“There’s more of a chance to collect taxes from companies that make a lot of money,” he said.