Tax Administration

The Internal Revenue Service (IRS) has undertaken several initiatives to encourage voluntary tax compliance by Americans living overseas, including reducing taxpayer burden, increasing taxpayer education, and continuing its enforcement efforts. In spite of these efforts, IRS still lacks the data it needs to determine the full extent of nonfiling. IRS efforts to simplify filing and educate taxpayers about the filing requirements appear to be positive steps to encourage persons to file. Although the enforcement efforts GAO studied resulted in minimal revenues, IRS' plans to develop more information on the population of overseas Americans may allow it to better target its enforcement activities.

GAO found that: (1) IRS efforts to encourage overseas taxpayers' voluntary compliance included reducing taxpayer filing burden, increasing taxpayer education, and improving enforcement efforts; (2) IRS was unable to assess the extent of overseas taxpayer noncompliance because it lacked reliable overseas taxpayer information, the Department of State and Social Security Administration restricted IRS access to data on Americans employed abroad, and data from its Information Returns Program were inadequate; (3) passport application data did not significantly improve IRS capability to identify or locate overseas nonfilers; (4) enforcement actions taken against nonfilers have not resulted in significant additional revenues, since IRS was not able to contact many nonfilers, many overseas nonfilers were not required to file U.S. taxes, and many nonfilers' tax liability was negligible after foreign-earned income exclusions were taken into account; and (5) IRS has planned to better target its enforcement activities by continuing its efforts to develop better overseas taxpayer data, reduce taxpayer burden, improve IRS internal systems, and obtain overseas taxpayer data from external sources.