IRS' Backlog of Tax Returns With Tax Shelter Issues Awaiting Settlement

Gao ID: GGD-86-140BR September 12, 1986

In response to a congressional request, GAO evaluated the Internal Revenue Service's (IRS) settlement of tax shelter issues and its efforts to curtail the promotion and sale of abusive tax shelters.

GAO found that, since IRS had contended that tax shelters constituted an abuse of the tax laws, it established a program to identify, examine, and investigate those tax shelters utilizing improper or extreme interpretations of the law to secure substantial tax benefits which were clearly disproportionate. Although IRS has devoted considerable effort to identifying and settling tax returns with tax shelter issues, the overall backlog has continued to increase in IRS examinations, appeals, and litigation functions. IRS assessed about $8.2 billion in additional taxes and penalties for tax shelter returns examined between 1982 and 1985; however, about $7.4 billion, or 91 percent, were contested. The amount of the additional taxes and penalties that will actually be assessed and collected for the contested dollar amounts will not be known until the cases are settled.

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