Tax Administration

Difficulties in Accurately Estimating Tax Examination Yield Gao ID: GGD-88-119 August 8, 1988

In response to a congressional request, GAO examined the Internal Revenue Service's (IRS): (1) computation of the revenue it actually realized as a result of its implementation of a revenue initiative, which added 2,500 to the examination staff; and (2) assumptions in estimating the yield derived from the increased staff.

GAO found that: (1) since 1978, IRS has consistently underestimated the amount of additional taxes that its examination staff would recommend each year; (2) the annual underestimate averaged 28 percent over the period and ranged from about $100 million in 1978 to about $3.8 billion in 1986; (3) it was difficult for IRS to estimate the exact amount of revenue that it would generate by adding a specific number of auditors in 1987, since it did not use all of the staff years Congress authorized; and (4) IRS used data from audits it closed in 1972 instead of current information in developing its estimates. GAO also found that: (1) to support its request for additional staff years, IRS expected to audit 120,000 more returns and assess $829 million in additional taxes, penalties, and interest; (2) IRS calculated that it would generate $847.5 million in assessed taxes, penalties, and interest in 1987 as a result of the additional audit staff; (3) IRS based its calculation on an increase in staff that was more than double what actually occurred; and (4) IRS did not take into account the amount of potential revenue lost because it used experienced staff to train the new staff.


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