Tax Administration

In response to a congressional request, GAO reviewed state and local governments' compliance with Internal Revenue Service (IRS) reporting requirements for payments made to independent contractors.

GAO found that: (1) most state and local governments' policies and procedures were not in full compliance with IRS requirements because they did not fully understand the requirements; (2) although the governments usually reported payments for such professional services as attorneys and consultants, they did not report payments for such services as construction, auto repairs, and janitorial services because they did not consider those services professional; (3) state and local governments only reported about 10 percent of the $9 million in payments that they should have during 1985 and 1986; (4) IRS examined businesses' income tax returns, but did not monitor state and local governments' compliance with the reporting requirements; (5) IRS contracted with the National Association of State Auditors, Comptrollers and Treasurers (NASACT) in 1988 to review information return procedures and compliance levels in six states; (6) the review showed that states' accounting systems that were not tailored to information reporting hampered compliance; (7) IRS reviewed local governments in California as part of a special project; and (8) IRS planned to provide all 50 states with a consolidated report on the NASACT reviews, along with a model review plan, and encourage them to do compliance reviews.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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