Tax Administration

Missing Independent Contractors' Information Returns Not Always Detected Gao ID: GGD-89-110 September 8, 1989

Pursuant to a congressional request, GAO reviewed whether Internal Revenue Service (IRS) examinations effectively identified businesses that failed to file information returns for payments made to independent contractors.

GAO found that: (1) IRS examinations of business tax returns did not effectively identify businesses that failed to file required information returns on contractor payments; (2) revenue agents did not identify an estimated 1,261 information returns that businesses should have filed, involving $6.2 million in payments; (3) IRS revenue agents examined only about 2 percent of the 11 million business income tax returns filed annually; (4) the limited examinations and ineffective compliance checks could result in extensive business noncompliance with information return requirements; (5) IRS did not stress the importance of these checks because such other issues as overstated deductions and unreported income took higher priority during examinations; (6) because IRS managers did not enforce workpaper standards that required agents to document the scope and depth of the checks, they did not know the extent of the revenue agent's checks; (7) current IRS compliance check procedures were specific; (8) agents did not use available data to do better compliance checks; and (9) data were not always generated in time to assist revenue agents because of competing priorities for computer processing time.

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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