IRS' Compliance Programs to Reduce the Tax Gap

GAO discussed Internal Revenue Service (IRS) compliance programs to reduce the tax gap. GAO noted that: (1) in 1988, IRS estimated the gross tax gap to be $84.9 billion for 1987 and projected that it would reach $113.7 billion by 1992; (2) IRS estimated that nonfilers accounted for $7 billion and underreporters accounted for $48 billion of the 1987 tax gap; (3) IRS could improve its use of information returns to identify and pursue nonfilers and underreporters; (4) high-income nonfilers, or those making over $100,000 a year, had a better chance of escaping IRS scrutiny than lower-income nonfilers; (5) three IRS service centers did not fully pursue approximately half of the high-income nonfilers due to flawed work-load priorities and the exclusion of high-income nonfilers from a program that assesses taxes for nonfilers; (6) when IRS received a delinquent return from a high-income filer, it did not use information returns to ensure that all owed taxes were paid; (7) IRS could have avoided approximately 40 percent of unproductive underreporter cases in one service center by better using information returns and other data in its computer match; (8) IRS did not notify the Social Security Administration (SSA) after finding errors in wages that employers previously reported to SSA, which could result in overpayment of social security benefits; and (9) repealing underreporter penalties could weaken the voluntary compliance incentive for taxpayers to report all income shown on information returns.