Tax Administration

Pursuant to a congressional request, GAO reviewed the Internal Revenue Service's (IRS) program for detecting and pursuing individuals with income over $100,000 who failed to file required tax returns.

GAO found that: (1) IRS did not fully investigate or assess taxes for high-income nonfilers who did not respond to its notices on unfiled tax returns; (2) even if high-income nonfilers eventually filed tax returns, their returns received less scrutiny from IRS than those who filed returns on time; (3) district revenue officers did not investigate or assess taxes for about half of the high-income nonfilers at three service centers; (4) revenue officers did not pursue many high-income nonfilers because IRS understated the estimated yields that could result from investigations; (5) even if IRS correctly estimated those yields, it did not have sufficient revenue officers to investigate an increased amount of cases; (6) the Substitute for Returns Program (SFR) would enable IRS to investigate more high-income nonfilers; (7) SFR produced more yield at the lowest cost and created a tax assessment that was otherwise unlikely; (8) although IRS checked returns that were filed on a timely basis for noncompliance, it did not have a systematic way of checking for underreported income or overstated deductions on delinquent returns; (9) IRS did not computer match delinquent returns with information returns, and did not refer many of those returns to the Examination Division to be checked for noncompliance; and (10) nearly half of the delinquent returns that GAO asked IRS to check had evidence of noncompliance.

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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