Tax Administration

This briefing report looks at the Internal Revenue Service's program to audit the tax returns of the nation's largest corporations--the Coordinated Examination Program. GAO discusses (1) trends in the program's examination results, (2) the program's audit coverage estimates, (3) characteristics of program taxpayers, and (4) information on IRS' efforts to address the drop in compliance among smaller corporations.

GAO found that: (1) CEP-recommended taxes per direct examination hour remained fairly steady from fiscal years 1987 through 1990; (2) IRS estimates that taxpayers currently appeal about 90 percent of CEP-recommended taxes, and IRS assessed about 25 percent of appealed recommendations; (3) IRS does not audit every CEP return, but stated that it carefully reviews returns for revenue potential before deciding to exclude them from audit; (4) the majority of CEP corporations were in manufacturing, finance, insurance, or transportation industries and had average reported assets of $6.5 billion; (5) CEP corporations 1988 tax returns reported an average of $1.5 billion in total income and $179 million in taxable income; (6) decreased IRS audit coverage for small corporations could have caused the decline in small corporation tax compliance; and (7) IRS is conducting four studies to study the drop in small corporate tax compliance.