Tax Administration

Each year, taxpayers dispute tax adjustments identified by the Internal Revenue Service (IRS) in audits. As of September 1992, about 12,000 disputed issues in IRS' database with $99 billion in proposed income adjustments were waiting to be resolved by the Office of Appeals. GAO found that the following 14 tax code sections accounted for about 45 percent of those issues and 57 percent of the proposed adjusted amounts: trade or business expense; gross income defined; depreciation; allocation of income and deductions among taxpayers; taxable year of deduction; capital expenditures; bad debts; deductions for losses; definition of gross estate; taxable year of inclusion; net operating losses; taxes of foreign countries and U.S. possessions; last-in, first-out inventories; and taxability of corporations on distribution. Data also show that issues related to these 14 code sections accounted for an average of 44 percent of all issues resolved or closed by Appeals during fiscal years 1991 and 1992, 52 percent of the proposed adjustment amounts, and 59 percent of the proposed adjustment amounts sustained by Appeals.

GAO found that: (1) 14 tax code sections accounted for almost one-half of the appealed issues as of September 30, 1992 and about 57 percent of the $99 billion in disputed income adjustments, which was consistent with previous years; (2) 53 subsections within the 14 tax code sections accounted for a significant number of the recurring issues appealed; (3) IRS only selected a general code to describe a significant number of the appealed issues; and (4) some cases have more descriptive information on each issue because personnel handling the cases are permitted to enter unlimited information on each issue at their discretion.