Tax Administration

In 1993 there were about 52,000 foreign-controlled corporations in the United States, 19,000 foreign corporations with business activities in the United States, and an estimated 80,000 U.S.-controlled foreign corporations. GAO has previously reported on problems with international tax compliance and the fact that proportionately more foreign-controlled corporations pay no U.S. income taxes versus U.S.-controlled corporations. Congress and others have raised questions about the complexity of the international tax laws and about the Internal Revenue Service's (IRS) ability to ensure that corporations are accurately calculating their tax liabilities. Therefore, Congress authorized IRS more international resources for fiscal year 1994. This fact sheet provides information on (1) how IRS has used additional resources allocated to international compliance activities and (2) how IRS measures the effectiveness of these activities.

GAO found that: (1) from fiscal year (FY) 1990 to 1993, IRS devoted more resources to international tax compliance activities, used its resources to increase foreign-controlled corporation (FCC) examinations and to initiate and expand its Advance Pricing Agreement (APA) program, and performed 31 percent fewer examinations of non-FCC tax returns; (2) IRS uses many indicators to measure the effectiveness of its international tax compliance activities; (3) in examinations, IRS compares the additional tax recommended by international examiners with the number of staff hours used to do the examinations; (4) in the appeals process, IRS uses the amounts sustained by IRS appeals as recommended tax adjustments; and (5) IRS has recently developed over 30 measures to more systematically reflect its objectives of increasing voluntary compliance, reducing taxpayer burden, and improving productivity.