Tax Administration

Although the nation's 1,700 largest corporations pay billions of dollars in taxes, do they pay all they owe? To address this matter, the Internal Revenue Service (IRS) audits these companies under its Coordinated Examination Program. Of the sizable sums that IRS auditors recommend in additional taxes, how much is collected after appeals and litigation? What factors reduce amounts collected? And what is the status of IRS' ongoing changes to the Program to address those factors? This report seeks to answer these questions.

GAO found that: (1) it is impossible to determine the proper amount of taxes owed by large corporations because of the complexity and ambiguity of tax laws; (2) historically, IRS has collected 22 percent of the additional taxes recommended through CEP audits and collections have varied widely among industries and IRS districts; (3) simplifying the tax code would improve the collection rate and benefit IRS and taxpayers by reducing interpretation conflicts, recurring tax disputes, audits, and appeals; (4) IRS has not fully implemented planned CEP improvements and has not allocated sufficient resources to CEP; (5) IRS revenue agents are encouraged to make audit recommendations while upholding the IRS legal position; (6) IRS appeals officers try to avoid litigation as much as possible while being fair and impartial, even if they undermine the IRS legal position; (7) adding a measure of dollars collected to audit recommendations would better balance conflicting incentives and improve IRS communication and collection rates; and (8) the IRS Appeals Division needs to coordinate with other IRS functions to reduce costs and improve collections, but it must maintain its independence and authority to settle cases objectively.

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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