Tax Administration

FedState Efforts Offer Opportunities but Program Needs Improvement Gao ID: GGD-97-16 October 31, 1996

The income tax laws of many states are built upon the federal tax code. Consequently, cooperation between the Internal Revenue Service (IRS) and state tax agencies offers opportunities for achieving IRS' strategic goals of increasing taxpayer compliance with tax laws, improving taxpayer service, lessening the burden on taxpayers, and increasing the efficiency of tax administration. IRS and the states are aware of the advantages of working together and have been involved in a federal/state (FedState) cooperative program for years. This report discusses the potential benefits of the FedState program, conditions that may jeopardize the program's success, and concerns raised by state officials about the potential impact of IRS' latest reorganization of the FedState program.

GAO found that: (1) the potential benefits of the FedState program include increasing taxpayer compliance, reducing taxpayer burden, and improving the efficiency of tax administration functions; (2) the FedState joint electronic filing program reduces administrative costs for IRS and the states by detecting math errors and eliminating transcription errors; (3) taxpayer data tape exchanges enable IRS and the states to identify taxpayers who fail to file a return or who owe more taxes; (4) the state refund offset program allows IRS to levy state refunds to fulfill the federal tax debt; (5) IRS lacks a centralized, strategic plan for ensuring that the FedState program is achieving the agency's objectives; (6) IRS and the states do not have a system to monitor and assess the results of individual FedState projects; (7) IRS needs to establish performance-based criteria for the program so that district offices can make more informed decisions on resource allocations and program priorities; and (8) some states have expressed concern that the reorganization of IRS will have a negative impact on the FedState program.

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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