Tax Research

IRS Has Made Progress but Major Challenges Remain Gao ID: GGD-96-109 June 5, 1996

The Internal Revenue Service (IRS) is changing its tax compliance philosophy. Although it will continue to use audits to catch tax cheats, IRS is exploring methods other than enforcement to induce compliance, such as assistance and education. This new approach involves researching ways to improve compliance for specific market segments--groups of taxpayers who share characteristics or behaviors. The agency wants to boost total compliance to 90 percent by 2001 and believes that its new compliance research approach will help meet this goal. Taxpayer compliance in paying taxes owed has remained steady during the past 20 years at about 87 percent, and IRS estimates tax losses from noncompliance at more than $100 billion. This report (1) reviews the lessons IRS has learned from past compliance efforts in identifying factors most critical to the success of its new compliance research approach and (2) analyzes the status of the new approach and its ability to incorporate these factors.

GAO found that: (1) IRS implemented its new compliance research approach to address concerns over taxpayer noncompliance and the large gap between income taxes owed and taxes paid; (2) IRS attempted to address these concerns through Compliance 2000, but had limited success due to inadequate compliance data; (3) IRS could avoid these mistakes by establishing more support for its research, using objective compliance data, acquiring more specialized staff, developing an organizational infrastructure, and setting objective measurements; (4) IRS officials believe that this new research approach is more cost-effective, but they doubt that they will reach 90-percent compliance by 2001; (5) IRS officials are concerned that district offices will spend 85 percent of their resources on national compliance issues rather than on district-level issues; (6) IRS has made some progress in developing the Compliance Research Information System (CRIS), but it is unsure when it will become available; (7) IRS officials believe that more training is needed in specialized areas to achieve research objectives; and (8) IRS is in the process of developing tools that track and measure the success of its research projects.

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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