Tax Administration

For audits closed in fiscal years 1992 through 1997, IRS recommended tens of billions of dollars in additional taxes for each year. IRS reported these recommended taxes to Congress as its audit results. However, not all recommended taxes are assessed, and not all assessed taxes are collected. IRS' existing performance measures do not cover all audit-based revenues or costs. Measuring the taxes recommended does not account for the related assessments and collections, nor does it account for indirect revenue gains, such as when audits enhance voluntary compliance. Measuring other types of revenues is important because not all recommended taxes are assessed or collected.

GAO noted that: (1) for audits closed in FY 1992 through FY 1997, IRS recommended tens of billions of dollars in additional taxes for each year; (2) however, not all recommended taxes are assessed; and not all assessed taxes are collected; (3) IRS had settled 40 percent of FY 1992 audits without assessing the recommended taxes, usually because of IRS Office of Appeals' decisions, and had yet to settle the assessment status of the other 26 percent; (4) of the $8.5 billion assessed, IRS had collected 72 percent, which means that 25 percent of all recommended taxes for FY 1992 audits had been collected as of September 27, 1997; (5) for audits closed in FY 1993 through FY 1997, assessment and collection results were less complete because less time had elapsed for these actions to occur compared with 1992; (6) the assessment and collection rates varied by the type of audit closed in FY 1992; (7) in general, IRS assessed a higher percentage of the assessed taxes for simpler audits compared with complex audits; (8) however, IRS collected a higher percentage of the recommended taxes from the simpler audits than complex audits; (9) for simpler service center audits, IRS had assessed 76 percent of the recommended taxes but had collected 56 percent of the assessed taxes as of September 27, 1997; (10) at the other extreme, after audits of complex returns from Coordinated Examination Program (CEP) corporations, IRS had assessed 20 percent of the recommended taxes but had collected 97 percent of the assessed taxes; (11) as of September 27, 1997, 39 percent of the amounts recommended in CEP audits were still in dispute; (12) IRS' existing performance measures do not cover all audit-based revenues or costs; (13) measuring the taxes recommended does not account for the related assessments and collections; nor does it account for indirect revenue gains; (14) measuring other types of revenues are important because not all recommended taxes are assessed or collected; (15) IRS measures the staff time directly charged to audits but not the dollar costs of this direct time; (16) compiling complete and reliable data on the indirect revenues and taxpayer costs can be very difficult to do because of limitations in the data sources; (17) beyond these limitations, IRS did not use other existing data to develop and report measures that more fully represented audit results; (18) for additional measure, audit revenues could be compared with related costs; and (19) to develop such measures, IRS would need more data on both direct and indirect costs.

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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