Tax Administration

The U.S. tax system is based on taxpayers voluntarily complying with the tax laws. However, the Internal Revenue Service (IRS) last measured taxpayers' rate of compliance using 1988 tax returns. As time has passed, IRS has become concerned that its ability to understand the effectiveness of its programs and target audits on noncompliant returns has deteriorated, potentially resulting in poorer service to taxpayers, reduced confidence in the fairness of the tax system, and unnecessary audits of compliant taxpayers. IRS is now planning a new compliance study called the National Research Program (NRP). NRP is designed to review 49,000 individual tax returns randomly selected from the population of over 129 million. According to the NRP plan, IRS will review each sampled return to determine whether the taxpayer has complied with statutory income, expense, and tax reporting requirements. Unlike past compliance studies, not all of the reviews will include contacting taxpayers. Based on GAO's assessment of the NRP in light of government guidance on performance measurement and data reliability, research design guidelines, and IRS's goals for the program, NRP's design is likely to yield the sort of detailed information that IRS needs to measure overall compliance, develop formulas to select likely noncompliant returns for audit, and identify compliance problems to address.

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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