Tax Compliance
Multiple Approaches Are Needed to Reduce the Tax Gap Gao ID: GAO-07-391T January 23, 2007The tax gap--the difference between the tax amounts taxpayers pay voluntarily and on time and what they should pay under the law--has been a long-standing problem in spite of many efforts to reduce it. Most recently, the Internal Revenue Service (IRS) estimated a gross tax gap for tax year 2001 of $345 billion and estimated it would recover $55 billion of this gap, resulting in a net tax gap of $290 billion. When some taxpayers fail to comply, the burden of funding the nation's commitments falls more heavily on compliant taxpayers. Reducing the tax gap would help improve the nation's fiscal stability. For example, each 1 percent reduction in the net tax gap would likely yield $3 billion annually. GAO was asked to discuss the tax gap and various approaches to reduce it. This testimony discusses the need for taking multiple approaches and to what extent the tax gap could be reduced through three overall approaches--simplifying or reforming the tax system, providing IRS with additional enforcement tools, and devoting additional resources to enforcement. This statement is based on prior GAO work.
Multiple approaches are needed to reduce the tax gap. No single approach is likely to fully and cost-effectively address noncompliance since, for example, it has multiple causes and spans different types of taxes and taxpayers. Simplifying or reforming the tax code, providing IRS more enforcement tools, and devoting additional resources to enforcement are three major approaches, but providing quality services to taxpayers also is a necessary foundation for voluntary compliance. Such steps as periodically measuring noncompliance and its causes, setting tax gap reduction goals, evaluating the results of any initiatives to reduce the tax gap, optimizing the allocation of IRS's resources, and leveraging technology to enhance IRS's efficiency would also contribute to tax gap reduction. Simplifying the tax code or fundamental tax reform has the potential to reduce the tax gap by billions of dollars. IRS has estimated that errors in claiming tax credits and deductions for tax year 2001 contributed $32 billion to the tax gap. Thus, considerable potential exists. However, these provisions serve purposes Congress has judged to be important and eliminating or consolidating them could be complicated. Fundamental tax reform would most likely result in a smaller tax gap if the new system has few, if any, exceptions (e.g., few tax preferences) and taxable transactions are transparent to tax administrators. These characteristics are difficult to achieve, and any tax system could be subject to noncompliance. Withholding and information reporting are particularly powerful tools to reduce the tax gap. They could help reduce the tax gap by billions of dollars, especially if they make underreported income transparent to IRS. These tools have led to high, sustained levels of taxpayer compliance and improved IRS resource allocation by helping IRS identify and prioritize its contacts with noncompliant taxpayers. As GAO previously suggested, reporting the cost, or basis, of securities sales is one option to improve taxpayers' compliance. However, designing additional withholding and information reporting requirements may be challenging given that many types of income are already subject to reporting, underreporting exists in many forms, and withholding and reporting requirements impose costs on third parties. Devoting additional resources to enforcement has the potential to help reduce the tax gap by billions of dollars. However, determining the appropriate level of IRS enforcement resources requires taking into account such factors as how well IRS uses its resources, the proper balance between taxpayer service and enforcement activities, and competing federal funding priorities. If Congress provides IRS more enforcement resources, the amount of tax gap reduction would depend on factors such as the size of budget increases, how IRS manages any additional resources, and the indirect increase in taxpayers' voluntary compliance resulting from expanded enforcement. Increasing IRS's funding would enable it to contact millions of potentially noncompliant taxpayers it identifies but does not contact.
GAO-07-391T, Tax Compliance: Multiple Approaches Are Needed to Reduce the Tax Gap
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Testimony:
Before the Committee on the Budget, U.S. Senate:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 10:00 a.m. EST:
Tuesday, January 23, 2007:
Tax Compliance:
Multiple Approaches Are Needed to Reduce the Tax Gap:
Statement of Michael Brostek:
Director, Tax Issues:
Strategic Issues Team:
GAO-07-391T:
GAO Highlights:
Highlights of GAO-07-391T, a testimony to the Committee on the Budget,
U.S. Senate
Why GAO Did This Study:
The tax gap”the difference between the tax amounts taxpayers pay
voluntarily and on time and what they should pay under the law”has been
a long-standing problem in spite of many efforts to reduce it. Most
recently, the Internal Revenue Service (IRS) estimated a gross tax gap
for tax year 2001 of $345 billion and estimated it would recover $55
billion of this gap, resulting in a net tax gap of $290 billion. When
some taxpayers fail to comply, the burden of funding the nation‘s
commitments falls more heavily on compliant taxpayers. Reducing the tax
gap would help improve the nation‘s fiscal stability. For example, each
1 percent reduction in the net tax gap would likely yield $3 billion
annually.
GAO was asked to discuss the tax gap and various approaches to reduce
it. This testimony discusses the need for taking multiple approaches
and to what extent the tax gap could be reduced through three overall
approaches” simplifying or reforming the tax system, providing IRS with
additional enforcement tools, and devoting additional resources to
enforcement. This statement is based on prior GAO work.
What GAO Found:
Multiple approaches are needed to reduce the tax gap. No single
approach is likely to fully and cost-effectively address noncompliance
since, for example, it has multiple causes and spans different types of
taxes and taxpayers. Simplifying or reforming the tax code, providing
IRS more enforcement tools, and devoting additional resources to
enforcement are three major approaches, but providing quality services
to taxpayers also is a necessary foundation for voluntary compliance.
Such steps as periodically measuring noncompliance and its causes,
setting tax gap reduction goals, evaluating the results of any
initiatives to reduce the tax gap, optimizing the allocation of IRS‘s
resources, and leveraging technology to enhance IRS‘s efficiency would
also contribute to tax gap reduction.
Simplifying the tax code or fundamental tax reform has the potential to
reduce the tax gap by billions of dollars. IRS has estimated that
errors in claiming tax credits and deductions for tax year 2001
contributed $32 billion to the tax gap. Thus, considerable potential
exists. However, these provisions serve purposes Congress has judged to
be important and eliminating or consolidating them could be
complicated. Fundamental tax reform would most likely result in a
smaller tax gap if the new system has few, if any, exceptions (e.g.,
few tax preferences) and taxable transactions are transparent to tax
administrators. These characteristics are difficult to achieve, and any
tax system could be subject to noncompliance.
Withholding and information reporting are particularly powerful tools
to reduce the tax gap. They could help reduce the tax gap by billions
of dollars, especially if they make underreported income transparent to
IRS. These tools have led to high, sustained levels of taxpayer
compliance and improved IRS resource allocation by helping IRS identify
and prioritize its contacts with noncompliant taxpayers. As GAO
previously suggested, reporting the cost, or basis, of securities sales
is one option to improve taxpayers‘ compliance. However, designing
additional withholding and information reporting requirements may be
challenging given that many types of income are already subject to
reporting, underreporting exists in many forms, and withholding and
reporting requirements impose costs on third parties.
Devoting additional resources to enforcement has the potential to help
reduce the tax gap by billions of dollars. However, determining the
appropriate level of IRS enforcement resources requires taking into
account such factors as how well IRS uses its resources, the proper
balance between taxpayer service and enforcement activities, and
competing federal funding priorities. If Congress provides IRS more
enforcement resources, the amount of tax gap reduction would depend on
factors such as the size of budget increases, how IRS manages any
additional resources, and the indirect increase in taxpayers‘ voluntary
compliance resulting from expanded enforcement. Increasing IRS‘s
funding would enable it to contact millions of potentially noncompliant
taxpayers it identifies but does not contact.
What GAO Recommends:
GAO is not making any new recommendations but highlights areas for
possible attention.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-391T].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Michael Brostek at (202)
512-9110 or brostekm@gao.gov.
[End of Section]
Chairman Conrad, Senator Gregg, Members of the Committee:
I appreciate this opportunity to discuss the tax gap--the difference
between what taxpayers pay in taxes voluntarily and on time and what
they should pay under the law--and what is achievable in reducing the
gap. Most recently, the Internal Revenue Service (IRS) estimated that
for tax year 2001, taxpayers paid about 84 percent of the taxes that
should have been paid on time under the law, resulting in an estimated
gross tax gap of $345 billion. IRS estimated that it would eventually
recover around $55 billion of the 2001 tax gap through late payments
and IRS enforcement actions, leaving a net tax gap of $290
billion.[Footnote 1] Because of taxpayer noncompliance, the burden of
funding the nation's commitments falls more heavily on taxpayers who
willingly and accurately pay their taxes. Reducing the tax gap would
help improve the nation's fiscal stability. For example, based on IRS's
estimate, each 1 percent reduction in the net tax gap would likely
yield nearly $3 billion annually. However, the tax gap has been a
persistent problem in spite of a myriad of congressional and IRS
efforts to reduce it, as the rate at which taxpayers voluntarily comply
with our tax laws has changed little over the past three decades.
Likewise, factors such as globalization and the ever-increasing
complexity of the tax code challenge IRS's ability to administer the
tax code.
My remarks focus on what is achievable in reducing the tax gap through
a variety of approaches. First I will discuss the need for multiple
approaches towards reducing the tax gap. Then I will discuss three
specific tax gap reduction approaches: (1) simplifying or reforming the
tax system; (2) providing IRS additional enforcement authority and
tools, such as information reporting[Footnote 2] and tax
withholding,[Footnote 3] through changes to the tax laws; and (3)
devoting additional resources to enforcement under the existing tax
laws. My remarks are based on our previous work on a variety of issues,
in particular, recent testimonies and a report on reducing the tax
gap.[Footnote 4] These efforts were conducted in accordance with
generally accepted government auditing standards.
Let me begin by highlighting four major points:
* Multiple approaches are needed to reduce the tax gap. No single
approach is likely to fully and cost-effectively address noncompliance
since, for example, it has multiple causes and spans different types of
taxes and taxpayers. Simplifying or reforming the tax code, providing
IRS more enforcement tools, and devoting additional resources to
enforcement are three major approaches discussed below, but providing
quality services to taxpayers also is a necessary foundation for
voluntary compliance. Quality services can help taxpayers who wish to
comply but do not understand their obligations, whereas enforcement
actions may be needed for those who intentionally evade their tax
obligations. Such steps as periodically measuring noncompliance and its
causes, setting tax gap reduction goals, considering the costs and
benefits of initiatives to reduce the gap, evaluating the results of
such initiatives undertaken, optimizing the allocation of IRS's
resources, and leveraging technology to enhance IRS's efficiency would
also contribute to tax gap reduction.
* Simplifying the tax code or fundamental tax reform has the potential
to reduce the tax gap by many billions of dollars. For example, IRS
estimated that errors in claiming tax credits and deductions for tax
year 2001 contributed $32 billion to the tax gap. Reducing the number
of such credits and deductions therefore has some direct potential to
reduce the tax gap. However, these credits and deductions serve
purposes Congress has judged to be important, and eliminating them
likely would be complicated. Fundamental tax reform, such as shifting
to a consumption tax system, would most likely result in a smaller tax
gap if the new system has few, if any, exceptions (e.g., few or no tax
preferences) and taxable transactions are transparent to tax
administrators. These characteristics are difficult to achieve in any
system, and any tax system could be subject to noncompliance.
* Providing IRS with more enforcement tools, particularly withholding
and information reporting, also has the potential to reduce the tax gap
by billions of dollars, especially if those tools help IRS deal with
the largest contributor to the tax gap--underreported income. Tax
withholding and information reporting have been shown to lead to high,
sustained levels of taxpayer compliance because the income taxpayers
earn is transparent to them and IRS. Also, using these tools can help
IRS better allocate its resources by improving its ability to identify
and prioritize noncompliant taxpayers to be contacted. For example, we
found that having third parties report to taxpayers and IRS the cost,
or basis, of stocks and mutual funds that taxpayers sell could help
taxpayers improve their voluntary compliance and help IRS allocate its
enforcement efforts concerning these transactions. However, designing
withholding or information reporting requirements to address
underreporting may be challenging given that many types of income are
already subject to such requirements, underreporting exists in many
forms, and any requirements could impose costs and burdens on the third
parties that withhold or report.
* Devoting additional resources to enforcement has the potential to
help reduce the tax gap by billions of dollars. However, determining
the appropriate level of enforcement resources to provide IRS requires
taking into account factors such as how effectively and efficiently IRS
is currently using its resources, how to strike the proper balance
between IRS's taxpayer service and enforcement activities, and
competing federal funding priorities. If Congress were to provide IRS
more enforcement resources, the amount the tax gap could be reduced
depends in part on factors such as the size of budget increases, how
IRS manages any additional resources, and the indirect increase in
taxpayers' voluntary compliance resulting from expanded enforcement.
Providing IRS with additional funding would enable it to contact
millions of potentially noncompliant taxpayers it identifies but
currently cannot contact given resource constraints.
Background:
The tax gap is an estimate of the difference between the taxes--
including individual income, corporate income, employment, estate, and
excise taxes--that should have been paid voluntarily and on time and
what was actually paid for a specific year. The estimate is an
aggregate of estimates for the three primary types of noncompliance:
(1) underreporting of tax liabilities on tax returns; (2) underpayment
of taxes due from filed returns; and (3) nonfiling, which refers to the
failure to file a required tax return altogether or on time.[Footnote
5] IRS's tax gap estimates for each type of noncompliance include
estimates for some or all of the five types of taxes that IRS
administers. As shown in table 1, underreporting of tax liabilities
accounted for most of the tax gap estimate for tax year 2001.
Table 1: IRS's Tax Year 2001 Gross Tax Gap Estimates by Type of
Noncompliance and Type of Tax:
Dollars in billions.
Type of noncompliance: Underreporting;
Type of tax: Individual income tax: $197;
Type of tax: Corporate income tax: $30;
Type of tax: Employment tax: $54;
Type of tax: Estate tax: $4;
Type of tax: Excise tax: No estimate;
Type of tax: Total: $285.
Type of noncompliance: Underpayment;
Type of tax: Individual income tax: 23;
Type of tax: Corporate income tax: 2;
Type of tax: Employment tax: 5;
Type of tax: Estate tax: 2;
Type of tax: Excise tax: $1;
Type of tax: Total: $34.
Type of noncompliance: Nonfiling;
Type of tax: Individual income tax: 25;
Type of tax: Corporate income tax: No estimate;
Type of tax: Employment tax: No estimate;
Type of tax: Estate tax: 2;
Type of tax: Excise tax: No estimate;
Type of tax: Total: $27.
Total;
Type of tax: Individual income tax: $244;
Type of tax: Corporate income tax: $32;
Type of tax: Employment tax: $59;
Type of tax: Estate tax: $8;
Type of tax: Excise tax: $1;
Type of tax: Total: $345.
Source: IRS.
Note: Figures may not sum to totals because of rounding.
[End of table]
IRS has estimated the tax gap on multiple occasions, beginning in 1979,
relying on its Taxpayer Compliance Measurement Program (TCMP). IRS did
not implement any TCMP studies after 1988 because of concerns about
costs and burdens on taxpayers. Recognizing the need for current
compliance data, in 2002 IRS implemented a new compliance study called
the National Research Program (NRP) to produce such data for tax year
2001 while minimizing taxpayer burden.
IRS has concerns with the certainty of the tax gap estimate for tax
year 2001 in part because some areas of the estimate rely on old data,
IRS has no estimates for other areas of the tax gap, and it is
inherently difficult to measure some types of noncompliance. IRS used
data from NRP to estimate individual income tax underreporting and the
portion of employment tax underreporting attributed to self-employed
individuals. The underpayment segment of the tax gap is not an
estimate, but rather represents the tax amounts that taxpayers reported
on time but did not pay on time. Other areas of the estimate, such as
corporate income tax and employer-withheld employment tax
underreporting, rely on decades-old data. Also, IRS has no estimates
for corporate income, employment, and excise tax nonfiling or for
excise tax underreporting.[Footnote 6] In addition, it is inherently
difficult for IRS to observe and measure some types of underreporting
or nonfiling, such as tracking cash payments that businesses make to
their employees, as businesses and employees may not report these
payments to IRS in order to avoid paying employment and income taxes,
respectively.[Footnote 7]
IRS's overall approach to reducing the tax gap consists of improving
service to taxpayers and enhancing enforcement of the tax laws. IRS
seeks to improve voluntary compliance through efforts such as education
and outreach programs and tax form simplification. IRS uses its
enforcement authority to ensure that taxpayers are reporting and paying
the proper amounts of taxes through efforts such as examining tax
returns and matching the amount of income taxpayers report on their tax
returns to the income amounts reported on information returns it
receives from third parties. IRS reports that it collected over $48
billion in fiscal year 2006 from noncompliant taxpayers it identified
through its various enforcement programs.
In spite of IRS's efforts to improve taxpayer compliance, the rate at
which taxpayers pay their taxes voluntarily and on time has tended to
range from around 81 percent to around 84 percent over the past three
decades. Any significant reduction of the tax gap would likely depend
on an improvement in the level of taxpayer compliance.[Footnote 8]
Multiple Approaches Are Needed to Reduce the Tax Gap:
No single approach is likely to fully and cost-effectively address
noncompliance and therefore multiple approaches are likely to be
needed. The tax gap has multiple causes; spans five types of taxes; and
is spread over several types of taxpayers including individuals,
corporations, and partnerships. Thus, for example, while simplifying
laws should help when noncompliance is due to taxpayers' confusion,
enforcement may be needed for taxpayers who understand their
obligations but decline to fulfill them. Similarly, while devoting more
resources to enforcement should increase taxes assessed and collected,
too great an enforcement presence likely would not be tolerated.
Simplifying or reforming the tax code, providing IRS more enforcement
tools, and devoting additional resources to enforcement are three major
tax gap reduction approaches discussed in more detail below, but
providing quality services to taxpayers plays an important role in
improving compliance and reducing the tax gap. IRS taxpayer services
include education and outreach programs, simplifying the tax process,
and revising forms and publications to make them electronically
accessible and more easily understood by diverse taxpayer communities.
For example, if tax forms and instructions are unclear, taxpayers may
be confused and make unintentional errors. Quality taxpayer services
would also be a key consideration in implementing any of the approaches
for tax gap reduction. For example, expanding enforcement efforts would
increase interactions with taxpayers, requiring processes to
efficiently communicate with taxpayers. Also, changing tax laws and
regulations would require educating taxpayers of the new requirements
in a clear, timely, and accessible manner. In 2006, we reported that
IRS improved its two most commonly used services--telephone and Web
site assistance--for the 2006 filing season.[Footnote 9] Increased
funding financed some of the improvements, but a significant portion
has been financed internally by efficiencies gained from increased
electronic filing of tax returns and other operational improvements.
Although quality service helps taxpayers comply, showing a direct
relationship between quality service and compliance levels is very
challenging. As required by Congress, IRS is in the midst of a study
that is to result in a 5-year plan for taxpayer service activities,
which is to include long-term quantitative goals and to balance service
and enforcement. Part of the study focuses on the effect of taxpayer
service on compliance. A Phase I report was issued in April 2006 and a
Phase II report is due in early 2007, which is to include, among other
things, a multiyear plan for taxpayer service activities and
improvement initiatives.
However, in deciding on the appropriate mix of approaches to use in
reducing the tax gap, many factors or issues could affect strategic
decisions. Among the broad factors to consider are the likely
effectiveness of any approach, fairness, enforceability, and
sustainability. Beyond these, our work points to the importance of the
following:
* Measuring compliance levels periodically and setting long-term goals.
A data-based plan is one key to closing the tax gap. To the extent that
IRS can develop better compliance data, it can develop more effective
approaches for reducing the gap. Regularly measuring the magnitude of,
and the reasons for, noncompliance provides insights on how to reduce
the gap through potential changes to tax laws and IRS programs. In July
2005, we recommended that IRS periodically measure tax compliance,
identify reasons for noncompliance, and establish voluntary compliance
goals.[Footnote 10] IRS agreed with the recommendations and established
a voluntary tax compliance goal of 85 percent by 2009. Furthermore, we
have identified alternative ways to measure compliance, including
conducting examinations of small samples of tax returns over multiple
years, instead of conducting examinations for a larger sample of
returns for one tax year, to allow IRS to track compliance trends
annually.
* Considering the costs and burdens. Any action to reduce the tax gap
will create costs and burdens for IRS; taxpayers; and third parties,
such as those who file information returns. For example, withholding
and information reporting requirements impose some costs and burdens on
those who track and report information. These costs and burdens need to
be reasonable in relation to the improvements expected to arise from
new compliance strategies.
* Evaluating the results. Evaluating the actions taken by IRS to reduce
the tax gap would help maximize IRS's effectiveness. Evaluations can be
challenging because it is difficult to isolate the effects of IRS's
actions from other influences on taxpayers' compliance. Our work has
discussed how to address these challenges, for example by using
research to link actions with the outputs and desired effects.
* Optimizing resource allocation. Developing reliable measures of the
return on investment for strategies to reduce the tax gap would help
inform IRS resource allocation decisions. IRS has rough measures of
return on investment based on the additional taxes it assesses.
Developing such measures is difficult because of incomplete data on the
costs of enforcement and collected revenues. Beyond direct revenues,
IRS's enforcement actions have indirect revenue effects, which are
difficult to measure. However, indirect effects could far exceed direct
revenue effects and would be important to consider in connection with
continued development of return on investment measures. In general
though, the impacts of tax gap reduction by improving voluntary tax
compliance can be quite large. For example, if the estimated 83.7
percent voluntary compliance rate that produced a gross tax gap of $345
billion in tax year 2001 had been 85 percent, this tax gap would have
been about $28 billion less; if it had been 90 percent, the gap would
have been about $133 billion less.
* Leveraging technology. Better use of technology could help IRS be
more efficient in reducing the tax gap. IRS is modernizing its
technology, which has paid off in terms of telephone service, resource
allocation, electronic filing, and data analysis capability. However,
this ongoing modernization will need strong management and prudent
investments to maximize potential efficiencies.
Congress has been encouraging IRS to develop an overall tax gap
reduction plan or strategy that could include a mix of approaches like
simplifying code provisions, increased enforcement, and reconsidering
the level of resources devoted to enforcement. Some progress has been
made towards laying out the broad elements of a plan or strategy for
reducing the tax gap. On September 26, 2006, the U.S. Department of the
Treasury (Treasury), Office of Tax Policy released "A Comprehensive
Strategy for Reducing the Tax Gap." However, the document generally
does not identify specific approaches that Treasury and IRS will
undertake to reduce the tax gap, the related time frames for such
steps, or explanations of how much the tax gap would be reduced. The
document said that such additional details the would be part of the
fiscal year 2008 IRS budget request that will be deliberated during
early 2007 because of the resource implications associated with tax gap
reduction.
Reducing the Tax Gap through Tax Simplification or Tax System Reform
Depends on Their Design and May Have Effects Beyond Tax Compliance:
Tax law simplification and reform both have the potential to reduce the
tax gap by billions of dollars. The extent to which the tax gap would
be reduced depends on which parts of the tax system would be simplified
and in what manner as well as how any reform of the tax system is
designed and implemented. Neither approach, however, will eliminate the
gap. Further, changes in the tax laws and system to improve tax
compliance could have unintended effects on other tax system
objectives, such as those involving economic behavior or equity.
Simplification has the potential to reduce the tax gap for at least
three broad reasons. First, it could help taxpayers to comply
voluntarily with more certainty, reducing inadvertent errors by those
who want to comply but are confused because of complexity. Second, it
may limit opportunities for tax evasion, reducing intentional
noncompliance by taxpayers who can misuse the complex code provisions
to hide their noncompliance or to achieve ends through tax shelters.
Third, tax code complexity may erode taxpayers' willingness to comply
voluntarily if they cannot understand its provisions or they see others
taking advantage of complexity to intentionally underreport their
taxes.
Simplification could take multiple forms. One form would be to retain
existing laws but make them simpler. For example, in our July 2005
report[Footnote 11] on postsecondary tax preferences, we noted that the
definition of a qualifying postsecondary education expense differed
somewhat among some tax code provisions, for instance with some
including the cost to purchase books and others not. Making definitions
consistent across code provisions may reduce taxpayer errors. Although
we cannot say the errors were due to these differences in definitions,
in a limited study of paid preparer services to taxpayers, we found
some preparers claiming unallowable expenses for books.[Footnote 12]
Further, the Joint Committee on Taxation suggested that such dissimilar
definitions may increase the likelihood of taxpayer errors and increase
taxpayer frustration.[Footnote 13]
Another tax code provision in which complexity may have contributed to
the individual tax gap involves the earned income tax credit, for which
IRS estimated a tax loss of up to about $10 billion for tax year
1999.[Footnote 14] Although some of this noncompliance may be
intentional, we[Footnote 15] and the National Taxpayer
Advocate[Footnote 16] have previously reported that confusion over the
complex rules governing eligibility for claiming the credit could cause
taxpayers to fail to comply inadvertently.
Although retaining but simplifying tax code provisions may help reduce
the tax gap, doing so may not be easy, may conflict with other policy
decisions, and may have unintended consequences. The simplification of
the definition of a qualifying child across various code sections is an
example. We suggested in the early 1990s that standardizing the
definition of a qualifying child could reduce taxpayer errors and
reduce their burden.[Footnote 17] A change was not made until
2004.[Footnote 18] However, some have suggested that the change has
created some unintended consequences, such as increasing some
taxpayers' ability to reduce their taxes in ways Congress may not have
intended.[Footnote 19]
Another form of simplification could be to broaden the tax base while
reducing tax rates, which could minimize incentives for not complying.
This base-broadening could include a review of whether existing tax
expenditures are achieving intended results at a reasonable cost in
lost revenue and added burden and eliminating or consolidating those
that are not. Among the many causes of tax code complexity is the
growing number of preferential provisions in the code, defined in
statute[Footnote 20] as tax expenditures, such as tax exemptions,
exclusions, deductions, credits, and deferrals.[Footnote 21] The number
of these tax expenditures has more than doubled from 1974 through 2005.
Tax expenditures can contribute to the tax gap if taxpayers claim them
improperly. For example, IRS's recent tax gap estimate includes a $32
billion loss in individual income taxes for tax year 2001 because of
noncompliance with these provisions. Simplifying these provisions of
the tax code would not likely yield $32 billion in revenue because even
simplified provisions likely would have some associated noncompliance.
Nevertheless, the estimate suggests that simplification could have
important tax gap consequences, particularly if simplification also
accounted for any noncompliance that arises because of complexity on
the income side of the tax gap for individuals.[Footnote 22]
Despite the potential benefits that simplification may yield, these
credits and deductions serve purposes that Congress has judged to be
important to advance federal goals. Eliminating them or consolidating
them likely would be complicated, and would likely create winners and
losers. Elimination also could conflict with other objectives such as
encouraging certain economic activity or improving equity.
Similar trade-offs exist with possible fundamental tax reforms that
would move away from an income tax system to some other system, such as
a consumption tax, national sales tax, or value added tax. Fundamental
tax reform would most likely result in a smaller tax gap if the new
system has few tax preferences or complex tax code provisions and if
taxable transactions are transparent. However, these characteristics
are difficult to achieve in any system and experience suggests that
simply adopting a fundamentally different tax system may not by itself
eliminate any tax gap.[Footnote 23] Any tax system could be subject to
noncompliance, and its design and operation, including the types of
tools made available to tax administrators, will affect the size of any
corresponding tax gap. Further, the motivating forces behind tax reform
likely include factors beyond tax compliance, such as economic
effectiveness, equity, and burden, which could in some cases carry
greater weight in designing an alternative tax system than ensuring the
highest levels of compliance.
Providing IRS with Additional Enforcement Tools Potentially Could
Improve Compliance Significantly, but Identifying and Designing Such
Tools Can Be Challenging:
Changing the tax laws to provide IRS with additional enforcement tools,
such as expanded tax withholding and information reporting, could also
reduce the tax gap by many billions of dollars, particularly with
regard to underreporting--the largest segment of the tax gap. Tax
withholding promotes compliance because employers or other parties
subtract taxes owed from a taxpayer's income and remit them to IRS.
Information reporting tends to lead to high levels of compliance
because income taxpayers earn is transparent to them and IRS. In both
cases, high levels of compliance tend to be maintained over time. Also,
withholding and information reporting help IRS to better identify
noncompliant taxpayers and prioritize contacting them, which enables
IRS to better allocate its resources. However, designing new
withholding or information reporting requirements to address
underreporting can be challenging given that many types of income are
already subject to at least some form of withholding or information
reporting, underreporting exists in varied forms, and the requirements
could impose costs and burdens on third parties.
Taxpayers tend to report income subject to tax withholding or
information reporting with high levels of compliance, as shown in
figure 1, because the income is transparent to the taxpayers as well as
to IRS. Additionally, once withholding or information reporting
requirements are in place for particular types of income, compliance
tends to remain high over time. For example, for wages and salaries,
which are subject to tax withholding and substantial information
reporting, the percentage of income that taxpayers misreport has
consistently been measured at around 1 percent over time.
Figure 1: Individual Net Income Misreporting Categorized by the Extent
of Income Subject to Withholding and Information Reporting, Tax Year
2001:
[See PDF for image]
Source: IRS.
[End of figure]
In the past, we have identified a few specific areas where additional
withholding or information reporting requirements could serve to
improve compliance:
* Require more data on information returns dealing with capital gains
income from securities sales. Recently, we reported that an estimated
36 percent of taxpayers misreported their capital gains or losses from
the sale of securities, such as corporate stocks and mutual
funds.[Footnote 24] Further, around half of the taxpayers who
misreported did so because they failed to report the securities' cost,
or basis, sometimes because they did not know the securities' basis or
failed to take certain events into account that required them to adjust
the basis of their securities. When taxpayers sell securities like
stock and mutual funds through brokers, the brokers are required to
report information on the sale, including the amount of gross proceeds
the taxpayer received; however, brokers are not required to report
basis information for the sale of these securities. We found that
requiring brokers to report basis information for securities sales
could improve taxpayers' compliance in reporting their securities gains
and losses and help IRS identify noncompliant taxpayers. However, we
were unable to estimate the extent to which a basis reporting
requirement would reduce the capital gains tax gap because of
limitations with the compliance data on capital gains and because
neither IRS nor we know the portion of the capital gains tax gap
attributed to securities sales.
* Requiring tax withholding and more or better information return
reporting on payments made to independent contractors. Past IRS data
have shown that independent contractors report 97 percent of the income
that appears on information returns, while contractors that do not
receive these returns report only 83 percent of income. We have also
identified other options for improving information reporting for
independent contractors, including increasing penalties for failing to
file required information returns, lowering the $600 threshold for
requiring such returns, and requiring businesses to report separately
on their tax returns the total amount of payments to independent
contractors.[Footnote 25]
* Requiring information return reporting on payments made to
corporations. Unlike payments made to sole proprietors, payments made
to corporations for services are generally not required to be reported
on information returns. IRS and GAO have contended that the lack of
such a requirement leads to lower levels of compliance for small
corporations. Although Congress has required federal agencies to
provide information returns on payments made to contractors since
1997,[Footnote 26] payments made by others to corporations are
generally not covered by information returns. Information reporting
helps IRS to better allocate its resources to the extent that it helps
IRS better identify noncompliant taxpayers and the potential for
additional revenue that could be obtained by contacting these
taxpayers. For example, IRS officials told us that receiving
information on basis for taxpayers' securities sales would allow IRS to
determine more precisely taxpayers' income for securities sales through
its document matching programs and would allow it to identify which
taxpayers who misreported securities income have the greatest potential
for additional tax assessments. Similarly, IRS could use basis
information to improve both aspects of its examination program--
examinations of tax returns through correspondence and examinations of
tax returns face to face with the taxpayer. Currently, capital gains
issues are too complex and time consuming for IRS to examine through
correspondence. However, IRS officials told us that receiving cost
basis information might enable IRS to examine noncompliant taxpayers
through correspondence because it could productively select tax returns
to examine. Also, having cost basis information could help IRS identify
the best cases to examine face to face, making the examinations more
productive while simultaneously reducing the burden imposed on
compliant taxpayers who otherwise would be selected for examination.
Although withholding and information reporting lead to high levels of
compliance, designing new requirements to address underreporting could
be challenging given that many types of income, including wages and
salaries, dividend and interest income, and income from pensions and
Social Security are already subject to withholding or substantial
information reporting. Also, challenges arise in establishing new
withholding or information reporting requirements for certain other
types of income that are extensively underreported. Such underreporting
may be difficult to determine because of complex tax laws or
transactions or the lack of a practical and reliable third-party source
to provide information on the taxable income.
For example, while withholding or information reporting mechanisms on
nonfarm sole proprietor and informal supplier income[Footnote 27] would
likely improve their compliance, comprehensive mechanisms that are
practical and effective are difficult to identify. As shown in figure
1, this income is not subject to information reporting, and these
taxpayers misreported about half of the income they earned for tax year
2001. Informal suppliers by definition receive income in an informal
manner through services they provide to a variety of individual
citizens or small businesses. Whereas businesses may have the capacity
to perform withholding and information reporting functions for their
employees, it may be challenging to extend withholding or information
reporting responsibilities to the individual citizens that receive
services, who may not have the resources or knowledge to comply with
such requirements.
Finally, implementing tax withholding and information reporting
requirements generally imposes costs and burdens on the businesses that
must implement them, and, in some cases, on taxpayers. For example,
expanding information reporting on securities sales to include basis
information will impose costs on the brokers who would track and report
the information. Further, trying to close the entire tax gap with these
enforcement tools could entail more intrusive recordkeeping or
reporting than the public is willing to accept.
Devoting Additional Resources to Enforcement Likely Could Reduce the
Tax Gap, but to What Extent Is Difficult to Predict:
Devoting more resources to enforcement has the potential to help reduce
the tax gap by billions of dollars, as IRS would be able to expand its
enforcement efforts to reach a greater number of potentially
noncompliant taxpayers. However, determining the appropriate level of
enforcement resources to provide IRS requires taking into account many
factors, such as how effectively and efficiently IRS is currently using
its resources, how to strike the proper balance between IRS's taxpayer
service and enforcement activities, and competing federal funding
priorities. If Congress were to provide IRS more enforcement resources,
the amount of the tax gap that could be reduced depends in part on the
size of any increase in IRS's budget, how IRS would manage any
additional resources, and the indirect increase in taxpayers' voluntary
compliance that would likely result from expanded IRS enforcement.
Given resource constraints, IRS is unable to contact millions of
additional taxpayers for whom it has evidence of potential
noncompliance. With additional resources, IRS would be able to assess
and collect additional taxes and further reduce the tax gap. In 2002,
IRS estimated that a $2.2 billion funding increase would allow it to
take enforcement actions against potentially noncompliant taxpayers it
identifies but cannot contact and would yield an estimated $30 billion
in revenue.[Footnote 28] For example, IRS estimated that it contacted
about 3 million of the over 13 million taxpayers it identified as
potentially noncompliant through its matching of tax returns to
information returns. IRS estimated that contacting the additional 10
million potentially noncompliant taxpayers it identified, at a cost of
about $230 million, could yield nearly $7 billion in potentially
collectible revenue. We did not evaluate the accuracy of the estimate,
and as will be discussed below, many factors suggest that it is
difficult to estimate reliably net revenue increases that might come
from additional enforcement efforts.[Footnote 29]
Although additional enforcement funding has the potential to reduce the
tax gap, the extent to which it would help depends on several factors.
First, and perhaps most obviously, the amount of tax gap reduction
would depend in part on the size of any budget increase. Generally,
larger budget increases should result in larger reductions in the tax
gap. The degree to which revenues would increase from expanded
enforcement depends on many variables, such as how quickly IRS can ramp
up efforts, how well IRS selects the best cases to be worked, and how
taxpayers react to enforcement efforts. Estimating those revenue
increases would require assumptions about these and other variables.
Because actual experience is likely to diverge from those assumptions,
the actual revenue increases are likely to differ from the estimates.
The lack of reliable key data compounds the difficulty of estimating
the likely revenues. To the extent possible, obtaining better data on
key variables would provide a better understanding of the likely
results with any increased enforcement resources.
With additional resources for enforcement, IRS would be able to assess
and collect additional taxes, but the related tax gap reductions may
not be immediate. If IRS uses the resources to hire more enforcement
staff, the reductions may occur gradually as IRS is able to hire and
train the staff. Also, several years can elapse after IRS assesses
taxes before it actually collects these taxes.
Similarly, the amounts of taxes actually collected can vary
substantially from the related tax amounts assessed through enforcement
actions by the type of tax or taxpayer involved. In a 1998 report, we
found that 5 years after taxes were assessed against individual
taxpayers with business income, 48 percent of the assessed taxes had
been collected, whereas for the largest corporate taxpayers, 97 percent
of assessed taxes had been collected.[Footnote 30]
Over the last 2 years, IRS has requested and received additional
funding targeted for enforcement activities that it estimated will
result in additional revenue. In its fiscal year 2007 budget request,
IRS requested an approximate 2 percent increase in funding from fiscal
year 2006 to expand its enforcement efforts, including tax return
examination and tax collection activities, with the goal of increasing
individual taxpayer compliance and addressing concerns that we and
others have raised[Footnote 31] regarding the erosion of IRS's
enforcement presence. In estimating the revenue that it would obtain
from the increased funding, IRS accounted for several factors,
including opportunity costs because of training, which draws
experienced enforcement personnel away from the field; differences in
average enforcement revenue obtained per full-time employee by
enforcement activity; and differences in the types and complexity of
cases worked by new hires and experienced hires. IRS forecasted that in
the first year after expanding enforcement activities, the additional
revenue to be collected is less than half the amount to be collected in
later years. This example underscores the logic that if IRS is to
receive a relatively large funding increase, it likely would be better
to provide it in small but steady amounts.
The amount of tax gap reduction likely to be achieved from any budget
increase also depends on how well IRS can use information about
noncompliance to manage the additional resources. Because IRS does not
have compliance data for some segments of the tax gap and others are
based on old data, IRS cannot easily track the extent to which
compliance is improving or declining. IRS also has concerns with its
information on whether taxpayers unintentionally or intentionally fail
to comply with the tax laws. Knowing the reasons for taxpayer
noncompliance can help IRS decide whether its efforts to address
specific areas of noncompliance should focus on nonenforcement
activities, such as improved forms or publications, or enforcement
activities to pursue intentional noncompliance. To the extent that
compliance data are outdated and IRS does not know the reason for
taxpayer noncompliance, IRS may be less able to target resources
efficiently to achieve the greatest tax gap reduction at the least
taxpayer burden.
IRS has taken important steps to better ensure efficient allocation and
use. For example, the NRP study has provided better data on which
taxpayers are most likely to be noncompliant. IRS is using the data to
improve its audit selection processes in hopes of reducing the number
of audits that result in no change, which should reduce unnecessary
burden on compliant taxpayers and increase enforcement staff
productivity (as measured by direct enforcement revenue).
As part of an effort to make the best use of its enforcement resources,
IRS has developed rough measures of return on investment in terms of
tax revenue that it assesses from uncovering noncompliance. Generally,
IRS cites an average return on investment for enforcement of 4:1, that
is, IRS estimates that it collects $4 in revenue for every $1 of
funding. Where IRS has developed return on investment estimates for
specific programs, it finds substantial variation depending on the type
of enforcement action. For instance, the ratio of estimated tax revenue
gains to additional spending for pursuing known individual tax debts
through phone calls is 13:1, versus a ratio of 32:1 for matching the
amount of income taxpayers report on their tax returns to the income
amounts reported on information returns. In addition to returns on
investment estimates being rough, IRS lacks information on the
incremental returns on investment from pursuing the "next best case"
for some enforcement programs. It is the marginal revenue gain from
these cases that matters in estimating the direct revenue from expanded
enforcement. Developing such measures is difficult because of
incomplete information on all the costs and all the tax revenue
ultimately collected from specific enforcement efforts. Because IRS's
current estimates of the revenue effects of additional funding are
imprecise, the actual revenue that might be gained from expanding
different enforcement efforts is subject to uncertainty.
Given the variation in estimated returns on investment for different
types of IRS compliance efforts, the amount of tax gap reduction that
may be achieved from an increase in IRS's resources would depend on how
IRS allocates the increase. Although it might be tempting to allocate
resources heavily toward areas with the highest estimated return,
allocation decisions must take into account diverse and difficult
issues. For instance, although one enforcement activity may have a high
estimated return, that return may drop off quickly as IRS works its way
through potential noncompliance cases. In addition, IRS dedicates
examination resources across all types of taxpayers so that all
taxpayers receive some signal that noncompliance is being addressed.
Further, issues of fairness can arise if IRS focuses its efforts only
on particular groups of taxpayers.
Beyond direct tax revenue collection, expanded enforcement efforts
could reduce the tax gap even more, as widespread agreement exists that
IRS enforcement programs have an indirect effect through increases in
voluntary tax compliance.[Footnote 32] The precise magnitude of the
indirect effects of enforcement is not known with a high level of
confidence given challenges in measuring compliance; developing
reasonable assumptions about taxpayer behavior; and accounting for
factors outside of IRS's actions that can affect taxpayer compliance,
such as changes in tax law. However, several research studies have
offered insights to help better understand the indirect effects of IRS
enforcement on voluntary tax compliance and show that they could exceed
the direct effect of revenue obtained.[Footnote 33]
Concluding Observations:
When taxpayers do not pay all of their taxes, honest taxpayers carry a
greater burden to fund government programs and the nation is less able
to address its long-term fiscal challenges. Thus, reducing the tax gap
is important, even though closing the entire tax gap is neither
feasible nor desirable because of costs and intrusiveness. All of the
approaches I have discussed have the potential to reduce the tax gap
alone or in combination, and no single approach is clearly and always
superior to the others. As a result, IRS needs a strategy to attack the
tax gap on multiple fronts with multiple approaches.
Mr. Chairman and Members of the Committee, this concludes my testimony.
I would be happy to answer any question you may have at this time.
Contact and Acknowledgments:
For further information on this testimony, please contact Michael
Brostek on (202) 512-9110 or brostekm@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this testimony. Individuals making key contributions
to this testimony include Tom Short, Assistant Director; Jeff Arkin;
and Elizabeth Fan.
FOOTNOTES
[1] Throughout this statement, references to the tax gap refer to the
gross tax gap unless otherwise noted.
[2] Information reporting involves the filing of information returns
with IRS and taxpayers that contain information on certain
transactions, such as wage and salary information employers report to
employees and IRS through Form W-2.
[3] An example of tax withholding is when employers withhold taxes on
the wages that employees earn and remit them to IRS.
[4] GAO, Tax Compliance: Opportunities Exist to Reduce the Tax Gap
Using a Variety of Approaches, GAO-06-1000T (Washington, D.C.: July 26,
2006); Tax Gap: Making Significant Progress in Improving Tax Compliance
Rests on Enhancing Current IRS Techniques and Adopting New Legislative
Actions, GAO-06-453T (Washington, D.C.: Feb. 15, 2006); Tax Gap:
Multiple Strategies, Better Compliance Data, and Long-Term Goals Are
Needed to Improve Taxpayer Compliance, GAO-06-208T (Washington, D.C.:
Oct. 26, 2005); Tax Compliance: Better Compliance Data and Long-term
Goals Would Support a More Strategic IRS Approach to Reducing the Tax
Gap, GAO-05-753 (Washington, D.C.: July 18, 2005); and Tax Compliance:
Reducing the Tax Gap Can Contribute to Fiscal Sustainability but Will
Require a Variety of Strategies, GAO-05-527T (Washington, D.C.: Apr.
14, 2005).
[5] Taxpayers who receive filing extensions, pay their full tax
liability by payment due dates, and file returns prior to extension
deadlines are considered to have filed on time.
[6] For these types of noncompliance, IRS maintains that the data are
either difficult to collect, imprecise, or unavailable.
[7] For a more detailed discussion about data sources and methodologies
used in estimating the tax gap, see GAO-05-753.
[8] In some instances, the amount of the tax gap can change without a
corresponding change in the level of compliance. For example, a
reduction in marginal tax rates could result in a smaller tax gap even
if the level of compliance remains unchanged because the amount of
taxes that should be paid has been reduced. The tax gap would also tend
to increase over time, even if the rate of taxpayer compliance remained
unchanged, because of inflation.
[9] GAO, Internal Revenue Service: Assessment of the Interim Results of
the 2006 Filing Season and Fiscal Year 2007 Budget Request, GAO-06-499T
(Washington, D.C.: Apr. 27, 2006).
[10] GAO-05-753.
[11] GAO, Student Aid and Postsecondary Tax Preferences: Limited
Research Exists on the Effectiveness of Tools to Assist Students and
Families through Title IV Student Aid and Tax Preferences, GAO-05-684
(Washington, D.C.: July 29, 2005).
[12] GAO, Paid Tax Return Preparers: In a Limited Study, Chain
Preparers Made Serious Errors, GAO-06-563T (Washington, D.C.: Apr. 4,
2006).
[13] U.S. Congress, Joint Committee on Taxation, Study of the Overall
State of the Federal Tax System, vol. II, 125-6 (April 2001).
[14] IRS measured the extent of noncompliance with the earned income
tax credit in a study separate from NRP.
[15] GAO-06-208T.
[16] Internal Revenue Service, Taxpayer Advocate Service, National
Taxpayer Advocate 2004 Annual Report to Congress (Washington, D.C.:
Dec. 31, 2004).
[17] See GAO, Tax Administration: Erroneous Dependent and Filing Status
Claims, GAO/GGD-93-60, (Washington, D.C: Mar.19, 1993).
[18] Pub. L. No. 108-311 (2004).
[19] See Nina E. Olson, "Uniform Qualifying Child Definition:
Uniformity for Most Taxpayers," Tax Notes, (April 10, 2006), 225-228;
and John Buckley, "Uniform Definition of a Child: Large Unintended
Consequences," Tax Notes, (March 20, 2006), 1345-1349.
[20] The Congressional Budget and Impoundment Control Act of 1974, Pub.
L. No. 93-344, § 3, 88 Stat. 299 (July 12, 1974) (codified at 2 U.S.C.
§ 622(3)).
[21] GAO, Government Performance and Accountability: Tax Expenditures
Represent a Substantial Federal Commitment and Need to Be Reexamined,
GAO-05-690 (Washington, D.C.: Sept. 23, 2005).
[22] The tax gap for underreported individual income taxes exceeded
$150 billion for tax year 2001. However, IRS does not have data on how
much of this noncompliance arose because of complexity.
[23] For example, in a 2004 report, the National Audit Office in the
United Kingdom reported on the 15.7 percent gap for the value added
tax, which was introduced three decades earlier.
[24] GAO, Capital Gains Tax Gap: Requiring Brokers to Report Securities
Cost Basis Would Improve Compliance if Related Challenges Are
Addressed, GAO-06-603 (Washington, D.C.: June 13, 2006).
[25] GAO, Tax Administration: Approaches for Improving Independent
Contractor Compliance, GAO/GGD-92-108 (Washington, D.C.: July 23,
1992).
[26] Taxpayer Relief Act of 1997, Pub. L. No. 105-34 (1997).
[27] Nonfarm proprietors are self-employed individuals other than
farmers who should file Schedule C with their individual tax returns to
report profits and losses from their businesses. Sole proprietors
include those who provide services, such as doctors or accountants;
produce goods, such as manufacturers; and sell goods at fixed
locations, such as car dealers and grocers. Informal suppliers are sole
proprietors who work alone or with few workers and, by definition,
operate in an informal manner. Informal suppliers include those who
make home repairs, provide child care, or sell goods at roadside
stands. These taxpayers should report business profits or losses on
Schedule C.
[28] Commissioner of Internal Revenue Charles O. Rossotti, Report to
the IRS Oversight Board: Assessment of IRS and the Tax System, October
2002.
[29] The overall tax gap has many components. Thus, if the tax gap in a
specific area is reduced either through congressional actions like
simplifying provisions or through IRS actions, the size of the overall
gap may not be reduced if other portions of the gap increase.
[30] GAO, Tax Administration: IRS Measures Could Provide a More
Balanced Picture of Audit Results and Costs, GAO/GGD-98-128
(Washington, D.C.: June 23, 1998).
[31] GAO issued a number of products regarding the erosion of IRS's
enforcement presence and a continued growth in noncompliance. For
examples, see GAO, Tax Administration: Impact of Compliance and
Collection Program Declines on Taxpayers, GAO-02-674 (Washington, D.C.:
May 22, 2003); High Risk Series: An Update, GAO-05-207 (Washington,
D.C.: January 2005); and our tax gap products cited earlier in this
statement, GAO-06-1000T, GAO-06-453T, GAO-06-208T, GAO-05-753, and GAO-
05-527T.
[32] Two types of indirect effect are (1) the increase in voluntary
compliance in the larger population resulting from examinations or
other enforcement and nonenforcement actions on targeted taxpayers, and
(2) the increase in voluntary compliance of the targeted taxpayer in
subsequent years.
3] Economists have estimated the indirect effect of an examination on
voluntary compliance to range from 6 to 12 times the amount of proposed
tax adjustments. See Alan H. Plumley, The Determinants of Individual
Income Tax Compliance: Estimating The Impacts of Tax Policy,
Enforcement, and IRS Responsiveness, Publication 1916 (Rev. 11-96)
(Washington, D.C.: November 1996), 2, 35-36; Jeffrey A. Dubin, Michael
J. Graetz, and Louis L. Wilde, "The Effect of Audit Rates on the
Federal Individual Income Tax, 1977-1986," 43 National Tax Journal,
(1990), 395, 396, 405; and Jeffrey A. Dubin, "Criminal Investigation
Enforcement Activities and Taxpayer Noncompliance" (paper written for
the IRS Research Conference, June 2004), [Hyperlink,
http://www.irs.gov/pub/irs-soi/04dubin.pdf] (downloaded July 1, 2005).
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