Summary
Reported declines in the rate at which the Internal Revenue Service (IRS) audits (also referred to as "examines") individual income tax returns have raised concerns that taxpayers may have a false perception of the true level of IRS's tax enforcement efforts. In addition, many observers are concerned these reported declines may reduce taxpayers' motivation to voluntarily pay their taxes. Because of these concerns, GAO was asked to review a number of issues surrounding IRS's enforcement efforts. GAO determined the trends in the percent of returns filed that are audited (contact rate) compared with similar data on taxpayer contacts through other enforcement programs for fiscal years 1993 through 2002. In addition, GAO reviewed whether IRS's reporting on its enforcement programs should be expanded.
IRS's often-cited audit rate has been declining for several years, as shown below. However, the audit rate portrays only a portion of IRS's efforts to enforce tax laws and not all of those efforts have been declining. For IRS's three nonaudit enforcement programs, the contact rates in 2002 compared to 1993, after year to year variations, declined for one, essentially remained the same for one, and significantly increased for one--math error. A complete math error contact trend is unavailable because IRS did not capture one type of data on a substantial number of contacts prior to 1997. For years where complete data are available, IRS has not included all math errors in external reports. IRS officials agreed that all types of errors are identified under the same math error authority and should be similarly counted and reported. IRS annually reports extensive data on audits but only limited, or no, data on its other enforcement programs. This limited reporting does not provide policymakers or taxpayers information on the full extent of IRS's enforcement efforts. To the extent that taxpayers do, as is widely believed, take the level of enforcement into account when self-reporting their tax obligations, the audit rate alone may mislead them. IRS officials believe that more reporting is desirable and intend to report readily available, but incomplete, information on nonaudit programs in future reports.
Recommendations
Our recommendations from this work are listed below with a Contact for more information. Status will change
from "In process" to "Implemented" or "Not implemented" based on our follow up work.
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Recommendations for Executive Action
Recommendation: The Acting Commissioner of Internal Revenue should determine whether additional data on each nonaudit program can be cost effectively extracted or collected to make future annual reporting on enforcement programs more complete and comparable.
Agency Affected: Department of the Treasury: Internal Revenue Service
Status: Implemented
Comments: IRS has determined that it could cost-effectively provide some more data in its annual report (databook) on math errors, automated substitute for return, and the automated underreporter program. The fiscal year 2003 edition adds a table 26 to provide this data.
Recommendation: The Acting Commissioner of Internal Revenue should provide information on all types of math error contacts when publishing data on IRS's math error program.
Agency Affected: Department of the Treasury: Internal Revenue Service
Status: Implemented
Comments: In the year following publication of GAO's report, IRS' annual Data Book included an analysis of Math Error contacts by type of error including masterfile math errors.
