For Immediate Release
April 14, 2009
Media Contact: Joelle Jordan
202-288-3241

IRS Oversight Board Releases Annual Report; Cites Two Major IRS Challenges

(Washington, DC) The IRS Oversight Board Annual Report to Congress 2008 was released today, underscoring two major challenges before the IRS: the annual tax gap and the IRS’ aged information technology system.

The tax gap, the difference between the amount of tax that taxpayers should pay and the amount that is paid voluntarily and on time, was most recently estimated at a net of $290 billion annually.

“The IRS Oversight Board views the $290 billion annual tax gap as unacceptably high,” said Board Chairman Paul Cherecwich. “The tax gap deprives us as citizens of money that is legally owed. This amounts to billions of dollars that could be spent or applied to the deficit each year. It breaks down to over $2,600 per household. Taxpayers expect fairness from the tax administration system, and the tax gap violates that foundational principle of fairness.”

The Oversight Board cites a wide variety of factors that cause the tax gap, including willful non-compliance, unintentional non-compliance, lack of IRS enforcement and service resources, and the complexity of the tax code. Overall, however, taxpayers find non-compliance unacceptable. The Board’s 2008 Taxpayer Attitude Survey indicates that 89 percent of those surveyed think it is “not at all” acceptable to cheat on their taxes – the highest level ever recorded for this question on the survey.

“While there is no simple solution to the tax gap, political will and a collected effort across the board to reduce it is critical,” said Chairman Cherecwich. The Board supports a “multi-faceted and concerted effort by the Administration, Congress, the IRS, third-party stakeholders, and taxpayers to take the necessary actions to close the tax gap.”

The IRS’ second challenge is the “archaic nature of the IRS information technology systems,” according to the Board. It noted that the IRS’ business systems modernization program was designated by the Government Accountability Office (GAO)’s “high risk” list, which identifies government programs that are “vulnerable to fraud, waste, abuse, and mismanagement, as well as, increasingly, areas in need of broad reform” since 1995.

“The GAO placed the IRS BSM program on its high risk list because it believed that the IRS relied on obsolete automated systems for key operational and financial management functions. Unfortunately, that situation has not changed. To the Board, it is unacceptable for this program to remain on the GAO’s high risk list for more than a decade,” the report says.

The Board calls on the IRS, the Administration, and Congress “to agree upon a plan to complete the IRS’ program of technology modernization and transition to a program that allows for steady, evolutionary management of its technology systems.”

The IRS was praised by the Board for implementing last year’s Economic Stimulus Payment program, in which 119 million stimulus checks were distributed to taxpayers. However, the program resulted in reduced service levels, particularly in toll-free telephone service.

“One lesson learned was that our nation‘s tax administration service should not be taken for granted,” the report states.

The complete report is available at www.irsoversightboard.treas.gov.

###