Treasury Inspector General for Tax Administration

Press Release

April 21, 2011
TIGTA - 2011-21
Contact: Karen Kraushaar
(202) 622-6500
karen.kraushaar@tigta.treas.gov
TIGTACommunications@tigta.treas.gov

TIGTA: IRS Should Collect More Accurate Return Information From Government Entities

WASHINGTON – Although government entities as a whole are more compliant than the general taxpaying population in submitting accurate information returns, additional steps by the Internal Revenue Service (IRS) could further enhance Federal, State and local government compliance with the tax laws.

That is the conclusion of a new report released today by the Treasury Inspector General for Tax Administration (TIGTA).

Accurate information returns reporting is central to the success of the Nation’s voluntary system of tax compliance because it allows the IRS to verify that taxpayers properly report income and expense items on their tax returns. Returns with errors – invalid payee data, missing or mismatched names and Taxpayer Identification Numbers – greatly impair the IRS’s ability to conduct this verification.

“Given the importance of collecting the correct amount of tax revenue for government operations, government entities are expected to set a near-perfect example of submitting information returns with accurate information,” said J. Russell George, the Treasury Inspector General for Tax Administration. “If the IRS will take additional steps to ensure accuracy in this area, enhanced compliance will help government entities do their part to chip away at the Tax Gap.”

The Tax Gap is the difference between what taxpayers should have paid and what they actually pay on a timely basis. It was estimated at $345 billion in 2001, the most recent year the IRS estimated its size.

TIGTA’s audit was performed to determine the extent to which governmental entities are submitting accurate information returns and whether additional steps are needed to further enhance compliance with reporting requirements. TIGTA found that a relatively small number of government entities (75 of 85,139) were responsible for nearly one-half (48 percent) of the inaccuracies. In addition, most of the inaccuracies were limited to very specific types of information returns. TIGTA also found that the selection criteria used by the IRS to select entities for compliance activities focus on the overall percentage of inaccurate returns, rather than the total number of inaccurate information returns submitted.

TIGTA recommended:

That the IRS expand the criteria used to select government entities for compliance activities to include the volume of inaccurate information returns; and
That compliance activities for entities selected based on the volume of inaccurate returns not be closed until IRS personnel assess the reasons for the inaccuracies and determine any corrective actions that should be taken, thoroughly documenting these assessments in the compliance case files.

IRS officials agreed with the recommendations and stated that corrective actions have been taken.

To review the report, including the scope, methodology, and IRS response go to: http://www.treas.gov/tigta/auditreports/2011reports/201130019fr.pdf.

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