Tax Administration:

New Compliance Research Effort Is on Track, but Important Work Remains

GAO-02-769: Published: Jun 27, 2002. Publicly Released: Jul 30, 2002.

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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.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: The Commissioner of Internal Revenue should ensure that testing and modification of NRP casebuilding and classification procedures is complete before IRS begins cadre training, classifying NRP returns, or making any taxpayer contacts. IRS should use some previously audited, non-Earned Income Tax Credit tax returns to evaluate NRP classification procedures and classifier training.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: GAo reported in June 2003 (GAO-03-614) that IRS completed National Research Program (NRP) procedures testing prior to full NRP implementation and used some previously audited tax returns as part of its procedures testing.

    Recommendation: The Commissioner of Internal Revenue should implement plans to select and appropriately train the cadre of examiners and other staff before NRP classification begins.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: GAO reported in June 2003 (GAO-03-614) that the timing of IRS' National Research Program (NRP) staff selection and training fit the conclusion and recommendation in its 2002 report that IRS should implement plans to select and appropriately train the staff charged with carrying out NRP before commencing a key implementation step.

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