Further Research Into Noncompliance Is Needed To Reduce Growing Tax Losses

GGD-82-34: Published: Jul 23, 1982. Publicly Released: Jul 23, 1982.

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The federal government is losing billions of dollars in tax revenues annually because individuals are not complying with U.S. tax laws. There is a growing trend toward disregard for the principle of voluntary tax compliance, a trend which the Internal Revenue Service (IRS) estimates increased tax revenue losses from $12 billion in 1976 to at least $20 billion in 1980.

GAO found that IRS needs more complete information and insight on what makes people willing to comply. Such data are essential to determine the most cost-effective strategy in combating unreported income, the most serious problem confronted by IRS. Until IRS has better compliance data, it should place more emphasis on increasing the tax revenue yield from its various programs. IRS relies on the examination of tax returns as its primary strategy for stimulating compliance, and it has allocated more than one-half of its compliance resources to the examination program. However, the examination program has not stemmed the decline in voluntary compliance. GAO found that the actual effect of the examination program on voluntary compliance is, at best, unclear. The most severe compliance problem involves unreported income, which accounts for almost three-fourths of the estimated tax revenue lost through taxpayer noncompliance. Recent IRS studies of the unreported income problem indicate that even its most intensive examinations were only detecting about 25 percent of the income not reported by those persons audited. Obviously, IRS needs to find out which of its various compliance programs can be brought to bear in dealing with this problem. Allocating resources to obtain maximum revenues would also increase tax revenue in the examination program.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of Internal Revenue should develop additional data so that resources can be allocated among all compliance programs to increase, insofar as practicable, overall tax revenue.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Not Implemented

    Comments: IRS contends that the issue is a policy question and considers it in its regular long range planning and budgetary processing and, therefore, no special action is needed.

    Recommendation: The Commissioner of Internal Revenue should use cost/revenue data to reallocate staff-years from those compliance programs with historically lower average revenue yields to those with much higher yields in order to increase tax revenues from those programs.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of Internal Revenue should design, and assign a high priority to, compliance research which will identify techniques for measuring and analyzing the effects of the compliance programs on both those taxpayers actually contacted and others who might be affected.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  4. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of Internal Revenue should design, and assign a high priority to, compliance research which will provide data on how and why IRS compliance programs, both collectively and individually, affect peoples' willingness and ability to accurately report taxable income and to otherwise comply with the tax laws.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  5. Status: Closed - Not Implemented

    Comments: IRS feels that it is a policy issue which is addressed in its annual planning review process.

    Recommendation: The Commissioner of Internal Revenue should plan and budget within each program to maximize revenue using the best available cost/revenue data.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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