Tax Administration:

Compliance and Other Issues Associated With Occupational Excise Taxes

GGD-86-49: Published: Jun 5, 1986. Publicly Released: Jun 5, 1986.

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GAO reviewed the effectiveness of the Bureau of Alcohol, Tobacco and Firearms (BATF) and the Internal Revenue Service (IRS) in imposing occupational excise taxes on businesses and individuals in the alcohol, wagering, and firearms industries.

GAO found that: (1) BATF initiated a special tax collection program to increase compliance and tax collections from retail alcohol establishments; (2) BATF drafted a bill that would restrict wholesalers' sales of alcohol to those retailers that have paid their occupational taxes; (3) IRS could use information from states that license wagering establishments to assess compliance by businesses with the occupational tax and to determine compliance with filing requirements; (4) an information reporting requirement exists that would identify individuals liable for the occupational tax; and (5) a reevaluation of the provision allowing tax-free weapon transfers between occupational taxpayers may be needed.

Matters for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: Due to the sensitivity of the issue and strong opposition from the National Rifle Association lobby, congressional action is unlikely in the near future.

    Matter: An incentive exists for individuals to obtain National Firearms Act (NFA) dealer status to avoid the per-weapon transfer tax. Whether the incentive is reduced or eliminated is a policy issue Congress may wish to address.

  2. Status: Closed - Not Implemented

    Comments: Congress has no immediate plans to act on this recommendation. BATF, incidentally, opposes the repeal of these taxes.

    Matter: Congress should consider any effect repeal of the taxes might have on BATF criminal enforcement efforts.

  3. Status: Closed - Implemented

    Comments: Congress appropriated an additional $500,000 and authorized an additional 86 positions for BATF to expand its enforcement efforts and improve taxpayers' compliance.

    Matter: If Congress chooses not to repeal the alcohol occupational taxes, it may wish to consider legislation to improve compliance.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: BATF took action to obtain new license information to identify businesses which may be liable for federal tax. Any mismatches will be allocated between BATF and the states for follow-up purposes. BATF determined that this action was responsive to the recommendation and, therefore, the recommendation was closed.

    Recommendation: The Director, BATF, should arrange for state and local alcoholic beverage licensing agencies to provide BATF with the names of new licensees and advise the licensees by telephone or correspondence of their federal tax liabilities.

    Agency Affected: Department of the Treasury: Bureau of Alcohol, Tobacco, and Firearms

  2. Status: Closed - Not Implemented

    Comments: IRS believes that this proposal would not have a significant enough impact on compliance to justify implementation. IRS believes resources should be spent in other areas of low compliance and, therefore, does not intend to implement this recommendation. Although GAO continues to believe that it has merit, the issue is not significant enough to keep this recommendation open.

    Recommendation: The Commissioner of Internal Revenue should obtain gambling license data from the states where gambling activities subject to the wagering taxes are authorized, and match it with the yearly occupational tax payment records and the tax on gross-wagers payment records to identify noncompliant taxpayers for follow-up potential.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Closed - Not Implemented

    Comments: IRS believes that this recommendation would have little, if any, benefit to the criminal investigation function or other areas of IRS. IRS contends that most of the wagering investigations result from its case development efforts and sophisticated and large-scale operations. IRS does not intend to take any action. GAO does not consider the issue significant enough to keep this recommendation open.

    Recommendation: The Commissioner of Internal Revenue should compare tax on gross-wagers payment records with the yearly occupational tax payment records for businesses in states which do not license establishments subject to the taxes to identify potential noncompliant taxpayers for follow-up.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  4. Status: Closed - Not Implemented

    Comments: IRS does not plan to take action on this recommendation. It stated that the taxpayers who are investigated by IRS for wagering violations overwhelmingly fail to file other returns. GAO continues to believe that IRS should address this noncompliance problem, but does not consider the issue significant enough to keep this recommendation open.

    Recommendation: The Commissioner of Internal Revenue should match the names of employees and agents listed on the employers' occupational tax returns with occupational tax payment records to identify for follow-up potential noncompliant taxpayers, and should enforce the requirement that employers list employees and agents on their occupational tax returns.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  5. Status: Closed - Implemented

    Comments: BATF is preparing a press release to inform former NFA dealers of the possible consequences of state law should they continue to possess NFA weapons after their status as a dealer lapses.

    Recommendation: The Director, BATF, should inform former NFA dealers who currently possess NFA weapons that such possession may be in violation of the laws of their respective jurisdictions.

    Agency Affected: Department of the Treasury: Bureau of Alcohol, Tobacco, and Firearms

  6. Status: Closed - Implemented

    Comments: BATF revised BATF Form 5630.5 and the standard letter sent to new applicants to inform current NFA dealers and applicants of potential law violations.

    Recommendation: The Director, BATF, should develop a means for informing current NFA dealers and those that apply for NFA dealer status that, should they discontinue their status as NFA dealers, the retention of NFA weapons as a private citizen may be a violation of the laws of their respective jurisdictions.

    Agency Affected: Department of the Treasury: Bureau of Alcohol, Tobacco, and Firearms

  7. Status: Closed - Not Implemented

    Comments: IRS does not intend to take any action because it believes that any resulting savings from its implementation would be negligible. It also contended that such a change would create taxpayer uncertainty, break established filing habits, and affect IRS ability to identify those trends, patterns, and nonfilers. GAO does not consider the issue significant enough to keep this recommendation open.

    Recommendation: To reduce the costs of administering the tax on gross wagers, the Commissioner of Internal Revenue should revise the filing requirement for the tax on gross wagers so that monthly returns will not be required unless an established dollar threshold is met.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  8. Status: Closed - Implemented

    Comments: BATF asked IRS to perform an automated comparison of a limited number of PIA codes against IRS database special occupational taxpayers. This comparison was completed in November 1986. Results were analyzed and BATF decided that PIA codes were unworkable, therefore, it went to the states and obtained a listing of licenses issued. This listing will be matched with the one showing paid taxes.

    Recommendation: The Director, BATF, should identify for follow-up potentially noncompliant retail alcohol establishments by arranging for IRS to match occupational tax payment data with businesses classified under selected principal industry activity (PIA) codes.

    Agency Affected: Department of the Treasury: Bureau of Alcohol, Tobacco, and Firearms

 

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