Tax Policy:

Status of IRS' Studies of the Refund Offset Program

GGD-89-60: Published: Apr 25, 1989. Publicly Released: Apr 25, 1989.

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Pursuant to a legislative requirement, GAO studied the effects of the Internal Revenue Service's (IRS) Refund Offset Program on voluntary tax compliance, focusing on: (1) IRS improvements to its methodology; and (2) ways to make future studies more precise.

GAO found that: (1) IRS improved its studies of the effects of offsetting refunds on taxpayer compliance by incorporating previous filing behavior into its analysis to establish patterns to compare with post-offset filing patterns; (2) the IRS methodology was limited because it did not consider whether the offset and control groups exhibited similar taxpayer compliance characteristics before the offsets; (3) although IRS improved the quality of its study data and its documentation of study programming requirements, some limitations remained; (4) although IRS matched its offset and control groups on some tax characteristics, there was a risk of bias in its findings because it did not account for all relevant preexisting differences; and (5) IRS did not use updated information to measure the level of IRS enforcement action required to make taxpayers compliant and to assess whether noncompliance was temporary or permanent.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The IRS April 1989 report was controlled for prior tax-delinquent behavior. IRS has incorporated characteristics such as age and geographic location in follow-on studies. IRS has issued its report on the Impact of Nontax Refund Offsets of Voluntary Compliance in October 1992 (Revised February 1993). In this report IRS did attempt to control for certain nontax characteristics, as GAO recommended.

    Recommendation: To improve future IRS studies of the effect of the Refund Offset Program on compliance with tax laws, the Acting Commissioner of Internal Revenue should make the offset and control groups as comparable as possible. The studies should statistically control for prior tax-delinquent behavior and nontax characteristics, such as age and geographic location.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Not Implemented

    Comments: IRS disagrees with the recommendation and plans no action. IRS does not see the need to use updated taxpayer information because it believes its definition of noncompliance is consistent.

    Recommendation: To improve future studies of the effect of the Refund Offset Program on compliance with tax laws, the Acting Commissioner of Internal Revenue should incorporate the most current taxpayer information. This will result in a better understanding of the magnitude of any noncompliance problem, enable IRS to measure the level of enforcement actions required to make taxpayers compliant, and provide a better basis to analyze the temporary versus permanent nature of compliance.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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