Tax Administration:

IRS Needs More Reliable Information on Enforcement Revenues

GGD-90-85: Published: Jun 20, 1990. Publicly Released: Jul 19, 1990.

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Pursuant to a congressional request, GAO reviewed the Internal Revenue Service's (IRS) revenue estimates generated by its various enforcement programs, focusing on: (1) overall IRS enforcement revenue estimates; (2) IRS budget estimates for collection and document matching programs; (3) the IRS Enforcement Resource Allocation Model (ERAM); and (4) IRS efforts to develop more reliable data on the results of its enforcement actions.

GAO found that: (1) IRS has recognized the need for a better management information system on the costs and revenues associated with its enforcement programs, but has made little progress in developing one; (2) IRS does not know how much revenue its enforcement program actually generates; (3) large discrepancies in two major IRS enforcement programs were attributable to uncertainty about actual revenues and insufficient information on how IRS made revenue projections; (4) improved data on actual revenues and sufficient data linking staffing and results could enhance the estimation process; (5) there was inadequate documentation to assess the reasons for variances between estimated and actual underreporter revenues; (6) IRS was not using ERAM as intended, and the agencies involved did not use ERAM because of their concern over its reliability; and (7) IRS does not know whether the planned information system will provide the comprehensive data needed to meet its objectives.

Matters for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: The Senate Budget Committee sent a letter to IRS on September 19, 1991, asking for information that will enable it to provide such oversight, closing out the recommendation as it applies to all four committees because some form of congressional oversight will have been achieved.

    Matter: The Senate and House Budget and Appropriations Committees should closely oversee IRS progress in improving its enforcement revenue data. In doing so, the Committees may wish to require IRS to provide detailed plans and milestones and periodic status reports.

  2. Status: Closed - Implemented

    Comments: The Senate Budget Committee sent a letter to IRS on September 10, 1991, asking for information that will enable it to provide such oversight, closing out the recommendation as it applies to all four committees, because some form of congressional oversight will have been achieved.

    Matter: The Senate and House Budget and Appropriations Committees should closely oversee IRS progress in improving its enforcement revenue data. In doing so, the Committees may wish to require IRS to provide detailed plans and milestones and periodic status reports.

  3. Status: Closed - Implemented

    Comments: The Senate Budget Committee sent a letter to IRS on September 10, 1991, asking for information that will enable it to provide such oversight, closing out the recommendation as it applies to all four committees, because some form of congressional oversight will have been achieved.

    Matter: The Senate and House Budget and Appropriations Committees should closely oversee IRS progress in improving its enforcement revenue data. In doing so, the Committees may wish to require IRS to provide detailed plans and milestones and periodic status reports.

  4. Status: Closed - Implemented

    Comments: The Senate Budget Committee sent a letter to IRS on September 10, 1991 asking for information that will enable it to provide the kind of congressional oversight intended by this recommendation.

    Matter: The Senate and House Budget and Appropriations Committees should closely oversee IRS progress in improving its enforcement revenue data. In doing so, the Committees may wish to require IRS to provide detailed plans and milestones and periodic status reports.

  5. Status: Closed - Implemented

    Comments: While congressional members considered conservative revenue assumptions during the budget debate, they ultimately approved the high revenue estimates proposed by IRS because they were under intense pressure to raise the maximum amount of revenue.

    Matter: Until more reliable data are available, the Senate and House Budget and Appropriations Committees should use conservative revenue assumptions in deliberating on future enforcement staffing increases, including those being proposed for fiscal year (FY) 1991.

  6. Status: Closed - Implemented

    Comments: While congressional members considered conservative revenue assumptions during the budget debate, they ultimately approved the high revenue estimates proposed by IRS because they were under intense pressure to raise the maximum amount of revenue.

    Matter: Until more reliable data are available, the Senate and House Budget and Appropriations Committees should use conservative revenue assumptions in deliberating on future enforcement staffing increases, including those being proposed for fiscal year (FY) 1991.

  7. Status: Closed - Implemented

    Comments: While congressional members considered conservative revenue assumptions during the budget debate, they ultimately approved the high revenue estimates proposed by IRS because they were under intense pressure to raise the maximum amount of revenue.

    Matter: Until more reliable data are available, the Senate and House Budget and Appropriations Committees should use conservative revenue assumptions in deliberating on future enforcement staffing increases, including those being proposed for fiscal year (FY) 1991.

  8. Status: Closed - Implemented

    Comments: While congressional members considered conservative revenue assumptions during the budget debate, they ultimately approved the high revenue estimates proposed by IRS because they were under intense pressure to raise the maximum amount of revenue.

    Matter: Until more reliable data are available, the Senate and House Budget and Appropriations Committees should use conservative revenue assumptions in deliberating on future enforcement staffing increases, including those being proposed for fiscal year (FY) 1991.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: IRS has made substantial progress in developing and implementing a management information system that should generate improved revenue data, including information on actual revenues. GAO fully expects that, once that system is implemented and has generated sufficient data, IRS will use the output to upgrade the data it provides Congress.

    Recommendation: The Secretary of the Treasury should direct IRS to provide Congress with information on the actual revenues generated by IRS enforcement programs as soon as it becomes available.

    Agency Affected: Department of the Treasury

  2. Status: Closed - Implemented

    Comments: According to IRS, the recommendation was implemented when the decision was reached to link enforcement functions' databases to date on IRS master files through the Enforcement Management Information System.

    Recommendation: The Secretary of the Treasury should direct IRS and the Office of Tax Analysis to identify the most reliable methodology for estimating actual enforcement revenues.

    Agency Affected: Department of the Treasury

  3. Status: Closed - Implemented

    Comments: Since issuance of this report, IRS has provided more reliable revenue estimates in support of proposed enforcement staffing increases. IRS has also been developing a management information system that should provide improved revenue data and facilitate even more reliable estimates. GAO fully expects IRS to link the revenue data--once available--to proposed staffing increases.

    Recommendation: The Secretary of the Treasury should direct IRS to explore ways to link improved revenue data with proposed staffing increases to ultimately provide Congress with more reliable estimates of revenue expected from those increases.

    Agency Affected: Department of the Treasury

  4. Status: Closed - Implemented

    Comments: IRS has made some modifications to its definition of collection revenues and is considering further refinements. An IRS study group reviewed and recommended changes to improve the accuracy of the revenue information in the report that Collection uses to determine the yield attributed to its activities. Enough action has been taken to warrant closing this recommendation.

    Recommendation: The Commissioner of Internal Revenue should develop actual data on collection revenues by defining revenues to be attributed to collection activities.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  5. Status: Closed - Implemented

    Comments: IRS says that this recommendation has been implemented and, on that basis, it is being closed. GAO has not yet had an opportunity to validate the corrective action.

    Recommendation: The Commissioner of Internal Revenue should develop actual data on collection revenues by developing a database that records for each collection case the revenues resulting from that case and the staffing applied to it.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  6. Status: Closed - Implemented

    Comments: A methodology was developed which, according to IRS, includes, among other things, a model that will use more discrete data in developing collection estimates.

    Recommendation: To improve estimates of future revenues, the Commissioner of Internal Revenue should develop and document a consistent methodology for reviewing historical trends, incorporating anticipated program changes, and estimating revenues in the collection function.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  7. Status: Closed - Implemented

    Comments: IRS considers this recommendation implemented. During recent audit work, GAO found that documentation did exist but it was erroneous. Only through interviews was GAO able to get correct information.

    Recommendation: To improve estimates of future revenues, the Commissioner of Internal Revenue should fully document the data used in applying the methodology, including the trend analyses performed and the assumptions underlying those estimates, and the results therefrom.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  8. Status: Closed - Implemented

    Comments: IRS has implemented an approach that involves using Collection research file data to validate assumptions, designing a model that will use more discrete data in developing estimates, hiring an analyst to focus on developing a statistically sound estimating technique, and exploring the use of statistical scores to improve estimates of marginal yield. GAO has not assessed the adequacy of IRS action.

    Recommendation: To improve estimates of future revenues, the Commissioner of Internal Revenue should monitor estimates against actual results over time, using the most reliable data on actual results available, to assess the causes of any significant discrepancies, and to identify any adjustments needed in assumptions or methodology.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  9. Status: Closed - Implemented

    Comments: IRS stated that it has implemented an improved documentation methodology which includes assumptions underlying the revenue projection model and analyses of past case results. Although GAO has not assessed the adequacy of IRS actions, it is categorizing the recommendation as implemented.

    Recommendation: The Commissioner of Internal Revenue should fully document its Information Returns Programs (IRP) underreporter revenue estimates, including documentation of any analyses used to estimate future revenues and all other assumptions underlying the estimates.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  10. Status: Closed - Implemented

    Comments: According to IRS, it is now receiving more timely monthly extracts of actual underreporter case results. Although it is not clear how those results are actually being fed back into the estimating methodology, GAO is considering this recommendation implemented.

    Recommendation: The Commissioner of Internal Revenue should monitor actual underreporter results against estimated amounts to identify the causes of discrepancies and any needed changes in the methodology or assumptions used to estimate revenues.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  11. Status: Closed - Implemented

    Comments: According to IRS, it is now receiving more timely monthly extracts of actual underreporter case results. Although it is not clear how those results are actually being fed back into the estimating methodology, GAO is considering this recommendation implemented.

    Recommendation: The Commissioner of Internal Revenue should use actual information, once it is available, to monitor the reliability of IRP underreporter estimates.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  12. Status: Closed - Implemented

    Comments: EMIS is now known as the Enforcement Revenue Information System (ERIS). That system, as it is being implemented, will include all of the data contemplated by this recommendation. While the system is not fully implemented, enough progress has been made to justify closing this recommendation.

    Recommendation: The Commissioner of Internal Revenue should develop a comprehensive strategy for identifying and coordinating the various enforcement revenue projects and integrating their results. As part of the strategy, IRS should ensure that revenue and cost data on all enforcement cases, including collection and IRP cases, are either incorporated into the Enforcement Management Information System (EMIS) database or are linked with EMIS data in a way that avoids double-counting.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  13. Status: Closed - Implemented

    Comments: IRS stated that the Controller is responsible for overseeing development and implementation of a comprehensive strategy for identifying and coordinating various enforcement revenue projects. GAO would be amenable to this level of oversight if it were assured that it is being done effectively. GAO has not done sufficient followup to provide that assurance.

    Recommendation: The Commissioner of Internal Revenue should assign responsibility at the deputy commissioner level for overseeing development and implementation of the strategy.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  14. Status: Closed - Implemented

    Comments: IRS has improved its revenue estimating process and has developed a database--the Enforcement Revenue Information System--that should provide better historical data on actual enforcement results for use in estimating future revenues.

    Recommendation: The Commissioner of Internal Revenue should use the results of its various projects to improve the enforcement revenue-estimating process.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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