Tax Administration: Computer Matching Could Identify Overstated Business Deductions
GGD-93-133
Published: Aug 13, 1993. Publicly Released: Sep 16, 1993.
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Highlights
Pursuant to a congressional request, GAO provided information on small corporations' deduction reporting and the potential benefits the Internal Revenue Service (IRS) could achieve if it implemented a reverse matching program.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Internal Revenue Service | The Commissioner of Internal Revenue should do a limited test of a reverse matching program for wages. If the test proves cost-effective, a full-scale program should be developed. |
IRS has been trying to test reverse matching for wages. However, the testing is a low priority and IRS is completely revising its approach for modernizing its computer systems. Given a number of high priorities and resource limitations, IRS will not be acting on this recommendation in the near future. As a result, in combination with the age of the recommendation, GAO is closing it.
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| Internal Revenue Service | If businesses are required to begin filing information returns on service payments to corporations or on bad debts, the Commissioner of Internal Revenue should do a limited test of reverse matching programs for these deductions. If they prove cost-effective, full-scale programs should be developed. |
Information reporting for service payments made to corporations has not been implemented. It is unlikely to be implemented in the current environment. IRS has recently implemented information reporting for bad debts, but has no plans to test reverse matching for bad debts. As a result, GAO is closing this recommendation.
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| Internal Revenue Service | The Commissioner of Internal Revenue should, when implementing Tax Systems Modernization, consider what actions are necessary to overcome the limitations to reverse matching programs for other deductions, such as pensions, rents, and interest. |
Given that IRS has changed its approach for modernizing the tax systems and has no plans for using this form of reverse matching for these deductions, GAO does not plan to continue tracking this recommendation.
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Topics
Computer matchingCorporationsGovernment collectionsIncome taxesPayroll recordsReporting requirementsTax administration systemsTax returnsTax violationsVoluntary compliance