Tax Gap:

Many Actions Taken, But a Cohesive Compliance Strategy Needed

GGD-94-123: Published: May 11, 1994. Publicly Released: May 11, 1994.

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Pursuant to a congressional request, GAO reviewed the Internal Revenue Service's (IRS) and Congress' efforts to reduce the income tax gap.

GAO found that: (1) the annual gross income tax gap has increased despite efforts to reduce it; (2) Congress has subjected more income and deductions to information returns reporting, increased penalties for noncompliance, and given IRS additional funds for specific compliance initiatives; (3) IRS has not increased its enforcement actions because of a decline in its enforcement staff and budget shortfalls that required reallocation of funds to nonenforcement efforts; (4) IRS is reorganizing its business operations and implementing further initiatives, but it does not know whether resources can be retained for enforcement actions; (5) IRS noncompliance data will not be available for several years but, in the interim, IRS could concentrate its enforcement resources on highly noncompliant taxpayers; (6) IRS should maintain its audit coverage, do more computer matching, ensure that information returns are filed timely and accurately, and improve its collection resources; (7) Congress should require withholding on payments to independent contractors, simplify the definition of independent contracts, require information reporting on payments made to corporations for services, and require more data on capital gains information returns; (8) Congress should allow IRS to reinvest productivity gains from its systems modernization projects in its compliance enforcement activities; and (9) IRS should improve its records and review tax returns to determine whether it is capturing all necessary tax data effectively.

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