Tax Administration:

IRS' Audit and Criminal Enforcement Rates for Individual Taxpayers Across the Country

GGD-99-19: Published: Dec 23, 1998. Publicly Released: Dec 23, 1998.

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Pursuant to a congressional request, GAO examined: (1) factors that might explain why the Internal Revenue Service's (IRS) audit, criminal investigation initiation, and prosecution referral rates for individual taxpayers differ across the country; (2) rates at which individual taxpayers were audited in IRS' Tennessee-Kentucky district and the South during fiscal years 1992 through 1997 compared to the national average rates; (3) rates at which individual taxpayers were investigated for alleged criminal tax and nontax violations and referred for prosecution in IRS' Tennessee-Kentucky district and the South during fiscal years 1992 through 1997 compared to the national average rates; and (4) controls that IRS has established for its audits, criminal investigations, and prosecution referrals for individual taxpayers and whether these controls were used.

GAO noted that: (1) IRS officials identified several factors to explain variation across the country in audit, criminal investigation initiation, and prosecution referral rates for individual taxpayers; (2) the main factor was that the rates for civil and criminal tax noncompliance vary geographically; (3) that is, neither the types of taxpayers nor their tax behaviors are homogeneous across districts; (4) IRS officials also identified other factors that might affect geographic variation, such as the location of available audit and criminal investigation staff; (5) because a variety of factors can affect the geographic variations in IRS audit, criminal investigation initiation, and prosecution referral rates, comparisons of these rates must be interpreted with caution; (6) some factors fall outside IRS' direct control, such as the location of taxpayers' noncompliant behaviors; (7) other factors are more subject to IRS' control, such as how many auditors and criminal investigators it assigns to a location; (8) GAO was not able to adjust for all such factors in comparing audit, criminal investigation initiation, and prosecution referral rates across locations; (9) had GAO been able to make these adjustments, the results of its comparisons of rates across locations could have been different; (10) for the years 1992 through 1997 combined, the unadjusted audit rate for the Tennessee-Kentucky district was below the national average rate, and the South's rate was approximately at the national average; (11) the 6-year combined criminal investigation initiation and prosecution referral rates for the Tennessee-Kentucky district were below the national averages, and the South's rates were approximately at the national averages; (12) IRS has established controls for its audits, criminal investigations, and prosecution referrals; (13) these controls generally consist of standards to guide audit and investigation behavior, such as how auditors are to gather and document evidence and how criminal investigators are to conduct investigations of alleged criminal tax and nontax violations; (14) the controls also include a series of reviews to check adherence to the standards; (15) GAO could not determine the extent to which IRS has used most of its controls over audits, criminal investigations, and prosecution referrals; and (16) statistics on how often the controls were used are not maintained in any database except for the reviews done at the close of audits to measure adherence to the audit standards.

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