Tax Administration:

Taxpayer Rights and Burdens During Audits of Their Tax Returns

T-GGD-97-186: Published: Sep 26, 1997. Publicly Released: Sep 26, 1997.

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Lynda D. Willis
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contact@gao.gov

 

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GAO discussed the rights of taxpayers and their treatment during audits of their tax returns by the Internal Revenue Service (IRS).

GAO noted that: (1) IRS has limited data on both the treatment of taxpayers and the burdens imposed on them during audits; (2) IRS recently created a system to track taxpayers' complaints about improper treatment but IRS does not solicit input on all improper treatment; (3) similarly, IRS has no comprehensive definition of, and little data on, the burden its audits impose on taxpayers; (4) IRS has recently developed a survey that will ask individual taxpayers about their satisfaction with various parts of the audit process but results will not be available until 1998; (5) IRS has various indicators and standards on audit performance; (6) one measure of audit performance is how much additional tax is recommended; (7) IRS does not have a corresponding measure on how much of the recommended tax is ultimately collected after taxpayer appeals; (8) without an indicator to balance taxes recommended against those collected, IRS auditors could have an incentive to recommend taxes that would be unlikely to withstand a taxpayer challenge; (9) IRS has nine audit standards; (10) GAO's work on one set of IRS audit techniques--those used in analyzing taxpayers' financial status to identify unreported income--showed that IRS used these techniques in less than a quarter of the audits completed in the time periods covered by GAO's review; (11) in about one-quarter of the audits in which financial status techniques were used, IRS did not have to contact the taxpayer to obtain information on the taxpayer's financial status beyond what was reported on the tax return; (12) GAO also found that IRS' use of financial status techniques has not increased in recent years; (13) regarding revenue impact, GAO found that in about 16 percent of the cases where they were used, these techniques did help to identify significant amounts of unreported income--$10,000 or more; (14) IRS is concerned that its ability to target the potentially most noncompliant taxpayers for audits is deteriorating; (15) IRS' concern arises because it has not been able to rely on its past approach for developing statistically valid research data that allowed IRS to create and periodically update formulas to target the returns with the most potential for noncompliance; (16) IRS last collected these data through audits of a random sample of taxpayers for tax year 1988; and (17) IRS subsequently abandoned that approach due to concerns about its costs and to concerns from the public and Congress about the taxpayer burden involved with those audits.

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