Key Issues > Duplication & Cost Savings > GAO's Action Tracker > Tax Policies and Enforcement (2014-20)
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General Government: Tax Policies and Enforcement (2014-20)

The Internal Revenue Service can realize cost savings and increase revenue by, among other things, identifying continued offshore tax evasion and evaluating whether the agency's streamlined corporate audit process is meeting its goals.

Action:

The Commissioner of the Internal Revenue Service (IRS) should explore options for employing a methodology for identifying and pursuing potential quiet disclosures to provide more assurance that actual quiet disclosures are not being missed and then implement the best option.

Progress:

In March 2016, IRS officials reported completing research to determine and implement the best option for identifying and pursuing potential quiet disclosures, as GAO recommended in March 2013. IRS reported that it identified more than 350 cases using its new methodology and as of December 2015 had completed examinations of 144 taxpayers, resulting in more than $6.4 million in additional tax assessments.  Using this new methodology should allow IRS to continue to identify taxpayers who are attempting to use quiet disclosures to circumvent taxes, interest, and penalties.

Implementing Entity:

Internal Revenue Service

Action:

The Commissioner of the Internal Revenue Service (IRS) should conduct an analysis designed to measure the extent to which taxpayers are reporting existing foreign accounts and circumventing some of the taxes, interest, and penalties that would otherwise be owed, and take appropriate action based on the analysis.

Progress:

IRS officials reported in March 2016 that they had analyzed the reporting of foreign financial assets, as GAO recommended in March 2013. IRS changed the Internal Revenue Manual to identify taxpayers who are reporting income from previously unreported accounts.  In addition, IRS officials said they reviewed forms to identify cases for examination and as of December 2015 had completed examinations, resulting in more than $140,000 in additional tax assessments. They plan to continue to identify noncompliant taxpayers using this analysis. These actions should allow IRS to continue to identify taxpayers who are attempting to circumvent taxes, interest, and penalties. 

Implementing Entity:

Internal Revenue Service

Action:

The Commissioner of the Internal Revenue Service (IRS) should use data gained from offshore programs to identify and educate populations of taxpayers that might not be aware of their tax obligations related to offshore income filing requirements.

Progress:

IRS has used data from its offshore programs to undertake multiple outreach efforts to educate those taxpayers likely to have foreign financial accounts about their IRS filing requirements, consistent with GAO’s March 2013 recommendation. For example, in spring 2014, IRS sent information on reporting requirements to first-generation U.S. citizen professional groups—as their members may be more inclined to have such foreign accounts. These outreach efforts could help promote voluntary compliance, reduce the need for enforcement actions, and draw additional taxpayers into offshore disclosure programs. Increased offshore program participation could also help IRS identify additional groups that would benefit from outreach and education.

Implementing Entity:

Internal Revenue Service

Action:

The Commissioner of the Internal Revenue Service (IRS) should obtain information that can help the IRS test offshore program promotion strategies and identify new ones by adding a question to current and future programs to determine how participants found out about the program.

Progress:

IRS updated its offshore program intake letter in June 2014 and included a question asking participants how they learned about the program, consistent with GAO’s March 2013 recommendation. Obtaining information on taxpayer awareness of IRS's offshore voluntary disclosure programs should help IRS better identify populations who might benefit from additional outreach and education. Such information could also help IRS evaluate the success of its current outreach efforts.

Implementing Entity:

Internal Revenue Service

Action:

The Commissioner of the Internal Revenue Service (IRS) should develop an evaluation plan for the Compliance Assurance Process (CAP) that can track progress against the goals and determine whether and how much to expand CAP.

Progress:

IRS developed an evaluation plan for CAP in June 2014, as GAO recommended in August 2013. IRS’s evaluation plan includes performance measures and targets used to track progress against the program goals. IRS plans to evaluate CAP annually starting from fiscal year 2014. However, because IRS does not have plans to expand CAP, the evaluation plan is not intended to determine whether and how much to expand it. Nonetheless, conducting a CAP-wide evaluation can help answer decision makers’ questions about the basic reasons the program exists and the continuing need for it. Such information could also help IRS evaluate whether CAP is meeting its goals.

Implementing Entity:

Internal Revenue Service

Action:

The Commissioner of the Internal Revenue Service (IRS) should track savings from the Compliance Assurance Process (CAP) overall and develop a plan for reinvesting any savings.

Progress:

As of December 2018, IRS had taken some steps to implement this August 2013 recommendation, but was not yet fully tracking the amount of dollar savings from using CAP and had not developed a plan to reinvest any savings. IRS provided documents from September 2018 which discussed improvements to CAP and how it fits with IRS’s future vision for examinations. An IRS evaluation indicated that CAP could be improved and prompted IRS to not accept new CAP applications for the 2016¬¬–2019 filing seasons as IRS re-assessed and revised the program. IRS plans to accept new taxpayers into the program in 2020. Further, IRS officials said they will be working on a plan in 2019 to track resource usage, such as staff hours worked, on CAP cases to determine if CAP is achieving the desired outcome of saving resources. If IRS finds any savings from CAP, it will need to develop a plan for reinvesting it to expand audit coverage.  Without a plan for tracking savings and using them to increase audit coverage, IRS cannot be assured that the savings are effectively invested in either CAP or non-CAP taxpayers with a high compliance risk.

Implementing Entity:

Internal Revenue Service

Action:

The Commissioner of the Internal Revenue Service (IRS) should find ways to transcribe and use additional data from paper-filed tax forms that are not currently transcribed and make the data available to examiners and clarify examiner guidance on saving case files. If IRS has evidence that the costs related to transcribing all such data from paper-filed returns are prohibitive, IRS could either transcribe less data by transcribing only the missing data for selected line items or develop a budget proposal to fund an initiative for transcribing the paper-filed data.

Progress:

IRS has taken some steps to implement this May 2013 recommendation. In September 2015, IRS completed a study on whether to transcribe more data from paper-filed returns. IRS officials said the study showed that the benefits to be derived from additional transcription are not significant and would not outweigh the added cost. That study did not provide specific information about the costs and benefits of transcribing information from Schedules C and E.

In December 2018, IRS provided a cost-benefit estimate for transcribing all data from Schedules C and E and concluded that the cost of transcribing all additional Schedule C and Schedule E lines would exceed the expected benefits. This analysis satisfied the first part of GAO’s recommendation. However, the study did not address whether transcribing certain, select lines on Schedules C and E would be cost-effective, as GAO’s recommendation suggested. Having specific data transcribed and electronically available likely will improve the classification of audits as well as the quality of the audits, according to examiners GAO spoke with for the report.

Implementing Entity:

Internal Revenue Service

Action:

The Commissioner of the Internal Revenue Service (IRS) should adopt a set of standardized account entries and eliminate unnecessary redundancy when entering installment agreement account data.

Progress:

In October 2015, IRS officials said they implemented standardized account entries, as GAO recommended in December 2013, after exploring whether the process would yield increased efficiencies and lower costs without adversely affecting tax administration. IRS revised its Internal Revenue Manual to clarify that compliance staff are required to use automated tools. The manual also recommends that staff use IRS’s Compliance Suite, which reduces unnecessary redundancy in entering installment agreement data by allowing staff to research accounts, provide recommendations regarding installment agreement eligibility, and complete various forms and letters. In November 2016, IRS officials confirmed that, while not mandated for use, the Compliance Suite allows employees to copy and paste standardized case notes into other IRS systems. Although IRS may not be able to calculate financial benefits from standardizing account entries because of data limitations, adopting standardized account entries leads to increased efficiencies, providing opportunities to reduce resources devoted to handling installment agreement case files.

Implementing Entity:

Internal Revenue Service
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