Tax Administration:

Impact of Compliance and Collection Program Declines on Taxpayers

GAO-02-674: Published: May 22, 2002. Publicly Released: Jun 24, 2002.

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For several years, Congress and others have been concerned about declines in the Internal Revenue Service's (IRS) compliance and collection programs. Taxpayers' willingness to voluntarily comply with the tax laws depends in part on their confidence that their friends, neighbors, and business competitors are paying their share of taxes. GAO found large and pervasive declines in five of the six compliance programs and in both collection programs between fiscal years 1996 and 2001. Factors contributing to the declines in the program and in collection coverage include declines in IRS staffing, increased workloads, and increased procedural controls mandated by Congress to better safeguard taxpayer interests. The declines in IRS's compliance and collection programs had several impacts. The likelihood that taxpayer noncompliance would be detected and pursued by IRS declined and the length of time that taxpayers owed back taxes at the time that they were assigned to collection increased between 1996 and 2001. The amount of penalties and interest continued to accumulate on deferred collection cases, making future payment increasingly demanding if subsequently pursued by IRS. Strategic assessments, which were prepared to provide a basis for decisions on significant program changes in IRS dealings with individual and small business taxpayers, identified the risk of declining compliance as a major trend, issue, or problem for IRS. The assessments could not quantify the impact that the initiatives may have on taxpayer compliance because IRS has yet to implement a system to measure taxpayer compliance.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: IRS has implemented our recommendation to improve the use of quantitative information on the impact of proposed program changes in its strategic assessments. In its comments on our report, the IRS Commissioner charged the National Research Program (NRP) with developing compliance measures that will be valid at the Service-wide and operating division level to improve its process to analyze the costs and benefits for proposed programs. Also, in the 60-day letter on the report, IRS stated that the results of IRS's National Research Program will help measurements of payment, reporting, and filing compliance. Using this data, IRS would have the management information to measure the overall effectiveness of existing compliance programs and develop new, more effective compliance programs. In 2005, IRS released the preliminary results of the NRP. In February 2006, IRS officials briefed GAO staff on the results of NRP and how NRP data was being used as part of IRS's strategic planning and resource allocation process. For example, NRP officials described several options being considered for the fiscal year 2007 examination plan to allocate compliance resources to maximize revenue or provide a broad-based, long term approach to improve compliance.

    Recommendation: Based on experience to date using strategic assessments, the Commissioner of Internal Revenue should reexamine the extent to which some quantitative information on the impact of proposed program changes should be included in strategic assessments.

    Agency Affected: Department of the Treasury: Internal Revenue Service


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