Tax Administration: IRS Can Improve Its Program to Find Taxpayers Who Underreport Their Income
GGD-91-49
Published: Mar 13, 1991. Publicly Released: Mar 18, 1991.
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Highlights
Pursuant to a congressional request, GAO analyzed the productivity of the Internal Revenue Service's (IRS) program for detecting and pursuing individuals who underreported their income on required tax returns.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Internal Revenue Service | To reduce the number of unproductive underreporter cases, the Commissioner of Internal Revenue should modify the computer match to search for income on as many tax return lines as possible without inadvertently screening out productive cases. |
Closed – Implemented
IRS identified additional matching requirements and has enhanced computer screening of wage discrepancies to search for income without inadvertently screening out productive cases.
|
| Internal Revenue Service | To reduce the number of unproductive underreporter cases, the Commissioner of Internal Revenue should modify the computer match to use SSA corrected wage data to identify when employers submit multiple information returns for the same taxpayer. |
Closed – Implemented
IRS modified the computer match to identify when employers submit multiple information returns for the same taxpayer. The computer modification became operational on June 1, 1991.
|
| Internal Revenue Service | To reduce the number of unproductive underreporter cases, the Commissioner of Internal Revenue should modify the computer match to count changes to specific amounts of income that taxpayers report on amended tax returns. |
Closed – Not Implemented
IRS believes that the additional cost of processing forms 1040X, redesigned as suggested, would exceed any savings from elimination of erroneous discrepancy cases.
|
| Internal Revenue Service | The Commissioner of Internal Revenue should: (1) notify taxpayers who provide their social security numbers to payers of business income to begin providing their business's tax identification numbers; and (2) modify the management information system for the underreporter program to provide specific reasons why cases were unproductive. This information, when available, should be used to monitor results and further improve the matching process. |
Closed – Implemented
IRS implemented the first part of the recommendation in 1992 by sending a notice to taxpayers. Implementation of the second part of the recommendation depended on system changes under Tax Systems Modernization, which IRS is replacing with a different approach to modernizing its systems. According to IRS, a variety of demands sidetracked initial steps to develop the reason codes. Given continued resource limitations, IRS has no plans to develop the codes.
|
| Internal Revenue Service | The Commissioner of Internal Revenue should provide SSA with corrected wage data for taxpayers found to have wages that were incorrectly reported to the SSA. |
Closed – Implemented
IRS updated its proposal in June 1992 to require reporting wage data to SSA.
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Topics
Cost effectiveness analysisFederal taxesInformation systemsInteragency relationsInvestigations by federal agenciesManagement information systemsTax administration systemsTax evasionTax nonpaymentTax return audits