Tax Administration:

Status of Efforts to Curb Motor Fuel Tax Evasion

GGD-92-67: Published: May 12, 1992. Publicly Released: Jun 11, 1992.

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Pursuant to a congressional request, GAO reviewed federal motor fuel excise tax compliance and administration, focusing on: (1) the lack of information to determine the petroleum industry's motor fuel excise tax compliance; (2) the effect of recent legislation on compliance; (3) the effectiveness of Internal Revenue Service (IRS) programs in promoting compliance; and (4) state initiatives that could be adapted to bolster federal motor fuel excise tax collections.

GAO found that: (1) no reliable statistics are available to estimate the level of fuel tax evasion; (2) IRS has recognized this problem and is investigating alternative methods for estimating motor fuel excise tax evasion; (3) government and private officials agree that legislative changes have reduced some forms of motor fuel excise tax evasion, but disagreements exist about the extent of the reductions; (4) the Department of Justice believes that as much as $1 billion in motor fuel excise taxes may be evaded annually; (5) the effectiveness of IRS compliance programs cannot be assessed because of the lack of data on the level of evasion; (6) IRS does not have national programs in place that address tax evasion schemes, but several initiatives are under way; (7) IRS is working with the Federal Highway Administration and selected states to determine whether joint enforcement efforts can improve compliance; (8) IRS is developing a database that will include information on all firms authorized to deal in tax-free motor fuels; (9) the applicability of states' compliance initiatives to federal motor fuel excise tax enforcement is difficult to gauge because of differences between state and federal taxes and collection systems; and (10) moving the gasoline excise tax collection point to the refinery may improve the efficiency of tax administration and increase controls over evasion at the federal level, but questions remain regarding competitive consequences and overall cost-effectiveness.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: The Federal Highway Administration has reported ranges of estimated gasoline and diesel fuel tax evasion to the House Committee on Public Works and Transportation. These estimates reflected officials' professional judgments concerning probable levels of evasion. Officials' best estimate of gasoline tax evasion levels considerably exceeds the estimated costs industry would bear if the point of taxation were moved to the refinery level. Although Congress moved the point of collection for the diesel fuel excise tax in the Omnibus Budget Reconciliation Act of 1993, the collection point for gasoline was not changed and was not part of the tax-related debate.

    Matter: Congress should intensively explore the level of tax evasion with the agencies and the industry; if it is sufficiently high, the point of collection should be changed.


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