Tax Administration:

Data on the Tax Compliance of Sweatshops

GGD-94-210FS: Published: Sep 23, 1994. Publicly Released: Nov 1, 1994.

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Pursuant to a congressional request, GAO reviewed the Internal Revenue Service's (IRS) and two states' efforts to enforce garment and restaurant industry compliance with federal and state tax laws.

GAO found that: (1) many sweatshops do not comply with one or more elements of federal or state tax laws; (2) of the 94 garment and restaurant sweatshops reviewed, 84 were penalized for filing returns or paying taxes late in one or more tax years between 1990 and 1993; (3) as of mid-1994, 30 sweatshops still owed tax liabilities of $492,000; (4) comparable tax data do not exist to determine whether other types of businesses have better compliance records; (5) although IRS identifies most sweatshops' tax liabilities and noncompliance through audits, it increasingly relies on computer matching because of limited resources; (6) IRS and the two states lack accurate tax data on sweatshops to focus their enforcement efforts on pursuing unpaid income taxes; (7) IRS and the two states stated that they apply their limited enforcement resources to industries that have larger tax debts; (8) the two states have focused their enforcement efforts on labor law violations rather than tax law violations; (9) IRS enforcement efforts included developing a national audit program for the garment industry, hiring a garment manufacturing specialist to coordinate its enforcement efforts, and organizing industry groups to address tax noncompliance; (10) the Department of Labor and the two states favor working with IRS on joint compliance projects; and (11) although joint efforts have the potential for improving compliance with all laws, the federal tax code restricts IRS ability to share tax data in joint efforts.

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