The federal tax gap—the difference between taxes owed and taxes paid on time—has been a persistent problem for decades. IRS estimated that the tax gap was about $428 billion annually from 2014-2016.
IRS can reduce the tax gap in part by enforcing tax laws to collect unpaid taxes. In 2022, the agency received $79.4 billion over 10 years to improve compliance, among other things.
We've made many recommendations to IRS to help improve its operations. Some recommendations have been fully addressed but 176 have not—and 146 of those are related to enforcing tax laws.
Tax law enforcement has been on our High Risk list since the list's creation in 1990.
What GAO Found
The Inflation Reduction Act of 2022 (Public Law 117-169) provided the Internal Revenue Service (IRS) with $79.4 billion in funding over 10 years to enhance IRS resources and improve taxpayer compliance, among other purposes. This substantial amount of new funding will need effective IRS planning, prioritization, and management to help reduce the gap between taxes owed and taxes paid on time.
Limitations in the systems IRS uses to account for federal taxes receivable and other unpaid assessment balances continued to exist during fiscal year 2022. In addition, continuing information system control deficiencies in areas such as encryption and configuration of security settings increase the risk of unauthorized access to, modification of, or disclosure of sensitive financial and taxpayer data and disruption of critical operations.
GAO has made numerous recommendations to IRS that, if fully implemented, could address the enforcement of tax laws high-risk area and significantly improve IRS operations. As of November 2022, IRS has a total of 176 unimplemented recommendations. This includes 25 recommendations considered high priority.
Why GAO Did This Study
IRS estimates that the annual net tax gap—the difference between taxes owed and taxes paid on time—averaged $428 billion for tax years 2014-2016 (latest available).
This report addresses (1) IRS funding, (2) IRS financial reporting and information system controls, and (3) IRS high-risk areas and related GAO recommendations. GAO reviewed its prior work on IRS, including GAO High Risk reports, the latest priority recommendation letter to IRS, and recent audits of IRS's financial statements. GAO also reviewed its ongoing efforts to assess IRS's implementation of recommendations.
GAO has previously made hundreds of recommendations to IRS to address high-risk areas and improve operations.