IRS’ most recent estimate put the gross income tax gap—the difference between income taxes owed and voluntarily paid—at $127 billion for 1992 alone. As planned, the major research tool will be the Compliance Research Information System (CRIS). Objectives, Scope, and Methodology

Our objectives were to (1) review the many lessons that IRS learned from past compliance efforts, including Compliance 2000, to identify the factors most critical to the success of the new compliance research approach and (2) analyze the current status of the new approach and its ability to incorporate these factors as well as help IRS achieve the goal of 90-percent total compliance by 2001. Our National Office work focused on NORA. We found that IRS had not tracked whether its districts started research projects on the basis of objective compliance data or researched the most noncompliant market segments. IRS’ New Approach Offers Potential for Improving Compliance Research

IRS holds high hopes for its new compliance research approach in integrating the Compliance 2000 philosophy with efforts to boost compliance. IRS is implementing CRIS in the following three stages. For example, about 63 percent of those we interviewed believed that this approach will reduce the tax gap, and nearly 70 percent, who had knowledge of previous attempts, believed that it will be more cost effective. Even so, Final CRIS is developing more slowly than expected. NORA officials said training in these areas is being developed. New Approach Lacks Success Measures

IRS has not developed specific measures for evaluating the success of the new research approach. On the basis of lessons learned from the past, IRS officials believe, and we agree, that among the factors needed to better ensure success of the new approach, at least five stand out in terms of relative importance: (1) support for the research throughout IRS, (2) objective compliance data that are readily accessible for research, (3) skilled staff capable of doing rigorous research, (4) an infrastructure for organizing and managing the research, and (5) measures to evaluate whether the new approach works. IRS has taken or planned some actions to address these issues. Thus, it is important that IRS monitor its progress in addressing these issues and position itself to take corrective action if and when needed.
Why GAO Did This Study

GAO reviewed the Internal Revenue Service's (IRS) tax compliance research program, focusing on: (1) the success IRS has had with its new research approach; and (2) IRS ability to implement lessons learned from its Compliance 2000 initiative.

What GAO Found

GAO found that: (1) IRS implemented its new compliance research approach to address concerns over taxpayer noncompliance and the large gap between income taxes owed and taxes paid; (2) IRS attempted to address these concerns through Compliance 2000, but had limited success due to inadequate compliance data; (3) IRS could avoid these mistakes by establishing more support for its research, using objective compliance data, acquiring more specialized staff, developing an organizational infrastructure, and setting objective measurements; (4) IRS officials believe that this new research approach is more cost-effective, but they doubt that they will reach 90-percent compliance by 2001; (5) IRS officials are concerned that district offices will spend 85 percent of their resources on national compliance issues rather than on district-level issues; (6) IRS has made some progress in developing the Compliance Research Information System (CRIS), but it is unsure when it will become available; (7) IRS officials believe that more training is needed in specialized areas to achieve research objectives; and (8) IRS is in the process of developing tools that track and measure the success of its research projects.