IRS does not use DIF scores for partnerships and S corporations because of the age of the underlying TCMP audits. Objectives, Scope, and Methodology

The objectives of this assignment were to (1) determine the possible effects on IRS’ compliance programs of postponing the 1994 TCMP and (2) identify some potential short- and long-term alternatives to the planned TCMP for collecting this data. However, updated compliance data will be needed in the short term if IRS still plans to update the audit selection formulas and in the long term to validate and improve IRS’ compliance efforts. Regardless of how IRS plans to mitigate the loss of 1994 TCMP data, it would have to start soon in order to minimize the adverse effects of not updating its compliance programs. According to IRS officials, a number of alternative sampling strategies could fill the short-term data gap created by postponing TCMP indefinitely. From these strategies, we identified several alternative samples that met three basic objectives we considered important: (1) reducing the sample size to make data collection less costly for IRS and less burdensome to taxpayers, (2) maintaining IRS’ ability to update the DIF scoring system, and (3) maximizing use of the work already completed to identify returns and collect data for the 1994 TCMP sample. Long-Term Compliance Measurement Considerations

Because a significant portion of IRS’ workload and future revenue depends on compliance programs, it is important that IRS determine how to measure compliance. Using Multiyear TCMP Audits

The multiyear TCMP alternative envisions annual TCMP-type audits on a smaller sample of tax returns which, over the course of several years, could be combined to obtain the required statistical precision. Using data from operational audits would provide a large amount of compliance data. In the long term, such disruptions are likely to result in increased burdens on compliant taxpayers as more of them are selected for audit.
Why GAO Did This Study

GAO assessed the potential effects on the Internal Revenue Service's (IRS) compliance programs of postponing the 1994 Taxpayer Compliance Measurement Program (TCMP) survey and identified some potential short- and long-term TCMP alternatives.

What GAO Found

GAO found that: (1) IRS postponed the 1994 TCMP because of criticisms and budget constraints; (2) IRS does not know how it will obtain the taxpayer compliance data it needs; (3) the loss of 1994 TCMP data could increase compliant taxpayers' burden over the long term because audits may become less targeted; (4) to mitigate the data losses over the short term, IRS could employ a number of alternatives, including doing a smaller survey; (5) any alternative should reduce sample size to lessen taxpayer burden and administrative costs, maintain IRS ability to update the discriminant function scoring system, and maximize the use of already completed work; (6) a limited survey would reduce the quantity and quality of the data collected, but still provide national compliance data; (7) IRS must determine how it will measure compliance over the long term, since its workload and future revenues depend on taxpayers' voluntary compliance; (8) long-term alternatives include conducting small multiyear TCMP audits, using data from operational audits to assess compliance changes, and conducting periodic national mini-TCMP audits; (9) IRS must decide on a compliance information-gathering alternative in the near term, since any alternative will take several years to develop and implement; and (10) the alternatives will likely not gather data as comprehensive as the originally planned TCMP data.