Objectives, Scope, and Methodology

Our objectives were to (1) determine how IRS addressed the problems discussed in our 1994 TCMP status report and, if the problems persist, how they will affect final TCMP results; (2) identify informational resources other than TCMP that IRS could use to target its audits more effectively; and (3) assess the value of TCMP data for alternative tax system proposals. Basically, these concerns centered on IRS being able to (1) meet major milestones for starting audits, (2) collect audit adjustment data on partners and S corporation shareholders, (3) collect data on potentially misclassified workers, (4) develop data collection systems, (5) make it easier for researchers to access TCMP audit workpapers, and (6) develop a TCMP research plan. IRS attributed the delay to the uncertainties about its fiscal year 1996 budget. The delay in the start of the audits could allow IRS to complete various TCMP database testing, which has not been completed as originally scheduled. We are not aware of any other available data that can be used to develop return selection formulas that would allow IRS to target its audits as effectively as TCMP data. To determine the relevancy of TCMP data to these alternative tax systems, we analyzed the tax return elements IRS plans to examine in its tax year 1994 TCMP and published documents on the systems. Relevancy of TCMP Results for Designing and Administering Alternative Tax System Proposals

Potentially, data obtained from TCMP audits could be used to guide both the final design and administration of a new tax system. There is still time for IRS to develop a research plan so that it could analyze final TCMP results more quickly. A recorded menu will provide information on how to obtain these lists. Address Correction Requested
Why GAO Did This Study

Pursuant to a congressional request, GAO provided information on the Internal Revenue Service's (IRS) Taxpayer Compliance Measurement Program (TCMP) for tax year 1994, focusing on: (1) how IRS addressed the problems identified in a previous GAO report; (2) how persistent problems affect final TCMP results; (3) other informational sources that IRS could use to target its audits more effectively; and (4) the relevancy of TCMP data for alternative tax system proposals.

What GAO Found

GAO found that: (1) IRS has taken appropriate actions to correct the previously identified problems in the implementation of TCMP; (2) due to uncertainties about its fiscal year 1996 budget, IRS has delayed TCMP audits until December 1, 1995; (3) the audit delay will allow IRS to complete testing of TCMP database components and data collections systems; (4) the audits could be further delayed if the tests reveal additional problems; (5) IRS plans to collect data on partners, shareholders, and misclassified workers which should allow it to better measure compliance levels and TCMP audit results; (6) computerized auditor comments should make it easier for researchers to analyze TCMP results and allow IRS to collect data on other tax issues that are not a part of TCMP; (7) IRS still needs to develop a research plan that would allow it to more timely analyze TCMP data; (8) no alternative information sources exist that could help IRS better target its audits; (9) IRS is developing a new identification system for tax return audits, but it will not be available until after year 2000; and (10) TCMP could be useful in designing and administering a new tax system and identifying compliance trends.