However, IRS’ last measure of voluntary reporting compliance was done on tax year 1988 returns, where an estimated 8 percent of taxes owed were underreported on individual tax returns. IRS Has Not Finalized Its Plans on How It Will Measure Voluntary Reporting Compliance

In May 2000, IRS established a NRP Program Office to develop an approach for measuring voluntary compliance. IRS Has Established Objectives and Guiding Principles for Developing a Measure of Voluntary Reporting Compliance

NRP is IRS’ effort to measure its progress in meeting its strategic goal of providing top-quality service to all taxpayers through fair and uniform application of the law. Components of IRS’ Draft Business Plan for Measuring Voluntary Reporting Compliance

As of March 2001, the NRP Office had developed a preliminary draft business plan, providing information on how IRS intends to develop a measure of voluntary reporting compliance around the framework of the guiding principles. How Other Programs Measure Compliance

The six federal programs we studied, like IRS’ TCMP studies, randomly sample their clients to measure compliance with the rules and regulations covering their programs and services. Each of the six programs we studied conducted compliance reviews differently, gathering different amounts and types of information with varying amounts of time required for the review. For example, the agencies and IRS try to ensure compliance through efforts that apply to all their clients. In addition, we looked at how compliance is measured in six other federal programs. Appendix III: Summary of GAO Assignments Related to Measuring Voluntary Compliance

	GAO report Tax Administration: IRS’ Plans to Measure Tax Compliance Can Be Improved (GAO/GGD-93-52, Apr. This report also identifies sampling strategies that will reduce the sample size and still provide some data. SSA reviews the case file and also contacts the claimant either in person or by telephone. INS is currently evaluating this pilot program. Appendix V: Comments From the Internal Revenue Service
Why GAO Did This Study

The U.S. tax system is based on voluntary reporting. The Internal Revenue Service (IRS) reviews all tax returns after they are filed to ensure compliance with tax laws governing this voluntary system. Despite these efforts, each year billions of dollars in taxes owed are not voluntarily reported and paid, which could result in reduced revenue to fund federal programs, higher tax rates, or both. There are three types of voluntary compliance measures: filing compliance, which measures the percent of taxpayers who file returns in a timely manner; payment compliance, which measures the percent of tax payments that are paid in a timely manner; and reporting compliance, which measures the percent of actual tax liability that is reported accurately on returns. This report reviews the status of IRS' plans to measure voluntary reporting compliance as well as six other federal programs that currently measure voluntary compliance.

What GAO Found

GAO found that IRS has tried to develop an approach for measuring voluntary compliance. It has established objectives and guiding principles for developing this measure as well as developed database software to collect and analyze data. As of March 2001, IRS' preliminary draft plan included four alternatives for measuring voluntary reporting compliance. GAO found that each of the six programs measure compliance by gathering different types and amounts of information from a random sample of clients. Sample sizes range from about 1,400 to more than 500,000 annually. In all but one program, clients are randomly selected and interviewed in person.