If taxpayers do not pay the taxes that are assessed, IRS can take action to collect the taxes. To determine how much of the recommended additional tax amounts had been settled, assessed, and collected as of September 27, 1997, for audits closed in fiscal years 1992 through 1997, we matched the recommended amounts to actions taken in Appeals or the Office of Chief Counsel. Disputes on the final 26 percent of the additional recommended taxes had yet to be settled. As of September 27, 1997, IRS had collected $6.1 billion—or 72 percent of the additional taxes assessed and 25 percent of the additional taxes recommended. Since 1992, the results of the audits were less complete because larger percentages are unsettled for each succeeding year, reaching 55 percent in 1997. Because of the incomplete results for audits closed in these more recent years, our analyses focused on 1992 audits. Collection and Assessment Rates Vary by Type of Audit

Table 2 shows how much of the recommended additional taxes had been settled, assessed, and collected as of September 27, 1997, for seven types of audits closed in fiscal year 1992. For fiscal year 1992 audits, the percentage of recommended taxes that IRS had collected as of September 27, 1997, ranged from 20 percent for CEP audits to 43 percent for service center audits. IRS’ Performance Measures Do Not Fully Reflect All Audit Revenues and Costs

IRS’ performance measures do not fully reflect all audit-based revenues and costs. Although IRS measures the staff time directly spent on audits, it does not measure the dollar costs of this direct time or the indirect costs incurred by the Examination Division for such things as training time or office space. Compiling complete and reliable data on the indirect revenues and costs from outside IRS can be very difficult because of limitations with the data sources and research. Further, IRS does not use its available data to develop and report measures that would provide a fuller, more balanced picture of audit results. However, IRS does not measure and report all its existing data on audit revenues, such as additional taxes assessed and collected on the basis of taxes recommended in audits. IRS was more likely to assess taxes recommended in simpler audits of individuals than in complex audits of corporations. These comments dealt with issues such as (1) the need to carefully analyze and interpret ERIS data; (2) the challenges of allocating IRS’ costs; (3) the value of the activity-based costing model in allocating costs; (4) the ongoing use of ERIS data; (5) IRS’ efforts since 1992 to improve the audit and dispute resolution processes; (6) concerns about misinterpretations of the analyses on how much of the recommended tax amounts were settled, assessed, and collected; and (7) the need to analyze new measures. Status of Additional Amounts Recommended for Audits Closed in Fiscal Years 1993-1997 Across Seven Types of Audits

As percent of amount recommended “Other” includes audits of returns for employment tax, estate tax, excise tax, and gift tax; audits conducted in IRS training; and audits categorized by IRS as other. Detailed Information on Audit Results

As percent of amount recommended (continued)
Assessed = Tax and penalty assessed less related abatements 1040A = Nonbusiness returns filed by individuals TPI = Total positive income (income reported as a positive on tax return tables) C-TGR = Form 1040 Schedule C (profit or loss from business) total gross receipts F-TGR = Form 1040 Schedule F (profit or loss from farming) total gross receipts 1040A TPI < $25,000 Non-1040A TPI < $25,000 TPI $25,000 < $50,000 TPI $50,000 < $100,000 TPI $100,000 and over C-TGR < $25,000 C-TGR $25,000 < $100,000 C-TGR $100,000 and over F-TGR < $100,000 F-TGR $100,000 and over (continued)

The Amount of Time IRS Takes to Collect Additional Taxes Assessed After Audits

In developing ratios of the amount of taxes collected to the direct costs for the audit, assessment, and collection activities, we could not include IRS’ direct staff costs for the collection activity. For audits closed in fiscal year 1992, IRS had collected $6.1 billion of the $8.5 billion in additional assessments, as of September 27, 1997.
Why GAO Did This Study

Pursuant to a congressional request, GAO provided information on the Internal Revenue Service's (IRS) measures of the results of its audits of tax returns, focusing on: (1) how much of the additional taxes recommended in all types of audits that were closed in fiscal year (FY) 1992 through FY 1997 had been settled or were still in dispute and, if settled, how much had been assessed and collected as of September 27, 1997; (2) how much of the recommended additional taxes had been assessed and collected for audits closed in FY 1992; and (3) whether broad IRS measures of audit results fully represented audit revenues and costs.

What GAO Found

GAO noted that: (1) for audits closed in FY 1992 through FY 1997, IRS recommended tens of billions of dollars in additional taxes for each year; (2) however, not all recommended taxes are assessed; and not all assessed taxes are collected; (3) IRS had settled 40 percent of FY 1992 audits without assessing the recommended taxes, usually because of IRS Office of Appeals' decisions, and had yet to settle the assessment status of the other 26 percent; (4) of the $8.5 billion assessed, IRS had collected 72 percent, which means that 25 percent of all recommended taxes for FY 1992 audits had been collected as of September 27, 1997; (5) for audits closed in FY 1993 through FY 1997, assessment and collection results were less complete because less time had elapsed for these actions to occur compared with 1992; (6) the assessment and collection rates varied by the type of audit closed in FY 1992; (7) in general, IRS assessed a higher percentage of the assessed taxes for simpler audits compared with complex audits; (8) however, IRS collected a higher percentage of the recommended taxes from the simpler audits than complex audits; (9) for simpler service center audits, IRS had assessed 76 percent of the recommended taxes but had collected 56 percent of the assessed taxes as of September 27, 1997; (10) at the other extreme, after audits of complex returns from Coordinated Examination Program (CEP) corporations, IRS had assessed 20 percent of the recommended taxes but had collected 97 percent of the assessed taxes; (11) as of September 27, 1997, 39 percent of the amounts recommended in CEP audits were still in dispute; (12) IRS' existing performance measures do not cover all audit-based revenues or costs; (13) measuring the taxes recommended does not account for the related assessments and collections; nor does it account for indirect revenue gains; (14) measuring other types of revenues are important because not all recommended taxes are assessed or collected; (15) IRS measures the staff time directly charged to audits but not the dollar costs of this direct time; (16) compiling complete and reliable data on the indirect revenues and taxpayer costs can be very difficult to do because of limitations in the data sources; (17) beyond these limitations, IRS did not use other existing data to develop and report measures that more fully represented audit results; (18) for additional measure, audit revenues could be compared with related costs; and (19) to develop such measures, IRS would need more data on both direct and indirect costs.