Abusive tax schemes that are generally used by individuals fall into four major categories. Nevertheless, IRS’s February 2002 estimate of $20 billion to $40 billion in tax dollars at risk from offshore schemes may grow as IRS learns more about the extent of the problem. Expanded IRS Efforts to Identify and Control Tax Schemes

No one individual or office could provide an agencywide perspective on IRS’s strategy, goals, objectives, performance measures, or program results, for its efforts to address abusive tax schemes. Consequently, a clear and consistent picture of IRS’s efforts was difficult to obtain. Limited data also suggest that these enhanced efforts have helped IRS convict more promoters and users of abusive schemes over the past 3 years, which IRS has publicized through enhanced communication strategies. IRS Faces Substantial Challenges; Lacks Means to Assess Progress

IRS has tried to develop a better understanding of the potential breadth of the problem of abusive tax schemes involving individual taxpayers and the steps needed to coordinate and manage numerous efforts to combat abusive tax schemes. To date, however, IRS has not provided information on its staff year investments in combating abusive tax schemes and has not established performance goals and measures that IRS and Congress can use to gauge whether these efforts are achieving desired results. Furthermore, based on the limited data available, IRS appears to be realizing some increased success in convicting those involved in schemes, publicizing these results, and uncovering previously hidden major offshore compliance problems.
What GAO Found

Estimating the extent of abusive tax schemes used by individual taxpayers is difficult because they are often hidden. Nevertheless, the Internal Revenue Service (IRS) believes that the number and dollar consequences of these schemes has grown recently. IRS estimates that 740,000 taxpayers used abusive schemes in tax year 2000. IRS caught $5 billion in improper tax avoidance or tax credit and refund claims, but estimates that another $20 to $40 billion went undetected. Recent developments suggest that the number of individuals using an abusive tax scheme involving offshore accounts may be greater than estimated and potential lost revenues may be higher than estimated. Because no one individual or office could provide an agencywide perspective on IRS's strategy, goals, objectives, performance measures, or program results, it is difficult to provide a clear picture of IRS's efforts to address abusive tax schemes. IRS has created new offices, reemphasized and reorganized earlier efforts, and plans to assign at least 200 additional staff to its efforts. Limited data suggest that IRS's enhanced efforts have helped to successfully convict those promoting and taking advantage of abusive schemes, publicize these results, and uncover previously hidden major offshore compliance problems. The number of possible abusive tax schemes, however, could outstrip IRS's audit resources. Furthermore, identifying and handling these cases will require better coordination on IRS's part. IRS has not yet developed a way to track the resources used to combat abusive schemes, nor has it developed goals and measures to assess its progress.