Through such improvements, IRS expected to better enable taxpayers to comply with the tax laws. In two of the six compliance programs, the amount of unpaid taxes identified increased. For the deferred cases, penalties and interest continue to accumulate, making future payment of those assessments increasingly demanding. Noncompliance Was Less Likely to Be Detected and Pursued

The data presented earlier on the changes in IRS’s compliance and collection programs showed that the likelihood that taxpayer noncompliance would be detected and pursued by IRS declined between fiscal years 1996 and 2001. Some Increased Time in Initiating Collection

Although IRS intended that by deferring collection action on some tax debts it would be able to initiate collection action for some higher-priority cases sooner, our random samples showed that the median length of time that taxpayers had owed back taxes at the time they were assigned to collection increased between 1996 and 2001. IRS’s New Strategic Assessments Address Tax Noncompliance but Could Provide More Quantitative Information

The strategic assessments prepared by the wage and investment and small business operating divisions identified the risk of declining compliance as a major issue for IRS. Because of a lack of information, the operating divisions’ strategic assessments could not quantify the impact that their changes may have on taxpayer compliance. Appendix I: Objectives, Scope, and Methodology

As requested, the objectives of GAO’s review were to   describe the changes since 1996 in IRS’s compliance and collection programs, including the extent of collection deferrals, and the factors contributing to the program changes;   determine how the program changes have affected taxpayers, including their compliance with tax laws, the buildup of penalties and interest, and the length of time before collection actions are initiated; and   determine how IRS addressed the program changes, including their effect on taxpayers, in its strategic assessments.
What GAO Found

For several years, Congress and others have been concerned about declines in the Internal Revenue Service's (IRS) compliance and collection programs. Taxpayers' willingness to voluntarily comply with the tax laws depends in part on their confidence that their friends, neighbors, and business competitors are paying their share of taxes. GAO found large and pervasive declines in five of the six compliance programs and in both collection programs between fiscal years 1996 and 2001. Factors contributing to the declines in the program and in collection coverage include declines in IRS staffing, increased workloads, and increased procedural controls mandated by Congress to better safeguard taxpayer interests. The declines in IRS's compliance and collection programs had several impacts. The likelihood that taxpayer noncompliance would be detected and pursued by IRS declined and the length of time that taxpayers owed back taxes at the time that they were assigned to collection increased between 1996 and 2001. The amount of penalties and interest continued to accumulate on deferred collection cases, making future payment increasingly demanding if subsequently pursued by IRS. Strategic assessments, which were prepared to provide a basis for decisions on significant program changes in IRS dealings with individual and small business taxpayers, identified the risk of declining compliance as a major trend, issue, or problem for IRS. The assessments could not quantify the impact that the initiatives may have on taxpayer compliance because IRS has yet to implement a system to measure taxpayer compliance.