These trends have triggered concerns that  taxpayers’ motivation to voluntarily comply with their tax obligations could  be adversely affected. Compliance Trends Are Mixed; the Often Cited Audit Rate Has Declined Steeply

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 fair share of taxes. IRS’s compliance  programs, including audits, document matching, and other efforts, are  viewed by many as critical to maintaining the public’s confidence in our tax  system. Collection Trends Have Declined

As we reported in May 2002, between fiscal years 1996 and 2001 trends in  the collection of delinquent taxes showed almost universal declines in  collection program performance, in terms of coverage of workload, cases  closed, direct staff time used, productivity, and dollar of unpaid taxes  collected. Concerns Regarding the Compliance and Collection Trends

Many parties have expressed concern about these trends in IRS’s  compliance and collection programs. However, as shown in figures 4 and 5, staffing in two key compliance and  collection occupations were lower in 2002 than in 2000. Given its scope,  potential effects on EIC claimants, and planned rapid expansion, the  success of the initiative will depend on careful planning and close  management attention as IRS implements the initiative. For over a decade we have reported on IRS’s  efforts to reduce EIC noncompliance. This initiative is a  substantial undertaking with a relatively aggressive implementation  schedule. Challenges Must Be Met if IRS Is to Successfully Use Private Collection Agencies

IRS’s 2004 budget requests $2 million and legislative authorization for use  of private collection agencies (PCA) to assist IRS in collecting certain  types of delinquent tax debt. Earlier pilot efforts to study use of PCAs in 1996 and 1997  were hindered, in part, because IRS was unable to do this. Another IRS capacity issue relates to the cases that PCAs, for several  reasons, will refer back to IRS. Concluding Observations

Although IRS has received increases in its budgets since fiscal year 2001 in  part to increase staffing to enhance in its compliance and collection  programs, IRS has been unable to achieve the desired staffing levels. Based  on past experience and uncertainty regarding some expected internal  savings that would enable IRS to reallocate staff to these programs, fiscal  year 2004 staff increases might not fully materialize. IRS has defined the scope and nature of its proposed new initiatives to  address known sources of EIC noncompliance and to use private collection  agencies to assist in collecting certain delinquent taxes.
Why GAO Did This Study

Taxpayers' willingness to voluntarily comply with tax laws depends in part on their confidence that friends, neighbors, and business competitors are paying their fair share of taxes. The Internal Revenue Service's (IRS) programs to ensure compliance and to collect delinquent taxes are viewed by many as critical for maintaining the public's confidence in our tax system. Congress asked GAO to present information on trends in IRS's compliance and collection programs and to discuss issues related to IRS's efforts to increase staffing for these programs. GAO was also asked to discuss IRS's plans to launch new initiatives to reduce noncompliance with the Earned Income Tax Credit (EIC) and to use private collection agencies to assist in collecting delinquent taxes.

What GAO Found

From fiscal years 1993 through 2002, IRS's four major compliance programs for individual taxpayers had mixed trends in the portion of taxpayers they contacted with two declining, one increasing, and one staying relatively the same. Among the programs, IRS's often-cited audit rate declined about 38 percent. From fiscal years 1996 through 2001, IRS's collection program experienced almost universal declines in workload coverage, cases closed, direct staff time used, productivity, and dollars of unpaid taxes collected. Many parties have expressed concern about the compliance--especially audit--and collections trends for their potential to undermine taxpayers' motivation to fulfill their tax obligations. Since 2001 IRS has sought more resources including increased staffing for compliance and collections. Despite receiving requested budget increases, staffing levels in key occupations were lower in 2002 than in 2000. These declines occurred for reasons such as unbudgeted expenses consuming budget increases and other operational workload increases. Based on past experience and uncertainty regarding some expected internal savings, fiscal year 2004 anticipated staff increases might not fully materialize. IRS's 2004 budget proposes a substantial initiative to address known sources of EIC noncompliance. IRS intends to ramp up the initiative rapidly with planning and implementation proceeding simultaneously. If it is to succeed, the initiative will require careful planning and close management attention. IRS also proposes to use private collection agencies to assist in collecting certain delinquent tax debt. IRS is seeking authority to retain some tax receipts in a revolving fund to pay the private collectors. A pilot effort to use private collectors in 1996 was unsuccessful, in part because IRS was unable to identify and channel appropriate collection cases to the private collectors. Key implementation details for this proposal must be worked out and it too will require careful planning and close management attention.