To identify the possible effects of the plan on measuring taxpayer compliance, we talked to IRS officials responsible for planning the survey and reviewed documents describing the scope of the 1994 TCMP. Many Potential Improvements to TCMP Look Promising

Current plans indicate the 1994 TCMP will differ significantly from previous TCMP surveys, ranging from the sample design to the audit methods. Improved Sample Design

For the 1994 TCMP sample, IRS plans to audit over 150,000 tax returns filed by individuals, small corporations, S corporations, and partnerships—about 40,000 more returns than the aggregate for these entity types in prior surveys. This time, IRS plans to stratify taxpayers into 24 business (including 1 international business) and 3 nonbusiness (individuals) market segments. For each case, auditors are to receive 3 years of tax returns (1994 and the 2 prior years), information return transcripts, and other taxpayer-specific tax data. Improved Efforts to Identify Causes of Noncompliance

Unlike prior surveys, IRS plans to require auditors to identify the cause for most instances of noncompliance found on the return and determine the associated tax issue. It is important that IRS meet its October 1995 schedule to begin auditing tax year 1994 returns. IRS has not developed a compliance measure across the four entity types. IRS Had Not Planned to Collect Significant Compliance Data on Partnerships and S Corporations

The compliance of partnerships and S corporations is becoming an important issue as these entity types become a larger proportion of the business population. Partnerships report on Form 1065, “U.S. Without detailed information on the reasons for this noncompliance and the audit techniques used to identify the noncompliance, DORA sites will find it difficult to develop and test compliance strategies. A recorded menu will provide information on how to obtain these lists.
Why GAO Did This Study

GAO reviewed the Internal Revenue Service's (IRS) Taxpayer Compliance Measurement Program (TCMP), focusing on: (1) program plans for tax year 1994; and (2) the plans' potential effects on measuring taxpayer compliance.

What GAO Found

GAO found that: (1) the 1994 TCMP survey will differ significantly from previous surveys and include over 150,000 tax returns from individuals, small corporations, partnerships, and S corporations; (2) IRS plans to analyze survey results by types of businesses and individuals and measure compliance on both a national and smaller geographical area basis; (3) IRS plans to use computers to record audit adjustments, tax issues, and the reasons for the adjustments, provide auditors with tax return data for 1992 through 1994 and other tax information on each taxpayer, use an economic reality audit technique to compare the taxpayer's lifestyle to the information reported on the tax return, and identify the causes of noncompliance and the associated tax; (4) IRS has not met its timetable for TCMP planning decisions which jeopardizes its planned October 1995 start date for the survey; (5) IRS is addressing its lack of a research plan and its lack of data on partnerships and S corporations; and (6) IRS plans to collect information on employees who incorrectly file as self-employed and other known compliance problems, and develop a mechanism to retrieve TCMP audit workpapers for researchers.