Special Advisory

News About the IRS on the World Wide Web
Embargoed for Monday, April 9 (6:30 p.m. Sunday)

       Broad Range of IRS Enforcement Programs Falter

       Declines Found in Sophisticated Document Matching Programs
             As Well as Big Ticket Corporate Audits
                  and the Filing of Criminal and Civil Tax Cases

       IRS Permanent Staff Down by Almost One Third

Syracuse, N.Y.—April 9—Analysis of IRS data indicates that a broad range of the agency's techniques for persuading individuals and businesses to pay their taxes are faltering.

The declines in IRS enforcement involve almost every tool in the agency's arsenal, from its use of sophisticated document matching programs to the filing of criminal and civil court cases against the most serious violators.

Examples of the deteriorating IRS enforcement effort include the following:

One key computerized program identifies individual returns with potential under-reporting discrepancies. But agency follow-up on the atuomated warnings has declined from one out of two or three in the early 1990's to only one out of six now.

IRS's computer-based document matching program sends out correction notices to individual taxpayers. In 1991, when this program peaked, 4.8 million taxpayers were billed for under-reporting errors. In 2000, only 1.4 million were sent notices.

Face-to-face audits for all taxpayers—even the largest corporations—have tumbled. In 1992, 55% of the corporations with $250 million more in assets were audited. In 2000, only 31 percent.

According to data recorded by the United States Attorneys, civil suits filed by the IRS against recalcitrant taxpayers went from 2,519 in 1992 to 641 in 1999. Criminal tax fraud prosecutions—mostly by the IRS—dropped by more than half—1,550 in 1987 (at its peak), 632 in 2000.

[For the latest comprehensive data about federal tax enforcement and the taxpayer services offered by the IRS go to http://trac.syr.edu/media]

A key factor driving all the enforcement declines has been the loss of IRS staff. The total number of individual and corporate tax returns has increased by 20% since 1988, returns filed by individuals reporting $100,000 or more in income have quadrupled, and returns filed by the largest corporations have doubled. But during the same period the permanent staff of the IRS has been cut by almost one third (31%).

Although the argument has been made that the naton's tax enforcement gap can be closed with high-speed computers, the record shows the government's maze of semi-automated programs are covering less ground today than in the recent past.

The impact of all these changes on the behavior of taxpayers is not known. This is mainly because several years ago Congress eliminated an IRS program specifically designed to measure how well or poorly individual and business taxpayers were meeting their obligations. Even without hard data, however, some experts are concerned that in the long run less enforcement may lead to less compliance.

Regional Variation. When it comes to auditing America's largest corporations, the principle of equal treatment under the law does not apply. IRS data show, for example, that three out of four of the 100 largest corporations headquartered in the IRS's Upstate New York district on average have been audited in each of the past three years. For the 400 largest corporations with headquarters in the Delaware-Maryland district, only one in five were audited each year.

Among the districts where the largest corporations face the smallest chance of an audit were areas that long have been considered important national or regional business centers. In the cellar along with Delaware-Maryland were other centers of commerce such as Manhattan, Houston and New England.

TRAC is a non-partisan data gathering, research and data-distribution organization associated with Syracuse University. TRAC has been supported by the University, the Rockefeller Family Fund, the New York Times Company Foundation, the John S. and James L. Knight Foundation and many other organizations. TRAC's embargo on the tax enforcement and staffing information is intended to give news organizations adequate time to contact responsible government officials for their comments. For detailed information about where the latest data is available go to http://trac.syr.edu/media

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