Tax Administration: IRS Can Improve Its Program to Find Taxpayers Who Underreport Their Income

The Internal Revenue Service (IRS) estimates that $48 billion in 1987 income taxes were not paid because taxpayers under-reported their income. IRS primarily identifies under-reporters by computer-matching income reported on information returns (e.g., Form W-2) and on the individual tax returns. For 1987, about half of the 6.2 million under-reporter cases that IRS pursued were unproductive-that is taxpayer di not owe addition taxes. The Chairman of the Subcommittee on Commerce, Consumer, and Monetary Affairs, House Committee on Government Operations, requested that GAO determine whether IRS (1) could improve computer matching to avoid millions of unproductive under-reporter cases, and (2) was prematurely closing under-reporter cases where taxes had not been paid on income shown on information returns. GAO also agreed to determine whether IRS was notifying the Social Security Administration (SSA) after its under-reporter work found error in wages that were previously reported to SSA. Report to the Chairman, Subcommittee on Commerce, Consumer, and Monetary Affairs, Committee on Government Operations, House of Representatives.