IRS Audit Rates: Rate for Individual Taxpayers Has Declined But
Effect on Compliance Is Unknown (25-APR-01, GAO-01-484).
The Internal Revenue Service (IRS) does various compliance checks
to ensure the accuracy of information reported on taxpayers'
returns. In recent years, the audit rate--the proportion of tax
returns that IRS audits each year--has drawn attention because of
a long-term decline in audit rates and the differences in audit
rates for lower and higher income individuals. This report (1)
describes the changes in audit rates for individual income tax
returns overall and for categories, such as major sources (i.e.,
nonbusiness versus business) and levels of income for fiscal
years 1996 through 2000, (2) discusses IRS' reasons and related
data explaining the changes in audit rates, and (3) describes
what is known about the effects of changes in the audit rates on
tax compliance. In comparing fiscal years 1996 and 2000, GAO
found that the overall tax audit rate of individuals declined
about 70 percent. These rates declined regardless of the
individual taxpayer's income level. IRS cited the following three
reasons for the decline in audit rates for fiscal years 1996 to
2000. (1) the number of IRS auditors for individual returns
declined by more than half due to a decline in total staff and
decisions to change staffing priorities to focus on customer
service; (2) the remaining auditors were used in other areas,
such as assisting taxpayers, and (3) audits took longer due to
additional audit requirements, such as more written
communications with taxpayers about the status of their audit. To
explain the changes in the audit rates by income levels, IRS
officials cited increases in the number of high-income tax
returns and an audit focus on noncompliance by earned income
credit claimants, who are lower income individuals. Finally,
neither IRS nor external observers know how the decline in audit
rates affects voluntary tax compliance.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-01-484
ACCNO: A00699
TITLE: IRS Audit Rates: Rate for Individual Taxpayers Has
Declined But Effect on Compliance Is Unknown
DATE: 04/25/2001
SUBJECT: Income taxes
Tax return audits
Taxpayers
Voluntary compliance
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GAO-01-484
Report to the Chairman, Subcommittee on Oversight, Committee on Ways and
Means, House of Representatives
United States General Accounting Office
GAO
April 2001 IRS AUDIT RATES Rate for Individual Taxpayers Has Declined But
Effect on Compliance Is Unknown
GAO- 01- 484
Page i GAO- 01- 484 Audit Trends for Individuals Letter 1
Appendix I Individual Income Tax Audit Rate Trends for Fiscal Years 1996
Through 2000 17
Appendix II Assessment of Reasons Affecting Audit Rate Changes for Fiscal
Years 1996 Through 2000 22
Appendix III Audit Rates by Geographic Location for Fiscal Years 1996
Through 1999 23
Appendix IV Comments From the Internal Revenue Service 25
Appendix V GAO Contacts and Staff Acknowledgments 27
Tables
Table 1: Audit Rates for Individuals 7 Table 2: Audit Rates for Individual
Taxpayers by Primary Income
Source and Income Levels 8 Table 3: Individual Returns Audited by Type of
Audit and Auditor 9 Table 4: Audit Staffing Levels for Individual Audits 10
Table 5: Direct and Nondirect Staff Years and Percent Change by
Type of Auditor 11 Table 6: Returns Filed and Percent Change by Income Level
13 Table 7: EIC Audits as a Percent of Total Audits of Lower Income
Individuals 13 Table 8: Audit Rates for Individual Taxpayers Overall and by
Income Levels 17 Table 9: Individual Income Tax Returns Filed and Percent
Change
by Income Level 18 Table 10: Individual Income Tax Returns Audited and
Percent
Change by Income Level 19 Table 11: Combined Audit Classes of Nonbusiness
and Business
Schedule C Returns and Percent Change 19 Contents
Page ii GAO- 01- 484 Audit Trends for Individuals
Table 12: Calculation of Fiscal Year 1999 Audit Rate for Combined
Nonbusiness and Business Returns for Lower Income and Higher Income
Individuals 20 Table 13: Audits of Lower Income and Higher Income
Individuals
by Type of Audit 21 Table 14: Correspondence and Face- to- Face Audit Rates
by Income
Level 21 Table 15: Direct Audit Hours and Percent Change by Type of
Auditor 22 Table 16: Direct Audit Hours Per Audit and Percent Change by
Type of Auditor 22 Table 17: Staff Years Spent on Nonaudit Activities and
Percent
Change by Type of Auditor 22 Table18: IRS Individual Audit Rates by Region
and District Office 23 Table 19: IRS Districts With the Highest and Lowest
Audit Rates 24 Table 20: Comparison of IRS Individual Audit Rates, Including
and
Excluding Service Center Audits 24
Figures
Figure 1: Audit Rates for Lower Income and Higher Income Individuals 2
Figure 2: Audit Rates for Lower Income and Higher Income
Nonbusiness and Business Returns 3
Page 1 GAO- 01- 484 Audit Trends for Individuals
April 25, 2001 The Honorable Amo Houghton Chairman, Subcommittee on
Oversight Committee on Ways and Means House of Representatives
Every year, the Internal Revenue Service (IRS) performs a variety of
compliance checks to ensure the accuracy of information reported by
taxpayers on their tax returns. These checks include verifying computations
on returns, matching information reported by third parties to income
reported by taxpayers on returns, and requesting more information about
items on a tax return. Some of the checks were performed on virtually every
one of the approximately 125 million returns filed in 1999; others were
performed on a small subset of returns. IRS classified about 620,000 of
these compliance checks as audits, which range from contacts with taxpayers
that are simple enough to be audited through the mail to face- to- face
contacts over items that are too complex to be audited through
correspondence. 1
In recent years, the audit rate- the proportion of tax returns that IRS
audits each year- has drawn attention. The attention is due to a long- term
decline in audit rates and the difference in audit rates for lower and
higher income individuals. The decline in audit rates has raised concerns
about whether this could lead to a decline in taxpayers accurately reporting
their tax liabilities (i. e., their voluntary compliance). The 1999 audit
rate for lower income taxpayers has raised concerns about whether taxpayers
are being selected for audits in an equitable manner.
Because of the attention over audit rates, you asked us to (1) describe the
changes in audit rates for individual income tax returns overall and for
categories, such as major sources (i. e., nonbusiness versus business) 2 and
levels of income for fiscal years 1996 through 2000; (2) obtain IRS? reasons
1 Under Internal Revenue Code Section 7602, IRS can examine the taxpayer?s
books and records and solicit testimony from the taxpayer and relevant
parties regarding the accuracy of a tax return.
2 Nonbusiness sources include wages, dividends, and interest. Business
sources include self- employment income, such as income reported by
individual sole proprietors on a schedule C, which is used to compute profit
or loss.
United States General Accounting Office Washington, DC 20548
Page 2 GAO- 01- 484 Audit Trends for Individuals
and related data explaining the changes in the audit rates; and (3) describe
what is known about the effects of changes in the audit rates on tax
compliance.
Comparing fiscal years 1996 and 2000, the overall income tax audit rate of
individuals declined about 70 percent- from 1.67 percent to 0.49 percent as
shown in figure 1. Rates declined regardless of the individual taxpayer?s
income level.
Figure 1: Audit Rates for Lower Income and Higher Income Individuals
Note 1: Lower income includes individuals reporting income less than $25,000
and higher income includes individuals reporting income of $100,000 or more.
Note 2: The overall audit rate falls below the other two lines because it
also includes audits of other individuals, such as those reporting moderate
income on their tax returns.
Source: GAO analysis of IRS data.
Results in Brief
0 0.5
1 1.5
2 2.5
3 3.5
1996 1997 1998 1999 2000 Fiscal year Audit rate (percent)
Higher income Lower income Overall audit rate
Page 3 GAO- 01- 484 Audit Trends for Individuals
In any given year, figure 1 also shows a greater audit rate for higher
income individuals than for lower income individuals. When the higher and
lower income groups are divided by major source of income, as shown in
figure 2, some exceptions to this pattern are apparent. For individuals
relying on nonbusiness income, those with lower incomes were audited at a
greater rate in fiscal year 1999 than those with higher incomes. For
individuals relying on business income, those with lower incomes were
audited at a greater rate in fiscal years 1996, 1999, and 2000.
Figure 2: Audit Rates for Lower Income and Higher Income Nonbusiness and
Business Returns
Source: GAO analysis of IRS data. Note: Lower income includes individuals
reporting income less than $25, 000 and higher income includes individuals
reporting income of $100,000 or more.
0 0.5
1 1.5
2 2.5
3 3.5
4 4.5
1996 1997 1998 1999 2000 Fiscal year
Nonbusiness- lower income Nonbusiness- higher income Business- lower income
Business- higher income
Audit rate (percent)
Page 4 GAO- 01- 484 Audit Trends for Individuals
Comparing the type of audits and the income level of the audited
individuals, most audits were correspondence audits and most lower income
individuals were audited through correspondence. Most audited higher income
individuals were audited through face- to- face audits.
According to IRS officials, audit rates declined for fiscal years 1996 to
2000 for three main reasons. First, over this period, the number of IRS
auditors for individual returns declined by more than half for reasons such
as a decline in total staff and decisions to change staffing priorities to
better serve taxpayers before they file their returns. Second, IRS was more
likely to use the remaining auditors in other duties, such as assisting
taxpayers. Third, audits took longer due to additional audit requirements,
such as more written communications with taxpayers about the status of their
audit. To explain the changes in the audit rates by income levels, IRS
officials cited increases in the number of high- income tax returns and an
audit focus on noncompliance by earned income credit (EIC) claimants, who
are usually lower income individuals. IRS? raw data were generally
consistent with IRS? reasons. We could not establish the relative influence
of each reason on the changes in the audit rate.
The specific effect of the recent decline in the audit rate on the level of
voluntary compliance is not known for several reasons. First, IRS does not
have current reliable information on levels of voluntary compliance. Even
with this information, IRS would still need to take a number of steps to try
to determine the specific link between compliance and audit rates. Second,
because nonaudit and audit programs are designed to ensure tax compliance,
it is possible that expansion of IRS? nonaudit compliance programs could
compensate to some degree for declining audit rates. Third, improvements in
assisting and educating taxpayers about their tax obligations could
similarly compensate to some degree for declining audit rates. Because IRS
does not have reliable, updated information on voluntary compliance, we do
not know the net effects on tax compliance of the declining audit rates,
changes in the volume of nonaudit checks, and any improvements in IRS?
educational efforts.
Annually, IRS audits some tax returns to determine whether taxpayers
complied with the tax laws. IRS attempts to select returns for audit that
have an indication of potential noncompliance based on, for example, its
formula for flagging suspicious returns. IRS believes that a credible threat
of being audited deters some noncompliance. IRS audits check compliance in
reporting income, deductions, and other return items as well as in paying
the correct tax liability. To conduct these compliance Background
Page 5 GAO- 01- 484 Audit Trends for Individuals
checks, IRS auditors ask taxpayers for documentation about specific items on
their returns.
IRS conducts two types of audits, face- to- face and correspondence, using
three classes of auditors- revenue agents, tax auditors, and tax examiners.
Face- to- face audits can be either (1) field audits, in which an IRS
revenue agent visits an individual who has business income or a complex
return, or (2) office audits, in which an individual who has a less complex
return visits a tax auditor at an IRS office. Correspondence audits, as the
name suggests, are done by tax examiners who correspond with taxpayers
through the mail. Correspondence audits usually involve one line item on a
return. Because correspondence audits involve fewer and usually simpler tax
return items, they are less likely to burden taxpayers in terms of time,
contacts with IRS, and documentation provided to IRS.
IRS also checks compliance and contacts individual taxpayers through
nonaudit enforcement programs. For example, IRS? math error program checks
returns for math and consistency errors and contacts taxpayers if such
errors are found. IRS? underreporter program matches the income reported on
tax returns with the information returns (e. g., W- 2 forms) filed by third
parties, such as employers who pay wage income. If discrepancies are found,
then taxpayers are mailed a notice. Although such contacts can be similar to
correspondence audit contacts, IRS does not define them as audit contacts. 3
Over the years, IRS has shifted contacts between the audit and nonaudit
categories. For example, in fiscal 1997, IRS shifted over 700,000 cases
involving missing or invalid social security numbers on tax returns from the
correspondence audit program to the math error program. Changes in the
definition of an audit could contribute to decreases or increases in the
audit rate.
To describe changes in audit rates for individuals (as opposed to
partnership or corporate taxpayers), we used IRS? method for computing audit
rates. For all taxpayers and by taxpayer categories, the audit rate equals
the proportion of IRS audits closed in a fiscal year compared to returns
filed in the previous calendar year. We used data from IRS? Databook, Audit
Information Management System, and Statistics of
3 See Tax Administration: IRS? Use of Nonaudit Contacts (GAO/ GGD- 00- 7,
Mar. 16, 2000) for further discussion of nonaudit contacts and their
relationship to audit contacts. Scope and
Methodology
Page 6 GAO- 01- 484 Audit Trends for Individuals
Income about individual income tax returns filed in calendar years 1995
through 1999 and audits of the returns that closed in fiscal years 1996
through 2000. This allowed us to describe the changes and update the audit
rate trends in earlier reports. 4
We also described audit rates by various categories. One category was the
income reported on individual income tax returns, which IRS divides into
broad groups. Under IRS? grouping, lower income individuals report income
under $25,000 and higher income individuals report $100,000 or more of
income on their tax returns. Other categories included the types of IRS
audit, IRS office locations, and the major income sources. Nonbusiness
sources include individuals who generated most of their income from sources
such as wages, dividends, and interest. Business sources include individuals
who generated most of their income from selfemployment and reported that
income on a schedule C (nonfarm income) or schedule F (farm income). For
comparisons of lower and higher income by source of income, we excluded
schedule F income because IRS? data only split schedule F income into groups
under and over $100,000. We did include Schedule F taxpayers in the overall
audit rate.
We interviewed officials from IRS? Examination Division and the Brookhaven
Service Center to discuss IRS? reasons for changes in the audit rates from
fiscal years 1996 through 2000. We also obtained available IRS data related
to the reasons given by IRS officials. For example, we obtained IRS data on
changes in the number of auditors and number of hours spent doing audits. We
checked for inconsistencies between the raw data and the reasons that IRS
officials gave us. However, due to time constraints, we did not do any more
detailed analyses to determine the extent to which IRS? reasons explained
the changes in audit rates. Nor did we attempt to identify reasons beyond
those offered by IRS.
To describe what is known about the potential effects of changes in the
audit rates on tax compliance, we used our previous and ongoing work on IRS
audits, other IRS enforcement programs, and tax compliance. We also used
information from our discussions with IRS officials.
4 See Tax Administration: Audit Trends and Results for Individual Taxpayers
(GAO/ GGD- 96- 91, Apr. 26, 1996), which discussed audit rates for
individuals during fiscal years 1988- 95. We issued a report ( Tax
Administration: IRS? Audit and Criminal Enforcement Rates for Individual
Taxpayers Across the Country, GAO/ GGD- 99- 19, Dec. 23, 1998) on geographic
audit rates. Appendix III updates such audit rates for fiscal years 199699.
Page 7 GAO- 01- 484 Audit Trends for Individuals
We did our work at IRS? national office in Washington, D. C., between
September 2000 and March 2001 in accordance with generally accepted
government auditing standards.
We requested comments on a draft of this report from the Commissioner of
Internal Revenue. We received written comments from the Commissioner in a
letter dated April 19, 2001. The comments are reprinted in appendix IV and
discussed at the end of this letter.
From fiscal years 1996 through 2000, the overall income tax audit rate of
individuals declined. As table 1 shows, IRS? annual audit rates for
individuals declined from 1.67 percent to 0.49 percent- about 70 percent.
The table also shows that the audit rates fell for all major sources of
income- nonbusiness as well as schedule C and schedule F business returns-
over the 5 years.
Table 1: Audit Rates for Individuals
Returns and audits in thousands
Individual taxpayers 1996 1997 1998 1999 2000 Percent change
Individual income tax returns 116,059.7 118,362.6 120,342.4 122,546.9
124,887.1 8 Individual audits 1, 941.6 1, 519.2 1, 192.8 1, 100.3 617.8 -68
Audit rates (percent) 1. 67 1. 28 0. 99 0. 90 0. 49 -70
Nonbusiness 1.54 1.15 0.88 0.82 0.42 -73 Schedule C 3. 60 3. 15 2. 35 2. 03
1. 55 -57 Schedule F 2. 29 1. 82 1. 21 0. 90 0. 54 -77
Source: GAO analysis of IRS data.
Table 1 also shows that the audit rate patterns for each year changed little
from fiscal years 1996 to 2000. Schedule C business returns were more than
twice as likely to be audited than the nonbusiness returns in each year.
Table 2 shows that audit rates declined about equally- 67 percent and 70
percent, respectively- for lower and higher income individuals. When
taxpayers are separated into nonbusiness and business income groups, audit
rates declined at least 42 percent from fiscal years 1996 to 2000 for lower
and higher income individuals in the two groups. Individual Audit Rates
Have Been Declining Overall and Across Various Categories
Page 8 GAO- 01- 484 Audit Trends for Individuals
Table 2: Audit Rates for Individual Taxpayers by Primary Income Source and
Income Level Primary income source and income level a 1996 1997 1998 1999
2000 Percent
change Nonbusiness and schedule C business incomes
Lower income 1.91% 1.46% 1.12% 1.24% 0.63% -67 Higher income 3.19 2.74 2.03
1.40 0.96 -70
Nonbusiness income
Lower income 1.82 1.39 1.06 1.18 0.55 -70 Higher income 2.85 2.27 1.66 1.14
0.84 -70
Schedule C business income
Lower income 4.21 3.19 2.37 2.69 2.43 -42 Higher income 4.09 4.13 3.25 2.40
1.48 -64
Note: See table 12 for an explanation of how audit rates were calculated for
fiscal year 1999. a Lower income includes individuals reporting income less
than $25,000 and higher income includes individuals reporting income of
$100,000 or more.
Source: GAO analysis of IRS data.
Table 2 also shows that higher income individuals were more likely to be
audited than lower income individuals in each of the 5 years. However,
exceptions to this pattern emerged when these audit rates by income level
were analyzed by source of income. First, in the nonbusiness group, IRS was
more likely to audit lower income individuals only in fiscal year 1999.
Second, in the business group (schedule C), the rates fluctuated by income
levels. IRS was more likely to audit lower income individuals in fiscal year
1996, higher income individuals in fiscal years 1997 and 1998, and lower
income individuals in fiscal years 1999 and 2000.
Most audits of lower income individuals were correspondence audits, with the
proportion of audits of lower income individuals that were correspondence
audits ranging from 69 to 84 percent over the 5 years. Audits of higher
income individuals were mostly face- to- face audits, ranging from 62 to 75
percent over the 5 years. (See table 13 in app. I for details.)
Correspondence and face- to- face audit rates also varied by taxpayer
income. For example, in fiscal year 2000, the face- to- face audit rate
(faceto- face audits divided by all returns filed) for higher income
individuals was 0.60 percent compared with 0.13 percent for lower income
individuals. For correspondence audits in fiscal year 2000, the audit rate
for higher income individuals was 0.37 percent and for lower income
individuals was 0.50 percent. (See table 14 in app. I for details.)
Page 9 GAO- 01- 484 Audit Trends for Individuals
Table 3 shows that both types of face- to- face audits (field and office)
and correspondence audits declined by similar rates from 1996 to 2000. Table
3 also shows that correspondence/ tax examiner audits accounted for over
half of all audits in each year (ranging from 54 percent to 67 percent) and
that the number of audits declined each year for all types of audits/
auditors except for correspondence audits in fiscal year 1999.
Table 3: Individual Returns Audited by Type of Audit and Auditor Individual
returns audited Audit/ auditor type 1996 1997 1998 1999 2000 Percent
change
Field/ revenue agents 252,430 209,781 168,054 124,518 91,586 -64 Office/ tax
auditors 509,420 505,834 383,366 235,625 145,975 -71 Correspondence/ tax
examiners 1,179,696 803,628 641,360 740,130 380,204 -68
Total 1,941,546 1,519,243 1,192,780 1,100,273 617,765 -68
Note: With very few exceptions, revenue agents do field audits, tax auditors
do office audits, and tax examiners do correspondence audits. Tax examiner
totals for fiscal years 1998, 1999, and 2000 also include service center
totals from IRS? data.
Source: GAO analysis of IRS data.
The declines in audit rates were spread uniformly across IRS? four regions.
However, audit rates varied by region. The audit rates declined about 50
percent in each of IRS? four regional offices from fiscal years 1996 to
1999. 5 For each of these 4 years, the range of audit rates was highest in
the Western Region (1.09 to 0. 47 percent) compared to the Northeast Region
(0.44 to 0.23 percent), the Southeast Region (0.58 to 0.28), and the
Midstates Region (0. 62 to 0.32 percent). (See tables 18, 19, and 20 in app.
III.)
According to IRS officials, overall audit rates declined for fiscal years
1996 to 2000 for three main reasons. First, IRS had fewer auditors for
individual returns for reasons that include a decline in staff and decisions
to change staffing priorities to focus on customer service. Second, IRS was
more likely to use the remaining auditors in other duties, such as assisting
taxpayers. Third, audits took longer due to additional requirements, such as
more written communications with taxpayers about the status of their audit.
With respect to changes in the audit rate by income levels, IRS
5 Fiscal year 1999 return filings by geographical location were not
available for us to compute the related audit rates for fiscal year 2000.
IRS Officials Cited
Several Reasons for the Changes in Individual Audit Rates
Page 10 GAO- 01- 484 Audit Trends for Individuals
officials cited an increase in the number of high- income tax returns and an
audit focus on noncompliance by earned income credit claimants, who are
usually lower income individuals. IRS? raw data were generally consistent
with all these reasons. However, due to time constraints, we did not analyze
the data to determine the extent to which IRS? reasons explained the changes
in audit rates.
According to IRS officials, IRS did fewer audits between fiscal years 1996
and 2000, in part because it had fewer auditors. IRS officials explained
that auditor staff levels declined for two reasons. First, tight budgets in
the 1990s reduced overall staffing levels. Second, IRS put more staff in
positions to serve taxpayers and generally has not hired revenue agents or
tax auditors since 1995.
As shown in table 4, the number of revenue agent and tax auditor positions
assigned to audit individual income tax returns declined steadily since
1996. By fiscal year 2000, the number of these positions declined about 54
percent for revenue agents and about 61 percent for tax auditors. This
represents a loss of over 2,000 staff years for audit staff devoted to field
and office audits. On the other hand, tax examiner positions, which do the
simpler correspondence audits, increased 13 percent, or 200 positions,
between fiscal years 1997 and 2000 (data for fiscal year 1996 were not
available).
Table 4: Audit Staffing Levels for Individual Audits Fiscal year Change Type
of auditor 1996 1997 1998 1999 2000 Number Percent
Revenue agents 2, 441 2,121 1,751 1,407 1,116 -1,325 -54 Tax auditors 1,173
1,045 797 621 461 -712 -61 Tax examiners a 1,515 b 1,772 b 1,740 1,715 200 c
13 c
Total a 4,681 4,320 3,768 3,292 a a
a IRS was not able to provide tax examiner data for fiscal year 1996. b Tax
examiner totals for fiscal years 1997 and 1998 are IRS estimates. c Only
covers change from fiscal year 1997 to 2000.
Source: GAO analysis of IRS data.
IRS officials also said that its auditors spent less time auditing in fiscal
years 1996 through 2000. Our analysis of IRS? data, as shown in table 5,
indicates that for individual income tax returns, the average amount of
direct audit time- actual time doing audit work- has declined in IRS Auditor
Staffing Levels
Declined Auditors Spent More Time on Other Activities
Page 11 GAO- 01- 484 Audit Trends for Individuals
comparison to time spent on nondirect audit activities. Nondirect audit
activities include taxpayer assistance, other details, and training.
Table 5: Direct and Nondirect Staff Years and Percent Change by Type of
Auditor Type of auditor 1996 1997 1998 1999 2000 Percent
change Revenue agents
Direct audit 7,924 7,765 6,840 5,903 5,265 -34 Nondirect audit 7, 159 6,634
6,807 7,158 7,285 2 Total staff years 15,083 14,399 13,647 13,061 12,550 -17
Direct audit percent 0.53 0.54 0.50 0.45 0.42 -20
Tax auditors
Direct audit 1,280 1,164 906 725 566 -56 Nondirect audit 1, 205 1,154 1,207
1,204 1,136 -6 Total staff years 2, 485 2,318 2,113 1,930 1,702 -32 Direct
audit percent 0.51 0.50 0.43 0.38 0.33 -35
Source: GAO analysis of IRS data.
Part of the reason for the decline in auditing is that revenue agents and
tax auditors spent increasingly more time providing taxpayer assistance
between fiscal years 1996 and 2000. The amount of time spent on taxpayer
assistance by revenue agents increased from about 1.0 percent of available
staff years in 1996 to about 4.4 percent of available staff years in 2000.
The amount of time spent on taxpayer assistance by tax auditors increased
from about 1.4 percent of available staff years in 1996 to about 12.3
percent of available staff years in 2000. IRS did not have comparable data
for assistance provided by tax examiners who had been slated to do audits.
In addition, revenue agents and tax auditors had less time to audit because
of increased time in training. (See table 17 in app. II for additional
information on revenue agent and tax auditor training.) Considering the 54-
percent decrease in the number of revenue agents, the training time per
revenue agent increased about 227 percent. The training time per tax auditor
over the same 5 years increased about 95 percent. IRS did not have
comparable training data on tax examiners.
Finally, IRS officials said that auditors generally took longer to finish
audits during fiscal years 1996 to 2000. Our analysis of IRS? data for this
period (see table 16 in app. II) showed that the average time to finish an
audit increased for all types of auditors, including about IRS Auditors
Spent More
Time to Finish Each Audit
Page 12 GAO- 01- 484 Audit Trends for Individuals
37 percent (20.2 hours to 27.6 hours) for revenue agents (field audits),
56 percent (4.6 hours to 7.1 hours) for tax auditors (office audits), and
153 percent (0.7 hours to 1.8 hours) for tax examiners (correspondence
audits).
IRS officials told us that Internal Revenue Service Restructuring and Reform
Act of 1998 requirements increased audit time. 6 Among other things, these
requirements resulted in IRS auditors having to send more notices to
taxpayers and third parties that provide information about the taxpayer
being audited. New requirements to explain innocent spouse provisions and to
protect taxpayers under audit have generated more review work. These
officials said the act has created many new tasks during audits. Other
factors, such as the experience level of the auditor and complexity of the
audit, also affected audit time per return. For example, IRS officials said
that they lost many experienced auditors to higher graded positions
elsewhere in IRS. Because multiple factors affect audit time per return,
determining the contribution of each factor to changes in audit time could
be difficult. Because of time constraints, we did not attempt such an
analysis.
IRS officials offered two reasons why the audit rates for lower income
individuals exceeded the rates for higher income individuals in selected
years among the nonbusiness and business groups. First, as table 6 shows,
the number of higher income returns filed in calendar years 1995 through
1999 that were subject to audits in fiscal years 1996 to 2000 significantly
increased compared with the number of lower income returns filed. For
nonbusiness returns, the number of higher income returns filed rose 80
percent compared with a 5- percent decrease for lower income returns filed.
For business returns, the number of higher income individual returns
increased about three times the rate of lower income business returns.
6 P. L. 105- 206. IRS Cited Other Reasons
for the Varying Individual Audit Rates by Income Levels
Page 13 GAO- 01- 484 Audit Trends for Individuals
Table 6: Returns Filed and Percent Change by Income Level Returns filed in
calendar year Income level a 1995 1996 1997 1998 1999 Percent
change Nonbusiness returns
Lower income 59,211,700 58,790,700 58,266,600 57,432,900 56,247,800 -5
Higher income 4,540,800 5,260,500 6,044,700 7,025,000 8,151,600 80
Schedule C business returns
Lower income 2,436,300 2,464,700 2,530,100 2,546,800 2,541,000 4 Higher
income 1,738,300 1,770,700 1,835,500 1,876,000 1,948,900 12
Note: Returns filed in calendar years1995 through 1999 are used to compute
the audit rates for fiscal years 1996 through 2000. a Lower income includes
individuals reporting income less than $25,000 and higher income includes
individuals reporting income of $100,000 or more. Source: GAO analysis of
IRS data.
Second, IRS? audits in fiscal years 1997 through 2000 have continued to
focus on EIC noncompliance, usually by lower income individuals. 7 As table
7 shows, EIC audits, usually correspondence audits, accounted for a large
percent of the audits of lower income taxpayers, regardless of their major
source of income. In fact, the EIC portion of all audits for lower income
taxpayers in fiscal year 2000 was more than double the fiscal year 1997 EIC
portion of these audits.
Table 7: EIC Audits as a Percent of Total Audits of Lower Income Individuals
Fiscal year Audit type 1997 1998 1999 2000
Total audits of lower income individuals a 895,625 679,088 745,614 369,912
Service center EIC audits b 360,101 290,010 572,594 325,654 EIC as percent
of total audits 40% 43% 77% 88%
Note: IRS was unable to provide EIC data for fiscal year 1996. a Excludes
Schedule F filers because IRS data do not show how many of these filers
reported less
than $25,000. b District office audits might cover EIC in part, but IRS does
not uniformly capture that information.
Source: GAO analysis of IRS data.
7 Congress enacted EIC in 1975, as a refundable tax credit available to
lower income, working taxpayers, to offset the effect of social security
taxes on lower income families and to encourage these taxpayers to seek
employment rather than welfare.
Page 14 GAO- 01- 484 Audit Trends for Individuals
IRS officials also said that a project to address noncompliance by schedule
C filers who claimed EIC explained the greater audit rates for lower income
business filers compared with those with higher incomes during fiscal years
1999 and 2000.
The specific effect of the recent decline in the audit rate on the level of
voluntary compliance is not known. One reason is that IRS does not have
current reliable information on the levels of voluntary compliance. IRS last
measured overall income tax compliance for tax year 1988. IRS and others are
concerned that changes in the tax laws, economy, and demographics since 1988
have made the compliance information out of date.
Even if IRS had this information, IRS would still need to take a number of
steps to try to determine the specific link between changes in audits and
changes in voluntary compliance levels. Historically, measuring the specific
impact of audit rate changes on voluntary compliance has been difficult. It
is difficult to collect data on nonaudit factors that also can affect
voluntary compliance levels, and then to control for these factors in order
to isolate the impact of audit rate changes.
For example, it is difficult to determine the effect of declining audit
rates on voluntary compliance when IRS? nonaudit checks could offset to some
degree any negative effects of declining audit rates on compliance. Since
the 1970s, for example, the underreporter program has grown, covering more
types of income especially among nonbusiness taxpayers. IRS also uses the
math error program to help ensure taxpayer compliance. Since the math error
and underreporter checks can be similar to correspondence audits, growth in
these programs may offset to some degree the decline in the audit rate.
Furthermore, it has also been difficult to measure how improvements in
assisting and educating taxpayers about their tax obligations compensate for
declining rates. These IRS efforts, although not designed to find
noncompliance, could help taxpayers to voluntarily comply. To the extent
that education efforts succeed in promoting compliance, overall compliance
would not necessarily decline if the audit rate declines. IRS has been
allocating more resources to taxpayer assistance and education. One example
is the increased use of revenue agents and tax auditors to provide taxpayer
assistance.
Because IRS does not have a measure of voluntary compliance, we do not know
the net effects on tax compliance levels of the declining audit rates,
Effect of the Recent
Declining Audit Rate on Tax Compliance Levels Is Not Known
Page 15 GAO- 01- 484 Audit Trends for Individuals
changes in the volume of nonaudit checks, and any improvements in IRS?
educational efforts.
On April 19, 2001, we received written comments on a draft of this report
from the Commissioner of Internal Revenue (see app. IV.). The Commissioner
said that IRS agrees with our presentation and analysis of the audit rate
data as well as with the need for current and reliable data on voluntary
compliance. The Commissioner agreed that changes in the economy and tax laws
have rendered IRS? compliance data obsolete. The Commissioner?s comments
also expanded on what IRS officials told us during our work about the
reasons for the audit rate decline. Specifically, the comments said that two
provisions (sections 1203 and 1204) of the Restructuring and Reform Act of
1998 created a cautionary environment that led to audits taking longer. 8
The Commissioner also said that the report did not acknowledge historical
data in two studies-- one by IRS and one by external researchers-- on the
effects of the decline in audit rates on voluntary compliance. 9 We did not
acknowledge these studies in the report because, while they estimate a
relationship between audits and compliance, they are not based on current
data. The most recent of the studies used data from 1982 through 1991.
Because of the possibility that changes over time in the economy, tax laws,
demographics, and IRS compliance programs have changed the relationship
between audit rates and voluntary compliance, we did not cite the studies.
These two studies did report a positive relationship between audit rates and
voluntary compliance. This finding is consistent with the concern, which we
describe in the report, that a decline in audit rates could lead to a
decline in voluntary compliance.
As arranged with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this letter until 30 days from
its
8 Section 1203 requires the Commissioner of Internal Revenue to terminate
any IRS employee that was proven to have committed certain violations in
connection with the performance of official duties. Section 1204 prohibits
the use of enforcement statistics in imposing or suggesting production
quotas or in evaluating employee performance.
9 Upon checking with IRS officials, we found out that these two studies are
Dubin, Graetz, and Wilde, ?The Effect of Audit Rates on the Federal Income
Tax, 1977- 1986,? National Tax Journal (1990), and The Determinants of
Individual Income Tax Compliance: Estimating the Impacts of Tax Policy,
Enforcement, and IRS Responsiveness (IRS Pub. 1916, 1996). Agency Comments
Page 16 GAO- 01- 484 Audit Trends for Individuals
date of issue. We will then send copies to Representative William M. Thomas,
Chairman, and Representative Charles B. Rangel, Ranking Minority Member,
House Committee on Ways and Means; Representative William J. Coyne, Ranking
Minority Member, Subcommittee on Oversight, House Committee on Ways and
Means, and Senator Charles E. Grassley, Chairman, and Senator Max Baucus,
Ranking Minority Member, Senate Committee on Finance. We will also send
copies to the Honorable Paul H. O?Neill, Secretary of the Treasury; the
Honorable Charles O. Rossotti, Commissioner of Internal Revenue; the
Honorable Mitchell E. Daniels, Jr., Director, Office of Management and
Budget; and other interested parties. Copies of this report will be made
available to others upon request.
If you have any questions, please contact me or Tom Short at (202) 5129110.
Key contributors to this report are acknowledged in appendix V.
James R. White Director, Tax Issues
Appendix I: Individual Income Tax Audit Rate Trends for Fiscal Years 1996
Through 2000
Page 17 GAO- 01- 484 Audit Trends for Individuals
Table 8: Audit Rates for Individual Taxpayers Overall and by Income Level
Fiscal year audit rate Income level 1996 1997 1998 1999 2000 Percent change
Overall audit rate for individuals 1.67% 1.28% 0.99% 0.90% 0.49% -70%
Nonbusiness returns
TPI under $25,000 1. 82 1. 39 1. 06 1. 18 0. 55 -70 TPI $25,000 under
$100,000 1.03 0.73 0.60 0.36 0.22 -78 TPI $100,000 and over 2.85 2.27 1.66
1.14 0.84 -70
Subtotal 1.54 1.15 0.88 0.82 0.42 -73 Business returns Schedule C
TGR under $25,000 4.21 3.19 2.37 2.69 2.43 -42 TGR $25,000 under $100, 000
2.85 2.57 1.82 1.30 0.93 -67 TGR $100,000 and over 4.09 4.13 3.25 2.40 1.48
-64
Subtotal 3.60 3.15 2.35 2.03 1.55 -57 Schedule F
TGR under $100, 000 1.59 1.28 0.93 0.68 0.35 -78 TGR $100,000 and over 3.61
2.75 1.63 1.23 0.80 -78
Subtotal 2.29 1.82 1.21 0.90 0.54 -77
Legend TPI = total positive income (income from positive sources only)
Schedule C- TGR = total gross receipts (profit or loss from business)
Schedule F- TGR = total gross receipts (profit or loss from farming) Note:
We combined two of IRS? income levels ($ 25,000 to $50,000 and $50,000 to
$100,000) into one income group ($ 25,000 to $100,000) because their audit
rates were similar.
Source: GAO analysis of IRS data.
Appendix I: Individual Income Tax Audit Rate Trends for Fiscal Years 1996
Through 2000
Appendix I: Individual Income Tax Audit Rate Trends for Fiscal Years 1996
Through 2000
Page 18 GAO- 01- 484 Audit Trends for Individuals
Table 9: Individual Income Tax Returns Filed and Percent Change by Income
Level Returns filed by calendar year Income level 1995 1996 1997 1998 1999
Percent
change Total individual returns filed 116,059,700 118,362,600 120,342,400
122,546,900 124,887,100 8 Nonbusiness returns
TPI under $25,000 59,211,700 58,790,700 58,266,600 57,432,900 56,247,800 -5
TPI $25,000 under $100,000 44,282,200 46,205,800 47,736,300 49,704,900
51,987,400 17 TPI $100,000 and over 4,540,800 5,260,500 6,044,700 7,025,000
8,151,600 80
Subtotal 108,034,700 110,257,000 112,047,600 114,162,800 116,386,800 8
Business returns Schedule C
TGR under $25,000 2,436,300 2,464,700 2,530,100 2,546,800 2,541,000 4 TGR
$25,000 under $100, 000 3,082,000 3,140,300 3,228,300 3,267,300 3,351,100 9
TGR $100,000 and over 1,738,300 1,770,700 1,835,500 1,876,000 1,948,900 12
Subtotal 7,256,600 7,375,700 7,593,900 7,690,100 7,841,000 8 Schedule F
TGR under $100, 000 500,800 459,200 424,500 417,000 391,200 -22 TGR $100,000
and over 267,600 270,700 276,400 277,000 268,100 0
Subtotal 768,400 729,900 700,900 694,000 659,300 -14
Legend TPI = total positive income (income from positive sources only)
Schedule C- TGR = total gross receipts (profit or loss from business)
Schedule F- TGR = total gross receipts (profit or loss from farming) Note 1:
We combined two of IRS? audit income levels ($ 25,000 to $50, 000 and
$50,000 to $100, 000) into one income group ($ 25,000 to $100,000) because
their audit rates were similar.
Note 2: Returns filed in calendar years1995 through 1999 are used to compute
fiscal years 1996 through 2000 audit rates.
Source: GAO analysis of IRS data.
Appendix I: Individual Income Tax Audit Rate Trends for Fiscal Years 1996
Through 2000
Page 19 GAO- 01- 484 Audit Trends for Individuals
Table 10: Individual Income Tax Returns Audited and Percent Change by Income
Level Returns audited by fiscal year Income level 1996 1997 1998 1999 2000
Percent
change Total individual audits 1,941,546 1,519,243 1,192,780 1,100,273
617,765 -68 Nonbusiness returns
TPI under $25,000 1, 076,945 817,072 619,065 677,164 308,217 -71 TPI $25,000
under $100,000 456,376 336,819 286,552 181,038 115,696 -75 TPI $100,000 and
over 129,320 119,575 100,079 80,038 68,616 -47
Subtotal 1,662,641 1,273,466 1,005,696 938,240 492,529 -70 Business returns
Schedule C
TGR under $25,000 102,558 78,553 60,023 68,450 61,695 -40 TGR $25,000 under
$100, 000 87,691 80,861 58,877 42,391 31,226 -64 TGR $100,000 and over
71,050 73,049 59,728 44,945 28,781 -59
Subtotal 261,299 232,463 178,628 155,786 121,702 -53 Schedule F
TGR under $100, 000 7,944 5,868 3,949 2,832 1,384 -83 TGR $100,000 and over
9,662 7,446 4,507 3,415 2,150 -78
Subtotal 17,606 13,314 8, 456 6,247 3,534 -80
Legend TPI = total positive income (income from positive sources only)
Schedule C- TGR = total gross receipts (profit or loss from business)
Schedule F- TGR = total gross receipts (profit or loss from farming) Note:
We combined two of IRS? audit income levels ($ 25,000 to $50,000 and $50,000
to $100,000) into one income group ($ 25,000 to $100,000) because their
audit rates were similar.
Source: GAO analysis of IRS data.
Table 11: Combined Audit Classes of Nonbusiness and Business Schedule C
Returns and Percent Change Audit rate by fiscal year Nonbusiness and
business schedule C income level 1996 1997 1998 1999 2000 Percent
change
Under $25,000 1. 91% 1.46% 1.12% 1.24% 0.63% -67% $25,000 under $100,000 1.
15 0. 85 0. 68 0. 42 0. 27 -77 $100,000 and over 3.19 2.74 2.03 1.40 0.96
-70
Note: We combined two of IRS? audit income levels for nonbusiness and
schedule C returns into 3 income levels of under $25,000, between $25,000
and less than $100, 000, and $100,000 and over.
Source: GAO analysis of IRS data.
Appendix I: Individual Income Tax Audit Rate Trends for Fiscal Years 1996
Through 2000
Page 20 GAO- 01- 484 Audit Trends for Individuals
Table 12: Calculation of Fiscal Year 1999 Audit Rate for Combined
Nonbusiness and Business Returns for Lower Income and Higher Income
Individuals
Income level Returns filed Returns
audited Audit rate Percent of
combined audit rate Nonbusiness
Lower income 57,432,900 677,164 1. 18% 96% Higher income 7,025,000 80,038 1.
14 79
Subtotal 64,457,900 757,202 a a
Business
Lower income 2,546,800 68,450 2. 69 4 Higher income 1,876,000 44,945 2. 40
21
Subtotal 4,422,800 113,395 a a
Combined nonbusiness and business
Lower income 59,979,700 745,614 1. 24 100 Higher income 8,901,000 124,983 1.
40 100
Subtotal 68,880,700 870,597 a a a Not applicable.
Source: GAO analysis of IRS data.
The audit rate for lower income individuals is greater than the rate for
higher income individuals for both nonbusiness and business filers in fiscal
year 1999. However, when nonbusiness and business filers are combined into
one category the audit rate for higher income individuals is greater than
the audit rate for lower income individuals.
This occurs due to the large number of lower income nonbusiness filers (57.4
million) compared to the number of lower income business filers (2.5
million). As a result, the combined audit rate for lower income individuals
is more dominated by the audit rate for nonbusiness filers (1. 18 percent)
and less dominated by the audit rate for business filers (2.69 percent).
Therefore, the combined audit rate only increases to 1.24 percent from the
1.18- percent audit rate for lower income nonbusiness filers.
On the other hand, the difference between the number of higher income
nonbusiness filers (7 million) and the number of higher income business
filers (1.9 million) is not nearly as large as for lower income individuals.
As a result, the combined audit rate for higher income filers is less
dominated by the audit rate for nonbusiness filers (1.14 percent) and more
dominated by the audit rate for business filers (2.40 percent) compared to
lower income filers. Therefore, the combined audit rate increases to 1.40
percent from the 1. 14- percent audit rate for higher income nonbusiness
filers.
Appendix I: Individual Income Tax Audit Rate Trends for Fiscal Years 1996
Through 2000
Page 21 GAO- 01- 484 Audit Trends for Individuals
Table 13: Audits of Lower Income and Higher Income Individuals by Type of
Audit Fiscal year Income level 1996 1997 1998 1999 2000 Lower income
Total correspondence audits 855, 789 614, 628 471, 279 624, 078 291, 462
Total face- to- face audits 323, 714 280, 997 207, 809 121, 536 78,450
Total audits 1,179,503 895, 625 679, 088 745, 614 369, 912
Percent of audits that are correspondence audits 73% 69% 69% 84% 79% Percent
of audits that are face- to- face audits 27% 31% 31% 16% 21%
Total percent 100% 100% 100% 100% 100% Higher income
Total correspondence audits 68,851 52,614 39,343 33,489 37,034 Total face-
to- face audits 131, 519 140, 010 120, 464 91,494 60,363
Total audits 200, 370 192, 624 159, 807 124, 983 97,397
Percent of audits that are correspondence audits 34% 27% 25% 27% 38% Percent
of audits that are face- to- face audits 66% 73% 75% 73% 62%
Total percent 100% 100% 100% 100% 100%
Source: GAO analysis of IRS data.
Table 14: Correspondence and Face- to- Face Audit Rates by Income Level Type
of audit 1996 1997 1998 1999 2000 Correspondence
Lower income audits 855,789 614,628 471,279 624,078 291,462 Higher income
audits 68,851 52,614 39,343 33,489 37,043 Lower income audit rate 1.39%
1.00% 0.78% 1.04% 0.50% Higher income audit rate 1.10% 0.75% 0.50% 0.38%
0.37%
Face- to- Face
Lower income audits 323,714 280,997 207,809 121,536 78,450 Higher income
audits 131,519 140,010 120,464 91,494 60,363 Lower income audit rate 0.53%
0.46% 0.34% 0.20% 0.13% Higher income audit rate 2.09% 1.99% 1.53% 1.03%
0.60%
Source: GAO analysis of IRS data.
Appendix II: Assessment of Reasons Affecting Audit Rate Changes for Fiscal
Years 1996 Through 2000
Page 22 GAO- 01- 484 Audit Trends for Individuals
Table 15: Direct Audit Hours and Percent Change by Type of Auditor Type of
auditor 1996 1997 1998 1999 2000 Percent
change
Revenue agents 5, 100,559 4,582,079 3,710,634 3,093,550 2,531,153 -50 Tax
auditors 2,320,524 2,083,472 1,722,219 1,332,571 1,034,599 -55 Tax examiners
a 858,088 396,868 601,874 b 826,266 c 699,425 d -18
Total 8,279,171 7,062,419 6,034,727 5,252,387 4,265,177 -48
a Tax examiner totals for fiscal years 1998, 1999, and 2000 include service
center and district office tax examiner totals. b Includes 16,339 district
office correspondence audits.
c Includes 24,341 district office correspondence audits. d Includes 13,547
district office correspondence audits.
Source: GAO analysis of IRS data.
Table 16: Direct Audit Hours per Audit and Percent Change by Type of Auditor
Type of auditor 1996 1997 1998 1999 2000 Percent
change
Revenue agents 20.21 21.84 22.08 24.84 27.64 37 Tax auditors 4.56 4.12 4.49
5.66 7.09 56 Tax examiners a 0.73 0.49 0.94 1.12 1.84 153
Total 25.49 26.45 27.51 31.62 36.56 43
a Tax examiner totals for fiscal years 1998, 1999, and 2000 include service
center and district office tax examiner totals. Source: GAO analysis of IRS
data.
Table 17: Staff Years Spent on Nonaudit Activities and Percent Change by
Type of Auditor Type of auditor 1996 1997 1998 1999 2000 Percent
change Revenue agents
Taxpayer assistance 148 148 293 451 549 270 Other details 132 134 141 174
210 59 Training 679 633 751 1,029 1,016 50
Total 960 915 1,185 1,654 1,776 85 Tax auditors
Taxpayer assistance 34 121 158 151 209 510 Other details 20 20 19 26 23 14
Training 163 85 96 138 126 -23
Total 217 225 273 314 358 65
Source: GAO analysis of IRS data.
Appendix II: Assessment of Reasons Affecting Audit Rate Changes for Fiscal
Years 1996 Through 2000
Appendix III: Audit Rates by Geographic Location for Fiscal Years 1996
Through 1999
Page 23 GAO- 01- 484 Audit Trends for Individuals
Table18: IRS Individual Audit Rates by Region and District Office Audit rate
by fiscal year Region and district 1996 1997 1998 1999 Average
audit rate Northeast 0.44% 0.41% 0.34% 0.23% 0.35%
Brooklyn 0. 58 0. 56 0. 48 0. 33 0. 49 Connecticut- Rhode Island 0.60 0.45
0.36 0.28 0.42 Manhattan 0. 75 0. 77 0. 63 0. 44 0. 65 Michigan 0.44 0.36
0.29 0.19 0.32 New England 0.46 0.37 0.31 0.21 0.33 New Jersey 0.42 0.39
0.34 0.20 0.34 Ohio 0.34 0.32 0.22 0.16 0.26 Pennsylvania 0. 36 0. 41 0. 33
0. 23 0. 33 Upstate New York 0.36 0.37 0.31 0.18 0.30
Southeast 0.58 0.52 0.40 0.28 0.44
Delaware- Maryland 0. 53 0. 53 0. 42 0. 25 0. 43 Georgia 0. 79 0. 64 0. 54
0. 31 0. 57 Gulf Coast 0. 83 0. 74 0. 53 0. 41 0. 62 Indiana 0.51 0.43 0.31
0.22 0.37 Kentucky- Tennessee 0. 40 0. 48 0. 37 0. 22 0. 37 North Florida 0.
52 0. 45 0. 32 0. 24 0. 38 North- South Carolina 0. 48 0. 34 0. 29 0. 21 0.
33 South Florida 0. 71 0. 68 0. 54 0. 42 0. 58 Virginia- West Virginia 0.42
0.39 0.30 0.22 0.33
Midstates 0. 62 0. 59 0. 49 0. 32 0. 50
Arkansas- Oklahoma 0. 72 0. 63 0. 58 0. 35 0. 57 Houston 0. 76 0. 64 0. 55
0. 44 0. 59 Illinois 0. 47 0. 53 0. 46 0. 20 0. 42 Kansas- Missouri 0. 51 0.
45 0. 38 0. 25 0. 39 Midwest 0. 53 0. 52 0. 41 0. 31 0. 45 North Central 0.
68 0. 76 0. 65 0. 50 0. 65 North Texas 0. 96 0. 82 0. 53 0. 35 0. 66 South
Texas 0. 55 0. 50 0. 50 0. 31 0. 46
Western 1. 09 1. 00 0. 73 0. 47 0. 81
Central California 1.17 0.91 0.72 0.56 0.84 Los Angeles 1. 59 1. 55 0. 98 0.
67 1. 20 Northern California 1.24 1.34 1.09 0.60 1.06 Pacific- Northwest 0.
63 0. 51 0. 37 0. 24 0. 43 Rocky Mountain 0. 73 0. 67 0. 49 0. 28 0. 54
Southern California 1.63 1.35 0.94 0.69 1.14 Southwest 0. 81 0. 81 0. 62 0.
36 0. 64
Note: IRS regional data for fiscal year 2000 were not available at the time
of publication. Source: GAO analysis of IRS data.
Appendix III: Audit Rates by Geographic Location for Fiscal Years 1996
Through 1999
Appendix III: Audit Rates by Geographic Location for Fiscal Years 1996
Through 1999
Page 24 GAO- 01- 484 Audit Trends for Individuals
Table 19: IRS Districts With the Highest and Lowest Audit Rates District
office Audit rate by fiscal year Highest rates 1996 1997 1998 1999 Average
audit rate
Los Angeles 1.59% 1. 55% 0.98% 0.67% 1.20% Southern California 1.63 1.35
0.94 0.69 1.14 Northern California 1.24 1.34 1.09 0.60 1.06 Central
California 1.17 0.91 0.72 0.56 0.84 North Texas 0. 96 0. 82 0. 53 0. 35 0.
66 North Central 0. 68 0. 76 0. 65 0. 50 0. 65 Manhattan 0. 75 0. 77 0. 63
0. 44 0. 65 Southwest 0. 81 0. 81 0. 62 0. 36 0. 64 Gulf Coast 0. 83 0. 74
0. 53 0. 41 0. 62 Houston 0. 76 0. 64 0. 55 0. 44 0. 59
Lowest rates
Ohio 0.34 0.32 0.22 0.16 0.26 Upstate New York 0.36 0.37 0.31 0.18 0.30
Michigan 0.44 0.36 0.29 0.19 0.32 North- South Carolina 0. 48 0. 34 0. 29 0.
21 0. 33 Virginia- West Virginia 0.42 0.39 0.30 0.22 0.33 Pennsylvania 0. 36
0. 41 0. 33 0. 23 0. 33 New England 0.46 0.37 0.31 0.21 0.33 New Jersey 0.42
0.39 0.34 0.20 0.34 Indiana 0.51 0.43 0.31 0.22 0.37 Kentucky- Tennessee 0.
40 0. 48 0. 37 0. 22 0. 37
Note: IRS regional data for fiscal year 2000 were not available at the time
of publication. Source: GAO analysis of IRS data
Table 20: Comparison of IRS Individual Audit Rates, Including and Excluding
Service Center Audits Location 1996 1997 1998 1999 Percent
change United States (with service centers) 1. 67% 1.28% 0.99% 0.90% -46
United States (without service centers) 0.66 0.60 0.47 0.31 -52
Northeast Region 0.44 0.41 0.34 0.23 -49 Southeast Region 0.58 0.52 0.40
0.28 -52 Midstates Region 0.62 0.59 0.49 0.32 -49 Western Region 1.09 1.00
0.73 0.47 -57
Note: IRS regional data for fiscal year 2000 were not available at the time
of publication. Source: GAO analysis of IRS data.
Appendix IV: Comments From the Internal Revenue Service
Page 25 GAO- 01- 484 Audit Trends for Individuals
Appendix IV: Comments From the Internal Revenue Service
Appendix IV: Comments From the Internal Revenue Service
Page 26 GAO- 01- 484 Audit Trends for Individuals
Appendix V: GAO Contacts and Staff Acknowledgments
Page 27 GAO- 01- 484 Audit Trends for Individuals
James R. White (202) 512- 9110 Thomas Short (202) 512- 9110
In addition to those named above, Helen Branch, Jay Pelkofer, Susan Baker,
Michele Fejfar, Anne Rhodes- Kline, MacDonald Phillips, and Robert DeRoy
made key contributions to this report. Appendix V: GAO Contacts and Staff
Acknowledgments GAO Contacts Acknowledgments
(440007)
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