Tax Administration: IRS Faces Several Challenges as It Attempts to Better
Serve Small Businesses (Letter Report, 08/10/2000, GAO/GGD-00-166).

Pursuant to a congressional request, GAO provided information on the
Internal Revenue Service's (IRS) reorganization plans, focusing on: (1)
what factors, complicate the interactions between small businesses and
IRS; and (2) whether IRS' reorganization plans address those factors.

GAO noted that: (1) according to IRS, small businesses are more likely
than other taxpayers to have compliance problems; (2) tax law complexity
was the most commonly mentioned reason why small businesses might have
trouble complying; (3) IRS has not operated in a way that best enables
it to serve small businesses; (4) IRS has been structured along
functional and geographic lines, with each function and each geographic
unit responsible for all types of taxpayers, from individuals whose only
income is from wages to multinational corporations; (5) IRS has also
historically allocated most of its resources to correcting problems
after they occur rather than preventing problems from occurring; (6)
many small businesses in GAO survey population were unaware of various
services that IRS has developed specifically for small businesses, and
many others who knew of the services did not use them; (7) when small
businesses in GAO's survey population used certain IRS services, such as
tax publications and toll-free telephone assistance, they were often not
happy with the experience; (8) the various changes discussed in IRS'
plans for the new organization indicate that it will be taking steps to
address those factors that GAO has identified as complicating the
interactions between IRS and small businesses; (9) although the new
organization may not be able to do much to reduce the tax law complexity
facing small businesses, it should be better able to help businesses
deal with those complexities; (10) all of this assumes that the various
changes discussed in IRS' plans come to fruition; (11) however,
implementing the new Small Business and Self-Employed Operating Division
will not be easy; (12) for example, the diversity of the taxpayer
population for which the new operating division will be responsible
could stretch the capabilities of management and staff and dilute the
division's customer focus; and (13) the new division also will be: (a)
hindered in its ability to deliver new programs and services by
antiquated information systems and a shortage of employees with needed
skills; and (b) challenged, as is all of IRS, to develop an integrated
performance management system that creates incentives for employee
behavior that supports organizational goals.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-00-166
     TITLE:  Tax Administration: IRS Faces Several Challenges as It
	     Attempts to Better Serve Small Businesses
      DATE:  08/10/2000
   SUBJECT:  Customer service
	     Federal agency reorganization
	     Small business
	     Tax administration
	     Tax law

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GAO/GGD-00-166

United States General Accounting Office
GAO

Report to the Chairman

Committee on Small Business

U.S. Senate

August 2000

GAO/GGD-00-166

TAX ADMINISTRATION
IRS Faces Several Challenges as It Attempts to

Better Serve Small Businesses

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Contents
Page 281           GAO/GGD-00-166 Small Businesses
Letter                                                                      1
                                                                             
Appendix I                                                                 30
Sampling and Data
Analysis Methodology
                           Sample Selection Methodology                    30
                           Response Rates                                  31
                           Sampling and Nonsampling Errors for             32
                           Key Estimates Used in the Report
                                                                             
Appendix II                                                                33
Final Results From
Survey of Small
Businesses
                                                                             
Appendix III                                                               44
Comments from the
Internal Revenue Service
                                                                             
Appendix IV                                                                47
GAO Contacts and Staff
Acknowledgments
                                                                             
Tables                     Table 1: Non-IRS Sources of Tax                 18
                           Information
                           Table I.1: Strata for Small Business            31
                           Study Population
                                                                             
Figures                    Figure 1: Extent to Which Small                  8
                           Businesses Relied on Practitioners to
                           Understand Tax Issues
                           Figure 2: Awareness and Use of                  11
                           Selected IRS Services Among Small
                           Businesses
                           Figure 3: Reaction of Small Businesses          13
                           to Selected Interactions With IRS
                           Figure 4: Structure of IRS' New                 16
                           Organization
                           Figure 5: Profile of Small Business             22
                           Study Population
                                                                             

Abbreviations

CPA       certified public accountant
IRS       Internal Revenue Service
NFIB      National Federation of Independent
Businesses
SB/SE     Small Business/Self-Employed Operating
Division

B-282856

Page 22            GAO/GGD-00-166 Small Businesses
B-282856

August 10, 2000

The Honorable Christopher S. Bond
Chairman, Committee on Small Business
United States Senate
 
Dear Mr. Chairman:

Small businesses-a category that includes farmers,
other self-employed individuals, and small
corporations and partnerships-are a diverse and
important group of about 40 million taxpayers that
are responsible for remitting nearly half of the
taxes collected by the Internal Revenue Service
(IRS) annually.

Enactment of the IRS Restructuring and Reform Act
of 1998 sent a strong signal that Congress
expected IRS to address the problems that
taxpayers, including small businesses, have with
IRS. The Commissioner of Internal Revenue has
embraced the need for change so that taxpayers
receive top-quality service from IRS to help them
understand and meet their tax responsibilities.
IRS has revised its mission statement and is on a
path to transform its culture to one that more
fully embraces customer service as a core
organizational value. As part of this effort, IRS
is well on the way to restructuring its operations
around specific groups of taxpayers. One new
organizational unit, known as the Small Business
and Self-Employed Operating Division (SB/SE) to
become operational in October 2000, is to focus on
the needs of small businesses.

You asked us to determine how IRS' reorganization
plans address the difficult issues that affect the
interactions between small businesses and IRS. As
agreed with your office, our objectives for this
report were to (1) identify what factors, if any,
complicate the interactions between small
businesses and IRS; and (2) determine how, if at
all, IRS' reorganization plans address those
factors.

Results in Brief
From responses to a survey we conducted of 1,000
businesses and the results of interviews with IRS
officials and representatives of the small
business community, we identified the following
factors that complicate the interactions between
small businesses and IRS:

ï¿½    According to IRS, small businesses are more
likely than other taxpayers to have compliance
problems. IRS data show, for example, that small
businesses tend to have more collection cases
involving withheld employment taxes than do larger
businesses. Tax law complexity was the most
commonly mentioned reason why small businesses
might have trouble complying. Small businesses,
like larger businesses, can encounter such complex
tax issues as employment taxes and depreciation
and are subject to multiple layers of filing,
reporting, and deposit requirements. However,
small businesses may not always have the kind of
resources needed to deal with those complexities.

ï¿½    IRS has not operated in a way that best
enables it to serve small businesses. IRS has been
structured along functional and geographic lines,
with each function (e.g., customer service and
collection) and each geographic unit (e.g.,
district office) responsible for all types of
taxpayers, from individuals whose only income is
from wages to multinational corporations. IRS has
also historically allocated most of its resources
to correcting problems after they occur rather
than preventing problems from occurring. A focus
on back-end correction versus up-front prevention
can be especially problematic for small businesses
that need assistance up front and that, absent
that help, are at a high risk of going out of
business if problems arise.
ï¿½    Many small businesses in our survey
population were unaware of various services that
IRS has developed specifically for small
businesses, and many others who knew of the
services did not use them. Small business
representatives told us that small businesses are
often reluctant to go to IRS for help.
ï¿½    When small businesses in our survey
population used certain IRS services, such as tax
publications and toll-free telephone assistance,
they were often not happy with the experience. For
example, they said that publications, though easy
to obtain, were not easy to understand, and
telephone assistance was not easy to access.
The various changes discussed in IRS' plans for
the new organization indicate that it will be
taking steps to address those factors that we have
identified as complicating the interactions
between IRS and small businesses. Although the new
organization may not be able to do much to reduce
the tax law complexity facing small businesses, it
should be better able to help businesses deal with
those complexities. For example, IRS' plans
clearly recognize that many small businesses are
reluctant to go to IRS for help, preferring
instead to rely on tax practitioners. Thus, IRS
plans to partner with practitioners and other
outside organizations to deliver assistance while
focusing some of its direct service efforts on
those small businesses most in need of help (such
as start-up businesses).

All of this assumes that the various changes
discussed in IRS' plans come to fruition. However,
implementing the new SB/SE operating division will
not be easy. For example, the diversity of the
taxpayer population for which the new operating
division will be responsible could stretch the
capabilities of management and staff and dilute
the division's customer focus. The new division
also will be (1) hindered in its ability to
deliver new programs and services by antiquated
information systems and a shortage of employees
with needed skills; and (2) challenged, as is all
of IRS, to develop an integrated performance
management system that creates incentives for
employee behavior that supports organizational
goals.

In commenting on a draft of this report, the
Commissioner of Internal Revenue said that IRS was
committed to implementing a customer-focused
organization that will benefit all taxpayers and
that our report would help IRS improve its
products and services for small businesses.

Background
IRS is in the process of implementing a major
reorganization, which will, among other things,
structure the agency around four major operating
divisions, each responsible for a particular
customer segment. One division is to be
responsible for small businesses. As part of its
reorganization effort, IRS has developed a
definition of small businesses, which we used in
our work. Based on that definition, small
businesses include partnerships and corporations
(including S corporations) 1 with assets of $5
million or less and all self-employed individuals
(also known as sole proprietors).2

A large majority of all businesses are small
businesses. To illustrate, IRS data showed that of
the about 6.1 million partnerships, S
corporations, and corporations that filed returns
for tax year 1995, about 5.9 million (or 97
percent) reported total assets of $5 million or
less. In total, according to IRS, small businesses
account for about 44 percent ($915 billion) of all
money collected by IRS annually.3

Scope and Methodology
To identify factors that complicate the
interactions between small businesses and IRS, we
conducted a survey designed to gather information
on (1) IRS services that small businesses have
used, (2) their past experiences with IRS, and (3)
their views on various aspects of IRS service. We
sent the survey to a stratified random sample of
1,000 businesses representing a study population
of 398,105 businesses nationwide. We identified
the study population from the membership list of
the National Federation of Independent Businesses
(NFIB), whose membership includes all business
types (i.e., sole proprietorships, partnerships, S
corporations, and corporations) and a wide variety
of business operations.4 NFIB officials told us
that although NFIB is not exclusively an
organization of small businesses, nearly all of
its members are small businesses. We stratified
our sample by type of business to ensure that we
obtained the views of self-employed individuals.5
We received 548 usable responses to our
questionnaire-a response rate of 55 percent.

The results for our sample of 1,000 can be
generalized only to the population of NFIB
members. Also, because our results pertain to a
sample of the study population, all results are
subject to sampling errors. Unless otherwise
noted, all estimates of percentages in this report
have a 95-percent confidence interval of less than
plus or minus 10 percentage points. (See app. I
for a detailed description of our sampling
methodology and app. II for a copy of our survey
document and the results.)

In addition to the survey, we took the following
steps to identify factors that complicate the
interactions between small businesses and IRS:

ï¿½    We interviewed IRS headquarters officials and
visited 2 of IRS' 4 regional offices (Midstates
and Western) and 3 of its 33 district offices
(North Texas; Northern California; and Kansas-
Missouri).6 At the field locations, we interviewed
officials responsible for various IRS functions
that have dealings with small businesses (i.e.,
taxpayer education, customer service, compliance,
and taxpayer advocacy).

ï¿½    We attended 4 of 14 focus group meetings that
IRS held with small business owners and self-
employed individuals to identify the needs of
small business taxpayers. We also obtained the
final report summarizing the comments made by
small businesses at all 14 meetings.
ï¿½    We interviewed representatives from the Small
Business Administration, tax practitioner
associations, small business associations, and
conferees to the White House Conference on Small
Business.
ï¿½    We used a structured interview to gather
information from 10 small business and tax
practitioner associations.
To determine how IRS' reorganization plans address
the complicating factors we identified, we
analyzed IRS' plans as they related to small
businesses and interviewed officials responsible
for leading the teams that developed those plans.
We also discussed the reorganization plans with
officials from small business and tax practitioner
associations.

We requested comments on a draft of our report
from the Commissioner of Internal Revenue, and
those comments are reprinted in appendix III. We
did our work in accordance with generally accepted
government auditing standards between October 1999
and July 2000.

Various Factors Complicate the Interactions
Between Small Businesses and IRS
Responses to our survey and the results of various
interviews identified the following factors that
complicate the interactions between small
businesses and IRS:

ï¿½    Small businesses have a greater potential for
noncompliance than other taxpayers,7 primarily
because they face the same complex requirements as
larger businesses without the kind of resources
available to larger businesses to deal with those
requirements.

ï¿½    IRS has not been operating in a way that best
enables it to serve small businesses.
ï¿½    Many small businesses were unaware of key IRS
services, and many who know of the services did
not use them.
ï¿½    Many small businesses had negative reactions
to their past interactions with IRS, ranging from
difficulties in understanding IRS publications and
accessing IRS' telephone assistance to
difficulties in resolving problems.
Small Businesses Have a Greater Potential for
Noncompliance
According to IRS, small businesses are more likely
than other segments of the taxpayer population to
have problems complying with the tax law. For
example, IRS data show that (1) small businesses
tend to have more collection cases involving
employment tax withholdings than large and mid-
sized businesses, and (2) self-employed persons
and supplemental income earners8 make up about 40
percent of the examination and collection cases
involving individual taxpayers. Our interviews of
IRS officials and representatives of the small
business community identified several reasons why
small businesses might have trouble complying.

The most commonly mentioned reason was complexity.
According to IRS, for example, although self-
employed persons and supplemental income earners
are individual filers and, therefore, have
characteristics similar to individual filers whose
only income comes from wages and investments, self-
employed persons and supplemental income earners
face more complex issues and file twice the number
of forms and schedules. Similarly, small
corporations and partnerships, like larger
businesses, can encounter such complex tax issues
as those related to employment taxes,9
depreciation,10 and the alternative minimum tax11
and are subject to multiple filing, reporting, and
deposit requirements.12 Unlike larger businesses,
however, many small businesses may not have the
kind of resources on a continual basis that they
need to understand and deal with those complex
issues and requirements.

Complexity is a key reason why an estimated 94
percent of our study population used a paid
preparer or accountant to prepare their tax year
1998 federal tax returns. Of those who used a paid
preparer or accountant, an estimated 36 percent
said that they used a tax professional because the
tax laws and requirements are too complex; and
another 56 percent said that they would rather
rely on a tax professional to ensure compliance.
Also, as shown in figure 1, a large percentage of
the small businesses in our study population
relied on tax practitioners to understand various
complex issues that applied to their businesses.

Figure 1: Extent to Which Small Businesses Relied
on Practitioners to Understand Tax Issues

Note:  N = 398,105.
Source:  Responses to GAO questionnaire.

Some of the respondents to our survey added
narrative comments to explain why they used a tax
practitioner. For example:

"I rely on my CPA [certified public accountant]
for all my taxes. There are too many forms, rules,
penalties, etc. for me to understand and keep up
with. I have to try to make a living through my
small business and I am afraid I would do my taxes
wrong if I tried to do them myself. My CPA is very
expensive, but I feel like I have to have one."

"We depend almost completely upon our accountant
in all of the previously mentioned matters. The
tax codes are far too complicated for the average
small businessman to tackle."

Other factors mentioned by persons we interviewed
as contributing to a small business' potential for
noncompliance were that (1) business income,
unlike wages and investment income, is generally
not subject to withholding or some form of
information reporting; and (2) small businesses
often have cash flow limitations. It is generally
recognized that compliance is highest when taxes
have been withheld (as is the case with wages) or
when a third party (such as a bank or mutual fund)
reports payments (such as interest and dividends)
to IRS. Cash flow limitations can cause a small
business to become delinquent in making required
tax payments or in remitting taxes that have been
withheld from employees.

IRS Has Not Operated in a Way That Best Enables It
to Serve Small Businesses
IRS' ability to meet the needs of small businesses
has been hampered in the past by its (1)
organizational structure and (2) focus on problem
correction versus prevention.

Under IRS' current organizational structure,
authority for serving taxpayers and administering
the tax code is decentralized to 33 districts and
10 service centers, each of which is organized
along functional lines, such as collection,
examination, and customer service. Because IRS
allocates its resources, such as staff and
information systems, along geographic and
functional lines, it is designed to handle a wide
range of issues pertaining to all taxpayers-from
individuals whose sole income is from wages to
multinational corporations-with little or no focus
on specific taxpayer segments, such as small
businesses. For example, IRS has dozens of
discrete databases that are function-specific and
are designed to reflect transactions at different
points in the life of a return or information
report-from receipt to disposition. As a
consequence, IRS does not have any easy means to
access comprehensive information about small
business taxpayer accounts.

IRS has described the problems caused by its
organizational structure as follows:

"Service centers and districts each performed
these functions [e.g., collection, examination,
and customer service] for the same taxpayer, the
responsibility shifting depending on whether the
work was done by phone, mail, or in person. For
example, in the collection area, there are three
separate kinds of organizations spread over all 43
operational units that use four separate computer
systems to collect taxes. Each of these three
units and four systems collects from every kind of
taxpayer, from individuals to businesses."13

IRS' ability to address small businesses' needs
has also been hampered by IRS' focus on correcting
problems after they have occurred rather than
preventing their occurrence. According to IRS, it
allocates about 11 percent of its budget for
customer education and assistance (i.e., problem
prevention) compared to 72 percent for compliance
(i.e., problem correction). The other 17 percent
is allocated to customer account services, such as
processing tax returns and adjusting taxpayer
accounts.

This emphasis on correction versus prevention can
be especially problematic for small businesses
that need assistance up front and that, absent
that help, are at a high risk of going out of
business if problems arise. In other words, by the
time IRS determines that a small business has a
compliance problem and sets out to correct the
problem, it may be too late.

Many Small Businesses Were Unaware of Key IRS
Services and Many Who Knew of the Services Did Not
Use Them
As shown in figure 2, many small businesses in our
study population were unaware of various IRS
services that are available to small businesses,
such as outreach seminars and a small business
corner on IRS' World Wide Web site on the
Internet; and many other businesses who were aware
of the services did not use them.

Figure 2: Awareness and Use of Selected IRS
Services Among Small Businesses

Note:  N = 398,105.
Source:  Responses to GAO questionnaire.

Our survey results were consistent with many of
the views expressed by participants in IRS' 14
small business focus groups. For example,
according to IRS' report on the focus group
results, most participants did not know that IRS
maintained an Internet presence and few
participants had heard about IRS-sponsored
seminars.

Many of the focus group participants indicated
that they had limited familiarity with or use for
IRS' products and services because they relied on
tax practitioners. Small business representatives
told us that small businesses would rather rely on
tax practitioners because they are too busy, they
do not trust IRS, or IRS' services are not
conveniently offered. For example, one small
business owner responding to our survey commented
that certain IRS services, such as walk-in sites
and outreach seminars, are not available in small
towns and that it would be helpful if there was
more information available on IRS' Internet site.
Another small business owner commented that he
would personally find it difficult to contact any
source other than a local tax preparer for
information because of fear of an audit. He
further suggested that IRS needs to change the
image that it treats small businesses as tax
cheats.

Small Businesses Had Mixed Feelings About Their
Past Interactions With IRS
Small businesses can have a variety of
interactions with IRS ranging from general written
advice, such as that provided through tax
publications; to more personalized service, such
as that provided over the telephone or at walk-in
sites; to enforcement actions, such as audits.
Negative reactions of small businesses to any such
interactions in the past can complicate their
future interactions with IRS.

Our survey included several questions about small
businesses' interactions with IRS over the past 5
years, including their level of satisfaction or
dissatisfaction with several aspects of IRS'
service. More small businesses in our study
population were satisfied with the overall quality
of IRS' service than were dissatisfied. However,
as shown in figure 3, when asked about specific
aspects of IRS' service, small businesses had
mixed feelings. For example, when asked about the
availability of forms and publications or IRS'
timeliness in issuing refunds, many more
businesses commented positively than negatively.
The opposite was true, however, when they were
asked about such things as the understandability
of forms, the accessibility of IRS' telephone
assistance, and the levying of penalties.

Figure 3: Reaction of Small Businesses to Selected
Interactions With IRS

Note 1: N = 398,105.
Note 2: Percentages do not add to 100 because this
figure does not include responses from businesses
who said that they neither agreed nor disagreed or
who said that they had no basis to judge.
Source: Responses to GAO questionnaire.

Several respondents who expressed dissatisfaction
with certain aspects of IRS' service provided
narrative comments to explain their feelings. For
example, one respondent commented that IRS'
instructions have too much fine print and not
enough plain English. Other examples include the
following:

"When I do finally get a phone call through, I
[dislike] all of the menus that you go through and
the passing from one person to another when you
finally do get to talk with a human. I also
despise the noncaring, uninterested attitude that
I usually get from IRS employees."

"The frustrating thing about [IRS] is they send
you a notice about tax discrepancies, you answer
and about a month later you get another notice.
You answer again and then you get a notice telling
you this is your final notice. They need to have a
person assigned to your tax problem so you could
call them and work it out. It seems most of the
time the person sending you the notice never sees
your replies."

"IRS employees on the whole do not seem helpful or
knowledgeable. Plus, each time you call on a
situation you have to start over each time with
another employee. Problems should be assigned to
one person to follow through to the end."

"During any type of audit or inquiry, IRS
personnel generally treat taxpayers as ignorant
boobs who obviously are lying on their tax returns
and it is only a matter of time until it can be
proven."

Among the few positive comments provided by
respondents were the following:

"I must say that the auditor was flexible in that
he was willing to review the records at our
accountant's office and also was willing to accept
receipts over a certain dollar amount in order to
facilitate the record-producing process. Also, we
were treated very well by the auditor, which we
appreciated."

"The IRS telephone assistance people have been
very professional with me and have an attitude of
cooperation."

We asked respondents whether they had seen any
change in the overall quality of IRS' service
during the year preceding our survey. Of the
398,105 small businesses in our study population,
an estimated 45 percent had seen no change, an
estimated 14 percent had seen a positive change,
and an estimated 2 percent had seen a negative
change.14 Some small business owners responding to
our survey mentioned changes they would like to
see. For example, one owner commented that IRS
employees should have a more positive attitude
toward small businesses-a view shared by small
business owners who participated in IRS' focus
groups. Another survey respondent said that:

"As much publicity as there has been about good
intentions, I have seen no improvement in how the
IRS operates. To some extent, the IRS is no better
or worse than other federal agencies, none of them
very good by the standards a for-profit business
must operate under."

Some small business owners and representatives
said that although IRS can improve its services,
dissatisfaction with IRS is often misplaced. For
example, one small business representative said
that many small businesses that are dissatisfied
with IRS have likely had little experience with
IRS and are really expressing their
dissatisfaction with the complex tax code.
Misplaced or not, the level of dissatisfaction
with various aspects of IRS' service expressed by
our survey population is significant and can
complicate the relationship between small
businesses and IRS.

Reorganization May Enable IRS to Address Many of
the Factors That Have Complicated Its Interactions
With Small Businesses
IRS is implementing a major reorganization that it
has characterized as its most significant reform
effort in more than 50 years. As shown in figure
4, the reorganization is to, among other things,
structure the agency around four primary customer
segments and operating divisions. One of those
operating divisions-SB/SE-is to focus on taxpayer
education and assistance, specialized account
services, and revamped compliance efforts tailored
to small businesses and other taxpayers that IRS
has decided have needs and interests that are
similar to those of small businesses.

Figure 4: Structure of IRS' New Organization

Source:  IRS.

The various changes discussed in IRS' plans for
the new organization indicate that SB/SE will be
taking steps to address those factors that have
been identified as complicating the interaction
between IRS and small businesses. Although the new
organization may not be able to do much to reduce
the tax law complexity facing small businesses, it
should be better able to help businesses deal with
those complexities and increase customer
satisfaction. By dedicating an operating division
to small businesses, increasing its knowledge base
on the characteristics and needs of the
population, and customizing its products and
services to meet those needs, IRS intends to shed
the limitations of its historic structure and
improve its customer focus.

SB/SE might be able to implement some of its plans
relatively quickly, such as those that involve
partnering with outside organizations to enhance
the delivery of assistance to small businesses.
Other plans, such as those involving a revamped
compliance strategy, could take much longer. Such
things as the diversity of the small business
population, antiquated computer systems, and
staffing limitations pose challenges for the
division, and IRS in general, as they attempt to
implement the new organization.

Operating Division Dedicated to Small Businesses
Is Intended to Improve Service and Accountability
With respect to small businesses, IRS' goal is to
improve customer satisfaction and increase
voluntary compliance through earlier and quicker
resolution of problems. To achieve that end, SB/SE
is to have the following three major units:

ï¿½    Taxpayer Education and Communication is to
manage both national and local education and
assistance programs for small businesses.

ï¿½    Customer Account Services is to process
returns and provide specialized  account services
for small businesses.
ï¿½    Compliance is to conduct compliance
operations based on an approach that combines
education, community outreach, and traditional
enforcement actions (i.e., examinations and
collections) based on the facts, circumstances,
and risks of each small business case.
Taxpayer Education and Communication
As we discussed earlier, IRS' ability to meet the
needs of small businesses has been hampered in the
past by its focus on correcting problems after
they occur (i.e., compliance) rather than
preventing them from occurring (i.e., assistance).
IRS has recognized the need for a greater focus on
assistance and (1) is placing the Taxpayer
Education and Communication unit on the same
organizational level as the Compliance unit and
(2) intends to increase the number of staff
dedicated to small business education and
communication from fewer than 100 in its current
organization to about 1,300 in the new
organization. As currently envisioned, the
Taxpayer Education and Communication unit is to be
a customer-focused organization that educates and
informs SB/SE taxpayers about their tax
obligations by conducting research on customer
education needs, developing and delivering
products and services focused on those needs, and
analyzing customer feedback to improve products
and services.

Although IRS intends to increase its taxpayer
assistance and education efforts, it recognizes
that many small businesses are reluctant to go to
IRS for help. Thus, to increase the effectiveness
of its education and assistance efforts, IRS
intends to partner with tax practitioners and
professional trade organizations to develop and
deliver education and assistance to this
population.

In considering its options for partnering, IRS
might find it useful to know that many potential
non-IRS sources of tax information were rarely
used by our survey population. As shown in table
1, when asked from which non-IRS sources they had
obtained tax-related information during the past 5
years, the only sources mentioned extensively were
attorneys, accountants, and other tax
practitioners.

Table 1: Non-IRS Sources of Tax Information
Non-IRS source     Percent      Percent    Percent
                 not aware     aware of   aware of
                 of source   source but source and
                               have not  have used
                                   used
Tax practitioner         5            7         88
or accountant
Attorney                11           54         35
Local bank              34           48         18
Local library           24           65         11
Local college or        33           59          8
community
college class
Small Business          38           54          8
Administration
information or
development
center
Small Business          41           53          6
Administration
Web site
Source:  Responses to GAO questionnaire.

IRS also intends to focus its assistance on those
small businesses most in need of help. One group
of small businesses that IRS has identified as
needing special attention is new businesses. The
Commissioner of Internal Revenue discussed this
need in May 23, 2000, testimony before this
Committee, as follows:15

". . . there are as many as one million start-up
businesses each year in the United States.
However, we now reach only 65,000 of them through
our extremely limited education outreach program,
missing an enormous window of opportunity to help
these taxpayers understand what is expected of
them and stay in compliance from the start."

A cognizant IRS official told us that SB/SE is
reviewing the assistance currently provided to new
businesses and that the division, through
consultations with the tax practitioner community,
might establish a system that will help SB/SE
decide, on a case-by-case basis, what form of
interaction would be best for a particular start-
up business.

Customer Account Services
As discussed earlier, under IRS' functional
structure, IRS employees have been responsible for
understanding tax law and filing requirements and
providing account management for all
taxpayers-from wage earners to large
businesses-with little or no focus on small
businesses. SB/SE, on the other hand, is to have
five account management centers dedicated to
serving small businesses16 as well as dedicated
phone sites to handle such activities as tax law
assistance and automated collection for small
businesses. According to IRS, this will allow
SB/SE staff to become experts in only those tax
code sections and filing requirements that apply
to small businesses and, thus, provide specialized
account assistance.

IRS expects to customize account management
activities for small businesses17 and provide more
timely and accurate account resolution through a
short and long-term strategy for real-time account
services. IRS expects to transition the Customer
Account Services workload between October 2000 and
2002, but many of the unit's capabilities depend
on other modernization efforts, such as those
involving information systems, and will not be
operational for a few years.

Compliance
As noted earlier, small businesses are more likely
than other segments of the taxpayer population to
have problems complying with the tax law due to a
combination of complex filing requirements and
limited resources available to meet those
requirements. Through a new compliance strategy
and streamlined management structure, SB/SE hopes
to increase compliance and improve customer
satisfaction.

Similar to IRS' current organization, most of
SB/SE's resources are to be allocated to the
Compliance unit. Unlike the current organization,
however, SB/SE intends to implement a more
balanced approach to improving compliance by
blending traditional enforcement activities with
education and outreach. For example, IRS' current
collection process is a "one-size fits all"
approach that treats all taxpayers alike. Under
its new strategy, IRS intends to segment small
businesses with collection issues by risk of
nonpayment. A low-risk small business might
receive a blend of education and enforcement
activities, but a high-risk small business might
receive aggressive enforcement action. Specific
details about this new risk-based strategy, such
as the criteria to be used in assessing risk, have
yet to be developed.

To enhance this blend of enforcement and outreach,
the operating division is to implement an
information-sharing process between the Compliance
and Taxpayer Education and Communication units.
According to IRS, information gained during
compliance activities should help direct education
and outreach initiatives, which could help reduce
the number of problems small businesses experience
before returns are filed.

According to IRS, the Compliance unit will have
fewer layers of management, which will better
facilitate communication and free up personnel to
increase support for other activities, including
taxpayer education. For example, the unit is to
have one management position-territory
manager-that is to be responsible for the scope of
work covered by three positions in IRS' current
compliance function-district director, division
chief, and branch chief. Also, the Compliance
unit's management structure is to be cross-
functional, requiring knowledge of examination and
collection procedures.

Formidable Challenges Confront SB/SE and IRS
IRS' efforts to create a more taxpayer-focused
organization with a streamlined management
structure and greater end-to-end accountability
are a step in the right direction. However,
formidable challenges remain. SB/SE's ability to
effectively focus on the needs and problems of
small businesses may not be easy given the
diversity of that segment of the taxpayer
population and the need to find an effective way
to serve taxpayers who migrate between operating
divisions from year to year. The operating
division also faces formidable challenges in its
ability to deliver new services and programs
because effective delivery depends on drastically
improved information systems and a substantial
shift in employee skills. Lastly, the operating
division, and IRS as a whole, will be challenged
to develop an integrated performance management
system that will lead to changes in organizational
and employee behavior.

Challenges to Operating Division's Customer Focus
Through reorganization, IRS intends to improve its
customer focus. Although creation of SB/SE should
facilitate a sharper focus on the needs and
problems of small businesses than is possible
under the current organization, the division will
be challenged by the need to (1) serve a diverse
population and (2) devise effective procedures for
dealing with taxpayers who migrate between
operating divisions.

SB/SE's ability to provide focused service will be
complicated by the diversity of the population it
is to serve. According to IRS, the approximately
40 million taxpayers to be served by SB/SE include
about 6.2 million small partnerships and
corporations; 19.3 million partially or fully self-
employed individuals;18 13 million individual
filers with supplemental income or business
expenses; and 1.2 million nonsmall business
taxpayers who are considered specialty tax filers.19
This size and diversity compares with (1) the Wage
and Investment Income Operating Division, which is
to serve a larger but less diverse customer
segment (about 116 million taxpayers who have only
wage and investment income); and (2) the Large and
Mid-size Business Operating Division, which is to
serve a smaller and less diverse population (about
210,000 corporations and partnerships with assets
of more than $5 million).

Further evidence of the diversity of the small
business population can be seen in figure 5, which
is a profile of the small businesses in our study
population. As the figure shows, that population
involved a mixture of business structures and
industries and varied widely in terms of number of
employees and gross receipts.

Figure 5: Profile of Small Business Study
Population

Note: N = 398,105.
Source: Responses to GAO questionnaire.

The diversity of the small business population
will require that SB/SE staff specialize in a wide
range of tax issues and deal with a wide range of
taxpayer needs. For example, the needs of wage
earners who also operate small, one-person
businesses from their homes can vary significantly
from corporations that employ 100 persons and have
gross receipts in excess of $1 million.

Besides handling the workload for its own diverse
population, SB/SE is also expected do work for
other operating divisions. For example, SB/SE is
to do certain types of audit and collection work
(cases involving complex examination issues or
requiring enforcement action) for the Wage and
Investment Income Operating Division. These
additional responsibilities could stretch the
capabilities of management and staff in SB/SE and
dilute its customer focus.

Taxpayer migration also poses a challenge to the
customer focus intended by the reorganization.
Migration refers to scenarios under which a
taxpayer might qualify as a small business one
year but not the next, or vice versa. These
scenarios could cause taxpayers to change
operating divisions from year to year under the
new organization. For example, according to IRS
data, about 2.2 million individuals who had filed
for tax year 1995 as pure wage earners (i.e., the
kind of taxpayer for which the Wage and Investment
Income Division is to be responsible) filed for
tax year 1996 as sole proprietors (i.e., SB/SE-
type taxpayers); and 1.7 million individuals who
had filed as sole proprietors for tax year 1995
filed as pure wage earners for tax year 1996.
Similarly, a corporation or partnership could have
more than $5 million in assets one year (and thus
be part of the population to be served by the
Large and Mid-size Business Operating Division)
and less than $5 million in assets the following
year (which would make it part of SB/SE).

IRS acknowledges that taxpayer migration could
present account management problems for SB/SE and
other operating divisions. Specifically, this
issue could lead to disparate treatment of
taxpayers and hamper IRS' ability to provide end-
to-end accountability because the responsibility
for managing a migrating taxpayer's account could
shift from one operating division to another. IRS
is working on plans to put processes in place to
allow for greater interaction between the account
management units within the operating divisions to
properly manage and serve migrating taxpayers.

Challenges to Operating Division's Ability to
Deliver New Programs and Services
SB/SE will also be challenged to deliver the
various new programs and services discussed
earlier. In general, the division's challenges are
a result of (1) antiquated computer systems and
(2) a shortage of staff with needed skills.

IRS' antiquated computer systems have long
hindered agency efforts to manage operations and
serve taxpayers. IRS clearly documented the
significance of this challenge in a publication
entitled Modernizing America's Tax Agency.20 Among
the many statements in that document relating to
information systems are the following:

"[IRS] has a very special problem that is a
serious, on-going risk and a fundamental barrier
to achieving its strategic goals. This problem is
that the core data systems that keep records on
taxpayers' tax accounts are fundamentally
deficient."

"Because of the delays in updating files and the
lack of synchronization of data among different
systems, IRS employees frequently have
inconsistent and out-of-date data about a given
taxpayer."

These data problems contribute to the kind of
issues raised in previously cited quotes from
respondents to our survey who complained about
getting multiple notices from IRS and about IRS
employees who do not seem helpful or
knowledgeable.

IRS has struggled with systems modernization for
years, and we have made numerous recommendations
to correct management and technical weaknesses
that jeopardized the modernization process.21
Although IRS has made progress in addressing our
recommendations, it has yet to fully implement
them. More specifically, IRS needs to fully
implement key controls that are needed to
effectively guide and constrain modernization
initiatives. These controls include (1) completing
and implementing a blueprint for modernization;
(2) implementing a "systems life cycle" process,
including development of business cases, to manage
system investments; and (3) establishing a fully
operational management structure to oversee
systems modernization.

Improvements to IRS' information systems are
critical to SB/SE's overall success. IRS
acknowledges, for example, that small business
taxpayer education and communication initiatives
depend on substantial investments in computer
hardware and software and that major systems
changes will be required to support a risk-based
compliance strategy.

A shortage of staff with needed skills can also
adversely affect SB/SE's ability to deliver new
taxpayer education programs and services.
According to IRS, the Taxpayer Education and
Communication unit will require substantial
resources, including staff with a blend of
existing and new skills. However, the demand for
employees possessing the necessary skills to staff
the unit exceeds the current supply. For example,
SB/SE intends to improve taxpayer education and
assistance through research and analysis of
taxpayer characteristics and behavior. However,
according to IRS, it does not have enough
employees who possess the requisite skills, such
as market research, forecasting, and trend
analysis. Such limitations could delay SB/SE's
ability to develop and deliver specialized
education and assistance to small businesses.

Operating Division and IRS Will Be Challenged to
Develop and Implement a Performance Management
System
A coherent organization and management structure
dedicated to small businesses will not
significantly improve service to taxpayers without
a performance management system that aligns
employee, program, and strategic performance
measures and creates incentives for behavior that
supports agency goals. IRS has made some headway
in this area as it develops a new set of
performance measures balancing customer
satisfaction, employee satisfaction, and business
results and updates its employee evaluation
system.

Although IRS has clearly made progress in
implementing new performance measures, it is
missing a key indicator for voluntary compliance
with the tax laws. Such a measure is essential for
a number of reasons. Regularly measuring voluntary
compliance is important to gauge whether IRS is
accomplishing a key aspect of its mission. Also,
the information about taxpayers that would be
generated in measuring voluntary compliance may
help IRS identify the characteristics of taxpayers
who have difficulty understanding and meeting
their tax responsibilities. Finally, the data IRS
would develop as part of any voluntary compliance
measurement effort may allow IRS to better direct
its enforcement resources to those taxpayers who
willfully violate the tax laws, thus reducing the
burden on compliant taxpayers. The absence of a
measure of voluntary compliance could hinder SB/SE
more than other operating divisions because,
according to IRS, the SB/SE population generally
has a greater potential for noncompliance. IRS
recognizes that it needs a reliable and meaningful
measure of voluntary compliance and is working
with a contractor to determine how to measure
compliance with the least burden on taxpayers.
However, that effort is still in its early stages.

A second critical aspect of performance management
is an employee evaluation system that reflects the
agency's mission. As mentioned earlier, for
example, SB/SE intends to refocus its compliance
capabilities to provide a mix of education and
outreach along with an integration of its
traditional enforcement activities, examination
and collection. IRS recognizes that a successful
blend of customer service and integrated
enforcement activities requires not only a
substantial shift in employees' skills but also a
significant change in employee attitude and
behavior. IRS also recognizes that to achieve this
shift, employees must have a clearer line of sight
between their day-to-day activities, their
resulting performance evaluations, and the
agency's broader goals. IRS is exploring several
different approaches for revising its employee
evaluation system to make the relationship between
employee performance and agency performance more
transparent.

Conclusions
     IRS' new organizational structure is a
positive step toward improving IRS' ability to
effectively and efficiently administer the tax
system for small businesses. The new organization
may not be able to do much to reduce the tax law
complexity facing small businesses, but it should
be able to help businesses better deal with those
complexities. With the establishment of SB/SE, IRS
will have an organization that can focus on
addressing the factors that make small businesses
more likely to be noncompliant and on correcting
those factors that have aroused the kind of
negative feelings about IRS that some respondents
expressed in our survey.

Any improvement in these areas will depend on the
processes and procedures the new organization
adopts and how effectively they are implemented.
Some of the planned changes, such as those related
to partnering, may be fairly easy to implement.
However, for the more substantive changes, such as
risk-based compliance, to happen, SB/SE, and
indeed all of IRS, will have to overcome several
challenges. Because some of those challenges,
especially the need to modernize IRS' computer
systems, will require a significant amount of
sustained effort, it may be several years before
those more substantive changes are fully
implemented.

Agency Comments and Our Evaluation
We requested comments on a draft of this report
from IRS. We obtained IRS' written comments in a
July 18, 2000, letter from the Commissioner of
Internal Revenue (see app. III).

The Commissioner said that IRS was committed to
implementing a customer-focused organization that
will benefit all taxpayers and that our report
would help IRS improve its products and services
for small businesses.

The Commissioner cited several actions, in
addition to those mentioned in our report, that
IRS is taking to improve its products and
services. The cited actions generally involved
changes to simplify certain small business-related
publications and steps to improve telephone
service for small businesses and practitioners.
The Commissioner noted, for example, that IRS (1)
streamlined its Tax Guide for Small Business by
removing information pertaining to larger
businesses and (2) would begin accumulating
telephone service customer satisfaction data from
SB/SE customers, which is expected to result in
improved telephone service.

As agreed with your office, unless you publicly
release its contents earlier, we plan no further
distribution of this report until 30 days from the
date of this letter. At that time, we will send
copies to Senator John Kerry, Ranking Minority
Member of your Committee; Senator William V. Roth,
Jr., Chairman, and Senator Daniel P. Moynihan,
Ranking Minority Member, Senate Committee on
Finance; and Representative Bill Archer, Chairman,
and Representative Charles B. Rangel, Ranking
Minority Member, House Committee on Ways and
Means. Copies will also be sent to the Honorable
Lawrence H. Summers, Secretary of the Treasury;
the Honorable Charles O. Rossotti, Commissioner of
Internal Revenue; and the Honorable Jacob Lew,
Director, Office of Management and Budget. Copies
will be made available to others upon request.

If you or your staff have any questions concerning
this report, please contact me or David Attianese
on (202) 512-9110. Key contributors to this report
are acknowledged in appendix IV.

Sincerely yours,

Cornelia M. Ashby
Associate Director, Tax Policy
   and Administration
 
_______________________________
1 Corporations with no more than 75 shareholders
can elect to be treated as S corporations for
federal tax purposes if certain requirements are
met.
2 Self-employed individuals file a Form 1040 (U.S.
Individual Income Tax Return) with either a
Schedule C (Profit or Loss From Business) or
Schedule F (Profit or Loss From Farming) attached.
3 The $915 billion includes individual and
corporate income taxes, employment taxes, excise
taxes, and taxes withheld for employees.
4 After considering a number of national
organizations that represent small businesses, we
chose NFIB because its membership was the largest
and included members from a wide range of business
sectors. We reached a general consensus regarding
this choice with cognizant officials from IRS, the
Small Business Administration, and  a number of
other membership organizations that represent
small businesses.
5 Our sample consisted of two strata, defined by
NFIB's classification-sole proprietorships and
other types of business structures. During our
analysis, we did not find a statistical difference
between those describing their business as a sole
proprietorship and other types of business
structures. Therefore, we are only reporting on
only the accumulated results for the small
businesses in our study population.
6 Because we had no reason to believe that the
kind of information we were gathering would be
affected by which regional office we visited, we
judgmentally selected the Midstates and Western
Regional Offices. We visited the North Texas and
Northern California District Offices because they
were located in the same areas as the two regional
offices. We visited the Kansas-Missouri District
Office because of its convenience to our audit
staff.
7 Noncompliance can mean any number of things,
including an honest mistake that leads to an
incorrect tax return, a failure to pay income
taxes on time, a failure to remit taxes withheld
from employees, and fraud.
8 Supplemental income earners are wage earners who
file a Form 1040 with a Schedule E for rental,
royalty, or other supplemental income. They are
included in the population to be served by IRS'
new organizational unit for small businesses.
9 Employment taxes include Social Security and
Medicare taxes, federal income tax withholding,
and federal unemployment tax.
10 Depreciation is the annual deduction allowed to
recover the cost of business or investment
property having a useful life substantially beyond
the tax year.
11 The tax law gives special treatment to some
kinds of income and allows special deductions and
credits for some kinds of expenses. Taxpayers who
benefit from the law in these ways may have to pay
at least a minimum amount of tax through an
additional tax, called the alternative minimum
tax.
12 The extent to which those issues and
requirements apply to a specific business would
depend on how the business is organized, whether
it has employees, and the nature of its business
operations.
13 Modernizing America's Tax Agency, IRS
Publication 3349, revised January 2000.
14 The other 38 percent had no basis to judge.
These percents do not add to 100 because of
rounding.
15 IRS Restructuring: A New Era for Small Business
(May 23, 2000).
16 The five account management centers are to be co-
located with five compliance centers that also are
to be dedicated to SB/SE. Those co-located centers
are to be in Brookhaven, NY; Philadelphia, PA;
Cincinnati, OH; Memphis, TN; and Ogden, UT.
17 Account management activities include responding
to customer inquires; solving customer problems;
providing options to settle accounts; and handling
issues received through phone calls,
correspondence, and electronic mail.
18 According to IRS, as many as one-half of self-
employed filers receive the vast majority of their
income from wages, not business-related
enterprises, and are considered "incidental"
business filers.
19 Specialty tax filers include individual
taxpayers with international tax returns and
filers of fiduciary, estate, and gift tax returns.
20 IRS Publication 3349, revised January 2000.
21 Tax Systems Modernization:  Management and
Technical Weaknesses Must Be Corrected If
Modernization Is To Succeed (GAO/AIMD-95-156, July
26, 1995) and Tax Systems Modernization:
Blueprint Is a Good Start But Not Yet Sufficiently
Complete to Build or Acquire Systems (GAO/AIMD/GGD-
98-54, Feb. 24, 1998).

Appendix I
Sampling and Data Analysis Methodology
Page 32            GAO/GGD-00-166 Small Businesses
Sample Selection Methodology
     To identify the problems small businesses
have encountered in the past in dealing with IRS,
we identified a population of small businesses
from the membership list of the National
Federation of Independent Businesses (NFIB), a
major national organization representing this
population.1

     An ideal survey population would have been
all small businesses in the country. In the
absence of such a database or list, we identified
a number of national organizations that represent
small businesses. We chose NFIB's membership list
because it was the largest and included members
from a wide range of business sectors. NFIB is an
organization of businesses that are not publicly
held. Although not exclusively an organization of
small businesses, NFIB officials told us that
nearly all members of NFIB are small businesses.
NFIB's membership list is actively used by the
organization and is updated frequently.

     We reached a general consensus regarding this
choice with IRS' Executive Director for Small
Business Modernization, the Small Business
Administration's Office of Advocacy, and a number
of other membership organizations representing
small businesses. We included a screener question
on the questionnaire asking respondents about
their businesses' total assets, and we did not
include responses from businesses that had   $5
million or more in total assets.

     The mailing list of NFIB members that we used
contained 398,105 businesses nationwide. In
constructing this list, we excluded some members
because they were either (1) a call center company
that was excluded from NFIB mailings, (2) a
company that did not want personal names and/or
company names to appear on mailing pieces, (3) a
company with a negative zip code number in the
database, (4) a company that requested to not
receive any mail as a result of NFIB membership,
or (5) a so-called "decoy" company whose presence
on NFIB's mailing list was only to detect
unauthorized use of the mailing list. The mailing
list we used to select the sample was current as
of September 11, 1999.

     We selected a stratified random sample of
1,000 businesses from our list of 398,105. The
strata were defined by whether the business was
structured as a sole proprietorship or other type
of structure. These strata were selected because
we wanted to ensure that sole proprietorships were
adequately represented in our study population.
The strata population and number of businesses
selected are shown in table I.1.

Table I.1: Strata for Small Business Study
Population
Stratum                Population        Number of
                                        businesses
                                          selected
Sole                      151,908              500
proprietorships
All other                 246,197              500
businesses
Totals                    398,105            1,000
Source: GAO analysis of NFIB membership list.

Questionnaire Design
     Our questionnaire asked for background
information about the business, such as the number
of employees, the type of industry the business
was involved in, and whether the respondent
typically prepared the federal tax returns for the
business or hired a tax preparer or accountant to
do it. It asked about what IRS and non-IRS
services and resources the respondent had used;
and it asked the respondent to rate his or her
satisfaction with various products, services, and
functions provided by IRS.

     We sought reactions from officials at IRS,
the Small Business Administration, and NFIB to a
draft of the questionnaire. We then pretested it
with two small business owners who completed the
questionnaire and shared their opinions and
suggestions. The questionnaire took each pretest
respondent about 15 minutes to complete. A copy of
the final questionnaire and the survey responses
are shown in appendix II.

     To encourage candid responses, the
questionnaire was completely anonymous, with no
way for us to identify the answers of any business
individually. A postcard was included with each
questionnaire, for respondents to return
separately to let us know that they had mailed
back their questionnaires. That enabled us to
exclude those who had already responded from
follow-up mailings.

     In addition, a letter from NFIB, encouraging
members to respond, accompanied the questionnaire
and our cover letter. We conducted the initial
mailout on September 30, 1999. We sent a follow-up
mailing to nonrespondents on October 28, 1999, and
sent a final mailing on December 2, 1999.

Response Rates
     We received 548 usable responses to our
questionnaire, or a response rate of 55 percent.
Five other questionnaires were returned to us as
not deliverable, and another five questionnaires
were received but not used because the respondents
said that they had $5 million or more in total
assets, which exceeded our criteria for a small
business.

Sampling and Nonsampling Errors for Key Estimates
Used in the Report
Because our survey results come from samples, all
results are estimates that are subject to sampling
errors. We calculated sampling errors for all of
the survey results presented in this report. These
sampling errors measure the extent to which
samples of these sizes and structure can be
expected to differ from their total populations.
Each of the sample estimates is surrounded by a 95-
percent confidence interval. This interval
indicates that we are 95-percent confident that
the results for the total population fall within
this interval. Unless otherwise noted, the 95-
percent confidence intervals for proportions do
not exceed 10 percentage points. All numeric
estimates other than proportions have sampling
errors smaller than 10 percent of the value of
those estimates, unless otherwise noted.

     In addition to the reported sampling errors,
the practical difficulties of conducting any
survey may introduce other types of errors,
commonly referred to as nonsampling errors. For
example, differences in how a particular question
is interpreted, in the sources of information that
are available, or in the types of files not
available introduce unwanted variability into the
survey results. We included steps in our audit to
minimize such nonsampling errors. For example, we
carefully pretested the survey instrument and
discussed our survey results with cognizant IRS
officials at the National Office and at field
locations we visited and in discussions with
various small business representatives.

_______________________________
1 As defined previously, the term "small business"
includes self-employed individuals (also known as
sole proprietorships).

Appendix II
Final Results From Survey of Small Businesses
Page 34            GAO/GGD-00-166 Small Businesses

Appendix III
Comments from the Internal Revenue Service
Page 45            GAO/GGD-00-166 Small Businesses

Appendix IV
GAO Contacts and Staff Acknowledgments
Page 47            GAO/GGD-00-166 Small Businesses
GAO Contacts
Cornelia M. Ashby (202) 512-9110
David J. Attianese (202) 512-9110

Acknowledgments
     In addition to those named above, Kirk Boyer,
Stuart Kaufman, Daniel Lynch, Yong Meador, Anne
Rhodes-Kline, and Samuel Scrutchins made key
contributions to this report.

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