Tax Research: IRS Has Made Progress but Major Challenges Remain (Letter
Report, 06/05/96, GAO/GGD-96-109).
GAO reviewed the Internal Revenue Service's (IRS) tax compliance
research program, focusing on: (1) the success IRS has had with its new
research approach; and (2) IRS ability to implement lessons learned from
its Compliance 2000 initiative.
GAO found that: (1) IRS implemented its new compliance research approach
to address concerns over taxpayer noncompliance and the large gap
between income taxes owed and taxes paid; (2) IRS attempted to address
these concerns through Compliance 2000, but had limited success due to
inadequate compliance data; (3) IRS could avoid these mistakes by
establishing more support for its research, using objective compliance
data, acquiring more specialized staff, developing an organizational
infrastructure, and setting objective measurements; (4) IRS officials
believe that this new research approach is more cost-effective, but they
doubt that they will reach 90-percent compliance by 2001; (5) IRS
officials are concerned that district offices will spend 85 percent of
their resources on national compliance issues rather than on
district-level issues; (6) IRS has made some progress in developing the
Compliance Research Information System (CRIS), but it is unsure when it
will become available; (7) IRS officials believe that more training is
needed in specialized areas to achieve research objectives; and (8) IRS
is in the process of developing tools that track and measure the success
of its research projects.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: GGD-96-109
TITLE: Tax Research: IRS Has Made Progress but Major Challenges
Remain
DATE: 06/05/96
SUBJECT: Tax administration
Noncompliance
Income taxes
Taxpayers
Tax violations
Management information systems
Voluntary compliance
Cost effectiveness analysis
Human resources training
Research programs
IDENTIFIER: IRS Compliance Research Information System
IRS Taxpayer Compliance Measurement Program
IRS Compliance 2000 Initiative
IRS Business Master Plan
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Cover
================================================================ COVER
Report to the Commissioner, Internal Revenue Service
June 1996
TAX RESEARCH - IRS HAS MADE
PROGRESS BUT MAJOR CHALLENGES
REMAIN
GAO/GGD-96-109
IRS Has Made Progress
(268658)
Abbreviations
=============================================================== ABBREV
CPC - Compliance Planning Council
CRIS - Compliance Research Information System
CSWG - Cooperative Strategy Working Group
DORA - District Office of Research and Analysis
IRS - Internal Revenue Service
NORA - National Office of Research and Analysis
TCMP - Taxpayer Compliance Measurement Program
Letter
=============================================================== LETTER
B-260165
June 5, 1996
The Honorable Margaret Milner Richardson
Commissioner of Internal Revenue
Department of the Treasury
Dear Ms. Richardson:
The Internal Revenue Service (IRS) is changing its tax compliance
philosophy. In addition to catching noncompliance through
enforcement (e.g., audits), IRS is trying to induce compliance
through nonenforcement work (e.g., assistance and education). This
broader focus relies to a great extent on a new approach for
researching ways to improve compliance for entire market
segments--specific groups of taxpayers that share certain
characteristics or behaviors.
Concerns about continued noncompliance after decades of enforcement
prompted this change. IRS has found that taxpayers' total compliance
in paying taxes owed, including that directly induced by enforcement,
has been roughly stagnant over the past 20 years at about 87 percent.
IRS estimates that annual tax losses from the noncompliance have been
well over $100 billion. IRS has set a goal to increase total
compliance to 90 percent by 2001 and believes that its new compliance
research approach will uncover ways to help meet this goal.
This report discusses IRS' new compliance research approach.
Initiated under our basic legislative authority, our objectives were
to (1) review the many lessons IRS has learned from past compliance
efforts in identifying factors most critical to the success of its
new compliance research approach and (2) analyze the current status
of the new approach and its ability to incorporate these factors.
BACKGROUND
------------------------------------------------------------ Letter :1
Our federal tax system relies on voluntary compliance with tax laws.
It presumes that taxpayers understand the laws and are willing and
able to follow them. If not, IRS must determine the reason and then
act to restore compliance and maintain the flow of tax revenue. IRS
traditionally has responded to noncompliance by using enforcement
efforts such as auditing tax returns and computer matching data from
third parties (e.g., banks and employers).
Over time, IRS concluded that enforcement was essential to pursue
intentional noncompliance but not to correct unintentional
noncompliance. Because of this enforcement limitation and concerns
about the level of noncompliance, IRS formulated a different
compliance philosophy. Known as Compliance 2000, the philosophy
envisioned using nonenforcement efforts to correct unintentional
noncompliance and reserving enforcement efforts for intentional
noncompliance. IRS first espoused this philosophy in 1988 and by the
early 1990s had initiated many research projects across IRS' 63
district offices to identify noncompliant market segments, root
causes for the noncompliance, and innovative ways to improve
compliance.
Even so, noncompliance continued to result in major losses in tax
revenue. IRS' most recent estimate put the gross income tax gap--the
difference between income taxes owed and voluntarily paid--at $127
billion for 1992 alone. IRS estimated total tax compliance to be
about 87 percent--83 percent in taxes paid voluntarily and 4 percent
in taxes paid after IRS enforcement. IRS data have shown such total
compliance to be stagnant since the early 1970s.
Concerns about these trends prompted IRS to create the Compliance
Research and Planning approach in 1993. This new approach attempts
to merge the Compliance 2000 philosophy with a rigorous compliance
research system. By combining IRS' National Office knowledge about
research with its district knowledge about compliance and
enforcement, IRS hoped to identify nonenforcement and enforcement
efforts to help improve total compliance to 90 percent by 2001. This
approach has required the establishment of new research methods,
organizations, and tools.
The research methods include a compliance research cycle that starts
with identifying a noncompliant market segment and ends with using
research results in ongoing compliance programs. The organizations
include the National Office of Research and Analysis (NORA) in the
Research Division and 31 District Offices of Research and Analysis
(DORA). NORA has responsibility for developing and implementing the
new approach. DORAs are responsible for researching national and
district compliance levels and finding cost-effective wholesale
solutions to noncompliance, with the support of three IRS functions--
Examination, Collection, and Taxpayer Service. Appendix II discusses
the research cycle and organizations. As planned, the major research
tool will be the Compliance Research Information System (CRIS). CRIS
is to be an integrated network of databases containing a sample of
IRS data over multiple years for use in compliance research.
Appendix III discusses CRIS.
RESULTS IN BRIEF
------------------------------------------------------------ Letter :2
IRS implemented its new compliance research approach to address
concerns about continued noncompliance with tax laws and the large
income tax gap. IRS had attempted to address these concerns through
Compliance 2000, but both we and IRS have found that inadequate
implementation limited the philosophy's success. For example, we
reported that IRS did not have the infrastructure (e.g., research
tools and oversight) or the objective data needed to successfully
achieve compliance research objectives.\1
Using the many lessons it learned from Compliance 2000, IRS has
designed its new compliance research approach with the intent of
enhancing its likelihood of success. Our interviews with IRS
officials at the 31 DORAs and our analysis of IRS data concerning the
lessons learned from past research experiences disclosed that among
the factors needed to enhance success, five emerged most consistently
in terms of relative importance. These five factors are (1) support
for the research throughout IRS, (2) objective compliance data that
are readily accessible for research, (3) skilled staff capable of
doing rigorous research, (4) an infrastructure for organizing and
managing the research, and (5) measures to evaluate whether the new
approach works. NORA officials agreed that these five factors are
important for achieving successful research results under the new
research approach.
While IRS' new approach reflects these five factors, we identified
several related issues that IRS needs to further pursue. First, we
found only mixed support within IRS for the new research approach.
The 293 DORA staff and district officials we interviewed generally
viewed the new approach as being more cost effective in reducing the
tax gap than past approaches. However, they questioned whether the
new approach will be able, by 2001, to help reach 90-percent total
compliance. Furthermore, the officials disagreed over the geographic
focus of the research. District officials raised concerns about
DORAs' spending 85 percent of their resources researching national
compliance issues rather than district-level issues. NORA officials
and DORA Chiefs, on the other hand, believed that IRS cannot meet its
tax gap and compliance goals without a national focus; they said the
decentralized approach under Compliance 2000 did not work. This
disagreement and other concerns within IRS have caused tensions that
could undercut support for the new approach.
Second, IRS may not have objective compliance data available when
needed for research efforts. IRS has made some recent progress in
CRIS development, but its date for becoming fully operational is
unknown. In addition, in October 1995, budget constraints and public
controversy led to a decision by IRS to indefinitely postpone the
Taxpayer Compliance Measurement Program (TCMP). As a result, CRIS
will continue to rely on 1988 TCMP measures on compliance in
reporting income, deductions, and other information on tax returns,
which will become less useful as additional time passes. Thus, IRS
will also have to find alternative strategies to determine which
market segments to research on ways to correct noncompliance.
Third, we found general agreement among IRS officials that research
staff with more specialized skills were needed to achieve IRS'
research objectives. NORA officials we interviewed generally were
pleased with the overall quality of DORA research staff but said that
staff with specialized skills, such as statistics, were lacking in
many DORAs. NORA officials said they were working on ways of
addressing this problem with existing staff resources. They said
that staff with the needed skills would be shared across DORAs
whenever possible. The officials also said that a strong training
program has been developed to enhance the skills of DORA staff. The
DORA staff we interviewed generally were satisfied with their
internal training but said training was needed on how to do rigorous
compliance research in specialized areas. NORA is delivering or has
plans to deliver such training.
As for the last two factors, IRS was in the process of enhancing its
initial infrastructure for planning and managing the research by
developing tools and systems, such as for tracking research projects.
As of January 1996, IRS also was in the process of developing
measures to use in evaluating the success of the new approach.
Effectively addressing the issues we identified should enhance IRS'
potential for success. Thus, it is important that IRS monitor its
progress in addressing these issues. Information produced from such
monitoring could better position management to identify and act on
any need for corrective efforts.
--------------------
\1 Tax Administration: Compliance 2000--A Worthy Idea That Needs
Effective Implementation (GAO/T-GGD-92-48, June 3, 1992).
OBJECTIVES, SCOPE, AND
METHODOLOGY
------------------------------------------------------------ Letter :3
Our objectives were to (1) review the many lessons that IRS learned
from past compliance efforts, including Compliance 2000, to identify
the factors most critical to the success of the new compliance
research approach and (2) analyze the current status of the new
approach and its ability to incorporate these factors as well as help
IRS achieve the goal of 90-percent total compliance by 2001. To
accomplish each objective, we visited IRS' National Office and all 31
DORAs, interviewing responsible officials and collecting relevant
data.
Our National Office work focused on NORA. We interviewed NORA
officials and collected data on the plans for and status of the new
research approach. We discussed the officials' views on lessons
learned from past research and factors critical to the success of the
new approach.
Our fieldwork focused on visits to all 31 DORAs to monitor
implementation of IRS' new approach. To ensure consistent data
collection, we did 293 structured interviews. The interviewees
included 31 District Directors; 31 DORA Chiefs; 92 Chiefs of
Examination, Collection, or Taxpayer Service; and 139 DORA staff
(about 80 percent of the staff at the time of our visits). Our
interviews solicited information on the lessons learned and critical
success factors as well as on the status of the new approach.\2 We
obtained information on all DORA staff, such as positions and
education (see app. V), and on Compliance 2000 research projects
(see app. I).
After we finished our DORA visits in September 1995, events occurred
that could affect the new research approach. We conducted structured
follow-up interviews with NORA officials and the 31 DORA Chiefs to
determine the real and potential effects of these events, including
IRS budget cuts and postponement of TCMP.
We did our work in Washington, D.C., and the 31 DORAs from April 1995
to January 1996 in accordance with generally accepted government
auditing standards. We requested comments on a draft of this report
from you or your designee. On April 22, 1996, we obtained comments
from responsible officials in IRS' Compliance Research Division.
Their comments are discussed on pages 18 and 19.
--------------------
\2 Appendix IV presents consolidated results from the structured
interviews. The appendix presents responses to all scaled questions
and to open-ended questions that are discussed in the letter.
COMPLIANCE 2000 GENERATED FEW
COMPLIANCE GAINS BUT MANY
LESSONS WERE LEARNED FOR FUTURE
RESEARCH
------------------------------------------------------------ Letter :4
IRS viewed its Compliance 2000 strategy as a way to advance voluntary
compliance. The strategy differed from the traditional enforcement
approach by recognizing that nonenforcement approaches, such as
education and assistance, can boost compliance. To determine when it
was best to use each approach, IRS sought to uncover root causes for
noncompliance and distinguish between compliant and noncompliant
taxpayers across market segments.
Compliance 2000 did not work for various reasons. In 1992
testimony,\3 we reported that IRS lacked the necessary compliance
data and infrastructure to do research by market segments. We found
that IRS had not tracked whether its districts started research
projects on the basis of objective compliance data or researched the
most noncompliant market segments. We concluded that Compliance 2000
was a worthy idea that needed careful implementation. We stated that
IRS needed to use objective data to select research projects and
develop an infrastructure for planning, managing, and monitoring the
projects.
An IRS Internal Audit report in December 1993 had similar findings.
The report disclosed that 38 of 50 Compliance 2000 projects were
traditional enforcement projects that the districts had renamed as
Compliance 2000 projects. And IRS had no database to capture results
or provide an inventory of the compliance issues covered. The report
concluded that the projects did not represent rigorous research, the
managerial controls were weak, and a management structure was needed
to provide effective oversight.
NORA officials acknowledged such problems and indicated that very few
Compliance 2000 projects could be viewed as viable research. Even in
the few projects that NORA officials viewed as viable, IRS had not
created a database to show whether compliance increased and, if so,
what actions prompted those increases.
We sought to further confirm these problems by collecting data on
Compliance 2000 projects as we visited the 31 DORAs. We confirmed
that IRS did not track the methods and results of the projects. As
shown in appendix I, we found that many projects were duplicated.
Available records were insufficient for us to compare costs and
benefits across the projects.
We found that IRS learned many lessons about research from Compliance
2000. According to NORA officials, the major lesson was that IRS
needed a totally new organization and approach because the
decentralized approach under Compliance 2000 did not produce viable
research. Our interviews at NORA and the 31 DORAs indicated that
such lessons governed the design of the new approach, particularly
those that IRS officials pointed to as factors critical to the
success of this approach. These factors include the need for (1)
support for the research across IRS, (2) objective compliance data
that are readily accessible, (3) skilled staff, (4) a sound
infrastructure to organize and manage the research, and (5) measures
to evaluate how well the new approach is working. The next section
discusses the potential of IRS' new approach in the context of these
five factors.
--------------------
\3 GAO/T-GGD-92-48.
IRS' NEW APPROACH OFFERS
POTENTIAL FOR IMPROVING
COMPLIANCE RESEARCH
------------------------------------------------------------ Letter :5
IRS holds high hopes for its new compliance research approach in
integrating the Compliance 2000 philosophy with efforts to boost
compliance. To act on this potential, IRS has taken steps built on
lessons learned from past efforts.
SUPPORT FOR COMPLIANCE
RESEARCH CAN BE BUILT BUT
NOT MANDATED
---------------------------------------------------------- Letter :5.1
While directives are important to set the vision, building support
relies on collaboration. In this vein, NORA has developed a
cooperative strategy to communicate the research vision, needs, and
results as well as generate feedback on the needs of IRS districts
and functions. Given such feedback, NORA plans to create a special
unit to meet the needs for research on ways to better select and
handle workload. NORA is also encouraging DORAs to provide
short-term research assistance to districts and functions (e.g.,
electronic filing and earned income credit). Ultimately, NORA knows
that the new approach will have to prove its worth to build the
necessary staff support.
IRS IS DEVELOPING A
COMPLIANCE DATABASE
---------------------------------------------------------- Letter :5.2
IRS' new approach depends heavily on CRIS. As envisioned, CRIS is to
be IRS' network of databases for identifying the nationwide and
district compliance of market segments. IRS is implementing CRIS in
the following three stages.
-- Working File CRIS was used in fiscal years 1994 and 1995 for
training DORA staff. It had 75 data elements limited to one
market segment.
-- Interim CRIS was delivered to all DORAs by fall 1995. It
expanded to 800 data elements and samples of individual and
business filers for all market segments.
-- Final CRIS is slated to implement its first database, having
over 2,500 data elements on a sample of 7 to 10 million
individual filers, in fiscal year 1997. It is to interface with
other systems being created to aid in storing data and assigning
workload. It is expected to contain 3 years of data.
On completion, CRIS is to have 10 databases, each with thousands of
data elements. CRIS has been funded for $7 million to develop and
maintain these databases over the next 5 fiscal years. If CRIS
works, IRS would have an integrated network of recent compliance
data. And, IRS research staff could quickly profile compliance by
market segment. IRS expects CRIS to provide data on taxpayer
compliance in (1) filing required tax returns in a timely manner, (2)
accurately reporting information on tax returns, and (3) fully and
timely paying taxes owed.
Also, realizing that IRS data contain taxpayer and IRS errors, NORA
has developed data validation standards. NORA officials believed
that these standards will better ensure that the research stems from
adequate data.
DORA POSITIONS AND TRAINING
FOCUS ON RESEARCH SKILLS
---------------------------------------------------------- Letter :5.3
Past research efforts highlighted the need for staff who had research
skills. Toward that end, NORA devised a staffing plan that requires
certain positions at each DORA, such as a chief, program analysts,
and other generalists. NORA also created specialist positions that
require skills in statistics, operations research, economics, and
computers.
Recognizing limitations in having such staff in the field and
restrictions on external hiring given the redeployment agreement,\4
NORA encouraged DORA chiefs to fill positions with the most qualified
staff available. NORA expected the number of staff to initially
total about six to eight per DORA and grow as workload dictated.
NORA also devised a plan to train all DORA staff in research methods.
Phase I training, which began in early 1995, described NORA, DORA,
CRIS, profiling, statistics, and research methods. Phase II training
includes advanced methods in statistics, research, and market
segmentation. NORA is also offering customized training to meet the
needs of DORA staff.
--------------------
\4 Redeployment agreement refers to IRS' pledge to protect jobs.
Under agreement with the National Treasury Employees Union, IRS
guaranteed that employees would not lose their jobs due to IRS'
modernization and reorganization and would have an opportunity to
maintain their grade through training. Years of IRS service plays a
major role in qualifying for redeployment.
THE INFRASTRUCTURE HAS BEEN
FRAMED
---------------------------------------------------------- Letter :5.4
IRS has laid the framework for the infrastructure it believes is
needed to manage the new research approach. This framework includes
NORA, DORAs, a research plan, and research methods. IRS has plans
for other mechanisms to manage the research.
NORA and DORA officials said research in the field has often suffered
because research knowledge resided in the National Office, but
knowledge about compliance and enforcement resided with district
staff who usually lacked research skills. These officials said
districts lacked commitment to do the research and use its results.
NORA officials viewed the NORA/DORA framework as a way to correct
these problems.
Furthermore, IRS districts are forming Compliance Planning Councils
(CPC) at the DORA level to build district support for compliance
research, oversee district compliance programs, and provide a conduit
to the three district functions. In summary, CPCs are to provide a
multifunctional perspective in reviewing district compliance
workload. At a minimum, each CPC is to consist of the DORA Chief and
chiefs of the three functions. IRS is also forming nine Cooperative
Strategy Working Groups (CSWG) to help with oversight, coordination,
and implementation of the new approach. CSWGs are to make many of
the decisions about compliance research, with the concurrence of the
national director for compliance research.
NORA is developing an annual research plan and a compliance research
cycle. If implemented properly, both elements should create a common
understanding of the research vision and enhance the quality of the
research. The research plan prioritizes compliance issues and
research efforts. The plan allocates resources across DORAs to meet
expectations, within set time frames, on (1) establishing the new
research approach, (2) helping IRS districts and functions to meet
their compliance and enforcement needs, and (3) reducing the tax gap
and improving compliance. The research cycle outlines the steps for
all projects, as shown in figure 1.
Figure 1: Compliance Research
and Planning Cycle
(See figure in printed
edition.)
Source: IRS National Office of Research and Analysis.
As shown above, the latter steps of the cycle produce research
results that form the basis for establishing compliance workloads, as
set in the compliance plan. Appendix II provides details on the
research cycle and compliance plan.
IRS HOPES TO HAVE SPECIFIC
MEASURES OF SUCCESS
---------------------------------------------------------- Letter :5.5
For fiscal year 1995, IRS measured the success of the new approach
against expectations set forth in IRS' Business Master Plan; those
expectations focused on establishing all DORAs. For fiscal year
1996, success is to be measured against expectations set forth in the
research plan. NORA officials acknowledged the need for more
specific measures of success.
Combining all five factors, IRS' new compliance research approach
offers potential for improving compliance. If implemented
successfully, it also may enhance the effectiveness of the tax
system. Rigorous research could help ensure that tax laws,
regulations, and guidance are clear; taxpayers receive necessary
assistance; paid preparers encourage compliance; and enforcement is
cost effective. Integrating the research with ongoing programs could
help meet these basic requirements, to the extent the research helps
increase compliance and reduce taxpayer burden. In doing so, the
research would co-exist rather than compete with these programs.
IRS IS ADDRESSING OBSTACLES TO
ITS NEW RESEARCH APPROACH BUT
MAJOR CHALLENGES REMAIN
------------------------------------------------------------ Letter :6
Some obstacles have slowed implementation of IRS' new compliance
research approach. IRS has taken actions to overcome the obstacles
but faces critical challenges in incorporating the success factors.
TENSIONS UNDERCUT
ORGANIZATIONAL SUPPORT FOR
THE NEW APPROACH
---------------------------------------------------------- Letter :6.1
NORA and DORA officials raised concerns about support for compliance
research because of three types of tensions. Our interviews with 293
District Directors, CPC members representing the three functions, and
DORA staff illustrated these concerns as well as mixed support for
the new approach.
For example, about 63 percent of those we interviewed believed that
this approach will reduce the tax gap, and nearly 70 percent, who had
knowledge of previous attempts, believed that it will be more cost
effective. However, only 38 percent of those we interviewed believed
that the approach will significantly contribute to meeting IRS'
90-percent compliance goal by 2001. When asked why, most of these
officials viewed this goal as too challenging and the time period as
too short.
Proponents of the new approach favored its systemic and objective
nature. They viewed national research on market segments, by
reaching more noncompliant taxpayers, as the way to significantly
improve compliance. Opponents, believing that major compliance
problems are well known, favored shifting the research resources into
efforts involving tax simplification and legislative changes, such as
tax withholdings and income reporting. NORA officials noted that
compliance research offers the best way to identify and justify such
efforts.
The first tension dealt with changing the IRS culture. IRS has
focused on maximizing revenue yield through enforcement instead of
voluntary compliance through enforcement and nonenforcement efforts.
Our DORA work showed that the three functions largely expected the
research to aim at this traditional focus. Given concerns that it
will not, only 34 percent of the Chiefs of Examination, Collection,
and Taxpayer Service we interviewed at the 31 DORAs considered DORA
to be a good investment of resources. NORA officials believed that
these responses did not reflect the broad, multifunctional view
needed to increase compliance. These differing views reflect, at a
minimum, the tension over the new approach.
A second tension involved pressures to quickly produce high- profile
results. We heard this concern during interviews at all 31 DORAs.
Interviewees doubted whether IRS would give the approach time to
prove itself. They said IRS often expects results right away, but
compliance research is unlikely to produce immediate benefits.
The third tension dealt with directing 85 percent of the DORA work to
national compliance issues, leaving the remainder to the discretion
of the district. District officials, who believed that many
compliance issues have a local flavor, generally wanted more control.
NORA officials, as well as DORA Chiefs, saw a national focus as the
way to help improve compliance and reduce the tax gap.
NORA officials recognize the seriousness of these and other tensions
that undercut support for the new approach. NORA officials have
planned various efforts to educate and inform IRS management and
staff at all levels on the new approach as well as to advance its
cooperative strategy.
MAJOR GAPS EXIST IN THE
COMPLIANCE DATA
---------------------------------------------------------- Letter :6.2
IRS decided to open DORAs a few years before CRIS was finished to
allow DORAs to become fully staffed and equipped, as well as to
participate in the development of CRIS and learn about IRS data.
While IRS has made progress, questions remain on whether CRIS will be
completed soon enough to contribute to research on improving
compliance by 2001.
At the time of our DORA visits, only 19 percent of the DORA staff
viewed the available data, which were from Working File CRIS, as
sufficient to do their jobs. DORA staff complained that the data
were outdated, inaccurate, and lacked compliance measures.
After our visits, DORA staff began using data from Interim CRIS. The
DORA Chiefs we interviewed during our follow-up work viewed the
Interim CRIS as a far better system. However, only 39 percent of
them thought the data were sufficient to do the work required at
DORA. Among other things, they noted that Interim CRIS lacked
historical data, compliance indicators, and enforcement actions
against filed tax returns as well as on nonfilers.
NORA officials acknowledged these problems but had viewed these
earlier phases as training for DORA staff. They believed that the
staff had sufficient data for such training and the assigned work.
The officials said that Final CRIS and the data validation standards
will address these problems and add discipline so that the staff only
does the work made possible by the data.
Even so, Final CRIS is developing more slowly than expected. NORA
officials remain optimistic that its first database, involving
individual filers, will be operational by fiscal year 1997. As for
the other nine databases, such as for partnerships and corporations,
IRS was not sure when they would be fully operational and how many
can produce research results by 2001 on improving compliance.
Furthermore, the postponement of TCMP heightens the need for finding
other ways to measure reporting accuracy on filed returns. NORA
officials told us that they viewed TCMP as a crucial part of CRIS
because TCMP had been a proven way to measure reporting accuracy.
Over three-fourths of the $94 billion tax gap for individuals in 1992
arose from noncompliance in reporting rather than in filing or in
paying.\5
IRS officials said that, without the randomness and comprehensiveness
of TCMP,\6 they doubted whether IRS will have a precise way to
measure reporting compliance nationally or at the DORA level, or
whether IRS will have a basis for identifying emerging noncompliance
among market segments or tax issues. CRIS is using TCMP results for
1988, but these results will lose more of their usefulness with each
passing year. NORA officials said they are not sure how they will
measure reporting compliance.
--------------------
\5 IRS released its most recent estimate, covering up to 1992, in
1988. This estimate relied on TCMP data from the early 1980s. IRS
has developed, but not yet released, a new estimate using TCMP data
through 1988. Estimating the tax gap is not an exact science. IRS
lacks the data to fully estimate the tax gap with high precision.
TCMP has provided the best data, but it takes time to do well.
\6 Between 1962 and 1988, usually at 3-year intervals, IRS collected
TCMP data on individual compliance by auditing all issues on a random
sample of tax returns.
STAFFING PROBLEMS INCREASE
THE NEED FOR TRAINING
---------------------------------------------------------- Letter :6.3
At the time of our visits, the 31 DORAs had 217 staff, varying from 4
to 12 staff at each DORA. Of those we interviewed, 85 percent of the
District Directors and DORA Chiefs were satisfied with the number of
staff, but 94 percent of the chiefs and 74 percent of the directors
thought staffing should increase in the future; the rest were
uncertain. Given IRS' budget cut, DORA Chiefs expressed concern that
staffing would not increase in fiscal year 1996 as anticipated.
Figure 2 shows the number and types of positions for all 31 DORAs,
excluding the 31 DORA Chiefs.
Figure 2: Types of Staff
Positions in District Offices
of Research and Analysis
(See figure in printed
edition.)
Note: Figure does not include DORA Chiefs. Percentages may not
equal 100 because of rounding.
\a The category of "other" includes Assistant DORA Chief, Diversity
Coordinator, Fed-State Coordinator, Magnetic Media Specialist, Public
Affairs Specialist, and Acting Team Leader.
Source: IRS DORA Chiefs.
We analyzed the distribution of positions across the 31 DORAs. Our
analysis showed that 21 DORAs lacked 1 or more of the required
specialist positions involving economic, statistics, computer, and
operations research skills. For example, Seattle had two program
analysts, one operations research analyst, and one economist, while
Los Angeles had five program analysts, two operations research
analysts, and one Fed-State coordinator. Neither site had a
statistician or a computer research analyst.
Although over half of the DORA positions involved specialist skills,
DORAs had difficulty finding such staff. Only 58 percent of the DORA
Chiefs said their staff had the requisite background and skills; they
pointed to gaps in skills such as statistics, economics, and
operations research. Our analysis showed that 37 percent of the
staff we interviewed had some research experience, and 5 percent had
spent most of their career in a research capacity. Of DORA staff
holding college or graduate degrees, about half of these degrees were
in business or liberal arts; less than 30 percent related to
specialist positions.
Both NORA and DORA officials we interviewed pointed to the IRS
redeployment agreement and limits on hiring staff from outside of IRS
as barriers to getting the most qualified staff for doing research.
Over 50 percent of the DORA staff were hired as redeployment
eligible. Sixty-five percent of the District Directors and DORA
Chiefs said the redeployment agreement limited their ability to staff
DORAs with the most qualified employees.
Because many DORA staff do not have the research skills needed, NORA
is working on ways to share specialized skills across the research
projects and DORAs. Plans call for identifying the necessary
specialist skills before starting a project and finding specialists
from NORA or the DORAs who can work on the project when needed. NORA
officials said a project will not start if needed specialists cannot
be found.
NORA officials agreed that DORA staff could benefit from more
specialized skills, but they were pleased with the staff overall and
their ability to learn. Given these views, NORA has executed what it
views as an aggressive training plan. As for phase I of the
training, 94 percent of the DORA Chiefs viewed it as at least
generally adequate; 83 percent of DORA staff agreed. Staff who
thought the training could be improved wanted more training in
statistics, data analysis, economics, research design and
methodology, and computers. A NORA training survey of DORA staff
also identified similar training needs. NORA officials said training
in these areas is being developed.
NORA has developed a plan for phase II training and a budget of $3.5
million. NORA has planned internal computer courses and external
courses on topics such as research methods and use of research. NORA
officials said that the training budget had been fully allocated as
of March 1996, but that funding had not been obligated. If the
funding is not received soon, projects may be delayed.
RESEARCH INFRASTRUCTURE
NEEDS FURTHER DEVELOPMENT
---------------------------------------------------------- Letter :6.4
IRS has not completed the infrastructure for planning and managing
the research, although progress has been made. For example, until
November 1995, NORA had not started to develop linkages with programs
in the functions that used market segments due to other priorities.
Until the linkages are developed, unnecessary duplication may occur
and opportunities to improve these programs may be missed. NORA
officials said linkages will be made when functions ask for profiles
and research by market segment as well as through the compliance
plan.
Objective criteria for selecting research projects had not been fully
established. Without such criteria, NORA cannot ensure that staff
research the major areas of noncompliance. Our interviews and review
of the research plan showed that many projects arose from districts'
or functions' beliefs about the major areas of noncompliance. Other
projects were selected with more objective data from TCMP, the tax
gap, or other studies; however, such data reflected compliance in the
1980s. NORA officials acknowledged a desire for more objective and
recent data in selecting projects but believed that enough of the
initial projects dealt with known compliance problems to avoid wasted
efforts. The officials said CSWGs are responsible for establishing
criteria for selecting and ranking projects and are working with five
DORAs on such criteria.
CPCs also were not fully developed. As of December 1995, districts
had established 28 of the 31 CPCs; most CPCs had only met a few
times, largely to get organized. Although 55 percent of the CPC
members we interviewed said CPCs were at least generally effective,
21 percent said they were not, and 24 percent thought it was too soon
to tell. CPCs included members who managed the three district
functions. If developed, CPCs could help link compliance research to
the needs of the district functions.
Starting in March 1996, NORA implemented a system to start tracking
the status and results of research projects. NORA relies on DORA
staff to input a lot of data about the projects and research into the
system. However, controls over accurate and complete data entry have
not yet been fully developed.
NEW APPROACH LACKS SUCCESS
MEASURES
---------------------------------------------------------- Letter :6.5
IRS has not developed specific measures for evaluating the success of
the new research approach. Of the 62 District Directors and DORA
Chiefs we interviewed, 73 percent cited a need for better measures.
Most of these interviewees suggested measuring impacts of the
research on compliance, particularly by market segment or district.
NORA and DORA officials believed that success will be based, in part,
on the support and demand for research from the three functions.
Two CSWGs were working on ways to measure success, including (1) a
peer review system and (2) a quality review of the research process
and its results. NORA expects them to be finished during the spring
of 1996. Without good measures, IRS will not be able to objectively
evaluate its new approach. IRS faces the challenge of developing
valid measures that will be meaningful to customers inside and
outside of IRS.
CONCLUSIONS
------------------------------------------------------------ Letter :7
IRS' goal to increase total compliance with the tax laws to 90
percent by 2001 is a worthy one. IRS estimates have shown that
decades of attempting to improve compliance through enforcement
failed to raise total compliance above about 87 percent. IRS' new
approach of supplementing its enforcement efforts with rigorous
research into the causes of noncompliance strikes us as being
intuitively logical.
On the basis of lessons learned from the past, IRS officials believe,
and we agree, that among the factors needed to better ensure success
of the new approach, at least five stand out in terms of relative
importance: (1) support for the research throughout IRS, (2)
objective compliance data that are readily accessible for research,
(3) skilled staff capable of doing rigorous research, (4) an
infrastructure for organizing and managing the research, and (5)
measures to evaluate whether the new approach works.
We identified several issues that IRS needs to address in terms of
these five critical success factors. The mixed support we found for
the new research approach has caused tensions within IRS that could
have an adverse impact on potential success. The fact that IRS might
not have objective data available when needed for the research effort
may make it difficult to produce useful research results in a timely
manner. Furthermore, unless specialized staff are available when and
where needed, the research effort could also be hampered. Finally,
IRS has not yet fully developed the infrastructure needed to plan and
manage the research, nor does it have measures to use in evaluating
the success of the new approach.
IRS has taken or planned some actions to address these issues. It
has developed mechanisms designed to build support for the new
approach. Working with existing resources in the face of budget
constraints, IRS has developed training and staff-sharing programs to
help address specialized staffing needs. IRS is also working to (1)
enhance the infrastructure by tracking projects and linking research
and compliance programs and (2) develop measures for evaluating the
success of the new approach.
Effectively addressing each of these issues should enhance IRS'
potential for success. Thus, it is important that IRS monitor its
progress in addressing these issues and position itself to take
corrective action if and when needed.
RECOMMENDATIONS
------------------------------------------------------------ Letter :8
We recommend that the IRS Commissioner
-- develop an approach for monitoring the effectiveness of
mechanisms established to build support for the new approach as
well as for the staff-sharing and training efforts that are
under way and, if necessary, make modifications;
-- devise a method to better ensure that reliable compliance data
will be available when needed for the research effort, given the
indefinite postponement of TCMP;
-- set a schedule for completing CRIS, monitor its progress, and
take the necessary actions to resolve identified problems; and
-- establish milestones and monitoring mechanisms for (1)
completing the infrastructure needed to organize and manage the
research effort and (2) developing the measures needed for
evaluating success.
AGENCY COMMENTS AND OUR
EVALUATION
------------------------------------------------------------ Letter :9
We obtained oral comments on a draft of this report from senior IRS
officials in a meeting on April 22, 1996. IRS officials included the
National Director for Compliance Research, the Chief of National
Office Research and Analysis, and a representative from IRS' Office
of Legislative Affairs. In general, these officials agreed that the
report accurately reflects the key issues in IRS' new compliance
research and analysis approach. They further agreed with our
conclusions and recommendations and noted the following actions were
being planned or taken on each of our four recommendations.
First, in developing an approach for monitoring mechanisms for
building support and efforts in staff sharing and training, the IRS
officials said they will be monitoring all such mechanisms and
efforts, particularly use of the cooperative strategy and other
outreach efforts about the new approach. Second, in devising a
method to provide reliable compliance data, these officials
acknowledged the problems with losing the comprehensive, top-down
measures of TCMP but said IRS has sufficient compliance data in the
short term for the research work to continue.
Third, these officials said action is already being taken to set a
schedule for completing CRIS, monitoring its progress, and resolving
related problems. Recently, IRS has required all computer systems
under development, including CRIS, to have established milestones and
a completion schedule that will be monitored internally. Fourth, in
establishing milestones and monitoring the completion of the
infrastructure as well as of the measures, the IRS officials said the
fiscal year 1997 research plan will provide the means for doing these
activities. They said IRS' new system for tracking the status and
results of research projects is expected to be operational by June
1996, and measures for evaluating the success of the new research
approach are being developed.
---------------------------------------------------------- Letter :9.1
This report contains recommendations to you. The head of a federal
agency is required by 31 U.S.C. 720 to submit a written statement on
actions taken on the recommendations to the Senate Committee on
Governmental Affairs and the House Committee on Government Reform and
Oversight not later than 60 days after the date of this letter. A
written statement also must be sent to the House and Senate
Committees on Appropriations with the agency's first request for
appropriations made more than 60 days after the date of this letter.
Copies of this report are being sent to interested congressional
committees, the Director of the Office of Management and Budget, the
Secretary of the Treasury, and other interested parties. It will
also be made available to others upon request.
Major contributors to this report are listed in appendix VI. Please
contact me on (202) 512-9044 if you or your staff have any questions
about this report.
Sincerely yours,
Natwar M. Gandhi
Associate Director, Tax Policy and
Administration Issues
SUMMARY OF COMPLIANCE 2000
PROJECTS DATA COLLECTION
INSTRUMENT
=========================================================== Appendix I
This appendix contains a summary of the results from our data
collection on Compliance 2000 Projects. We provided a data
collection instrument to responsible officials at 31 District Offices
of Research and Analysis (DORA) for completion during the summer of
1995. (DORAs are not an outgrowth of Compliance 2000. Compliance
2000 was a district (old 63-district configuration) configuration.
However, we chose to collect data from the DORAs because many of the
DORAs had received data from Compliance 2000 offices after they were
closed.) Of the 31 DORAs, 28 reported information on 133 Compliance
2000 projects.
We found that important information was unavailable for most of the
projects. For example, none of the projects reported whether
compliance improved or not. Of 133 reported projects, 70 reported no
information on either the results or the resources spent. Of the 63
for which such information was available, 35 provided information on
the resources, 37 provided information on enforcement results (e.g.,
dollars assessed and returns obtained), and 24 provided information
on nonenforcement activities (e.g., number of seminars held and
publications issued). Table I.1 provides this information by DORA.
Table I.1
Compliance 2000 Projects by DORA and by
Data Available on Compliance Results and
Resources Used, as of the Summer of 1995
Dollars
assessed and Nonenforcemen Number of
Locat Number of amended t Resources projects with
ion projects returns\a treatments\b used\c no results
----- ------------- ------------- ------------- ------------- -------------
Atlan 8 5 1 2 2
ta
Balti 8 0 4 0 4
more
Bosto 6 2 2 0 2
n
Brook 4 2 0 2 2
lyn
Buffa 9 6 1 1 2
lo
Chica 1 0 0 0 0
go
Dalla 4 1 3 1 0
s
Detro 4 2 1 4 1
it
Fort 2 1 1 0 0
Laud
erda
le
Green 2 0 0 2 2
sboro
Hartf 9 0 0 2 9
ord
Houst 2 0 1 0 1
on
India 2 0 1 2 1
napo
lis
Inter 2 2 0 0 0
nati
onal
Jacks 4 3 0 1 0
onvi
lle
Lagun 1 1 0 0 0
a
Nigu
el
Los 2 1 1 2 0
Ange
les
Milwa 6 2 2 4 2
ukee
Nashv 19 0 1 0 18
ille
New 4 3 1 3 0
Orle
ans
Newar 2 1 0 0 1
k
Phila 3 0 0 0 3
delp
hia
Richm 3 2 1 1 0
ond
San 6 0 0 0 6
Fran
cisc
o
San 2 0 0 1 2
Jose
Seatt 12 2 2 5 8
le
St. 4 0 1 0 3
Louis
St. 2 1 0 2 1
Paul
================================================================================
Total 133 37 24 35 70
--------------------------------------------------------------------------------
\a The column "dollars assessed and amended returns" includes dollars
assessed and assessed and/or collected from amended returns.
\b The column "nonenforcement treatments" includes education and
outreach assistance.
\c The column "resources used" includes staff hours, staff years, and
direct exam time.
Furthermore, we noticed that many projects dealt with the same
general topic, such as compliance in filing information returns on
miscellaneous income, nonfilers, and tax-exempt organizations. Table
I.2 shows that of the 133 projects, 72 duplicated at least one
project.
Table I.2
Compliance 2000 Projects and Locations
Duplicating the Same Tax Issue or Market
Segment, as of the Summer of 1995
Tax compliance by issue or market Number of Number of
segment projects\b locations\c
---------------------------------------- ------------- -------------
Information reporting of miscellaneous 10 8
income
Nonfilers of tax returns 10 8
New businesses 7 6
Tip income reporting 8 7
Casinos, bingo, and other gambling 6 5
Profiling characteristics of taxpayers 4 4
Collection Division's workload inventory 3 2
Residential contractors/Homebuilders 3 3
Real estate industry 4 4
Real estate tax deduction 3 2
Tax preparers 3 2
Skybox/Club seats lease tax deduction 3 2
Tax exempt organizations 2 2
Child care credit 2 2
Earned income credit 2 2
Tobacco industry 2 2
Others\a 61 61
======================================================================
Total 1 33 1 22
----------------------------------------------------------------------
\a The category of "others" includes a wide variety of projects, such
as those dealing with compliance in an industry (e.g., food and
beverage, tobacco, and construction), specialty taxes (e.g., excise),
employee plans, passive losses, and government contractors.
\b Some projects covered more than one tax issue or market segment.
\c Some locations reported conducting more than one project in the
same tax issue or market segment.
SUMMARY OF IRS' NEW COMPLIANCE
RESEARCH AND ANALYSIS APPROACH
========================================================== Appendix II
This appendix contains information on various aspects of the new
compliance research approach. It provides details on the research
infrastructure needed to sustain the new approach.
COMPLIANCE RESEARCH AND
PLANNING CYCLE
-------------------------------------------------------- Appendix II:1
As envisioned, the National Office of Research and Analysis (NORA)
and the District Offices of Research and Analysis (DORA) will
collaborate to conduct new activities that form a disciplined
research cycle--Compliance Research and Planning Cycle. This cycle
encompasses 10 steps in addressing a compliance problem. Table II.1
describes each of these steps.
Table II.1
Compliance Research and Planning Cycle
Step Title Description
-------- ------------ ----------------------------------------------
1 Measure Measure levels of compliance across market
compliance segments in (1) filing timeliness, (2)
rates reporting accuracy, and (3) paying taxes owed
in full and on time.
2 Identify Identify and rank market segments with
market significant compliance problems.
segments
3 Profile Profile market segments to identify patterns
market of noncompliance, validate their selection,
segments and enrich the understanding of the common
characteristics that distinguish a given
segment from other segments.
4 Identify Identify potential treatments to improve
problems and compliance after determining and understanding
treatments the causes/reasons for noncompliance.
5 Test or Test treatments to determine if they have
implement produced significant, measurable improvements
treatments in a market segment's compliance level over an
original baseline.
6 Measure Remeasure compliance levels and evaluate
effect of whether the applied treatments were effective
treatments in improving the compliance of market segment.
7 Generate Generate the compliance plan to drive all
compliance compliance-related workload for IRS.
plan
8 Allocate Allocate compliance resources to match needs
compliance with staff and other resources at national and
resources district levels.
9 Plan Plan compliance workload to match staff (grade
compliance and skill levels) to the scheduled work.
workload
10 Select Select compliance workload by identifying
compliance cases, accounts, or groups of taxpayers to
workload work in a way that will meet plan objectives
within the district work plan schedules and
resources.
----------------------------------------------------------------------
Source: National Office of Research and Analysis, IRS.
NATIONAL OFFICE OF RESEARCH
AND ANALYSIS
------------------------------------------------------ Appendix II:1.1
NORA is responsible for supporting, guiding, and coordinating work at
DORAs. The first priority of NORA was to establish DORAs and ensure
that they were staffed, equipped, and operational. NORA also is
responsible for evaluating the overall research approach and its
components.
Specifically, NORA is to (1) work with all levels and functions in a
consulting role to support market research activities, (2) assist
National Office and field executives in institutionalizing Compliance
2000, (3) provide compliance data necessary to develop a multiyear
strategic compliance plan, (4) develop new case selection criteria
that are based on market research, (5) supply data to the national
portion of the compliance plan, (6) propose national initiatives to
improve compliance in selected market segments, (7) advise and issue
progress reports to the Director of Research and Chief Compliance
Officer, (8) review DORAs' work to ensure that national program
objectives are met, (9) ensure that DORAs provide quality service,
(10) develop methods for measuring the compliance of various market
segments, (11) ensure consistent and frequent communication and
feedback with internal and external stakeholders, (12) ensure that
DORA training needs are identified and met, and (13) provide guidance
and control to DORAs in handling external data.
DISTRICT OFFICES OF RESEARCH
AND ANALYSIS
------------------------------------------------------ Appendix II:1.2
The primary function of each DORA site is delivery of a local-level
compliance research capability using local knowledge and resources.
DORA staff are to be primarily responsible for providing information,
guidance, and counsel to the district offices on methodologies and
strategies that address areas of noncompliance, given resource
allocation constraints, and compliance plan objectives.
As DORA staff learn to do compliance research, they are expected, in
the short term, to (1) learn proper research procedures and
processes, such as techniques, methodologies and data analysis, data
sources, security, and privacy issues; (2) research and evaluate
local external data sources; (3) begin assessing the potential for
additional market segments and estimating the nonfiler population;
(4) learn elements and practice proper usage of internal and external
data; and (5) provide data and measurements for past Compliance 2000
projects.
COOPERATIVE STRATEGY WORKING
GROUPS
-------------------------------------------------------- Appendix II:2
The Cooperative Strategy Working Groups (CSWG) were established to
design, plan, and implement decisions that help maintain the vitality
of the new research approach. NORA and DORAs provide the members.
Each group is to have a statement that describes its
responsibilities, composition, and schedule. The groups are expected
to develop guidelines to ensure the effectiveness of their work.
However, interim guidelines to help get CSWGs started were developed
by NORA.
CSWGs are to be implemented in three stages: (1) "First-Wave," by
the beginning of fiscal year 1995; (2) "Second-Wave," by the end of
fiscal year 1995; and (3) "Longer Term." Each stage represents a
series of working groups. The First-Wave stage consisted of the
Policy and Governance, Data Development and Planning, Education and
Training, Profiling, and Communications cooperative strategy working
groups. The Second-Wave stage consisted of the Compliance Studies
and Tests, NORA/DORA Research Planning, and Systems Development
cooperative strategy working groups. The Longer Term stage consists
of the Resources Cooperative Strategy Working Group. The following
describes each of these groups.
Policy and Governance Cooperative Strategy Working Group: (1)
identifies compliance research issues; (2) determines procedural
requirements for NORA and DORAs; and (3) formulates and recommends
policies and procedures to address those issues and requirements.
Data Development and Planning Cooperative Strategy Working Group:
(1) exercises oversight and operational roles in the design,
development, acquisition, use, maintenance, and evaluation of
internal and external data and (2) measures the support of compliance
research operations.
Education and Training Cooperative Strategy Working Group: carries
out the oversight, development, and operation for internal and
external training provided to NORA and DORA staff.
Profiling Cooperative Strategy Working Group: (1) oversees market
segmentation and profiling operations and (2) formulates and
recommends profiling standard procedures and the design and testing
of compliance measures.
Communications Cooperative Strategy Working Group: oversees,
develops, and maintains mechanisms and the media for communications
on compliance research.
Compliance Studies and Tests Cooperative Strategy Working Group: (1)
oversees compliance studies and tests and (2) recommends compliance
research standards for conducting, analyzing, and reporting
compliance studies and treatment tests.
NORA/DORA Research Planning Cooperative Strategy Working Group: (1)
develops and provides input into the compliance plan and (2) reviews
other IRS plans.
Systems Development Cooperative Strategy Working Group: (1) oversees
the design, development, implementation, and evaluation of the
technology used in compliance research and (2) addresses issues
regarding the hardware, software, and telecommunications surrounding
compliance research.
Resources Cooperative Strategy Working Group: (1) determines
staffing and financial resources requirements for all compliance
research and (2) ensures that resources are allocated according to
the compliance plan.
COMPLIANCE PLANNING COUNCIL
-------------------------------------------------------- Appendix II:3
The Compliance Planning Council (CPC) is to be responsible for
multifunctional integration, planning, and coordination of compliance
activities within the District. Compliance activities are expected
to focus on research, identification of market segments, and
development of strategies to deal with noncompliant behavior.
Specific activities of CPCs may include
-- advising the District Director and assisting in the
identification and prioritization of the DORA workload,
-- approving and allocating resources to compliance treatment plans
and other multifunctional compliance initiatives,
-- monitoring ongoing progress of projects and initiatives, and
-- ensuring consistent and frequent communication and feedback with
internal and external stakeholders.
CPC membership may consist of the (1) Chief of Examination, (2) Chief
of Collection, (3) Chief of Taxpayer Service, (4) Chief of Criminal
Investigation, (5) Chief of DORA, (6) Chief of Information Systems
Division, (7) Disclosure Officer, (8) President of the National
Treasury Employees Union, (9) Problem Resolution Officer, (10)
District Counsel, (11) Appeals, and (12) Employee Plans/Equal
Employment Opportunity.
RESEARCH PLAN
-------------------------------------------------------- Appendix II:4
The research plan is to apply NORA and DORA staff resources to
national workload during fiscal year 1996 and beyond. Resources are
to be used efficiently to avoid unnecessary duplication of effort.
The plan is to link NORA/DORA work to IRS' fiscal year 1996 Business
Master Plan and to the major components of the tax gap.
The research plan is to lay out research projects that can have a
national impact on compliance and assigns the projects to one or more
DORAs. It is to cover fiscal years 1996 through 1998, and be
flexible enough to accommodate new opportunities and new research
findings to redirect national efforts.
COMPLIANCE PLAN
-------------------------------------------------------- Appendix II:5
The compliance plan is to set forth all compliance-related workload
for IRS. The scope and duration of the activities it mandates are
likely to occupy several years. The compliance plan is expected to
comprise both enforcement and nonenforcement activities. For this
reason, it is expected to mandate actions both for functions within
the Chief Compliance Officer organization as well as for functions
with Customer Service organizations. When the national component of
the compliance plan includes activities that transcend Chief Officer
organizational boundaries, it is to be issued jointly by the Chief
Officers concerned. Once officially issued, the compliance plan is
to become the basis for final resource allocations, functional
workplans, and workload selections.
SUMMARY OF IRS' COMPLIANCE
RESEARCH INFORMATION SYSTEM
========================================================= Appendix III
This appendix contains additional information on the final Compliance
Research Information System (CRIS) database. It provides more
details on the CRIS infrastructure and types and sources of data
required.
As envisioned, CRIS will be the primary integrated research tool used
for compliance research and analysis. Plans call for CRIS to be an
integrated network of 10 databases containing a sample of internal,
external, and multiyear data, which is to be accessible to national
and district office personnel to support analyses of voluntary
compliance rates and levels. CRIS is expected to enable IRS to
develop working hypotheses on the means to increase voluntary
compliance, test the hypotheses, evaluate the results, and make
decisions on how to implement the new strategies. IRS also envisions
that CRIS will improve both the quantity and quality of data as well
as sophisticated analysis.
The vast majority of CRIS data is expected to come from statistically
reliable samples drawn from the following IRS data sources: (1) the
individual master file and returns transaction file, (2) the business
master file and returns transaction file, (3) various other internal
master files, (4) results data from the Taxpayer Compliance
Measurement Program, and (5) various other taxpayer surveys and
studies.
The only external data planned for CRIS are census data. However,
external data may be used for follow-on research after noncompliant
market segments are identified by the objective application of CRIS
measures to internal IRS sample data. External data sources will not
be appended on a taxpayer-by-taxpayer basis to internal CRIS data.
CRIS is designed to be a sample with no taxpayer identifiers.
All internal CRIS data are to be transmitted electronically or via
magnetic tape. External data are to be provided to the CRIS system
via magnetic tape. Validity and consistency checks will be performed
on internal data before their input to CRIS. IRS also plans to
validate data from external sources.
As planned, most of the information in the CRIS system is to be
updated once a year, although some data may need to be updated as
often as every 3 months. Data from external sources are to be
updated on an as-needed or as-available basis. Samples are to
represent taxpayers from the current year and 2 previous years. To
provide the data needed for specialized market segmentation, the CRIS
system is to comprise 10 databases. IRS has come up with the
following 10 database models.
(1) Form 1040 Individual/Family Filers (income tax filers using forms
1040, 1040A, and 1040EZ)
(2) Corporations
(3) Sub-Chapter S Corporations (corporations that file under the
chapter S provision distribute corporate income and losses to their
shareholders)
(4) Partnerships
(5) 94X Employers (Employers filing Forms 940, 941, 943, etc.)
(6) Fiduciary
(7) Individual Non-filer Case Leads (operational data)
(8) Industries
(9) Collection Research File (operational data)
(10) Audit Information Management System (operational data)
The only database that is currently being developed is the Form 1040
Individual/Family Filers Database. It consists of a stratified
random sample of the universe of individual taxpayer accounts for a
specific tax period. The database includes general entity
information and account information on the current and 2 prior years'
returns, as well as tax return line items for the current and 2 prior
years. Related data include information return documents and, for
Schedule C and F filers, data extracted from the business master and
returns transaction files, the payer master file, the employee plans
master file, and various other internal sources.
The 1040 Filers Database is to be comprised of 17 data tables and a
total of over 2,500 attributes. The tables and attributes are as
follows:
1. 1040 Tax Return and Filing Entity Data Table: Describes the
taxable entity that filed a tax return in the 1040 family
(1040/1040A/1040EZ, etc.) for a particular year - 651 attributes
2. Entity's Individual Data Table: Describes the characteristics of
the individual(s) that comprise a taxable entity - 145 attributes
3. Return's Status History Data Table: Describes a return's various
status changes - 12 attributes
4. Return's Audit and Processing Codes Data Table: Describes
miscellaneous codes that may be generated while the tax return is
being processed or audited - 4 attributes
5. Return's Transaction History Data Table: Describes selected
action taken on a return by the taxable entity, such as paying
estimated taxes, as well as by IRS, such as assessing additional
taxes after an audit - 90 attributes
6. Entity's Business Data Table: Describes the characteristics of
each solely owned farm (Schedule F) or other business (Schedule C)
that belongs to the taxable entity - 61 attributes
7. Entity's Prior Year Data Table: Describes some characteristics
of the return filed by the same taxable entity in the year preceding
the year of the sample - 122 attributes
8. 1990 Census Data Table: Demographic data - 500 attributes
9. Individual's Civil Penalties Data Table: Describes each penalty
transaction associated with an individual, such as W-4 abuse - 63
attributes
10. Income Information Received Data Table: Describes certain
income information about the individual that is submitted by
employers and banks - 92 attributes
11. Other Information Received Data Table: Describes other
information about the individual that is submitted by third parties,
such as trust distributions and casinos - 67 attributes
12. Individual as Payer Data Table: Describes the documents the
individual submits for payments made to personal subcontractors - 46
attributes
13. Entity as Employer Data Table: Describes information from
certain business tax returns filed by solely owned farm/business with
employees or excise tax requirements - 154 attributes
14. Federal Insurance Contributions Act (FICA) Tax Data Table:
Annual FICA information - 183 attributes
15. Federal Unemployment Tax Act (FUTA) Data Table: Annual FUTA
payments - 161 attributes
16. Excise Tax Data Table: Annual excise payments - 159 attributes
17. Employer as Payer Data Table: Describes the documents the
employer submits for payments made to business subcontractors - 46
attributes
CONSOLIDATED RESULTS OF STRUCTURED
INTERVIEWS
========================================================== Appendix IV
This appendix combines the results of five data collection
instruments used to conduct structured interviews with District
Directors; Chiefs of DORA, Examination, Collection, and Taxpayer
Service; and DORA staff. In total, we interviewed 293 officials from
April to December 1995. Some percentages may not equal 100 due to
rounding.
Note: Appendix IV only presents responses to all scaled questions
and to those open-ended questions that are discussed in the report.
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SUMMARY OF DORA STAFFING DATA
COLLECTION INSTRUMENT
=========================================================== Appendix V
This appendix contains the results from our District Offices of
Research and Analysis (DORA) staffing data collection instrument that
was provided to all 31 DORA Chiefs for completion during the summer
of 1995. The Chiefs reported 217 staff onboard during our field
visits. The average and median number of staff per site was 7, and
staffing ranged from 4 to 12 people per site. The following tables
provide more details about the DORA staff. Some percentages may not
equal 100 due to rounding.
Table V.1
Analysis of DORA Staff Positions
Percentage
of staff
Percentage minus 31
Number of of all DORA
Position staff staff Chiefs
---------------------------------- ---------- ---------- ----------
DORA Chief 31 14.3 \b
Computer Research Analyst and 32 14.7 17.2
related computer positions
Economist 23 10.6 12.4
Operations Research Analyst 41 18.9 22.0
Program Analyst 62 28.6 33.3
Statistician 22 10.1 11.8
Other\a 6 2.8 3.2
======================================================================
Total 217 100.0 99.9
----------------------------------------------------------------------
\a The category of "other" positions includes: Assistant DORA Chief,
Diversity Coordinator, Fed-State Coordinator, Magnetic Media
Specialist, Public Affairs Specialist, and Acting Team Leader.
\b Not applicable.
Source: District Offices of Research and Analysis, IRS.
Table V.2
Analysis of Staff Grade Level
Percentage of
Grade\a Number of staff staff
------------------------------ ------------------ ------------------
General Schedule-7 7 3.2
General Schedule-9 11 5.1
General Schedule-11 11 5.1
General Schedule-12 29 13.4
General Schedule-13 84 38.7
General Schedule-14 41 18.9
General Management-15 31 14.3
Other\b 3 1.4
======================================================================
Total 217 100.1
----------------------------------------------------------------------
\a "Grade" means the level of classification an employee has under a
position classification system (i.e., referring to the duties, tasks,
and functions he or she performs).
\b The category of "other" grade includes two staff at the General
Schedule (GS) 12/13 level and one staff at the GS 11/12 level.
Source: District Offices of Research and Analysis, IRS.
Table V.3
Analysis of Number of Years Staff
Employed at IRS
Percentage of
Time frame Number of staff staff
------------------------------ ------------------ ------------------
1 year or less 7 3.2
2 to 5 years 29 13.4
6 to 10 years 36 16.6
11 to 20 years 74 34.1
20 or more years 71 32.7
======================================================================
Total 217 100
----------------------------------------------------------------------
Note: About 67 percent of DORA staff have been employed at IRS for
more than 10 years. Of the staff who have been employed 1 year or
less, four are economists and three are statisticians.
Source: District Offices of Research and Analysis, IRS.
Table V.4
Analysis of Prior IRS Division
Experience
Percentage of
Division\a Number of staff staff
------------------------------ ------------------ ------------------
Examination 70 32.3
Collection 50 23.0
Information Systems 27 12.4
Taxpayer Service 18 8.3
Resources Management 9 4.1
Research 8 3.7
Other\b 35 16.1
======================================================================
Total 217 99.9
----------------------------------------------------------------------
\a "Division" refers to the division in which DORA staff reported
spending the bulk of their careers.
\b The category of "other" division includes various divisions, such
as Appeals, Inspection, Returns Processing, and Personnel. It also
includes those staff who reported having no prior division experience
(i.e., new hires).
Source: District Offices of Research and Analysis, IRS.
Table V.5
Analysis of DORA Staff's Undergraduate
Minors
Percentage of
Category of degree Number of staff staff
------------------------------ ------------------ ------------------
Business 29 31.9
Computer 5 5.5
Social Science 2 2.2
Math 4 4.4
Liberal Arts 28 30.8
Science 7 7.7
Tax 0 0.0
Economics 13 14.3
Statistics/Quantitative 3 3.3
Analysis
Operations Research 0 0.0
======================================================================
Total 91 100.1
----------------------------------------------------------------------
Note: Of the 217 DORA staff onboard during our visits, 84, or about
39 percent, reported having a minor. About 61 percent, or 133 of the
staff, did not have a minor degree. Seven staff had more than one
minor.
Source: District Offices of Research and Analysis, IRS.
Table V.6
Analysis of DORA Staff's Undergraduate
Majors
Percentage of
Category of degree Number of staff staff
------------------------------ ------------------ ------------------
Business 76 35.3
Computer 8 3.7
Social Science 17 7.9
Math 16 7.4
Liberal Arts 34 15.8
Science 18 8.4
Tax 0 0.0
Economics 39 18.1
Statistics/Quantitative 4 1.9
Analysis
Operations Research 0 0.0
Other\a 3 1.4
======================================================================
Total 215 99.9
----------------------------------------------------------------------
Note: Of the 217 DORA staff onboard during our visits, 205, or about
95 percent, reported having a college degree or major. About 5
percent, or 12 of the staff, did not have an undergraduate degree.
Ten staff had more than 1 major.
\a The category of "other" includes prelaw and criminal justice
degrees.
Source: District Offices of Research and Analysis, IRS.
Table V.7
Analysis of DORA Staff's Graduate
Degrees
Percentage of
Category of degree Number of staff staff
------------------------------ ------------------ ------------------
Business 32 33.7
Computer 4 4.2
Social Science 0 0.0
Math 5 5.3
Liberal Arts 11 11.6
Science 5 5.3
Tax 8 8.4
Economics 14 14.7
Statistics/Quantitative 7 7.4
Analysis
Operations Research 3 3.2
Other\a 6 6.3
======================================================================
Total 95 100.1
----------------------------------------------------------------------
Note: Of the 217 DORA staff onboard during our visits, 79, or about
36 percent, reported having graduate degrees. About 36 percent, or
138 staff, did not have a graduate degree. Twelve staff had more
than 1 degree.
\a The category of "other" includes three staff who reported having a
juris doctorate degree and three staff who reported having an
advanced degree, such as a doctorate, but did not specify the subject
area.
Source: District Offices of Research and Analysis, IRS.
Table V.8
Analysis of Types of Reassignments Into
DORA
Number of Percentage
Type of reassignment staff of staff
---------------------------------------------- ---------- ----------
Voluntary lateral\a 124 57.1
Priority lateral\b 8 3.7
Directed lateral\c 3 1.4
Voluntary change to a lower grade\d 9 4.1
Competitive change to a higher grade\e 44 20.3
Competitive to the same grade/higher career 13 6.0
ladder\f
Other\g 16 7.4
======================================================================
Total 217 100
----------------------------------------------------------------------
\a A "voluntary lateral" reassignment means that a staff person
volunteered to leave his or her current assignment or position and
move into the DORA at the same grade level. Selection criteria
(e.g., length of federal employment) varied.
\b A "priority lateral" reassignment means that an employee was
allowed to transfer to the DORA on the basis of criteria such as
hardship.
\c A "directed lateral" reassignment means that management
involuntarily reassigned an employee to the DORA.
\d A "voluntary change to a lower grade" reassignment means that a
staff person volunteered to leave his or her current assignment or
position and move into the DORA at a lower grade level.
\e A "competitive change to a higher grade" reassignment means that a
staff person competed with other IRS employees to move into the DORA
at a higher grade level than he or she previously held.
\f A "competitive change to the same grade but higher career ladder"
reassignment means that a staff person competed with other IRS
employees to move into the DORA at his or her current grade level;
but the staff person would have an opportunity to advance, without
competition, to a higher grade level than he or she could have had in
the previous position.
\g The category of "other" includes other types of reassignments not
in the categories above.
Source: District Offices of Research and Analysis, IRS.
Table V.9
Analysis of Who Hired DORA Staff
Number Percentage
of staff, of staff,
excluding excluding
Number of Percentage 31 DORA 31 DORA
Who hired staff staff of staff Chiefs Chiefs
---------------------- ---------- ---------- ---------- ----------
DORA Chief 135 62.2 135\a 72.5
District Director 64 29.5 44 23.7
Regional Commissioner 9 4.1 1 0.5
Joint Decision\b 8 3.7 6 3.2
Other\c 1 .5 0 0.0
======================================================================
Total 217 100.0 186 99.9
----------------------------------------------------------------------
\a Number did not change because DORA Chiefs do not hire other
Chiefs.
\b "Joint Decision" means that more than one official was responsible
for bringing a particular staff person into the DORA. Joint
decisions were made by Regional Commissioners, District Directors,
DORA Chiefs, and Compliance 2000 Coordinators.
\c The category of "other" includes an Assistant District Director.
Source: District Offices of Research and Analysis, IRS.
MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix VI
GENERAL GOVERNMENT DIVISION,
WASHINGTON, D.C.
Tom Short, Assistant Director, Tax Policy and
Administration Issues
Robert Floren, Evaluator
Leon Green, Senior Evaluator
Robert McKay, Senior Evaluator
Jim O'Donnell, Evaluator
Tom Richards, Senior Evaluator
Elwood White, Evaluator
ATLANTA FIELD OFFICE
A. Carl Harris, Tax Core Group Leader
Michelle E. Bowsky, Evaluator-in-Charge
Elizabeth M. Mixon, Site Senior
Sally P. Gilley, Evaluator
Dave W. Schechter, Evaluator
CHICAGO/DETROIT FIELD OFFICE
David Jakab, Senior Evaluator
CINCINNATI FIELD OFFICE
Mary Morrison, Evaluator
KANSAS CITY FIELD OFFICE
Royce Baker, Tax Core Group Leader
Kathy Squires, Evaluator
BOSTON/NEW YORK FIELD OFFICE
Norman Krieger, Senior Evaluator
SAN FRANCISCO FIELD OFFICE
Susan Malone, Evaluator
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