Tax Policy and Administration: 1996 Annual Report on GAO's Tax-Related
Work (Letter Report, 07/01/97, GAO/GGD-97-122).

GAO summarized the studies it issued during fiscal year 1996 to Congress
and the Internal Revenue Service (IRS) and the statements it made before
Congress and the National Commission on Restructuring the Internal
Revenue Service.

GAO noted that it published 50 reports in 6 broad areas: (1) IRS
management and budget; (2) individual and business tax issues; (3)
customer service; (4) submission processing; (5) accounts
receivable/collections; and (6) tax expenditures and preferences.

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

 REPORTNUM:  GGD-97-122
     TITLE:  Tax Policy and Administration: 1996 Annual Report on GAO's 
             Tax-Related Work
      DATE:  07/01/97
   SUBJECT:  Tax administration systems
             Tax administration
             Delinquent taxes
             Tax nonpayment
             Government collections
             Tax credit
             Federal taxes
             Tax law
             Voluntary compliance
             Customer service
IDENTIFIER:  TSM
             IRS Tax System Modernization Program
             IRS Nonfilers Program
             IRS Customer Service Vision
             
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Cover
================================================================ COVER


Report to the Joint Committee on Taxation

July 1997

TAX POLICY AND ADMINISTRATION -
1996 ANNUAL REPORT ON GAO'S
TAX-RELATED WORK

GAO/GGD-97-122

1996 Annual Tax Report

(268775)


Abbreviations
=============================================================== ABBREV

  DOD - Department of Defense
  EIC - Earned Income Credit
  IRC - Internal Revenue Code
  IRS - Internal Revenue Service
  NTIS - National Technical Information Service
  OID - Original issue discount
  OIG - Office of Inspector General
  OMB - Office of Management and Budget
  SSN - Social Security number
  TCMP - Taxpayer Compliance Measurement Program
  TSM - Tax Systems Modernization
  VA - Veterans Affairs

Letter
=============================================================== LETTER


B-277179

July 1, 1997

The Honorable Bill Archer
Chairman
The Honorable William V.  Roth, Jr.
Vice Chairman
Joint Committee on Taxation

Over the years, the General Accounting Office has provided Congress,
the executive branch, and the public with detailed information on and
objective analyses of the nation's tax system.  As part of our
responsibility, we have studied both the revenue side of the
budget--tax receipts that finance federal government operations and
tax expenditures that promote numerous social and economic
objectives--and the federal agency that administers the tax code, the
Internal Revenue Service (IRS). 

Some of our reports and testimonies have addressed how IRS collects
delinquent taxes, responds to taxpayers' inquiries, and plans to
modernize its operations to improve productivity and better manage
its finances.  Other reports and testimonies have described how tax
system reforms and the growth of tax expenditures affect IRS'
operations and taxpayers' compliance burden.  Still others have
discussed ways to narrow the gap between the amount of outstanding
taxes owed by individuals and businesses and the money IRS collects. 

This report summarizes the studies we issued during fiscal year 1996
to Congress and IRS and the statements we made before Congress and
the National Commission on Restructuring the Internal Revenue
Service.  For the year, we published 50 reports under 6 broad areas: 

  -- IRS management and budget,

  -- individual and business tax issues,

  -- customer service,

  -- submission processing,

  -- accounts receivable/collections, and

  -- tax expenditures and preferences. 

The following pages highlight notable reports and testimonies from
these areas.  Appendix I summarizes all of our fiscal year 1996
products, and appendix II lists them chronologically. 


   IRS MANAGEMENT AND BUDGET
------------------------------------------------------------ Letter :1

IRS is in the midst of reorganizing and reengineering its major
technological, organizational, operational, and financial processes. 
Through its reengineering efforts and Tax Systems Modernization (TSM)
program, IRS plans to introduce new technology to support these and
other changes directed toward making it a more efficient
organization.  However, as a result of tighter budgets and increasing
congressional concern over the pace of its modernization, IRS is
rethinking its business vision and rescoping its planned changes. 

Tax Systems Modernization:  Progress in Achieving IRS' Business
Vision (GAO/T-GGD-96-123, May 9, 1996).  In hearings before the
Senate Governmental Affairs Committee, we described IRS' progress
toward achieving its vision for improving its operations by the year
2001 and its plans for using TSM in support of that vision.  IRS'
vision calls for organizational, technological, and operational
changes in processing tax returns, providing customer service, and
ensuring compliance with tax laws.  IRS has made some progress in
modernizing its operations but still falls far short of its vision. 

One of the biggest problems facing IRS has been its inefficient
system for processing most tax returns.  It had not significantly
reduced the number of paper returns it processes, nor had it
delivered the new systems needed to process paper documents more
efficiently.  IRS' efforts to improve customer service have also
fallen short.  Even if taxpayers were able to reach IRS, agency
assistors did not always have the information readily available to
answer their questions, and IRS has been slow in changing work
processes and implementing new information systems.  Furthermore,
budget reductions and concerns over taxpayer burden led IRS to cancel
or postpone certain programs that were intended to help improve
compliance.  Until IRS successfully modernizes its processes and
operations, we do not believe it will achieve its business vision. 

Managing IRS:  IRS Needs to Continue Improving Operations and Service
(GAO/T-GGD/AIMD-96-170, July 29, 1996).  In our first statement
before the National Commission on Restructuring the Internal Revenue
Service, we shared some of the long-standing challenges that IRS
faces as it strives to improve its organization, operation,
processes, and customer service.  These challenges include

  -- the inefficient manner in which IRS processes most tax returns;

  -- the managerial, technical, and human resource obstacles that
     hinder IRS from fulfilling its customer service vision;

  -- the problems that continue to undermine the effectiveness of
     IRS' collection programs;

  -- the need to resolve serious financial management problems that
     affect the reliability of its financial statements; and

  -- the need to better coordinate its reengineering efforts, which
     could generate new business requirements that are not addressed
     by TSM projects or that make some of those projects obsolete. 

Financial Audit:  Examination of IRS' Fiscal Year 1995 Financial
Statements (GAO/AIMD-96-101, July 11, 1996).  In accordance with the
Chief Financial Officers Act of 1990, this report to Congress
presented the results of our efforts to audit IRS' Principal
Financial Statements for fiscal years 1995 and 1994.  The report
discussed IRS' continuing financial management problems in such areas
as reconciling taxpayer revenue and refund accounts, substantiating
the amounts of various types of taxes it collects, verifying
nonpayroll operating expenses, and reliably reporting its accounts
receivable balances.  It also described IRS' weaknesses in its
controls over recordkeeping and computer security, and it contained
our formal opinions and reports on IRS' financial statements,
internal controls, and compliance with laws and regulations. 


   INDIVIDUAL AND BUSINESS TAX
   ISSUES
------------------------------------------------------------ Letter :2

IRS data indicate that the portion of the gap between taxes owed and
paid that can be attributed to individual taxpayers amounts to about
$94 billion per year.  Of that amount, the failure to report income
accounts for about $73 billion.  Tax law changes as well as changes
to IRS' taxpayer guidance could increase compliance by making it
easier for taxpayers to comply with tax laws.  Changes in IRS'
enforcement programs could make these programs more effective and
less intrusive on taxpayers. 

Businesses play a significant role in our tax system.  They not only
pay income taxes but are also responsible for providing information
to taxing authorities about payments to individuals and for
withholding income and Social Security taxes from employees'
salaries.  IRS data indicate that the portion of the tax gap
attributable to corporate taxpayers amounts to about $33 billion per
year.  Of this amount, large corporations account for about $24
billion, and small corporations account for about $7 billion. 
Businesses, particularly large corporations, also spend considerable
sums of money resolving disputes with IRS over audit results. 

Internal Revenue Service:  Results of Nonfiler Strategy and
Opportunities to Improve Future Efforts (GAO/GGD-96-72, May 13,
1996).  Our report to the Commissioner of Internal Revenue discussed
our review of IRS' strategy, which began in fiscal 1993, to bring an
estimated 10 million individual and business nonfilers back into the
system and keep them there.  We assessed the results of IRS' strategy
and determined whether opportunities existed to improve any future
nonfiler efforts. 

According to IRS, the Nonfiler Strategy was generally a success.  The
agency (1) reduced the size of the nonfiler inventory; (2) eliminated
unproductive cases, which allowed it to focus enforcement resources
more effectively; and (3) increased the number of returns secured
from individual nonfilers. 

However, although IRS achieved its goal of reducing the backlog of
nonfiler investigations, it was unclear how much, if at all,
voluntary taxpayer compliance improved as a result of the strategy. 
The absence of comprehensive cost data made it difficult to assess
the return on IRS' investment. 

We identified several areas in which opportunities existed to improve
any future effort directed at nonfilers.  These opportunities related
to (1) the time it took IRS to make telephone contact with nonfilers;
(2) the use of higher graded staff to perform tasks that might have
been effectively performed by lower graded staff; and (3) procedures
for dealing with recidivists--that is, nonfilers who were brought
into compliance and then became nonfilers again.  We also recommended
establishing measurable goals and developing comprehensive data on
program costs. 

Tax Administration:  IRS Is Improving Its Controls for Ensuring That
Taxpayers Are Treated Properly (GAO/GGD-96-176, Aug.  30, 1996).  In
this report to the Chairman of the Senate Finance Committee, we
addressed continuing allegations of taxpayer abuse by IRS employees
years after the enactment of the Taxpayer Bill of Rights in 1988.  We
studied

  -- the adequacy of IRS' controls to protect against taxpayer abuse;

  -- the extent of information available concerning abuse allegations
     received and investigated by IRS, the Department of the
     Treasury's Office of Inspector General (OIG), and the Department
     of Justice; and

  -- the role of the Inspector General in investigating abuse
     allegations. 

Owing to the lack of specific data elements on taxpayer abuse in the
information systems at IRS, Treasury's OIG, and the Department of
Justice, we were unable to determine the adequacy of IRS' system of
controls that are used to identify, address, and prevent instances of
abuse.  However, we were encouraged by IRS' decision to develop a
taxpayer complaint tracking system that essentially adopts the
definition of taxpayer abuse that is included in our 1994 report.\1


--------------------
\1 Tax Administration:  IRS Can Strengthen Its Efforts to See That
Taxpayers Are Treated Properly (GAO/GGD-95-14, Oct.  14, 1994). 


   CUSTOMER SERVICE
------------------------------------------------------------ Letter :3

IRS' "Customer Service Vision" guides its efforts to improve customer
service.  The vision is founded on increased accessibility, including
up-front problem identification, improved notices and publications,
telephone interaction in lieu of correspondence, one-stop service,
and blended work groups.  As part of this effort, IRS is identifying
new ways to improve service and developing systems to support this
service. 

Tax Administration:  IRS Faces Challenges in Reorganizing for
Customer Service (GAO/GGD-96-3, Oct.  10, 1995).  As part of our
continuing efforts to provide Congress with the information and
analyses it needs to improve IRS' tax administration, we reviewed the
progress IRS was making toward achieving its customer service vision. 
Our report discussed (1) IRS' goals for customer service and its
plans to achieve them, (2) the gap between current performance and
these goals, (3) agency progress to date, (4) current management
concerns, and (5) several important challenges IRS faces. 

We found that although IRS had made some progress toward its customer
service vision, the agency's lack of clarity in management
responsibilities had, to some extent, hampered its ability to
implement its customer service plans.  IRS expects to improve its
customer service by having fewer work locations and automated
workload management, giving customer service representatives better
access to taxpayer accounts, improving taxpayer accessibility to
telephone service, and allowing taxpayers to resolve their inquiries
after a single telephone contact.  IRS has been particularly slow,
however, in improving taxpayer accessibility and reassigning staff to
customer service centers. 

IRS needs to determine how to manage the transition to a different
organization while maintaining its ongoing workload, decide what the
role of customer service representatives will be, develop and
effectively use new information technology, and devise ways to
measure the work of new customer service centers and balance their
competing workloads.  We recommended that IRS assign ownership and
clearly define roles and responsibilities for its projects and
emphasize the need to develop, test, and implement new customer
service products and services. 

Tax Administration:  Making IRS' Telephone Systems Easier to Use
Should Help Taxpayers (GAO/GGD-96-74, Mar.  11, 1996).  At the
request of the House Subcommittee on Oversight, Committee on Ways and
Means, we reviewed IRS' development and use of interactive telephone
systems to improve customer service, focusing on IRS' efforts to make
the telephone systems easier to use, protect taxpayer data, and
assign responsibility for providing developers with systems
requirements information. 

Three prototype interactive telephone systems--designed to reduce
correspondence between IRS and taxpayers and to make the agency more
accessible--suffered from too many menu options and other problems. 
Future interactive systems may require more safeguards to protect
taxpayer data. 

Resolving the shortcomings in the current systems is essential if IRS
is to achieve its goal of increasing interactive telephone assistance
to 45 percent of taxpayers' calls.  We recommended that IRS conduct a
cost-benefit analysis of the actions needed to overcome the problems
of too many menu options, including the addition of multiple
toll-free numbers and publication of written instructions on how to
use the interactive menus. 


   SUBMISSION PROCESSING
------------------------------------------------------------ Letter :4

IRS' current procedures for processing tax returns are dependent on
antiquated technology, which will eventually be replaced through TSM. 
Critical in that regard is the extent to which IRS can increase
electronic filings.  Meanwhile, existing systems and capabilities
must continue functioning. 

Tax Administration:  Electronic Filing Falling Short of Expectations
(GAO/GGD-96-12, Oct.  31, 1996).  In a report to the Senate Committee
on Governmental Affairs, we discussed IRS' progress in broadening the
use of electronic filing, the availability of the data needed to
develop an electronic filing strategy, and the implications for IRS
if it does not significantly reduce its paper processing workload. 

Although IRS has some data on the cost of processing electronic and
paper returns, it does not have comparative data on other costs, such
as storage and retrieval, that can vary depending on how a return is
filed.  IRS also does not have adequate data on why taxpayers do not
file electronically and what it would take to get them to do so, nor
does it have estimates on the number of electronic returns it could
expect to receive after some market intervention. 

We recommended that IRS (1) identify those groups of taxpayers who
offer the greatest opportunity to reduce IRS' paper processing
workload and operating costs if they filed electronically and (2)
develop strategies that seek to eliminate impediments that inhibit
those groups from filing electronically.  We also recommended that
IRS adopt electronic filing goals that focus on reducing the paper
processing workload and operating costs and prepare contingency plans
for the possibility that electronic filings will fall short of
expectations. 


   ACCOUNTS RECEIVABLE/COLLECTIONS
------------------------------------------------------------ Letter :5

IRS' accounts receivable is recognized by us and the Office of
Management and Budget (OMB) as a high-risk area.  The primary reason
for this designation is that IRS' efforts to collect the tens of
billions of dollars taxpayers owe in delinquent taxes have been
inefficient and unbalanced.  Despite many initiatives to correct its
accounts receivable problems, IRS has made little sustained progress
in resolving the problems at the root of its collection performance. 

Tax Administration:  IRS Tax Debt Collection Practices
(GAO/T-GGD-96-112, Apr.  25, 1996).  During its review of IRS' debt
collection practices, the House Ways and Means Subcommittee on
Oversight asked us to discuss the challenges facing IRS and the
potential benefits of involving private parties in the collection of
tax debts.  IRS faces some formidable challenges in collecting tens
of billions of dollars in delinquent taxes, including

  -- a lack of accurate and reliable information on either the makeup
     of its accounts receivable or the effectiveness of the
     collection tools and programs it uses, and

  -- an aged inventory of receivables, outdated collection processes,
     and antiquated technology. 

This lack of reliable information on taxpayer accounts affects IRS'
ability to determine whether its agents are resolving cases in the
most efficient and effective manner.  Similarly, the lack of reliable
performance data affects IRS' ability to target its collection
efforts to specific taxpayers or specific types of debts.  We believe
that IRS needs a long-term comprehensive strategy to guide its
efforts to improve tax debt collection, and such a strategy must
start with accurate and reliable information.  Without this strategy,
any changes made to the system may not provide the planned results. 
We also believe that private industry may provide some help in
collecting tax debts by assisting in performing some
collection-related activities. 


   TAX EXPENDITURES AND
   PREFERENCES
------------------------------------------------------------ Letter :6

Tax expenditures--tax provisions that grant special relief to
encourage certain behaviors or to aid taxpayers in special
circumstances--cost $400 billion of federal revenue annually.  Tax
expenditures are not subject to systematic review, and policymakers
have few opportunities to make explicit comparisons between tax
expenditures and federal spending programs.  Improving the
effectiveness of tax expenditures can result in significant savings. 

Tax Policy and Administration:  Review of Studies of the
Effectiveness of the Research Tax Credit (GAO/GGD-96-43, May 21,
1996).  During a congressional hearing in 1995, we were asked to
evaluate recent studies of the research tax credit to determine
whether the evidence was adequate to conclude that each dollar taken
of the research tax credit stimulates at least one dollar of research
spending in the short run and about two dollars of research spending
in the long run.\2 In response to a congressional request, we
reviewed eight studies of the research tax credit, focusing on

  -- the adequacy of the studies' data and methods to determine the
     amount of research spending stimulated per dollar of foregone
     tax revenue and

  -- other factors that determine the credit's value to society. 

The studies we reviewed indicated that the amount of research
spending stimulated by the research tax credit was larger than
estimated by most of the studies published during the 1980s.  The
eight studies, however, provided mixed evidence on the amount of
spending stimulated by the credit per dollar of revenue cost. 

Further, the estimates presented in recent studies do not provide all
the information needed to evaluate the effectiveness of the latest
version of the credit.  The amount of research spending stimulated
per dollar of incentive revenue cost depends not only on the
responsiveness of spending to a tax incentive but also on the
credit's design.  There has been little research on how the latest
design of the credit has affected incentives and costs. 

Although most of the studies we reviewed used more sophisticated
statistical techniques and more years of data than prior studies of
the credit, all of them had data and methodological limitations.  For
example, the studies did not use tax return data to determine the
credit's incentive because the authors did not have access to such
confidential data.  Therefore, the authors had to rely on publicly
available data, which used different definitions of taxable income
and research spending.  As a result of the data limitations, we were
unable to conclude that a dollar of research tax credit would
stimulate a dollar of additional research spending and, in the long
run, lead to about two dollars of research spending. 


--------------------
\2 The May 10, 1995, hearing was held by the Subcommittee on
Oversight, House Ways and Means Committee. 


---------------------------------------------------------- Letter :6.1

We are sending copies of this report to other congressional
committees, the Director of OMB, the Secretary of the Treasury, and
the Commissioner of Internal Revenue.  Copies will also be available
to others upon request. 

Major contributors to this report are listed in appendix III.  If you
or your colleagues would like to discuss any of the matters in this
report, please call me on (202) 512-9110. 

Lynda D.  Willis
Director, Tax Policy and
 Administration Issues


SUMMARIES OF TAX-RELATED PRODUCTS
ISSUED IN FISCAL YEAR 1996
=========================================================== Appendix I

IRS MANAGEMENT AND BUDGET

IRS Financial Audits:  Status of Efforts to Resolve Financial
Management Weaknesses (GAO/T-AIMD-96-170, Sept.  19, 1996); Financial
Audit:  Actions Needed to Improve IRS Financial Management
(GAO/T-AIMD-96-96, June 6, 1996); and IRS Operations:  Significant
Challenges in Financial Management and Systems Modernization
(GAO/T-AIMD-96-56, Mar.  6, 1996).  In testimony before the
Subcommittee on Government Management, Information and Technology,
House Committee on Government Reform and Oversight and before the
Senate Committee on Governmental Affairs, we discussed the results of
our fiscal year 1994 financial audit of IRS.  We found that IRS could
not adequately verify or reconcile, in total and by type of tax, the
amount of revenue it collected or the refunds it made for fiscal
years 1992 through 1995.  We also found large discrepancies between
information in IRS' masterfiles and the Treasury data used for
various types of taxes. 

Several internal control weaknesses contributed to IRS' financial
management problems.  For example, IRS was unable to provide adequate
documentation for numerous transactions posted to taxpayer accounts
and in its nonmaster file because the information had been lost,
physically destroyed, or was no longer maintained.  In addition,
taxpayer refunds were not always screened by IRS employees, as
required by IRS policy, to determine whether the refunds could be
offset against any outstanding debts.  The reliability of IRS' $113
billion tax debt inventory was also in question because IRS could not
verify the accounts receivable balance or the amounts that were
considered collectible. 

IRS also had problems in substantiating nonpayroll expenses and
reconciling appropriations available for expenditure with Treasury's
central accounting records.  This occurred, primarily, because IRS
was unable to provide support for when and if certain goods and
services were received.  Not having this support made IRS vulnerable
to receiving inappropriate interagency charges and seriously
undermined any effort to provide reliable, consistent cost or
performance information. 

In our March 6, 1996, testimony, we also noted that IRS' attempts to
modernize its tax processing systems were at serious risk because of
management and technical weaknesses.  For example, IRS did not have a
comprehensive business strategy to cost-effectively reduce paper
submissions, and it had not yet fully developed and put in place the
requisite management, software development, and technical
infrastructures necessary to successfully implement its modernization
program.  In addition, IRS failed to

  -- manage the selection and acquisition of information systems as
     investments,

  -- develop adequate cost-benefit analyses for its modernization
     proposals,

  -- implement quality assurance metrics for its software development
     projects,

  -- require adequate systems and acceptance testing, and

  -- define standard interfaces before implementing interconnecting
     systems. 

Over the past 4 years, we made 59 recommendations to improve IRS'
financial management systems and reporting and numerous other
recommendations to improve IRS' modernization efforts.  IRS agreed
with most of our recommendations and was working to improve its
financial management and information technology capability and
operations.  However, we noted that many difficult problems remained,
and IRS needed to intensify and sustain its efforts. 

IRS Operations:  Critical Need to Continue Improving Core Business
Practices (GAO/T-AIMD/GGD-96-188, Sept.  10, 1996) and Internal
Revenue Service:  Business Operations Need Continued Improvement
(GAO/AIMD/GGD-96-152, Sept.  9, 1996).  In testimony before the
Senate Committee on Governmental Affairs, following on our report to
the Chairman and Ranking Minority Member, we discussed the problems
IRS was experiencing in fulfilling its business vision, overcoming
management and technical weaknesses in its TSM effort, and improving
the reliability of its financial management systems. 

We said that IRS needed to develop an effective implementation
strategy for achieving its business vision.  We suggested that such a
strategy should include developing the capacity to make sound
investments in information technology, building the necessary
in-house technical expertise needed to effectively manage its Tax
Systems Modernization (TSM) projects, and addressing the serious
financial management problems that affect the credibility of its
financial information. 

We also said that

  -- IRS, the Department of the Treasury, and the Office of
     Management and Budget needed to ensure that IRS' information
     management initiatives are promptly and fully implemented;

  -- Congress should consider limiting IRS funding for TSM to
     critical and cost-effective projects; and

  -- the National Commission on Restructuring the Internal Revenue
     Service would have a leading role in evaluating IRS' operations
     and recommending organizational, management, and operating
     changes. 

Tax Systems Modernization:  Actions Underway But Management and
Technical Weaknesses Not Yet Corrected (GAO/T-AIMD-96-165, Sept.  10,
1996) and Tax Systems Modernization:  Cyberfile Project Was Poorly
Planned and Managed (GAO/AIMD-96-140, Aug.  26, 1996).  In testimony
before the Senate Committee on Governmental Affairs, we discussed
IRS' efforts to modernize its tax processing system.  The testimony
followed up on our August report on Cyberfile. 

Overall, we found pervasive management and technical problems with
IRS' modernization efforts.  IRS had not defined a process for
selecting, controlling, and evaluating its technology investments;
had not completed procedures for requirements management, quality
assurance, configuration management, and project planning and
tracking; and had not defined its systems, security, and data
architectures.  A Treasury report acknowledged that IRS did not have
the capability to develop and integrate its TSM effort, and although
it directed that IRS obtain additional contractual help to do so, it
also acknowledged that IRS did not have the capability to
successfully manage all of its current contractors. 

For example, IRS' Cyberfile project was intended to enable taxpayers
to prepare and electronically submit their tax returns via personal
computers.  However, IRS' selection of the Commerce Department's
National Technical Information Service (NTIS) to develop Cyberfile
was not based on sound analysis of NTIS' ability to develop and
operate an electronic filing system, and in fact, development and
acquisition were undisciplined, and Cyberfile was poorly managed and
overseen.  In the end, Cyberfile was not delivered on time, and IRS,
after advancing more than $17 million to NTIS, suspended Cyberfile's
development.  During the project, IRS and NTIS failed to follow all
applicable procurement laws in developing Cyberfile; NTIS
circumvented procurement laws in implementing Cyberfile; Cyberfile's
obligations and costs were not accounted for properly; and adequate
financial program management controls were not implemented to ensure
that Cyberfile would be cost-effective. 

In the past, we made numerous recommendations to IRS relating to its
systems modernization effort.  Although IRS had initiated activities
intended to begin responding to our recommendations, none of them had
been fully implemented. 

At the time of our testimony, IRS did not have

  -- the effective strategic information management practices needed
     to manage its modernization efforts,

  -- the mature and disciplined software development processes needed
     to ensure that systems built would perform as intended,

  -- a completed systems architecture that was detailed enough to
     guide and control systems development and acquisition, and

  -- a schedule for accomplishing any of the aforementioned tasks. 

Further, IRS did not manage all of its current contractual efforts
effectively, and its plans to use a "prime" contractor and transition
much of its systems development to additional contractors was not
well defined. 

In our testimony, we suggested that Congress consider limiting TSM
spending to only cost-effective modernization efforts that

  -- support ongoing operations and maintenance;

  -- correct IRS' pervasive management and technical weaknesses;

  -- are small, represent a low technical risk, and can be delivered
     in a relatively short time; and

  -- involve deploying already developed systems that have been fully
     tested, are not premature given the lack of completed systems
     architecture, and have proven business value. 

Our testimony also suggested that Congress consider requiring that
IRS institute disciplined systems acquisitions processes and develop
plans and schedules before permitting IRS to increase its reliance on
contractors. 

In our August report, we recommended that IRS

  -- review the breakdown in its acquisition and financial management
     processes and controls that permitted the mismanagement of
     Cyberfile and

  -- take steps to correct the weaknesses and ensure that they are
     not repeated on future projects. 

We also recommended that the Department of Commerce

  -- review NTIS' acquisition and financial management processes and
     controls that permitted it to disregard procurement laws and
     regulations,

  -- take steps to correct the weaknesses and ensure that they do not
     recur, and

  -- not permit NTIS to accept new systems development projects from
     other federal agencies until the weaknesses are corrected. 

Managing IRS:  IRS Needs to Continue Improving Operations and Service
(GAO/T-GGD/AIMD-96-170, July 29, 1996).  In testimony before the
National Commission on Restructuring the Internal Revenue Service, we
discussed various challenges facing IRS as it tries to make its
organization, operations, and processes more effective and efficient
and improve service to taxpayers.  Our testimony made the following
points: 

  -- One of IRS' biggest problems has been the inefficient way in
     which it processes most tax returns.  IRS needs to develop an
     effective strategy to reduce the volume of paper returns. 
     Although IRS has taken some actions to increase the number of
     electronic returns filed, it does not have a comprehensive
     strategy to reach its electronic filing goal by 2001. 

  -- IRS' strategy for improving customer service offers promise
     because it is designed to improve taxpayers' ability to get
     assistance from IRS and provide its employees with access to the
     information they need to help taxpayers.  However, IRS needs to
     develop a framework to overcome the important managerial,
     technical, and human resource challenges it faces in
     implementing this vision. 

  -- Long-standing problems continue to undermine the effectiveness
     of IRS' collection programs.  To address these problems,
     significant changes are needed in the way IRS does business. 

  -- IRS has made some progress in resolving issues that prevented us
     from expressing an opinion on the reliability of its financial
     statements; however, serious financial management problems
     remain uncorrected. 

  -- IRS needs to develop the capacity to make sound investment
     decisions in information technology.  The outcome of IRS'
     reengineering efforts could generate new business requirements
     that are not addressed by modernization projects or that make
     some of those projects obsolete. 

Financial Audit:  Examination of IRS' Fiscal Year 1995 Financial
Statements (GAO/AIMD-96-101, July 11, 1996).  In accordance with the
Chief Financial Officers Act of 1990, we reported on our audit of
IRS' principal financial statements for fiscal year 1995.  We stated
that

  -- we were unable to give an opinion on those statements or report
     on compliance with laws and regulations because of limitations
     on the scope of our work and

  -- material weaknesses in internal controls resulted in ineffective
     controls for safeguarding assets from material loss and for
     ensuring material compliance with relevant laws and regulations. 

The following five management problems undermined our ability to
attest to the reliability of IRS' financial statements: 

  -- The amount of total revenue ($1.4 trillion) and tax refunds
     ($122 billion) could not be verified or reconciled to accounting
     records maintained for individual taxpayers in the aggregate. 

  -- The amount reported for various types of taxes, such as Social
     Security and excise taxes, could not be substantiated. 

  -- The reliability of estimates of $113 billion for valid accounts
     receivable and $46 billion for collectible accounts receivable
     could not be determined. 

  -- A significant portion of IRS' reported $3 billion in nonpayroll
     operating expenses could not be verified. 

  -- The amount IRS reported as appropriations available for
     expenditure for operations could not be reconciled fully with
     Treasury's central accounting records. 

IRS advised us of various steps it was taking to correct the problems
our audit identified (such as development of software programs to
capture detailed revenue and refund transactions), but we could not
verify the results of IRS' efforts because they were not complete. 

Tax Systems Modernization:  Actions Underway But IRS Has Not Yet
Corrected Management and Technical Weaknesses (GAO/AIMD-96-106, June
7, 1996).  Pursuant to a legislative requirement, we reviewed IRS'
actions to correct the management and technical weaknesses we
identified in July 1995 that jeopardized IRS' TSM efforts.\1 We found
that although IRS had initiated several corrective actions, many of
them were still incomplete; and none, either individually or in the
aggregate, fully responded to any of our recommendations. 

For example, IRS had created an investment review board to select,
control, and evaluate its information technology investments. 
However, the criteria for the board's decisions were still
undocumented and undefined, and IRS still had not reviewed the basis
for its planned and ongoing systems.  Furthermore, while IRS had
completed a descriptive overview of an integrated, three-tier,
distributed systems architecture, it had not completed the systems
architecture nor its security and data architectures, and there was
no schedule for doing so. 

IRS had not established an effective organizational structure to
consistently manage and control TSM.  IRS had planned to use software
development contractors to develop TSM, yet its plans and schedules
in this area were poorly defined and could not be fully understood or
assessed.  Moreover, as the experiences with Cyberfile and the
Document Processing System projects made clear, IRS did not have the
mature processes needed to acquire software and manage contractors
effectively. 

We suggested that Congress consider limiting TSM spending to only
cost-effective modernization efforts that

  -- support ongoing operations and maintenance;

  -- correct pervasive management and technical weaknesses;

  -- are small, represent low risk, and can be delivered quickly; and

  -- involve deploying already developed and fully tested systems
     that have proven business value and are not premature given the
     lack of a completed architecture. 

Tax Systems Modernization:  Progress in Achieving IRS' Business
Vision (GAO/T-GGD-96-123, May 9, 1996).  In testimony before the
Senate Committee on Governmental Affairs, we discussed IRS' progress
in achieving its business vision for 2001 and modernizing its
operations.  IRS has developed a vision for 2001 that calls for
organizational, technological, and operational changes affecting the
way in which the agency processes tax returns, provides customer
service, and ensures compliance with tax laws.  IRS has made progress
in modernizing its operations, but the differences between IRS'
existing operations and those proposed in its vision are great. 

One of the biggest problems facing IRS is its inefficient system for
processing most tax returns.  IRS has made little progress either in
reducing the number of paper returns it processes or in delivering
the new systems needed to improve paper processing.  For example, IRS
established a goal to receive 80 million tax returns electronically
by 2001, but it lacks a comprehensive business strategy for achieving
that goal. 

The second part of IRS' vision is to improve service to taxpayers. 
Taxpayers have long had a problem reaching IRS by telephone, and when
they do, IRS assistors do not always have easy access to the
information needed to resolve the problems.  IRS' strategy for
improving customer service includes consolidating work units,
changing work processes, and increasing the use of or implementing
new information systems.  It is a promising strategy, but IRS faces
many challenges in its implementation. 

The third part of IRS' vision is to increase compliance with tax
laws.  Compliance levels have remained at 87 percent for the last
several years, and the goal is to increase compliance to 90 percent. 
IRS established that goal on a set of assumptions that have since
changed significantly--changes that could jeopardize the achievement
of its goal.  For example, budget and taxpayer burden concerns led
IRS to postpone indefinitely the Taxpayer Compliance Measurement
Program (TCMP), the results of which were to provide more up-to-date
information for a new compliance research information system. 

We questioned IRS' ability to make sound investment decisions until
it reengineers important processes, such as tax return processing. 
Until clearly defined business requirements drive its modernization
projects, there is no guarantee that these projects will successfully
improve IRS operations. 

Tax Administration:  IRS' Fiscal Year 1996 and 1997 Budget Issues and
the 1996 Filing Season (GAO/T-GGD-96-99, Mar.  28, 1996).  In
testimony before the Subcommittee on Oversight, House Committee on
Ways and Means, we discussed budget issues facing IRS in fiscal years
1996 and 1997 and provided interim results on our review of the 1996
filing season.\2

IRS' 1996 appropriation totaled $7.3 billion--$860 million less than
what the President had requested and $160 million less than IRS'
fiscal year 1995 appropriation.  To cover the resulting labor cost
shortfall, IRS officials said that they reduced travel and overtime
costs, cash awards, hours for seasonal staff, and the number of
nonpermanent staff.  IRS wanted to ensure that it had enough staff to
process returns and issue refunds, so most of the cuts were absorbed
by compliance programs. 

IRS requested nearly $8 billion for fiscal year 1997, an increase of
$647 million from fiscal year 1996.  The largest increases were for
compliance initiatives and TSM, two areas that have been plagued by
problems in the past.  Concerning TSM, we expressed the belief that
IRS could not make effective use of systems development funds at that
time because it had not yet corrected managerial and technical
weaknesses that we had identified in July 1995.\3

The interim results of our review of the 1996 filing season indicated
that

  -- IRS was delaying fewer refunds than it did in 1995 while it
     validated Social Security numbers (SSN) and Earned Income Credit
     (EIC) claims;

  -- taxpayers appeared to be having an easier time reaching IRS by
     telephone, although accessibility was still low; and

  -- more taxpayers were using alternative filing methods. 

Tax Systems Modernization:  Management and Technical Weaknesses Must
Be Overcome to Achieve Success (GAO/T-AIMD-96-75, Mar.  26, 1996). 
In testimony before the Senate Committee on Governmental Affairs, we
discussed the status of IRS' TSM program.  IRS had spent more than
$2.5 billion on TSM through fiscal year 1995 and planned to spend a
total of up to $8 billion through 2001.  TSM is central to IRS'
vision of a paper-free work environment in which taxpayer account
updates are rapid and taxpayer information is readily available to
IRS employees responding to taxpayer inquiries. 

We found that IRS still

  -- did not have a comprehensive strategy to maximize electronic
     filings;

  -- assumed that it would receive specified funding for systems
     development and technology, yet was unable to assure Congress
     that it could spend its 1996 and future TSM appropriations
     judiciously and effectively;

  -- did not have a complete and integrated systems architecture;

  -- did not have a single entity that had the responsibility and
     authority to control all of its information systems projects;

  -- did not have key planning documents, risk analyses and alternate
     solutions, or a formal process to define, manage, and control
     its Cyberfile project;

  -- failed to provide adequate physical security and software
     controls for Cyberfile;\4 and

  -- could not adequately document many of its financial
     transactions, including revenue collections, or reconcile its
     accounts with those at the Department of the Treasury. 

Status of Tax Systems Modernization, Tax Delinquencies, and the
Potential for Return-Free Filing (GAO/T-GGD/AIMD-96-88, Mar.  14,
1996).  In testimony before the Subcommittee on Treasury, Postal
Service, and General Government, House Committee on Appropriations,
we discussed IRS' efforts to manage and implement its multibillion
dollar TSM program and to collect tens of billions of dollars in tax
debts.  We also discussed the potential for implementing a
return-free filing system. 

Regarding TSM, we discussed weaknesses in IRS' electronic filing
strategy; strategic information management; software development;
systems architecture, integration, and testing; and accountability
and control of systems modernization.  These weaknesses must be
corrected if TSM is to succeed. 

In the tax collection area, we noted that IRS' efforts are hampered
by inaccurate and unreliable information, antiquated computer systems
and a rigid collection process, unintended problems with implementing
safeguards against taxpayer abuses, a lack of accountability in its
organizational structure, and staffing imbalances.  As a result, IRS
cannot accurately identify how much money the government is owed or
how much of the debt is collectible. 

We also discussed how return-free filing could reduce the filing
burden of many taxpayers while reducing the amount of paper IRS must
process.  We discussed two forms of return-free filing:  "final
withholding" and "agency reconciliation," both of which would require
several changes to the current tax system. 

In the final withholding system, the withholder of income taxes
determines the taxpayer's liability and withholds that amount.  While
taxpayers would save millions of hours in preparation time and
millions of dollars in preparation costs, employers would incur
additional administrative costs associated with their increased
responsibilities.  In the agency reconciliation system, the tax
agency determines the taxpayer's tax liability based on information
documents.  Under this system, taxpayers would also save millions of
hours in preparation time and millions of dollars in preparations
costs.  With either system, IRS would save millions of dollars in
processing costs. 

IRS Staffing Trends (GAO/GGD-96-73R, Jan.  31, 1996).  In a letter to
the Chairman, Senate Committee on Finance, we provided information on
IRS' staffing trends from fiscal years 1981 through 1996.  This
information updated what we had reported in 1993.\5 We showed
staffing data from two sources--IRS' annual reports and budgets.  The
annual report data showed higher staffing levels because that source
included staffing that was funded through reimbursements from other
agencies. 

INDIVIDUAL AND BUSINESS TAX ISSUES

Tax Administration:  Income Tax Treatment of Married and Single
Individuals (GAO/GGD-96-175, Sept.  3, 1996).  This report, prepared
at the request of Senator Orrin G.  Hatch, provides information on
income tax provisions in the Internal Revenue Code (IRC) that
potentially create "marriage penalties" or "marriage bonuses," with
respect to the tax liability of married couples.  A marriage penalty
results when two married persons have a greater tax liability than
two single persons with the same total income.  Conversely, a
marriage bonus results when a married couple owes less taxes than two
similarly situated single persons. 

We identified 59 IRC provisions in which tax liability depends at
least partially on the taxpayer's marital status.  They include three
sections most commonly discussed in connection with marriage
penalties and bonuses:  those on the tax rate, the standard
deduction, and the EIC. 

The 59 provisions can be grouped into 4 categories. 

  -- One group of nine provisions, such as those on the tax rate and
     Social Security taxation, makes some adjustment for the
     differences between joint and single income, but adjustments for
     married couples filing jointly are less than twice those allowed
     for single taxpayers. 

  -- A second group of 15 provisions, such as those limiting capital
     losses and the home-mortgage interest deduction, includes only
     one limitation that applies equally to married and single
     taxpayers. 

  -- A third group of nine provisions, such as those allowing a
     personal exemption, treats married couples as if they are single
     individuals or provides couples with twice the benefit allowed a
     single person. 

  -- A fourth group of 26 provisions treats a married couple as a
     unit for tax purposes. 

The single most important factor that determines a provision's effect
on married couples is how income is divided between spouses. 
Fifty-six of the 59 tax provisions could result in a marriage penalty
or bonus depending on the taxpayer's individual circumstances. 
Couples with disparate incomes generally could enjoy a marriage
bonus, while couples with equivalent incomes generally incur a
marriage penalty.  Other factors affecting a couple's tax liability
include which spouse owns property, has capital gains or losses, and
is qualified for tax deductions and credits. 

Insufficient data prevented us from quantifying the number of
taxpayers potentially subject to the various marriage penalties and
bonuses described in the report. 

Tax Administration:  IRS Is Improving Its Controls for Ensuring That
Taxpayers Are Treated Properly (GAO/GGD-96-176, Aug.  30, 1996). 
Allegations of taxpayer abuse prompted Congress to pass the Taxpayer
Bill of Rights in 1988.  Six years later, we issued a report urging
IRS to strengthen its controls for ensuring that taxpayers are
treated properly.\6 Pursuant to a request from the Chairman, Senate
Committee on Finance, we examined the adequacy of IRS' controls to
protect against abuse of taxpayers; the extent of information
available concerning abuse allegations received and investigated by
IRS, Treasury's Office of the Inspector General (OIG), and the
Department of Justice; and the OIG's role in investigating abuse
allegations. 

IRS had initiated actions to implement many of the recommendations we
made in our 1994 report and had initiated other actions in
anticipation of provisions included in Taxpayer Bill of Rights 2
(P.L.  104-168).  Among other things, IRS was improving controls over
employee access to computerized taxpayer accounts; establishing an
expedited appeals process for some collection actions; and
classifying recurring taxpayer problems by major issues, such as
penalties imposed on taxpayers.  Those actions, if effectively
implemented, could improve IRS' overall treatment of taxpayers and
better protect against taxpayer abuse. 

Despite IRS' actions, we were unable to reach a conclusion on the
overall adequacy of its controls because it did not yet have the
capability to capture needed management information.  IRS was
establishing a tracking system for taxpayer complaints and reviewing
its management information systems to determine the best way to
capture relevant information for that system.  If effectively
designed, such a system could better allow IRS to ensure that
instances of taxpayer abuse are identified and addressed and that
actions are taken to prevent their recurrence. 

We were not able to determine the extent to which allegations of
taxpayer abuse were received and investigated because the information
systems at IRS, Treasury OIG, and Justice did not include specific
data elements on taxpayer abuse.  Treasury OIG officials said that
they generally handled allegations involving IRS executives but often
referred allegations involving lower level managers to IRS for
investigation and administrative action.  Although we did not
independently test the effectiveness of this arrangement, we found no
evidence to suggest that these allegations were not being properly
handled. 

Tax Administration:  Tax Compliance of Nonwage Earners
(GAO/GGD-96-165, Aug.  28, 1996).  At the request of the Chairman,
Subcommittee on Oversight, House Committee on Ways and Means, we
provided information regarding the tax implications of the rapid
growth in nonwage income.  Nonwage income has grown significantly
since 1970, when it accounted for 16.7 percent of total income for
individuals.  For tax year 1992, the most recent available
information at the time we did our work, nonwage income accounted for
over 23 percent (or $859 billion) of total income for individuals. 
Individual tax returns showing only nonwage income increased from
about 10 percent in 1970 to over 15 percent in 1992.  The six largest
sources of nonwage income--pensions, interest, self-employment,
capital gains, dividends, and partnerships/subchapter S
corporations--accounted for 91.6 percent of all nonwage income
reported for 1992.  Pension income was by far the largest and fastest
growing source of nonwage income. 

IRS data showed that taxpayers who earned most of their income from
nonwage sources were more likely to have problems paying their taxes
than were wage earners and, as a result, owed more delinquent taxes
than did wage earners.  Approximately 74 percent of IRS' inventory of
tax debt for individual taxpayers at the end of fiscal year 1993 was
owed by taxpayers with primarily nonwage income.  Taxpayers with
self-employment, interest, and dividend income accounted for about
two-thirds of this nonwage income. 

The proportion of the taxpayer population reporting nonwage income
will continue to increase as the population ages because pension
income is the largest and fastest growing source of nonwage income. 
Options for improving timely tax payments on nonwage income include
withholding income taxes on more sources of nonwage income,
increasing taxpayer awareness of tax payment responsibilities for
nonwage income, and modifying the estimated tax payment system. 

Tax Administration:  Issues in Classifying Workers as Employees or
Independent Contractors.  (GAO/T-GGD-96-130, June 20, 1996).  In
testimony before the Subcommittee on Oversight, House Committee on
Ways and Means, we discussed the classification of workers for
federal tax purposes.  To determine the Social Security and
unemployment taxes they need to pay on employee wages, employers must
classify workers as employees or independent contractors.  If workers
are determined to be employees, employers must (1) withhold and
deposit income and Social Security taxes from wages paid and (2) pay
unemployment taxes and the employers' share of Social Security taxes. 
Independent contractors pay their own Social Security and income
taxes. 

For 1984, the last time IRS made a comprehensive estimate, IRS
estimated that about 750,000 of the more than 5 million employers (15
percent) misclassified 3.4 million employees as independent
contractors.  This noncompliance resulted in an estimated loss of
$1.6 billion in Social Security, unemployment, and income taxes.  IRS
studies indicate that independent contractors, compared with
employees, have a much lower level of income tax compliance and
account for a higher proportion of the income tax gap.  IRS completed
12,983 employment tax examination program audits from 1988 to 1995. 
Those audits recommended $830 million in employment tax assessments
and reclassified 527,000 workers as employees. 

Costs and unclear classification rules can contribute to this
noncompliance.  Employers can lower their costs, such as payments of
employment taxes or benefits, by using independent contractors. 
Also, many employers struggle in making the classification decision
because of unclear rules.  Employers cannot be certain that their
classification decisions will withstand challenges by IRS.  If not
upheld, they risk large retroactive tax assessments. 

Two approaches that could boost independent contractor compliance
within existing classification rules include (1) improving
information reporting on payments made to independent contractors and
(2) withholding income taxes from such payments.  These approaches
could also increase, to some extent, the burdens on independent
contractors and employers that use them. 

Tax Research:  IRS Has Made Progress But Major Challenges Remain
(GAO/GGD-96-109, June 5, 1996).  IRS is changing its tax compliance
philosophy.  Although it will continue to use enforcement to catch
noncompliance, IRS is trying to induce compliance through
nonenforcement work, such as taxpayer assistance and education.  This
new approach involves researching ways to improve compliance for
specific market segments--groups of taxpayers who share
characteristics or behaviors.  IRS wants to boost total compliance to
90 percent by 2001 and believes that its new compliance research
approach will help meet this goal.  Taxpayer compliance in paying
taxes owed has remained steady during the past 20 years at about 87
percent, and IRS estimates annual tax losses from noncompliance at
more than $100 billion. 

In a report to the Commissioner of Internal Revenue, we discussed
IRS' new compliance research approach.  Our analysis indicated that
the success of this new approach would depend on the support it
received throughout IRS, the availability of objective compliance
data and skilled research staff, the infrastructure for organizing
and managing the research, and the measures used to evaluate how well
the new approach works. 

We found only mixed support for the new research approach.  Many IRS
officials questioned whether it would help achieve the 90-percent
compliance goal, and there was disagreement over the initiative's
national focus, with many officials preferring a district-level one. 
In addition, IRS did not have a reliable source of objective
compliance data, did not have research staff with the specialized
skills needed to achieve the initiative's research objectives, and
had not completed its development of a management infrastructure or a
process for measuring the results of the new approach. 

We recommended that IRS 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
were under way, devise a method to better ensure that reliable
compliance data are available when needed, and establish milestones
for completing the management infrastructure and performance
measures. 

Internal Revenue Service:  Results of Nonfiler Strategy and
Opportunities to Improve Future Efforts (GAO/GGD-96-72, May 13,
1996).  At the beginning of fiscal year 1993, IRS had an inventory of
about 10 million individual and business nonfilers.  IRS estimated
that unpaid taxes on nonfiled individual income tax returns for 1992
alone totaled more than $10 billion.  Concerned about this
noncompliance, IRS began a strategy in fiscal year 1993 to bring
nonfilers into the system and keep them there.  We reviewed IRS'
Nonfiler Strategy to assess the results and to determine whether
there were opportunities to improve future nonfiler efforts. 

IRS took several positive steps to achieve the goals of the Nonfiler
Strategy.  Among other things, the Examination function deployed
staff to work on nonfiler cases; other IRS functions increased their
emphasis on nonfiler activities; and IRS eliminated old cases from
inventory, established cooperative working arrangements with states
and the private sector, and implemented a refund hold program. 

According to IRS, the Nonfiler Strategy was generally a success. 
Among other things, IRS reduced the size of the nonfiler inventory;
eliminated unproductive cases, which allowed it to focus enforcement
resources more effectively; and increased the number of returns
secured from individual nonfilers. 

However, the results of the Strategy were less conclusive when
compared with its goals.  IRS achieved its goal of reducing the
backlog of nonfiler investigations.  However, there was insufficient
information with which to judge whether voluntary taxpayer compliance
improved as a result of the Strategy, and the absence of
comprehensive cost data made it difficult to assess return on
investment. 

We identified several areas in which opportunities existed to improve
any future IRS effort directed at nonfilers.  Those opportunities
related to

  -- the time that elapsed before IRS made telephone contact with
     nonfilers,

  -- the use of higher graded staff to perform tasks that might be
     effectively done by lower graded staff, and

  -- procedures for dealing with nonfilers who are brought into
     compliance and then become nonfilers again. 

Besides making recommendations on those areas, we recommended that
IRS establish measurable goals and develop comprehensive data on
program costs to better assess the results of future nonfiler
efforts. 

Tax Administration:  Audit Trends and Results for Individual
Taxpayers (GAO/GGD-96-91, Apr.  26, 1996).  In response to a request
from the Chairman, Subcommittee on Oversight, House Committee on Ways
and Means, we provided information on

  -- the trend in IRS' audit rates for individual returns (i.e., the
     percentage of individual income tax returns filed that are
     audited) and

  -- the overall results of IRS' most recent audits of individual
     returns. 

The audit rate for individuals decreased between fiscal years 1988
and 1993 from 1.57 percent to 0.92 percent, which, according to IRS
officials, resulted from an increase in the total number of returns
filed, the additional time spent auditing complex returns, and an
overall reduction in examination staffing.  The audit rate rebounded
over the next 2 years, increasing to 1.67 percent by fiscal year
1995.  IRS officials attributed the increase to the involvement of
district office auditors in pursuing nonfilers and an emphasis on
reviewing EIC claims--work that historically was not counted as
audits. 

Audit rates varied widely by geographic location, with the rates
being the highest in the western regions of the country and lowest in
the middle regions.  In general, audits of the highest income
individuals resulted in more additional recommended tax per return
than did audits of the lowest income individuals by as much as 4 to 5
times more.  However, the amount of additional recommended tax per
audit hour for the highest income individuals was less than twice
that for the lowest income filers because of the time needed to audit
the more complex returns of the former. 

Tax Administration:  Alternative Strategies to Obtain Compliance Data
(GAO/GGD-96-89, Apr.  26, 1996).  In October 1995, IRS decided to
postpone indefinitely the 1994 Taxpayer Compliance Measurement
Program because of budget concerns.  In addition, Congress, taxpayer
groups, paid preparers, and others exerted considerable pressure to
cancel the program because of its cost to and burden on taxpayers. 
For more than 30 years, this program has been IRS' primary means for
gathering comprehensive and reliable taxpayer compliance data.  IRS
has used the data to

  -- identify areas in which tax law needs to be changed to improve
     voluntary compliance,

  -- estimate the tax gap and its components, and

  -- objectively select returns to audit that have the most potential
     for noncompliance. 

In this report to the Commissioner of Internal Revenue, we assessed
the potential effects on IRS' compliance programs of postponing the
1994 TCMP and identified some potential short- and long-term TCMP
alternatives. 

IRS officials told us that they did not know how IRS would obtain the
taxpayer compliance data it needs, and they recognized that the loss
of 1994 TCMP data could increase compliant taxpayers' burden over the
long term because audits may become less targeted.  To mitigate data
losses over the short term, IRS could employ several alternatives,
including doing a smaller survey.  A limited survey would reduce the
quantity and quality of the data collected, but still provide
statistically valid national compliance data. 

Without TCMP, IRS must determine how it will measure compliance over
the long term, since its workload and future revenues depend on
taxpayers' voluntary compliance.  Long-term alternatives include

  -- conducting small multiyear TCMP-type audits from smaller samples
     and combining the data from several years to ensure the
     necessary precision and coverage,

  -- using data from operational audits to assess compliance changes,
     and

  -- conducting periodic national mini-TCMP audits to identify
     emerging issues. 

Each of these alternatives would be cheaper and less burdensome to
IRS and taxpayers than the proposed TCMP sample but would also
provide less comprehensive compliance data. 

We noted that regardless of how IRS decides to replace the
information that would have been provided by TCMP, it was important
for IRS to begin soon because any alternative is likely to require
several years to put into place, and the data will be needed to
update information on IRS' compliance programs. 

We recommended that IRS identify a short-term strategy to minimize
the negative effects of the compliance information that was likely to
be lost because TCMP was postponed and develop a cost-effective,
long-term strategy to ensure the continued availability of reliable
compliance data. 

Tax System:  Issues in Tax Compliance Burden (GAO/T-GGD-96-100, Apr. 
3, 1996).  Businesses and individuals spend time and money--and
sometimes experience frustration--trying to comply with federal,
state, and local tax requirements.  We refer to this experience as
the "taxpayer compliance burden." In testimony before the
Subcommittee on National Economic Growth, Natural Resources, and
Regulatory Affairs, House Committee on Government Reform and
Oversight, we discussed information that we collected on the federal
tax compliance burden from businesses, tax accountants, tax lawyers,
representatives of tax associations, and IRS staff. 

According to those interviewed, the compliance burden is caused by
the tax code's complexity, ambiguous language, and frequent changes. 
As a result, many businesses are uncertain about what they must do to
comply with the code.  Recordkeeping, time-consuming calculations,
the interplay of state and local tax requirements, and IRS'
administration of the tax code add to the burden.  Concerning the
latter, the officials who were interviewed identified several
problems.  Primarily, those problems centered around the tax
knowledge of IRS' auditors, the clarity of IRS' correspondence and
notices, and the amount of time IRS takes to issue regulations. 
Estimating businesses' tax compliance burden and costs would be
difficult since businesses do not collect the data needed to make
reliable estimates. 

The greatest reduction in the tax compliance burden could be gained
by simplifying the tax code.  Return-free filing alternatives used in
other countries could reduce individual taxpayers' tax compliance and
IRS administrative burdens; but employers, tax preparers, and state
tax systems could be further burdened or adversely affected. 
Reducing businesses' and individuals' tax compliance burdens will be
difficult because of the tax policy trade-offs, such as revenue,
equity, and social and economic issues. 

Tax Administration:  IRS Can Improve Information Reporting for
Original Issue Discount Bonds (GAO/GGD-96-70, Mar.  15, 1996). 
Information reporting is a vital tool for promoting voluntary
compliance with U.S.  income tax laws.  This reporting, which is done
through a series of returns designed to report nonwage income on IRS
Form 1099, is intended to ensure that taxpayers know of and report
investment and other income on their tax returns.  In a report to the
Commissioner of Internal Revenue, we provided information on IRS'
efforts to ensure that taxpayers report investment income earned from
bonds sold at original issue discount (OID), focusing on the
completeness and use of IRS Publication 1212, List of Original Issue
Discount Instruments.\7

IRS asserted that brokerage firms, banks, and investment managers
could rely on Publication 1212 to identify all publicly offered OID
bonds and compute OID income; however, many OID bonds were missing
from Publication 1212.  We identified at least 37 bonds worth
billions of dollars that should have been listed but were not.  IRS'
source of information for Publication 1212 is Form 8281, Information
Return for Publicly Offered Original Issue Discount Instruments,
which is filed by bond issuers.  IRS primarily relied on its sizable
penalty (up to $50,000) to ensure that OID bond issuers file Form
8281.  However, no IRS organization had primary responsibility for
monitoring such compliance, and there was no evidence that IRS had
ever assessed the penalty for failure to file or for late filings. 
IRS did not use any other information it received, such as corporate
tax returns, to help ensure compliance with Form 8281 reporting
requirements.  Because Publication 1212 was not complete, those who
relied on it to determine their information reporting requirements
could not be sure they were reporting all OID income to IRS or to
bond owners. 

We recommended that IRS assign responsibility for monitoring and
enforcing the OID bond issuance reporting requirements to specific
organizational units and that IRS develop procedures, such as
computer matching, to help ensure that all OID information is listed
in Publication 1212.  We also recommended that IRS work with
representatives of the securities industry to develop means to inform
and remind OID bond issuers of their responsibility to file Form
8281. 

Tax Administration:  Diesel Fuel Excise Tax Change (GAO/GGD-96-53,
Jan.  16, 1996).  At the request of Senator Daniel Patrick Moynihan,
we reported on changes in diesel fuel excise tax collections in 1994,
IRS' responses to concerns about its regulations implementing new
diesel fuel taxation requirements, and incentives to evade motor fuel
excise taxes or obtain false refunds. 

IRS data indicated that diesel fuel excise tax collections increased
about $1.2 billion, or 22.5 percent, from 1993 to 1994.  Treasury
estimated that increased tax compliance accounted for between $600
million and $700 million of the additional collections. 

IRS addressed two major concerns about the dyeing requirements in its
regulations by settling on one dye color (red) rather than two and
delaying any action on using colorless markers to indicate tax-free
fuel until the effectiveness of the dyeing program could be
determined.  However, IRS had not addressed several concerns,
including

  -- the taxation of diesel fuel additives,

  -- the appropriate concentration level of red dye to avoid possible
     adverse effects on engines,

  -- the potential impact on the availability of diesel fuel for
     recreational boating use,

  -- requests that the state of Alaska be exempted from the dyeing
     requirements, and

  -- the effects of using dyed fuel in intercity buses on companies'
     operating cost and their ability to comply with EPA regulations. 

The new diesel taxation approach appeared to be raising significant
additional revenue; however, anyone who wished to defraud the system
continued to have significant incentives to do so.  For example,
evading just the federal tax on an 8,000-gallon truckload of diesel
fuel would yield an illicit profit of $1,920.  IRS had detected
several fraudulent schemes involving refunds of gasoline or diesel
fuel excise taxes, but it did not know how extensive this fraud might
be. 

Tax Administration:  Audit Trends and Taxes Assessed on Large
Corporations (GAO/GGD-96-6, Oct.  13, 1995).  We reviewed the results
of IRS' efforts to audit the tax returns of about 45,000 large
corporations.  IRS' audits of those returns and the returns of the
1,700 largest corporations in IRS' Coordinated Examination Program
have generated about two-thirds of the additional taxes recommended
from all income audits.  Using IRS data, we analyzed audit trends for
fiscal years 1988 through 1994, computed the rate at which taxes
recommended by agents were assessed, and developed profiles of
audited large corporations and compared them with large corporations
that were not audited. 

For every dollar invested in large corporation audits, IRS
recommended $56 and ultimately assessed $15 in additional taxes for
the years 1988 through 1994.  IRS invested more hours in directly
auditing large corporations but recommended less additional tax per
hour invested in 1994 than in 1988.  In 1994, IRS spent 25 percent
more hours and audited only 3 percent more returns.  Further, in 1994
constant dollars, additional taxes recommended decreased 4 percent in
total, decreased 7 percent per return audited, and decreased 23
percent per audit hour.  In 1994, large corporations appealed 66
percent of the additional taxes that IRS recommended in its audits. 

Between 1988 and 1994, IRS assessed 27 percent of the recommended
additional taxes either after agreement or resolution in appeals. 
This assessment rate varied widely when disaggregated.  For example,
the rate reached as high as 103 percent and fell to less than 1
percent at 20 IRS districts that recommended over $100 million in
additional taxes during the 7 years we analyzed.  The reasons for
such disparate rates were not apparent.  IRS believed that the
assessment rate was not an accurate measure of audit effectiveness
since various factors outside the audit (such as economic conditions
or net operating losses) could lower the rate. 

Our profiles of large corporations showed that most were engaged in
either manufacturing or the finance and insurance industries in 1992. 
Audited corporations tended to report higher average incomes, tax
liabilities, and other tax amounts than nonaudited corporations. 

Tax Administration:  Information on IRS' Taxpayer Compliance
Measurement Program (GAO/GGD-96-21, Oct.  6, 1995).  In response to a
request from Representative Joseph K.  Knollenberg, we provided
information on IRS' TCMP for tax year 1994. 

IRS had generally taken appropriate action on the concerns raised in
our 1994 report that dealt with meeting milestones for starting TCMP
audits, testing TCMP database components, developing data collection
systems, and collecting and analyzing data.\8 Because of
uncertainties about its fiscal year 1996 budget, IRS had delayed the
start of its TCMP audits from October 1 to December 1, 1995.  This
delay was fortuitous because IRS had not completed testing the TCMP
database components and data collection systems.\9

IRS had planned to collect data on partners, shareholders, and
misclassified workers as we suggested in our 1994 report.  These
additional data should have allowed IRS to improve its measure of
compliance levels.  IRS had also planned to have auditors computerize
some of their comments on audit findings, which should have made it
easier for researchers to analyze TCMP results.  However, IRS had not
developed a research plan that could be used to analyze final TCMP
results. 

We also reported that

  -- we knew of no other IRS or third-party data that could be used
     to develop return selection formulas that would allow IRS to
     target its audits as effectively as TCMP data and

  -- TCMP could be very useful, not only for improving compliance in
     the existing tax system but also as a tool for designing and
     administering a new system. 

CUSTOMER SERVICE

Tax Administration:  Making IRS' Telephone Systems Easier to Use
Should Help Taxpayers (GAO/GGD-96-74, Mar.  11, 1996).  In a report
to the Chairman, Subcommittee on Oversight, House Committee on Ways
and Means, we discussed IRS' efforts to develop interactive telephone
systems, focusing on IRS' efforts to make the telephone systems
easier to use, meet security requirements for protecting taxpayer
data, and assign "process owners" who would be responsible for
providing developers with input about systems' requirements. 

Three prototype interactive telephone systems--designed to reduce
correspondence between IRS and taxpayers and to make IRS more
accessible--suffered from too many menu options and other problems. 
IRS' telephone-routing system required taxpayers to remember up to
eight menu options--even though guidelines called for no more than
four--and did not allow taxpayers to return to the main menu when
they made a mistake or wanted to resolve other issues.  IRS was aware
of the menu problems, but it believed that multiple options were
necessary because tax issues are complex.  IRS had yet to do a
cost-benefit analysis of the use of multiple toll-free numbers, which
IRS officials had recommended as a solution to the problem of too
many menu options.  Providing taxpayers with a written, detailed
step-by-step description on how to use the menu options might be
another way to make the telephone systems more user friendly. 

IRS complied with government security requirements when developing
its first three interactive telephone systems.  However, future
interactive systems should allow taxpayers greater access to tax
information; and more secure features, such as a personal
identification number, may be needed to protect taxpayer data.  IRS
process owners were designated late and had not provided all the
requirements information needed for the telephone systems'
development. 

Successful IRS implementation of interactive telephone systems is
critical to improving IRS customer service.  IRS expects telephone
assistance to double as it tries to move toward a paperless system. 
Resolving the shortcomings discussed in this report is essential if
IRS is to achieve its goal of handling 45 percent of taxpayer calls
through interactive telephone systems.  We recommended that IRS
conduct a cost-benefit analysis of the actions needed to overcome the
problems caused by too many menu options, including multiple
toll-free numbers and written instructions on how to use the
interactive menus. 

Tax Administration:  IRS Faces Challenges in Reorganizing for
Customer Service (GAO/GGD-96-3, Oct.  10, 1995).  IRS is undergoing a
major effort to modernize its information systems and restructure its
organization.  This effort involves several components, one of which
IRS calls its "customer service vision." This vision is a plan for
improving IRS' interactions with taxpayers and includes folding parts
of IRS' field structure into 23 customer service centers.  These
centers would work primarily by telephone to provide taxpayer
service, distribute forms, collect unpaid taxes, and adjust taxpayer
accounts.  They would absorb current IRS telephone operations and
help to convert much of IRS' written correspondence work to the
telephone. 

In a report to the Chairmen and Ranking Minority Members of
interested congressional committees, we reviewed the progress IRS had
made toward its customer service vision.  We focused on

  -- IRS' customer service goals and its plans to meet these goals,

  -- the gap between IRS' current operations and its vision,

  -- IRS' progress to date in meeting its goals,

  -- current management concerns, and

  -- important challenges IRS faces. 

IRS' customer service goals are to provide better service to
taxpayers, use its resources more efficiently, and improve taxpayers'
compliance with tax laws.  IRS plans to serve taxpayers better by
improving their access to telephone service and resolving most
problems with a single contact.  IRS expects to improve its
efficiency by having fewer work locations and automated workload
management, giving customer service representatives better computer
resources and nationwide access to taxpayer accounts, and converting
work currently done by correspondence to the telephone.  IRS expects
to improve compliance by answering more taxpayer inquiries and having
more timely data to follow up on compliance problems. 

There was a large gap between IRS' current operations and its
customer service vision.  For example, although IRS planned to
improve accessibility, taxpayers who called IRS' toll-free telephone
assistance sites in fiscal year 1994 got busy signals 73 percent of
the time.  IRS had made some progress toward its vision by initiating
limited operations in a few new customer service centers, but only a
few staff had been reassigned to those centers, and new computer and
telephone systems to support the centers were still in the early
stages of development and testing. 

A lack of clarity in management responsibilities had, to some extent,
hampered IRS in implementing its customer service plans.  In that
regard, we noted that no single individual was responsible for the
success of all the work activities and resources that were to be
transferred to customer service.  We also discussed the absence of
owner involvement during project development and the failure of
owners to establish the quality measures critical to evaluating the
performance of interactive telephone systems. 

IRS would have to overcome several important challenges to achieve
its customer service goals.  Those challenges included

  -- managing the transition to a different organization while
     maintaining ongoing workloads,

  -- developing and effectively using new information technology, and

  -- devising ways to measure the work of the customer service
     centers and balance their competing workloads. 

We recommended that IRS clarify the criteria for assigning ownership
for its modernization projects; define roles and responsibilities for
those owners; and emphasize to owners the need to provide the
business requirements necessary to develop, test, and implement new
customer service products and services. 

SUBMISSION PROCESSING

Earned Income Credit:  IRS' 1995 Controls Stopped Some Noncompliance,
But Not Without Problems (GAO/GGD-96-172, Sept.  18, 1996).  At the
request of the Chairman, Senate Committee on Finance, we reviewed
IRS' efforts to reduce EIC noncompliance.  IRS took several steps to
prevent and detect EIC noncompliance in 1995.  Those steps stopped
some noncompliance; however, a number of problems remained. 

The up-front controls used by IRS in its Electronic Filing System

  -- identified about 1.3 million problems with SSNs on submissions
     from persons who were claiming EIC and

  -- prevented the affected returns from being filed electronically
     until the problems were corrected. 

However, IRS' increased emphasis on validating SSNs on paper returns
generated a workload that far exceeded its capabilities.  IRS
identified about 3.3 million paper returns with missing or invalid
SSNs for EIC-qualifying children or dependents and delayed related
refunds, but it only had the resources to follow up on 1 million
cases.  IRS also delayed refunds on another 4 million EIC returns
that did not have any SSN problems to give itself time to check for
duplicate SSNs, only to release almost all of those refunds without
checking. 

Although IRS' data provided some evidence of the results of its
efforts in 1995, they were not sufficient to allow an overall
assessment of the impact of IRS' initiatives on EIC noncompliance. 
For example,

  -- IRS had not yet released the results of an EIC compliance study
     that it did in 1995,

  -- data on the results of the SSN verification effort for paper
     returns were not reported in a way that isolated tax year 1994
     cases from prior years' cases or distinguished between EIC cases
     and cases involving dependents, and

  -- IRS did not track what happened to returns rejected by the
     Electronic Filing System. 

We recommended that IRS consider cost-effective ways to compile the
data needed to better assess the effectiveness of its efforts to
combat EIC noncompliance. 

Tax Refund Timeliness (GAO/GGD-96-131R, June 26, 1996).  At the
request of the Chairman, House Committee on Ways and Means, we
reviewed the processing and issuance of income tax refund payments in
1996 and compared that year's pattern with the patterns in 1994 and
1995.  The Chairman's request was prompted by a concern that the
timing of income tax refund payments might be manipulated to avoid
reaching the debt limit. 

Our work indicated that

  -- the number and dollar amount of refunds issued as of the end of
     April 1996 either exceeded or closely approximated the
     end-of-April figures for 1994 and 1995 and

  -- the average number of days for issuing refunds in 1996 was the
     same as in past years. 

Also, our tracking of returns processed by the Kansas City Service
Center showed nothing unusual.  Thus, we concluded that there was no
evidence that any special steps were taken in 1996 to delay refunds. 
However, that did not mean that no refunds were delayed in 1996.  As
in 1995, but to a much lesser degree, IRS delayed some refunds in
1996 to verify SSNs and EIC claims. 

IRS Efforts to Control Fraud in 1995 (GAO/GGD-96-96R, Mar.  25,
1996).  At the request of the Ranking Minority Member of the Senate
Committee on Governmental Affairs, we reviewed the status and results
of IRS' efforts to reduce its exposure to fraud in 1995.  IRS
introduced new controls and expanded existing controls to both deter
the filing of fraudulent returns and identify questionable returns
once they had been filed.  IRS' efforts to deter fraud appear to have
had a positive effect, but the identification of questionable returns
was less successful. 

To deter the filing of fraudulent returns, IRS established filters to
screen electronic submissions for missing, invalid, or duplicate SSNs
and to prevent those returns from being filed electronically until
the problems were corrected.  The electronic filing filters
identified 4.1 million SSN problems in 1995.  IRS also

  -- expanded its process for determining the suitability of tax
     return preparers and transmitters who wanted to participate in
     the electronic filing program and

  -- eliminated the Direct Deposit Indicator because of concern that
     it might have encouraged filing fraud by facilitating refund
     anticipation loans. 

To improve the identification of noncompliance on returns after they
had been filed, IRS

  -- placed an increased emphasis on validating SSNs on paper returns
     and delayed refunds to give itself time to do those validations
     and to check for possible fraud and

  -- upgraded the Questionable Refund Program. 

As a result, IRS prevented the issuance of millions of dollars in
questionable refunds.  However, IRS also

  -- identified many more SSN problems than it was able to deal with
     and ended up releasing the refunds without resolving the
     problems and

  -- delayed millions of refunds with valid SSNs to check for
     duplication, but ended up releasing those refunds after several
     weeks without checking the SSNs. 

The 1995 Tax Filing Season:  IRS Performance Indicators Provide
Incomplete Information About Some Problems (GAO/GGD-96-48, Dec.  29,
1995).  In response to a request from the Chairman, Subcommittee on
Oversight, House Committee on Ways and Means, we reviewed IRS'
performance during the 1995 tax filing season.  We focused on the
processing of individual income tax returns and refunds, the ability
of taxpayers to reach IRS by telephone, and the performance of a new
IRS computer system for processing returns. 

IRS' indicators showed that it generally met its 1995 filing season
goals.  For example, IRS received more individual income tax returns
than the year before; answered 11 percent more telephone calls than
expected; issued refunds faster, on average, than its 40-day goal;
and accurately filled 97 percent of taxpayers' orders for forms and
publications.  However, these indicators did not provide a complete
assessment of the filing season and masked several serious problems. 

Specifically,

  -- IRS' efforts to combat fraud, which resulted in over 7 million
     refunds being delayed so that IRS could verify SSNs, generated
     much adverse publicity that might have been alleviated if IRS
     had better forewarned taxpayers of potential refund delays;

  -- our tests and IRS data showed that taxpayers continued to have
     serious problems trying to reach IRS by telephone; and

  -- a new document-imaging system did not perform as expected,
     leading to increased return processing costs and
     lower-than-expected productivity. 

We recommended that IRS, if it planned to continue validating SSNs
and delaying refunds in 1996, adjust its methodology for assessing
refund timeliness.  We also recommended that after IRS develops a
measure of the accessibility of its telephone assistance, which IRS
was working on at the time of our review, it add that measure to its
key filing season performance indicators. 

Tax Administration:  Electronic Filing Falling Short of Expectations
(GAO/GGD-96-12, Oct.  31, 1995).  Electronic filing is a cornerstone
of IRS' plan to move away from the traditional filing of paper
returns.  IRS established a goal of receiving 80 million tax returns
electronically in 2001.  In a report to the Ranking Minority Member
of the Senate Committee on Governmental Affairs, we discussed

  -- IRS' progress in broadening the use of electronic filing,

  -- the availability of data needed to develop an electronic filing
     strategy, and

  -- the implications for IRS if it does not significantly reduce its
     paper-processing workload. 

From 1992 through 1994, the number of returns filed electronically
grew from 12.6 million to 16.4 million, an annual growth rate of 14
percent.  In 1995, the number of electronic returns was expected to
drop to about 14.8 million, which IRS attributed to various actions
it took to crack down on refund fraud.  Assuming 1995 was an
aberration and the 14 percent annual growth rate of the preceding
years resumed, we estimated that only about 33 million returns would
be filed electronically by 2001. 

A major impediment to the expansion of electronic filing is its cost
to the public.  Taxpayers who file an electronic return through a
preparer or electronic filing transmitter have to pay as much as $40
for these services.  One aspect of IRS' current electronic filing
program that contributes to its cost (not only to the public but also
to IRS) is the need for taxpayers to submit a paper signature
document to affirm that information on the electronic return is
accurate. 

Most of the electronic returns IRS received in 1994 were individual
income tax returns that could have been filed on Form 1040A or
1040EZ--forms that are among the least costly paper returns to
process.  In addition, IRS had made little headway in increasing the
number of electronically filed business returns, which are generally
more complex and thus more costly to process on paper than individual
returns.  The fact that less complex returns comprise a
disproportionate share of electronic filing may be, at least in part,
because of IRS' goal of 80 million returns.  Focusing on that goal
could cause IRS to target its efforts at groups of taxpayers or types
of returns that will boost the number of electronic returns but not
necessarily yield the greatest reductions in IRS' paper-processing
workload and operating costs. 

Although IRS has some comparative data on the cost to process
electronic and paper returns, it does not have comparative data on
other costs, such as storage and retrieval, that can vary depending
on how a return is filed.  IRS also does not have

  -- adequate data on why taxpayers do not file electronically and
     what it would take to get them to do so and

  -- estimates of the number of electronic returns IRS can expect to
     receive from those taxpayers after some market intervention. 

Without a significant increase in electronic filing, IRS' customer
service and paper-processing workloads may overwhelm its planned
staffing and require changes to various aspects of its modernization
efforts.  IRS did not have contingency plans for that eventuality. 

We recommended that IRS (1) identify those groups of taxpayers who
offer the greatest opportunity to reduce IRS' paper-processing
workload and operating costs if they were to file electronically and
(2) develop strategies that seek to eliminate impediments that
inhibit those groups from filing electronically.  We also recommended
that IRS adopt electronic filing goals that focus on reducing IRS'
paper-processing workload and operating costs and prepare contingency
plans for the possibility that electronic filings will fall short of
expectations. 

ACCOUNTS RECEIVABLE/COLLECTIONS

IRS Tax Collection Reengineering (GAO/GGD-96-161R, Sept.  24, 1996). 
In a letter to the Chairman, Senate Committee on Finance, we provided
information on IRS' efforts to reengineer its enforcement action
program, which included the delinquent tax collection process. 

The enforcement action reengineering effort started in June 1994 and
was suspended in November 1995.  When the effort was suspended, few
results had been achieved in changing work processes or addressing
IRS' long-standing collection problems.  An independent consultant's
report identified several factors that hampered the reengineering
effort:  IRS did not (1) have the organizational commitment and
support needed to achieve the level of change desired, (2) fully
implement the reengineering methodology needed, and (3) integrate its
reengineering efforts with the existing systems modernization
program. 

In October 1995, IRS established a separate office to coordinate all
future strategic change initiatives, like reengineering.  In January
1996, IRS announced plans to initiate a new reengineering project
focusing on the tax settlement process, which was expected to include
aspects of enforcement action and the tax collection processes. 

IRS had also undertaken several projects to change the role of
revenue officers in the collection process by modernizing their jobs. 
One project, for example, was to automate many manual work processes
and link revenue officers to IRS' computer databases through the use
of laptop computers. 

Tax Administration:  IRS Tax Debt Collection Practices
(GAO/T-GGD-96-112, Apr.  25, 1996).  IRS confronts major hurdles in
collecting tens of billions of dollars in delinquent taxes.  As
Congress tries to balance the federal budget, these unpaid taxes have
become increasingly important as have IRS' collection efforts.  We
discussed IRS' tax debt collection practices before the Subcommittee
on Oversight, House Committee on Ways and Means. 

We expressed the belief that IRS could do more to improve its
collection practices.  The challenges facing IRS' improvement efforts
include

  -- a lack of accurate and reliable information on either the makeup
     of its accounts receivable or the effectiveness of the
     collection tools and programs it uses,

  -- an aged inventory of receivables,

  -- outdated collection processes, and

  -- antiquated technology. 

IRS is attempting to modernize its information and processing
systems, but these actions will not be completed for several years. 
Without reliable information on the accounts they are trying to
collect and the taxpayers who owe the debts, IRS employees generally
do not know whether they are resolving cases in the most efficient
and effective manner and may spend time pursuing invalid or
unproductive cases.  This lack of reliable performance data also
affects IRS' ability to target its collection efforts to specific
taxpayers or types of debts.  IRS needs a comprehensive strategy to
guide its efforts to improve tax debt collections, starting with
having accurate and reliable information. 

We recommended in May 1993 that IRS test the use of private debt
collectors to support its collection efforts.\10 Such a test could
provide useful insight into the effectiveness of the techniques and
technologies used in the private sector to collect older accounts. 
For example, IRS could learn which actions are most productive based
on the type of case, type of taxpayer, and age of the account. 

TAX EXPENDITURES AND PREFERENCES

Insular Areas Update (GAO/GGD-96-184R, Sept.  13, 1996).  In a letter
to the Chairman, Senate Committee on Energy and Natural Resources, we
provided information on the fiscal arrangements between the U.S. 
government and American Samoa, Guam, the Commonwealth of the Northern
Mariana Islands, the Commonwealth of Puerto Rico, and the U.S. 
Virgin Islands.  The letter updated information presented in our 1995
testimony.\11

Since our 1995 testimony, the only significant change in how federal
taxes apply to the territories related to the Puerto Rico and
possessions tax credit--the tax credit was repealed, although
existing claimants may continue to earn credits during a 10-year
transition period.  We also reported the following information for
fiscal year 1995: 

  -- IRS collected $3.3 billion from Puerto Rico for individual and
     corporation income taxes, unemployment taxes, estate and gift
     taxes, and excise taxes. 

  -- The Bureau of Alcohol, Tobacco, and Firearms collected $232.4
     million in excise taxes on rum shipped from Puerto Rico to the
     United States and $47.8 million on rum shipped from the U.S. 
     Virgin Islands to the United States.  The Treasury transferred
     $204.9 million and $41.7 million in rum excise tax revenue to
     the governments of Puerto Rico and the U.S.  Virgin Islands,
     respectively. 

  -- The Customs Service collected $138.2 million in duties in Puerto
     Rico, of which $96 million was transferred to the Puerto Rican
     government.  Customs also collected $9.2 million in duties in
     the U.S.  Virgin Islands, of which $4.2 million was transferred
     to the U.S.  Virgin Islands government. 

  -- Federal expenditures in the five territories totaled $11.4
     billion.  The expenditures included grants and other payments to
     the territorial governments as well as salaries and wages for
     federal employees. 

Profile of Indian Gaming (GAO/GGD-96-148R, Aug.  20, 1996).  In a
letter to the Chairman, House Committee on Ways and Means, we
provided information on the Indian gaming industry.  As of July 1996,
according to data from the National Indian Gaming Commission, 177 of
the 557 officially recognized Indian tribes were operating 240 gaming
facilities.  An additional 41 tribes had authorization to operate but
had not yet opened their gaming facilities.  The 85 tribes that had
filed financial statements for either 1994 or 1995 reported about
$3.5 billion in total gaming revenues (defined as dollars wagered
minus payouts) for 110 gaming facilities.  Of the 110 facilities, the
6 largest accounted for 40 percent of the revenues.  On the basis of
our analysis of the financial statements, we determined that about
$1.2 billion had been transferred from gaming facilities to 74 of the
85 tribes. 

Tax Policy:  Analysis of Certain Potential Effects of Extending
Federal Income Taxation to Puerto Rico (GAO/GGD-96-127, Aug.  15,
1996).  In response to a request from the Chairman of the House
Committee on Resources and the Chairman of its Subcommittee on Native
American and Insular Affairs, we provided information on some
potential effects of extending the IRC to residents of the
Commonwealth of Puerto Rico.  Our estimates relating to federal tax
liabilities were based on the income and demographic characteristics
of Puerto Rican taxpayers in 1992, the latest year for which detailed
data were available. 

If IRC tax rules had been applied to residents of Puerto Rico and if
there were no behavioral responses to this, the residents would have
owed around $623 million in federal income tax before taking into
account the EIC.  The total amount of EIC would have been about $574
million, leaving a net aggregate federal tax liability of about $49
million.  We estimated that about 59 percent of the population who
filed individual income tax returns in 1992 would have earned some
EIC.  The average EIC earned by eligible taxpayers would have been
$1,494. 

We estimated that 41 percent of the households filing income tax
returns would have had positive federal income tax liabilities, 53
percent would have received net transfers from the federal government
because their EIC would have more than offset their precredit
liabilities, and 6 percent would have had no federal tax liability. 

If application of federal income tax resulted in an additional $49
million in tax liability after subtracting EIC as we estimated and if
the Puerto Rican government wanted to keep constant the aggregate
amount of combined federal and Puerto Rican individual income tax
levied on its residents, it would have had to reduce its individual
income tax revenue by about 5 percent. 

We also accounted for the probability that some Puerto Rican
residents who were not required to file Puerto Rican tax returns in
1992 would file federal tax returns because they qualified for the
EIC.  We estimated, as an upper limit, that those additional EIC
claims could total about $64 million, and we discussed how additional
EIC claims in that amount would affect the data discussed above. 

Program Expenses of Charities (GAO/GGD-96-125R, July 10, 1996).  In a
letter to Senator Daniel R.  Coats, we provided information on
program service expenses reported by organizations that are exempt
from taxation under IRC 501(c)(3).  These organizations are
collectively known as charities.  Program service expenses are those
expenses directly related to the exempt purposes of the organization. 
Analysis of the organizational expense data was based on information
collected by IRS from the long Form 990 returns filed by 121,627
charitable organizations that reported expenses. 

We estimated that the percentage of expenses allocated to program
services for those organizations that filed was about 86 percent of
total expenses for 1992.  As a percentage of their total expenses,
more than 60 percent of these charitable organizations had program
service expenses of 80 percent or greater. 

Earned Income Credit:  Profile of Tax Year 1994 Credit Recipients
(GAO/GGD-96-122BR, June 13, 1996).  At the request of the Chairman,
Senate Committee on Finance, we provided information on participation
in the EIC program for tax years 1990 to 1994 and the characteristics
of taxpayers who received the credit in tax year 1994. 

Total EIC program costs increased 150 percent from 1990 to 1994, and
the number of EIC recipients increased by about 50 percent, to 19.1
million.  Extension of the EIC to certain childless adults in 1994
was the main reason for the recent growth in the number of EIC
claimants.  In tax year 1994, about 15 million families with children
received $20.5 billion in EIC while 4 million childless adults
received EIC totaling $700 million. 

Most of the taxpayers claiming the EIC for families with children
filed as heads of households, and nearly 90 percent of childless
adult claimants were single.  The majority of EIC claimants were 25
to 44 years old, and in tax year 1994, 1.2 million EIC recipients
also claimed $507 million in child and dependent care credits.  EIC
recipients, compared with filers who did not claim EIC, were more
likely to file their returns electronically, use simpler tax forms,
and use a tax preparer.  EIC recipients derived their income
primarily from earnings rather than investment income.  EIC is
structured so that the credit amount increases as income increases,
plateaus at a maximum credit amount, and then phases out as income
exceeds a certain amount.  About 60 percent of taxpayers claiming EIC
for families with children had income in the credit's phase-out
range. 

In 1995, Congress enacted an indirect wealth test to eliminate from
the EIC program taxpayers with investment income over $2,350.  If
that investment income threshold had been in place in tax year 1994,
about 284,000 taxpayers, who had claimed $212 million of EIC, would
not have been able to do so. 

Tax Policy and Administration:  Review of Studies of the
Effectiveness of the Research Tax Credit (GAO/GGD-96-43, May 21,
1996).  During a congressional hearing in 1995, we were asked to
evaluate recent studies of the research tax credit to determine
whether the evidence was adequate to conclude that available evidence
suggests that each dollar taken of the research tax credit stimulates
at least one dollar of research spending in the short run and about
two dollars of research spending in the long run.\12 In response to a
request from Representative Robert T.  Matsui, we reviewed eight
studies of the research tax credit, focusing on

  -- the adequacy of the studies' data and methods to determine the
     amount of research spending stimulated per dollar of foregone
     tax revenue and

  -- other factors that determine the credit's value to society. 

We found that four studies supported the claim that, during the
1980s, the research credit stimulated research spending that exceeded
its revenue cost, but the other four studies did not support the
claim or were inconclusive.  All of the studies had significant data
and methodological limitations that made it difficult to evaluate
industry's true responsiveness to the research tax credit.  Because
the authors did not have access to confidential tax return data, they
used publicly available data to determine the credit's incentive. 
Public data were not a suitable substitute for tax return data
because public data used different definitions of taxable income and
research spending.  Furthermore, the studies' analytical methods,
such as use of industry aggregates and failure to incorporate
important tax code interactions, made their findings imprecise and
uncertain.  We also found little research on the latest design of the
credit to determine its effect on incentives and costs. 

As a result, the studies' evidence was not adequate to conclude that
a dollar of research tax credit would stimulate a dollar of
additional short-term research spending or about two dollars of
additional long-term research spending.  Moreover, the value of the
research tax credit to society cannot be determined simply by
comparing the amount of research spending stimulated by the credit
versus the credit's revenue cost.  A comparison would have to be made
between the total benefits gained by society from research stimulated
by the credit and the estimated costs to society resulting from the
collection of taxes required to fund the credit. 

Budget Issues:  Selected GAO Work on Federal Financial Support of
Business (GAO/AIMD/GGD-96-87, Mar.  7, 1996).  The federal government
provides financial benefits to businesses as a way to fulfill a wide
range of public policy goals.  At the request of Representative
Charles F.  Bass, we summarized our previously issued work on
spending programs and tax benefits available to businesses.  Our work
showed that these benefits are spread throughout the budget,
including programs in international affairs, energy, natural
resources and environment, agriculture, and transportation.  In cases
where programs are poorly designed, including those benefiting
businesses, the federal government may spend more money or lose more
revenue than needed to reach its intended audience and achieve
program or service goals. 

The problems with these financial support programs can be grouped
into several categories: 

  -- ineffective or inefficient transfers, wherein some businesses
     receive federal funds or tax benefits to do things they would
     have done anyway;

  -- preemption of market forces, wherein artificially increasing the
     price of goods to consumers can encourage inefficient production
     and increase costs;

  -- moral hazards, wherein federal programs provide incentives to
     businesses to undertake more, risky activities than they would
     without the program; and

  -- duplication and working at cross-purposes, wherein several
     federal programs address the same problem or where one program
     may counteract the beneficial effects of another program. 

Tax Consequences of Offsets (GAO/NSIAD-96-74R, Dec.  22, 1995).  In a
letter to the Chairmen and Ranking Minority Members of the Senate
Committee on Armed Services, Senate Committee on Veterans' Affairs,
House Committee on National Security, and House Committee on
Veterans' Affairs, we provided information on the tax consequences to
veterans of the required offset of certain types of Department of
Defense (DOD) separation pay and Department of Veterans Affairs (VA)
disability compensation. 

In 1980, Congress authorized DOD to provide lump-sum separation pay
to service members for involuntary separation.  In 1991, to assist
DOD in downsizing, Congress authorized DOD to pay a higher level of
lump-sum separation pay or an annual annuity to those who separate
voluntarily.  After separating, some veterans qualify for
service-connected disability compensation from VA.  Federal income
taxes are withheld from separation pay.  Disability compensation is
tax-exempt.  Federal law requires the recoupment of the gross amount
of separation pay (known as an offset) from those who also receive
disability compensation for the same period of service. 

We were asked if separation pay could be reclassified as disability
compensation for tax purposes and whether veterans could deduct
recouped separation pay from gross income.  According to IRS,
veterans may not reclassify separation pay as disability compensation
and may not deduct recouped separation pay from gross income.  IRS
did conclude, however, that in one limited situation, veterans may
retroactively exclude part of their lump-sum separation pay from
gross income if they also qualify for disability compensation. 

Tax Exempt (GAO/GGD-96-47R, Nov.  8, 1995; GAO/GGD-96-46R, Nov.  8,
1995; and GAO/GGD-96-29R, Oct.  10, 1995).  In November 8, 1995,
letters to Representatives Ernest Istook and David M.  McIntosh, we
analyzed IRS Statistics of Income data for certain tax exempt
organizations.  We noted that these data were limited in that they

  -- covered grants from all levels of government, not just the
     federal government and

  -- did not include all federal grants received by exempt
     organizations. 

For Representative Istook, we provided information on grant receipts,
lobbying expenditures, and political expenditures for certain
organizations that were exempt from tax under IRC sections 501(c)(3)
through 501(c)(9).  IRS data showed that there were 259,502
organizations exempt under those code sections of which 44,274
reported receiving government grants totaling about $42.6 million. 
Of those organizations receiving grants, 1,029 reported lobbying
expenditures totaling about $43.2 million, and 41 reported political
expenditures totaling about $2.4 billion. 

For Representative McIntosh, we compared the average lobbying
expenditures for tax-exempt charitable organizations that received
government grants with the average expenditures for charities that
did not receive government grants in tax year 1992.  IRS data showed
that out of 122,563 charities, 2,132 reported lobbying expenditures
that totaled about $75.9 million for tax year 1992.  Of the
organizations that reported lobbying expenditures, 48 percent
reported receiving government grants.  Grantees reported average
lobbying expenditures of about $41,940 per organization, and
nongrantees reported average lobbying expenditures of about $29,701
per organization. 

In an October 10, 1995, letter to Representative Ernest Istook, we
reviewed the methodology used by Dr.  William Duncan to prepare his
analysis entitled Non-Profit Lobbying Statistics.  In his analysis,
Dr.  Duncan attempted to quantify the lobbying expenditures of
501(c)(3) organizations that received government grants in tax year
1992.  We noted that his approach should produce reasonably accurate
results if the methodology he described to us was applied to the data
he identified. 

OTHER

Summary of Selected GAO Reports (GAO/GGD-96-193R, Sept.  26, 1996). 
In a letter to the Co-Chairmen, National Commission on Restructuring
the Internal Revenue Service, we summarized selected GAO reports
about IRS that were issued in fiscal years 1991 through 1995 and in
the first three quarters of fiscal year 1996.  We noted that the
reports

  -- identified areas that are particularly problematic to IRS, such
     as tax return processing, customer service, collection efforts,
     financial management, and information technology and

  -- indicated the formidable challenges IRS faces in making its
     organization, operations, and processes more effective and
     efficient while improving service to taxpayers. 

Tax Policy and Administration:  1995 Annual Report on GAO's
Tax-Related Work (GAO/GGD-96-61, Mar.  8, 1996).  Pursuant to a
legislative requirement, we summarized our work on tax policy and
administration during fiscal year 1995.  This report highlights
notable reports and testimony from fiscal year 1995, discusses
actions taken on our recommendations as of the end of 1995, discusses
recommendations that we made to Congress before and during fiscal
year 1995 that had not been acted upon, and lists the assignments for
which we were given access to tax information under the law.  Our key
recommendations related to improving compliance with the tax laws,
better assisting taxpayers, enhancing the effectiveness of tax
incentives, improving IRS management, and improving the processing of
returns and receipts. 


--------------------
\1 Tax Systems Modernization:  Management and Technical Weaknesses
Must Be Corrected If Modernization Is to Succeed (GAO/AIMD-95-156,
July 26, 1995). 

\2 See our final report on the filing season, IRS' 1996 Tax Filing
Season:  Performance Goals Generally Met; Efforts to Modernize Had
Mixed Results (GAO/GGD-97-25, Dec.  18, 1996). 

\3 Tax Systems Modernization:  Management and Technical Weaknesses
Must Be Corrected If Modernization Is to Succeed (GAO/AIMD-95-156,
July 26, 1995). 

\4 See Security Weaknesses at IRS' Cyberfile Data Center
(GAO/AIMD-96-85R, May 9, 1996). 

\5 Tax Administration:  Trends for Certain IRS Programs
(GAO/GGD-93-102FS, May 26, 1993). 

\6 Tax Administration:  IRS Can Strengthen Its Efforts to See That
Taxpayers Are Treated Properly (GAO/GGD-95-14, Oct.  26, 1994). 

\7 Generally, the term "OID" covers bonds sold at a discount--that
is, below their redemption value. 

\8 Status of the Tax Year 1994 Compliance Measurement Program
(GAO/GGD-95-39, Dec.  30, 1994). 

\9 IRS subsequently decided to postpone this TCMP indefinitely. 

\10 See New Delinquent Tax Collection Methods for IRS (GAO/GGD-93-67,
May 11, 1993). 

\11 U.S.  Insular Areas:  Information on Fiscal Relations With the
Federal Government (GAO/T-GGD-95-71, Jan.  31, 1995). 

\12 The May 10, 1995, hearing was held by the Subcommittee on
Oversight, House Ways and Means Committee. 


CHRONOLOGICAL LISTING OF GAO
PRODUCTS ON TAX MATTERS ISSUED IN
FISCAL YEAR 1996
========================================================== Appendix II

Report title and number                        Date issued
------------------------------------------  --------------
Tax Administration: Information on IRS'           10/06/95
 Taxpayer Compliance Measurement Program
 (GAO/GGD-96-21)
Tax Administration: IRS Faces Challenges          10/10/95
 in Reorganizing for Customer Service
 (GAO/GGD-96-3)
Tax Exempt (GAO/GGD-96-29R)                       10/10/95
Tax Administration: Audit Trends and Taxes        10/13/95
 Assessed on Large Corporations (GAO/GGD-
 96-6)
Tax Administration: Electronic Filing             10/31/95
 Falling Short of Expectations (GAO/GGD-
 96-12)
Tax Exempt (GAO/GGD-96-46R)                       11/08/95
Tax Exempt (GAO/GGD-96-47R)                       11/08/95
Tax Consequences of Offsets (GAO/NSIAD-           12/22/95
 96-74R)
The 1995 Tax Filing Season: IRS                   12/29/95
 Performance Indicators Provide Incomplete
 Information About Some Problems (GAO/
 GGD-96-48)
Tax Administration: Diesel Fuel Excise Tax        01/16/96
 Change
 (GAO/GGD-96-53)
IRS Staffing Trends (GAO/GGD-96-73R)              01/31/96
IRS Operations: Significant Challenges in         03/06/96
 Financial Management and Systems
 Modernization (GAO/T-AIMD-96-56)
Budget Issues: Selected GAO Work on               03/07/96
 Federal Financial Support of Business
 (GAO/AIMD/GGD-96-87)
Tax Policy and Administration: 1995 Annual        03/08/96
 Report on GAO's Tax-Related Work (GAO/
 GGD-96-61)
Tax Administration: Making IRS' Telephone         03/11/96
 Systems Easier to Use Should Help
 Taxpayers (GAO/GGD-96-74)
Status of Tax Systems Modernization, Tax          03/14/96
 Delinquencies, and the Potential for
 Return-Free Filing (GAO/T-GGD/AIMD-96-
 88)
Tax Administration: IRS Can Improve               03/15/96
 Information Reporting for Original Issue
 Discount Bonds (GAO/GGD-96-70)
IRS Efforts to Control Fraud in 1995 (GAO/        03/25/96
 GGD-96-96R)
Tax Systems Modernization: Management and         03/26/96
 Technical Weaknesses Must Be Overcome to
 Achieve Success (GAO/T-AIMD-96-75)
Tax Administration: IRS' Fiscal Year 1996         03/28/96
 and 1997 Budget Issues and the 1996
 Filing Season (GAO/T-GGD-96-99)
Tax System: Issues in Tax Compliance              04/03/96
 Burden (GAO/T-GGD-96-100)
Tax Administration: IRS Tax Debt                  04/25/96
 Collection Practices (GAO/T-GGD-96-112)
Tax Administration: Audit Trends and              04/26/96
 Results for Individual Taxpayers (GAO/
 GGD-96-91)
Tax Administration: Alternative Strategies        04/26/96
 to Obtain Compliance Data (GAO/GGD-96-
 89)
Tax Systems Modernization: Progress in            05/09/96
 Achieving IRS' Business Vision (GAO/T-
 GGD-96-123)
Internal Revenue Service: Results of              05/13/96
 Nonfiler Strategy and Opportunities to
 Improve Future Efforts (GAO/GGD-96-72)
Tax Policy and Administration: Review of          05/21/96
 Studies of the Effectiveness of the
 Research Tax Credit (GAO/GGD-96-43)
Tax Research: IRS Has Made Progress But           06/05/96
 Major Challenges Remain (GAO/GGD-96-109)
Financial Audit: Actions Needed to Improve        06/06/96
 IRS Financial Management (GAO/T-AIMD-96-
 96)
Tax Systems Modernization: Actions                06/07/96
 Underway But IRS Has Not Yet Corrected
 Management and Technical Weaknesses (GAO/
 AIMD-96-106)
Earned Income Credit: Profile of Tax Year         06/13/96
 1994 Credit Recipients (GAO/GGD-96-
 122BR)
Tax Administration: Issues in Classifying         06/20/96
 Workers as Employees or Independent
 Contractors (GAO/T-GGD-96-130)
Tax Refund Timeliness (GAO/GGD-96-131R)           06/26/96
Program Expenses of Charities (GAO/GGD-           07/10/96
 96-125R)
Financial Audit: Examination of IRS'              07/11/96
 Fiscal Year 1995 Financial Statements
 (GAO/AIMD-96-101)
Managing IRS: IRS Needs to Continue               07/29/96
 Improving Operations and Service (GAO/T-
 GGD/AIMD-96-170)
Tax Policy: Analysis of Certain Potential         08/15/96
 Effects of Extending Federal Income
 Taxation to Puerto Rico (GAO/GGD-96-127)
Profile of Indian Gaming (GAO/GGD-96-             08/20/96
 148R)
Tax Systems Modernization: Cyberfile              08/26/96
 Project Was Poorly Planned and Managed
 (GAO/AIMD-96-140)
Tax Administration: Tax Compliance of             08/28/96
 Nonwage Earners (GAO/GGD-96-165)
Tax Administration: IRS Is Improving Its          08/30/96
 Controls for Ensuring That Taxpayers Are
 Treated Properly (GAO/GGD-96-176)
Tax Administration: Income Tax Treatment          09/03/96
 of Married and Single Individuals (GAO/
 GGD-96-175)
Internal Revenue Service: Business                09/09/96
 Operations Need Continued Improvement
 (GAO/AIMD/GGD-96-152)
IRS Operations: Critical Need to Continue         09/10/96
 Improving Core Business Practices (GAO/
 T-AIMD/GGD-96-188)
Tax Systems Modernization: Actions                09/10/96
 Underway But Management and Technical
 Weaknesses Not Yet Corrected (GAO/T-
 AIMD-96-165)
Insular Areas Update (GAO/GGD-96-184R)            09/13/96
Earned Income Credit: IRS' 1995 Controls          09/18/96
 Stopped Some Noncompliance, But Not
 Without Problems (GAO/GGD-96-172)
IRS Financial Audits: Status of Efforts to        09/19/96
 Resolve Financial Management Weaknesses
 (GAO/T-AIMD-96-170)
IRS Tax Collection Reengineering (GAO/            09/24/96
 GGD-96-161R)
Summary of Selected GAO Reports (GAO/GGD-         09/26/96
 96-193R)
----------------------------------------------------------

MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III

GENERAL GOVERNMENT DIVISION,
WASHINGTON, D.C. 

David J.  Attianese, Assistant Director
Charles W.  Woodward III, Evaluator-in-Charge
Elizabeth W.  Scullin, Communications Analyst


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