Tax Administration: IRS' Return Selection Process (Letter Report,
02/22/99, GAO/GGD-99-30).
Pursuant to a congressional request, GAO reviewed how effectively the
Internal Revenue Service (IRS) selects individual income tax returns for
audit, focusing on: (1) the extent to which IRS district offices have
used various sources to select these individual returns for audit; and
(2) comparing the results of audits selected using these sources in
terms of the rate at which audits recommended no-change to the tax
reported, amount of additional taxes recommended per return audited, and
rates at which IRS assessed and collected such recommended taxes after
the audit.
GAO noted that: (1) of the 1.1 million closed books and records audits
of returns received in 1992, 1993, and 1994, GAO's analysis showed that
IRS selected 59 percent of the returns using its discrimnant function
(DIF) source; (2) the other 41 percent were selected using non-DIF
sources; (3) when GAO compared the results from DIF and non-DIF audits
of returns received in 1992, 1993, and 1994, the non-DIF audits
generally resulted in lower no-change rates and higher recommended
additional taxes than DIF audits; (4) these results are consistent with
IRS' policy to use non-DIF sources if the audit potential appears to be
higher than it would be from a DIF audit; (5) in contrast, GAO estimated
that IRS collected a greater proportion of the additional taxes
recommended in DIF audits than for non-DIF audits, based on a sample of
returns received in 1992; (6) an estimated 57 percent of the recommended
additional taxes were collected for DIF audits versus 35 percent for
non-DIF; (7) several IRS operations affect collections and GAO was
unable to determine from IRS' data which of these caused the non-DIF
collection rate to be lower; (8) caution is needed if one uses the three
results analyzed to compare the effectiveness of DIF and non-DIF
sources; (9) the no-change rate, the recommended additional tax amounts,
and the collection rate on these recommended amounts do not present a
complete picture of audit effectiveness; (10) for example, data are not
readily available on how audits affect voluntary compliance and taxpayer
burden; and (11) nor are data readily available on how other factors,
such as the quality of the audits, affected the results across the
selection sources.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: GGD-99-30
TITLE: Tax Administration: IRS' Return Selection Process
DATE: 02/22/99
SUBJECT: Comparative analysis
Government collections
Tax administration systems
Tax return audits
Tax violations
Tax nonpayment
Auditing procedures
Auditing standards
******************************************************************
** This file contains an ASCII representation of the text of a **
** GAO report. This text was extracted from a PDF file. **
** Delineations within the text indicating chapter titles, **
** headings, and bullets have not been preserved, and in some **
** cases heading text has been incorrectly merged into **
** body text in the adjacent column. Graphic images have **
** not been reproduced, but figure captions are included. **
** Tables are included, but column deliniations have not been **
** preserved. **
** **
** Please see the PDF (Portable Document Format) file, when **
** available, for a complete electronic file of the printed **
** document's contents. **
** **
** A printed copy of this report may be obtained from the GAO **
** Document Distribution Center. For further details, please **
** send an e-mail message to: **
** **
** **
** **
** with the message 'info' in the body. **
******************************************************************
TAX ADMINISTRATION
IRS' Return SelectionProcess
United States General Accounting OfficeGAO Report to the Chairman,
Committee on Ways and Means; and the Chairman,Subcommittee on
Oversight, Committee on Ways and Means, House ofRepresentatives
February 1999
GAO/GGD-99-30
United StatesGeneral Accounting Office Washington, D.C. 20548
General Government Division
B-279036
Page 1 GAO/GGD-99-30 IRS' Return Selection Process
GAO
February 22, 1999 The Honorable Bill ArcherChairman, Committee on
Ways and Means House of Representatives The Honorable Amo
HoughtonChairman, Subcommittee on Oversight Committee on Ways and
MeansHouse of Representatives
For 1992, according to the most recent estimate of the Internal
RevenueService (IRS), individual taxpayers, at the time they
submitted their tax returns, did not pay about $100 billion in
income tax liabilities. An audit isone of the enforcement tools
IRS uses to try to reduce this figure.
Recently, Congress has voiced concerns about the methods IRS uses
toselect returns for audit and the techniques used to conduct
audits. These concerns contributed to the passage of the IRS
Restructuring and ReformAct of 1998 (Public Law 105-206, July 22,
1998). Among other things, this act limits IRS' ability to use
certain audit techniques and requires that IRSinclude in
information it sends to taxpayers an explanation of the reasons
why it selects returns for audit. IRS has many sources from which
to select tax returns for audit. IRS'intent is to select returns
with audit potential--returns for which an audit is most likely to
find errors and recommend changes to the reported tax.One source
is the discrimnant function (DIF), an automated system for scoring
individual tax returns according to their audit potential. IRS'
policyalso allows returns to be selected through non-DIF sources
(e.g., referrals from other federal and state government agencies)
if these returns can beshown to have a greater audit potential
than a DIF-selected return.
In an April 1996 letter, the committee asked that, among other
things, weexplore how effectively IRS selects individual income
tax returns for audit.1 However, IRS does not have information on
all aspects of auditeffectiveness. Consequently, we agreed, on the
basis of discussions with your office, to focus on audits in which
auditors in IRS district offices hold
1This is the third in a series of reports you requested on IRS'
audit process. The other two were: Tax
Administration: More Criteria Needed on IRS' Use of Financial
Status Audit Techniques, (GAO/GGD-98-38, December 30, 1997); and
IRS Audits: Workpapers Lack Documentation of Supervisory Review,
(GAO/GGD-98-98, April 15, 1998).
B-279036 Page 2 GAO/GGD-99-30 IRS' Return Selection Process face-
to-face meetings with individual taxpayers to review their books
andrecords.
2 For these books and records audits, we agreed to (1) determine
the extent to which IRS district offices have used various sources
to selectthese individual returns for audit; and (2) compare the
results of audits
selected using these sources in terms of the rate at which
auditsrecommended no-change to the tax reported (no-change
audits), amount of additional taxes recommended per return
audited, and rates at whichIRS assessed and collected such
recommended taxes after the audit.
3 For
our analyses, we examined books and records audits of returns
receivedby IRS in 1992, 1993, and 1994 that were closed within a
4-year period.
4
Of the 1.1 million closed books and records audits of returns
received in1992, 1993, and 1994, our analysis showed that IRS
selected 59 percent of the returns using its DIF source. The other
41 percent were selected usingnon-DIF sources.
When we compared the results from DIF and non-DIF audits of
returnsreceived in 1992, 1993, and 1994, the non-DIF audits
generally resulted in lower no-change rates and higher recommended
additional taxes than DIFaudits. These results are consistent with
IRS' policy to use non-DIF sources if the audit potential appears
to be higher than it would be from aDIF audit.
In contrast, we estimated that IRS collected a greater proportion
of theadditional taxes recommended in DIF audits than for non-DIF
audits, based on a sample of returns received in 1992. An
estimated 57 percent ofthe recommended additional taxes were
collected for DIF audits versus 35 percent for non-DIF. Several
IRS operations affect collections and we wereunable to determine
from IRS' data which of these caused the non-DIF collection rate
to be lower. Caution is needed if one uses the three results we
analyzed to compare theeffectiveness of DIF and non-DIF sources.
The no-change rate, the recommended additional tax amounts, and
the collection rate on theserecommended amounts do not present a
complete picture of audit
2As discussed in the Scope and Methodology section and appendix I
of this report, we excluded some
audits because they are not typical books and records audits. 3In
this report, when we refer to the recommended additional tax, this
includes refunds and penalty amounts, if applicable. IRS combines
tax and penalties into one figure reported as "audit results."
Thisfigure cannot be separated in IRS' data files.
4Between 2 and 5 percent of the returns selected for audit
remained open at the end of our study period. See the scope and
methodology section for a discussion of these open audits.
Results in Brief
B-279036
Page 3 GAO/GGD-99-30 IRS' Return Selection Process effectiveness.
For example, data are not readily available on how auditsaffect
voluntary compliance and taxpayer burden. Nor are data readily
available on how other factors, such as the quality of the audits,
affectedthe results across the selection sources.
IRS conducts various compliance checks to determine whether
taxpayersreported the correct tax liability on their returns.
Initially, taxpayers may be contacted as IRS processes their filed
returns if IRS identifies a matherror or missing information on
the return. IRS also uses computers to match information on the
tax return with information obtained from thirdparties, such as
employers and financial institutions, that report payments such as
salaries and interest paid to individuals. During fiscal year
1996,IRS used computer matching to identify about 3.2 million
taxpayers who may have underreported income on returns or not
filed required returns.Additionally, IRS audited about 2.1 million
tax returns to determine whether taxpayers reported the correct
tax liability. Audits are performed at IRS' 10 service centers and
33 district offices.Service centers and district offices perform
different types of audits on the basis of complexity of the audit,
training and pay grade of auditors, andaudit techniques used.
Service centers conduct correspondence audits, generally of a
single issue such as earned income credit claims. Theseaudits rely
on correspondence to ask taxpayers to provide information about an
item on the tax return. Face-to-face audits with taxpayers
toreview their books and records occur in IRS' 33 district
offices. District office audits are more complex, with multiple
issues and often more than 1tax year being audited.
IRS has developed many sources, or reasons, for selecting returns
foraudit, which can be segregated into those using DIF sources and
those using non-DIF sources.5 DIF scores are automatically
calculated for allfiled individual tax returns. This DIF
calculation is based on a series of formulas developed by IRS that
are designed to indicate the returns thathave the highest
probability of a tax change if audited. The higher the DIF score
the greater this probability. Before implementing DIF, IRS had no
systematic way to evaluate whichamong all filed returns had the
greatest potential for changes to the reported tax if audited.
Instead, IRS relied on its auditors across the
5The exact number of source codes used varies by year because IRS
periodically combines some and
develops new ones. See appendix I for list of all source codes
used by IRS during the years covered inthis review.
Background
B-279036
Page 4 GAO/GGD-99-30 IRS' Return Selection Process country to
identify which returns to audit by using their experience
andjudgment in reviewing returns. This process was time consuming
and required large amounts of resources. Starting in 1969, IRS
began using DIF as part of a multistage process tonarrow down the
number of returns to be reviewed by the auditors. This process
change was intended not only to improve the effectiveness ofreturn
selection, but also to reduce the amount of judgment involved in
selecting returns for audit. Calculating the DIF score for all
filed returns isthe first stage of this process. Then, returns
with DIF scores above a national cutoff are to be placed in the
DIF inventory, from which they maybe selected for audit by a
district office.
In the next stage, the district offices are to indicate how many
DIF-scoredreturns will be needed by their various suboffices.
Returns with the highest DIF scores are to be pulled from the DIF
inventory and reviewed byexperienced auditors to determine whether
the return will be accepted as filed or sent to the district for
audit. In this process, known asclassification, reviewers also are
to indicate which portions of the return should be audited. Once
in the district, returns are generally reviewed atmultiple levels
before being sent to an audit group for distribution to the
auditors. Districts also use numerous non-DIF sources for
identifying specificreturns for audit. As with DIF returns, these
non-DIF returns are to be reviewed in the district office at
multiple levels and either accepted as filedor forwarded to audit
groups. Unlike audits selected using DIF, these returns need not
be selected by DIF score or solely from the DIFinventory. For the
non-DIF sources we include in our review, we grouped these into
five categories.6
* IRS projects, which include audits that focus on specific types
of issues,such as unreported income, or types of taxpayers, such
as those operating
cash businesses, whose returns have specific characteristics that
indicatepotential noncompliance;
* referrals of potentially noncompliant returns that come from
both insideand outside IRS; for example, returns are referred by
IRS' Collection
Division and by state tax agencies;
6In this report we use the term "non-DIF sources" when referring
to the five categories. IRS has many
other non-DIF sources for audit selection at the district office.
Because this review focused on thesources associated with the
selection process for audits of taxpayers' books and records, we
did not
analyze these other non-DIF sources. A complete list of source
codes and the reasons for excludingthem can be found in appendix
I.
B-279036 Page 5 GAO/GGD-99-30 IRS' Return Selection Process
* individuals whose returns were completed by a preparer that IRS
hasidentified as questionable;
* regular classification that is a catchall group for various
kinds of auditsthat had to be manually selected, such as those
involving bankruptcy; and
* all other reasons for selecting a return for books and records
audits, suchas those involving income from illegal narcotics, tax
fraud, or abusive tax
shelters. The DIF formulas, together with the multiple levels of
review in theselection process, are designed to ensure that
returns having the greatest potential for a change to the reported
tax are most likely to be audited. Ifthis audit potential can be
justified, IRS districts can use non-DIF sources to select returns
for audit. Specifically, the districts should show that usinga
non-DIF source would generally offer more potential for changing
the reported tax than continuing to audit returns identified by
DIF. 7 The stepsfor selecting DIF and non-DIF returns for audit
are shown graphically in appendix II. To determine the extent to
which IRS district offices have used varioussources to select
returns for audit, we first reviewed return selection procedures
and sources as outlined in the Internal Revenue Manual (IRM)and in
attachments to the instructions for IRS' Audit Information
Management System (AIMS). We collected data on these sources from
IRS'closed case data files. We talked to IRS' Examination and
Research Division staffs in the National Office as well as
Examination staff in theNorthern California District and Western
Regional offices to understand the information about the
procedures and sources. Finally, we collecteddata from the AIMS
data files on closed audits on the extent to which IRS used each
source in accordance with the criteria outlined below. To compare
the no-change rate and additional tax recommended peraudited
return for the various audit selection sources, we used data from
AIMS files on closed audits. Our primary interest was books and
recordsaudits of individual returns. We focused on such audits at
district offices because service center audits were being
evaluated in another assignment.We eliminated audits such as those
coded as claims for refund, nonfilers, research and reference, and
taxpayer requests because these are generallynot books and records
audits. In addition, we eliminated audits of related
7Certain types of returns, such as those claiming large refunds,
are considered mandatory and may or
may not be selected for audit solely because of the potential for
a tax change.
Scope andMethodology
B-279036
Page 6 GAO/GGD-99-30 IRS' Return Selection Process and multiyear
returns because of the difficulty of associating these auditsto 1
of the 3 years we analyzed.
8
We analyzed returns received by IRS in 1992, 1993, and 1994.
Because thecriteria for selecting returns may change from year to
year, we wanted to organize our data in a manner that would
reflect the selection source. Wediscussed this with IRS officials
and concluded that our analysis would be based on the year IRS
received the return (filing year) rather than on theyear the audit
was closed (as presented in the AIMS files). Using the closed case
data files for fiscal years 1992 through 1997, we collected data
foraudits of returns
* received in 1992 with audits closed during 1992 through 1995,*
received in 1993 with audits closed during 1993 through 1996, and*
received in 1994 with audits closed during 1994 through 1997.
We used these years because they were the most recent filing years
forwhich IRS had 4 years of audit closures. Tracking 4 years
allowed us to account for almost all of the returns selected for
audit. Even so, someaudits of returns received in 1992, 1993, and
1994 remained opened at the end of our 4 year test period. Using
the AIMS files, we determined that
* 4 percent of the audits for 1992 returns were open at the end
of fiscal year1995,
* 5 percent of the audits for 1993 returns were open at the end
of fiscal year1996, and
* 2 percent of the audits for 1994 returns were open at the end
of fiscal year1997.
To compare how much of the additional tax recommended was
assessedand collected for DIF and non-DIF audits, we selected a
sample of audits from the 1992 study population. We selected 1992
instead of 1993 or 1994to allow as much time as possible for
collection activities. This sample was divided into 4 strata: (1)
audits selected using the DIF scores and closedwith the taxpayer
agreeing to the additional tax recommended (agreed audits), (2)
audits selected using the DIF scores and closed without
thetaxpayer agreeing to all of the additional tax recommended
(unagreed audits), (3) agreed audits selected using non-DIF
sources, and (4)unagreed audits selected using non-DIF sources. We
used transcripts from IRS' master file to compare the amount
actually collected with the
8See appendix I for a more complete description of the source
codes eliminated and those used in the
study population.
B-279036 Page 7 GAO/GGD-99-30 IRS' Return Selection Process
amounts recommended. A more complete explanation of our
sampleselection strategy and sampling errors can be found in
appendix III. There are some limitations on our data analysis. We
did not validate AIMSdata files on the closed audits. During our
analysis of the master file transcripts for a selected sample,
however, we noted some datainconsistencies between the master file
and the AIMS files. We found source codes on the AIMS files that
differed from those on the master file.According to IRS, the
source code recorded on the AIMS files is correct, and there is no
mechanism to make these changes on the master fileaccounts. We
also found substitute for return (SFR) audits even though we had
removed SFR source codes from our analysis.9 IRS officials
indicatedthat it was not possible to identify all SFRs by source
code. We excluded only those SFRs that could be identified using
the AIMS coding. Moreover,we did not adjust the dollar amounts for
inflation, thus the dollars reported may be conservative. We
performed our audit at IRS headquarters offices in Washington,
D.C.;the Western Region; the Northern California District Office;
and IRS' Fresno Service Center. Our work was done between January
1998 andSeptember 1998 in accordance with generally accepted
government auditing standards. DIF-selected returns accounted for
59 percent of the books and recordsaudits conducted at IRS'
district offices of returns received in 1992, 1993, and 1994.10
The remaining 41 percent of the audits were selected from the
5non-DIF sources. Table 1 shows the number of books and records
audits conducted for each of the six sources for returns received
by IRS between1992 and 1994.
9IRS files a substitute return for certain individuals who do not
appear to have filed required tax
returns. These returns are prepared from information documents
provided by third parties, such asbanks and employers. According
to IRS officials, these SFRs may have been selected for other
audit
purposes and thus were not coded as SFRs. 10Audits of taxpayer
books and records averaged less than one-half of 1 percent of the
returns received in 1992, 1993, and 1994. During this same period,
staffing and other workload limited all district officeaudits to
only about 1 percent of returns received.
Sources of IRS Audits
B-279036
Page 8 GAO/GGD-99-30 IRS' Return Selection Process
Categorya 1992 1993 1994 TotalDIF 178,419 142,142 310,557 631,118
Non-DIF-selected sources 135,564 128,993 174,490 439,047
Projects 41,173 40,804 50,797 132,774Referrals 40,353 31,173
32,102 103,628
Preparers 26,578 25,799 37,561 89,938Regular classification 16,563
20,008 24,795 61,366 Other sources 10,897 11,209 29,235 51,341
Total 313,983 271,135 485,047 1,070,165 aSee appendix I for a
summary of the specific source codes included in each of the
categories.
Source: Summarized from IRS' closed case data files for fiscal
years 1992 through 1997.
Most returns are selected for audit using DIF because, according
to IRSofficials, it is IRS' primary indicator of noncompliance and
enables them to select returns that have the greatest probability
of error on a nationwidebasis. In addition, IRS officials also
told us that districts might be unable to identify any additional
returns with a higher audit potential through non-DIF sources than
through those selected by DIF. Moreover, it may be easier to
obtain large numbers of returns with potential
noncompliancethrough DIF than through non-DIF sources. For DIF,
districts simply request that service centers send them a certain
number of returns. Theservice center selects the highest DIF-
scored returns meeting the district's geographic requirements. For
non-DIF, selection is more complex. Districtoffice officials must
identify specific returns that appear to have a greater potential
for tax change than DIF-selected returns. These returns mustthen
be ordered individually by taxpayer name and Social Security
number. As part of our analysis of IRS' audit selection sources,
we separated theaudits into returns filed by nonbusiness
individuals with income under $50,000; nonbusiness individuals
with income of $50,000 and above; andindividual taxpayers whose
primary source of income was from selfemployment (labeled as
business).11 To look at how IRS distributed auditsby sources and
these types of individual taxpayers, we combined the 3 years
covered in this review. Figure 1 shows that IRS conducted a larger
percentage of audits ofnonbusiness individuals with income under
$50,000 than of individuals with higher incomes or business
income, regardless of the selection
11Individuals report business income on the Schedule C of Form
1040. Business income cannot be
broken out the same way nonbusiness income is because IRS does not
organize the income data in thesame manner. For example, business
income is grouped in three categories as below $25,000, $25,000
but less than $100,000, and over $100,000. Nonbusiness income is
grouped into five categories that arenot comparable.
Table 1: Number of Books and RecordsAudits Conducted for Returns
Received Between 1992 and 1994
B-279036
Page 9 GAO/GGD-99-30 IRS' Return Selection Process source. For
example, over half the audits with DIF as the source were
ofindividuals with income under $50,000; 30 percent were of higher
income individuals; and less than 20 percent were of individuals
with businessincome. It is important to recognize, however, that
over 75 percent of the returns received by IRS during 1992, 1993,
and 1994 reported income under$50,000. Although a higher absolute
number of audits are done on individuals with nonbusiness income
under $50,000, IRS audits a greaterpercentage of individuals with
business income and individuals with nonbusiness income over
$50,000.
Source: GAO analysis of IRS data for 1992, 1993, and 1994. Figure
1: Percent of Audits by Type ofTaxpayer and Source of Audit
B-279036
Page 10 GAO/GGD-99-30 IRS' Return Selection Process For audits of
returns that were received in 1992, 1993, and 1994, the no-change
rates were generally lower and recommended tax amounts were
generally higher for the five non-DIF sources compared to the
results fromDIF sources. This is consistent with IRS' policy to
use non-DIF sources if the audit potential appears to be higher
than for DIF sources. However, onthe basis of a sample of audits
of returns received in 1992, we found that IRS collected a greater
proportion of the recommended tax amount fromaudits selected using
DIF than from those using non-DIF sources.
The no-change rate varied depending on the selection source and
the typeof taxpayer being audited. Overall, for the 3 years of
audits covered in our analysis, the no-change rate was 22
percent.12 For the six sources weidentified as being books and
records audits, the overall no-change rate varied from about 15
percent for audits selected due to a questionablepreparer to about
28 percent for audits selected using regular classification.
Returns selected using DIF were closed with no change inabout 26
percent of the audits. Detailed information on the no-change rate
by source and year can be found in appendix IV. Table 2 shows the
no-change rate by year and audit selection source.
Percent of audits closed with no change to tax Selection source
1992 1993 1994 All yearsDIF 27 27 25 26
Projects 19 19 20 19Referrals 14 17 17 16 Preparers 15 17 14
15Regular classification 24 28 30 28 Other sources 22 19 12 16
Source: GAO analysis of IRS data for 1992, 1993, and 1994.
For all sources, audits of nonbusiness individuals with income of
over$50,000 had the highest no-change rate.
13 Figure 2 summarizes these results
for each source and type of taxpayer.
12IRS reported no-change rates of 15 percent, 12 percent, and 8
percent for all district office audits of
individual returns closed in fiscal years 1992, 1993, and 1994,
respectively. IRS' no-change rates arelower than ours because our
calculation includes only audits of taxpayer books and records.
IRS' rates
include other kinds of audits, such as claims and nonfilers, that
often have very low no-change rates. 13Regardless of source, the
lowest no-change rate occurred in the group of taxpayers with the
lowest income and the highest no-change rate occurred in audits of
taxpayers with the highest income.Appendix IV describes these
results in more detail.
Comparison of DIFand Non-DIF Audits Table 1: No-change Rate by
Filing Yearand Selection Source
B-279036
Page 11 GAO/GGD-99-30 IRS' Return Selection Process Source: GAO
analysis of IRS data for 1992, 1993, and 1994. The average amount
of additional tax recommended per audit covered inour analysis
declined from over $4,000 for closed audits of returns received in
1992 to about $3,300 for closed audits of returns received in1994
(a decrease of about 18 percent). By audit selection source, our
analysis of 1992 compared to 1994 showed that the
recommendedadditional tax increased only in audits of returns
selected using DIF and preparer sources. The average additional
tax recommended in DIF auditsincreased from about $2,500 in 1992
to almost $3,100 in 1994 (an increase of about 24 percent). The
average additional tax recommended in auditsselected due to a
questionable preparer increased from about $1,950 in 1992 to
almost $2,100 in 1994 (an increase of about 7 percent). Our
analysis by selection source also showed that the average amount
ofadditional taxes recommended per audit over the 3 years varied.
The
Figure 2: No-change Rate by Type ofTaxpayer and Source of Audit
B-279036
Page 12 GAO/GGD-99-30 IRS' Return Selection Process average
amounts ranged from less than $2,000 for returns selected
becauseof questionable tax preparers to over $10,000 for
referrals. However, the average recommended additional tax for
referrals was always at leastdouble the averages for other
selection sources. Table 3 shows the average additional tax
recommended by selection source for each of the years inour
analysis.
Average additional recommended tax Selection source 1992 1993 1994
OverallDIF $2,487 $2,945 $3,082 $2,883
Projects 4,286 3,771 3,357 3,772Referrals 12,542 8,804 8,329
10,091 Preparers 1,949 1,912 2,094 1,999Regular classification
3,358 2,507 2,969 2,924 Other sources 3,974 3,373 2,218 2,843
Source: GAO analysis of IRS data for 1992, 1993, and 1994.
As figure 3 shows, the average amount of additional tax
recommended peraudit varied by type of taxpayer and source.
14 It shows lower average tax
amounts in audits of nonbusiness individuals with income under
$50,000compared to the remaining two groups for all sources. It
also shows higher
average amounts in audits of business individuals compared to
audits ofnonbusiness individuals--except for referrals and other
sources.
14Regardless of the source, the averages ranged from $2,100 for
lower income taxpayers to almost
$7,100 for individuals with business returns.
Table 2: Average AdditionalRecommended Tax by Filing Year and
Selection Source
B-279036
Page 13 GAO/GGD-99-30 IRS' Return Selection Process Source: GAO
analysis of IRS data for 1992, 1993, and 1994. IRS does not have a
system that allows it to readily track taxes assessedand collected
from audits by the source of the audit. IRS can track collections
through its Enforcement Revenue Information System (ERIS).However,
IRS has not analyzed the information in ERIS to determine the
collection rate by audit source. Although an analysis by source is
possibleusing information from ERIS, it would be difficult.
To obtain information on the amount of recommended additional tax
thatis assessed and collected, we selected a sample of audits of
returns received in 1992 that were included in our earlier
analyses. Usinginformation from these sampled audits and IRS'
master file, we estimated assessments and collections for audited
returns in this population.
Figure 3: Average Additional TaxRecommended by Taxpayer Type and
Source of Audit
B-279036
Page 14 GAO/GGD-99-30 IRS' Return Selection Process We found no
statistically significant difference in the proportion
ofrecommended tax assessed between audits selected using DIF and
audits selected using non-DIF sources. However, we found a
statisticallysignificant difference in the proportion collected.
We estimated that IRS collected about 57 percent of the
recommended tax for DIF returns andabout 35 percent for non-DIF
returns as of April 1998.
15 It was not clear
from the data we had why collections were greater for DIF-
selectedreturns.
Our estimated 57 percent collection rate for DIF sources is high
comparedto the collection rate for all individual taxpayer audits
conducted at district offices. In a June 1998 report to the House
Ways and Means Committee, wefound that for all types of district
office audits closed in 1992, IRS had collected about 31 percent
of the amounts recommended.16 Caution is needed if one uses the
three results we analyzed to compare theeffectiveness of DIF and
non-DIF sources. The no-change rate, the recommended additional
tax amounts, and the collection rate on theserecommended amounts
do not present a complete picture of audit effectiveness. Nor is
it easy to control for other factors that may influencethe three
types of results we analyzed.
To evaluate the overall effectiveness of selection sources, these
auditresults are not the only ones that could be used. As noted in
our June 1998 report, the impacts of audits on voluntary
compliance and taxpayer burdenare other results that could help
IRS develop a more balanced picture of audit effectiveness, but
IRS does not collect such data.17 That reportrecognized that
gathering such data was difficult because of limitations in data
sources and research methods. Beyond these possible results,
weconcluded that IRS could do more to collect data on its direct
and indirect costs to do audits and then assess or collect any
additional taxes. Werecommended that IRS begin to collect such
data, and IRS agreed to do so.
In addition, IRS does not have data available that would allow it
to controlfor other factors that may affect the three audit
results we analyzed. For example, data on whether the results
across the selection sources vary by
15Because of the sample size and variability of the data, we were
unable to make statistically valid
estimates of the assessments or collections for specific selection
sources. Point estimates andsampling errors can be found in
appendix III.
16Tax Administration: IRS Measures Could Provide a More Balanced
Picture of Audit Results and Costs (GAO/GGD 98-128, June 23,
1998). 17GAO/GGD 98-128, June 23, 1998.
Caution Is NeededWhen Comparing the Results of DIF andNon-DIF
Audits
B-279036
Page 15 GAO/GGD-99-30 IRS' Return Selection Process the type of
tax issue being audited are not available. Nor does IRS havedata
on how the quality of the audit affects the results across the
selection sources. Even with these cautions, comparing DIF and
non-DIF audit sources bythe audit results we analyzed can be
useful. For example, the comparisons we did by source and
selection year could provide a baseline that wouldallow IRS to
gauge some of the impacts of changes to the audit selection
process over time. We requested comments on a draft of this report
from the Commissionerof Internal Revenue. Officials representing
the Assistant Commissioners for the Examination and Research
Divisions, as well as a representativefrom the Commissioner's
Office of Legislative Affairs, provided IRS' comments in a January
13, 1999, meeting. IRS also provided writtencomments in a January
20, 1999, letter, which is reprinted in appendix V.
IRS was in overall agreement with the draft report and said it
fairlydescribes IRS' return selection program. IRS also provided
some additional information to elaborate on issues we raised and
technical comments;where appropriate, we made changes to this
report on the basis of these technical comments. We are sending
copies of this report to the Committee's Ranking MinorityMember,
the Chairman and Ranking Minority Member of the Senate Committee
on Finance, various other congressional committees, theDirector of
the Office of Management and Budget, the Secretary of the
Treasury, the Commissioner of Internal Revenue, and other
interestedparties.
The major contributors to this report are listed in appendix VI.
If you oryour staffs have any questions concerning this report,
please contact me or Thomas D. Short, Assistant Director, on (202)
512-9110.
James R. WhiteDirector, Tax Policy and Administration Issues
Agency Comments
Page 16 GAO/GGD-99-30 IRS' Return Selection Process
Contents
1Letter 20Appendix I Definition of SourceCodes for IRS Audits
23Appendix II Flow Chart of IRS'Audit Selection
Process
24Study Population 24 Sample Selection and Weighting 24Sampling
Errors and Confidence Intervals of Estimates 25 Controlling for
Nonsampling Errors 25
Appendix IIIStatistical Methodology forAnalyzing Assessments and
Collections ofRecommended Tax
26Appendix IV Tables of Audit Resultsfor Filing Years 1992,
1993, and 1994
31Appendix V Comments From theInternal Revenue
Service
34Appendix VI Major Contributors toThis Report
Contents
Page 17 GAO/GGD-99-30 IRS' Return Selection Process
Table 1: Number of Books and Records AuditsConducted for Returns
Received Between 1992 and
1994
8
Table 1: No-change Rate by Filing Year and SelectionSource 10
Table 2: Average Additional Recommended Tax by FilingYear and
Selection Source 12 Table I.1: Number of Audits by Year the Return
WasReceived 20 Table I.2: Source Code Table--Inclusions and
Exclusions 21Table III.1: Distribution of Audits in the AIMS
Database
by Sample Strata 24Table III.2: Confidence Interval for Estimate
of difference in Assessments and Collections for DIF-Selected
andNon-DIF-Selected Audits 25 Table IV.1: Number of Returns by
Activity Code andSource Group--Returns Received in 1992 26 Table
IV.2: Number of Returns by Activity Code andSource Group--Returns
Received in 1993 27 Table IV.3: Number of Returns by Activity Code
andSource Group--Returns Received in 1994 27 Table IV.4: No-change
Rate by Source of Audit andActivity Code--Returns Received in 1992
28 Table IV.5 No-change Rate by Source of Audit andActivity Code--
Returns Received in 1993 28 Table IV.6: No-change Rate by Source
of Audit andActivity Code--Returns Received in 1994 29 Table IV.7
Average Audit Results by Source of Audit andActivity Code--Returns
Received in 1992 29 Table IV.8: Average Audit Results by Source of
Audit andActivity Code--Returns Received in 1993 30 Table IV.9:
Average Audit Results by Source of Audit andActivity Code--Returns
Received in 1994 30
Tables
Figure 1: Percent of Audits by Type of Taxpayer andSource of Audit
9 Figure 2: No-change Rate by Type of Taxpayer andSource of Audit
11 Figure 3: Average Additional Tax Recommended byTaxpayer Type
and Source of Audit 13
Figures
Figure II.1: Summary of IRS' process for selectingreturns to
audit. 23
Contents
Page 18 GAO/GGD-99-30 IRS' Return Selection Process Abbreviations
AIMS Audit Information Management System DCI data collection
instrument DIF discriminant function IRM Internal Revenue Manual
IRS Internal Revenue Service SFR substitute for return
Page 19 GAO/GGD-99-30 IRS' Return Selection Process
Appendix IDefinition of Source Codes for IRS Audits
Page 20 GAO/GGD-99-30 IRS' Return Selection Process This appendix
shows the types of audits included in our study population.We
included sources that appeared to be for audits of taxpayer books
and records conducted at one of the Internal Revenue Service's
(IRS) districtoffices.
We excluded audits for two reasons:
* Reason 1: We excluded audits that did not deal with the
taxpayers' booksand records or that were not conducted at an IRS'
district office. These
audits included claims for refund, nonfilers, substitute for
return, servicecenter correspondence audits, and research studies.
* Reason 2: We excluded related and multiyear audits because we
wereunable to relate them to specific returns in one of our target
years. Also,
some of these returns were selected on the basis of audits of
partnershipor corporation returns
Table I.1 shows the total number of audits closed by IRS for the
3-yearperiod of our analysis and the number included in the
analysis. Table I.2 shows the individual source codes and
indicates which are included in thestudy population and which are
not. This table also provides the reason a source was excluded or
the source code group for those included.
Description Year return was received by IRSaType of audit 1992
1993 1994 Total recorded audits 806,344 1,129,956 1,593,912
Less (excluded audits)
Service center auditsb 246,602 305,711 688,441Nonfilers 115,108
434,238 296,527
Multiple returns 70,826 61,467 60,144Related returns 47,046 41,148
50,600 Claims 10,309 11,529 10,175 Other excluded returns 2,470
4,728 2,978 Total audits excluded from analysis 492,361 858,821
1,108,865Returns included in the analysis
DIF-selected returns 178,419 142,142 310,557IRS projects 41,173
40,804 50,797 Referrals 40,353 31,173 32,102Preparers 26,578
25,799 37,561 Regular classification 16,563 20,008 24,795All other
selection reasons 10,897 11,209 29,235 Total audits included in
analysis 313,983 271,135 485,047 aEach of the years contains audit
information from 4 years of IRS' Audit Information Management
System (AIMS) closed case database. bService center audits are
those with an organization code of 5000 or above on the AIMS
database.
Source: IRS' AIMS database.
Table I.1: Number of Audits by Year theReturn Was Received
Appendix I Definition of Source Codes for IRS Audits
Page 21 GAO/GGD-99-30 IRS' Return Selection Process
Sourcecode Definition Status Reasonexcluded/group 01 Tax shelters
and automatics Included Other02 DIF source returns Included DIF 03
Unallowable items Included Other04 Multiple filers Included Other
05 DIF-related pickup Excluded Reason 206 Correspondence
examination Included Other 07a Claim--medium examination potential
Excluded Reason 108 Self-employment examination Included Other 09a
All other claims for refund Excluded Reason 110 DIF multiyear
Excluded Reason 2 11 Studies, tests, and research programs
Excluded Reason 112 DIF related delinquent return Excluded Reason
2 13a Married taxpayers filing separately Included Other14
Information Return Program--high underreporter Included Other 15a
Math/clerical error abatement Excluded Reason 116
a Returns with an illegal narcotics issue Included Other
17 Tax shelter program Included Other20 Regular classification
Included Reg. Class.
23 IRA recovery Included Other24 Nonfiler/refusal to file Tax
Delinquency
Investigation Excluded Reason 125 b Substitute for return Excluded
Reason 1
26 Alternative minimum tax program Included Other30 Claims for
refund Excluded Reason 1
31b Paid claims for refund Excluded Reason 132 Carry-back refund
Excluded Reason 1 35b Administrative adjustment request (claim)
Excluded Reason 137
a Stockholder returns Included Other
39 Tax shelter--related pickup Excluded Reason 240 Multiyear
examination--non-DIF-related Excluded Reason 2
44 Delinquent return--non-DIF-related Excluded Reason 145
Reference and research Excluded Reason 1 46 IRS employee returns
Included preparer48 Service center--unallowable related Excluded
Reason 2 49 Return preparer program Included Preparer50 Related
pickup--non-DIF Excluded Reason 2 60 Information reports Included
Referral62 Compliance projects--national office Included IRS
projects 63a Referrals from appeals Included Referral64 Pickup
related to form 1065 (partnership), 1041
(estate), or 1120S (S-Corp). Excluded Reason 265 Collection
referral Included Referral 66a Referrals from criminal
investigation Included Referral67
a Compliance projects--regional office Included IRS projects
68a Underreported income program--DIF Included DIF70 Referrals
Included Referrals
71a Referrals from Social Security Included Referral73 Taxpayer
request and reconsideration Excluded Reason 2 75a Referrals from
Justice Included Referral76
a Referrals from other U.S. agencies Included Referral
77 Referrals from state tax agencies Included Referral
Table I.2: Source Code Table--Inclusions and Exclusions
Appendix I Definition of Source Codes for IRS Audits
Page 22 GAO/GGD-99-30 IRS' Return Selection Process
Sourcecode Definition Status Reasonexcluded/group 80 Taxpayer
Compliance Measurement Program Included Other85 Information return
program match Included Referral 86a All other information return
program methods Included Referral 88 Special enforcement Included
Referral90 Fraud Included Referral
91 TCMP related returns Excluded Reason 295
a IRS racketeer Included Referral
96a Strike force Included Referral97
a Wagering Included Referral
98 a Illegal income Included Referral aThese codes used for
returns received in 1992 and 1993 only.
bThese source codes effective for posting years 1994 and after
only.
Source: IRS' AIMS closed case data files and AIMS Coding Manual.
Appendix IIFlow Chart of IRS' Audit Selection Process
Page 23 GAO/GGD-99-30 IRS' Return Selection Process Source: Review
of IRS' written procedures and discussions with IRS officials.
Figure II.1: Summary of IRS' process for selecting returns to
audit. Appendix IIIStatistical Methodology for Analyzing
Assessments and Collections ofRecommended Tax
Page 24 GAO/GGD-99-30 IRS' Return Selection Process This appendix
describes the methodology we used to determine how muchof the
recommended additional tax the IRS actually assesses and collects.
We used information from IRS' master file and a sample of audits
ofreturns received in 1992 that were audited during the period
1992 through 1995. We used this sample to compare the amount of
assessment andcollection for audits selected using the DIF score
and those where the DIF score was not the primary reason the
return was selected for audit. IRS does not maintain information
on the source for selecting a return foraudit, the additional tax
recommended, and the amount assessed and collected in the same
database. To determine what proportion ofadditional tax was
assessed and collected, we looked at information on IRS'
individual master file for amount assessed and collected and the
AIMSclosed audit database for the selection source and the amount
of additional tax recommended in the audit. As noted in our
report, we limited our study population to audits of booksand
records done at IRS' district offices. To compare how much of the
additional tax recommended was assessed and collected for DIF and
non-DIF audits, we selected a sample of audits from our 1992 study
population. We selected 1992 instead of 1993 or 1994 to allow as
much time as possiblefor collection activities. We also eliminated
audits where the AIMS database indicated that a refund had been
made or no additional tax hadbeen recommended during the audit.
This sample population contained records of 229,550 audits. To
obtain the sample of books and records audits, we selected a
stratifiedprobability sample of 1,083 audits of taxpayer books and
records. The sample was stratified by whether or not the taxpayer
agreed or disagreedwith the adjustments to tax that IRS
recommended and whether or not the audit was selected because of
its DIF score or for some non-DIF reason.The number of audits
sampled in each stratum was based on the number of returns in the
population and the total additional taxes recommended inthe
audits. The division of the population and sample of audits
between different strata is shown in table III.1.
Strata Audits inpopulation Results ofexamination Audits in
sampleAgreed DIF-selected 112,512 $330,957,253 332 Agreed non-DIF-
selected 100,254 586,909,138 250Unagreed DIF-selected 9,583
128,733,806 251 Unagreed non-DIF-selected 7,201 258,077,075 250
Total 229,550 $1,304,677,272 1,083 Source: IRS AIMS database and
GAO sampling data.
Study Population Sample Selection andWeighting Table III.1:
Distribution of Audits in theAIMS Database by Sample Strata
Appendix III Statistical Methodology for Analyzing Assessmentsand
Collections of Recommended Tax
Page 25 GAO/GGD-99-30 IRS' Return Selection Process We obtained
copies of the master file transcript for 1,082 of the audits
weselected. IRS could find no record for one of the taxpayers. For
each of the sample audits, we obtained information on the amount
of additional taxrecommended (from the AIMS database) and the
amount assessed and the amount collected (from the master file
transcript). The results of how much of recommended taxes was
assessed andcollected shown in this report are estimates because
they are based on the sample of audits drawn from the total
population of all eligible audits ofreturns received in 1992. The
accuracy of these estimates is quantified by their sampling
errors, expressed as 95 percent confidence intervals. Intable
III.2 for example, we estimate that the difference between DIF and
non-DIF collections is 22 percent. This estimate is surrounded by
aconfidence interval of + 13 percentage points, indicating that we
are 95- percent confident that the actual percentage difference in
the populationof all audits of returns received in 1992 lies
between 8 percent and 36 percent.
Description Percent of auditresults assessed Percent of
auditresults collectedPoint estimate DIF-selected returns 76% 57%
Confidence interval DIF-selected returns + 8% + 9%Point estimate
non-DIF-selected returns 83% 35% Confidence interval non-DIF-
selected returns + 7% + 9%Percentage difference 7% 22% Confidence
interval at the 95 percentconfidence level for the percentage
difference + 11% + 13% Source: GAO analysis of sampled data for
1992.
In addition to the reported sampling errors, various obstacles can
occurwhen conducting this type of review and may cause other types
of errors, commonly referred to as nonsampling errors. For
example, differences inhow questions are interpreted and errors in
entering data could affect the results. We included steps in both
the data collection and data analysisstages for the purpose of
minimizing such nonsampling errors. These steps involved the 100-
percent review of completed data collection instruments(DCI) and
data entry of those DCIs. We also had a second analyst check all
computer analyses and programming.
Sampling Errors andConfidence Intervals of Estimates
Table III.2: Confidence Interval forEstimate of difference in
Assessments and Collections for DIF-Selected andNon-DIF-Selected
Audits
Controlling forNonsampling Errors
Appendix IVTables of Audit Results for Filing Years 1992, 1993,
and 1994
Page 26 GAO/GGD-99-30 IRS' Return Selection Process We grouped the
audit results of our analyses by IRS' activity codes. Theseare
codes IRS uses to categorize individual tax returns relative to
the various tax forms filed and the taxpayer's income level. The
following aredefinitions of the activity codes:
* 530 - Form 1040A with total positive income less than $25,000;*
531 - Non-1040A with total positive income less than $25,000;*
532 - Total positive income of $25,000 or more but less than
$50,000;* 533 - Total positive income of $50,000 or more but
less than $100,000;* 534 - Total positive income of $100,000 or
more;* 535 - Form 1040C with total gross receipts under
$25,000;* 536 - Form 1040C with total gross receipts of $25,000
or more but less than$100,000;
* 537 - Form 1040C with total gross receipts of $100,000 or
more;*
538 - Form 1040F with total gross receipts under $100,000; and*
539 - Form 1040F with total gross receipts of $100,000 or more.
For the grouping of IRS audits included in our analyses, the
following setsof tables present the results of these audits by
source of audit and activity codes for each of the 3 years
reviewed--1992, 1993, and 1994. The first setof tables shows the
total number of audits, the second set shows the nochange rate,
and the third set shows the average audit results. Each of
thetables summarizes information from IRS' AIMS closed case data
files for fiscal years 1992 through 1997. Also, a description of
the source codesincluded in each of the source categories we used
can be found in table I.2.
Number of Audits by Sourcea Activity code DIF
Regularclassification Preparers Complianceprojects Referrals All
other Total530 27,712 6,413 10,950 16,191 11,955 482 73,703 531
23,800 1,151 3,940 6,196 5,584 1,629 42,300532 37,987 2,067 5,456
6,094 6,459 2,294 60,357 533 36,298 1,921 2,470 3,380 3,171 2,385
49,625534 20,557 1,441 290 1,694 2,652 1,592 28,226 535 8,414 502
1,078 1,972 3,349 506 15,821 536 9,845 1,394 1,656 2,880 3,614
1,177 20,566537 10,757 1,388 644 2,347 3,124 715 18,975
538 2,177 101 59 161 249 77 2,824 539 872 185 35 258 196 40 1,586
Total 178,419 16,563 26,578 41,173 40,353 10,897 313,983
Table IV.1: Number of Returns by Activity Code and Source Group--
Returns Received in 1992
Appendix IV Tables of Audit Results for Filing Years 1992,
1993,and 1994
Page 27 GAO/GGD-99-30 IRS' Return Selection Process
Number of audits by sourcea Activity code DIF
Regularclassification Preparers Complianceprojects Referrals All
other Total530 20,871 6,789 11,523 18,143 12,292 2,658 72,276 531
18,107 1,273 3,425 5,195 3,287 1,228 32,515532 38,913 3,224 5,200
5,370 4,315 1,542 58,564 533 25,533 2,780 2,418 3,125 2,184 1,860
37,900 534 13,643 1,894 274 2,002 2,062 1,083 20,958535 6,610 445
1,340 1,294 1,638 770 12,097
536 8,501 1,362 1,106 2,138 2,380 1,248 16,735537 7,752 1,775 434
2,847 2,492 645 15,945 538 1,548 111 59 209 208 94 2,229 539 664
355 20 481 315 81 1,916 Total 142,142 20,008 25,799 40,804 31,173
11,209 271,135
Number of audits by sourcea Activity code DIF
Regularclassification Preparers Complianceprojects Referrals All
other Total530 39,557 7,688 16,136 19,928 12,061 2,077 97,447 531
37,258 1,758 4,981 5,100 3,298 9,817 62,212532 84,521 3,453 8,167
6,027 4,689 4,857 111,714 533 62,866 3,686 4,290 5,000 2,733 2,822
81,397534 30,526 2,967 413 3,755 2,078 1,346 41,085 535 14,264 714
1,578 1,571 1,682 3,383 23,192536 19,358 1,812 1,329 3,390 2,208
3,095 31,192 537 19,488 2,467 538 4,694 2,950 1,311 31,448 538
1,497 94 97 363 179 443 2,673539 1,222 156 32 969 224 84 2,687
Total 310,557 24,795 37,561 50,797 32,102 29,235 485,047
Table IV.2: Number of Returns by Activity Code and Source Group--
Returns Received in 1993 Table IV.3: Number of Returns by Activity
Code and Source Group--Returns Received in 1994
Appendix IV Tables of Audit Results for Filing Years 1992,
1993,and 1994
Page 28 GAO/GGD-99-30 IRS' Return Selection Process
Percent by source of audita Activity code DIF
Regularclassification Preparers Complianceprojects Referrals All
other Total530 17 17 16 15 10 14 15 531 27 30 12 18 12 18 22532 24
22 12 22 14 22 21 533 31 22 15 26 20 20 28 534 37 32 31 27 23 29
35535 27 30 14 12 9 15 20
536 20 29 15 14 14 20 18537 26 32 14 23 20 22 24 538 39 32 23 28
37 32 38 539 38 29 14 27 34 25 34 Total 27 23 15 18 14 21 22
Percent by source of audita Activity code DIF
Regularclassification Preparers Complianceprojects Referrals All
other Total530 16 17 20 12 11 26 15 531 27 31 13 20 18 15 23532 26
33 13 23 17 14 24 533 27 35 17 27 24 11 26 534 43 40 31 29 26 18
38535 26 25 12 13 14 16 21
536 21 24 13 22 17 18 20537 31 34 16 27 21 21 28 538 41 36 20 32
38 38 39 539 36 31 25 22 38 25 31 Total 27 28 16 18 16 18 23
Table IV.4: No-change Rate by Source of Audit and Activity Code--
Returns Received in 1992 Table IV.5 No-change Rate by Source of
Audit and Activity Code--Returns Received in 1993
Appendix IV Tables of Audit Results for Filing Years 1992,
1993,and 1994
Page 29 GAO/GGD-99-30 IRS' Return Selection Process Activity code
Percent by source of audita
DIF Regularclassification Preparers Complianceprojects Referrals
All other Total530 16 20 18 12 11 16 15 531 25 34 10 17 20 5
20532 23 28 10 21 15 13 21 533 25 36 12 27 21 15 25 534 43 42 24
37 28 24 41535 23 27 14 23 17 9 20
536 16 29 10 22 17 15 17537 27 32 17 28 19 19 26 538 38 38 15 23
30 37 35 539 35 30 9 18 29 41 28 Total 25 29 14 20 16 12 22
Average audit results by source of audita Activity code DIF
Regularclassification Preparers Complianceprojects Referrals All
other Average auditresult--all audits530 $1,269 $1,976 $1,278
$2,637 $7,409 $5,717 $2,657 531 1,079 2,280 1,504 2,663 8,122
1,719 2,338532 1,511 2,341 1,878 2,826 8,160 2,116 2,440 533 2,176
2,806 2,444 4,882 11,921 3,298 3,075 534 4,252 8,100 (1,900)
15,839 39,384 7,001 8,537535 1,705 2,421 2,193 3,599 6,491 2,531
3,037
536 3,300 4,246 4,410 6,382 11,958 3,698 5,429537 9,823 7,522
9,347 12,180 34,479 8,225 13,929 538 917 6,538 2,226 5,664 6,700
2,094 1,958 539 5,197 1,009 9,282 6,770 14,701 5,214 7,490 Total
$2,487 $3,358 $1,949 $4,286 $12,542 $3,974 $4,067
Table IV.6: No-change Rate by Source of Audit and Activity Code--
Returns Received in 1994 Table IV.7 Average Audit Results by
Source of Audit and Activity Code--Returns Received in 1992
Appendix IV Tables of Audit Results for Filing Years 1992,
1993,and 1994
Page 30 GAO/GGD-99-30 IRS' Return Selection Process
Average audit results by source of audita Activitycode DIF
Regularclassification Preparers Complianceprojects Referrals All
other Average auditresults--allaudits 530 $1,430 $2,280 $1,319
$2,157 $5,754 $1,697 $2,420 531 1,143 1,679 1,569 2,755 7,941
1,851 2,181532 1,515 1,505 1,892 3,008 6,439 2,710 2,079
533 2,236 2,268 2,397 3,287 12,355 4,364 3,023 534 5,773 3,090
4,718 10,011 20,144 6,984 7,398535 1,757 2,892 2,256 5,528 5,483
1,976 2,776
536 4,235 3,626 4,523 6,817 8,394 3,325 5,058537 15,269 4,439
8,229 10,628 19,726 7,113 13,410 538 1,116 2,129 2,749 3,363 2,542
4,815 1,709 539 8,297 3,383 2,980 2,596 8,498 5,559 5,817 Total
2,945 2,507 1,912 3,771 8,804 3,373 3,630
Average audit results by source of audita Activity code DIF
Regularclassification Preparers Complianceprojects Referrals All
other
Average auditresults--all
audits530 $1,422 $1,810 $1,466 $1,810 $4,343 $2,085 $1,915 531
1,155 1,885 1,615 3,182 6,412 1,189 1,663 532 1,616 1,678 1,938
2,458 5,067 1,346 1,820533 2,058 2,146 2,840 3,223 8,398 2,612
2,407
534 6,144 5,851 6,509 8,134 23,286 9,236 7,277 535 2,157 3,254
2,108 3,015 5,815 1,271 2,382536 5,077 3,424 4,840 4,172 9,156
2,546 4,910
537 13,077 6,323 11,375 7,344 21,767 7,458 12,243 538 1,599 2,141
2,477 1,402 7,984 835 1,924539 14,738 6,406 4,021 3,003 13,851
2,168 9,428
Total 3,082 2,969 2,094 3,357 8,329 2,218 3,324
Table IV.8: Average Audit Results by Source of Audit and Activity
Code--Returns Received in 1993 Table IV.9: Average Audit Results
by Source of Audit and Activity Code--Returns Received in 1994
Appendix VComments From the Internal Revenue Service
Page 31 GAO/GGD-99-30 IRS' Return Selection Process Appendix V
Comments From the Internal Revenue Service
Page 32 GAO/GGD-99-30 IRS' Return Selection Process Appendix V
Comments From the Internal Revenue Service
Page 33 GAO/GGD-99-30 IRS' Return Selection Process Appendix
VIMajor Contributors to This Report
Page 34 GAO/GGD-99-30 IRS' Return Selection Process Thomas D.
Short, Assistant Director, Tax Policy and Administration IssuesTim
Outlaw, Senior Evaluator Louis G. Roberts, Evaluator-in-
ChargeKathleen E. Seymour, Senior Evaluator Samuel H. Scrutchins,
Senior Data AnalystTre M. Forlano, Evaluator
General GovernmentDivision, Washington, D.C. San Francisco
FieldOffice
Page 35 GAO/GGD-99-30 IRS' Return Selection Process Page 36
GAO/GGD-99-30 IRS' Return Selection Process
Ordering Information The first copy of each GAO report and
testimony is free. Additionalcopies are $2 each. Orders should be
sent to the following address, accompanied by a check or money
order made out to theSuperintendent of Documents, when necessary.
VISA and MasterCard credit cards are accepted, also. Orders for
100 or morecopies to be mailed to a single address are discounted
25 percent.
Order by mail: U.S. General Accounting OfficeP.O. Box 37050
Washington, DC 20013 or visit: Room 1100700 4
th St. NW (corner of 4th and G Sts. NW)
U.S. General Accounting OfficeWashington, DC
Orders may also be placed by calling (202) 512-6000 or by using
faxnumber (202) 512-6061, or TDD (202) 512-2537. Each day, GAO
issues a list of newly available reports and testimony.To receive
facsimile copies of the daily list or any list from the past 30
days, please call (202) 512-6000 using a touch-tone phone.
Arecorded menu will provide information on how to obtain these
lists. For information on how to access GAO reports on the
INTERNET,send e-mail message with "info" in the body to:
[email protected] or visit GAO's World Wide Web Home Page at:
http://www.gao.gov
United StatesGeneral Accounting Office Washington, D.C. 20548-0001
Official BusinessPenalty for Private Use $300 Address Correction
Requested
Bulk RatePostage & Fees Paid
GAOPermit No. G100
(268829)
*** End of document. ***