Tax Policy and Administration Issue Area Plan--Fiscal Years 1996-98
(Letter Report, 07/01/96, GAO/IAP-96-22).

GAO presented its Tax Policy and Administration issue area plan for
fiscal years 1996 through 1998.

GAO plans to assess: (1) how the Internal Revenue Service (IRS) can
improve its financial, strategic, and human resources management; (2)
how the tax systems for individual taxpayers and business taxpayers can
be improved; (3) how IRS can improve customer service and the way it
receives and processes tax returns, payments, and related information;
(4) how IRS can improve its programs for preventing, identifying,
reporting, and collecting delinquent taxes; (5) whether the purposes of
tax expenditures and tax-exempt status can be achieved more effectively
through improved design and administration or through alternative
mechanisms; and (6) how the administration of proposed alternative tax
systems compare with that of the present system.

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

 REPORTNUM:  IAP-96-22
     TITLE:  Tax Policy and Administration Issue Area Plan--Fiscal Years 
             1996-98
      DATE:  07/01/96
   SUBJECT:  Tax administration
             Systems conversions
             Information processing operations
             Government collections
             Taxpayers
             Tax returns
             Accounts receivable
             Delinquent taxes
             Financial management
             Customer service
IDENTIFIER:  IRS Tax System Modernization Program
             TSM
             IRS Customer Service Vision
             
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Cover
================================================================ COVER


General Government Division

July 1996

TAX POLICY AND ADMINISTRATION
ISSUE AREA PLAN

FISCAL YEARS 1996-98

GAO/IAP-96-22



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


FOREWORD
============================================================ Chapter 0

As the investigative arm of Congress and the nation's auditor, the
General Accounting Office is charged with following the federal
dollar wherever it goes.  Reflecting stringent standards of
objectivity and independence, GAO's audits, evaluations, and
investigations promote a more efficient and cost-effective
government; expose waste, fraud, abuse, and mismanagement in federal
programs; help Congress target budget reductions; assess financial
and information management; and alert Congress to developing trends
that may have significant fiscal or budgetary consequences.  In
fulfilling its responsibilities, GAO performs original research and
uses hundreds of databases or creates its own when information is
unavailable elsewhere. 

To ensure that GAO's resources are directed toward the most important
issues facing Congress, each of GAO's 32 issue areas develops a
strategic plan that describes the significance of the issues it
addresses, its objectives, and the focus of its work.  Each issue
area relies heavily on input from congressional committees, agency
officials, and subject-matter experts in developing its strategic
plan. 

The Tax Policy and Administration issue area's mission is to provide
the Congress, the executive branch, and the public with timely,
accurate, and objective analyses and information to improve our
nation's tax system and its administration.  Accordingly, this issue
area's responsibility encompasses the revenue side of the budget--the
$1.4 trillion in tax receipts that finance federal government
operations and the $400 billion in tax expenditures used to promote
numerous social and economic objectives--as well as the federal
agency responsible for tax administration, the Internal Revenue
Service (IRS). 

Our reports and testimonies have addressed subjects such as
collecting delinquent taxes, responding to taxpayers' inquiries,
modernizing IRS to achieve greater productivity and better management
of its finances, tax system reform, the growth of tax expenditures,
and narrowing the tax gap (the amount of taxes owed by individuals
and businesses, but not voluntarily paid). 

This plan addresses the changes being considered to our national tax
system and its administration.  The tax system is undergoing
scrutiny, as seen in the various tax reform proposals.  IRS is
undergoing significant technological, organizational, and operational
changes to improve its capacity to administer the tax system.  To
facilitate the management of our work, we divided the issue area into
eight key issues under which our work is planned.  They are

  -- IRS management and budget,

  -- individual tax issues,

  -- business tax issues,

  -- customer service,

  -- submission processing,

  -- accounts receivable/collection,

  -- tax expenditures and preferences, and

  -- tax reform and simplification. 

In the pages that follow, the planned work in these areas is
described. 

Because events may significantly affect even the best of plans and
because periodic measurement of success against any plan is
essential, our planning process allows for updating and the
flexibility to respond quickly to emerging issues.  If you have any
questions or suggestions about this plan, please call me at (202)
512-9110. 

Lynda D.  Willis
Director, Tax Policy and
 Administration Issues


CONTENTS
============================================================ Chapter 1


   FOREWORD
---------------------------------------------------------- Chapter 1:1

1


   TABLE I:  KEY ISSUES
---------------------------------------------------------- Chapter 1:2

4


   TABLE II:  PLANNED MAJOR WORK
---------------------------------------------------------- Chapter 1:3

8


   TABLE III:  GAO CONTACTS
---------------------------------------------------------- Chapter 1:4

9


TABLE I:  KEY ISSUES
============================================================ Chapter 2

Issue                                   Significance
--------------------------------------  ----------------------------------------
IRS management and budget: How can IRS  IRS is in the midst of major
improve its financial, strategic, and   technological, organizational,
human resource management?              operational, and financial changes. It
                                        is in the process of reorganizing and
                                        reengineering its major processes, and,
                                        through Tax Systems Modernization (TSM),
                                        plans to introduce new technology to
                                        support these and other changes directed
                                        toward making IRS a more efficient
                                        organization. TSM involves an investment
                                        of billions of dollars and substantive
                                        changes to work processes and human
                                        resource management. In the face of
                                        tighter budgets and increasing
                                        congressional concern over the pace of
                                        IRS' modernization, IRS is rethinking
                                        its business vision and rescoping its
                                        plans for technological, organizational,
                                        and operational changes.

Individual tax issues: How can the tax  IRS data indicate that the portion of
system for individual taxpayers be      the tax gap attributable to individual
improved?                               taxpayers amounts to about $94 billion
                                        per year. Of that figure, 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.
                                        Similar changes in IRS' enforcement
                                        programs could make these programs more
                                        effective and less intrusive on
                                        individual taxpayers.

Business tax issues: How can the tax    Businesses play a significant role in
system for business taxpayers be        our tax system. They not only pay income
improved?                               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 figure, 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. IRS has
                                        ultimately collected about 22 cents for
                                        each $1 of proposed audit assessments of
                                        the nation's 1,700 largest corporations.

Customer service: How can IRS improve   IRS' "Customer Service Vision" guides
the way it assists taxpayers?           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 must identify
                                        new ways to improve service and provide
                                        the systems to support this service.

Submission processing: How can IRS      IRS' current procedures for processing
improve the way it receives and         tax returns are dependent on antiquated
processes tax returns, payments, and    technology, which will eventually be
related information?                    replaced through TSM. IRS is also
                                        implementing alternative processes such
                                        as electronic filing, paper scanning,
                                        and lockboxes. Meanwhile, existing
                                        systems and capabilities must continue
                                        functioning. As Congress and IRS look
                                        for cost-cutting opportunities, other
                                        options, such as outsourcing, may
                                        receive more attention.

--------------------------------------------------------------------------------

Objectives                               Focus of work
---------------------------------------  ---------------------------------------
ï¿½ Evaluate IRS' plans for and            ï¿½ Strategic priorities, plans, and
implementation of technological,         budget linkage.
organizational, and operational          ï¿½ Progress in managing for results and
changes.                                 developing and employing performance
                                         measures.
ï¿½ Improve IRS' ability to deal with the  ï¿½ Progress in redeploying and training
human resource implications of the       staff and skills enhancement.
changes.                                 ï¿½ Status of administrative and
                                         management information systems'
ï¿½ Help ensure that IRS has the           development.
financial and management information to  ï¿½ TSM programmatic changes.
guide organizational and budget
decisions.

ï¿½ Increase compliance and revenue.       ï¿½ Reengineered audit and nonfiler tax
                                         assessment process.
ï¿½ Reduce compliance burden to taxpayers  ï¿½ Effectiveness of IRS' audit selection
and administrative burden to IRS.        process.
                                         ï¿½ Specific tax code provisions that
                                         affect individuals such as married
                                         couples.
                                         ï¿½ Training provided to auditors and the
                                         audit techniques they use.



ï¿½ Analyze ways to reduce tax             ï¿½ IRS efforts to improve business
noncompliance and the costs of audit     compliance.
disputes.                                ï¿½ Extent of reporting noncompliance and
                                         ways to correct reporting barriers.
ï¿½ Evaluate the compliance of businesses  ï¿½ Impact on businesses from overhauling
in reporting payments to others.         the income tax system.

ï¿½ Evaluate the impacts of tax policies
on businesses.





ï¿½ Encourage efficient and customer-      ï¿½ IRS' efforts to improve taxpayers'
focused taxpayer assistance.             access to its services.
                                         ï¿½ Recurring problems faced by customers
                                         and taxpayers.
                                         ï¿½ Efforts to modernize to improve
                                         customer service.




ï¿½ Assess IRS' submission processing      ï¿½ Annual status reports on filing
activities and related modernization     seasons.
efforts.                                 ï¿½ Efforts to expand electronic filing.
                                         ï¿½ Use of alternative processes such as
ï¿½ Assess IRS' efforts to modernize the   lockboxes.
way tax payments are processed.          ï¿½ Efforts to modernize paper processing
                                         procedures and systems.
ï¿½ Identify options to improve the        ï¿½ Outsourcing opportunities.
processing of tax returns and payments.

--------------------------------------------------------------------------------
Issue                                   Significance
--------------------------------------  ----------------------------------------
Accounts receivable/collection: How     IRS' accounts receivable has been
can IRS improve its programs for        recognized by GAO and OMB as a high-
preventing identifying, reporting, and  risk area, primarily because of the
collecting delinquent taxes?            continued growth in receivables and IRS'
                                        difficulties in significantly increasing
                                        collections of delinquent tax debt.
                                        During fiscal years 1990 through 1995,
                                        gross receivables increased about 120
                                        percent while collections declined about
                                        2 percent. The accounts receivable
                                        inventory is over $160 billion. IRS,
                                        despite many initiatives, has made
                                        little progress in resolving the
                                        problems at the root of its collection
                                        performance and is considering options
                                        such as outsourcing.

Tax expenditures and preferences: Can   Tax expenditures--tax provisions that
the purposes of tax expenditures and    grant special relief to encourage
tax-exempt status be achieved more      certain behaviors or to aid taxpayers in
effectively through improved design     special circumstances--cost over $400
and administration or through           billion of federal revenue annually. Tax
alternative mechanisms?                 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. Improving
                                        tax--exempt organizations' compliance
                                        with tax rules can reduce unintended tax
                                        losses and unfair competition with
                                        taxable businesses.




Tax reform and simplification: How      The current federal tax system raises
would the administration of proposed    revenues equivalent to about 20 percent
alternative tax systems compare with    of Gross Domestic Product and has a
that of the present system?             relatively high compliance rate compared
                                        with other countries, but it is
                                        challenging for taxpayers and
                                        administrators because of its scope and
                                        complexity. Proposed alternative tax
                                        systems, such as a flat tax, value-
                                        added tax, or other consumption taxes,
                                        aim to simplify the tax system and
                                        promote economic growth and equity.
                                        Because the various proposals are so
                                        different from the current system, they
                                        raise a host of issues relating to the
                                        administration of a new system and the
                                        transition from the current system.
--------------------------------------------------------------------------------
Objectives                              Focus of work
--------------------------------------  ----------------------------------------
ï¿½ Improve IRS' management of accounts   ï¿½ Ways IRS can more effectively account
receivable and the collection           for and collect taxes owed.
process.                                ï¿½ Improved tax compliance through better
                                        prevention methods.
ï¿½ Improve the accuracy and adequacy of  ï¿½ Tax delinquency problems of nonwage
information.                            earners and financially unstable
                                        companies.
ï¿½ Improve the compliance of specific
groups of taxpayers.



ï¿½ Improve effectiveness of tax          ï¿½ Fuel tax incentives such as ethanol.
expenditures and reduce costs.          ï¿½ Tax credits such as low income housing
                                        and research and experimentation.
ï¿½ Identify whether alternative          ï¿½ Changes resulting from tax system
mechanisms would achieve the same       reform.
goals at less expense.                  ï¿½ Exempt organizations' taxes on
                                        unrelated business income.
ï¿½ Identify the effects of changes in
tax expenditures on the treatment of
tax-exempt organizations resulting
from reforms.

ï¿½ Improve IRS' administration of tax
rules governing exempt organizations.

ï¿½ Describe how the designs of           ï¿½ Specific provisions of the current
alternative systems compare with the    system.
present system.                         ï¿½ Lessons learned from other countries'
                                        value-added tax administration.
ï¿½ Provide Congress with information on  ï¿½ Impact of reform proposals on federal
the impact of alternative tax systems   tax administration.
on taxpayers and tax administrators.    ï¿½ Impact of reform proposals on tax
                                        administration at the federal and state
                                        levels.
                                        ï¿½ Transition issues.



--------------------------------------------------------------------------------

TABLE II:  PLANNED MAJOR WORK
============================================================ Chapter 3

Issue                                    Planned major job starts
---------------------------------------  ---------------------------------------
IRS management and budget                ï¿½ reconciling budget to strategic
                                         priorities and plans
                                         ï¿½ implementation of IRS' Business
                                         Master Plan
                                         ï¿½ programmatic implications of TSM


Individual tax                           ï¿½ use of market segment benchmarking
issues                                   ï¿½ IRS treatment of taxpayers


Business tax                             ï¿½ ways to reduce/identify unreported
issues                                   income and other noncompliance
                                         ï¿½ independent contractors and possible
                                         employee misclassifications
                                         ï¿½ effectiveness of IRS audit selection
                                         methods for business
                                         ï¿½ monitoring corporate audit rates over
                                         time


Customer service                         ï¿½ accessibility of IRS services
                                         ï¿½ reengineering basic IRS processes


Submission processing                    ï¿½ IRS capabilities for information
                                         capture and use
                                         ï¿½ updating electronic filing usage and
                                         problems
                                         ï¿½ status report on extent of filing
                                         fraud


Accounts receivable/collection           ï¿½ review of pilot project to use
                                         private sector debt collectors
                                         ï¿½ identifying best practices used by
                                         other collection operations
                                         ï¿½ evaluation of IRS' automated
                                         collection system


Tax expenditures and                     ï¿½ evaluation of the effectiveness of
preferences                              selected tax expenditures
                                         ï¿½ review of unrelated business income
                                         for tax-exempts
                                         ï¿½ effectiveness of earned income credit
                                         program


Tax reform and simplification            ï¿½ impact of tax reform proposals on
                                         taxpayers and tax administrators
                                         ï¿½ lessons learned from value-added tax
                                         administration and other reform
                                         efforts
                                         ï¿½ transition, in general, as related to
                                         specific provisions of current system
                                         ï¿½ relevance of TSM to a new tax system

--------------------------------------------------------------------------------

TABLE III:  GAO CONTACTS
============================================================ Chapter 4


      DIRECTOR
-------------------------------------------------------- Chapter 4:0.1

Lynda D.  Willis (202) 512-9110


      ASSOCIATE DIRECTORS
-------------------------------------------------------- Chapter 4:0.2

Natwar M.  Gandhi (202) 512-9044
James R.  White (202) 512-5594


      ASSISTANT DIRECTORS
-------------------------------------------------------- Chapter 4:0.3

David J.  Attianese
Ralph T.  Block
Harriet C.  Ganson
Mark J.  Gillen
Joseph E.  Jozefczyk
Thomas D.  Short
James A.  Wozny


      ASSISTANT GENERAL COUNSEL
-------------------------------------------------------- Chapter 4:0.4

M.  Rachel DeMarcus

*** End of document. ***