United Sta s Government Accountability Office

Washingto , DC 20548 

te

n

 

March 15, 2007 

The Honorable Max Baucus 

Chairman 

Committee on Finance

United States Senate 

The Honorable Charles E. Grassley 

Ranking Minority Member 

Committee on Finance

United States Senate 

 

Subject: Using Data from the Internal Revenue Service’s National Research 

Program to Identify Potential Opportunities to Reduce the Tax Gap 

The Internal Revenue Service (IRS) most recently estimated that the gross tax gap—

the difference between what taxpayers pay in taxes voluntarily and on time and what 

they should pay under the law—reached $345 billion for tax year 2001.1

 The tax gap 

arises when taxpayers fail to comply with their individual income, corporate income, 

employment, estate, or excise tax obligations through (1) underreporting of tax 

liabilities on tax returns; (2) underpayment of taxes due from filed returns; or 

(3) nonfiling, which refers to the failure to file a required tax return altogether or on 

time. 

 

IRS’s tax gap estimates are based on a variety of data sources. Recently, IRS studied 

individual taxpayer compliance through the National Research Program (NRP), and 

used the resulting compliance data to estimate the tax gap for individual income tax 

underreporting and the portion of employment tax underreporting attributed to selfemployment taxes for tax year 2001.2

 NRP, which involved reviewing around 46,000 

individual tax returns, has yielded very important new information on taxpayer 

compliance for the first time since IRS’s previous compliance measurement study 

 1

IRS estimated that it would eventually collect about $55 billion of the gross tax gap through late 

payments and IRS enforcement actions, leaving a net tax gap of around $290 billion. Unless otherwise 

noted, references to the tax gap refer to the gross tax gap. 

2

Self-employed individuals are generally required to calculate and remit Social Security and Medicare 

taxes to the U.S. Treasury each quarter. As employment taxes and income taxes for self-employed

taxpayers are largely assessed on the same income, self-employed individuals who underreport their 

income consequently underreport the employment tax due on that income.

 GAO-07-423R National Research Program Data
was undertaken for tax year 1988.3

 Compliance measurement studies such as NRP 

have the potential to identify ways to improve taxpayer compliance, which could in 

turn reduce the tax gap and improve the nation’s fiscal stability. For example, each 

1 percent reduction in the net tax gap would likely yield around $3 billion annually. 

Given its potential to improve individual taxpayer compliance, you asked us to review 

the results of the 2001 NRP study. In response, we agreed to identify (1) specific 

areas of individual taxpayer noncompliance that are promising targets for additional 

research to improve reporting compliance, and (2) opportunities, if any, found 

through the course of our work to improve future NRP studies. 

To identify specific areas of individual taxpayer noncompliance that are promising 

targets for additional research to improve reporting compliance, we examined IRS’s 

tax gap estimates for tax year 2001 and the underlying data from NRP upon which 

IRS based its estimates. We determined that IRS’s tax gap and compliance estimates 

were sufficiently reliable for the purposes of this engagement based on our previous 

reviews of the tax gap and NRP data. For a fuller description of how we selected 

promising targets, see enclosure 1. To identify opportunities, if any, found through 

the course of our work to improve future NRP studies, we identified weaknesses in 

NRP that we found during this and other GAO reviews that used NRP data and, based 

on discussions with IRS research and compliance officials, identified opportunities to 

address any such weaknesses. We conducted our work from September 2006 through 

February 2007 in accordance with generally accepted government auditing standards. 

On February 28, 2007, we briefed your staff on the results of our work. This report 

formally conveys the information provided during that briefing (which appears in 

enclosure 1). 

Results 

Areas of individual taxpayer noncompliance that are promising targets for additional 

research to improve reporting compliance include:

• income/losses from partnerships and S corporations, 

• income/losses from rental real estate, 

• sole proprietor income/losses, 

• income/losses from farming, 

• other income—net operating losses, 

• gambling income/losses, 

 3

For tax years 1963 through 1988, IRS measured compliance for various types of tax and taxpayers 

through its Taxpayer Compliance Measurement Program (TCMP). IRS did not implement any TCMP 

studies after tax year 1988 because of concerns about costs to and burdens on taxpayers. See GAO, 

Tax Compliance: Better Compliance Data and Long-term Goals Would Support a More Strategic IRS 

Approach to Reducing the Tax Gap, GAO-05-753 (Washington, D.C.: July 18, 2005).

Page 2 GAO-07-423R National Research Program Data
• capital gains for assets other than securities, 

• other gains/losses, 

• Earned Income Tax Credit, 

• Additional Child Tax Credit, 

• deduction for charitable contributions, 

• deduction for medical and dental expenses, 

• deduction for job expenses and most other deductions, and 

• exemptions. 

Our process for selecting these areas and further information on these areas appears 

in enclosure 1. 

IRS could benefit from electronically capturing complete NRP examination case files. 

Although IRS creates an electronic record for each tax return reviewed for NRP, 

these records do not contain all of the information contained in the corresponding 

hard copy examination case files. For example, information taxpayers provide to IRS 

during examinations is only included in the paper case file and not in the electronic 

records. Furthermore, some paper case files are not obtainable. For a prior review on 

the capital gains tax gap for securities,4

 IRS was not able to provide 11 percent of 

NRP examination case files we requested because complete files could not be located 

or were being used by IRS units. Having complete electronic NRP examination case 

files would make it easier for IRS to get the full value from NRP studies because the 

files could be assessed more easily than hard copy files. Additionally, complete 

electronic case files would lower the risk of lost files and would allow files to be 

accessed simultaneously by multiple users. According to IRS research and 

examination officials, the cost and timing of electronically capturing complete 

examination case files would vary by how they are made electronic.

Conclusion 

NRP is an important research program that could help IRS identify ways to reduce 

taxpayer noncompliance and the tax gap. An evaluation of NRP data revealed a 

variety of areas of noncompliance where further research could provide information 

on how to address noncompliance. However, IRS cannot maximize the value of 

information it collects through NRP if it cannot locate or efficiently access 

examination case files. 

Recommendation for Executive Action 

To ensure that IRS maximizes its return on investment from future NRP studies, IRS 

should develop a plan for capturing complete NRP examination case files that 

 4

GAO, Capital Gains Tax Gap: Requiring Brokers to Report Securities Cost Basis Would Improve 

Compliance if Related Challenges Are Addressed, GAO-06-603 (Washington, D.C.: June 13, 2006). 

Page 3 GAO-07-423R National Research Program Data
 (1) determines the most cost effective means for capturing information electronically 

and (2) lays out a schedule for when it will begin to capture information 

electronically. 

Agency Comments and Our Evaluation 

In commenting on a draft of this report, the Commissioner of Internal Revenue 

concurred with our recommendation (see enclosure II for the full text of IRS’s 

comments). IRS also provided separate comments on several technical issues, which 

we incorporated into this report where appropriate. 

As agreed with your offices, unless you publicly announce its contents earlier, we 

plan no further distribution of this report until 30 days from its issue date. At that 

time, we will send copies to the Chairman and Ranking Minority Member, House 

Committee on Ways and Means; the Secretary of the Treasury; the Commissioner of 

Internal Revenue; and other interested parties. We will also make copies available to 

others upon request. In addition, this letter will be available at no charge on the GAO 

Web site at http://www.gao.gov. 

If you or your staff have any questions, please contact me on (202) 512-9110 or 

whitej@gao.gov. Contact points for our offices of Congressional Relations and Public 

Affairs may be found on the last page of this letter. Individuals making key 

contributions to this report are listed in enclosure III. 

James R. White 

Director, Tax Issues 

Strategic Issues Team 

Enclosures 

Page 4 GAO-07-423R National Research Program Data
Enclosure I 

Congressional Briefing on NRP Data 

1

Using Data from The Internal Revenue 

Service’s National Research Program to 

Identify Potential Opportunities to Reduce the 

Tax Gap

Briefing for the Senate Committee on Finance

February 28, 2007 

2

Engagement Objectives

• Analyze data from the Internal Revenue Service’s (IRS) National 

Research Program (NRP) Tax Year 2001 study of individual 

taxpayer compliance to identify

• specific areas of individual taxpayer noncompliance that are 

promising targets for additional research to improve reporting 

compliance

• opportunities, if any, found through the course of our work to

improve future NRP studies

Page 5 GAO-07-423R National Research Program Data
Enclosure I 

3

Background: Taxpayer Noncompliance and 

the Tax Gap

• The tax gap is the difference between tax amounts that should have 

been paid voluntarily and on time and what was actually paid for a

particular year, and is the result of three types of taxpayer

noncompliance:

• Underreporting–when taxpayers misreport tax liabilities on tax 

returns filed on time

• Underpayment–when taxpayers fail to pay on time the taxes 

due from tax returns filed on time

• Nonfiling–when taxpayers fail to file a return altogether or on 

time

4

Background: IRS’s Most Recent Tax Gap 

Estimate Is Based on NRP

• IRS reviewed tax returns from tax year 2001 for about 46,000 

individual taxpayers, most of whom were subject to a face-to face

examination

• NRP has yielded very important and new information on taxpayer 

compliance for the first time since IRS’s previous compliance 

measurement study was undertaken for tax year 1988 

• NRP data allowed IRS to update its tax gap estimates for 

underreporting of individual income taxes and the portion of 

employment taxes from self employment

• IRS will use NRP data to improve examination selection 

beginning with tax returns filed in 2006 

Page 6 GAO-07-423R National Research Program Data
Enclosure I 

5

Background: IRS’s Tax Gap Estimate for Tax 

Year 2001

Source: IRS.

Nonfiling

$27 billion

Underpayment

$33 billion

Estate & excise

taxes

$4 billion

Corporation

income tax

$30 billion

Underreporting

$285 billion

Individual

income tax

$197 billion

Gross tax gap: $345 billion

Employment

tax

$54 billion

• IRS estimates its enforcement activities, coupled with other late payments, will recover 

about $55 billion of the tax gap, leaving a net tax gap of $290 billion for tax year 2001

6

Background: Tax Gap Details

• IRS estimates the tax gap for some specific line items from the 

individual tax return and in aggregate for other broad categories,

such as tax credits and deductions 

• For each line item or broad category, IRS estimates include

• the amount of the tax gap in dollars

• net misreporting percentage (NMP), which is the net amount 

misreported on a given line item or category expressed as a 

percentage of the sum of the absolute values of the amounts 

that should have been reported for that item or category

Page 7 GAO-07-423R National Research Program Data
Enclosure I 

7

Background: Components of the 2001 Tax 

Gap for Individual Income Tax Underreporting

Source: IRS.

Total $197 18

Adjustments -3 -21

Exemptions 4 5

Deductions 14 5

Credits 17 26

Nonbusiness income 56 4

Business income $109 43

Net misreporting 

percentage

Tax gap amount 

Type of income or offset (dollars in billions)

8

Background: 2001 Individual Income Tax Gap 

– Business Income 

22 18 Partnerships, S corporations, 

estates, and trusts

Total business income $109 43

Source: IRS.

Rental real estate, royalties 13 51

Sole proprietor (nonfarm) 68 57

Farm income $6 72

Net misreporting 

percentage

Tax gap amount 

Type of income (dollars in billions)

Page 8 GAO-07-423R National Research Program Data
Enclosure I 

9

Background: 2001 Individual Income Tax Gap 

– Nonbusiness Income

State income tax refunds 1 12

Other gains/losses 3 64

Total nonbusiness income $56 4

Interest income 2 4

Dividend income 1 4

Social Security benefits 1 6

Pensions & annuities 4 4

Wages, salaries, tips 10 1

Source: IRS.

Alimony income <0.5 7

Unemployment compensation <0.5 11

Capital gains 11 12

Other income $23 64

Net misreporting 

percentage

Tax gap amount 

Type of income (dollars in billions)

10

Background: 2001 Individual Income Tax Gap 

– Credits, Deductions, and Exemptions

All others adjustments 1 6

Self-employment tax deduction -4 -51

Deductions 14 5

Source: IRS.

Adjustments -3 -21

Exemptions 4 5

Credits $17 26

Net misreporting 

percentage

Tax gap amount 

Type of offset (dollars in billions)

Page 9 GAO-07-423R National Research Program Data
Enclosure I 

11

Methodology: Selecting Targets for Additional 

Research 

To select promising targets for additional research to improve

reporting compliance, we followed a three-stage methodology:

• Stage 1–from IRS’s tax gap estimates, we identified specific line 

items from the individual tax return or broad categories (e.g., credits, deductions) with

• a net misreporting percentage of 5 percent or greater and

• a tax gap amount of $1 billion or greater

12

Methodology: Selecting Targets for Additional 

Research

• Stage 2–to determine what specific line items appear to drive 

noncompliance within broad categories that met the criteria from

stage 1, we

• reviewed IRS’s compliance estimates from the raw NRP data 

(which differ from the tax gap because of additional information

IRS uses to estimate the tax gap) to identify line items with

• a net misreporting percentage of 5 percent or greater 

• an estimated dollar amount of net misreporting of $3 billion 

or greater and 

• an average misreported amount of $450 or greater per 

taxpayer

Page 10 GAO-07-423R National Research Program Data
Enclosure I 

13

Methodology: Selecting Targets for Additional 

Research

• Stage 3–to determine which identified areas of noncompliance 

would be promising targets for future research with the end result of 

improving compliance, we 

• obtained the views of IRS examiners and compliance officials 

• determined if the type of income or expense was subject to tax 

withholding or information reporting, which have been shown to

lead to high levels of compliance

14

Methodology: Opportunity to Improve Future

NRP Studies

• To identify opportunities, if any, found through the course of our 

work to improve future NRP studies, we

• identified weaknesses in NRP that we found during this and 

other GAO reviews that used NRP data and,

• based on discussions with IRS research and compliance 

officials, identified opportunities to address any such 

weaknesses 

Page 11 GAO-07-423R National Research Program Data
Enclosure I 

15

Targets for Additional Research

• income/losses from partnerships 

and S corporations

• income/losses from rental real

estate

• income/losses from farming

• sole proprietor income/losses

• “other” income–net operating 

losses

• gambling income/losses

• capital gains for assets other than 

securities

• other gains/losses

• Earned Income Tax Credit

• Additional Child Tax Credit 

• deduction for charitable 

contributions

• deduction for medical/dental

expenses

• deduction for job expenses and 

most other deductions

• exemptions

• Based our methodology, we identified the following 

promising targets for additional research to improve reporting

compliance:

16

Targets for Additional Research: Potential 

Questions to Evaluate

• For each promising target for additional research to improve 

reporting compliance, potential questions to evaluate are:

• What is the extent of, and reasons for, noncompliance?

• How does IRS address the noncompliance and what

challenges, if any, does it face?

• What are options to improve compliance (legislative or

administrative)?

Page 12 GAO-07-423R National Research Program Data
Enclosure I 

17

Targets for Additional Research: Income and 

Losses from Partnerships and S Corporations

18 $22 11

Percentage of individual income

tax underreporting tax gap

Tax gap amount 

(billions of dollars)

Net misreporting

percentage

• The above NMP and tax gap figures include income from estates 

and trusts, but the NRP data show that partnerships and S 

corporations are the primary drivers of noncompliance for this area

• NMP and share of individual income tax underreporting tax gap 

have increased for this line item from about 8 percent and about

4 percent for tax year 1988, respectively 

• The 2001 NRP studied the income and losses passed through to 

taxpayers from these entities; IRS is currently studying compliance

of S corporations

18

Targets for Additional Research: Income and 

Losses from Partnerships and S Corporations

• Losses that taxpayers can deduct from partnerships and 

S corporations may be limited by “at risk” and passive activity loss 

rules

• Taxpayers’ losses and deductions from S corporations are limited to

the adjusted basis of the taxpayers’ stock and any debt the 

corporations owe to the taxpayers

• IRS and the tax courts have determined that some S corporation 

owners improperly treat payments for services they perform as

corporate distributions or dividends instead of salaries to avoid 

employment taxes 

Page 13 GAO-07-423R National Research Program Data
Enclosure I 

19

Targets for Additional Research: Income and 

Losses from Rental Real Estate

51 $13 7

Percentage of individual income

tax underreporting tax gap

Tax gap amount 

(billions of dollars)

Net misreporting

percentage

• These NMP and tax gap figures include income from royalties, but

the NRP data show that rental real estate is the primary driver of 

noncompliance for these two income sources, as, collectively, 

taxpayers overreported their income from royalties 

• NMP and share of individual income tax underreporting tax gap 

have increased for this line item from about 17 percent and about 

3 percent for tax year 1988, respectively

20

Targets for Additional Research: Income and 

Losses from Farming

72 $6 3

Percentage of individual income

tax underreporting tax gap

Tax gap amount 

(billions of dollars)

Net misreporting

percentage

• NMP has increased for this line item from about 32 percent for tax 

year 1988, while the share of the tax gap remains largely 

unchanged

• Deductions for losses from farming activities not carried on with the 

intent of profits, such as for hobby or recreation activities, are limited

• The Internal Revenue Code provides that activities, such as 

farming, are presumed to be carried on for profit if a profit is 

produced in at least 3 out of the last 5 years

• Taxpayers cannot deduct expenses for anything raised for personal 

use

Page 14 GAO-07-423R National Research Program Data
Enclosure I 

21

Targets for Additional Research: Sole 

Proprietor Income and Losses

57 $68 35

Percentage of individual income

tax underreporting tax gap

Tax gap amount 

(billions of dollars)

Net misreporting

percentage

• Accounts for largest share of the entire tax gap

• GAO is reviewing sole proprietor tax compliance under a 

separate engagement that will

• identify specific options that could improve compliance

• use data sources in addition to NRP

22

Targets for Additional Research: Other 

Income 

64 $23 12

Percentage of individual income

tax underreporting tax gap

Tax gap amount 

(billions of dollars)

Net misreporting

percentage

• NMP and share of individual income tax underreporting tax gap 

have increased for this line item from 25 percent and 9 percent for 

tax year 1988, respectively

• IRS does not have separate NMP or tax gap estimates for the 

various types of income or losses taxpayers report as other income,

which IRS estimated taxpayers to have reported for 2001 as follows: 

• other net losses: ($8.7 billion)

• gambling income: $17.1 billion • exclusion of foreign income: ($13.9 billion)

• other net income: $28.2 billion • net operating losses: ($54.5 billion)

Page 15 GAO-07-423R National Research Program Data
Enclosure I 

23

Targets for Additional Research: Other 

Income–Net Operating Loss (NOL)

• Taxpayer can carry back or carry forward certain losses to previous

or subsequent years

• The NRP data show that taxpayers misreported these net 

operating losses

24

Targets for Additional Research: Gambling

• Taxpayers are to report gambling winnings as other income and 

report gambling losses as a miscellaneous, itemized deduction

• Withholding and information reporting may apply to gambling 

winnings; reporting is not required for gambling losses

• The NRP data show that taxpayers misreported gambling losses

Page 16 GAO-07-423R National Research Program Data
Enclosure I 

25

Targets for Additional Research: Capital Gains 

for Assets Other Than Securities 

12 $11 6

Percentage of individual income

tax underreporting tax gap

Tax gap amount 

(billions of dollars)

Net misreporting

percentage

• NMP increased for this line item from about 7 percent for tax 

year 1988, while the share of the tax gap remains largely 

unchanged 

• GAO recently reported on ways to improve compliance for capital 

gains from securities (GAO-06-603)

• In reviewing securities reporting compliance, we found that

taxpayers misreported capital gains for these other assets:

• residential rental property

• residences

• ownership in an S corporation, 

partnership, estate, or trust

• land, including farmland 

• business personal property and real estate

• other assets

26

Targets for Additional Research: Other Gains 

and Losses 

64 $3 2

Percentage of individual income

tax underreporting tax gap

Tax gap amount 

(billions of dollars)

Net misreporting

percentage

• NMP and share of individual income tax underreporting tax gap 

have increased for this line item from about 28 percent and about 

1 percent for tax year 1988, respectively

• Other gains and losses include those for the sale of business 

property

• When selling business property, taxpayers must determine whether

to report gains or losses as capital or ordinary 

Page 17 GAO-07-423R National Research Program Data
Enclosure I 

27

Targets for Additional Research: Earned 

Income and Additional Child Tax Credits

• IRS estimates noncompliance for these credits jointly

• IRS does not separately estimate the tax gap for these credits, but 

estimated that taxpayers misreported $14.3 billion in claiming these 

two credits

• In a separate study for 1999, IRS estimated a tax loss of up to 

$10 billion for the Earned Income Tax Credit

28

Targets for Additional Research: Deductions 

for Charitable Contributions

• IRS does not separately estimate the tax gap for these deductions, 

but estimated that taxpayers misreported $13.6 billion in deductions 

for charitable cash contributions and $3.8 billion in deductions for

charitable noncash contributions

• Taxpayers are required to keep records of their contributions

• Taxpayers must have written acknowledgment from charities for contributions 

of $250 or more

• A 2006 law requires that taxpayers must keep bank records or written 

acknowledgment from charities for all cash contributions (previously, taxpayers 

could use reliable, written records to substantiate cash contributions of less 

than $250)

• Generally, charities are not required to report taxpayers’ charitable 

contributions to IRS

Page 18 GAO-07-423R National Research Program Data
Enclosure I 

29

Targets for Additional Research: Deduction 

for Medical and Dental Expenses

• IRS does not separately estimate the tax gap for these deductions, 

but estimated that taxpayers misreported $7.6 billion in deductions

of medical and dental expenses

• Taxpayers can deduct the portion of certain medical expenses that 

exceed 7.5 percent of their adjusted gross income

30

Targets for Additional Research: Deduction 

for Job Expenses and Most Other Deductions

• IRS does not separately estimate the tax gap for these deductions, 

but estimated that taxpayers misreported $24.3 billion in deductions 

of job expenses and most other miscellaneous deductions (which

IRS estimates jointly)

• Taxpayers can deduct job expenses and certain miscellaneous 

deductions that exceed 2 percent of their adjusted gross income,

such as

• unreimbursed employee expenses

• tax preparation fees

• certain legal and accounting fees

Page 19 GAO-07-423R National Research Program Data
Enclosure I 

31

Targets for Additional Research: Exemptions

5 $4 2

Percentage of individual income

tax underreporting tax gap

Tax gap amount 

(billions of dollars)

Net misreporting

percentage

• NMP remains largely unchanged from tax year 1988, while the 

share of the tax gap has decreased from about 5 percent

• Taxpayers can usually claim exemptions for themselves, spouses,

and qualified dependents (children and relatives)

32

Targets for Additional Research: Areas Not 

Selected

• state income tax refunds

• Social Security benefits

• all other credits

• deduction for state and local

income taxes

• deduction for real estate taxes

• deduction for personal property 

and other taxes

• deduction for home mortgage 

interest and points

• deduction for investment interest

• deduction for charitable 

contribution carryovers

• deduction for casualty or theft 

losses

• other miscellaneous deductions

• Other areas of noncompliance that met the first stage of selection 

criteria (or are within a broad category that met the initial criteria), 

but failed to meet subsequent criteria are

Page 20 GAO-07-423R National Research Program Data
Enclosure I 

33

Opportunity to Improve Future NRP Studies: 

NRP Examination Case Files

• For NRP, IRS maintains electronic records for each tax return

reviewed in addition to hard copy case files for each examination 

• IRS’s research organization and GAO sometimes review 

examination case files to learn more about a particular compliance 

issue

• However, IRS’s electronic records do not contain all of the

information developed during examinations, and IRS cannot 

consistently locate its paper files 

34

Opportunity to Improve Future NRP Studies: 

NRP Examination Case Files

• NRP electronic records contain examination results such as the 

amount of income adjustments examiners made

• Only NRP hard copy examination case files contain additional 

information such as documents provided by taxpayers during

examinations

Page 21 GAO-07-423R National Research Program Data
Enclosure I 

35

Opportunity to Improve Future NRP Studies: 

NRP Examination Case Files

• GAO requested examination case files from IRS for two recent 

engagements

• For our review of compliance for capital gains from securities, we 

requested 1,043 NRP examination case files, but IRS was not able

to provide 115 (11 percent) of them

• For our ongoing work focused on sole proprietors, we requested

250 case files but IRS has not provided 38 (15 percent) of them 

• Paper case files were sometimes not available because IRS could 

not locate them, and sometimes because they were being used by 

IRS units

36

Opportunity to Improve Future NRP Studies: 

Benefits of Electronic Examination Case Files

• Having complete electronic NRP examination case files would 

make it easier to get the full value from NRP studies because the 

files could be accessed more easily than hard copy files

• Additionally, complete electronic case files would lower the risk of

lost files and allow files to be accessed simultaneously by multiple 

users

Page 22 GAO-07-423R National Research Program Data
Enclosure I 

37

Opportunity to Improve Future NRP Studies: 

Costs of Electronic Examination Case Files

• According to IRS research and examination officials, the cost and 

timing of electronically capturing complete examination case files 

would vary by how they are made electronic; options include

• having examiners input all information on examination results 

into an electronic system

• using an “imaging” process to import information from hard 

copy files into an electronic system

• scanning hard copy files as stand-alone electronic documents

38

Conclusion 

• Evaluation of NRP data reveals a variety of areas of noncompliance 

where further research could provide information on how to address 

noncompliance

• IRS cannot maximize the value of information it collects through

NRP if it cannot locate or efficiently access examination case files

Page 23 GAO-07-423R National Research Program Data
Enclosure I 

39

Recommendation

• To ensure that IRS maximizes its return on investment from

future NRP studies, IRS should develop a plan for capturing 

complete NRP examination case files that 

• determines the most cost-effective means for capturing 

information electronically 

• lays out a schedule for when it will begin to capture 

information electronically

Page 24 GAO-07-423R National Research Program Data
Enclosure II 

Comments from the Internal Revenue Service 

Page 25 GAO-07-423R National Research Program Data
Enclosure II 

Page 26 GAO-07-423R National Research Program Data
Enclosure III 

Contact and Staff Acknowledgments 

GAO Contact James R. White, (202) 512-9110 or whitej@gao.gov 

Staff 

Acknowledgments In addition to the contact named above, David Lewis, 

Assistant Director; Jeff Arkin; John Mingus; Karen 

O’Conor; Cheryl Peterson; Jeff Procak; and Sam 

Scrutchins made key contributions to this report. 

Page 27 GAO-07-423R National Research Program Data

 
Related GAO Products 

Tax Compliance: Multiple Approaches Are Needed to Reduce the Tax Gap. GAO-07-

488T. Washington, D.C.: February 16, 2007. 

Tax Compliance: Multiple Approaches Are Needed to Reduce the Tax Gap. GAO-07-

391T. Washington, D.C.: January 23, 2007. 

Tax Compliance: Opportunities Exist to Reduce the Tax Gap Using a Variety of 

Approaches. GAO-06-1000T. Washington, D.C.: July 26, 2006. 

Tax Compliance: Challenges to Corporate Tax Enforcement and Options to Improve 

Securities Basis Reporting. GAO-06-851T. Washington, D.C.: June 13, 2006. 

Capital Gains Tax Gap: Requiring Brokers to Report Securities Cost Basis Would 

Improve Compliance if Related Challenges Are Addressed. GAO-06-603. Washington, 

D.C.: June 13, 2006. 

Tax Gap: Making Significant Progress in Improving Tax Compliance Rests on 

Enhancing Current IRS Techniques and Adopting New Legislative Actions. GAO06-453T. Washington, D.C.: February 15, 2006. 

Tax Gap: Multiple Strategies, Better Compliance Data, and Long-Term Goals Are 

Needed to Improve Taxpayer Compliance. GAO-06-208T. Washington, D.C.: October 

26, 2005. 

Tax Compliance: Better Compliance Data and Long-term Goals Would Support a 

More Strategic IRS Approach to Reducing the Tax Gap. GAO-05-753. Washington, 

D.C.: July 18, 2005. 

Tax Compliance: Reducing the Tax Gap Can Contribute to Fiscal Sustainability 

but Will Require a Variety of Strategies. GAO-05-527T. Washington, D.C.: April 14, 

2005. 

Tax Administration: IRS Is Implementing the National Research Program as 

Planned. GAO-03-614. Washington, D.C.: June 16, 2003. 

Tax Administration: New Compliance Research Effort Is on Track, but Important 

Work Remains. GAO-02-769. Washington, D.C.: June 27, 2002. 

Tax Administration: Status of IRS’ Efforts to Develop Measures of Voluntary

Compliance. GAO-01-535. Washington, D.C.: June 18, 2001. 

Taxpayer Compliance: Analyzing the Nature of the Income Tax Gap. GAO/T-GGD97-35. Washington, D.C.: January 9, 1997. 

Page 28 GAO-07-423R National Research Program Data
Tax Administration: Alternative Strategies to Obtain Compliance Data. GAO/GGD96-89. Washington, D.C.: April 26, 1996. 

Tax Administration: Information on IRS’ Taxpayer Compliance Measurement 

Program. GAO/GGD-96-21. Washington, D.C.: October 6, 1995. 

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