Report to the Chairman, Subcommittee

on Oversight, Committee on Ways and

Means, House of Representatives

United States General Accounting Office

GAO

April 2001 IRS AUDIT RATES

Rate for Individual

Taxpayers Has

Declined But Effect

on Compliance Is

Unknown

GAO-01-484
Page i GAO-01-484 Audit Trends for Individuals

Letter 1

Appendix I Individual Income Tax Audit Rate Trends for Fiscal

Years 1996 Through 2000 17

Appendix II Assessment of Reasons Affecting Audit Rate Changes

for Fiscal Years 1996 Through 2000 22

Appendix III Audit Rates by Geographic Location for Fiscal Years

1996 Through 1999 23

Appendix IV Comments From the Internal Revenue Service 25

Appendix V GAO Contacts and Staff Acknowledgments 27

Tables

Table 1: Audit Rates for Individuals 7

Table 2: Audit Rates for Individual Taxpayers by Primary Income

Source and Income Levels 8

Table 3: Individual Returns Audited by Type of Audit and Auditor 9

Table 4: Audit Staffing Levels for Individual Audits 10

Table 5: Direct and Nondirect Staff Years and Percent Change by

Type of Auditor 11

Table 6: Returns Filed and Percent Change by Income Level 13

Table 7: EIC Audits as a Percent of Total Audits of Lower Income

Individuals 13

Table 8: Audit Rates for Individual Taxpayers Overall and by

Income Levels 17

Table 9: Individual Income Tax Returns Filed and Percent Change

by Income Level 18

Table 10: Individual Income Tax Returns Audited and Percent

Change by Income Level 19

Table 11: Combined Audit Classes of Nonbusiness and Business

Schedule C Returns and Percent Change 19

Contents
Page ii GAO-01-484 Audit Trends for Individuals

Table 12: Calculation of Fiscal Year 1999 Audit Rate for Combined

Nonbusiness and Business Returns for Lower Income and

Higher Income Individuals 20

Table 13: Audits of Lower Income and Higher Income Individuals

by Type of Audit 21

Table 14: Correspondence and Face-to-Face Audit Rates by Income

Level 21

Table 15: Direct Audit Hours and Percent Change by Type of

Auditor 22

Table 16: Direct Audit Hours Per Audit and Percent Change by

Type of Auditor 22

Table 17: Staff Years Spent on Nonaudit Activities and Percent

Change by Type of Auditor 22

Table18: IRS Individual Audit Rates by Region and District Office 23

Table 19: IRS Districts With the Highest and Lowest Audit Rates 24

Table 20: Comparison of IRS Individual Audit Rates, Including and

Excluding Service Center Audits 24

Figures

Figure 1: Audit Rates for Lower Income and Higher Income

Individuals 2

Figure 2: Audit Rates for Lower Income and Higher Income

Nonbusiness and Business Returns 3
Page 1 GAO-01-484 Audit Trends for Individuals

April 25, 2001

The Honorable Amo Houghton

Chairman, Subcommittee on Oversight

Committee on Ways and Means

House of Representatives

Every year, the Internal Revenue Service (IRS) performs a variety of

compliance checks to ensure the accuracy of information reported by

taxpayers on their tax returns. These checks include verifying

computations on returns, matching information reported by third parties

to income reported by taxpayers on returns, and requesting more

information about items on a tax return. Some of the checks were

performed on virtually every one of the approximately 125 million returns

filed in 1999; others were performed on a small subset of returns. IRS

classified about 620,000 of these compliance checks as audits, which range

from contacts with taxpayers that are simple enough to be audited through

the mail to face-to-face contacts over items that are too complex to be

audited through correspondence.1

In recent years, the audit rate—the proportion of tax returns that IRS

audits each year—has drawn attention. The attention is due to a long-term

decline in audit rates and the difference in audit rates for lower and higher

income individuals. The decline in audit rates has raised concerns about

whether this could lead to a decline in taxpayers accurately reporting their

tax liabilities (i.e., their voluntary compliance). The 1999 audit rate for

lower income taxpayers has raised concerns about whether taxpayers are

being selected for audits in an equitable manner.

Because of the attention over audit rates, you asked us to (1) describe the

changes in audit rates for individual income tax returns overall and for

categories, such as major sources (i.e., nonbusiness versus business)2

 and

levels of income for fiscal years 1996 through 2000; (2) obtain IRS’ reasons

 1

Under Internal Revenue Code Section 7602, IRS can examine the taxpayer’s books and

records and solicit testimony from the taxpayer and relevant parties regarding the accuracy

of a tax return.

2

Nonbusiness sources include wages, dividends, and interest. Business sources include

self-employment income, such as income reported by individual sole proprietors on a

schedule C, which is used to compute profit or loss.

United States General Accounting Office

Washington, DC 20548
Page 2 GAO-01-484 Audit Trends for Individuals

and related data explaining the changes in the audit rates; and (3) describe

what is known about the effects of changes in the audit rates on tax

compliance.

Comparing fiscal years 1996 and 2000, the overall income tax audit rate of

individuals declined about 70 percent—from 1.67 percent to 0.49 percent

as shown in figure 1. Rates declined regardless of the individual taxpayer’s

income level.

Figure 1: Audit Rates for Lower Income and Higher Income Individuals

Note 1: Lower income includes individuals reporting income less than $25,000 and higher income

includes individuals reporting income of $100,000 or more.

Note 2: The overall audit rate falls below the other two lines because it also includes audits of other

individuals, such as those reporting moderate income on their tax returns.

Source: GAO analysis of IRS data.

Results in Brief

0

0.5

1

1.5

2

2.5

3

3.5

1996 1997 1998 1999 2000

Fiscal year

Audit rate (percent)

Higher income

Lower income

Overall audit rate
Page 3 GAO-01-484 Audit Trends for Individuals

In any given year, figure 1 also shows a greater audit rate for higher

income individuals than for lower income individuals. When the higher

and lower income groups are divided by major source of income, as shown

in figure 2, some exceptions to this pattern are apparent. For individuals

relying on nonbusiness income, those with lower incomes were audited at

a greater rate in fiscal year 1999 than those with higher incomes. For

individuals relying on business income, those with lower incomes were

audited at a greater rate in fiscal years 1996, 1999, and 2000.

Figure 2: Audit Rates for Lower Income and Higher Income Nonbusiness and

Business Returns

Source: GAO analysis of IRS data.

Note: Lower income includes individuals reporting income less than $25,000 and higher income

includes individuals reporting income of $100,000 or more.

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

1996 1997 1998 1999 2000

Fiscal year

Nonbusiness-lower income

Nonbusiness-higher income

Business-lower income

Business-higher income

Audit rate (percent)
Page 4 GAO-01-484 Audit Trends for Individuals

Comparing the type of audits and the income level of the audited

individuals, most audits were correspondence audits and most lower

income individuals were audited through correspondence. Most audited

higher income individuals were audited through face-to-face audits.

According to IRS officials, audit rates declined for fiscal years 1996 to 2000

for three main reasons. First, over this period, the number of IRS auditors

for individual returns declined by more than half for reasons such as a

decline in total staff and decisions to change staffing priorities to better

serve taxpayers before they file their returns. Second, IRS was more likely

to use the remaining auditors in other duties, such as assisting taxpayers.

Third, audits took longer due to additional audit requirements, such as

more written communications with taxpayers about the status of their

audit. To explain the changes in the audit rates by income levels, IRS

officials cited increases in the number of high-income tax returns and an

audit focus on noncompliance by earned income credit (EIC) claimants,

who are usually lower income individuals. IRS’ raw data were generally

consistent with IRS’ reasons. We could not establish the relative influence

of each reason on the changes in the audit rate.

The specific effect of the recent decline in the audit rate on the level of

voluntary compliance is not known for several reasons. First, IRS does not

have current reliable information on levels of voluntary compliance. Even

with this information, IRS would still need to take a number of steps to try

to determine the specific link between compliance and audit rates.

Second, because nonaudit and audit programs are designed to ensure tax

compliance, it is possible that expansion of IRS’ nonaudit compliance

programs could compensate to some degree for declining audit rates.

Third, improvements in assisting and educating taxpayers about their tax

obligations could similarly compensate to some degree for declining audit

rates. Because IRS does not have reliable, updated information on

voluntary compliance, we do not know the net effects on tax compliance

of the declining audit rates, changes in the volume of nonaudit checks, and

any improvements in IRS’ educational efforts.

Annually, IRS audits some tax returns to determine whether taxpayers

complied with the tax laws. IRS attempts to select returns for audit that

have an indication of potential noncompliance based on, for example, its

formula for flagging suspicious returns. IRS believes that a credible threat

of being audited deters some noncompliance. IRS audits check

compliance in reporting income, deductions, and other return items as

well as in paying the correct tax liability. To conduct these compliance

Background
Page 5 GAO-01-484 Audit Trends for Individuals

checks, IRS auditors ask taxpayers for documentation about specific items

on their returns.

IRS conducts two types of audits, face-to-face and correspondence, using

three classes of auditors—revenue agents, tax auditors, and tax

examiners. Face-to-face audits can be either (1) field audits, in which an

IRS revenue agent visits an individual who has business income or a

complex return, or (2) office audits, in which an individual who has a less

complex return visits a tax auditor at an IRS office. Correspondence

audits, as the name suggests, are done by tax examiners who correspond

with taxpayers through the mail. Correspondence audits usually involve

one line item on a return. Because correspondence audits involve fewer

and usually simpler tax return items, they are less likely to burden

taxpayers in terms of time, contacts with IRS, and documentation

provided to IRS.

IRS also checks compliance and contacts individual taxpayers through

nonaudit enforcement programs. For example, IRS’ math error program

checks returns for math and consistency errors and contacts taxpayers if

such errors are found. IRS’ underreporter program matches the income

reported on tax returns with the information returns (e.g., W-2 forms) filed

by third parties, such as employers who pay wage income. If discrepancies

are found, then taxpayers are mailed a notice. Although such contacts can

be similar to correspondence audit contacts, IRS does not define them as

audit contacts.3

 Over the years, IRS has shifted contacts between the audit

and nonaudit categories. For example, in fiscal 1997, IRS shifted over

700,000 cases involving missing or invalid social security numbers on tax

returns from the correspondence audit program to the math error

program. Changes in the definition of an audit could contribute to

decreases or increases in the audit rate.

To describe changes in audit rates for individuals (as opposed to

partnership or corporate taxpayers), we used IRS’ method for computing

audit rates. For all taxpayers and by taxpayer categories, the audit rate

equals the proportion of IRS audits closed in a fiscal year compared to

returns filed in the previous calendar year. We used data from IRS’

Databook, Audit Information Management System, and Statistics of

 3

See Tax Administration: IRS’ Use of Nonaudit Contacts (GAO/GGD-00-7, Mar. 16, 2000) for

further discussion of nonaudit contacts and their relationship to audit contacts.

Scope and

Methodology
Page 6 GAO-01-484 Audit Trends for Individuals

Income about individual income tax returns filed in calendar years 1995

through 1999 and audits of the returns that closed in fiscal years 1996

through 2000. This allowed us to describe the changes and update the

audit rate trends in earlier reports.4

We also described audit rates by various categories. One category was the

income reported on individual income tax returns, which IRS divides into

broad groups. Under IRS’ grouping, lower income individuals report

income under $25,000 and higher income individuals report $100,000 or

more of income on their tax returns. Other categories included the types

of IRS audit, IRS office locations, and the major income sources.

Nonbusiness sources include individuals who generated most of their

income from sources such as wages, dividends, and interest. Business

sources include individuals who generated most of their income from selfemployment and reported that income on a schedule C (nonfarm income)

or schedule F (farm income). For comparisons of lower and higher income

by source of income, we excluded schedule F income because IRS’ data

only split schedule F income into groups under and over $100,000. We did

include Schedule F taxpayers in the overall audit rate.

We interviewed officials from IRS’ Examination Division and the

Brookhaven Service Center to discuss IRS’ reasons for changes in the

audit rates from fiscal years 1996 through 2000. We also obtained available

IRS data related to the reasons given by IRS officials. For example, we

obtained IRS data on changes in the number of auditors and number of

hours spent doing audits. We checked for inconsistencies between the raw

data and the reasons that IRS officials gave us. However, due to time

constraints, we did not do any more detailed analyses to determine the

extent to which IRS’ reasons explained the changes in audit rates. Nor did

we attempt to identify reasons beyond those offered by IRS.

To describe what is known about the potential effects of changes in the

audit rates on tax compliance, we used our previous and ongoing work on

IRS audits, other IRS enforcement programs, and tax compliance. We also

used information from our discussions with IRS officials.

 4

See Tax Administration: Audit Trends and Results for Individual Taxpayers

(GAO/GGD-96-91, Apr. 26, 1996), which discussed audit rates for individuals during fiscal

years 1988-95. We issued a report (Tax Administration: IRS’ Audit and Criminal

Enforcement Rates for Individual Taxpayers Across the Country, GAO/GGD-99-19, Dec. 23,

1998) on geographic audit rates. Appendix III updates such audit rates for fiscal years 1996-

99.
Page 7 GAO-01-484 Audit Trends for Individuals

We did our work at IRS’ national office in Washington, D.C., between

September 2000 and March 2001 in accordance with generally accepted

government auditing standards.

We requested comments on a draft of this report from the Commissioner

of Internal Revenue. We received written comments from the

Commissioner in a letter dated April 19, 2001. The comments are

reprinted in appendix IV and discussed at the end of this letter.

From fiscal years 1996 through 2000, the overall income tax audit rate of

individuals declined. As table 1 shows, IRS’ annual audit rates for

individuals declined from 1.67 percent to 0.49 percent—about 70 percent.

The table also shows that the audit rates fell for all major sources of

income—nonbusiness as well as schedule C and schedule F business

returns—over the 5 years.

Table 1: Audit Rates for Individuals

Returns and audits in thousands

Individual taxpayers 1996 1997 1998 1999 2000

Percent

change

Individual income tax returns 116,059.7 118,362.6 120,342.4 122,546.9 124,887.1 8

Individual audits 1,941.6 1,519.2 1,192.8 1,100.3 617.8 -68

Audit rates (percent) 1.67 1.28 0.99 0.90 0.49 -70

Nonbusiness 1.54 1.15 0.88 0.82 0.42 -73

Schedule C 3.60 3.15 2.35 2.03 1.55 -57

Schedule F 2.29 1.82 1.21 0.90 0.54 -77

Source: GAO analysis of IRS data.

Table 1 also shows that the audit rate patterns for each year changed little

from fiscal years 1996 to 2000. Schedule C business returns were more

than twice as likely to be audited than the nonbusiness returns in each

year.

Table 2 shows that audit rates declined about equally—67 percent and 70

percent, respectively—for lower and higher income individuals. When

taxpayers are separated into nonbusiness and business income groups,

audit rates declined at least 42 percent from fiscal years 1996 to 2000 for

lower and higher income individuals in the two groups.

Individual Audit Rates

Have Been Declining

Overall and Across

Various Categories
Page 8 GAO-01-484 Audit Trends for Individuals

Table 2: Audit Rates for Individual Taxpayers by Primary Income Source and Income Level

Primary income source and income levela1996 1997 1998 1999 2000

Percent

change

Nonbusiness and schedule C business incomes

Lower income 1.91% 1.46% 1.12% 1.24% 0.63% -67

Higher income 3.19 2.74 2.03 1.40 0.96 -70

Nonbusiness income

Lower income 1.82 1.39 1.06 1.18 0.55 -70

Higher income 2.85 2.27 1.66 1.14 0.84 -70

Schedule C business income

Lower income 4.21 3.19 2.37 2.69 2.43 -42

Higher income 4.09 4.13 3.25 2.40 1.48 -64

Note: See table 12 for an explanation of how audit rates were calculated for fiscal year 1999.

a

Lower income includes individuals reporting income less than $25,000 and higher income includes

individuals reporting income of $100,000 or more.

Source: GAO analysis of IRS data.

Table 2 also shows that higher income individuals were more likely to be

audited than lower income individuals in each of the 5 years. However,

exceptions to this pattern emerged when these audit rates by income level

were analyzed by source of income. First, in the nonbusiness group, IRS

was more likely to audit lower income individuals only in fiscal year 1999.

Second, in the business group (schedule C), the rates fluctuated by income

levels. IRS was more likely to audit lower income individuals in fiscal year

1996, higher income individuals in fiscal years 1997 and 1998, and lower

income individuals in fiscal years 1999 and 2000.

Most audits of lower income individuals were correspondence audits, with

the proportion of audits of lower income individuals that were

correspondence audits ranging from 69 to 84 percent over the 5 years.

Audits of higher income individuals were mostly face-to-face audits,

ranging from 62 to 75 percent over the 5 years. (See table 13 in app. I for

details.)

Correspondence and face-to-face audit rates also varied by taxpayer

income. For example, in fiscal year 2000, the face-to-face audit rate (faceto-face audits divided by all returns filed) for higher income individuals

was 0.60 percent compared with 0.13 percent for lower income

individuals. For correspondence audits in fiscal year 2000, the audit rate

for higher income individuals was 0.37 percent and for lower income

individuals was 0.50 percent. (See table 14 in app. I for details.)
Page 9 GAO-01-484 Audit Trends for Individuals

Table 3 shows that both types of face-to-face audits (field and office) and

correspondence audits declined by similar rates from 1996 to 2000. Table 3

also shows that correspondence/tax examiner audits accounted for over

half of all audits in each year (ranging from 54 percent to 67 percent) and

that the number of audits declined each year for all types of

audits/auditors except for correspondence audits in fiscal year 1999.

Table 3: Individual Returns Audited by Type of Audit and Auditor

Individual returns audited

Audit/auditor type 1996 1997 1998 1999 2000

Percent

change

Field/revenue agents 252,430 209,781 168,054 124,518 91,586 -64

Office/tax auditors 509,420 505,834 383,366 235,625 145,975 -71

Correspondence/tax examiners 1,179,696 803,628 641,360 740,130 380,204 -68

Total 1,941,546 1,519,243 1,192,780 1,100,273 617,765 -68

Note: With very few exceptions, revenue agents do field audits, tax auditors do office audits, and tax

examiners do correspondence audits. Tax examiner totals for fiscal years 1998, 1999, and 2000 also

include service center totals from IRS’ data.

Source: GAO analysis of IRS data.

The declines in audit rates were spread uniformly across IRS’ four regions.

However, audit rates varied by region. The audit rates declined about 50

percent in each of IRS’ four regional offices from fiscal years 1996 to 1999.5

For each of these 4 years, the range of audit rates was highest in the

Western Region (1.09 to 0.47 percent) compared to the Northeast Region

(0.44 to 0.23 percent), the Southeast Region (0.58 to 0.28), and the

Midstates Region (0.62 to 0.32 percent). (See tables 18, 19, and 20 in app.

III.)

According to IRS officials, overall audit rates declined for fiscal years 1996

to 2000 for three main reasons. First, IRS had fewer auditors for individual

returns for reasons that include a decline in staff and decisions to change

staffing priorities to focus on customer service. Second, IRS was more

likely to use the remaining auditors in other duties, such as assisting

taxpayers. Third, audits took longer due to additional requirements, such

as more written communications with taxpayers about the status of their

audit. With respect to changes in the audit rate by income levels, IRS

 5

Fiscal year 1999 return filings by geographical location were not available for us to

compute the related audit rates for fiscal year 2000.

IRS Officials Cited

Several Reasons for

the Changes in

Individual Audit Rates
Page 10 GAO-01-484 Audit Trends for Individuals

officials cited an increase in the number of high-income tax returns and an

audit focus on noncompliance by earned income credit claimants, who are

usually lower income individuals. IRS’ raw data were generally consistent

with all these reasons. However, due to time constraints, we did not

analyze the data to determine the extent to which IRS’ reasons explained

the changes in audit rates.

According to IRS officials, IRS did fewer audits between fiscal years 1996

and 2000, in part because it had fewer auditors. IRS officials explained that

auditor staff levels declined for two reasons. First, tight budgets in the

1990s reduced overall staffing levels. Second, IRS put more staff in

positions to serve taxpayers and generally has not hired revenue agents or

tax auditors since 1995.

As shown in table 4, the number of revenue agent and tax auditor

positions assigned to audit individual income tax returns declined steadily

since 1996. By fiscal year 2000, the number of these positions declined

about 54 percent for revenue agents and about 61 percent for tax auditors.

This represents a loss of over 2,000 staff years for audit staff devoted to

field and office audits. On the other hand, tax examiner positions, which

do the simpler correspondence audits, increased 13 percent, or 200

positions, between fiscal years 1997 and 2000 (data for fiscal year 1996

were not available).

Table 4: Audit Staffing Levels for Individual Audits

Fiscal year Change

Type of auditor 1996 1997 1998 1999 2000 Number Percent

Revenue agents 2,441 2,121 1,751 1,407 1,116 -1,325 -54

Tax auditors 1,173 1,045 797 621 461 -712 -61

Tax examiners a1,515b1,772b1,740 1,715 200c13c

Total a4,681 4,320 3,768 3,292 a a

a

IRS was not able to provide tax examiner data for fiscal year 1996.

b

Tax examiner totals for fiscal years 1997 and 1998 are IRS estimates.

c

Only covers change from fiscal year 1997 to 2000.

Source: GAO analysis of IRS data.

IRS officials also said that its auditors spent less time auditing in fiscal

years 1996 through 2000. Our analysis of IRS’ data, as shown in table 5,

indicates that for individual income tax returns, the average amount of

direct audit time—actual time doing audit work—has declined in

IRS Auditor Staffing Levels

Declined

Auditors Spent More Time

on Other Activities
Page 11 GAO-01-484 Audit Trends for Individuals

comparison to time spent on nondirect audit activities. Nondirect audit

activities include taxpayer assistance, other details, and training.

Table 5: Direct and Nondirect Staff Years and Percent Change by Type of Auditor

Type of auditor 1996 1997 1998 1999 2000

Percent

change

Revenue agents

Direct audit 7,924 7,765 6,840 5,903 5,265 -34

Nondirect audit 7,159 6,634 6,807 7,158 7,285 2

Total staff years 15,083 14,399 13,647 13,061 12,550 -17

Direct audit percent 0.53 0.54 0.50 0.45 0.42 -20

Tax auditors

Direct audit 1,280 1,164 906 725 566 -56

Nondirect audit 1,205 1,154 1,207 1,204 1,136 -6

Total staff years 2,485 2,318 2,113 1,930 1,702 -32

Direct audit percent 0.51 0.50 0.43 0.38 0.33 -35

Source: GAO analysis of IRS data.

Part of the reason for the decline in auditing is that revenue agents and tax

auditors spent increasingly more time providing taxpayer assistance

between fiscal years 1996 and 2000. The amount of time spent on taxpayer

assistance by revenue agents increased from about 1.0 percent of available

staff years in 1996 to about 4.4 percent of available staff years in 2000. The

amount of time spent on taxpayer assistance by tax auditors increased

from about 1.4 percent of available staff years in 1996 to about 12.3

percent of available staff years in 2000. IRS did not have comparable data

for assistance provided by tax examiners who had been slated to do

audits.

In addition, revenue agents and tax auditors had less time to audit because

of increased time in training. (See table 17 in app. II for additional

information on revenue agent and tax auditor training.) Considering the

54-percent decrease in the number of revenue agents, the training time per

revenue agent increased about 227 percent. The training time per tax

auditor over the same 5 years increased about 95 percent. IRS did not have

comparable training data on tax examiners.

Finally, IRS officials said that auditors generally took longer to finish

audits during fiscal years 1996 to 2000. Our analysis of IRS’ data for this

period (see table 16 in app. II) showed that the average time to finish an

audit increased for all types of auditors, including about

IRS Auditors Spent More

Time to Finish Each Audit
Page 12 GAO-01-484 Audit Trends for Individuals

• 37 percent (20.2 hours to 27.6 hours) for revenue agents (field audits),

• 56 percent (4.6 hours to 7.1 hours) for tax auditors (office audits), and

• 153 percent (0.7 hours to 1.8 hours) for tax examiners (correspondence

audits).

IRS officials told us that Internal Revenue Service Restructuring and

Reform Act of 1998 requirements increased audit time.6

 Among other

things, these requirements resulted in IRS auditors having to send more

notices to taxpayers and third parties that provide information about the

taxpayer being audited. New requirements to explain innocent spouse

provisions and to protect taxpayers under audit have generated more

review work. These officials said the act has created many new tasks

during audits. Other factors, such as the experience level of the auditor

and complexity of the audit, also affected audit time per return. For

example, IRS officials said that they lost many experienced auditors to

higher graded positions elsewhere in IRS. Because multiple factors affect

audit time per return, determining the contribution of each factor to

changes in audit time could be difficult. Because of time constraints, we

did not attempt such an analysis.

IRS officials offered two reasons why the audit rates for lower income

individuals exceeded the rates for higher income individuals in selected

years among the nonbusiness and business groups. First, as table 6 shows,

the number of higher income returns filed in calendar years 1995 through

1999 that were subject to audits in fiscal years 1996 to 2000 significantly

increased compared with the number of lower income returns filed. For

nonbusiness returns, the number of higher income returns filed rose 80

percent compared with a 5-percent decrease for lower income returns

filed. For business returns, the number of higher income individual returns

increased about three times the rate of lower income business returns.

 6

P.L. 105-206.

IRS Cited Other Reasons

for the Varying Individual

Audit Rates by Income

Levels
Page 13 GAO-01-484 Audit Trends for Individuals

Table 6: Returns Filed and Percent Change by Income Level

Returns filed in calendar year

Income levela1995 1996 1997 1998 1999

Percent

change

Nonbusiness returns

Lower income 59,211,700 58,790,700 58,266,600 57,432,900 56,247,800 -5

Higher income 4,540,800 5,260,500 6,044,700 7,025,000 8,151,600 80

Schedule C business returns

Lower income 2,436,300 2,464,700 2,530,100 2,546,800 2,541,000 4

Higher income 1,738,300 1,770,700 1,835,500 1,876,000 1,948,900 12

Note: Returns filed in calendar years1995 through 1999 are used to compute the audit rates for fiscal

years 1996 through 2000.

a

Lower income includes individuals reporting income less than $25,000 and higher income includes

individuals reporting income of $100,000 or more.

Source: GAO analysis of IRS data.

Second, IRS’ audits in fiscal years 1997 through 2000 have continued to

focus on EIC noncompliance, usually by lower income individuals.7

 As

table 7 shows, EIC audits, usually correspondence audits, accounted for a

large percent of the audits of lower income taxpayers, regardless of their

major source of income. In fact, the EIC portion of all audits for lower

income taxpayers in fiscal year 2000 was more than double the fiscal year

1997 EIC portion of these audits.

Table 7: EIC Audits as a Percent of Total Audits of Lower Income Individuals

Fiscal year

Audit type 1997 1998 1999 2000

Total audits of lower income individualsa895,625 679,088 745,614 369,912

Service center EIC auditsb360,101 290,010 572,594 325,654

EIC as percent of total audits 40% 43% 77% 88%

Note: IRS was unable to provide EIC data for fiscal year 1996.

a

Excludes Schedule F filers because IRS data do not show how many of these filers reported less

than $25,000.

b

District office audits might cover EIC in part, but IRS does not uniformly capture that information.

Source: GAO analysis of IRS data.

 7

Congress enacted EIC in 1975, as a refundable tax credit available to lower income,

working taxpayers, to offset the effect of social security taxes on lower income families

and to encourage these taxpayers to seek employment rather than welfare.
Page 14 GAO-01-484 Audit Trends for Individuals

IRS officials also said that a project to address noncompliance by schedule

C filers who claimed EIC explained the greater audit rates for lower

income business filers compared with those with higher incomes during

fiscal years 1999 and 2000.

The specific effect of the recent decline in the audit rate on the level of

voluntary compliance is not known. One reason is that IRS does not have

current reliable information on the levels of voluntary compliance. IRS last

measured overall income tax compliance for tax year 1988. IRS and others

are concerned that changes in the tax laws, economy, and demographics

since 1988 have made the compliance information out of date.

Even if IRS had this information, IRS would still need to take a number of

steps to try to determine the specific link between changes in audits and

changes in voluntary compliance levels. Historically, measuring the

specific impact of audit rate changes on voluntary compliance has been

difficult. It is difficult to collect data on nonaudit factors that also can

affect voluntary compliance levels, and then to control for these factors in

order to isolate the impact of audit rate changes.

For example, it is difficult to determine the effect of declining audit rates

on voluntary compliance when IRS’ nonaudit checks could offset to some

degree any negative effects of declining audit rates on compliance. Since

the 1970s, for example, the underreporter program has grown, covering

more types of income especially among nonbusiness taxpayers. IRS also

uses the math error program to help ensure taxpayer compliance. Since

the math error and underreporter checks can be similar to

correspondence audits, growth in these programs may offset to some

degree the decline in the audit rate.

Furthermore, it has also been difficult to measure how improvements in

assisting and educating taxpayers about their tax obligations compensate

for declining rates. These IRS efforts, although not designed to find

noncompliance, could help taxpayers to voluntarily comply. To the extent

that education efforts succeed in promoting compliance, overall

compliance would not necessarily decline if the audit rate declines. IRS

has been allocating more resources to taxpayer assistance and education.

One example is the increased use of revenue agents and tax auditors to

provide taxpayer assistance.

Because IRS does not have a measure of voluntary compliance, we do not

know the net effects on tax compliance levels of the declining audit rates,

Effect of the Recent

Declining Audit Rate

on Tax Compliance

Levels Is Not Known
Page 15 GAO-01-484 Audit Trends for Individuals

changes in the volume of nonaudit checks, and any improvements in IRS’

educational efforts.

On April 19, 2001, we received written comments on a draft of this report

from the Commissioner of Internal Revenue (see app. IV.). The

Commissioner said that IRS agrees with our presentation and analysis of

the audit rate data as well as with the need for current and reliable data on

voluntary compliance. The Commissioner agreed that changes in the

economy and tax laws have rendered IRS’ compliance data obsolete. The

Commissioner’s comments also expanded on what IRS officials told us

during our work about the reasons for the audit rate decline. Specifically,

the comments said that two provisions (sections 1203 and 1204) of the

Restructuring and Reform Act of 1998 created a cautionary environment

that led to audits taking longer. 8

The Commissioner also said that the report did not acknowledge historical

data in two studies--one by IRS and one by external researchers--on the

effects of the decline in audit rates on voluntary compliance.9

 We did not

acknowledge these studies in the report because, while they estimate a

relationship between audits and compliance, they are not based on current

data. The most recent of the studies used data from 1982 through 1991.

Because of the possibility that changes over time in the economy, tax laws,

demographics, and IRS compliance programs have changed the

relationship between audit rates and voluntary compliance, we did not cite

the studies. These two studies did report a positive relationship between

audit rates and voluntary compliance. This finding is consistent with the

concern, which we describe in the report, that a decline in audit rates

could lead to a decline in voluntary compliance.

As arranged with your office, unless you publicly announce its contents

earlier, we plan no further distribution of this letter until 30 days from its

 8

Section 1203 requires the Commissioner of Internal Revenue to terminate any IRS

employee that was proven to have committed certain violations in connection with the

performance of official duties. Section 1204 prohibits the use of enforcement statistics in

imposing or suggesting production quotas or in evaluating employee performance.

9

Upon checking with IRS officials, we found out that these two studies are Dubin, Graetz,

and Wilde, “The Effect of Audit Rates on the Federal Income Tax, 1977-1986,” National Tax

Journal (1990), and The Determinants of Individual Income Tax Compliance: Estimating

the Impacts of Tax Policy, Enforcement, and IRS Responsiveness (IRS Pub. 1916, 1996).

Agency Comments
Page 16 GAO-01-484 Audit Trends for Individuals

date of issue. We will then send copies to Representative William M.

Thomas, Chairman, and Representative Charles B. Rangel, Ranking

Minority Member, House Committee on Ways and Means; Representative

William J. Coyne, Ranking Minority Member, Subcommittee on Oversight,

House Committee on Ways and Means, and Senator Charles E. Grassley,

Chairman, and Senator Max Baucus, Ranking Minority Member, Senate

Committee on Finance. We will also send copies to the Honorable Paul H.

O’Neill, Secretary of the Treasury; the Honorable Charles O. Rossotti,

Commissioner of Internal Revenue; the Honorable Mitchell E. Daniels, Jr.,

Director, Office of Management and Budget; and other interested parties.

Copies of this report will be made available to others upon request.

If you have any questions, please contact me or Tom Short at (202) 512-

9110. Key contributors to this report are acknowledged in appendix V.

James R. White

Director, Tax Issues
Appendix I: Individual Income Tax Audit Rate

Trends for Fiscal Years 1996 Through 2000

Page 17 GAO-01-484 Audit Trends for Individuals

Table 8: Audit Rates for Individual Taxpayers Overall and by Income Level

Fiscal year audit rate

Income level 1996 1997 1998 1999 2000 Percent change

Overall audit rate for individuals 1.67% 1.28% 0.99% 0.90% 0.49% -70%

Nonbusiness returns

TPI under $25,000 1.82 1.39 1.06 1.18 0.55 -70

TPI $25,000 under $100,000 1.03 0.73 0.60 0.36 0.22 -78

TPI $100,000 and over 2.85 2.27 1.66 1.14 0.84 -70

Subtotal 1.54 1.15 0.88 0.82 0.42 -73

Business returns

Schedule C

TGR under $25,000 4.21 3.19 2.37 2.69 2.43 -42

TGR $25,000 under $100,000 2.85 2.57 1.82 1.30 0.93 -67

TGR $100,000 and over 4.09 4.13 3.25 2.40 1.48 -64

Subtotal 3.60 3.15 2.35 2.03 1.55 -57

Schedule F

TGR under $100,000 1.59 1.28 0.93 0.68 0.35 -78

TGR $100,000 and over 3.61 2.75 1.63 1.23 0.80 -78

Subtotal 2.29 1.82 1.21 0.90 0.54 -77

Legend

TPI = total positive income (income from positive sources only)

Schedule C-TGR = total gross receipts (profit or loss from business)

Schedule F-TGR = total gross receipts (profit or loss from farming)

Note: We combined two of IRS’ income levels ($25,000 to $50,000 and $50,000 to $100,000) into

one income group ($25,000 to $100,000) because their audit rates were similar.

Source: GAO analysis of IRS data.

Appendix I: Individual Income Tax Audit Rate

Trends for Fiscal Years 1996 Through 2000
Appendix I: Individual Income Tax Audit Rate

Trends for Fiscal Years 1996 Through 2000

Page 18 GAO-01-484 Audit Trends for Individuals

Table 9: Individual Income Tax Returns Filed and Percent Change by Income Level

Returns filed by calendar year

Income level 1995 1996 1997 1998 1999

Percent

change

Total individual returns filed 116,059,700 118,362,600 120,342,400 122,546,900 124,887,100 8

Nonbusiness returns

TPI under $25,000 59,211,700 58,790,700 58,266,600 57,432,900 56,247,800 -5

TPI $25,000 under $100,000 44,282,200 46,205,800 47,736,300 49,704,900 51,987,400 17

TPI $100,000 and over 4,540,800 5,260,500 6,044,700 7,025,000 8,151,600 80

Subtotal 108,034,700 110,257,000 112,047,600 114,162,800 116,386,800 8

Business returns

Schedule C

TGR under $25,000 2,436,300 2,464,700 2,530,100 2,546,800 2,541,000 4

TGR $25,000 under $100,000 3,082,000 3,140,300 3,228,300 3,267,300 3,351,100 9

TGR $100,000 and over 1,738,300 1,770,700 1,835,500 1,876,000 1,948,900 12

Subtotal 7,256,600 7,375,700 7,593,900 7,690,100 7,841,000 8

Schedule F

TGR under $100,000 500,800 459,200 424,500 417,000 391,200 -22

TGR $100,000 and over 267,600 270,700 276,400 277,000 268,100 0

Subtotal 768,400 729,900 700,900 694,000 659,300 -14

Legend

TPI = total positive income (income from positive sources only)

Schedule C-TGR = total gross receipts (profit or loss from business)

Schedule F-TGR = total gross receipts (profit or loss from farming)

Note 1: We combined two of IRS’ audit income levels ($25,000 to $50,000 and $50,000 to $100,000)

into one income group ($25,000 to $100,000) because their audit rates were similar.

Note 2: Returns filed in calendar years1995 through 1999 are used to compute fiscal years 1996

through 2000 audit rates.

Source: GAO analysis of IRS data.
Appendix I: Individual Income Tax Audit Rate

Trends for Fiscal Years 1996 Through 2000

Page 19 GAO-01-484 Audit Trends for Individuals

Table 10: Individual Income Tax Returns Audited and Percent Change by Income Level

Returns audited by fiscal year

Income level 1996 1997 1998 1999 2000

Percent

change

Total individual audits 1,941,546 1,519,243 1,192,780 1,100,273 617,765 -68

Nonbusiness returns

TPI under $25,000 1,076,945 817,072 619,065 677,164 308,217 -71

TPI $25,000 under $100,000 456,376 336,819 286,552 181,038 115,696 -75

TPI $100,000 and over 129,320 119,575 100,079 80,038 68,616 -47

Subtotal 1,662,641 1,273,466 1,005,696 938,240 492,529 -70

Business returns

Schedule C

TGR under $25,000 102,558 78,553 60,023 68,450 61,695 -40

TGR $25,000 under $100,000 87,691 80,861 58,877 42,391 31,226 -64

TGR $100,000 and over 71,050 73,049 59,728 44,945 28,781 -59

Subtotal 261,299 232,463 178,628 155,786 121,702 -53

Schedule F

TGR under $100,000 7,944 5,868 3,949 2,832 1,384 -83

TGR $100,000 and over 9,662 7,446 4,507 3,415 2,150 -78

Subtotal 17,606 13,314 8,456 6,247 3,534 -80

Legend

TPI = total positive income (income from positive sources only)

Schedule C-TGR = total gross receipts (profit or loss from business)

Schedule F-TGR = total gross receipts (profit or loss from farming)

Note: We combined two of IRS’ audit income levels ($25,000 to $50,000 and $50,000 to $100,000)

into one income group ($25,000 to $100,000) because their audit rates were similar.

Source: GAO analysis of IRS data.

Table 11: Combined Audit Classes of Nonbusiness and Business Schedule C Returns and Percent Change

Audit rate by fiscal year

Nonbusiness and business schedule C income level 1996 1997 1998 1999 2000

Percent

change

Under $25,000 1.91% 1.46% 1.12% 1.24% 0.63% -67%

$25,000 under $100,000 1.15 0.85 0.68 0.42 0.27 -77

$100,000 and over 3.19 2.74 2.03 1.40 0.96 -70

Note: We combined two of IRS’ audit income levels for nonbusiness and schedule C returns into 3

income levels of under $25,000, between $25,000 and less than $100,000, and $100,000 and over.

Source: GAO analysis of IRS data.
Appendix I: Individual Income Tax Audit Rate

Trends for Fiscal Years 1996 Through 2000

Page 20 GAO-01-484 Audit Trends for Individuals

Table 12: Calculation of Fiscal Year 1999 Audit Rate for Combined Nonbusiness

and Business Returns for Lower Income and Higher Income Individuals

Income level

Returns

filed

Returns

audited Audit rate

Percent of

combined

audit rate

Nonbusiness

Lower income 57,432,900 677,164 1.18% 96%

Higher income 7,025,000 80,038 1.14 79

Subtotal 64,457,900 757,202 a a

Business

Lower income 2,546,800 68,450 2.69 4

Higher income 1,876,000 44,945 2.40 21

Subtotal 4,422,800 113,395 a a

Combined nonbusiness

and business

Lower income 59,979,700 745,614 1.24 100

Higher income 8,901,000 124,983 1.40 100

Subtotal 68,880,700 870,597 a a

a

Not applicable.

Source: GAO analysis of IRS data.

The audit rate for lower income individuals is greater than the rate for

higher income individuals for both nonbusiness and business filers in

fiscal year 1999. However, when nonbusiness and business filers are

combined into one category the audit rate for higher income individuals is

greater than the audit rate for lower income individuals.

This occurs due to the large number of lower income nonbusiness filers

(57.4 million) compared to the number of lower income business filers (2.5

million). As a result, the combined audit rate for lower income individuals

is more dominated by the audit rate for nonbusiness filers (1.18 percent)

and less dominated by the audit rate for business filers (2.69 percent).

Therefore, the combined audit rate only increases to 1.24 percent from the

1.18-percent audit rate for lower income nonbusiness filers.

On the other hand, the difference between the number of higher income

nonbusiness filers (7 million) and the number of higher income business

filers (1.9 million) is not nearly as large as for lower income individuals. As

a result, the combined audit rate for higher income filers is less dominated

by the audit rate for nonbusiness filers (1.14 percent) and more dominated

by the audit rate for business filers (2.40 percent) compared to lower

income filers. Therefore, the combined audit rate increases to 1.40 percent

from the 1.14-percent audit rate for higher income nonbusiness filers.
Appendix I: Individual Income Tax Audit Rate

Trends for Fiscal Years 1996 Through 2000

Page 21 GAO-01-484 Audit Trends for Individuals

Table 13: Audits of Lower Income and Higher Income Individuals by Type of Audit

Fiscal year

Income level 1996 1997 1998 1999 2000

Lower income

 Total correspondence audits 855,789 614,628 471,279 624,078 291,462

 Total face-to-face audits 323,714 280,997 207,809 121,536 78,450

 Total audits 1,179,503 895,625 679,088 745,614 369,912

 Percent of audits that are

correspondence audits 73% 69% 69% 84% 79%

 Percent of audits that are

face-to-face audits 27% 31% 31% 16% 21%

Total percent 100% 100% 100% 100% 100%

Higher income

 Total correspondence audits 68,851 52,614 39,343 33,489 37,034

 Total face-to-face audits 131,519 140,010 120,464 91,494 60,363

 Total audits 200,370 192,624 159,807 124,983 97,397

 Percent of audits that are

correspondence audits 34% 27% 25% 27% 38%

 Percent of audits that are

face-to-face audits 66% 73% 75% 73% 62%

Total percent 100% 100% 100% 100% 100%

Source: GAO analysis of IRS data.

Table 14: Correspondence and Face-to-Face Audit Rates by Income Level

Type of audit 1996 1997 1998 1999 2000

Correspondence

Lower income audits 855,789 614,628 471,279 624,078 291,462

Higher income audits 68,851 52,614 39,343 33,489 37,043

Lower income audit rate 1.39% 1.00% 0.78% 1.04% 0.50%

Higher income audit rate 1.10% 0.75% 0.50% 0.38% 0.37%

Face-to-Face

Lower income audits 323,714 280,997 207,809 121,536 78,450

Higher income audits 131,519 140,010 120,464 91,494 60,363

Lower income audit rate 0.53% 0.46% 0.34% 0.20% 0.13%

Higher income audit rate 2.09% 1.99% 1.53% 1.03% 0.60%

Source: GAO analysis of IRS data.
Appendix II: Assessment of Reasons Affecting

Audit Rate Changes for Fiscal Years 1996

Through 2000

Page 22 GAO-01-484 Audit Trends for Individuals

Table 15: Direct Audit Hours and Percent Change by Type of Auditor

Type of auditor 1996 1997 1998 1999 2000

Percent

change

Revenue agents 5,100,559 4,582,079 3,710,634 3,093,550 2,531,153 -50

Tax auditors 2,320,524 2,083,472 1,722,219 1,332,571 1,034,599 -55

Tax examinersa858,088 396,868 601,874b826,266c699,425d-18

Total 8,279,171 7,062,419 6,034,727 5,252,387 4,265,177 -48

a

Tax examiner totals for fiscal years 1998, 1999, and 2000 include service center and district office

tax examiner totals.

b

Includes 16,339 district office correspondence audits.

c

Includes 24,341 district office correspondence audits.

d

Includes 13,547 district office correspondence audits.

Source: GAO analysis of IRS data.

Table 16: Direct Audit Hours per Audit and Percent Change by Type of Auditor

Type of auditor 1996 1997 1998 1999 2000

Percent

change

Revenue agents 20.21 21.84 22.08 24.84 27.64 37

Tax auditors 4.56 4.12 4.49 5.66 7.09 56

Tax examinersa0.73 0.49 0.94 1.12 1.84 153

Total 25.49 26.45 27.51 31.62 36.56 43

a

Tax examiner totals for fiscal years 1998, 1999, and 2000 include service center and district office

tax examiner totals.

Source: GAO analysis of IRS data.

Table 17: Staff Years Spent on Nonaudit Activities and Percent Change by Type of Auditor

Type of auditor 1996 1997 1998 1999 2000

Percent

change

Revenue agents

Taxpayer assistance 148 148 293 451 549 270

Other details 132 134 141 174 210 59

Training 679 633 751 1,029 1,016 50

Total 960 915 1,185 1,654 1,776 85

Tax auditors

Taxpayer assistance 34 121 158 151 209 510

Other details 20 20 19 26 23 14

Training 163 85 96 138 126 -23

Total 217 225 273 314 358 65

Source: GAO analysis of IRS data.

Appendix II: Assessment of Reasons

Affecting Audit Rate Changes for Fiscal Years

1996 Through 2000
Appendix III: Audit Rates by Geographic

Location for Fiscal Years 1996 Through 1999

Page 23 GAO-01-484 Audit Trends for Individuals

Table18: IRS Individual Audit Rates by Region and District Office

Audit rate by fiscal year

Region and district 1996 1997 1998 1999

Average

audit rate

Northeast 0.44% 0.41% 0.34% 0.23% 0.35%

 Brooklyn 0.58 0.56 0.48 0.33 0.49

 Connecticut-Rhode Island 0.60 0.45 0.36 0.28 0.42

 Manhattan 0.75 0.77 0.63 0.44 0.65

 Michigan 0.44 0.36 0.29 0.19 0.32

 New England 0.46 0.37 0.31 0.21 0.33

 New Jersey 0.42 0.39 0.34 0.20 0.34

 Ohio 0.34 0.32 0.22 0.16 0.26

 Pennsylvania 0.36 0.41 0.33 0.23 0.33

 Upstate New York 0.36 0.37 0.31 0.18 0.30

Southeast 0.58 0.52 0.40 0.28 0.44

 Delaware-Maryland 0.53 0.53 0.42 0.25 0.43

 Georgia 0.79 0.64 0.54 0.31 0.57

 Gulf Coast 0.83 0.74 0.53 0.41 0.62

 Indiana 0.51 0.43 0.31 0.22 0.37

 Kentucky-Tennessee 0.40 0.48 0.37 0.22 0.37

 North Florida 0.52 0.45 0.32 0.24 0.38

 North-South Carolina 0.48 0.34 0.29 0.21 0.33

 South Florida 0.71 0.68 0.54 0.42 0.58

 Virginia-West Virginia 0.42 0.39 0.30 0.22 0.33

Midstates 0.62 0.59 0.49 0.32 0.50

 Arkansas-Oklahoma 0.72 0.63 0.58 0.35 0.57

 Houston 0.76 0.64 0.55 0.44 0.59

 Illinois 0.47 0.53 0.46 0.20 0.42

 Kansas-Missouri 0.51 0.45 0.38 0.25 0.39

 Midwest 0.53 0.52 0.41 0.31 0.45

 North Central 0.68 0.76 0.65 0.50 0.65

 North Texas 0.96 0.82 0.53 0.35 0.66

 South Texas 0.55 0.50 0.50 0.31 0.46

Western 1.09 1.00 0.73 0.47 0.81

 Central California 1.17 0.91 0.72 0.56 0.84

 Los Angeles 1.59 1.55 0.98 0.67 1.20

 Northern California 1.24 1.34 1.09 0.60 1.06

 Pacific-Northwest 0.63 0.51 0.37 0.24 0.43

 Rocky Mountain 0.73 0.67 0.49 0.28 0.54

 Southern California 1.63 1.35 0.94 0.69 1.14

 Southwest 0.81 0.81 0.62 0.36 0.64

Note: IRS regional data for fiscal year 2000 were not available at the time of publication.

Source: GAO analysis of IRS data.

Appendix III: Audit Rates by Geographic

Location for Fiscal Years 1996 Through 1999
Appendix III: Audit Rates by Geographic

Location for Fiscal Years 1996 Through 1999

Page 24 GAO-01-484 Audit Trends for Individuals

Table 19: IRS Districts With the Highest and Lowest Audit Rates

District office Audit rate by fiscal year

Highest rates 1996 1997 1998 1999

Average

audit rate

 Los Angeles 1.59% 1.55% 0.98% 0.67% 1.20%

 Southern California 1.63 1.35 0.94 0.69 1.14

 Northern California 1.24 1.34 1.09 0.60 1.06

 Central California 1.17 0.91 0.72 0.56 0.84

 North Texas 0.96 0.82 0.53 0.35 0.66

 North Central 0.68 0.76 0.65 0.50 0.65

 Manhattan 0.75 0.77 0.63 0.44 0.65

 Southwest 0.81 0.81 0.62 0.36 0.64

 Gulf Coast 0.83 0.74 0.53 0.41 0.62

 Houston 0.76 0.64 0.55 0.44 0.59

Lowest rates

 Ohio 0.34 0.32 0.22 0.16 0.26

 Upstate New York 0.36 0.37 0.31 0.18 0.30

 Michigan 0.44 0.36 0.29 0.19 0.32

 North-South Carolina 0.48 0.34 0.29 0.21 0.33

 Virginia-West Virginia 0.42 0.39 0.30 0.22 0.33

 Pennsylvania 0.36 0.41 0.33 0.23 0.33

 New England 0.46 0.37 0.31 0.21 0.33

 New Jersey 0.42 0.39 0.34 0.20 0.34

 Indiana 0.51 0.43 0.31 0.22 0.37

 Kentucky-Tennessee 0.40 0.48 0.37 0.22 0.37

Note: IRS regional data for fiscal year 2000 were not available at the time of publication.

Source: GAO analysis of IRS data

Table 20: Comparison of IRS Individual Audit Rates, Including and Excluding Service Center Audits

Location 1996 1997 1998 1999

Percent

change

United States (with service centers) 1.67% 1.28% 0.99% 0.90% -46

United States (without service centers) 0.66 0.60 0.47 0.31 -52

Northeast Region 0.44 0.41 0.34 0.23 -49

Southeast Region 0.58 0.52 0.40 0.28 -52

Midstates Region 0.62 0.59 0.49 0.32 -49

Western Region 1.09 1.00 0.73 0.47 -57

Note: IRS regional data for fiscal year 2000 were not available at the time of publication.

Source: GAO analysis of IRS data.
Appendix IV: Comments From the Internal

Revenue Service

Page 25 GAO-01-484 Audit Trends for Individuals

Appendix IV: Comments From the Internal

Revenue Service
Appendix IV: Comments From the Internal

Revenue Service

Page 26 GAO-01-484 Audit Trends for Individuals
Appendix V: GAO Contacts and

Staff Acknowledgments

Page 27 GAO-01-484 Audit Trends for Individuals

James R. White (202) 512-9110

Thomas Short (202) 512-9110

In addition to those named above, Helen Branch, Jay Pelkofer, Susan

Baker, Michele Fejfar, Anne Rhodes-Kline, MacDonald Phillips, and Robert

DeRoy made key contributions to this report.

Appendix V: GAO Contacts and Staff

Acknowledgments

GAO Contacts

Acknowledgments

(440007)

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