Report to the Chairman, Subcommittee 

on Oversight, Committee on Ways and 

Means, House of Representatives 

United States General Accounting Office 

GAO 

January 2003 TAX 

ADMINISTRATION 

IRS Should Continue 

to Expand Reporting 

on Its Enforcement 

Efforts 

GAO-03-378 
IRS’s often-cited audit rate has been declining for several years, as shown 

below. However, the audit rate portrays only a portion of IRS’s efforts to 

enforce tax laws and not all of those efforts have been declining. For IRS’s 

three nonaudit enforcement programs, the contact rates in 2002 compared to 

1993, after year to year variations, declined for one, essentially remained the 

same for one, and significantly increased for one—math error. A complete 

math error contact trend is unavailable because IRS did not capture one type 

of data on a substantial number of contacts prior to 1997. For years where 

complete data are available, IRS has not included all math errors in external 

reports. IRS officials agreed that all types of errors are identified under the 

same math error authority and should be similarly counted and reported. 

IRS annually reports extensive data on audits but only limited, or no, data on 

its other enforcement programs. This limited reporting does not provide 

policymakers or taxpayers information on the full extent of IRS’s 

enforcement efforts. To the extent that taxpayers do, as is widely believed, 

take the level of enforcement into account when self-reporting their tax 

obligations, the audit rate alone may mislead them. IRS officials believe that 

more reporting is desirable and intend to report readily available, but 

incomplete, information on nonaudit programs in future reports. 

IRS Enforcement Program Contact Rates, Fiscal Years 1993 through 2002. 

Note: Data for revised math error contacts is not available for fiscal years 1993 to 1996. The 

revised math error line above includes all math error contacts by IRS for the relevant years. 

TAX ADMINISTRATION

IRS Should Continue to Expand 

Reporting on Its Enforcement Efforts 

www.gao.gov/cgi-bin/getrpt?GAO-03-378. 

To view the full report, including the scope 

and methodology, click on the link above. 

For more information, contact Michael 

Brostek at (202) 512-9110 or 

BrostekM@gao.gov. 

Highlights of GAO-03-378, a report to the 

Subcommittee on Oversight, Committee 

on Ways and Means, U.S. House of 

Representatives 

January 2003 

Reported declines in the rate at 

which the Internal Revenue Service 

(IRS) audits (also referred to as 

“examines”) individual income tax 

returns have raised concerns that 

taxpayers may have a false 

perception of the true level of IRS’s 

tax enforcement efforts. In 

addition, many observers are 

concerned these reported declines 

may reduce taxpayers’ motivation 

to voluntarily pay their taxes. 

Because of these concerns, GAO 

was asked to review a number of 

issues surrounding IRS’s 

enforcement efforts. GAO 

determined the trends in the 

percent of returns filed that are 

audited (contact rate) compared 

with similar data on taxpayer 

contacts through other 

enforcement programs for fiscal 

years 1993 through 2002. In 

addition, GAO reviewed whether 

IRS’s reporting on its enforcement 

programs should be expanded. 

GAO recommends that IRS 

determine whether future reporting 

on its other enforcement programs 

can be more complete and 

comparable to reporting on audits. 

GAO also recommends that IRS 

correct underreporting of math 

error contacts. 

In commenting on a draft of this 

report, IRS agreed with our 

recommendations. It has already 

begun to identify additional data to 

report on its enforcement 

programs. 
Page i GAO-03-378 IRS Enforcement Reporting 

Letter 1

Results in Brief 2

Background 5

Scope and Methodology 7

Similarities and Differences among IRS Enforcement Programs 

Depend on the Type of Audit 8

Enforcement Program Contact Rates Did Not Follow Consistent 

Patterns 16

Limited Evidence Suggests IRS Enforcement Programs Do 

Increase Compliance; No Measures Available on Enforcement 

Program Burden 21

IRS’s Public Reporting on Its Enforcement Programs Is Incomplete 22

Conclusions 28

Recommendations to the Acting Commissioner of Internal 

Revenue 30

Agency Comments 30

Appendix I Development of the Math Error Program 31 

Appendix II Use of Information Returns and Document 

Matching at IRS 33 

Appendix III Individual Audit and Other Enforcement Program 

Data 38 

Appendix IV Soft Notices and Voluntary Compliance Agreements 49 

Appendix V Comments from the Commissioner of Internal 

Revenue 52 

Contents 
Page ii GAO-03-378 IRS Enforcement Reporting 

Appendix VI GAO Contacts and Staff Acknowledgments 54 

GAO Contacts 54

Staff Acknowledgments 54

Related GAO Products 55 

Tables 

Table 1: Operational Dimensions of IRS Enforcement Contacts 12

Table 2: Data Published on IRS Enforcement Programs for 

Individual Taxpayers, Fiscal Year 2001 23

Table 3: Legislative Authority on Math Error Provisions for 

Individual Tax Returns 31

Table 4: Major Legislation Affecting the Information Returns 

Program 34

Table 5: Major Types of Information Returns Filed for Tax Years 

1983 and 2000 36

Table 6: Number and Rates of Individual Audit and Other 

Enforcement Contacts, Fiscal Years 1993 through 2002 38

Table 7: Number and Rates of Individual Audit and Document 

Matching Contacts by Income Level, Fiscal Years 1993 

through 2002 42

Table 8: Number and Rates of Individual Audits by Type of Audit 

and Income Level, Fiscal Years 1993 Through 2002 46

Table 9: Average Direct Staff Hours by Type of Audit and For 

Document Matching Cases, Fiscal Years 1993 through 2002 48

Figures 

Figure 1: Average Direct Staff Hours by Type of Audit and for 

Document Matching Cases, Fiscal Years 1993 through 

2002 14

Figure 2: IRS Enforcement Contact Rates, Fiscal Years 1993 

through 2002 17

Figure 3: IRS Individual Audit and Document Matching Contact 

Rates by Income Level, Fiscal Years 1993 through 2002 19

Figure 4: Individual Audit and Other Enforcement Contacts, Fiscal 

Years 1993 through 2002 40

Figure 5: Number of Individual Audit and Document Matching 

Contacts by Income Level, Fiscal Years 1993 through 2002 44
Page iii GAO-03-378 IRS Enforcement Reporting 

Abbreviations 

EmTRAC Employer-designed Tip Reporting Alternative Commitment 

GAO General Accounting Office 

IRC Internal Revenue Code 

IRS Internal Revenue Service 

MSA Medical Savings Accounts 

NRP National Research Program 

RRA IRS Restructuring and Reform Act of 1998 

SSA Social Security Administration 

TIN Tax Identification Numbers 

TRAC Tip Reporting Alternative Commitment 

TRDA Tip Rate Determination Agreement 
Page 1 GAO-03-378 IRS Enforcement Reporting 

January 31, 2003 

The Honorable Amo Houghton 

Chairman, Subcommittee on Oversight 

Committee on Ways and Means 

House of Representatives 

Dear Mr. Chairman: 

The United States tax system is based on self-reporting and voluntary 

compliance by taxpayers. The Internal Revenue Service (IRS) uses various 

enforcement programs to check the accuracy of tax returns and contacts 

taxpayers if problems are found. IRS makes the contacts through four 

major enforcement programs that have existed for many years. 

• Math Error Program: While tax returns are being processed, this 

program uses IRS computers to identify and generate notices to contact 

taxpayers about obvious errors such as mathematical errors, omitted or 

inconsistent data, or other inconsistencies on the basis of other data 

reported on the return or to IRS. These errors must be corrected to 

process a tax return. 

• Document Matching Program: This program matches information on 

selected tax issues (usually income) reported on tax returns by individual 

taxpayers and reported on information returns by employers, banks, and 

other payers of income. Document matching also matches information 

returns (schedule K-1) filed by pass-through entities—such as 

partnerships, trusts and S-corporations—to individual tax returns. IRS 

may contact taxpayers about any reporting discrepancies. 

• Nonfiler Program: This program identifies and contacts potential 

nonfilers of tax returns by using data from information returns and 

previously filed income tax returns. The contacts can ask for the missing 

return or offer an IRS-generated return to substitute for the missing return. 

• Audit Program: Also referred to as “examination,” under this program, an 

IRS auditor checks compliance in reporting income, deductions, credits 

and other issues on tax returns, as well as in paying the correct tax 

liability. Audit contacts can be made through correspondence or in 

face-to-face meetings with taxpayers at an IRS office or a taxpayer 

location. 

United States General Accounting Office

Washington, DC 20548 
Page 2 GAO-03-378 IRS Enforcement Reporting 

Widely reported substantial declines in the rate at which IRS audits 

income tax returns have triggered concern that the declines could reduce 

taxpayers’ motivation to voluntarily pay their taxes. Many view IRS’s 

enforcement programs as critical support to our voluntary system—they 

help provide taxpayers with confidence that their friends, neighbors, and 

business competitors are paying their share of taxes. 

Because of your concerns that the declining audit rate may give taxpayers 

a misleading perception of the true level of IRS’s tax enforcement efforts 

and encourage some taxpayers not to comply, you requested that we 

review a number of issues related to how IRS enforces tax laws and 

publicly reports on those efforts. This report 

• compares IRS’s enforcement programs in terms of their legal authority, 

and operational characteristics (including IRS staff time), and describes 

what is known about taxpayer perceptions of the enforcement programs. 

• summarizes enforcement contact trends overall and by taxpayer income 

and their causes from 1993 to 2002. 

• determines what IRS knows about the effect of its enforcement programs 

on individual taxpayer compliance and the burdens taxpayers experience 

when contacted under the programs. 

• assesses whether and, if so, how IRS should expand reporting on its 

enforcement programs. 

To address these objectives, our work included interviewing IRS officials 

and reviewing documents on the similarities and differences across IRS 

enforcement programs. To identify trends in IRS’s enforcement programs 

including trends by taxpayer income levels, we analyzed IRS data from 

fiscal years 1993 through 2002.1

 To analyze impacts on taxpayers, and 

tradeoffs of reporting more data about the enforcement programs, we 

interviewed IRS officials and reviewed any available research on how the 

programs affect individual taxpayers’ compliance and burden. (See our 

scope and methodology section for details on our approach.) In addition, 

you asked us to analyze trends in the number of contacts by the specific 

programs. Appendix III provides this information. 

Whether audits and other enforcement programs vary from each other 

depends on a number of factors. With regard to legal characteristics, 

 1

The fiscal 2002 data on number of tax returns filed by individuals had not been finalized 

before we issued the report. 

Results in Brief 
Page 3 GAO-03-378 IRS Enforcement Reporting 

audits and other enforcement programs are all authorized to contact 

taxpayers about apparent noncompliance and to determine and adjust 

taxpayers’ tax liability. However, audits have the broadest authority to 

detect possible noncompliance, significant powers to obtain information, 

and the most restrictions on how IRS is to interact with taxpayers. With 

regard to operational characteristics, the extent to which audits are 

operationally similar to or different from other enforcement programs 

varies depending on the type of audit. In general, audits done in taxpayer 

locations and IRS offices are not similar operationally to other 

enforcement programs. Audits done through correspondence with the 

taxpayer, while still different, are more operationally similar to the other 

programs. IRS officials were unaware of any research on whether 

taxpayers perceive differences among IRS’s enforcement programs. 

However, looking at audits and other enforcement programs from the 

taxpayers’ perspective, IRS officials and officials we interviewed who 

represent taxpayers believe that taxpayers may not perceive distinctions 

among many of the enforcement programs. 

In fiscal years 1993 through 2002, the enforcement program contact rates 

often did not follow consistent patterns from one program to another or 

from year to year within programs.2

 Comparing just fiscal years 1993 to 

2002, the contact rates for the audit and document matching programs 

dropped 38 percent and 45 percent, respectively, while the nonfiler 

program contact rates stayed about the same. Only the math error 

program had a contact rate significantly higher in 2002 than in 1993. 

However, this growth covers only a portion of math error contacts 

because data on one type of math error contact does not exist for years 

before 1997, and have not been reported by IRS as math errors. These 

unreported math error contacts total about 2 million annually. IRS officials 

agreed that these other contacts should be counted and reported as math 

errors. Excluding these contacts, the math error contact rate was 

33 percent higher in 2002 than in 1993. For individuals, audit rates for 

taxpayers in higher and middle-income ranges were significantly lower in 

2002 than in 1993, while the rate for the lowest income range was virtually 

the same in 2002 and 1993. Document matching program contact rates 

ended significantly lower in 2002 than 1993 for taxpayers in all three 

 2

This report refers to the portion of tax returns audited by IRS as the audit contact rate. 

Similarly, the portion of tax returns for which IRS contacts taxpayers about possible 

noncompliance is the contact rate for the math error, document matching, and nonfiler 

programs. 
Page 4 GAO-03-378 IRS Enforcement Reporting 

income ranges. Income data for the contact rates in the math error and 

nonfiler programs were not available. 

The divergent trends among the enforcement programs in their contacts 

with taxpayers are attributable to several factors, including statutory 

changes that expanded the types of issues IRS could address with 

nonaudit programs, declines in IRS enforcement staffing, and priorities in 

using staff. For example, the rise in math error contacts is at least partly 

attributable to a 1996 statutory change that enabled IRS to check hundreds 

of thousands of missing or invalid social security numbers through the 

math error program rather than audits. Declines in the audit program are 

generally attributable to statutory changes that reduced the availability of 

IRS staff to do audits and increased the time needed to do audits. In 

addition, declines in the number of staff assigned to work enforcement 

cases coupled with the priority IRS gives to staffing the math error 

program—because such errors must be resolved before tax returns can be 

processed—have contributed to declines in contacts with taxpayers in the 

audit, nonfiler, and document matching programs. 

IRS has limited evidence on the effects of its enforcement programs on 

taxpayer compliance and no evidence on the burdens taxpayers 

experience when contacted under the programs. Although widespread 

agreement exists that enforcement programs are critical to ensuring 

voluntary compliance, IRS officials only identified one study that 

attempted to measure the effect of individual enforcement programs on 

compliance. This IRS study, using various data for 1982 through 1991, 

estimated that the audit and document matching programs had some 

positive effects on whether taxpayers filed returns and reported relevant 

information. No measures are available on the burdens placed on 

individual taxpayers due to IRS’s enforcement contacts and IRS does not 

currently plan to start any studies to measure these burdens. 

IRS’s annual public reporting on its enforcement programs for individual 

taxpayers does not provide a complete perspective on its efforts to 

enforce the tax laws. IRS annually reports extensive data on audits but 

limited or no data on other enforcement programs. This limited reporting 

does not provide policymakers or taxpayers information on the full extent 

of IRS’s enforcement efforts. To the extent policymakers and taxpayers 

focus on audits due to IRS’s limited reporting, they may not understand 

that long-term declines in the audit rate are in part due to the movement of 

some tax issues from audits into other enforcement programs, and that 

these programs contact far more taxpayers about compliance issues than 

does the audit program. Of two options for expanding reporting that we 
Page 5 GAO-03-378 IRS Enforcement Reporting 

identified, reporting more data on each enforcement program would avoid 

several disadvantages of combined reporting under an expanded definition 

of an audit. Expanding the definition of an audit would combine some 

enforcement activities that are so disparate—such as audits conducted at 

taxpayer locations of complex issues versus simple corrections of 

inadvertent math errors—that the consolidated reporting could be 

misleading. IRS officials plan to expand public reporting for fiscal year 

2002 on IRS’s major enforcement programs to the extent that data are 

available and cost effective to extract. They do not plan to determine 

whether IRS can cost effectively develop additional data to enable future 

reporting to more completely represent program results and to facilitate 

program comparisons. 

We are recommending that IRS determine whether data can be cost 

effectively developed to make future reporting on its other enforcement 

programs more complete and comparable to reporting on audits. We also 

recommend that IRS correct underreporting of math error contacts. In 

commenting on a draft of our report, IRS agreed with our 

recommendations and has already begun to identify additional data to 

report on its enforcement programs. 

Each year, IRS screens all individual tax returns and selects a small 

percentage in which to contact taxpayers about potential noncompliance. 

Prior to doing automated checks of tax returns, IRS had relied on its audit 

program to contact taxpayers about apparent inaccuracies in reporting 

income, deductions, and other issues on their tax returns. For example, to 

verify interest income or dependent exemptions claimed by taxpayers, IRS 

auditors had to contact taxpayers, request and review documentation. 

Thus, if IRS audited the returns of 5 percent of all taxpayers, it could at 

most check on the accuracy of interest income for 5 percent of taxpayers. 

Since the 1970s, IRS’s ability to verify some items on individual returns 

expanded as IRS’s capacity to use automated processes grew and as 

Congress enacted laws requiring third parties (like banks, mortgage 

finance firms, etc.) to provide information returns to taxpayers and IRS on 

income paid. These steps enabled IRS to more universally and efficiently 

check taxpayer compliance for those tax issues covered by information 

returns. For example, with the initiation of information returns for interest 

income and the development of IRS’s automated capacity, IRS began to 

check whether every taxpayer for whom it had received an applicable 

information return had accurately reported that interest on their tax 

return. 

Background 
Page 6 GAO-03-378 IRS Enforcement Reporting 

As a result, for some wage earners who claim no deductions, IRS can 

review the accuracy of all, or nearly all, items reported on their tax return 

to the extent that third parties correctly filed all information returns. In 

these cases, IRS effectively receives information that should be in 

taxpayers “books and records” and no longer needs to use auditors to 

obtain such information from taxpayers’ records for these selected issues. 

Concurrent with these expansions in IRS’s ability to check the accuracy of 

certain issues on taxpayers’ returns, the number of taxpayer returns that 

IRS audited began to decline. For example, between fiscal years 1981 and 

1992, the number of document matching contacts rose from 1.2 million to 

3.8 million and the number of audits dropped from 2.5 million to 

1.1 million. 

Several GAO reports have discussed IRS audits, other enforcement 

contacts, and taxpayer burden as follows: 

• In 1996, we reported that audit rates fell from 1988 to 1993 and then rose 

to a high of 1.67 percent in 1995.3

 In 2001, we reported that audit rates had 

steadily dropped from 1996 to 2000, declining to 0.49 percent.4

• During 2000, we reported that IRS made almost 10 million nonaudit 

contacts of taxpayers in 1998 through about 6 million math error notices, 

2 million document matching notices, and 2 million soft notices. We 

recommended that IRS analyze the data collected for each of the three 

major nonaudit contact programs to improve taxpayer compliance and 

taxpayer service.5

• During 2000, we reported on IRS’s efforts to estimate taxpayer compliance 

burden for prefiling, filing, and postfiling activities. We found that IRS was 

developing two models that, when combined, should provide more reliable 

estimates of compliance burden for wage earners.6

 3

U.S. General Accounting Office, Tax Administration: Audit Trends and Results for 

Individual Taxpayers, GAO/GGD-96-91 (Washington, D.C.: Apr. 26, 1996). 

4

U.S. General Accounting Office, IRS Audit Rates: Rate for Individual Taxpayers Has 

Declined But Effect on Compliance Unknown, GAO-01-484 (Washington, D.C.: Apr. 25, 

2001). 

5

U.S. General Accounting Office, Tax Administration: IRS’ Use of Nonaudit Contacts, 

GAO/GGD-00-7 (Washington, D.C.: Mar. 16, 2001). 

6

U.S. General Accounting Office, Tax Administration: IRS Is Working to Improve Its 

Estimates of Compliance Burden, GAO/GGD-00-11 (Washington, D.C.: May 22, 2000). 
Page 7 GAO-03-378 IRS Enforcement Reporting 

To compare audit and other enforcement programs, we obtained 

information on their legal and operational characteristics. For legal 

authority, we reviewed the Internal Revenue Code (IRC) and IRS 

documents. For program operations, we reviewed IRS documents and 

interviewed responsible IRS officials to understand how each program 

works. For the average time spent on each type of contact, we analyzed 

available IRS data for fiscal years 1993 through 2002. For how taxpayers 

perceive IRS’s enforcement programs, we interviewed IRS officials; 

reviewed tax research studies and press articles; and contacted four large 

national organizations representing attorneys, certified public 

accountants, enrolled agents, and tax preparers, as well as the largest tax 

return preparation firm, and IRS’s national taxpayer advocate. 

To summarize trends in the number and rate of individual taxpayer audits 

and other enforcement contacts in total and by taxpayer income, we 

analyzed available IRS data from fiscal year 1993 to fiscal year 2002 on 

each type of contact. To compute the audit contact rate, we used IRS’s 

method, which equals the proportion of IRS audits closed in a fiscal year 

compared with returns filed in the previous calendar year. IRS has not 

stated a method for computing math error, document matching, and 

nonfiler rates. For the document matching and nonfiler programs, we 

compared the proportion of notices sent in a fiscal year to return filings in 

the previous year because these contacts generally occur in the year after 

a return is filed. For the math error program, we based the contact rate on 

the proportion of math error notices to the returns filed in that year 

because the notices are sent to taxpayers as IRS processes tax returns. For 

the math error, document matching, and nonfiler programs, we based the 

contact rate on the number of initial notices sent to taxpayers rather than 

closures because (1) it is the broadest measure of IRS’s enforcement 

efforts with taxpayers and (2) the math error and document matching 

programs usually conclude the contact with the taxpayer within a few 

months after the initial notice is sent. Nonfiler contacts can take 

considerably longer to close, making it difficult to know which tax year to 

use in computing a contact rate. We used the number of initial notices so 

that the nonfiler program could be measured on a consistent basis with 

the document matching and math error programs. To understand the 

reasons for the trends, we analyzed our previously issued reports and IRS 

reports and interviewed IRS staff for each enforcement program. 

To determine how audit and other enforcement programs affect individual 

taxpayer compliance and burden, we obtained and reviewed available data 

such as IRS studies and reports, our previous reports, and other research. 

We also interviewed responsible IRS officials. 

Scope and 

Methodology 
Page 8 GAO-03-378 IRS Enforcement Reporting 

To assess whether IRS should expand reporting on its enforcement efforts, 

we analyzed the types of enforcement data already publicly reported on an 

annual basis by IRS. We also analyzed the tradeoffs for two options we 

identified—expanding the definition of audit to include the other 

enforcement programs and reporting more data on each program. We used 

much of the information from the previous objectives and interviews with 

IRS officials. 

For all objectives, our work focused on the four major enforcement 

programs identified by IRS—math error, document matching, nonfiler, and 

audit. We attempted to verify the completeness and accuracy of IRS’s data 

but could not reconcile all differences given time constraints. As a result, 

we either did not report some data or disclosed limitations in the data 

being reported. Further, in analyzing audit and document matching rates 

by income level, we did not adjust the income levels for the effects of 

inflation over the 1993 to 2002 period because detailed data on taxpayer 

income was not available during the timeframes for the assignment. All 

data used in the report are final except for the number of tax returns filed 

in 2002. Because this number is preliminary, the final math error contact 

rate for fiscal year 2002 may differ somewhat from what we report. In 

addition, you asked us to analyze two newer IRS efforts—voluntary 

compliance agreements and soft notices. Appendix IV describes the two 

newer efforts. 

We did our work at IRS’s national office in Washington, D.C., and offices in 

New Carrolton, Maryland, and Atlanta, Georgia, between August 2002 and 

December 2002 in accordance with generally accepted government 

accounting standards. We requested comments on a draft of this report 

from IRS (see app. V). 

Whether audits and other enforcement programs vary from each other 

depends on a number of factors. With regard to legal characteristics, 

audits and other enforcement programs are all authorized to contact 

taxpayers about apparent noncompliance and to determine and adjust 

taxpayers’ tax liability. However, audits have the broadest authority to 

detect possible noncompliance, significant powers to obtain information, 

and the most restrictions on how IRS is to interact with taxpayers. With 

regard to operational characteristics, the extent to which audits are 

operationally similar to or different from other enforcement programs 

varies depending on the type of audit. Audits done in taxpayer locations 

and IRS offices are not similar operationally to other enforcement 

Similarities and 

Differences among 

IRS Enforcement 

Programs Depend on 

the Type of Audit 
Page 9 GAO-03-378 IRS Enforcement Reporting 

programs and audits done through correspondence with the taxpayer, 

while still different, are more operationally similar to some of the other 

programs. IRS officials were unaware of any research on whether 

taxpayers perceive differences among IRS’s enforcement programs. 

However, looking at audits and other enforcement programs from the 

taxpayers’ perspective, IRS officials and officials we interviewed who 

represent taxpayers believe that taxpayers may not perceive distinctions 

among many of the enforcement programs. 

In a general sense, the IRC provisions for enforcement are similar in that 

they authorize IRS to contact taxpayers about apparent noncompliance 

and to determine and adjust taxpayers’ tax liability. However, the IRC 

provisions grant IRS the authority to review all matters that may affect a 

taxpayer’s tax liabilities under audits but only certain specified tax issues 

under other enforcement programs. The IRC also establishes more rules—

including significant powers to obtain information as well as restrictions 

on those powers—that govern the nature of audit contacts with taxpayers 

than for the other programs. 

The IRC does not explicitly limit the tax issues to be covered by an audit, 

unlike for the other enforcement programs. Under the authority of section 

7602, audits can cover any issue on a tax return, including those that the 

other programs cover.7

 In contrast, the IRC specifies the scope of legal 

authority for the three other enforcement programs. For example, after 

five statutory expansions since 1976, math error authority8

 now covers 

11 tax issues (see app. I). Document matching—which grew primarily 

through the 1980s as Congress authorized more information reporting—

now covers over 20 types of individual income as well as certain tax 

credits and deductions (see app. II).9

 The IRC also specifically authorizes 

 7

For example, an audit might address unreported income, which is the focus of document 

matching, because document matching can only verify individual income reported on 

information returns. According to IRS, information returns only report 80 percent of all 

individual income reported on tax returns. 

8

IRC sec. 6213 grants math error authority for issues such as calculation errors, entries that 

are inconsistent with or exceed statutory limits, various omissions of information, or 

incorrect use of an IRS table. 

9

IRC sec. 6041, 6044, 6045, 6049, 6050, and 6051, among others, authorize information 

reporting to help identify a discrepancy on individual income such as wages, interest, 

dividends, pension distributions, and gross proceeds from stock sales. 

Legal Characteristics: 

Audits Have the Broadest 

Scope, Significant Powers 

to Obtain Information, and 

the Most Detailed 

Restrictions 
Page 10 GAO-03-378 IRS Enforcement Reporting 

the nonfiler program to pursue unfiled tax returns that should have been 

filed.10

The IRC also establishes more rules governing IRS’s contacts with 

individual taxpayers under the audit program than it does for the math 

error, document matching, and nonfiler programs. These rules give IRS 

significant powers to obtain information needed to determine an 

individual’s tax liabilities when doing an audit and, in turn, places 

restrictions on the use of those powers. If resolving issues raised under the 

other enforcement programs requires that IRS auditors become involved, 

the contacts with taxpayers become audits subject to these greater powers 

and restrictions. For example, if a taxpayer who receives a math error 

notice files a claim for IRS to abate the tax assessment, IRS could audit 

that claim. Similarly, if a taxpayer responds to a document matching 

notice with materials that cannot be readily and immediately used to settle 

the discrepancy, the case could be referred to audit staff. 

The greater powers that IRS has under audit compared with the other 

programs include the authority to examine books and records and take 

testimony for purposes of determining the tax liability of a tax return. IRS 

also has the power to use a summons to compel taxpayers and third 

parties to provide books and records, and to enter premises to examine 

objects subject to taxation.11

Given these greater powers, the law also places more restrictions on 

audits to protect taxpayer rights.12 For example, the law restricts IRS from 

doing unnecessary audits or generally doing more than one inspection of 

taxpayers’ books for each tax year. The law also governs the time and 

place of an audit and burden of proof on IRS. In addition, the Internal 

Revenue Service Restructuring and Reform Act (RRA) of 1998 (P.L. 105-

 10IRC sec. 6020 grants this authority to IRS and allows IRS to prepare a return for a 

taxpayer who did not file as required and process that return to assess taxes owed. 

11IRC sections 7602 through 7606 and 7609 grant these powers. 

12IRC sections 7602, 7605, 7609, and 7491 address these restrictions. 
Page 11 GAO-03-378 IRS Enforcement Reporting 

206) added several requirements, such as informing taxpayers of their 

rights during audits.13

On the other hand, RRA also added a provision that creates a legal 

similarity for all four enforcement programs because it affects any IRS 

employee, including those making audit or nonaudit contacts. Section 1203 

of RRA lays out the conditions under which any IRS employee is to be 

fired for any of 10 specific acts or omissions. Many of these conditions 

involve contacts with taxpayers—such as harassing taxpayers or taxpayer 

representatives, violating their civil rights, or threatening to audit a 

taxpayer for personal gain. These restrictions were intended to protect 

taxpayers in their interactions with IRS. 

Another legal provision creates a similarity between audits and two of the 

three other programs. Except for the math error program, when IRS 

proposes a change in taxpayers’ liabilities, it is required to send a notice14

informing taxpayers of their rights, such as the right to appeal additional 

taxes that IRS proposes. The IRC does not provide taxpayers a right to 

appeal assessments created under math error authority because that 

authority generally applies to obvious errors made by taxpayers on their 

returns. However, IRS informs taxpayers receiving a math error notice that 

they may file a claim to ask IRS to abate (reduce) the tax assessment if 

they believe IRS erred. 

The extent to which audits are operationally similar to or different from 

other enforcement programs varies depending on the type of audit. 

Compared with other enforcement programs, audits done in taxpayers’ 

locations or IRS offices are more likely to deal with multiple and complex 

issues, require more skill and judgment by IRS employees, require a 

greater number of interactions with taxpayers, and take more IRS staff 

time. Correspondence audits also tend to differ from other enforcement 

programs in these operational characteristics but to a lesser degree, and in 

some cases correspondence audits and document matching contacts with 

 13The Restructuring Act also restricted the audit technique that can be used to identify 

unreported income; requires IRS to explain taxpayer rights including the right to be 

represented during audits; requires IRS to disclose the general criteria for why the return 

was selected for audit; and restricts the ability to summon a third party for an audit. 

14Publication 1 (Your Rights as a Taxpayer) explains the rights that taxpayers have in 

contacts with IRS. 

Operational 

Characteristics: Audits at 

IRS Offices or Taxpayer 

Locations Differ the Most 

from Other Enforcement 

Programs 
Page 12 GAO-03-378 IRS Enforcement Reporting 

taxpayers can be very similar in these characteristics. Table 1 provides an 

overview of key operational dimensions across the enforcement programs. 

Table 1: Operational Dimensions of IRS Enforcement Contacts 

Contact What triggers the contact? 

How many contacts 

occur between IRS 

and the taxpayer? 

How much skill and 

judgment is required 

by IRS staff? 

When is the initial contact 

sent to the taxpayer? 

Audits • computer analysis of potentially 

noncompliant returns 

• referrals from inside or outside 

IRS 

• projects on specific areas of 

known noncompliance 

likely requires multiple 

exchanges via 

notices/letters, 

telephone, and/or 

face-to-face meetings 

skilled review of 

simpler issues and 

more sophisticated 

analysis of complex 

issues 

usually within 1 year after the 

return is filed but may occur 

later as long as IRS finishes 

the audit within 

3 years after the return is filed

Document 

Matching 

computer identification of error 

based on information received from 

third parties on income paid 

one notice from IRS 

and possible 

exchanges via letters 

or telephone 

some skill/judgment within 1 year after the return 

was filed 

Non-filer • computer identification of those 

who did not file or who stopped 

filing 

• referrals from inside or outside 

IRS 

one notice from IRS 

and probable 

exchanges via letters, 

telephone, or meetings 

some skill/judgment usually within 1 year after the 

return was to be filed 

Math Error computer identification of error using 

taxpayer information on their tax 

returns or forms 

one notice from IRS little skill/judgment as part of the initial 

processing for the tax return 

Source: GAO analysis. 

Note: Of the three types of audits, the simplest usually covers one to two tax issues handled by a 

lower-graded auditor and correspondence. More complex audits are done by meeting with taxpayers 

in IRS field offices. The most complex audits are done through field visits to taxpayer locations. 

Reviewing these operational dimensions helps highlight similarities and 

differences across the four types of enforcement. 

• Contact triggers: All enforcement contacts use computers to identify a 

potential compliance issue. However, audits are more likely to be 

triggered by other means such as a special compliance project or referrals 

from inside or outside of IRS. 

• Number of contacts: Once any potential compliance issues are found, the 

fewest contacts with taxpayers to resolve the issues are likely under the 

math error and document matching programs because they have relatively 

simple issues. Correspondence audits might need more than one contact, 

depending on the complexity of the issue(s) being audited and taxpayers’ 

responses. The number of contacts in the nonfiler program can vary 

depending on whether taxpayers respond to an IRS notice by filing a 
Page 13 GAO-03-378 IRS Enforcement Reporting 

return, or explaining why a return was not required.15 Some may not 

respond, possibly leading IRS to send a second notice or create a 

substitute return and send it to that taxpayer. Audits at IRS offices or 

taxpayer locations are likely to have the most contacts with taxpayers 

through meetings, notices, or the telephone because they tend to cover 

several, more complex issues. 

• IRS staff skill and judgment: Audit contacts—especially those done in 

IRS offices or in taxpayer locations—require the most staff skill and 

judgment to analyze taxpayers’ testimony and books and records. Being 

more automated and usually dealing with simpler issues, other 

enforcement programs rely on less staff skill and judgment. Document 

matching staff might have to analyze taxpayers’ explanations for why they 

do not owe more tax but are to refer the case to the audit program if an 

explanation requires detailed analysis or includes books and records. The 

nonfiler program requires limited skill and judgment when automated 

processes send the notices or generate substitute returns. More skill and 

judgment is required when IRS staff manually create substitute returns or 

when taxpayers respond to a notice by saying that they do not have to file 

a return. 

• Timing of initial contact: Math error contacts are made as the return is 

being processed and identify errors that must be corrected to finish 

processing the return. Document matching and nonfiler contacts usually 

occur within 1 year after the return is filed or is to be filed. Audits usually 

start within 1 year after a return is filed but can start later as long as IRS 

finishes the audit within 3 years after the return is filed. 

Another operational characteristic is the average time spent by IRS staff. 

Figure 1 shows that audits use more staff time per case than document 

matching contacts.16 For fiscal years 1993 through 2002, the staff time 

ranged from roughly an hour per document matching case to up to 

30 hours per field audit. (see Table 9 in app. III for details.) IRS does not 

separately track the time spent on math errors from the rest of the returns 

filing process or on nonfilers from other work done by collection staff. 

 15Taxpayers are not always required to file a tax return such as when their income is too 

low. 

16Document matching staff time includes the time to resolve discrepancies before and after 

contacting taxpayers. 
Page 14 GAO-03-378 IRS Enforcement Reporting 

Figure 1: Average Direct Staff Hours by Type of Audit and for Document Matching 

Cases, Fiscal Years 1993 through 2002 

Note: Fiscal year 2002 data are estimated. 

Looking across all of these operational dimensions in general, audits that 

take place in IRS offices or in taxpayer locations differ the most from 

other enforcement programs. They differ primarily because they are more 

likely to deal with multiple complex tax issues, require more skill and 

judgment by IRS employees, require a greater number of interactions with 

taxpayers, and take more IRS staff time. Although correspondence audits 

do differ from other enforcement programs on these characteristics, they 

do not differ as much from other enforcement programs as do the audits in 

IRS field offices or taxpayer locations. The closest similarity between 

correspondence audits and the other programs is with the documentmatching program. In comparison to the document matching program, 

correspondence audits in some cases may deal with about the same 

number of issues, have the same number of interactions with taxpayers, 

and require similar skill, judgment, and time on the part of IRS staff. 

Correspondence audits are less similar to contacts under the math error 

and nonfiler programs than to document matching. Math error contacts 

Hours

0

5

10

15

20

25

30

35

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Year

Field audit

Office audit

Correspondence audit

Document matching

1

2

Source: GAO analysis of IRS data.
Page 15 GAO-03-378 IRS Enforcement Reporting 

deal with straightforward issues that must be corrected as a return is 

processed as opposed to contacting the taxpayer up to one year later 

about issues in the return. Nonfiler contacts deal with taxpayers who have 

not filed a return at all as opposed to seeking to correct issues related to a 

filed return. 

In addition to the four major enforcement programs, starting in the mid1990s, IRS created two new programs intended to help individual 

taxpayers file accurate tax returns. IRS sends so-called “soft notices” on 

duplicate claims for dependent exemptions and missing self-employment 

tax reporting. The soft notices do not require taxpayers to take action but 

are intended to educate them about the potential errors and encourage 

them to correct their returns, if necessary. The other new program is the 

voluntary compliance agreements program. These agreements are 

negotiated with certain employers with the goal of increasing their 

employees’ compliance in reporting tip income. As discussed in appendix 

IV, while these programs attempt to improve compliance, they have 

significant differences from the four major enforcement programs and IRS 

has little data on their use. However, IRS was able to provide us with data 

that it sent taxpayers 1.2 million soft notices on duplicate dependent 

claims in 2002. 

IRS officials were not aware of any research, and our search of the tax 

literature and press did not uncover research, on whether taxpayers 

perceive distinctions between audits and other enforcement programs. Of 

the four major enforcement program contacts, IRS officials said that they 

could see how some taxpayers might view two types of contacts—

document matching and correspondence audits—as similar in that both 

tend to cover one or two tax issues that are fairly simple, contact 

taxpayers through the mail, and give taxpayers the same appeal rights. 

Otherwise, these officials did not see how taxpayers could view the 

enforcement contacts as similar, especially the math error contacts. 

Although they had not surveyed taxpayers, officials we interviewed from 

six groups that represent taxpayers or help prepare their tax returns 

believed that many individuals perceive no distinction among the 

programs. For example, one representative attributed this to the 

conclusion that taxpayers view all IRS notices as stating the same 

thing—that the taxpayer owes more taxes. 

No Research Identifies 

Whether Taxpayers 

Perceive Distinctions in 

Enforcement Programs but 

Officials Believe That 

Distinctions May Not Be 

Made 
Page 16 GAO-03-378 IRS Enforcement Reporting 

From fiscal years 1993 through 2002, the rates for the four enforcement 

programs often did not follow consistent patterns from one program to 

another or from year to year within programs. Comparing just 1993 with 

2002, the contact rates for two programs—audits and document 

matching—were significantly lower, the rate for math errors was 

significantly higher, and the rate for nonfilers was essentially the same. By 

taxpayer income level, the audit rate for higher and middle income 

taxpayers generally declined over the 10-year period—with the sharpest 

declines for higher income taxpayers. The rate for the lowest income 

taxpayers increased sharply between 1993 and 1995 and then generally 

fell, ending virtually the same as in 1993. The document matching contact 

rate by income class followed very similar patterns with the rates for all 

income levels dropping over the 10-year period. The enforcement contacts 

increased or decreased because of several reasons, including statutory 

changes, staffing declines, and priorities in the use of staff among the 

programs. 

As figure 2 shows, the math error program contact rates rose or fell from 

year to year; however, it’s the only enforcement program that had a 

significantly higher contact rate in fiscal year 2002 than in 1993. This is 

true even without counting certain math error contacts for which IRS 

lacks data over the 10-year period. Using only the math error count, which 

is consistent throughout the 10 years, the math error contact rate rose 

33 percent (from 3.59 percent to 4.79 percent). Document matching 

contact rates went down and up at various times but ended 45 percent 

lower (from 2.37 percent to 1.30 percent) in 2002 compared to 1993. The 

nonfiler rates also went up and down but ended in 2002 about where they 

were in 1993. Comparing 1993 to 2002, the audit contact rate dropped 

38 percent (from 0.92 percent to 0.57 percent), even though it rose 

significantly between 1993 and 1995. Over the 10 years, the math error rate 

exceeded the rate for each of the three other programs, and the audit rate 

was the lowest rate, except in fiscal years 1995, 1996, and 1997. The trends 

in the number of contacts in all four programs generally follow the trends 

in the rates. Appendix III provides details about the contact numbers and 

rates for all four programs. 

Enforcement Program 

Contact Rates Did Not 

Follow Consistent 

Patterns 

Enforcement Program 

Contact Rates Varied from 

Program to Program and 

Often from Year to Year 

within Programs 
Page 17 GAO-03-378 IRS Enforcement Reporting 

Figure 2: IRS Enforcement Contact Rates, Fiscal Years 1993 through 2002 

Notes: The math error (revised) line includes math error contacts from masterfile notices that IRS’s 

reports had excluded. Data on such math errors were not available prior to fiscal year 1997. The 

figure does not include additional contacts for math errors related to the rate reduction credit during 

2002. 

Fiscal year 2002 data is estimated. 

The trend line in Figure 2 shows a revised math error contact rate that 

includes masterfile17 notices IRS had been sending throughout this period 

but had not been reporting as math errors. In data made publicly available 

on math error contacts,18 IRS had excluded roughly 2 million masterfile 

 17The masterfile is IRS’s historical record of transactions involving each taxpayer’s account. 

18IRS letter to respond to questions from the Senate Finance Committee, March 26, 2001. 

Rate (percent)

0

1

2

3

4

5

6

7

8

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Year

Math error

Document matching

Audit

Math error (revised)

Nonfiler

Source: GAO analysis of IRS data.
Page 18 GAO-03-378 IRS Enforcement Reporting 

math error contacts annually for fiscal years 1997 through 2002.19 When 

included, the math error contact rate increases (e.g., from 4.97 percent to 

6.5 percent in 1997). These math error contacts arise from IRS’s match of 

filed tax returns to its masterfile accounts to identify tax returns that 

misreport taxes already paid such as in previous years or estimated tax 

payments. IRS officials said that the masterfile errors were not reported as 

math errors because they are identified through a different process at a 

later time compared to other math errors during the processing of tax 

returns. In our discussions, these officials agreed that both types of errors 

are identified under the same math error authority, are indistinguishable to 

taxpayers being contacted, and should be similarly counted and reported. 

IRS also did not include in its published report about 8 million notices sent 

in fiscal year 2002 to correct errors in tax returns reporting the rate 

reduction credit.20 If these notices had been included, the math error 

contact rate would have nearly doubled to 12.5 percent. The Economic 

Growth and Tax Relief Reconciliation Act of 2001 authorized tax rate 

reductions as well as an advance tax refund, called the rate reduction 

credit. Because the rate reduction credit applied for only 1 year, this error 

is unlikely to recur according to IRS officials. As a result, we did not 

include this information in figure 2. 

Figure 3 shows that the contact rates generally declined in the audit and 

document matching programs for all taxpayer income levels between 

fiscal years 1993 and 2002. For the math error and nonfiler programs, data 

on contact rates by income level were not available, and IRS officials said 

that it would take some time and effort to develop math error and nonfiler 

contact rates by income levels. (See table 7 in app. III for details on 

contact rates by income levels.) 

 19IRS had not collected data on these masterfile math errors prior to fiscal year 1997. 

20U.S. General Accounting Office, Tax Administration: Advance Tax Refund Program was 

a Major Accomplishment, but Not Problem Free, GAO-02-827 (Washington, D.C.: Aug. 2, 

2002), U.S. General Accounting Office, IRS’s 2002 Tax Filing Season: Returns and 

Refunds Processed Smoothly; Quality of Assistance Improved GAO-03-314 (Washington, 

D.C.: Dec. 20, 2002), and Internal Revenue Service, Tax Compliance Activities Report, 

June 24, 2002, prepared in response to a directive in the House Report accompanying the 

legislation (P.L. 107-67). 

Audit and Document 

Matching Contact Rates 

Across Income Levels 

Have Generally Declined 
Page 19 GAO-03-378 IRS Enforcement Reporting 

Figure 3: IRS Individual Audit and Document Matching Contact Rates by Income Level, Fiscal Years 1993 through 2002 

Note: Data by income level for the math error and nonfiler programs are not available. 

As figure 3 shows, because the audit contact rate declined (from 

3.89 percent to 0.86 percent) for higher income (more than $100,000) 

individuals and remained virtually the same (from 0.77 percent to 

0.78 percent) for the lowest income (less than $25,000) individuals 

between fiscal years 1993 and 2002, the rates for the highest and lowest 

income individuals essentially converged in 2001 and 2002. Over the same 

time, the document matching contact rate generally declined for all three 

income groups with fairly similar year-to-year patterns and with higher 

income individuals being contacted at the higher rate. 

The divergent trends between the growing rate of math error contacts and 

the declining or relatively stable rates for the other enforcement programs 

can be attributed to how the programs have been affected by statutory 

changes, fewer enforcement staff, and priorities for using available staff. 

Math error contacts grew over the fiscal year 1993 through 2002 period in 

part because Congress expanded the types of tax issues covered by the 

math error authority. For example, in 1996, Congress gave IRS authority to 

Statutory Changes, Fewer 

Staff, and Resource 

Priorities Explain Trends 

in Math Error, and Other 

Enforcement Contact rates 

Document matching rates (percent)

0

1

2

3

4

5

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Year Year

$100,000 and over

$25,000 to under $100,000

Under $25,000

Source: GAO analysis of IRS data.

Audit rates (percent)

0

1

2

3

4

5

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Page 20 GAO-03-378 IRS Enforcement Reporting 

shift a number of earned income tax credit issues from its audit program 

to its math error program in that year. As a result, in 1997, IRS shifted over 

700,000 cases involving missing or invalid social security numbers (SSN) 

on tax returns from the audit program to the math error program. Under 

this and other statutory expansions, IRS was making hundreds of 

thousands of math error contacts with taxpayers by 2002 that were not 

made in 1993. 

A second statutory change played a role in the diverging trends among the 

enforcement programs. In RRA, Congress took steps to better ensure that 

taxpayer rights were protected by revising certain audit processes, such as 

informing taxpayers about their rights and generally how they were 

selected for audit. According to IRS officials, the changes contributed to 

the decline in audits because IRS auditors had to spend more time to 

handle nonaudit duties, to be trained in new procedures and taxpayers’ 

enhanced rights, and to do new tasks.21 Those changes contributed to 

reductions in the number of audits that each auditor completed, meaning 

they were less productive in closing audit cases. 

Finally, declines in enforcement staffing and priorities for using staff also 

contributed to trends in enforcement program contacts. IRS has reported 

that from 1993 to 2001, enforcement staffing levels declined about 

24 percent. These staffing declines affected not only the audit program but 

also the document matching and nonfiler programs because those 

programs require that IRS staff screen most notices before they are sent 

and follow up when taxpayers respond to notices.22 Given declining staff 

resources, IRS has restricted the number of notices sent when it finds 

probable noncompliance under the document matching and nonfiler 

programs. In contrast, IRS allocated enough resources over this period to 

the math error program to continue sending these notices. IRS officials 

said that IRS must resolve math errors to process tax returns and adjust 

the tax liability so that taxpayers are in compliance.23

 21Also see GAO-01-484. 

22We did not analyze the portion of potentially noncompliant tax returns that IRS could not 

check due to resource limitations. In its September 2002 progress report to the IRS 

Oversight Board, IRS presented data showing that it is checking compliance on a 

decreasing portion of potentially noncompliant returns. 

23To ensure efficient returns processing, returns with small dollar value discrepancies are 

accepted as filed and taxpayers are not sent math error notices. 
Page 21 GAO-03-378 IRS Enforcement Reporting 

Although widespread agreement exists that enforcement programs help 

ensure voluntary tax compliance, evidence is limited about the degree to 

which enforcement overall or by type of program affects taxpayer 

compliance. No studies are available that measure the burdens that 

taxpayers experience when contacted under IRS’s enforcement programs. 

Over the years, many tax practitioners and academics have suggested that 

enforcement programs are critical for ensuring voluntary compliance. 

However, measuring the effects of enforcement programs on compliance 

is a difficult task. IRS officials identified only one study that attempted to 

estimate the effects of its enforcement programs on compliance; no more 

recent work is underway or planned to measure these effects. Relying on 

an econometric analysis of taxpayer behavior—using various assumptions, 

IRS and non-IRS data for 1982 through 1991, and alternative measures of 

compliance—this IRS study estimated the effects of various IRS programs 

across the general taxpayer population. The study suggested that audits 

had a positive impact on compliance in reporting information on tax 

returns and that document matching had a positive effect on compliance 

in filing required returns. We did not have time to analyze the 

reasonableness of the study’s approach, assumptions, and results. 

To obtain current information on taxpayers’ compliance in filing tax 

returns and reporting correctly on them, IRS developed its National 

Research Program (NRP).24 This program is designed to yield reliable 

estimates of the compliance levels of individual taxpayers while 

addressing concerns about the burden such a measurement program can 

impose on taxpayers. NRP’s design was completed in fiscal year 2002, and 

IRS will be auditing taxpayers’ returns under the program during fiscal 

year 2003.25 IRS plans to use the NRP results to update tools to select 

individual tax returns for audit, to allocate resources, to estimate the 

impacts of legislative and administrative changes on voluntary compliance 

and tax revenue, and to identify potential ways to improve voluntary 

compliance. Although NRP should yield useful data, it was not designed to 

 24IRS had measured the voluntary compliance of individual taxpayers periodically, last 

doing so for tax year 1988. IRS stopped because of various congressional and other 

concerns about the measurement program. 

25See U.S. General Accounting Office, Tax Administration: New Compliance Research 

Effort Is On Track, but Important Work Remains, GAO-02-769 (Washington, D.C.: June 27, 

2002). 

Limited Evidence 

Suggests IRS 

Enforcement 

Programs Do Increase 

Compliance; No 

Measures Available on 

Enforcement Program 

Burden 
Page 22 GAO-03-378 IRS Enforcement Reporting 

measure the effect that each major enforcement program could have on 

voluntary compliance. 

In addition, IRS has been working to produce more comprehensive 

estimates of burden that individual taxpayers face in meeting their tax 

obligations. IRS developed a system in 1984 for estimating the burdens 

taxpayers face in filing IRS forms, and began efforts during the 1990s to 

create a better model for estimating such compliance burdens. IRS 

recently announced that the new burden model is ready to be tested and 

likely will replace the old model during fiscal year 2003. Although the 

model should provide better estimates of individual taxpayer burdens in 

completing and filing tax returns, it is not designed to estimate the 

postfiling burdens related to IRS’s enforcement efforts. IRS expects to 

model these postfiling burdens but does not yet know when that phase of 

its burden estimation project will begin. 

IRS’s public reporting on its enforcement programs for individual 

taxpayers does not provide a complete perspective on its efforts to 

enforce tax laws because that reporting heavily focuses on audits. IRS’s 

audit rate is often cited in the press and is often the focus of congressional 

and other debates concerning how well IRS is enforcing the tax laws. 

However, over time the audit rate has become increasingly less complete 

as a measure of IRS’s efforts to enforce tax laws because IRS’s other 

enforcement programs have expanded their coverage of issues once 

covered under audits. 

At least two options exist for expanding reporting: changing the definition 

of audits to include other enforcement efforts and reporting more data on 

each enforcement program separately. The second option would achieve 

more complete and balanced reporting without incurring some of the 

disadvantages that could come from expanding the definition of audits. 

IRS officials plan to expand public reporting for fiscal year 2002 on IRS’s 

major enforcement programs to the extent that data are available and cost 

effective to extract. 

IRS’s Public Reporting 

on Its Enforcement 

Programs Is 

Incomplete 
Page 23 GAO-03-378 IRS Enforcement Reporting 

IRS publishes extensive data on audits but only limited data on other 

enforcement programs in its Data Book.26 Table 2 summarizes the data 

annually published on the enforcement programs involving individual 

taxpayers. 

Table 2: Data Published on IRS Enforcement Programs for Individual Taxpayers, 

Fiscal Year 2001 

Enforcement program IRS published data 

Audit Number and/or rate of audits by 

• type of tax (e.g., individual income, gift) 

• type of return filed (e.g., Form 1040, Form 1040A) 

• taxpayer income class 

• type of audit (e.g., field, correspondence) 

• type of auditor (e.g., tax auditor, revenue agent) 

• whether the tax liability changed 

• total and average amount of recommended 

additional tax 

• whether taxapayers agreed with the recommended 

tax change 

Selected data on audits 

• resulting in tax refunds 

• preventing tax refunds on the basis of taxpayers’ 

efforts to recoup taxes previously assessed or paid 

Document Matching • number of information returns received 

• number of taxpayer contacts 

• amount of additional tax assessed 

Nonfiler • number of taxpayer delinquency investigations 

completed 

• number of initial nonfiler notices sent 

• additional assessments for the substitute for returns 

program 

Math error No data are published 

Source: IRS Data Book, fiscal year 2001. 

As shown, IRS publishes no data on IRS’s math error program—which 

affects millions of individual taxpayers annually. Compared with audits, 

public reporting on the document matching and nonfiler programs is much 

more limited. IRS officials said that IRS publicly reports more data on 

audits because IRS has had a separate audit case-tracking system for many 

years that produces such data. Also, they said that requests to publicly 

report more data on the other programs had not been made. 

 26IRS annually compiles data about its enforcement activities in its Data Book. IRS also 

publishes that data on its public Web site and may use some of that data in other 

publications such as budget documents. 

Limited Public Reporting 

on IRS’s Enforcement 

Programs 
Page 24 GAO-03-378 IRS Enforcement Reporting 

IRS has not changed Data Book reporting on its enforcement programs to 

keep up with changes in its enforcement programs over the years. With its 

focus on audits, the reporting may lead others to focus on audits and 

thereby to have an incomplete understanding of IRS’s enforcement efforts. 

For example, trends in the audit rate alone are difficult to use to assess 

IRS’s enforcement presence because that rate does not measure the same 

phenomenon today as it did earlier. Even within the 10-year period we 

reviewed, some of the tax issues that formerly had been checked only 

under the audit program migrated into the other enforcement programs. 

This type of migration was more pronounced in the 1980s as the document 

matching program expanded substantially. 

Although the scope of what IRS does under audits has changed 

considerably over the past few decades, and even within the past 10 years, 

the audit rate remains an often-cited statistic when Congress and others 

consider how well IRS is enforcing the tax laws. For instance, during 

annual oversight hearings on IRS’s performance, members of Congress 

often raise questions about changes in the audit rate. Over the past several 

years, these hearings have included concerns about the declining audit 

rate and its possible affect on taxpayers’ compliance. The IRS 

Commissioner also expressed concern about the decline in audits. 

However, the Commissioner said that he did not believe the audit rate 

needed to increase to the same level as a number of years ago because IRS 

has other programs to enforce the tax laws that were not available, or as 

broad in scope, in past years. 

To the extent that IRS’s audit rate is the major source of information 

available to taxpayers on IRS’s enforcement efforts, the public cannot be 

fully aware of the extent to which IRS enforces tax laws and thus may 

misjudge the chances that noncompliance is likely to be detected. 

Taxpayers who are aware only of the audit rate would not be aware that 

IRS often contacts more taxpayers under each of its other enforcement 

programs—and IRS always contacts far more taxpayers in these other 

programs combined—than it does under the audit program. As discussed 

earlier, although the degree to which enforcement encourages voluntary 

compliance is difficult to measure, it is widely believed that public 

knowledge about enforcement efforts helps prompt higher levels of 

voluntary compliance. Although he did not specifically cite possible 

increases in voluntary compliance, in a letter issued in March 2001, the IRS 
Page 25 GAO-03-378 IRS Enforcement Reporting 

Commissioner said that only focusing on audits substantially understates 

IRS’s capacity to find errors.27

While greater awareness of the scope of IRS’s efforts to enforce the tax 

law may encourage compliance, it could also increase taxpayers’ 

awareness of the trends in these efforts. It is not clear how taxpayers 

would interpret and react to the differing trends among IRS’s enforcement 

programs. For the period from 1993 through 2002, trends in IRS’s 

individual enforcement programs often varied from year to year as well as 

between the programs. Therefore, the compliance signals to taxpayers 

from publicizing data on the trends in these other programs probably 

would be different—and more mixed—than the signal they receive based 

exclusively on the audit rate. 

In addition, awareness of the fuller range of IRS’s enforcement efforts may 

not affect compliance of all groups of taxpayers equally. This could occur, 

for example, when the contact rates under the enforcement programs 

differ, as they do under the audit and document matching programs for 

different income groups. Further, to the extent that taxpayers know that 

IRS can only understand their tax situation through a traditional audit, 

their compliance might be less affected by fuller reporting on IRS’s other 

enforcement efforts. The IRS Commissioner has said that the decline in 

the traditional audit rate is of concern in part because a growing portion of 

taxpayers and a growing amount of income is not well identified through 

such programs as document matching and nonfiler. 

Of two options we identified for expanding public reporting on IRS’s 

enforcement efforts, providing data on each major program separately 

avoids certain disadvantages of aggregating data into one broad audit 

program. After we discussed the tradeoffs of these options with IRS 

officials, they said they plan to expand public reporting for each of the 

nonaudit enforcement programs. 

One option for expanding reporting on IRS’s enforcement programs would 

be to define all of IRS’s enforcement programs to be audits for statistical 

reporting. If the programs were all defined to be audits, IRS might report a 

consolidated “audit rate” that would represent all of IRS’s contacts with 

taxpayers. Consolidated reporting might also be done on such things as 

 27IRS’s letter dated March 26, 2001. 

Expanding Public 

Reporting on Enforcement 

Programs Does Not 

Require Redefining Audits 
Page 26 GAO-03-378 IRS Enforcement Reporting 

the additional tax revenues identified through the contacts and the staff 

time invested by IRS. 

This option could have several advantages. For instance, it would provide 

for more complete reporting on IRS’s overall enforcement efforts in a 

single “rate.” Another advantage to expanding the definition of an audit is 

that the major enforcement programs have an overall similarity in what 

they intend to achieve. Moreover, some document matching and math 

error checks now cover some tax issues that had been covered under 

audit authority. Thus, because audits do not measure the same thing over 

time, expanding the definition would create a more consistent measure of 

the extent to which IRS is enforcing tax laws. 

However, combining all enforcement programs under one definition poses 

a number of potential disadvantages. For example, IRS’s legal authority 

and operational rules, as well as taxpayers’ rights, vary across 

enforcement programs. If all enforcement programs were called audits, 

IRS staff and taxpayers could become confused about the rights and 

restrictions that govern contacts with taxpayers. Labeling all enforcement 

programs as audits might confuse taxpayers about whether IRS could 

examine their books and records for a specific tax year (an action taken 

under IRS’s current audit authority) if they had already been contacted 

under document matching and/or math error programs. 

If all enforcement programs were called audits and aggregate reporting 

was done, IRS would face a challenge in ensuring that taxpayers and 

others are not misled. For example, a single audit rate would cover the 

range from intense audits covering multiple tax issues to the correction of 

simple math errors arising from inadvertent miscalculations by taxpayers. 

Given the higher number of math errors being detected by IRS over time, if 

taxpayers interpreted a revised audit rate as representing the former 

rather than the latter situation, they would be misled about IRS’s true level 

of tax return scrutiny. Another challenge for IRS would be in reporting 

audit results like tax dollars assessed and time spent per audit. 

Considerable variability already exists in these results for audit—e.g., field 

audits take significantly more staff hours than correspondence audits. 

These differences would be more extreme under a consolidated audit 

reporting system that included document matching, nonfiler, and math 

error contacts. Finally, the IRS would need to account for potential double 
Page 27 GAO-03-378 IRS Enforcement Reporting 

counting because taxpayers can be contacted through more than one 

enforcement program for the same return.28

In addition, labeling all IRS enforcement programs as audits might suggest 

that the programs are in some sense substitutable in detecting 

noncompliance and encouraging voluntary compliance. Although the 

document matching and nonfiler programs do replace part of what had 

previously been done by auditors, these programs do not completely 

substitute for audits. Math error program contacts are even less of a 

substitute for audit. Combining all of these efforts suggests an 

equivalence—one math error contact with a taxpayer is equivalent to a 

complex, intense audit of a taxpayer books and records—that is not 

correct. Therefore, if audits dropped even further than they have in recent 

years, but math error contacts rose even faster, some might assume that 

IRS is doing better at enforcing tax laws while others might disagree. 

Because of such disadvantages, IRS officials said that they do not favor 

changing the audit definition to include the other enforcement programs at 

this time. Specifically, they said any changes would create confusion about 

IRS’s enforcement activities and could distort any comparisons because 

the programs significantly differ. 

Instead of expanding the audit definition, IRS has already expressed 

support for greater reporting on the full range of IRS’s enforcement 

efforts. For example, in 2001, the IRS Commissioner stated that IRS’s goal 

is to make public reporting on nonaudit enforcement efforts as 

informative and meaningful as possible.29 This approach generally avoids 

the disadvantages associated with reporting IRS’s enforcement efforts 

under one consolidated, redefined audit program. At the same time, it 

would provide more complete reporting to the public. 

In December 2002, IRS officials told us that they plan to try to report more 

data on other enforcement programs to the extent that the data are 

available and cost-effective to extract. Officials expect that this expanded 

reporting will begin with the fiscal year 2003 Data Book if the necessary 

statistical tables cannot be produced in time for the 2002 edition that is to 

 28IRS does not track how many taxpayers are contacted by more than one program for a 

tax return. 

29IRS’s letter dated March 26, 2001. 
Page 28 GAO-03-378 IRS Enforcement Reporting 

be published in early calendar year 2003. The expanded information will 

also be available on the IRS Web site. 

These officials said that they would attempt to report the number of cases 

closed, the staff time expended, and the tax amounts adjusted for 

document matching and for the automated substitute for return program 

(ASFR) component of the nonfiler program. For document matching, IRS 

plans to account for not only the cases in which taxpayers were contacted 

but also in which IRS staff resolved the apparent income discrepancy 

without contacting taxpayers. For ASFR, IRS is planning to adjust the data 

for cases in which IRS abated the additional tax amounts assessed after 

taxpayers later filed a tax return. For both programs, IRS officials said that 

reporting the data by the taxpayer’s level of income is doubtful. For math 

errors, IRS officials said that they could report the number of notices, staff 

time, and tax amounts assessed but that reporting other data is 

questionable either because the data are not collected or are difficult or 

costly to extract. IRS has no plans to analyze whether changes could be 

made to cost-effectively extract or collect other data to facilitate 

understanding of and comparisons among these nonaudit enforcement 

programs. 

Although research is not conclusive about the extent to which taxpayers 

comply with the law based on their perception of whether noncompliance 

will be caught, it is widely believed that those perceptions do contribute to 

the overall level of compliance by taxpayers. On the basis of this belief, 

observers in Congress and elsewhere have been concerned as IRS’s oftcited audit rate has declined in recent years. 

To an unknown, but real extent, the long-term decline in the audit rate is 

attributable to the movement of some tax issues from IRS’s audit program 

into its other enforcement programs. This movement has been facilitated 

by changes in technology, and has enabled IRS, for some tax issues, to 

more universally check whether taxpayers have accurately reported their 

tax liabilities. Although much of the movement of IRS’s audits into other 

programs occurred during the 1970s and 1980s, this trend continued 

during the fiscal year 1993 through 2002 period. 

Given these changes in IRS’s enforcement operations, policymakers in 

Congress and elsewhere, as well as taxpayers, would be better informed 

about the scope of IRS’s efforts to enforce tax laws if IRS were to expand 

its annual public reporting to include the full range of its enforcement 

programs. Toward this end, some interest has been expressed in having 

Conclusions 
Page 29 GAO-03-378 IRS Enforcement Reporting 

IRS report a new audit rate that would aggregate IRS’s various 

enforcement programs into a total, revised audit rate. Although such a 

measure would attempt to provide a more comprehensive picture of IRS’s 

overall effort to detect compliance problems, the advantages of doing so 

do not clearly outweigh potential disadvantages. For instance, expanding 

the definition of an audit would package enforcement activities that are so 

disparate that the consolidated reporting could be misleading. 

However, policymakers and taxpayers could be better informed about of 

the extent of IRS’s efforts to enforce the tax laws without combining data 

on all of IRS’s enforcement programs into one set of aggregate measures. 

IRS’s commissioner set fuller reporting of IRS’s enforcement efforts as an 

IRS goal, and IRS officials plan to move to fuller reporting of enforcement 

program results, perhaps as early as in the 2002 IRS Data Book, which will 

be published in early calendar year 2003. IRS officials expect that this 

expanded reporting will use only readily available data on the enforcement 

programs. 

Because the document matching, math error, and nonfiler programs now 

cover many tax issues formerly covered by audits and they annually 

contact far more taxpayers than audits, expanded reporting on these 

programs, using readily available data, is an appropriate first step. 

However, the readily available data for the nonaudit programs is 

incomplete compared to data reported on audits. For example, the data do 

not cover all nonfiler contacts or the results of the programs by taxpayer 

income. IRS has no plans to determine whether it could cost-effectively 

extract or collect additional data in order to more completely present 

program results, and facilitate comparisons across the programs or with 

any new programs, as they evolve. 

In the case of the math error program, total data that includes math errors 

identified during initial processing of tax returns as well as errors found in 

comparing tax return data to data in IRS’s masterfiles should be reported. 

Excluding data on math errors found in comparing returns to IRS’s 

masterfiles materially understates the volume of math error contacts with 

taxpayers. 
Page 30 GAO-03-378 IRS Enforcement Reporting 

The Acting Commissioner of Internal Revenue should 

• determine whether additional data on each nonaudit program can be cost 

effectively extracted or collected to make future annual reporting on 

enforcement programs more complete and comparable. 

• provide information on all types of math error contacts when publishing 

data on IRS’s math error program. 

The Acting Commissioner of Internal Revenue provided written comments 

on a draft of this report in a January 27, 2003, letter, which is reprinted in 

appendix V. The Commissioner agreed with our recommendations. We are 

heartened that IRS has already begun to identify additional data to report 

on its enforcement programs. Given the differing nature of IRS’s 

enforcement programs, we encourage IRS to provide information that is as 

comparable as possible among the programs. 

As arranged with your office, we plan no further distribution of this report 

until 30 days from the date of its issue, unless you publicly announce its 

contents earlier. After that period we will send copies to the Chairman and 

Ranking Minority Member, House Committee on Ways and Means; and 

Chairman and Ranking Minority Member, Senate Committee on Finance. 

We will also send copies to the Acting Secretary of the Treasury; Acting 

Commissioner of Internal Revenue; the Director, Office of Management 

and Budget; and other interested parties. Copies of this report will be 

made available to others on request. In addition, the report will be made 

available at no charge on the GAO Web site at http://www.gao.gov. 

If you have any questions, please contact me or Tom Short on 

(202) 512-9110. Key contributors to this report are acknowledged in 

appendix VI. 

Sincerely yours, 

Michael Brostek 

Director, Tax Issues 

Recommendations to 

the Acting 

Commissioner of 

Internal Revenue 

Agency Comments 
Appendix I: Development of the Math Error 

Program 

Page 31 GAO-03-378 IRS Enforcement Reporting 

As early as the first codification of the Internal Revenue law in 1939, 

Congress granted IRS “math error” authority so that IRS does not have to 

provide the taxpayer with a statutory notice of deficiency1

 for math errors. 

In general, these are errors that must be corrected for IRS to process the 

tax return. A 1976 statutory revision defined the authority to include not 

only mathematical errors but other obvious errors such as omissions of 

data needed to substantiate an item on a return. In the 1990s, Congress 

extended the authority five times to help determine eligibility for certain 

tax exemptions and credits. Table 3 summarizes the legislative authority 

on math error provisions for individual tax returns. 

Table 3: Legislative Authority on Math Error Provisions for Individual Tax Returns 

Basis of Authority Provision Year 

Internal Revenue 

Code 

Provided a basic “math error” exception to the 

deficiency procedures whereby the Service could 

notify a taxpayer that on account of a mathematical 

error an amount of tax in excess of that shown on 

the return was due without first sending a notice of 

deficiency, which gives the taxpayer the right to 

judicial review. 

As early 

as 1939 

Tax Reform Act of 

1976 (P.L. 94-455) 

Expanded the definition of math errors to include 

1. an error in addition, subtraction, multiplication, or 

division shown on the return; 

2. incorrect use of an IRS table if the error is 

apparent from the existence of other information 

on the return; 

3. inconsistent entries on the return; 

4. an omission of information required to be 

supplied on the return in order to substantiate an 

item on that return; and 

5. entry of a deduction or credit item in an amount 

which exceeds a statutory limit which is either 

(a) a specified monetary amount or (b) a 

percentage, ratio, or fraction if the items entering 

into the application of that limit appear on that 

return. 

1976 

Small Business Job 

Protection Act of 

1996 (P.L. 104-188) 

Extended math error authority to the omission of a 

correct Taxpayer Identification Number (TIN) 

required for the dependent care credit or the 

deduction for personal exemptions. 

1996 

Personal 

Responsibility and 

Extended math error authority to the omission of a 

TIN for the earned income tax credit. 

1996 

 1

In general, IRS sends taxpayers a written notice, called a statutory notice of deficiency, 

which states that additional tax will be assessed and provides 90 days for them to respond. 

The proposed tax is automatically assessed if the taxpayer does not respond or does not 

file an appeal. 

Appendix I: Development of the Math Error 

Program 
Appendix I: Development of the Math Error 

Program 

Page 32 GAO-03-378 IRS Enforcement Reporting 

Basis of Authority Provision Year 

Work Opportunity 

Reconciliation Act of 

1996 (P.L. 104-193) 

Taxpayer Relief Act 

of 1997 (P.L. 105-34) 

Extended math error authority to the omissions of 

correct TINs for the child tax credit and the higher 

education tuition tax credit, and to information 

required for the earned income tax credit for 

taxpayers who previously made improper claims. 

1997 

Tax and Trade Relief 

Extension Act (1999 

Appropriations Act 

(P.L. 105-277)) 

Extended math error authority to the inclusion of a 

TIN on a return which allows IRS to determine 

ineligibility for the dependent care credit, child tax 

credit, or earned income tax credit on the basis of 

the statutory age restrictions of those credits 

1999 

Economic Growth 

and Tax 

Reconciliation Act of 

2001 (P.L. 107-16) 

Extended math error authority to include an entry 

on a return claiming the earned income tax credit 

when, according to the Federal Registry of Child 

Support Orders, the taxpayer is not the custodial 

parent of the child being claimed. This provision, 

effective January 1, 2004, includes a sunset 

provision of December 31, 2010. 

2001 

Source: GAO analysis of legislation. 

According to IRS officials, math error authority applies to obvious errors 

where most taxpayers do not dispute IRS’s decisions. However, if 

taxpayers do disagree with the changes in taxes assessed, they can request 

an abatement (reduction) of the additional taxes. The math error process 

also generates lower administrative and other costs because it is highly 

automated and requires little contact with taxpayers, according to IRS 

officials. 
Appendix II: Use of Information Returns and 

Document Matching at IRS 

Page 33 GAO-03-378 IRS Enforcement Reporting 

IRS has endorsed the concept of matching information returns to income 

tax returns for the purpose of identifying unreported income since the 

1960s. Prior to the 1960s, employers had reported on wages paid to 

employees by the name of the employee. To facilitate matching, Congress 

required a TIN—generally a social security number for individual 

taxpayers—that is unique to each taxpayer, unlike a name. IRS and those 

filing information returns (i.e., payers of income) need accurate TINs for 

the system to work well. 1 Filing of information returns on magnetic media 

or other electronic means combined with greater IRS computer capacity 

also has facilitated the matching process. 

In 1962, Congress recognized that underreporting of nonwage income, 

such as interest and dividend income, was a serious problem. To correct it, 

Congress required information reporting on interest and dividend income. 

Congress substantially expanded information reporting requirements 

during the 1980s and added a few requirements during the 1990s. 

Table 4 lists each major statute expanding information returns authority. 

 1

These payers file the information returns on income paid with IRS as well as the taxpayers 

receiving the income to induce their voluntary compliance in reporting the income on their 

tax returns. 

Appendix II: Use of Information Returns and 

Document Matching at IRS 
Appendix II: Use of Information Returns and 

Document Matching at IRS 

Page 34 GAO-03-378 IRS Enforcement Reporting 

Table 4: Major Legislation Affecting the Information Returns Program 

Statute Description 

Public Law 87-397 (enacted 1961) Required taxpayers to provide IRS and payers of income with a TIN and established 

penalties for failure to do so. 

Revenue Act of 1962 (P.L. 87-834) Required information returns reporting for interest and dividend income. 

Required payers to furnish copies of the information returns to those receiving interest and 

dividend income. 

Combined Old-Age, Survivors, and 

Disability Insurance-Income Tax 

Reporting Amendments of 1975 (P.L. 94-

202) 

Directed IRS and Social Security Administration (SSA) to implement an annual wage 

reporting system, which enhanced IRS’s machine processing efficiency because SSA had 

the equipment and capacity, which IRS did not, to process a large volume of Forms W-2. 

The Economic Recovery Tax Act of 1981 

(P.L. 97-34) 

Expanded the requirement that payers furnish all types of information returns to the 

taxpayer receiving a payment. 

Increased the penalties for failure to provide copies of such returns to the taxpayer and to 

IRS. 

The Tax Equity and Fiscal Responsibility 

Act of 1982 (P.L. 97-248) 

Expanded information reporting to include state and local income tax refunds, and 

proceeds from brokers and barter exchanges. 

Mandated 10 percent withholding on interest, dividends, patronage dividends, and original 

issue discount. 

Expanded and increased penalties for failure to (1) file information returns, (2) provide 

copies to payees, and (3) provide a payer or payee TIN. 

Required backup withholding at a 15 percent rate in some instances where a payee failed 

to provide a correct TIN to a payer. 

Authorized the Secretary of the Treasury to prescribe regulations to define which returns 

are to be filed on magnetic media. 

Interest and Dividend Tax Compliance 

Act of 1983 (P.L. 98-67) 

Repealed the mandatory withholding requirements of the Tax Equity and Fiscal 

Responsibility Act of 1982. 

Expanded and revised backup withholding to include a 20 percent rate if (1) the payee 

does not furnish the payer with a TIN, (2) IRS notifies the payer that the TIN is incorrect, 

(3) the payee underreports interest or dividend income and IRS notifies the payer, or 

(4) the payee does not properly certify that he or she is not subject to backup withholding 

for interest and dividend income and that the TIN provided to the payer is correct. 

Strengthened TIN and failure to file penalties. 

Expanded the magnetic media filing requirements. 

Tax Reform Act of 1984 (P.L. 98-369) Required information reporting for foreclosures and abandonments of property which 

secure indebtedness and for mortgage interest. 

Provided penalties for failure to file and furnish such information returns. 

Tax Reform Act of 1986 (P.L. 99-514) Required real estate brokers to file an information return on any real estate transactions. 

Required federal executive agencies to file information returns on persons receiving 

contracts from them. 

Required persons making royalty payments aggregating $10 or more during any calendar 

year to file information returns on such payments and provide a copy of such return to the 

taxpayer who receives such royalties. 

Required TINs for dependents claimed on tax returns. 

Increased maximum penalties for failure to file information returns and to provide copies to 

taxpayers from $50,000 to $100,000. 

Added penalty for including incorrect information or for omitting required information on 

information returns. 
Appendix II: Use of Information Returns and 

Document Matching at IRS 

Page 35 GAO-03-378 IRS Enforcement Reporting 

Statute Description 

Technical Corrections to Tax Reform Act 

of 1986 (P.L. 100-647) 

Required that information returns filed by partnerships having tax-exempt partners to 

include reporting of unrelated business taxable income. 

Omnibus Budget Reconciliation Act of 

1989 (P.L. 101-239) 

Imposed a uniform penalty of $50 per offense to a maximum of $250,000 per year on any 

person who fails to file timely and correct information returns, and to a maximum of 

$100,000 per year on any person who fails to (1) furnish correct payee statements or (2) 

meet other requirements. 

Omnibus Budget Reconciliation Act of 

1993 (P.L. 103-66) 

Required certain financial entities (such as Federal Deposit Insurance Corporation, 

Resolution Trust Corporation, and National Credit Union Administration) to file information 

returns on discharges of indebtedness of $600 or more. 

Health Insurance Portability and 

Accountability Act of 1996 (P.L. 104-191) 

Established Medical Savings Accounts (MSAs). 

Required information returns for MSAs. 

Provided penalties for failure to file/furnish the returns. 

Tax Relief Extension Act of 1999 (P.L. 

106-170) 

Required information reporting for indebtedness discharged by any organization for which 

a significant trade or business is the lending of money. 

Source: GAO analysis. 

IRS did not perform extensive document matching until 1974 when IRS 

established a program to match information returns against tax return data 

to identify potential income underreporting. Even so, IRS used laborintensive, paper-driven methods. For example, clerks had to manually 

create case files for each potential underreporter, and IRS staff had to 

review the case files to determine if income was underreported. Clerks 

entered the results of these file reviews into systems, which generated 

notices to taxpayers. In 1987, IRS began to automate the document 

matching process. At that time IRS established the Automated 

Underreporter Program that allows access to computerized information, 

reducing the need for hard copy documents and clerks, and enabling a 

faster response to taxpayer inquiries. 

By tax year 2000, almost 1.5 billion information returns were filed with 

IRS. Table 5 lists the major types of information returns filed for 1983 and 

2000.2

 2

Among other reasons, we used 1983 because it was the first year after a major expansion 

of the information reporting requirements. 
Appendix II: Use of Information Returns and 

Document Matching at IRS 

Page 36 GAO-03-378 IRS Enforcement Reporting 

Table 5: Major Types of Information Returns Filed for Tax Years 1983 and 2000 

 Information Returns Filed (millions) 

Form Number Title Source 1983 2000 

1098 Mortgage Interest Statement Banks and Mortgage Companies a 80.2 

1098-E Student Loan Interest 

Statement 

Educational Institutions and 

Financial Institutions 

a 9.6 

1098-T Tuition Payments Statement Educational Institutions a 19.8 

1099-A Acquisition or Abandonment 

of Secured Property 

Various Entities a 0.4 

1099-B Proceeds from Broker and 

Barter Exchange Transactions 

Brokers 10.0 329.4 

1099-C Cancellation of Debt Various Entities a 0.8 

1099-G Certain Government and 

Qualified State Tuition 

Program Payments 

State Governments 36.0 63.7 

1099-DIV Dividends and Distribution Brokers, Corporations 82.0 130.6 

1099-INT Interest Income Banks 296.0 261.1 

1099-MISC Miscellaneous Income Various Entities 39.0 77.7 

1099-OID Original Issue Discount Banks, Corporations, and Other 

Financial Institutions 

2.0 4.8 

1099-PATR Taxable Distributions 

Received from Cooperatives 

Cooperatives 2.0 1.6 

1099-R Distributions from Pensions, 

Annuities, Retirement or 

Profit-sharing Plans, IRAs, 

Insurance Contracts, Etc. 

Various Entities 6.0 65.8 

1099-S Proceeds from Real Estate 

Transactions 

Various Entities a 2.9 

1099-SSA Social Security Benefits Social Security Administration a 48.4 

1099-RRB Railroad Retirement Benefits Railroad Retirement Board a 0.6 

5498 IRA Contribution Information Banks, Brokers, and Insurance 

Companies 

18.0 94.9 

5498-MSA Medical Savings Accounts or 

Medicare Plus Choice MSA 

Information 

Trustees or custodians of MSAs 

or Medicare Plus Choice MSAs 

a 0.1 

CTR Currency Transaction Report Financial Institutions and 

Shareholders and Beneficiaries 

a 14.4 

K-1 Partner’s Share of Income, 

Credits, Deductions, Etc. 

Partnerships 15.0 19.1 

W-2 Wage and Tax Statement Employers 165.0 247.2 

W-2G Certain Gambling Winnings Gaming Establishments 1.0 5.8 

W-2P Annuities, Pensions, Retired 

Pay, or IRA Payments 

Various Entities 18.0 N/A 

Other Various Various Entities 1.0 1.7 

Total 691.0 1,480.6 

Source: IRS and Statement of Johnny C. Finch, Senior Associate Director, General Government Division, GAO, Before the Subcommittee on Commerce, Consumer, and Monetary Affairs, Committee on 

Government Operations, House of Representatives, on IRS’ Information Returns Matching Program, April 29, 1986. 

a

Information return not required for tax year 1983. 
Appendix II: Use of Information Returns and 

Document Matching at IRS 

Page 37 GAO-03-378 IRS Enforcement Reporting 

In 2002, IRS re-instituted matching3 of income reported by flow-through 

entities such as trusts, partnerships, and S-corporations on Schedule K-1 

to income reported on tax returns by the related partners and 

beneficiaries. Schedule K-1 shows the income distributed to partners and 

beneficiaries, who receive a copy as well as IRS. According to IRS, 

information provided on Schedule K-1 is important for determining 

whether recipients of flow-through income have properly reported that 

income on their tax returns. IRS expects the matching of Schedule K-1 

data to increase accurate reporting of trust income on future tax returns 

by providing information that IRS can use to detect possible unreported 

income and to induce taxpayers to voluntarily comply. Under K-1 

matching, IRS sent 69,097 notices to taxpayers in 2002 for tax year 2000. In 

most cases, the taxpayers did not owe additional tax for various reasons 

(e.g., taxpayers reported the income differently than expected). IRS does 

not yet have complete results from this new matching program. IRS 

officials told us that K-1 matching has been suspended for one year to 

analyze the matching criteria and results. 

 3

IRS had done very limited K-1 matching, relying on electronically filed schedules K-1, but 

stopped this matching in the mid-1990s due to resource and other constraints. 
Appendix III: Individual Audit and Other 

Enforcement Program Data 

Page 38 GAO-03-378 IRS Enforcement Reporting 

Table 6: Number and Rates of Individual Audit and Other Enforcement Contacts, Fiscal Years 1993 through 2002 

 1993 1994 1995 1996

Audit contacts 

Field audits 250,712 364,016 338,605 252,430 

Office audits 505,539 456,216 458,880 509,434 

Correspondence audits 302,715 405,475 1,121,952 1,179,696 

Revenue officer examiner audits a a a a 

Total audits 1,058,966 1,225,707 1,919,437 1,941,560 

Returns filed (previous calendar year) 114,718,900 113,754,400 114,683,400 116,059,700 

Audit rate 0.92 1.08 1.67 1.67 

Other enforcement contacts 

Math errors 4,088,000 4,059,000 6,102,000 4,750,771 

Math errors (masterfile notices) b b b b 

Math errors (revised) c c c c 

Document matching 2,723,830 2,645,075 2,711,086 1,930,326 

Nonfiler 1,603,969 1,931,781 1,756,325 1,302,432 

Math error rate 3.59 3.54 5.26 4.01 

Math error rate (revised) d d d d 

Document matching rate 2.37 2.33 2.36 1.66 

Nonfiler rate 1.40 1.70 1.53 1.12 

Appendix III: Individual Audit and Other 

Enforcement Program Data 
Appendix III: Individual Audit and Other 

Enforcement Program Data 

Page 39 GAO-03-378 IRS Enforcement Reporting 

1997 1998 1999 2000 2001 2002 

 

 209,781 168,054 124,518 91,586 77,950 88,896 

 505,834 383,366 235,625 145,975 115,971 111,695 

 803,628 625,021 715,789 366,657 529,241 538,779 a 16,339 24,341 13,547 8,594 4,543 

 1,519,243 1,192,780 1,100,273 617,765 731,756 743,913 

118,362,600 120,342,400 122,546,900 124,887,100 127,097,400 129,948,400 

 1.28 0.99 0.90 0.49 0.58 0.57 

 

 5,983,944 5,668,906 6,552,290 5,751,462 6,082,967 6,265,455 

 1,834,232 1,894,170 1,965,405 2,010,514 2,026,802 2,061,830 

 7,818,176 7,563,076 8,517,695 7,761,976 8,109,769 8,327,285 

 931,354 1,726,098 1,770,695 1,353,545 1,161,901 1,687,800 

 1,917,212 2,313,633 1,890,794 1,251,375 1,371,401 1,882,475 

 4.97 4.63 5.25 4.53 4.68 4.79 

 6.50 6.17 6.82 6.11 6.24 6.36 

 0.79 1.43 1.44 1.08 0.91 1.30 

 1.62 1.92 1.54 1.00 1.08 1.45 

Source: GAO analysis of IRS data. 

Note: To compute individual audit and other enforcement rates, we used two methods. We used 

IRS’s method for computing audit rates, which equals the proportion of IRS audits closed in a fiscal 

year as compared to returns filed in the previous calendar year. For example, as shown in the table 

above, the audit rate for 1993 is computed by dividing total audits (1,058,966) by the number of 

returns filed in the previous calendar year (114,718,900) to compute the audit rate (0.92). 

IRS has not stated a method for computing math error, document matching, and nonfiler rates. For 

the document matching and nonfiler programs, we used the IRS audit rate method because 

document matching and nonfiler contacts generally occur in the year after a return is filed. For the 

math error program, we compared the math errors notices to the returns filed in that year because 

identifying math errors is part of IRS’ returns processing system. For example, the math error rate for 

1993 is computed by dividing the number of math errors (4,088,000) by the number of returns filed in 

1993 (113,754,400) to compute the math error rate (3.59). 

Note: IRS estimates that the number of returns filed in 2002 is about 130,905,000. Final data for fiscal 

year 2002 were not available at the time of publication of this report. We used the estimate of 

130,905,000 returns filed to compute the math error rate and the math error rate (revised) for fiscal 

year 2002. 

a

IRS did not publish data on revenue officer examiner audits prior to 1998. 

b

Data for math error masterfile notices do not exist prior to fiscal year 1997. 

c

The number of math error (revised) contacts are the same as the number of math error contacts for 

fiscal years 1993 through 1996 because data for the number of masterfile notices does not exist for 

these years. 

d

The math error (revised) contact rate is the same as the math error contact rate for fiscal years 1993 

through 1996 because data for the number of masterfile notices does not exist for these years. 
Appendix III: Individual Audit and Other 

Enforcement Program Data 

Page 40 GAO-03-378 IRS Enforcement Reporting 

Figure 4: Individual Audit and Other Enforcement Contacts, Fiscal Years 1993 

through 2002 

The absolute number of contacts with taxpayers under the four 

enforcement programs follows the same general year-to-year and overall 

pattern as for contact rates. Similarly, as with the contact rates, the 

number of audits and the number of document matching contacts were 

lower (30 and 38 percent, respectively) in fiscal year 2002 than in 1993. 

The number of nonfiler contacts also was somewhat higher (17 percent) in 

2002 than in 1993 and the number of math error contacts—not counting 

math errors identified from masterfile comparisons—was significantly 

higher (53 percent) in 2002 than in 1993. 
Appendix III: Individual Audit and Other 

Enforcement Program Data 

Page 41 GAO-03-378 IRS Enforcement Reporting 
Appendix III: Individual Audit and Other 

Enforcement Program Data 

Page 42 GAO-03-378 IRS Enforcement Reporting 

Table 7: Number and Rates of Individual Audit and Document Matching Contacts by Income Level, Fiscal Years 1993 through 

2002 

 1993 1994 1995 1996

Audit contacts 

$100,000 and over 204,079 172,483 179,871 210,032 

$25,000 to under $100,000 361,787 347,200 510,764 552,011 

Under $25,000 493,100 706,024 1,228,802 1,179,503 

Document matching contacts 

$100,000 and over 213,070 263,287 285,767 238,330 

$25,000 to under $100,000 1,337,067 1,378,983 1,339,480 914,540 

Under $25,000 1,173,693 1,002,805 1,085,839 777,456 

Returns filed 

$100,000 and over 5,240,200 5,635,300 6,058,100 6,546,700 

$25,000 to under $100,000 45,333,900 45,640,000 46,506,400 47,865,000 

Under $25,000 64,144,800 62,479,100 62,118,900 61,648,000 

Audit rate 

$100,000 and over 3.89 3.06 2.97 3.21 

$25,000 to under $100,000 0.80 0.76 1.10 1.15 

Under $25,000 0.77 1.13 1.98 1.91 

Document matching rate 

$100,000 and over 4.07 4.67 4.72 3.64 

$25,000 to under $100,000 2.95 3.02 2.88 1.91 

Under $25,000 1.83 1.61 1.75 1.26 
Appendix III: Individual Audit and Other 

Enforcement Program Data 

Page 43 GAO-03-378 IRS Enforcement Reporting 

1997 1998 1999 2000 2001 2002

 

 200,070 164,314 128,398 99,547 91,550 112,266 

 423,548 349,378 226,261 148,306 157,296 183,847 

 895,625 679,088 745,614 369,912 482,910 447,800 

 

 131,348 228,934 231,482 208,839 218,981 275,088 

 469,761 863,408 891,237 674,154 597,034 786,172 

 330,449 633,756 647,976 470,552 345,886 429,879 

 

 7,301,900 8,156,600 9,178,000 10,368,600 11,610,500 13,020,183 

 49,805,300 51,389,100 53,389,200 55,729,700 57,268,000 59,216,431 

 61,255,400 60,796,700 59,979,700 58,788,800 58,218,900 57,208,333 

 

 2.74 2.01 1.40 0.96 0.79 0.86 

 0.85 0.68 0.42 0.27 0.27 0.31 

 1.46 1.12 1.24 0.63 0.83 0.78 

 

 1.80 2.81 2.52 2.01 1.89 2.11 

 0.94 1.68 1.67 1.21 1.04 1.33 

 0.54 1.04 1.08 0.80 0.59 0.75 

Source: GAO analysis of IRS data. 

Notes: Returns filed consists of previous calendar year data. 

Number of returns filed in 2002 (calendar year 2001 data) is estimated. 
Appendix III: Individual Audit and Other 

Enforcement Program Data 

Page 44 GAO-03-378 IRS Enforcement Reporting 

Figure 5: Number of Individual Audit and Document Matching Contacts by Income Level, Fiscal Years 1993 through 2002 

Note: Fiscal year 2002 data is estimated. 

The absolute number of audits by income group generally follows the 

same year-to-year and overall pattern, as do the contact rates for the 

income groups. However, the change in the number of audits conducted in 

fiscal year 1993 compared to 2002 is not as dramatic for the upper and 

middle-income groups as was the change in their audit rates. The number 

of audits for the higher income group declined by 45 percent between 1993 

and 2002 while the rate at which this group was audited declined 

78 percent. The number of audits of the middle-income group declined 

49 percent, while the rate at which this group was audited declined 

61 percent. The rate at which these groups were audited fell more than did 

the absolute number of audits because the number of taxpayers in each 

group expanded over the 10-year period. Higher income taxpayers grew in 

numbers by 148 percent between 1993 and 2002 and middle-income 

taxpayers grew by 31 percent. 

As with the absolute number of audits by income group, the number of 

document matching contacts by income group generally follows the same 

Year Year

$100,000 and over

$25,000 to under $100,000

Under $25,000

Source: GAO analysis of IRS data.

Document matching 

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Audit 

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Appendix III: Individual Audit and Other 

Enforcement Program Data 

Page 45 GAO-03-378 IRS Enforcement Reporting 

year-to-year and overall pattern as do the document matching contact 

rates. However, comparisons of the number of document matching 

contacts in fiscal year 1993 to those in 2002 differ substantially from 

comparisons of document matching contact rates for those years for one 

income group—the higher income taxpayers. The number of document 

matching contacts with the higher income taxpayers increased by 29 

percent between 1993 and 2002, whereas the contact rate for this group 

fell by 48 percent. The percentage changes in numbers and rates of 

contacts for the other two groups were more similar. Middle-income 

document matching contacts fell 41 percent between fiscal year 1993 and 

2001 while their document matching contact rate declined 55 percent. 

Lowest income taxpayer document matching contacts fell 63 percent, 

while their contact rate declined 59 percent. 
Appendix III: Individual Audit and Other 

Enforcement Program Data 

Page 46 GAO-03-378 IRS Enforcement Reporting 

Table 8: Number and Rates of Individual Audits by Type of Audit and Income Level, Fiscal Years 1993 through 2002 

 1993 1994 1995 1996 1997

Field audits 

Under $25,000 80,881 189,748 161,800 85,153 49,053 

$25,000 to under $100,000 82,731 98,393 100,501 80,509 66,558 

$100,000 and over 87,100 75,875 76,304 86,768 94,170 

Office audits 

Under $25,000 248,704 244,952 250,656 238,561 231,944 

$25,000 to under $100,000 201,924 167,594 171,438 221,207 223,646 

$100,000 and over 54,911 43,670 36,786 49,652 50,244 

Correspondence audits 

Under $25,000 163,515 271,324 816,346 855,789 614,628 

$25,000 to under $100,000 77,132 81,213 238,825 250,295 133,344 

$100,000 and over 62,068 52,938 66,781 73,612 55,656 

Returns filed 

Under $25,000 64,144,800 62,479,100 62,118,900 61,648,000 61,255,400 

$25,000 to under $100,000 45,333,900 45,640,000 46,506,400 47,865,000 49,805,300 

$100,000 and over 5,240,200 5,635,300 6,058,100 6,546,700 7,301,900 

Field audit rate 

Under $25,000 0.13 0.30 0.26 0.14 0.08

$25,000 to < $100,000 0.18 0.22 0.22 0.17 0.13

$100,000 and over 1.66 1.35 1.26 1.33 1.29

Office audit rate 

Under $25,000 0.39 0.39 0.40 0.39 0.38

$25,000 to < $100,000 0.45 0.37 0.37 0.46 0.45

$100,000 and over 1.05 0.77 0.61 0.76 0.69

Correspondence audit rate 

Under $25,000 0.25 0.43 1.31 1.39 1.00

$25,000 to < $100,000 0.17 0.18 0.51 0.52 0.27

$100,000 and over 1.18 0.94 1.10 1.12 0.76
Appendix III: Individual Audit and Other 

Enforcement Program Data 

Page 47 GAO-03-378 IRS Enforcement Reporting 

1998 1999 2000 2001 2002 

 

 35,891 26,228 21,433 16,784 15,480 

 49,891 35,540 28,666 26,159 33,093 

 82,272 62,750 41,487 35,007 40,323 

 

 171,918 95,308 57,017 42,016 31,192 

 170,341 109,696 68,740 54,526 56,509 

 41,107 30,621 20,218 19,429 23,994 

 460,795 608,154 284,981 420,346 399,175 

 124,451 73,996 45,346 73,189 92,293 

 39,775 33,639 36,330 35,706 47,311 

 60,796,700 59,979,700 58,788,800 58,218,900 57,208,333 

 51,389,100 53,389,200 55,729,700 57,268,000 59,216,431 

 8,156,600 9,178,000 10,368,600 11,610,500 13,020,183 

 

0.06 0.04 0.04 0.03 0.03 

0.10 0.07 0.05 0.05 0.06 

1.01 0.68 0.40 0.30 0.31 

0.28 0.16 0.10 0.07 0.05 

0.33 0.21 0.12 0.10 0.10 

0.50 0.33 0.19 0.17 0.18 

0.76 1.01 0.48 0.72 0.70 

0.24 0.14 0.08 0.13 0.16 

0.49 0.37 0.35 0.31 0.36 

Source: GAO analysis of IRS data. 

Note: Revenue officer examiner audits are not included. See table 6. 
Appendix III: Individual Audit and Other 

Enforcement Program Data 

Page 48 GAO-03-378 IRS Enforcement Reporting 

Table 9: Average Direct Staff Hours by Type of Audit and For Document Matching Cases, Fiscal Years 1993 through 2002 

Program 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Field audit 17.81 12.69 13.99 20.21 21.84 22.08 24.84 27.64 30.83 28.87

Office audit 4.47 4.51 4.27 4.56 4.34 4.49 5.66 7.09 8.91 9.37

Correspondence audit 1.43 1.15 0.74 0.73 0.83 0.91 1.08 1.80 1.79 1.71

Document matching 0.80 0.81 1.09 0.98 0.53 0.52 0.57 0.61 0.57 0.61

Source: GAO analysis of IRS data. 

Note: Revenue officer examiner audits are not included. See table 6. 
Appendix IV: Soft Notices and Voluntary 

Compliance Agreements 

Page 49 GAO-03-378 IRS Enforcement Reporting 

In addition to the four major enforcement programs, IRS started two 

programs in the mid-1990s to help ensure that taxpayers file timely and 

accurate returns, and to minimize the need for enforcement. 

Through the soft notice program, IRS has been sending notices for 

apparent errors on two tax issues—duplicate claims for one allowable 

dependent exemption and unfiled self-employment tax returns. IRS uses 

soft notices when it has information to indicate that some taxpayer made 

an error but not enough information to know for sure, such as which 

taxpayer overclaimed a dependent. Soft notices are intended to stimulate 

taxpayers to correct the error without IRS having to invest audit time. 

In addition, IRS uses the voluntary compliance agreements program to 

address known compliance problems in reporting tip income. To improve 

compliance of employees in industries where tip income is a part of 

wages, IRS had been auditing the tax returns of tipped employees, which 

burdened the employees and employers as well as IRS. To minimize these 

burdens while also addressing the compliance problems, IRS began to 

explore new methods to achieve voluntary compliance by tipped 

employees, such as voluntary compliance agreements. IRS has negotiated 

three types of agreements with certain employers (e.g., restaurants) to 

improve compliance by their individual employees in reporting tip income. 

These three types of agreements follow. 

• The Tip Rate Determination Agreement (TRDA) requires that IRS and the 

business agree upon a tip rate for various occupations in the business and 

that at least 75 percent of employees in the business agree to report at that 

rate on their income tax return. 

• The Tip Reporting Alternative Commitment (TRAC) does not require a tip 

rate to be determined, but does require that the business create written 

statements to record employee tips and send the statements to IRS. This 

agreement covers all employees and requires that the business educate 

employees about their obligation to report their tip income. 

• The Employer-designed Tip Reporting Alternative Commitment 

Agreement (EmTRAC) requires that businesses establish tip reporting 

procedures and prepare a statement on a regular basis (no less than 

monthly) to reflect all tips for each employee. The business must establish 

an education program to train employees about their obligation to report 

tip income. 

Appendix IV: Soft Notices and Voluntary 

Compliance Agreements 
Appendix IV: Soft Notices and Voluntary 

Compliance Agreements 

Page 50 GAO-03-378 IRS Enforcement Reporting 

In general, these two programs are similar to the four major enforcement 

programs in that they attempt to correct noncompliance. They differ 

because, rather than enforcing the tax laws, both attempt to reduce the 

need for enforcement. In sum, their differences tend to outnumber their 

similarities, as discussed below. 

Similar to the four enforcement programs, IRS sends soft notices to inform 

taxpayers of potential errors. However, the soft notice does not require 

taxpayers to take any action, and IRS takes no action to verify the error or 

assess tax. Instead, the notice asks taxpayers to examine the potential 

error and file an amended return if they confirm the error. Also, the notice 

informs taxpayers that IRS will monitor these types of errors and might 

contact them if they do not alter their reporting in the future. 

The similarity between the voluntary compliance agreements and the 

other enforcement programs is that they attempt to correct 

noncompliance. Unlike the other programs, these agreements occur 

before a return is filed and do not involve sending any notices to 

taxpayers. IRS believes that these agreements enhance voluntary 

compliance so that IRS can avoid the need to take enforcement action and 

assess additional taxes after a return is filed. IRS assures the businesses 

that IRS will not audit their books and records as long as they abide by the 

agreement. However, IRS may still audit the books and records of a tipped 

employee and report any changes to the business. IRS officials said that 

current procedures require follow-up to check adherence to these 

agreements, but the officials were not sure about the extent to which this 

has been occurring. 

IRS has limited data for the soft notice and voluntary compliance 

agreement programs, as follows. 

• In 2002, IRS sent 1.2 million soft notices to taxpayers on duplicate 

dependent claims on 2001 tax returns; in 1998, IRS sent 1.6 million soft 

notices on these duplicate claims and on self-employment tax for 1996 and 

1997 returns.1

 This involved 329,000 notices sent to taxpayers who 

reported self-employment income but had not filed a schedule SE or paid 

self-employment tax. IRS did not provide data on these notices for any 

later years. 

 1

GAO/GGD-00-7.
Appendix IV: Soft Notices and Voluntary 

Compliance Agreements 

Page 51 GAO-03-378 IRS Enforcement Reporting 

• Through 2001, TRDAs and TRACs covered 48,348 establishments in the 

casino, beauty, and food and beverage industries. IRS did not have data on 

the number of individual taxpayers covered by these agreements because 

the agreements are made with employers rather than directly with the 

individual taxpayers. 
Appendix V: Comments from the 

Commissioner of Internal Revenue 

Page 52 GAO-03-378 IRS Enforcement Reporting 

Appendix V: Comments from the 

Commissioner of Internal Revenue 

As part of its comments, 

IRS included an 

enclosure that provided 

additional data on 

nonaudit contacts. We did 

not include this enclosure 

as part of IRS’s written 

comments because the 

data provided did not 

materially affect our 

conclusions and 

recommendations. 
Appendix V: Comments from the 

Commissioner of Internal Revenue 

Page 53 GAO-03-378 IRS Enforcement Reporting 
Appendix VI: GAO Contacts and Staff 

Acknowledgments 

Page 54 GAO-03-378 IRS Enforcement Reporting 

Michael Brostek, (202) 512-9110 

Tom Short, (202) 512-9110 

In addition to those named above Susan Baker, Grace Coleman, 

Susan Conlon, Brendan Culley, Michele Fejfar, Leon Green, Marshall 

Hamlett, Shirley Jones, and Jay Pelkofer made key contributions to this 

product. 

Appendix VI: GAO Contacts and Staff 

Acknowledgments 

GAO Contacts 

Staff 

Acknowledgments 
Related GAO Products 

Page 55 GAO-03-378 IRS Enforcement Reporting 

U.S. General Accounting Office. Tax Administration: Advance Tax 

Refund Program Was a Major Accomplishment, but Not Problem Free. 

GAO-02-827. Washington, D.C.: August 2, 2002. 

U.S. General Accounting Office. Tax Administration: New Compliance 

Research Effort Is on Track, but Important Work Remains. GAO-02-769. 

Washington, D.C.: June 27, 2002. 

U.S. General Accounting Office. Tax Administration: Impact of 

Compliance and Collection Program Declines on Taxpayers. GAO-02-674. 

Washington, D.C.: May 22, 2002. 

U.S. General Accounting Office. IRS Audit Rates: Rate for Individual 

Taxpayers Has Declined But Effect on Compliance Unknown. GAO-01-

484. Washington, D.C.: April 25, 2001. 

U.S. General Accounting Office. Tax Administration: Information on 

Selected IRS Tax Enforcement and Collection Efforts. GAO-01-589T. 

Washington, D.C.: April 5, 2001. 

U.S. General Accounting Office. Tax Administration: IRS’ Use of 

Nonaudit Contacts. GAO/GGD-00-7. Washington, D.C.: March 16, 2000. 

U.S. General Accounting Office. Tax Administration: IRS Is Working to 

Improve Its Estimates of Compliance Burden. GAO/GGD-00-11. 

Washington, D.C.: May 22, 2000. 

U.S. General Accounting Office. IRS Audits: Weaknesses in Selecting and 

Conducting Correspondence Audits. GGD-99-48. Washington, D.C.: March 

31, 1999. 

U.S. General Accounting Office. Tax Administration: IRS’ Audit and 

Criminal Enforcement Rates for Individual Taxpayers Across the 

Country. GAO/GGD-99-19. Washington, D.C.: December 23, 1998. 

U.S. General Accounting Office. Internal Revenue Service: Results of 

Nonfiler Strategy and Opportunities to Improve Future Efforts. 

GAO/GGD-96-72. Washington, D.C.: May 13, 1996. 

U.S. General Accounting Office. Tax Administration: Audit Trends and 

Results for Individual Taxpayers. GAO/GGD-96-91. Washington, D.C.: 

April 26, 1996. 

Related GAO Products 
Related GAO Products 

Page 56 GAO-03-378 IRS Enforcement Reporting 

Statement of Johnny C. Finch, Senior Associate Director, General 

Government Division, GAO, Before the Subcommittee on Commerce, 

Consumer, and Monetary Affairs, Committee on Government Operations, 

House of Representatives, on IRS’ Information Returns Matching Program, 

April 29, 1986. 

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