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ExpectMore.govExpectMore.gov home pageEXPECT FEDERAL PROGRAMS TO PERFORM WELL, AND BETTER EVERY YEAR.
 
Program Assessment

Program

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Internal Revenue Service Examinations

This program ensures that citizens pay the correct tax by auditing returns at a high risk for non-compliance. Audits help ensure individuals comply with their tax obligations, deter tax evasion among the general public, and help reassure taxpayers that the system is fair.

Rating

What This Rating Means

PERFORMING
Moderately Effective

In general, a program rated Moderately Effective has set ambitious goals and is well-managed. Moderately Effective programs likely need to improve their efficiency or address other problems in the programs' design or management in order to achieve better results.
  • The tax gap, the difference for a given year between taxes legally owed and taxes actually paid, for 2001 (latest available figure) is estimated to be between $312 and $353 billion. Examination is one of the major IRS programs intended to minimize this revenue loss.
  • After dropping substantially in the late 1990s, IRS' audit rates have begun to rise and will continue to increase, largely through productivity growth. IRS' audit rate has grown from a low of 1.49 percent (i.e., less than two returns in one hundred audited) in 2001 to 3.09 percent in 2005.
  • IRS has set long term goals and efficiency measures. However, it has difficulty measuring compliance in a timely manner due to the complexity and expense involved and in holding employees accountable for performance due to legal restrictions. It also needs cost based efficiency measures.

Improvement Plan

About Improvement Plans

We are taking the following actions to improve the performance of the program:

  • Researching tax compliance of S-corporations (a popular business form where profits are taxed only once passed through to the owners) based on a statistically valid sample of the filing population.
  • Improving tools for selecting the most productive audit cases by 2007 using the detailed compliance information gathered in the recent individual tax gap study.
  • Explore methods for measuring the impact of Examination on compliance.

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