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IR-2007-113, June 6, 2007
WASHINGTON — Internal Revenue Service officials today announced
plans to launch a new National Research Program (NRP) reporting
compliance study for individual taxpayers that will provide updated
and more accurate audit selection tools and support efforts to
reduce the nation’s tax gap.
The latest NRP study will be the first of an ongoing series of
annual individual studies using an innovative multi-year rolling
methodology. The study will start in October 2007 and examine about
13,000 randomly selected tax year 2006 individual returns. Similar
sample sizes will be used in subsequent tax years.
An advantage of using this method, which combines results over
rolling three-year periods, is the IRS will be able to make annual
updates to compliance estimates and develop more efficient workload
plans on an annual basis, after the initial three annual studies.
Previous studies started from scratch, drew tax returns from a
single tax year and involved examinations of more than 45,000
taxpayers.
“The new program will be a big step forward for tax research,”
said Acting IRS Commissioner Kevin M. Brown. “Our approach will
reduce burden on taxpayers, improve our audit selection techniques
and give us more timely information to help reduce the tax gap.”
The tax gap is the difference between what taxpayers should have
paid and what they actually paid on a timely basis. Based in part on
the prior NRP reporting compliance study of individual income tax
returns, IRS officials estimate that the net tax gap for tax year
2001 was $290 billion.
Using research from the prior NRP study, the IRS updated its
audit selection system. Updated statistics enable the IRS to audit
more efficiently and improve the detection of underreported income
and overstated deductions and credits. The data also enables the IRS
to audit fewer taxpayers with accurate tax returns, which lessens
the burden on compliant taxpayers.
The research on individuals needs updating because as time
passes, patterns of noncompliance change. The sample for the latest
individual NRP is constructed to ensure that it contains sub-samples
of individuals at different income levels as well as those engaged
in farm and sole proprietor business activities.
The
initial group of taxpayers whose returns are selected for audit
under the new NRP study will start receiving official letters in
October informing them that they are part of the research study. The
majority of individuals will have specific lines of their returns
confirmed through in-person audits with an IRS examiner. Some of the
individuals whose returns are selected for inclusion will not be
contacted if the IRS can obtain matching and third-party data that
confirms the accuracy of their return. The targeted research design
of the new individual NRP avoids the need for IRS agents to
routinely check all the lines of a taxpayer’s return.
In addition to the NRP for individuals, the IRS is in the final
stages of a compliance research project examining reporting
compliance of S corporations. This research encompasses
approximately 5,000 returns filed for tax years 2003 and 2004. Since
the income and expense items for S corporations flow through to
individual shareholders, this study will also help refine the tax
gap estimates for individual income tax.
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