|Program Title||Internal Revenue Service Examinations|
|Department Name||Department of the Treasury|
|Agency/Bureau Name||Internal Revenue Service|
Direct Federal Program
|Assessment Rating||Moderately Effective|
|Assessment Section Scores||
|Program Funding Level
|Year Began||Improvement Plan||Status||Comments|
Improve tools for selecting the most productive audit cases by 2007 using the detailed compliance information gathered in the recent individual tax gap study. Spring 2008 Update: In May 2008, a preliminary selection score analysis was completed using updated DIF scores on closed-case results from the 1040 (individuals) NRP study. The preliminary score analysis will be updated with current closed case data by August 2008 for TY 2006 and TY 2007, and will updated again in August 2009. By July 2008, preliminary analysis of the raw examination results of the NRP study on S-corps will be available. Work requests will be submitted by the end of June 2008 for potential DIF formula and examination activity code programming changes that would be implemented by January 2010.
|Action taken, but not completed|
Explore methods for measuring the impact of Examination on compliance. New efforts could include studies of the impact of audits on future compliance of audited taxpayers and attitude surveys. Spring 2008 Update: By September 2008, the number of Sch. C audits started will increase by 5% despite a switch in emphasis and resources placed on Business Master File audits during the year. IRS anticipates by September 2009 they will add an additional 5% in Sch. C audits started to the schedule. NRP S-Corp compliance study raw data was made available for analysis in January 2008 with draft report of findings expected by July 2008. Updates to tax gap and voluntary reporting compliance rates for S-Corp returns are expected by September 2008, and by June 2009, when both payment & filing estimates will be updated.
|Action taken, but not completed|
Undertake compliance study on individual income tax returns. Spring 2008 Update: The NRP 1040 (individuals) study is underway. Approximately 12,500 Tax Year (TY) 2006 returns were assigned to examiners and at least 3,000 audits have been closed to date. TY 2006 results are expected by November 2009; TY 2007 returns are being prepared for audit (selection of samples is underway and case files are being built). Classification of the TY 2007 returns will begin in August 2008 with the initial selection of returns for assignment to examiners delivered by October 2008.
|Action taken, but not completed|
|Year Began||Improvement Plan||Status||Comments|
Research 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. Spring 2008 Update: S-Corp compliance study was completed and 98% of the examinations were closed. Data results collected from the study were downloaded to the Compliance Data Warehouse (CDW) site and will be updated in September 2008 with additional case closing data. The National Research Program (NRP) expects to have a draft report of the raw S-Corp findings by July 2008. In January 2009, NRP expects to release an updated estimate of the tax gap that may include an adjustment to the individual underreporting gap (and potentially the employment tax gap) based on the S-Corp findings.
Measure: Examination coverage - Individual (%)
Explanation:The number of individual tax returns examined (audited) divided by the total number of individual tax returns. As explained in section II, academic research suggests that higher audit rates leads to higher compliance. This measure is used as a proxy for compliance which cannot be annually measured.
Measure: Automated underreporter (AUR) efficiency
Explanation:Document matching cases (notices sent to taxpayers based on discrepancies between their returns and third party income reports such as W-2s) closed per FTE (staff) working these cases.
Measure: Audit quality index (industry/corporate audits)
Explanation:Percentage of time that IRS meets audit standards for industry/corporate audits. Based on a review if a random sample of audits.
Measure: Examination efficiency - Individual (1040 form)
Explanation:Field and office examination cases (more complex cases handled in person) closed per FTE (staff) working these cases.
Measure: Large corporation examination coverage rate
Explanation:The number of large corporate (corporations with assets greater than $10 million) tax returns examined (audited) divided by the total number of large corporation tax returns. As explained in section II, academic research suggests that higher audit rates leads to higher compliance. This measure is used as a proxy for compliance which cannot be annually measured.
Measure: Percent of Taxpayers stating that it is OK to cheat on their taxes
Explanation:A random sample of taxpayers is annually surveyed and asked "How much, if any, do you think is an acceptable amount to cheat on your income taxes?" This measure is used as a proxy for voluntary compliance. It reports the percentage of taxpayers answering either "as much as possible" or "a little here and there." The margin for error is plus or minus 3 percent. 2005 data is not yet available.
Measure: Correspondence examinations closed per FTE
Explanation:Number of correspondence examinations (limited issue examinations carried out through mail contacts) divided by the number of FTE (staff) working these cases.
Measure: Voluntary Compliance Rate (individual income taxes)
Explanation:Percent of individual income taxes due that are reported and paid on time without IRS enforcement action. Data is based on periodic audits of a random sample of tax returns.
Measure: Examination coverage - Business corporations > $10 million (%)
Explanation:Number of months elapsed between filing and audit completion for large corporate (corporations with assets greater than $10 million) audits. IRS has placed a priority on completing enforcement processes more quickly.
|Section 1 - Program Purpose & Design|
Is the program purpose clear?
Explanation: IRS has statutory responsibility to enforce tax laws by ensuring accurate and timely reporting of taxes. The IRS Mission is to provide America's taxpayers top-quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all. The Examination program conducts audits of individuals, businesses and special purpose entities to verify income, deductions, exemptions and credits reported on tax returns.
Evidence: IRS's authority to examine (audit) taxpayer books and records to ensure compliance is detailed in 26 USC 7801, 7602 and 7601. See IRS's strategic plan for its mission statement and a discussion of how the examination program helps achieve that mission (2005-2009 IRS Strategic Plan: www.irs.gov/pub/irs-utl/strategic_plan_05-09.pdf).
Does the program address a specific and existing problem, interest, or need?
Explanation: 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 have been between $312 and $353 billion. Examination is one of the major IRS programs intended to minimize this revenue loss.
Evidence: See IRS's 3/28/2005 press releases for tax gap estimates (www.irs.gov). All IRS programs serve to promote voluntary compliance with the tax law. However, Examination, Criminal Investigation and Collection are the major IRS programs for directly interacting with potentially non-compliant taxpayers. Both Criminal Investigation (2005) and Collection (2002) have been separately PARTed.
Is the program designed so that it is not redundant or duplicative of any other Federal, state, local or private effort?
Explanation: IRS Examination program is the only Federal activity whose primary purpose is to ensure compliance with reporting requirements of Federal tax laws with the exception of some excise taxes collected by Treasury's Tax and Trade bureau. IRS research estimates that 80 percent of the "tax gap" is attributable to underreporting of taxes (understatement of income and/or overstatement of credits and deductions). Examination pursues civil enforcement of tax underreporting. IRS Criminal Investigation pursues criminal enforcement. These two enforcement efforts complement each other.
Evidence: IRS's authority to examine (audit) taxpayer books and records to ensure compliance is detailed in 26 USC 7801, 7602 and 7601.
Is the program design free of major flaws that would limit the program's effectiveness or efficiency?
Explanation: The Examination program is flexible in design and allows for targeted shifts in audit resources to emerging issues and new areas of concern. IRS has experimented with new approaches to enforcement including up-front issue detection/resolution, enhancements to document matching programs and development of customized, industry-specific audit techniques to improve effectiveness. The recent National Research Program (NRP) compliance study offers a rich new set of data for IRS managers to use in understanding and combating non-compliance. Finally, in 2004 Professor Jeffrey Dubin completed a study that used a state-level cross-section time series dataset for the years 1988-2001 to model the relationship between tax payments and levels of IRS enforcement. His data supports Examination's approach by suggesting that higher levels of audits lead to higher tax compliance.
Evidence: Examination was responsible for $17.4 billion in IRS enforcement revenue collected in FY 2004. Spending totaled $3.2 billion for a direct return on investment of better than 5 to 1. A summary of Professor Jeffrey Dubin's study can be found at www.irs.gov/pub/irs-soi/04dubin.pdf.
Is the program design effectively targeted so that resources will address the program's purpose directly and will reach intended beneficiaries?
Explanation: Examination seeks to balance enforcement programs across all taxpayer categories, to maximize Return-On-Investment (ROI), and ensure that audits are effectively targeted.
Evidence: Examination was responsible for $17.4 billion in IRS enforcement revenue collected in FY 2004. Spending totaled $3.2 billion for a direct return on investment of better than 5 to 1. In addition, more than 80 percent of audits of individuals identified non-compliance indicating a reasonably effective targeting system.
|Section 1 - Program Purpose & Design||Score||100%|
|Section 2 - Strategic Planning|
Does the program have a limited number of specific long-term performance measures that focus on outcomes and meaningfully reflect the purpose of the program?
Explanation: IRS' overall goal for all of its programs is to increase voluntary compliance as measured by periodic compliance studies. Its goal is to increase the individual voluntary compliance rate from the 83.5 percent level measured for 2001 to 85 percent by 2009. However, due to the time, expense and taxpayer burden involved in collecting data on compliance, IRS only periodically measures overall compliance. IRS annually measures the "Percent of Taxpayers stating that it is OK to cheat on their taxes" through surveys as a proxy measure for compliance. Civil tax enforcement by examination (audits) is a key strategy in the effort to increase reporting compliance and shares in these goals. IRS' Examination specific long-term goals are: by 2009 to increase Individual Exam Coverage by 43 percent and Large Corporation Examination Coverage by 7 percent above the 2004 baselines of 2.3 percent and 7.5 percent respectively, and to complete Large Corporate Audits within 36 months from the date of filing. The two coverage (audit rate) measures are used as a proxy for Examination's impact on reporting compliance. Examination's impact on compliance cannot be directly measured, but research suggests that higher levels of audits lead to higher compliance.
Evidence: Individual coverage and large corporate coverage are audit rate measures (examinations divided by the number of returns filed). The completion rate measure (months between filing and completion of examination) is used to emphasize the need for timely tax enforcement. See IRS' FY 2007 Performance Budget for IRS' current strategic goals. IRS commissioned an independent study by Professor Jeffrey Dubin which suggests that higher audit rates lead to higher compliance. A summary of Professor Jeffrey Dubin's study can be found at www.irs.gov/pub/irs-soi/04dubin.pdf.
Does the program have ambitious targets and timeframes for its long-term measures?
Explanation: As noted in question 2.1, IRS's goal is to increase the individual voluntary compliance rate to 85 percent by 2009. It also has a proxy goal to decrease the "Percent of Taxpayers stating that it is OK to cheat on their taxes" from the 2004 level of 12 percent to 9 percent by 2009. Finally, its Examination specific goals are to increase Individual Exam Coverage by 43 percent and Large Corporation Examination Coverage by 7 percent by 2009 above the 2004 baselines of 2.3 percent and 7.5 percent respectively, and to complete Large Corporate Audits within 36 months from the date of filing. After dropping substantially in the late 1990s, IRS' enforcement outputs such as audit rates have begun to rise, and IRS' goal is to continue to increase outputs largely through productivity growth.
Evidence: See IRS' FY 2007 Performance Budget for IRS' current strategic goals. IRS' examination coverage 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. It is expected to further increase to 3.25 percent by 2009. Similarly, IRS's goal is to increase large corporate examination coverage to 8.03 percent from 7.5 percent in 2004 while reducing cycle time.
Does the program have a limited number of specific annual performance measures that can demonstrate progress toward achieving the program's long-term goals?
Explanation: As explained in 2.1, Examination has several long term goals (individual examination coverage rate, large corporation examination coverage rate, large corporate completion time). Examination also shares in IRS's goal to increase the percentage of taxpayers stating that no cheating is acceptable. These measures also have annual goals. In addition, Examination captures a variety of workload and diagnostic indicators including efficiency and audit quality measures (see measures tab for efficiency and quality measures). Collectively these measures serve as a proxy for Examination's impact on compliance. However, Examination continues to work to find improved proxy measures, particularly metrics showing that it is doing the right audits and doing them well.
Evidence: IRS uses Coverage rates as proxies for Examination's impact on compliance. Examination's impact on compliance cannot be directly measured, but academic research suggests that higher audit/examination rates lead to higher compliance. IRS has also introduced several closures per FTE efficiency measures. IRS plans to work towards cost based efficiency measures in the future. IRS is focusing on timeliness. One of its goals is to improve timeliness of large corporate audits. Finally, IRS measures case quality, volumes and customer satisfaction. These final measures are used in internal management but, with the exception of case quality, are not reported in the measures tab.
Does the program have baselines and ambitious targets for its annual measures?
Explanation: Examination has baselines and targets for its annual performance measures. It plans to increase coverage rates, case quality and efficiency while decreasing case completion time. Further IRS plans to increase the percentage of taxpayers stating that no cheating is acceptable.
Evidence: See the measures tab for detailed performance metric data. After dropping significantly in the late 1990s, coverage rates and efficiency has begun to recover with further increases planned for FY 2006 and 2007. Examination plans to decrease the months elapsed between filing and audit completion for large businesses (assets greater than $10 million) to 38 months in FY 2007 from 41 months in FY 2005.
Do all partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) commit to and work toward the annual and/or long-term goals of the program?
Explanation: IRS is partnering with State and local tax agencies to deal with abusive tax avoidance transactions and high-income non-filers and to improve the exchange of compliance/enforcement data. In addition, Examination continues to partner with the Department of Justice (DOJ), the Securities and Exchange Commission (SEC), and the Public Company Accounting Oversight Board (PCAOB) to strengthen compliance efforts in the tax shelter area, and shares goals as appropriate with other IRS divisions. This question has been given a lower weight than other questions in this section because Examination's primary activity, tax audits, is carried out by Examination personnel.
Evidence: To date 48 States, D.C, New York City and Virgin Islands signed agreements and are actively exchanging tax compliance data (e.g., audit results) with IRS. In Jan 2004 more than 27,000 leads on abusive transactions were shared with states/cities. IRS is sharing info with States on the "Son of Boss" abusive tax shelter. Through March 2004, states identified over $200 million in additional taxes based on this information. Based on partnering efforts with the SEC and PCAOB, a Settlement was announced in Feb 2004 (see IRS website announcement 2005-19) for certain abusive executive stock option schemes. In addition, IRS's partnership with DOJ resulted in successful litigation on the critical issue of "investor identity privilege" to help fight abusive tax transactions. Cooperation with DOJ resulted in injunctions against 119 shelter promoters and 18 return preparers since 2001. Finally, through the third quarter of FY 2005 fraud referrals (316) from all IRS operating units accepted by IRS criminal investigation increased 39.2 percent over the same period in FY 2004.
Are independent evaluations of sufficient scope and quality conducted on a regular basis or as needed to support program improvements and evaluate effectiveness and relevance to the problem, interest, or need?
Explanation: Examination's primary role is to deter noncompliance with the tax laws. Deterrence is difficult to measure. However, IRS recently completed a major tax gap study that measures overall IRS success in deterring noncompliance. Examination is a major part of IRS' overall tax compliance effort. IRS also commissioned an independent study by Professor Jeffrey Dubin to model the relationship between tax payments and levels of IRS enforcement. Finally, the Inspector General for Tax Administration and the General Accountability Office complete numerous studies on IRS effectiveness and management.
Evidence: See IRS's 3/28/2005 press releases for tax gap estimates (www.irs.gov). This tax gap data is based on audits of randomly selected taxpayers to project compliance for the entire population. A summary of Professor Jeffrey Dubin's study can be found at www.irs.gov/pub/irs-soi/04dubin.pdf. While his work was done under contract to IRS, it follows an accepted academic methodology and is undergoing peer review. See also Inspector General for Tax Administration reports reviews of IRS' experiments with limited issue focus examinations (LIFE) (TIGTA-2005-3-029), and fast-track dispute resolution (TIGTA-2004-30-119). See also GAO reports on challenges in combating abusive tax schemes (GAO-04-50), planning for enforcement process changes (GAO-04-287), and the GAO High risk list (GAO-05-207).
Are Budget requests explicitly tied to accomplishment of the annual and long-term performance goals, and are the resource needs presented in a complete and transparent manner in the program's budget?
Explanation: IRS has presented an integrated performance plan and budget for a number of years. It has worked to tie resource changes to expected performance changes. In FY 2006, it proposed to restructure its budget to improve this linkage by showing the full cost of each program activity. Prior to 2006 overhead activities were funded separately. Unfortunately this proposed new structure was rejected by the appropriations committees in FY 2006 and IRS reports it cannot track obligations for these fully costed programs quickly enough to use them in financial execution. However, IRS will continue to monitor and report the costs of these programs. IRS 2007 Budget is presented in the traditional structure, which does not show the full cost of programs. However its performance budget also includes tables detailing the full cost of each program. IRS' efforts to link budget and performance is further improved by tying resources and annual performance measures to IRS's new long term performance goals.
Evidence: See IRS' FY 2007 Congressional Submission for its integrated performance plan and Budget. While the budget structure does not report the full cost of programs, Examination's full resources are reported in supplemental tables with clear performance information and a discussion of the impact of resource levels on its annual performance.
Has the program taken meaningful steps to correct its strategic planning deficiencies?
Explanation: IRS has a strategic plan and processes in place to ensure that it focuses resources on the highest priority problems and explores process changes to improve performance. However, it needs to continue to improve its ability to measure the impact of its programs on compliance.
Evidence: Examination uses long term planning, annual budget and performance planning and regular performance reviews throughout the year. Reviews take place at all levels of the organization and take into account feedback from external parties such as the Tax IG. IRS recently supplemented these processes with a new IRS Enforcement Committee (Chaired by the Deputy Commissioner for Services and Enforcement) which guides development of Servicewide strategies, sets strategic, tactical and resource priorities and ensures effective coordination and communication among all divisions and support units. For example, IRS has used these processes to focus enforcement efforts and innovative enforcement tactics on high risk areas such as abusive tax shelters, high income taxpayers, non-compliance in the tax exempt sector. However, without adequate long term and annual goals it cannot ensure effective strategic planning.
|Section 2 - Strategic Planning||Score||100%|
|Section 3 - Program Management|
Does the agency regularly collect timely and credible performance information, including information from key program partners, and use it to manage the program and improve performance?
Explanation: Examination collects data from internal and external partners and uses it to manage. This includes both data on Examination's performance measures and a variety of diagnostic metrics to help managers understand performance trends. Examination participates in monthly meetings with the Commissioner to review organizational performance in key programs and progress on modernization and workforce initiatives and in quarterly detailed program reviews with the IRS' two Deputy Commissioners. Examination's leadership is constrained by the IRS Reform & Restructuring Act of 1998 (Section 1204) which prohibits the use of "measures of enforcement results" to evaluate employees. However, within those constraints it collects and uses performance measures.
Evidence: Examples of management changes made based on performance information include: - 20% of Examination resources were redirected to high income non-filers enabling audits of 90,000 additional high-income non-filer cases in 2004 and 2005. - Examination noted that Virtual Private Network (VPN) Excise Tax Communication Claims were surging. It responded by shifting 30 percent of its excise tax examiners to work over 6,000 VPN Cases since 2000, allowing IRS to protect $268 million.
Are Federal managers and program partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) held accountable for cost, schedule and performance results?
Explanation: Examination's strategies and operational priorities are incorporated into formal annual managerial commitments. Each manager's performance is evaluated against these commitments annually. Further, IRS has implemented a pay banding program to increase the linkage between pay and performance for its managers. Examination's leadership is careful to ensure that these commitments do not violate the IRS Reform & Restructuring Act of 1998 (Section 1204) which prohibits the use of "measures of enforcement results" to evaluate employees.
Evidence: Examples of manager commitments include: "I will increase productivity and reduce cycle time??" and "I will take actions to ensure that ??. meets or exceeds the FY 2005 balanced measures and goals within budget and workplan" in an area director's performance agreement.
Are funds (Federal and partners') obligated in a timely manner and spent for the intended purpose?
Explanation: Examination fully obligates it resources and follows its annual financial plans. This question has been given a lower weight than other questions in this section because Examination is funded as part of an annual largely salaries and expenses account. This type of account does not typically have problems with obligating resources according to plans.
Evidence: IRS reports that its Examination functions obligate well over 99 percent of their resources each year.
Does the program have procedures (e.g. competitive sourcing/cost comparisons, IT improvements, appropriate incentives) to measure and achieve efficiencies and cost effectiveness in program execution?
Explanation: Examination has measures of efficiency in place for all major programs. These measures help Examination assess the overall program as well as effectively allocate resources during the work planning process. Examination also manages to maximize direct enforcement revenue, which also helps increase efficiency.
Evidence: Examination's primary efficiency measures are case closures per FTE (see measures tab). In the long term (by 2008) IRS plans to convert these to cost based rather than FTE based measures.
Does the program collaborate and coordinate effectively with related programs?
Explanation: Examination actively partners with stakeholders to help achieve its mission. These include International and state tax administrators, federal agencies, practitioners and professional associations. Partnering efforts include memorandums of understanding (MOU's) with various federal and state agencies for enforcement activities.
Evidence: To date 48 States, D.C, New York City and the Virgin Islands have signed MOU's and are sharing data with IRS. In Jan 2004 more than 27,000 leads on abusive transactions were shared with states/cities. One anti-tax shelter effort - targeting the "Son of BOSS" shelters - through third quarter 2005 has led to assessments totaling over $3.7 billion for federal, and over $114 million for states. IRS also has MOUs with other federal agencies like the Department of Housing & Urban Development, the Social Security Administration, the Department of Labor, the National Indian Gaming Commission that provide for the exchange of information to aid in enforcement activities.
Does the program use strong financial management practices?
Explanation: GAO reports that IRS "lacks reliable and timely cost information" needed to make management decisions (GAO-05-707T).
Evidence: See GAO-05-707T. GAO reports that IRS' new administrative accounting system may eventually give it reliable cost information. However, it will take several years to accumulate enough data. GAO (IRS's auditor) reports material weaknesses related to 1) financial reporting, 2) unpaid assessments, 3) federal tax revenue and refunds, and 4) information security (GAO-05-103). Per GAO; "IRS continues to exhibit a strong commitment to addressing its ongoing financial management problems and has made improvements in recent years that have resulted in the closing of many recommendations. At the same time, the continued existence of the serious financial management weaknesses that gave rise to the remaining open recommendations represents a serious obstacle that IRS needs to overcome to achieve effective financial management" (Highlights of GAO-05-393).
Has the program taken meaningful steps to address its management deficiencies?
Explanation: Examination works to continually identify and correct management flaws. It uses long term planning, annual budget and performance planning and regular performance reviews throughout the year. Reviews take place at all levels of the organization and take into account feedback from external parties such as the Tax IG. The main management weakness identified in this section of the PART is ongoing problems with IRS' financial management, particularly the lack of "reliable and timely cost information" (see question 3.6). As GAO confirms (Highlights of GAO-05-393), IRS is working to address these problems by upgrading its financial systems. IRS's new Integrated Financial System (IFS) may eventually provide the sort of day to day which GAO reports that IRS currently lacks.
Evidence: One example of Examination's efforts to improve performance and efficiency is the reworking of the overall process for selecting and sending returns to field groups for examination. An internal team identified inefficiency in this overall process and made recommendations for improvements that are being adopted. These recommendations will improve the matching of workload to available resources. Another example of efforts to improve performance and efficiency is the CAP (Compliance Assurance Process) program which focuses on working taxpayer issues before a return is filed. This approach is significantly more efficient than working issues after returns are filed and was developed out of the need to expand coverage with limited resources in order to leverage Examination's impact on voluntary compliance and the tax gap.
|Section 3 - Program Management||Score||84%|
|Section 4 - Program Results/Accountability|
Has the program demonstrated adequate progress in achieving its long-term performance goals?
Explanation: As noted in Section II, IRS's goal is to increase individual voluntary compliance to 85 percent by 2009. It also has a proxy goal to decrease the "Percent of Taxpayers stating that no cheating is acceptable on their taxes" to 9 percent by 2009. Finally, its Examination specific goals are to increase Individual Exam Coverage by 43 percent and Large Corporation Examination Coverage by 7 percent by 2009 above the 2004 baselines of 2.3 percent and 7.5 percent respectively, and to complete Large Corporate Audits within 36 months from the date of filing. After dropping substantially in the late 1990s, IRS' enforcement outputs such as audit rates have begun to rise, and IRS' goal is to continue to increase outputs largely through productivity growth. However, recently released data show that the tax gap remains large and survey data shows no improvement since 1999 in the percentage of taxpayers stating cheating is acceptable.
Evidence: See IRS's 3/28/2005 press releases for tax gap estimates (www.irs.gov). IRS' examination coverage 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. Similarly, IRS's large corporate examination coverage increased from 6.1 percent in 2003 to 7.8 percent in 2005, and audit completion time was reduced from 42 months in 2003 to 41 months in 2005 (see measures tab). Finally, survey data showed 11 percent of taxpayers stated that cheat was acceptable in 1999. In 2004 this number was 12 percent (unchanged in statistical terms).
Does the program (including program partners) achieve its annual performance goals?
Explanation: Examination met or exceeded six of its seven annual performance goals included in this analysis (see measures tab). In particular it continued strong improvements in productivity. It narrowly missed its goal for improving the quality of its corporate audits.
Evidence: Corporate audit quality, improved from 74% of cases meeting audit quality standards in 2004 to 77% meeting them in 2005. IRS' performance standard was 78%. Productivity improvements included increasing document matching cases closed per FTE from 2,350 in 2004 to 2,414 in 2005 and improving field examinations closed per FTE from 32 in 2004 to 37 in 2005. See measures tab. See also Treasury's annual Performance and Accountability Report for a discussion of FY 2005 performance.
Does the program demonstrate improved efficiencies or cost effectiveness in achieving program goals each year?
Explanation: Examination has shown solid efficiency improvements since 2001. Both correspondence examinations per FTE and document matching cases per FTE have grown while field/office examinations per FTE has remained steady despite shifting workload to more complex cases.
Evidence: Correspondence examinations per FTE has increased from 102 in 2001 to 351 in 2005 and document matching cases per FTE has grown from 1,954 in 2001 to 2,414 in 2005. Field/office examinations per FTE has grown from 33 in 2001 to 37 in 2005 despite shifting workload to more complex cases (e.g., abusive shelter and abusive trust cases). (see measures tab)
Does the performance of this program compare favorably to other programs, including government, private, etc., with similar purpose and goals?
Explanation: While there are other tax enforcement organizations (states, Treasury's Alcohol and Tobacco Tax and Trade Bureau), they are sufficiently different from IRS Examination that direct comparisons are either impossible or would not provide useful information.
Evidence: Other investigative programs also measure statistics like audit rates and enforcement revenue. However, they audit for different types of taxes and populations, so comparison of these numbers across programs is not meaningful. Similarly, other organizations enforce tax laws (states, foreign countries, other IRS programs). However, their circumstances are very different. They have different tax codes and in many cases depend heavily on IRS Examination case reports to support their own examination programs. In the case of other IRS programs, we have no means to compare their performance metrics or compliance impact to Examination.
Do independent evaluations of sufficient scope and quality indicate that the program is effective and achieving results?
Explanation: Available evaluations present a mixed picture of Examination's success. Professor Dubin's study suggests that higher levels of audits lead to higher tax compliance. Since Examination has succeeded in raising audit rates in recent years, this suggests some success. However, Examination's audit rates remain low by historical standards. In addition, IRS's most recent tax gap estimates (for 2001) show that compliance has grown somewhat worse since it was last measured in 1988. Examination was responsible for $17.4 billion in IRS enforcement revenue collected in FY 2004 (up from $9.5 billion in 2001). Examination's budget totaled $3.2 billion for a direct return on investment of better than 5 to 1. The Inspector General for Tax Administration has issued several reports including reviews of IRS' experiments with limited issue focus examinations (LIFE) (TIGTA-2005-3-029), and fast-track dispute resolution (TIGTA-2004-30-119). Finally, GAO has examined challenges in combating abusive tax schemes (GAO-04-50), and planning for enforcement process changes (GAO-04-287), and GAO has included tax enforcement on its High Risk list.
Evidence: See IRS's 3/28/2005 press releases for tax gap estimates (www.irs.gov). This study is based on audits of randomly selected taxpayers to project compliance for the entire population. A summary of Professor Jeffrey Dubin's study can be found at www.irs.gov/pub/irs-soi/04dubin.pdf. While his work was done under contract to IRS, it follows an accepted academic methodology and is undergoing peer review. See also Inspector General for Tax Administration reports 2005-3-029 and 2004-30-119 and GAO-04-50, GAO-04-287, and GAO High risk list GAO-05-207.
|Section 4 - Program Results/Accountability||Score||58%|