TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Monday, October 20, 2014

TIGTA: IRS Is Not Complying With Homeland Security Laws on Information Security Management and Employee ID Cards

TIGTA The Treasury Inspector General for Tax Administration today released:

Federal Information Security Management Act Report for Fiscal Year 2014 (2014-20-090):

The Federal Information Security Management Act of 2002 (FISMA) was enacted to strengthen the security of information and systems within Federal Government agencies. The IRS collects and maintains a significant amount of personal and financial information on each taxpayer. As custodians of taxpayer information, the IRS has an obligation to protect the confidentiality of this sensitive information against unauthorized access or loss.

As part of the FISMA legislation, the Offices of Inspectors General are required to perform an annual independent evaluation of each Federal agency’s information security programs and practices. This report presents the results of TIGTA’s FISMA evaluation of the IRS for Fiscal Year 2014.

Based on this year’s FISMA evaluation, five of the 11 security program areas met the performance metrics specified by the Department of Homeland Security’s Fiscal Year 2014 Inspector General Federal Information Security Management Act Reporting Metrics. ... Four security program areas were not fully effective due to one or more program attributes that were not met. ... Two security program areas did not meet the level of performance specified due to the majority of the attributes not being met.

Progress Has Been Made; However, Significant Work Re mains to Achieve Full Implementation of Homeland Security Presidential Directive 1 (2014-20-069):

Issued in August 2004, the Homeland Security Presidential Directive 12 (HSPD-12), Policy for a Common Identification Standard for Federal Employees and Contractors, requires Federal agencies to issue identity credentials that meet the HSPD-12 standard and use them for gaining physical access to Federally controlled facilities and logical access to Federally controlled information systems.  Without full implementation of HSPD-12 compliant authentication, IRS facilities, networks, and information systems are at an increased risk of unauthorized access.

This audit was initiated to determine the IRS’s progress in implementing HSPD-12 requirements for accessing IRS facilities and information systems.  The U.S. Department of the Treasury has set a goal for its bureaus to achieve 100-percent HSPD-12 compliance by Fiscal Year 2015.  In Fiscal Year 2012, the Administration identified HSPD-12 as a Cross-Agency Priority initiative needed to improve the security of Federal data.

The majority of the IRS workforce (85%) has been issued HSPD-12 compliant Personal Identity Verification (PIV) cards.  However, full implementation of PIV card electronic authentication for accessing IRS facilities is not scheduled until at least Fiscal Year 2018, and only if funding is available.  In addition, significant challenges remain in the area of implementing PIV card electronic authentication for accessing IRS networks and information systems.  These challenges include many legacy systems and technologies in use at the IRS that are incompatible with PIV cards, and limited HSPD-12 staffing and funding for resolving these conflicts.

October 20, 2014 in Gov't Reports, IRS News, Tax | Permalink | Comments (1)

Monday, October 13, 2014

Congress, GAO Target ‘Supersize’ IRAs

Super Size MeFollowing up on my previous posts:

Wall Street Journal Tax Report:  Washington Scrutiny of ‘Supersize’ IRAs, by Laura Saunders:

Washington is taking a hard look at tax-sheltered retirement accounts, especially “supersize” ones worth millions of dollars. Savers should consider what it could mean for them.

The U.S. Government Accountability Office, an arm of Congress, recently released a report on individual retirement accounts, requested by Senate Finance Committee Chairman Ron Wyden (D., Ore.). Its publication coincided with Senate hearings on retirement savings held last month.

The GAO study addressed questions many people asked after disclosures that former presidential candidate Mitt Romney had a traditional IRA worth as much as $101 million and technology entrepreneur Max Levchin put more than 13.3 million shares of Yelp YELP -5.11% stock in a Roth IRA before the firm went public in 2012.

How many supersize IRAs are there? The GAO estimates more than 300 individuals or families have IRAs with balances greater than $25 million, while more than 9,000 have IRAs worth more than $5 million. The GAO wasn’t able to distinguish between regular and Roth IRAs, given the data. ...

Continue reading

October 13, 2014 in Congressional News, Gov't Reports, Tax | Permalink | Comments (0)

Tuesday, September 30, 2014

TIGTA: IRS Does Not Adequately Research 57% of Cases, Losing Billions in Taxes Wrongly Labeled Uncollectible

TIGTA The Treasury Inspector General for Tax Administration yesterday released Delinquent Taxes May Not Be Collected Because Required Research Was Not Always Completed Prior to Closing Some Cases As Currently Not Collectible (2014-30-052):

If an IRS employee is unable to contact or unable to locate (UTC/UTL) a delinquent taxpayer, the collection case may be closed as currently not collectible (CNC). If all of the required research steps are not taken prior to the case closure, there is a risk that the Government’s interest may not be protected and that taxpayers will not be treated equitably.

In Fiscal Year 2012, the IRS closed 482,611 tax modules involving approximately $6.7 billion as CNC–UTC/UTL.  This audit was initiated to determine whether these cases were adequately researched, documented, and approved to ensure that all actions were taken to collect outstanding taxpayer liabilities.

Required case actions were not always completed before closing cases as CNC–UTC/UTL.  Of a stratified sample of 250 cases reviewed, there was no evidence that employees completed all of the required research steps for 57 percent of the cases prior to their closing.  Moreover, 7 percent of the cases did not have a Notice of Federal Tax Lien (NFTL) filed on all delinquent tax periods as required. Collection Field function (Field) employees did not complete all research in 165 of the 204 Field cases, while Automated Collection System function employees did not complete all research in eight of the 38 Automated Collection System cases

Continue reading

September 30, 2014 in Gov't Reports, IRS News, Tax | Permalink | Comments (1)

Friday, September 19, 2014

GAO: The IRS Needs to Ramp Up Audits of Large Partnerships

GAOGovernment Accountability Office, With Growing Number of Partnerships, IRS Needs to Improve Audit Efficiency (GAO-14-732):

The number of large partnerships has more than tripled to 10,099 from tax year 2002 to 2011. Almost two-thirds of large partnerships had more than 1,000 direct and indirect partners, had six or more tiers and/or self reported being in the finance and insurance sector, with many being investment funds.

The Internal Revenue Service (IRS) audits few large partnerships. Most audits resulted in no change to the partnership’s return and the aggregate change was small. Although internal control standards call for information about effective resource use, IRS has not defined what constitutes a large partnership and does not have codes to track these audits. According to IRS auditors, the audit results may be due to challenges such as finding the sources of income within multiple tiers while meeting the administrative tasks required by the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) within specified time frames. For example, IRS auditors said that it can sometimes take months to identify the partner that represents the partnership in the audit, reducing time available to conduct the audit. TEFRA does not require large partnerships to identify this partner on tax returns. Also under TEFRA, unless the partnership elects to be taxed at the entity level (which few do), IRS must pass audit adjustments through to the ultimate partners. IRS officials stated that the process of determining each partner’s share of the adjustment is paper and labor intensive. When hundreds of partners’ returns have to be adjusted, the costs involved limit the number of audits IRS can conduct. Adjusting the partnership return instead of the partners’ returns would reduce these costs but, without legislative action, IRS’s ability to do so is limited. 




September 19, 2014 in Gov't Reports, Tax | Permalink | Comments (1)

Tuesday, September 16, 2014

Romney-Sized IRAs Get Scrutiny as Government Studies Tax Breaks

Bloomberg:  Romney-Sized IRAs Get Scrutiny as Government Studies Tax Breaks, by Richard Rubin:

About 9,000 U.S. taxpayers have each accumulated at least $5 million in individual retirement accounts, said the Government Accountability Office, raising questions about some investors’ tax-advantaged returns.

The preliminary report attaches data to an issue that drew attention during the 2012 presidential campaign, when Republican nominee Mitt Romney reported an IRA worth $20 million to $102 million. ...

Today’s GAO report said someone who contributed the maximum amount each year to an IRA from 1975 to 2011 and invested it in the Standard & Poor’s 500 Index would have about $350,000. The maximum contribution this year is $5,500, plus an extra $1,000 for people age 50 and older.

GAO, Preliminary Information on IRA Balances Accumulated as of 2011 (Sept. 16, 2014):

For tax year 2011 (the most recent year available), an estimated 43 million taxpayers had individual retirement accounts (IRA) with total reported fair market value of $5.2 trillion. About 99 percent of those taxpayers had aggregate IRA balances (including inherited IRAs) of $1 million or less. As shown in the table below, few taxpayers had aggregated balances exceeding $5 million as of 2011. Generally, taxpayers with IRA balances of $5 million or more tend to have higher adjusted gross incomes, be joint filers, and 65 or more years old. The Internal Revenue Service (IRS) statistical data GAO analyzed may not provide a precise estimate of the number of taxpayers or other quantities when the number of taxpayers in a particular reporting group is very small. Even assuming maximum contributions sustained over decades and rolled over from an employer plan, it would take an aggressive stock market investment strategy to accumulate an IRA balance over $5 million. There is no total statutory limit on IRA accumulations or rollovers from employer defined contribution plans. An individual who made the maximum contributions every year since 1975 to a traditional IRA could have accumulated about $303,420 achieving investment returns equal to the average annual Social Security interest rates.

Estimated Taxpayers with IRA by Size of IRA Balance, Tax Year 2011

Number of taxpayers

Total IRA fair market value balances($ Billions)

IRA Balance


95% confidence



95% confidence


$1 million or less







> $1to $2 million







> $2 to $3 million







> $3 to $5 million







> $5 to $10 million







> $10 to $25 million







> $25 million







September 16, 2014 in Gov't Reports, Tax | Permalink | Comments (0)

Wednesday, August 27, 2014

CBO: An Update to the Budget and Economic Outlook

Congressional Budget Office, An Update to the Budget and Economic Outlook (Aug. 2014):

Figure 1-1


August 27, 2014 in Congressional News, Gov't Reports, Tax | Permalink | Comments (1)

Friday, August 22, 2014

Distribution of Household Wealth in the U.S.: 2000 to 2011

Census Bureau, Distribution of Household Wealth in the U.S.: 2000 to 2011:

Median household net worth decreased by $5,046, or 6.8 percent, between 2000 and 2011. ... Between 2000 and 2011, experiences of households varied widely depending on their net worth quintile (See Figure 1). Median household net worth decreased by $5,124 for households in the first (bottom) net worth quintile, $7,056 (or 49.3 percent) for the second quintile, and $5,072 (or 6.9 percent) for the third quintile. Median household net worth increased by $18,433 (or 9.8 percent) for households in the fourth quintile, and by $61,379 (or 10.8 percent) for households in the highest (top) quintile.

Census Bureau

(Hat Tip: Bruce Bartlett.)

August 22, 2014 in Gov't Reports, Tax | Permalink | Comments (1)

Tuesday, August 19, 2014

TIGTA: ObamaCare Medical Device Tax Is Raising 25% Less Revenue Than Expected, IRS Administration of Tax Is Rife With Errors

TIGTA The Treasury Inspector General for Tax Administration today released The Affordable Care Act: An Improved Strategy Is Needed to Ensure Accurate Reporting and Payment of the Medical Device Excise Tax (2014-43-043):

The Affordable Care Act includes a tax provision that provides for an excise tax equal to 2.3 percent of the sales price for medical devices sold beginning January 1, 2013. Manufacturers, producers, and importers are responsible for collecting the medical device excise tax and must file a Form 720, Quarterly Federal Excise Tax Return. The Joint Committee on Taxation estimated revenues from the medical device excise tax of $20 billion for Fiscal Years 2013 through 2019. ...

Our review found that both the number of Forms 720 filed reporting the medical device excise tax and the amount of the associated revenue reported are lower than estimated. The IRS is attempting to develop a compliance strategy to ensure that businesses are compliant with medical device excise tax filing and payment requirements and has taken several measures to advise medical device manufacturers of the new excise tax. However, the IRS cannot identify the population of medical device manufacturers registered with the Food and Drug Administration that are required to file a Form 720 and pay the excise tax.

Continue reading

August 19, 2014 in Gov't Reports, IRS News, Tax | Permalink | Comments (0)

Thursday, August 14, 2014

TIGTA: IRS Puts Confidential Taxpayer Information at Risk By Giving It to Contractors Without Required Background Checks

TIGTA The Treasury Inspector General for Tax Administration today released Some Contractor Personnel Without Background Investigations Had Access to Taxpayer Data and Other Sensitive Information (2014-10-037):

IRS policy requires contractor personnel to have a background investigation if they will have or require access to Sensitive But Unclassified (SBU) information, including taxpayer information. Allowing contractor personnel access to taxpayer and other SBU information without the appropriate background investigation exposes taxpayers to increased risk of fraud and identity theft.

Taxpayer and other SBU information may be at risk due to a lack of background investigation requirements in five contracts for courier, printing, document recovery, and sign language interpreter services. For example, in one printing services contract, the IRS provided the contractor a compact disk containing 1.4 million taxpayer names, addresses, and Social Security Numbers; however, none of the contractor personnel who worked on this contract were subject to a background investigation. In addition, TIGTA found 12 contracts for which IRS program and procurement office staff correctly determined that contractor personnel required background investigations because they would have access to SBU information; however, some contractor personnel did not have interim access approval or final background investigations before they began working on the contracts. Further, TIGTA identified 20 contracts for which either some or all contractor personnel did not sign nondisclosure agreements. In June 2013, after the period covered by our audit, the IRS issued more explicit guidance requiring the execution of nondisclosure agreements.

August 14, 2014 in Gov't Reports, IRS News, Tax | Permalink | Comments (1)

Wednesday, August 13, 2014

TIGTA: Tax Exempt Tax Deadbeats -- Nonprofit Groups Owe the IRS Nearly $1 Billion in Payroll Taxes

TIGTA The Treasury Inspector General for Tax Administration today released Some Tax-Exempt Organizations Have Substantial Delinquent Payroll Taxes (2014-10-012):

IRS records indicate that the majority of tax-exempt organizations pay their Federal taxes. However, a small percentage are not paying their taxes. More than 64,200 (3.8%) tax‑exempt organizations had nearly $875 million of Federal tax debt as of June 16, 2012. While some organizations owed minor amounts, approximately 1,200 tax‑exempt organizations owed more than $100,000 each. Unpaid taxes were often associated with multiple tax periods. For example, nine organizations each had Federal tax debt spanning 10 or more years that collectively totaled more than $5.5 million.

Continue reading

August 13, 2014 in Gov't Reports, IRS News, Tax | Permalink | Comments (1)

Friday, June 13, 2014

President Obama Requests 10.5% Budget Increase for IRS, Despite IRS's Failure to Perform Basic Budget Planning

GAO LogoThe Government Accountability Office has released IRS 2015 Budget: Long-Term Strategy and Return on Investment Data Needed to Better Manage Budget Uncertainty and Set Priorities (GAO-14-605):

Since fiscal year 2010, the Internal Revenue Service (IRS) budget has declined by about $900 million. As a result, funding is below fiscal year 2009 levels.

IRS Appropriations FY 2009 - 2014 and FY 2015 Requested Appropriation

IRS Appropriations Fiscal Years 2009 through 2014 and Fiscal Year 2015 Requested Appropriation

Staffing has also declined by about 10,000 full-time equivalents since fiscal year 2010, and performance has been uneven. ...

IRS does not calculate actual ROI or use it for resource decisions. These limitations are important, which is why GAO recommended in 2012 that IRS explore developing such estimates. ... GAO recommends that IRS (1) develop a long-term strategy to manage uncertain budgets, and (2) calculate actual ROI for implemented initiatives, compare actual ROI to projected ROI, and use the data to inform resource decisions.

June 13, 2014 in Gov't Reports, IRS News, Tax | Permalink | Comments (5)

Thursday, May 22, 2014

318,000 Federal Workers Owe $3.3 Billion in Back Taxes (Delinquency Rate Is 33% Higher Among VA Employees)

318,462 federal workers and retirees owed more than $3.3 billion in back income taxes as of September 30, 2013, a delinquency rate of 3.27% (compared to 8.7% for the entire U.S. population). See the full spreadsheet here.

Among the 18 executive departments, the embattled Department of Veterans Affairs has the second highest delinquency rate among its employees:  4.38% (behind the Department of Housing and Urban Development's 5.29%).

Among 27 large (> 1,000 employees) independent agencies, the Federal Reserve has the third highest delinquency rate:  6.51%.

The delinquency rate is 4.87% in the House of Representatives and 2.43% in the Senate.

In the tax world, the delinquency rate is 3.02 in the Tax Court and 1.20% in the Treasury Department (the IRS is not separately broken out).

For prior years data, see:

May 22, 2014 in Gov't Reports, IRS News, Tax | Permalink | Comments (0)

Friday, May 16, 2014

TIGTA: 47% of Alimony Deductions Claimed Don't Match Alimony Income Reported to IRS

TIGTA The Treasury Inspector General for Tax Administration yesterday Significant Discrepancies Exist Between Alimony Deductions Claimed by Payers and Income Reported by Recipients (2014-40-022):

Individuals who pay alimony can deduct the amount paid from income on their tax return to reduce the amount of tax an individual must pay. Conversely, individuals who receive alimony must claim the amount received as income on their tax return. TIGTA initiated this audit to evaluate the alimony reporting gap and to assess controls the IRS has in place to promote reporting compliance.

Processes have not been developed to address the majority of discrepancies between alimony deductions claimed and income reported. TIGTA’s analysis of the 567,887 Tax Year 2010 returns with an alimony deduction claim identified 266,190 (47 percent) tax returns in which it appears that individuals claimed alimony deductions for which income was not reported on a corresponding recipient’s tax return or the amount of alimony income reported did not agree with the amount of the deduction taken. There is a discrepancy of more than $2.3 billion in deductions claimed without corresponding income reported.

May 16, 2014 in Gov't Reports, IRS News, Tax | Permalink | Comments (0)

Tuesday, May 13, 2014

TIGTA: IRS Again Fails to Comply With Statutory Mandated Reduction in Improper Payments -- 26% EITC Fraud Costs $16 Billion/Year

TIGTA The Treasury Inspector General for Tax Administration today released The Internal Revenue Service Fiscal Year 2013 Improper Payment Reporting Continues to Not Comply With the Improper Payments Elimination and Recovery Act (2014-40-027):

The Improper Payments Elimination and Recovery Act (IPERA) of 2010 strengthened agency reporting requirements and redefined “significant improper payments” in Federal programs. The Office of Management and Budget has declared the Earned Income Tax Credit (EITC) Program a high-risk program that is subject to reporting in the Department of the Treasury Agency Financial Report. The IRS estimates that 22 to 26 percent of EITC payments were issued improperly in Fiscal Year 2013. The dollar value of these improper payments was estimated to be between $13.3 billion and $15.6 billion.

The IRS continues to not provide all required IPERA information to the Department of the Treasury for inclusion in the Department of the Treasury Agency Financial Report Fiscal Year 2013. For the third consecutive year, the IRS did not publish annual reduction targets or report an improper payment rate of less than 10 percent for the EITC. IRS management has indicated that the IRS and the Department of the Treasury are in continued discussions with the Office of Management and Budget to obtain its approval to develop supplemental measures that are appropriate to gauge the impact of EITC compliance and outreach efforts in lieu of developing error reduction targets. Finally, although risk assessments were performed for each of the programs that the Department of the Treasury required the IRS to assess, the risk assessment process still may not provide a valid assessment of improper payments in tax administration. As such, the EITC remains the only revenue program fund to be considered at high risk for improper payments.



May 13, 2014 in Gov't Reports, IRS News, Tax | Permalink | Comments (2)

Wednesday, April 23, 2014

GAO: Budget Cuts Hurt IRS's Performance

GAO,  GAO LogoInternal Revenue Service: Absorbing Budget Cuts Has Resulted in Significant Staffing Declines and Uneven Performance (GAO-14-534) (Apr. 21, 2014):

IRS’s appropriations have declined to below fiscal year 2009 levels and FTEs have been reduced by about 8,000 since fiscal year 2009. Planned performance in enforcement and taxpayer service has decreased or fluctuated; for example, in the fiscal year 2014 congressional justification the audit coverage target for individual examinations was 1.0 percent for fiscal year 2014, however, the target was lowered to 0.8 percent in the fiscal year 2015 congressional justification. Amidst lower demand, IRS’s telephone level of service performance (the percentage of callers seeking live assistance and receiving it) was 73 percent from January 1 through March 15, 2014 compared to 69 percent during the same period last year. However, between fiscal years 2009 and 2013, IRS’s telephone level of service fluctuated between 61 percent and 74 percent. Average wait times have almost doubled since fiscal year 2009—from 8.8 minutes to 16.8 minutes as of mid-March 2014.

Not including other budgetary resources such as user fees, the fiscal year 2015 budget request for IRS is $12.5 billion, which is an increase of 10.5 percent ($1.2 billion) in funding and 8.3 percent in staffing (6,998 FTEs) over fiscal year 2014. According to the President’s budget, of the requested $1.2 billion, $480 million is predicated on a cap adjustment—funding above the discretionary spending limit—and largely covers enforcement and infrastructure initiatives. IRS’s workload has increased as a result of legislative mandates and priority programs, such as work related to the Patient Protection and Affordable Care Act and identity theft.

IRS has absorbed approximately $900 million in budget cuts since fiscal year 2010 through savings and efficiencies and by reducing, delaying, or eliminating services. For example, IRS delayed two information technology projects (Information Reporting and Document Matching and Return Review Program) and substantially reduced employee training. To help improve operations, the President requested a large budget increase for IRS in fiscal year 2015. However, additional funding is not the only solution. We have open recommendations on IRS’s operations that may help it achieve efficiencies over time, such as developing a long-term plan to improve web services.

IRS Enacted Appropriations, FY 2009-2014, and Fiscal Year 2015 Request

Continue reading

April 23, 2014 in Congressional News, Gov't Reports, IRS News, Tax | Permalink | Comments (0)

Monday, April 21, 2014

GAO: IRS Audits 1% of Big Partnerships, 27% of Big Corporations

GAO LogoFollowing up on my previous post, David Cay Johnston, How to Cheat on Your Taxes: the Government Accountability Office has released Characteristics of Population and IRS Audits (GAO-14-379R):

This report provides data on the number and characteristics of large partnerships as well as Internal Revenue Service (IRS) audits of large partnership returns. For purposes of this report, GAO did not identify a statutory, IRS, or industry-accepted definition of a large partnership. Instead, GAO used a combination of criteria for partner size and asset size used by IRS to define large partnerships as those that reported having 100 or more direct partners and $100 million or more in assets. The number of large partnerships increased from 720 in tax year 2002 to 2,226 in tax year 2011. Large partnerships also increased in terms of the average number of direct partners and average asset size. IRS had data on two categories of large partnership return audits. First, the number of completed field audits of large partnership returns increased from 11 in fiscal year 2007 to 31 in fiscal year 2013. Second, IRS counted audits closed through its campus function, which increased from 42 to 143 over the same period. Unlike field audits, campus function audits generally do not entail a review of the books and records of the large partnership return but rather were opened to pass through large partnership return audit adjustments to the related partners' returns. The percentage of IRS audits that resulted in no change to the taxpayer's return varied from fiscal year 2007 to 2013 but was 52 percent for campus function audits and 45 percent for field audits in fiscal year 2013.

April 21, 2014 in Gov't Reports, IRS News, Tax | Permalink | Comments (0)

Monday, March 17, 2014

TIGTA: The IRS Does Not Follow Procedures in 48% of Taxpayer Bankruptcy Cases

TIGTA The Treasury Inspector General for Tax Administration has released Bankruptcy Procedures Designed to Protect Taxpayer Rights and the Government’s Interest Were Not Always Followed (2014-40-013):

Impact on Taxpayers
The bankruptcy automatic stay provision prohibits the IRS from taking certain collection actions against a debtor (taxpayer) as soon as it learns, or is notified by a U.S. bankruptcy court, that a bankruptcy petition has been filed. Similarly, the debtor may be granted a discharge, which remains after the case is closed and is a permanent injunction order prohibiting the IRS from taking any form of collection action against the debtor personally with respect to discharged debts. If the IRS does not observe the automatic stay or the discharge injunction, taxpayers’ rights could potentially be violated and the IRS could be sued for damages.

Why TIGTA Did the Audit
In Fiscal Year 2012, IRS data showed that the Field Insolvency function received 306,920 bankruptcy cases on taxpayers owing approximately $2.5 billion in taxes, penalties, and interest. This audit was initiated to determine whether the function has effective controls and procedures in place to take appropriate and timely actions to protect the Government’s interest and taxpayers’ rights during bankruptcy proceedings.

What TIGTA Found
Field Insolvency function specialists frequently did not follow required procedures when working bankruptcy cases. Although TIGTA did not identify any violations of taxpayers’ rights and/or failure to protect the Government’s interest during this review, there is a higher risk that this could occur when procedures are not followed.

TIGTA’s review of three random samples of closed bankruptcy cases showed that specialists did not always follow established procedures in 17 (57 percent) of 30 Chapter 7 cases, 15 (50 percent) of 30 Chapter 11 cases, and 13 (43 percent) of 30 Chapter 13 cases reviewed. Specifically, specialists did not always timely or properly conduct the initial case analysis, follow up on scheduled case actions within a reasonable time, or timely or properly close cases.

TIGTA also reviewed a random sample of 30 bankruptcy cases with Automated Proof of Claim flag conditions (errors that need to be resolved by a specialist). Specialists did not timely or properly resolve the flag conditions in 12 (40 percent) of 30 cases.

March 17, 2014 in Gov't Reports, IRS News, Tax | Permalink | Comments (1)

Wednesday, December 18, 2013

TIGTA: IRS Vendors Owe $589 Million in Back Taxes, Yet IRS Refuses to do Annual Tax Check of All Contractors

TIGTA The Treasury Inspector General for Tax Administration yesterday released Vendors Had Millions of Dollars of Federal Tax Debt (2013-10-116):

The vast majority of vendors that conduct business with the IRS meet their Federal tax obligations. However, TIGTA found that 1,168 (7%) IRS vendors had a combined $589 million of Federal tax debt. ... TIGTA previously recommended that the IRS establish procedures requiring an annual tax check for all IRS contractors. The IRS disagreed with this recommendation and did not implement it. TIGTA continues to believe that the IRS should establish procedures requiring periodic (annual) tax compliance checks for all contractors. Because TIGTA has already recommended expanded tax checks for IRS contractors, no additional recommendations regarding IRS vendor tax compliance are being made at this time.

December 18, 2013 in Gov't Reports, IRS News, Tax | Permalink | Comments (0)

Friday, December 13, 2013

GAO: IRS Lacks Adequate Internal Controls

GAOThe Government Accountability Office yesterday released Financial Audit: IRS’s Fiscal Years 2013 and 2012 Financial Statements:

In GAO’s opinion, the Internal Revenue Service’s (IRS) fiscal years 2013 and 2012 financial statements are fairly presented in all material respects. However, in GAO’s opinion, IRS did not maintain effective internal control over financial reporting as of September 30, 2013, because of a continuing material weakness in internal control over unpaid tax assessments. ...

During fiscal year 2013, IRS continued to make important progress in addressing deficiencies in internal control over its financial reporting systems. However, new and continuing deficiencies in internal control that GAO identified over information security, including missing security updates, insufficient monitoring of financial reporting systems, and weak encryption for authentication, constituted a significant deficiency in IRS’s internal control. Until IRS fully addresses existing control deficiencies over its financial reporting systems, there is an increased risk that its financial and taxpayer data will remain vulnerable to inappropriate and undetected use, modification, or disclosure.

In addition to its internal control deficiencies, IRS faces significant ongoing financial management challenges associated with (1) safeguarding the large volume of sensitive hard copy taxpayer receipts and related information, and (2) its exposure to significant improper refunds from identity theft.

December 13, 2013 in Gov't Reports, IRS News, Tax | Permalink | Comments (0)

Thursday, December 5, 2013

TIGTA: IRS Issues $2.3 Billion/Year in Fraudulent Tax Refunds Based on Phony Employer Identification Numbers

TIGTA The Treasury Inspector General for Tax Administration today released Stolen and Falsely Obtained Employer Identification Num bers Are Used to Report False Income and Withholding (2013-40-120):

The IRS issues Employer Identification Numbers (EINs) to identify taxpayers’ business accounts. Individuals attempting to commit tax refund fraud commonly steal or falsely obtain an EIN to file tax returns reporting false income and withholding. TIGTA estimates that the IRS could issue almost $2.3 billion in potentially fraudulent tax refunds based on these EINs yearly (or about $11.4 billion over the next five years).

December 5, 2013 in Gov't Reports, IRS News, Tax | Permalink | Comments (1)

Tuesday, December 3, 2013

TIGTA: IRS Must Improve Security to Avoid ObamaCare Tax Credit Fraud

TIGTA The Treasury Inspector General for Tax Administration today released Affordable Care Act: Improvements Are Needed to Strengthen Systems Development Controls for the Premium Tax Credit Project (2013-23-119):

In March 2010, the President signed into law the Health Care and Education Reconciliation Act of 2010 and the Patient Protection and Affordable Care Act (ACA) (collectively referred to as the ACA). The ACA law seeks to provide more Americans with access to affordable health care. The Premium Tax Credit (PTC) Project falls under the IRS ACA Program. Beginning January 2014, eligible taxpayers who purchase health insurance through an Exchange may qualify for and request a refundable tax credit (the PTC) to assist with paying their health insurance premium. The credit is claimed on the taxpayer’s Federal tax return at the end of each coverage year. Because it is a refundable credit, taxpayers who have little or no income tax liability can still benefit. The PTC can also be paid in advance to a taxpayer’s health insurance provider to help cover the cost of premiums. This credit is referred to as the Advanced Premium Tax Credit (APTC). ...

The IRS has completed development and testing for the PTC Computation Engine (PTC-CE) needed to calculate the APTC and the Remainder Benchmark Household Contribution. In addition, the IRS developed a process to verify the accuracy of the PTC-CE calculations. However, improvements are needed to ensure the long-term success of the PTC Project by adherence to systems development controls for: (1) configuration and change management; (2) interagency test management process; (3) security; and (4) fraud detection and mitigation, in accordance with applicable guidance.

December 3, 2013 in Gov't Reports, IRS News, Tax | Permalink | Comments (0)

Sunday, December 1, 2013

TIGTA: IRS's IT Security Has Improved From 'Material Weakness' to 'Significant Deficiency'

TIGTA The Treasury Inspector General for Tax Administration has released  Annual Assessment of the Internal Revenue Service Information Technology Program (2013-20-126):

Since last year’s assessment report, the IRS has made progress on improving information security. As a result, the Government Accountability Office made a determination to downgrade information security from a material weakness to a significant deficiency. Even still, TIGTA’s reviews identified weaknesses in system access controls, audit trails, and remediation of security weaknesses.

In addition, the IRS took important steps to correct system performance issues of the Modernized e-File system to deliver a successful filing season. However, TIGTA continues to believe that the IRS’s Modernization Program remains a major risk. TIGTA identified several systems development issues that should be addressed to further strengthen and support the Modernization Program. For example, our review of the Customer Account Data Engine 2 database determined that existing data quality issues prevented the downstream interfaces from being implemented. Further, the development and implementation of new systems for the Affordable Care Act present major information technology management challenges. As a result, TIGTA plans to continue its strategic oversight of this area.

Achieving program efficiencies and cost savings is an important area for the IRS. In October 2012, the IRS achieved Information Technology Infrastructure Library® Maturity Level 3 to help achieve greater efficiency delivering information technology services. While the IRS has made progress on improving program effectiveness and reducing costs, TIGTA’s recent audit work involving data center consolidation, the Aircard and BlackBerry® smartphone program, and hardware and software management identified several opportunities for the IRS to achieve additional cost savings.

December 1, 2013 in Gov't Reports, IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Tuesday, November 12, 2013

TIGTA: IRS Fails to Assess Penalties When Taxpayers Erroneously Claim Tax Credits or Tax Refunds

TIGTA The Treasury Inspector General for Tax Administration today released The Law Which Penalizes Erroneous Refund and Credit Claims Was Not Properly Implemented (2013-40-123):

Congress enacted the erroneous claim for refund or credit penalty (referred to as the erroneous refund penalty) to enhance the IRS’s ability to address the growing number of erroneous tax credit and refund claims filed. Taxpayers who claim excessive tax credits or refunds may be penalized up to 20 percent of the erroneous tax credit or refund claim. Refund or credit claims that have no reasonable basis in law create unnecessary burden on both taxpayers and the IRS by straining resources and impeding effective tax administration.  

The Small Business and Work Opportunity Tax Act of 2007 amended the Internal Revenue Code to allow for a monetary penalty for erroneous tax refund or tax credit claims. This audit was initiated to determine whether the IRS is properly assessing the erroneous claim for refund or credit penalty on individual tax accounts.

The IRS incorrectly interpreted the erroneous refund penalty law, which significantly limited the types of erroneous tax refund or credit claims to which the penalty would apply. The IRS assessed only 84 erroneous refund penalties totaling $1.9 million between May 2007 and May 2012.

In response to concerns raised from various IRS functions, the IRS Office of Chief Counsel subsequently revised its interpretation of the law as to when the erroneous refund penalty could be assessed, and issued an updated memorandum in May 2012.

Although the IRS revised its interpretation of the law, it has not developed processes and procedures to enable those functions (Campus Operations) that disallow the majority of individual tax credits to assess the penalty. For example, in the year after the IRS revised its interpretation of the law (June 3, 2012 through May 25, 2013), there were 709,123 individual tax credits disallowed by these functional areas for which the IRS could have potentially assessed erroneous refund penalties totaling more than $1.5 billion.

IRS management raised concerns about the costs and benefits of establishing processes and procedures for the Campus Operations to assess erroneous refund penalties. However, the IRS has not provided any documentation and/or analysis to support the validity of these concerns. In view of the significant problem of erroneous claims for credits and refunds and the related costs to the Government, TIGTA believes that the IRS should reexamine its decision and put appropriate procedures and processes in place to comply with this section of law.

Update:  The Weekly Standard, IRS Not Following Law in Penalizing Excessive Refunds and Tax Credits

November 12, 2013 in Gov't Reports, IRS News, Tax | Permalink | Comments (1)

Thursday, November 7, 2013

GAO: Evaluation of Corporate Tax Expenditures

GAOThe Government Accountability Office has released Corporate Tax Expenditures: Evaluations of Tax Deferrals and Graduated Tax Rates (GAO-13-789):

Congress and the administration are reexamining tax expenditures used by corporations as part of corporate tax reform. These tax expenditures—special exemptions and exclusions, credits, deductions, deferrals, and preferential tax rates—support federal policy goals, but result in revenue forgone by the federal government.

GAO was asked to examine issues related to certain tax expenditures. This report uses GAO’s tax expenditures evaluation guide to determine what is known about: (1) the deferral of income for controlled foreign corporations; (2) deferred taxes for certain financial firms on income earned overseas; and (3) the graduated corporate income tax rate. GAO combined the two deferral provisions for evaluation purposes.

GAO’s guide suggests using five questions to evaluate a tax expenditure: (1) what is its purpose and is the purpose being achieved; (2) does it meet the criteria for good tax policy; (3) how is it related to other federal programs; (4) what are its consequences for the federal budget; and (5) how is its evaluation being managed? To address these questions, GAO reviewed the legislative history and relevant academic and government studies, analyzed 2010 Internal Revenue Service (IRS) data, and interviewed agency officials and tax experts.

(Hat Tip: Bruce Bartlett.)

November 7, 2013 in Gov't Reports, Tax | Permalink | Comments (0)

Tuesday, November 5, 2013

TIGTA: Tax Returns Prepared Through IRS Volunteer Programs Had 49% Error Rate

TIGTA The Treasury Inspector General for Tax Administration today released Inconsistent Adherence to Quality Requirements Continues to Affect the Accuracy of Some Tax Returns Prepared at Volunteer Sites (2013-40-110):

The Volunteer Program provides no-cost Federal tax return preparation and electronic filing to underserved segments of the population of individual taxpayers, including low- to moderate-income, elderly, disabled, and limited-English-proficient taxpayers. However, ensuring that tax returns are accurately prepared remains a challenge for the Volunteer Program. Problems with the accuracy of some of the tax returns affect the taxes owed and refunds received by these taxpayers. ...

Of the 39 tax returns prepared for auditors during the 2013 Filing Season, 20 (51 percent) were prepared correctly and 19 (49 percent) were prepared incorrectly. This is a two-percentage-point increase over the 49 percent accuracy rate for the same number of returns in the 2012 Filing Season. The 19 incorrect tax returns resulted from incorrect application of the tax law, insufficient requests for information during the intake/ interview process, or lack of adherence to quality review requirements.

Error Rate

November 5, 2013 in Gov't Reports, IRS News, Tax | Permalink | Comments (4)

Tuesday, October 29, 2013

TIGTA: 51% Error Rate in Correspondence Audits of Taxpayers

TIGTA The Treasury Inspector General for Tax Administration today released Actions Are Needed to Strengthen the National Quality Review System for Correspondence Audits (2013-30-099):

This audit was initiated to determine the accuracy of the results from the National Quality Review System (NQRS) and how management uses the feedback to enhance the quality of correspondence audits. ... TIGTA evaluated a statistical sample of 127 of 2,913 correspondence audits that had been reviewed by the NQRS during an 18‑month period and found errors with penalty determinations in 65 of the audits (51 percent) that had not been detected and reported by NQRS quality reviewers.

IRS executives and stakeholders should be provided with a more comprehensive snapshot of audit quality so that needed corrective actions can be timely recognized and taken. Only one overall measure of audit quality is currently reported quarterly by the NQRS to IRS executives and other key stakeholders even though as many as 71 items are reviewed. Finally, the random selection of audits for NQRS review could not be verified. As such, TIGTA was not able to confirm the statistical validity of the NQRS results.

October 29, 2013 in Gov't Reports, IRS News, Tax | Permalink | Comments (1)

Monday, September 30, 2013

TIGTA: IRS Violated Taxpayer's Rights in 16% of FOIA Requests

TIGTA The Treasury Inspector General for Tax Administration today released Fiscal Year 2013 Statutory Review of Compliance With the Freedom of Information Act (2013-30-109):

The IRS must ensure that the provisions of the Freedom of Information Act (FOIA), the Privacy Act of 1974 (Privacy Act), and Internal Revenue Code (I.R.C.) Section 6103 are followed. Errors can violate taxpayer rights and result in improper disclosures of tax information.

TIGTA is required to conduct periodic audits to determine if the IRS properly denied written requests for tax account information. ...  The overall objective of this review was to determine whether the IRS improperly withheld information requested in writing based on FOIA exemption (b)(3), in conjunction with I.R.C. § 6103, and/or FOIA exemption (b)(7) or by replying that responsive records were not available or did not exist.

TIGTA reviewed a statistically valid sample of 55 FOIA/Privacy Act information requests from a population of 3,415 FOIA/Privacy Act requests and found nine (16.4 percent) in which taxpayer rights may have been violated because the IRS improperly withheld or failed to adequately search for and provide information to requestors.


In addition, the IRS may have violated taxpayer rights by failing to adequately search for and provide information in three (5.6 percent) of 54 sampled I.R.C. § 6103 information requests. When the sample results are projected to their respective populations, approximately 559 FOIA/Privacy Act and 13 I.R.C. § 6103 information requests may have had information erroneously withheld. ... Additionally, sensitive taxpayer information was inadvertently disclosed in response to nine (16.4 percent) of the FOIA/Privacy Act and four (7.4 percent) of the I.R.C. § 6103 information requests reviewed.

September 30, 2013 in Gov't Reports, IRS News, Tax | Permalink | Comments (0)

Thursday, September 19, 2013

TIGTA: Chief Counsel's Office Is at Risk of Outside Influence on Letter Rulings

TIGTA The Treasury Inspector General for Tax Administration yesterday released Chief Counsel Should Take Steps to Minimize the Risk of Outside Influence on Its Letter Rulings (2013-10-081):

The IRS issues letter rulings that interpret and apply tax laws to a specific set of facts provided by corporations, individuals, and international entities. Because each letter ruling can impact millions of dollars of tax collections, the IRS must protect the integrity and independence of the letter ruling process. The appearance that practitioners could possibly manipulate the letter ruling process may result in the risk that inappropriate favorable rulings could cost the Government substantial tax revenue. ...

Chief Counsel does not have written policies or an effective management information system to prevent practitioners or taxpayers from having letter ruling requests assigned to a preferred attorney. Specifically, five of the six associate offices that provide rulings had no written policies and insufficient management information to assess the potential risk of outside influence on the assignment of their letter rulings. ...

TIGTA recommended that the Chief Counsel ... develop written policies for all Associate Chief Counsel offices to oversee, manage, and, as appropriate, limit the number of letter ruling assignments from the same practitioner.

September 19, 2013 in Gov't Reports, IRS News, Tax | Permalink | Comments (1)

Tuesday, September 17, 2013

TIGTA: Trends in IRS Compliance Activities Through Fiscal Year 2012

TIGTA The Treasury Inspector General for Tax Administration today released Trends in Compliance Activities Through Fiscal Year 2012 (2013-30-078):

This report is a compilation of statistical information reported by the IRS. The data presented in this report provide taxpayers and stakeholders with information about how the IRS focuses its compliance resources and the impact of those resources on revenue and compliance over time.

During Fiscal Years 2011 and 2012, the IRS encountered challenges that included administering recent legislative changes within an environment of decreasing resources. For example, approximately 50 of the 500 Affordable Care Act provisions add to or amend the Internal Revenue Code. At the same time, the IRS operated under a continuing resolution for Fiscal Year 2012 that funded it at a little more than $11.8 billion, which is a 2.7 percent reduction since Fiscal Year 2010.

Since Fiscal Year 2010, approximately 8,000 full-time IRS positions have been lost—about 5,000 from front-line enforcement personnel. In addition to offering early retirements and buyouts, IRS records indicate that more than one-third of executives and nearly 20 percent of nonexecutive managers are currently eligible for retirement.

Enforcement revenue collected declined by 9 percent in Fiscal Year 2012, from $55.2 billion to $50.2 billion. This has decreased in two straight years and is 13 percent less than the $57.6 billion collected in Fiscal Year 2010. The 13 percent eduction in enforcement revenue correlates to the 14 percent reduction in the number of enforcement personnel.

Page 30

September 17, 2013 in Gov't Reports, IRS News | Permalink | Comments (0)

Monday, September 16, 2013

TIGTA: IRS Must Improve Comprehensiveness, Accuracy, Reliability & Timeliness of Tax Gap Estimate

TIGTA The Treasury Inspector General for Tax Administration today released The Internal Revenue Service Needs to Improve the Comprehensiveness, Accuracy, Reliability, and Timeliness of the Tax Gap Estimate (2013-IE-R008):

The Tax Gap is defined as the difference between the true tax liability in any year and the amount of tax that is paid voluntarily and on time. The IRS's most recent Tax Gap estimate was $450 billion for Tax Year 2006. The Tax Gap estimate is a widely used measure in tax policy and administration. Some officials state that the absolute number is unimportant since the estimate is a significant amount. However, an important consideration for concern about accuracy is the relationship between the different forms of noncompliance and the types of tax. Furthermore, as Congress considers tax reform, it is important that the Tax Gap estimate reflects as accurately as possible the many forms and areas of noncompliance so that tax policy options can be considered.

Several issues affect the comprehensiveness, accuracy, reliability, and timeliness of the Tax Gap estimate.

First, the voluntary compliance rate computation derived from the Tax Gap estimate is now used by the IRS and the Department of the Treasury as the measure for achieving the Agency Priority Goal of increasing voluntary compliance. This may require more frequent or interim updates to the estimates. Furthermore, in order to have a credible goal, the data should be verifiable and valid. However, the IRS develops the Tax Gap estimates in accordance with its own policies and procedures. While Federal agencies are generally required to follow Office of Management and Budget Standards and Guidelines for Statistical Surveys, the IRS stated that these standards are not technically applicable to the conduct of the National Research Program. The IRS does adhere to several aspects of the OMB standards through its own policies and procedures, including elements in the planning and design phases, but does not adhere completely to other aspects associated with developing cost estimates, the production of estimates and projections, and conducting a formal peer review process.

Second, the individual income tax underreporting gap estimate could be more comprehensive if it included estimates for the informal economy and offshore tax evasion. While the estimation method does include a process to impute undetected income, separate quantified estimates would provide better information on the size of these compliance issues. These areas present significant challenges to tax administration, and the absence of a related estimate could hinder or delay possible solutions.

Third, the current method to estimate the corporate Tax Gap needs to be improved. There are two concerns about the accuracy and reliability of the Tax Year 2006 corporate income tax underreporting gap estimate. Both concerns relate to using recommended tax from operational examinations as the basis for projecting the Tax Gap.

  • The difficulty in deriving the actual tax liability of large corporations. Unlike recommended tax assessments for individual and small corporate taxes, large corporations often contest recommended taxes. The result is often an assessed amount that is substantially less than the recommended tax. Therefore, using recommended tax as a basis for projections of noncompliance may not provide reliable information.
  • A significant portion of small corporations are substantially no more than incorporated sole proprietorships. In fact, in Tax Year 2003, there were about 758,000 corporations with gross receipts of less than $100,000 reported. Consequently, it is extremely likely that a large portion of small corporations exhibit the same pathologies as those found in sole proprietorships. That is, a small percentage of these returns also account for a significant portion of the underreporting.

We recommended that the Director, Office of Research, Analysis, and Statistics, take the following actions: (1) conduct a study to determine the feasibility of providing interim updates of the Tax Gap estimate; (2) develop a process and procedures to ensure compliance with the applicable OMB standards; (3) issue a published report to explain the methods, assumptions, and premises used to develop the estimates; (4) develop the capability to estimate the Tax Gap for the informal economy; (5) perform a study to determine the feasibility of creating an estimate of the Tax Gap due to offshore tax evasion; (6) consider modifying the estimation model for large corporations from using recommended tax from operational examinations to tax assessments from operational examinations; and (7) consider conducting a National Research Program review on small corporations filing Form 1120, U.S. Corporate Income Tax Return, with total assets of less than $10 million.

The IRS agreed with our first three recommendations. The IRS substantially agreed with recommendation four by agreeing to perform a feasibility study to estimate the Tax Gap for the informal economy. The IRS agreed with recommendation five and substantially agreed to recommendation six by studying the merits of alternative approaches to estimating noncompliance by large corporations. Finally, the IRS is conducting a National Research Program review of small corporations with less than $250,000 in assets; however, it is a very small sample and therefore the IRS will consider the feasibility of conducting more studies of small corporations.

September 16, 2013 in Gov't Reports, IRS News, Tax | Permalink | Comments (0)

Friday, September 13, 2013

CRS: The Potential Federal Tax Implications of United States v. Windsor

CRS LogoCongressional Research Service, The Potential Federal Tax Implications of United States v. Windsor (Striking Section 3 of the Defense of Marriage Act (DOMA)): Selected Issues (R43157) (Sept. 9, 2013):

This report will provide an overview of the potential federal tax implications for same-sex married couples of the U.S. Supreme Court ruling in United States v. Windsor, with a focus on the federal income tax. Estate tax issues are also discussed. Importantly, this report focuses on changes in the interpretation and administration of federal tax law resulting from the Court’s decision. The decision itself did not amend federal tax law. This report is not intended to address all tax-related issues that may arise as a result of the Windsor decision. Such discussion is beyond the scope of this report.

(Hat Tip: Bruce Bartlett.)

September 13, 2013 in Congressional News, Gov't Reports, Tax | Permalink | Comments (1)

Tuesday, July 2, 2013

GAO: Big Companies Paid 12.6% Effective Tax Rate in 2010

GAO LogoThe Government Accountability Office yesterday released Corporate Income Tax: Effective Tax Rates Can Differ Significantly from the Statutory Rate (GAO-13-520):

Effective tax rates (ETR) differ from statutory tax rates in that they attempt to measure taxes paid as a proportion of economic income, while statutory rates indicate the amount of tax liability (before any credits) relative to taxable income, which is defined by tax law and reflects tax benefits and subsidies built into the law. Lacking access to detailed data from tax returns, most researchers have estimated ETRs based on data from financial statements. A common measure of tax liability used in past estimates has been the current tax expense--either federal only or worldwide (which comprises federal, foreign, and U.S. state and local income taxes). The most common measure of income for these estimates has been some variant of pretax net book income. GAO was able to compare book tax expenses to tax liabilities actually reported on corporate income tax returns.

For tax year 2010 (the most recent information available), profitable U.S. corporations that filed a Schedule M-3 paid U.S. federal income taxes amounting to about 13 percent of the pretax worldwide income that they reported in their financial statements (for those entities included in their tax returns). When foreign and state and local income taxes are included, the ETR for profitable filers increases to around 17 percent. The inclusion of unprofitable firms, which pay little if any tax, also raises the ETRs because the losses of unprofitable corporations greatly reduce the denominator of the measures. Even with the inclusion of unprofitable filers, which increased the average worldwide ETR to 22.7 percent, all of the ETRs were well below the top statutory tax rate of 35 percent. GAO could only estimate average ETRs with the data available and could not determine the variation in rates across corporations. The limited available data from Schedules M-3, along with prior GAO work relating to corporate taxpayers, suggest that ETRs are likely to vary considerably across corporations.


July 2, 2013 in Gov't Reports, Tax | Permalink | Comments (0) | TrackBack (0)

Monday, June 3, 2013

GAO: IRS's Tax Expenditure Data Are Limited

GAO LogoThe Government Accountability Office has released Tax Expenditures: IRS Data Available for Evaluations Are Limited (GAO-13-479):

By one measure, tax expenditures resulted in an estimated $1 trillion of revenue forgone by the federal government in fiscal year 2011. GAO has recommended greater scrutiny of tax expenditures, as periodic reviews could help determine how well specific tax expenditures achieve their goals and how their benefits and costs compare to those of other programs with similar goals. To assist with this, GAO recently issued a guide (GAO-13-167SP) for evaluating the performance of tax expenditures. GAO was asked to identify data needed for evaluating tax expenditures and its availability. This report: (1) determines the information available from IRS for evaluating tax expenditures; and (2) compares, for a few case studies, the information identified by federal agencies for evaluating outlay programs with similar purposes to tax expenditures. To address these objectives, GAO analyzed 173 tax expenditures, and information from IRS tax forms, federal agency performance reports, and prior GAO reports.

GAO-13-479 Chart

June 3, 2013 in Gov't Reports, Tax | Permalink | Comments (1) | TrackBack (0)

Tuesday, April 16, 2013

GAO: Corporate Tax Expenditures Equal Corporate Tax Revenues

GAO LogoThe Government Accountability Office yesterday released Information on Estimated Revenue Losses and Related Federal Spending Programs (GAO-13-339):

Estimated tax revenue that the federal government forgoes resulting from corporate tax expenditures increased over the past few decades as did the total number of corporate tax expenditures. ... Estimated corporate revenue losses in 2011, which totaled $181.4 billion, were approximately the same size as the amount of corporate income tax revenue the federal government collected that year.

Chart 1

Chart 2

(Hat Tip: Bruce Bartlett.)

April 16, 2013 in Gov't Reports, Tax | Permalink | Comments (0) | TrackBack (0)

Tuesday, March 12, 2013

CRS: 250 Tax Expenditures

CRS LogoCongressional Research Service, Tax Expenditures: Compendium of Background Material on Individual Provisions, S. Rep. No. 45, 112th Cong., 2d Sess. (1065 pages):

This compendium gathers basic information concerning approximately 250 federal tax provisions currently treated as tax expenditures. They include those listed in Tax Expenditure Budgets prepared for fiscal years 2011-2015 by the Joint Committee on Taxation, although certain separate items that are closely related and are within a major budget function may be combined. The Joint Committee on Taxation also lists about 30 additional tax expenditures with de minimis revenue losses (i.e., less that $50 million over 5 years).

With respect to each tax expenditure, this compendium provides:

  • The estimated federal revenue loss associated with the provision for individual and corporate taxpayers, for fiscal years 2011-2015. as estimated by the Joint Committee on Taxation;
  • The legal authorization for the provision (e.g., Internal Revenue Code section, Treasury Department regulation, or Treasury ruling);
  • A description of the tax expenditure, including an example of its operation where this is useful;
  • A brief analysis of the impact of the provision, including information on the distribution of benefits where data are available:
  • A brief statement of the rationale for the adoption of the tax expenditure where it is known. including relevant legislative history:
  • An assessment, which addresses the arguments for and against the provision; and
  • Selected bibliography.

The information presented for each tax expenditure is not intended to be exhaustive or definitive. Rather, it is intended to provide an introductory understanding of the nature, effect, and background of each provision. Useful starting points for further research are listed in the selected bibliography following each provision.

March 12, 2013 in Congressional News, Gov't Reports, Tax | Permalink | Comments (0) | TrackBack (0)

Friday, March 8, 2013

ObamaCare Tax Increases Are Double Original Estimate

Tax Foundation logoFollowing up on Tuesday's post, House Holds Hearing Today on The Tax-Related Provisions in the President’s Health Care Law: Tax Foundation, Obamacare Tax Increases Will Impact Us All:

The Joint Committee on Taxation recently released a 96 page report on the tax provisions associated with Affordable Care Act. The report describes the 21 tax increases included in Obamacare, totaling $1.058 trillion – a steep increase from initial assessment. The summer 2012 estimate is nearly twice the $569 billion estimate produced at the time of the passage of the law in March 2010. ...


2010 Estimate, 2010-2019, $billion

2012 Estimate, 2013-2022, $billion

0.9% payroll tax on wages and self-employment income and 3.8% t tax on dividends, capital gains, and other investment income for taxpayers earning over $200,000 (singles) / $250,000 (married)



“Cadillac tax” on high-cost plans *



Employer mandate *



Annual tax on health insurance providers *



Individual mandate *



Annual tax on drug manufacturers/importers *



2.3% excise tax on medical device manufacturers/importers* 



Limit FSAs in cafeteria plans *



Raise 7.5% AGI floor on medical expense deduction to 10% *



Deny eligibility of “black liquor” for cellulosic biofuel producer credit 



Codify economic substance doctrine



Increase penalty for nonqualified HSA distributions *



Impose limitations on the use of HSAs, FSAs, HRAs, and Archer MSAs to purchase over-the-counter medicines *



Impose fee on insured and self-insured health plans; patient-centered outcomes research trust fund *



Eliminate deduction for expenses allocable to Medicare Part D subsidy



Impose 10% tax on tanning services *



Limit deduction for compensation to officers, employees, directors, and service providers of certain health insurance providers



Modify section 833 treatment of certain health organizations



Other Revenue Effects



Additional requirements for section 501(c)(3) hospitals



Employer W-2 reporting of value of health benefits



Total Gross Tax Increase:



* Provision targets households earning less than $250,000.

** Includes CBO’s $216.0 billion estimate for “Associated Effects of Coverage Provisions on Tax Revenues” and $6.0 billion within CBO’s “Other Revenue Provisions” category that is not otherwise accounted for in the CBO or JCT estimates.

Source: Joint Committee on Taxation Estimates, prepared by Ways and Means Committee Staff

March 8, 2013 in Congressional News, Gov't Reports, Tax | Permalink | Comments (1) | TrackBack (0)

Monday, February 25, 2013

TIGTA to Investigate Whether IRS Improperly Steered $500 Million in Contracts to Computer Company

TIGTA The Treasury Inspector General for Tax Administration has agreed to investigate whether an IRS employee improperly steered more than $500 million in government contracts to Signet Computers, after receiving this letter from House Committee on Oversight and Government Reform Chair Darrell Issa.

Washington Post, House Committee Investigating $500 Million in Contracts Between IRS, Computer Company:

“At best, this is a conflict of interest that runs afoul of ... Federal Acquisition Regulation,” Issa writes. “At worst, the IRS may have a situation in which a contracting official is awarding sole source contracts based on false justifications, or receiving kickbacks in exchange for government contracts.” ... The IRS’ contracts with Signet Computers also may have been tailored so that Signet was the only company that could win them in open bidding, Issa writes.

February 25, 2013 in Congressional News, Gov't Reports, Tax | Permalink | Comments (0) | TrackBack (0)

Tuesday, February 19, 2013

TIGTA: IRS Wastes Millions in Internet Access Fees for Employee Laptops and Blackberrys

TIGTA The Treasury Inspector General for Tax Administration today released Inadequate Aircard and BlackBerry Assignment and Monitoring Processes Result in Millions of Dollars in Unnecessary Access Fees (2013-10-010):

In Fiscal Year 2011, the IRS had approximately 35,000 active aircards and more than 4,400 BlackBerrys assigned to employees, providing them with mobile Internet and e-mail access.  TIGTA found that cost savings can be achieved if the IRS ensures that only those employees with a valid business need are assigned an aircard and/or BlackBerry and provides more effective oversight and monitoring of these devices.  Improved policies and procedures can result in savings of $5.9 million over five years. ...

Processes for assigning and monitoring the use of aircards and BlackBerrys are not adequate to ensure that employees have a business need for the devices.  Assignment of these devices is generally based on job series classifications without adequately ensuring a business need exists.

In addition, the IRS paid approximately $1.1 million during Fiscal Year 2011 for 13,878 aircards and 754 BlackBerrys that were not used for periods of three months to one year.  For example, TIGTA identified 45 aircards and 68 BlackBerrys that were not used at all for the entire 12 months of the fiscal year. 

Finally, 2,560 employees may have been assigned an aircard or BlackBerry without required management approval.  These devices cost the IRS more than $950,000 in Fiscal Year 2011, or about $4.8 million over five years. 

February 19, 2013 in Gov't Reports, IRS News, Tax | Permalink | Comments (4) | TrackBack (0)

Saturday, February 16, 2013

CBO Rejects GOP Charge That It Slanted Report on Taxing U.S. Multinational Corporations

CBOThe Congressional Budget Office yesterday doubled down on its report, Options for Taxing U.S. Multinational Corporations, in response to a January 24, 2013 letter from House Ways & Means Chair Dave Camp charging that the report was "heavily slanted and biased":

This letter responds to concerns you raised about the CBO's report, Options for Taxing U.S. Multinational Corporations, which was released on January 8, 2013. We continue to believe that it presents the key issues fairly and objectively and that its findings are well grounded in economic theory and are consistent with empirical studies in this area. Nevertheless, because of the complexity of the subject and the diverse views of experts in the field, we agree that it would have been desirable to seek comments from more outside reviewers. It is always our goal to seek outside reviewers for CBO studies who represent a broad range of views and perspectives. Following is a discussion of the various issues you raised regarding the report.

This dispute is similar to last year's charge by Senate Republicans that the Congressional Research Service had released a biased report on the impact of tax rates on economic growth:

February 16, 2013 in Congressional News, Gov't Reports, Tax | Permalink | Comments (0) | TrackBack (0)

Friday, February 15, 2013

GAO Removes IRS Modernization, Keeps Tax Gap, as High-Risk Area

GAO LogoThe Government Accountability Office yesterday released High-Risk Series An Update (GAO-13-283), in which the GAO removed one tax area from its list of 30 high-risk areas:

IRS Business Systems Modernization. The IRS made progress in addressing significant weaknesses in information technology and financial management capabilities. IRS delivered the initial phase of its cornerstone tax processing project and began the daily processing and posting of individual taxpayer accounts in January 2012. This enhanced tax administration and improved service by enabling faster refunds for more taxpayers, allowing more timely account updates, and faster issuance of taxpayer notices. In addition, IRS has put in place close to 80% of the practices needed for an effective investment management process, including all of the processes needed for effective project oversight. 

But Enforcement of Tax Laws remains a high-risk area:

The IRS recently estimated that the gross tax gap—the difference between taxes owed and taxes paid on time—was $450 billion for tax year 2006. For a portion of the gap, IRS is able to identify the responsible taxpayers. IRS estimated that it would collect $65 billion from these taxpayers through enforcement actions and late payments, leaving a net tax gap of $385 billion. The tax gap has been a persistent problem in spite of a myriad of congressional and IRS efforts to reduce it, as the rate at which taxpayers voluntarily comply with U.S. tax laws has changed little over the past three decades. Given that the tax gap has been persistent and dispersed across different types of taxes and taxpayers, coupled with tax code complexity and a globalizing economy, reducing the tax gap will require applying multiple strategies over a sustained period of time.

IRS enforcement of the tax laws is vital for financing the U.S. government. Through enforcement, IRS collects revenue from noncompliant taxpayers and, perhaps more importantly, promotes voluntary compliance by giving taxpayers confidence that others are paying their fair share. GAO designated the enforcement of tax laws as a high-risk area in 1990.

February 15, 2013 in Gov't Reports, IRS News, Tax | Permalink | Comments (1) | TrackBack (0)

Friday, February 1, 2013

Joint Tax Committee Releases Tax Expenditure Estimates for 2012-17

Joint Tax CommitteeThe Joint Committee on Taxation has released Estimate of Federal Tax Expenditures for Fiscal Years 2012-2017 (JCS-1-13):

Tax expenditure analysis can help both policymakers and the public to understand the actual size of government, the uses to which government resources are put, and the tax and economic policy consequences that follow from the implicit or explicit choices made in fashioning legislation. This report on tax expenditures for fiscal years 2012-2017 is prepared by the staff of the Joint Committee on Taxation. ... As in the case of earlier reports, the estimates of tax expenditures in this report were prepared in consultation with the staff of the Office of Tax Analysis in the Department of the Treasury.

The Joint Committee staff has made its estimates (as shown in Table 1) based on the provisions in Federal tax law as enacted through January 2, 2013. Expired or repealed provisions are not listed unless they have continuing revenue effects that are associated with ongoing taxpayer activity. Proposed extensions or modifications of expiring provisions are not included until they have been enacted into law. The tax expenditure calculations in this report are based on the January 2012 Congressional Budget Office revenue baseline and Joint Committee staff projections of the gross income, deductions, and expenditures of individuals and corporations for calendar years 2011-2017.

Part I of this report contains a discussion of the concept of tax expenditures. Part II is a discussion of the measurement of tax expenditures. Estimates of tax expenditures for fiscal years 2012-2017 are presented in Table 1 in Part III. Table 2 shows the distribution of tax returns by income class, and Table 3 presents distributions of selected individual tax expenditures by income class.

February 1, 2013 in Congressional News, Gov't Reports, Tax | Permalink | Comments (0) | TrackBack (0)

Friday, January 25, 2013

CBO: Refundable Tax Credits

CBOCongressional Budget Office, Refundable Tax Credits:

The number and total costs of the refundable credits in the income tax system have grown considerably since 1975. The number of credits peaked at 11 in 2010 before dropping to 6 in 2013 (see Figure 1). Their total costs (that is, the reduction in revenues and the increase in outlays) reached a high of $238 billion in 2008. (That amount and other annual costs discussed in this report are expressed in 2013 dollars.) Those costs will drop to $149 billion in 2013, the CBO estimates, mostly for the earned income tax credit (EITC) and the child tax credit. By 2018, three more credits will have expired, and the EITC and the child tax credit will have been scaled back.

Those cutbacks in refundable tax credits will be more than offset, however, by new health-related subsidies provided through the tax system. Starting in 2014, a new refundable tax credit will be available to some people for the purchase of health insurance through newly created exchanges. The cost of that credit will be about. $110 billion by 2021, CBO and the staff of the Joint Committee on Taxation (JCT) project, bringing the total cost of refundable tax credits in that year to $213 billion— roughly the same as the costs in 2009 and 2010, even though the number of refundable tax credits will have fallen by more than half between 2010 and 2021.

Costs of Refundable Tax Credits, Calendar Years 1975-2021

January 25, 2013 in Congressional News, Gov't Reports, Tax | Permalink | Comments (0) | TrackBack (0)

Friday, January 18, 2013

GAO: IRS Faces Challenges Providing Service to Taxpayers

GAO LogoThe Government Accountability Office has released IRS Faces Challenges Providing Service to Taxpayers and Could Collect Balances Due More Effectively (GAO-13-156):

While there have been efficiency gains and efforts to improve service, the IRS faced challenges providing telephone service and responding to correspondence, continuing trends experienced in recent years. In 2012, 82 percent of individual taxpayers filed their returns electronically (e-filed), reducing IRS's processing costs. IRS also increased calls answered using automated service and added a variety of self service tools, which helped gain efficiencies. However, IRS's level of telephone service (the percentage of callers seeking live assistance who receive it) declined to 68 percent. In addition, of the 21 million pieces of paper correspondence IRS received, about 40 percent were considered overage (meaning that IRS did not respond within 45 days of receipt), an increase compared to last year. While IRS plans to continue to pursue efficiency gains, its strategy for future years does not specifically address how it plans to reverse these negative trends. Reversing the declines in telephone and correspondence services may require IRS to consider difficult tradeoffs, such as reassessing which phone calls IRS should answer with a live assistor and which it should not because automated services are available.


January 18, 2013 in Gov't Reports, IRS News, Scholarship, Tax | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 16, 2013

TIGTA: IRS Has 60% Error Rate in Policing Noncash Charitable Contribution Deduction

TIGTA The Treasury Inspector General for Tax Administration yesterday released Many Taxpayers Are Still Not Complying With Noncash Charitable Contribution Reporting Requirement (2013-40-009):

TIGTA estimates more than 273,000 taxpayers claimed approximately $3.8 billion in potentially erroneous noncash charitable contributions in Tax Year 2010, which resulted in an estimated $1.1 billion reduction in tax. ... IRS controls are not sufficient to ensure taxpayers are complying with noncash charitable contribution reporting requirements. Statistical samples of Tax Year 2010 tax returns that claimed more than $5,000 in noncash charitable contributions showed that approximately 60 percent of the taxpayers did not comply with the noncash charitable contribution reporting requirements. These taxpayers claimed noncash contributions totaling approximately $201.6 million. Taxpayers who donate motor vehicles must attach a Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, to their tax returns. However, the IRS is still not effectively identifying taxpayers who are not complying with reporting requirements for donations of motor vehicles.

January 16, 2013 in Gov't Reports, IRS News, Tax | Permalink | Comments (7) | TrackBack (0)

Wednesday, January 9, 2013

Tax Foundation Gives F Grade to CRS Report on Tax Rates and Economic Growth

CRS LogoTax Foundation:  CRS Study on Tax Rates and Growth Still Flunks the Test, by Stephen J. Entin:

Studies issued by the Congressional Research Service are intended to inform the Congress as it develops public policy and enacts legislation. A recent CRS publication on the effect of the top statutory tax rates on economic activity [Taxes and the Economy: An Economic Analysis of the Top Tax Rates Since 1945] may have influenced the debate over taxing the rich during the election and may have influenced the tax changes just enacted in the fiscal cliff legislation.

It is critical that such studies reflect the best guidance that the economics and tax professions can provide. The CRS study on the top tax rates did not meet that high standard. Its original release in the fall was met with widespread and justified disbelief, and it was withdrawn for review and examination of its methodology. It has now been reissued in an updated form. However, the re-issued CRS study does not contain any changes of note that would redeem the original report. 

The paper purports to determine the link (or lack thereof) between changes in the top marginal tax rates on income and capital gains and the growth rate of the economy. Unfortunately, the method used to determine the relationship depends mainly on timing, looking to see if a change in the growth rate of the economy coincides with or follows soon after a rise or fall in the tax rates. The study makes no effort to determine the channels through which the tax changes ought to work to affect the economy, looks at the wrong measure of progress over the wrong time frame, and takes inadequate account of what other tax or economic events are occurring at the same time that might mask the results. ...

The CRS study omits important variables and poisons its results by not holding other factors constant. The variables it does examine are indirectly related to the relationship one should be studying, but the study does not follow them for long enough to get the whole picture. The study is as weak now as it was when it was first issued. Grade: F.

Prior TaxProf Blog posts:

January 9, 2013 in Congressional News, Gov't Reports, Tax, Think Tank Reports | Permalink | Comments (2) | TrackBack (0)

GAO: Evaluating Tax Expenditures

GAO LogoThe Government Accountability Office has released Tax Expenditures: Background and Evaluation Criteria and Questions (GAO-13-167SP):

Tax expenditures are reductions in a taxpayer's tax liability that are the result of special exemptions and exclusions from taxation, deductions, credits, deferrals of tax liability, or preferential tax rates. Similar to spending programs, tax expenditures represent a substantial federal commitment to a wide range of mission areas. If the Department of the Treasury (Treasury) estimates are summed, an estimated $1 trillion in revenue was forgone from the 173 tax expenditures reported for fiscal year 2011. Tax expenditures are often aimed at policy goals similar to those of federal spending programs. Existing tax expenditures, for example, are intended to encourage economic development in disadvantaged areas, finance postsecondary education, and stimulate research and development. For some tax expenditures, forgone revenue can be of the same magnitude or larger than related federal spending for some mission areas. The revenue the federal government forgoes from a tax expenditure reduces revenue available to fund other federal activities, requires higher tax rates to raise any given amount of revenue, increases the budget deficit, or reduces any budget surplus.

Given the interest in tax expenditures' effectiveness, Congress asked GAO to develop a framework that could be used to evaluate their performance. In response, this guide describes criteria for assessing tax expenditures and develops questions Congress can ask about a tax expenditure's performance.

January 9, 2013 in Congressional News, Gov't Reports, Tax | Permalink | Comments (1) | TrackBack (0)

CBO: Options for Taxing U.S. Multinational Corporations

CBOCongressional Budget Office, Options for Taxing U.S. Multinational Corporations:

In 2008, 12% of all federal revenues came from corporate income taxes; about half was paid by multinational corporations reporting income from foreign countries. How the federal government taxes U.S. multinational corporations has consequences for the U.S. economy overall as well as for the federal budget.

Tax polices influence businesses’ choices about how and where to invest, particularly the profitability of locating in the United States or abroad. The tax laws also can create opportunities for tax avoidance by allowing multinational corporations to use accounting or other legal strategies to report income and expenses for their U.S. and foreign operations in ways that reduce their overall tax liability. U.S tax revenues decline when firms move investments abroad or when they strategically allocate income and expenses to avoid paying taxes here.

This study examines options for changing the way the United States taxes multinational corporations or addressing particular concerns with the current system of taxation. All of those options would affect multinational corporations’ investment strategies and reporting of income, as well as U.S. revenues from corporate income taxes.

(Hat Tip: Ed Kleinbard.)

January 9, 2013 in Congressional News, Gov't Reports, Tax | Permalink | Comments (0) | TrackBack (0)

Sunday, January 6, 2013

GAO: IRS Could Significantly Increase Revenues by Better Targeting Enforcement Resources

GAO LogoThe Government Accountability Office has released IRS Could Significantly Increase Revenues by Better Targeting Enforcement Resources:(GAO-13-151):

The IRS spends most of its enforcement resources on examinations. Correspondence exams of individual tax returns, which target fewer and simpler compliance issues, are significantly less costly on average than the broader and more complex field exams. GAO estimated that the average cost (including overhead) of correspondence exams opened in 2007 and 2008 was $274, compared to an average of $2,278 for field exams. IRS spent almost 20 percent of the $1.6 billion per year that it devoted to exams on returns from taxpayers with positive income of at least $200,000, even though such returns accounted for only 3 percent of the 136 million individual returns filed per year. (Positive income, a measure that IRS uses to classify returns for exam planning purposes, disregards losses that may offset this income).

GAO estimated that, for the 2 years of cases reviewed, correspondence exams were significantly more productive in terms of direct revenue produced per dollar of cost than field exams. Both types of exams of taxpayers with positive incomes of at least $200,000 were significantly more productive than exams of lower-income taxpayers.

GAO demonstrated how these estimates could be used to inform resource allocation decisions. For example, a hypothetical shift of a small share of resources (about $124 million) from exams of tax returns in less productive groups shown in the figure to exams in the more productive groups could have increased direct revenue by $1 billion over the $5.5 billion per year IRS actually collected (as long as the average ratio of direct revenue to cost for each category of returns did not change). These gains would recur annually, relative to the revenue that IRS would collect if it did not change its resource allocation. This particular resource shift would not reduce exam coverage rates significantly and, therefore, should have little, if any, negative effect on voluntary compliance.

January 6, 2013 in Gov't Reports, IRS News, Tax | Permalink | Comments (4) | TrackBack (0)

Friday, December 7, 2012

CBO: Taxing Businesses Through the Individual Income Tax

CBOCongressional Budget Office, Taxing Businesses Through the Individual Income Tax:

Since the individual income tax was instituted in 1913, the profits of most businesses have been allocated, or “passed through,” to their owners and subjected to that tax—rather than to the corporate income tax. However, most business activity (specifically, the total revenue that businesses receive as receipts from sales of goods and services) has occurred at firms subject to the corporate income tax (C corporations) because those firms tend to be larger than pass-through entities.

Over the past few decades, the proportion of firms organized as pass-through entities and their share of business receipts have increased substantially: In 1980, 83% of firms were organized as pass-through entities, and they accounted for 14% of business receipts; by 2007, those shares had increased to 94% and 38%, respectively.

This report examines those shifts in organizational structure, the effect they have had on federal revenues, and the potential effects on revenues and investment of various alternative approaches to taxing businesses’ profits.

Share of Business Receipts by Type of Business

December 7, 2012 in Gov't Reports, Tax | Permalink | Comments (1) | TrackBack (0)

Thursday, August 2, 2012

TIGTA: IRS to Issue $21 Billion in Fraudulent Tax Refunds From Identity Theft Over Next Five Years

TIGTA The Treasury Inspector General for Tax Administration today released There Are Billions of Dollars in Undetected Tax Refund Fraud Resulting From Identity Theft (2012-42-080):

Undetected tax refund fraud results in significant unintended Federal outlays and erodes taxpayer confidence in our Nation’s tax system. Our analysis of tax returns using characteristics of identity theft confirmed by the IRS identified approximately 1.5 million undetected tax returns with potentially fraudulent tax refunds totaling in excess of $5.2 billion. TIGTA estimates the IRS could issue $21 billion in potentially fraudulent tax refunds resulting from identity theft over the next five years.

August 2, 2012 in Gov't Reports, IRS News, Tax | Permalink | Comments (1) | TrackBack (0)