A study conducted by the IRS in 2001 suggested the Agency was failing to collect approximately $345 billion dollars a year in unpaid taxes. It concluded, much of the shortfall was due to overly complicated and frequently changing tax laws. In order to collect more unpaid back taxes, tax attorneys familiar with the IRS’s strategic plan, indicate the Agency embarked upon an ambitious effort to improve technology, increase the number of notices automatically generated, and to regulate tax preparers.
So how has the government done over the past decade in addressing compliance issues through this new strategy? Tax lawyers note that over the last ten years the IRS has increased the volume of notices issued to taxpayers by more than 670% (up to 201 million notices in 2009). The Agency has also improved its use of technology to generate more “information-matching notice discrepancy audits.” IRS tax attorneys say the average amount of back taxes collected from these notices has been $1,670 per return with minimal involvement by IRS employees.
The IRS also dramatically increased the number of audits it conducts by mail. According to several tax lawyers, in 2010 the number of audits conducted by mail represented approximately 78% of all audits the Agency conducted that year. The result has been to collect an average of $6,600 of additional back taxes per audit.
With the implementation of better technology and improved compliance processes, the IRS has been able to reduce its staffing by approximately 6% over the past decade. In other words, tax attorneys say the IRS is doing much more with a bit less and getting improved results.
Now, with tax preparer being more stringently regulated by the IRS, the Agency expects to further cut into the amount of annual uncollected back taxes. Prior to implementing the new requirements, there were reportedly about 1.2 million tax preparers registered with the IRS. Since the new regulations, there are less than 700,000 registered tax preparers in the United States.
According to IRS Commissioner Doug Shulman, the agency is using its new technology to analyze taxpayer compliance data and to identify trends thereby improving compliance practices further. He explained a customer account data engine upgrade, scheduled to take effect for tax season 2012, will speed up the batch processing cycle from weekly to everyday. The upgrade means faster refunds for taxpayers and Agents having up to date information making it easier for tax attorneys and other tax professionals to interact with the IRS on behalf of their clients.
At a time when Americans are expecting government to cut expenses and become more efficient, the IRS is an excellent example of how other federal, state and local government agencies should operate.
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