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April 28, 2008

David Barnes
(202) 622-3062

TIGTA Report Finds Enhanced IRS Enforcement Efforts Pay Off

The Internal Revenue Service (IRS) increased its compliance activities and collected more revenue in Fiscal Year (FY) 2007 than in the previous year, according to a new report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA).

Overall, the percentage of tax returns examined by the IRS rose by nearly 9 percent in FY 2007 compared to FY 2006. Meanwhile, revenue from these enforcement activities increased by 22 percent to $59.2 billion.

"Improving compliance is crucial in reducing the tax gap and maintaining the integrity of the voluntary tax compliance system," said TIGTA Inspector General J. Russell George.

This audit is TIGTA's ninth annual review of trends in IRS compliance activities.
Report highlights include:

Collection Activities

  • The use of liens and levies (collection enforcement tools) reached a 10-year high during FY 2007. (p. 4 and p. 31, figures 19 and 20)
  • Dollars collected on balance-due accounts is up nearly 3 percent from FY 2006. (p. 4 and p. 26, figure 9)

Individual Income Tax Examinations

  • The number of examinations of individual income tax returns has continuously increased since FY 2000. During FY 2000, only 617,765 (one of every 202) individual income tax returns were examined. The IRS examined 1,384,563 (one of every 97) returns in FY 2007. (p. 8)
  • Almost 83 percent of the examinations of individuals were conducted by correspondence during FY 2007.
  • Only one of every 561 individual income tax returns filed received a face to face examination, while one of every 118 received a correspondence examination. Correspondence examinations are generally not as comprehensive as face-to-face examinations; thus, the impact on compliance might be limited. (p. 8 and p. 35, figure 27)

Corporate Income Tax Examinations

  • The number of corporate income tax returns examined (excluding returns for foreign corporations and S Corporations) rose by just over 4 percent in FY 2007, following a 1 percent decline in FY 2006. (pp. 8-9)
  • From FY 1998 to 2007, the number of corporate tax examinations fell from 53,648 (one of every 48 returns filed) to 29,664 (one of every 75 returns filed), a 45 percent decline. (p. 9)

Small Corporation Examinations

  • During FY 2007, the overall examination coverage rate for corporate tax returns with no balance sheet or with assets of less than $10 million increased for all categories, except the categories of "no balance sheet" and "assets of from $5 million to $10 million." (p. 37, figure 32)

Large Corporation Examinations

  • During FY 2007, the number of corporate tax returns examined with assets of $10 million and greater decreased by almost 9 percent. (p. 9 and p. 39, figure 35) However, examinations of the largest corporations (those with assets of $250 million and greater) decreased by nearly 20 percent in FY 2007. (p. 9)

This audit was requested by the IRS Oversight Board. Details on the objective, scope and methodology of the report can be found on p. 12.