Individual Returns With Large Business Losses and No Income Pose Significant Compliance Risk.

The Commissioner, SB/SE Division, should conduct a national CIP on tax returns with at least one Schedule C attached, no gross receipts, and more than $100,000 in losses to evaluate it as a new strategy or workstream. The IRS should use the methods and results from this CIP to consider other compliance gaps, past CIPs, or issues to ensure that the SB/SE Division is selecting the most productive returns for examination.

The Commissioner, SB/SE Division, should collaborate with the Research, Applied Analytics, and Statistics (RAAS) organization to improve any issue-based workload selection methodologies developed under Recommendation 1 by considering use of DIF in conjunction with other methods to enhance the return selection process and improve operational outcomes.

The Chief Research and Analytics Officer should establish, document, and implement procedures to ensure that documentation associated with internal controls and procedures around DIF's scoring methodology and model development process are reviewed and updated regularly and consistently. In addition, ensure that periodic evaluation of potential DIF alternatives are completed and adequately documented. Evaluations of alternatives should cover the composition of the scoring methodology, including all aspects and characteristics used to score returns.