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Trends in Compliance ActivitiesThrough Fiscal Year 2002

March 2003

Reference Number: 2003-30-078

This report has cleared the Treasury Inspector General for Tax Administration disclosurereview process and information determined to be restricted from public release has been

redacted from this document.

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DEPARTMENT OF THE TREASURY

WASHINGTON, D.C. 20220

INSPECTOR GENERALfor TAX

ADMINISTRATION

March 31, 2003

MEMORANDUM FOR ACTING COMMISSIONER WENZEL

FROM: Gordon C. Milbourn III

Acting Deputy Inspector General for Audit

SUBJECT: Final Audit Report - Trends in Compliance Activities ThroughFiscal Year 2002 (Audit # 200330006)

This report presents the results of our review of statistical information that reflectsactivities of the Collection and Examination functions. The overall objective of thisreview was to provide statistical information requested by the Internal Revenue Service(IRS) Oversight Board and provide trend analyses of that information.

In summary, the IRS’ overall Fiscal Year (FY) 2002 compliance efforts and results were

mixed, but showed some continuing positive changes that started in FY 2001.Specifically, the level of compliance activities and the results obtained in manyCollection areas in FY 2002 showed a continuing increase, although somemeasurements decreased slightly in FY 2002 after increasing in FY 2001. Even thoughthey have not returned to pre-1998 levels, enforcement actions were higher or about thesame in FY 2002 compared to the numbers in FY 2001. While enforcement revenuecollected increased in FY 2002, the inventory of delinquent accounts and the totalamount of uncollected liabilities have continued to grow.

The number of examinations of tax returns increased in FY 2002, but the overallpercentage of tax returns examined stayed about the same due to increases in thenumber of tax returns filed. While there was a slight decrease in the number ofexaminations of individuals earning less than $100,000, there was a larger increase inthe coverage of individuals earning $100,000 and over. The numbers and percentagesof examinations of corporate and other business returns (except partnerships and verylarge corporations) continued to decrease or stay at about the same level. There werealso slight increases in the numbers of examinations of fiduciary income, employment,and excise tax returns.

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2

We made no recommendations in this report. However, key IRS management officialsreviewed it prior to issuance.

Copies of this report are also being sent to the IRS managers affected by it. Pleasecontact me at (202) 622-6510 if you have questions, or your staff may callPhilip Shropshire, Acting Assistant Inspector General for Audit (Small Business and

Corporate Programs), at (215) 516-2341.

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Trends in Compliance Activities Through Fiscal Year 2002

Table of Contents

Background ...............................................................................................Page 1

Summary of Statistical Information............................................................Page 1

Appendix I – Detailed Objective, Scope and Methodology ........................Page 8

Appendix II – Major Contributors to This Report........................................Page 9

Appendix III – Report Distribution List .......................................................Page 10

Appendix IV – Glossary of Terms..............................................................Page 11

Appendix V – Detailed Charts of Statistical Information ............................Page 14

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We initiated this review of nationwide compliance statisticspertaining to examination and collection activities at therequest of the Internal Revenue Service (IRS) OversightBoard. The overall objective of the review was to providestatistical information and trend analyses of that informationbased on our agreement with the Board. Our data analyseswere done in January and February 2003 using nationalreports prepared by the IRS Headquarters office. The auditwas performed in accordance with Government Auditing

Standards. However, we relied on information accumulatedby the IRS in established reports and did not verify itsaccuracy.

Much of the data included in this report is a follow-up toTreasury Inspector General for Tax Administration reports

issued in May 2000,1

September 2001,2

andSeptember 2002.3 While Appendix V shows many statisticsfor the past 7 years, and some for the past 15 years, thepurpose of this report is to highlight the changes incompliance activities during Fiscal Year (FY) 2002.

Detailed information on our audit objective, scope, andmethodology is presented in Appendix I. Majorcontributors to this report are listed in Appendix II. Aglossary of terms used is included in Appendix IV. Detailedcharts and tables referred to in the body of this report areincluded in Appendix V.

For some time, the number of tax returns filed and the totaldollars the IRS has received annually have been increasingwith the growing economy. Specifically, in 15 years thenumber of returns filed has grown by 22 percent, from140 million in 1987 to 171 million in 2001. From FYs 1988to 2001, the amount of revenue received by the IRS grewfrom $935 billion to $2.1 trillion, but then fell by 5 percent

1 Management Advisory Report: Evaluation of Reduction in the Internal Revenue Service’s Compliance Activities (Reference Number2000-30-075, dated May 2000).2 Management Advisory Report: Tax Return Filing and Examination

Statistics (Reference Number 2001-30-175, dated September 2001).3 Management Advisory Report: Analysis of Trends in Compliance

Activities Through Fiscal Year 2001 (Reference Number 2002-30-184,dated September 2002).

Background

Summary of StatisticalInformation

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to $2.0 trillion in FY 2002.4 (This was the first time sinceFY 1983 that total revenue decreased.)

For FYs 1998 to 2000, compliance activity decreased due to

several factors, including budgetary constraints, the desire toprovide increased customer service, and the need toimplement and provide additional taxpayer protections andrights mandated by the IRS Restructuring and Reform Actof 1998 (RRA 98).5 In FY 2001, the IRS began to reversesome of these downward trends. In FY 2002, some of theseindicators continued to increase while some fell slightlyfrom the prior year.

Resources applied to compliance activities

With increased budgets and hiring authority, the staffing

level of revenue officers in the field collection officesincreased from 3,601 in FY 2000 to 3,792 in FY 2001, butthen fell to 3,495 in FY 2002.6 Even with hiring authority,staffing in field examination programs continued to decreasebecause retirements and other departures exceeded thenumber of new employees. During FY 2002, the totalnumber of revenue agents and tax auditors/tax complianceofficers decreased again, from 13,226 to 13,046, for a totalloss of nearly 6,000 examiners since the beginning of FY 1996.7 Furthermore, replacing experienced employeeswith new hires results in less examination time available

because of the need for training and coaching the newpeople and the need to work a greater mix of less complexcases until the new employees gain experience. In spite of this, the Examination and Collection functions bothincreased the percentage of time categorized as direct timespent examining tax returns or collecting taxes, to51 percent and 57 percent, respectively.8 This included a

4 See Appendix V, Figure 1.5 IRS Restructuring and Reform Act of 1998 (RRA 98), Pub. L.No. 105-206, 112 Stat. 685 (codified as amended in scattered sections of 2 U.S.C., 5 U.S.C., 5 U.S.C. app., 16 U.S.C., 19 U.S.C., 22 U.S.C.,23 U.S.C., 26 U.S.C., 31 U.S.C., 38 U.S.C., and 49 U.S.C.).6 See Appendix V, Figure 5.7 See Appendix V, Figure 4.8 See Appendix V, Figure 7.

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significant reduction in the amount of time detailed toCustomer Service activities during FYs 2001 and 2002.9

Collection activities

While collection statistics have not returned to theirpre-1998 levels, most of the downward trends were reversedin the last 2 years. Enforcement revenue collected increasedslightly in FY 2000 to $33.8 billion, stayed about the samein FY 2001, and increased to $34.09 billion in FY 2002.10 The use of collection enforcement tools including liens,levies, and seizures all increased substantially from FY 2000to FY 2001 and again in FY 2002:11

FY 2000 FY 2001 FY 2002Liens 287,517 428,376 491,709

Levies12 219,778 674,080 1,283,742Seizures12 74 234 296

The average dollars collected for each staff year in theCollection Field function increased for the third consecutiveyear, to about $362,000 in FY 2002, returning from the lowsreached in FYs 1999 and 2000 to nearly the level of FY 1997.13 The number of delinquent accounts closed eachyear and the number closed by full payment had both beensteadily decreasing since FY 1997, but they increased

slightly in FY 2001 and then decreased slightly again inFY 2002.14

Since FY 1997, the gap had been widening between thenumber of new delinquent accounts received and thenumber closed. In FY 2001, that gap was closed slightly,but it widened again in FY 2002.15 In addition, the numberof delinquent accounts and investigations for unfiled tax

9 See Appendix V, Figure 6.10 See Appendix V, Figures 2 and 3.11 See Appendix V, Figures 15, 16, and 17.12 The number of levies was adjusted due to omissions in the automatedreports that showed 447,201 total levies in FY 2001 and 667,765 inFY 2002. The seizure numbers are based on a manual reconciliation theIRS performed to determine the actual number of seizures made ratherthan the automated reports, which show slightly higher numbers.13 See Appendix V, Figure 8.14 See Appendix V, Figures 13 and 14.15 See Appendix V, Figure 11.

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returns that the IRS is unable to work continued to grow.During FY 2001, management removed approximately7.1 million unfiled return investigations and 1.7 millionunpaid tax periods from the Collection inventory toeliminate potentially less productive cases. DuringFY 2002, another approximately 1.7 million unfiled returninvestigations and 1.6 million unpaid tax periods wereremoved.16 These cases may never be worked. In addition,other cases are placed in the “Queue,” which is an inactiveinventory of cases that may or may not be worked in thefuture. At the end of FY 2002, the unassigned Queueinventory contained approximately 515,000 taxpayers with1.7 million unpaid tax periods totaling $20.3 billion, andapproximately 767,000 taxpayers with 2.5 million unfiledtax returns.17

Examination activities

When analyzing Examination coverage rates, it is importantto recognize differences in the types of contacts that arecounted in Examination statistics. Examinations range froman IRS notice asking for clarification of a single tax returnitem that appears to be incorrect, to a full face-to-faceinterview and review of the taxpayer’s records.Face-to-face examinations are generally morecomprehensive and time-consuming for the IRS and thetaxpayers, and they typically result in higher dollar

adjustments to the tax amount. Thus, caution should beused when combining statistics from the variousExamination programs and tax classes into overallExamination rates. In addition, the IRS uses severalcomputer-matching and automated error-checking routinesin the computing centers to check the accuracy of taxreturns. Many of these result in adjustments to tax liabilitiesbut are not included in the traditional “audit rates” and arenot generally reported separately as enforcement efforts.Because the General Accounting Office (GAO) just issued areport in January 200318 recommending the IRS expand its

16 See Appendix V, Figure 10.17 See Appendix V, Figures 9 and 12.18

Tax Administration: IRS Should Continue to Expand Reporting on Its

Enforcement Efforts (GAO-03-378, January 2003).

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reporting on these other compliance efforts, we did notinclude them in our analyses of this year’s data.

The overall percentage of tax returns examined19 increased

slightly in FY 2001 and stayed about the same in FY 2002,even with an increase of almost 12,000 examinations inFY 2002.20 The increase in FY 2001 was primarily due toincreases in the number of correspondence examinations of individual income tax returns, mainly for verification of theEarned Income Tax Credit. The increase in the overallnumber of returns examined in FY 2002 was primarily infield office examinations of individual income tax returns.The numbers and percentages of examinations of corporateand other business returns (except partnerships and verylarge corporations) continued to decrease or stay about the

same level. There were also continuing decreases in thenumbers of examinations of estate and gift tax returns.However, there were slight increases in the numbers of examinations of fiduciary income, employment, and excisetax returns.21

Individual Income Taxes – Overall, the number of examinations of all types of individual income tax returnshad been decreasing from FY 1997 through FY 2000.However, the downward trend was reversed in FYs 2001and 2002, when the number of examinations in mostcategories increased slightly from the prior years:

• The number of individual income tax returnsexamined increased from 618,000 in FY 2000 to732,000 in FY 2001 and to 744,000 in FY 2002,22 with approximately 543,000 of those examined inFY 2002 done by correspondence.

• The number of examinations of individual returnswith incomes under $100,000 increased from518,218 in FY 2000 to 640,206 in FY 2001, but thenfell to 631,618 in FY 2002, with 495,344

19 Percentage of Examination coverage has traditionally been calculatedby the IRS by dividing the number of returns examined in the currentfiscal year by the number of returns filed in the preceding calendar year.20 See Appendix V, Figure 18.21 See Appendix V, Figure 41.22 See Appendix V, Figure 19.

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(78 percent) of those in FY 2002 done bycorrespondence.23

• The number of examinations of individual returns

with income of $100,000 or more decreased from99,547 in FY 2000 to 91,550 in FY 2001, but thenincreased to 112,263 in FY 2002, with 47,946(43 percent) of those done by correspondence.24

Corporate Income Taxes – The number of examinations of Corporation and S Corporation returns has continued todecrease. The total number of U.S. Corporation IncomeTax Returns (Form 1120) examined decreased 18 percent inFY 2001 and another 2 percent in FY 2002, from 43,383 inFY 2000 to 35,056 in FY 2002.25 The exception to thisdownward trend was in the examinations of very largecorporations with assets over $250 million and in corporatereturns filed with no balance sheets. The number of examinations of corporations with assets over $250 millionincreased in FYs 2001 and 2002, from 3,080 in FY 2000 to3,749 in FY 2002. The number of examinations of corporate returns filed without balance sheets increasedfrom 1,923 in FY 2000 to 1,935 in FY 2001 and to 2,729 inFY 2002. The number of partnership returns examinedcontinued its decline in FY 2001 but recovered slightly inFY 2002, going from 6,539 in FY 2000 to 5,070 inFY 2001, and to 5,543 in FY 2002.26

Other Tax Types (Fiduciary, Employment, Excise, Estate,

and Gift Taxes) – The overall number of examinations inthese 5 classes also continued to decline, falling from47,807 in FY 2000 to 42,114 in FY 2001 to 41,934 inFY 2002. However, there were increases in FY 2002 in the

23 See Appendix V, Figures 19 and 20.24 See Appendix V, Figures 19 and 20.25 See Appendix V, Figures 29 to 34 for coverage by size of corporation.26 See Appendix V, Figure 35.

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number of examinations of fiduciary, employment, andexcise tax returns. 27

27 See Appendix V, Figures 36 to 41 for details.

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Appendix I

Detailed Objective, Scope, and Methodology

The overall objective of this review was to provide agreed-upon statistical information and trendanalyses of the nationwide compliance statistics pertaining to examination and collectionactivities requested by the Internal Revenue Service (IRS) Oversight Board.

To accomplish our objective, we analyzed the IRS’ management information reports todetermine the trends and changes in the major areas of compliance. We relied on informationaccumulated by the IRS in established reports and did not verify its accuracy. The major issueswe focused on included:

• Enforcement Revenue and Gross Accounts Receivable.

• Collection and Examination staffing.

• Collection and Examination direct time.

• Collection delinquent account inventories and unfiled return investigations.

• Collection enforcement actions (liens, levies, and seizures.)

• Examination coverage of individual and business tax returns compared to the number of returns filed in each category.

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Appendix II

Major Contributors to This Report

Philip Shropshire, Acting Assistant Inspector General for Audit (Small Business and CorporatePrograms)Parker F. Pearson, DirectorAmy L. Coleman, Audit ManagerJoseph F. Cooney, Senior AuditorDale E. Schulz, Senior Auditor

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Appendix III

Report Distribution List

Commissioner, Large and Mid-Size Business Division LMCommissioner, Small Business/Self-Employed Division SCommissioner, Wage and Investment Division WDeputy Commissioner, Large and Mid-Size Business Division LMDeputy Commissioner, Small Business/Self-Employed Division SDeputy Commissioner, Wage and Investment Division WDirector, Compliance, Small Business/Self-Employed Division S:CDirector, Compliance, Wage and Investment Division W:CPChief Counsel CCNational Taxpayer Advocate TADirector, Legislative Affairs CL:LADirector, Office of Program Evaluation and Risk Analysis N:ADC:R:OOffice of Management Controls N:CFO:AR:MAudit Liaisons:

Commissioner, Large and Mid-Size Business Division LMCommissioner, Small Business/Self-Employed Division SCommissioner, Wage and Investment Division W

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Appendix IV

Glossary of Terms

ACS – The Automated Collection System (ACS) is a telephone contact system where telephoneassistors collect unpaid taxes and secure tax returns from delinquent taxpayers who have notcomplied with previous notices.

Balance Sheet – A statement of the financial assets and liabilities of a business at a given datefiled with corporate income tax returns; used by the Internal Revenue Service (IRS) to groupbusinesses by the size of their assets.

CFf – The Collection Field function (CFf) is the unit in the Area Offices consisting of revenueofficers who handle personal contacts with taxpayers to collect delinquent accounts or secureunfiled returns.

Currently Not Collectible (CNC) – The taxpayer still has an outstanding balance due, but itwas removed from active collection inventory. Accounts are still subject to refund offsets andmay be reactivated under certain conditions.

CNC closing code 39 (see also “shelved accounts”) – These are cases closed as excessinventory.

Corporate Income Tax Returns – United States (U.S.) Corporation Income Tax Returns(Form 1120) are returns used by corporations to report the corporate income tax.

Employment Tax Returns – Various Form 940 return series (primarily Form 940 andForm 941) filed by businesses to report things such as Employer’s Federal Unemployment Taxesand Federal Taxes Withheld.

Enforcement revenue – This is any tax, penalty, or interest received from a taxpayer as a resultof an IRS enforcement action (usually an examination or a collection action).

Estate Tax Return – U.S. Estate Tax Return (Form 706) is the form to be filed on certain estatesof a deceased person.

Examination (Face-to-Face) – Field audits of individuals, partnerships, and corporations thatoccur either at the taxpayer’s place of business or through interviews at an IRS office.

Excise Tax Return – Quarterly Federal Excise Tax Return (Form 720) is used to report and payexcise taxes on a quarterly basis.

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Fiduciary Tax Return – Income tax returns filed for estates and trusts.

Filing Season – The period from January through mid-April when most individual income taxreturns are filed.

Gift Tax Return – U.S. Gift Tax Return (Form 709) is used to report transfers subject to theFederal gift taxes and to figure the tax due on those transfers.

Gross accounts receivable – Includes all unpaid tax, with accrued penalties and interest, ontaxpayers’ delinquent accounts.

Individual Income Tax Returns – U.S. Individual Income Tax Returns (Form 1040 series) areannual income tax returns filed by citizens or residents of the U.S.

Partnership Returns – U.S. Return of Partnership Income (Form 1065) is used to report theincome of domestic partnerships.

Queue – An automated holding file for unassigned inventory of lower priority delinquent casesthat the Collection function does not have enough resources to immediately assign for contact.

Revenue Agent – Employees in the Examination function that conduct face-to-faceexaminations of more complex returns such as businesses, partnerships, corporations, andspecialty taxes, e.g., excise tax returns.

Revenue Officer – Employees in the CFf who attempt to contact taxpayers and resolvecollection matters that have not been resolved through notices sent by the Compliance sites at the

IRS Campuses (formerly known as service centers) or the ACS.

S Corporation Tax Return – U.S. Income Tax Return for an S Corporation (Form 1120S) is areturn filed by a qualifying small business corporation.

SCCB – The Service Center Collection Branch mails the balance due and return delinquencynotices to taxpayers and analyzes and responds to taxpayer correspondence.

Shelved or surveyed accounts – These are delinquent unpaid accounts or investigations of unfiled returns that have been taken out of Collection inventory because they are lower priority.

TDA – Taxpayer Delinquent Account is a balance due account of a taxpayer.

TDI – Taxpayer Delinquency Investigation is an unfiled tax return for a taxpayer.

TGR – Total Gross Receipts are the categories used for Individual Income Tax Returns withbusiness (Schedule C) or farm (Schedule F) income based on the total receipts reported.

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Tax Auditor – Employees in the Examination function that conduct mostly examinations of individual taxpayers through interviews at IRS field offices. The position title was changed in2002 to tax compliance officer.

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Appendix V

Detailed Charts of Statistical Information

Figure 1 – Internal Revenue Service Gross Collections, by Type of Tax ......................... Page 16

Figure 2 – Change in Enforcement Revenue and Gross AccountsReceivable Since FY 1996................................................................................................ Page 16

Figure 3 – Amounts of Enforcement Revenue Collected Compared toGrowth in Gross Accounts Receivable.............................................................................. Page 17

Figure 4 – Examination Staffing at the End of Each Fiscal Year ...................................... Page 17

Figure 5 – Collection Revenue Officer Staffing................................................................. Page 18

Figure 6 – Staff Years Detailed to Customer Service ....................................................... Page 18

Figure 7 – Changes in Direct Time Percentages.............................................................. Page 19

Figure 8 – Average Dollars Collected per Staff Year in the Collection Field function....... Page 19

Figure 9 – Delinquent Accounts in the Queue .................................................................. Page 20

Figure 10 – Delinquent Accounts and Unfiled Return Investigations Shelved orSurveyed Each Year ......................................................................................................... Page 20

Figure 11 – Gap Between New Delinquent Accounts and Account Closures .................. Page 21

Figure 12 – Number of Taxpayers and Amounts Owed in the Queue.............................. Page 21

Figure 13 – Number of Delinquent Accounts Closed Each Year, Not IncludingShelved Accounts.............................................................................................................. Page 22

Figure 14 – Number of Delinquent Accounts Closed by Full Payment............................. Page 22

Figure 15 – Liens Filed by the ACS and the CFf .............................................................. Page 23

Figure 16 – Levies Issued by the ACS and the CFf .......................................................... Page 23

Figure 17 – Number of Seizures Made Each Year ........................................................... Page 24

Figure 18 – Examination Coverage of All Tax Returns – Percentage Change FromFY 1988 to FY 2002 .......................................................................................................... Page 24

Figure 19 – Number of Individual Income Tax Returns (Forms 1040) Examined

Face-to-Face or Through Correspondence ...................................................................... Page 25 Figure 20 – Percentage of Forms 1040 Examined Face-to-Face orThrough Correspondence ................................................................................................. Page 25

Figure 21 – Number of Forms 1040 Examined by Compliance CenterCorrespondence................................................................................................................ Page 26

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Figure 22 – Number of Forms 1040 Examined by Field Offices....................................... Page 26

Figure 23 – Percentage of Forms 1040 Examined ........................................................... Page 27

Figure 24 – Percentage Examined – Forms 1040 With No Business or Farm Income.... Page 27

Figure 25 – Examination Coverage of Non-business Forms 1040 Under $100,000........ Page 28

Figure 26 – Examination Coverage of Non-business Forms 1040 Over $100,000.......... Page 28

Figure 27 – Examination Coverage of Forms 1040 With Business Income(Excluding Farms) ............................................................................................................. Page 29

Figure 28 – Examination Coverage of Forms 1040 With Farm Income............................ Page 29

Figure 29 – Examination Coverage of All Corporate Income Tax Returns -Percentage Change From FY 1988 to FY 2002 ............................................................... Page 30

Figure 30 – Percentage of Corporate Income Tax Returns Examined -

Corporations With Assets Under $5 Million ...................................................................... Page 30Figure 31 – Percentage of Corporate Income Tax Returns Examined -Corporations With Assets Over $5 Million ........................................................................ Page 31

Figure 32 – Examination Coverage of Corporations With Assets Under $10 Million ....... Page 31

Figure 33 – Examination Coverage of Corporations With Assets Over $10 Million ......... Page 32

Figure 34 – Examination Coverage of S Corporations (Form 1120S) .............................. Page 32

Figure 35 – Examination Coverage of Partnership Income Tax Returns ......................... Page 33

Figure 36 – Examination Coverage of Fiduciary Income Tax Returns ............................. Page 33

Figure 37 – Examination Coverage of Employment Tax Returns..................................... Page 34

Figure 38 – Examination Coverage of Excise Tax Returns .............................................. Page 34

Figure 39 – Examination Coverage of Estate Tax Returns .............................................. Page 35

Figure 40 – Examination Coverage of Gift Tax Returns ................................................... Page 35

Figure 41 – Numbers and Percentages of Business Returns Examined.......................... Page 36

Figure 42 – Numbers of Individual Income Tax Returns Examined ThroughField or Correspondence Examinations and Compliance Center Contacts...................... Page 37

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Figure 1. Internal Revenue Service (IRS) Gross Collections, by Type of Tax. Gross taxcollections by the IRS grew from $935 billion in Fiscal Year (FY) 1988 to $2.1 trillion inFY 2001 but decreased in FY 2002, due to a 12 percent ($140 billion) drop in individual incometaxes paid. Individual income taxes make up about one-half of the total collections whileemployment taxes account for about one-third.

Source: Treasury Inspector General for Tax Administration (TIGTA) Analysis of IRS Data Book Information.

Figure 2. Change in Enforcement Revenue and Gross Accounts Receivable Since FY 1996. During the last 3 fiscal years, the IRS reversed the decline in enforcement revenue, but the grossaccounts receivable has continued to grow, although not as much in FY 2002 as in the past

several years.

Source: Enforcement Revenue Information System and Chief Financial Officer (CFO) Financial Report.

9 8 %

9 3 %

8 7 %

8 9 %

1 0 9 %

1 1 4 %

1 1 9 %

1 2 2 %

9 0 %8 9 %

1 2 9 %1 2 8 %

8 0 %

8 5 %

9 0 %

9 5 %

1 0 0 %

1 0 5 %

1 1 0 %

1 1 5 %

1 2 0 %

1 2 5 %

1 3 0 %

F Y 9 6 F Y 9 7 F Y 9 8 F Y 9 9 F Y 0 0 F Y 0 1 F Y 0 2

E nfo rc em e n t Re v e n ue G ro s s A cc o u nts R ec e iv a b le

0.0

0.5

1.0

1.5

2.0

2.5

1 9 8 8

1 9 8 9

1 9 9 0

1 9 9 1

1 9 9 2

1 9 9 3

1 9 9 4

1 9 9 5

1 9 9 6

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

T r i l l i o n s o f D o l l a r s

ExciseTaxes

Estate &Gift

EmploymentTaxes

CorporateIncome

IndividualIncome

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Figure 3. Amounts of Enforcement Revenue Collected Compared to Growth in GrossAccounts Receivable. Although gross accounts receivable has continued to grow, theenforcement revenue decreased from FY 1996 to FY 1999, but then increased slightly inFY 2000 and again in FY 2002.

Source: Enforcement Revenue Information System and CFO Financial Reports.

Figure 4. Examination Staffing at the End of Each Fiscal Year. Although new revenueagents and tax auditors/tax compliance officers were hired in FYs 2001 and 2002, there has stillbeen a net decrease in total staff due to retirements and other attrition.

Source: Examination Table 37.

$32 .94

$33 .80 $33 .78$34 .09

$37 .25

$35 .20

$37 .96$ 2 7 6

$ 2 8 0

$ 2 5 7

$ 2 6 4

$ 2 1 6

$ 2 3 6

$ 2 4 6

$ 3 0

$ 3 1

$ 3 2

$ 3 3

$ 3 4

$ 3 5

$ 3 6

$ 3 7

$ 3 8

$ 3 9

F Y 9 6 F Y 9 7 F Y 9 8 F Y 9 9 F Y 0 0 F Y 0 1 F Y 0 2

E n f o r c e m e n t R e v e n u e

B i l l i o n s

$ 2 1 0

$ 2 2 0

$ 2 3 0

$ 2 4 0

$ 2 5 0

$ 2 6 0

$ 2 7 0

$ 2 8 0

$ 2 9 0

B i l l i o n s

G r o s s A c c o u n t s R e c e i v a b l e

E n fo rc em e n t R e ve n u e G ro ss A cc o u n ts R e ce iv a b le

11,75211,88612,625

13,264

13,78314,117

14,949

16,298

1,2941,3401,6051,8992,1072,2632,4572,747

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

FY 95 FY 96 FY 97 FY 98 FY 99 FY 00 FY 01 FY 02

Revenue Agents Tax Auditors

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Figure 5. Collection Revenue Officer Staffing. After the IRS received funding andauthorization to hire in FY 2001, the steady decline in the number of revenue officers workingdelinquent accounts was reversed in FY 2001, but the staffing level dropped again in FY 2002.

Source: Collection Report 5000-23.

Figure 6. Staff Years Detailed to Customer Service. What had been a steadily increasing useof Collection and Examination function personnel detailed to Customer Service during the filingseasons was significantly reduced in FYs 2001 and 2002, as compared to the prior years.

Source: Collection Report 5000-23 and Examination Table 37.

FY 96 FY 97 FY 98 FY 99 FY 00 FY 01 FY 02

5,537 5,439

4,989

4,354

3,6013,792

3,495

0

1,000

2,000

3,000

4,000

5,000

6,000

8288

167 174

287

77

153

43

104

328

646

183

468

338

0

100

200

300

400

500

600

700

FY 96 FY 97 FY 98 FY 99 FY 00 FY 01 FY 02

Collection Examination

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Figure 7. Changes in Direct Time Percentages. The Collection and Examination functionsboth increased the percentage of overall time spent collecting taxes and examining returns inFYs 2001 and 2002.

Source: TIGTA Analysis of Collection Report 5000-23 and Examination Table 37.

Figure 8. Average Dollars Collected per Staff Year in the Collection Field function (CFf).The average amount collected by the CFf for each staff year decreased from FY 1997 toFY 1999, but increased each of the last 3 years.


30 . 0%

35 . 0%

40 . 0%

45 . 0%

50 . 0%

55 . 0%

60 . 0%

65 . 0%

F Y 9 6 F Y 9 7 F Y 9 8 F Y 9 9 F Y 0 0 F Y 0 1 F Y 0 2

Co l lec t i on

E x a m in a t io n

$338,307

$376,838

$338,105

$272,194$289,080

$339,072

$362,224

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

$400,000

FY 96 FY 97 FY 98 FY 99 FY 00 FY 01 FY 02

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Figure 9. Delinquent Accounts in the Queue. The number of taxpayers (TPs) with unpaid taxliabilities and investigations of unfiled tax returns in the Queue increased significantly fromFYs 1996 through 2000. However, there were large reductions in FYs 2000 to 2002 when theIRS used a special closing code to remove potentially less productive cases from the Queue (seeFigure 10).

Source: Collection Reports 5000-2 and 5000-4.

Figure 10. Delinquent Accounts and Unfiled Return Investigations Shelved or SurveyedEach Year. In FYs 1999 through 2002, the IRS used special closing codes to remove millionsof unpaid tax periods and unfiled return investigations from the Queue.

Source: Collection Reports 5000-2 and 5000-4.

514,915326,118

435,337 456,711

821,188767,459

542,406

445,877407,210425,780317,865

537,781

1,282,919

1,876,629

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2,000,000

F Y 96 FY 97 FY 98 FY 99 F Y 00 FY 01 FY 02

T P s w ith Unpa id Accoun ts T P s w ith U nfiled R eturns

7,737 3,705

790,729

1,720,683

13,702

1,567,023

1,942,929

7,099,437

142,89142,956 46,349

981,255

931,011

1,749,590

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

FY 96 FY 97 FY 98 FY 99 FY 00 FY 01 FY 02

Unpaid Accounts Unfiled Returns

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Figure 11. Gap Between New Delinquent Accounts and Account Closures. The number of unpaid accounts that the Collection function closed each year dropped significantly fromFY 1997 to FY 2000, increased slightly in FY 2001, and fell slightly in FY 2002. The closuresincluded here do not include the accounts shelved with currently not collectible closing code 39.


Figure 12. Number of Taxpayers and Amounts Owed in the Queue. While the number of taxpayers with accounts in the Queue stayed about the same in FY 2001 and decreased inFY 2002, the total value of the accounts increased significantly. The average amount owed bytaxpayers whose accounts were in the Queue increased from $9,300 in FY 1996 to $39,500 inFY 2002.


0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

FY 96 FY 97 FY 98 FY 99 FY 00 FY 01 FY 02

TDAReceipts

TDAClosures

$ 0

$ 5

$ 1 0

$ 1 5

$ 2 0

$ 2 5

F Y 9 6 F Y 9 7 F Y 9 8 F Y 9 9 F Y 0 0 F Y 0 1 F Y 0 2

A m o u n t O w e d ( i n $ b i l l i o n s )

0

1 0 0 , 0 0 0

2 0 0 , 0 0 0

3 0 0 , 0 0 0

4 0 0 , 0 0 0

5 0 0 , 0 0 0

6 0 0 , 0 0 0

N u m b e r o f T a x p a y e r s

A m o u n t O w e d N u m b e r o f T a x p a y e rs

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Figure 13. Number of Delinquent Accounts Closed Each Year, Not Including ShelvedAccounts. The number of delinquent unpaid accounts closed by the Automated CollectionSystem (ACS) increased during FY 2001 and then dropped slightly in FY 2002, but thedownward trend continued in the CFf. As more accounts are left in the Queue, there are moreclosed after voluntary action by taxpayers while in that unassigned status.


Figure 14. Number of Delinquent Accounts Closed by Full Payment. The downward trendin the number of accounts closed by full payment was reversed in FY 2001, but full paymentclosures dropped again for the ACS in FY 2002.


Del inquent Accou nts Closed By Ful l Payment

901,145 893,620

793,958

688,622 679,872

742,563

644,301

481,409 494,567

398,718

275,981235,797 239,503

269,139

35,200 42,70249,798

38,227

64,312105,609

137,179

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

F Y 96 F Y 97 F Y 98 F Y 99 F Y 00 F Y 01 F Y 02

A C S

RevenueOff icers

Queue &S C C B

Number of Delinquen t Accounts Closed (Not Including Shelved Accounts)

3,129,974 3,201,808

2,814,025

1,873,520 1,819,4242,013,562 1,975,215

1,696,008 1,676,949

1,327,863

951,984771,455 757,392 724,430

164,731 133,905 146,807 128,930 180,991269,855 314,124

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

FY 96 FY 97 FY 98 FY 99 FY 00 FY 01 FY 02

AC S

RevenueOfficers

Queue &SCCB

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Figure 15. Liens Filed by the ACS and the CFf. While the total number of liens filed inFY 2002 is still substantially less than the number filed in FY 1996, the number filed by the ACShas returned to pre-1998 levels. The numbers filed by the CFf have increased in each of the past3 years but have not returned to pre-1998 levels mainly because of the lower numbers and typesof accounts being pursued.


Figure 16. Levies Issued by the ACS and the CFf. While the number of levies issued inFY 2002 is still only about 41 percent of the number issued in FY 1996, it is an increase of 484 percent over FY 2000. As shown in the chart, substantial increases occurred in both theACS and the CFf in FY 2001, with continuing increases in FY 2002. (See footnote 12 onpage 3 of report.)

Source: Collection Report 5000-23 and Customer Service Activity Reports (for FYs 2001 and 2002).

489,198

261,027

366,687

176,926

283,353

99,402

144,687

23,180

146,315

141,202

218,051

210,325

246,520

245,189

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

FY 96 FY 97 FY 98 FY 99 FY 00 FY 01 FY 02

ACS

CFf

143,255699,035 690,928 473,481 106,747 74,897 140,675

1,140,4872,029,928

2,968,489

2,409,891

397,656

144,881

533,405

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

FY 96 FY 97 FY 98 FY 99 FY 00 FY 01 FY 02

CFf ACS

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Figure 17. Number of Seizures Made Each Year. While the number of seizures made inFY 2002 is only 3 percent of the number made in FY 1996, it is an increase of 300 percent fromFY 2000.

Source: Collection Report 5000-23 and IRS Manual Reconciliation of Seizure Logs.

Figure 18. Examination Coverage of All Tax Returns – Percentage Change From FY 1988to FY 2002. While the number of all tax returns filed has steadily increased, the number of examinations has fallen significantly since FY 1996. However, this number increased slightly inFYs 2001 and 2002.

Source: TIGTA Analysis of IRS Data Book Information.

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Returns Filed Returns Examined

10,44910,090

2,307

296161 74 234

0

2,000

4,000

6,000

8,000

10,000

12,000

FY 96 FY 97 FY 98 FY 99 FY 00 FY 01 FY 02

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Figure 19. Number of Individual Income Tax Returns (Forms 1040) ExaminedFace-to-Face or Through Correspondence. The number of individual returns with incomesover and under $100,000 examined face-to-face or by correspondence generally decreased fromFY 1996 to FY 2000. However, the number of correspondence examinations of individuals withincomes under $100,000 increased in FY 2001 and decreased again in FY 2002, while the othercategories continued to decrease in FY 2001 but then increased slightly in FY 2002.

Source: TIGTA Analysis of Examination Table 37. Figure 20. Percentage of Forms 1040 Examined Face-to-Face or Through Correspondence.While the percentage of coverage of each category generally decreased from FY 1996 toFY 2001, the percentage of returns with income under $100,000 examined by correspondenceincreased slightly in FY 2001, and the other three categories each increased slightly in FY 2002.

Source: TIGTA Analysis of Examination Table 37.

0

200 ,000

400 ,000

600 ,000

800 ,000

1,000,000

1,200,000

1,400,000

F Y 96 F Y 9 7 F Y 9 8 F Y 9 9 F Y 00 F Y 01 F Y 0 2Ind i vidua ls U nder $10 0 ,000 ; Fac e - to -face

Ind ividua ls U nder $100 ,000 ; C or respondence

Ind ividua ls $ 100 ,000 and ove r ; Face - to - face

Ind ividua ls $100 ,000 and ove r ; Co r respondence

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

1996 1997 1998 1999 2000 2001 2002

Face to Face -Income Under$100,000

Face to Face -Income Over$100,000

Correspondence -Income Under$100,000

Correspondence -Income Over

$100,000

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Figure 21. Number of Forms 1040 Examined by Compliance Site Correspondence. Thenumber of individual income tax returns examined by the Compliance sites fluctuated widelyfrom year to year, based largely on the emphasis placed on Earned Income Tax Credit claims.These fluctuations greatly affected the overall examination rate because of the large numbers thatcan be done through correspondence (Corr) compared to the numbers that can be done throughregular field techniques. FY 2002 data for this analysis were not available at the time this reportwas prepared.

Source: TIGTA Analysis of April 2002 IRS Report to the Congress About Examination Coverage.

Figure 22. Number of Forms 1040 Examined by Field Offices. The number of field officeexaminations of individual tax returns for the various income levels decreased from FYs 1997through 2001 but increased in FY 2002 in all classes of returns with incomes over $25,000.


0

1 0 0 , 0 0 0

2 0 0 , 0 0 0

3 0 0 , 0 0 0

4 0 0 , 0 0 0

5 0 0 , 0 0 0

6 0 0 , 0 0 0

7 0 0 , 0 0 0

8 0 0 , 0 0 0

9 0 0 , 0 0 0

1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1

C o r r -E I T C

C o r r -N o n F i l e r

C o r r -O t h e r

0

25,00050,000

75,000

100,000

125,000

150,000

175,000

200,000

225,000

250,000

275,000

1996 1997 1998 1999 2000 2001 2002

All Non-Business< $25,000

All Non-Business$25,000 -$100,000

All Non-Business$100,000 or more

All Business<$25,000

All Business$25,000 -$100,000

All Business$100,000 or more

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Page 27

Figure 23. Percentage of Forms 1040 Examined. This shows the comparison in examinationrates (total correspondence and face-to-face) for returns with business or farm income and thoseover or under $100,000 income without any business or farm income. All consistently fell fromFYs 1996 through 2000, but most increased in FY 2001. FY 2002 showed increases inSchedule C examinations (over $25,000) and in non-business Forms 1040 over $100,000.


Figure 24. Percentage Examined – Forms 1040 With No Business or Farm Income. WhileForms 1040 reporting incomes over $100,000 previously received more examination coverage,the rate of coverage has decreased to about the same levels as other types of Forms 1040.


0%

1%

2%

3%

4%

5%

6%

7%

1 9 8 8

1 9 8 9

1 9 9 0

1 9 9 1

1 9 9 2

1 9 9 3

1 9 9 4

1 9 9 5

1 9 9 6

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

1040 Non-business orFarm Over$100,000

1040 Non-business orFarm Under$100,000

1040 withSchedule CBusinessIncome

1040 withSchedule FFarmIncome

11%

0%

1%

2%

3%

4%

5%

6%

7%

1 9 8 8

1 9 8 9

1 9 9 0

1 9 9 1

1 9 9 2

1 9 9 3

1 9 9 4

1 9 9 5

1 9 9 6

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

1040AUnder$25,000

1040Under$25,000

1040$25,000-50,000

1040$50,000-100,000

1040 Over$100,000

11%

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Figure 25. Examination Coverage of Non-business Forms 1040 Under $100,000. Thenumber of these returns filed with income under $100,000 has increased steadily, except for aslight drop in FY 1994, while the number examined has fluctuated. There was a significantdecline in the number of examinations from FYs 1996 through 2000, but there was an increase inFY 2001 and a slight drop in FY 2002.


Figure 26. Examination Coverage of Non-business Forms 1040 Over $100,000. The numberof non-business returns filed with income over $100,000 steadily increased to 10.7 million, whilethe number examined declined steadily from FY 1996 until FY 2002, when the numberexamined increased by 16,000 to just over 80,000 returns.


85

90

95

100

105

110

115

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

R

e t u r n s F i l e d ( i n M i l l i o n s )

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

R e t u r n

s E x a m i n e d ( i n T h o u s a n d s )


0

2

4

6

8

10

12

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

R e t u r n s F i l e d ( i n M i l l i o n s )

0

40

80

120

160

200

240

R e t u r n s E x a m i n e d ( i n T h o u s a n d s )


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Figure 27. Examination Coverage of Forms 1040 With Business Income (ExcludingFarms). While the number of individual income tax returns filed with business income hassteadily increased to over 8 million, the examination coverage dropped significantly afterFY 1995, until increasing slightly to 128,062 returns in FY 2001 and 138,254 in FY 2002. (Inthe chart, the coverage is separated by the “total gross receipts” (TGR) reported.)


Figure 28. Examination Coverage of Forms 1040 With Farm Income. The number of returns filed with farm income has steadily decreased to about 650,000 returns. The examinationcoverage fluctuated from FY 1988 to 1996 and then dropped significantly until FY 2000, with aslight increase to 5,315 returns examined in FY 2001 and a drop to 3,641 returns examined in

FY 2002.


0

100

200

300

400

500

600

700

800

900

1,000

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

R e t u r n s F i l e d ( i n T h o u s a n d s )

0

5

10

15

20

25

R e t u

r n s E x a m i n e d ( i n T h o u s a n d s )


0%

1%

2%

3%

4%

5%

6%

7%

1 9 8 8

1 9 8 9

1 9 9 0

1 9 9 1

1 9 9 2

1 9 9 3

1 9 9 4

1 9 9 5

1 9 9 6

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

P e r c e n t E x a m i n e d

0

1

2

3

4

5

6

7

8

9


TGROver$100,000

TGR$25,000-$100,000

TGRUnder$25,000

Sch CReturnsFiled

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Figure 29. Examination Coverage of All Corporate Income Tax Returns – PercentageChange From FY 1988 to FY 2002. While the total number of corporate income tax returnshas steadily increased, the total number of examinations has dropped significantly sinceFY 1997.


Figure 30. Percentage of Corporate Income Tax Returns Examined – Corporations withAssets Under $5 Million. The percentage of corporate returns examined in all asset classesunder $5 million has decreased over the past several years. However, the coverage in the NoBalance Sheet and Assets from $1 million - $5 million categories increased slightly in FY 2002.


-100%

-50%

0%

50%

100%

150%

200%

1 9 8 8

1 9 8 9

1 9 9 0

1 9 9 1

1 9 9 2

1 9 9 3

1 9 9 4

1 9 9 5

1 9 9 6

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

ReturnsFiled

ReturnsExamined

0%

2%

4%

6%

8%

10 %

12 %

1 9 8 8

1 9 8 9

1 9 9 0

1 9 9 1

1 9 9 2

1 9 9 3

1 9 9 4

1 9 9 5

1 9 9 6

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

Assets$1M - $5M

Assets$250,000 -$1M

NoBalanceSheet

AssetsUnder$250,000

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Figure 31. Percentage of Corporate Income Tax Returns Examined – Corporations WithAssets Over $5 Million. The percentage of corporate returns examined in the majority of assetclasses over $5 million has steadily declined in the last decade. However, the coverage in thelargest class (over $250 million in assets) showed a slight increase in FYs 2001 and 2002.


Figure 32. Examination Coverage of Corporations With Assets Under $10 Million. Thenumber of corporate returns filed with assets under $10 million has decreased to about2.3 million returns, but the number examined has declined at a higher rate and dropped to14,665 in FY 2002.


0%

10%

20%

30%

40%

50%

60%

70%

80%

1 9 8 8

1 9 8 9

1 9 9 0

1 9 9 1

1 9 9 2

1 9 9 3

1 9 9 4

1 9 9 5

1 9 9 6

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

AssetsOver$250M

Assets$100M -$250M

Assets$50M -$100M

Assets$10M -$50M

Assets$5M -$10M

2,000

2,100

2,200

2,300

2,400

2,500

2,600

2,700

2,800

2,900

3,000

1 988 1 989 1 99 0 1 991 1 99 2 1 99 3 1 99 4 1 99 5 1 99 6 1 99 7 1 99 8 1 99 9 2 00 0 2 00 1 2 00 2


0

10

20

30

40

50

60

70

80

90

100



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Figure 33. Examination Coverage of Corporations With Assets Over $10 Million. Thenumber of corporate returns filed with assets over $10 million has increased to almost60,000 returns, but the number examined has declined significantly since FY 1997, dropping to8,443 returns examined in FY 2002.


Figure 34. Examination Coverage of S Corporations (Form 1120S). The number of Forms 1120S filed has increased to over 3 million returns, and the number examined was alsoincreasing until FY 1998. However, the number of examinations has dropped significantly sincethen, falling to 11,646 returns examined in FY 2002.


30

35

40

45

50

55

60

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

R

e t u r n s F i l e d ( i n T h o u s a n d s )

7

8

9

10

11

12

13

14

15

R e t u

r n s E x a m i n e d ( i n T h o u s a n d s )


0

500

1,000

1,500

2,000

2,500

3,000

3,500

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002


0

5

10

15

20

25

30

35



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Figure 35. Examination Coverage of Partnership Income Tax Returns. While the numberof partnership returns has grown in recent years to over 2.1 million filed, the number examineddecreased to 5,070 returns in FY 2001 and then increased to 5,543 in FY 2002.


Figure 36. Examination Coverage of Fiduciary Income Tax Returns. The number of income tax returns filed by estates and trusts has steadily increased each year, from about2.3 million in FY 1988 to over 3.9 million returns in FY 2002. However, the number of examinations has fluctuated from about 4,500 in the mid-1990s to 7,318 in FY 2000, dropping to7,070 in FY 2001 and increasing to 7,206 in FY 2002, maintaining a coverage rate of about0.2 percent.


0

500

1,000

1,500

2,000

2,500

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002


0

5

10

15

20

25



0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002


0

1

2

3

4

5

6

7

8

9



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Figure 37. Examination Coverage of Employment Tax Returns. While the number of employment tax returns filed has been relatively steady at around 29 million, the number of thosereturns examined has decreased 69 percent since FY 1996, dropping to 17,252 returns examinedin FY 2002.


Figure 38. Examination Coverage of Excise Tax Returns. While the number of excise taxreturns filed has been relatively steady, the number of those returns examined has decreased74 percent since FY 1996, falling to 8,169 in FY 2001, but with a slight increase in FY 2002.


27.0

27.5

28.0

28.5

29.0

29.5

30.0

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002


0

10

20

30

40

50

60

70

80



0

200

400

600

800

1,000

1,200

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002


0

10

20

30

40

50

60



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Figure 39. Examination Coverage of Estate Tax Returns. While the number of estate taxreturns filed has steadily increased each year, from less than 60,000 in 1988 to over 120,000 in2001, the number of examinations stayed relatively steady until it began to decline in FY 1997,dropping to 7,151 in FY 2002.


Figure 40. Examination Coverage of Gift Tax Returns. The number of gift tax returns filedhas tripled since FY 1988 to over 300,000 returns, while the number of examinations hasincreased moderately until declining in the last 3 years to 1,899 returns in FY 2002.


0

20

40

60

80

100

120

140

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002


0

2

4

6

8

10

12

14

R e

t u r n s E x a m i n e d ( i n T h o u s a n d s )


0

50

100

150

200

250

300

350

1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002


0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

R e t u r n s E x a m i n e d ( i n T h o u s a n d s

)


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Figure 41. Numbers and Percentages of Business Returns Examined. This chart shows theactual numbers and percentages of examination coverage for these non-individual types of taxreturns.

FY 1996 FY 1997 FY 1998 FY 1999 FY 2000 FY 2001 FY 2002

Corporations < $10 Million 46,568 56,323 41,818 28,268 18,623 14,332 14,655

Coverage Rate 1.88% 2.22% 1.67% 1.16% 0.77% 0.60% 0.63%

Corporations $10 Million & Over 12,891 12,972 11,830 10,537 9,212 8,718 8,443

Coverage Rate 25.33% 24.29% 21.43% 19.05% 16.30% 15.08% 14.17%

1120S 19,490 23,898 25,522 21,169 15,200 12,437 11,646

Coverage Rate 0.92% 1.04% 1.04% 0.81% 0.55% 0.43% 0.39%

Partnerships 7,636 9,811 10,082 7,991 6,539 5,070 5,543

Coverage Rate 0.49% 0.59% 0.58% 0.43% 0.33% 0.25% 0.26%

Fiduciaries 4,701 5,753 6,890 6,382 7,318 7,070 7,206

Coverage Rate 0.15% 0.18% 0.21% 0.19% 0.22% 0.20% 0.18%

Employment 56,195 60,799 40,595 28,898 20,074 17,163 17,252

Coverage Rate 0.20% 0.21% 0.14% 0.10% 0.07% 0.06% 0.06%

Excise 32,900 24,701 19,858 12,562 10,294 8,169 8,426

Coverage Rate 4.17% 3.14% 2.48% 1.53% 1.25% 0.96% 1.03%

Estates 11,794 11,686 10,451 9,319 8,024 7,707 7,151

Coverage Rate 14.47% 12.90% 10.22% 8.46% 6.89% 6.24% 5.84%

Gift 1,934 2,085 2,010 2,369 2,097 2,005 1,899

Coverage Rate 0.89% 0.90% 0.79% 0.91% 0.72% 0.65% 0.63%

Source: April 2002 IRS Report to the Congress as Requested in the House Report Accompanying the Treasury and

General Government Appropriations Act, 2002, Pub.L. No. 107-67, 115 Stat 514 (2001), with 2002 data from

TIGTA Analysis of IRS Data Book Information.

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Figure 42. Numbers of Individual Income Tax Returns Examined Through Field orCorrespondence Examinations and Compliance Center Contacts. This IRS-prepared tableshows the numbers of returns included in “examination” statistics and the numbers of returnsincluded in other compliance contacts for math errors, underreported income issues, andautomated substitute for returns due to non-filing. The decline in the numbers of these othercontacts has not been at the same rate as the decline in examinations. However, when added toexaminations, the total number of compliance contacts compared to the number of returns filedshows an overall decline in the percentage of returns covered by compliance checks. This tablealso shows the wide variances in types of coverage from year to year in compliance centercontacts. The data analysis for FY 2002 was not available at the time this report was prepared.

Source: April 2002 IRS Report to the Congress as Requested in the House Report Accompanying the Treasury and

General Government Appropriations Act, 2002, Pub.L. No. 107-67, 115 Stat 514 (2001).

1040 Examinations and Other Compliance Contacts

Examinations 1996 1997 1998 1999 2000 2001

Correspondence Exams - EITC 848,210 360,101 290,010 572,592 253,535 401,448

Correspondence Exams - Nonfiler 74,132 217,141 118,846 26,252 22,017 9,624

Correspondence Exams - All Other 257,354 226,386 216,165 117,013 90,953 129,830

Field Exams - EITC 0 0 33,496 30,783 17,945 13,719

Field Exams - Nonfiler 161,263 111,701 88,116 56,984 37,011 23,624

Field Exams - All Other Non-Business < $25,000 192,222 178,985 113,752 65,521 40,559 30,947

Field Exams - All Other Non-Business $25,000 - $100,000 216,186 205,034 155,829 103,824 69,234 56,887

Field Exams - All Other Non-Business $100,000 or more 70,300 73,923 63,620 49,886 35,242 33,071

Field Exams - All Other Business < $25,000 25,748 32,887 25,321 16,148 10,789 9,822

Field Exams - All Other Business $25,000 - $100,000 46,251 56,094 39,387 26,774 19,252 16,890

Field Exams - All Other Business $100,000 or more 49,880 56,991 48,238 34,564 21,076 17,555

Total Examinations 1,941,546 1,519,243 1,192,780 1,100,341 617,613 743,417

Total Filings 116,059,700 118,362,600 120,342,400 122,546,900 124,887,100 127,097,400

Audit (Examination) Coverage Rate 1.67% 1.28% 0.99% 0.90% 0.49% 0.58%

Other Compliance Contacts Underreporter 1,930,326 931,354 1,726,098 1,770,695 1,353,545 1,161,901

Automated Subsititute for Return (ASFR) 719,913 392,598 426,495 584,142 332,427 333,770

Math Error - Dependent TIN 0 1,300,000 1,094,635 957,597 1,270,445 1,756,646

Math Error - EITC Related 0 903,941 622,702 474,677 399,557 372,842

Math Error - All Other 4,750,771 3,780,003 3,951,569 5,120,016 4,081,460 3,953,479

Total Other Compliance Contacts 7,401,010 7,307,896 7,821,499 8,907,127 7,437,434 7,578,638

Total Examinations & Other Compliance Contacts 9,342,556 8,827,139 9,014,279 10,007,468 8,055,047 8,322,055

Combined Audit (Examination)/Compliance Contact 8.05% 7.46% 7.49% 8.17% 6.45% 6.55%

Coverage Rate

Documents

US Treasury: 200330078fr