TIGTA: Use Fed/State program better to improve compliance

The IRS could be more effective in addressing noncompliance by better using and controlling the Fed/State Program, according to a report by the Treasury Inspector General for Tax Administration (TIGTA). In the Fed/State program, the IRS Governmental Liaison function facilitates and expands joint tax administration relationships between the IRS and state taxation authorities, such as Departments of Revenue and state workforce agencies. TIGTA initiated this audit to determine the effectiveness of the IRS’s use of data and information received from the state agencies to increase tax compliance by identifying nonfilers and underreporters.

TIGTA observed a lack of coordination and knowledge regarding the agreements with the state agencies. Moreover, improved coordination between the Office of Privacy, Governmental Liaison, and Disclosure and the Small Business/Self-Employed Division would go a long way in the development and tracking of these agreements, it noted. Further, an analysis of fiscal years 2013 through 2016 State Audit Report Program nonfiler inventories showed that the IRS had dropped 39,142 records for taxpayers who were either repeat nonfilers, high-income nonfilers, or both with estimated tax liabilities not collected totaling about $285 million.

TIGTA recommended that the IRS expand the State Audit Report Program to other State agencies, evaluate high-income and repeat nonfilers prior to dropping them from the State Audit Report Program nonfilter inventory, and document the analysis. Further, the Office of Privacy, Governmental Liaison, and Disclosure should coordinate with the Small Business/Self-Employed Division to ensure that all Fed/State agreements are accounted for in the Internal Revenue Service Agreement Database, and routinely review and validate the database for all Fed/State agreements. The IRS agreed with two of the recommendations and partially agreed to one. (TIGTA Report: The Internal Revenue Service Can More Effectively Address Noncompliance by Better Using and Controlling the Fed/State Program (Reference Number: 2018-30-060), August 29, 2018.)

Visit our News Library to read more news stories.