In a new report, the Treasury Inspector General for Tax Administration said that a new cooperative effort between the IRS and business taxpayers to conduct real-time audits is receiving positive feedback, but may not be cost-efficient.
“The Compliance Assurance Process is being administered in accordance with IRS policies and procedures, and the pilot program followed many key best practices in the design and testing of the process,” said Inspector General J. Russell George, Treasury Inspector General for Tax Administration in a statement.
“However,” Russell added, “even though the CAP pilot program ran for six calendar years and the permanent program is in its second calendar year of operation, the [Large Business and International] Division has yet to develop and implement a plan to thoroughly evaluate CAP data.”
TIGTA said that the IRS needs to thoroughly evaluate the program to ensure that sufficient benefits are being realized in relation to the costs being incurred.
Business taxpayers volunteer to participate in the CAP and attempt to resolve potential tax issues before a tax return is filed. The CAP aims to reduce the length of the audit process for both the IRS and large businesses.
TIGTA’s analysis found that although CAP audits are conforming to IRS policies and procedures, they are consuming substantially more staff hours than those under the traditional audit process. This makes the hourly revenue rate for the CAP approximately one third of the hourly rate examiners generated from traditional audits -- $2,939 versus $8,448, respectively. TIGTA recommended that the commissioner of the LB&I Division develop and implement an evaluation plan that verifies that the CAP is delivering sufficient benefits in relation to the costs being incurred, while also ensuring that the CAP is assessed as a potential new user fee source once the IRS-wide user fee guidelines are revised and implemented.
In their response to the report, IRS management stated that they agreed with the recommendations and plan to take appropriate corrective actions.
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