From Accounting Today —
By Michael Cohn —
The Internal Revenue Service is being pushed by the Government Accountability Office to do more to close the $428 billion annual tax gap by using the extra $80 billion it’s getting over 10 years from Congress to improve compliance.
The GAO released a report Monday pointing out that the IRS can reduce the tax gap in part by enforcing tax laws to collect unpaid taxes. Over the summer, Congress passed the Biden administration’s Inflation Reduction Act along party lines, which included $79.4 billion in funding for the IRS over a decade, with some of those funds going toward enforcement, as well as improving taxpayer service and the IRS’s aging technology while hiring more IRS employees to replace retiring workers.
The IRS continues to face accounting and technology challenges as well, according to the GAO. “Limitations in the systems IRS uses to account for federal taxes receivable and other unpaid assessment balances continued to exist during fiscal year 2022,” said the report. “In addition, continuing information system control deficiencies in areas such as encryption and configuration of security settings increase the risk of unauthorized access to, modification of, or disclosure of sensitive financial and taxpayer data and disruption of critical operations.”
The GAO pointed out it has made numerous recommendations to the IRS in previous reports and, if they had been fully implemented, those suggestions could address the enforcement of tax laws in high-risk areas and significantly improve operations. As of this month, the IRS still has a total of 176 unimplemented recommendations, including 25 recommendations the GAO considers to be high priority.
The $79.4 billion provided by Congress includes $4.8 billion for business systems modernization, which is much needed. “While IRS made progress in addressing the lack of a subsidiary ledger for unpaid assessments, certain system limitations and errors in taxpayer accounts nevertheless continue to hinder IRS’s ability to effectively manage its unpaid tax assessments on a timely basis,” said the report. “Specifically, IRS’s financial systems currently cannot report the balances of the various categories of unpaid assessments, including gross taxes receivables, without significant inaccuracies. Instead, IRS uses a complex and labor-intensive statistical estimation process to compensate for system limitations and errors in taxpayer accounts to annually derive these figures.”
Michael Cohn is Editor-in-Chief of AccountingToday.com.
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