----------------------------------

In their continued effort to crack down on tax cheats, Internal Revenue Service officials announced plans to launch a new National Research Program reporting compliance study for individual taxpayers that will provide updated and more accurate audit selection tools and support efforts to reduce the nation's tax gap.

The latest NRP study will be the first of an ongoing series of annual individual studies using an innovative multi-year rolling methodology. The study will start in October 2007 and examine about 13,000 randomly selected tax year 2006 individual returns. Similar sample sizes will be used in subsequent tax years.

An advantage of using this method, which combines results over rolling three-year periods, is the IRS will be able to make annual updates to compliance estimates and develop more efficient workload plans on an annual basis, after the initial three annual studies.

Previous studies started from scratch, drew tax returns from a single tax year and involved examinations of more than 45,000 taxpayers.

"The new program will be a big step forward for tax research," said Acting IRS Commissioner Kevin M. Brown. "Our approach will reduce burden on taxpayers, improve our audit selection techniques and give us more timely information to help reduce the tax gap."

The tax gap is the difference between what taxpayers should have paid and what they actually paid on a timely basis. Based on the prior NRP reporting compliance study, IRS officials estimate the net tax gap for tax year 2001 was $290 billion.

The research on individuals needs to be updated because, as time passes, patterns of noncompliance change.

The sample for the latest individual NRP is constructed to ensure it contains sub-samples of individuals at different income levels as well as those engaged in farm and sole-proprietor business activities.

The initial group of taxpayers whose returns are selected for audit under the new NRP study will start receiving official letters in October informing them that they are part of the research study. The majority of individuals will have specific lines of their returns confirmed through in-person audits with an IRS examiner.

The targeted research design of the new individual NRP avoids the need for IRS agents to routinely check all the lines of a taxpayer's return.

In addition to the NRP for individuals, the IRS is in the final stages of a compliance research project examining reporting compliance of S corporations.

This research encompasses approximately 5,000 returns filed for tax years 2003 and 2004. Since the income and expense items for S corporations flow through to individual shareholders, this study will also help refine the tax gap estimates for individual income tax.

Click Below for Past Articles
July 2007
June 2007
May 2007
April 2007
March 2007
February 2007
January 2007
December 2006

Steven N. Klitzner is a Certified Tax Resolution Specialist, a member of the American Society of IRS Problem Solvers, a consulting member of the Tax Freedom Institute, and an Aventura attorney.  You can contact him at 305-682-1118 to obtain a free subscription to his newsletter titled The IRS Times & Inquirer or call 305-654-0000 for a free copy of his special report.