IRS High Income Taxpayer Strategy Remains Unproven

by Leroy Baker, Tax-News.com, New York

24 November 2004

A new report by the US Treasury Inspector General for Tax Administration (TIGTA) has found that the strategy put in place to assess tax compliance by high income taxpayers is effective, although its long term success has yet to be proven.

The initiative dates back to 2000, when the IRS Small Business/Self Employed Division undertook a study to determine whether high income taxpayers were complying with tax laws.

As a result, the IRS has created four models to help identify taxpayers likely to be transgressing tax laws, and the agency began assessing the system this year as part of its High Income Taxpayer Strategy (HITS).

According to TIGTA’s report, 1,503 tax returns were selected for examination, and data supplied by the SB/SE division showed that employees had completed 85 examinations resulting in $1,392,743 of recommended assessments (an average of $16,385 per return).

It also identified “taxpayers having TPI (total positive income) of greater than $1 million on their tax returns," as the cause for most concern.

The report observed: "While the HITS was effectively implemented, the real success of the strategy cannot be determined until a sufficient number of tax returns is examined."

TIGTA also noted the importance of establishing a feedback process for the new program.

“Part of this process is to establish specific measures and baselines to provide a reference point against which the results will be compared," the report stated.

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