IRS Resumes Random Audit Program

by Mike Godfrey, Tax-News.com, Washington

18 January 2002

According to reports, the US Internal Revenue Service intends to revisit the unpopular National Research Program, last attempted in 1994, but last undertaken successfully in 1988, by conducting a random check of around 50,000 tax returns this year.

The idea, according to IRS Commissioner Charles Rossotti, is to put together an up-to-date 'snapshot' of the taxpaying American public in order to discern the size of the tax gap, and to identify any problems with the tax code and procedures related to tax collection.

The reason for the failure of the 1994 project was the public and political outcry created by the intrusive investigations in 1988. When the National Research Program was last conducted, 54,000 US taxpayers were subjected to a rigid and time consuming line-by-line audit of their tax returns, and were not permitted to seek the assistance of a tax professional.

This time however, the IRS Chief promised reporters, it will be different. Although around 2,000 of those selected will be obliged to undergo a line-by-line audit, it will be a less rigorous process than before. Around 30,000 of the sample taxpayers will undergo a limited in-person audit, and around 9,000 can expect to receive a correspondence audit through the mail. The remaining 8,000 will likely be forced to undergo little or no additional interaction with the IRS.

Treasury Secretary Paul O'Neill praised the scheme as putting the tax authorities 'back on the right track' over tax compliance.

'While we have a general sense of the tax gap, and we know compliance is uneven, we don't have the necessary information to know how big the problem is or how to fix it,' he explained.

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