TIGTA Finds Shortcomings In IRS's Employment Tax Study

A recent TIGTA audit questioned the validity of the sample size being used in IRS's Employment Tax Study, saying it may impact the ability to determine compliance levels. (Audit Report No. 2011-10-034) The study, which commenced in February 2010, is designed to better estimate the tax gap for underreported employment taxes and determine compliance rates for business taxpayers. The tax gap is the difference between taxes owed and taxes paid on a timely basis. According to the audit, IRS selected the sample of employers based on available resources. “However, the audit results for the sampled taxpayers may not enable IRS management to fully estimate compliance levels for business taxpayers,” TIGTA said. This deficiency may necessitate additional audits, TIGTA noted. “In addition, the agency plans to sample only 50 large/international business taxpayers in each year of the study, which may be too small of a sample to provide meaningful compliance estimates for these taxpayers,” the audit said. The audit found that some larger employers were specifically excluded from the study due to the time necessary to complete “these complex audits.” This means the study will not provide any information about the compliance levels of these employers. The audit is located at http://www.treasury.gov/tigta/auditreports/2011reports/201110034fr.pdf.