IRS Implements New Program to Ensure High-Income Tax Compliance

The nation's highest income earners beware-the Internal Revenue Service has implemented a new program to assess whether high-income taxpayers are complying with federal income tax laws, Dow Jones Newswires reported.

While the program began in 2000, only time will tell as to its effectiveness, indicated the Treasury Inspector General for Tax Administration in a mew report.

The IRS commissioner asked the Small Business/Self Employed Division to investigate whether tax laws were being met by high-income taxpayers.

The report said four models or filters were used by IRS to find noncompliant taxpayers and to examine them though the agency's
High Income Taxpayer Strategy, or HITS. The agency began testing the system this year, Dow Jones reported.

Using 1,503 returns, the report said "as of Aug. 21, 2004, data provided by SB/SE Division Management showed employees had completed 85 examinations results in $1,392,743 of recommended assessments (an average of $16,385 per return)."

Of most concern to the IRS when the initiative got underway "were taxpayers having TPI (total positive income) of greater than $1 million on their tax returns," the report related.

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

"To evaluate the success of a new program or strategy, it is important to have established a feedback process," it said. "Part of this process is to establish specific measures and baselines to provide a reference point against which the results will be compared," Dow Jones reported, citing the report.

The report said IRS officials should have set up specific baselines earlier in the process, but that "based on our discussions through the audit and other factor, SB/SE Division Management now recognizes the need for more specificity in establishing the measures and baselines."

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