TIGTA Report July 2017 – Employer Payroll Taxes

Auditors Auditing the IRS Say IRS Not Working Cases With $6.8 Billion Potential Under-Reported Taxes

A recent report issued by the Treasury Inspector General for Tax Administration (TIGTA) criticizes the IRS for having an inadequate case selection process for investigating and resolving discrepancy cases arising from automated processes that identify reports from employers containing inaccurate data.  The report discusses the results of a TIGTA audit evaluating the IRS’s processes for selecting discrepancy cases to receive further attention from IRS examiners.

The report concluded that billions of dollars of potential underreported taxes are not being addressed because to many discrepancy cases are not worked.

TIGTA found that discrepancy case selection processes do not ensure that priority is given to working discrepancy cases with the highest potential tax assessment.  Auditors analyzed 137,272 discrepancy cases for the year 2013 and found that the IRS worked only 23,184.   The 114,088 unworked cases had a potential underreported tax difference of more than $7 billion.

The type of discrepancy cases that were the subject of this audit arise from the Combined Annual Wage Reporting Program (CAWR) where wage and tax withholding information reported to the IRS on employment tax returns are compared to the information filed with Social Security.  The purpose of the CAWR program is to ensure that employers report the proper amount of employment taxes and federal income tax withholding on their employment tax returns.

The IRS’s response to the report points out that the IRS is constrained by limited resources and have been affected by sharp budget reductions and staff reductions in the face of increased responsibilities.  The 50% drop in CAWR staffing hasn’t helped the situation.  The IRS has agreed with six of the seven recommendations TIGTA made in its report. The IRS disagrees with the TIGTA’s attempt to quantify the amount of underreported taxes stating “Neither IRS nor TIGTA can identify the potential underreported tax at the time the cases were selected.”

– Mark S Gleason CPA


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Mark Gleason

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