Summary: For 1992, according to the most recent Internal Revenue Service (IRS) estimate, individual taxpayers failed to pay about $100 billion in income tax liabilities. An audit is one of the enforcement tools that IRS uses to try to reduce this amount. Recently, Congress has voiced concerns about the methods that IRS uses to select returns for audit and the techniques used to conduct audits. IRS has many sources for which to select tax returns for audit. IRS' intent is to choose returns with audit potential -- returns for which an audit is most likely to find errors and recommend changes to the reported tax. One source is the discriminant function (DIF), an automated system for scoring individual tax returns according to their audit potential. In examining how effectively IRS selected individual income tax returns for audit, GAO focused on audits in which auditors in IRS district office hold face-to-face meeting with individual taxpayers to review their books and records. For these books and records, GAO (1) determines the extent to which IRS district offices have used various sources to select these individual returns for audit and (2) compares the results of audits selected using these sources in terms of the rate at which audits recommended no-change to the tax reported, amount of additional taxes recommended per return audited, and rates at which IRS assessed and collected such recommended taxes after the audit.
