Summary: Effective, efficient, and fair tax administration obviously requires the commitment of adequate resources. There is a trend toward decreasing voluntary compliance with the Nation's tax laws. To stem the trend, a combination of measures is required. These measures include, along with a commitment of additional compliance resources, management improvements and legislative changes. As a result of taxpayers noncompliance with the tax laws, the Treasury has suffered an estimated loss in revenue totaling $27.6 billion due to failing to pay tax reported on filed returns; nonfiling of returns by persons with tax liablity; overclaiming of deductions, exemptions, and credits; and failing to report all income on which tax is due. For all corporate taxpayers, the estimated tax loss was $2.3 billion for 1978. The major cause of corporate noncompliance involved unreported income. Special compliance problems which have emerged are abusive tax shelters, tax protesters, use of overseas havens, diversion of resources to administration of the crude oil windfall profit tax, and the growing appellate and tax litigation backlogs. Internal Revenue Service (IRS) compliance resources have not kept pace with growing workload demands. Improvements in IRS compliance programs and its other activities can be made to permit more efficient use of existing resources. Legislative changes are needed in selected areas such as the need for a new method to calculate the interest rate on unpaid taxes. IRS also needs better data on the cost and revenue yield of its compliance programs. Additional resources in some programs will result in a large and immediate flow of tax revenue to the Treasury. Finally, IRS should be recognized as unique and treated separately on any initiatives to pair the size of the Federal workforce since it must meet its basic management information needs to Congress.
