The IRS's new emphasis - tax enforcement.

• Author: Porter, David B.

Over the last two years, there has been broad agreement that "enforcement" is an appropriate function of the IRS. This represents a real change from the feeding frenzy of IlLS bashing that took place just a few years ago, during Congressional hearings. The working equation now is "service plus enforcement equals compliance" The agency has improved service from the 1990s. Its telephone service (i.e., answering taxpayer questions) is much improved. Use of its website (www.irs.gov) is up dramatically. Electronic filing has grown. In 2004, 62 million taxpayers filed electronically; in 2005, more than half of all individual taxpayers are expected to e-file.

The IRS now sees that enforcement is crucial. Each year, too many taxpayers fail to pay their tax liabilities. The annual "tax gap" is in the many billions of dollars--money obviously needed in a period of large deficits. But the implications of an effective tax administration system go beyond deficits. When people fail to pay their taxes, it undermines public confidence in the tax system.

Why is enforcement necessary? As President Kennedy wrote to Congress in 1961:

To the extent that some people are dishonest or careless in their dealings with the government, the majority is forced to carry a heavier tax burden. For voluntary self-assessment to be both meaningful and productive of revenues, the citizens must not only have confidence in the fairness of the tax laws, but also in their uniform and vigorous enforcement ... If non-compliance by the few continues unchecked, the confidence of the many in our self-assessment system will be shaken and one of the corner-stones of our government weakened.

Results

The Service now understands this dynamic and it is ramping up enforcement activities:

1. After years of decline, enforcement revenues are increasing. Last year--fiscal 2004--the IRS brought in a record $43.1 billion in enforcement revenue, from audits, document matching and collection activity. This was up 15% from the year before, and from a low of $32.9 billion in 1999.

2. Audits of high-income taxpayers were up 40% from the year before. The Service engaged in almost 200,000 high-income audits last year, double the number from three years ago.

3. Total audits of individual taxpayers were up 19%, to just over one million, the highest since 1999.

4. Audits of the largest businesses--those with assets of $10 million or more--climbed over 30%, after years of decline.

5. The number of levies on...