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IRS to Launch New Taxpayer Compliance Study, Focusing on Individual Taxpayers; Update on S Corporation Compliance Study Project
The IRS today announced (IR-2007-113, June 6, 2007) that it will launch a new program to study individual taxpayer compliance. The new study under the National Research Program will begin in October 2007, when the IRS will examine about 13,000 randomly selected individual tax returns from tax year 2006. Future studies under this on-going series of annual individual examinations will use similar sample sizes in subsequent tax years.
S Corporation Project
The IRS also reported that it is in the final stages of a compliance research project examining the reporting compliance of S corporations. The IRS reported that the S corporation project research used information from about 5,000 returns filed for tax years 2003 and 2004.
The IRS noted that because income and expense items for S corporations flow through to individual shareholders, the S corporation compliance study may help refine the tax gap estimates relating to individual income tax.
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Individual Taxpayer Compliance
The October 2007 compliance program is intended to provide updated and accurate audit selection tools and to support IRS efforts to reduce the “tax gap.” According to today’s IRS release, the program will combine results over rolling three-year periods and will allow the IRS to make annual updates to compliance estimates and to develop “more efficient workload plans on an annual basis” after the initial three annual studies.
The IRS noted that under an earlier taxpayer compliance program, the IRS looked at tax returns of about 45,000 taxpayers from a single tax year. Information from that study was used by the IRS to update its audit selection system.
Individual taxpayers selected for audit under the new program will begin to receive letters from the IRS in October. The IRS reports that the majority of those selected will need to confirm specific line items on their 2006 tax returns through in-person audits with an IRS examiner. Some of those contacted taxpayers may not be subject to the in-person review if the IRS is able to match the information to third-party data that confirms the accuracy of the return information.
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