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GGD-85-26 1 (1985-06-12)

handle is hein.gao/gaobabnrn0001 and id is 1 raw text is: UNITED STATES GENERAL ACCOUNTING OFFICE 3 W WASHINGTON, D.C. 20548 cwisaN JUNE 12, 1985 B-218919 The Honorable Dan Rostenkowski Chairman, Joint Committee on Taxation The Honorable Bob Packwood Vice Chairman, Joint Committee on Taxation Congress of the United States Subject: IRS Is Taking Action To Improve The Quality Of Its Small Corporation Audits (GAO/GGD-85-26) This report presents the results of our review of the Internal Revenue Service's (IRS) audits of tax returns filed by small corporations. The review was undertaken pursuant to a request from your committee that we evaluate IRS audits of corporations. For our initial inquiry into the quality of IRS' corporate audits, we limited our work to corporations having less than Si million in assets. We did this because, according to IRS, these small corporations have a much poorer compliance record overall than other corporations. This may be partly attribu- table to the fact that small corporations' financial operations can be more easily manipulated than larger public-held corpora- tions. A small corporation is often owned by a small group of individuals who are also its officers. Our review in five IRS districts indicated that the quality of audits of small corporations was not as good as IRS' manage- ment information system showed. Subsequently, IRS found that the problems with audit quality we noted in these five districts were present agencywide. As a result, IRS has established a long-range action plan to improve the quality of corporate audits and its system for monitoring audit quality. IRS' planned improvements, when fully implemented, should resolve the problems we noted. IRS' CORPORATION AUDIT ACTIVITY Tax return audits or examinations are the cornerstone of IRS' efforts to encourage taxpayers to comply voluntarily with the tax laws. IRS' audit or examination activities relating to (263 105

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