Academic journal article Journal of Accountancy

GAO Recommends IRS Step Up Compliance Efforts against Sole Proprietors

Academic journal article Journal of Accountancy

GAO Recommends IRS Step Up Compliance Efforts against Sole Proprietors

Article excerpt

The General Accounting Office issued a report to the Joint Committee on Taxation recommending the Internal Revenue Service improve its compliance efforts for sole proprietors. Recent IRS data indicate that sole proprietors are one of the least compliant segments of the individual taxpayer population.

Although only 13% of taxpayers are sole proprietors, they accounted for an estimated 40% of underreported total income by individuals in the 1988 IRS Taxpayer Compliance Measurement Program (TCMP)--the IRS's most recent TCMP data. The data also revealed that sole proprietors accounted for an estimated 36% of the $94 billion individual tax gap for 1992. Even with these compliance disparities, said the GAO report, the IRS has no comprehensive link between its compliance strategy and its efforts for sole proprietors.

The report found audits of sole proprietors were relatively low. In 1992, the IRS audited only 2.3% of the 6.6 million whose primary income was sole proprietorship due to limited audit and enforcement resources. Computer matching, it found, also is an ineffective compliance measure because information returns are not required for much sole proprietor income. …

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