GAO Reports  
GAO-03-1102 September 03, 2003

Tax Administration: Information Is Not Available to
Determine Whether $5 Billion in Liberty
Zone Tax Benefits Will Be Realized

For one of the seven Liberty Zone tax benefits, the business employee credit, IRS is collecting but not planning to report some information about use--the number of taxpayers claiming the credit and the amount of credit claimed-- nor is it planning to use this information to report the revenue loss associated with that benefit. IRS is not planning to collect or report information about the use of the other six benefits or the revenue loss associated with those benefits. According to IRS officials, the agency followed its usual procedures in determining whether to collect information about benefit use and revenue loss. IRS officials said they would collect and report these data if (1) it would help the agency administer the tax laws or (2) IRS was legislatively mandated to do so.

IRS would need to make several changes if it were to collect more information on the use of the benefits and the associated revenue loss, and this information would not be complete or lead to a verifiable measure of the reduction in federal tax revenues due to the benefits. IRS would need to change forms, processing procedures, and computer programming, which would add to taxpayer burden and IRSís workload. IRS officials were unable to estimate the costs involved in accomplishing these actions or the number of staff needed to do so. The officials said that the earliest they could make these changes would be for tax year 2004 returns. As a result, IRS would not have information for two of the years that the benefits were in effect, which is significant because most of the benefits expire by the end of 2006. In addition, if IRS were to collect data on the use of the Liberty Zone benefits, it would be able to make an estimate, but could not produce a verifiable measure, of the revenue loss due to the benefits because, for example, IRS would have to make assumptions about how taxpayers would have behaved in the absence of the benefits.

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