Pursuant to a congressional request, GAO reviewed the Internal Revenue Services's (IRS) use of Information Gathering Projects (IGP), focusing on: (1) the number of IGPs nationwide and in IRS' Georgia District during fiscal years 1994 through 1996; (2) descriptions and results of IGPs in Georgia during fiscal years 1994 through 1996; and (3) controls and procedures IRS has in place for IGPs.

GAO noted that: (1) IRS reported that it had about 1,000 IGPs open nationwide during both fiscal year (FY) 1995 and FY 1996; (2) data on the nationwide number of IGPs in FY 1994 were not readily available; (3) according to IRS officials, nationwide tracking records were discarded or lost during IRS' reorganization efforts, which involved consolidating 63 districts into 33 and shifting responsibility for IGP records; (4) of the 76 IGPs that were open in Georgia during fiscal years 1994 through 1996, over half focused on: (a) business taxpayers that potentially underreported their income or overreported expenses; (b) business taxpayers that potentially did not properly report or pay taxes, such as the excise tax on fuels; (c) individual taxpayers who potentially claimed an improper exemption, filing status, or earned income credit; and (d) business and individual taxpayers who potentially did not file required tax returns; (5) of these 76 Georgia IGPs, 41 had closed as of June 1997; (6) the duration of these closed audits varied from several months to several years; (7) the audit results, such as additional taxes recommended plus penalties, also varied, with the additional tax amounts ranging from $0 to $269 million; (8) for most of these IGPs, IRS audited relatively few tax returns; (9) IRS closed about three-quarters of these IGPs after auditing fewer than 50 returns, including 9 that closed without any audits being done; (10) for years, IRS has had several controls and procedures designed to limit the vulnerability of IGPs to misuse as an audit selection technique; (11) IRS has always required that proposed IGPs undergo review and approval processes at high levels within the Examination Division in each of the districts; (12) to oversee IGPs, IRS has a unit at each of its 33 district offices; (13) these units monitor how returns were selected for audit and whether the audit results justified continuance of the project; (14) further, IRS recently has started adding processes to enhance the contribution of IGPs to compliance research; (15) in 1997, IRS began implementing compliance initiative proposal processes; and (16) IRS is involving its Research Division in the processes for approving and overseeing IGPs in the hope of making IGPs more useful for research purposes.

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