IRS issues recommendations on how to recognize abusive schemes

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The Government Accountability Office (GAO) has issued the Internal Revenue Service (IRS) a series of recommendations to address identifying tax-exempt entity abusive schemes.

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The GAO’s analysis determined the IRS does not consistently analyze data from its offices to help identify the schemes, although information may be available in existing databases.

The GAO learned IRS database project codes to identify data on abusive tax schemes are not linked across IRS’s audit divisions, the agency has not leveraged a database with cross-divisional information to facilitate its analysis and monitoring of audit data across divisions, and has not used existing analytic tools to mine the narrative fields of tax forms.

The GAO maintains each of those elements could provide audit leads on abusive schemes involving tax-exempt entities.

To alleviate the issues, the GAO has recommended the Commissioner of Internal Revenue should undertake a risk assessment of tax-exempt entity Form 8886-T filings; link audit data on abusive tax schemes involving tax-exempt entities across operating divisions and use the linked data to assess emerging issues and develop policy responses; test the ability of the Return Inventory Classification System to facilitate analysis and monitoring of audit data across the operating divisions and to support the IRS’s enforcement objectives; use existing data analytic tools to further mine Form 8886 and Form 8918 data; and develop guidance to help managers ensure referrals about abusive schemes involving tax-exempt entities are made across operating divisions.

The GAO said the IRS agreed with each of the recommendations.

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