The IRS does not always recognize and properly investigate possible tax fraud and may be missing opportunities to promote voluntary compliance and enhance revenue, the Treasury Inspector General for Tax Administration has said.
It said that after reviewing 100 office audits (on-site reviews) of sole proprietor taxpayers who agreed that they owed more than $10,000 in additional taxes, 26 had fraud indicators that were not recognized and investigated in accordance with some key IRS procedures and guidelines. As a result, those taxpayers may have avoided $5.8 million in civil fraud penalties.
TIGTA concluded that additional steps are needed at the examiner and first-line manager levels to ensure that potential fraud is adequately recognized and properly investigated. However, IRS management only partially agreed that additional guidance is needed.
