The Internal Revenue Service is falling short in its investigation of abusive tax avoidance transactions because of limited data, according to a Government Accountability Office report (.pdf) released publicly June 13 but dated May 12.

The IRS is unable to calculate just how widespread the use of these tax schemes and highly technical tax shelters are because ATATs are extremely hard to detect, find auditors.

The IRS is aware of the problem, however, and enforces ATATs through investigations, examinations and settlement initiatives, which are difficult to assess because the efforts lack metrics to track whether the problem is improving or worsening. GAO contends that IRS could construct a better enforcement strategy if it simply had more information on the problem.

"The IRS agrees that better data may lead to better decisions about focusing resource allocations and improve our enforcement efforts for Abusive Tax Avoidance Transactions," Steven T. Miller, IRS deputy commissioner for services, said in a written response to the report.

The report cited several tax experts who suggested ATAT trends are constantly changing and the problem requires constant vigilance.

One solution suggested by auditors was stronger penalties against non-material adviser promoters who submit investor lists to the IRS late. Obtaining information more quickly could help advise the types of investigations IRS should start.

GAO also recommended IRS establish processes to:

• "Improve data on the results of ATAT-related investigations and examinations,
• ensure that required disclosures are filed by taxpayers;
• review disclosures for completeness;
• track the time for IRS to receive investor lists; and
• induce more promoters to provide investor lists by a specified time."

For more:
- see the report GAO-11-493 (.pdf)

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