payors to inform IRS of certain payments made to corporations. Federal IRS is moving toward revising the Taxpayer Compliance Measurement Program, which is the only reliable measure of compliance and provides data used in tax policy decisions, revenue estimating, and estimation of U.S. income accounts. Prompted by concerns with the program's cost, intrusiveness, and timeliness, IRS appears to be moving toward its eventual elimination. Without an adequate replacement, we believe that eliminating the program would be a mistake because the data are critical to IRS and the whole tax community and should continue to be collected. We expect to report on these issues in the near future as well as on issues involving the effectiveness of IRS' large corporation examination program. IRS continues its struggle to stem the growth of the accounts receivable • Federal Contractor Tax Delinquencies. We testified that IRS could improve its use of government payments to federal contractors as a source of funds for payment of contractors' delinquent taxes. We said that IRS Simplify the Tax System should establish a mechanism to ensure that required information on all federal contracts is reported to IRS and see that collection staff know how to use the contract information. We also raised an issue-whether tax compliance should be a prerequisite to awarding a federal contract-for Congress' consideration (GAO/T-GGD-92-23, Mar. 17, 1992). (See p. 18.) • Priorities for Taxpayer Delinquencies. We reported that IRS could improve the collection process by (1) analyzing the experience of private industry in selecting variables that set the priority for working delinquent accounts; (2) setting priorities on the basis of the likelihood of collection; (3) setting priorities for the prevention and identification components as well as the collection component of its delinquency workload; and (4) improving evaluation of the workload priority system (GAO/GGD-92-6, Mar. 26, 1992). (See p. 20.) • IRS-wide Collection Efforts. We testified on the need for IRS to continue focusing on agencywide efforts to improve collection of delinquent taxes. As an example of such an effort, we cited IRS' proposal for examination staff to try to collect amounts that taxpayers agree to pay as a result of an audit, rather than establishing balance due accounts that collection staff have to collect later (GAO/T-GGD-92-26, Apr. 2, 1992). (See p. 22.) We expect to report in the near future on additional ways in which IRS can increase collections of delinquent taxes, including using new collection strategies and improving its collection staff allocation system and its identification and management of accounts that it has deemed currently not collectible. Simplification continues to be a key to controlling taxpayer burden and improving voluntary compliance. We identified changes that would improve tax administration and reduce taxpayer burden. • Earned Income Advance Payment. We reported that the effectiveness of the earned income credit (EIC) advance payment system was difficult to determine since few low-income wage earners know about the option. We made several recommendations to IRS to ensure that eligible taxpayers are aware of the option and to improve compliance of those people who receive the advance payment (GAO/GGD-92-26, Feb. 19, 1992). (See p. 85.) • Return-Free Filing. We reported that a return-free filing system that IRS had concluded was infeasible because of timing and cost considerations could be redesigned to use new technologies and be more cost-effective and more feasible. We also reported that many foreign countries use a system called final withholding under which the employee's withholding Strengthen the Tax becomes the tax and no return is required. Implementation of final withholding in the United States would require significant legislative and regulatory changes and would require taxpayers and businesses to accept a totally new approach to satisfying tax liabilities. But only through this kind of change can taxpayer burden really be reduced (GAO/GGD-92-88BR, May 8, 1992 and GAO/T-GGD-92-41, May 13, 1992). (See p. 75.) IRS compliance data show that over 9 million individuals improperly claimed about 17 million dependency exemptions and 3 million claimed the wrong filing status. We are studying ways that rules for dependent exemptions and filing status could be simplified to reduce errors and resulting noncompliance. Tax Systems Modernization (TSM) is a long-term multibillion dollar program through which IRS will replace an antiquated IRS data processing system with a modern system using state-of-the-art electronic methods for receiving, processing, storing, and retrieving tax information. In 1992, we continued monitoring TSM progress and identified a number of issues. • Restructure IRS. We testified that to take full advantage of opportunities offered by modernization, IRS needs to engage in a comprehensive reexamination of the way it does business. Redundancy and inefficiencies are fostered by IRS' current organizational structure, work processes, and program strategies—all of which are constrained by the technology IRS adopted over 30 years ago. We said it is important that IRS complete ongoing reviews of its business operations before locking itself into a particular technical contract or implementation (GAO/T-IMTEC-92-10, Mar. 10, 1992 and GAO/T-GGD-92-41, May 13, 1992). (See pp. 23 & 75.) Critical Modernization Factors. We assessed IRS' progress in addressing eight critical success factors that we believe are key to the modernization program's success. We said that, ultimately, the success or failure of the modernization will rest on IRS top management commitment to the program, including following through and making sure each of the success factors is appropriately addressed. While acknowledging the progress IRS had made in the past year, we expressed our concern with four of the critical success factors: (1) planning, (2) technological readiness, (3) procurement, and (4) systems development processes. We also remained concerned about some security and privacy aspects of the program. We recommended that IRS (1) complete a business plan and a strategy to integrate current and planned computer systems for the modernization, (2) improve its procurement process, and (3) resolve Data Processing Risks. IRS' integrated input processing initiative is a At the request of several congressional committees, we are continuing to monitor IRS' modernization program. IRS plays a crucial role in maintaining public confidence in the nation's Strategic Management. IRS has developed a strategic management • Conflicts of Interest. We reported that thousands of IRS employees who Enhance Effectiveness of agents, revenue officers, and criminal investigators; (2) determine whether other key employees should file; and (3) ensure that reviewing officials have adequate information to evaluate potential conflicts (GAO/GGD-92-117, Aug. 17, 1992). (See p. 61.) • Managing Undercover Operations. In two reports, we examined the management and oversight of IRS' undercover operations. We recommended that IRS take a number of steps to strengthen management Managing Seized Assets. IRS Seizes assets such as cars, machinery, Taxpayer Bill of Rights. We concluded that IRS' implementation of major provisions of the 1988 Taxpayer Bill of Rights had been generally successful and suggested clarifications of the Internal Revenue Code that Congress may wish to consider. We also recommended that IRS ensure that its employees are able to recognize taxpayer hardship situations, encourage taxpayers to understand their rights, and improve administration of installment agreements for taxes due (GAO/GGD-92-23, Dec. 10, 1991 and GAO/T-GGD-92-09, Dec. 10, 1991). (See p. 70.) Congress often adopts tax preferences and incentives to foster certain social policy goals, such as improving access to housing or promoting employment for lower income workers. Our work contributed to congressional debate on the costs and benefits associated with tax incentives. Fringe Benefits. Except for pensions, benefit tax policy has not |