Summaries of Tax-Related Products Issued eligibility before the hiring decision, or providing additional training or supervision to eligible workers to increase the likelihood of retention. Actions(s) Taken And/or No legislative action had been taken as of December 31, 1992. Summaries of Tax-Related Products Issued Congress Should Provide for Amortization of Periods GAO/GGD-91-88, 08/09/91 One of the oldest controversies between taxpayers and IRS is the extent to The opportunities for disputes between taxpayers and IRS intensified during the 1980s, when business acquisition activity increased and led to a growth in the reported value of intangible assets from about $45 billion in 1980 to $262 billion in 1987. As a result, billions of dollars of potential tax deductions and, therefore, tax revenues were affected by decisions on whether tax deductions for intangible asset costs were permitted. In response to a request from the Joint Committee on Taxation, GAO provided information on the types of deductible intangible assets, the asset values and useful lives claimed, and the industries affected. GAO also explored various proposals for revising intangible asset tax rules, which had not significantly changed since 1927. GAO analyzed tax data IRS gathered in 1989 on all of its unresolved, or open, GAO concluded that disagreements between taxpayers and IRS over which intangible assets may be amortized would continue unless changes were made in the current rules. GAO said that the current tax treatment of Summaries of Tax-Related Products Issued Matter(s) for Actions(s) Taken And/or Related GAO Product(s) goodwill and similar intangible assets failed to recognize the economic benefits that wasting intangible assets contribute over time. These assets are consumed over time even if a precise period cannot be determined. Denying amortization deductions does not result in an accurate determination of taxable income since expenses are not properly matched to income generated. Recognition of these economic benefits over time for tax purposes could be accomplished, according to GAO, by establishing specific statutory cost recovery periods for purchased intangible assets similar to those used for tangible assets. Congress should consider revising the current tax law to provide for amortization of purchased intangible assets, including goodwill, over specific statutory cost recovery periods. In October 1992, Congress passed the Revenue Act of 1992, which, among other things, would have revised the tax rules to require that most purchased intangible assets, including goodwill, be amortized over 14 years. In November, however, the act was vetoed by the President and as of December 31, 1992, no further action had been taken. GAO/NSIAD-88-56BR, 12/28/87 and GAO/T-GGD-92-1, 10/02/91 Summaries of Tax-Related Products Issued Congress Should Information on Actual GAO/GGD-88-119, 08/08/88 In response to a request from the Chairman of the Senate Committee on GAO said that future estimates of revenues to be gained from audits would be more reliable if IRS used more realistic assumptions. For example, GAO cited as unrealistic IRS' assumption that data on the results of audits closed in 1972 were still reliable. IRS used that same outdated data to compute the "actual" assessed amounts shown in its budgets but did not disclose in those budgets that the "actuals" were only estimates. With respect to the yield realized as a result of the staffing increase authorized for fiscal year 1987, GAO noted that (1) IRS estimated the yield to be $847.5 million in assessed taxes, penalties, and interest even though it did not achieve the examination staffing levels authorized for fiscal year 1987 and did fewer audits than anticipated; and (2) IRS' estimate was significantly overstated because, among other things, IRS failed to take into account the amount of potential revenue lost because experienced examination staff were used to train and coach new staff and thus were unavailable to audit returns. Recommendation(s) Congress should consider requiring IRS to include in its annual budget submission information on the actual amount of revenues derived from its audits. Actions(s) Taken And/or This recommendation cannot be implemented until IRS has information on the actual amount of revenues derived from its audits. IRS is developing an integrated enforcement management information system that will eventually provide data on the actual revenues generated by its enforcement efforts. IRS is implementing that system in phases and expects it to become fully operational in about 3 or 4 years. Summaries of Tax-Related Products Issued Congress Should Independent Recommendation(s) Actions(s) Taken And/or GAO/GGD-89-107, 09/25/89 In response to a request from the Chairman of the Subcommittee on Commerce, Consumer, and Monetary Affairs, House Committee on Government Operations, GAO assessed whether matching independent contractors' information returns with their tax returns would provide IRS with a systematic method for identifying employers who misclassify employees as independent contractors. From information returns, GAO identified about 191,000 independent contractors who had received all of their income from 1 of about 32,000 employers. IRS revenue officers (1) interviewed a sample of 408 of those employers and determined that 157 may have misclassified their employees as independent contractors; (2) completed detailed examinations of 95 of those 157 employers and confirmed that 92 had misclassified 17,347 employees; and (3) recommended, for those 92 employers, taxes and penalties of $16.7 million in 1986 and 1987. GAO noted that (1) IRS would not have to create a new matching process to identify misclassifications because it already matched information returns and income tax returns to identify unreported income; and (2) although IRS could use information returns to better identify misclassified employees, section 530 of the Revenue Act of 1978 prohibits IRS from assessing back taxes that should have been withheld and paid and restricts IRS' authority to require certain employers to reclassify workers, even for future years. In view of the equity issues and tax revenues involved, Congress may want to consider repealing the restriction against requiring employers to prospectively reclassify employees who have been misclassified as independent contractors. In a November 1992 report, Improving the Administration and |