THE IRS AND BUSINESS.

The article deals with the tax gap, the reorganization of the U.S. Internal Revenue Service (IRS) and the team-audit approach of the service. The term tax gap has been defined as the amount of tax which does not flow to the government because of non-compliance. Its magnitude in 1981 was $95 billion. It was made up of about $87 billion of tax underreported in the legal sectors of the economy and $8 billion of tax underreported from the illegal sectors. The tax gap bas a debilitating effect on the tax system. It lends credence to the perception by the complying taxpayer that everyone is not hearing a fair share of the load. It tends to attract adherents to its side as it grows. The remedy may lie in a number of areas. These include greater staffing for the IRS. Another approach to the problem is to provide stiffer penalties for noncompliance. About four years ago when the service was considering moving from a two-level tax appeal system to a single-level system, attention was directed to the tremendous span of control and immense workload that fell on the deputy commissioner. At that time, consideration was given to establishing two deputy commissioners. This gave rise to the current reorganizational plan. This reorganization plan has necessitated the restaffing of some 40 positions in the IRS national office. This gives the service the opportunity to renew attention to problems of tax administration to achieve greater efficiency. Turning to the Coordinated Examination Program, in 1966 the service recognized the inefficiency of the one-person, one-taxpayer approach to conducting large-case examinations. Subsequently, the service devised a team-audit approach in dealing with the large corporate organization. The service also has organized a system of industry specialization. Finally, the IRS bas developed facilities for international coordination in the examination of multinational corporations.