IRS misses billions of dollars in taxes each year, audit finds

The Internal Revenue Service forgoes billions of dollars because the tax-collection agency doesn’t try to reconcile income statements containing incorrect identification numbers with tax accounts.

The IRS received about 3.8 million income statements worth about $150 billion that had incorrect information in 2004, the Treasury inspector general for tax administration, or Tigta, said in an audit report released Tuesday. Tigta auditors manually matched half of the 374 income statements and 246 wage statements they selected for their study to existing taxpayer accounts, the report said.

Members of Congress led by Sen. Max Baucus (D-Mont.) have urged the Treasury Department to work harder to close the so-called tax gap, about $345 billion in taxes that are owed and unpaid each year. The Tigta report said the IRS didn’t think it worthwhile to use automated data systems to try to match incorrect income and wage statements.

“This audit clearly shows that increased examination of statements with erroneous or mismatched numbers more than pays for itself,” said Russell George, the inspector general. “The IRS’ opposition to this is confounding.”