This IRM provides an overview of the need for current compliance measures and the National Research Program’s (NRPs) approach to measuring and reporting compliance.

The role of National Research Program (NRP) for IRS is to collect data on reporting, payment and filing compliance that supports strategic decisions about the placement and type of resources necessary to effectively address the needs of taxpayers. The IRS meets its need for current compliance information through the National Research Program (NRP).

The audience for this IRM includes employees who participate and conduct NRP examinations:

Policy Owner: Director, Knowledge Development and Application under Research, Applied Analytics and Statistics (RAAS) is the policy owner.

Program Owner: NRP is the program office responsible for the oversight of the NRP studies.

For information about the National Research Program, visit the NRP website at: https://nrp.web.irs.gov.

Patterns of noncompliance in the population change over time. Measuring changes for noncompliance helps the IRS determine how well it is meeting the needs of America's taxpayers, and identifies vulnerabilities of the system so that weak links can be fortified or redesigned. The Report of the National Commission on Restructuring the Internal Revenue Service pointed out on page 28, Estimating noncompliance ...one of the most significant criticisms of the IRS compliance research approach is the lack of current reliable data on noncompliance. Without reliable compliance measures, the IRS will have limited capability to determine what key areas of noncompliance to address and what treatments to apply to maximize the use of its limited resources.

When a compliant taxpayer is unnecessarily or ineffectively contacted by the IRS, the public's perception of the effectiveness and fairness of the federal tax system could be damaged. Compliant taxpayers want to know that the IRS is capable of ensuring that everyone pays their fair share of taxes. The IRS uses a variety of techniques such as document matching, correspondence and audits to verify that taxpayers accurately report their tax liability. The IRS should only audit those returns most likely to have errors. Various methods are used to identify errors prior to contacting the taxpayer with the most common method using Discriminant Function (DIF) formulas to select returns for examination.

NRP results will increase the fairness of tax administration. They will improve the IRS' ability to detect noncompliance, reduce the burden of unnecessary IRS contacts on compliant taxpayers and support the strategic goals, program development, and resource allocation of the IRS Operating Divisions.

The IRS must realize its organizational goals and strategic objectives in order to demonstrate to Congress and America's taxpayers that it is capable of maintaining the integrity of the federal tax system. This challenge is comparable to a corporation demonstrating to its shareholders that it is worthy of their investment and their business. Optimally, this is accomplished through objective measurement of the corporate financial health and the factors that contribute to it. Likewise, the IRS needs to measure taxpayer compliance with federal income tax laws along with contributing factors so that customer-focused programs and services can be enhanced or developed, and compliance information and tools can be improved.

Although the idea of compliance measurement is not new to the IRS, the NRP approach is vastly different from previous efforts. The NRP approach to measuring reporting compliance balances research quality, efficiency and the reduction of taxpayer burden. NRP focuses on obtaining reliable data in the most cost-effective manner possible by using innovative and efficient techniques that maintain taxpayer rights to privacy. Using this approach, NRP will:

After consideration of internal data, if more data collection is necessary, the classifier will follow the instructions in IRM 4.22.3, Classification of NRP Returns to make a determination about the best way to obtain the data.

The NRP process for determining return accuracy, or reporting compliance, will minimize taxpayer burden through reliance on current data available to the IRS (some of which was not previously available) instead of line-by-line audits. Experienced examiners will be specially trained to analyze this data associated with every return in the program. Use of this data is intended to rule out compliance issues that can be determined to be correct before contacting a taxpayer.

To ensure the validity of NRP's reporting compliance studies, IRS examiners will verify information on the sampled returns and capture all adjustments, no matter how small or whether the adjustments favor the IRS or the taxpayers. As randomly selected returns, NRP taxpayers can represent thousands of similar taxpayers in the population. Therefore, even the smallest adjustments can have significant impacts in compliance measurements. Reporting errors can favor either taxpayers or the IRS, and for NRP to properly define misreporting, both types of errors need to be identified.

Quality review throughout the NRP process will ensure that high quality data is collected. The IRS has consulted with a variety of sources including other federal agencies, in the area of best practices to ensure its sample design, data and procedures are of the highest quality.

NRP will produce a number of benefits. The primary benefit is improvement to the workload selection systems. NRP cases with no adjustments are just as important as cases with large adjustments. Proper estimation of DIF formulas requires accurately reported returns against which to compare misreported items.

NRP pioneered a comprehensive case building approach that provides examiners with a wide range of information about the taxpayer. This allows the examiner to focus on significant tax issues, potentially shortening examination time. This process is described in IRM 4.22.2, Case Building.

NRP data will be used to update the DIF formulas. Better formulas will ensure that non-compliant taxpayers are more likely to be selected for examination and compliant taxpayers are less likely to be unnecessarily audited. With its new multi-year sampling approach, the IRS will be able to update its workload selection models more frequently.

NRP data will identify line items on tax returns that create the most difficulty for taxpayers trying to comply with the tax law. Taxpayers will benefit from redesigned forms, improved communications and suggested law changes.

Enforcement focused on non-compliant taxpayers will improve the public's perception of the fairness and accuracy of the tax system.

Obtaining a measure of overall income tax compliance allows the IRS to allocate resources efficiently to improve overall performance.