The government is losing billions of dollars in tax revenues each year because the Internal Revenue Service does not use an enforcement program on business taxpayers that it has been using effectively on individuals, a House panel said Monday. A report from the House Government Operations subcommittee on commerce, consumer and monetary affairs estimated that between $3.2 billion and $8 billion a year in taxes on interest and dividends earned by businesses is never collected because the income is not reported to the IRS. While the revenue loss estimates ``are not statistically precise,'' the report said they provide ample justification for the IRS to include businesses in the document-matching program it now uses to verify interest and dividend earnings on individual tax returns. Under the existing document-matching program, the IRS compares ``information returns'' detailing interest and dividend payments to individuals with the individuals' actual income tax returns. The program in fiscal 1985 produced $2.35 billion in additional tax revenue from individuals. Although banks and corporations are not required to file such information returns on income payments to corporations, the House report said the IRS received _ but never used _ 26 million such returns in 1985, showing income payments to 5 million businesses totaling $987 billion. ``By casting these information returns aside, IRS is not only missing the chance to assess many billions of dollars of unreported business tax liabilities but has created a double standard of enforcement that is more lenient by far toward businesses than individuals,'' said Rep. Doug Barnard, D-Ga., chairman of the subcommittee. IRS spokesman Frank Keith said Monday the agency has not seen the House report and will have no comment until agecny officials can review it. But at a hearing before Barnard's subcommittee last year, IRS Commissioner Lawrence B. Gibbs said the costs of implementing a document-matching program for corporations would not be justified by the additional revenue that would be generated. Gibbs said the administrative costs of a document-matching program for corporations would be much higher than for individuals because corporations use different fiscal years, varying accounting methods and different names. Although the problems cited by Gibbs all ``pertain to the way income is reported'' to the IRS, the House report said the IRS ``never considered the desirably of modifying the reporting requirements, nor assessed the feasibility of a partial document-matching program encompassing those corporations to which the difficulties do not pertain.'' Gibbs told the subcommittee last year the IRS would begin using document-matching to verify income reported on tax returns from single-owner businesses and would initiate a multi-year study to determine the extent of business underreporting of interest and dividend income. He also promised to begin a test program using information returns to detect corporations and partnerships that do not file any income tax return. The House report said the test program in one district office was so effective the IRS now has expanded it to nine more districts and could have a document-matching program ready by next spring to identify non-filers among corporations and partnerships nationwide. But despite such efforts, Barnard said the IRS ``has not been sufficiently diligent in attempting to extend its sophisticated computer matching capabilities to businesses.'' ``Individuals, and now sole proprietors, who know that each and every one of their returns will be scrutinized by IRS' computers for unreported income deserve to know why corporate and partnership returns are being excused from this automatic examination process,'' Barnard said. The report said Congress should help the IRS set up a document-matching program for corporate returns by enacting legislation to require that businesses and financial institutions report to the IRS all dividend and interest payments to corporations. Barnard introduced such legislation earlier this year, but it was never reported out of the House Ways and Means Committee.
