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The Internal Revenue Service must get better at tracking complex tax-evasion networks of trusts, partnerships, and corporations set up by wealthy individuals to hide assets, according to a Government Accountability Office report.

Rich taxpayers use such networks to conceal income by diverting assets from one entity to another, or to imply losses or deductions that can be passed through other entities to help offset financial gains. So far, the IRS has been ineffective at cracking down on the sophisticated tax-evasion networks, the moves result in lost federal revenue, and the IRS has been ineffective at cracking down on them, the GAO said.

“Traditional enforcement programs are not designed to detect network tax evasion,” GAO said. “IRS’s enforcement programs have traditionally focused on single entities as the unit of analysis, such as an individual or corporation, rather than networks.”

The IRS estimates there were about one million networks in 2008, but lacks data on how many are used for tax evasion or are hiding assets, the report said. The GAO says an agency-wide strategy is needed along with developing analytical techniques and graphing tools to identify network tax evasion.

FAST FACT: The tax gap, the difference between the amount an individual’s owed taxed and the amount actually paid, was an estimated $290 billion in 2001, the most recent year it was calculated.

Following are other new watchdog reports released by the Government Accountability Office (GAO), various federal Offices of Inspector General (OIG), and other government entities. Congressional Research Service reports, which prepared for lawmakers but not made public, were provided by the Center for Democracy and Technology.


  • Due to new tax laws, tax returns to the IRS had 7 percent more errors from a year ago. This resulted in $111.4 million in incorrect Recovery Act-related tax benefits. (OIG)


  • The Energy Dept. needs to better protect sensitive information about oil and gas lines, electricity power plants and hydroelectric projects from cyber attacks. (OIG)


  • If a state health exchange created under the new health reform law refuses to certify any private plans, the Health and Human Services Secretary could find the exchange guilty of misconduct. (Congressional Research Service).


  • The EPA, which is now deciding whether federal or state regulation is most appropriate for disposal of coal-ash waste from utilities, has questioned the effectiveness of some state regulatory programs. A 2009 state survey showed that over 60 percent of states do not require liners or groundwater monitoring for surface impoundments. (Congressional Research Service).


  • The National Archives has left sensitive information vulnerable to computer hackers as it transitions from paper to electronic records. It also has an enormous backlog of 2 million cubic feet worth of paper and media records that have not yet been preserved. (GAO)

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