US watchdog says IRS needs more bang from buck on tax audits

WASHINGTON, Jan 4 (Reuters) - The U.S. Internal Revenue Service may be missing out on billions of dollars in uncollected taxes by auditing too many lower-income individuals and businesses with costly, in-person exams, a U.S. government watchdog said on Friday.

In an effort to close the gap between taxes owed and taxes paid - estimated at $450 billion in 2006 - C ongress asked the Government Accountability Office to study IRS enforcement.

The GAO found the IRS could have collected $1 billion a year more in 2007 and 2008 by auditing more taxpayers with income exceeding $200,000.

The agency also could be more efficient by doing more correspondence audits through the mail rather than face-to-face, or "field," audits, the GAO said.

The IRS said in a response included in the GAO report that changes "will take years to implement, not months."

An IRS spokesman declined to comment further.

Correspondence audits account for about 75 percent of all individual tax return audits.

These audits have been criticized the Taxpayer Advocate Nina Olson. The IRS can issue "robo" correspondence audits that limit dialogue between a taxpayer and the agency.