What Were TCMP Audits and Do They Still Exist?

The Taxpayer Compliance Measurement Program (TCMP) was an Internal Revenue Service (IRS) audit that gained a reputation for its intensity. These audits are no longer conducted under the TCMP name, but their historical context is important for understanding current IRS compliance efforts.

These examinations were known for being a comprehensive and detailed review of a taxpayer’s entire financial life for a specific year. Unlike typical audits that might question a few specific items on a return, the TCMP was an exhaustive, line-by-line inspection of the entire tax return.

The Purpose and Scope of TCMP Audits

The primary objective of a TCMP audit was not to generate immediate tax revenue, but to gather extensive data for IRS research. This data served two main functions. The first was to measure the “tax gap,” which is the difference between the amount of tax that taxpayers should have paid and what they actually paid. This information allowed the IRS to better target its enforcement and educational resources.

The second purpose was to refine the Discriminant Information Function (DIF) score, a confidential formula the IRS uses to select tax returns for audits. By conducting intensive audits on a random sample of returns, the IRS could collect data on the characteristics of returns most likely to have errors. This made the DIF scoring system more accurate at identifying noncompliance and helped reduce audits on compliant taxpayers.

What made TCMP audits uniquely thorough was their “line-by-line” scope, where every single entry on a tax return had to be substantiated with documentation. This included all reported income, every deduction, and each tax credit claimed. An auditor had no discretion to overlook minor items, as the goal was to create a statistically pure data set for research, which differed from standard audits that focus on specific items.

The TCMP Audit Process

A defining feature of the TCMP audit was its random selection process. Taxpayers were not chosen because their returns had red flags or unusual entries, but were selected as part of a statistical sample. This meant a taxpayer with a perfectly accurate return had the same chance of being selected as someone with an error-filled filing, which was necessary for the validity of the data.

Upon receiving a TCMP audit notice, the process required an extraordinary level of preparation and documentation. For example, a taxpayer would need to produce a receipt for every single charitable donation, no matter how small, or provide mileage logs for business vehicle use. This placed a significant burden on the individual, who had to locate and organize records for every financial transaction reported on their return for the entire year.

The audit itself was an intensive examination, often conducted as a field audit at the taxpayer’s home or place of business. The auditor would meticulously go through the return line by line, requesting proof for each item. Because the primary goal was data collection, auditors had very little flexibility and were required to document every discrepancy, regardless of the amount.

The End of TCMP and the Rise of the NRP

The TCMP was discontinued after the 1988 tax year study due to public and political opposition. The primary criticisms centered on the burden placed on randomly selected taxpayers and the high costs associated with conducting such detailed examinations. Congress ultimately directed the IRS to cease the program in the 1990s.

In its place, the IRS established the National Research Program (NRP), which began with a study of 2001 tax returns. The NRP serves the same fundamental goals as the TCMP: to measure compliance, understand the tax gap, and update audit selection formulas like the DIF score. This data helps the IRS work more efficiently by focusing its resources on areas with higher noncompliance.

However, the NRP was designed to be less intrusive. While some NRP audits are comprehensive, many focus on specific areas of a tax return rather than a complete line-by-line review, reducing the burden on the taxpayer. The sample sizes for NRP studies are also smaller than those for the TCMP. For instance, the initial NRP study for tax year 2001 involved about 46,000 returns, a significant reduction from some TCMP efforts that planned for about 153,000 returns.

The modern NRP also leverages technology and third-party information. The IRS can now cross-reference information from Forms W-2 and 1099, which was not as feasible in the TCMP era. This allows the agency to verify many items without directly burdening the taxpayer, making the NRP a more targeted method for gathering compliance data.