Final answer:
The IRS uses data analytics, random audits, and focuses on specific deductions like the Earned Income Tax Credit (EITC) to identify potential underreporting of tax liability. The efficiency of these efforts is limited by resources, which have declined, resulting in fewer audits, especially among the wealthy.
Step-by-step explanation:
The Internal Revenue Service (IRS) employs various programs and strategies to identify taxpayers who may understate their tax liability. Due to the growing issue of tax gap, where approximately $400 billion is lost annually, the IRS has been seeking to improve monitoring and enforcement to reduce the amount of free riding. While resources have declined over the past decades leading to fewer audits, especially among high-income individuals, the IRS utilizes data analytics, random audits, and focuses on specific areas such as returns claiming Earned Income Tax Credit (EITC), to spot discrepancies. Besides, after the scrutiny faced in 2013, the IRS is careful to ensure that their strategies do not target groups unfairly or based on political motives.