Tax Administration:

IRS Can Help Taxpayers Reduce the Need for Tax Abatements

GAO-01-328: Published: Mar 30, 2001. Publicly Released: Mar 30, 2001.

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About one million taxpayers per year, as well as the Internal Revenue Service (IRS), incur costs to abate tax assessments created due to tax exemption errors. Avoiding the errors, or correcting them earlier, could reduce the burden on taxpayers of complying with tax laws. IRS has taken one step intended to help taxpayers avoid these errors--revising instructions for claiming exemptions. In another step, aimed at correcting some exemption errors that continue to be made, IRS decided to check name and social security number errors for spousal exemption claims during returns processing. In addition, IRS is considering implementing earlier--during returns processing--checks for dependent exemption errors and taxpayer contacts if the checks do not correct exemption errors. Doing such checks and contacts earlier is worthwhile. Although the cost savings to IRS are unknown, many taxpayers would benefit. However, IRS did not provide GAO with any details or documentation about how or when decisions would be made. Little is known about how to reduce nonexemption errors that lead to assessments being abated. Because more than one million taxpayers were burdened by such assessments, research to reduce the errors is worth considering.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: IRS initiated a project to assess the costs and benefits of doing more checks and/or contacting taxpayers when inconsistencies are discovered in initial return processing, focusing on exemption errors. The expected completion date for this abatement study changed from October 2002 to August 2003. Upon review of the results, however, certain critical assumptions were made that complicated the measurement of costs and benefits. As a result, IRS' Research Division was commissioned to study the accuracy of the abatements processed through Accounts Management, and the costs/benefits of taking additional actions during return processing, which was to conclude by August 2004. This planned study was suspended and replaced with a test study to better enable IRS to evaluate the impacts of additional checking/research of the accounts, different taxpayer correspondence methods, and response/success rates. It will also test whether the abatements were performed accurately. The test began in February 2004 and the planned completion date for evaluation and recommendations is August 2005. As of August 2005, IRS was reviewing the test results and planning to make a decision by mid September 2005.

    Recommendation: Regarding name and SSN errors, the Commissioner of Internal Revenue should make a determination on whether the costs and benefits justify implementing earlier--during returns processing--(1) checks for dependent exemption errors and (2) taxpayer contacts, as needed, for the remaining errors in any type of exemption claim.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: IRS began an Abatement study in September 2001, to identify the causes for non-exemption errors and the feasibility of identifying errors earlier. IRS finished the study in April 2003 and by August 2003 determined that certain critical assumptions were made that makes it difficult to have an accurate assessment of costs and benefits. The IRS research Division was commissioned to determine the accuracy of the abatements processed through Accounts Management and the costs/benefits of taking additional actions during return processing for both exemption and non-exemption abatements. IRS Research was to finish by August 2004. This planned study was suspended and replaced with a test study to better enable IRS to evaluate the impacts of additional checking/research of the accounts, different taxpayer correspondence methods, and response/success rates. It will also test whether the abatements were performed accurately. The test began in February 2004 and the planned completion date for evaluation and recommendations is August 2005. As of August 2005, IRS was reviewing the test results and planning to make a decision by mid September 2005.

    Recommendation: Regarding the nonexemption errors that lead to assessments that are later abated, the Commissioner of Internal Revenue should determine whether research to identify causes and solutions is justified.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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