Internal Revenue Service:
Preparing Substitute for Returns for Individuals
GGD-00-60R: Published: Feb 17, 2000. Publicly Released: Mar 3, 2000.
Pursuant to a congressional request, GAO provided information on the Substitute for Return (SFR) program at the Internal Revenue Service (IRS).
GAO noted that: (1) IRS prepares a substitute for return for certain individuals classified as potential nonfilers for whom: (a) it has what it considers to be adequate information about income; and (b) the estimated tax liability is at or above a certain level; (2) IRS receives this income information from third parties who make payments to individuals; (3) IRS believes that potential nonfilers who receive a substitute for return will be encouraged to respond by either filing a more accurate return or showing that they have no filing requirement; (4) IRS is to give the potential nonfilers up to two chances to respond to information showing the proposed amount of the substitute for return; (5) if these individuals do not respond, IRS is to assess the tax shown on the substitute for return and seek payment of the balance due through its regular collection process; (6) IRS can contact potential nonfilers who are not selected for the SFR program to solicit a tax return; (7) these contacts can be made through telephone calls or visits by IRS staff; (8) IRS has a few criteria to guide decisions on whether to create a substitute for return through automated or manual means; (9) IRS is to use the automated method when the sources of income are less complex, such as when they have little or no self-employment income from business activities; (10) the automated method accounts for most substitute for returns; (11) when preparing a substitute for return, IRS allows for a filing status of either "single" or, if the most recently filed return showed the taxpayer as married, "married filing separately"; (12) IRS has always allowed for only these two filing status claims on a substitute for return; (13) IRS cannot use "married filing jointly" because the tax law only allows this filing status when taxpayers elect to use it upon filing a tax return; (14) IRS rarely receives information other than income information from third parties in preparing a substitute for return; (15) a balance-due account created from a substitute for return has no special priority over those created through other means; (16) IRS is to use the same formula to set collection priorities for all types of accounts that involve the collection of unpaid assessments from individuals; (17) IRS does not routinely collect data on the costs to prepare and process substitute for returns and on the impacts of the SFR program on compliance; and (18) IRS does track the number of substitute for returns and whether the taxpayer responds to the notice on the related tax, penalty, and interest assessments.