Tax Administration:

IRS' Use of Nonaudit Contacts

GGD-00-7: Published: Mar 16, 2000. Publicly Released: Mar 16, 2000.

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Pursuant to a congressional request, GAO provided information on the Internal Revenue Service's (IRS) use of nonaudit contacts with taxpayers, focusing on: (1) the frequency of use, variation in timing, and types of taxpayer responses for three major types of nonaudit contacts; and (2) analyzing the IRS' use of data from the three types of nonaudit contacts to improve compliance and service to taxpayers.

GAO noted that: (1) during 1998, IRS contacted almost 11 million taxpayers through at least one of the nonaudit or audit contact programs; (2) about 6 million contacts were made through the math error program, which is designed to correct arithmetic and other errors, such as incorrect social security numbers; (3) about 2 million contacts were made through the underreporter program, which is designed to match income data reported on information returns by payers, such as employers and banks, to income reported by taxpayers on tax returns; (4) about 2 million contacts were made through two types of soft notices; (5) about 1 million contacts were made through audits, which involve examinations of taxpayer books and records for one or more income, deduction, credit, or other tax issue on the tax return; (6) the timing of the types of contacts varies; (7) a number of reasons can explain the different starting times for each type of contact; (8) these contacts also vary in how taxpayers are to respond; (9) math error and soft notice contacts do not ask taxpayers to respond by providing additional information; (10) both underreporter and audit contacts usually ask taxpayers to provide information about the reported tax liability and to eventually either agree or disagree with any changes to it; (11) depending on the type of contact, taxpayers have different ways to dispute any changes to their tax liability; (12) IRS collects some data on nonaudit contacts, such as caseload and the amount of tax change, to help administer the programs; (13) IRS does not regularly collect data that could be used to identify ways to improve taxpayer compliance and service; (14) IRS does not always collect data on why taxpayers did not comply or whether they repeated their noncompliance in the future; (15) without such data, IRS cannot know the areas in which taxpayers need clarification or how well the programs are meeting the goals of improving compliance and serving taxpayers; and (16) IRS officials said that such data has not been collected because of problems in their information systems and questions about the cost-effectiveness of collecting the data for all types of contacts.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: GAO is closing this recommendation as of 6/04. IRS has not fully met the recommendation because it does not appear to have any plans to further analyze the data to improve compliance and taxpayer service through all 3 of the nonaudit programs. However, IRS has met it in a large part. IRS Research provided examples of several studies done on soft notices and others being planned. IRS also has started collecting and publicizing (in its annual data book) more data on the math error and automated underreporter program during early 2004.

    Recommendation: While the IRS completes its modernization effort, the Commissioner of Internal Revenue should start to collect and analyze available data from each of the three major nonaudit programs to help identify ways to improve compliance and taxpayer service. To minimize the costs, IRS could target the types of contacts under each of the three programs that have the greatest potential for generating such improvements.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Not Implemented

    Comments: To collect data on the three nonaudit programs' impacts on compliance and service, IRS had planned (for at least the last 4 years) to use the Customer Relationship Management (CRM) system, which was to be implemented in phases through December 2005. During July 2005, we were told that CRM did not work and that IRS was no longer tracking the recommendation. Given its age and that no one in IRS seems to be working on it, this recommendation is being closed as not implemented.

    Recommendation: The Commissioner of Internal Revenue should determine how the modernized information systems can cost-effectively collect such data on the various types of contacts in each of these nonaudit programs, and how the data can be used to improve compliance and increase customer service.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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