Who's Not Filing Income Tax Returns? IRS Needs Better Ways To Find Them and Collect Their Taxes

Each year many taxpayers do not file tax returns, and as a result, the Internal Revenue Service (IRS) is not able to collect billions legally owed to the United States. The primary means for detecting and investigating nonfilers used by IRS is the Taxpayer Delinquency Investigation Program (TDIP). Its major weaknesses result from criteria for selecting potential nonfilers for investigation, policies and procedures restricting the investigation of those selected, and various practices in managing nonfiler cases. Selection of potential nonfilers is based generally on whether a person's income indicates a predetermined tax liability, rather than on whether a person is required to file. Because resources are limited, IRS policies and procedures for investigating potential nonfilers intentionally limit the extent to which they are pursued. Delays in processing tax refunds to delinquent filers are also costly to the government because interest must be paid on those returns which are not processed within 45 days. Furthermore, regulation does not impose a penalty to delinquent taxpayers if they are due refunds.