Tax Administration:

IRS Could Reduce the Number of Unproductive Business Nonfiler Investigations

GGD-88-77: Published: May 24, 1988. Publicly Released: Jun 20, 1988.

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Pursuant to a congressional request, GAO reviewed the Internal Revenue Service's (IRS) efforts to detect business nonfilers, focusing on ways IRS could reduce the number of unproductive investigations.

GAO found that, of 1,976 business nonfiler investigations IRS closed in fiscal year 1987: (1) 298, or 15 percent, involved cases in which IRS erroneously issued multiple employer identification numbers (EIN) to businesses which filed their returns under only one EIN; and (2) 369, or 19 percent, involved cases in which businesses did not follow IRS regulations to file returns even though they owed no taxes. GAO also found that, in 317 cases, or 16 percent, IRS did not accurately update its master file with the results of its investigations.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: IRS added additional research procedures to the Internal Revenue Manual and initiated new follow-up procedures to secure the receipt of forms to identify businesses with previously issued EIN. Action was completed in July 1990.

    Recommendation: To reduce the number of unproductive nonfiler investigations, the Commissioner of Internal Revenue should adopt additional research techniques, such as using variations of the business name and the actual signature name on the return, and actively pursue the receipt of forms to identify businesses with previously issued EIN.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: IRS reviewed all business nonfiler notices and letters for tone and content and revised instructions for Form 941 (Employers Quarterly Federal Tax Return) based on its review, and a new Treasury regulation that eliminates the need to file for seasonal employees.

    Recommendation: To reduce the number of unproductive nonfiler investigations, the Commissioner of Internal Revenue should revise employment tax return instructions and business nonfiler notices to emphasize to businesses the importance of filing required quarterly employment tax returns.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Closed - Implemented

    Comments: IRS changed its procedures for noting that a taxpayer is not liable for filing a return based on information determined as a result of their nonfiler investigations.

    Recommendation: To reduce the number of unproductive nonfiler investigations, the Commissioner of Internal Revenue should modify criteria for deleting invalid employment tax return filing requirements to include the results of nonfiler investigations.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  4. Status: Closed - Implemented

    Comments: IRS revised Internal Revenue Manual guidelines to correct this problem.

    Recommendation: To reduce the number of unproductive nonfiler investigations, the Commissioner of Internal Revenue should ensure that the filing status determined from nonfiler investigations is accurately recorded on business master file accounts.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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