Tax Administration:

Improving IRS' Business Nonfiler Program

GGD-89-39: Published: Mar 8, 1989. Publicly Released: Mar 8, 1989.

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GAO reviewed the Internal Revenue Service's (IRS) efforts to detect business tax nonfilers, focusing on whether: (1) state employment tax information data could aid IRS in investigating business nonfilers; and (2) IRS continued to send business tax forms to known invalid addresses.

GAO analyzed 201 selected businesses in California that IRS identified as potential nonfilers, and found that: (1) IRS could use California state employment tax information to verify businesses' statements about their employment tax liability and to estimate their federal employment tax liability; (2) the state's employment tax information could help IRS to quickly close investigations of nonfilers that have little or no tax liability; (3) 21 of 100 businesses had 31 delinquent federal employment tax returns because they paid wages during periods for which they reported paying no wages; (4) IRS mailed publications to nonfilers with invalid addresses because a computer code that automatically generated mailing lists was still on the master file; and (5) it was unable to estimate the cost of the erroneous mailing because IRS did not track the numbers of publications forwarded to invalid addresses.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: IRS' Western Region is exchanging information with the State of California. Also, IRS is considering using Virginia's State Taxation Accounting Reporting System to better identify unproductive cases.

    Recommendation: The Assistant Commissioner for Collections should direct IRS collection staffs in the California district offices to use California state employment tax information in business nonfiler investigations and explore similar opportunities for using other states' tax information in the business nonfiler program.

    Agency Affected: Department of the Treasury: Internal Revenue Service: Office of the Assistant Commissioner (Collection)

  2. Status: Closed - Implemented

    Comments: As of March 31, 1990, IRS modified the master file extract, which generates mail labels so Publication 396 is not mailed to invalid addresses.

    Recommendation: The Assistant Commissioner for Collections should direct appropriate collection staff to work with computer services staff to correct the computer coding problem so that Publication 393 is not mailed to invalid addresses.

    Agency Affected: Department of the Treasury: Internal Revenue Service: Office of the Assistant Commissioner (Collection)

 

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