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

GGD-79-69: Published: Jul 11, 1979. Publicly Released: Jul 11, 1979.

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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.

Certain differences such as education level and self-employment help explain the identity of nonfilers and the reasons they do not comply. Occupations with the highest nonfiling rates were laborers, service workers, craftsmen, and clerical workers. The only active IRS program to date is directed at some self-employed professionals who make up less than 1 percent of the estimated nonfiler population. IRS needs to be more systematic and vigorous in detecting and pursuing nonfilers. To determine the number and identity of these nonfilers, their reasons for not filing, and the action needed to promote compliance with the laws, it is necessary to estimate the nonfiler population and analyze its characteristics. A model needs to be developed which could be used to assure that individuals selected for investigation are indeed required to file returns. IRS can improve its TDIP by making a number of improvements in its caseload management practices. Using state tax-related data on federal nonfilers would also help identify nonfilers that are not easily detected through its TDIP. Additional resources alone will not increase program effectiveness. Improvement needs to be made in the way IRS uses the money and people it has.

Matter for Congressional Consideration

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Matter: Congress should request IRS to develop and provide to the appropriate congressional committees information on the amount of additional funds needed to improve the effectiveness of IRS nonfiler efforts. This information should include cost estimates for: (1) estimating and analyzing the nonfiler population; (2) developing a better nonfiler case selection method; and (3) investigating thoroughly all nonfilers selected. Congress then can decide whether additional funds are needed.

Recommendation for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: To further reduce the delinquency gap created by the nonfiler population, the Commissioner of Internal Revenue, given available resources, should consider establishing more Returns Compliance Programs directed at specific groups of individual nonfilers deserving concentrated attention because of their tendency toward nonfiling. Any selection of such programs should be based on periodic IRS estimates and analyses of the nonfiler population. In the interim, however, selection could be based on the characteristics of our estimated population, or random samples of persons not covered under the TDIP. The Commissioner should attempt to use tax and other data available from the states to help detect more nonfilers and establish a priority system to ensure that delinquent tax returns involving refund claims are processed within the 45 day statutory limitation.

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