Tax Administration:

Changes Needed to Reduce Volume and Improve Processing of Undeliverable Mail

GGD-95-44: Published: Dec 7, 1994. Publicly Released: Dec 7, 1994.

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In response to a congressional request, GAO reviewed the Internal Revenue Service's (IRS) processes for handling undeliverable mail, focusing on the: (1) amount of and reasons for undeliverable mail; and (2) impact of undeliverable mail on taxpayers and IRS.

GAO found that: (1) IRS estimates that it had about 6.5 million pieces of undeliverable mail in 1986 and about 15 million pieces in 1992; (2) undeliverable mail is principally caused by taxpayers failing to leave forwarding addresses, the U.S. Postal Service not delivering or forwarding mail, and IRS incorrectly recording taxpayers' addresses in its files; (3) taxpayer interest and penalties can substantially increase because of undeliverable mail, which eventually can lead to IRS attachment of taxpayers' liquid assets; (4) IRS loses millions of dollars in revenue annually and incurs increased operating costs because of undeliverable mail; (5) the IRS Collection Division plans to start processing undeliverable mail after the first occurrence and send only two instead of four service center notices to decrease collection costs; (6) IRS has implemented only a few recommendations to decrease its undeliverable mail because it expects its Tax Systems Modernization initiative to resolve its undeliverable mail problem; (7) senior IRS management recently requested responsible IRS offices to develop action plans to decrease the amount of undeliverable mail in a recent internal IRS report; (8) IRS needs to increase taxpayers' awareness of the need to provide address changes to minimize the volume of undeliverable mail; and (9) more efficient processing of undeliverable mail could result if IRS consolidates mail processing functions into one centralized unit.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: IRS implemented standardized procedures for accepting oral notification of address changes from taxpayers during all compliance case contacts on active accounts. IRS is also considering whether oral notification should be accepted for address perfection. In addition, IRS has revised some taxpayer education materials to simplify and standardize change of address instructions. Furthermore, IRS tested the use of an external vendor to mail confirmation letters to taxpayers that had notified the Postal Service of an address change. The test results were positive, and the Taxpayer Advocate has recommended that IRS negotiate a new contract with the vendor.

    Recommendation: To help IRS better manage its undeliverable mail, the Commissioner of Internal Revenue should better encourage taxpayers to make address changes by: (1) accepting changes of address over the telephone; (2) making Form 8822, Change of Address, more conveniently available; and (3) emphasizing to taxpayers the importance of keeping their addresses current with IRS.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: While this recommendation has not been fully implemented, significant steps have been taken toward developing service-wide procedures for processing undeliverable mail. For example, IRS included funds in its FY 1997 budget to process the Master File through the Postal Service's National Change of Address (NCOA) database. In addition, IRS is attempting to acquire the NCOA database for in-house use. IRS is also seeking legal authority to use the NCOA to update taxpayers' addresses.

    Recommendation: To help IRS better manage its undeliverable mail, the Commissioner of Internal Revenue should proceed with plans to establish a centralized unit within each service center to process all service center undeliverable mail starting with the initial occurrence of returned mail.

    Agency Affected: Department of the Treasury: Internal Revenue Service


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