Tax Administration:

Uses of and Problems With IRS' Non-Master File

GGD-99-42: Published: Apr 21, 1999. Publicly Released: Apr 21, 1999.

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Pursuant to a congressional request, GAO provided information on the Internal Revenue Service's (IRS) non-master file (NMF), which IRS established to process taxpayer accounts that cannot be processed on its master file, focusing on: (1) the basic differences between the master file and the NMF; (2) known problems that IRS and taxpayers have been experiencing with the NMF, including the sources of such problems; and (3) recent IRS proposals and actions intended to address these problems.

GAO noted that: (1) IRS uses the NMF for accounts that either the master file is not configured to process or that must be processed more quickly than can be done through the master file; (2) compared to the master file, the NMF is newer and smaller (about 122,000 NMF accounts scattered among 10 decentralized databases vs. millions of master file accounts in one large centralized system); (3) the NMF is more flexible than the master file, and IRS' procedures for entering data into and processing accounts on the NMF are more streamlined and thus quicker than those for the master file; (4) although the NMF enables IRS to process certain accounts that cannot be handled by the master file, the NMF also had limitations, at the time of GAO's review, that caused problems for IRS staff and taxpayers; (5) GAO's review and IRS' studies revealed that the most significant limitations were: (a) the lack of a central repository of all NMF accounts; (b) the absence of any meaningful link to the automated system that IRS staff use to obtain information about taxpayers' accounts; and (c) the fact that the NMF processing procedures were predominately manual; (6) these limitations made it difficult for IRS staff to identify and access accounts and could cause delays in processing account information in some situations; (7) these access problems and processing delays could cause taxpayers whose accounts were processed on the NMF to receive incorrect information and experience poor customer service; (8) after the September 1997 Senate Finance Committee hearings, IRS undertook several reviews of the NMF and developed a plan that included numerous proposed corrective actions; (9) implementation of some significant proposed actions has been deferred until at least 2001 because those actions involve extensive computer reprogramming that could interfere with IRS' efforts to make sure its computer systems are year 2000 compliant; (10) recognizing the need to make improvements in the near term, however, IRS recently implemented other actions that required fewer resources and little or no reprogramming; (11) if effectively implemented, IRS' near-term actions, in conjunction with the actions that have been deferred, should go a long way toward correcting identified NMF problems; (12) however, IRS' action plan lacks a key component; and (13) there is nothing in the plan about IRS': (a) monitoring the NMF to identify any problems that arise in the future; and (b) ensuring that timely action is taken to address any such problems.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: IRS recognizes that the ultimate solution to the problems discussed in this report is the "fundamental replacement of the entire master file system." In the interim, according to IRS, various listings have been developed to assist management in monitoring inventories, detecting processing trends, and ensuring timely disposition of accounts. Also, procedures have been incorporated into the Internal Revenue Manual to require management's review of specific listings to ensure such things as timely disposition of account activity and accurate NMF processing. Although these actions are important, they are directed at improving controls over individual accounts on the NMF. GAO's recommendation was more global. It believed that IRS needed to institute some mechanism that would enable it to proactively identify and correct situations, such as the existence of a large number of accounts on the NMF that could and should be moved to the master file.

    Recommendation: The Commissioner of Internal Revenue should direct the appropriate officials to institute procedures to: (1) monitor future activity in the NMF to identify any problems that arise in the future; and (2) ensure that timely action is taken to address any such problems.

    Agency Affected: Department of the Treasury: Internal Revenue Service


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