TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION
THE EMPLOYER’S ANNUAL FEDERAL TAX RETURN
(FORM 944) PROGRAM WAS EFFECTIVELY PLANNED AND IMPLEMENTED, BUT FEWER RETURNS
THAN ANTICIPATED WERE FILED
Issued on September 17, 2007
Highlights
Highlights of
Report Number: 2007-30-182 to the
Internal Revenue Service Deputy Commissioners for Operations
Support and Services and Enforcement.
IMPACT ON TAXPAYERS
In 2006, the Internal Revenue
Service (IRS) introduced Employer’s ANNUAL Federal Tax Return (Form 944) to allow
certain employers to file their employment tax returns annually and pay the taxes
due with their returns. The IRS’ goals for
the new Form 944 Program are to reduce taxpayer burden for eligible
employers that would normally file Employer’s QUARTERLY Federal Tax Return(s)
(Form 941) with little or no employment taxes due and to maintain and possibly
improve current filing and payment compliance levels. The IRS estimated about 1 million taxpayers
would be eligible to file Forms 944, which would save approximately
46.2 million hours of burden for taxpayers and representatives and save
more than $4.1 million in IRS operating costs.
WHY TIGTA DID THE AUDIT
This
audit was part of our discretionary audit coverage of the Small Business/Self-Employed
Division and was included in the TIGTA Fiscal Year 2007 Annual Audit Plan. The overall objective of this review was to
determine whether the IRS adequately prepared to process Forms 944 during the
2007 Filing Season and to evaluate the effectiveness of processing activities.
WHAT TIGTA FOUND
The IRS took appropriate actions to plan and implement new Form
944 for the 2007 Filing Season. It
identified and notified the taxpayers eligible to file a Form 944 and mailed nearly
517,000 tax packages to them in December 2006. It also established procedures to inform new
taxpayers of the filing requirements when applying for an Employer
Identification Number. The IRS computers
were updated, programmed, and tested to process Forms 944. In addition, the IRS ensured tax examiners
were adequately trained on the new filing requirements to address taxpayers’
inquiries and questions.
While
the Project Office effectively planned and implemented the Form 944 Program,
the IRS did not receive the anticipated volume of returns. It had estimated about 1 million taxpayers
would be eligible to file Forms 944.
However, as of June 1, 2007, the IRS had received only about
326,000 of these Forms. Prior to
implementing the Form 944 Program in 2006, the IRS changed the Program
requirements (in 2005) by reducing the employment tax liability amount from
$2,500 to $1,000 and no longer requiring taxpayers to have filed 8 consecutive
quarters of Forms 941. Adjusting the
eligibility requirements increased the number of taxpayers eligible to file a Form
944 from 350,598 to 1,152,510. However,
without using taxpayers’ filing histories, it is difficult for the IRS to
accurately estimate the number of taxpayers that will file a Form 944 each year,
especially when these taxpayers may not have employment tax liabilities every
year.
By September 2007, the Program Office needs to determine
whether the Form 944 Program should continue as developed, continue with
modifications such as changing the eligibility limit, or be discontinued after
Tax Year 2008. Although TIGTA made no
recommendations, the IRS might consider the following in its evaluation effort:
WHAT TIGTA RECOMMENDED
TIGTA made no recommendations
in this report. However, key IRS
management officials reviewed the report prior to issuance and agreed with the
facts and conclusions.
READ THE FULL REPORT
To view the report,
including the scope and methodology, go to:
http://www.treas.gov/tigta/auditreports/2007reports/200730182fr.html.
Email
Address: Bonnie.Heald@tigta.treas.gov
Phone Number: 202-927-7037
Web Site:
http://www.tigta.gov