Treasury
Inspector General for Tax Administration
Office of Audit
USING SOFT NOTICES TO ADDRESS
REPORTING DISCREPANCIES HAS MERIT, BUT COST AND BENEFIT QUESTIONS REMAIN
Issued on September 9, 2011
Highlights
Highlights of Report Number: 2011-30-091 to the Internal Revenue Service
Commissioners for the Small Business/Self-Employed Division and the Wage and
Investment Division.
IMPACT ON TAXPAYERS
Guided by its strategic plan, the Internal Revenue
Service’s (IRS) vision is to make it easier for taxpayers to fulfill their
civic responsibility to pay taxes by providing them with world-class service,
taking proactive steps to better understand issues from the taxpayer’s
perspective, and reducing taxpayer burden.
Consequently, it will be important for the IRS to understand and
minimize the time and resources taxpayers spend dealing with soft notices to
increase the likelihood of achieving its vision for improving service to
taxpayers.
WHY TIGTA DID THE AUDIT
The overall
objective of this review was to determine whether the Soft Notice Initiative
(the Initiative) in the Automated Underreporter Program was effectively
implemented and managed to provide IRS officials with reliable information for
deciding whether the use of soft notices should be expanded, modified, or
terminated. Briefly stated, the notices are
designed to serve as an educational tool, encourage self-correction, and
improve voluntary compliance. As
such, IRS officials consider soft notices an alternative
approach for addressing compliance issues outside the IRS’s traditional
processes in the Automated Underreporter Program.
If determined to be
successful, the Initiative could result in permanently using soft notices in
the IRS Automated Underreporter Program to address a large number of taxpayers
each year who would not ordinarily be contacted by the IRS due to resource
constraints. Given this possibility,
reliable cost-benefit information may help alleviate concerns that could be
raised about why the IRS risks burdening taxpayers and incurring the costs of
sending soft notices that result in little or no tax revenue or impact on
taxpayer behavior.
WHAT TIGTA FOUND
Overall, the IRS did an adequate job planning,
implementing, and managing the Initiative through its first pilot test. In addition, the 16 measures the IRS used to
evaluate the Initiative were accurately computed as reported to its executives
in the Fiscal Year 2010 Soft Notice
Report.
However, TIGTA’s evaluation
showed that the taxpayer burden measures are not presenting as complete a
picture as they could because they do not include any information on the time
or money spent by the nearly 14,000 taxpayers who did not respond to the soft
notice. Further, the IRS has yet to
commit to taking specific actions or establishing a specific date defining how
or when it will ensure all costs are quantified and used in determining the net
benefit from using soft notices in the Automated Underreporter Program.
WHAT TIGTA RECOMMENDED
TIGTA recommended that the Director,
Campus Compliance Services, Small Business/Self-Employed Division, and the
Director, Compliance, Wage and Investment Division, develop and implement plans
to (1) obtain a more complete picture of the time and costs taxpayers are
spending on soft notices and (2) determine the net benefit of using soft
notices in the Automated Underreporter Program as an alternative approach for
addressing compliance issues.
In their response to the report, IRS officials agreed
with the recommendations and plans to continue soliciting
feedback from taxpayer responses and evaluating the net benefits derived from
soft notices. Although IRS officials
agreed with the recommendations, their corrective actions do not address the
conditions that gave rise to the recommendations.
READ THE
FULL REPORT
To view the report,
including the scope, methodology, and full IRS response, go
to:
http://www.treas.gov/tigta/auditreports/2011reports/201130091fr.html.
Email Address: TIGTACommunications@tigta.treas.gov
Phone
Number: 202-622-6500
Web Site: http://www.tigta.gov