TREASURY INSPEcTOR GENERAL
FOR TAX ADMINISTRATION
THE INTERNAL REVENUE SERVIcE cOULD REDUcE THE BURDEN
PLAcED ON BUSINESS TAXPAYERS WHEN RESOLVING
Reference No. 093402
The Internal Revenue Serviceís (IRS) computer routines effectively corrected instances where taxpayers inadvertently submitted Federal Tax Deposit (FTD) payments to fully paid tax periods (which would have resulted in overpayments), rather than to the tax periods where they had owed money. These computer routines were over 90 percent accurate, for Tax Year 1995 tax periods, in determining where the overpayments should be transferred. Transferring these overpayments prevented approximately 600,000 notices from being mailed to taxpayers asking them to respond to resolve the payment problem.
The IRS pays interest to taxpayers on refunds held for more than 45 days after either the due date of the return, or the date the taxpayer files the return. The rate of interest the IRS must pay on refunds is based on the federal short-term interest rate and is recalculated quarterly.
To resolve overpayments on accounts, the IRS sends notices to taxpayers who file Employerís Quarterly Federal Tax Returns (Form 941) rather than refunding the payments immediately. The notices require taxpayers to advise the IRS within 30 days what to do with the overpayments. If the taxpayers do not respond, the computer will automatically refund the overpayments to them 15 weeks after the notices are issued. However, the IRS could further reduce taxpayer burden and government costs by considering not requiring taxpayers to respond to overpayment notices if they prefer to have the computer automatically refund the payment.
This review was conducted as part of our broader effort to identify opportunities to improve customer service and reduce burden for the business taxpayer. As part of the Office of Auditís Business Taxpayer Audit Strategy, we evaluated the IRSí process for resolving instances where taxpayers submit FTD payments to the wrong tax periods.
The IRS Should Not Require Taxpayers to Respond to Overpayment Notices If They Prefer to Have the computer Automatically Refund the Payment
If taxpayers do not respond to overpayment notices, the IRS computer system will issue the refunds in 15 weeks. The computer automatically released and refunded 80 percent of the overpayments in 15 weeks because taxpayers did not respond to the notices. The remaining 20 percent of taxpayers who were due a refund responded to the notices and received their refunds in less than 15 weeks. If these taxpayers had not been required to respond and the computer had automatically released the refunds, the IRS would have paid $490,000 in additional interest and saved approximately $255,000 in processing costs.
Summary of Recommendation
To significantly reduce taxpayer burden, we believe the IRS should consider rewording notices to require a response only when the payments should be transferred to a different tax period rather than refunded, and to inform the taxpayer that the refund will be released in 15 weeks.
Managementís Response: The chief Operations Officer responded that the notices have been rewritten and this should expedite responses from taxpayers as well as reduce interest costs. The revised notices also provide specific information on when taxpayers should expect a refund if they call, write, or do not respond. The chief Operations Officer stated that requiring a response and encouraging taxpayers to call rather than write would expedite refunds and reduce interest costs. He believes the additional burden would be fairly insignificant when weighed against the additional interest.
The chief Operations Officerís comments are included in the body of this report, where appropriate, and the full text of his comments is included as Appendix IV.