Office of Audit
IMPROVEMENTS TO THE NONFILER PROGRAM
COULD HELP THE INTERNAL REVENUE SERVICE MORE EFFECTIVELY
ADDRESS ADDITIONAL NONFILERS OWING BILLIONS OF DOLLARS IN TAXES
Final Report issued on September 23, 2016
Highlights of Reference Number: 2016-30-085 to the Internal Revenue Service Commissioner for Small Business/Self-Employed Division.
IMPACT ON TAXPAYERS
Individual taxpayers with income above a certain threshold are generally required to file a tax return with the IRS by April 15 of each calendar year. However, taxpayers may request an extension of time to file, which is typically six months. The IRS will attempt to identify and notify taxpayers who do not timely file a tax return by the extended due date. The IRS typically issues delinquency notices to more than 640,000 nonfilers with expired extensions annually.
WHY TIGTA DID THE AUDIT
This audit was initiated to determine whether IRS controls effectively identify and address delinquent individual taxpayers with expired extensions of time to file.
WHAT TIGTA FOUND
The IRS has implemented a strategy under the Case Creation Nonfiler Identification Process to identify taxpayers who have not filed a tax return, including taxpayers with expired extensions, on an annual basis. Although it is mostly an automated process, the vast majority of nonfilers with expired extensions were not identified or addressed in Tax Year 2012 due to a programming error that was not fully investigated or timely corrected. Additionally, in Tax Year 2013, IRS management canceled this process for all taxpayers with expired extensions. As the nonfiler process is run on a stand-alone basis for each tax year, the majority of the nonfilers with expired extensions in Tax Years 2012 and 2013 will likely never be notified of their obligation and failure to file a tax return. The IRS identified high-income nonfilers as both a high compliance risk and one of the top eight high-priority areas in the annual work plan, but none of the high-income nonfilers with expired extensions were notified of their delinquency in Tax Years 2012 or 2013.
In February 2014, the IRS revised its nonfiler strategy and outlined goals to increase compliance. However, as of July 2016, the IRS has not implemented any of the proposed nonfiler initiatives. Furthermore, the nonfiler strategy did not outline any specific actions to improve the compliance rate, including how to reach more of the nonfilers the IRS identifies annually and determining the effectiveness of the return delinquency notice in an effort to increase the response rate.
WHAT TIGTA RECOMMENDED
TIGTA recommended that the IRS change various Collection function and information technology controls, tools, and procedures to improve the nonfiler program and ensure that additional nonfilers are addressed. In response to the report, IRS management agreed with our recommendations and plans to take corrective actions.
READ THE FULL REPORT
To view the report, including the scope, methodology, and full IRS response, go to:
Phone Number / 202-622-6500
E-mail Address / TIGTACommunications@tigta.treas.gov
Website / https://www.treasury.gov/tigta