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Treasury Inspector General for Tax Administration

Press Release

September 20, 2010
TIGTA - 2010-55
Contact: Karen Kraushaar
(202) 622-6500

The IRS Should Improve Its Plan To Use Soft Notices To Prevent Taxpayer Underreporting

WASHINGTON - The Internal Revenue Service (IRS) should improve its plan to determine if so-called "soft" notices should be used permanently in the IRS Automated Underreporter (AUR) Program, according to a report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA).

A "soft notice" (Form CP 2057) is a written notice from the IRS that requires no action on the taxpayer's part but encourages the taxpayer to check their return for errors, serving as an educational tool and improving voluntary compliance.

The AUR program identifies income discrepancies between two types of information the IRS receives: information provided by taxpayers and related information provided by their employers and financial institutions. The IRS launched its AUR Program Soft Notices Initiative to encourage taxpayers to voluntarily correct errors reported on their tax returns. The soft notice (Form CP 2057) provides information for the taxpayer to check against their tax return to see if the return was correct. Although the notice then tells the taxpayer what they should do if they find a problem, the taxpayer is not required to pay more taxes, provide documentation, or file an amended return.

TIGTA performed a performance audit of the IRS's planning activities for the soft notice initiative. As a result of the audit, TIGTA determined that the IRS could improve its plans for evaluating the initiative's results. If determined to be successful, the soft notices initiative, which is currently a pilot project, could be made a permanent part of the IRS AUR Program.

"While the IRS is to be commended for implementing an initiative that encourages voluntary compliance with the law, it must establish criteria for determining what constitutes success and ensure that all costs are quantified in order to determine the net benefit to taxpayers," said J. Russell George, Treasury Inspector General for Tax Administration.

TIGTA made two recommendations to the IRS in its report, and the IRS agreed with both of those recommendations.


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