Treasury Inspector General for Tax Administration
October 25, 2011
TIGTA - 2011-71
Contact: Karen Kraushaar
WASHINGTON – The Internal Revenue Service (IRS) has adequately planned, implemented, and managed a pilot project to improve taxpayers’ compliance by mailing them informational materials when there is an income discrepancy in their tax return, according to a report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA).
The pilot project calls for the Automated Underreporter Program (AUR) to mail notices designed to serve as educational tools to taxpayers whose returns show income discrepancies between the information they report to the IRS on tax returns and related information that employers and financial institutions provide the IRS. Such “soft notices” do not require the taxpayer to pay more tax, provide documentation, or even respond. Briefly stated, the notices are designed to serve as educational tools, encourage self-correction, and improve voluntary compliance.
TIGTA’s report found that the IRS did an adequate job planning, implementing, and managing the initiative through its initial phase. However, auditors found that the IRS has not gathered sufficient information yet to properly evaluate the burden the soft notices place on taxpayers and 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 to determine the program’s net benefit.
“I commend the IRS for using a creative alternative approach to address compliance issues in an effort to reduce the Tax Gap,” said J. Russell George, Treasury Inspector General for Tax Administration. “Now it must follow through by developing appropriate cost-benefit measures so that the pilot program’s full impact can be evaluated.”
TIGTA recommended that IRS officials 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 AUR program as an alternative approach for addressing compliance issues.
IRS officials agreed with TIGTA’s recommendations and said they plan corrective actions, however, TIGTA is concerned that that their planned corrective actions do not address the conditions that gave rise to the recommendations.
Read the report.
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