Internal Revenue Service

Results of Nonfiler Strategy and Opportunities to Improve Future Efforts Gao ID: GGD-96-72 May 13, 1996

At the beginning of fiscal year 1993, the Internal Revenue Service (IRS) had an inventory of about 10 million individual and business nonfilers. IRS estimated that unpaid taxes on nonfiled individual income tax returns for 1992 alone totaled more than $10 billion. Concerned about this noncompliance, IRS began a strategy in fiscal year 1993 to bring nonfilers into the system and keep them there. This report (1) assesses the results of that strategy and (2) discusses opportunities to improve future nonfiler efforts.

GAO found that: (1) IRS actions to achieve its Nonfiler Strategy's goals included deploying examination staff to work on nonfiler cases, increasing other IRS functions' emphasis on nonfiler activities, eliminating old cases from inventory, establishing cooperative relationships with states and the private sector, and implementing a refund hold program; (2) IRS believes that its Nonfiler Strategy was generally a success, since it reduced its nonfiler inventory, eliminated unproductive cases, increased the number of returns from and dollars assessed against individual nonfilers, and created closer working relationships with outside stakeholders and professional associations; (3) although IRS reduced its nonfiler inventory, there are not enough data to determine voluntary compliance improvement or the program's cost-effectiveness; (4) returns from business nonfilers and collection of delinquent taxes decreased during the two years the strategy was in effect; (5) IRS made measuring the strategy's success more difficult by failing to establish measurable goals; (6) at least 38 percent of nonfilers who eventually filed a return became recidivists in the following year; (7) future IRS nonfiler efforts could be improved by shortening the time before first notices and telephone contacts are made, using lower-grade staff to pursue nonfiler cases, and revising notices sent to recidivists to increase their urgency; and (8) IRS has reduced the time before sending first notices and developed special recidivist procedures, but it continues to send several notices before making telephone contact.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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