Tax Administration

The Internal Revenue Service (IRS) maintains and processes most taxpayer accounts on its master file, which consists of separate files for various types of taxpayers, such as individuals, businesses, employee plans, and exempt organizations. The master file is incapable of handling some types of accounts, however, so IRS established the non-master file for those exceptions. In a congressional hearing in September 1997, one taxpayer recounted the many problems she had experienced in trying to resolve her non-master file account. This report provides information to enhance Congress' understanding of the non-master file. GAO discusses (1) the basic differences between the master file and the non-master file; (2) known problems that IRS and taxpayers have been experiencing with the non-master file, including the sources of such problems; and (3) recent IRS proposals and actions intended to address these problems.

GAO noted that: (1) IRS uses the NMF for accounts that either the master file is not configured to process or that must be processed more quickly than can be done through the master file; (2) compared to the master file, the NMF is newer and smaller (about 122,000 NMF accounts scattered among 10 decentralized databases vs. millions of master file accounts in one large centralized system); (3) the NMF is more flexible than the master file, and IRS' procedures for entering data into and processing accounts on the NMF are more streamlined and thus quicker than those for the master file; (4) although the NMF enables IRS to process certain accounts that cannot be handled by the master file, the NMF also had limitations, at the time of GAO's review, that caused problems for IRS staff and taxpayers; (5) GAO's review and IRS' studies revealed that the most significant limitations were: (a) the lack of a central repository of all NMF accounts; (b) the absence of any meaningful link to the automated system that IRS staff use to obtain information about taxpayers' accounts; and (c) the fact that the NMF processing procedures were predominately manual; (6) these limitations made it difficult for IRS staff to identify and access accounts and could cause delays in processing account information in some situations; (7) these access problems and processing delays could cause taxpayers whose accounts were processed on the NMF to receive incorrect information and experience poor customer service; (8) after the September 1997 Senate Finance Committee hearings, IRS undertook several reviews of the NMF and developed a plan that included numerous proposed corrective actions; (9) implementation of some significant proposed actions has been deferred until at least 2001 because those actions involve extensive computer reprogramming that could interfere with IRS' efforts to make sure its computer systems are year 2000 compliant; (10) recognizing the need to make improvements in the near term, however, IRS recently implemented other actions that required fewer resources and little or no reprogramming; (11) if effectively implemented, IRS' near-term actions, in conjunction with the actions that have been deferred, should go a long way toward correcting identified NMF problems; (12) however, IRS' action plan lacks a key component; and (13) there is nothing in the plan about IRS': (a) monitoring the NMF to identify any problems that arise in the future; and (b) ensuring that timely action is taken to address any such problems.

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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