Tax Administration

Of the more than 31 million computer-generated notices that the Internal Revenue Service (IRS) sent to taxpayers in 1999, about 1.5 million were for small amounts of money--amounts due of less than $5 or refunds of less than $1. The agency spends about $0.42 to prepare and mail out these low-dollar notices. The cost rises an additional $1.30 if IRS needs to process a payment received from a taxpayer because of the original notice, and by another $14.32 if it needs to respond to a taxpayer inquiry about the notice. IRS sends low-dollar notices to taxpayers because of statutory requirements, such as to correct a math error or issue a notice of deficiency, or in accordance with the IRS Internal Revenue Manual. These notices, which inform taxpayers of any changes to their account, are sent regardless of the dollar amounts involved. IRS is aware of the potential burden imposed on taxpayers in dealing with low-dollar notices and has formed an internal task team to study the issue and identify possible improvements.

GAO noted that: (1) of the over 31 million computer-generated notices IRS sent to individual taxpayers in 1999, about 1.5 million were low-dollar notices; (2) 82 percent of these (about 1.3 million) reflected adjustments IRS had made to correct discrepancies such as those between information reported to IRS by a third party and information reported on the taxpayer's original return; (3) most notices had zero balances, requiring no additional action or response by the taxpayer; (4) however, in considering taxpayer burden issues related to low-dollar notices, it is important to note that in the vast majority of cases, while the final dollar amounts reported on the notices were small or zero, they represented "net" amounts; (5) that is, they were the net result of changes to the taxpayer's account involving larger amounts; (6) according to IRS estimates, the agency cost to prepare and send a low-dollar notice is about $0.42; (7) the cost would rise by about an additional $1.30 if IRS needed to process a payment received from a taxpayer because of the original notice, and by another $14.32 if it needed to respond to a taxpayer inquiry related to the notice; (8) IRS sends low-dollar notices to taxpayers pursuant to statutory requirements, such as to correct a math error or to issue a notice of deficiency, or in accordance with the Internal Revenue Manual; (9) the notices, which inform taxpayers of any change to their account, are sent regardless of the dollar amounts involved; and (10) IRS is aware of the potential burden placed on taxpayers in dealing with low-dollar notices and has formed an internal task team to examine the issue and identify potential improvements.