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IRS To Improve Systems To Catch Nonfilers

by Mike Godfrey,, Washington

27 October 2016

The US Treasury watchdog has recommended, and the Internal Revenue Service (IRS) has agreed, that improvements are needed to the agency's nonfiler program to catch delinquent US taxpayers.

The Treasury Inspector General for Tax Administration noted that individual taxpayers with income above a certain threshold are generally required to file a tax return with the IRS by April 15 of each calendar year. However, taxpayers may request an extension of time to file, which is typically six months. The IRS will then attempt to identify and notify taxpayers who do not timely file a tax return by the extended due date.

The IRS typically issues delinquency notices to more than 640,000 nonfilers with expired extensions annually.

The TIGTA review was initiated to determine whether IRS controls effectively identify and address those delinquent individual taxpayers, in what is considered to be a high compliance risk area.

It found that while the agency has implemented a mostly automated strategy to identify taxpayers who have not filed a tax return, the IRS failed to identify and address approximately 1.9m nonfilers with expired extensions in the 2012 and 2013 tax years (TYs). As of May 2016, those taxpayers still owed an estimated USD7.4bn.

In addition, TIGTA noted that in TY2013 the IRS canceled this process for all taxpayers with expired extensions. As the nonfiler process is run on a stand-alone basis for each tax year, the majority of the nonfilers with expired extensions in TY2012 and TY2013 will probably therefore never be notified of their obligation and failure to file a tax return.

The IRS has also identified high-income nonfilers as both a high compliance risk and one of the top eight high-priority areas in its annual work plan, but TIGTA discovered that none of the high-income nonfilers with expired extensions were notified of their delinquency in TY2012 or TY2013.

TIGTA recommended that the IRS change various information technology controls, tools, and procedures to improve the nonfiler program and ensure that additional nonfilers comply with the tax laws. In response, IRS management agreed with TIGTA's recommendations and planned to take corrective actions.

TAGS: individuals | compliance | tax | tax compliance | law | Internal Revenue Service (IRS) | enforcement | tax authority | United States | individual income tax | Tax

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