Chapter 2

Results of IRS' Nonfiler Strategy

available information. IRS released the refund in cases where there was no filing requirement or the taxpayer established that a significant hardship existed. Otherwise, the refund was applied to the balance due on any delinquent return(s), with any remaining balance sent to the taxpayer.

IRS data show that the refund hold program in 1994 resulted in the receipt
of about 106,000 delinquent returns and the collection of about $16 million
with those returns. IRS expanded the program in 1995 to include any
situation where a refund return for more than a certain amount was filed
for tax year 1994 and a prior year's return was more than 1 year overdue,
even if the overdue return was not in TDI status. According to IRS data, as of
May 1995 IRS had secured about 24,000 returns and collected about
$1.8 million in revenue with those returns.

Was the Nonfiler
Strategy a Success?

According to IRS, the Nonfiler Strategy was generally a success. In reaching that conclusion, it pointed to several aspects of the Strategy, some of which were discussed in the preceding section. Among other things, IRS cited (1) a decrease in the nonfiler inventory, (2) creation of the refund hold program, (3) elimination of unproductive cases that allowed IRS to focus its enforcement resources more effectively, (4) elimination of backlogs in the automated SFR inventory, (5) increases in the number of returns secured from and dollars assessed against individual nonfilers during the 2 years of the Strategy (fiscal years 1993 and 1994) compared with the year before the Strategy (fiscal year 1992), and (6) a closer working relationship between IRS and outside stakeholders and professional associations.

We assessed the results of the Strategy by looking at the key performance
indicators tracked by IRS during the Strategy. We concentrated on
indicators that were identified by the Commissioner in her October 1993
testimony-total number of nonfiler returns secured, number of returns
filed by unknown nonfilers, and the dollar amount assessed and collected
as a result of these filings. For those indicators, we compared data for
1993 and 1994 with comparable data for the year preceding the
Strategy-1992 (we could not go back before 1992 because, according to
IRS, comparable data were not available). Also, because the basic objective
of the Strategy was not only to bring nonfilers into the system but also
keep them there, we looked at data on recidivism-the extent to which

"Unknown nonfilers are individuals or businesses that IRS did not realize were nonfilers until they filed an overdue tax return.

Table 2.2: Number of Returns Secured
From Unknown Nonfilers in Fiscal
Years 1992, 1993, and 1994

Chapter 2

Results of IRS' Nonfller Strategy

percent in fiscal year 1993 and 4.2 percent in fiscal year 1994. Whatever the
reason for the decrease in returns secured from business nonfilers, the
fact remains that during the Nonfiler Strategy and despite the use of
thousands of Examination staff to help work cases, the number of returns
secured from nonfilers in total was less than the number secured the year
before the Strategy was implemented. In addition, district office
collections of delinquent taxes decreased almost 9 percent-from about
$7.9 billion in fiscal year 1992 to about $7.2 billion in fiscal year 1994. In
constant 1994 dollars, the decline in collections was about 13
percent from about $8.2 billion in fiscal year 1992 to about $7.2 billion in
fiscal year 1994.

Net Tax Assessments and
Dollars Collected With
Returns

IRS officials responsible for the Nonfiler Strategy said that IRS' objective was to bring nonfilers into compliance rather than to generate revenue. Accordingly, collection of additional revenues was not a specific goal of the Strategy. Nevertheless, IRS' key performance indicators for the Nonfiler Strategy included (1) dollars assessed and (2) dollars collected at the time the return was secured.

As shown in table 2.3, if constant 1994 dollars are used, (1) net assessments' decreased from fiscal year 1992 to fiscal year 1993 and then increased in fiscal year 1994; and (2) fewer dollars were collected with the return, in absolute numbers and as a percent of net assessments, in 1993 and 1994 than in 1992. The “dollars collected with return" indicator does not reflect the total amount eventually collected from the nonfilers; only the amount collected at the time the return was secured. Additional amounts may have been collected later through installment agreements, but IRS did not track that information.

*IRS defines net dollars assessed as gross dollars assessed less any prepaid credits (e.g., withheld

taxes) plus any dollars refunded or offset. For example, in one of our sample nonfiler cases, the net assessment was $0, based on a $133 gross assessment, less a $385 withholding credit, plus a $252 refund.