Chapter 2 Results of IRS' Nonfiler Strategy Nonmeasurable Goals and become nonfilers again. IRS matched computer files to determine whether Our review of a sample of cases closed by Examination also showed a large rate of recidivism. Of the 60 individuals involved in the sample cases closed in 1993, 29 (48 percent) did not file in 1994. Of those 29, 19 also had not filed in 1995 (as of May 1995), and 10 had extensions to file that had not yet expired. Similarly, of the 60 individuals involved in the sample cases closed in 1994, 31 (52 percent) had not filed in 1995 (as of May 1995); another 12 had extensions to file that had not expired. IRS did not have measurable goals for most aspects of the Nonfiler Strategy nor comprehensive cost data against which to compare its results. Measurable program goals and reliable data on costs are important if management is to effectively assess its efforts and make informed decisions about future efforts. Although IRS' basic objective in implementing the Strategy was to bring The absence of specific goals makes it difficult for IRS officials responsible for carrying out the Strategy to know exactly what was expected of them and to measure the Strategy's success. Some Examination personnel in the four district offices we visited said that their objective was to redirect a certain amount of staff years to the effort and that they believed the Strategy was successful because they did so. However, an input measure, such as staff years, is less likely to produce a desired outcome than an output or outcome measure, such as the number of nonfilers brought into compliance. "The typical extension to file gives the person an additional 4 months—until August 15—to file. Chapter 2 Results of IRS' Nonfiler Strategy IRS did not track the overall cost of the Nonfiler Strategy. Some IRS officials explained that return on investment was not really an important consideration with respect to the Nonfiler Strategy and that IRS never intended to measure the success of the Strategy by cost. As noted earlier, however, one of the goals of the Strategy as described by the Commissioner in her October 1993 testimony was to "improve the way we direct our enforcement resources in working nonfiler cases... to achieve the highest return on our resource investment [underscoring added]." Comprehensive cost data are also important if management is to make informed decisions on the nature and extent of future nonfiler efforts. Chapter 2 Results of IRS' Nonfller Strategy expanded on in memoranda dated December 11, 1995, and February 12, 1996. IRS officials took strong exception to the "extremely negative tone" of our draft report. They said that the draft focused almost exclusively on criticisms of the Strategy without fully acknowledging its accomplishments and that, as a result, an uninformed reader would likely judge the Strategy to have been a failure when, in IRS' view, it was generally a success. In response to those comments, we revised chapter 2 of the report to give more prominence to the positive aspects of the Strategy and to recognize IRS' position on the Strategy's success. We reiterate, however, that although IRS is confident that the Strategy was a success, we could not reach the same conclusion given the statistical data available and the absence of other data. IRS acknowledged that it had only one goal for which a specific target was set, the TDI goal, but pointed out that it did have several key performance indicators (such as the number of returns secured and the net dollars assessed) that were designed to show positive or negative trends in results. We agree that it is useful to track trends, but such an exercise is more meaningful if there are goals against which to compare those trends. For example, speaking hypothetically, a 5-percent increase in the number of returns secured might look good on its face but would not look as good if the goal were a 25-percent increase. IRS said that experience and statistical information obtained during the 2 years of the Strategy will permit better planning and goal-setting for any future endeavor. As for cost data-IRS said that it never intended to measure the success of the Strategy by cost and that it is debatable whether all of the goals of the Strategy are amenable to accurate cost/benefit analysis. We are not suggesting that cost should be the sole measure of success, but we think it should be part of any overall assessment. Our draft report also included a recommendation that IRS reconcile conflicting data on the results of the Strategy. However, as discussed in chapter 1, IRS subsequently told us that it had revised some data in the Commissioner's Nonfiler Report. Because those revisions resolved the data inconsistencies referenced in our draft, we dropped that proposed recommendation. Chapter 3 Opportunities to Improve Future IRS IRS Takes a Long Our review of the Nonfiler Strategy identified several areas where we IRS has taken some action in two of these areas. It shortened the time that elapses before a first notice is sent to persons who have been identified as potential nonfilers. However, IRS' procedures still call for sending several notices to a potential nonfiler before IRS attempts to make telephone contact. IRS also developed special procedures for dealing with recidivists. Those procedures call for, among other things, eliminating some notices but say nothing about revising the language of the remaining notices. IRS officials have stated that the faster they can act to obtain nonfiled To identify nonfilers, IRS computer-matches data on information returns with data on income tax returns. In the past, this match was usually not done until December-after IRS had finished processing information returns and those income tax returns that were filed late because of extensions. IRS staff must then review the results of the match to determine what action to take. Only after that review is the nonfiler sent a notice. For example, individuals who did not file tax returns in 1993 would not have received a notice until a year later-April 1994. Subsequent notices would have been issued about 6 to 8 weeks later, with the last notice going out in late August 1994. If the case was still unresolved and met the criteria for referral to ACS, it would not have gone to an ACS site for telephone contact until October 1994-1-1/2 years after the return was due. Those cases unresolved by ACS and meeting certain criteria would then be assigned to a revenue officer who might attempt to visit the taxpayer. The whole process may take years, and, as noted earlier, IRS ends up dropping 23-595 97-22 Chapter 3 Opportunities to Improve Future IRS millions of nonfilers from its inventory-more than 5 million in IRS has a project directed at reducing the time it takes to match data on information returns with data on income tax returns and thus shortening the time before the first notice is issued by several months. As a result of that project, according to an IRS National Office official responsible for managing the Nonfiler Strategy, IRS plans to move up first contact with certain nonfilers to the November after the tax return is due. More significant changes, according to IRS, depend on successful implementation of IRS' multibillion-dollar systems modernization effort, known as Tax Systems Modernization. Besides shortening the time before issuance of the first notice, as it is now doing, IRS could further enhance the resolution of nonfiler cases by making more timely telephone contact with the nonfiler after issuance of the first notice. We took a similar position in a May 1993 report on IRS' methods for collecting delinquent taxes. In that report, we said the following: "According to private and state collectors, early telephone contact is cost-effective and allows the collector to determine why payment has not been made, establish future payment schedules, and update information on the debtor's status. Collectors can also discuss with the debtor possible adverse actions that could be taken if payment is not received." In the same report, we recommended, among other things, that IRS restructure its collection organization to support earlier telephone contact with delinquent taxpayers. Although that quote and recommendation relate to the collection of delinquent taxes, they would seem equally appropriate to the collection of delinquent returns (and any delinquent taxes associated with those returns). In January 1995, IRS implemented an Early Intervention Project Tax Administration: New Delinquent Tax Collection Methods for IRS (GAO/GGD-93-67, May 11, 1993). |