Chapter 2 Results of IRS' Nonfiler Strategy and businesses that had not filed at least 1 required tax return and (2) the number of TDI cases stood at 2.3 million. By the end of fiscal year 1994, IRS had reduced the nonfiler inventory to about 6.8 million cases, mostly by purging millions of cases that IRS deemed to have low potential because of their age. IRS plans to continue purging aged nonfiler cases annually. IRS also reduced the number of TDIS to 1.8 million cases through the deployment of additional resources to help with cases and through other efforts like the refund hold program, discussed later. Perhaps the most visible component of the Nonfiler Strategy and another example of its crossfunctional nature was IRS' effort to encourage and help nonfilers get back into compliance through outreach and assistance (as opposed to enforcement). The Taxpayer Service function conducted educational workshops and helped taxpayers meet their return filing requirements while Public Affairs had primary responsibility for the communications and outreach strategy. That strategy generated a considerable amount of positive publicity for IRS. As part of the outreach effort, many districts held “nonfiler days" during which IRS volunteers, sometimes accompanied by volunteers from professional associations, such as the American Institute of Certified Public Accountants and the American Bar Association, were available to answer questions and help taxpayers prepare returns. Many IRS district offices also entered into cooperative working arrangements with state tax agencies. As a result of those joint efforts, IRS obtained tax returns, generated publicity and educational materials, identified market segments to be targeted for outreach efforts and enforcement actions, and gained access to state databases to aid in identifying nonfilers. For example, one state did a comparison that identified a large number of individuals and businesses that had filed state sales tax returns but not federal income tax returns. Also as part of the Strategy, in January 1994 IRS began putting a hold on refunds claimed by some individuals who had a prior year's return in TDI status. The hold applied to returns involving refund claims above a certain amount filed by persons who were not in bankruptcy or under criminal investigation. IRS instructed the taxpayer by letter to file the delinquent return(s) or explain why there was no filing requirement. IRS' letter also said that if it did not receive either the delinquent return(s) or an acceptable explanation, IRS could prepare a substitute return based on 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 Was the Nonfiler 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 *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 Chapter 2 Results of IRS' Nonfiler Strategy percent in fiscal year 1993 and 4.2 percent in fiscal year 1994. Whatever the Net Tax Assessments and 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. Chapter 2 Results of IRS' Nonfiler Strategy 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. |