Tax Administration: Multiple Collection Notices Sent to Individual
Taxpayers (Letter Report, 04/14/2000, GAO/GGD-00-55).

Pursuant to a congressional request, GAO provided information on the
Internal Revenue Service's (IRS) multiple collection notices, focusing
on: (1) how many individual taxpayers were sent multiple notices to
collect the same tax assessment, particularly after IRS received full
payment of the assessment; and (2) IRS' reasons for sending collection
notices after receiving full payment.

GAO noted that: (1) of the 14.8 million individual taxpayers who were
sent Individual Masterfile collection notices from January 1999 through
November 1999, about 5.8 million (39 percent) were sent multiple
collection notices for the same assessment; (2) IRS sent multiple
notices to about 5.5 million (95 percent) of these taxpayers because,
according to IRS records, it had not received payment of the tax
assessments in full; (3) according to IRS' records, the remainder of
these taxpayers, about 270,000 (5 percent), were sent at least one
notice after IRS had received full payment of the assessments; (4) IRS
provided three basic reasons to explain why it sent notices after full
payments to the estimated 270,000 taxpayers; (5) some taxpayers paid too
late to stop a subsequent notice; (6) others paid on time, but IRS did
not record the payments soon enough to stop a subsequent notice; (7) in
addition, for some taxpayers, an error by IRS or the taxpayer, such as
recording a payment in the wrong account or using the wrong Social
Security Number, led to IRS' sending a notice after full payment; and
(8) IRS has not identified the root causes for all of these errors.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-00-55
     TITLE:  Tax Administration: Multiple Collection Notices Sent to
	     Individual Taxpayers
      DATE:  04/14/2000
   SUBJECT:  Tax administration
	     Collection procedures
	     Taxpayers
	     Debt collection
	     Tax nonpayment
IDENTIFIER:  IRS Individual Master File

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United States General Accounting Office
GAO

Report to Congressional Requesters

April 2000

GAO/GGD-00-55

TAX ADMINISTRATION
Multiple Collection Notices Sent to Individual

Taxpayers

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Contents
Page 8GAO/GGD-00-55 Multiple Collection Notices Sent to Taxpayers
Letter                                                                      1
                                                                             
Appendix I                                                                 10
Scope and Methodology
                                                                             
Appendix II                                                                12
Types of IMF Collection
Notices Included in Our
Sample
                                                                             
Appendix III                                                               13
Comments From the
Internal Revenue Service
                                                                             
Appendix IV                                                                15
GAO Contacts and Staff
Acknowledgments
                                                                             
Tables                     Table 1: Taxpayers Sent Multiple                 4
                           Collection Notices for the Same
                           Assessment
                                                                             

Abbreviations

IDRS      Integrated Data Retrieval System
IMF       Individual Masterfile
IRS       Internal Revenue Service

B-284257

Page 7GAO/GGD-00-55 Multiple Collection Notices Se
nt to Taxpayers
B-284257

April 14, 2000

The Honorable Bill Archer
Chairman, Committee on Ways and Means
House of Representatives

The Honorable Amo Houghton
Chairman, Subcommittee on Oversight
Committee on Ways and Means
House of Representatives

Annually, the Internal Revenue Service (IRS) sends
millions of collection notices to individual
taxpayers to request payment of tax assessments
and the related penalty and interest assessments.
IRS is to send additional collection notices if
payment has not been made. Some taxpayers have
complained to Congress that IRS sends collection
notices for the same tax assessment after the
payment has been made. When IRS sends collection
notices after payments are made, IRS incurs
greater costs and taxpayers may incur greater
burdens than necessary.

Because of your interest in minimizing unnecessary
costs for IRS and burdens for individual
taxpayers, you asked us to provide information
about multiple collection notices. On the basis of
discussions with your office, our objectives were
to determine (1) how many individual taxpayers
were sent multiple notices to collect the same tax
assessment, particularly after IRS received full
payment of the assessment and (2) IRS' reasons for
sending collection notices after receiving full
payment. To fulfill these objectives, we analyzed
transcripts containing information from IRS'
Individual Masterfile (IMF) for a representative
random sample of taxpayers to whom IRS sent
collection notices from January 1999 through
November 1999. We also talked to responsible IRS
officials to obtain their views.

Results in Brief
Of the 14.8 million individual taxpayers who were
sent IMF collection notices from January 1999
through November 1999, about 5.8 million (39
percent) were sent multiple collection notices for
the same assessment.1 IRS sent multiple notices to
about 5.5 million (95 percent) of these taxpayers
because, according to IRS records, it had not
received payment of the tax assessments in full.2
According to IRS' records, the remainder of these
taxpayers, about 270,000 (5 percent),3 were sent
at least one notice after IRS had received full
payment of the assessments.4

IRS provided three basic reasons to explain why it
sent notices after full payments to the estimated
270,000 taxpayers. Some taxpayers paid too late to
stop a subsequent notice. Others paid on time, but
IRS did not record the payments soon enough to
stop a subsequent notice. In addition, for some
taxpayers, an error by IRS or the taxpayer, such
as recording a payment in the wrong account or
using the wrong Social Security Number, led to
IRS' sending a notice after full payment. IRS has
not identified the root causes for all of these
errors.

Background
An assessment is a formal bookkeeping entry that
IRS makes to record the amount of tax, penalty, or
interest charged to a taxpayer's account. An
assessment establishes the taxpayer's liability
for the unpaid amount as well as IRS' right to
collect. Taxpayers essentially assess their own
tax liabilities when they file an original or
amended tax return. Also, IRS may assess
additional tax liabilities through various
enforcement efforts, such as computerized checks
or audits of tax returns.5

If taxpayers do not pay these tax assessments as
well as any related penalty and interest
assessments, IRS is to send collection notices to
the taxpayers. The notice process starts shortly
after IRS records the assessments with a
collection notice, known as a balance-due notice.
If taxpayers do not fully pay all assessed amounts
after this balance-due notice is sent, IRS is to
send up to three additional notices at 5-week
intervals. If taxpayers have not fully paid the
assessed amounts after these notices are sent, IRS
may use other means to collect the unpaid
assessments, such as phone calls and visits by IRS
staff.

IRS sends many types of notices other than
collection notices. For example, IRS sends inquiry
letters requesting information from taxpayers,
notices proposing changes to the tax assessment
reported on the tax return, notices reminding
taxpayers of an agreement to pay their assessments
in installments, and overpayment notices telling
taxpayers that they paid too much. These other
types of notices were not included in the scope of
our work because IRS maintains only limited
information on them.

Scope and Methodology
To determine how many individual taxpayers were
sent multiple notices to collect the same tax
assessment, and how many were sent a collection
notice after IRS received full payment,6 we
analyzed information on a national representative
random sample of 975 taxpayers from 14.8 million
individual taxpayers who were sent at least one
IMF collection notice from January through
November 1999. For each taxpayer in our sample, we
reviewed IMF transcripts to determine when and how
often IRS sent collection notices for the same tax
assessment and the taxpayer's payment history.

Because the estimates we developed are from a
sample, they are approximate, and we have provided
the confidence intervals. Appendix I further
describes our sampling approach and the
limitations of our methodology. Appendix II lists
the types of IMF collection notices that we
included in our sample.

To determine IRS' reasons for sending collection
notices to individual taxpayers who had paid their
tax assessments in full, we used the notice dates
and payment histories from the IMF transcripts for
the taxpayers in our sample who had been sent
multiple notices. When we identified taxpayers who
did not have a balance due for an assessment for
which a collection notice was sent, we asked IRS
officials to explain why IRS continued to send
them collection notices. IRS has not identified
the root causes for all of these errors.

We did our work at IRS' National Office in
Washington, D.C., and New Carrollton, MD, and at
IRS' Kansas City Service Center. Our work was done
from November 1999 through February 2000 in
accordance with generally accepted government
auditing standards.

On April 4, 2000, we received written comments
from IRS on a draft of this report. IRS' comments
are discussed at the end of this letter and are
reprinted in appendix III.

Multiple Collection Notices for the Same Tax
Assessment
IRS sent at least one IMF collection notice to
14.8 million individual taxpayers from January
through November 1999. We estimate that IRS sent
multiple collection notices to 5.8 million (39
percent) of these taxpayers. An estimated 5.5
million (95 percent) of the 5.8 million taxpayers
were sent multiple collection notices for the same
assessment because, according to IRS records, IRS
had not received payment of the tax assessments in
full. According to IRS' records, the remaining
estimated 270,000 taxpayers       (5 percent) were
sent at least one collection notice after IRS had
received full payment of the tax assessments.

Table 1 shows the estimated number and percentage
of individual taxpayers who were sent multiple IMF
collection notices for the same tax assessment
from January through November 1999, by payment
history.

Table 1: Taxpayers Sent Multiple Collection
Notices for the Same Assessment
Tax assessment payment history        Estimateda
                                     Number Percen
                                                 t
Made no payment or partial paymentb 5,540,0   95.3
                                        00c
Made full paymentd                  270,000     4.7
Total                               5,810,0   100.0
                                        00
Note: From January through November 1999.
aThese estimates were developed from a sample;
thus, they are approximate and are surrounded by
confidence intervals that have been provided.
bBefore IRS sent a multiple collection notice,
taxpayers had not made any payments or had only
made partial payments on the tax assessment in
question. Partial payments include tax amounts
withheld, transferred payments from another tax
year, and payments that were less than the full
amount of the assessment.
cWe cannot separately report the estimated numbers
for no payments and partial payments because some
taxpayers received a collection notice after
making no payment as well as after making a
subsequent partial payment.
dBefore IRS sent a collection notice, taxpayers
had fully paid the assessment.
Source: GAO analysis of IRS transcripts from its
IMF.

IRS' Reasons for Sending Collection Notices After
Receiving Full Payment
Our review of IRS transcripts for taxpayers in our
sample and our discussions with IRS officials
identified three basic reasons for sending one or
more collection notices to the estimated 270,000
taxpayers after they had paid their tax
assessments in full:

ï¿½    Taxpayers sent their payments too late to
stop a subsequent notice.
ï¿½    IRS received the payments on time, but did
not record them soon enough to stop a subsequent
notice.
ï¿½    IRS or taxpayers made errors, such as
recording a payment in the wrong account or using
the wrong Social Security Number.

We identified 18 taxpayers in our sample to whom
IRS sent a notice after they had paid their tax
assessments in full.7 Nine of these taxpayers did
not send their payments to IRS on time to stop the
subsequent collection notices. For seven of the
nine taxpayers, the transcripts indicated that the
taxpayers missed the deadline set forth in their
notice by a week or less.

For 2 of the 18 taxpayers, IRS received the
payments on time but did not record them in the
IMF soon enough to prevent another collection
notice from being sent. IRS officials said that
outdated, poorly linked IRS computers could create
up to a 2-week delay between receiving a payment
and recording it on the IMF. Recording the payment
on the IMF is necessary to stop issuance of
another collection notice. Knowing of this delay,
IRS has built a 2-week time lag into the 5-week
period between notices.

Our analysis of the time period between the date a
payment was received by IRS and the date of the
next collection notice indicated that this 2-week
time lag seemed to be sufficient in almost all
cases. According to IRS officials, for cases in
which this lag is not sufficient, IRS uses its
Notice Review System to stop notices from being
sent when payments have been received but not
recorded. IRS does not have available records
after these accounts have been paid in full to
identify those notices that were reviewed and
stopped.

IRS is developing a new system with the capability
to eliminate this recording delay by replacing two
IRS systems that deal with the receipt of
payments. However, this new system will not be
available for another 5 to 7 years, as part of
IRS' major, long-term effort to modernize all of
its computer systems.

Finally, for 7 of the 18 taxpayers, IRS or
taxpayers caused some type of error in processing
or recording the payments on the IMF. IRS has not
identified the root causes of these errors.
However, our discussions with

IRS officials about the transcripts for these
cases indicated that IRS probably caused the
errors in four of these cases by

ï¿½    recording a payment months after its receipt,
or
ï¿½    incorrectly reversing a payment entry that
had been properly recorded in a taxpayer's
account.

These IRS officials said that taxpayers or IRS
could have caused the errors for the other three
taxpayers. The officials said that, in these
cases, a payment was posted to the wrong account
when either the taxpayers provided or IRS
employees entered the wrong Social Security
Number.

Agency Comments and Our Evaluation
In a letter dated April 4, 2000 (see app. III),
IRS said that our report mirrored IRS' concerns
about the burdens on taxpayers and the costs to
IRS from sending unnecessary notices.  IRS also
acknowledged our report's discussion of its
efforts to develop a new system dealing with the
receipt of payments. IRS said that it is committed
to sending notices that provide accurate
information and that clearly and concisely tell
taxpayers what is expected of them.

IRS also commented that its Notice Review System
was to identify pending notices when IRS received
payments on time but did not record the payments
soon enough to stop a subsequent notice from being
generated. Of the 18 multiple collection notices
we identified as being mailed, two of them met
this condition. IRS believes its system, which
relies on reviews by IRS employees, could have
stopped these notices from being mailed. However,
IRS acknowledged that once the accounts are paid
in full, it does not have historical data
available to support this belief and show those
notices that were reviewed and stopped.

We are sending copies of this report to
Representative Charles B. Rangel, Ranking Minority
Member, House Committee on Ways and Means;
Representative William J. Coyne, Ranking Minority
Member, Subcommittee on Oversight, House Committee
on Ways and Means; and Senator William V. Roth,
Jr., Chairman, and Senator Daniel P. Moynihan,
Ranking Minority Member, Senate Committee on
Finance. We are also sending copies to the
Honorable Lawrence H. Summers, Secretary of the
Treasury; the Honorable Charles O. Rossotti,
Commissioner of Internal Revenue; the Honorable
Jacob J. Lew, Director, Office of Management and
Budget; and other interested parties. Copies of
this report will be made available to others upon
request.

If you have any questions regarding this letter,
please contact me or Tom Short at (202) 512-9110.
Key contributors to this assignment are
acknowledged in appendix IV.

Sincerely yours,

Cornelia M. Ashby
Associate Director, Tax Policy and
  Administration Issues

_______________________________
1The 95-percent confidence interval for this
estimate ranges from 5.4 million to 6.3 million
taxpayers and from 36.2 percent to 42.3 percent.
2The 95-percent confidence interval for this
estimate ranges from 5.1 million to 6 million
taxpayers and from 92.6 percent to 97.2 percent.
3Our estimate of 270,000 taxpayers who were sent
at least one notice after IRS had received full
payment is based on our analysis of a sample of
taxpayers. In commenting on a draft of this
report, IRS presented the possibility that notices
were not sent to a few of these taxpayers;
however, IRS acknowledged that it did not have the
data available to show whether these notices were
sent. (See our discussion of IRS' comments at the
end of this letter.)
4The 95-percent confidence interval for this
estimate ranges from 150,000 to almost 400,000
taxpayers and from 2.6 percent to 6.8 percent.
5Before it can formally record such an additional
assessment, IRS is required to notify the taxpayer
of the proposed additional assessment and give the
taxpayer the opportunity to challenge the proposed
assessment through IRS' Office of Appeals or the
U.S. Tax Court.
6We did not include taxpayers who received a
notice after full payment of penalty or interest
assessments only.
7These 18 taxpayers in our sample are the basis
for our estimate of the 270,000 taxpayers who were
sent a notice after they had paid their
assessments in full from the population of
individual taxpayers who were sent IMF collection
notices from January 1999 through November 1999.
We have not given estimates of the percentage of
taxpayers who received a collection notice after
full payment for each of the three reasons because
of the small number of cases in our sample.

Appendix I
Scope and Methodology
Page 11GAO/GGD-00-55 Multiple Collection Notices S
ent to Taxpayers
To identify individual taxpayers who were sent
multiple notices to collect the same tax
assessment, particularly after IRS received full
payment of the assessment, we identified
14,792,622 taxpayers who were sent at least one
Individual Masterfile (IMF) collection notice1
during the first 49 weeks of 1999.2 These
taxpayers had accounts that (1) were fully paid or
otherwise resolved, such as through abatements, or
(2) still owed a balance due (i.e., the taxpayers
had not paid all assessments and were to be sent
notices to collect the unpaid amounts). The IMF
showed these taxpayers were sent 19,447,076
collection notices; thus, some of them were sent
more than one such notice about the same tax
assessment.3

To obtain more complete information on the number
of collection notices sent about the same tax
assessment, we examined transcripts of information
from the IMF for a nationally representative
sample of individual taxpayers. We drew a simple
random sample of 1,000 taxpayers from the
14,792,622 taxpayers. IRS was able to locate
transcripts for 975 of these taxpayers.

We reviewed the IMF transcripts to determine (1)
how often IRS sent multiple collection notices on
the same tax assessment and (2) the payment
history of the taxpayers. This history can range
from no payment of the tax and related assessments
to full payment of the assessments. Knowing the
payment history of taxpayers provides an indicator
of whether the multiple notices were necessary and
helps to identify the reasons for multiple
notices.

The transcripts for the 975 taxpayers showed that
383 taxpayers had been sent more than one notice
about the same tax assessment. Of the 383
taxpayers, the transcripts showed 18 taxpayers had
been sent at least one IMF collection notice after
the relevant tax assessment had been fully paid.
Based on this finding of 18 sampled taxpayers, we
estimate that during the 49-week period,
approximately 270,000 taxpayers across the nation
were sent an IMF collection notice after full
payment. The 18 taxpayers do not include those who
were sent a notice after full payment for only
penalty or interest assessments.

As the study is based on a sample, this and other
estimates are subject to sampling errors that
arise from the normal random variation that is
expected among samples of the same type. For this
estimate of about 270,000 taxpayers, we are 95-
percent confident that between approximately
150,000 to 400,000 taxpayers were sent such
notices. The 95-percent confidence interval for
the 39-percent estimate of notified taxpayers sent
multiple notices about the same tax assessment
extends from about 36.2 to 42.3 percent. The 95-
percent confidence interval for the 5-percent
estimate of these taxpayers sent a collection
notice after full payment extends from about 2.8
to 7.4 percent.

Our study's information about the number of
taxpayers sent multiple collection notices is
limited in two ways. First, IRS' computer data do
not include all types of collection notices. As a
result, we could not identify taxpayers that only
received collection notices from the Integrated
Data Retrieval System (IDRS), which is used to
access and research computerized account data and
to issue certain types of notices. IRS does not
maintain computer data on all IDRS collection
notices sent to taxpayers. However, IMF
transcripts record certain IDRS notices sent. As a
result, taxpayers who were sent only IDRS
collection notices in 1999 were not included in
our study.

Second, the number of individual taxpayers who
were sent multiple collection notices, regardless
of when they were sent, would be larger than our
estimate for at least two reasons.

ï¿½    Our timeframe was limited to 49 weeks of
notices sent in 1999. A small proportion of
taxpayers (less than 305,000 of about 15 million
for all of 1999) had their first collection notice
transactions posted to the IMF in the remaining 3
weeks of 1999.
ï¿½    Some of our study population's taxpayers,
especially those sent their first notice at the
end of our study period, could have been sent
notices after this period. Although about 62
percent of the sample had been sent their first
IMF collection notice six or more months before
the end of our study period, about 19 percent were
sent their first notice less than 15 weeks before
the closing date of the transcripts that we
examined. This is not sufficient time for the
standard set of three notices that IRS is to send
at 5-week intervals when taxpayers do not pay
their assessments.

We did not extend our period of data collection to
identify more possible notice postings because of
our reporting commitment. We did not adopt the
alternative of studying taxpayers who were sent
1998 notices because such a study would have
provided less current information.

_______________________________
1IRS provided us with a list of all IMF notices
sent during the first 49 weeks of 1999. We
identified 22 types as collection notices. These
types of notices are listed in app. II.
2We used 49 weeks because of our reporting
commitment. A later check of the types of notices
issued for the other 3 weeks indicated that the 49-
week period  included 98 percent of the collection
notices sent for the 22 types during the 52 weeks
of 1999.
3We also found that some of the 14,792,622
taxpayers were sent collection notices during
January-November 1999 about tax assessments from
more than one tax year. A total of 18,085,471 tax
returns were associated with all the tax years.

Appendix II
Types of IMF Collection Notices Included in Our
Sample
Page 13GAO/GGD-00-55 Multiple Collection Notices S
ent to Taxpayers
Notice Description of the notice
number
11     Computation error on return
11A    Computation error on return because earned
      income credit was disallowed due to issues
      with a Social Security Number or taxpayer
      identification number
14     Balance due, no math error
14E    Variation of 14
18     Portion of refund is being retained due to
      an unallowable item on the return
21     Examination and data processing adjustment
      notices for accounts in which taxpayer has
      not paid an amount due
21A    Variation of 21
21E    Variation of 21
22     Examination and data processing adjustment
      notices for accounts in which taxpayer has
      no unpaid amounts
22A    Variation of 22
22E    Variation of 22
23     Estimated tax credits claimed on return do
      not agree with IRS records
51     IRS computation of tax on Forms 1040EZ,
      1040, and 1040A in absence of taxpayer
      computation
60     Credit reversal adjustment on account
71     Remind taxpayer of a balance of tax due
71A    Variation of 71
71C    Variation of 71
71D    Variation of 71
711    Spanish variation of notice number 11
714    Spanish variation of notice number 14
721    Spanish variation of notice number 21
722    Spanish variation of notice number 22
Source: IRS IMF.

Appendix III
Comments From the Internal Revenue Service
Page 14GAO/GGD-00-55 Multiple Collection Notices S
ent to Taxpayers

Appendix IV
GAO Contacts and Staff Acknowledgments
Page 15GAO/GGD-00-55 Multiple Collection Notices S
ent to Taxpayers
GAO Contacts
Cornelia M. Ashby (202) 512-9110
Tom Short (202) 512-9110

Acknowledgments
In addition to those named above, Stephen Pruitt,
James Slaterbeck, Thomas Venezia, Rodney Hobbs,
James Fields, Anne Rhodes-Kline, James Ungvarsky,
Samuel Scrutchins, Rose Dorlac, and Margarita
Vallazza made contributions to this report.

*** End of Document ***