TAX

ADMINISTRATION

Multiple Collection

Notices Sent to

Individual Taxpayers

United States General Accounting Office

GAO Report to Congressional Requesters

April 2000

GAO/GGD-00-55

United States General Accounting Office General Government Division

Washington, D.C. 20548

Page 1 GAO/GGD-00-55 Multiple Collection Notices Sent 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.

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

 

1

The 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.

Results in Brief
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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.

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.

 

2

The 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.

3

Our 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.)

4

The 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.

5

Before 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.

Background
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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.

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.

 

6

We did not include taxpayers who received a notice after full payment of penalty or interest

assessments only.

Scope and

Methodology
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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.

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.

Estimateda

Tax assessment payment history Number Percent

Made no payment or partial paymentb 5,540,000c 95.3

Made full paymentd 270,000 4.7

Total 5,810,000 100.0

Note: From January through November 1999.

a

These estimates were developed from a sample; thus, they are approximate and are surrounded by

confidence intervals that have been provided.

b

Before 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.

c

We 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.

d

Before IRS sent a collection notice, taxpayers had fully paid the assessment.

Source: GAO analysis of IRS transcripts from its IMF.

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:

• Taxpayers sent their payments too late to stop a subsequent notice.

• IRS received the payments on time, but did not record them soon enough

to stop a subsequent notice.

Multiple Collection

Notices for the Same

Tax Assessment

Table 1: Taxpayers Sent Multiple

Collection Notices for the Same

Assessment

IRS’ Reasons for

Sending Collection

Notices After

Receiving Full

Payment
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• 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

 

7

These 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.
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IRS officials about the transcripts for these cases indicated that IRS

probably caused the errors in four of these cases by

• recording a payment months after its receipt, or

• 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.

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.

Agency Comments and

Our Evaluation
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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
Page 8 GAO/GGD-00-55 Multiple Collection Notices Sent to Taxpayers

Contents

1 Letter

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

Table 1: Taxpayers Sent Multiple Collection Notices for

the Same Assessment Tables 4

Abbreviations

IDRS Integrated Data Retrieval System

IMF Individual Masterfile

IRS Internal Revenue Service
Page 9 GAO/GGD-00-55 Multiple Collection Notices Sent to Taxpayers
Appendix I

Scope and Methodology

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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.

 1

IRS 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.

2

We 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.

3

We also found that some of the 14,792,622 taxpayers were sent collection notices during JanuaryNovember 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 I

Scope and Methodology

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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.

• 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.

• 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.
Appendix II

Types of IMF Collection Notices Included in

Our Sample

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Notice

number Description of the notice

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

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Appendix III

Comments From the Internal Revenue Service

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Appendix IV

GAO Contacts and Staff Acknowledgments

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Cornelia M. Ashby (202) 512-9110

Tom Short (202) 512-9110

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.

GAO Contacts

Acknowledgments
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