All employers must file their Form 941 returns quarterly, although some are to make employment tax deposit on differing schedules during a quarter. The form contains information concerning the tax deposits made for a quarter and is generally due by the end of the month after the close of the quarter. Until IRS receives and processes the Form 941 returns, it cannot match tax deposits reported on the returns with its records of deposits received. Once it matches this information, IRS notifies employers of any delinquencies using a written notice. This is the employers’ first statutory notice of the delinquency. If the employer fails to respond to this first notice, IRS sends follow-up notices and may later contact the employer by phone or, eventually, make a personal visit. Although this entire process can take years for those employers who do not respond, under IRS’ processing procedures, initial notices are sent within several weeks after IRS receives the Form 941 return. IRS provides a variety of outreach efforts to help employers understand how to meet their tax obligations, many of which are designed to explain requirements and to meet other needs of small business taxpayers. For example, IRS makes tax forms with instructions and publications that explain requirements available to taxpayers in a variety of formats including hard copy, CD-ROM, and electronic form on the Internet. In addition to conducting various workshops and seminars, many of which are tailored to the needs of small businesses, IRS also recently established a Web site specifically designed to address the needs of small business taxpayers. Beginning in September 2001, IRS’ Web site allows employers nationwide to use the Internet to deposit employment taxes via the Electronic Federal Tax Payment System On-Line. Current IRS strategies and program plans call for providing more services to taxpayers, including employers, to prevent noncompliance. To that end, IRS has shifted its focus from addressing compliance issues after returns are filed to addressing them as early as possible, often through efforts to better educate taxpayers about their tax responsibilities and to improve forms, guidance, and other information available to taxpayers. This is consistent with IRS’ strategic objectives to reduce taxpayer burden, uncertainty, and errors by clarifying tax law responsibilities and resolving issues early in the process. IRS believes that its efforts to reduce taxpayer burden will show significant progress over the next 2 years and will be further enhanced by its plans for long-term business systems modernization. To determine how long IRS takes to contact employers after an employment tax delinquency occurs, we analyzed the time between (1) the receipt of a quarterly Form 941 return and IRS’ mailing of an initial delinquency notice, (2) when a Form 941 was due and IRS’ mailing of a delinquency notice when the employer fails to file a Form 941, and (3) when the employers should have deposited employment taxes during a quarter and IRS’ mailing of an initial delinquency notice. For all three situations, we interviewed cognizant officials from IRS’ Small Business and Self-Employed Division (SB/SE), IRS’ National Office, and various field offices, and we obtained related documentation. To determine the time between when a Form 941 return was due but not filed and IRS’ mailing of initial delinquency notices and the time between when an employer fails to make a deposit during a quarter and IRS’ mailing of a notice, we relied on the flowchart of IRS’ processes and associated timeframes that we developed. We confirmed our summaries of IRS’ processes and related timeframes necessary to notify employers of delinquencies with appropriate IRS officials at the National Office, Atlanta Service Center and the Martinsburg Computer Center. IRS did not have data in its BMF One Percent Sample File that we could use to estimate these timeframes. To determine the length of time between when IRS receives the Form 941 return and the issuance of the initial notice to the employer, we analyzed data extracted from IRS’ Business Master File (BMF). The data we used in this time analysis was extracted from an IRS data file entitled the BMF One Percent Sample File. IRS uses this data file to perform its own analysis of BMF information and to verify system performance and output. IRS considers the results of analysis from the BMF One Percent Sample data to be valid and uses the data file to perform comparable analyses, however it does not use the data file to make estimates projectable to the entire BMF. In addition, because we did not have access to taxpayer data, we were not able to independently verify taxpayer information contained in the data file. IRS officials did not have programming resources available to extract a random sample of employment tax-related delinquencies from the BMF, thus IRS’ BMF One Percent Sample File provided the best alternative for obtaining the data for the time analysis. In providing delinquent employment tax information for the time analysis, IRS extracted Form 941 return records and associated transaction date information from the BMF One Percent Sample File. After removing the employee identification numbers (EIN) from the file, IRS provided us with a file containing transaction date information for the delinquent Form 941 returns selected. The data used in the time analysis reflects taxpayer account information from the BMF as of September 2001. For tax years 1999 and 2000, over 66,000 account records were used in the analysis. About 25,000 records were eliminated from the time analysis because they were not posted to the BMF as normal Form 941 quarterly returns. We also developed flowcharts to describe IRS’ processes and associated timeframes for initially contacting delinquent employers to further validate the BMF sample timeframe analysis; and verified the accuracy of the flowchart with IRS officials. we reviewed and analyzed statistical information related to employment taxes—including the number of Form 941 returns filed based on amounts paid to determine the frequency of deposits. We also reviewed and analyzed IRS employment tax-related collection policies and procedures, obtained relevant publications and instructions, and reviewed relevant IRS web pages and related reports. To identify IRS’ current employment tax intervention programs and program evaluation efforts, we interviewed appropriate IRS officials within SB/SE and other operational groups who identified the following four intervention programs: Mentoring and Monitoring, Federal Tax Deposit (FTD) Soft Letter, ABC’s of FTDs, and FTD Alert Program; and obtained and discussed pertinent program documentation including plans, progress reports, and schedules with IRS officials. To determine IRS’ plans under modernization as they related to employment tax intervention and evaluation efforts, we interviewed and discussed with cognizant IRS officials IRS’ business system modernization efforts; and obtained and reviewed relevant documentation including IRS’ Strategic Plan (Fiscal Year 2000-2005), and 2000 Progress Report-IRS Business Systems Modernization Program . You expressed interest in the level of resources IRS uses to contact taxpayers with employment tax delinquencies. We researched this by interviewing IRS officials and reviewing past reports by IRS and us. On the basis of this work, we advised you that IRS’ financial and data systems do not collect or produce such specific information. Currently, IRS cannot isolate the resources it uses to notify employers having employment tax delinquencies for specific form types such as the Form 941 return. As a result, you suggested that we not pursue the resource issue at this time. You also expressed interest in whether there are intervention programs and initiatives in use at other federal agencies or relevant nonfederal organizations that could serve as best practice models for IRS. We are not reporting on this topic because during our review of eight federal agencies and five state tax authorities we did not find any intervention programs or initiatives that could serve as best practice models. The primary reason for this is that many of the organizations under review had significantly different procedures than IRS for formally identifying a delinquency. For example, these organizations often have shorter collection cycles than IRS which enables them to notify delinquent parties in less time than IRS. IRS’ collection cannot begin until after it receives the quarterly Form 941 returns. This review primarily focuses on IRS’ intervention efforts as they relate to the initial notification of employment tax delinquencies. In addition, the review covers IRS’ efforts to intervene with taxpayers in order to educate and inform them of their tax obligations and to expedite compliance. The review did not cover IRS’ subsequent enforcement and collection activities such as contacting delinquent employers through IRS’ Automated Collection System (ACS) or contacts made by IRS’ collection representatives in the field. We performed our work from June 2000 through December 2001 in accordance with generally accepted government auditing standards. The time IRS takes to notify employers of deposit or return delinquencies and the amount of interest and penalty assessed is affected if employers fail to meet two major employment tax responsibilities. Employers must make periodic employment tax deposits during each quarter and file Form 941 returns by the last day of the month following the close of each calendar quarter. The periodic deposits made throughout the quarter are subsequently reported on the Form 941 returns. Filing these returns is crucial because IRS determines compliance by matching its accounting records of deposits made throughout the quarter with the deposit information reported on the return. Consequently, failure to file Form 941 returns necessitates additional IRS processing and can further delay employer notification of delinquencies thus increasing employers’ interest and penalty charges. Based on IRS data and our discussions with IRS officials, we found the following: Our analysis of IRS’ data containing delinquent employment tax accounts shows that IRS took an average of about 5 weeks from the date the Form 941 returns were filed to notify employers of a missed, late, or underpaid deposit. Based on our analysis of the steps IRS follows to detect and notify employers of a failure to file a 941 return, which we confirmed with IRS officials, we found that IRS normally takes from 14 to 28 weeks. During the first two quarters of the calendar year, individual return processing demands affect the time IRS takes to process these notices. Following a similar analysis confirmed by IRS, we found that when employers have delinquent deposits, IRS notification reaches most employers from 3 to 23 weeks from the due date of the delinquent deposit the exact time is primarily dependent upon when the deposit involved was due.