IRS initiative to bring nonfilers back into the system.

Background

The Internal Revenue Service has launched a nationwide initiative to address a major area of noncompliance - individual taxpayers who have stopped filing or have never filed their federal income tax returns. The number of delinquent individual taxpayers has steadily grown over the past several years. As of February 1993, the IRS had identified more than 10 million delinquent individual and business taxpayers. It is estimated that the related income tax gap for nonfilers is more than $10 billion. This makes the nonfiler problem one of the most serious compliance issues facing our voluntary system of taxation.

IRS research and compliance studies confirm the increasing number of nonfilers. In many cases, the nonfilers reported that their delinquency was triggered by a significant event in their life such as a divorce, death of a loved one, business failure, or other personal or economic problems. Taxpayers who failed to file a return often continued the pattern into future years due to the "snowballing" effect of the tax liabilities involved and the fear of getting "caught" by the IRS.

Nonfiler Strategy

In response to the growing nonfiler problem, the IRS has implemented a comprehensive nonfiler strategy. The strategy represents a Service-wide effort to combine enforcement and outreach activities first to identify delinquent taxpayers and then to provide them with the assistance needed to get back into compliance with the tax system. The Nonfiler Strategy represents a unique opportunity for the IRS and organizations such as Tax Executives Institute to work together to identify ways to help delinquent taxpayers meet their return filing obligations.

Enforcement-related activities under the nonfiler strategy will focus on increased examination activity of delinquent taxpayers. Specially trained examiners will be reassigned nonfiler cases for audit. The primary objective of this effort will be to secure delinquent returns and the associated taxes, interest, and penalties due. Examiners have been authorized to secure installment agreements in cases in which the taxpayer cannot immediately pay the tax liabilities determined.

Collection and Taxpayer Service will work with nonfilers to make payment arrangements in cases involving large deficiencies or unique circumstances. Offer-in-compromise guidelines and procedures have been revised to streamline the resolution of unpaid accounts when substantial doubt exists about the taxpayer's ability to pay.

The Nonfiler Strategy Communications and Outreach Plan is designed to encourage taxpayers to voluntarily come forward and file delinquent returns. The plan will also serve to inform compliant taxpayers that the IRS is fairly and efficiently enforcing the tax laws by addressing a significant and growing area of taxpayer noncompliance. In a recent speech to the Tax Division of the American Institute of Certified Public Accountants, Commissioner Margaret Milner Richardson stated that taxpayers who are compliant have a right to expect that others also pay their proper share.

Taxpayer Service will serve as the initial point of contact with nonfilers who desire to voluntarily come forward to file delinquent tax returns or to obtain information on the Nonfiler Program. Taxpayer Service will provide nonfilers with assistance to obtain prior year income information (Forms W-2 and 1099), prior year tax forms, and assistance in getting delinquent tax returns prepared. A uniform Service-wide policy will ensure the fair and consistent treatment of all taxpayers the IRS comes into contact with under the nonfiler initiative.

Tax Practitioner/Professional Nonfiler Role

The IRS views its cooperative working relationship with its external stakeholders - including TEI - as critical to the success of the nonfiler strategy. Early in the process, former Commissioner Shirley Peterson met with a number of the heads of the tax practitioner/professional organizations to discuss the nonfiler problem and ways that the IRS can work with its external stakeholders to communicate the nonfiler strategy and provide assistance to delinquent taxpayers. Areas of cooperative agreement for joint nonfiler activities include: continuing professional education, presentations to targeted taxpayer groups, issuance of nonfiler news articles, practitioner referral network (enrolled agents), internal/external publicity campaigns, and volunteer participation at outreach events, including return preparation assistance to delinquent taxpayers. TEI has endorsed the principles underlying the Nonfiler Program and agreed to facilitate the IRS's efforts by publishing nonfiler-related news articles in The Tax Executive, serving as a conduit of nonfiler information to TEI membership, and encouraging TEI members to advise their employers of the IRS's Nonfiler Program and to participate in nonfiler education and assistance efforts.(dagger)

The IRS recommends that TEI and its membership undertake the following activities to help communicate the nonfiler message and provide assistance to delinquent taxpayers:

* TEI's local chapters are encouraged to make contact with local IRS office District Directors to establish open lines of nonfiler communication. Consideration should also be given to making similar contacts with the local heads of the tax practitioner/professional organizations such as the AICPA, ABA, and enrolled agents to coordinate nonfiler information and planned outreach activities. The joint cooperation of the IRS and TEI would send a unified message to taxpayers that our organizations are committed to providing information and assistance to delinquent taxpayers in order to draw them back into compliance with the tax laws.

* The IRS believes that TEI and its membership have the ability to reach a large population of individual return filers and have a significant effect on getting the IRS's nonfiler message out. Nonfiler employee awareness programs could focus on the advantages of voluntarily coming forward to file late returns and the type of information and assistance available to help delinquent taxpayers. In-house publications, bulletin boards, and information flyers could be used to provide the following nonfiler messages to employees:

* Now is the time for delinquent taxpayers to "get straight" with regard to their federal tax affairs.

* Installment payment arrangements are available for taxpayers unable to immediately pay their outstanding tax liabilities.

* The IRS will not criminally prosecute taxpayers who voluntarily come forward, cooperate, and file truthful returns.

* Penalties for failure to file can be abated in some cases based upon the reasons for the nonfiling. Offers-in-compromise procedures have been streamlined to facilitate the consideration of unpaid accounts when doubt exists as to the taxpayer's ability to pay.

* The IRS is working in concert with tax practitioner/ professional organizations to provide information and filing assistance to delinquent taxpayers. Assistance is available from IRS Taxpayer Assistance and/or a number of local organizations participating in the nonfiler strategy.

Local IRS offices are available to provide additional information and assistance to local TEI chapters or individual employers in this important area.

* The IRS encourages the active support and participation of TEI and its membership to take part in nonfiler outreach activities, including taxpayer education and assistance efforts. TEI and its members can provide a valuable and civic-minded contribution to the nonfiler initiative in the area of return preparation assistance. Such activities can be conducted in an environment similar to the Volunteer Income Tax Assistance (VITA) Program or in conjunction with the IRS or other tax practitioner/professional organization-sponsored events.

The IRS appreciates the cooperation and participation of TEI in carrying out the nonfiler strategy. Together, our two organizations can provide assistance to delinquent taxpayers in getting back into the tax system and improve compliance with our voluntary system of taxation.

(*) Mr. Voskuil is the executive in charge of the IRS's Nonfiler Strategy.

(dagger) TEI's September 28, 1992, letter to then-Commissioner Peterson was reprinted in the November-December 1992 issue of The Tax Executive.