In 1998, over 123 million individual taxpayers filed income tax returns. For most, this ended their interaction with the Internal Revenue Service (IRS) for the year. However, IRS audits about 1 percent of taxpayers with respect to the tax liability reported on their returns. IRS also uses several types of nonaudit contacts to notify millions of additional taxpayers about potential errors in their reported tax liability.IRS has publicly provided little information about such nonaudit contacts.

In 1998, Congress passed the IRS Restructuring and Reform Act to better balance compliance and service to taxpayers, among other things. As required by the act, IRS developed a new mission statement, providing for equal treatment of taxpayers with respect to compliance and taxpayer service as well as for operating efficiency. Although both audit and nonaudit contacts primarily focus on ensuring that taxpayers report the correct tax liability, they also must reflect mission objectives, such as balancing compliance and taxpayer service.

You asked us to describe IRS’ use of nonaudit contacts with taxpayers. In response to your request, this report discusses the math error program, underreporter program, and notices sent to taxpayers regarding duplicate Social Security Numbers (SSN) and potential errors on self-employment taxes. These programs are the major types of nonaudit contacts about reported tax liability. Specifically, the report describes the frequency of use, variation in timing, and types of taxpayer responses for the three major types of nonaudit contacts; to provide a frame of reference, we also describe these features for audit contacts. Also in response to your request, this report analyzes IRS’ use of data from the three types of nonaudit contacts to improve compliance and service to taxpayers.

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