WASHINGTON - The Internal Revenue Service (IRS) Automated Non-Master File (ANMF), which contains roughly $4.5 billion in unpaid tax, penalties, and interest due from taxpayers, is subject to calculation errors and inefficient processing, according to an audit report that the Treasury Inspector General for Tax Administration (TIGTA) published today.
The ANMF, which requires manual processes to establish taxpayer accounts and process account activity, provides information about individual and business taxpayer accounts that, because of system limitations, the IRS cannot manage through the Master File. The need to manually transfer information between the two Files increases the risk of errors. The overall objective of TIGTA's review was to evaluate the accuracy of processing tax accounts on the ANMF.
As of September 29, 2015, the ANMF contained 9,145 open accounts with unpaid tax, penalties, and interest totaling more than $4.5 billion.
TIGTA found that IRS calculation errors on ANMF accounts resulted in the incorrect assessment of penalties. For example, the IRS did not assess Failure to File penalties totaling more than $1.7 million on 85 open accounts. The IRS also overassessed Failure to Pay penalties totaling $88,576 on 153 accounts and underassessed Failure to Pay penalties totaling $354,153 on 227 accounts.
The IRS also needs processes to ensure that credits and payments are correctly applied to accounts with a balance due. TIGTA identified four open ANMF accounts with $122,041 in credits that were erroneously refunded back to the taxpayer, even though the taxpayer had unpaid tax liabilities on another ANMF account. TIGTA also identified 420 open ANMF accounts and 399 closed accounts for which the IRS did not correctly apply $1.4 million in payments. The IRS instead posted the payments to the taxpayers' other Master File accounts with a balance due.
Finally, the IRS needs to establish processes to ensure the accuracy of ANMF accounts. TIGTA identified 360 accounts in which the Collection Statute Expiration Dates did not match information on the Master File; 560 accounts in which the address did not match; and 116 accounts in which the taxpayers' designated representative information did not match. These discrepancies can result in taxpayers and their representatives not receiving notices as required or the IRS accepting a payment for a balance due that is no longer legally owed.
"The most efficient way the IRS can address the errors that TIGTA identified in the Automated Non-Master File is to continue to enhance the Master File to further reduce the need to manually maintain taxpayer accounts on a separate taxpayer account system," said J. Russell George, Treasury Inspector General for Tax Administration. "Until additional enhancements can be made, the IRS should establish processes to periodically verify the accuracy of Automated Non-Master File accounts," he added.
TIGTA made six recommendations that include correcting ANMF computation of Failure to File and Failure to Pay penalty and assessment programming errors, establishing processes to ensure that payments are correctly applied to ANMF accounts and establish processes to periodically verify the accuracy of taxpayer information on the ANMF to the information on the Master File.
The IRS agreed with TIGTA's recommendations.