The Internal Revenue Service's current method of sending notices and letters is costing taxpayers millions of dollars because it results in a large amount of undeliverable mail, according to a new government report.

J. Russell George

The report, from the Treasury Office of the Treasury Inspector General for Tax Administration, found that the IRS sends out approximately 200 million notices and letters each year to individual and business taxpayers and their representatives at a cost of $141 million. In 2009, approximately 19.3 million of those mailings were returned to the IRS at an estimated cost of $57.9 million.

TIGTA assessed whether the IRS can reduce the volume of undeliverable mail. Its review of a random sample of 331 notices and letters returned to the IRS found that 37 percent were undeliverable because of invalid or nonexistent addresses; 35 percent had the wrong address; 24 percent were refused by the taxpayer or the taxpayer was not at home to receive the certified or registered mail; and four percent were returned for other reasons.

TIGTA recommended that the IRS allow taxpayers to submit a change of address over the telephone and improve its systems for identifying known bad addresses. TIGTA also recommended implementing a standardized procedure for processing undeliverable mail.

"The Internal Revenue Service needs to take advantage of the latest technologies and systems now available to cut down on undeliverable mail, thereby saving the taxpayers money," said TIGTA J. Russell George, the Treasury Inspector General for Tax Administration.

In response, the IRS agreed with all of TIGTA's recommendations and has begun the process of planning to implement them.