The Internal Revenue Service stopped mailing out tax form packages to taxpayers this season in response to budget cuts, but it still needs a long-term strategy for reducing its mailing and publishing costs, according to a new government report.
The report, from the Treasury Inspector General for Tax Administration, noted that that in response to cost savings proposed in its fiscal year 2011 budget request, the IRS formed task forces and recommended several actions to identify ways to achieve cost savings. However, the task force proposal did not include documentation to show the methodology used to make the proposals, how the estimates were calculated or validated, or how the IRS would measure the results or the cost savings of the proposals.
The task force believed that reducing the mailings of forms instead of eliminating them was a more cautious approach, affecting fewer taxpayers in the short term. Nevertheless, IRS executives decided to eliminate all mailings of tax packages for the U.S. individual income tax return (Form 1040), partnerships, and corporations in fiscal year 2011 in order to meet the cost savings presented in the FY 2011 budget request. But the report noted that this move could increase the IRS’s burden and reduce compliance for those taxpayers who rely on receiving these packages by mail.
As the IRS moves forward with the proposed cost savings or pursues other methods of saving publishing and mail costs, it needs to implement sufficient controls and procedures to ensure the decisions are documented and that the data used are accurate and complete, the report noted. In addition, these controls should be part of a long-term strategy to continually assess publishing and mail costs and identify opportunities for cost reductions and efficiencies.
TIGTA recommended in its report that the commissioner of the IRS’s Wage and Investment Division should establish and implement a system of internal controls to ensure that savings and cost data related to the elimination or reduction of mailing tax products are current and reliable. In response to the report, IRS officials agreed with both recommendations.
“An important part of the IRS’s mission is to help taxpayers understand and meet their tax responsibilities by providing forms and publications to individual and business taxpayers,” said TIGTA Inspector General J. Russell George in a statement. “Efforts to manage these costs should be part of a long-term strategy that includes goals and measures, as well as steps to monitor the effect on taxpayer burden and compliance.”
Over the last four years, the IRS has reduced its publishing and mail costs by eliminating the number of tax packages and publications it automatically mails to taxpayers and changing the way it does business. However, the reductions have not been significant to the IRS’s overall publishing and mail cost budget.
The publishing and mail budgets for the last four fiscal years have averaged more than $265 million, from $249 million for fiscal year 2007 to more than $272 million for fiscal year 2010. Approximately 59 percent of the publishing and mail budget goes toward correspondence, including notices. There have also been postal budget deficits that required the IRS to fund a large portion of its postage costs from other programs.
In July 2009, in anticipation of the IRS’s fiscal year 2011 budget proposal, the Office of Taxpayer Correspondence was asked to identify publishing and mail costs that could be eliminated. In order to respond, a group was tasked to produce estimates and recommendations for the cost savings. The Office of Taxpayer Correspondence presented a number of recommendations, and in February 2010, the IRS submitted its fiscal year 2011 budget request, which included a proposal to reduce mail costs by $20 million through efficiencies and savings, including by eliminating non-mandated notice inserts. The IRS mails more than 200 million notices each year that weigh from one to three ounces. About one-third of taxpayer notices weigh two or more ounces. By eliminating inserts, the notice could fall into a lower weight category and save the IRS 12.5 cents per notice. Another proposal was to eliminate the automatic mailing of Form 1040 tax return packages and business tax products. Each year, the IRS mails more than 17 million tax packages to taxpayers who have not used e-filing software or a tax practitioner.
By eliminating the automatic distribution of Form 1040 tax packages, the IRS could save postage costs of 44 cents per package, and by eliminating the automatic distribution of business tax products, the IRS could save about 26 cents per package in postage costs. The task force predicted the IRS could save $6 million from reducing the number of Form 1040 tax packages mailed by19 percent, reducing pages in Form 1040 tax packages, sending postcards to validate taxpayer needs for Form 1040 packages, and tailoring mailings of the Estimated Tax for Individuals (Form 1040-ES) and Payment Voucher (Form 1040-V). The task force members believed that reducing the mailings of forms instead of eliminating them completely was a more cautious approach, affecting fewer taxpayers in the short term. They also discussed mailing postcards to taxpayers in order to validate their need for printed products. In addition, the functions that own the business tax products recommended conducting additional analysis of the potential impacts on taxpayer burden and other processes before deciding whether to reduce or eliminate their tax products.
Nevertheless, IRS executives decided to eliminate all mailings of tax packages for Forms 1040, 1065, 1120, and 1120-S in fiscal year 2011 in order to meet the cost savings presented in the fiscal year 2011 budget request.
However, there were some risks in this decision, including increased taxpayer burden, increased costs to the IRS, and a reduction in compliance. Taxpayers who need the tax products they used to receive automatically would have to call the IRS, visit local IRS offices call Taxpayer Assistance Centers, or go on IRS.gov to obtain them. If a significant number of taxpayers call the IRS or visit a Taxpayer Assistance Center, the IRS would be providing the documents at a greater cost per document. Taxpayers who didn’t receive the forms might either forget to file or decide not to file if they do not receive a tax package in the mail.
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