The Internal Revenue Service is having trouble keeping track of correspondence with international taxpayers, according to a new report.
Even though the IRS sent approximately 855,000 notices and letters to U.S. taxpayers living in other countries last year, it cannot determine taxpayer response rates, said the report.
The report, from the Treasury Inspector General for Tax Administration, pointed out the lack of data on response rates for international taxpayers is problematic because the information is needed to determine the effectiveness of international correspondence on increasing taxpayer compliance and to make program improvements.
As of May 2014, the U.S. State Department estimated approximately 7.6 million U.S. citizens live in a foreign country. The rules for filing income, estate and gift tax returns, along with paying income taxes, are generally the same for international taxpayers as for those taxpayers living in the United States, TIGTA noted. The IRS heavily relies upon its many notices and letters as its primary means of communication with taxpayers.
As globalization trends continue, so too do the challenges to the IRS’s ability to provide services to and enhance the tax compliance of U.S. taxpayers living in other countries, TIGTA noted. However, IRS data systems are not designed to accommodate the different styles of international addresses, which can cause notices to be undeliverable. Other factors complicate the delivery of international mail, making delivery less certain than for domestic correspondence.
In addition, the IRS generally does not know if international taxpayers receive the tax correspondence sent to them. Without specific controls to monitor and metrics to measure international tax correspondence, TIGTA pointed out, the IRS cannot determine the impact of its international tax correspondence on taxpayer compliance.
TIGTA recommended the IRS develop a systemic process that identifies undelivered international mail volumes, as well as tracks international tax correspondence and receipt trends. In addition, the report recommended the IRS develop specific performance measures to monitor the compliance impact of sending international tax correspondence to taxpayers residing outside the United States. The IRS should use the Postal Service Form 2865, Return Receipt for International Mail, for the countries that currently support return receipts for registered foreign mail, the report suggested. The IRS should also expand the International Submission Processing Individual Master File Foreign Address Job Aid to include abbreviated address formats for all foreign countries as needed, TIGTA recommended, and coordinate with the other business operating divisions to make the job aid available to all IRS employees who are responsible for the input of addresses into IRS computer systems.
In response to the report, IRS officials disagreed with four of the five recommendations. While the IRS generally agreed that TIGTA’s recommendations could provide additional insight into the factors contributing to undeliverable international mail, it does not believe this information would permit the IRS to overcome budgetary, statutory and operational constraints as needed to achieve appreciable improvement in its current processes.
“Overall, international correspondence represents less than one-half of one percent of the volume of correspondence the IRS mails annually,” said Debra Holland, commissioner of the IRS’s Wage and Investment Division. “In 2014, more than 197 million pieces of correspondence were mailed to all taxpayers. Of that amount, approximately 855,000 pieces were destined for international addresses. In this context, we do not believe it would make good business sense to expend our limited resources to develop systemic processes to identify undelivered international mail volumes and track correspondence and receipt trends.”
She noted that a significant contributing factor is the limitation on the number of address lines that can be entered into the IRS processing systems. “We have developed standard abbreviations to overcome this challenge to the greatest extent possible; however, the address standards of some foreign countries require more lines of data than can be entered despite the degree of abbreviation,” Holland wrote. “Over the course of several decades, hundreds of subordinate downstream systems have been developed that are based on the current address data structure. In the current budgetary environment, updating the capacity of the address fields for each system would require resources that are not available. Coupled with the statutory requirement for certain tax notices and documents to be mailed to the last known address of the taxpayer, we do not believe performance measures could be developed that would provide meaningful or actionable information.”
TIGTA said it does not believe that the IRS’s response is adequate because current IRS processes for addressing international mail issues are “ineffective or nonexistent.”
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