The IRS receives few information returns before issuing most tax refunds and while it is exploring verification improvements, it must better manage risks, GAO has said.
It said that in 2012 the agency issued 50 percent of tax year 2011 refunds to individuals by the end of February, even though it had only received 3 percent of information returns. The IRS does not receive most information returns until after mid-April and the agency conducts the first match of tax and information returns in July, with subsequent matches in February and May of the following year, according to GAO-13-515.
It said that for tax year 2010, over a year passed on average before IRS notified taxpayers of matching discrepancies, and IRS recognizes that this long time lag burdens taxpayers.
While the IRS is generally following leading practices in its Real Time Tax exploratory effort – which it hopes to use to match 3rd party data with returns before refunds are issued – management has not yet developed an overall timeline because it sees Real Time Tax as a broad goal without a defined path at this time.
However, according to GAO, the lack of a timeline for the overall exploratory effort means the IRS cannot know if its efforts will be completed in even the broad time frames IRS is considering, and Congress may not be able to determine what legislative action might be required.
IRS officials stated that managing risk is a high priority, but they have not developed an overall risk management framework, as they are still in the early stages of the exploratory effort, GAO said.
The IRS agreed with recommendations to identify time frames for the exploratory effort’s critical phases and activities and develop a risk management framework for Real Time Tax.
