Agencywide Coordination Could Enhance the IRS’s Approach to Nonfilers
Why did we do this audit?
Nonfilers are taxpayers who do not timely file a required tax return. We accessed the Small Business/Self-Employed Division’s approach to addressing nonfilers. The IRS generally sends up to two notices requesting that selected nonfilers file a return. In FY 2018, the IRS developed a Nonfiler Strategy incorporating recommendations from our prior reports and other oversight organizations. From Tax Years (TY) 2015 through 2022, potential nonfilers increased by 5.9 million as the IRS prioritized other inventories. The gross Tax Gap is the estimated difference between the amount of tax owed, and the amount paid voluntarily on time. For TY 2022, the projected gross Tax Gap is $696 billion. Approximately $63 billion (9 percent) is due to nonfilers.
What did we find?
As of June 30, 2025, more than a year after the IRS began its most recent high-income nonfiler initiative, nearly 33,700 taxpayers remained in first notice status, preventing further collection action. We estimate that continuing the enforcement process on these taxpayers could result in secured returns or tax assessments for 10,482 cases involving 9,119 taxpayers and approximately $321 million in potential additional tax due. After we raised this issue, the IRS moved the cases out of first notice status in March 2026.
We also found that nearly 11,000 cases involving 8,853 taxpayers remained unworked in the queue as of June 30, 2025 (the queue is a list of collection inventory awaiting further assignment). Prioritizing these cases could result in secured returned or tax assessments for 2,962 cases involving 2,399 taxpayers and approximately $91 million in potential additional tax due.
Fiscal Year 2026 Statutory Review of Restrictions on
Directly Contacting Represented Taxpayers
Why did we do this audit?
The IRS Restructuring and Reform Act of 1998 requires us to annually report on the IRS’s compliance with provisions that restrict direct contact with taxpayers who are represented. The Taxpayer Bill of Rights also guarantees taxpayers the right to representation when dealing with the IRS. In most cases, the IRS must suspend an interview when a taxpayer requests to consult with a representative, such as an attorney, certified public accountant, or enrolled agent.
What did we find?
Determining if the IRS complies with taxpayer representation and direct contact requirements is difficult because the agency lacks a system to identify potential violations. We queried IRS data systems to identify and review cases involving represented taxpayers.
Our sample found that Field Collection employees largely complied with I.R.C. § 7521(c). However, interviews with some managers and employees identified inconsistent understanding of certain procedures. Specifically, we identified inconsistent understanding of procedures involving taxpayer-initiated contact, taxpayers’ right to audio record in-person interviews related to the determination or collection of tax, and authorization coverage for additional tax periods.
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