Procedures Used by the Internal Revenue Service To Provide Taxpayers With Refunds Not Initially Delivered by the Postal Service

Published by the Government Accountability Office on 1977-08-04.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                             DOCUMENT RESUME
  03103 - rA2173307]
 r rocedures Used by the Internal Revenue
                                           Service to Provide
 Taxpayers with efunds Not Initially
                                      Delivered by the Postal
 Servicel. FGMSD-77-9; B-137762. Agust
                                        4, 1977. 6 pp.
 Report to Jerome urtz, Commissioner,
                                       Internal Revenue Service;
 by D. L. Scantlebury, Director, Financial
 Studies Div.                               and General Management

  Issue Area: Accounting and Financial
                                        Reporting (2800).
  Contact: Financial and General anagement
  Budget Function: Miscellaneous: Financial Studies Div.
                                               Management and
      Information Systems (1002).
  Organization Concerned: Department of
  congressional Relevance: Rouse Committeethe Treasury.
      Oversight Subcommittee; Senate Committee ays and Means:
      Taxation and Debt Management Generally       on Finance:
           Internal Revenue Service (IRS) procedures
 adequate for providing undelivered                       are generally
                                      refunds to taxpayers who fis
 income tax returns in the year following
 refunds were undelivered. owever, IRS       the one in which the
                                           needs to take ction o
 deliver unclaimed tax refunds +o some
                                         taxpayers who may not file
 tax returns in succeeding years. Findings/conclusions:
 December 31, 1975, IRS was holding about                       As of
 belonging to nearly 200,000 individual      $25 million in refunds
 checks were returned as undeliverable taxpayers whose refund
                                         by the Postal Service.
 Followup letters have been partially
 taxpayers ent.tled to tax refunds. Of successful in locating
                                        the 352,000 refund checks
 returned in 1975, IRS was able to redeliver
the checks to the taxpayers. However,            248,000, or 71%, of
                                        in cases where tax refunds
are paid when taxpayers file their succeeding
                                                    year returns, as
much as a year could pass before the
Procedures should be designed to locaterefunds are set-.       RS
taxpayers entitled to undelivered refinds  a  greater   number  of
                                              and to do it more
promptly. Recommendations: The Commissioner
Revenue Service should: (1) furnish the           of the Internal
individuals entitled to undelivered tax    news   media with lists of
determine if information in the Social     refunds;    and (2)
                                          Security Administration's
benefit file would be useful in locating
undelivered tar refunds, and, 4 f so,       individuals entitled to
using such information. (SC)           develop   a procedure for
                             UNITED STATES GENhRAL ACCOUNTING OFFICE
                                     WASHINGTQN, D.C.   2054

           W PINANCIL AND
                                                                 ,f)(j     ia77

O         B-137762

          Mr. Jercme Kurtz
          Commissioner, Internal Revenue Service
          Department of the Treasury
          Dear Mr. Kurtz:
              This report presents the results of our evaluation
         Internal Revenue Service (IRS) procedures for providing of
         taxpayers with refunds not initially delivered by the Postal
         Service. We evaluated the procedures at several Department
         Treasury activities, including Treasury' s regional disbursing
         center in Birmingham, Alabama; IRS headquarters in
         D.C.; IRS service center in Chamblee, Georgia; and Washington,
         district office in Atlanta, Georgia.
              IRS procedures are generally adequate for providing
        undelivered refunds to taxpayers who file income tax returns
         in the year following the one in which the refunds were
        undelivered. However, IRS needs to take action to deliver
        unclaimed tax refunds to some taxpayers who may not file
        tax returns in succeeding years, such as retired, unemployed,
        or disabled individuals, or heirs of deceased individuals.
              We believe two relatively inexpensive procedures
        might help IRS to more promptly locate taxpayers entitled
        to refunds. One would involve use of the news media, a
        practice the State of Georgia has successfully used for
        several years. The other would involve the use of informa-
        tion in the benefit files maintained by the Social Security
        Administration. We are, therefore, recommending
        use these two procedures to the extent practical. that IRS

             Details of our findings and recommendations are
        presented in the following sections.



     As of December 31, 1975, IRS was holding about $25
million in refunds that belonged to nearly 200,000 individual
taxpayers whose refund checks were returned as undeliverable
by the Postal Service. About 25,000 of these checks,
valued at approximately $4.2 million, were being held
Iy the Birmingham Regional Disbursing Center. The checks
had been issued to taxpayers who filed their Federal
income tax returns with either the Chamblee or Memphis
IRS service center.  The remaining tax refund checks were
being held by the other Treasury regional disbursing centers.


     Treasury' s regional disbursing centers issue checks for
income tax refunds at the request of IRS service centers.
Because the disbursing centers are custodians of the checks
thay issue, the Postal Service returns to them any checks
for tax refunds that candnt be delivered to taxpayers at
addresses shown on the checks.

     When checks are returned as undeliverable, the regional
disbursing enters redeposit the returned checks to the
Treasurer's account on a weekly basis.  IRS procedures then
call for:

     -- Recording on the taxpayers' accounts the
        amounts of undeliverable checks, thereby
        insuring that the taxpayers receive the
        refunds in the event they file tax returns in
        succeeding years.

     -- Sending followup letters to taxpayers' last known
        mailing addresses advising them that the Postal
        Service had been unable to deliver checks for
        tax refunds and requesting confirmation of the
        correct mailing addresseen


     The regional disbursing centers are instructed to mail new
refund checks to those taxpayers entitled to undelivered
refunds, if such taxpayers are located through the followup
letters or if they file subsequent returns. The amounts for
undelivered refunds are then removed from accounts of the
taxpayers issued the new refund checks, a procedure
necessary to insure that the individuals do not receive
duplicate payments.

     According to IRS officials, the followup letters
have been partially successful in locating taxpayers entitled
to tax refunds and numerous unclaimed checks have been
remailed through this means. The followup letters are more
successful in locating taxpayers who reside in areas with
a high rate o theft, particularly from mailboxes.   In
explaining the reason for this, a Postal Service official said
mail carriers were instructed not to leave letters obviously
containing checks, especially the distinctive ones like tax
refund envelopes, in unlock d mailboxes for patrons residing
in such areas. He said, however, that the followup letters
would be left in the unlocked boxes.

     The followup letters, along ith IRS procedures for
annotating the taxpayers' accounts to show undeliverable checks,
have permitted the redelivery of a substantial  umber of the
refund checks returned each year. For emple, the Postal
Service returned over 32,00U refund checks in 1975, and
IRS officials said that about 248,000, or 71 percent, of
the checks were redelivered to taxpayers.

     IRS procedurei would be adequate to insure that tax-
payers entitled to undelivered refunds eventually receive
them, providing the taxpayers file returns in succeeding
years. Based on information IRS provided us, however,
it appears that about one-third, or about $8 million, of
the remaining undelivered refunds could belong to individuals
who may be retired, unemployed, disabled, or deceased. Tax
returns are not always filed in succeeding years by many
such individuals and, therefore, the annotation procedures
do not always result in delivery of refunds to many tax-
payers or their beneficiaries.


      Even if tax etunds are paid when taxpayers file their
 succeeding year returns, as much as a year could pass before
 they are sent. This long delay could impose undue hardships
 on low- and moderate-income taxpayers.

     As discussed below, IRS could implement two additional
procedures to promptly locate taxpayers entitled to undelivered
tax refunds.

     IRS regulations require that IRS service centers furnish
each district office with an annual list containing the name
and the last known address of any taxpayers whose income tax
refund checks were returned as undeliverable. While the
regulations allow the lists to be made available to the news
media, they specify that this will be done upon request.

     At the RS national office, we were told IRS procedures
provided for annual news releases informing the public that
any taxpayers not receiving their refunds should contact IRS.
However, since the news releases are prepared before the lists
are available, they do not contain the names of individuals
entitled to undelivered tax refunds.

      Officials at the Atlanta IRS District Office said that
their office had never made the lists available to the news
media because it was the district director's policy not tk
solici. requests for the lists.   Since IRS regulations are
not generally known to the public, it is doubtful that the
news media is aware of the existence and availability of
the lists.

     Several years ago the State of Georgia began
to all State newspapers annual lists containing thesending
and last known addresses of taxpayers entitled to undelivered
State income tax refunds. A State official said most news-
papers in the State were eager to publish the lists as a
public service, especially lists containing names of tax-
payers who reside in the papers' principal circulation
areas. The official also said Georgia's experience in
locating taxpayers by this means had varied somewhat over
the years, but that for a representative tax year--1974--
it had resulted in delivery of approximately 30 percent,
or about 500, of the returned checks.


     As IRS has readily available lists, by geographical
regions, of individuals entitled to tax refunds, such lists
should be made available to the news media especially to
newspapers with State-wide circulation.

Use of-Social Security Administration records

     The Social Security Administration provides benefits
to employees who are retired and disabled, and to spouses
and minor dependents of deceased taxpayers. It maintains
automated benefit files containing the names, social
security numbers, and addresses of individuals receiving
the benefits. Treasury regional disbursing centers also
maintain a copy of these benefit files for recipients
residing in their service areas.

     IRS also receives an automated file from Treasury
regional disbursing centers containing similar information on
employees entitled to unclaimed Federal checks for tax refunds.
As some of these individuals may also be recipients of
social security benefits, it may be worthwhile for IRS to
develop procedures to screen the social security benefit
files for mailing addresses on any individuals on its
unclaimed check lists.  It appears that this could be done
at very little cost, since the procedures would basically
involve a matching process which could be done by automated
data processing equipment.


     Durin, 1975 a substantial number of individual tax
refunds were undelivered and returned by the Postal Service.
Under IRS procedures many of these individuals will eventually
receive their money. However, some individuals will not
receive their refunds at all. We believe improvements are
needed and should be designed in IRS procedures to locate
a greater number of taxpayers entitled to undelivered
refunds and to do it more promptly. To accomplish this, we
recommend that you:

    -- Furnish the news media with lists of individuals
       entitled to undelivered tax refunds.

    -- Determine f information in the Social Security
       Administraticn's benefit files would be useful
       in locating individuals entitled to undelivered
       tax refunds and, if so, develop a procedure
       for using such information.


     A draft of this report was reviewed by, and discussed
with, IRS officials and their comments have been incorporated
in the report.

     We are sending copies of this report to the House
Committee on Appropriations; the House Committee on Government
Operations and the Senate Committee on Governmental Affairs;
the Joint Committee on Taxation; the Director, Office of
Management and Budget; the Secretary of the Treasury; and
Treasury s Directors of the Division of Disbursement and
the Office of Audit.

     Thank you for the courtesies and cooperation extended
our representatives. We would appreciate your comments
and advice on any action taken or planned on the matters
discussed in this report.

                             Sincerely yours,

                            D. L. Scantlebury