Section 3 of the IRS Data Book presents data on information reporting and verification, which, in addition to examinations, are critical tools for identifying and resolving taxpayer errors. In addition to receiving information on self-reported income and tax on returns filed by taxpayers, the IRS gathers independent information about income received and taxes withheld from information returns, such as Forms W–2 and 1099 filed by employers and other third parties. With its Automated Underreporter Program, the IRS matches these information returns to tax returns and contacts taxpayers to resolve discrepancies. In the Automated Substitute for Return Program, the IRS uses information returns from third parties to identify nonfilers; construct tax returns for certain nonfilers based on that third-party information; and assess tax, interest, and penalties based on the substitute returns. To further verify the accuracy of reported information, the IRS also checks for mathematical and clerical errors before refunds are paid.
Highlights of the Data
- In Fiscal Year (FY) 2016, the IRS received almost 3.0 billion third-party information returns; 88.3 percent were filed electronically (Table 14).
- The IRS closed more than 3.5 million cases under the Automated Underreporter Program, resulting in nearly $6.8 billion in additional assessments (Table 14).
- The IRS closed 389,000 cases under its Automated Substitute for Return Program resulting in $542.8 million in additional assessments (Table 14).
- For Tax Year (TY) 2015 individual income tax returns processed during FY 2016, IRS sent more than 1.6 million notices to taxpayers for 2.1 million math errors identified on their returns (Table 15).
- For TY 2015, math errors associated with calculation of income or other taxes made up almost 36.2 percent of total math errors. For TY 2014 and prior-year returns processed in FY 2016, misreporting the number and amount of exemptions were the most common errors, making up 25.5 percent of the total (Table 15).