The Internal Revenue Service’s Automated Non-Master File of taxpayer accounts is prone to errors and incorrect penalties, according to a new report.

The ANMF is a database of taxpayer accounts that, due to system limitations, can’t be managed through the agency’s Master File. Manual processes are required to establish accounts and to process account activity, which can lead to significant calculation errors and inefficient processing, the Treasury Inspector General for Tax Administration recently reported.

Treasury Inspector General J. Russell George addressing a House subcommittee.Bloomberg News
Treasury Inspector General J. Russell George addressing a House subcommittee.
Bloomberg News

In an audit of the ANMF, which as of September 2015 contained 9,145 open accounts with roughly $4.5 billion in unpaid tax, penalties, and interest due, TIGTA found a number of errors. Among them:

  • On 153 accounts, the IRS over-assessed failure-to-pay penalties totalling $88,576.
  • On 227 accounts, the IRS under-assessed failure-to-pay penalties totalling $354,153.
  • It failed to assess $1.7 million in failure-to-file penalties on 85 accounts.

In addition, the TIGTA audit identified hundreds of accounts where payments were not correctly applied, and hundreds more where contact or representative information was incorrect.

The inspector general suggested that most of the problems were due to the need to manually transfer accounts and activity information between the Master File and the ANMF, which led to transcription and calculation errors.

“The most efficient way the IRS can address the errors that TIGTA identified in the Automated Non-Master File is to continue to enhance the Master File to further reduce the need to manually maintain taxpayer accounts on a separate taxpayer account system,” said J. Russell George, Treasury Inspector General for Tax Administration, said in a statement. “Until additional enhancements can be made, the IRS should establish processes to periodically verify the accuracy of Automated Non-Master File accounts,” he added.

TIGTA made six specific recommendations to improve ANMF-related processes; the IRS agreed with them all.

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Daniel Hood

Daniel Hood

Daniel Hood is editor-in-chief of Accounting Today and Tax Pro Today, and has covered the tax and accounting field for over 20 years.