The NMF Enables IRS to Process Taxpayer Accounts That Cannot Be Processed on the Master File

There are two general reasons why IRS puts accounts on the NMF. Some accounts have features that do not fit with the master file’s configuration; other accounts have to be processed more quickly than the master file processing procedures allow. Overflow accounts: These are accounts that have more transactions than the master file is configured to handle. Master File Configuration and Processing Procedures Make NMF Necessary

As indicated by the information in the previous section, most of the accounts on the NMF are there because of limitations in the master file’s configuration (e.g., the master file’s inability to handle split assessments, large accounts, and employee plan numbers). The NMF process is more streamlined and thus quicker. Despite Some Advantages, NMF System Limitations Contributed to Processing Delays, Incorrect Assessments, and Customer Service Problems

Although the NMF enables IRS to process accounts that cannot be processed on the master file, the NMF also had limitations, at the time of our review, that caused problems for IRS employees and taxpayers. The ability to research NMF accounts was further limited by the absence of any meaningful link between the NMF and IDRS. It Has Been Difficult for IRS Staff to Research NMF Accounts

IRS staff need the ability to research account data. Corrective Actions Have Been Identified; Implementation of Some Has Been Deferred

After the September 1997 Senate Finance Committee hearings, IRS undertook the following reviews of the NMF:
In November 1997, a problem resolution analyst in IRS’ Western Region was tasked with identifying and reviewing all problems and mistakes that occurred in IRS’ handling of the NMF case that was discussed at the hearings. As a result, IRS deferred until at least 2001 the implementation of two recommendations that called for (1) moving many NMF accounts to the master file and (2) consolidating NMF accounts in one service center. These two actions, in concert, were intended to make it easier for IRS staff to identify and access an NMF account. For example, there is nothing in the plan about IRS’ (1) monitoring the NMF to identify any problems that arise in the future and (2) ensuring that timely action is taken to address any such problems. IRS identified major deficiencies with the NMF and compiled a list of corrective actions that, if effectively implemented, should go a long way toward correcting those deficiencies. With that in mind, we believe that IRS’ action plan lacks a key component. IRS noted, however, that “the ultimate solution is the fundamental replacement of the entire master file system and until such time as this occurs, we will continue to be at risk for additional deficiencies to be identified.” IRS pointed out that this ultimate solution is scheduled to be implemented over the next several years and that, until then, it “will continue to monitor the NMF process to identify any problems and take immediate steps to mitigate them.”
With respect to our recommendation, IRS said that it had included provisions to monitor future activity on the NMF in its January 1999 revision of that part of the Internal Revenue Manual dealing with the NMF. A recorded menu will provide information on how to obtain these lists.
Why GAO Did This Study

Pursuant to a congressional request, GAO provided information on the Internal Revenue Service's (IRS) non-master file (NMF), which IRS established to process taxpayer accounts that cannot be processed on its master file, focusing on: (1) the basic differences between the master file and the NMF; (2) known problems that IRS and taxpayers have been experiencing with the NMF, including the sources of such problems; and (3) recent IRS proposals and actions intended to address these problems.

What GAO Found

GAO noted that: (1) IRS uses the NMF for accounts that either the master file is not configured to process or that must be processed more quickly than can be done through the master file; (2) compared to the master file, the NMF is newer and smaller (about 122,000 NMF accounts scattered among 10 decentralized databases vs. millions of master file accounts in one large centralized system); (3) the NMF is more flexible than the master file, and IRS' procedures for entering data into and processing accounts on the NMF are more streamlined and thus quicker than those for the master file; (4) although the NMF enables IRS to process certain accounts that cannot be handled by the master file, the NMF also had limitations, at the time of GAO's review, that caused problems for IRS staff and taxpayers; (5) GAO's review and IRS' studies revealed that the most significant limitations were: (a) the lack of a central repository of all NMF accounts; (b) the absence of any meaningful link to the automated system that IRS staff use to obtain information about taxpayers' accounts; and (c) the fact that the NMF processing procedures were predominately manual; (6) these limitations made it difficult for IRS staff to identify and access accounts and could cause delays in processing account information in some situations; (7) these access problems and processing delays could cause taxpayers whose accounts were processed on the NMF to receive incorrect information and experience poor customer service; (8) after the September 1997 Senate Finance Committee hearings, IRS undertook several reviews of the NMF and developed a plan that included numerous proposed corrective actions; (9) implementation of some significant proposed actions has been deferred until at least 2001 because those actions involve extensive computer reprogramming that could interfere with IRS' efforts to make sure its computer systems are year 2000 compliant; (10) recognizing the need to make improvements in the near term, however, IRS recently implemented other actions that required fewer resources and little or no reprogramming; (11) if effectively implemented, IRS' near-term actions, in conjunction with the actions that have been deferred, should go a long way toward correcting identified NMF problems; (12) however, IRS' action plan lacks a key component; and (13) there is nothing in the plan about IRS': (a) monitoring the NMF to identify any problems that arise in the future; and (b) ensuring that timely action is taken to address any such problems.