TREASURY INSPECTOR GENERAL

FOR TAX ADMINISTRATION

The Reliability of the Information on the Exempt Organizations Business Master File Needs to Be Improved

December 2000

Reference No. 2001-10-023

Executive Summary

The Tax Exempt and Government Entities (TE/GE) Division is committed to providing its customers with the highest quality service possible in a timely and efficient manner. In meeting this commitment, the TE/GE Division established an Internet site that provides its customers with information about exempt organizations. The implementation of the TE/GE Division Internet site should improve the service provided to customers by assisting them in understanding and complying with applicable tax laws. Over the past 5 years, the IRS has added approximately 371,000 new organizations to the Exempt Organizations Business Master File (EOBMF). Currently, approximately 2.1 million organizations are included on the EOBMF. Our objective was to determine whether information on the EOBMF met its customersí needs and provided its customers with reliable information on tax exempt organizations.

Results

The TE/GE Division has made progress in providing access to information maintained on the EOBMF; however, improving the reliability of the EOBMF information would allow the IRS to better serve its customers. For example, the TE/GE Division developed an Internet site that provides customers with an array of information, including information from the EOBMF. While access has improved, the reliability of information on the EOBMF has been an ongoing concern for the TE/GE Division for several years. The TE/GE Division expended several hundred staff days in an effort to clean up a fraction of the EOBMF and then suspended the effort when it concluded that continuation would not be cost effective.

The TE/GE Divisionís strategic plan for Fiscal Year 2001 includes an Improvement Project Plan to clean up the EOBMF. The TE/GE Division has scheduled the development by March 2001 of a contract Statement of Work to study the EOBMF and develop a strategy to improve the accuracy of the file. In this regard, the TE/GE Division should direct the contractor to focus on implementing a process for updating and maintaining the EOBMF to ensure that the information provided to its customers is accurate and meeting their expectations.

The Tax Exempt and Government Entities Division Needs to Improve the Accuracy of the Information on the Exempt Organizations Business Master File

The TE/GE Division needs to improve the process for updating and maintaining the EOBMF to ensure that it contains accurate information. The TE/GE Division and other organizations have conducted reviews of the EOBMF and determined that up to 51 percent of the information may not be accurate. Current practices are not sufficient to maintain reliable information on exempt organizations. We concluded that more frequent contacts with small organizations would improve the accuracy of the EOBMF information. The lack of reliable data on the EOBMF can result in the receipt of inaccurate information about tax exempt organizations by both internal and external customers.

The Tax Exempt and Government Entities Division Needs to Determine Whether the Exempt Organizations Business Master File Is Meeting All Customer Needs

Knowing your customers and meeting their needs makes good business sense. One way the TE/GE Division provides customers with EOBMF information is through its Internet site, but the TE/GE Division has little information on the customers accessing the site. Without knowing its customers, the TE/GE Division cannot determine whether information originating from the EOBMF is meeting their expectations. Currently, the Internet provider captures information only on the number of files downloaded and does not capture sufficient information to measure customer satisfaction with the information obtained from the Internet site.

Summary of Recommendations

The IRS needs to ensure that the TE/GE Division is providing its customers with information that is accurate and useful. The Commissioner, TE/GE Division, needs a process to verify the filing status and existence of the active exempt organizations and a process to maintain accurate records in subsequent years by establishing more frequent contacts with organizations regarding the status of their activities. The organizations could periodically submit a postcard-type document to the IRS or electronically submit information on their filing status. The Commissioner, TE/GE Division should also implement a process to determine whether the EOBMF is meeting the expectations of its customers.

Managementís Response: TE/GE Division management will ensure that the statement of work (SOW) includes a process to verify the filing status, existence and other information pertinent to active organizations. TE/GE Division management will also ensure that the SOW includes a process to maintain accurate records in subsequent years and develop a methodology to determine whether the information on the EOBMF meets the needs of TE/GE's customers.

Managementís complete response to the draft report is included as Appendix IV.