Letter Report: The Internal Revenue Service Has Not Implemented a Process to Monitor Compliance With Direct Contact Provisions

July 2001

Reference Number: 2001-10-116

 

This report has cleared the Treasury Inspector General for Tax Administration disclosure review process and information determined to be restricted from public release has been redacted from this document.

July 23, 2001

MEMORANDUM FOR COMMISSIONER, SMALL BUSINESS/ SELF-EMPLOYED DIVISION

FROM: Pamela J. Gardiner /s/ Pamela J. Gardiner

Deputy Inspector General for Audit

SUBJECT: Final Letter Report - The Internal Revenue Service Has Not Implemented a Process to Monitor Compliance With Direct Contact Provisions

This report presents the results of our review to determine whether Internal Revenue Service (IRS) employees followed proper procedures to stop an interview if the taxpayer requested to consult with his/her representative, whether employees followed proper procedures when bypassing the representative and contacting the taxpayer directly, and whether IRS management has completed implementing corrective actions in response to recommendations from our Fiscal Year (FY) 1999 audit.

In summary, the Treasury Inspector General for Tax Administration (TIGTA) could not determine whether IRS employees complied with procedures when directly contacting taxpayers and their representatives because both the IRS and the TIGTA are still unable to readily identify cases for review. While the IRS had agreed to the recommendation in the FY 1999 report, it now believes its corrective actions to conduct a survey and include the issue in the quality review process are no longer feasible. Instead, field group managers will be responsible for initiating steps to help ensure employee compliance with the law. We have included your comments agreeing with our conclusions as Appendix III to this report.

Copies of this report are also being sent to the IRS managers who are affected by the reportís conclusions. Please contact me at (202) 622-6510 if you have questions or Maurice S. Moody, Assistant Inspector General for Audit (Headquarters Operations and Exempt Organizations Programs), at (202) 622-8500.

Objectives and Scope

The overall objective of this audit was to determine if the Internal Revenue Service (IRS) is in compliance with the law concerning a taxpayerís right to consult with a representative. We also determined the status of the IRSí actions to develop a process to determine whether employees are complying with the law when a taxpayer requests to consult with a representative or when an employee bypasses a representative to deal directly with a taxpayer.

The Treasury Inspector General for Tax Administration (TIGTA) is required to annually evaluate the IRSí compliance with 26 U.S.C. ß 7521(b)(2) and (c). To accomplish the audit objectives, we met with IRSí Small Business/Self-Employed Division management and analysts and reviewed documents regarding the audit issues, including draft guidelines. We conducted the audit in the IRS National Headquarters between January and May 2001. This audit was performed in accordance with Government Auditing Standards.

Major contributors to this report are shown in Appendix I. Appendix II contains the Report Distribution List.

Background

The Taxpayer Bill of Rights created a number of safeguards to protect taxpayers when they are being interviewed by an IRS employee as part of a tax audit or collection action. Specifically, IRS employees are required to:

The provisions were created to protect the rights of taxpayers who are interviewed by an IRS employee as part of a tax audit or collection action. A taxpayer can file a civil suit against the IRS if an IRS employee intentionally disregards these provisions by denying a taxpayer the right to appropriate representation.

In Fiscal Years (FY) 1999 and 2000, the TIGTA reported that it could not determine whether IRS employees complied with the required procedures because the IRS and the TIGTA were unable to readily identify cases for review. IRS management systems do not separately record or monitor cases where taxpayers have requested to consult with a representative or where employees need to bypass taxpayer representatives and contact taxpayers directly. Moreover, the IRS is not required to develop a separate system that records or monitors cases involving these two procedures.

Results

As in the prior two reviews, the TIGTA could not determine during this review whether IRS employees followed proper procedures to stop an interview if the taxpayer requested to consult with a representative. Neither the IRS nor the TIGTA could readily identify cases where the taxpayer requested a representative or the IRS contacted the taxpayer directly and bypassed the representative.

In the FY 1999 report, the TIGTA recommended that the IRS develop a process to determine whether employees comply with the law when a taxpayer requests to consult with a representative or the employee bypasses a representative. The IRS planned to implement a survey to capture information from taxpayers interviewed by IRS employees. It also planned to include the direct contact issue in its quality reviews.

As of March 2001, the IRS had not initiated the survey or incorporated the direct contact issue into its quality reviews. Small Business/Self-Employed (SB/SE) Division management officials verbally advised us in March 2001 that they believe an additional taxpayer survey would impose undue taxpayer burden. They stated that the IRS already uses several surveys to solicit taxpayer opinions on customer service issues. In addition, they stated they believe that including the direct contact issue in its quality reviews is not feasible because employees would generally not have documented these activities in case histories.

The management officials also stated that, instead, they planned to have field group managers take steps to help ensure employee compliance with the laws concerning direct contacts with taxpayers. The IRS has drafted new guidelines instructing field group managers to take whatever steps are necessary (including case reviews, on-the-job visits, and taxpayer/representative inquiries) to help ensure that these requirements are met.

However, the IRS has not implemented this action or revised the planned corrective actions in response to the TIGTAís FY 1999 report recommendation.

Conclusion

The TIGTA could not determine whether IRS employees followed proper procedures to stop an interview if the taxpayer requested to consult with a representative. This condition continues to exist because, as noted in the first two TIGTA audits, there is no management information system to identify and monitor cases for review.

While the IRS had agreed to the recommendation in the FY 1999 report, it now believes its corrective actions to conduct a survey and include the issue in the quality review process are no longer feasible. Instead, the responsible IRS managers stated they believe the draft guidelines instructing field group managers to monitor the direct contact issue should help ensure employee compliance with the law. We do not object to this alternative approach. After the guidelines are implemented, the TIGTA will assess the impact of these efforts in its future reviews.

Managementís Response: The Commissioner, SB/SE Division, agreed with the results and conclusions presented in this report. The full text of the comments is shown in Appendix III.

Appendix I

Major Contributors to This Report

Maurice S. Moody, Assistant Inspector General for Audit (Headquarters Operations and Exempt Organizations Programs)

Mary V. Baker, Director

Augusta R. Cook, Audit Manager

Nelva Blassingame, Auditor

Tracy K. Harper, Auditor

Sylvia Sloan-Copeland, Auditor

Appendix II

Report Distribution List

Commissioner N:C

Director, Compliance S:C

Director, Reporting Compliance S:C

Director, Legislative Affairs CL:LA

National Taxpayer Advocate TA

Director, Office of Program Evaluation and Risk Analysis N:ADC:R:O

Chief Counsel CC

Office of Management Controls N:CFO:F:M

Audit Liaison: Compliance Policy, Small Business/Self-Employed Division S

Appendix III

Managementís Response to the Draft Report

The response was removed due to its size. To see the response, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.