TREASURY INSPECTOR GENERAL
FOR TAX ADMINISTRATION
Audit Reconsideration Cases Create Unnecessary Burden on Taxpayers and the Internal Revenue Service
Reference No. 2001-40-053
Audit reconsideration cases create an unnecessary burden on both the taxpayer and the Internal Revenue Service (IRS). In Fiscal Year (FY) 1999 alone, the IRS abated audit assessments on the accounts of approximately 106,000 individual taxpayers through its audit reconsideration process. This represents a burden on taxpayers because it requires them to address excessive tax assessments that should have been resolved during the initial audit. The IRS is also burdened by this rework because it must redirect its current compliance resources away from today’s compliance issues.
The National Taxpayer Advocate’s Fiscal Year 1999 Annual Report To Congress ranked audit reconsiderations 12th out of the 20 most serious problems facing taxpayers today. This was an elevation from the prior year’s report, which had ranked audit reconsiderations 19th. According to the 1999 report:
While the National Taxpayer Advocate’s report indicates an ineffective audit reconsideration process, the volume of tax abatements may indicate a problem with inappropriate audit assessments. The Taxpayer Advocate Service worked approximately 24,000 audit reconsideration cases in FY 1999. The National Taxpayer Advocate said this represents a major problem for taxpayers and it consumes a great deal of Taxpayer Advocate Service resources. The report strongly recommended proactive strategies to reduce audit reconsideration case inventories. This audit was performed to determine whether the IRS effectively gathers and uses information from its audit reconsideration process to increase taxpayer compliance and improve customer service.
The IRS does not effectively gather and use information available from the audit reconsideration process to improve its compliance program and increase customer service. As part of the IRS’ increased emphasis in this area, a task force was formed to review processes, procedures, and related information in the four program areas responsible for audit assessments. The task force found deficiencies in the closure procedures for the original audit assessments and the absence of an information system to track audit reconsideration case trends. One of the task force’s recommendations was to develop a management information system to capture pertinent data on audit reconsideration processing. However, the proposed management information reports fall short of senior IRS management expectations. These reports do not measure the total volume of audit reconsideration cases. Specifically, ASFR and AUR assessments are not addressed, even though they make up the majority of audit reconsideration cases worked by the IRS. Identifying the total volume of audit reconsideration cases and their specific causes is essential for developing effective and efficient methods to reduce the number of future audit reconsideration cases. A reduction in the total volume of audit reconsideration cases would directly reduce unnecessary burden on taxpayers and the IRS.
Better Information on Audit Reconsiderations Should Help Reduce Taxpayer Burden
The IRS cannot reduce the burden it causes taxpayers and itself unless it develops an adequate management information system to account for all audit reconsideration cases. The management information reports currently under development will not accurately capture the total volume of audit reconsideration cases processed by the various functions within the IRS. These reports were being designed to only track audit reconsideration cases currently reopened in the Examination function and any of those cases that are subsequently closed with a full or partial abatement of tax. As a result, these reports will not account for any audit reconsideration cases worked outside the Examination function or closed without any tax abatement.
Audit reconsideration cases opened outside of the Examination function are primarily related to prior assessments made by the ASFR or AUR programs. Our analysis showed that approximately 81,000 (76 percent) of the audit reconsideration abatements in FY 1999 were related to prior ASFR or AUR assessments. The IRS cannot reduce the burden it causes to taxpayers and itself unless it develops an adequate management information system to account for all audit reconsideration cases. Without this information, the IRS will not be able to effectively increase compliance and improve customer service.
Summary of Recommendations
We recommend the IRS improve its proposed management information reports to accurately account for the total volume of audit reconsideration cases and to identify their related account characteristics to determine their cause.
Management’s Response: IRS Management agreed with our recommendations and stated, "We created a Management Information System (MIS) to provide data from reconsideration cases worked by ASFR, AUR, Appeals, and Examination. We will provide a monthly report to the applicable functions using data from the MIS. Each of the functions will be responsible for reviewing this report to identify trends, including the causes of audit reconsideration, and for developing corrective actions to reduce the volume of future audit reconsideration cases."