Letter Report: The Internal Revenue Service Continues to Give Incorrect Tax Law Information in Taxpayer Assistance Centers
Reference Number: 2001-40-077
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.
May 1, 2001
MEMORANDUM FOR COMMISSIONER, WAGE AND INVESTMENT DIVISION
FROM: Pamela J. Gardiner /s/ Pamela J. Gardiner
Deputy Inspector General for Audit
SUBJECT: Final Letter Report - The Internal Revenue Service Continues to Give Incorrect Tax Law Information in Taxpayer Assistance Centers
This report presents the results of our review of the quality of service the Internal Revenue Service (IRS) provides to visitors at its Taxpayer Assistance Centers (TAC). In summary, we did not receive accurate or complete answers when requesting pre-filing tax law information from the Internal Revenue Service (IRS) at Taxpayer Assistance Centers (TAC). In the majority of our contacts, we were served within 15 minutes and were treated courteously. However, in some instances IRS employees at TACs denied us service and did not treat us with courtesy.
We recommended that the Commissioner, Wage and Investment Division, ensure high quality tax law assistance by requiring TAC assistors to use the IRS’ Probe and Response Guide or similar probing techniques recommended in the Guide. We also recommended that he manage human resources to ensure taxpayers are not turned away without assistance. Staff should be available to provide technical support to front-line TAC assistors for tax law questions that are beyond their training or expertise. In addition, adequate staff should be made available to handle the filing season walk-in traffic.
Management’s response was due on April 23, 2001. As of April 25, 2001, management had not responded to the draft report.
Copies of this report are also being sent to the IRS managers who are affected by the report recommendations. Please contact me at (202) 622-6510 if you have questions or Walter Arrison, Associate Inspector General for Audit (Wage and Investment Income Programs), at (770) 936-4590.
Objective and Scope
This audit was initiated as part of the Treasury Inspector General for Tax Administration’s (TIGTA) coverage to evaluate the 2001 Filing Season and the quality of service the Internal Revenue Service (IRS) provides to visitors at its Taxpayer Assistance Centers (TAC).
The overall objective was to determine whether the IRS offered timely, quality service to taxpayers who requested pre-filing tax law information. We anonymously visited 47 TAC sites and asked tax law questions typical of an individual filing a tax return with no business-related activities. The questions asked are listed in Appendix III.
We conducted our tests from January 29 through February 9, 2001. We selected a small, but diverse, sample of TACs in order to quickly report our findings and enable the IRS to take prompt action. The cities of the TACs visited are listed in Appendix IV. This audit was performed in accordance with Government Auditing Standards.
Major contributors to this report are listed in Appendix I. Appendix II contains the Report Distribution List.
The IRS Restructuring and Reform Act of 1998 (RRA 98) required the IRS to restate its mission to place emphasis on serving the public and meeting taxpayer needs. The IRS’ mission is to, "Provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all."
In addition, the RRA 98 required the IRS to reorganize as part of its modernization efforts. On October 1, 2000, the new IRS business units were in place service-wide. A major objective of this reorganization was to improve service to taxpayers needing assistance.
One of these newly created business units is the W&I Division. This Division is responsible for servicing over 116 million taxpayers filing approximately 88 million tax returns annually. These individuals file returns containing simpler tax issues, with most of their taxes withheld by their employers. These returns do not contain business issues. Most of these taxpayers deal with the IRS only once a year, and over half of them prepare their own tax returns. These taxpayers are highly compliant, and a majority of them receive refunds each year.
Many of the above taxpayers visit TACs to obtain tax forms and publications and to seek answers to tax law questions. These sites also provide limited return preparation and electronic filing services. Currently, the IRS has over 400 TACs nationwide. The W&I Division has the primary responsibility for staffing these sites.
The IRS did not provide correct or sufficient answers to us 73 percent of the time. Additionally, in some instances we were treated with discourtesy and had excessive wait times for service of 30 minutes or more.
Specifically, we found that out of 90 contacts:
In addition, we observed some IRS practices that may have caused confusion, embarrassment, and anger among the taxpayers visiting TACs. Taxpayers who are treated less than professionally will voice their dissatisfaction with their friends and neighbors. As a result, a few mistreated taxpayers can have a significant impact on the IRS’ goal of world-class customer service. These situations are outlined in Appendix V.
In an IRS draft report on the Walk-In Quality Review Visitation Program for the 2000 Filing Season, the IRS determined that only 19 percent of tax law questions were answered correctly by assistors according to tax law and use of the IRS’ Probe and Response Guide. Service was denied in 21 percent of its contacts, and 71 percent of the assistors did not identify themselves in accordance with the RRA 98. It appears that, while the IRS has correctly assessed the situation, it has not corrected it.
Taxpayers Are Likely to Receive Poor Service in Taxpayer Assistance Centers
Taxpayers are not receiving consistent, reliable pre-filing assistance. The IRS is not providing the promised quality service at its TACs. Using 4 different scenarios and making 90 contacts, we received incorrect or insufficient answers in 61 out of 83 contacts (73 percent). In the remaining seven contacts, we were denied service.
IRS employees gave incorrect and insufficient answers to tax law questions
We received incorrect answers in 41 out of 83 contacts (49 percent) and insufficient answers in 20 out of 83 contacts (24 percent). We did not notice any significant differences in the responses based on geographic location. IRS employees consistently provided incorrect and insufficient answers to our questions nationwide.
The following illustrates the potential impact on a taxpayer who receives an insufficient answer in one of our scenarios:
A single taxpayer in Seattle buys a personal residence for $150,000. The taxpayer makes no improvements to the residence. After living in the house for 8 months, the taxpayer is forced to move to Chicago for job-related reasons and sells the house for $170,000.
The taxpayer visits a TAC to find out if he/she has to claim the $20,000 capital gain on the sale of the residence. The IRS assistor tells the taxpayer that since he/she did not live in the house for 2 of the previous 5 years, the taxpayer has to claim the entire gain on the sale. Normally, this response would be sufficient.
However, a taxpayer may qualify for a reduced exclusion of the capital gain if ownership and use tests are not met due to a change in the place of employment. In this example, the taxpayer would be eligible for a reduced exclusion of the capital gain. If a taxpayer making $50,000 a year using the standard deduction filed his/her tax return based on the insufficient information provided by the IRS, this response would result in the taxpayer erroneously paying an additional $4,000 in taxes.
During Fiscal Year 2000, the IRS provided service to over 9 million taxpayers who visited IRS offices nationwide. If the demand remains constant and if taxpayers ultimately rely on the answers provided by the IRS, many taxpayers may file incorrect tax returns. Also, we believe that situations like this will further drive taxpayers who currently prepare their own tax returns to use paid tax practitioners.
We consistently observed what might be a major cause of these errors. IRS employees only used the IRS’ Probe and Response Guide or the probing techniques recommended in the Guide in 15 out of 85 contacts (18 percent). Out of these 15 contacts, 11 employees (73 percent) provided accurate and complete answers. This Guide was designed as a tool for use in achieving high-quality tax law assistance. Generally, whenever an IRS employee uses the Probe and Response Guide, the answer should be more complete and correct. In fact, our sample showed that employees using the Guide had a much higher accuracy and completeness percentage than the overall rate.
Another cause appears to be reluctance on the part of front-line employees who do not know the answers to questions to refer those questions to assistors with more experience. Referrals were made to another assistor in only 14 out of 85 contacts (17 percent).7 In some instances, assistors would try to provide an answer even though they were not sure if their answer was correct. In one contact, the assistor prefaced a wrong answer by saying that she "didn’t know how to work the numbers," but she was sure that no tax would be due.
Management’s Response: Management’s response was due on April 23, 2001. As of April 25, 2001, management had not responded to the draft report.
IRS employees denied us service
Service was denied to us by IRS assistors in 7 of 90 contacts. The following four examples illustrate some of the times we were denied service:
It is uncertain what taxpayers will ultimately do when the IRS denies them service. Taxpayers may or may not file a correct tax return, but certainly an unintended and inappropriate burden is shifted from the IRS to the taxpayer.
A few IRS employees were discourteous
Although most IRS employees were courteous, the following four examples illustrate the times we received discourteous treatment:
Like the example mentioned above, we found that even asking for an IRS assistor’s name and identification number does not always result in a correct response. After one of our reviewers finished speaking with an assistor at a TAC, she asked the assistor for her identification number. The assistor gave the reviewer a "dirty look," and wrote down a name and an identification number. Upon further review, we found that the name and the identification number provided did not match IRS records.
In 15 of 47 TACs visited, many of the IRS employees neither wore identification nor identified themselves to taxpayers. At one TAC, we observed a tax practitioner assisting taxpayers. Since IRS employees behind the counter did not wear identification, taxpayers had no way of knowing whether they were speaking to an IRS employee.
Specifically, we noted that in 20 out of 88 contacts (23 percent) the IRS employees did not have any visible form of identification showing a name or identification number. Section 3705(a) of the RRA 98 was enacted to make the IRS more accessible to taxpayers. Part of this section requires that during a telephone or personal contact, an IRS employee must provide the taxpayer with his or her name and unique identifying number. By willfully not providing this information, IRS employees are violating the RRA 98 and ignoring the intent of the Congress.
Wait times for service were as long as 1 hour and 45 minutes
In 15 of the 90 contacts, we waited for assistance from 30 minutes to as long as 1 hour and 45 minutes.
Reviewer Wait Times
Up to 15 Minutes
16 to 30 Minutes
31 Minutes to 1 Hour
Over 1 Hour
The IRS has de-emphasized the value of prompt customer assistance. In the past, the wait time goal for tax law assistance was 15 minutes. The FY 2001 Field Assistance Operating Procedures eliminate this goal, stating it contributed to the inefficient use of resources. In our opinion, this is another situation in which the IRS will likely drive low- to middle-income taxpayers who currently prepare their own returns to use paid tax practitioners.
The IRS has not yet overcome its inability to provide quality customer service to taxpayers requesting assistance at IRS offices. Taxpayers continue to be denied service or receive inappropriate answers to their tax law questions.
Major Contributors to This Report
Walter E. Arrison, Associate Inspector General for Audit (Wage and Investment Income Programs)
Stanley Rinehart, Director
Bryce Kisler, Audit Manager
Linda Bryant, Senior Auditor
Edith Lemire, Senior Auditor
Alan Lund, Senior Auditor
Jackie Nguyen, Senior Auditor
Susan Price, Senior Auditor
Cari Robben, Senior Auditor
Sharon Summers, Senior Auditor
James Traynor, Senior Auditor
Roberta Bruno, Auditor
Lena Dietles, Auditor
Charles Ekunwe, Auditor
Kathy Henderson, Auditor
Erin Kaauwai, Auditor
Kristi Larson, Auditor
Steven Stephens, Auditor
Report Distribution List
Deputy Commissioner, Wage and Investment Division W
Director, Communications, Assistance, Research, and Education W:CAR
Director, Field Services W:CAR:FA
Director, Legislative Affairs CL:LA
Chief Counsel CC
National Taxpayer Advocate TA
Office of Management Controls N:CFO:F:M
Director, Office of Program Evaluation and Risk Analysis N:ADC:R:O
Director, Strategy and Finance W:S
Senior Operations Advisor W:S
Scenario #1 - Head of Household, Earned Income Credit, Child- and Education- Related Credits
The taxpayer is a single parent earning approximately $8,000 a year. The taxpayer has one child, born in April 2000. The taxpayer is a full-time student in her first year of nursing school, but her third year of college. The taxpayer receives scholarships for tuition and books.
Questions for Scenario #1:
I am a student and I need some help with my tax return this year. I am a full-time student and I had a baby last year. I work, too, but I am really short on money now, and I wanted to know how I can get my taxes lower and get a refund.
Scenario #2 - Sale of a Personal Residence (Reduced Exclusion)
The taxpayer is single and has just accepted a new job in Chicago. The taxpayer purchased his/her first home in June 2000 for between $150,000 and $220,000. This home is currently listed with a real estate agent and the taxpayer is concerned about the tax implications of the sales transaction.
Question for Scenario #2:
I have some questions on selling my house. I bought it last year and now I have to sell it because I got a new job in Chicago.
Scenario #3 - Individual Retirement Account (IRA) Considerations
The taxpayer is single and needs information about an IRA. The taxpayer earned more money this year and wants to know if IRA contributions are still deductible. Also, the taxpayer wants to withdraw IRA funds to purchase his/her first home.
Questions for Scenario #3:
I have questions about my IRA. I have been putting $2,000 in my IRA every year since 1996. I did this last year, too, but things have changed since my last tax return. I am not sure what I need to do.
Scenario #4 - Child’s Investment Income
The taxpayers are married and have two young children. The taxpayers started investing for their children in 2000 and have questions about how to report the interest and dividend income earned by their children on these investments.
Questions for Scenario #4:
We have some questions on how to report our children’s income.
Cities of Taxpayer Assistance Centers Visited
Birmingham (Scenarios 1 and 3)
Huntsville (Scenarios 1 and 3)
Bakersfield (Scenario 1)
Fresno (Scenario 1)
Modesto (Scenarios 1 and 2)
Oakland (Scenarios 1 and 3)
Sacramento (Scenarios 1 and 3)
San Jose (Scenarios 1 and 3)
San Francisco (Scenarios 1 and 3)
Santa Rosa (Scenarios 1 and 3)
Stockton (Scenarios 1 and 3)
Walnut Creek (Scenarios 1 and 3)
Atlanta - two sites (Scenarios 1 and 3)
Augusta (Scenarios 1 and 3)
Columbus (Scenarios 1 and 3)
Macon (Scenarios 1 and 3)
Smyrna (Scenarios 1 and 3)
Boston (Scenarios 2 and 4)
Springfield (Scenarios 2 and 4)
Stoneham (Scenarios 2 and 4)
Worcester (Scenarios 2 and 4)
Portland (Scenarios 2 and 4)
Kansas City (Scenario 2)
Springfield (Scenario 2)
Manchester (Scenarios 2 and 4)
Portsmouth (Scenarios 2 and 4)
Portland (Scenarios 1 and 2)
Abilene (Scenarios 1 and 2)
Austin (Scenarios 1 and 2)
Dallas (Scenarios 1 and 2)
Fort Worth (Scenarios 1 and 2)
Houston - four sites (Scenarios 1 and 2)
San Antonio (Scenarios 1 and 2)
Texarkana (Scenarios 1 and 2)
Tyler (Scenarios 1 and 2)
Wichita Falls (Scenarios 1 and 2)
Chattanooga (Scenarios 1 and 3)
Bellevue (Scenarios 2 and 4)
Everett (Scenarios 1 and 4)
Olympia (Scenarios 1 and 3)
Tacoma (Scenarios 1 and 3)
Vancouver (Scenarios 1 and 2)
Yakima (Scenarios 1 and 3)
Taxpayer Assistance Center Observations
The following observations were made at various Internal Revenue Service (IRS) Taxpayer Assistance Centers (TAC) during the 2001 Filing Season. These comments illustrate the problems some taxpayers face in dealing with the IRS.
IRS Comments to Taxpayers