The law requires that the Internal Revenue Service (IRS) provide a receipt when requested by the taxpayer for any payment made. While the law does not specify the form of the required receipts, IRS guidelines allow two types of receipts:

• An official receipt, Receipt for Payment of Taxes (Form 809), that must be issued for cash payments. It may also be issued for non-cash payments (checks and money orders).
• A photocopy of the taxpayer’s non-cash payment stamped with the words "Proof of Delivery Only—This Is Not an Official Receipt."

To help prevent employee embezzlement of taxpayer payments, the IRS limits the types of receipts allowed and has numerous controls over official receipts.

Our objectives were to determine if Houston Taxpayer Assistance Center employees gave taxpayers IRS-approved receipts for non-cash payments when required and if proper accountability had been established for preparing and reviewing official receipts. This included determining the types of receipts issued for non-cash payments and evaluating the Austin Campus controls over the issued official receipts. The Austin Campus provides official receipts to Houston Territory employees and reviews the issued official receipts for errors.

The implementation of the receipt process for Houston and Austin increased the risk for employee embezzlement of taxpayer cash payments. While we did not find indications of employee embezzlement of payments, our review identified the following situations that adversely affected the IRS’ ability to protect taxpayer payments.

The Houston Taxpayer Assistance Center employees issued receipts for non-cash tax payments as required by law. However, the receipts did not meet IRS guidelines. Photocopies of checks and money orders were stamped with IRS "Received With Remittance" stamps, rather than the approved "Proof of Delivery" stamps. Also, documents other than photocopies of the remittances were stamped and given as receipts, contrary to IRS guidelines.

When receipts that do not meet guidelines are routinely used, even for non-cash payments, we believe an atmosphere is created that increases the chance for embezzlement of taxpayer cash payments.

The process for preparing and reviewing official receipts was not properly implemented in Houston and Austin. Houston Territory Collection employees did not always properly prepare the official receipts, and Austin Campus employees seldom identified receipt errors to inform managers of potential high-risk situations. Houston employees made errors in preparing 25 percent of the official receipts we reviewed, but Austin Campus employees did not identify 97 percent of these errors.

Proper reviews of official receipts are necessary to help the IRS prevent and detect embezzlement of taxpayer cash payments. However, the Austin reviews were not sufficient to help prevent or detect embezzlement.

Houston Territory management should ensure that employees provide only IRS-approved receipts for non-cash payments. The Austin Campus and National Headquarters management should conduct periodic oversight reviews to help ensure IRS procedures for reviewing official receipts, identifying receipt errors, and issuing error notices are followed. The IRS should also revise its procedures to include additional official receipt errors and to provide better explanations of some errors.

Management’s Response: Houston Territory management ordered and received "Proof of Delivery" stamps for all Taxpayer Assistance Centers. The IRS took action to protect payments from embezzlement, which included training on critical errors, losses and shortages, fraud detection, and manual guidelines, as well as development and distribution of a Submission Processing Field Office Payment Processing Program Review Guide. This guide includes the requirement that a designee of the campus Field Director conduct program reviews at least annually. Additionally, the IRS conducted and scheduled Field Office Payment Processing Program oversight reviews of each campus. The IRS also issued procedural changes and improvements to the Internal Revenue Manual and developed a formal training curriculum for Remittance Perfection technicians.