TREASURY INSPECTOR GENERAL
FOR TAX ADMINISTRATION
Actions to Develop Goals and Standards and Upgrade the Management Information System for the Innocent Spouse Program Have Not Been Fully Implemented
Reference No. 2001-40-162
The Congress passed the Internal Revenue Service (IRS) Restructuring and Reform Act of 1998 (RRA 98) in part to address concerns about protecting the innocent spouse who signed a joint return without knowledge of specific items on the return, and became personally liable for the errors of the other spouse. The IRS Commissioner considered the provisions for innocent spouse relief to be 1 of the 10 most significant areas of the legislation.
In May 2000, the Treasury Inspector General for Tax Administration (TIGTA) issued an audit report on the Innocent Spouse Program (ISP) which stated that the IRS was not prepared to effectively process the increased volume of claims for innocent spouse relief that were received after the passage of the RRA 98. The report recommended that the IRS set goals and standards for the ISP, upgrade the Innocent Spouse Tracking System (ISTS) that serves as the primary management information system, and incorporate additional controls into the ISP that address quantity, cost, and timeliness of the program. The objective of this review was to evaluate how effectively the IRS has implemented the specific recommendations to set goals and standards for the ISP and upgrade the management information system.
Since our earlier review, the IRS has taken steps to implement corrective actions that we previously recommended. However, additional actions need to be taken to formalize goals and standards, and additional controls need to be implemented to ensure the accuracy of the ISTS. The ISP has made significant progress – especially at the Central Site. The Central Site at the Cincinnati Service Center (CSC) has grown to over 145 full-time and 35 temporary employees under the direct line authority of the ISP Manager. Unfortunately, the same degree of progress has not been made in completing claims assigned to Small Business/Self-Employed (SB/SE) personnel in the field.
Some of the more significant achievements include the following:
While the IRS has made these improvements, corrective actions have not been fully implemented. Management still needs to formalize comprehensive program goals and standards to fully measure and report accomplishments of the program. The inventory of claims continues to grow and old claims remain in inventory. Also, the ISTS, while improved, needs additional controls to ensure that it is properly implemented. This is particularly true in SB/SE field units that are not under the direct control of the ISP Manager.
A Comprehensive Set of Goals and Standards Has Not Been Formalized and Developed for the Innocent Spouse Program
Management has not placed enough emphasis on setting goals and standards for the ISP. The effect of not having comprehensive goals and standards for the ISP can be seen in the inventory of claims for relief. Since the RRA 98 liberalized the innocent spouse provisions, receipts of claims for relief have increased dramatically and continue to exceed projections. The ISP Manager stated that they were making progress on reducing the number of taxpayers who have not yet been notified of the disposition of their claims. However, as of December 24, 2000, there were 66,741 claims for relief in open inventory. This is a significant increase over the approximately 46,000 claims in inventory as of December 31, 1999. In addition to the number of claims getting larger, the claims also remain in inventory longer. Thirty-nine percent of the claims had been in inventory between 1 and 2 years, and 5 percent had been in inventory longer than 2 years.
Not having adequate goals and standards has made it difficult to properly manage the ISP. It is even more difficult to manage SB/SE resources used to evaluate claims because the ISP Manager does not have direct control over those resources. As a result, significant inventory backlogs continue, program resources may not be properly directed, program accomplishments may not be accurately measured, and program results may not be accurately reported to the IRS Commissioner and to the Congress. At the same time, taxpayers’ total liabilities are increased because penalties and interest continue to accrue while the claim is being considered. The longer it takes to work the claim, the greater the resulting tax liability.
Small Business/Self-Employed Field Personnel Have Not Properly Implemented the Innocent Spouse Tracking System
We reviewed 250 randomly selected innocent spouse claims and determined that 20 percent were either not properly updated in the ISTS or were not accurately reflected in reports generated from the ISTS. However, the ISTS accurately reflects the total number of claims received and has the ability to generate numerous reports. Most of the errors in the ISTS were on cases assigned to field examiners in the SB/SE business unit. The CSC Central Site more accurately maintains its segment of the ISTS and uses the management information generated from the ISTS.
Several factors contributed to the inaccuracies in the ISTS. First, management had not developed adequate inventory controls. Second, the inventory controls that had been developed were not properly implemented. Third, field managers relied primarily on traditional Examination inventory controls such as the Audit Information Management System (AIMS) and the Examination Returns Control System (ERCS) instead of the ISTS.
As a result, the ISTS did not provide accurate information on the status and location of claims assigned to the field, and SB/SE managers were not using the ISTS to effectively manage inventory and resources. Also, the ISP Manager did not receive accurate information to update the inventory model or to evaluate and report program results to the IRS Commissioner and to the Congress.
Summary of Recommendations
IRS management needs to continue to follow through with the corrective actions stated in the response to our original report. Accordingly, we recommend that the IRS develop a formal program letter for the ISP to direct program resources and measure program accomplishments. At the same time, controls need to be strengthened over the management information system to ensure that it provides timely, accurate information that is used by management. Management initiated some corrective actions in March 2001, and is considering additional actions.
Management’s Response: The Wage and Investment (W&I) Division Strategy and Program Plans contain goals and measures for personnel resources applied and determinations made for innocent spouse claims. Target levels of pre- and post-determination inventories are a fundamental part of developing these goals and measures. The IRS is committed to monitoring these inventories and will evaluate and revise these standards semiannually. In addition, the Project Office, in partnership with SB/SE and the CSC Central Site, will provide specific guidance for conducting inventory validations in the multi-functional Innocent Spouse section of the Internal Revenue Manual. The IRS also made the computer-based ISTS training universally and easily available for download from the W&I Electronic Learning System.