Taxpayer Advocate Service Employees Made Adjustments to
Taxpayer Accounts Without Proper Authorization
March 2002
Reference
Number: 2002-10-079
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.
March
28, 2002
MEMORANDUM FOR
NATIONAL TAXPAYER ADVOCATE
FROM: Pamela J. Gardiner /s/ Pamela J. Gardiner
Deputy Inspector General for
Audit
SUBJECT: Final Audit Report - Taxpayer Advocate
Service Employees Made Adjustments to Taxpayer Accounts Without Proper
Authorization (Audit # 200110040)
This
report presents the results of our review to determine if Taxpayer Advocate
Service (TAS) employees made adjustments to taxpayer accounts using authorities
the National Taxpayer Advocate (NTA) had not yet redelegated to them or
authorities never delegated to the NTA.
We also determined the scope of these activities and quantified the
number of taxpayer accounts potentially affected when TAS employees made
adjustments outside the NTA’s delegated authorities.
The
TAS is an independent function of the Internal Revenue Service (IRS) and is
responsible for helping taxpayers resolve problems by taking an independent,
objective look at their problems and working with other IRS functions and
divisions to ensure a fair outcome. The
TAS is able to grant relief to taxpayers through statutory authorities and
delegated authorities. Delegated
authorities are those delegated by the IRS Commissioner to the NTA to perform
certain tax administration duties.
In
summary, we found that one of nine TAS area directors improperly authorized TAS
employees to make adjustments to taxpayer accounts using authorities the NTA
had not yet redelegated to them. In
addition, TAS employees in all nine TAS areas made adjustments to taxpayer
accounts using authorities never delegated to the NTA. Other functions in the IRS have been
delegated authorities to work those types of cases.
We
recommended the NTA require TAS managers to conduct on-line reviews of proposed
adjustments and ensure the TAS closed case quality assurance program includes
steps for identifying adjustments made without proper authorization. In addition, the NTA should consult with the
appropriate IRS officials to determine the effect of the adjustments made by
TAS employees that are not consistent with the NTA’s delegated authorities.
Management’s
Response: The NTA agreed with our findings and
recommendations and TAS management has initiated corrective actions. To ensure adjustments on cases were
authorized, the TAS implemented training initiatives, developed an on-line
review process, and modified closed case review criteria. In addition, the NTA addressed the results
of this audit with the Commissioner and will work with appropriate IRS
officials as TAS identifies case situations where TAS employees’ actions may
require ratification. Management’s
complete response to the draft report is included as Appendix V.
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 Daniel R. Devlin, Assistant Inspector General for Audit (Headquarters
Operations and Exempt Organizations Programs), at (202) 622-8500.
Taxpayer Advocate Service Employees Across the Country Made Adjustments Without Proper Authorization
Appendix I – Detailed Objectives, Scope, and Methodology
Appendix II – Major Contributors to This Report
Appendix III – Report Distribution List
Appendix IV – Analysis of Adjustments Made Without Proper Authorization
Appendix V – Management’s Response to the Draft Report
As a result of the Internal Revenue Service (IRS) Restructuring and Reform Act of 1998, the Taxpayer Advocate Service (TAS) became an independent function of the IRS. The reorganized TAS consists of nine Area Taxpayer Advocates (area directors) who report to the National Taxpayer Advocate (NTA) and oversee 74 Local Taxpayer Advocates (LTA). The LTAs and their employees are responsible for helping taxpayers resolve problems by taking an independent, objective look at their problems and working with other IRS functions and divisions to ensure a fair outcome.
The TAS is able to grant relief to taxpayers through statutory authorities and delegated authorities. Delegated authorities are those delegated by the IRS Commissioner to the NTA to perform certain tax administration duties.
On November 2, 1999, the Commissioner issued a memorandum granting Interim Delegation of Authorities to the NTA. This memorandum delegated an initial set of authorities to the NTA to permit TAS employees to handle certain taxpayer cases, commonly understood as “routine.” Routine cases are generally resolved using standard procedures and guidelines to a given set of facts and circumstances, usually related to customer service problems.
Effective January 17, 2001, the Commissioner delegated additional authorities to the NTA to provide taxpayers more efficient service. These “expanded authorities” apply when there is no disagreement within the IRS about the appropriate action to be taken in the case or when the case is not open in another IRS function. The Commissioner ratified any action taken prior to January 17, 2001, by a TAS employee, consistent with the authorities and guidelines. Therefore, adjustments made by TAS employees before January 17, 2001, using the expanded authorities would be considered as authorized.
The expanded authorities include adjustments and other taxpayer account maintenance activities, subject to specific limitations. Examples of these authorities include the ability to research the status of a tax refund, to make necessary general adjustments to taxpayer accounts due to processing errors, and to research and resolve payment tracer inquiries if a payment is not applied to the correct tax account.
The NTA determined the TAS should provide its employees a comprehensive training program on the expanded authorities and did not redelegate the authorities to TAS employees until September 25, 2001. At that time, the NTA redelegated the expanded authorities to TAS employees to the extent necessary to perform their official duties; however, this redelegation did not apply to employees below the grade or position level of Associate Advocate.
In May 2001, a TAS employee sent an anonymous letter to the NTA. The employee alleged that TAS employees frequently took case actions not yet redelegated to them and actions not part of any authority delegated to the NTA. The NTA immediately requested the Treasury Inspector General for Tax Administration to review the allegations.
This audit was performed from July to December 2001 in the TAS National Headquarters and in the nine Area Taxpayer Advocate Offices. The audit was conducted in accordance with Government Auditing Standards. Detailed information on our audit objectives, scope, and methodology is presented in Appendix I. Major contributors to the report are listed in Appendix II.
One of nine TAS area directors improperly authorized TAS employees to make adjustments to taxpayer accounts using the expanded authorities not yet redelegated to them. Rather than referring the cases to other IRS functions, the area director improperly authorized TAS employees to determine the appropriate case actions and input the related adjustments to the taxpayers’ accounts on the IRS’ primary computer system.
The area director prematurely authorized these adjustments in order to minimize using IRS resources and more quickly resolve taxpayer problems. The area director, aware that the IRS Commissioner planned to delegate additional authorities to the NTA, assumed the NTA would quickly redelegate the authorities to the TAS employees. Therefore, in July 2000, the area director authorized TAS employees under his direction to use the expanded authorities.
The TAS did not have sufficient internal controls in place to identify adjustments made without proper authorization. For example, the TAS closed case quality assurance program includes procedures to determine if adjustments were accurately input or completed but does not include procedures to determine if the TAS employees had the authority to make the adjustments.
The IRS Commissioner ratified all adjustments made without proper authorization, consistent with the authorities and guidelines made by TAS employees prior to January 17, 2001. In addition, on September 25, 2001, the NTA redelegated the expanded authorities, effective October 1, 2001. The NTA also ratified all adjustments consistent with the authority made between January 17 and October 1, 2001. Therefore, all adjustments made by TAS employees before October 1, 2001, using the expanded authorities would be considered as authorized.
TAS employees in all nine TAS areas made adjustments to taxpayer accounts using authorities not delegated to the NTA. Directors in four of the nine areas authorized the adjustments, with two having entered into formal local customer service agreements with the functions to make the adjustments.
Generally in all nine areas, TAS employees reviewed these cases, gathered the necessary information, and in some cases, made recommendations. They then referred the cases to the functions with the delegated authority to work these types of cases and issues. The functions would approve or disapprove the recommended actions, or make their own determinations, and return the cases to the TAS. The TAS employees would then manually enter the adjustments to the taxpayers’ accounts on the IRS’ primary computer system.
The four area directors understood the TAS was not authorized to work these types of cases. However, they believed their employees were merely acting as computer terminal operators when they entered the adjustments. They authorized these actions to minimize using IRS resources and to more quickly resolve taxpayers’ problems.
In some instances, the area directors believed the TAS employees made the adjustments to build better working relations with the IRS functions. They stated IRS managers believe the recent IRS reorganization left many IRS functions understaffed. IRS employees with examination and collection experience transferred to the TAS, leaving those functions without a sufficient number of experienced IRS employees to work the cases and enter adjustments to taxpayer accounts.
In June 2001, the NTA sent a message to TAS employees stating they do not have the authority to input taxpayer account adjustments on any cases the TAS does not have the statutory or delegated authority to work. By making these types of adjustments without proper authorization, the TAS risks performing the same duties as various IRS functions, instead of helping taxpayers to work through the already existing system.
The TAS does not have sufficient internal controls in place to identify adjustments made without proper authorization. There are no managerial or on-line reviews to prevent proposed adjustments without proper authorization from being input. In addition, the TAS closed case quality assurance program does not include procedures to determine if TAS employees had the authority to make the adjustments.
At the request of the NTA, we determined the scope of these activities and quantified the number of taxpayer accounts potentially affected when TAS employees made adjustments outside the NTA’s delegated authorities. From March 2000 to August 2001, TAS employees nationwide potentially made 4,037 adjustments without proper authorization totaling over $17 million. Of these, 2,848 (71 percent) are audit reconsideration cases totaling over $11 million. The number of adjustments dramatically dropped after the NTA sent her message in June 2001, clarifying the TAS employees’ authorities to input adjustments. See Appendix IV for an analysis of adjustments made without proper authorization.
We did not find any indication that any of these adjustments were inappropriate. Although TAS employees were not authorized to make these types of adjustments, we believe they made the adjustments only after other IRS functions appropriately approved them.
We cannot accurately determine the number of taxpayer accounts affected. Our analysis identified adjustments made on cases with Major Issue codes that TAS employees did not have the delegated authority to work. The Major Issue code describes the taxpayer’s underlying issue. However, the TAS has determined that a significant number of cases in the inventory might be miscoded. Error rates within 2 of the codes included in our review were 39 percent and 51 percent. We cannot determine whether there are more or less adjustments potentially affected due to miscoded cases.
The NTA stated on April 3, 2001, in testimony to the House of Representatives Committee on Ways and Means, if the “TAS takes on more IRS authorities, it risks becoming a ‘shadow IRS’ and it loses its effectiveness as an advocate for systemic change. That is, after all, the ultimate goal – to work with other IRS operating and functional divisions in identifying and mitigating individual and systemic taxpayer problems.”
We recommend the NTA:
1. Require that TAS managers conduct on-line reviews of proposed adjustments to identify adjustments made without proper authorization.
Management’s Response: The NTA agreed with this recommendation and has developed an on-line quality review process. This process includes a review to ensure adjustment actions are accurate and within the delegated authorities.
2. Ensure the TAS closed case quality assurance program includes steps to identify adjustments made without proper authorization.
Management’s Response: The NTA modified TAS quality review standards. The standards require a review to ensure actions taken to resolve cases are technically and procedurally correct, and within TAS statutory or delegated authorities.
3. Consult with the appropriate IRS officials to determine the effect of the adjustments made by TAS employees that are not consistent with the NTA’s delegated authorities.
Management’s Response: The NTA addressed the results of this audit with the Commissioner and will work with appropriate IRS officials as the TAS identifies case situations where TAS employees’ actions may require ratification.
Appendix I
Detailed Objectives, Scope, and Methodology
The overall objective of this review was to determine if, as alleged, Taxpayer Advocate Service (TAS) employees made adjustments to taxpayer accounts using authorities the National Taxpayer Advocate (NTA) had not yet redelegated to them or authorities not delegated to the NTA. We also determined the scope of these activities in the TAS nationwide and quantified the number of taxpayer accounts potentially affected when TAS employees made adjustments outside the NTA’s delegated authorities.
I. To determine if TAS employees made adjustments to taxpayer accounts using authorities the NTA had not yet redelegated to them or adjustments not delegated to the NTA, we:
A. Reviewed the relevant delegated authorities and Internal Revenue Manual (IRM) sections to determine what actions were not authorized for TAS employees.
B. Interviewed the nine TAS area directors to determine their policies for implementing the authorities delegated to the NTA on January 17, 2001, and if they authorized adjustments not delegated to the NTA.
C. Interviewed a local taxpayer advocate and appropriate personnel in the office where the allegation was initiated and determined if TAS employees had been inputting adjustments to taxpayer accounts that are outside the authorities delegated to the NTA.
D. Consulted with Treasury Inspector General for Tax Administration (TIGTA) Counsel on the validity of the adjustments.
E. Consulted with the TIGTA Office of Investigations about the results.
II. To quantify the number of taxpayer accounts affected when TAS employees made adjustments outside the NTA’s delegated authorities, we:
A. Researched the delegated authorities and consulted with TAS management and analysts to identify Major Issue (MI) codes that might be associated with adjustments made without proper authorization. The TAS uses MI codes to classify its cases; the MI codes describe the taxpayer’s underlying issue. If the taxpayer has more than one issue, the TAS employee uses the predominant MI code. We identified 8 of 55 MI codes we could use to identify the potential adjustments made without proper authorization, i.e., TAS employees would not have the authority to adjust a taxpayer account when working a case properly classified with 1 of the 8 MI codes.
NOTE: We did not research the individual cases to determine if TAS employees used the proper MI codes when classifying the cases.
B. Obtained from the TAS a download of all TAS cases (approximately 403,000 taxpayers) controlled on the Taxpayer Advocate Management Information System (TAMIS) from March 2000 to August 2001. We identified over 89,000 TAMIS cases with the 8 MI codes. The TAMIS is the TAS’ electronic database and case inventory control system. NOTE: We used March 2000 for our analysis, because that is the date the TAS became an independent function of the IRS.
NOTE: We did not determine if the TAMIS data provided by the TAS were complete. The only validation done on the data was to ensure it met our extract specifications.
C. Obtained an Integrated Data Retrieval System (IDRS) audit trail of all TAS employees making adjustments to any taxpayer account from March 2000 to August 2001. We identified 309,887 adjustments made by TAS employees to taxpayer accounts during that time period. The IDRS is the IRS’ primary computer system.
D. Compared the approximately 89,000 TAMIS cases with the applicable MI codes with the 309,887 IDRS adjustments and identified 81,927 suspect adjustments.
E. Requested Masterfile electronic transcripts for accounts with suspected adjustments. Masterfile is the IRS’ database that stores various types of taxpayer account information. This database includes individual, business, and employee plans and exempt organizations data. We compared the transcripts we received to the suspected adjustments and eliminated those accounts with zero dollar adjustments. We identified 4,037 adjustments with dollar amounts.
Appendix II
Major Contributors to This Report
Daniel R. Devlin, Assistant Inspector
General for Audit (Headquarters Operations and Exempt
Organizations Programs)
Mary V. Baker, Director
Augusta R. Cook, Audit Manager
Kenneth L. Carlson, Jr., Senior Auditor
Andrew Burns, Auditor
David Lowe, Auditor
Appendix III
Commissioner N:C
Deputy Commissioner N:DC
Chief Counsel CC
Director, Legislative Affairs CL:LA
Director, Office of Program Evaluation and Risk Analysis N:ADC:R:O
Office of Management Controls N:CFO:F:M
Audit Liaison: National Taxpayer Advocate TA
Appendix IV
Analysis of Adjustments Made Without Proper
Authorization
This appendix presents detailed information on adjustments made by Taxpayer Advocate Service (TAS) employees. The sources of this graph include the Taxpayer Advocate Management Information System (TAMIS), the Integrated Data Retrieval System, and the Masterfile. Though the TAMIS data was for all TAS cases from March 2000 to August 2001, some of the adjustments made by TAS employees did not post to the Masterfile until September 2000 and are included in the chart below.
NOTE: We did not research the individual cases to determine if TAS employees used the proper Major Issue codes when classifying the cases.
The chart was
removed due to its size. To see the
chart, please go to the Adobe PDF version of the report on the TIGTA Public Web
Page.
Appendix V
Management’s Response to the Draft Report
The response
was removed due to its size. To see the
complete response, please go to the Adobe PDF version of the report on the
TIGTA Public Web Page.