Management Advisory Report: Progress
in Issuing Employer Identification Numbers Has Been Made, but Enhancements Are
Needed
September 2002
Reference Number:
2002-30-182
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.
September
16, 2002
MEMORANDUM FOR
THE COMMISSIONER, SMALL BUSINESS/SELF-EMPLOYED DIVISION
FROM: Pamela J. Gardiner /s/ Pamela J. Gardiner
Acting
Inspector General
SUBJECT: Final Management Advisory Report –
Progress in Issuing Employer Identification Numbers Has Been Made, but
Enhancements Are Needed (Audit # 200230009)
This
report presents the results of our review to determine whether the Internal
Revenue Service’s (IRS) Employer Identification Number (EIN) Issuance Program
improved the level of service provided to taxpayers requesting EINs.
In
summary, we found that the IRS has made improvements to the EIN issuance process
by implementing an EIN toll-free telephone service, processing and procedural
changes. The primary improvement achieved by the EIN toll-free service is
providing all taxpayers access to apply for and receive EINs 10 hours a day, 5
days a week. Prior to the toll-free
line,
telephone service was not available nationwide, nor was it available 5 days a week. In addition, practitioners
can now obtain unlimited EINs in one telephone call, thereby eliminating the
five EIN limit per call. Also, practitioners
can now be authorized to receive their clients’ EIN data directly from the IRS.
However, two
areas require enhancements to improve service to taxpayers and the efficiency
of IRS’ operations. First, the IRS can
use technology to provide a higher quality of customer service to taxpayers
requesting an EIN. The EIN customer
contact centers’ design is labor intensive and does not offer taxpayers access
to automated self-service options within its telephone architecture. Progress in the self-service option is being
made, since an EIN Internet option is in the development phase. Second, the contingency plan for the EIN
issuance process requires revision, since operations are not efficient and
customers are not assigned an EIN immediately when the Integrated Data
Retrieval System (IDRS) has a service disruption. This is complicated by the fact that the peak demand for EINs
occurs during the annual IDRS shutdown for year-end processing.
We recommend
that the IRS develop technology solutions to offer automated self-service for
both telephone and fax options. To
improve operations during IDRS service disruptions, the IRS should make process
changes to reserve blocks of EINs to be issued when the information system is
unavailable. In the longer term, the IRS
should consider distributed processing enhancements so that EIN applications
can be processed during these service disruptions.
Management’s
Response:
The IRS generally agreed with our recommendations. The IRS is developing an EIN Internet option that will provide a
self-service option for taxpayers needing an EIN. Over the next few years, as the IRS transitions to a contact
center environment, its modernized systems architecture will support automated
systems on the telephone and Internet.
The IRS is still pursuing security certification for its fax server
option that is not yet operational.
However, this system will still require a tax examiner to process the
EIN. The IRS states that it will reduce
handling time and provide quicker responses to EIN requests.
The
IRS will establish procedures to ensure that the IDRS end of year downtime does
not impact the EIN issuance process. IRS
will reserve a block of EINs for known downtimes and make them available to
Customer Service Representatives to assign to customers. The IRS advised that, in line with its
current modernization efforts, ongoing improvement initiatives would provide
immediate access to EINs without IRS intervention. For example, the IRS is currently testing the Customer Account
Data Engine (CADE) System, which will give taxpayers more opportunity for
self-service options.
Office
of Audit Comment: The emphasis of our recommendation regarding the fax
option was to use technology (i.e., programming) to have the faxes processed so
human intervention is not required.
Also, while the CADE System may give taxpayers the opportunity for
self-service options, this new system may also experience downtime. Our recommendation was designed to address
long-term solutions to process EINs when the IDRS or future systems are not
available.
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 Gordon C. Milbourn III, Assistant
Inspector General for Audit (Small Business and Corporate Programs), at (202)
622-3837.
Appendix
I – Detailed Objective, Scope, and Methodology
Appendix
II – Major Contributors to This Report
Appendix
III – Report Distribution List
Appendix IV – Management’s Response to the Draft Report
The Internal Revenue Service (IRS) assigns over four million
Employer Identification Numbers (EIN) annually to sole proprietors,
corporations, partnerships, estates, trusts and other business entities for tax
filing and reporting purposes. Every
business entity required to file a federal tax return must have an EIN. Certain states, grantors of trusts and
financial institutions also may require taxpayers to have an EIN.
A major strategy for the Small Business/Self-Employed
(SB/SE) Division is to reduce the burden on small business taxpayers by
improving the process of obtaining an EIN, to make it less time consuming and
cumbersome. In the past, the IRS
received numerous complaints from practitioners, taxpayers and IRS employees
regarding the EIN issuance process. The
IRS was unable to consistently meet service level targets, and the EIN process
created frustration in the taxpayer and practitioner communities because of
slow response times and inadequate communications.
For business taxpayers, the EIN issuance process is
burdensome because the time spent obtaining an EIN does not add to productivity
or competitiveness. However, EINs are
necessary for business taxpayers to comply with filing and payment requirements
needed for wage and unemployment tax administration.
In January 2002, the SB/SE Division completed its
centralization of the EIN issuance process from 10 to 3 SB/SE Division
sites. The tax examiners at these sites
are specialists responsible for processing all requests for EINs. The IRS has assigned 315 Full Time
Equivalents (FTE) to process the EIN applications.
In connection with centralizing the EIN issuance process,
the SB/SE Division implemented a toll-free telephone line for the TELETIN
operation. Calls to this toll-free line
are routed to the next available assistor regardless of location in an effort
to reduce taxpayer wait time.
We performed the review at the SB/SE Division Headquarters
in Washington, D.C. and visited the IRS campuses in Brookhaven, Cincinnati and
Philadelphia between November 2001 and June 2002. The review was conducted in accordance with the President’s
Council on Integrity and Efficiency’s Quality Standards for Inspections.
Detailed information on our objective, scope, and
methodology is presented in Appendix I.
Major contributors to the report are listed in Appendix II.
Overall,
the IRS has made improvements to the EIN issuance process by expanding service
hours through the use of a toll-free telephone service and making process and
procedural changes. The primary
improvement achieved by the EIN toll-free service is providing all taxpayers
access to apply for and receive an EIN 10 hours a day, 5 days a week. Prior to the toll-free line, TELETIN was not
available nationwide, nor was it available 5 days a week. For example, the IRS’ Memphis and Ogden
Campuses did not offer TELETIN to taxpayers in their geographic area.
Process
and procedural changes to the EIN issuance process have made it easier for
practitioners to better serve their clients.
First, practitioners can now obtain unlimited EINs in one telephone
call, thereby eliminating the five EIN registration limit per TELETIN contact. Second, practitioners can now be authorized
to receive their clients’ EIN data directly from the IRS. This change was achieved by including a disclosure authorization on the Application for An Employer Identification
Number (Form SS-4) that eliminates
the need for a Power of Attorney (Form 2848).
However,
the IRS experienced implementation problems during the 2002 Filing Season. Also, the IRS experienced problems that have
caused, and may continue to cause, customer service problems during peak demand
periods. The implementation problems
involved:
·
Ineffective
handling of Form SS-4 data.
·
Not always having the IRS’ Integrated Data Retrieval
System (IDRS) available for EIN issuance (see page 6 for more information).
Not initiating
communication regarding a key change
with the SSA
The SB/SE Division
changed the EIN prefix numbering convention.
However, it did not effectively communicate this change to its
stakeholders. As a result, the
IRS assigned over 13,000 EINs with a prefix that had been used internally by
the SSA for over 40 years. The
Memorandum of Understanding between the IRS and the SSA requires that the IRS
notify the SSA of any changes or additions to EIN prefixes. However, in this situation the SSA
identified the problem and notified the IRS in January 2002. At that time, the SSA and IRS met to discuss
ways in which to resolve the issue.
The IRS began resolving this issue with affected taxpayers
in May 2002. The solution selected was
to assign a new EIN and merge the current account into the new EIN. The IRS is currently in the process of
notifying the affected taxpayers of their new EIN. These taxpayers will need to resolve any issues regarding
financial institution accounts and business dealings in which the erroneous
EINs were used. For example, the EIN is
the employer identifier used in most health care transactions. Employers have to obtain and use the EIN on
all health care electronic transactions that require an employer identifier.
Ineffective handling of Form SS-4 data
The EIN issuance process also changed how the IRS sends Form
SS-4 data to the SSA. Starting in
January 2002, the IRS was to implement a process to electronically transmit
Form SS-4 data. However, the
implementation was delayed for over 2 months.
The three SB/SE Division EIN sites did not effectively
handle the Forms SS-4 while the program implementation was delayed. As a result, Form SS-4 data was not retained
on over 124,500 EIN applications, and is now no longer recoverable. We advised SB/SE Division management of this
condition during our review. The SSA
has not yet determined the effect of the missing data on their programs.
The SB/SE Division’s Strategy and Program Plan for Fiscal
Years 2002-2005 includes a strategic initiative to reduce the burden on small
business taxpayers. The initiative
includes an operational priority to identify methods of improving the process
for obtaining an EIN, to make it less time consuming and cumbersome for the
taxpayer.
In the private sector, customer contact centers offer their
customers various automated self-service systems to process payments, make
inquiries and update customer information.
The current EIN issuance process design is labor intensive and only
offers access through an IRS tax examiner via telephone, fax and mail.
Technology enhancements are needed to both the telephone and
fax contact methods. In the current
telephone process, a tax examiner must input the necessary information into a
computer. When customers are unable to
contact the IRS because of heavy demand, they must re-contact the IRS as many
times as necessary in order to receive the EIN. An automated self-service option could reduce the number of
customers that need to contact a tax examiner, thereby improving service and
reducing costs.
Similarly, the IRS plans to enhance the EIN issuance process
by using a fax server option that is not operational to date. The system being implemented will still
require a tax examiner to process the EIN.
However, as with telephone automated self-service systems, fax servers
can also be programmed to issue an EIN without tax examiner intervention.
In line with private sector customer contact centers, an EIN
Internet application is in the development phase. This system can be an automated self-service system.
These automated self-service enhancements are needed to
improve customer service. In January
and February of 2002 the three EIN sites were unable to meet the telephone
demand for new EINs. This resulted in a
cumulative Customer Service Representative Level of Service of 42 percent for
the 5-month period ending May 31, 2002, and has harmed taxpayer relations and
generated negative publicity about the EIN issuance process.
Figure
1. EIN Call Attempts and Assistor Calls
Answered for January through March 2002
Figure 1 was
removed due to its size. To see the
figure, please go to the Adobe PDF version of the report on the TIGTA Public Web
Page.
The graph shows that during the peak period, the EIN sites
experienced problems handling the demand for EINs. When the peak period ended and the demand for EINs decreased, the
EIN sites could meet the demand.
The Director, Customer Account Services, SB/SE Division, who
is responsible for the EIN issuance process, should provide customers with more
self-service options by:
1.
Enhancing the TELETIN architecture with an automated
self-service option.
Management’s Response: The IRS is developing an EIN
Internet application. This system will
be an automated self-service system.
Over the next few years, as the IRS transitions to a contact center environment,
its modernized systems architecture will support automated systems on the
telephone and the Internet.
2.
Modifying the programming of the fax server option to reduce
reliance on tax examiner intervention.
Management’s Response: The IRS is still pursuing
security certification for its fax server option that is not yet
operational. This system will still
require a tax examiner to process the EIN.
However, the IRS states that it will reduce handling time and provide quicker
responses to EIN requests.
Office of Audit Comment: The emphasis of the
recommendation was to use technology (i.e., programming) to have the faxes
processed so human intervention is not required.
The
Internal Revenue Manual requires that management develop plans that will enable
processing systems to continue functioning following an emergency or service
disruption. Appropriate contingency
plans are required to be developed, tested and updated by end users of
information technology applications.
These contingency plans help to ensure that users can continue to
perform essential functions in the event their information technology support
is interrupted.
The
contingency plan for the EIN issuance process requires revision since
operations are not efficient and customers are not served well when the IDRS
has a service disruption. The IDRS is
critical to the current process because tax examiners use it to issue EINs to
taxpayers. When the IDRS is
unavailable, the tax examiners cannot process and issue EINs.
A
major problem occurred during the period December 21, 2001, to January 1, 2002,
when the IDRS was not available because of the annual year-end processing. This situation caused the EIN Form SS-4
paper inventory to grow from approximately 11,800 to over 70,000
applications. The three EIN Program
sites had to ship paper inventory to non-EIN Program sites and assign non-EIN
personnel to process the applications.
This
annual IDRS shutdown occurs at the end of each calendar year. This is complicated by the fact that this
annual shutdown coincides with the peak demand period for requests for new
EINs. However, because it is a known
event, the contingency plan can address its occurrence with greater certainty than
for sporadic or unknown events.
The
EIN issuance process’ current contingency plan that addresses IDRS downtime
provides for keeping the toll-free telephone service operational and taking
requests by manually completing Forms SS-4.
Once the IDRS is available, the Forms SS-4 are processed and the EINs
are issued and then mailed. While this
does result in the issuance of the EINs, it does not meet the customer’s
expectation of receiving an EIN immediately, and somewhat defeats the purpose
of having the expanded TELETIN service.
The Director, Customer Account Services, SB/SE Division,
should enable tax examiners to provide service to customers during the times
when the IDRS is unavailable by:
3.
Improving the contingency plan by reserving blocks of EINs to
be assigned over the telephone when IDRS is inactive.
Management’s Response: The IRS will establish
procedures to ensure that the IDRS end of year downtime does not impact the EIN
issuance process. IRS will reserve a
block of EINs for known downtimes and make them available to Customer Service
Representatives to assign to customers.
4. Developing a long-term solution using technology such as
distributed processing to continue processing EINs when IDRS is not available.
Management’s Response: In line with its current modernization efforts, ongoing IRS
improvement initiatives will provide immediate access to EINs without IRS
intervention. The Customer Account Data
Engine (CADE) System will give taxpayers more opportunity for self-service
options.
Office of Audit Comment: While the CADE System may give taxpayers the opportunity for
self-service options, this new system may also experience downtime. Our recommendation was designed to address long-term
solutions to process EINs when the IDRS or future systems are not available.
Appendix I
Detailed Objective, Scope, and Methodology
The overall objective of this review was to determine whether the
Internal Revenue Service’s (IRS) Small Business/Self-Employed Division improved
the level of service provided by the Employer Identification Number (EIN)
issuance process. Specifically, we
determined if the EIN toll-free telephone operation and centralization of the
EIN issuance process (from 10 to 3 sites) resulted in improved timeliness and
reduced taxpayer burden. To accomplish
our objective, we:
I. Determined whether the centralization
of the EIN Program at three sites was effectively planned and implemented to
provide consistent, accurate and timely processing and increased service to
taxpayers requesting EINs.
A. Determined
whether management ensured that the centralized sites were adequately staffed,
that required resources were available, and that tax examiners were adequately
trained.
B. Determined whether established business rules ensured that
each site processed EINs consistently and in support of the program’s goals and
objectives.
C. Determined whether contingency plans were adequate in the
event that the toll-free telephone operation at the sites and/or the Integrated
Data Retrieval System (IDRS) were disrupted.
D. Determined the effectiveness of the IRS’ efforts to
communicate EIN Program changes to stakeholders. We also identified transition items that impacted EIN customers
and determined whether management timely addressed these issues.
II. Determined
whether the EIN issuance process met its goals and objectives.
A. Identified early
concerns/issues confronting the three sites in the 2002 Filing Season (from
January to April) and determined whether these concerns were timely addressed
by management.
B. Evaluated the accessibility of the EIN Telephone Tax Identification Number (TELETIN) toll-free sites by analyzing the IRS’s telephone system reports.
Appendix II
Major Contributors to This Report
Gordon C. Milbourn III, Assistant Inspector General for
Audit (Small Business and Corporate Programs)
Philip Shropshire, Director
Edmond Watt, Audit Manager
Timothy F. Greiner, Auditor
Michael Della Ripa, Auditor
Appendix III
Commissioner N:C
Deputy
Commissioner N:DC
Deputy
Commissioner, Small Business/Self-Employed Division S:DC
Director,
Customer Account Services, Small Business/Self-Employed Division S:CAS
Deputy
Director, Customer Account Services, Small Business/Self-Employed Division S:DC:CAS
Director,
Accounts Management, Small Business/Self-Employed Division S:CAS:AM
Chief
Counsel CC
National
Taxpayer Advocate TA
Director,
Legislative Affairs CL:LA
Director,
Office of Program Evaluation and Research Analysis N:ADC:R:O
Office of
Management Controls N:CFO:F:M
Audit
Liaison:
Commissioner, Small
Business/Self-Employed Division S:C
Appendix IV
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.