Management Advisory Report:
Numerous Efforts Are Taken to Educate Taxpayers on Innocent Spouse
Eligibility Requirements
March 2002
Reference Number: 2002-40-067
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
26, 2002
MEMORANDUM FOR Commissioner, Wage and Investment Division
FROM: Pamela J. Gardiner /s/ Pamela J. Gardiner
Deputy Inspector General for
Audit
SUBJECT: Final Management Advisory Report -
Numerous Efforts Are Taken to Educate Taxpayers on Innocent Spouse Eligibility
Requirements (Audit # 200140053)
This
report presents the results of our review to determine if the Internal Revenue Service (IRS) effectively
educates taxpayers on the eligibility requirements for Innocent Spouse claims.
In summary, we found that the IRS is effectively educating
taxpayers on the requirements that need to be met to qualify for Innocent
Spouse relief. Educating taxpayers is
achieved through the use of numerous outreach efforts, including: (1) detailing
eligibility information in numerous IRS publications, forms, and notices; (2)
providing a number of outlets from which taxpayers can easily obtain eligibility
information; and (3)
targeting specific segments of the taxpaying public that are more likely to be involved in an
Innocent Spouse claim.
Management’s
Response: IRS management agreed with the finding and recommendations as
presented in our report. While their
response to recommendation number 2 indicates minor disagreement with the exact
wording of the recommendation, their response indicates appropriate action for
the issue. Our recommendation intended
to ensure that territories have employees that can examine and process Innocent
Spouse claims. We did not expect that
all Taxpayer Assistance Center employees would be trained on this issue. Management’s complete response to the
draft report is included as Appendix IV.
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 Michael Phillips, Acting
Assistant Inspector General for Audit (Wage and Investment Income Programs), at
(202) 927-7085.
Numerous Efforts Are Taken to Educate Taxpayers on Innocent Spouse Eligibility Requirements
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
Some of the most important and major parts of the Internal
Revenue Service (IRS) Restructuring and Reform Act of 1998 (RRA 98) are
provisions that broaden the eligibility requirements
that need to be met to qualify for Innocent Spouse relief. Under these new provisions, requirements for
obtaining relief are made less stringent with the intent to protect taxpayers
from the tax misdeeds of their spouses. Some of these provisions include the following:
·
A taxpayer must elect
Innocent Spouse relief within 2 years after tax collection activities are
begun.
·
Divorced taxpayers and
married taxpayers who are legally separated or are living apart for at least 1
year are permitted to elect separate tax liability despite having filed a joint
return.
·
The Tax Court has
jurisdiction to review Innocent Spouse relief denials and to restrain IRS
collection efforts while a Tax Court procedure is pending.
·
The IRS is required to notify
joint filers of the legal consequences of filing a joint return and to send any
notice relating to a joint return separately to each individual on the return
once a claim has been filed.
Innocent Spouse relief is
available to those taxpayers who prove to the IRS that they signed a joint tax
return without knowledge of incorrect and/or omitted items on the tax return
that, once identified by the IRS, results in tax being owed by the individual
filing for Innocent Spouse relief.
To qualify for Innocent Spouse relief, the individual claiming relief must meet certain conditions, including:
·
File a joint tax
return that understates the amount of tax owed. This understatement results from erroneous information either
added to or excluded from the tax return by the spouse of the individual
qualifying for relief.
·
Establish that,
at the time of signing the joint tax return, he or she did not know and had no reason
to know that there was an understatement of tax owed.
· Fact(s) and circumstance(s) result in the conclusion that it would be unfair to hold the taxpayer liable for the understatement of tax owed.
Since the enactment
of the RRA 98 on July 22, 1998, approximately 82,214 taxpayers have filed
claims for Innocent Spouse relief for 1 or more tax years (see table below).
Innocent Spouse Claims Received, Fiscal Years 1998
Through 2001
Fiscal Year
|
Claims Received
|
Taxpayers Who Filed Innocent Spouse Claims
|
|---|---|---|
|
1998 |
2,542 |
1,338 |
|
1999 |
44,667 |
23,509 |
|
2000 |
57,388 |
30,204 |
|
2001 |
51,609 |
27,163 |
|
Total: |
156,206 |
82,214 |
Source: IRS
Innocent Spouse Project Office for the period July 22, 1998, to September 30,
2001.
This review was conducted at the IRS’ centralized Innocent Spouse case processing site located in Covington, Kentucky, from July to October 2001. The review was conducted in accordance with the President’s Council on Integrity and `Efficiency’s Quality Standards for Inspections. Detailed information on our review objective, scope, and methodology is presented in Appendix I. Major contributors to the report are listed in Appendix II.
The IRS is responsible for ensuring
that the provisions of the RRA 98 are implemented and the rights of the
requesting and non-requesting spouses are protected. In May 1999, the IRS created the Innocent Spouse Project Office
to oversee the Innocent Spouse program.
Our review identified that the IRS is effectively educating
taxpayers about the requirements that need to be met to qualify for Innocent
Spouse relief. Educating
taxpayers is achieved through the use of numerous outreach efforts, including:
·
Detailing eligibility
information in numerous IRS publications, forms, and notices.
·
Providing a number of outlets
from which taxpayers can easily obtain eligibility information.
·
Targeting specific segments of the
taxpaying public that are more likely to be involved in an Innocent Spouse claim,
including presentations at the low income tax clinics.
Eligibility
information is detailed in numerous IRS publications, forms, and notices
To assist taxpayers in understanding if they qualify for Innocent Spouse relief, the IRS publishes two key documents that detail eligibility requirements. These two documents are Innocent Spouse Relief (and Separation of Liability and Equitable Relief) (Publication 971) and the instructions included with the Request for Innocent Spouse Relief (Form 8857).
Our review of all publications, forms, and notices for which Innocent Spouse information is included (see table below) identified that in 9 of these 11 documents the taxpayer was provided with the necessary eligibility information or was referred to the 2 key documents that contain information on Innocent Spouse relief and eligibility requirements.
Title of Document
|
Document Number
|
|---|---|
|
Your Rights
as a Taxpayer |
Publication 1 |
|
Your Federal Income Tax for Individuals for Use in
Preparing 2000 Returns |
Publication 17 |
|
Divorced or Separated Individuals |
Publication 504 |
|
The IRS Collection Process |
Publication 594 |
|
Innocent Spouse Relief (and Separation of Liability
and Equitable Relief) |
Publication 971 |
|
Collection
Appeal Rights |
Publication
1660 |
|
Innocent
Spouse Relief Brochure |
Publication
3512 |
|
2000 U.S. Individual Income Tax
Return Instruction Booklet |
Form 1040 |
|
Request for
Innocent Spouse Relief |
Form 8857 |
|
Notification
to Your Spouse or Former Spouse About Your Claim |
Notice 1263 |
|
Balance Due
Reminder Notice |
Notice CP 501 |
Source: IRS Innocent Spouse
Program Office.
However, the
remaining two publications, which are included with certain tax bills sent to
taxpayers, did not provide eligibility information or references to where
taxpayers could find this information should the taxpayer question his or her
responsibility in paying the taxes owed. Without this information, the taxpayer may pay taxes that he or
she is not responsible for. These 2
publications were provided in tax bills or other mailings sent to approximately
1.25 million taxpayers between the months of January and October 2001.
As Innocent Spouse
relief is available to only those taxpayers who owe the IRS money, it is
imperative that eligibility information or reference to the requirements that
need to be met to obtain relief are included in tax bills sent by the IRS.
In addition, the IRS has focused
its educational efforts to include Spanish-speaking taxpayers who may qualify
for Innocent Spouse relief. Currently,
two IRS publications detailing Innocent Spouse requirements have been
translated into Spanish, with plans in place to translate additional documents.
Numerous outlets are
provided from which taxpayers can easily obtain information
The IRS provides taxpayers with numerous sources from which Innocent Spouse eligibility information can be easily obtained. The sources by which taxpayers can obtain Innocent Spouse information include:
·
Accessing the
IRS’ public website (Digital Daily).
The website provides taxpayers with access to those publications, forms,
and notices relating to Innocent Spouse claims. In addition, the website includes a probe and response “Eligibility Explorer” that displays on-line
yes/no questions for a taxpayer to determine if he or she is eligible for
Innocent Spouse relief.
·
Contacting the IRS’ Customer Service site.
·
Contacting the IRS’ Teletax system. The IRS’ Teletax has pre-recorded Innocent
Spouse eligibility information.
· Visiting an IRS Taxpayer Assistance Center (TAC). In addition to being able to obtain copies of publications, forms, and instructions, the taxpayer can receive assistance from an IRS employee at any of these sites.
If, after obtaining information from any of the above sources, a taxpayer still has questions about whether he or she may qualify for relief, the IRS encourages these taxpayers to file a claim with the IRS. The IRS will then determine for the taxpayer whether he or she meets the requirements needed to file an Innocent Spouse claim.
The IRS includes training on Innocent Spouse provisions in its basic training for TAC employees. During the summer of 2001, the IRS expanded its training of TAC employees to include how to process an Innocent Spouse claim. As of October 2001, 7 of the 432 TAC sites had an employee who could assist taxpayers in processing an Innocent Spouse claim. The continued training of TAC employees on Innocent Spouse processing requirements is critical, as over 9 million taxpayers visited IRS TAC sites during Fiscal Year 2001.
Specific segments of the taxpaying public are targeted
that are more likely to be involved in an Innocent Spouse claim
Of the approximately 127 million U.S. individual income tax
returns filed yearly, only about 27,000 taxpayers may be involved in an
Innocent Spouse relief claim. As a
result of the small number of taxpayers that may be involved in an Innocent
Spouse claim, the IRS attempts to target those taxpayers, or groups that could
interact with those taxpayers, that have a higher probability of being involved
in a claim for Innocent Spouse relief.
The audiences the IRS
targets include those taxpayers that are involved in a divorce or who have
recently filed for divorce. Some of the
outreach and marketing initiatives include:
·
Brochures provided
by a joint public service of the IRS and American Bar Association at IRS
Problem Solving Days.
· The publication of “Family Law Forum.”
· IRS News Releases by the IRS’ Communications Division.
· “Tip of the Day” promotion of the IRS’ Innocent Spouse interactive website.
To ensure that
successful initiatives between the IRS and external organizations to target
specific segments of the taxpaying population continue, a system to record
pertinent information about the external organization should be developed. We found that the method to track the
various organizations is a self-policing, manual system with no formal
procedures in place. Therefore, some
successful partnerships may not be revisited on an annual basis.
The Innocent Spouse
Project Office has also initiated a coordinated effort with the IRS’
Stakeholder Partnership, Education, and Communications (SPEC) function. This is an effort that the IRS has taken to
use its own organization to assist in targeting taxpayer audiences. In addition, Innocent Spouse information is
to be included as part of SPEC-sponsored low income tax clinics.
The Commissioner, Wage and Investment Division, should
ensure that:
1. Information is included in tax bills detailing Innocent Spouse eligibility requirements or referring taxpayers to where this information can be found.
Management’s Response: The IRS stated, “The updated Publication 594, now in final approval stage, directs taxpayers to Publication 971 and Form 8857 for details about relief from joint and several liability. We currently mail Publication 1660 as an enclosure with the Collection Due Process letter, along with Publication 594 and Form 12153, Request for a Collection Due Process Hearing. The Form 12153 Instructions already reference the filing of Form 8857 to request Innocent Spouse relief. Revised Publication 594 will provide information for most taxpayers receiving Publication 1660, until the latter publication is revised. When Form 12153 is revised, we will add the reference to Publication 971.”
2. The necessary funding is made available to continue to expand the training of the IRS’ TAC employees on Innocent Spouse processing requirements to provide taxpayers with the necessary assistance if they should visit a TAC site.
Management’s Response: The IRS stated that no corrective action was necessary. In its Assessment of Causes, it stated that funding of this training was not an issue and that due to the low volume of face-to-face contact expected, training would be limited to a few employees in each Territory.
Office of Audit Comment: While management’s response to recommendation number 2 indicates minor disagreement with the exact wording of the recommendation, their response indicates appropriate action for the issue. Our recommendation intended to ensure that territories have employees that can examine and process Innocent Spouse claims. We did not expect that all Taxpayer Assistance Center employees would receive this training.
3. A monitoring system is established to provide continuity of successful partnerships with external organizations for the purpose of educating target audiences on Innocent Spouse eligibility requirements.
Management’s Response: The IRS stated, “The IRS Stakeholder Partnerships, Education, & Communication (SPEC) function builds and leverages partnerships with external stakeholders who can provide useful information and assistance to more Wage and Investment taxpayers. For FY 2002, the Innocent Spouse Project Office coordinated with SPEC to cultivate and monitor partnerships with an interest in expanding awareness and understanding of the Innocent Spouse program.
The monitoring process centers on SPEC’s forthcoming contact management system, which captures program involvement. The Wage and Investment Division will be able to target and monitor partnerships offering access to audiences for a range of topics, including EITC, Innocent Spouse, Child Tax Credit, and Education Credits.”
Appendix I
Detailed Objective, Scope, and Methodology
The overall objective of this audit was to determine if the Internal Revenue Service (IRS) effectively educates taxpayers on eligibility requirements for Innocent Spouse claims. To accomplish our objective, we:
I. Determined what efforts the IRS had taken to educate taxpayers on Innocent Spouse eligibility requirements. Specifically, we interviewed Innocent Spouse Project management and obtained information about the various efforts taken to educate taxpayers on requesting Innocent Spouse relief.
II. Determined if IRS forms, publications, and notices contained Innocent Spouse information to determine if eligibility requirements were provided and whether the taxpayer was referred to where the information could be located. Specifically, we:
A. Reviewed the Internal Revenue Code criteria regarding Innocent Spouse relief.
B. Interviewed Innocent Spouse Project management to determine which forms and publications were applicable to Innocent Spouse relief.
C. Analyzed all publications, forms, and notices for which Innocent Spouse information was included to determine whether eligibility requirements were detailed and whether taxpayers were referred to where the information could be located.
III. Determined whether taxpayers could easily obtain Innocent Spouse eligibility information from the IRS. Determined if the IRS ensured that its website, pre-recorded Teletax number, and other outreach programs to public groups (such as the American Bar Association) included all pertinent and accurate information about filing an Innocent Spouse claim. Specifically, we:
A. Interviewed Innocent Spouse Project management about the various outreach programs that have been performed.
B. Obtained the dates that these outreach programs were performed and the frequency of having such programs.
C. Analyzed the IRS’ Digital Daily website, Teletax number, and various outreach programs with other public groups for the accuracy, clarity, completeness, and consistency of its Innocent Spouse information. If not accurate, clear, complete, and consistent, we:
1. Interviewed Innocent Spouse Project management and determined their procedures for revising or updating information regarding taxpayer eligibility requirements.
2. Obtained documentation about any revisions being made to information regarding Innocent Spouse relief.
D. Determined if more outreach programs should be implemented and if the appropriate taxpayers have been targeted.
E. Determined the anticipated volumes of forms, publications, Teletax callers, and outreach program participants that will address preparing Innocent Spouse claims during Fiscal Year 2002.
Appendix II
Major Contributors to This Report
Michael Phillips, Acting
Assistant Inspector General for Audit (Wage and Investment Income Programs)
Kerry Kilpatrick, Director
Russell Martin, Audit Manager
Edith Lemire, Senior Auditor
Roberta Fuller, Auditor
Grace Terranova, Auditor
Appendix III
Innocent Spouse Project Manager W:ISP
Director, Strategy and Finance W:S
Chief Counsel CC
National Taxpayer Advocate
TA
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
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.