Improvements Are Needed to Ensure Tax Returns Are Correctly Prepared at Taxpayer Assistance Centers

 

December 2003

 

Reference Number:  2004-40-025

 

 

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.

 

December 10, 2003

 

 

MEMORANDUM FOR COMMISSIONER, WAGE AND INVESTMENT DIVISION

 

FROM:     Gordon C. Milbourn III /s/ Gordon C. Milbourn III

                 Acting Deputy Inspector General for Audit

 

SUBJECT:     Final Audit Report - Improvements Are Needed to Ensure Tax Returns Are Correctly Prepared at Taxpayer Assistance Centers (Audit # 200340021)

 

This report presents the results of our review of tax returns prepared at the Internal Revenue Service (IRS) Taxpayer Assistance Centers (TAC).  The overall objective of this review was to determine if tax returns prepared were correct based on the facts provided by the taxpayers. Our assessment also included determining whether IRS employees at the TACs properly screened taxpayers to ensure qualifications for tax preparation assistance were met prior to preparing the tax returns.   

Taxpayers are provided with the ability to seek assistance from the IRS in person at its TACs. The primary emphasis of the TACs is to provide face-to-face assistance to taxpayers in meeting their filing and payment responsibilities, including educating taxpayers, providing self-help, interpreting tax laws and regulations, securing forms, resolving notices, and providing need-based complimentary tax return preparation. 

Complimentary tax return preparation is provided to those taxpayers whose returns meet certain requirements and limitations (i.e., the type of tax return, the type and amount of income being reported, and deductions claimed).  IRS employees located at the TACs prepare the tax returns using an electronic tax preparation software package. Current year tax returns are electronically filed at no cost to the taxpayer, providing the taxpayer with a faster refund than if a paper tax return was filed. 

For Tax Year (TY) 2002, IRS employees at the TACs prepared 289,312 tax returns that involved refunds and tax liabilities totaling approximately $330 million and $6 million, respectively.  In addition, IRS employees at the TACs prepared 3,930 tax returns on which the taxpayers had no refund or liability (break-even).

From February through April 2003, Treasury Inspector General for Tax Administration auditors made 34 anonymous visits to 26 TACs nationwide in an attempt to have a tax return prepared.  These visits resulted in 23 prepared tax returns.  Results show taxpayers do not always receive proper and accurate customer service assistance during tax return preparation.  Specifically, in 21 (72 percent) of the 29 visits, IRS employees at the TACs did not inform auditors of tax return preparation requirements prior to preparing or scheduling an appointment to prepare the tax return.  In addition, none of the IRS employees at the TACs who prepared the 23 tax returns first advised the auditors of the specific forms they were trained to prepare.

Further results show that tax returns are not always correctly prepared.  IRS employees incorrectly prepared 19 (83 percent) of the 23 tax returns prepared during our visits.  If 17 of the 19 incorrectly prepared tax returns had been filed, the IRS would have incorrectly refunded approximately $32,000.  If the remaining 2 incorrectly prepared tax returns had been filed, the IRS would have inappropriately withheld $2,400 in tax refunds.

During the course of the review, we communicated our concerns to IRS management.  In response, IRS management immediately initiated corrective actions, including requiring IRS employees providing tax preparation assistance to ask questions, based on existing tax instructions and publications, to obtain relevant facts needed to determine that the credits and deductions claimed on a tax return are correct.  However, additional actions are needed to ensure taxpayers receive proper and accurate customer service when requesting assistance with tax return preparation.

We recommended that the Commissioner, Wage and Investment (W&I) Division, ensure that IRS employees at the TACs 1) follow the existing screening procedures before providing taxpayers with tax preparation assistance or scheduling an appointment, and 2) use the existing tax law instructions and publications to determine taxpayer eligibility for credits and deductions claimed on the tax return.  In addition, the Commissioner, W&I Division, should ensure that a quality review methodology for tax return preparation assistance is in place for the upcoming filing season.

Management’s Response:  IRS management appreciated our recognition of the corrective actions they took during the course of the review.  The IRS’ long-term approach to improving quality in the TACs is the implementation of Embedded Quality.  This approach focuses on standardized measures, employee monitoring, and feedback at the group level.

IRS management agreed with our recommendations and is taking corrective action.  The IRS will issue a memorandum reminding all Field Assistance function employees to adhere to tax return preparation and screening procedures in the Internal Revenue Manual (IRM).  Until Embedded Quality is fully implemented in all the TACs, the IRS will also develop a quality review plan to identify actions needed to ensure TAC employees are adhering to return preparation procedures in the IRM.  This plan will include requirements for managerial reviews of TAC employees who prepare tax returns and steps the Quality Review staff will take to review tax return preparation in the TACs.

Management’s complete response to the draft report is included as Appendix VII.

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 R. Phillips, Assistant Inspector General for Audit (Wage and Investment Income Programs), at (202) 927-0597.

 

Table of Contents

Background

Tax Returns May Be Prepared for Taxpayers That Do Not Qualify for Tax Preparation Assistance

Recommendation 1:

Taxpayers May Have Tax Returns Incorrectly Prepared at Taxpayer Assistance Centers

Recommendations 2 and 3:

Appendix I – Detailed Objective, Scope, and Methodology

Appendix II – Major Contributors to This Report

Appendix III – Report Distribution List

Appendix IV – States Visited for Tax Preparation Assistance February through April 2003

Appendix V – Tax Years 2001 and 2002 Tax Returns Prepared at Taxpayer Assistance Centers for Taxpayers With Income That Exceeded Requirements

Appendix VI – Results of Tax Returns Incorrectly Prepared at the Taxpayer Assistance Centers

Appendix VII – Management’s Response to the Draft Report

 

Background

One of the Congress’ principal objectives in enacting the Internal Revenue Service (IRS) Restructuring and Reform Act of 1998 (RRA 98) was to mandate that the IRS do a better job of meeting the needs of its customers.  As part of the RRA 98, the Congress directed the IRS to achieve a better balance between its post-filing enforcement efforts and pre‑filing taxpayer assistance through education and service. 

In response to the Congressional mandate, the IRS reorganized its functional areas and revised its mission statement to refocus its emphasis on helping taxpayers understand and meet their tax responsibilities. 

As part of the IRS’ restructuring efforts, the IRS Field Assistance (FA) function was created. Its mission is to minimize the burden to customers in satisfying their tax obligations by providing the right services at the right location at the right time.  To accomplish its mission, the FA function has over 400 Taxpayer Assistance Centers (TAC) organized into 7 geographical areas located throughout the United States (U.S.).  

The primary emphasis of the TACs is to provide face-to-face assistance to taxpayers in meeting their filing and payment responsibilities.  This includes educating taxpayers, providing self-help, interpreting tax laws and regulations, securing forms, resolving notices, and providing complimentary need-based tax return preparation. 

TACs provide certain taxpayers with free tax return preparation assistance

The IRS provides certain taxpayers face-to-face assistance when preparing their tax returns. Complimentary tax return preparation is provided at the TACs to those taxpayers whose returns meet certain requirements based on the type of tax return they are filing along with their income. 

When taxpayers visit a TAC to obtain assistance or have their tax returns prepared, IRS employees prescreen them to ensure that their tax returns meet the TAC qualifications for complimentary tax return preparation.  After the prescreening, they are either provided tax preparation assistance or offered an appointment to come back to the TAC for assistance.  They may also be advised of the location of a Volunteer Income Tax Assistance (VITA) site for tax preparation assistance. 

IRS employees prepare the tax returns using an electronic tax preparation software package.  Each current year tax return is electronically filed (e-filed) at no cost to the taxpayer.  This provides the taxpayer with a faster refund than if a paper tax return was filed.

According to the IRS, the TACs served approximately 9.1 million taxpayers during Calendar Year (CY) 2002. Approximately 877,800 of these taxpayers visited a TAC to either have their returns prepared and filed or to request assistance preparing their tax returns.  From January through June 2003, approximately 5.5 million taxpayers visited TACs; 526,000 visited them either to have their returns prepared and filed or to request assistance in preparing their tax returns.  Figure 1 shows the number of tax returns, total refunds, and total tax liabilities for Tax Years (TY) 2001 and 2002 tax returns prepared in the TACs.

Figure 1:  TYs 2001 and 2002
Tax Return Preparation Assistance at the TACs

 

Number of Tax Returns

Total Dollars (Millions)

Tax Year

With Refunds

Break-even

With Tax Due

Refunded

Due

2001

334,479

3,548

33,775

$419

$21

2002

277,023

3,930

12,289

$330

$6

Totals

611,502

7,478

46,064

$749

$27

Source:  IRS management information system (Return Transaction File) containing all tax returns prepared at the TACs.

Auditors played the role of taxpayers

To evaluate the procedures followed in the TACs when preparing taxpayer tax returns, Treasury Inspector General for Tax Administration (TIGTA) auditors played the role of taxpayers and completed the steps taxpayers might take if they visit a TAC to have their tax returns prepared.  From February through April 2003, TIGTA auditors performed 34 anonymous visits to 26 TACs located in 7 states (see Appendix IV for the specific states visited).

During these anonymous visits, TIGTA auditors presented scenarios and were successful in having IRS employees at the TACs prepare 23 tax returns.  The tax returns involved only those tax law issues within the scope of services IRS employees at the TACs were trained to evaluate while preparing the tax returns. 

Each scenario was designed to cover a wide range of tax law topics to provide an overall assessment of whether taxpayers are having correct tax returns prepared when they visit the TACs. Figure 2 provides a summary of the auditors’ attempts to have tax returns prepared during the 34 visits.

Figure 2:  Results of Auditor Visits to 34 TACs

 

Tax Returns Prepared

Service Denied

No Tax Return Prepared

Appointments Scheduled

TAC Visits

23

4

1

6

Percentages

68%

12%

3%

18%

Source:  Anonymous visits performed by TIGTA auditors.

This review was conducted in the IRS Customer Assistance, Relationships, and Education function in the Wage and Investment (W&I) Division between February and July 2003. The audit was conducted in accordance with Government Auditing Standards.  Detailed information on our audit objective, scope, and methodology is presented in Appendix I.  Major contributors to the report are listed in Appendix II.

Tax Returns May Be Prepared for Taxpayers That Do Not Qualify for Tax Preparation Assistance

IRS employees at the TACs do not always prescreen taxpayers to ensure that their tax returns meet the requirements and limitations, such as the type of tax return, type and amount of income being reported, and deductions claimed.  In addition, IRS employees at the TACs who help prepare tax returns do not always first ensure that the tax returns qualify for complimentary tax return preparation and are within the scope of the IRS employees’ tax preparation training. Specifically:

·        For 21 (72 percent) of the 29 visits, IRS employees at the TACs did not prescreen or advise auditors of tax return preparation requirements prior to preparing or scheduling appointments to prepare the tax returns.

·        For all 23 of the tax returns prepared, IRS employees at the TACs did not determine if the issues on the tax returns would require forms or schedules that could not be prepared because they were outside the scope of their training.   

We recognize that there may be instances where it is more appropriate to accommodate taxpayers than to deny assistance to those whose returns might not qualify.  However, IRS employees at the TACs did not always follow existing procedures to ensure qualifications for tax preparation assistance were met prior to preparing the tax return.  For example, a review of all tax returns prepared in the TACs showed that IRS employees at the TACs prepared 14,815 TY 2001 and 6,102 TY 2002 tax returns for taxpayers with income that exceeded the income limitations in IRS internal guidelines. 

For the TY 2002 tax returns prepared for taxpayers whose income exceeded the income limitations, the limits were exceeded by an average of $158,450, from $35,002 to $219,308. See Figure 3 for the specific breakdown by income level for tax returns prepared and e‑filed by IRS employees at the TACs for taxpayers with incomes that exceeded IRS guidelines. Appendix V provides a complete breakdown by state.

Figure 3: TYs 2001 and 2002 Tax Returns That Exceed Income Limitations Prepared at the TACs

Income Level
(Dollars)

Number of TY 2001 Tax Returns > $33,000

Income Level
(Dollars)

Number of TY 2002 Tax Returns > $35,000

33,000-39,999

8,272

35,000-39,999

2,919

40,000-59,999

4,765

40,000-59,999

2,297

60,000-79,999

1,191

60,000-79,999

616

80,000-99,999

370

80,000-99,999

168

Over 100,000

211

Over 100,000

98

Over 200,000

6

Over 200,000

4

Total

14,815

Total

6,102

Source:  IRS management information system (Return Transaction File) containing all tax returns prepared at the TACs.

IRS guidelines require IRS employees at the TACs to:

·        Assist taxpayers that visit TACs for tax return preparation assistance on a first-come, first‑served basis. 

·        Designate an employee to control the flow of traffic and prescreen taxpayers to ensure they meet the requirements for tax preparation assistance.  The number of taxpayers requesting tax return preparation assistance may, at times, exceed the number of tax returns that can be prepared during 1 workday.  Therefore, if it appears that taxpayers cannot be assisted on the day of their visit, IRS employees will offer appointments within the next 5 business days.

·        Limit the types of tax return preparation assistance to only those forms and schedules for which the IRS employees have received training.  

·        Limit assistance to only those taxpayers within the allowable income level.  Income level is tied to the amount allowed to claim the Earned Income Tax Credit (EITC).  The TACs may make exceptions to the tax return preparation limitations to accommodate individuals on a case-by-case basis.  However, in most cases involving tax return preparation outside of the limitations, the IRS employee should refer the taxpayer to alternative sources for assistance.

Preparing tax returns for taxpayers who do not qualify can adversely affect the IRS’ ability to provide qualifying taxpayers with assistance when they are denied service because IRS employees are preparing tax returns for taxpayers with incomes that exceed limitations or income and deductions that require using forms and schedules on which they have not been trained.  If guidelines are not followed, IRS employees could make errors on the tax returns, creating additional burden to the taxpayers through the misapplication of tax laws and regulations.

Recommendation

We recommend that the Commissioner, W&I Division:

1.      Reinforce procedures and monitor the assistance provided at the TACs to ensure existing screening procedures are being followed before employees provide taxpayers with tax preparation assistance or schedule an appointment.

Management’s Response:  The IRS will issue a memorandum to remind all FA function employees to adhere to return preparation screening procedures in the Internal Revenue Manual (IRM).  The employee performing the screening will determine if the customer meets the return preparation limitations and has all necessary documents such as Social Security cards.  If the customer meets the criteria, he or she will be scheduled for the next available return preparation appointment.

Taxpayers May Have Tax Returns Incorrectly Prepared at Taxpayer Assistance Centers

IRS employees incorrectly prepared 19 (83 percent) of the 23 tax returns based on the facts the TIGTA auditors provided them while making anonymous visits to the TACs.  Thirteen of the tax returns were for TY 2001 and 10 were for TY 2002.  Figure 4 provides a summary of the accuracy rates for the 23 tax returns prepared.

Figure 4:  Results of 23 Tax Returns Prepared

 

Correct

Incorrect

Tax Returns Prepared

4

19

Percentage

17%

83%

Source:  Anonymous visits performed by TIGTA auditors.

If 17 (89 percent) of the 19 incorrectly prepared tax returns had been filed, the IRS would have incorrectly refunded approximately $32,000, including EITC totaling $15,800 and Child Tax Credit (CTC) totaling $6,164.  If the remaining 2 (11 percent) incorrectly prepared tax returns had been filed, the IRS would have inappropriately withheld $2,400 in tax refunds.  Appendix VI provides a breakdown by the TACs visited and the overstatement or understatement for the 19 incorrectly prepared tax returns.

After the TAC visits, we analyzed the tax returns prepared and identified the following factors that contributed to the incorrect preparation of tax returns.

IRS employees modified the facts provided by the TIGTA auditors

For all 23 tax returns, TIGTA auditors either verbally or in writing presented scenarios to the IRS employees preparing the tax returns.  All scenarios required the IRS employees to determine whether the auditors qualified for the EITC.  For 6 (32 percent) of the 19 incorrectly prepared tax returns, IRS employees did not correctly use the facts presented by the auditors.  These actions would have allowed the auditors to receive EITC for which they were not eligible. 

For example, TIGTA auditors presented to the IRS employees how many months qualifying children had lived with them. The number of months presented did not qualify them for the EITC.  However, IRS employees modified the number of months to a sufficient number needed to be eligible for the EITC.

If filed, the 6 tax returns would have resulted in EITC overclaims totaling approximately $13,500.  For one correctly prepared tax return, an IRS employee tried to use the tax preparation software to allow the auditor the credit. However, the tax preparation software would not allow the credit.

We referred these cases to the TIGTA Office of Investigations for review to determine the intent behind the employees’ modifications of the facts presented by the auditors.  Those investigations did not find intentional misconduct on the part of the employees.  For example, some of the employees claimed inadequate training and/or a misunderstanding of the facts presented by the auditors as the reasons for their actions.

IRS employees did not use the Paid Preparer’s EITC Checklist (Form 8867) to ensure taxpayers met the requirements for claiming the EITC

For all 23 (100 percent) of the prepared tax returns, IRS employees did not use the Form 8867 when determining EITC eligibility.  IRS operating guidelines require IRS employees to use the Form 8867 and exhibit due diligence when preparing tax returns to ensure taxpayers meet the requirements for claiming the EITC. In addition, using the Form 8867 helps to educate taxpayers on the requirements to claim the EITC. 

Of the 665,044 TYs 2001 and 2002 tax returns prepared in the TACs, a total of 155,208 (24 percent) involved an EITC claim.  The EITC claims associated with these tax returns totaled approximately $296 million. 

Both the IRS and the Congress recognize the EITC as a highly visible and well-known source of noncompliance.  By not ensuring taxpayer eligibility, IRS employees increase the risk of taxpayers receiving erroneous payments and potentially subjecting these taxpayers to EITC examinations.  As part of its Examination program, the IRS has identified 8,273 TY 2001 tax returns prepared in the TACs as having questionable EITC claims.  As of August 2003, 287 of these tax returns had been selected for examination. 

IRS employees did not use tax instructions and publications to determine taxpayer eligibility to receive credits and deductions

The scenarios used by TIGTA auditors for the 23 tax returns prepared were designed to require IRS employees to make an eligibility determination for a wide range of tax law topics.  Figure 5 shows the accuracy of IRS employees’ determinations in relation to these tax law topics.

Figure 5:  Accuracy of Tax Returns by Tax Law Topic

 

Eligibility Assessment

Tax Law Topics

Correct

Incorrect

Filing Status

9

14

Dependents

13

10

EITC

15

8

CTC

13

10

Additional Child Tax Credit

17

6

Rate Reduction Credit

11

2

Source:  Anonymous visits performed by TIGTA auditors.

During the fall of CY 2002, IRS employees were trained on the use of tax instructions and publications to assist taxpayers with tax law questions to ensure the accuracy of responses provided.  This “publication method” requires IRS employees to obtain the appropriate publication, discuss specific information related to the topic, ask appropriate questions to obtain facts, and respond to the taxpayer’s issue or question.  However, IRS management informed us that employees were not required to use this method when providing tax preparation assistance. 

During the course of the review, we communicated the above results to IRS management.  The IRS took immediate corrective actions that required all IRS employees to use existing tax instructions and publications to ensure taxpayers were eligible to receive credits and deductions allowed on the tax returns. 

Each of the scenarios presented facts that required the IRS employee at the TAC to make a determination regarding the EITC and CTC.  To qualify for these credits, a taxpayer must meet specific eligibility requirements, including items relating to relationship, residency, etc.  If IRS employees do not use all resources available to them, they may not be able to correctly apply the applicable laws and regulations to ensure taxpayers are not receiving credits they are not entitled to receive.  Figure 6 provides the volume of TYs 2001 and 2002 tax returns prepared at the TACs along with the substantial amount claimed for the EITC and CTC.

Figure 6:  TYs 2001 and 2002 Tax Returns
Prepared at the TACs With the EITC and CTC

 

TY 2001

TY 2002

Tax Return Type

Total Tax Returns

Credits
Claimed (Millions)

Total Tax Returns

Credits
Claimed
(Millions)

EITC

84,988

$160

70,220

$136

CTC

52,692

$31

36,240

$20

Source:  IRS management information system (Return Transaction File) containing all tax returns prepared at the TACs.

In addition, when employees do not ensure that they correctly apply tax laws and regulations, taxpayers may be at risk of not receiving the credits to which they are entitled.  For example, an analysis of all TYs 2001 and 2002 tax returns prepared at the TACs showed 30,741 tax returns and 105,746 tax returns on which the taxpayer claimed a dependent but did not receive the EITC and CTC, respectively.

In July 2003, we informed the IRS there was a risk that approximately 48,538 TY 2002 taxpayers may have been entitled to receive the $400 advanced CTC payment but may not have received it as planned.  In addition, there were 36,240 taxpayers scheduled to receive approximately $14.5 million in advanced CTC payments to which they may not be entitled.  This happened because IRS employees at the TACs did not properly determine taxpayer eligibility for the credit when preparing tax returns and because there was a systemic error in a tax preparation software package.  Based on our results, we recommended the IRS take steps to ensure only eligible taxpayers receive the planned $400 advanced CTC payment. 

IRS employees used tax preparation software that had systemic errors to prepare returns for TYs 2001 and 2002

For 2 (11 percent) of the 19 incorrectly prepared tax returns, systemic errors in the tax preparation software used when preparing these tax returns would have prevented TIGTA auditors from receiving $2,400 in refunds to which they were entitled. The software for TYs 2001 and 2002 had the following systemic errors: 

·        For TY 2001, the software would not allow the EITC or CTC for taxpayers that claimed their brothers, sisters, nieces, or nephews as qualifying children or dependents, even though the taxpayers were entitled to receive these credits.

·        For TY 2002, the software would not allow the CTC for taxpayers that claimed their brothers, sisters, nieces, or nephews as dependents.  The software would incorrectly allow the CTC for taxpayers that claimed as dependents foster children that lived in the home less than 12 months, even though taxpayers were not entitled to receive the credit.

We could not determine how many taxpayers this might affect because of the way the IRS transcribes data. Management has been alerted to the problems we identified with the electronic tax preparation software.  We are not making a specific recommendation to address this problem.  We plan to conduct a separate review to evaluate the IRS’ process for ensuring tax preparation software used by employees to prepare tax returns is accurate.

The IRS FA function does not have a tax preparation assistance quality review process

Tax returns prepared by IRS employees at the TACs are not subjected to a quality review process to ensure the correctness of the tax returns prepared.  Instead, the IRS relies on a validation process at submission processing sites to identify errors on tax returns prepared in the TACs.  However, this process does not validate a taxpayer’s eligibility to receive credits and deductions allowed by IRS employees on the tax return.  That type of validation generally takes place only if the tax return is selected for examination.

The IRS recognizes the need to implement an effective quality review system for its TACs.  However, during Fiscal Year (FY) 2003, the FA function focused on a plan to improve the accuracy of the answers IRS employees at the TACs provide to taxpayers’ tax law questions.  The IRS informed us that in FY 2004 it plans to implement a methodology to use Embedded Quality to measure customer service, including tax preparation assistance, provided in the TACs.  The Embedded Quality approach focuses on standardized measurements, employee monitoring, and employee feedback at the group level. The IRS believes this type of quality review will allow TAC managers to provide feedback to their employees.

We believe that one of the major management challenges the IRS faces is to provide quality customer service to each and every taxpayer. Taxpayers that seek help in preparing their tax returns rely upon the professional assistance of IRS employees. However, without an effective tax preparation assistance quality review process, the IRS cannot be assured that its employees are preparing correct tax returns based on facts provided by taxpayers.

Recommendations

We recommend that the Commissioner, W&I Division:

2.      Reinforce existing procedures that require IRS employees to use existing tax law instructions and publications when assisting taxpayers.

Management’s Response:  The IRS will issue a memorandum reminding all FA function employees to adhere to return preparation procedures in the IRM which require that each TAC employee use the applicable worksheets prompted by the return preparation software and the publication method or job aids to determine eligibility for deductions and credits. 

3.      Ensure a quality review methodology for tax return preparation assistance is in place before the 2004 Filing Season begins in January 2004.

Management’s Response:  Until Embedded Quality is fully implemented in all the TACs, the IRS will develop a quality review plan to identify actions needed to ensure TAC employees are adhering to return preparation procedures in the IRM.  This plan will include requirements for managerial reviews of TAC employees who prepare tax returns and steps the Quality Review staff will take to review tax return preparation in the TACs.

 

Appendix I

 

Detailed Objective, Scope, and Methodology

 

The overall objective of the review was to determine if tax returns prepared at the Internal Revenue Service (IRS) Taxpayer Assistance Centers (TAC) were correct based on the facts provided by the taxpayers.  We determined if tax returns prepared in the TACs were correct by determining if IRS employees evaluated each requesting taxpayer’s eligibility to claim credits and deductions on the tax return.  In addition, we assessed whether IRS employees at the TACs properly screened taxpayers to ensure qualifications for tax return preparation were met prior to the IRS employees’ preparation of the tax returns. 

To achieve this objective, we performed the following tests:

        I.                 Determined if IRS employees prepared correct tax returns based on facts provided by Treasury Inspector General for Tax Administration (TIGTA) auditors at the 26 TACs visited.  Audit coverage included the TACs in states with high and low accuracy rates reported in the January through June 2002 Semiannual Walk-In report.  Where possible, TIGTA auditors visited the TACs located in or around major cities located in the selected states.  Auditors developed scenarios and had IRS employees prepare tax returns based on training and the scope of topics prescribed in the Fiscal Year 2003 Field Assistance function Operating Procedures.   

     II.                 Determined if IRS employees at the TACs used tax instructions and publications (i.e., the “publication method”) and asked appropriate probing questions while preparing tax returns.  

   III.                 Determined if IRS employees at the TACs properly screened taxpayers for tax preparation assistance requirements and tax law topics that were within the scope of topics prescribed in the Field Assistance function Operating Procedures. 

  IV.                 Analyzed IRS data to determine the number of taxpayers who visited the TACs and the number of taxpayers who had their tax returns prepared by IRS employees at the TACs.  We did not validate the IRS data.

     V.                 Analyzed Tax Years 2001 and 2002 tax preparation software used by IRS employees at the TACs to prepare tax returns to determine if the programs prepared the tax returns correctly.

Appendix II

 

Major Contributors to This Report

 

Michael R. Phillips, Assistant Inspector General for Audit (Wage and Investment Income Programs)

Randee Cook, Director

Russell Martin, Acting Director

Frank Jones, Audit Manger

Pam DeSimone, Senior Auditor

Lena Dietles, Senior Auditor

Kathy Henderson, Auditor

Geraldine Vaughn, Auditor

 

Appendix III

 

Report Distribution List

 

Commissioner  C

Office of the Commissioner – Attn:  Chief of Staff  C

Deputy Commissioner for Services and Enforcement  SE

Deputy Commissioner, Wage and Investment Division SE:W

Chief, Customer Liaison, Small Business/Self-Employed Division SE:S:COM

Director, Customer Assistance, Relationships, and Education, Wage and Investment Division  SE:W:CAR

Director, Strategy and Finance, Wage and Investment Division  SE:W:S

Director, Communications and Liaison, Small Business/Self-Employed Division  SE:S:MS:CL

Director, Field Assistance, Wage and Investment Division SE:W:CAR:FA

Director, Stakeholder Partnerships, Education, and Communication, Wage and Investment Division  SE:W:CAR:SPEC

Chief Counsel  CC

National Taxpayer Advocate  TA

Director, Office of Legislative Affairs  CL:LA

Director, Office of Program Evaluation and Risk Analysis RAS:O

Office of Management Controls  OS:CFO:AR:M

Audit Liaison:  GAO/TIGTA Liaison, Wage and Investment Division  SE:W:S:PA

 

Appendix IV

 

States Visited for Tax Preparation Assistance

February through April 2003

 

The map was removed due to its size.  To see the map, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.

 

We visited seven states:  California, Florida, Illinois, Massachusetts, New Hampshire, South Carolina, and Texas.

 

Appendix V

 

Tax Years 2001 and 2002 Tax Returns Prepared at Taxpayer Assistance Centers for Taxpayers With Income That Exceeded Requirements

 

 

States

Tax Returns Prepared for Taxpayers With Income > $33,000

Total Tax Year 2001 Tax Returns Prepared

Tax Returns Prepared for Taxpayers With Income > $35,000

Total Tax Year 2002 Tax Returns Prepared

 

ALABAMA

141

4,850

58

4,525

ALASKA

21

1,288

2

677

ARIZONA

73

1,553

11

560

ARKANSAS

73

1,954

20

1,433

CALIFORNIA

1,641

19,715

687

11,846

COLORADO

7

403

4

362

CONNECTICUT

717

21,797

296

17,626

DELAWARE

0

0

0

0

FLORIDA

224

7,032

52

5,247

GEORGIA

265

10,512

60

9,188

HAWAII

49

851

11

516

IDAHO

65

901

28

687

ILLINOIS

473

12,457

293

14,088

INDIANA

485

13,140

188

8,862

IOWA

67

1,344

75

1,235

KANSAS

345

4,320

120

2,531

KENTUCKY

105

5,466

44

5,151

LOUISIANA

285

6,561

60

4,647

MAINE

237

5,814

96

4,821

MARYLAND

1,076

17,337

530

12,917

MASSACHUSETTS

178

5,368

71

3,925

MICHIGAN

203

6,719

46

4,529

MINNESOTA

56

727

19

345

MISSISSIPPI

76

3,467

30

2,910

MISSOURI

725

9,648

257

11,279

MONTANA

140

3,978

52

2,383

NEBRASKA

81

3,277

33

3,419

NEVADA

112

2,055

21

1,125

NEW HAMPSHIRE

120

2,055

46

1,929

NEW JERSEY

271

7,585

121

7,763

NEW MEXICO

56

1,529

14

584

NEW YORK

1,155

35,600

439

27,499

NORTH CAROLINA

304

6,700

141

7,522

NORTH DAKOTA

27

890

68

1,443

OHIO

430

19,186

154

17,385

OKLAHOMA

54

2,669

41

2,338

OREGON

145

4,685

63

3,165

PENNSYLVANIA

481

12,885

215

13,166

RHODE ISLAND

69

5,378

20

4,482

SOUTH CAROLINA

86

2,819

33

3,246

SOUTH DEKOTA

124

1,792

71

1,613

TENNESSEE

318

8,512

140

6,252

TEXAS

1,028

17,024

324

11,352

UTAH

129

1,490

40

1,070

VERMONT

35

1,225

7

1,055

VIRGINIA

426

12,390

271

15,307

WASHINGTON

547

10,133

146

5,723

WASHINGTON, D.C.

68

2,094

25

2,050

WEST VIRGINIA

109

1,631

67

4,738

WISCONSIN

76

2,616

16

1,423

WYOMING

176

1,776

43

1,193

NO STATE NAMED

661

7,794

433

5,863

Totals

14,815

342,992

6,102

284,995

Source:  Internal Revenue Service management information system (Return Transaction File) containing all tax returns prepared at the Taxpayer Assistance Centers.

 

Appendix VI

 

Results of Tax Returns Incorrectly Prepared at the Taxpayer Assistance Centers

 

Taxpayer Assistance Centers Visited

 Internal Revenue Service Refund

Correct Refund

Refunds Understated

Refunds
Overstated

Long Beach, CA

$4,241

$5,441

$1,200

 

Los Angeles, CA

$4,241

$5,441

$1,200

 

Santa Ana, CA

$3,914

$2,691

 

$1,223

Fort Myers, FL

$1,295

$980

 

$315

Fort Myers, FL

$1,227

$192

 

$1,035

St. Petersburg, FL

$2,818

$2,547

 

$271

St. Petersburg, FL

$1,518

$192

 

$1,326

Tampa, FL

$2,495

$980

 

$1,515

Tampa, FL

$627

$(559)

 

$627

Tampa, FL

$4,241

$3,070

 

$1,171

Chicago, IL

$5,441

$2,547

 

$2,894

Ford City, IL

$5,441

$2,547

 

$2,894

Manchester, MA

$1,827

$(559)

 

$1,827

Worcester, MA

$4,121

$(559)

 

$4,121

Myrtle Beach, SC

$5,037

$2,180

 

$2,857

Myrtle Beach, SC

$3,806

$312

 

$3,494

Columbia, SC

$3,806

$(559)

 

$3,806

Columbia, SC

$3,103

$860

 

$2,243

Desoto, TX

$627

$(559)

 

$627

Totals:

 

 

$2,400

$32,246

Source:  Anonymous visits performed by Treasury Inspector General for Tax Administration (TIGTA) auditors.

 

Appendix VII

 

Management’s Response to the Draft Report

 

The response was removed due to its size.  To see the response, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.