Improvements Are Needed to Ensure Tax Returns Are Prepared Correctly at Internal Revenue Service Volunteer Income Tax Assistance Sites

 

August 2004

 

Reference Number:  2004-40-154

 

 

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.

 

August 31, 2004

 

 

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 Prepared Correctly at Internal Revenue Service Volunteer Income Tax Assistance Sites (Audit # 200440039)

 

This report presents the results of our review of Internal Revenue Service (IRS) Volunteer Income Tax Assistance (VITA) sites.  The overall objective of this review was to determine whether volunteers at IRS VITA sites prepare accurate tax returns based on facts provided by taxpayers.  Our testing did not involve volunteer tax preparation sites associated with the military and Tax Counseling for the Elderly. 

The Tax Reform Act of 1969 resulted in the formation of the VITA Program. Emphasis has continually focused on expanding the VITA Program through increased recruitment of social service, non-profit, corporate, financial, education, and government organizations; involvement of the military on a national level; and expansion of assistance provided to the limited-English proficient community.  VITA sites are often located at neighborhood centers, libraries, schools, churches, and shopping malls.

The VITA Program plays a vital role in helping the IRS achieve its goal of improving taxpayer service and facilitating participation in the tax system with sectors of the public.  The Program provides free Federal tax return preparation and electronic filing (e-filing) to target segments of individual taxpayers, including low-income, elderly, disabled, and limited-English proficient taxpayers.  These taxpayers are frequently involved in intricate family situations that make it difficult to correctly understand and apply the complex tax law.

In 1970, the VITA Program assisted 104,000 taxpayers by preparing tax returns and/or answering questions.  In Calendar Year 2003, the Program assisted 843,803 taxpayers at 3,791 VITA sites located around the country.  The tax returns filed by these 843,803 taxpayers involved refunds of approximately $996 million and liabilities of approximately $66 million. In addition, volunteers at VITA sites prepared 20,958 tax returns in which the taxpayers had no refund or liability.

In an attempt to have tax returns prepared, from February through April 2004 Treasury Inspector General for Tax Administration auditors anonymously visited 44 VITA sites nationwide acting as taxpayers and presenting facts based on scenarios designed around income reporting, filing status, exemptions, and the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC).  Of the 35 tax returns prepared, none were prepared correctly.  If 28 (80 percent) of these 35 tax returns had been filed, the IRS would have incorrectly refunded $26,007.  If the remaining 7 (20 percent) tax returns had been filed, taxpayers would not have received $4,546 in tax refunds to which they were entitled. 

In addition, taxpayers may not always receive accurate information on VITA site hours, services, or locations.  VITA site information provided by IRS employees is not always accurate and clear as to when the site is open, the location of the site, whether an appointment is necessary, and the type(s) of language service provided.

During the review, we shared results with IRS management.  In response, they quickly issued to volunteers a series of quality alerts that could be used as job aids to guide volunteers through tax law issues including the head of household filing status, the EITC, and the Advance CTC.  IRS management also formed an executive-led team to address volunteer tax return quality and issued revised volunteer site review guidelines.  The goal of management’s actions is to improve the quality of tax returns prepared by volunteers, with a specific focus on the quality of volunteer interviews with taxpayers and the correct application of the tax law. 

However, additional actions are needed before the 2005 Filing Season to ensure taxpayers receive correctly prepared tax returns and can easily locate VITA sites when using IRS-provided information.  We recommended the Commissioner, Wage and Investment (W&I) Division, review the existing process of ensuring volunteers are qualified to prepare tax returns to make certain that volunteers are trained and certified.  In addition, the Commissioner, W&I Division, should develop a quality review program that ensures volunteers are correctly applying the law and ensure VITA site information, including the address, hours of service, type(s) of language service offered, and whether an appointment is needed, is current and accurate.

Management’s Response:  IRS management is pleased our report acknowledges the critical role the VITA Program plays in serving disadvantaged taxpayers.  They agree with our findings and recommendations and have already initiated corrective actions.  The IRS will emphasize the requirement for volunteer certifications prior to the 2005 Filing Season, and a site visitation checklist will include verification that all certifications for volunteers preparing returns have been received.  A new automated certification system will be implemented that will improve the testing and certification process and will also facilitate electronic communications with volunteers to provide quality updates, dissemination of tax law compliance trends, and other opportunities to support volunteer efforts.

The IRS will also conduct quality reviews to determine whether required and recommended steps are being followed to ensure an accurate return and will monitor quality assurance efforts to assess whether these practices are producing the desired outcomes.  Lastly, the IRS will require field offices to verify that site information is current and accurate.  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 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

Taxpayers May Have Tax Returns Incorrectly Prepared at Volunteer Income Tax Assistance Sites

Recommendation 1:

Recommendation 2:

Taxpayers May Receive Inaccurate Information From the Internal Revenue Service About Volunteer Income Tax Assistance Sites

Recommendation 3:

Appendix I – Detailed Objective, Scope, and Methodology

Appendix II – Major Contributors to This Report

Appendix III – Report Distribution List

Appendix IV – Results of Tax Returns Prepared at Volunteer Income Tax Assistance Sites by State for Tax Year 2002

Appendix V States Visited for Volunteer Tax Preparation Assistance February Through April 2004

Appendix VI – Results of Tax Returns Incorrectly Prepared at Community-Based Volunteer Income Tax Assistance Sites

Appendix VII – Management’s Response to the Draft Report

 

Background

Providing quality customer service is the Internal Revenue Service’s (IRS) first step to taxpayer compliance.  To assist taxpayers in complying with the law, the IRS offers assistance through, for example, toll-free telephone numbers, walk-in services, and the IRS Internet site, IRS.gov.  Because of the complexity of the tax law, it has become even more critical for the IRS to ensure these services are available to all taxpayers.

The Volunteer Income Tax Assistance (VITA) Program plays a vital role in the IRS’ goal of improving taxpayer service and facilitating participation in the tax system with sectors of the public.  The Program provides free Federal tax return preparation and electronic filing (e-filing) to target underserved segments of individual taxpayers, including low-income, elderly, disabled, and limited English-proficient taxpayers.  These taxpayers are frequently involved in intricate family situations that make it difficult to correctly understand and apply the complex tax law.

The VITA Program originated in 1969 as a result of an increased emphasis on Taxpayer Education Programs due to the Tax Reform Act of 1969.  Emphasis has continually focused on expanding the VITA Program through increased recruitment of social service, non-profit, corporate, financial, education, and government organizations; involvement of the military on a national level; and expansion of assistance provided to the limited-English proficient community.  VITA sites are often located at neighborhood centers, libraries, schools, churches, and shopping malls.

In 1970, the VITA Program assisted 104,000 taxpayers by preparing tax returns and/or answering questions.  In Calendar Year (CY) 2003, the VITA Program assisted 843,803 taxpayers at 3,791 VITA sites located around the country.  A total of 589,438 (70 percent) of the 843,803 VITA-prepared tax returns were e-filed; the remaining 254,365 (30 percent) were filed via paper.  Table 1 provides a breakdown of Tax Year (TY) 2002 tax returns filed in CY 2003 by these 843,803 taxpayers with regards to refunds, break‑even filings (no refund or tax liability), and liabilities (taxes due or owed).  See Appendix IV for a breakdown of tax returns filed by state for TY 2002.

Table 1:  TY 2002 Tax Return Preparation at VITA Sites

Number of Tax Returns

Total Dollars

With Refunds

Breakeven

With Tax Due

Refunded

Owed

738,343

20,958

84,502

$995,736,279

$66,030,868

Source:  IRS management information system containing all tax returns prepared at VITA sites.

One of the Congress’ principal objectives in enacting the 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, 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 its restructuring efforts, the IRS created the Stakeholder Partnerships, Education and Communication (SPEC) function. Oversight of the VITA Program is the responsibility of the SPEC function.  Its business objectives include increasing access to VITA sites for low‑income taxpayers, increasing e‑filing, and enhancing accuracy.  To accomplish this, the SPEC function provides oversight by determining policies and procedures, developing products and training material, and monitoring and managing VITA Program activity. 

The VITA Program is becoming more important as the IRS reduces tax return preparation assistance in its Taxpayer Assistance Centers (TAC).  Changes in the TAC criteria for tax return preparation assistance have reduced the number of returns prepared in the TACs by 10 percent from Fiscal Years 2002 to 2003.  The IRS plans to continue this trend.  The National Taxpayer Advocate has raised concerns in annual reports to the Congress that low-income taxpayers face numerous hurdles in obtaining free tax preparation and e‑filing.  With the reduction of tax return preparation at the TACs, the IRS expects VITA sites to supplement the service previously provided by the TACs.  IRS management agrees with the National Taxpayer Advocate and will continue to be proactive in identifying locations where the maximum number of eligible taxpayers can have access to free tax return preparation services.

In an effort to ensure taxpayers who need assistance are provided with the ability to obtain this assistance, the SPEC function in concert with its partners uses data in its attempts to locate VITA sites in geographic areas consistent with where the targeted taxpayers live or work.  To further expand services in local communities to a greater number of taxpayers, the SPEC function partners with social service, non-profit, corporate, financial, education, and government organizations.  These various organizations are often part of a larger coalition.  The SPEC function has developed approximately 230 coalitions made up of thousands of local organizations, all playing a role of bringing free tax help to their communities. These organizations include over 30,000 volunteers.

The SPEC function also developed a taxpayer assistance reporting system that includes VITA site contact information and aids in the management of the VITA sites.  Site locations, hours of operation, days of operation, and the names of the site coordinators are included in this system. In addition, this information is provided to the IRS Toll-Free Customer Service function assistors and TAC employees, so they can direct taxpayers to a local VITA site. 

This review was performed in the IRS Customer Assistance, Relationships, and Education function in the Wage and Investment (W&I) Division Headquarters in Atlanta, Georgia, and Territory Offices in Phoenix, Arizona; Chicago, Illinois; Baltimore, Maryland; and New York, New York, during the period January through June 2004.  From February through April 2004, Treasury Inspector General for Tax Administration (TIGTA) auditors performed 44 anonymous visits to VITA sites located in 15 states and the District of Columbia.  See Appendix V for the specific states visited.  In an attempt to have tax returns prepared, auditors presented two scenarios designed around income reporting, filing status, exemptions, and the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC). 

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.

Taxpayers May Have Tax Returns Incorrectly Prepared at Volunteer Income Tax Assistance Sites

Volunteers incorrectly prepared all 35 tax returns they prepared based on the facts in scenarios TIGTA auditors presented while making anonymous visits to 44 VITA sites.  If 28 (80 percent) of these 35 tax returns had been filed, the IRS would have incorrectly refunded $26,007.  On the other hand, if the remaining 7 (20 percent) incorrectly prepared tax returns had been filed, the taxpayers would not have received $4,546 in tax refunds to which they were entitled.  See Appendix VI for details.

Tax returns were prepared incorrectly because volunteers did not obtain sufficient information to correctly apply the tax law

·         VITA sites did not always use intake sheets.  Intake sheets are designed to obtain key information about the taxpayer.  Although the use of an intake sheet is recommended in the IRS’ VITA guidelines, 15 (43 percent) of the 35 sites at which a tax return was prepared did not use them. 

·         Interviewing techniques were not effective in assessing taxpayers’ family situations and verifying key facts about taxpayers and their dependents.  VITA guidelines emphasize the importance of asking certain questions about taxpayers and their families to ensure tax returns are prepared correctly.  Family situations are often complicated and unique.  To correctly apply the complex tax law concerning filing status, exemption, and related credits, volunteers must ensure they have a complete understanding of the taxpayers’ family situations.

For example, for a single taxpayer to qualify for head of household filing status, the taxpayer must:

  • Be unmarried or considered unmarried on the last day of the year.
  • Have paid more than one-half of the cost of keeping up a home for the year.

·         Have a qualifying person who lived with the taxpayer in the home for more than one-half of the year (except for temporary absences, such as school or business).

The requirements a taxpayer must meet to qualify for head of household filing status may not be the same as those the taxpayer must meet to claim a qualifying person as a dependent or to qualify for the EITC and/or CTC.  For example, a dependent parent does not have to live with the taxpayer at all, while a foster child must live with the taxpayer all year.  A foster child may also have multiple definitions, depending on which deduction or credit is being applied.

In the majority of visits, the volunteers assisting the auditors did not ask sufficient questions to determine the auditors’ family situations.  For example, auditors presented a scenario of a single parent who had recently moved to another state.  The auditor explained that his or her son had lived with the auditor for only 5½ months in 2003.  The auditor paid for the son’s expenses while the son lived with the grandparents the remainder of the year.  Volunteers did not always ask whether the son’s living with the grandparents was a permanent or temporary situation.  Some volunteers made the assumption that it was a temporary situation and prepared the return with the auditor filing as head of household instead of single, thus qualifying the auditor for the EITC.  Using the same scenario, some volunteers did not always ask how long the son lived in the home with the auditor, assumed it was 12 months, and prepared the tax returns using this assumption. 

Volunteers also did not verify key information to validate the identity of the auditor and the legitimacy of dependents being claimed.  For example, in preparing 15 (43 percent) of the 35 tax returns, the volunteers did not use key information to validate the auditors’ identities by asking for some type of photo identification.  In preparing 6 (17 percent) of the 35 tax returns, the volunteers did not ensure the legitimacy of the dependents being claimed by requesting and reviewing Social Security cards for the dependents.

·         Volunteers did not always use the probe and response guide provided by the SPEC function.  At the completion of the IRS’ training program, volunteers are provided with a guide detailing key questions to ask when attempting to determine a taxpayer’s eligibility for certain credits and deductions.  However, during auditor visits, volunteers generally did not refer to this guide when attempting to determine the auditors’ eligibility for credits and deductions.  Comparisons of the facts in the scenarios to the key questions included in the guide show that if the guide had been correctly used, the tax returns most likely would have been prepared correctly. 

Table 2 shows the accuracy of the volunteers’ application of the tax laws presented in the scenarios.

Table 2:  Accuracy of Tax Returns by Tax Law Topic

 

Eligibility Assessment

Tax Law Topics

Correct

Incorrect

Filing Status

7

28

Dependents

27

8

EITC

13

22

CTC

24

11

Source:  Anonymous visits performed by TIGTA auditors.

Tax returns were prepared incorrectly because volunteers modified the facts in the scenarios the auditors presented

For 9 (26 percent) of the 35 incorrectly prepared tax returns, volunteers modified the facts the auditors presented.  The volunteers either knowingly or unintentionally made the modifications. Had these 9 returns been filed by actual taxpayers, modifications of the facts would have resulted in the receipt of net refunds that were overstated by $7,285. 

The volunteers knowingly modified the facts provided by the auditors when preparing three of the nine tax returns.  For example, an auditor detailed on an intake sheet that his or her dependent had lived with the auditor for only 5½ months during 2003.  The volunteer asked the auditor for the pen used to complete the intake sheet and changed the number of months to 6½ months.  Modifying the number of months from 5½ to 6½ resulted in the auditor incorrectly qualifying for the head of household filing status and the EITC.

For the remaining six of nine tax returns, the volunteers unintentionally modified the facts provided by the auditors.  For example, the auditor stated that his or her grandnephew lived with the auditor for 8 months.  The electronic software package the volunteer used to e‑file the tax return did not include the relationship of grandnephew as an option when selecting the dependent relationship.  The volunteer was unaware that a grandnephew is considered a foster child for the purposes of tax law and that the foster child must live in the home for an entire 12 months for the taxpayer to be eligible for certain deductions/credits.  The volunteer instead selected the dependent relationship of a nephew.  As a result, the auditor was incorrectly allowed the dependent exemption, head of household filing status, and CTC.  Conversely, the auditor did not receive the EITC to which he or she was entitled. 

People volunteer for the VITA Program because of a desire to assist underserved taxpayers.  The desire to assist was evident during our visits.  Volunteers assisting auditors were helpful, courteous, and very professional.  The sites themselves were well organized in handling the flow of large numbers of taxpayers that needed assistance.  Helping underserved taxpayers understand and meet their tax obligations is essential to voluntary compliance.  Given the complexity of the tax law, it is essential that the VITA Program ensure volunteers understand the significance of their role in the tax system and the importance of correctly applying the tax law.  The IRS should ensure volunteers are properly trained on the tax law as well as on the importance of using all available tools and resources to prepare accurate returns.

Insufficient internal controls and management oversight have resulted in the VITA Program not meeting its objective of enhancing the accuracy of tax returns

Current guidelines and procedures do not include sufficient internal controls.  For example:

·         Volunteers are not required to sign in at VITA sites to provide accountability as well as a means to ensure those that are preparing returns are certified as having the appropriate training.

·         Volunteer sites are not required, only recommended, to use intake sheets to record key information about taxpayers.  Intake sheets should include sufficient information about the taxpayer to ensure all information has been provided so the tax law can be applied correctly.

·         There is no quality review process either within the sites or on a national basis to ensure the volunteers are correctly applying the tax law.  The current onsite quality review system focuses on ensuring, for example, the names, addresses, and Social Security Numbers are correct, the returns are free from math errors and have been signed and dated, and the correct tax and credit(s) were selected from the appropriate table.

·         Volunteer training does not stress the importance of using the probe and response guide when assessing a taxpayer’s family situation. 

Further, internal controls outlined in the IRS VITA Program guidelines, designed to enable IRS management at the Headquarters, Area Office, and Territory Office levels to monitor and manage program activity, are not clear or consistently followed.  The seven Area Offices provide overall VITA Program directions to Territory Offices based on Program guidance from Headquarters. The 48 Territory Managers have overall responsibility for management of the VITA Program.

For example, guidelines require Territory Managers to certify that volunteers are qualified to prepare tax returns, maintain a list of volunteer names for each VITA site that has successfully passed the test, and attempt to conduct monitoring visits of VITA sites while open.  These guidelines also provide a checklist for the Territory Managers to use to assess the performance of the VITA sites.  Site managers must also ensure an onsite quality review system has been established. 

However, the guidelines do not provide instructions on how the monitoring visits should be conducted and how much verification should be provided to ensure the VITA sites are running satisfactorily.  For example, of the 40 sites in the 4 Territory Offices selected for testing, SPEC function employees had performed 28 monitoring visits.

·         For all 28 of the monitoring visits, discussions with the 4 Territory Managers determined the SPEC function employees did not actually review certifications verifying that each volunteer was certified; instead, they just asked the VITA site coordinators if the volunteers were certified.  Documentation was not available to confirm volunteers had been certified for 27 (68 percent) of 40 VITA sites. 

·         In 18 (64 percent) of the 28 monitoring visits, the SPEC function employees confirmed that the VITA site had a quality review system. No documentation was provided to verify that the onsite quality review system was established.  In fact, the required onsite quality review process was completed in only 6 (17 percent) of the 35 VITA sites at which auditors had tax returns prepared. 

During the review, we shared the results of the return preparation and Territory Office visits with IRS management.  In response, management quickly issued six quality alerts to volunteers from February 17 to March 26, 2004.  These alerts were issued as job aids to guide volunteers through tax law issues including the head of household filing status, the EITC, and the Advance CTC. The IRS also created an executive-led team to address volunteer tax return quality and issued revised volunteer site review guidelines.  These actions will focus on the quality of volunteer interviews with taxpayers and the correct application of the tax law. 

In addition, SPEC function employees recently developed a comprehensive management information system, the SPEC Taxpayer Assistance Reporting System (STARS), to monitor and manage key aspects of the VITA Program.  This system should help manage and oversee the VITA Program.  However, additional actions are needed before the 2005 Filing Season to ensure taxpayers receive correctly prepared tax returns. 

Overseeing a critical program that uses and is dependent on volunteers is a challenge and makes it essential that the IRS ensure its internal controls are sufficient to achieve its desired outcomes.  The Government Accountability Office (formerly the General Accounting Office) states that internal control is a major part of managing an organization and is synonymous with management control.  Internal control serves as the first line of defense in safeguarding assets and preventing and detecting errors and fraud; it comprises the plans, methods, and procedures used to meet missions, goals, and objectives. 

However, if IRS management does not improve internal controls, including the quality review process, and improve oversight, the risk will continue that volunteers will inappropriately apply the tax law, which may result in incorrectly prepared tax returns and significant losses to the Government.  For example, Table 3 provides the volume of TY 2002 tax returns prepared at VITA sites as well as the substantial amounts claimed for the EITC and CTC that could be at risk if the tax law is not applied correctly.

Table 3:  TY 2002 Tax Returns Prepared at VITA Sites With the EITC and CTC

 

TY 2002

Tax Returns Claiming

Total Tax Returns

Credits
Claimed

EITC

179,544

$236,468,096

CTC

161,618

$127,542,596

Source:  IRS management information system containing all tax returns prepared at VITA sites.

Incorrectly prepared tax returns not only increase the risk of taxpayers receiving erroneous payments but also may create additional burden on taxpayers if the IRS later finds potential errors on the tax returns.  For example, an analysis of the 843,803 TY 2002 tax returns prepared by VITA sites found that the IRS:

·         Rejected 62,072 (11 percent) of the 589,438 e-filed tax returns for 1 or more reasons. The most common errors included mismatches between what was reported on the tax return and what IRS records showed for dependent names, employer names, etc.  Because these errors are not immediately identified while a taxpayer is at a VITA site, correction may require the taxpayer to return to the VITA site.  IRS management indicated that for TY 2002, the national rate of rejected e-filed individual returns was higher than for rejected e-filed VITA prepared tax returns.

·         Identified questionable dependent claim(s) on 12,266 tax returns.  Because of resource constraints, the IRS selected only 778 of these taxpayers for a correspondence examination. 

·         Identified math errors on 22,630 tax returns (i.e., information included on the tax return was identified as incorrect).  The most common errors included the EITC being calculated incorrectly and dependent names or Social Security Numbers not matching IRS records. IRS management indicated that for TY 2002 the national math error rate for all individual return types was higher than for VITA prepared tax returns.

Recommendations

The Commissioner, W&I Division, should:

1.      Review the existing process for ensuring volunteers are qualified to prepare tax returns to make certain that volunteers are trained and certified.

Management’s Response:  The SPEC will emphasize the requirement for volunteer certifications prior to the 2005 Filing Season.  SPEC’s site visitation checklist will include verification that all certifications for volunteers preparing returns have been received.

The SPEC will implement a new automated certification system that will improve the testing and certification process.  An automated tracking certification feature will deliver the volunteer’s test scores to a central database by electronic mail and will result in a registry of certified volunteers.  The automated certification function will also facilitate electronic communications with volunteers to provide quality updates, dissemination of tax law compliance trends, and other opportunities to support volunteer efforts.

2.      Develop a quality review program that ensures volunteers are correctly applying the tax law.

Management’s Response:  The Volunteer Tax Preparation Quality Improvement Team (Quality Team) developed a plan for quality review and quality assurance.  The SPEC will conduct quality reviews to determine whether required and recommended steps are being followed to ensure an accurate return.  The SPEC will also monitor quality assurance efforts to assess whether these practices are producing the desired outcomes. 

Taxpayers May Receive Inaccurate Information From the Internal Revenue Service About Volunteer Income Tax Assistance Sites  

Taxpayers may not always receive accurate information on VITA site hours, services, or locations when calling the IRS Toll-Free Customer Service telephone number or visiting a TAC.  For the majority of the VITA sites visited, the information provided by the IRS on the location of the site was found to be correct.  However, there were instances in which the auditors could not visit some of the VITA sites or tax returns could not be prepared because the information on the IRS systems was incorrect.  For example, of the 44 VITA sites visited:

·         A VITA site located on a college campus was closed when the college was on spring break.

·         A VITA site had been relocated.  When the auditor arrived at the address that was available on the IRS Toll-Free Customer Service telephone number, the site was not open and there was no notification to taxpayers of the new location.  SPEC function management informed the auditor the site had been relocated.

Auditors were also not able to get tax returns prepared when they arrived at two VITA sites because the sites:

·         Prepared tax returns only for taxpayers with incomes less than $15,150.  The IRS information did not disclose this limitation.

·         Prepared tax returns by appointment only.  The IRS information did not disclose this limitation.

In addition, it is not always clear when VITA sites offer multilingual assistance.  One VITA site showed that it provided assistance in Spanish, when in fact the site provided assistance in Spanish in addition to English. The STARS allowed for only one language to be entered; any additional languages had to be entered into a comment section.  When a site offered multilingual services, only Spanish could be entered, making it appear that assistance was offered in Spanish only.  SPEC function management plans to update the STARS in October 2004 to allow for multiple languages to be selected for those sites that offer multilingual services, thereby eliminating the need to enter language information in the comment section.

IRS guidelines require that SPEC Territory Offices ensure VITA site information is input timely and accurately into the IRS computer system used to control VITA sites. SPEC Territory Offices rely primarily on the VITA sites to provide information about their sites and ensure the information is current.  However, VITA site managers do not always provide the IRS with updates on addresses and hours of operation.

The IRS provides VITA site contact information through the IRS Toll-Free Customer Service telephone number or at the TACs.  VITA site contact information is not available on the IRS web site, IRS.gov. We previously reported this in a report issued in March 2004.  In response to that report, IRS management indicated they did not plan to include VITA site information on IRS.gov.  Management stated that maintaining up-to-date VITA site information would require a major commitment of resources.  The IRS determined through 2002 and 2003 customer satisfaction surveys that taxpayers do not usually locate VITA sites by contacting the IRS.  Instead, the majority of taxpayers that seek the assistance of VITA sites locate the sites through the volunteer coalition’s community outreach efforts. 

These outreach efforts are often quite extensive and specifically targeted to those individuals that have a need for the VITA Program.  Territory Managers explained that volunteer coalitions advertise, for example, on posters located in subways and on buses, grocery bags, and placemats on trays at fast food restaurants.  However, additional actions are needed before the 2005 Filing Season to ensure taxpayers can easily locate VITA sites when using IRS-provided information.

The IRS has made a commitment to offer customers who visit its TACs the option of having their tax returns prepared by volunteers.  For these taxpayers and those who call the Toll-Free Customer Service telephone number for help with preparing their tax returns, it is important the information about the VITA sites is current and accurate.  When taxpayers contact the IRS and are not provided correct information on the location and services available at a particular VITA site, they may not be able to obtain the assistance they need.

Recommendation

The Commissioner, W&I Division, should:

3.      Ensure VITA site information, including the address, hours of service, type(s) of language service offered, and whether an appointment is necessary, is current and accurate.

Management’s Response:  The IRS will build an indicator in the STARS site module that will require field offices to verify that site information is current and accurate. Verifying site information will remain a formal requirement in the SPEC filing season readiness certification and site monitoring processes. 

 

Appendix I

 

Detailed Objective, Scope, and Methodology

 

The overall objective of this audit was to determine whether volunteers at the Internal Revenue Service (IRS) Volunteer Income Tax Assistance (VITA) sites prepare accurate tax returns based on facts provided by taxpayers.  We also assessed the taxpayers’ experiences when seeking assistance from VITA sites, including the ease with which taxpayers can locate VITA sites.  To accomplish the objective, we: 

I.                   Determined the purpose, goals, and overall strategy of the VITA Program by meeting with IRS management and identifying specific roles and responsibilities within the Program.

II.                Determined if taxpayers can easily locate VITA sites by discussing how the IRS educates taxpayers on VITA sites and by reviewing IRS publications and guidance. 

A.    Identified how the IRS controls and maintains a listing of VITA sites, including addresses, hours of operation, and services provided.

B.     Confirmed the accuracy of the information when visiting the 44 sites selected in Step III.B.

III.             Determined if the VITA sites prepared accurate tax returns based on facts provided by taxpayers.

A.    Discussed with IRS management the methodology used to ensure tax returns prepared in the VITA sites are accurate based on information provided by taxpayers.  This included steps to measure accuracy while taxpayers are present in the VITA sites.

B.     Selected a judgmental sample of 44 VITA sites from a list of VITA sites opened at the time of our testing and attempted to have tax returns prepared based on the scenarios prepared and presented by Treasury Inspector General for Tax Administration auditors.  We judgmentally selected sites in each of the seven Stakeholder Partnerships, Education and Communication (SPEC) Area Offices and included two states from each Area Office. Area Office 7 includes only California, which is split into Northern and Southern California.  The states within each Area Office were selected using demographic information regarding the highest population of low‑income or elderly taxpayers.  At each VITA site, auditors:

·         Presented the scenario to the VITA site volunteer.  The scenarios were designed to require volunteers to make determinations relating to several tax law topics, including the correct reporting of income, filing status, exemptions, deductions, and credits.  In addition, the scenarios were designed to require the volunteers to ask specific questions to determine taxpayers’ eligibility for these deductions and credits and to correctly apply the tax law when preparing the tax returns.

·         Determined if volunteers asked appropriate probing questions to determine eligibility for credits and deductions allowed on the tax returns.

·         Documented specific information relating to the experience of the visit, including the name of the assisting volunteer, wait time, type of service(s) offered (electronic filing (e-filing), paper, or both), and accommodations. 

·         Determined if each tax return prepared by a volunteer was accurate.  We noted if a return was not prepared and the reason.

IV.             Determined if volunteers were provided with the tools necessary to assist them in accurately preparing tax returns by reviewing the Internal Revenue Manual, guidelines, and training materials and holding discussions with appropriate IRS managers and employees.  We judgmentally selected and visited four Territory Offices (Phoenix, Arizona; Chicago, Illinois; Baltimore, Maryland; and New York, New York). We used a judgmental sample to select the Territory Offices because we wanted to visit offices that were responsible for some of the VITA sites where we had tax returns prepared.  We selected 10 VITA sites (which included a judgmental selection of the VITA sites we visited for tax return preparation and other randomly selected sites to total 10 sites) under each of the 4 Territory Offices.  For each of the 40 VITA sites selected, we reviewed the Territory Offices’ lists of volunteers, periodic monitoring visit reports, and volunteer certifications.

V.                Determined the quality review process established by the IRS to assist volunteers in ensuring tax returns are accurately prepared.

VI.             Determined the effect on tax revenue by identifying the number of tax returns prepared at the VITA sites that have been prepared inaccurately and the potential effect on tax revenue by obtaining a listing of the VITA sites’ Electronic Filing Identifier Numbers to extract the primary Social Security Numbers of tax returns e-filed from VITA sites using IRS computer systems.

 

Appendix II

 

Major Contributors to This Report

 

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

Augusta R. Cook, Director

Frank Jones, Audit Manager

Russell Martin, Audit Manager

Pamela DeSimone, Lead Auditor

Jackie Forbus, Senior Auditor

Robert Howes, Senior Auditor

Jean Bell, Auditor

Vacenessia Brown, Auditor

Jerry Douglas, Auditor

Mary Keyes, 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

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

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

Chief, Performance Improvement, Wage and Investment Division  SE:W:S:PI

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:  Senior Operations Advisor, Wage and Investment Division SE:W:S

 

Appendix IV

 

Results of Tax Returns Prepared at Volunteer Income Tax Assistance Sites by State for Tax Year 2002

 

State

Paper Tax Returns

Electronic
Tax Returns

Paper and Electronic Tax Returns

Refund Amount

Earned Income Tax Credit Tax Returns

Earned Income Tax Credit Amount

Child Tax Credit Returns

Child Tax Credit Amount

Alabama

1,568

6,497

8,065

$11,018,279

1,529

$2,325,712

2,139

$1,798,085

Alaska

429

6,989

7,418

$10,753,817

1,196

$1,651,904

2,512

$2,162,496

Arizona

3,969

15,506

19,475

$23,099,470

3,783

$5,476,253

4,233

$3,409,155

Arkansas

1,169

5,878

7,047

$8,351,891

1,387

 $1,799,707

1,412

$1,111,509

California

24,431

35,665

60,096

$67,087,849

13,936

$19,490,280

11,138

$8,674,473

Colorado

6,767

12,496

19,263

$20,544,327

4,367

$5,214,469

3,881

$3,085,419

Connecticut

3,902

4,897

8,799

$9,232,717

1,624

$2,050,058

1,305

$998,357

Delaware

715

3,689

4,404

$5,924,882

1,238

$1,802,400

977

$720,244

District of Columbia

1,482

1,165

2,647

$2,843,711

805

$883,960

376

$276,083

Florida

14,829

37,735

52,564

$60,248,133

9,874

$13,582,097

9,605

$7,601,111

Georgia

4,324

19,103

23,427

$32,333,450

4,373

$6,743,289

5,952

$4,848,899

Hawaii

1,381

11,330

12,711

$21,418,305

2,122

$3,082,640

3,909

$3,288,922

Idaho

261

2,505

2,766

$3,487,892

531

$831,789

672

$556,779

Illinois

17,322

18,434

35,756

$39,621,528

11,830

$15,337,727

5,349

$3,693,077

Indiana

8,106

3,492

11,598

$8,485,724

2,301

$1,985,953

904

$664,596

Iowa

1,285

1,457

2,742

$2,382,695

665

$733,188

316

$238,735

Kansas

3,646

11,590

15,236

$16,637,164

3,407

$4,153,465

3,003

$2,482,275

Kentucky

2,209

8,871

11,080

$13,847,845

2,332

$3,128,806

2,526

$2,057,483

Louisiana

2,679

10,631

13,310

$18,506,242

4,139

$6,953,216

2,837

$1,984,113

Maine

816

1,220

2,036

$2,126,800

404

$513,848

350

$287,126

Maryland

4,009

9,886

13,895

$17,219,131

1,748

$2,187,044

3,075

$2,546,389

Massachusetts

4,680

4,947

9,627

$8,951,943

2,331

$2,662,995

1,067

$747,044

Michigan

6,328

3,816

10,144

$7,060,567

3,007

$2,811,990

522

$329,729

Minnesota

4,799

4,346

9,145

$7,892,862

3,315

$3,640,148

1,098

$728,520

Mississippi

1,424

4,116

5,540

$6,337,913

901

$1,176,523

1,382

$1,151,714

Missouri

5,130

12,264

17,394

$19,228,754

4,589

$5,942,607

3,084

$2,445,917

Montana

725

628

1,353

$967,964

403

$358,007

80

$56,963

Nebraska

1,874

4,510

6,384

$7,629,506

1,271

$1,619,938

1,397

$1,185,595

Nevada

1,453

5,189

6,642

$7,523,240

1,009

$1,309,612

1,285

$1,037,887

New Hampshire

817

281

1,098

$838,091

146

$127,303

91

$75,200

New Jersey

8,445

3,043

11,488

$9,381,144

1,388

$1,449,461

1,110

$859,117

New Mexico

4,567

13,109

17,676

$18,124,429

5,521

$6,357,081

2,522

$1,812,089

New York

13,768

20,972

34,740

$37,419,480

10,956

$13,645,376

4,556

$3,168,234

North Carolina

7,938

22,478

30,416

$35,053,379

4,861

$6,808,561

6,224

$4,938,613

North Dakota

430

4,363

4,793

$6,220,059

927

$1,265,442

1,104

$897,569

Ohio

9,394

9,256

18,650

$16,489,646

3,359

$3,642,015

2,049

$1,597,332

Oklahoma

4,276

17,816

22,092

$25,362,324

6,007

$8,051,669

4,314

$3,248,428

Oregon

877

387

1,264

$941,423

251

$281,761

114

$72,092

Pennsylvania

17,769

10,831

28,600

$23,797,745

5,397

$6,322,915

2,264

$1,602,821

Puerto Rico

502

614

1,116

$1,254,189

4

$8,090

146

$118,538

Rhode Island

507

1,001

1,508

$1,680,668

240

$298,229

252

$216,205

South Carolina

3,098

10,918

14,016

$16,679,627

2,511

$3,214,889

2,940

$2,342,334

South Dakota

450

3,052

3,502

$4,740,172

965

$1,407,355

848

$697,658

Tennessee

2,993

13,527

16,520

$20,570,808

3,430

$4,810,112

3,157

$2,395,737

Texas

24,666

46,485

71,151

$87,356,025

16,784

$23,492,817

15,350

$12,019,099

Utah

1,824

7,979

9,803

$11,155,770

2,061

$2,755,747

1,858

$1,475,144

Vermont

687

854

1,541

$1,563,058

609

$780,011

145

$88,374

Virginia

5,355

15,711

21,066

$28,520,095

3,023

$3,958,413

5,506

$4,893,312

Washington

3,449

13,646

17,095

$26,820,173

2,919

$4,138,472

5,300

$4,611,459

West Virginia

2,243

2,963

5,206

$4,763,750

1,196

$1,263,033

521

$387,403

Wisconsin

3,500

12,452

15,952

$15,015,842

4,451

$4,983,730

2,456

$1,861,407

Wyoming

260

2,752

3,012

$3,592,863

575

$737,706

687

$582,263

International/
Military

4,838

86,096

90,934

$137,630,917

11,546

$17,218,282

21,718

$17,413,475

Totals:

 254,365

589,438

843,803

$995,736,279

179,544

$236,468,096 

161,618

$127,542,596

Source:  Internal Revenue Service management information system containing all tax returns prepared at Volunteer Income Tax Assistance sites.

 

Appendix V

 

States Visited for Volunteer Tax Preparation Assistance

February Through April 2004

 

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.

The 15 states visited in which auditors had tax returns prepared included Arizona, California, Florida, Illinois, Louisiana, Maine, Maryland, Massachusetts, New Hampshire, New Mexico, New York, Ohio, Oklahoma, South Carolina, and Texas.  We also visited the District of Columbia.

 

Appendix VI

 

Results of Tax Returns Incorrectly Prepared at Community-Based Volunteer Income Tax Assistance Sites

 

Taxpayer Assistance Centers Visited

Volunteer Income Tax Assistance Refund

Correct Refund

Refund Understated

Refund
Overstated

Phoenix, AZ

$1,716

$1,310

 

   $406

National City, CA

$2,203

$1,310

 

   $893

Oakland, CA

$1,797

   $258

 

$1,539

Oceanside, CA

$1,797

$1,310

 

    $487

Sacramento, CA

   $707

    $72

 

   $635

San Diego, CA

$2,200

$1,310

 

   $890

San Francisco, CA

   $797

   $258

 

   $539

Washington, D.C.

$1,797

$1,310

 

   $487

Washington, D.C.

$2,203

   $258

 

$1,945

Plantation, FL

$2,017

$1,220

 

   $797

Dekalb, IL

$1,258

$1,310

   $52

 

Melrose Park, IL

$1,340

   $258

 

$1,082

Normal, IL

$2,203

$258

 

$1,945

Baton Rouge, LA

  ($148)

$258

   $406

 

New Orleans, LA

  ($148)

$1,310

$1,458

 

New Orleans, LA

$2,203

$1,310

 

   $893

Boston, MA

$1,707

$1,220

 

   $487

Rockville, MD

$2,203

$1,310

 

   $893

Portland, ME

$1,797

$1,310

 

   $487

Nashua, NH

$2,203

$258

 

$1,945

Albuquerque, NM

$2,203

$1,310

 

   $893

Gallup, NM

$2,203

$1,310

 

   $893

Las Cruces, NM

$1,797

$1,310

 

   $487

Brooklyn, NY

$2,203

$1,310

 

   $893

New York, NY

$2,203

$1,310

 

   $893

Taxpayer Assistance Centers Visited

Volunteer Income Tax Assistance Refund

Correct Refund

Refund Understated

Refund
Overstated

Columbus, OH

       $0

$1,310

$1,310

 

Hobart, OK

$2,203

$1,310

 

   $893

Oklahoma City, OK

$2,203

$1,310

 

   $893

Tulsa, OK

$2,203

$1,310

 

   $893

Anderson, SC

$2,203

$1,310

 

   $893

Columbia, SC

$1,797

$258

 

$1,539

West Columbia, SC

$1,803

$2,203

$400

 

Austin, TX

$1,797

$1,310

 

$487

Houston, TX

$797

$1,310

$513

 

Round Rock, TX

  ($148)

$258

$406

 

Totals:

 

 

       $4,546

$26,007

Source:  Anonymous visits performed by Treasury Inspector General for Tax Administration 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.