Opportunities Exist to Improve the Efforts of the Taxpayer
Education and Communication Organization to Assist Small Businesses in
Understanding and Fulfilling Their Tax Obligations
August 2005
Reference Number: 2005-30-132
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
25, 2005
MEMORANDUM FOR
COMMISSIONER, SMALL BUSINESS/SELF-EMPLOYED DIVISION
FROM: Pamela J. Gardiner /s/ Pamela J. Gardiner
Deputy Inspector General for
Audit
SUBJECT: Final Audit Report - Opportunities
Exist to Improve the Efforts of the Taxpayer Education and Communication
Organization to Assist Small Businesses in Understanding and Fulfilling Their
Tax Obligations (Audit # 200330044)
This
report presents the results of our review of the Small Business/Self-Employed
(SB/SE) Division Taxpayer Education and Communication (TEC) organization. The
overall objective of this review was to evaluate the effectiveness of current
efforts by the TEC organization to assist small businesses to understand and
fulfill their tax obligations.
In
summary, the TEC organization has made significant progress in reaching out to
the small business taxpayer community to educate small business taxpayers on
their tax and compliance responsibilities.
The TEC organization has performed its mission primarily by establishing
partnerships with practitioners, trade associations, small business
associations, and government agencies. The
TEC organization has received credit for many accomplishments during Fiscal
Year (FY) 2004. Among them was the
completion of several burden-reduction initiatives involving various Internal Revenue
Service (IRS) tax forms, the establishment of tax centers on major web sites,
and the 8,000 practitioner visits made during FY 2004 that helped to increase
the number of electronically filed tax returns.
However, there are areas where the TEC organization needs to improve.
The
TEC organization needs to do a better job of marketing its products, especially
for those business taxpayers who are not served by the tax practitioner
community. Well intended TEC organization
products do not reach all of their intended audience, and some small business
taxpayers may not be made aware of important information to assist them with
their tax obligations. In addition, there
was no continuity or consistency in situations where some third parties’ web
sites linked back to the IRS web site.
In some instances, no link was provided for taxpayers to learn about their Federal
tax obligations while researching or browsing at a State government’s tax web
site.
Also,
we were unable to evaluate the TEC organization’s performance in fulfilling its
mission because the goals and measures established by SB/SE Division management
were not consistent with the mission statement established for the TEC organization
at its inception. Some of the goals and
measures established for the TEC organization were actually dependent on third
parties for their measurement and accuracy.
We
recommended the Director, Communications, Government Liaison and Disclosure,
review the marketing of TEC organization products on the Internet, and
formulate a strategy to increase their visibility. We also recommended the Director review the
budgetary and performance measures established for the TEC organization and
determine if they are still applicable to the stated mission of the
organization.
Management’s Response: The
Commissioner, SB/SE Division, agreed with our recommendations. The SB/SE Division has established a new web
services branch under the Director, Communications, which will develop a
strategy for enhancing the utilization of TEC organization products on the
Internet. The Commissioner, SB/SE
Division, has developed and published a Program Letter that lays out the
mission of the new TEC organization, which has been renamed the Stakeholder
Liaison Field Operations organization. The SB/SE Division is currently developing new measures
that will reflect the redefined goals and strategies of the Stakeholder Liaison
Field Operations organization. Management’s
complete response to the draft report is included as Appendix VII.
Copies of this
report are also being sent to IRS managers affected by the report
recommendations. Please contact me at
(202) 622-6510 if you have questions or Curtis W. Hagan, Assistant Inspector
General for Audit (Small Business and Corporate Programs), at (202) 622-3837.
Appendix
I – Detailed Objective, Scope, and Methodology
Appendix
II – Major Contributors to This Report
Appendix III – Report Distribution List
Appendix IV –
Sample Interactive Calculator
Appendix V –
Excerpt From a Government Accountability Office Report
Appendix VII – Management’s Response to the Draft Report
During the Internal Revenue Service’s (IRS) reorganization in October 2000, the Small Business and Self-Employed (SB/SE) Division was created. This operating division was formed to address various issues affecting small businesses and self-employed taxpayers, such as filing tax returns and paying taxes.
The group of taxpayers the SB/SE Division currently serves includes self-employed individuals or other businesses with total assets under $10 million. The profile of the SB/SE Division’s taxpayer population as provided by the IRS is as follows:
Within the SB/SE Division, three operating organizations were
created: Taxpayer Education and
Communication (TEC), Customer Account Services, and Compliance. The TEC organization was designed to serve
small businesses and self-employed taxpayers primarily through efforts to
better educate them about their tax obligations.
This review was performed at the Brookhaven,
The TEC organization was formed as a result of the IRS’ reorganization in October 2000. From the IRS web site (irs.gov) the TEC organization is described as a segment of the SB/SE Division that:
…is a customer-focused organization that routinely will solicit information from taxpayers and external stakeholders concerning the needs and characteristics of its customers. TEC will implement its programs based on that feedback mechanism and will continuously research and analyze taxpayer trends to ensure that products and services are tailored to meet the needs of SB/SE taxpayers. TEC also will partner with other government agencies, state and local entities to provide one-stop assistance.
The TEC organization has developed channels for communicating with over 75 percent of SB/SE Division taxpayers through practitioner and payroll associations. It also provides tax law education and information on IRS policies, programs, and procedures through IRS Tax Forums, conferences, trade shows, Practitioner Forums, Tax Talk Today, CD-ROM, and video presentations. In 2002, the TEC organization was named the Small Business Administration’s Agency of the Year for its outstanding progress in creating an effective education and compliance assistance program for small businesses and the self-employed.
The TEC organization was credited with the following accomplishments during Fiscal Year (FY) 2004:
In October 2004, the SB/SE Division offered current TEC organization employees an opportunity to volunteer to return to Revenue Officer, Revenue Agent, or Tax Compliance Officer positions within the SB/SE Division. More than 200 employees volunteered and, as a result, the organization has lost approximately 130 staff members (TEC Specialists and senior management) as of February 2005. This loss of staffing will affect the TEC organization’s capability to reach the small business taxpayer community both now and in the future. However, the TEC organization has an opportunity to continue to reach many small business taxpayers despite this loss of staffing with some improvements to its practices and strategies.
The TEC organization can do a better job of marketing its issue and industry-specific products that are currently available to its customers. While the TEC organization has worked closely with the Compliance operating unit to create these products, many of them are not easily or readily located by an ordinary taxpayer.
To accomplish its mission, the TEC organization has relied heavily on the partner relationships it has established with various stakeholder groups. The decision to work in this manner was made during the formation of the TEC organization as the result of a study done for the IRS by the management consulting firm Booz-Allen & Hamilton. The study showed that 73 percent of U.S. Individual Income Tax Return (Form 1040), Schedule C (Profit or Loss from Business) filers (self-employed individuals) used a preparer to complete their tax returns. Based on this information, a decision was made to leverage the limited resources of the newly established organization by using its external stakeholders as distribution channels to the small business taxpayer community.
As a result of these partnerships, much of the TEC organization’s efforts have gone towards working with practitioners and small business organizations to identify systemic problems, provide liaison activities at the national and local level, and build a curriculum of basic educational products. This has resulted in some of the accomplishments noted previously.
The Internet has revolutionized the IRS’ ability to serve taxpayers and their representatives. The IRS has used the Internet to meet taxpayer needs, provide better service, and reduce taxpayer burden. The IRS web site is one of the most frequently visited sites in the world. In recent testimony before the House of Representatives, the IRS Commissioner stated that the small business web site contained about 10,000 pages of content arranged by major industry groups and major tax areas. In January 2005, the site had 1.7 million visitors, which was more than double the number from January 2004.
However, during our review, we found the average taxpayer would not be able to easily locate information on a tax question or problem without some Internet familiarity or research experience. As an example, an excellent construction industry guide that answers many questions regarding payroll tax issues required us to access six different web pages before we could view the actual document. We also found there was no consistency regarding links provided by various State agencies to the IRS web site. For example, in the area of cosmetology, the various State licensing web sites did not provide a link to the IRS web page that also contained important Federal tax information for cosmetologists.
Tax professionals have their own link into the IRS web site. They also have the advantage of either a basic knowledge of the subject area they are investigating or experience in researching tax questions on paper and the Internet. However, the IRS’ own research has shown that approximately 25 percent of the small business taxpayer community does not use a practitioner.
Taxpayers should be able to locate the information they need or find answers to the questions they have in a quick, user-friendly manner. This reduces taxpayer burden and provides better service to all taxpayers.
We have located a new and innovative product that could assist the TEC organization in educating taxpayers, as well as some other products and areas that did not have sufficient coverage in regards to taxpayer education. These products and areas are:
1.
The Director, Communications, Government Liaison
and Disclosure, should review the marketing of
TEC organization products on the Internet and formulate a strategy to increase
their visibility. In addition,
innovative products found on other Internet web sites should be studied to
determine if they would be appropriate for use by the TEC organization.
Management’s Response: As part of the Communications, Liaison and Disclosure realignment, the Commissioner, SB/SE Division, has established a new web services branch under the Director, Communications, which will develop a strategy for enhancing utilization of TEC organization products on the Internet. Part of this strategy will include methods to increase Internet visibility and identify best practices from other Internet sites.
The Government Performance and Results Act of 1993 requires Federal Government agencies to establish a hierarchy of goals, objectives, and performance measures applicable to the organizational units within the agency. As a result, the IRS established three strategic goals:
In 2000, the IRS implemented a new strategic planning and budgeting process that provided the framework for developing goals, objectives, and measures at the operating division level. Under this process, the operating divisions developed program plans that identified the division’s strategic goals, which were to correspond to each of the agency-wide strategic goals. These division-level strategic goals were to be tailored to the specific characteristics and needs of the individual taxpayer segments served by the division.
The mission of the TEC organization within the SB/SE Division is:
…to educate and inform SB/SE taxpayers and representatives about their tax obligations by developing educational products and services focused on customer needs and by providing top quality pre-filing services to help taxpayers understand and comply with the tax laws.
In February 2001, the Government Accountability Office (GAO) issued a report on the IRS Performance Management System. During its review, the GAO reviewed various literature associated with performance management and came up with a set of characteristics that was used to evaluate goals, objectives, and performance measures (see Appendix V for an excerpt from the GAO report). We used these same characteristics to evaluate the goals and measures set by the SB/SE Division to evaluate the TEC organization during FY 2005.
The TEC organization officially has 5 Budget Level and 12 Program Level measures. It also maintained four other high-level measures for FY 2005. A complete listing of the measures is provided in Appendix VI but we have listed some representative measures below:
Budget Level Measures:
º Percent of Business Returns and Information Returns Received Electronically.
º Percent of Payments Received Electronically.
º Efficiency – R-Mail.
º Number of Taxpayers Reached (Direct).
Program Level Measures:
º Customer Accuracy Rate - R-Mail.
º Number of Business Returns and Information Returns Filed Electronically.
º Number of Payments Received Electronically.
º Number of Taxpayers Reached (Indirect).
A review of the program and budget level measures shows that many of these measures do not directly relate back to the defined mission of the TEC organization. While electronic filing is both an ongoing focus and a specific goal of the IRS organizationally, it is not a specific area of responsibility for the TEC organization according to its mission statement. In addition, the TEC organization has established program measures that are not representative of the work or accomplishments of its own staff but of the work done by third parties. The organization has a program measure for the number of taxpayers reached (indirect) which is achieved by the various practitioner associations. Logically, this measure is questionable because it allows the TEC organization to take credit for the work of others, and it is also totally dependent on those practitioner associations for both measurement and accuracy.
The R-Mail Program is a budgetary and performance measure for the TEC organization. However, this program is a filing season program that, again, does not relate to the TEC organization’s mission of education and information. Our review showed SB/SE Division management did not ensure the measures established for the TEC organization could be seen as directly related to its mission and would not provide management with information on the accomplishments of the TEC organization.
2.
The Director, Communications, Government Liaison
and Disclosure, should review the budgetary and
performance measures and determine if they are applicable to the stated mission
of the organization. If the mission of the
TEC organization has changed in any manner, the mission statement should be
updated to represent the changes and the goals, objectives, and performance
measures should support that new mission.
Management’s Response: The Commissioner, SB/SE
Division, has developed and published a Program Letter which lays out the re-scoped
mission of the new TEC organization, which has been renamed the Stakeholder
Liaison Field Operations organization.
The SB/SE Division is currently developing new measures that will
reflect the redefined goals and strategies of the Stakeholder Liaison Field
Operations organization.
Appendix I
Detailed Objective, Scope, and Methodology
The overall objective of this review was to evaluate the effectiveness of current efforts by the Small Business/Self-Employed (SB/SE) Division Taxpayer Education and Communication (TEC) organization to assist small businesses to understand and fulfill their tax obligations. To accomplish this objective, we:
I.
Reviewed the TEC
organization’s current and planned actions intended to assist small businesses
to understand and fulfill their tax obligations.
A.
Examined the TEC
organization’s visibility/consistency on the Internet by searching various State
and local government, small business, and taxation web sites.
B.
Reviewed the TEC
organization’s use of Internet products for innovation and effectiveness and identified
best practices the organization may be able to adopt.
C.
Determined the fastest
growing types of businesses (e.g., franchising) and identified whether the TEC
organization has or could partner with them.
D.
Reviewed the
information/products the TEC organization provides on the Internal Revenue Service
(IRS) web site for reliability, quality, availability, and ease of
comprehension.
E.
Researched the TEC
organization’s current marketing strategies; e.g., Internet links to tax
information, partnerships, and outreach in the field.
II.
Reviewed the TEC
organization’s existing goals and measures.
A.
Researched the TEC
organization’s evaluation of the effectiveness of its efforts.
B.
Reviewed the TEC
organization’s existing goals, objectives, and performance measures to
determine if they are consistent with the IRS’ mission and goals.
C.
Reviewed the Government
Accountability Office’s report on IRS efforts to develop agency-wide and
operating division goals, objectives, and performance measures that support the
IRS’ mission.
D.
Researched SB/SE
Division goals, objectives, and performance measures.
Appendix II
Major Contributors to This
Report
Curtis W. Hagan, Assistant
Inspector General for Audit (Small Business and Corporate Programs)
Richard J. Dagliolo, Director
Robert K. Irish, Audit
Manager
Bernard F. Kelly, Lead
Auditor
Denise Gladson,
Auditor
Nancy Van Houten,
Management Auditor
Appendix III
Commissioner C
Office of the Commissioner – Attn: Chief of Staff C
Deputy Commissioner for Services and Enforcement SE
Deputy Commissioner, Small Business/Self-Employed Division SE:S
Director, Communications, Liaison and Disclosure SE:S:CLD
Director, Stakeholder Liaison Field Operations SE:S:CLD:SLF
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: Commissioner, Small Business/Self-Employed Division SE:S
Appendix IV
This
is an interactive calculator found at the following web site:
https://www.fsafeds.com/fsafeds/fsa_calculator.asp
Thecalculator was removed due to its
size. To see the calculator, please go
to the Adobe PDF version of the report on the TIGTA Public Web Page.
Appendix V
Excerpt From a Government Accountability Office Report
The following is an excerpt from the Government
Accountability Office (GAO) Report entitled IRS
Should Enhance Its Performance Management System (GAO/01-234, dated
February 2001).
The excerpt was
removed due to its size. To see the excerpt,
please go to the Adobe PDF version of the report on the TIGTA Public Web Page.
Appendix VI
The Taxpayer Education and
Communication Organization’s Budget and Performance Level Measures – Fiscal Year
2005
Budget Level Measures:
º Percent of Business Returns Filed Electronically (Quarterly).
º Percent of Information Returns Filed Electronically.
º Percent of Payments Received Electronically.
º Efficiency – R-Mail.
º Number of Taxpayers Reached (Direct).
Program Level Measures:
º Percent Taxpayer Education and Communication (TEC) Full-Time Equivalents to Total Small Business/Self-Employed Cross Unit Support.
º Customer Accuracy Rate - R-Mail.
º Number of New Voluntary Agreements.
º Number of Business Returns Filed Electronically (Quarterly).
º Number of Information Returns Filed Electronically.
º Number of Payments Received Electronically.
º Percent Federal Tax Deposit Payments Received Electronically (Electronic Federal Tax Payment System).
º Number of Taxpayers Reached (Indirect).
º Employee Satisfaction – TEC.
º TEC Customer Satisfaction – Activity/Event.
º TEC Customer Satisfaction – Rate Our Products.
º TEC Customer Satisfaction – Stakeholder Relationship Management.
Other Internal Measures for Fiscal Year 2005:
º Potential Revenue of the TIP/TRAC (Tip Reporting Alternative Commitment) Program and Centralized Withholding Agreements.
º Number of Lead Development Referrals.
º Number of Electronic 1040 C, E, and F Filers.
º
Number of Viewings of Tax Talk Today.
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.