TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

 

 

Fiscal Year 2006 Statutory Review of Restrictions on Directly Contacting Taxpayers

 

 

 

August 28, 2006

 

Reference Number:  2006-40-136

 

 

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.

 

Phone Number   |  202-927-7037

Email Address   |  Bonnie.Heald@tigta.treas.gov

Web Site           |  http://www.tigta.gov

 

August 28, 2006

 

 

MEMORANDUM FOR DEPUTY COMMISSIONER FOR SERVICES AND ENFORCEMENT

 

FROM:                            (for) Michael R. Phillips /s/ Michael E. McKenney

                                         Deputy Inspector General for Audit

 

SUBJECT:                    Final Audit Report – Fiscal Year 2006 Statutory Review of Restrictions on Directly Contacting Taxpayers (Audit # 200640002)

 

This report presents the results of our review to determine whether the Internal Revenue Service (IRS) complied with legal guidelines addressing the direct contact of taxpayers and their representatives as set forth in Internal Revenue Code Section (I.R.C. §) 7521(b)(2) and (c) (2004).  The Treasury Inspector General for Tax Administration was statutorily required to conduct this audit.

Synopsis

IRS employees are required by the direct contact provisions of I.R.C. § 7521(b)(2) and (c) to:

  • Stop a taxpayer interview whenever a taxpayer requests to consult with a representative.
  • Obtain their immediate supervisor’s approval to contact the taxpayer instead of the representative if the representative is responsible for unreasonably delaying the completion of an examination or collection action.

Taxpayers are informed of direct contact provisions through IRS publications.

 

The IRS Internal Revenue Manual provides employees guidance to help ensure compliance with the direct contact provisions.  In addition, the IRS has informed taxpayers of these rights through various IRS publications.

However, we could not determine whether the IRS complied with I.R.C. § 7521(b)(2) and (c) requirements when directly contacting taxpayers and their representatives.  IRS management information systems do not separately record or monitor direct contact requirements, and Congress has not explicitly required the IRS to do so.  Furthermore, we do not recommend the creation of a separate IRS system to track those cases involved with direct contact issues.  Accordingly, we made no recommendations in this report.

Response

The IRS agreed with the information presented in this report.  Management’s complete response to the draft report is included as Appendix IV.

Copies of this report are also being sent to the IRS managers affected by the report results.  Please contact me at (202) 622-6510 if you have questions or Michael E. McKenney, Assistant Inspector General for Audit (Wage and Investment Income Programs), at (202) 622-5916.

 

 

Table of Contents

 

Background

Results of Review

The Internal Revenue Manual Provides Employees With Guidance to Help Ensure Compliance With the Direct Contact Provisions

The Internal Revenue Service Has Informed Taxpayers of These Rights Through Various Publications

Compliance With Statutory Requirements for Restrictions on Directly Contacting Taxpayers Cannot Be Determined

Appendices

Appendix I – Detailed Objective, Scope, and Methodology

Appendix II – Major Contributors to This Report

Appendix III – Report Distribution List

Appendix IV – Management’s Response to the Draft Report

 

 

Abbreviations

 

I.R.C. §

Internal Revenue Code Section

IRS

Internal Revenue Service

RRA 98

Internal Revenue Service Restructuring and Reform Act of 1998

TIGTA

Treasury Inspector General for Tax Administration

U.S.C.

United States Code

 

 

Background

 

The Omnibus Taxpayer Bill of Rights[1] created a number of safeguards to protect taxpayers being interviewed by an Internal Revenue Service (IRS) employee as part of an examination or collection action.  Specifically, IRS employees are required by the direct contact provisions of Internal Revenue Code Section (I.R.C. §) 7521(b)(2) and (c) (2004) to:

  • Stop a taxpayer interview whenever a taxpayer requests to consult with a representative.
  • Obtain their immediate supervisor’s approval to contact the taxpayer instead of the representative if the representative is responsible for unreasonably delaying the completion of an examination or collection action.

The provisions were added to the Omnibus Taxpayer Bill of Rights to protect the rights of taxpayers who are interviewed by an IRS employee as part of an examination or collection action.  A taxpayer can file a civil suit against the IRS if an IRS employee intentionally disregards these provisions by denying a taxpayer the right to appropriate representation.

The TIGTA is required to evaluate annually the IRS’ compliance with the direct contact provisions of I.R.C. § 7521(b)(2) and (c).

On July 22, 1998, the President signed into law the IRS Restructuring and Reform Act of 1998 (RRA 98),[2] which required the IRS to revise Your Rights as a Taxpayer (Publication 1) to inform taxpayers of their rights (1) to be represented at interviews and (2) to suspend an interview pursuant to I.R.C. § 7521(b)(2).  In addition, Congress added I.R.C. § 7803(d)(1)(A)(ii) (2004) to the RRA 98, which requires the Treasury Inspector General for Tax Administration (TIGTA) to evaluate annually the IRS’ compliance with the direct contact provisions.  The Senate Committee report for this law stated that Congress believes taxpayers should be more fully informed of their rights to representation in dealing with the IRS and those rights should be respected.

This review was performed in the IRS Headquarters and in the National Taxpayer Advocate function in Washington, D.C.; the Small Business/Self-Employed Division Headquarters in New Carrollton, Maryland; and the Wage and Investment Division Headquarters in Atlanta, Georgia, during the period April through June 2006.  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.

 

Results of Review

 

The Internal Revenue Manual Provides Employees With Guidance to Help Ensure Compliance With the Direct Contact Provisions

Following enactment of the Omnibus Taxpayer Bill of Rights in 1988, the IRS began to establish written procedures regarding taxpayer interviews for employees to follow and planned to further enhance those procedures as needed.  These initial procedures required employees to meet the legal guidelines imposed by the direct contact provisions and to document the related actions in the taxpayer’s case file.

Enactment of the RRA 98 contributed to the further enhancement of the procedures and guidelines related to the direct contact issues.  The TIGTA is required under the RRA 98 to assess annually the IRS’ compliance with the direct contact provisions.  In response to prior TIGTA reports, the IRS took several corrective actions to further improve the existing procedures and guidelines for directly contacting taxpayers and their representatives.

In our Fiscal Year 1999 report,[3] we recommended the IRS (1) complete its efforts to develop national guidance to ensure consistent treatment of taxpayers and (2) develop a process to determine whether employees are complying with the direct contact provisions.

In response to our first recommendation, the IRS updated its Internal Revenue Manual in 1999 and 2000 to include:

  • Procedures for handling situations when a representative is authorized to represent the taxpayer on only 1 tax year, but the examination or collection interview covers more than 1 year.
  • Clarifying guidance to determine a reasonable time period for taxpayers to secure representation.
  • Clarifying guidance to determine whether enforcement actions (such as seizure of property) should be considered an “interview” for the purpose of I.R.C. § 7521(b)(2) and (c).

In response to our second recommendation, the IRS assigned group managers responsibility for monitoring employees’ compliance with the direct contact provisions.  The group managers were required to address this issue during group meetings, case reviews, on-the-job visits, and taxpayer/representative inquiries to ensure employees fully comply with the law.

The Internal Revenue Service Has Informed Taxpayers of These Rights Through Various Publications

The IRS uses Publication 1 as the main document to keep taxpayers informed of their rights and to explain the examination, collection, appeals, and refund processes.  Taxpayers are provided a copy of Publication 1 prior to a scheduled interview with the IRS.  Prior to December 1998, taxpayer rights during IRS interviews were not specifically mentioned in Publication 1.  The RRA 98 required the IRS to revise Publication 1 to include information concerning taxpayers’ rights (1) to be represented at interviews with the IRS and (2) to suspend an interview pursuant to I.R.C. § 7521(b)(2).  The IRS has also included information on these rights in other publications.  As a result, taxpayers may be better informed of their rights during interviews through the expanded avenues made available by the IRS.  These other publications include:

·         Your Federal Income Tax (Publication 17).

·         Tax Guide for Small Business (Publication 334).

·         Examination of Returns, Appeal Rights, and Claims for Refund (Publication 556).

·         The Examination Process (Publication 3498).

Compliance With Statutory Requirements for Restrictions on Directly Contacting Taxpayers Cannot Be Determined

We could not determine whether IRS employees followed proper procedures to stop an interview if the taxpayer requested to consult with a representative.  Neither the IRS nor we could readily identify cases in which the taxpayer requested a representative or the IRS contacted the taxpayer directly and bypassed the representative.

Current IRS management information systems do not separately record or monitor cases in which taxpayers had requested to consult with a representative or in which IRS employees bypassed taxpayer representatives and contacted the taxpayers directly.  There is no legal requirement for the IRS to record or monitor cases involving these two procedures.

One way to identify possible violations of these taxpayer rights is to determine if taxpayers have complained that an IRS employee intentionally denied them their right to representation or bypassed a representative without proper approval.  Taxpayer complaints that allege IRS employees bypassed their representatives and contacted them directly are tracked by the TIGTA Office of Investigations.  The TIGTA Office of Investigations closed seven direct contact complaint and/or investigation cases between October 2004 and October 2005.  In all seven cases, the facts of the cases indicated the IRS employees did not violate the direct contact provisions.

This is the eighth year in which we have reported our inability to give an opinion on the IRS’ compliance with the I.R.C. restrictions on direct contact.  Although Congress has not explicitly required IRS management information systems to separately record or monitor direct contact requirements, over the years the IRS has established and further enhanced the procedures and guidelines to adequately address the requirements of the law.  We do not recommend the creation of a separate tracking system and are making no recommendations in this report.

 

Appendix I

 

Detailed Objective, Scope, and Methodology

 

The overall objective of this review was to determine whether the IRS complied with legal guidelines addressing the direct contact of taxpayers and their representatives as set forth in I.R.C. § 7521(b)(2) and (c) (2004).  To accomplish this objective, we:

I.                   Obtained confirmation from the Small Business/Self-Employed and Wage and Investment Divisions that the IRS neither has, nor plans to implement, a system or process to identify or track cases in which taxpayers have requested to consult with a representative or in which an IRS employee bypassed a representative.

II.                Interviewed various IRS and TIGTA personnel responsible for the Taxpayer Advocate Management Information System,[4] the Information Tracking System,[5] and the Performance and Results Information System [6] to determine if there is a system to track taxpayer complaints relating to violations of the direct contact provisions of the law.

A.    Identified seven direct contact cases (three complaints and four complaints/investigations) closed by the TIGTA Office of Investigations during the period October 13, 2004, through October 19, 2005.

B.     Obtained and reviewed the closed TIGTA Office of Investigations case files to determine their validity and what actions were taken by the IRS as a result of the complaints and investigations.

III.             Gathered historical information to determine the Congressional intent in passing I.R.C. § 7521(b)(2) and (c).

A.    Researched the Congressional Committee reports to determine the Congressional intent of adding I.R.C. § 7521(b)(2) and (c) to the Omnibus Taxpayer Bill of Rights,[7] thereby prohibiting the IRS from directly contacting taxpayers in certain situations.

B.     Researched the Congressional Committee reports to determine the Congressional intent of adding I.R.C. § 7803(d)(1)(A)(ii) (2004) to the RRA 98,[8] thereby requiring the TIGTA to assess annually the IRS’ compliance with I.R.C. § 7521(b)(2) and (c).

IV.             Obtained information on the actions taken by the IRS in response to I.R.C. § 7521(b)(2) and (c) to determine the impact on IRS programs.

A.    Reviewed all prior TIGTA audit reports for the Mandatory Direct Contact reviews and summarized the audit results, recommendations, and corrective actions taken by the IRS.

B.     Reviewed historic Internal Revenue Manual sections to identify any updates made in response to I.R.C. § 7521(b)(2) and (c).

C.     Reviewed IRWeb (the IRS Intranet) to identify the impact I.R.C. § 7521(b)(2) and (c) have had on any IRS programs.

D.    Reviewed IRS.gov (the IRS Internet web site) and related IRS publications to identify how the IRS informs taxpayers of the IRS’ prohibition on directly contacting taxpayers in certain situations.

 

Appendix II

 

Major Contributors to This Report

 

Michael E. McKenney, Assistant Inspector General for Audit (Wage and Investment Income Programs)

Mary V. Baker, Director

Bryce Kisler, Audit Manager

Jean Kao, Lead Auditor

Gwendolyn Green, Senior Auditor

 

Appendix III

 

Report Distribution List

 

Commissioner  C

Office of the Commissioner – Attn:  Chief of Staff  C

Commissioner, Small Business/Self-Employed Division  SE:S

Commissioner, Wage and Investment Division  SE:W

National Taxpayer Advocate  TA

Director, Collection, Small Business/Self-Employed Division  SE:S:C

Director, Communications, Liaison, and Disclosure, Small Business/Self-Employed Division SE:S:CLD

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

Director, Examination, Small Business/Self-Employed Division  SE:S:E

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 Internal Control  OS:CFO:CPIC:IC

Audit Liaisons:

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

Director, Communications and Liaison, National Taxpayer Advocate  TA:CCL

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

 

Appendix IV

 

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.



[1] Pub. L. No. 100-647, 102 Stat. 3730 (1988) (codified as amended in scattered sections of 5 U.S.C. and 26 U.S.C.).

[2] Pub. L. No. 105-206, 112 Stat. 685 (codified as amended in scattered sections of 2 U.S.C., 5 U.S.C. app., 16 U.S.C., 19 U.S.C., 22 U.S.C., 23 U.S.C., 26 U.S.C., 31 U.S.C., 38 U.S.C., and 49 U.S.C.).

 

[3] The Internal Revenue Service Needs to Enhance Guidance on and Monitoring of Compliance with Procedures for Directly Contacting Taxpayers and Their Representatives (Reference Number 1999-10-076, dated September 1999).

[4] The Taxpayer Advocate Management Information System is an electronic database and case inventory control system used by Taxpayer Advocate Service employees.

[5] The Information Tracking System is an application used by the IRS to assign, control, and track information and correspondence.  It replaced the Executive Control Management System.

[6] The Performance and Results Information System is a management information system that provides the TIGTA with the ability to manage and account for the thousands of complaints received and investigations initiated annually.

[7] Pub. L. No. 100-647, 102 Stat. 3730 (1988) (codified as amended in scattered sections of 5 U.S.C. and 26 U.S.C.).

[8] Pub. L. No. 105-206, 112 Stat. 685 (codified as amended in scattered sections of 2 U.S.C., 5 U.S.C. app., 16 U.S.C., 19 U.S.C., 22 U.S.C., 23 U.S.C., 26 U.S.C., 31 U.S.C., 38 U.S.C., and 49 U.S.C.).