TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

 

 

The Internal Revenue Service Needs to Evaluate Tolerance Levels to Ensure That
Program Objectives Are Met

 

 

 

September 16, 2008

 

Reference Number:  2008-30-158

 

 

TD P 15-71

 

 

Phone Number   |  202-622-6500

Email Address   |  inquiries@tigta.treas.gov

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

 

September 16, 2008

 

 

MEMORANDUM FOR COMMISSIONER, WAGE AND INVESTMENT DIVISION

 

FROM:                            Michael R. Phillips /s/ Michael R. Phillips

                                         Deputy Inspector General for Audit

 

SUBJECT:                    Final Audit Report – The Internal Revenue Service Needs to Evaluate Tolerance Levels to Ensure That Program Objectives Are Met (Audit #200830007)

 

This report presents the results of our review of Internal Revenue Service (IRS) correspondence tolerance levels.  The overall objective of this review was to evaluate the effects that IRS tolerance levels have on voluntary compliance and taxpayer burden.  This audit was included in the Treasury Inspector General for Tax Administration Fiscal Year 2008 Annual Audit Plan.

Impact on the Taxpayer

The IRS determines and adjusts tolerance levels[1] for various tax forms and schedules in order to increase taxpayer compliance, reduce processing costs, and use limited resources effectively.  However, the IRS does not maintain documentation detailing the methodology used to determine tolerance levels and could not provide any evidence to show that it monitors the effectiveness of established tolerance levels.  Consequently, the IRS might be needlessly expending limited resources and incurring unnecessary costs.  This could result in the loss of revenue to the Federal Government and inequitable treatment of taxpayers.

Synopsis

For many of the credits, deductions, payments, and taxes due claimed by taxpayers on their U.S. Individual Income Tax Returns (Form 1040), the IRS requires taxpayers to provide substantiation by attaching certain forms and schedules to their tax returns.  The IRS does not have the resources to address every identified case of potential taxpayer noncompliance and must apply its limited resources to areas in which noncompliance is greatest, while still maintaining adequate coverage in other areas.  Therefore, the IRS sets tolerance levels to control the volume of cases requiring follow-up actions by IRS employees so that all selected cases can be handled.  Tolerance levels are considered and changed, if warranted, annually by the IRS.  However, the IRS was unable to provide documentation to support any reviews or analysis performed during this process.

In response to our questions regarding the process for establishing tolerance levels, the IRS stated that it considers Congressional legislation, programming requirements, taxpayer instructions, and requests from Compliance functions when determining tolerance levels.  By not gathering and analyzing empirical data when establishing tolerance levels–and by not using such data to periodically evaluate the effectiveness of established tolerance levels–the IRS is unable to determine whether it is meeting its goals of reducing processing costs and using limited resources effectively, while maximizing taxpayer compliance.

Based on our analysis, the IRS does not always take into account the overall level of taxpayer compliance with the requirements to provide additional forms and schedules or the associated cost/benefit when setting the tolerance levels for issuing correspondence to taxpayers requesting missing forms and schedules.  In addition, the IRS does not maintain data showing the results of its correspondence with taxpayers for these forms and schedules.  As a result, the IRS is using its limited resources and incurring additional costs by requesting missing forms and schedules from highly compliant taxpayers while allowing the unsubstantiated deductions of far less compliant taxpayers.  Further, the IRS is burdening some taxpayers for substantiation to support insignificant entries (in some cases ****(b)(3):26 U.S.C. 6103,(b)(7)(E)****) on their tax returns, while allowing other more significant entries with no substantiation.

Recommendations

We recommended that the Commissioner, Wage and Investment Division, evaluate tolerance levels to ensure that they are meeting established goals, document the methodology used to establish and revise tolerance levels, and adjust tolerance levels based upon the cost/benefit and degree of taxpayer compliance with the requirement to attach supporting documentation.

Response

IRS management agreed with one of the two recommendations and partially agreed with the other.  IRS management agreed to evaluate and document the methodology used to establish and revise tolerance levels.  They plan to enhance their evaluation of tolerance levels by 1) requesting that emphasis be placed on review of the tolerance amounts as part of their 2008 review process, 2) developing a method of capturing the methodology used to establish all new correspondence tolerances, as well as tolerances for review by downstream organizations, and 3) forwarding the tolerances annually for review by downstream organizations and documenting the methodology used in any revisions once the system is developed.

IRS management agreed that the cost/benefit should be factored into decisions to correspond with taxpayers for missing information and stated that the IRS currently considers this information.  However, they did not agree that the IRS should track the results of correspondence with taxpayers, stating that such data would only provide the percentage of taxpayers that reply.  Further, the IRS stated that tolerances are generally set to ensure compliance with statutory or regulatory requirements for the filing of accurate or processable tax returns and to ensure protection of the revenue.  Management’s complete response to the draft report is included in Appendix IV.

Office of Audit Comment

Although we agree that tracking taxpayer compliance with correspondence might not be beneficial in all cases, we continue to believe that it would be beneficial to the IRS in many instances.  Low compliance rates might indicate when changes are necessary to the wording in the correspondence, the IRS’ follow-up procedures, or the actions the IRS takes when no response is received.  For example, in some instances, if taxpayers ignore the IRS’ correspondence, it will prepare dummy forms or schedules for the taxpayers and process the returns as filed.  If the taxpayer response rate to correspondence in these cases is low, it might not be cost-beneficial for the IRS to correspond when the dollar amounts in question are low.  Further, when corresponding to protect the revenue, contacting highly compliant taxpayers for substantiation to support very minimal amounts might not be an effective use of the IRS’ limited resources, and it might therefore make sense to raise tolerances in those cases to free resources to focus on more significant amounts.

In the response, the Commissioner, Wage and Investment Division, stated that our report did not factor in correspondence for refund and even-balance tax returns.  Our sample returns were, in fact, randomly selected from all types of returns, including even-balance and refund returns.

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 Margaret E. Begg, Acting Assistant Inspector General for Audit (Small Business and Corporate Programs), at (202) 622-8510.

 

Table of Contents

 

Background

Results of Review

Empirical Data Should Be Analyzed to Establish and Revise Tolerance Levels to Ensure That Program Goals Are Met

Recommendation 1:

The Submission Processing Function Should Make Better Use of Limited Resources When Corresponding With Taxpayers for Missing Forms and Schedules

Recommendation 2:

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

 

IRS

Internal Revenue Service

 

 

Background

 

Recent Treasury Inspector General for Tax Administration audits on non-cash charitable contributions[2] and the telephone excise tax refund program[3] found that even though legislation or Internal Revenue Service (IRS) regulations required taxpayers to provide specific documentation to substantiate certain entries on their tax returns, the IRS’ tolerance level was so high that many noncompliant taxpayers were never questioned further by the IRS.

The IRS uses tolerance levels[4] as an administrative control throughout a range of programs and functions.  The IRS establishes tolerance levels for assessing tax, issuing refunds, assigning cases for collection, and corresponding for forms and schedules.  These tolerance levels have different rationales behind them.  For instance, the IRS does not have the resources to address every identified case of potential taxpayer noncompliance and must apply its limited resources to areas in which noncompliance is greatest.  Therefore, the IRS sets tolerance levels to control the volume of cases requiring follow-up actions and to more effectively use limited resources.

The IRS Submission Processing function processes paper and electronic submissions, ensures that tax returns are complete, corrects errors, and forwards data to the Computing Centers for analysis and posting to taxpayer accounts.  When taxpayers make entries on their tax returns requiring additional forms as substantiation but do not provide those additional forms, the Submission Processing function will correspond with the taxpayers to obtain the substantiating forms.  Generally, if taxpayers do not provide the requested data, the questioned entries on their tax returns are disallowed.  Based on established tolerance levels, the Submission Processing function might allow certain entries without required substantiation in order to conserve resources needed to correspond with taxpayers for forms, schedules, and other documentation required to process tax returns.

This review was performed in the Submission Processing and Compliance functions of the Wage and Investment Division during the period January through June 2008.  Our review included a review of taxpayer account information nationwide.  We conducted this performance audit in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objective.  We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objective.  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

 

Empirical Data Should Be Analyzed to Establish and Revise Tolerance Levels to Ensure That Program Goals Are Met

The Internal Revenue Manual contains information associated with Submission Processing function correspondence tolerance levels and Compliance function tolerance levels[5] and is reviewed annually by both functions, as well as by other affected stakeholders, during the document clearance process.[6]  Tolerance levels are considered and changed, if warranted, at that time.  However, the IRS was unable to provide documentation to support any reviews or analysis performed during this process.

Although the IRS has periodically revised some tolerance levels for corresponding for a required schedule or other documentation to support an entry on a tax return, no documentation detailing the methodology used to determine the tolerance levels has been maintained.  The IRS does not maintain an audit trail[7] for individual tolerance level changes and could not provide any evidence to show that it monitors the effectiveness of the established tolerance levels.  In addition, the IRS does not maintain data associated with correspondence sent to taxpayers to obtain missing documentation.  For instance, the IRS does not have data on the number of taxpayers who respond to correspondence or the number of taxpayers who provide missing documentation in response to correspondence.

We reviewed the correspondence tolerance levels over an 11-year time period for 14 forms and schedules required to be filed with U.S. Individual Income Tax Returns (Form 1040) to substantiate various credits, deductions, payments, or taxes due.  The IRS tolerance levels to correspond with taxpayers for these forms and schedules in Tax Year 2006 ranged from ****(b)(3):26 U.S.C. 6103,(b)(7)(E)****.  For 11 of the 14 forms, we could find no indication that the tolerance level had ever been revised.  For the three forms for which tolerance levels for corresponding with taxpayers were adjusted, the IRS could provide no documentation to support the changes.  Figure 1 shows additional details regarding the tolerance levels for the 14 forms and schedules.

Figure 1:  Tolerance Levels for Required Forms on Individual Income Tax Returns

Description

Form Number

Tolerance Level[8]

Tolerance Revisions[9]

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

No

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

No

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

No

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

No

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

Yes

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

No

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

No

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

No

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

Yes

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

Yes

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

No

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

No

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

No

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

No

Source:  Internal Revenue Manual Sections 3.11.3 and 3.12.3.

In response to our questions regarding the process for establishing tolerance levels, the IRS stated that it considers Congressional legislation, programming requirements, taxpayer instructions, and requests from Compliance functions when determining correspondence tolerance levels.  By not gathering and analyzing empirical data when establishing tolerance levels, and by not using such data to periodically evaluate the effectiveness of established tolerance levels, the IRS is unable to determine whether it is meeting its goals of reducing processing costs and using limited resources effectively, while maximizing taxpayer compliance.

Recommendation

Recommendation 1:  The Commissioner, Wage and Investment Division, should evaluate the tolerance levels for various credits, deductions, payments, or taxes due to ensure that they are meeting agency goals.  In addition, a system should be created to provide permanent records and data that would document the methodology used to establish or to revise tolerance levels.

Management’s Response:  The Commissioner, Wage and Investment Division, agreed with this recommendation and plans to enhance the evaluation of tolerance levels by 1) requesting that emphasis be placed on review of the tolerance amounts as part of their 2008 review process, 2) developing a method of capturing the methodology used to establish all new correspondence tolerances, as well as tolerances for review by downstream organizations, and 3) forwarding the tolerances annually for review by downstream organizations and documenting the methodology used in any revisions once the system is developed.

The Submission Processing Function Should Make Better Use of Limited Resources When Corresponding With Taxpayers for Missing Forms and Schedules

From our review of the tolerance levels for 14 forms and schedules required to support entries on Form 1040, we identified 6 in which the IRS tolerance level for issuing correspondence to taxpayers was set ****(b)(3):26 U.S.C. 6103,(b)(7)(E)****, while the overall taxpayer compliance rate for attaching the required documentation was greater than 99 percent.  Figure 2 shows that for the 6 items only 165,000 (.33%) of approximately 50 million taxpayers did not provide the required documentation. 

Figure 2:  Noncompliance Rate for Filing Required Forms

Description

Form Number

Noncompliance Rate[10]

Correspondence Tolerance Level

Total Returns Filed

Returns Missing Forms

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

0.81%

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

381,311

3,071

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

0.39%

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

4,018,911

15,803

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

0.24%

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

6,391,501

15,240

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

0.24%

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

7,744,807

18,811

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

0.70%

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

15,192,607

105,649

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

0.04%

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

16,063,426

6,816

Totals

 

.33%

 

49,792,563

165,390

Source:  Treasury Inspector General for Tax Administration analysis of Tax Year 2006 Individual Income Tax Returns.

Conversely, we identified 3 other instances in which the IRS tolerance level for issuing correspondence to taxpayers to support an entry on Form 1040 was set at ****(b)(3):26 U.S.C. 6103,(b)(7)(E)**** and the taxpayer noncompliance rate for attaching the required documentation was as high as 61 percent.  Figure 3 shows that for the 3 items, more than 3.97 million (55%) of approximately 7.18 million taxpayers did not provide the required documentation.  Using the specific correspondence tolerance levels contained in the Internal Revenue Manual, we determined that the IRS should have corresponded with more than 34,500 of these noncompliant taxpayers.  The remaining 3.93 million noncompliant taxpayers would be allowed to claim more than $237 million in credits without complying with the current tax law requirements.

Figure 3:  Noncompliance Rate for Filing Required Forms

Description

Form Number

Noncompliance Rate[11]

Correspondence Tolerance Level

Total Returns Filed

Returns Missing Forms

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

60.52%

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****]

6,370,215

3,854,948[13]

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

18.55%

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

459,764

85,271

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

8.19%

****(b)(3):26 U.S.C. 6103,(b)(7)(E)****

349,168

28,584

Totals

 

55.28%

 

7,179,147

3,968,803

Source:  Treasury Inspector General for Tax Administration analysis of Tax Year 2006 Individual Income Tax Returns.

The IRS needs to collect the correct amount of tax at the least cost to the taxpayers and ensure that the tax law is applied with integrity and fairness.  Based on our analysis, the IRS does not always take into account the overall level of taxpayer compliance with the requirements to provide additional forms and schedules or the associated cost/benefit when setting the tolerance levels for issuing correspondence to taxpayers requesting missing forms and schedules.  In addition, the IRS does not maintain data showing the results of its correspondence with taxpayers for these forms and schedules. 

As a result, the IRS is using its limited resources and incurring additional costs by requesting missing forms and schedules from highly compliant taxpayers while allowing the unsubstantiated deductions of far less compliant taxpayers.  Further, the IRS is burdening some taxpayers for substantiation to support insignificant entries on their tax returns, while allowing other more significant entries with no substantiation.  This could result in a loss of revenue to the Federal Government as well as inequitable treatment of taxpayers.  Also, without data showing the results of its correspondence with taxpayers, the IRS cannot make informed decisions regarding where to apply its limited resources. 

Recommendation

Recommendation 2:  The Commissioner, Wage and Investment Division, should take the following actions to make better use of resources when corresponding with taxpayers for missing forms and schedules:

Management’s Response:  IRS management partially agreed with this recommendation.  The Commissioner, Wage and Investment Division, agreed that the cost/benefit should be factored into decisions to correspond with taxpayers for missing information and stated that the IRS currently considers this information.  However, management did not agree that the IRS should track the results of correspondence with taxpayers, stating that such data would only provide the percentage of taxpayers that reply.  Further, the IRS stated that tolerances are generally set to ensure compliance with statutory or regulatory requirements for the filing of accurate or processable tax returns and to ensure protection of the revenue.

Office of Audit Comment:  Although we agree that tracking taxpayer compliance with correspondence might not be beneficial in all cases, we continue to believe that it would be beneficial to the IRS in many instances.  Low compliance rates might indicate when changes are necessary to the wording in the correspondence, the IRS’ follow-up procedures, or the actions the IRS takes when no response is received.  For example, in some instances, if taxpayers ignore the IRS’ correspondence, it will prepare dummy forms or schedules for the taxpayers and process the returns as filed.  If the taxpayer response rate to correspondence in these cases is low, it might not be cost-beneficial for the IRS to correspond when the dollar amounts in question are low.  Further, when corresponding to protect the revenue, contacting highly compliant taxpayers for substantiation to support very minimal amounts might not be an effective use of the IRS’ limited resources, and it might therefore make sense to raise tolerances in those cases to free resources to focus on more significant amounts.

In the response, the Commissioner, Wage and Investment Division, stated that our report did not factor in correspondence for refund and even-balance tax returns.  Our sample returns were, in fact, randomly selected from all types of returns, including even-balance and refund returns.

 

Appendix I

 

Detailed Objective, Scope, and Methodology

 

The overall objective of this review was to evaluate the effects that IRS tolerance levels have on voluntary compliance and taxpayer burden.  To accomplish our objective, we:

I.          Evaluated current IRS tolerance level policies for entries on U.S. Individual Income Tax Returns (Form 1040) that required substantiation for credits, deductions, payments, or taxes due claimed by taxpayers.

A.  Reviewed current and historic Internal Revenue Manuals to identify correspondence tolerance levels that were in affect for Forms 1040 for Tax Years 1998 through 2008.

B.   Developed and issued questionnaires to the IRS to 1) verify whether the tolerance levels we identified from the current Internal Revenue Manuals were accurate, 2) determine whether a specific line item and/or form is transcribed, and 3) determine whether any action is taken by the IRS if no response is received from the taxpayer.

C.  Determined the IRS’ rationale for current tolerance levels for various tax forms and schedules.

D.  Determined the procedures and time periods used when the Error Resolution System[14] either disallows the deduction or credit, or if a Taxpayer Notice Code[15] is issued to the taxpayers who do not provide the required documentation.

E.   Performed a risk assessment to identify any internal control weaknesses that needed to be included in our audit tests.

F.   Determined whether tolerances are adjusted for items in the tax law specifically indexed for cost of living adjustments (e.g., ****(b)(3):26 U.S.C. 6103,(b)(7)(E)****).

G.  Determined whether the responsibility for establishing processing tolerance levels was centralized or decentralized.

II.         Evaluated the processing of individual income tax returns with credits, deductions, payments, and taxes due captured on the Individual Return Transaction File.[16]

A.  Determined the number and corresponding dollar amount of taxpayers claiming credits, deductions, payments, or taxes due.

B.   Determined whether taxpayers provided the required documentation to substantiate certain line items on their tax returns.

C.  Determined how the IRS used the additional information it requested/required.

D.  Determined whether the IRS took steps to obtain the documentation and what additional steps, if any, were taken if the taxpayer failed to respond or to provide any additional substantiation/documentation.

III.       Tested the validity and reliability of our computer-generated data.

A.  Coordinated with a Treasury Inspector General for Tax Administration information technology specialist to identify the volume of various credits, deductions, payments, and taxes due reported on Tax Year 2006 Forms 1040.  The computer extract was run from the Individual Return Transaction File on the Treasury Inspector General for Tax Administration Data Center Warehouse.[17]

B.   Requested a random sample of 280 cases to test the validity of the computer extract.  We validated the reliability of the computer-processed data by verifying the sample cases against the information on the Integrated Data Retrieval System[18] and on the tax returns.

 

Appendix II

 

Major Contributors to This Report

 

Margaret E. Begg, Acting Assistant Inspector General for Audit (Small Business and Corporate Programs)

Kyle R. Andersen, Director

Bernard F. Kelly, Audit Manager

Stephen A. Wybaillie, Lead Auditor

Margaret F. Filippelli, Senior Auditor

Philip W. Peyser, Senior Auditor

Nandini Bhuchar, Auditor

Richard Hillelson, Information Technology Specialist

 

Appendix III

 

Report Distribution List

 

Commissioner  C

Office of the Commissioner Attn:  Chief of Staff  C

Deputy Commissioner for Services and Enforcement  SE

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

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

Deputy Commissioner, Wage and Investment Division  SE:W

Deputy Chief Financial Officer, Department of the Treasury

Audit Liaisons: 

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

Commissioner, Wage and Investment Division  SE:W

 

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] Tolerance levels are dollar figures established by the IRS that trigger an action such as corresponding with taxpayers for forms and schedules.

[2] The Internal Revenue Service Needs to Improve Procedures to Identify Noncompliance With the Reporting Requirements for Noncash Charitable Contributions (Reference Number 2007-30-049, dated March 5, 2007).

[3] Although Strong Efforts Were Made, a Significant Amount of the Telephone Excise Tax Overcollected From Individual Taxpayers May Never Be Refunded (Reference Number 2007-30-178, dated September 26, 2007).

[4] Tolerance levels are dollar figures established by the IRS that trigger an action such as corresponding for forms and schedules.

[5] Internal Revenue Manual Section 3.11.3, Individual Master File Code and Edit and Internal Revenue Manual Section 3.12.3, Individual Master File Error Resolution.

[6] The process performed in preparation for the following year’s publication of the Internal Revenue Manual.

[7] A record of a sequence of events (as actions performed by a computer) from which a history may be reconstructed.

[8] Tolerance levels in effect for Tax Year 2006.  Tolerance levels for ****(b)(3):26 U.S.C. 6103,(b)(7)(E)**** were lowered in 2008.

[9] Established tolerance levels from Calendar Years 1998 through 2008.

[10] Percentage of tax returns filed without required form or schedule.

[11] Percentage of tax returns filed without required form.

[12] For taxpayers ****(b)(3):26 U.S.C. 6103,(b)(7)(E)****.

[13] The Internal Revenue Code provides specific limited instances where ****(b)(3):26 U.S.C. 6103,(b)(7)(E)****  Neither the IRS nor Treasury Inspector General for Tax Administration were able to determine how many of these taxpayers met the criteria ****(b)(3):26 U.S.C. 6103,(b)(7)(E)****. 

[14] The Error Resolution System provides for the correction of errors associated with the input of taxpayer data.

[15] Taxpayer Notice Codes are used when a math error is present involving the tax liability or balance due/overpayment.

[16] The Individual Return Transaction File contains line items transcribed during return processing and other fields such as math calculations.

[17] The Data Center Warehouse provides data and data access services; centralizes storage, security, and administration of files; and develops uniform and user-friendly interfaces for users to access data.

[18] The Integrated Data Retrieval System allows IRS employees working active tax cases to take specific actions on taxpayer account issues, track status, and post transaction updates back to the Master Files.  The Master Files are IRS databases that store various types of taxpayer account information.  These databases include individual, business, and employee plans and exempt organizations data.