TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

 

 

Although the Large and Mid-Size Business Division’s Currency Initiative Was Considered a Success, Improvements Could Be Made in Future Initiatives

 

 

 

September 26, 2008

 

Reference Number:  2008-30-181

 

 

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.

 

Redaction Legend:

 1 = Tax Return/Return Information

Phone Number   |  202-622-6500

Email Address   |  inquiries@tigta.treas.gov

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

 

September 26, 2008

 

 

MEMORANDUM FOR COMMISSIONER, LARGE AND MID-SIZE BUSINESS DIVISION

 

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

                                         Deputy Inspector General for Audit

 

SUBJECT:                    Final Audit Report – Although the Large and Mid-Size Business Division’s Currency Initiative Was Considered a Success, Improvements Could Be Made in Future Initiatives (Audit # 200730IE042)

 

This report presents the results of our review of the Fiscal Year (FY) 2004 Currency[1] and Cycle Time[2] Improvement Initiative (currency initiative).  The overall objective of this review was to evaluate whether the design and implementation of the currency initiative allowed the Internal Revenue Service (IRS) Large and Mid-Size Business (LMSB) Division to more efficiently close examinations while effectively addressing mandatory and high-risk material issues.  This audit was included in the Treasury Inspector General for Tax Administration FY 2008 Annual Audit Plan.

Impact on the Taxpayer

The IRS considers reducing the time, costs, and burdens of large corporate examinations to be extremely important.  On October 9, 2003, the Commissioner, LMSB Division, issued a memorandum[3] to LMSB Division employees stating that one of the goals of the currency initiative was to “realize significant gains in cycle time, currency, return closures, rates, and audit coverage performance.”  Although the LMSB Division’s examination performance statistics improved in the years following the currency initiative, the initiative also received adverse media coverage alleging that significant tax issues could have been overlooked in examinations that were closed prematurely, which could have reduced the amount of taxes assessed and collected from corporate taxpayers.

Synopsis

Based on several performance measures, the LMSB Division has increased the efficiency of its examinations since the currency initiative.  Our analysis showed that both the average number of months required by an examination group to close an examination of a return and case cycle time for corporate examinations have declined.  In addition, examination coverage has increased along with the amounts of assessments that examiners are recommending on both a return and an hourly basis. 

Although the currency initiative was considered a success, there are opportunities for improvement.  Some LMSB Division personnel expressed resistance to the changes introduced by the initiative, which generated adverse publicity for the initiative.  Another, perhaps more critical, concern was that significant tax issues might have been overlooked because examinations were closed prematurely to meet initiative deadlines.  To evaluate this risk, we reviewed 30 (24 Industry Case and 6 Coordinated Industry Case) judgmentally selected examinations closed during the initiative. 

In 14 (47 percent) of the 30 cases, we found no evidence that examiners used the Case Analysis Worksheet[4] that was specifically designed for use during the currency initiative to reduce the risk of missing significant tax issues.  Some of the 14 cases were in early or late stages of review, with issues not yet identified or nearing completion, but the guidance for the Case Analysis Worksheet did not provide an exception for such cases.  We further evaluated the 30 cases by comparing the issues identified for examination during planning to those ultimately examined and identified 3 cases in which 1 or more issues were dropped from the examination with little or no supporting documentation.  ****1****

****1****

Without access to the financial records for the 30 cases we reviewed, we cannot determine whether any of the corporations avoided paying additional taxes that might have been owed.  However, we do know that, in retrospect, the LMSB Division could have more closely followed best practices and possibly addressed the challenges it experienced during the currency initiative. 

Recommendation

The Commissioner, LMSB Division, should ensure that a standardized framework for planning and carrying out initiatives of this magnitude is incorporated into the official LMSB Division policies and procedures and includes steps for fully assessing implementation barriers and detailed pilot testing.

Response

In their response to the report, IRS management agreed with the recommendation and outlined the corrective actions the IRS would take.  The LMSB Division will consider use of a standardized framework with detailed steps for managers to follow (e.g., the Government Accountability Office 20-step framework), including steps to fully assess implementation barriers and a detailed pilot testing, for the design and implementation of future major process improvement initiatives.  A guidance memorandum will be issued to LMSB Division directors responsible for review and approval of the design and implementation of major process improvement initiatives in the LMSB Division.  Management’s complete response to the draft report is included as Appendix VI.

Office of Audit Comment

Although the IRS agreed with our findings and recommendation, it did not fully commit to using a standardized framework with detailed steps for the design and implementation of future major process improvement initiatives.  While a guidance memorandum to LMSB Division directors might be helpful, we believe that without a standardized framework in place for future initiatives, the IRS remains at risk of experiencing challenges similar to those it faced with the FY 2004 currency initiative.

Copies of this report are also being sent to the IRS managers affected by the report recommendation.  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

The Large and Mid-Size Business Division’s Examination Performance Statistics Improved Following the Currency and Cycle Time Improvement Initiative

Adverse Reaction to the Currency and Cycle Time Improvement Initiative Was Significant

Recommendation 1:

Appendices

Appendix I – Detailed Objective, Scope, and Methodology

Appendix II – Major Contributors to This Report

Appendix III – Report Distribution List

Appendix IV – Glossary of Terms

Appendix V – Case Analysis Worksheet

Appendix VI – Management’s Response to the Draft Report

 

 

Abbreviations

 

CIC

Coordinated Industry Case

FY

Fiscal Year

GAO

Government Accountability Office

IC

Industry Case

IRS

Internal Revenue Service

LMSB

Large and Mid-Size Business

 

 

Background

 

The Internal Revenue Service (IRS) Large and Mid-Size Business (LMSB) Division has the formidable task of examining the nation’s largest corporations.  To do this, the LMSB Division divides the corporations into two segments.  A few thousand of the largest corporations are classified as Coordinated Industry Cases (CIC),[5] while the vast majority of the remaining large corporations are referred to as Industry Cases (IC).  Unlike IC examinations, CIC examinations are conducted using a team of IRS examiners.  Although CIC and IC examinations account for more than 60 percent of the recommended additional taxes from all IRS examinations, the length of time taken to complete the examinations has been an ongoing concern of both the IRS and stakeholders.

The Currency and Cycle Time Improvement Initiative was intended to allow the LMSB Division to “realize significant gains in cycle time, currency, return closures, rates, and audit coverage performance.”

To address this concern, the LMSB Division has implemented numerous initiatives to improve examination currency[6] and reduce cycle time.  Among others, the initiatives include the Pre-Filing Agreement program, the Industry Issue Resolution program, the Limited Issue Focused Examination process, the Compliance Assurance Process, and the LMSB Workload Identification System.  In May 2003, the issue of timely audits was a topic of discussion in Congressional testimony by the IRS Commissioner, who stated that:

[T]he IRS must bring the same focus and energy to improving enforcement’s business processes as we are to improving the service side of the IRS.  It’s unacceptable that a corporate audit takes five years on average from the date of filing to complete.

On October 9, 2003, the Commissioner, LMSB Division, issued a memorandum[7] to LMSB Division employees announcing the Fiscal Year (FY) 2004 Currency and Cycle Time Improvement Initiative (currency initiative).  One of the goals of the currency initiative was to “realize significant gains in cycle time, currency, return closures, rates, and audit coverage performance.”  The specific measures taken to achieve the new currency goals were for team managers to conduct a “vigorous risk analysis” of all open IC and CIC examinations by November 14, 2003.  The risk analysis was intended to identify opportunities to close aged inventory and replace it with more current work.  Unless an exception existed, all open IC examinations were to be closed by April 30, 2004, and all open CIC examinations were to be closed by March 31, 2005.  The exceptions included examinations involving issues such as abusive tax shelters, fraud, high-risk material issues, high-priority work (such as coordinated issues and emerging issues), and noncompliant taxpayers.

This review was performed at the LMSB Division Headquarters in Washington, D.C., and IRS offices in the Los Angeles, California; Chicago, Illinois; and New York, New York, metropolitan areas during the period October 2007 through May 2008.  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

 

The Large and Mid-Size Business Division’s Examination Performance Statistics Improved Following the Currency and Cycle Time Improvement Initiative

The IRS considers reducing the time, costs, and burdens of large corporate examinations to be extremely important, and the LMSB Division reflected this priority in the emphasis it gave to the currency initiative.  Management at the national and local levels coordinated efforts to assist examiners with closing in-process examinations by the scheduled completion dates beginning in April 2004.

Prior to implementing the initiative, the LMSB Division developed and distributed detailed guidelines and examination techniques to personnel throughout the Division.  While the guidelines imposed strict rules and specific dates for closing examinations, certain cases–such as those involving abusive tax shelters–were excluded from the initiative.  Importantly, the exclusions recognized the need to continue ensuring that examinations with high-risk compliance tax issues receive the requisite amount of time and attention.  Once the initiative was implemented, the Division formed management teams that conducted onsite visitations at various geographically dispersed offices.  The visitations were designed to monitor progress, identify and address potential problems, and share best practices.

Due to various other ongoing initiatives that the LMSB Division has cited as affecting the outcomes of examinations, such as the Pre-Filing Agreement program, we were unable to isolate the impact from the currency initiative.  However, LMSB Division statistics show that the average length of time for examinations is decreasing, examination coverage is increasing, and the amounts of recommended assessments from examinerson both an hourly and a return basisare trending up.

The currency initiative focused on months in group (the average number of months required by an examination group to close an examination of a return) as a measure of examination productivity.  Because this measure reflects only the time spent on the examination of a return, and excludes the time spent processing the return after receipt and the time the return was in inventory awaiting assignment to an examiner, it should more directly reflect improvements in productivity at the examination team level.  As shown in Figure 1, the months in group measurements for both IC and CIC examinations declined substantially for the fiscal years in which open examinations were required to be closed under the currency initiative (FY 2004 for open IC examinations; FY 2005 for open CIC examinations) and have remained below their pre-currency initiative levels.

Figure 1:  Months in Group for FYs 2003 Through 2007

Average Months in Group for
Cases With Examinations Started

FY 2003

FY 2004

FY 2005

FY 2006

FY 2007

CIC Examinations

36.97

32.68

23.90

24.20

21.80

IC Examinations

16.06

13.50

10.20

11.00

11.30

Source:  LMSB Division Balanced Measures Scorecards for FYs 2003 through 2007.

As shown in Figure 1, when the currency initiative was announced at the beginning of FY 2004, the average months in group for IC examinations was just over 16 months.  At the end of FY 2004, after eligible open IC examinations were required to be closed, the months in group had declined to 13.5 months.  The average months in group for IC examinations declined further in FY 2005 but rose slightly in recent years.

For CIC examinations, the average months in group declined from 36.97 months at the end of FY 2003 to 32.68 months at the end of FY 2004.  At the end of FY 2005, after open CIC examinations were required to be closed under the currency initiative, the average months in group for CIC examinations had declined substantially to 23.9 months.  The average months in group for CIC examinations rose slightly in FY 2006 but declined again in FY 2007.

The broadest measure of the length of an examination is case cycle time, which measures the number of months between receipt of the tax return and closure of the examination.  Since FY 2005, the LMSB Division has not tracked case cycle time separately for CIC and IC examinations.  Instead, it reports a combined number for all closed examinations.  As shown in Figure 2, overall combined case cycle time has declined in each of the past 5 fiscal years.

Figure 2:  Case Cycle Time for FYs 2003 Through 2007

Case Cycle Time
(in months, 12-month average)

FY 2003

FY 2004

FY 2005

FY 2006

FY 2007

Combined (All Closed Examinations)

42.4

42.3

40.4

34.3

32.4

Source:  LMSB Division Balanced Measures Scorecards for FYs 2003 through 2007.

Months in group and cycle time are not the only measures of examination productivity.  Several other measures indicate that the LMSB Division has increased the efficiency of its examinations since the currency initiative.  As shown in Figure 3, the numbers of closed returns, the average assessments per closed return, and the assessments per examiner hour for the corporate returns that form the majority of the LMSB Division’s workload have generally increased in the fiscal years since the currency initiative.

Figure 3:  Numbers of Closed Returns and Average
Assessments per Closed Return for FYs 2003 Through 2007

 

FY 2003

FY 2004

FY 2005

FY 2006

FY 2007

CIC Examinations

 

 

 

 

 

Number of Closed Returns

2,225

2,586

2,920

2,094

1,524

Average Assessment per Closed Return

$ 5,372,592

$ 5,300,580

$ 9,745,034

$ 10,464,978

$ 14,071,843

Assessment per Examiner Hour

$ 3,486

$ 4,202

$ 7,342

$ 6,833

$ 8,638

 

 

 

 

 

 

IC Examinations

 

 

 

 

 

Number of Closed Returns

4,324

5,818

5,952

6,570

6,218

Average Assessment per Closed Return

$ 251,092

$ 376,751

$ 497,748

$ 700,644

$ 522,735

Assessment per Examiner Hour

$ 981

$ 1,577

$ 2,183

$ 3,265

$ 2,162

Source:  Our analysis of closed examination data from the IRS Audit Information Management System for
FYs 2003 through 2007.

Despite the successes achieved by the LMSB Division, we have observations for management to consider in developing and implementing initiatives of this size in the future.  Our observations focus on steps that could be taken to help avoid resistance to the changes introduced by process improvement initiatives.

Adverse Reaction to the Currency and Cycle Time Improvement Initiative Was Significant

Although the LMSB Division reported that the currency initiative was a success, there are opportunities for improvement.  Some LMSB Division personnel expressed resistance to the changes introduced by the initiative, which generated adverse publicity for the initiative.  As reflected in the following excerpts from an article in The New York Times,[8] some examiners opposed the changes because they believed that managers were pressuring them to prematurely close examinations.

One agent, who said he had worked on some of the largest I.R.S. cases, said he was admonished for resisting management pressure to close a case in which his team believed that vast sums were due.  The agent said his team was forced to sign off on a closing agreement allowing the company to permanently underpay its taxes by hundreds of millions of dollars a year.

In interviews, these revenue agents warned that unless they were free to pursue what their instincts tell them, their focus would end up being only on known abuses, and new ones created by the tax advice industry would go undetected.

The agency countered that it had increased the number of companies whose tax returns it examined by a fourth since 2001, even though the number of auditors was virtually the same.

Agency officials said this was accomplished by cutting back slightly on audits of the very largest companies, which produce more than 80 percent of all corporate profits, while increasing audits of those with assets of $10 million to $250 million.  At the same time, the officials say, they have shortened the average time to complete an audit from almost two years in 2001 to less than 18 months last year.

I.R.S. officials say the auditors who are complaining are mostly older agents unwilling to adopt new approaches.

Another, perhaps more critical, concern was that significant tax issues might have been overlooked because examinations were closed prematurely to meet initiative deadlines.  At least two Congressmen expressed this concern publicly in a letter[9] to the IRS Commissioner stating that, “In the face of the [approximately $345 billion annual] tax gap and our budget deficits, we can scarcely afford to leave billions of dollars of corporate taxes owed on the table.”

To evaluate whether significant tax issues were overlooked because examinations were closed too quickly, we reviewed 30 (24 IC and 6 CIC) judgmentally selected examinations closed during the initiative.  In 14 (47 percent) of the 30 cases, we found no evidence that examiners used the Case Analysis Worksheet (worksheet) that was specifically designed for the currency initiative to reduce the risk of missing significant tax issues.  Some of the 14 cases were in early or late stages of examination, with issues not yet identified or nearing completion, but the guidance for the worksheet did not provide an exception for such cases.  As displayed in Appendix V, the worksheet provided examiners with a risk analysis process to focus on a few high-risk compliance issues so the scope, depth, and length of examinations could be reduced.

We further evaluated the 30 cases by comparing the issues identified for examination during planning to those ultimately examined and identified 3 cases in which 1 or more issues were dropped from the examination with little or no supporting documentation.  ****1****

****1****

Of course, without access to the financial records for the 30 cases we reviewed, we cannot determine whether any of the corporations avoided paying additional taxes that might have been owed.  We also do not know if the issues identified in the 30 cases we reviewed were more widespread because the IRS was unable to retrieve all the closed case files we requested for the review in a timely manner.  However, we do know that, in retrospect, the LMSB Division could have more closely followed best practices and possibly addressed the challenges it experienced during the currency initiative.

More closely following key best practices might have reduced the challenges associated with the currency initiative

Best practices for process improvement initiatives include establishment of an overall framework with detailed steps for carrying out the various phases of an initiative.  For example, the Government Accountability Office (GAO) has developed and used a 20-step approach based on its Business Process Reengineering Assessment Guide[10] to evaluate earlier improvement initiatives in the IRS Small Business/Self-Employed Division.[11]  According to the GAO, the 20 steps included in its framework help to ensure that potential implementation obstacles are considered in planning, problems are pinpointed and addressed during implementation, and results are monitored and evaluated once the changes are implemented. 

We used the GAO 20-step approach as criteria to assess the degree to which the steps that the LMSB Division took followed the GAO framework.  We used the GAO framework because the LMSB Division could not provide documentation during the review that it had a standardized framework in place when it planned and carried out the currency initiative.  However, on August 12, 2008, we discussed the issues contained in this report with LMSB Division officials.  In the course of our discussion, we learned that a standardized framework developed by a contractor was used for the initiative but had not been incorporated into the official LMSB Division policies and procedures.  As outlined in Figure 4, we found that except for two areas we consider criticalfully assessing implementation barriers and detailed pilot testingthe steps were either completely or partially followed by LMSB Division personnel.

Figure 4:  Assessment of FY 2004 Currency Initiative Using Key Best Practices

Best Practices Advocated by the GAO

Included
in Initiative

Comments

Identify productivity baseline

 

Include complexity and quality in productivity measures

 

Compare productivity to internal and external benchmarks

 

Map process

 

Identify causes of poor performance

 

Measure gap between current and desired productivity

 

Understand best practices of others

 

Analyze alternatives

 

Design new process to close productivity gap

 

Obtain executive support

 

Assess barriers to implementing changed process

No evidence of assessment.

Assess resource needs and availability

 

Conduct pilot tests

Evidence of limited pilot testing.

Adjust process based on pilot

No evidence of adjustments.

Define roles and responsibilities

 

Establish employee expectations

 

Monitor and evaluate new process

 

Establish a change management strategy

 

Establish a transition team

 

Develop workforce training plans

 

  •   Yes     

  • No
  • Partial

Source:  Our analysis of GAO and LMSB Division data.

According to the GAO, implementation barriers are obstacles that need to be considered and have strategies designed to overcome them during the planning stage of improvement initiatives.  Barriers include employee resistance, collective bargaining agreements, and funding constraints.  While the LMSB Division did not have to deal with funding constraints, it did experience employee resistance, as discussed earlier.  The amount of resistance to the change was likely exacerbated by the view that there was no employee input on the design of the currency initiative, which was expressed by examiners in meetings with management after the initiative was implemented. 

With regard to pilot testing, we have reported previously that the IRS has successfully designed and used pilot tests to evaluate the soundness of process changes in actual practice.[12]  In addition, a well-designed pilot test will help secure the support of employee unions and identify trouble spots to enable necessary adjustments before full implementation.  The documentation the LMSB Division provided to us during discussions on August 13, 2008, showed that the pilot testing was limited to managers and largely focused on the number of examinations that could be closed during the initiative and whether the instructions for the initiative were clear.

To its credit, the LMSB Division has implemented a standardized risk analysis process that examiners are currently using in examinations.  While an evaluation of how well examiners are currently using the process was beyond the scope of this review, the process is likely a significant contributing factor to the improvement reflected in the LMSB Division’s performance statistics.

Recommendation

Recommendation 1:  The Commissioner, LMSB Division, should ensure that a standardized framework for planning and carrying out initiatives of this magnitude is incorporated into the official LMSB Division policies and procedures and includes steps for fully assessing implementation barriers and detailed pilot testing.  This will help ensure that an established framework is readily available and in place that defines in detail the activities personnel will need to complete when undertaking initiatives.

Management’s Response:  IRS management agreed with the recommendation.  The LMSB Division will consider use of a standardized framework with detailed steps for managers to follow (e.g., the GAO 20-step framework), including steps to fully assess implementation barriers and a detailed pilot testing, for the design and implementation of future major process improvement initiatives.  A guidance memorandum will be issued to LMSB Division directors responsible for review and approval of the design and implementation of major process improvement initiatives in the LMSB Division.

Office of Audit Comment:  Although the IRS agreed with our findings and recommendation, it did not fully commit to using a standardized framework with detailed steps for the design and implementation of future major process improvement initiatives.  While a guidance memorandum to LMSB Division directors might be helpful, we believe that without a standardized framework in place for future initiatives, the IRS remains at risk of experiencing challenges similar to those it faced with the FY 2004 currency initiative.

 

Appendix I

 

Detailed Objective, Scope, and Methodology

 

The overall objective of this review was to evaluate whether the design and implementation of the FY 2004 Currency[13] and Cycle Time[14] Improvement Initiative (currency initiative) allowed the LMSB Division to more efficiently close examinations while effectively addressing mandatory and high-risk material issues.  During the review, we relied on IRS databases.  Although we did not conduct audit tests to determine the accuracy and completeness of the information in any of the databases, we checked the reliability of the information against source documents.  Our checks are described below and did not identify any material errors in the information used from the databases.  To meet our objective, we:

I.                   Identified the strengths and weaknesses in planning, developing, and implementing the currency initiative by evaluating the extent to which the LMSB Division followed techniques consistent with those recommended by the GAO for improving business processes.

II.                Evaluated all documentation from the e-talk forum of the Commissioner, LMSB Division, to identify specific concerns with the initiative and/or its aftermath.

III.             Developed a “reviewers” guide and selected a judgmental sample[15] of 24 of the 12,604 IC examinations and 6 of the 4,889 CIC examinations meeting the criteria below and determined whether the initiative contributed to dropping mandatory and high-risk issues, bypassing required examination procedures, and/or closing examinations prematurely.

A.    Disposition Date between October 1, 2003, and September 30, 2004, (for IC examinations).

B.     Disposal Code 01 through 03.

C.     Activity Code 219 through 225.

D.    Total Cycle Days greater than 1,460 for IC examinations or Total Cycle Days greater than 2,400 for CIC examinations.

IV.             Developed a standard questionnaire (script) for interviewing the managers about the examinations reviewed to collect additional information about how well the initiative was planned, developed, and implemented, as well as whether the managers believed that it might have adversely affected examination results and/or provided benefits, such as reducing taxpayer burden.

V.                Evaluated all LMSB Division enhancement visitation reports, including the consolidated quarterly and annual reports, to determine whether IRS management officials might have exerted undue pressure to drop issues and/or close examinations prematurely.

VI.             Determined the potential impact the currency initiative had on reducing the length of examinations, generating higher degrees of productivity, and minimizing taxpayer burden.

A.    Analyzed closed examination data from the Audit Information Management System and compared IC and CIC examination results before and after the initiative to determine whether the initiative reduced cycle time and increased dollars per hour and dollars per return.

B.     Evaluated LMSB Division performance assessments such as the Business Performance Review and the quarterly LMSB Balanced Measures Performance Reports and assessed the impact of the initiative.

C.     Used the Audit Information Management System to compare and contrast the LMSB Workload Identification System that was introduced in 2004 with the initiative to determine which process had the most impact on cycle time.

VII.          For reliability of data considerations, reconciled all Audit Information Management System analysis to Examination Table 37 and/or IRS Data Books[16] to ensure that the data compared with IRS official records.

 

Appendix II

 

Major Contributors to This Report

 

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

Frank Dunleavy, Director

Robert Jenness, Audit Manager

Earl Burney, Senior Auditor

Lawrence Smith, Senior Auditor

William Tran, Senior Auditor

Debra Mason, Auditor

Ali Vaezazizi, 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 (Operations), Large and Mid-Size Business Division  SE:LM

Director, Planning, Quality, Analysis, and Support, Large and Mid-Size Business Division SE:LM:PQAS

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 Liaison:  Commissioner, Large and Mid-Size Business Division  SE:LM

 

Appendix IV

 

Glossary of Terms

 

Activity Code

A three-digit numeric code identifying the type and condition of a return selected for audit.

Audit Information Management System

A computer system used by the LMSB Division Examination function and others to control returns, input assessments/
adjustments to the Master File, and provide management reports.  The Master File is
the IRS database that stores various types of taxpayer account information.  This database includes individual, business, and employee plans and exempt organizations data.

Coordinated Industry Case

One of the two categories of taxpayers in the LMSB Division, generally involving the nation’s largest taxpayers and usually examined by teams of IRS examiners.

Cycle Time

The number of months between when a return is filed and when the examination process is completed.

Disposal Code

A two-digit code used to indicate the disposition of an examination.

Disposal Date

The date on which a disposal code is entered.

Industry Case

One of the two categories of taxpayers in the LMSB Division, consisting of all LMSB Division taxpayers not classified as Coordinated Industry Cases and generally assigned to one IRS examiner.

LMSB Workload Identification System

An application primarily used by analysts to identify and send returns to first-line managers.

Pre-Filing Agreement Program

A program designed to resolve potentially contentious tax issues before tax returns are filed.

Revenue Agent

Employees in the Examination function who conduct face-to-face examinations of more complex tax returns such as businesses, partnerships, corporations, and specialty taxes (e.g., excise tax returns).

Total Cycle Days

The number of days between when a return is filed and when the disposal code is entered.

 

Appendix V

 

Case Analysis Worksheet

 

The Worksheet below was intended to be used for the risk analysis of all open examinations during the FY 2004 Currency and Cycle Time Improvement Initiative.

 

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

.

Appendix VI

 

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] The term “currency” in the title of the LMSB Division initiative referred to the goal of closing all open corporate examinations by certain deadlines, unless an exception existed.

[2] See Appendix IV for a Glossary of Terms.

[3] LMSB FY 2004 Special Initiative to Improve Business Results.

[4] See Appendix V.

[5] See Appendix IV for a Glossary of Terms.

[6] The term “currency” in the title of the LMSB Division initiative referred to the goal of closing all open corporate examinations by certain deadlines, unless an exception existed.

[7] LMSB FY 2004 Special Initiative to Improve Business Results.

[8] David Cay Johnston, ““I.R.S. Agents Feel Pressed to End Cases,” The New York Times, March 20, 2007.

[9] Letter from U.S. Representatives Rahm Emanuel and Richard E. Neal to IRS Commissioner Mark Everson, dated January 16, 2007.

[10] Business Process Reengineering Assessment Guide (GAO/AIMD-10.1.15, dated May 1997).

[11] Tax Administration:  Planning for IRS’s Enforcement Process Changes Included Many Key Steps but Can Be Improved (GAO-04-287, dated January 2004).

[12] The Fast Track Dispute Resolution Pilot Program Was Successful, but Some Challenges Remain (Reference Number 2004-30-119, dated July 2004).

[13] The term “currency” in the title of the LMSB Division initiative referred to the goal of closing all open corporate examinations by certain deadlines, unless an exception existed.

[14] See Appendix IV for a Glossary of Terms.

[15] Judgmental sampling techniques were used for all samples to conserve time and resources.

[16] The Data Book is published annually by the IRS and contains statistical tables and organizational information on a fiscal year basis.