The Office of Appeals Has Improved Compliance Within Its Collection Due Process Program; However, Some Improvement Is Still Needed
July 15, 2010
Reference Number 2010-10-075
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
HIGHLIGHTS
THE OFFICE OF APPEALS HAS IMPROVED
COMPLIANCE WITHIN ITS COLLECTION DUE PROCESS PROGRAM; HOWEVER, SOME IMPROVEMENT
IS STILL NEEDED
Highlights
Final
Report issued on July 15, 2010
Highlights of Reference Number: 2010-10-075 to the Internal Revenue Service Chief of Appeals.
IMPACT ON TAXPAYERS
The Office of Appeals (Appeals) continues
to show improvement in complying with the statutory requirements for its
Collection Due Process (CDP) program. TIGTA
determined that Appeals classified most taxpayer requests properly; as a
result, these taxpayers received the appropriate type of hearing. Also, in most cases, Appeals personnel input
the proper computer coding to identify that taxpayer requests were received and
completed.
However, hearing officers did not always document their impartiality as required. As a result, there is a risk of prior involvement in the taxpayer’s case and a potential lack of independence. Finally, on some taxpayer accounts, the Collection Statute Expiration Date was extended longer than the length of the CDP hearing, a potential violation of taxpayer rights.
WHY TIGTA DID THE AUDIT
This audit was initiated because TIGTA is statutorily
required to determine whether the Internal Revenue Service complied with the
provisions of 26 United States Code Sections 6320 (b) and (c) and 6330 (b) and
(c) when taxpayers exercised their rights to appeal the filing of a Notice of
Federal Tax Lien or the issuance of a notice of intent to levy.
WHAT
TIGTA FOUND
In response
to our previous audit, Appeals developed additional CDP procedures in December
2009 to better ensure that proper documentation is retained in its case
files. During this review, Appeals
located and provided office case files containing complete documentation for
our CDP and Equivalent Hearing samples, an issue that was a concern in prior
years.
However, some
cases in our samples did not include an impartiality statement. Appeals personnel informed us that on April 29, 2008, a programming enhancement was
implemented on their Appeals Centralized Database System. It assists employees working CDP cases to
document prior involvement with taxpayers.
However, TIGTA identified some cases that were closed after the
enhancement date where hearing officers did not document their impartiality in
the case files or in the Decision Letters as required.
Finally, our
case reviews identified 10 taxpayer accounts with incorrect Collection Statute
Expiration Dates. On five taxpayer
accounts, the Collection Statute Expiration Date was extended in error,
allowing the Internal Revenue Service additional time to collect any balances
owed by these taxpayers, a potential violation of taxpayer rights. Conversely, the Collection Statute Expiration
Date on the other five taxpayer accounts was too short, which could cause the Internal
Revenue Service a potential loss of revenue.
WHAT TIGTA RECOMMENDED
TIGTA
recommended that the Chief, Appeals, determine whether the Appeals Centralized
Database System enhancement, which requires hearing officers to document their
impartiality, is functioning properly and cannot be bypassed. TIGTA also recommended that Appeals management
review and correct the taxpayer accounts with Collection Statute Expiration
Date errors identified by the audit team.
Appeals
management agreed with both recommendations.
Appeals will contact the Modernization and Information Technology
Services organization to verify that the coding for the Appeals Centralized
Database System enhancement is functioning properly. If any problems are identified, Appeals will
take actions to correct the error.
Appeals also indicated it corrected the erroneous Collection Statute
Expiration Dates identified in this review.
July 15, 2010
MEMORANDUM FOR CHIEF, APPEALS
FROM: Michael R. Phillips /s/ Michael R. Phillips
Deputy Inspector General for Audit
SUBJECT: Final Audit Report – The Office of Appeals Has Improved Compliance Within Its Collection Due Process Program; However, Some Improvement Is Still Needed (Audit # 201010004)
This report presents the results of our review of to determine whether the Internal Revenue Service complied with 26 United States Code Sections 6320(b) and (c) and 6330(b) and (c) when taxpayers exercised their right to appeal the filing of a Notice of Federal Tax Lien or issuance of a notice of intent to levy. This audit is part of our Fiscal Year 2010 Annual Audit Plan and addresses the major management challenge of Taxpayer Protection and Rights.
Management’s complete response to the draft report is
included as Appendix VI.
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 Nancy A. Nakamura, Assistant Inspector General for Audit (Management Services and Exempt Organizations), at (202) 622-8500.
Hearing Officers Did
Not Always Document Their Impartiality
The Collection Statute Expiration Date Was Not Always
Correct
Appendices
Appendix
I – Detailed Objective, Scope, and Methodology
Appendix
II – Major Contributors to This Report
Appendix
III – Report Distribution List
Appendix
IV – Outcome Measures
Appendix V –
Collection Due Process Procedures
Appendix
VI – Management’s Response to the Draft Report
Abbreviations
|
ACDS |
Appeals Centralized Database System |
|
CDP |
Collection Due Process |
|
CSED |
Collection Statute Expiration Date |
|
EH |
Equivalent Hearing |
|
FY |
Fiscal Year |
|
IRS |
Internal Revenue Service |
|
U.S.C. |
|
When initial
contacts by the Internal Revenue Service (IRS) do not result in the successful
collection of unpaid tax, the IRS has the authority to attach a claim, a Notice
of Federal Tax Lien (lien), to a taxpayer’s assets.[1] The IRS also has the authority to
seize or levy a taxpayer’s property, such as wages or bank accounts, to satisfy
a taxpayer’s debt.[2]
In February 1996,
the IRS established procedures that allowed taxpayers to appeal the filing of a
lien and proposed or actual levies. Congress enacted legislation to
protect taxpayers’ rights in the IRS Restructuring and Reform Act of 1998.[3] Taxpayers now have the right to a
hearing with the Office of Appeals (Appeals) under the Collection Due Process
(CDP)[4] provisions. Appeals is independent of other IRS offices,
and its mission is to resolve tax controversies, without litigation, on a basis
which is fair and impartial to both the Federal Government and the taxpayer.
When a taxpayer
timely requests an Appeals hearing regarding the filing of a lien or the
issuance of a notice of intent to levy, the taxpayer is granted a CDP
hearing. However, if the taxpayer’s request for a CDP hearing is not
received within the allotted time, usually within 30 calendar days, the
taxpayer, at the discretion of Appeals, might be granted an Equivalent Hearing
(EH). In addition, the taxpayer must request an EH hearing within 1 year
of the issuance of the notices of intent to levy or to file a lien.
Taxpayers have the
right to petition the United States Tax Court if they disagree with Appeals’
decision on a CDP hearing. When Appeals makes a final decision on a
taxpayer’s case, the hearing officer issues a Determination Letter on CDP cases
or a Decision Letter on EH cases. During Fiscal Year (FY) 2009, Appeals
closed 28,670 CDP cases and 6,840 EH cases.
The Treasury
Inspector General for Tax Administration is required to determine annually
whether the IRS complied with legal guidelines and procedures for the filing of
a lien or a notice of intent to levy and the right of the taxpayer to appeal.[5] This
is our tenth annual audit of taxpayer appeal rights.
Our previous audit
report on the Appeals process was issued in September 2009,[6] and the related corrective action was
planned for implementation by February 15, 2010.
The scope period for
this year’s audit covered CDP and EH cases closed between October 1, 2008, and
September 30, 2009, which was prior to the planned implementation date for last
year’s corrective action. Where applicable, we did not make
recommendations in this report for findings repeated from the previous audit if
the recommendation and the suggested corrective action was still deemed
sufficient in correcting future errors.
This review was
performed by contacting Appeals personnel in
Appeals continues to show improvement in
complying with the CDP requirements. In
response to our previous audit, Appeals developed additional CDP procedures in
December 2009 to better ensure that proper documentation is retained in its case
files. During this review, Appeals
located and provided office case files containing complete documentation for
our CDP and EH samples, an issue that was a concern in prior years.[7]
In our prior two audits, we identified
concerns related to Appeals providing taxpayers with the proper hearing as well
as ensuring the appropriate computer coding was input to taxpayers’
accounts. In this audit, we determined
that Appeals classified most taxpayer requests properly; as a result, these
taxpayers received the appropriate type of hearing. We also found during this review that in most
cases, Appeals personnel input the proper computer coding to identify that
taxpayer requests were received and completed.
However, Appeals/Settlement officers (hearing
officers)[8] did not always document their impartiality
in the case files or in the Decision Letters as required.[9] If
hearing officers do not document their impartiality, there is a risk of prior
involvement in the taxpayer’s case and a potential lack of independence.
Finally, we identified 10 taxpayer accounts from our sample of 140 CDP and EH cases where the Collection Statute Expiration Date (CSED) was incorrect.[10] On five taxpayer accounts, the CSED date was extended in error, allowing the IRS additional time to collect any balances owed by these taxpayers, a potential violation of taxpayer rights. Conversely, the CSED on the other five taxpayer accounts was too short, which could cause the IRS a potential loss of revenue.
Most Case Files Contained Sufficient Documentation to Verify That Appeals Properly Classified Taxpayers’ Requests
During this review, we found that Appeals has made progress in retaining relevant documentation in the case files, which allowed us to independently verify that most taxpayers received the proper type of hearing. Ninety-nine percent of the case files we reviewed contained the required information to verify that taxpayers received the proper type of hearing. ****1**** we estimate that 98 taxpayer files may not include the required documentation.
****1****
In response to last year’s report,[11] Appeals updated the Internal Revenue Manual[12] in December 2009 to require that key documents be maintained in the case files. Appeals also developed a check sheet, listing the documents which should be retained in each Appeals CDP and EH file. Because the cases in our samples were closed before Appeals changed its procedures, we could not evaluate their effectiveness. However, because Appeals has taken corrective action, we are making no further recommendations in this report, but we will continue to monitor this issue during future audits.
The majority of taxpayers received the appropriate
type of hearing
We found that the majority of taxpayers in our samples received the proper type of hearing. ****1****)[13] ****1****. Appeals management agreed with our analysis ****1**** we estimated that 410 taxpayer cases may have received a CDP hearing during FY 2009 instead of an EH as required.
Hearing Officers Did Not Always Document Their Impartiality
The Internal Revenue Manual requires that a CDP hearing or an EH must be conducted by a hearing officer who has had no prior involvement with respect to the unpaid tax. It specifies that all hearing officers assigned to a case must always document “no prior involvement” in the case activity record during their initial analysis. However, the taxpayer may waive this requirement.
If a hearing officer does not document the case file with a statement of his or her impartiality, there is a risk of prior involvement in the taxpayer’s case and a potential lack of independence. To comply with IRS procedures, Determination and Decision Letters and waivers sent to taxpayers must also include an impartiality statement. However, a lack of this statement does not mean that hearing officers were not impartial or that taxpayers received an unfair hearing.
We identified eight cases in our sample which did not
include an impartiality statement. This
is a significant increase from our prior review ****1****.[14] In 4 (6 percent) of the 70 CDP sample cases,
the hearing officer did not include the impartiality statement in the case
activity record.
****1****.
Also, 4 (6 percent) of the 70 EH sample cases did not have the impartiality statement. ****1****.
We estimate 1,638 of the 28,670 CDP cases and 391 of the 6,840 EH cases closed in FY 2009 did not contain the required impartiality statements. As a result, we could not determine whether taxpayer rights were potentially violated.
This issue has been brought to the attention of Appeals management in prior reports. In response to our FY 2007[15] and FY 2008[16] reports, Appeals management agreed to revise written guidance and provide training to hearing officers for documenting impartiality. During this review, we confirmed that Appeals revised and updated its Internal Revenue Manual in March 2009, which requires hearing officers to include an impartiality statement in the case activity record during their initial analysis of the case.
Appeals personnel informed us that, beginning on April 29, 2008, a programming enhancement change was implemented on the Appeals Centralized Database System (ACDS).[17] It assists employees working CDP cases to document prior involvement with taxpayers. When a hearing officer makes his or her first entry on a new case, he or she will be prompted by a pop-up box to ask if there has been any prior involvement with the taxpayer for the type of tax and tax years associated with the CDP. After the hearing officer responds, a systemic entry is made to the case activity record. The pop-up box will also be activated if the taxpayer’s case is reassigned or transferred to a new hearing officer.
However, four of the eight cases without an impartiality statement were assigned after Appeals implemented the enhancement to its ACDS. Because omissions of the impartiality statement have continued to occur after the update of the ACDS, this is an indication that the new systemic control may not always be working as intended.
Recommendation
Recommendation 1: The Chief, Appeals, should determine whether the ACDS enhancement, which requires hearing officers to document their impartiality, is functioning properly and cannot be bypassed.
Management’s Response: Appeals management agreed with our recommendation. Appeals will consult with the Modernization and Information Technology Services organization to verify that the coding for the ACDS enhancement that it implemented in April 2008 will in all cases prompt the hearing officer for the impartiality statement upon assignment or reassignment of a CDP case. If Appeals identifies a problem with the coding, it will initiate a work request to correct the error. Appeals also will post an article to its web site cautioning employees that the impartiality statement prompt may not always appear in certain circumstances. The article will explain that employees must still document their impartiality, even if not prompted.
The Collection Statute Expiration Date Was Not Always Correct
The IRS generally has 10 years
from the date of assessment to collect a liability owed by a taxpayer. The final date to collect is referred to as the CSED.
Because the IRS usually stops collection
activity during the Appeals process, the CSED is temporarily suspended during a
CDP hearing. The IRS suspends the
10-year statute of limitations from the date of the CDP hearing request until
the date the Appeals determination is made final or the date the taxpayer
withdraws the request in writing.
The statute suspension is
systemically controlled on the Integrated Data Retrieval System.[18]
One code is entered to start the suspension and another is entered to
stop the suspension and restart the statute period. Generally, the code input to suspend the
collection statute is entered by the Collection function; however, in certain
instances, Appeals is responsible for the input.
Upon completion of each CDP
hearing, Appeals is responsible for entering the code to remove the suspension
of the statute period. The Integrated
Data Retrieval System will systemically recalculate the CSED based on the dates
entered for the two codes (which reflect the length of the Appeals hearing plus
expiration of the time period for seeking judicial review or the exhaustion of
any rights to appeal following judicial review).
However, in 9 (13 percent) of the 70 CDP cases ****1****. The IRS incorrectly adjusted the collection date in four of the nine CDP cases, which allowed the IRS additional time to collect the delinquent taxes. When the IRS suspends the collection statute for a period longer than its policy allows, it potentially violates taxpayer rights.
In the remaining five CDP cases, the IRS adjusted the collection time to decrease the time the IRS should have had to collect the delinquent taxes. The dates calculated by IRS employees as the suspension start date were incorrect. Similarly, the code needed to designate the end of the collection statute suspension was not input or the suspension end date was incorrect. We estimate 3,686 of the 28,670 CDP cases closed in FY 2009 have an incorrect CSED (2,048 taxpayers had their collection time shortened and 1,638 taxpayers had their time extended in error).
When the taxpayer is given an EH, the collection statute is not suspended. ****1****. We estimate that 98 of the 6,840 taxpayers with EH cases closed in FY 2009 had their collection statute inappropriately extended, resulting in potential violation of taxpayer rights.
This issue has been brought to the attention of Appeals management in prior reports.[19] In response to our FY 2008 report,[20] Appeals management agreed to revise their written guidance, update templates, and provide training to hearing officers. At that time, Appeals also stated that it would develop and implement a procedure to immediately correct taxpayer accounts when hearing officers identify missing computer codes for suspension of collection activity. These corrective actions were scheduled to be completed by May 15, 2009. As a result, we are making no further recommendations in this report, but we will continue to monitor this issue during future audits.
Inaccurate collection dates in taxpayer records need to be constantly monitored and, when necessary, corrected immediately. Hearing officers should thoroughly review collection dates and initiate corrective actions as part of their case processing responsibilities. Failing to correct this vital part of the taxpayer’s record will continue to affect taxpayer rights and potentially result in lost revenue to the IRS.
Recommendation
Recommendation 2: The Chief, Appeals, should review and correct the taxpayer accounts with CSED errors that we identified.
Management’s Response: Appeals management agreed with our recommendation and indicated they have corrected all CSED errors on the taxpayers’ accounts identified during this audit.
Appendix I
Detailed Objective, Scope, and
Methodology
The overall objective of this review was to determine whether the IRS complied with 26 United States Code (U.S.C.) Sections (§§) 6320(b) and (c) and 6330(b) and (c) when taxpayers exercised their right to appeal the filing of a Notice of Federal Tax Lien or issuance of a notice of intent to levy. To accomplish this objective, we:
I. Determined
whether any new procedures or processes have been developed since the prior Treasury
Inspector General for Tax Administration statutory review.
II Determined whether Appeals’ CDP and EH case files contained required documentation for a hearing and if the hearing officers followed requirements of 26 U.S.C. §§ 6320 and 6330.
A. Obtained an extract of the ACDS[21] file maintained at the Treasury Inspector General for Tax Administration Data Center Warehouse of 28,670 CDP and 6,840 EH cases closed during FY 2009 (October 1, 2008, through September 30, 2009). We validated the extract by reviewing appropriateness of data within fields requested and compared population totals to information obtained from Appeals officials.
B. Selected
and secured CDP and EH cases for our two samples. We selected statistical attribute samples of 70
CDP cases (population of 28,670) and 70 EH cases (population of 6,840). We used a confidence level of 90 percent, a
precision level of ±6 percent, and an expected error rate of 10 percent to
determine these sample sizes. We
selected statistical samples because we wanted to project our results to the
entire population of CDP and EH cases.
C. Determined whether the 70 CDP and 70 EH sampled case files contained adequate documentation and, if applicable, determined the cause and confirmed any potential exceptions with Appeals officials and projected the number of exceptions within each population.
III. Determined whether Appeals’ CDP and EH cases were classified correctly using the CDP and the EH samples selected in Step II.B.
IV. Determined whether Appeals was in compliance with 26 U.S.C. §§ 6320(b) and (c) and 6330(b) and (c) using the CDP and the EH samples selected in Step II.B. by reviewing case file information to determine whether Appeals documented the following:
A. The taxpayer was provided with an impartial hearing officer or waived this requirement [26 U.S.C. §§ 6320(b)(3) and 6330(b)(3)].
B. The taxpayer was allowed to raise issues at the hearing relating to the unpaid tax or the proposed lien or levy action, including appropriate spousal defenses, challenges to the appropriateness of collection activities, offers of collection alternatives, or the underlying liability [26 U.S.C. §§ 6330(c)(2)].
V. Determined whether CDP and EH accounts were being properly coded on the Integrated Data Retrieval System.[22]
Internal
controls methodology
Internal controls relate to management’s plans, methods, and
procedures used to meet their mission, goals, and objectives. Internal controls include the processes and
procedures for planning, organizing, directing, and controlling program
operations. They include the systems for
measuring, reporting, and monitoring program performance. We determined the following internal controls
were relevant to our audit objective: IRS policies and procedures for classifying
CDP and EH cases, ensuring hearing officers met the criteria specified in 26
U.S.C. §§ 6320 and 6330, and reviewing applicable computer codes on the Integrated Data Retrieval System for CDP and EH
cases. We evaluated these controls by
reviewing a sample of CDP and EH cases and reviewing potential exception cases
with Appeals officials.
Appendix II
Major Contributors to This Report
Nancy A. Nakamura, Assistant Inspector
General for Audit (Management Services and Exempt Organizations)
Jeffrey M. Jones, Director
Janice M. Pryor, Audit Manager
Mildred Rita Woody, Lead Auditor
Mark A. Judson, Senior Auditor
Yasmin B. Ryan, Senior Auditor
Appendix III
Commissioner C
Office of the
Commissioner – Attn: Chief of Staff C
Deputy Chief, Appeals AP
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: Chief, Appeals AP
Appendix IV
This appendix presents detailed information on the measurable impact that our recommended corrective actions will have on tax administration. These benefits will be incorporated into our Semiannual Report to Congress.
Type and Value of Outcome Measure:
· Taxpayer Rights – Potential; 410 CDP case files contain hearing requests that were received late and were not properly classified as an EH case (see page 3).
Methodology Used to Measure the Reported Benefit:
Using a computer
extract from the ACDS, we identified a population of 28,670 CDP cases that were
closed in FY 2009. We selected a statistical attribute sample of 70 CDP
cases ****1****. We estimate that 1.43
percent of the cases in the population (410 taxpayers) were not properly
classified. When CDP cases are
misclassified, taxpayers receive hearing rights to which they are not legally
entitled. Using the Exact Binomial
Method, we are 90 percent confident that the true exception rate is between
0.07 percent and 6.60 percent.
Type and Value of Outcome Measure:
· Taxpayer Rights – Potential; 98 EH case files did not contain the taxpayer’s written hearing request. As a result, we could not determine if Appeals addressed what the taxpayer’s appeal request covered or whether Appeals addressed all the issue(s) presented (see page 3).
Methodology Used to Measure the Reported Benefit:
Using a computer extract from the ACDS, we identified 6,840 EH cases that were closed in FY 2009. We selected a statistical attribute sample of 70 EH cases ****1****. We estimate that 1.43 percent of the cases in the population (98 taxpayers) did not contain a taxpayer’s hearing request. Without the hearing request, we could not determine what the taxpayer’s appeal request covered or whether Appeals addressed all the issue(s) presented. Using the Exact Binomial Method, we are 90 percent confident that the true exception rate is between 0.07 percent and 6.60 percent.
Type and Value of Outcome Measure:
· Taxpayer Rights – Potential; 1,638 CDP cases files did not contain the impartiality statement by the hearing officer (see page 4).
· Taxpayer Rights – Potential; 391 EH case files did not contain the impartiality statement by the hearing officer (see page 4).
Methodology Used to Measure the Reported Benefit:
For the CDP sample,
we used a computer extract from the ACDS and identified a population of 28,670
CDP cases that were closed in FY 2009. We selected a statistical
attribute sample of 70 CDP cases and found that 4 of these CDP case files did
not contain the required impartiality statement by the hearing officer. We estimate that 5.71 percent of the cases in
the population (1,638 taxpayers) did not contain the required impartiality
statement. If a hearing officer does not
document the case file with a statement of his or her impartiality, taxpayer
rights may be affected because there is a risk of prior involvement and a potential
lack of independence. Using the Exact
Binomial Method, we are 90 percent confident that the true exception rate is
between 1.97 percent and 12.60 percent.
For the EH sample, we used a computer extract from the ACDS and identified 6,840 EH cases that were closed in FY 2009. We selected a statistical attribute sample of 70 EH cases ****1**** We estimate that 5.71 percent of the cases in the population (391 taxpayers) did not contain the required impartiality statement. If a hearing officer does not document the case file with a statement of his or her impartiality, taxpayer rights may be affected because there is a risk of prior involvement and a potential lack of independence. Using the Exact Binomial Method, we are 90 percent confident that the true exception rate is between 1.98 percent and 12.60 percent.
Type and Value of Outcome Measure:
·
Taxpayer Rights –
Potential; 1,638 CDP case files in which taxpayers had CSEDs that were
inappropriately extended longer than the length of the hearing (see page 6).
·
Taxpayer Rights –
Potential; 98 EH case files in which taxpayers had CSED that were
inappropriately extended (see page 6).
Methodology Used to Measure the Reported Benefit:
For the CDP sample,
we used a computer extract from the ACDS and identified a population of 28,670
CDP cases that were closed in FY 2009. We selected a statistical
attribute sample of 70 CDP cases and found 4 of these CDP case files contained
instances in which the taxpayer’s CSED had been suspended longer than the
length of the CDP hearing. We estimate
that 5.71 percent of the cases in the population (1,638 taxpayers) had an
incorrect CSED posted to taxpayer records. A CSED extended in error to a taxpayer account
provides the IRS more time than allowed to collect the delinquent taxes. Using the Exact Binomial Method, we are 90
percent confident that the true exception rate is between 1.98 percent and
12.60 percent.
For the EH sample,
we used a computer extract from the ACDS and identified a population of 6,840
EH cases that were closed in FY 2009. We selected a statistical attribute
sample of 70 EH cases and found 1 of these EH case files contained a taxpayer’s
CSED that was improperly suspended. We
estimate that 1.43 percent of the cases in the population (98 taxpayers) had an
incorrect CSED posted to taxpayer records. A CSED extended in error to a taxpayer account
provides the IRS more time than allowed to collect the delinquent taxes. Using the Exact Binomial Method, we are 90
percent confident that the true exception rate is between 0.07 percent and 6.60
percent.
Type and Value of Outcome Measure:
·
Increased Revenue –
Potential; 2,048 CDP case files indicated taxpayers had CSEDs that were not
correctly extended for the length of the CDP hearing (see page 6).
Methodology Used to Measure the Reported Benefit:
Using a computer extract from the
ACDS, we identified a population of 28,670 CDP cases that were closed in FY
2009. We selected a statistical attribute sample of 70 CDP cases and
found 5 of these CDP case files contained instances in which the taxpayer’s
CSED was not correctly extended for the length of the CDP hearing. We estimate that 7.14 percent of the cases in
the population (2,048 taxpayers) had an incorrect CSED posted to taxpayer
records. A CSED shortened in error to a
taxpayer account provides the IRS less time than allowed to collect the
delinquent taxes which may result in the loss of revenue for the IRS. Using the Exact Binomial Method, we are 90
percent confident that the true exception rate is between 2.86 percent and
14.43 percent.
Appendix V
Collection
Due Process Procedures
The IRS is required
to notify taxpayers in writing that a lien has been filed or when it intends to
levy. A taxpayer is allowed to appeal the filing of the lien or proposed
levy action through the CDP by filing a hearing request. This hearing
request must be received within 30 calendar days plus 5 business days of the
filing of the lien or within 30 calendar days of the date of the notice of
intent to levy. If a taxpayer’s hearing request is submitted on time, the
IRS will suspend all collection efforts and the Office of Appeals (Appeals) will
provide the taxpayer a CDP hearing.
If a taxpayer’s
hearing request is not submitted timely, Appeals has discretionary authority to
provide the taxpayer an EH and consider the same issues as in a CDP hearing;
however, the IRS is not required to suspend collection action and the taxpayer
does not have the right to a judicial review.
Taxpayers are
entitled to one hearing per tax period for which a lien or notice of intent to
levy has been issued. The hearing is conducted by an Appeals officer or
Settlement officer (hearing officer) who has had no prior involvement with the
unpaid tax. During the hearing, the hearing officer must verify whether
the requirements of all applicable laws or administrative procedures related to
the lien or notice of intent to levy were met. The hearing officer must
also address any issues the taxpayer may raise relevant to the unpaid tax, the
filing of the lien, or the proposed levy, such as whether the taxpayer is an
innocent spouse; determine if collection actions were appropriate; and decide
if other collection alternatives would facilitate the payment of the tax.
The hearing officer must determine whether any proposed collection action
balances the need for efficient collection of taxes with the taxpayer’s legitimate
concerns. The taxpayer may not raise an issue that was considered at a
prior administrative or judicial hearing if the taxpayer participated
meaningfully in the prior proceeding.
At the conclusion of
a hearing, Appeals provides the taxpayer a letter with the hearing officer’s
findings, agreements reached with the taxpayer, any relief provided to the
taxpayer, and any actions the taxpayer and/or the IRS are required to
take. For a CDP case, the taxpayer receives either a Determination
Letter, which provides an explanation of the right to a judicial review, or a
Summary Notice of Determination, which is used when the taxpayer agrees with
Appeals, waives the right to a judicial review, and waives the suspension of
collection action. If the taxpayer disagrees with the Appeals decision,
he or she may petition the courts. For
an EH case, the taxpayer receives a Decision Letter.
The CDP or EH case
is reviewed by the hearing officer’s manager at the completion of the case to
evaluate whether the hearing officer followed all requirements and
procedures.
After Appeals has made a determination on a case, if the
taxpayer has a change in circumstances that affects the Appeals determination
or if the Collection function does not carry out the determination, the
taxpayer has the right to return to Appeals. The Appeals office that made
the original determination generally retains jurisdiction over the case.
Appendix VI
Management’s Response to the Draft Report
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
CHIEF,
APPEALS
JUN 29; 2010
MEMORANDUM FOR MICHAEL R. PHILLIPS
TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION
FROM: Diane S. Ryan /s/ Diane S. Ryan
Chief, Appeals
SUBJECT: Draft Audit Report - The Office of Appeals Has Improved Compliance Within Its Collection Due Process Program; However, Some Improvement Is Still Needed (Audit 2010-10-004)
I have reviewed the subject draft audit report. I appreciate your recognition of our continued improvement in the processing of Collection Due Process (CDP) cases and value your recommendations to help us improve our processes. Appeals has worked and will continue to work aggressively and diligently to protect taxpayer rights, enhance the final work product, and ensure accurate computer coding on taxpayer accounts.
Your recommendations have furthered our efforts on these fronts. Attached are our corrective actions in response to your recommendations.
We agree there is a need to ensure that the impartiality statement is documented in all cases when a collection due process or an equivalent hearing case is assigned or reassigned to a hearing officer. We will review the coding for the Appeals Centralized Database System (ACDS) enhancement deployed in April 2008 to ensure that the hearing officer is prompted for this statement as the initial entry into the case activity record in every instance. We will reemphasize with our employees the importance of documenting the impartiality statement both in the case activity record and in the closing letter.
Finally, Appeals will continue to review its policies and procedures to ensure appropriate computer coding is entered and incorrect coding is timely corrected on the Integrated Data Retrieval System (IDRS) as part of both front-end and back-end processing. We have taken corrective actions with respect to the cases cited in the audit.
If you have any questions, please have a member of your staff contact Beverly Ortega Babers, Director, Appeals Policy & Valuation, at (202) 435-5659.
Attachment
Recommendation 1:
The Chief, Appeals should determine whether the ACDS enhancement, which requires hearing officers to document their impartiality, is functioning properly and cannot be bypassed.
Proposed Corrective Action:
Appeals will consult with Modernization and Information Technology Services (MITS) to verify that the coding for the ACDS enhancement that we implemented in April 2008 will in all cases prompt the hearing officer for the impartiality statement upon assignment or reassignment of a CDP case. If we identify a problem with the coding, we will initiate a work request to correct the error. In the interim, Appeals will post an article to the Appeals web site cautioning employees that situations could exist where they may not be prompted for the impartiality statement; and that employees must still document their impartiality, even if not prompted.
Implementation Date: October 15, 2010
Responsible Official: Director, Appeals Policy & Valuation
Corrective Action Monitoring Plan: The Director, Tax Policy and Procedure (Collection and Processing) will inform the Director, Appeals Policy &Valuation of any delays in implementing this action.
Recommendation 2:
The Chief, Appeals should review and correct the taxpayer accounts with SCED errors that we identified.
Proposed Corrective Action:
We have corrected all CSED errors on the taxpayer's accounts identified during this audit
Implementation Date: Implemented
Responsible Official: Director, Appeals Policy & Valuation
[1] 26 United States Code (U.S.C.) Section (§) 6321 (Supp. III 2000).
[2] 26 U.S.C. § 6331 (Supp. III 2000).
[3] 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.).
[4] See Appendix V for an explanation of the CDP and Equivalent Hearing procedures.
[5] 26 U.S.C. §§ 7803(d)(1)(A)(iii) and (iv) (Supp. III 2000).
[6] The Office of Appeals Continues to Improve Compliance With Collection Due Process Requirements (Reference Number 2009-10-126, dated September 17, 2009).
[7] ****1**** Request for a Collection Due Process or Equivalent Hearing (Form 12153).
[8] For the purpose of this report, Appeals officers and/or Settlement officers will be referred to as hearing officers.
[9] CDP Determination Letters, CDP Summary Notices of Determination (waivers), and EH Decision Letters all must include an impartiality statement.
[10] The CSED is the date the statute expires for collection of tax, penalty, or interest. The CSED is 10 years from the assessment date of the posting of the original return.
[11] The Office of Appeals Continues to Improve Compliance With Collection Due Process Requirements (Reference Number 2009-10-126, dated September 17, 2009).
[12] The Internal Revenue Manual is the single official source for IRS policies, directives, guidelines, procedures, and delegations of authority in the IRS.
[13] IRS Form 12153 Request for Due Process or Equivalent Hearing (Rev 11-2006) Catalogue Number 26685D.
[14] The Office of Appeals Continues to Improve Compliance With Collection Due Process Requirements (Reference Number 2009-10-126, dated September 17, 2009).
[15] The Office of Appeals Has Improved Its Processing of Collection Due Process Cases (Reference Number 2007-10-139, dated September 21, 2007).
[16] The Office of Appeals Continues to Show Improvement in Processing Collection Due Process Cases (Reference Number 2008-10-160, dated September 12, 2008).
[17] The ACDS is a computerized case control system used to control and track cases throughout the appeals process.
[18]
The IRS computer system capable of retrieving or
updating stored information; it works in conjunction with a taxpayer’s account records.
[19] The Office of Appeals Has Improved Its Processing of Collection Due Process Cases (Reference Number 2007-10-139, dated September 21, 2007) and The Office of Appeals Should Continue to Strengthen and Reinforce Procedures for Collection Due Process Cases (Reference Number 2006-10-123, dated September 20, 2006).
[20] The Office of Appeals Continues to Show Improvement in Processing Collection Due Process Cases (Reference Number 2008-10-160, dated September 12, 2008).
[21] The ACDS is a computerized case control system used to control and track cases throughout the appeals process.
[22] The IRS computer system capable of retrieving or updating stored information; it works in conjunction with a taxpayer’s account records.