Treasury
Inspector General for Tax Administration
Office of Audit
FISCAL YEAR 2011 STATUTORY AUDIT OF COMPLIANCE WITH NOTIFYING TAXPAYERS
OF THEIR RIGHTS WHEN REQUESTED TO EXTEND THE ASSESSMENT STATUTE
Highlights
Issued
on June 6, 2011
Highlights of Report Number: 2011-30-055 to the Internal Revenue Service
Deputy Commissioner for Services and Enforcement.
IMPACT ON TAXPAYERS
The Internal Revenue Service (IRS) is required to
notify taxpayers of their rights when requesting an extension of the statute of
limitations for assessing additional taxes and penalties. Based on the results of our review, TIGTA
believes the IRS is complying with the intent of the statute; however, there
were some instances in which IRS employees did not document whether taxpayers
or their representatives were advised of these rights. Taxpayers might be adversely affected if the
IRS does not follow requirements to notify both the taxpayers and their
representatives of the taxpayers’ rights related to statute extensions.
WHY TIGTA DID THE AUDIT
TIGTA
is required by law to annually determine whether the IRS complied with Internal
Revenue Code Section 6501(c)(4)(B). This requires the IRS to notify taxpayers of
their rights to decline to extend the assessment statute of limitations or to
request that any extension be limited to specific issues or a specific period
of time.
WHAT TIGTA FOUND
Our case review of 72
taxpayers with statute extensions showed that the IRS is compliant with Internal
Revenue Code Section 6501(c)(4)(B). However,
case files for four (5.6 percent) of the 72 taxpayers in our statistical sample
did not contain documentation to indicate whether taxpayers were directly advised
of their rights before consenting to extend the time to assess tax, but the taxpayers' representative signed the Consent to Extend the Time to Assess Tax (Form 872) and was notified of taxpayer rights
regarding extending the assessment statute of limitations. Although notification to the taxpayers’
representatives appears to meet the intent of the law, the IRS’s internal
procedures require notification to be provided to both the taxpayer and the
representative. TIGTA estimated that 136
taxpayers’ files did not contain documentation to show the taxpayers were
directly advised of their rights when assessment statutes were extended. TIGTA is 95 percent confident that the
range of taxpayers’ files without this documentation is between six and 265.
TIGTA also identified cases in which IRS employees improperly used an
outdated version of the Form 872, which does not contain a statement detailing
the taxpayers’ rights. When TIGTA
brought this issue to management’s attention, management took immediate action
to correct the problem.
In addition, our statistical
sample of 72 taxpayers included 42 taxpayers’ files containing
authorizations for third-party representation.
Our review found that four (9.5 percent) of the 42 taxpayers’
files did not contain documentation that the taxpayers’ representatives were
provided with the required notifications.
TIGTA estimated that 136 taxpayers’ files were not documented to show
that taxpayers’ representatives were given copies of the written
communications. TIGTA is 95 percent
confident that the range of taxpayers’ files without this documentation is
between six and 265.
WHAT TIGTA RECOMMENDED
TIGTA did not make any recommendations
in this report because the number of errors was relatively small and IRS
management took corrective action to prevent the use of outdated Forms 872.
However, a draft of the report was provided to the IRS for review
and comment. The IRS did not have any
written comments in response to the report.
READ THE
FULL REPORT
To
view the report, including the scope and methodology, go to:
http://www.treas.gov/tigta/auditreports/2011reports/201130055fr.html.
Email
Address: TIGTACommunications@tigta.treas.gov
Phone Number:
202-622-6500
Web Site: http://www.tigta.gov