The Tax Exempt and Government Entities (TE/GE) Division is committed to providing its customers with the highest quality service possible in a timely and efficient manner. The overall objective of this audit was to assess the effectiveness of the TE/GE Division’s efforts to centralize the processing of Employee Plan/Exempt Organization (EP/EO) customer applications for technical determinations.

Specified organizations are required by Federal tax laws to file applications with the Internal Revenue Service (IRS) to be considered exempt from certain income taxes. Organizations not required to file tax forms may also choose to file applications in order to receive a determination letter that recognizes their exempt status. In addition, certain businesses and organizations must file employee pension plan applications with the IRS to receive a determination that the plan complies with Federal laws.

To improve customer service, the IRS decided to centralize the EP and EO determination process in the Ohio centralized site. However, the TE/GE Division has not fully staffed the Ohio centralized site, and customer applications for technical determinations continue to be processed by other field offices. For Fiscal Year (FY) 1999, 55 percent of the EP applications and 47 percent of the EO applications were assigned to these other offices.

The IRS has made progress in implementing its centralized concept for processing customer applications for technical determinations. Also, TE/GE Division officials have committed significant resources to recruit and train qualified applicants to process the applications. During FY 1999, the IRS issued 112,920 determination letters to its customers. Nevertheless, additional measures are needed to ensure customers receive the highest quality service. Specifically, the TE/GE Division needs to:

• Increase management involvement to ensure EP/EO customer applications are processed timely.
• Take additional management actions to ensure future staffing needs are achieved.

The TE/GE Division’s modernization vision is to provide improved customer service. However, the TE/GE Division has not established the necessary procedures that would ensure the timely processing of EP/EO customer applications that cannot be worked by the Ohio centralized site. We believe the timely processing of these applications is crucial in delivering the overall Determination program. Also, the inability to timely process customer applications can adversely impact the delivery of other significant TE/GE programs, such as the Examination program. Further, some customers experienced delays in receiving technical determinations because of existing TE/GE practices.

Initially, the IRS’ vision for the centralization of determination applications was that all applications would be processed in one geographic location. However, budget limitations combined with a difficult hiring market have prevented the IRS from fully realizing that vision, and customer applications continue to be processed in several field offices.

Our discussions with field managers responsible for processing the determination applications identified various methods to control the applications that cannot be initially assigned or worked by determination specialists. Field managers advised us that unassigned inventory pools are used to control the applications until they can be assigned to determination specialists. None of the managers contacted indicated that the TE/GE Division has established any procedures on how long determination cases should remain in unassigned inventory pools.

The field managers advised us that the TE/GE Division has not provided specific direction for resource allocations between the Examination and Determination program areas. Without specific guidance, field managers must balance their limited resources between the Examination and Determination program areas.

In addition to the above observation that TE/GE management could better control unassigned inventory pools in the field offices, we found that additional management actions could be taken to improve the timeliness of the initial processing of EP/EO customer applications at the Cincinnati Submission Processing Center (CSPC). The Memorandum of Understanding (MOU) between the TE/GE Division and the CSPC does not contain performance measures for processing customer applications. Also, the MOU does not require the CSPC to capture performance information to determine whether EP/EO customer applications are timely processed.

The TE/GE Division’s long-range strategy is to hire 109 revenue agents (RA) by FY 2002 to perform technical determinations at the Ohio centralized site. However, after extensive marketing efforts, the TE/GE Division has had some difficulties attracting applicants meeting the RA skill requirements.

Although TE/GE Division field managers advised us that their offices have been successfully using Tax Law Specialists and Tax Technicians with a variety of skill levels to perform EP/EO determinations, TE/GE management originally decided to hire only RAs at the Ohio centralized site.

We were advised by TE/GE management that new position descriptions will be developed for processing determination cases at the Ohio centralized site. The new position descriptions will not require the accounting background currently required for RAs. This initiative to staff positions at the Ohio centralized site should be closely monitored to ensure total TE/GE Division staffing needs are achieved.

To improve the quality of customer service, the Commissioner of the TE/GE Division should establish the necessary procedures that would ensure the timely processing of EP/EO customer applications that cannot be worked by the Ohio centralized site and inform taxpayers when delays occur in the processing of their determinations. In addition, the Commissioner of the TE/GE Division should revise the MOU with the CSPC to improve customer service. To meet future staffing needs, the TE/GE Division should monitor the recruitment process at the Ohio centralized site and, if the revised position descriptions do not prove effective, appropriate steps should be taken to further determine the educational and work experience level needed to process EP/EO customer applications.

Management’s Response: TE/GE Division management is continuing with its efforts to consolidate all determination work at the Ohio centralized site. When consolidation is accomplished, they believe the conditions identified in this report will largely disappear. In the interim, TE/GE Division management will take the following actions to improve customer service:

• Establish uniform procedures that all field offices will use to process customer applications.
• Establish a consistent method to clearly identify unassigned determination applications on the EP/EO inventory control system.
• Establish a practice for timely informing taxpayers when delays occur in the processing of their applications.
• Negotiate revisions to the current MOU with the CSPC to improve customer service.
• Monitor the recruitment process at the Ohio centralized site to evaluate the impact that the new position descriptions have on recruitment and, if necessary, consider alternatives to insure the timely processing of customer applications.

Management’s complete response to the draft report is included as Appendix IV.