This report presents the results of our review to determine whether Internal Revenue Service (IRS) employees followed proper procedures to stop an interview if the taxpayer requested to consult with his/her representative, whether employees followed proper procedures when bypassing the representative and contacting the taxpayer directly, and whether IRS management has completed implementing corrective actions in response to recommendations from our Fiscal Year 1999 audit.

The objectives of this audit were to determine if the Internal Revenue Service (IRS) is in compliance with the requirements of 26 U.S.C. § 7521(b)(2) and (c) (1986), and to determine if management has completed implementing corrective actions in response to recommendations from our Fiscal Year (FY) 1999 audit. To accomplish these objectives, we met with National Headquarters Examination and Collection management and reviewed documentation regarding these topics. We conducted our audit between May and June 2000 in accordance with Government Auditing Standards.

Major contributors to this report are listed in Appendix I. Appendix II contains the Report Distribution List.

On July 22, 1998, the President signed the IRS Restructuring and Reform Act of 1998 (RRA 98) into law. This added 26 U.S.C. § 7803(d)(1)(A)(ii), which requires the Treasury Inspector General for Tax Administration to annually evaluate the IRS’ compliance with 26 U.S.C. § 7521(b)(2) and (c) (1986). Under those sections, IRS employees are required to:

• Stop an interview with a taxpayer (unless the interview is required by court order) whenever a taxpayer requests to consult with a representative (any person, such as an accountant or attorney, who is permitted to represent taxpayers before the IRS).
• Obtain their immediate supervisor’s approval to contact the taxpayer directly instead of the representative whenever the representative is responsible for unreasonably delaying the completion of a tax audit or collection action.

In our FY 1999 audit, we could not determine whether employees were protecting taxpayers’ rights because neither the IRS nor we could readily identify cases for review. This condition occurred because the IRS’ management systems do not separately record or monitor cases where taxpayers have requested to consult with a representative or where employees appropriately bypass taxpayer representatives and contact taxpayers directly. Moreover, the IRS is not required to develop a separate system that records or monitors cases involving these two provisions.

We recommended that the IRS clarify existing procedures to ensure taxpayers and their representatives are treated consistently, and develop a process to determine whether employees are complying with 26 U.S.C. § 7521(b)(2) and (c) (1986) when a taxpayer requests to consult with a representative or the employee bypasses a representative.

The IRS has begun implementing the corrective actions in response to our FY 1999 audit. Existing procedures for protecting taxpayers’ rights during interviews have been clarified to ensure taxpayers and representatives are treated consistently within the Examination and Collection Divisions. In addition, the IRS is developing a new survey to measure employee compliance with 26 U.S.C. § 7521(b)(2) and (c) (1986).

However, we could not determine whether the IRS is in compliance with 26 U.S.C. § 7521(b)(2) and (c) (1986) because both the IRS and we are still unable to readily identify cases where the taxpayer requested a representative or the IRS contacted the taxpayer directly and bypassed the representative. The IRS has not changed its process for handling these types of requests since our FY 1999 audit.

Accordingly, the remainder of this report discusses IRS management’s actions to implement recommendations from our FY 1999 audit.

Examination and Collection Division management issued memoranda to clarify the length of time interviews should be suspended when taxpayers request to consult with a representative, the appropriate person to contact when the interview covers additional tax periods, and whether consultation should be allowed during seizure action.

IRS procedures require employees to stop and reschedule an interview when a taxpayer requests to consult with a representative during an interview. However, the procedures did not define the amount of time employees should allow taxpayers to consult with their representatives prior to rescheduling the interview.

To clarify the procedures, Examination Division management issued guidance to allow a minimum of 10 business days for the taxpayer to secure representation. Collection Division management issued guidance to allow up to 10 business days for the taxpayer to consult with the representative.

Previously, Examination and Collection Division procedures did not specify who should be contacted if the representative is authorized to represent the taxpayer on only one tax year, but the interview covers more than one year.

Examination and Collection Division procedures were modified to require that the employee contact the taxpayer directly to secure a new Power of Attorney and Declaration of Representative (Form 2848) when the interview covers more tax periods than authorized by the current Form 2848.

IRS procedures did not specify whether enforcement actions (such as seizure of property) should be considered an interview with a taxpayer for the purpose of 26 U.S.C. § 7521(b)(2) and (c) (1986).

Collection Division procedures were modified to suspend the seizure for up to 10 days for taxpayers to consult with a representative. If the seizure is being made pursuant to a court order or, if in the revenue officer’s judgment, suspension would result in the disappearance or dissipation of the asset, the consultation does not have to be allowed.

To determine employee compliance with 26 U.S.C. § 7521(b)(2) and (c) (1986), IRS management decided to develop a survey to capture information from taxpayers that have been interviewed by IRS employees. Although the survey has not been completed, a written proposal was submitted to the Management and Finance function for approval and selection of a vendor. Examination Division management will work with the vendor to design the survey to meet the following objectives:

• Determine the level of compliance by Examination and Collection Division employees with the legal requirements that allow taxpayers to secure or consult with a representative anytime during the course of a tax audit or collection action.
• Gather information that will allow IRS management to determine the level of compliance by Examination and Collection Division employees with the legal requirement to secure appropriate management approval before bypassing the representative.

The survey is in the early stage of development, and we cannot determine at this time whether it will provide IRS management with a reliable method to determine if employees are in compliance with the 26 U.S.C. § 7521(b)(2) and (c) (1986).

Management’s Response: IRS management agreed with the facts and observations in this report. Management’s complete response is included as Appendix III.

We could not determine whether the IRS is in compliance with 26 U.S.C. § 7521(b)(2) and (c) (1986) because both the IRS and we are still unable to readily identify cases for review. The IRS has not changed its process for handling these types of requests since our FY 1999 audit.

However, the IRS has begun implementing the corrective actions in response to our FY 1999 audit. Existing procedures for protecting taxpayers’ rights during interviews have been clarified to ensure taxpayers and representatives are treated consistently within the Examination and Collection Divisions. In addition, the IRS is developing a new survey to measure employee compliance with 26 U.S.C. § 7521(b)(2) and (c) (1986) regarding directly contacting taxpayers and their representatives.

Maurice S. Moody, Associate Inspector General for Audit (Headquarters Operations and Exempt Organizations Programs)

Nancy A. Nakamura, Director

Gerald T. Hawkins, Audit Manager

Barry G. Huff, Senior Auditor

Perrin T. Gleaton, Auditor

Deputy Commissioner for Operations C:DO

Chief Operations Officer OP

Assistant Commissioner (Collection) OP:CO

Assistant Commissioner (Examination) OP:EX

National Taxpayer Advocate C:TA

Director, Legislative Affairs CL:LA

Director, Office of Program Evaluation and Risk Analysis M:O

Office of the Chief Counsel CC

Office of Management Controls CFO:A:M

Audit Liaisons:

Chief Operations Officer OP

Assistant Commissioner (Collection) OP:CO

Assistant Commissioner (Examination) OP:EX

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