Letter Report: The Internal Revenue Service Processed Corporation Income Tax Returns Accurately After Year 2000 Changes Were Made
Reference Number 2000-30-107
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.
July 21, 2000
MEMORANDUM FOR COMMISSIONER ROSSOTTI
FROM: Pamela J. Gardiner /s/ Pamela J. Gardiner
Deputy Inspector General for Audit
SUBJECT: Final Letter Report – The Internal Revenue Service Processed Corporation Income Tax Returns Accurately After Year 2000 Changes Were Made
This report presents the results of our review of the processing of U.S. Corporation Income Tax Returns. The audit objective was to evaluate the impact of any Year 2000 (Y2K) programming changes on the accuracy of information processed and posted to corporate accounts.
In summary, the IRS processed corporation income tax returns accurately with the correct century dates in the year 2000. Century dates were accurately recorded on the IRS’ file of business accounts. Notices sent to corporate taxpayers also had accurate century date information for issuance dates, due dates, and dates shown in penalty and interest explanations.
IRS management agreed with the conclusions outlined in this report. Management’s comments have been incorporated into the report where appropriate, and the full text of their comments is included as an appendix.
Copies of this report are also being sent to the appropriate IRS managers. Please contact me at (202) 622-6510 if you have questions, or your staff may call Gordon C. Milbourn III, Associate Inspector General for Audit (Small Business and Corporate Programs), at (202) 622-3837.
Objective and Scope
The overall objective of this audit was to evaluate the impact of any Year 2000 (Y2K) programming changes on the accuracy of information processed and posted to corporate accounts.
To accomplish the objective, we:
We conducted the audit work at the National Office and the Brookhaven IRS Center from January through March 2000. This audit was performed in accordance with Government Auditing Standards.
Major contributors to this report are listed in Appendix I. Appendix II contains the Report Distribution List.
The IRS collected approximately $213 billion in corporate income taxes in Fiscal Year (FY) 1998. Taxpayers filed 5.3 million corporate returns during that period.
At a January 27, 2000, Congressional hearing, IRS Commissioner Charles Rossotti stated that, "Some risks remain, and we must remain vigilant to Y2K problems beyond January 1, 2000." He further stated that, "We must safeguard against problems during the high-volume tax-filing season from February through April, the most crucial period for Y2K issues at the IRS."
The Y2K problem stemmed from the use in many computer systems of 2-digit dates for the century date, i.e., the use of "00" instead of "2000." Without programming corrections, computers were deemed to be significantly at risk of misinterpreting "00" and malfunctioning.
Other Treasury Inspector General for Tax Administration audits covering Y2K changes include a review of the IRS’ Y2K end-to-end systems integration testing and a review of the readiness of the IRS’ computer programs for the 2000 Filing Season.
The IRS ensured that Forms 1120 were processed accurately, with the correct century dates, during the first 3 months of the 2000 Filing Season.
Specifically, we found that:
The Internal Revenue Service Sent Corporations Notices with Accurate Century Dates
The IRS accurately recorded century date information on computer-generated notices sent to corporate taxpayers.
Our review of selected notices involving Forms 1120 processed during a 3-week period showed that the century dates were accurately reflected for the following:
There were no indications of any systemic problems regarding the accuracy of Y2K century dates on notices sent to corporate taxpayers.
The Internal Revenue Service Accurately Recorded the Century Dates for Taxpayer Transactions on Its Master File of Business Accounts
The IRS accurately recorded the century dates for tax periods, transaction dates, account posting dates, collection and assessment statutory expiration dates, return and remittance received dates, and assessment dates on its master file of business accounts.
Our computer analyses further verified that the julian date and the transaction date for the extra day in the leap year were programmed and correctly used in the processing of Forms 1120.
There Were No Significant Trends to Indicate Systemic Problems with Century Dates
During our nationwide analyses of the volumes of notices issued to corporate taxpayers and transactions that could not post to the IRS’ corporate accounts, we found no significant trends to indicate systemic problems with century dates.
We also did not identify any significant trends to indicate that taxpayer information was inaccurately posted to taxpayers’ accounts. A nationwide analysis of settlement differences between what taxpayers claimed and what the IRS computed on Forms 1120 showed that, in the first 9 weeks of the 2000 Filing Season, less than 1 percent of the returns filed had differences between what the taxpayer showed on the return and what the IRS computed.
The IRS ensured that century dates on notices sent to corporate taxpayers were accurate in the year 2000. The IRS also accurately recorded century dates and taxpayer information in corporate accounts during the processing of Forms 1120 in the year 2000.
Management’s Response: IRS management agreed with the conclusions outlined in this report. Management’s complete response to the draft report is included as Appendix III.
Major Contributors to This Report
Gordon C. Milbourn III, Associate Inspector General for Audit (Small Business and Corporate Programs)
Richard J. Dagliolo, Director
Robert K. Irish, Audit Manager
Michael D. Luongo, Senior Auditor
Philip Peyser, Senior Auditor
Margaret F. Filippelli, Auditor
Stephen Wybaillie, Auditor
Joseph C. Butler, Computer Specialist
Kevin T. O’Gallagher, Computer Specialist
Report Distribution List
Commissioner, Large and Mid-Size Business Division LM
Commissioner, Small Business and Self-Employed Division S
Chief Information Officer IS
Chief Operations Officer OP
Assistant Commissioner (Customer Service) OP:C
Assistant Commissioner (Forms and Submission Processing) OP:FS
National Director, Customer Service Compliance, Accounts and Quality OP:C:A
Director for Legislative Affairs CL:LA
Director, Office of Program Evaluation & Risk Analysis M:O
Office of the Chief Counsel CC
Office of Management Controls M:CFO:A:M
National Taxpayer Advocate C:TA
Assistant Commissioner (Customer Service) OP:C
Assistant Commissioner (Forms and Submission Processing) OP:FS:S:Q:S
Management’s Response to the Draft Report
Response was removed due to its size. To see the complete response, please go to the PDF version of the report on the TIGTA Public Web Page.