A photocopy user fee is the fee that is paid to the Internal Revenue Service (IRS) for providing a taxpayer with a copy of their tax return. Taxpayers prepay the fee of $23 for each tax return photocopy requested when submitting a Request for Copy or Transcript of Tax Form (Form 4506). The fee is refunded to the taxpayer if the IRS later determines that it cannot provide a photocopy of the requested tax return.

This review was conducted at the Fresno Service Center (FSC) in part because of concerns that photocopy user fee payments could result in fraudulent refunds. We evaluated controls over photocopy user fee refunds and determined whether material fraud had occurred. This included evaluating whether photocopy user fee refunds had been properly recorded and accounted for, whether refunds were adequately supported and properly approved, and whether cancelled refund checks were properly resolved. We also evaluated various inventory controls, and determined whether appropriate actions had been taken to timely provide taxpayers with photocopies of tax returns.

While we found that the FSC did properly record and account for photocopy user fee refunds after the refunds had been issued, and we did not find indications of IRS employees embezzling those refunds, we did find that controls over these user fees needed to be improved to help prevent the opportunity for improper activity. In addition to these control weaknesses, we also determined that taxpayers did not always receive timely and complete responses to their requests for tax return photocopies. Specifically, we found the following.

• FSC did not have adequate input, approval, and certification controls over photocopy user fee refunds. Management did not ensure that adequate controls existed over the process to input, approve, and certify photocopy user fee refunds. Weaknesses were found in the access provided to the database used to input the refunds, in the separation of duties between authorizing and inputting refunds to the system, and in the review and approval process used to certify the refunds by management.
• FSC did not have adequate controls over cancelled photocopy user fee refund checks. Existing procedures which require the research and resolution of cancelled refund checks were not followed. We identified 40 refund checks for about $1,800 which were not researched for resolution and possible re-issuance to taxpayers.
• FSC did not adequately safeguard remittances when the related Form 4506 requests were rejected. We found Forms 4506, which had still not been rejected 3 months after the IRS received date. Many of the Forms 4506 still had remittances attached, and the remittances were not controlled on document transmittals or stored in locked containers meeting security standards.
• FSC did not have adequate inventory controls over photocopy user fee cases. Photocopy requests that resulted in refunds were frequently not processed in accordance with IRS goals that define timely responses to taxpayers. Employees did not always timely control cases, timely request tax returns, or issue subsequent interim letters to inform taxpayers as to when to expect a complete response. In addition, managerial reviews of overage photocopy cases were not timely performed.
• FSC did not always take adequate actions to secure requested tax returns. In our sample of taxpayer requests for 146 returns, we located 33 of 35 tax returns that the service center did not locate. The reasons the returns had not been located included not contacting other functions that had the returns, not requesting returns due to lack of knowledge about return retention periods, and not following up when returns were not located at the initial requests.

Management’s Response: During this review, we issued a memorandum to IRS management addressing each of the conditions included in this report. FSC IRS management agreed with all of the findings we identified in our review. Management’s complete response is included as Appendix IV in this report.