TREASURY INSPECTOR GENERAL
FOR TAX ADMINISTRATION
THE PROCESS OF DEVELOPING TAX FORMS FOR INDIVIDUAL TAXPAYERS SHOULD BE FURTHER IMPROVED
Reference No. 2000-40-060
The Internal Revenue Serviceís (IRS) Tax Forms and Publications Division is responsible for creating and improving federal tax forms. These tax forms should inform individual taxpayers of their federal tax obligations and enhance voluntary compliance by making it as easy as possible for taxpayers to accurately complete these forms. Burden and the complexity of tax law and/or tax forms have been two of the primary problems facing taxpayers in the federal tax system. These problems have been repeatedly reported to the Congress by the Taxpayer Advocate.
The IRS estimates that there are approximately 90 million individual taxpayers. Approximately 76 million of these taxpayers earn less than $50 thousand a year, and 25 million earn less than $10 thousand a year. Over 18 million of the individual taxpayers use a paid tax preparer because they need help with the preparation of their tax return.
Our audit objective was to determine if the IRS has an effective, efficient, economical, and well-controlled process to timely design and produce tax forms which minimize taxpayer burden while aiding individual taxpayers in accurately complying with tax laws. Our review focused on the primary IRS functions involved in the tax forms development process including: the Tax Forms and Publications Division, the Multimedia Production Division, the Submission Processing Division, and the Legislative Affairs Division.
The IRS has a process in place that timely produces tax forms for individual taxpayers. The Tax Forms and Publications Division creates tax forms, within the constraints of tax law complexity and internal IRS data processing barriers, that provide individual taxpayers with a reasonable opportunity to comply with federal income tax laws. Also within these constraints, the IRS has continually acted to reduce tax form complexity and burden.
Additionally, our review of six high-risk tax form issues shows that the IRSí process for the design and production of tax forms includes clear lines of responsibility and accountability, as well as reasonable supervisory oversight. The mission statements of the IRS functions involved with tax form development contain information relative to the effective and interrelated roles in timely producing quality tax forms.
In addition, our review identified that:
The Internal Revenue Serviceís Efforts to Decrease the Complexity of Tax Forms and to Reduce Taxpayer Burden Are Reasonable
The significant redesign and simplification of tax forms relating to the child tax credit and earned income credit, the solicitation of comments from IRS employees and professional groups and businesses, as well as other efforts have resulted, or could result after future revisions, in easier to read, less complex tax forms.
Additional Internal Revenue Service Procedural and Organizational Changes Could Further Reduce Tax Form Complexity and Taxpayer Burden
The IRS does not currently have a toll-free telephone number that would provide individual taxpayers with a convenient method to provide the IRS with tax form improvement comments. Although miscellaneous comments are received via the IRSí Internet site (Digital Daily), the IRS does not actively solicit tax form improvement comments through this method. In addition, individual taxpayer comments that were received through the Digital Daily were not properly controlled by the IRSí Multimedia Production Division.
Although the instructions for individual income tax forms do solicit individual taxpayers to comment, this solicitation is not repeated on the documents most likely to be read by taxpayers - the tax forms themselves.
We also found that the IRS has not fully addressed known tax form preparation errors relating to the child tax credit and earned income credit during its redesign efforts. In addition, the IRS does not have adequate resources to fully implement tax form improvement suggestions, and to ensure changes made to forms based on legislation could be accepted for normal IRS processing. Further reductions to tax form complexity and taxpayer burden are hindered by managementís acceptance and satisfaction with the current process to improve tax forms complexity. However, these suggestions and changes, if fully implemented, could result in the further reduction of tax form complexity and burden for the individual taxpayer.
The Internal Revenue Service Should Strengthen the System of Controls Over the Tax Forms Development Process to Ensure Compliance With Federal Internal Control Standards
Improved controls are needed over the recording and tracking of tax form action items relating to enacted legislation. Improved controls are also needed over tax form improvement comments received from the Digital Daily, professional organization telephone calls to the Tax Forms and Publications Division, and IRS employee testing of redesigned tax forms. Additionally, controls should be strengthened relative to the efficiency and accuracy of the IRSí management information systems used to track the status of the tax forms development and production process and the costs associated with changes to tax form printing contracts resulting from the IRS not timely providing the tax form to print contract vendors. These improvements are needed to ensure that the IRS is in compliance with the Standards For Internal Controls In The Federal Government. Internal controls would ensure that (1) programs achieve their intended results; (2) resources are used consistent with agency mission; (3) programs and resources are protected from waste, fraud, and mismanagement; (4) laws and regulations are followed; and (5) reliable and timely information is obtained, maintained, reported and used for decision making.
Summary of Recommendations
The IRS can improve the tax forms development and revision process by creating and/or improving procedures to enable individual taxpayers to conveniently provide tax form comments to the IRS (such as a toll-free telephone number). These procedures should be clearly detailed on the tax forms. The IRS should also develop a process to compile and use these comments to support informed business decisions regarding tax form development and to support legislative proposals that could result in the simplification of tax forms.
The IRS should ensure that known tax forms-related errors are adequately addressed during redesign efforts. In addition, the IRS should develop a proactive strategy to review the tax law and propose legislative changes that could result in the simplification of tax forms.
Furthermore, the IRS should ensure that adequate resources are available to implement tax form improvements and required legislative changes, and to ensure that adequate internal controls are in place to provide reasonable assurance relative to the efficiency and effectiveness of its tax forms development process. The IRS should also permanently implement key monitoring and oversight controls similar to those used to track the implementation of the IRS Restructuring and Reform Act of 1998.
Managementís Response: We provided the IRS with a draft report on February 15, 2000, with a 30 calendar day response period. However, as of the date of this report, IRS management had not provided a response to the draft report.