Highlights Highlights of
Report Number: 2008-IE-R001 to the
Internal Revenue Service Commissioner, Wage and Investment Division. WHY TIGTA DID THIS STUDY The
Internal Revenue Service (IRS) uses lockbox banks to process taxpayer payment
vouchers and the associated remittances to accelerate deposits. The lockbox network processed over 67
million payments totaling in excess of $400 billion during Fiscal Year 2007. During 2001, about 78,000 income tax
payments valued at $1.2 billion were lost or destroyed at a lockbox
facility. In
January 2003, the Government Accountability Office issued a report on the
lockbox banks and found significant security and processing control weaknesses. The IRS agreed with the findings presented
in that report and initiated corrective actions. The objective of this review was to
evaluate the controls established to process payments received in lockbox
banks. WHAT TIGTA RECOMMENDED TIGTA
recommended that the Director, Submission Processing, ensure that next years’
reviews emphasize the review of potentially late-filed extensions. If patterns similar to those TIGTA observed
are found, consider the need to revise the Program Analyst System review procedures. TIGTA also recommended that the Director,
Submission Processing, ensure that the instructions detailing how to process
rejected extensions are clarified. In
their response to the report, IRS officials stated that they plan to develop and
pilot the recommendation to evaluate whether the review will be beneficial. They have already revised instructions for
resolving the discrepancies with extensions to file. |
ADDITIONAL ENHANCEMENTS COULD FURTHER STRENGTHEN LOCKBOX BANK
OVERSIGHT Issued on September 8, 2008 IMPACT ON TAXPAYERS If a
taxpayer receives an extension of time to file and a late payment is erroneously
processed as having been timely, the failure to file and failure to pay
penalties are avoided. Penalties are
imposed to encourage voluntary compliance and should be consistently applied. WHAT
TIGTA FOUND TIGTA found that
the IRS has implemented extensive review processes to provide lockbox
oversight. However, some individuals
whose payments were processed by lockbox banks might have received an
extension to file and been erroneously credited with timely payments when
they appear to have been filed late.
The IRS does have a control in place to identify this condition. An automated program identifies when there
is a difference between received dates for the filed extensions and the processing
dates for the associated remittances.
However, current lockbox processing procedures do not require either a
date stamp or some other evidence to clearly show when the extension was received. Without this evidence, determining whether
the cases were correctly processed is very difficult. Furthermore,
the function that processes the rejected cases has procedures that do not
clearly explain how to resolve the discrepancy between an approved extension
and a late payment date. Consequently,
in some cases the extensions were allowed by applying an on-time filed date
to the account, while in others the payments were processed with a late date
and the extensions were disallowed. We recommend that the Director,
Submission Processing—who is the IRS executive responsible for lockbox
operations—ensure that next years’ reviews emphasize the review of
potentially late-filed extensions. If
patterns similar to those we observed are found, consider the need to revise
review procedures. We also recommend
that the Director, Submission Processing ensure that the instructions
detailing how to process rejected extensions are clarified. These procedures would help ensure more
accurate and consistent extension processing.
IRS management agreed to both of our recommendations, and they plan to develop and
pilot the recommendation to evaluate whether the review will be
beneficial. They have already revised
instructions for resolving the discrepancies with extensions to file. READ THE
FULL REPORT To view the report,
including the scope, methodology, and full IRS response, go to:
http://www.treas.gov/tigta/iereports/2008reports/2008IER001fr.html. Email Address: inquiries@tigta.treas.gov Phone
Number: 202-622-6500 Web Site: http://www.tigta.gov |