The Internal Revenue Service (IRS) Restructuring and Reform Act of 1998 (RRA 98) mandated a restructured IRS organization and revamped business practices. The mission of the new IRS is to provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all.

On October 1, 2000, the IRS achieved its first milestone on the way to modernizing by putting into effect (or standing up) a new organizational structure that should ultimately serve taxpayers better and support the employees in an improved work environment. Major components of the new IRS follow.

Financial management continues to be a concern. The IRS’ financial systems still cannot produce the reliable information necessary to prepare financial statements in accordance with federal accounting standards.

The General Accounting Office (GAO) rendered an unqualified opinion on the IRS’ Fiscal Year (FY) 1999 statement of custodial activities, but rendered a qualified opinion on the balance sheet due to insufficient evidence about the reliability of the components of net position. In addition, the GAO was unable to render opinions on the FY 1999 statements of net cost, changes in net position, budgetary resources, and financing. This was due to insufficient evidence about the IRS’ fund balance with the Department of Treasury, property and equipment, accounts payable and net position, and the reliability of program costs and budgetary balances. The GAO also concluded that the IRS’ financial management systems do not substantially comply with the requirements of the Federal Financial Management Improvement Act (FFMIA).¹

The TIGTA also identified financial management weaknesses associated with the IRS’ control and accountability over automated data processing (ADP) assets. The TIGTA reported that ADP property certifications should be verified, adequate resources should be dedicated to the implementation of the IRS’ Single Point Inventory Function (SPIF), and SPIF operating procedures should address internally developed software and annual physical inventory issues.

The TIGTA’s audit of the IRS’ FFMIA remediation plan concluded that the plan did not fully comply with all FFMIA requirements. For example, the plan did not include or was not clear on all reported weaknesses, target dates were not always identified or exceeded the 3-year time frame without the Office of Management and Budget’s concurrence, and resource commitments were not always identified or were unclear. As a result, the IRS cannot ensure that all financial management weaknesses are adequately and timely resolved.

The financial management operation has been a long-standing problem for the IRS, and improvements are still needed. However, the overall methodology used by the IRS to develop the required FFMIA remediation plan is reasonable and is consistent with the Department of the Treasury’s standard template. The remedies that are included in the remediation plan appear to be sound and should directly address the reported weaknesses and provide long-term solutions.

The IRS has incorporated all GAO-reported financial management weaknesses in its FFMIA remediation plan. Further, the IRS agreed with all recommendations contained in the TIGTA reports and plans to implement corrective actions that should eliminate the reported weaknesses.

The IRS has taken steps to organize and staff its Chief Financial Office function, which previously contributed to several of the reported financial management issues. The IRS also has made progress in assuming some responsibilities for analyzing the financial classifications of receivables on the custodial side of its operation. In addition, the IRS has improved its monthly reconciliation of its fund balance with the Department of the Treasury, including suspense account balances on the administrative side of the operation.

The Chief Financial Officers Act of 1990, as expanded by the Government Management Reform Act of 1994, requires the Inspector General to audit agency financial statements in accordance with generally accepted government auditing standards. In FY 2001, the GAO will again exercise its prerogative to conduct the financial statement audit of the IRS’ FY 2000 statements.

The IRS Commissioner has stated that protecting taxpayer information and the systems used to deliver services to taxpayers is key to the success of a customer-focused IRS. In the past, the security of taxpayer data has been an Achilles heel for the IRS, particularly in the area of unauthorized browsing of taxpayer records. The TIGTA has attempted to work with the IRS, recommending that the IRS computer systems have an audit trail capability and that the audit trails be actively reviewed.

As the primary revenue collector for the United States, the IRS is a target for both terrorists and hackers. This threat has increased over the last few years with more interconnectivity of systems. Disgruntled employees also represent a major threat, particularly with the turmoil the IRS is experiencing during its reorganization process.

TIGTA audit reports this year noted that only 10 percent of the IRS’ sensitive systems have been certified as having the appropriate security controls. To correct this problem, the IRS now has plans in place to certify new systems before they are implemented and to certify existing systems. The IRS also has plans to improve virus protection and responded very favorably to the latest major virus attack. The IRS, however, needs to remain vigilant on virus controls and computer systems security.

Information security will be a continuous challenge to the IRS as long as computer systems exist. New security vulnerabilities are always being discovered as new technology and equipment are added. Access control weaknesses also continue to be a perennial problem for the IRS. In addition, most existing IRS computer systems do not have effective audit trail capability. The TIGTA will conduct extensive audits around computer security during FY 2001.

The filing season impacts every American taxpayer and is, therefore, always a highly critical program for the IRS. Many programs, activities, and resources have to be planned and managed effectively for the filing season to be successful. For example, more than 250 computer-programming changes were required for the 2000 Filing Season. This was further complicated by the IRS’ modernization efforts to update and replace its core tax processing systems.

The IRS experienced no significant processing problems from either tax law changes or the Y2K conversion during the 2000 Filing Season. The TIGTA, however, reported that the IRS needs to ensure critical programming changes for the filing season receive priority over other programming requests.

As part of the IRS’ modernization and workload transition efforts, the IRS is undergoing a transition at processing centers whereby eight centers will process only individual tax returns, while two will process only business returns. This transition, which has far-reaching effects, will be phased in over a 2-year period beginning in January 2001.

Also beginning in January 2001, the IRS will be required to process electronic partnership returns (Forms 1065) and related Schedules K-1 for partnerships with more than 100 partners, under guidelines established by the Taxpayer Relief Act of 1997. IRS projects more than 10 million Schedules K-1 will be filed electronically each year for partnership returns.

Although the IRS had a successful Tax Year (TY) 2000 Filing Season, opportunities still exist to more effectively implement tax law changes. Audit reports issued during FY 2000 indicate the IRS still has not taken appropriate steps to implement computer programming to identify potential erroneous claims on tax returns related to legislative changes. The TIGTA’s review showed the IRS allowed over $351 million in potentially unqualified claims for the child tax credit (CTC) and the additional child tax credit on over 750,000 tax returns for 1998 and 1999. These potentially unqualified credits were allowed because the IRS had postponed computer programming changes designed to validate the date of birth for the CTC every year since the CTC was authorized in 1998. According to the IRS, the programming was postponed due to higher priorities and limited programming resources.

In addition, the IRS faces challenges in ensuring telecommunications and system size will accommodate the new electronic filing requirements to ensure the accuracy and usability of information received and processed. The IRS had initially planned to validate all secondary Social Security Numbers (SSNs) processed during the 2000 filing season. However, the IRS determined that continued processing of these returns would overload the computer systems it uses to resolve errors. Therefore, the IRS approved computer-programming changes to bypass the validation based on the early volumes of returns received.

Furthermore, the IRS requested additional Congressional funding from the FY 2001 Staffing Tax Administration for Balance and Equity initiative by claiming the request would allow the IRS to match data from Schedule K-1 documents with income tax returns. Prior years’ matching of partnership information has not occurred because of excessive bad information.

The IRS also needs additional procedural and organizational changes to further reduce tax form complexity and taxpayer burden. The IRS currently does not have a toll-free telephone number that would provide individual taxpayers with a convenient method to provide the IRS with tax form improvement comments. In addition, the IRS should strengthen the system of controls over the tax form development process to ensure compliance with federal internal control standards.

Other challenges facing the IRS include: resolving problems associated with managing Excess Collections Accounts, accurately processing gift tax payments and associated extensions to file gift tax returns, remedying inequitable taxpayer treatment caused by its estimated tax penalty assessment processes, and protecting taxpayer remittances received at Submission Processing Centers.

TY 2000 was successful despite woeful predictions around the ability of computer systems to deal with the century date change. The IRS accurately processed Corporation Income Tax returns after TY 2000 changes were made. In addition, the IRS processed most of the TY 1999 estate and gift tax returns in accordance with the provisions of the Taxpayer Relief Act of 1997, even though the IRS’ processing procedures were not designed to identify and correct overpayments in tax for an estimated one percent of estate tax filers using outdated tax forms.

The IRS also effectively implemented a tax law provision included in the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 that disqualified certain taxpayers receiving rental/royalty income from the Earned Income Tax Credit. The IRS also implemented a process to post review cases impacted by specific legislative provisions and developed a process for implementing new legislation in the new, modernized IRS structure.

The IRS has embarked on a course to re-engineer its business processes and technology to focus on providing world-class service to taxpayers. The theory is that the overall rate of voluntary compliance with the tax laws will increase if the IRS provides the right mix of education and support to taxpayers.

Revenue receipts processed by the IRS increased from $1.5 trillion in FY 1996 to $1.9 trillion in FY 1999. However, revenue collected as a result of compliance activity decreased by $5 billion and gross accounts receivable increased by $41 billion during this same period. IRS management and many stakeholders, including some members of the Congress, are concerned about the reduction in resources allocated to compliance activities and the related decrease in business results. To help address this issue, Treasury’s FY 2001 budget submission includes a request for 2,800 new positions over the next 2 fiscal years. These additional resources will be dedicated to enforcing tax laws and improving service to taxpayers.

The IRS’ prior Taxpayer Compliance Measurement Program was considered too intrusive and was cancelled. Currently, the IRS has no reliable method to measure voluntary compliance or the impact that increased customer service and decreased enforcement are having on voluntary compliance. The IRS needs to strengthen its enforcement capacity before voluntary compliance is severely eroded.

To properly balance customer service with compliance, the IRS must adequately staff the Customer Service functions and, at the same time, properly manage the Compliance resources and processes. The recruiting, hiring, training, and scheduling of Customer Service Representatives remain a challenge. The TIGTA also believes that some programs, e.g., the Substitute for Return (SFR) programs and research activities, can be better managed.

Many employees who normally examine tax returns or collect taxes were detailed to the Customer Service function to answer taxpayer questions and assist taxpayers in preparing their returns. Compliance resources detailed to the Customer Service function increased from 165 staff years in FY 1996 to 748 staff years in FY 1999. For the 2001 Filing Season, the SB/SE Division plans to cut 40 to 45 percent of the support that was provided to the Customer Service function last year. This, coupled with the plans to discontinue the customer service support provided by Automated Collection System employees, may result in a severe downturn in the IRS’ customer service unless the IRS effectively recruits and trains Customer Service function employees.

The IRS could also decrease risks by managing compliance initiatives more effectively. For example, the IRS’ oversight of the SFR process is fragmented and does not provide uniform policies and procedures to ensure equitable treatment of all taxpayers. In addition, IRS management does not gather the necessary information to be able to effectively manage and measure the SFR process. The IRS should improve its coordination among functions processing SFR accounts and develop a method to determine if the SFR process is achieving its intended results. This could improve the service provided to over 1 million taxpayers contacted by the IRS annually.

Also, the IRS does not have effective controls over its research activities and cannot quantify its value to tax administration. Although the IRS recently implemented some new procedures to better manage its compliance research program, it cannot accurately measure the cost-effectiveness or the impact of the information provided to its functional programs.

The IRS has invested heavily in technology but has not significantly improved telephone service to taxpayers. In addition, the IRS was surprised by the dramatic increase in demand for its Tax Return Preparation Assistance. As a result, the challenge of providing a quality customer service operation remains a top management challenge facing the IRS.

The IRS centralized the management of the toll-free telephone system, invested in new technology, committed significant enforcement resources to answering telephones, and expanded the hours of operation in an effort to better serve taxpayers. Nevertheless, in 1999, the IRS did not provide an increased level of quality telephone service to taxpayers in an economical manner.

In addition, the IRS’ performance in providing toll-free telephone service compares unfavorably with private sector organizations recognized as providing "world class" service. The level of service provided to taxpayers on the 3 main telephone lines declined from 73 percent in the prior-filing season to 51 percent in 1999, and almost 16 million more taxpayers received busy signals. Also, during the first 6 months of FY 1999, the accuracy of answers to tax law questions declined from 79 percent to 72 percent. For the same period, total labor costs increased by over $30 million from the prior fiscal year, even though 1.4 million fewer calls were answered. TIGTA’s report on the review of the effectiveness of the toll-free telephone program during the 2000 Filing Season is pending.

The public’s demand for tax return preparation service has increased dramatically during the past 2 years. During FY 1998, the IRS prepared about 650,000 tax returns for taxpayers. It prepared almost 900,000 tax returns for taxpayers during FY 1999 and, if early indicators of the pace of tax preparation continue, over 1 million tax returns may have been prepared during FY 2000.

As stated above, the IRS’ quality of toll-free service declined during FY 1999 despite new technology, significant enforcement resources committed to answering telephones, and expanded hours of operation. Audit reports issued throughout FY 2000 indicate the IRS either has not taken steps to adequately provide quality toll-free customer service to taxpayers seeking assistance from the IRS, or actions taken to make improvements have not achieved their desired result. Examples of problems identified include:

With respect to revenue protection, the TIGTA reported that the IRS should expand early intervention efforts nationwide to further reduce unreported estate executor commissions. This action could potentially result in an additional $2.6 million in taxes and interest over the next 5 years.

In August 2000, the IRS released its most recent EIC compliance study: Compliance Estimates for Earned Income Tax Credit Claimed on 1997 Tax Returns. This study is significant because it provides a starting point from which the IRS will be able to evaluate future IRS efforts. Moreover, it describes recently launched enforcement initiatives. The study’s central finding is that of the estimated $30.3 billion in EIC claims, approximately $7.8 billion (25.6 percent) should not have been paid. The amount of overclaims before accounting for enforcement activities was approximately $9.3 billion (30.6 percent of the amount claimed). (The study did not include data relating to those who may have qualified for the credit, but failed to claim it.) These results indicate that due to IRS enforcement practices, $1.5 billion of EIC overclaims for TY 1997 were recovered or prevented from being paid. They also show that the IRS needs to continue to be innovative and aggressive in its compliance efforts.

The last initiative is aimed at educating paid preparers who file about 60 percent of all EIC returns. Last fall, the IRS initiated a large-scale, multi-year outreach program aimed at thousands of preparers who had prepared at least 100 EIC returns during the previous filing season. During visits to these preparers, IRS employees provided one-on-one instruction on EIC compliance and on the preparers’ due diligence responsibilities. These and other outreach programs to state and local governments, faith-based organizations, community groups, business leaders, and low-income taxpayer advocates are continuing.

The IRS still faces significant challenges in the business tax return arena. Despite extensive IRS programs and efforts it has made to detect and stop fraudulent claims, relatively little effort has been made to systematically identify refund schemes involving business returns and associated credits. A few business schemes have been identified but it has generally been through labor intensive manual procedures. The IRS is concerned that fraudulent refund claims may be expanding to include business returns and that scheme perpetrators continue to develop new methods to defraud the system. The TIGTA is concerned that current controls may be by-passed and, as a result, has initiated a review in this area.

Significant information received by the IRS is not effectively used to identify business taxpayer fraud. For example, although the IRS receives employers’ Form W-2 information from the Social Security Administration, the IRS has not focused its efforts to ensure the accurate reporting of employment tax information on Forms 941 by matching forms and identifying errors. The payment of employment taxes accounts for over $500 billion of the federal budget and is a large part of our voluntary tax system. Similarly, income derived from partnership returns (Forms 1065) and related Schedules K-1 is currently not matched to individual income tax returns for compliance purposes. The IRS is attempting to address these issues and has requested additional funding to do so.

In addition, the IRS reports that increased underreporting of withholding taxes by self-employed taxpayers contributes to the growing population of refund fraud cases. The TIGTA reported that the IRS could improve its identification of unreported self-employment taxes while tax returns are being processed, and that the IRS could assess and collect significant amounts of unreported self-employment taxes each year before tax refunds are issued to taxpayers.

The legislative changes required by the RRA 98 continue to have a profound impact on the IRS. Most RRA 98 provisions, including massive training programs for thousands of IRS employees, have been modified or implemented. The IRS plans to test these reforms over the next 2 years. During this time, significant management attention will be required to evaluate the effectiveness of the reforms.

The TIGTA also protects taxpayers and their rights by investigating allegations of misconduct by IRS employees. Section 1203 of the RRA 98 provides for the mandatory termination of IRS employees for specific categories of employee misconduct. Some of the misconduct includes: violation of Constitutional or civil rights of taxpayers or IRS employees; intentional misconduct involving a taxpayer matter; threatening taxpayers with an audit; or willful understatement by an employee of his or her own federal tax liability.

The TIGTA has reported improvement in the IRS’ compliance with many RRA 98 provisions. However, the degree of improvement often could not be quantified because strict comparisons between the 2 years could not be drawn. One area of improved compliance involved seizures. The TIGTA reported that the IRS complied with the specific Internal Revenue Code provisions and its own guidelines for all seizure cases reviewed. In addition, the IRS complied with RRA 98 provisions for all district office levies issued and for 99 percent of the Customer Service Automated Collection System call site levies reviewed.

The TIGTA is required to annually review the IRS’ compliance with some RRA 98 provisions. The TIGTA has completed its second series of statutory reviews. A summary of the reviews is included in Appendix III.

The Government Performance and Results Act (GPRA) of 1993 requires government agencies to set goals, measure performance, and report on accomplishments. Within the last two years, the IRS has developed an "interim" Strategic Plan, and consistently provides budget justifications, which include the Annual Performance Plan(s). Collectively, these documents satisfy major requirements of the GPRA by identifying the IRS’ mission, strategic objectives, goals, and strategies to achieve those goals. The documents also describe the IRS’ priorities for the next six years and the key performance indicators (measures) used in assessing achievement of those goals.

The IRS Commissioner has indicated that it will take years to achieve a fully acceptable set of balanced measures that can be used at all levels of the organization. Due to the IRS’ modernization efforts, the measures are being re-evaluated. While the IRS is implementing its new organizational structure and areas of responsibility are being re-defined, the IRS remains vulnerable to risks in this area.

The IRS has made some progress in implementing the GPRA. The IRS has recently revised its strategic planning, budgeting, and business review processes, and is updating the Strategic Plan. The Deputy Commissioner and Chief Financial Officer were designated the Servicewide GPRA executives. The Deputy Commissioner is responsible for the oversight and coordination of the Annual Program Performance Report, performance measurement, and any other issues which do not fall within a specific program or function. The Chief Financial Officer is responsible for the general oversight and coordination of the strategic planning and budgeting process, and development of the form and coordination of the IRS Strategic Plan and the Annual Program Performance Plan. Each Operating Unit executive is responsible for the overall implementation of GPRA for their respective programs or functions.

While the new operating units concentrate on implementing the new organizational structure, performance measures may not be a high priority. Based on our reviews to date, the TIGTA believes that the IRS can improve its measures, the data quality of its measures, and its reporting of annual accomplishments. In addition, the IRS agreed to some of the TIGTA recommendations to improve the data and reporting of customer satisfaction results and has recently committed to working with the vendors in addressing TIGTA concerns about sample methodologies and survey response rates. Also, more work can be done to address Congressional concerns with major management challenges.

The acceleration of world trade and e-commerce in the business world exceeds the government’s capacity to administer taxes. In 1999, the United States (U.S.) exported over $1 trillion in goods and services and, at the same time imported over $1.3 trillion in goods and services. Foreign direct investment in the U.S. has grown from $50 billion in 1985 to $800 billion in 1999. Further, in the first half of 1998, 6,000 major corporations around the world merged with foreign entities for a value of a trillion dollars.

The GAO and the TIGTA have previously reported serious internal control and systemic weaknesses in the IRS’ administration of its international programs. The IRS continues to struggle to increase compliance in an ever-growing international economy. Significant improvements are needed in international compliance programs to focus on nonfiling, transfers of assets by U.S. citizens to foreign trusts, foreign tax credit claims, and foreign-sourced income.

Corporate Tax Shelters often have international features that add to the complexity of the shelter structure. In the July 1999 Treasury White Paper entitled, The Problem of Corporate Tax Shelters, the Treasury presented the discussion on actions needed to combat abusive shelters. Estimated revenue loss attributable to abusive corporate tax shelters ranges between $6 billion and $10 billion per year. The IRS established the Office of Tax Shelter Analysis in July 2000. TIGTA has started an audit to determine the effectiveness of the IRS to combat abusive tax shelters.

The TIGTA is in the process of reviewing three areas of inbound and outbound transactions. The first project is the Withholding on Partnerships with Foreign Partners. The IRS estimates that there were approximately 36,000 partnerships with foreign partners in 1998. The income allocated to these foreign partners is in the billions of dollars each year. The second project is the Compliance Programs for United States residents with foreign-sourced income. From 1996 to 1998, foreign governments reported about $260 billion in foreign-sourced income paid to U.S. residents. The third project is the Compliance Program for Non-resident Alien Effectively Connected Income Withholding. In 1998 non-resident alien income exceeded $125 billion. The withholding rate for non-resident alien income has dropped from 2.75 percent in 1990 to 1.93 percent in 1998. New regulations are being implemented January 1, 2001.

The LMSB Division has made globalization a strategic initiative. The initiative is to build a tax administration system to effectively deal with the global economy. The Division is also improving the management information system for identifying specific case issues that were handled by international field specialists. In addition, the LMSB Division is providing Intranet access capability to increase the information available on international issues.

Although management of the personal computer conversion effort has improved, the IRS is facing various risks associated with conversion of personal computers and related systems. Additional attention and oversight of personal computer system conversion is needed through the end of the calendar year and into the Year 2000 to ensure that any problems resulting from these risks are quickly and effectively addressed.

Our review showed that IRS management has completed corrective actions designed to assure that computer components are properly retired. These actions were taken to address the three concerns we previously reported:

The Tier II Risk Assessment Dashboard Report, which monitors conversion of minicomputer systems, now focuses on systems that have not yet been made Y2K compliant, and reports on their progress. The Independent Audit and Readiness Verification process was established to provide assurance that conversion activities are occurring as reported. Contingency planning has been ongoing and covers most IRS systems. However, late conversion dates and gaps in contingency planning result in continuing conversion risks for IRS minicomputer systems.

Although the Y2K conversion has been successfully completed, the IRS can still realize long-term benefits from this vast undertaking that cost approximately $1 billion. The IRS can preserve the resources, methodologies, and knowledge gained through the Y2K remediation efforts and deploy them in the future. There were a number of factors that contributed to the Y2K success, including effective project tracking, a standardized control structure, and the use of steering committees. The continued use of these management techniques can contribute significantly to the success of future IRS systems enhancement activities.

F-1, R-1, P-1. IRS management should take appropriate action on the recommendation to conduct quality reviews prior to forwarding the Automated Data Processing Property Certifications for final approval and certification to the Commissioner.

F-2, R-1, P-1. IRS senior executives should re-evaluate resource commitments needed to successfully implement the Single Point Inventory Function and elevate to the Deputy Commissioner Operations for resolution, any staffing shortages that imperil successful implementation.

F-3, R-1, P-1, P-2. The Asset Management Modernization Project Office Manager should ensure the Single Point Inventory Function Standard Operating Procedures are updated to include accountability and identification of internal use software and documentation for annual physical inventories.

F-1, R-1, P-1. Place more emphasis on building security controls into new information systems.

F-1, R-2, P-1. Place additional emphasis on timely certification and accreditation for systems that have already been implemented.

F-1, R-3, P-1. Consider increasing the human resources within the IRS devoted to certifying and accrediting the security features of information systems.

F-1, R-4, P-1. Ensure that IRS’ certification process includes follow-ups with the accrediting executives prior to the expiration of its systems security certification to ensure that they are aware that a new certification and accreditation is required.

F-1, R-5, P-1. Ensure that all functional executives for individual systems are fully aware of the overall certification and accreditation process.

F-1, R-6, P-1. Centralize the process for identifying and tracking of all information systems requiring certification and accreditation.

F-2, R-1, P-1. Ensure that IRS’ certification process includes follow-ups with the accrediting executives to ensure that necessary information relevant to the official accreditation is provided and to educate them on the importance of providing this information.

F-1, R-1, P-1. IRS management should formally assign a senior official the responsibility for directing and overseeing the implementation and effectiveness of the IRS’ virus prevention efforts.

F-2, R-1, P-1. Develop and implement IRS-wide procedures detailing the frequency and steps to be followed for reliably updating anti-virus software on both networked and portable notebook computers.

F-2, R-2, P-1. Establish controls for ensuring all updates have been successfully accomplished.

F-3, R-1, P-1. Develop a system for gathering information to help analyze and monitor the effectiveness of the program’s virus detection and prevention activities.

F-4, R-1, P-1. Strengthen procedures for ensuring that employees comply with the Internal Revenue Manual requirements for preparing Virus Incident Reports.

F-5, R-1, P-1. Form a virus team and develop procedures for the various activities that need to be quickly coordinated and carried out when major virus outbreaks occur.

F-1, R-2, P-1. Ensure that vulnerabilities to all mission essential assets, including facilities, systems, applications, personnel, and data are assessed during future security reviews.

F-1, R-3, P-1. Develop a multi-year funding plan for reducing the vulnerabilities to mission essential assets.

F-1, R-4, P-1. Incorporate results of Presidential Decision Directive 63 efforts with security issues currently being tracked in strategic planning and performance measurement reports for the Government Performance and Results Act of 1993.

F-1, R-1, P-2. The Customer Service function should use the computer-matching techniques, developed by the Treasury Inspector General for Tax Administration, to identify and, where appropriate, transfer payments from the Excess Collections Accounts to the taxpayers’ Masterfile accounts.

F-2, R-1, P-1, P-2, P-3, P-4. Coordinate education efforts for employees handling these accounts and develop strategies for increasing taxpayer and practitioner awareness of the law on the statute of limitations for refunding and crediting payments related to overdue tax returns.

F-2, R-2, P-1, P-2. Develop procedures for contacting taxpayers one last time prior to the statute of expiration date of payments in the Excess Collections Accounts and advise them of the possible forfeiture of payments if the necessary tax returns are not filed.

F-3, R-3, P-1. The IRS stakeholders should ensure that planned Tax Systems Modernization redesigns address-linking limitations between the Masterfile and the Excess Collections Accounts maintained by the ten service centers.

F-3, R-4, P-1, P-2. Pending implementation of systemic programming changes, the Chief Operations Officer should consider delaying the movement of payments from the taxpayers’ Masterfile accounts to the Excess Collections Accounts until applicable statutory dates for refunding or crediting the overpayments expire.

F-1, R-1, P-3. The IRS should set goals and standards for the Innocent Spouse Program.

F-1, R-2, P-3. The IRS should upgrade the current management information system and ensure that the system provides complete, accurate, timely, and useful feedback.

F-2, R-1, P-2. The IRS should design and implement a system of internal controls that addresses the quantity, cost, and timeliness of the Innocent Spouse Program to complement the existing internal controls over the quality of the Program.

F-2, R-1, P-3. Develop written criteria for prioritizing Request for Information Services (RIS) to ensure the RIS inventory is prioritized correctly for the filing season.

F-1, R-1, P-1. Adopt quicker time frames for assigning in-business trust fund cases and contacting taxpayers.

F-2, R-1, P-1. Use all collection tools, including enforcement tools, and require the filing of monthly, rather than quarterly, returns.

F-2, R-2, P-1. Consider using paraprofessionals to help revenue officers perform less technical aspects of the job, such as monitoring Federal Tax Deposit payments.

F-2, R-4, P-1. Continue to emphasize, at the Commissioner and executive level, use of enforcement actions when necessary and management’s support for employees when actions are appropriate.

F-2, R-5, P-1. Gather information on delinquent in-business trust fund taxpayers, such as the types of industries, and identify trends to pinpoint industry groups for education efforts.

F-1, R-1, P-1. To meet its Electronic Tax Administration goals, the IRS needs to re-design the Electronic Tax Law Assistance (ETLA) program to leverage technology that will provide enhanced access to tax information, maximize efficiency, and improve electronic customer service.

F-2, R-1, P-1. To effectively administer the rapid growth of taxpayer demand, economically use resources, and design future enhancements of the program, the IRS needs to fully commit to the ETLA program by converting it from a long-term research project to a fully supported independent function.

F-3, R-1, P-1. Until there are technological changes and an organizational commitment, the IRS needs to delay the marketing of the ETLA program.

None

None

None

None

F-2, R-1, P-1. Improve the management information system by linking the International Field Assistance Specialization Program indicator to specific issues listed in the International Case Management System.

F-2, R-2, P-1. Ensure international examiners gain greater access to the IRS’ Intranet so that the International Field Assistance Specialization Program (IFASP) can accumulate and disseminate more information electronically, including an electronic referral form for IFASP assistance.

Enforcement Statistics – Most employee evaluations and management documents did not contain tax enforcement results and did not impose production quotas and goals. However, there were some instances when records of tax enforcement results were used to evaluate employees or to impose or suggest production quotas or goals. In addition, employees were not always provided with or evaluated on the performance standard requiring the fair and equitable treatment of taxpayers.

Contacting Taxpayers – The TIGTA could not determine whether IRS employees complied with procedures when directly contacting taxpayers and their representatives because both the IRS and the TIGTA are still unable to readily identify cases for review. However, we did determine that the IRS has clarified procedures for employees to help protect taxpayers’ rights during interviews. The IRS is also developing a taxpayer survey to monitor whether employees are complying with procedures for contacting taxpayers and representatives.

Liens – The TIGTA found that the IRS has improved its compliance with legal and internal guidelines for filing federal tax liens (FTLs), but it has not yet achieved full compliance with 26 U.S.C. § 6320 and its own internal guidelines. We also determined that quarterly compliance reviews implemented by the IRS do not evaluate compliance with IRS procedures for sending copies of Collection Due Process notices to the taxpayer’s spouse, business partner, and/or representative. In addition, the compliance reviews do not determine if undeliverable notices are re-sent to other known addresses for the taxpayers.

Seizures – The TIGTA found that all actions taken by the IRS were in accordance with legal and internal guidelines for all cases reviewed. Additionally, the IRS advised us that the new specialist position for disposing of seized property was in place on July 22, 2000. We did identify one weakness in the IRS’ procedures that can allow wrongful seizures to occur.

Levies – The TIGTA found the IRS has significantly improved its compliance with legal and internal guidelines to notify taxpayers of their appeal rights at least 30 days before levies are issued. However, we found that controls need to be improved so that internal records reflect levy actions that have been taken on taxpayers’ accounts.

Taxpayer Designations – The TIGTA found that although IRS management took actions to prevent Illegal Tax Protester (ITP) designations, some actions were not properly performed. As a result, there were still instances when the ITP designation was used after the enactment of the RRA 98.

Joint Filer Notifications – The TIGTA found that the IRS procedures are different from the statutory requirements set out in 26 U.S.C. § 6103 (e)( 8) (1986). This provision requires the IRS to send written responses to joint filer taxpayers or their representatives who request, in writing, collection information on their joint return liabilities, while the IRS’ procedures allow the information to be provided orally. In addition, the IRS does not have a method to identify joint filer requests and responses. Therefore, the IRS cannot determine if it is in compliance with the provision, and cannot determine if IRS employees are protecting the taxpayers’ right to receive written responses to their written requests for joint return collection information.

Complaints – The TIGTA found that the IRS has initiated planning to reduce the potential for duplicate complaints tracked on more than one system. In addition, the TIGTA Office of Investigations’ complaint system has the ability to identify and eliminate duplicate information for those complaints received directly by the TIGTA.

Fair Debt – The process used to identify and report potential fair debt violations can be improved. For example, Collection Division management is not always effectively identifying employee actions as potential violations of the Fair Debt Collection Practices Act (FDCPA) when reporting these cases to the Labor Relations function for tracking on the Automated Labor and Employee Relations Tracking System (ALERTS). As a result, data captured on the ALERTS related to potential FDCPA violations might not always be complete and accurate.

Assessment Statutes – The TIGTA found that in most cases reviewed, examiners properly advised taxpayers of their right to refuse or restrict the scope of the statute extension. However, in some cases (5 percent of our sample) examiners did not indicate in case files whether taxpayers were advised of these rights.