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Treasury Inspector General for Tax Administration

Press Release


December 28, 2010
TIGTA - 2010-81
Contact: Karen Kraushaar
(202) 622-6500
karen.kraushaar@tigta.treas.gov
TIGTA-PAO@tigta.treas.gov

Internal Controls for Surveying Tax Returns With Abusive Tax Avoidance Transactions Need to Be Strengthened

WASHINGTON – Internal Revenue Service (IRS) employees surveyed tax returns with Abusive Tax Avoidance Transaction (ATAT) issues without management approval, according to a report released today by the Treasury Inspector General for Tax Administration (TIGTA).

Combating ATATs is one of the IRS’s highest priorities. The IRS defines an ATAT as tax evasion, or more specifically, a transaction that reduces a tax liability by taking a tax position not supported by tax law or inconsistent with the intent of the law. A survey is a determination by an IRS employee that the examination of the tax return is not warranted. It is generally expected that tax returns selected for examination will be worked to completion and could result in assessing additional tax and bringing the taxpayer into compliance.

TIGTA reviewed 311 tax returns with ATAT issues from 2006 to 2008 and found that group managers in IRS’s Small Business/Self-Employed Division did not always follow IRS surveying guidelines and did not always have justification for surveying specific tax returns.

“Surveying such tax returns without proper justification or approval could be counterproductive to the IRS’s goal to combat abusive schemes,” said J. Russell George, the Treasury Inspector General for Tax Administration. “This approach can erode the public’s confidence in the IRS’s ability to enforce tax laws in a fair, equitable, and consistent manner,” Mr. George added.

TIGTA recommended that the IRS develop internal controls and provide training for employees to ensure proper survey justification for tax returns with ATAT issues. TIGTA also recommended that returns be reviewed by an independent function, and that procedures be developed to ensure surveyed tax returns are included in the quality review process. The IRS agreed with these recommendations.

In addition, TIGTA recommended that the IRS should ensure tax returns with ATAT issues (surveyed as excess inventory) can be readily identified and examinations are completed once taxpayers are contacted. Furthermore, procedures should be developed to ensure surveyed tax returns are included as part of the quality review process. The IRS disagreed with both these recommendations.

To review the report, including the scope, methodology, and full IRS response, go to: http://www.treas.gov/tigta/auditreports/2010reports/201030118fr.pdf.

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