Treasury Inspector General for Tax Administration
August 1, 2011
TIGTA - 2011-42
Contact: Karen Kraushaar
WASHINGTON –The Build America Bonds (BAB) compliance check questionnaires issued by the Internal Revenue Service (IRS) were appropriate for gathering information on the risk of potential noncompliance, according to a new audit report publicly released today.
The report by the Treasury Inspector General for Tax Administration (TIGTA) also determined that at the time of the TIGTA review, contrary to concerns expressed by the bond industry, very few BAB examinations had been initiated.
Upon passage of the American Reinvestment and Recovery Act of 2009 (Recovery Act), the Department of the Treasury asked the IRS to develop a plan to address possible risks associated with BABs. In February 2010, the IRS’s Tax Exempt Bonds (TEB) office mailed 375 compliance check questionnaires to issuers of BABs. This resulted in bond issuer concerns that responding to the compliance checks would result in wide-scale examinations.
TIGTA’s auditors found that, based on their analysis of the questionnaires, the questions were appropriately designed to elicit responses that could indicate a high risk of potential noncompliance without requesting information specific enough to start examinations.
However, a formal compliance check procedure had yet to be established. In addition, TIGTA could not evaluate the IRS’s plans to address any high-risk indicators from the questionnaires because the TEB office had not completed its in-depth review of the questionnaire responses.
“Until the IRS establishes formal guidelines for planning and conducting compliance check programs, TEB office management will not have assurance that their compliance check programs will comply with the Internal Revenue Code or that useful information will be gathered to identify, evaluate and appropriately address indicators of potential noncompliance,” said J. Russell George, Treasury Inspector General for Tax Administration.
TIGTA recommended that the TEB Director draft formal guidelines for conducting compliance checks, which would aid in monitoring the IRS’s authority in such matters, as well as improve transparency with the bond community. The IRS agreed with the recommendation and plans to publish new procedures for developing and initiating compliance check questionnaires.
Read the report.
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