Treasury Inspector General for Tax Administration
March 26, 2013
TIGTA - 2013-10
Contact: David Barnes
WASHINGTON – A new cooperative effort between the Internal Revenue Service (IRS) and business taxpayers in which the IRS conducts real-time audits of businesses with assets of $10 million or more is generating favorable feedback from the businesses, according to a new report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA).
TIGTA found that the Compliance Assurance Process (CAP) is being administered in accordance with IRS policies and procedures and followed many key best practices in its design and testing phase. However, the IRS needs to develop and implement a plan to thoroughly evaluate its results to ensure that sufficient benefits are being realized in relation to the costs being incurred, according to the study.
Unlike traditional audits, where tax issues are often resolved long after the tax return is filed, business taxpayers volunteer to participate in the CAP and strive to resolve potential tax issues before a tax return is filed. The CAP, according to Large Business and International (LB&I) Division statistics, reduces the length of the audit process for both the IRS and large businesses. TIGTA initiated its audit to determine the extent to which the planning, implementation, and evaluation for the CAP followed published guidance and whether it is being administered in accordance with IRS policies and procedures.
“The CAP is being administered in accordance with IRS policies and procedures, and the pilot program followed many key best practices in the design and testing of the process,” said J. Russell George, Treasury Inspector General for Tax Administration. “However, even though the CAP pilot program ran for six calendar years and the permanent program is in its second calendar year of operation, the LB&I Division has yet to develop and implement a plan to thoroughly evaluate CAP data.”
TIGTA’s analysis found that although CAP audits are conforming to IRS policies and procedures, they are consuming substantially more staff hours than those under the traditional audit process. This makes the hourly revenue rate for the CAP approximately one third of the hourly rate examiners generated from traditional audits, $2,939 versus $8,448, respectively. TIGTA recommended that the Commissioner, LB&I Division, develop and implement an evaluation plan that verifies the CAP is delivering sufficient benefits in relation to the costs being incurred. In addition, the Commissioner, LB&I Division, should ensure that the CAP is assessed as a potential new user fee source once the IRS-wide user fee guidelines are revised and implemented.
In their response to the report, IRS management stated that they agreed with the recommendations and plan to take appropriate corrective actions.
Read the report.
Note: The difference between the date TIGTA issues an audit report to the Internal Revenue Service and the date TIGTA publicly releases the report is due to TIGTA's internal review process to ensure that public release is in compliance with Federal confidentiality laws.
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