Office of Audit
THE LARGE BUSINESS AND INTERNATIONAL DIVISION’S STRATEGIC
SHIFT TO ISSUE-FOCUSED
EXAMINATIONS WOULD BENEFIT FROM RELIABLE INFORMATION ON COMPLIANCE RESULTS
Final Report issued on September 14, 2016
Highlights of Reference Number: 2016-30-089 to the Internal Revenue Service Commissioner for the Large Business and International Division.
IMPACT ON TAXPAYERS
For the past several years, the Large Business and International (LB&I) Division has attempted to shift its focus toward examining issues that will have the broadest impact on tax compliance. The LB&I Division has recently accelerated its shift toward issue-focused examinations by reorganizing to focus on emerging tax compliance risks. An issue-focused approach to examinations would allow the LB&I Division to focus on where taxpayers’ compliance risks may be greatest and would allow the IRS to harness examination resources more effectively. As part of its reorganization, the LB&I Division is transitioning to selecting returns by “campaigns,” which use data analytics and leverage the entire knowledge of the organization to identify areas of noncompliance. Campaigns are intended to identify more productive returns and therefore lessen the burden on compliant taxpayers.
WHY TIGTA DID THE AUDIT
This audit was initiated to determine whether the LB&I Division effectively uses compliance results to identify compliance risk and allocate resources strategically to improve examination results.
WHAT TIGTA FOUND
The LB&I Division has represented for several years that it is moving toward issued-focused examinations and has committed substantial resources to this effort. For example, it has dedicated significant amounts of technical expertise toward “knowledge management,” which seeks to maintain a source of standing knowledge of the most important compliance issues. However, the LB&I Division does not know at a corporate level the results of its own compliance efforts, so it cannot use compliance results to inform and improve its issue-focused strategy.
The inability to generate accurate compliance results by issue is due in part to systemic limitations and in part to human error and a lack of emphasis by management to address those errors. LB&I Division’s case management system, the Issue Management System, which revenue agents use to enter proposed adjustments, maintains a list of codes for tax issues and sub‑issues under which proposed adjustments can be entered. However, many of these codes are too general to provide useful information. Additionally, revenue agents do not always use the codes accurately when inputting issues into the Issue Management System, so reports that are created can be unreliable.
Moreover, the LB&I Division did not follow its internal procedures to ensure that the planning for its “Future State” initiative followed a standardized framework for process improvement initiatives. As it moves to a more issue-focused examination strategy, the LB&I Division should improve the accuracy of its current system for recording issues found in examinations and also ensure that the planning and implementation of its Future State initiative follows established procedures.
WHAT TIGTA RECOMMENDED
TIGTA recommended that the Commissioner, LB&I Division, should 1) ensure that the LB&I Division considers past compliance results by issue in order to inform its issue-based strategy; 2) develop and implement plans to improve the method used by examiners to enter issues in the Issue Management System; and 3) ensure that planning for the Future State initiative follows published guidance.
In their response, IRS management agreed with TIGTA’s recommendations and plans to implement corrective actions.
READ THE FULL REPORT
To view the report, including the scope, methodology, and full IRS response, go to:
Phone Number / 202-622-6500
E-mail Address / TIGTACommunications@tigta.treas.gov
Website / https://www.treasury.gov/tigta