TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

Office of Audit

Highlights

INITIAL COMPLIANCE RESULTS WARRANT A MORE DATA‑DRIVEN
APPROACH TO CAMPAIGN ISSUE SELECTION

Final Report issued on September 27, 2019

Highlights of Reference Number:† 2019-30-066 to the Commissioner of Internal Revenue.

IMPACT ON TAXPAYERS

The Large Business and International (LB&I) Division traditionally organized itself around business industries, a structure which came about in response to the IRS Restructuring and Reform Act of 1998.† Since at least 2010, the LB&I Divisionís leadership expressed the intent to shift its focus towards examining issues that will have the broadest impact on tax compliance.† In 2017, the LB&I Division announced a new approach at addressing specific compliance issues referred to as ďcampaigns.Ē

WHY TIGTA DID THE AUDIT

Historically, the LB&I Division has used a variety of methods to identify tax returns for audit consideration, and upon selection, the taxpayerís tax return would be subject to audit.† However, the new campaign approach involves selecting returns by issue and focusing on that issue in the examination process.† TIGTA performed this review to assess the LB&I Divisionís methodology for the identification and selection of campaigns.

WHAT TIGTA FOUND

In January 2017, the LB&I Division announced the first 13 issue-based compliance campaigns.† As of April 2019, a total of 53 campaigns have been announced.† The campaign program was a change to the LB&I Divisionís overall workload selection process and is a new strategy in how it plans to identify, select, and examine strategic compliance issues.

The LB&I Division initially set expectations that campaigns would significantly overtake traditional inventory selection methods.† As of September 2018, only 6 percent of inventory had been generated by campaigns, with this percentage climbing to 15 percent by February 2019.

Initial campaigns were not focused on the most significant compliance issues facing the IRS.† Some issues were selected from employee suggestions.† Other issues were chosen because there was a compliance plan developed with training already in place or an existing base of institutional knowledge available.† TIGTA found that issues for campaigns were not selected or prioritized based on past compliance results or potential impact on compliance.† While it is early to assess the overall results of campaigns, the limited results available suggest that the LB&I Divisionís limited resources would be better utilized working issues selected based on compliance risk.

WHAT TIGTA RECOMMENDED

TIGTA recommended that the Commissioner, LB&I Division:† 1) consider a formal process for using past compliance results and potential impact on compliance to strengthen and supplement the process of selecting and prioritizing issues for campaigns, and 2) as recommendations for improvement from the LB&I Divisionís Campaign Assessment Team are implemented, ensure that actionable metrics and measures, including compliance results and the impact on compliance, are incorporated and timely acted upon to ensure that the most productive inventory is provided to the LB&I Divisionís resources.

The IRS agreed with our recommendations, stating that it plans to:† 1) continue the use of documented processes for utilizing past compliance results and potential impact on compliance in selecting and prioritizing issues for campaigns, and 2) continue to document real‑time campaign results and ensure that actionable metrics and measures are incorporated.† TIGTA believes the IRS needs to give more consideration to strengthening and supplementing its processes for identifying and prioritizing potential campaign issues before they are routed to the Practice Areas.

 

READ THE FULL REPORT

To view the report, including the scope, methodology, and full IRS response, go to:

https://www.treasury.gov/tigta/auditreports/2019reports/201930066fr.pdf.

 

Phone Number ††/† 202-622-6500

E-mail Address †/TIGTACommunications@tigta.treas.gov

Website†††††† ††††††/https://www.treasury.gov/tigta