TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

Office of Audit

Highlights

IMPROVEMENTS ARE NEEDED TO CORRECT CONTINUED DEFICIENCIES IN THE PROCESSING OF TAXPAYER REFERRALS OF SUSPECTED TAX FRAUD

Final Report issued on May 23, 2019

Highlights of Reference Number:  2019-40-040 to the Commissioner of Internal Revenue.

IMPACT ON TAXPAYERS

Individuals and businesses use Form 3949-A, Information Referral, to report alleged violations of tax law to the IRS.  In Fiscal Years 2016 through 2018, the IRS assessed taxes totaling $246,996,731 based on these referrals from the public.  The referrals provide the IRS with leads to identify individuals and businesses that are committing tax fraud.

WHY TIGTA DID THE AUDIT

This audit was initiated to evaluate the accuracy of the IRS’s intake processing of Forms 3949-A.

WHAT TIGTA FOUND

Although IRS management acknowledges the importance of the Information Referral program and agreed to take corrective actions in response to prior TIGTA and Government Accountability Office reviews, TIGTA found that IRS delays in implementing an online referral application resulted in wasted resources, and employees continue to erroneously process Forms 3949-A.  TIGTA first recommended that the IRS study the feasibility of implementing an online referral application more than six years ago because it would reduce both taxpayer burden and referral processing costs.  However, the IRS has yet to develop and offer taxpayers this capability.

TIGTA identified that improvements are needed to ensure that taxpayers can easily obtain information on how to report suspected tax fraud activity.  For example, on the IRS’s public website, key search words that the IRS intended to generate the “How Do You Report Suspected Tax Fraud Activity?” web page do not bring up this web page in the search results.

The IRS does not accurately account for and track information referrals.  Our review of four weekly Form 3949‑A Inventory Reports prepared by employees identified significant discrepancies between the number of referrals recorded in the inventory and the number routed to IRS functions for review.  In addition, our review of a sample of 31 Forms 3949-A sent for destruction from October 2017 to February 2018 identified 23 (74.2 percent) valid forms that employees should have routed to an IRS function for review.

Procedures do not ensure that information referrals written in languages other than English are sent to the appropriate IRS office for screening.  Our review of e-mails documenting the forwarding of 388 Forms 3949-A to the Linguistic Policy, Tools, and Services Section for translation from May through August 2018 identified that many of these referrals were either not sent to the Linguistic Services or that office did not receive them.

Finally, employees continue to erroneously route a significant number of Forms 3949-A to the wrong IRS function for review.

WHAT TIGTA RECOMMENDED

TIGTA recommended that the IRS 1) develop guidelines to ensure that employees accurately account for and track Forms 3949-A, 2) issue guidance to employees to ensure that valid information referrals are not sent to retention, 3) develop procedures to ensure that all referrals prepared in a language other than English are timely sent to Linguistic Services, 4) develop procedures to track misrouted referrals, and 5) establish procedures to ensure that IRS functions coordinate to update the Information Referral Routing Guide.

IRS management agreed with all the recommendations and plans to take the appropriate corrective actions to develop and update procedures.

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/201940040fr.pdf.

 

Phone Number   /  202-622-6500

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

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