Office of Audit
MEASURES ARE NEEDED TO EVALUATE THE RESULTS OF
DIRECT PAY BOND PROCESSING CHANGES
Final Report issued on June 24, 2020
Highlights of Reference Number: 2020-10-032 to the Commissioner of Internal Revenue.
IMPACT ON TAXPAYERS
The United States finances
two-thirds of all infrastructure projects through the issuance of municipal
bonds. The Federal Government subsidizes this type of borrowing through
tax-advantaged bonds, such as direct pay bonds. The IRS makes the subsidy payments, on behalf of the Federal Government, to either the issuer of the bond or a designated third party. These bonds were intended to help State and municipal governments obtain funding to pay interest on the debt for projects such as roads, schools, and hospitals, which benefit millions of taxpayers throughout the country.
WHY TIGTA DID THE AUDIT
The IRS’s Tax Exempt Bonds office processed an average of $5 billion in direct pay bond subsidy payment requests in Tax Years 2013 through 2018. In Fiscal Year (FY) 2016, the IRS implemented processing changes intended to streamline and standardize how subsidy payment requests are processed and paid to bond issuers. This audit was initiated to assess whether the IRS developed and implemented controls to accurately and timely pay direct pay bond subsidy payment requests.
WHAT TIGTA FOUND
TIGTA reviewed a sample of 117 of the 10,619 subsidy payment requests processed during FY 2017 and determined that payments made after the processing changes were timely and accurate.
The IRS estimated the new direct pay bond processing changes would save approximately 163 minutes of total processing time per payment subsidy request, which is a 40 percent reduction. However, the Tax Exempt Bonds office lacks performance measures to assess its progress in achieving these expected savings. Without such measures and data, decision makers cannot fully determine whether additional changes are warranted.
Processing changes limited the ability of IRS employees to make corrections to customer payment requests that contained simple filing mistakes, like entering information on the wrong line of the form. As a result, the IRS rejected more payment requests; however, management was not tracking the number of rejected payments or the related correspondence needed to correct these types of errors. In addition, the IRS can make other procedural improvements to ensure that payment requests are valid.
Since FY 2010, the IRS has annually made an average of more than $460,000 in interest payments resulting from the late processing of subsidy payment requests. However, the IRS did not regularly track interest payments until August 2018 and had not taken actions to identify the causes for the interest payments or taken any corrective actions.
WHAT TIGTA RECOMMENDED
TIGTA recommended that the Commissioner, Tax Exempt/Government Entities Division, develop performance measures that track the effectiveness of subsidy payment request processing, including interest payments, and determine if adjustments should be made to the subsidy payment request process.
In their response, IRS management partially agreed with the first recommendation and agreed with the second recommendation. Management plans to take 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