Treasury Inspector General for Tax Administration
December 5, 2013
TIGTA - 2013-57
Contact: David Barnes
WASHINGTON – The Internal Revenue Service (IRS) has taken steps to improve management controls for an information technology system that will help it implement the Foreign Account Tax Compliance Act (FATCA) to improve U.S. tax compliance involving foreign financial assets and offshore accounts. However, additional improvements are needed to strengthen system development controls for the new international information technology system, including the Foreign Financial Institution Registration System.
That is the principal conclusion of a report released publicly today by the Treasury Inspector General for Tax Administration (TIGTA).
The development of the Foreign Financial Institution Registration System is underway to enable the IRS to meet its goals and requirements established by the FATCA. The expected benefits of this information technology project include the ability to: 1) effectively register Foreign Financial Institutions; 2) increase annual enforcement revenue; and 3) support the IRS’s new overall information reporting system for the FATCA. The successful development, deployment, and implementation of the Foreign Financial Institution Registration System should significantly improve taxpayer compliance internationally and thus enhance IRS tax administration.
The overall objective of TIGTA’s review was to determine whether the IRS’s systems development approach for the Foreign Financial Institution Registration System is mitigating risks through the application of information technology management controls aimed at successful development and delivery of requirements and capabilities in support of FATCA requirements, milestones, and goals. Specifically, TIGTA evaluated the IRS’s established management controls and processes over information technology program management, security control processes, testing documentation, requirements management, and fraud prevention controls.
The IRS is developing the Foreign Financial Institution Registration System within its new Enterprise Life Cycle Iterative Path systems development and testing process. The initial system release was substantially developed and nearing deployment when the IRS terminated the effort in November 2012. Following new Department of the Treasury regulations, changes with Intergovernmental Agreements, and new processes needed to implement the FATCA, the IRS was unable to fully utilize the initial system. Subsequently, the IRS modified and expanded the scope of the system requirements. The major redesign and initiation of a new development effort was necessary because the IRS did not sufficiently develop requirements for the initial Foreign Financial Institution Registration System as needed for new system development.
“The Foreign Account Tax Compliance Act can effectively improve U.S. tax administration involving offshore accounts by utilizing FATCA computer applications that are developed and implemented in a timely and effective manner. Improved system development, management controls, and testing are needed to ensure the system works as intended to improve tax compliance,” said J. Russell George, Treasury Inspector General for Tax Administration.
TIGTA made six recommendations to the IRS for improved system development, documentation, management, and testing. In its written response to the report, the IRS agreed with all six recommendations. However, TIGTA believes that the action plans provided by the IRS for two of the recommendations were not fully responsive.
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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