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2012 Individual Income Tax Returns Complete Report (Publication 1304) Now Available

September 16, 2014 Comments off

2012 Individual Income Tax Returns Complete Report (Publication 1304) Now Available
Source: Internal Revenue Service

The Internal Revenue Service today announced the availability of Statistics of Income—2012, Individual Income Tax Returns Complete Report (Publication 1304). U.S. taxpayers filed 144.9 million individual income tax returns for tax year 2012, down 0.3 percent from 2011. The adjusted gross income less deficit reported on these returns totaled $9.1 trillion, which is an 8.7-percent increase from the prior year.

The report is based on a sample drawn from the 144.9 million individual income tax returns filed for tax year 2012 and provides estimates on sources of income, adjusted gross income, exemptions, deductions, taxable income, income tax, modified income tax, tax credits, self-employment tax, and tax payments.

Classifications include tax status, size of adjusted gross income, marital status, age, and type of tax computation. A brief text reviews the requirements for filing tax returns, explains the changes in tax law, and describes the sample used to produce the report.

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TIGTA — Some Contractor Personnel Without Background Investigations Had Access to Taxpayer Data and Other Sensitive Information

September 3, 2014 Comments off

Some Contractor Personnel Without Background Investigations Had Access to Taxpayer Data and Other Sensitive Information
Source: Treasury Inspector General for Tax Administration

IMPACT ON TAXPAYERS
IRS policy requires contractor personnel to have a background investigation if they will have or require access to Sensitive But Unclassified (SBU) information, including taxpayer information. Allowing contractor personnel access to taxpayer and other SBU information without the appropriate background investigation exposes taxpayers to increased risk of fraud and identity theft.

WHY TIGTA DID THE AUDIT
The overall objective of this review was to determine the effectiveness of IRS controls to ensure that background investigations were conducted for contractor personnel who had access to SBU information.

WHAT TIGTA FOUND
Taxpayer and other SBU information may be at risk due to a lack of background investigation requirements in five contracts for courier, printing, document recovery, and sign language interpreter services. For example, in one printing services contract, the IRS provided the contractor a compact disk containing 1.4 million taxpayer names, addresses, and Social Security Numbers; however, none of the contractor personnel who worked on this contract were subject to a background investigation.

In addition, TIGTA found 12 contracts for which IRS program and procurement office staff correctly determined that contractor personnel required background investigations because they would have access to SBU information; however, some contractor personnel did not have interim access approval or final background investigations before they began working on the contracts.

Further, TIGTA identified 20 contracts for which either some or all contractor personnel did not sign nondisclosure agreements. In June 2013, after the period covered by our audit, the IRS issued more explicit guidance requiring the execution of nondisclosure agreements.

WHAT TIGTA RECOMMENDED
TIGTA recommended that the Deputy Commissioner for Operations Support should ensure that the types of service contracts identified in this review have the appropriate security provisions included in the contract and that associated contractor personnel have an appropriate interim access approval or final background investigation prior to beginning work on the contract. In addition, the IRS should use the results of our contract reviews to train program office and procurement office staff on contractor security requirements and the necessity for contractor personnel to sign nondisclosure agreements prior to working on a contract. Finally, TIGTA recommended that the Office of Chief Counsel (Chief Counsel) work with the Department of the Treasury Security Office to review the waiver currently in place that exempts expert witnesses from background investigations and determine if the waiver is still appropriate in the current security environment.

The IRS agreed with four of the five recommendations. The IRS disagreed with our recommendation that the Chief Counsel should work with the Department of the Treasury Security Office to review the background investigation waiver issued in August 2005 to determine if the waiver is still appropriate. TIGTA believes that waiving the requirement for a background investigation presents a security risk.

IRS — Fiscal Year 2014 Review of Compliance With Legal Guidelines When Conducting Seizures of Taxpayers’ Property

August 11, 2014 Comments off

Fiscal Year 2014 Review of Compliance With Legal Guidelines When Conducting Seizures of Taxpayers’ Property
Source: Treasury Inspector General for Tax Administration

IMPACT ON TAXPAYERS

Taking a taxpayer’s property for unpaid tax is commonly referred to as a “seizure.” To ensure that taxpayers’ rights are protected, the IRS Restructuring and Reform Act of 1998 amended the seizure provisions in Internal Revenue Code (I.R.C.) Sections (§§) 6330 through 6344. These provisions govern many aspects of the seizure process from notification of the taxpayer through sale or redemption of the property.

WHY TIGTA DID THE AUDIT

TIGTA is required under I.R.C. § 7803(d)(1)(A)(iv) to annually evaluate the IRS’s compliance with the legal seizure provisions to ensure that taxpayers’ rights were not violated while seizures were being conducted. The overall objective of this review was to determine whether seizures conducted by the IRS complied with legal provisions set forth in I.R.C. §§ 6330 through 6344 and with the IRS’s own internal procedures.

WHAT TIGTA FOUND

TIGTA reviewed a random sample of 50 of the 580 seizures conducted from July 1, 2012, through June 30, 2013, to determine whether the IRS complied with legal and internal guidelines when conducting each seizure.

In the majority of the seizures reviewed, the IRS followed all guidelines. However, in 14 seizures, TIGTA identified 19 instances in which the IRS did not comply with a particular I.R.C. requirement. Specifically, TIGTA found that:

· The sale of the seized property was not properly advertised. (I.R.C. § 6335(b))

· The balance-due letter sent to the taxpayer after sale proceeds were applied to the taxpayer’s account did not show the correct remaining balance. (I.R.C. § 6340(c))

· The amount of the liability for which the seizure was made was not correct on the notice of seizure provided to the taxpayer. (I.R.C. § 6335(a))

· The notice of the intent to levy and the notice of the right to a hearing before the levy was not provided for each tax period listed on Form 668-B, Levy. (I.R.C. §§ 6330(a) and 6331(d))

When legal and internal guidelines are not followed, it could result in the abuse of taxpayers’ rights. However, in the instances above, we did not identify any in which the taxpayers were adversely affected.

In addition, internal procedures do not require the IRS to retain a copy of all seizure sale advertisements, which would help them verify that their actions conformed with statutes, regulations, and Internal Revenue Manual procedural guidelines.

WHAT TIGTA RECOMMENDED

TIGTA recommended that the Director, Collection Policy, Small Business/Self-Employed Division, include an instruction in the Internal Revenue Manual that requires the Property Appraisal and Liquidation Specialist to retain a file copy of all print advertisements, a copy of any Internet advertisements and mail-in bid forms, and a text copy of information provided in any radio and television advertisements of seizure sales.

In their response to the report, IRS officials agreed with the recommendation and plan to take appropriate corrective action.

TIGTA — Processes to Determine Optimal Face-to-Face Taxpayer Services, Locations, and Virtual Services Have Not Been Established

August 2, 2014 Comments off

Processes to Determine Optimal Face-to-Face Taxpayer Services, Locations, and Virtual Services Have Not Been Established
Source: Treasury Inspector General for Tax Administration

IMPACT ON TAXPAYERS
The IRS provides taxpayers with face-to-face tax assistance at 386 Taxpayer Assistance Centers. The taxpayers most likely to visit Taxpayer Assistance Centers include low-income, elderly, and limited-English-proficient taxpayers who seek assistance in complying with the tax laws. Evaluating the burden and impact that service cuts at Taxpayer Assistance Centers could have before taking action is important because many taxpayers rely on these Centers to help them understand and meet their tax obligations.

WHY TIGTA DID THE AUDIT
The IRS faces many challenges in providing services to taxpayers in its Taxpayer Assistance Centers. One of its most significant challenges is meeting demand for those services with a reduced budget and staffing. This audit was initiated to assess the IRS’s ability to provide effective and efficient service to taxpayers through its Taxpayer Assistance Center Program.

WHAT TIGTA FOUND
As part of its Fiscal Year 2014 Service Approach, the IRS eliminated or reduced tax return preparation, tax law assistance, refund inquiries, and transcript request services. However, prior to developing this plan, the IRS did not evaluate the burden each service change will have on taxpayers who visit Taxpayer Assistance Centers.

In addition, the IRS has not established processes to identify optimal locations to provide face-to-face services or to identify underserved areas that would benefit from virtual service (through computer video). Moreover, the data provided to management for use in assessing potential site closures are based on incomplete information.

The IRS has not adequately addressed two recommendations from previous TIGTA reports. It has not developed sufficient measures and goals for Facilitated Self-Assistance in the Taxpayer Assistance Centers. In addition, controls to ensure that data are entered accurately into management information systems and reviewed were not implemented until after our review.

WHAT TIGTA RECOMMENDED
TIGTA recommended that the IRS ensure compliance with its procedures which require service-related decisions be based on informed research; develop steps to be taken to collect data to monitor, measure, and adjust service changes; complete efforts to obtain data on the services that are most important to taxpayers; establish a methodology to identify the optimal locations for providing face-to-face assistance to the most taxpayers; develop and implement documentation requirements to support data analyses; establish a process to identify the best locations for virtual face-to-face services; and quantify the cost savings and benefits related to Virtual Service Delivery.

The IRS agreed with or indicated completion of four recommendations and disagreed with three recommendations. For certain corrective actions that the IRS proposed or stated were already implemented, TIGTA believes the actions are insufficient. The lack of sufficient corrective action could, in turn, increase the burden on taxpayers who seek face-to-face assistance at the Taxpayer Assistance Centers such as low-income, elderly, and limited-English-proficient taxpayers. The IRS did not gather the necessary data and perform the required analysis to reduce the impact of service eliminations and reductions on these taxpayers.

TIGTA Report: IRS Should Modernize Process of Filing Amended Tax Returns

July 11, 2014 Comments off

TIGTA Report: IRS Should Modernize Process of Filing Amended Tax Returns
Source: Treasury Inspector General for Tax Administration

The Internal Revenue Service (IRS) should revise Form 1040, U.S. Individual Income Tax Return, to allow for corrections to original tax return filings and expand e-filing to include amended tax returns, according to a new report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA).

Taxpayers currently file Form 1040X, Amended U.S. Individual Income Tax Return, to correct previously filed income tax returns. Claims filed on an amended tax return can relate to any item of income, loss, exclusion, deduction, or credit and may result in a tax refund. The IRS received more than four million amended tax returns in Fiscal Year (FY) 2012.

This audit was initiated because previous TIGTA audits have identified problems with IRS processes for verifying claims on amended tax returns. The objective of this review was to determine whether the IRS has controls in place to ensure that claims for refunds on amended tax returns are appropriate.

TIGTA found that the IRS could reduce erroneous refunds, processing costs, and taxpayer burden by revising the Form 1040, U.S. Individual Income Tax Return, to allow for corrections to original tax return filings and expand e-filing to include amended tax returns. TIGTA’s review of a statistical sample of 259 amended tax returns claiming tax refunds of $500 or more in FY 2012 identified 44 (17 percent) tax returns for which the IRS issued potentially erroneous tax refunds totaling $103,270.

Based on the sample results, TIGTA estimates the IRS may have issued more than $439 million in potentially erroneous tax refunds claimed on 187,421 amended tax returns during FY 2012. As such, the IRS could issue more than $2.1 billion in potentially erroneous tax refunds claimed on amended tax returns over the next five years.

In addition, TIGTA estimates that allowing taxpayers to amend their tax return by e-filing a modified Form 1040 could have potentially saved more than $17 million in processing costs during Fiscal Year 2012.

New From the GAO

July 7, 2014 Comments off

New GAO Reports
Source: Government Accountability Office

1. Pension Advance Transactions: Questionable Business Practices Identified. GAO-14-420, June 4.
http://www.gao.gov/products/GAO-14-420
Highlights – http://www.gao.gov/assets/670/663799.pdf

2. Private Pensions: Targeted Revisions Could Improve Usefulness of Form 5500 Information. GAO-14-441, June 5.
http://www.gao.gov/products/GAO-14-441
Highlights – http://www.gao.gov/assets/670/663854.pdf

3. IRS Correspondence Audits: Better Management Could Improve Tax Compliance and Reduce Taxpayer Burden. GAO-14-479, June 5.
http://www.gao.gov/products/GAO-14-479
Highlights – http://www.gao.gov/assets/670/663839.pdf

TIGTA — The Taxpayer Advocate Service Can Improve the Processing of Systemic Burden Cases

July 6, 2014 Comments off

The Taxpayer Advocate Service Can Improve the Processing of Systemic Burden Cases
Source: Treasury Inspector General for Tax Administration

IMPACT ON TAXPAYERS
Congress established the office of the National Taxpayer Advocate to assist taxpayers who experience difficulties resolving their tax problems with the IRS or receiving timely and appropriate responses to their inquiries. Many of these taxpayer issues fall under the category of systemic burden which involves instances in which an IRS process, system, or procedure has not operated as intended. It is important that the Taxpayer Advocate Service (TAS) effectively and efficiently assists taxpayers with systemic burden cases to ensure that taxpayers are not further harmed by problems with IRS processes.

WHY TIGTA DID THE AUDIT
This audit was initiated because TAS responses to systemic burden cases affect more than 85,000 taxpayers each year. TIGTA’s overall objective was to determine whether the TAS has an effective system to process taxpayer requests for relief due to systemic burden.

WHAT TIGTA FOUND
The TAS properly exercised its authorities when taking account-related actions to assist taxpayers. For example, TAS personnel can input a change of address to a taxpayer account, but the TAS does not have the authority to accept or deny requests for penalty abatements.

However, TIGTA’s review of the TAS’s handling of a statistical sample of cases found several areas where taxpayer service could be improved. Specifically, TIGTA identified in more than one-half of the cases that TAS personnel bypassed taxpayers’ authorized representatives, made unauthorized disclosures to third parties, or made numerous processing errors.

To help keep its workload manageable, the TAS has policies in place as to which types of cases it will accept and which it will refer to other IRS functions. However, the TAS often accepted cases that its policies noted should have been referred to other IRS functions. Accepting these cases increases the TAS’s workload; nonetheless, it is within the TAS’s discretion.

TIGTA identified unreliable data that was captured on the Taxpayer Advocate Management Information System, which could affect management decisions. In the 100 cases TIGTA statistically sampled, more than one-half had incorrect criteria, primary core issues, and/or relief codes.

WHAT TIGTA RECOMMENDED
TIGTA recommended that the National Taxpayer Advocate reissue guidance to TAS personnel explaining the requirement to contact only authorized representatives; review the three potential unauthorized disclosures of tax return information; provide training regarding their systemic burden case acceptance criteria; and reinforce the importance of ensuring that all actions taken on cases are correct and accurate.

In its response, the TAS agreed with seven of the eight recommendations and plans to take corrective actions. For the disagreed recommendation, TIGTA continues to believe that the TAS would benefit from tracking cases that were accepted using TAS’s discretion.

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