Archive

Archive for the ‘Treasury Inspector General for Tax Administration’ Category

Some Tax-Exempt Organizations Have Substantial Delinquent Payroll Taxes

September 2, 2014 Comments off

Some Tax-Exempt Organizations Have Substantial Delinquent Payroll Taxes
Source: Treasury Inspector General for Tax Administration

IMPACT ON TAXPAYERS
While tax‑exempt organizations are generally not required to pay income taxes, they are generally required to pay other taxes such as payroll taxes. If tax-exempt organizations do not pay their taxes and thereby abuse the Federal tax system, the Federal Government could lose millions of dollars in revenue.

WHY TIGTA DID THE AUDIT
The overall objectives of this review were to determine if, and to what extent, tax‑exempt organizations have known Federal tax debt and to identify actions the Exempt Organizations function has taken to address this noncompliance.

WHAT TIGTA FOUND
IRS records indicate that the majority of tax‑exempt organizations pay their Federal taxes. However, a small percentage are not paying their taxes. TIGTA determined that more than 64,200 (3.8 percent) tax‑exempt organizations had nearly $875 million of Federal tax debt as of June 16, 2012. While some organizations owed minor amounts, approximately 1,200 tax exempt organizations owed more than $100,000 each. Unpaid taxes were often associated with multiple tax periods. For example, nine organizations each had Federal tax debt spanning 10 or more years that collectively totaled more than $5.5 million.

TIGTA reviewed 25 tax‑exempt organizations – all Internal Revenue Code § 501(c)(3) – that appeared to be among the worst examples involving unpaid Federal tax but are not representative of the population of all tax‑exempt organizations with unpaid tax. TIGTA determined that these organizations generally received government payments over a three‑year period of $148 million, including Medicare, Medicaid, and government grants; had annual revenue of almost $167 million; and owned assets of more than $97 million—but continued to not remit payroll and other taxes, including penalties and interest, totaling more than $25 million. The Internal Revenue Code does not authorize the IRS to revoke tax‑exempt status based on an organization’s failure to pay payroll taxes, and substantially all of the organizations that TIGTA reviewed were still recognized by the IRS as tax‑exempt as of May 2013. The Exempt Organizations function had completed several examinations but was generally not aware of the behavior of the organizations because another IRS business unit is responsible for collecting the delinquent tax debt.

WHAT TIGTA RECOMMENDED
TIGTA recommended that the Director, Exempt Organizations: 1) coordinate with Small Business/ Self‑Employed Division management to receive relevant collection information, 2) periodically complete analyses to identify tax‑exempt organizations that potentially abuse their tax‑exempt status for examination (if necessary), and 3) work with the Department of the Treasury to evaluate whether a legislative proposal is warranted to strengthen the IRS’s ability to enforce payroll tax noncompliance by tax‑exempt organizations.

In their response to the report, IRS management disagreed with the first two recommendations and agreed to apprise the Department of the Treasury of our third recommendation. TIGTA believes that the Exempt Organizations function should do more to oversee tax‑exempt organizations that repeatedly fail to remit payroll taxes, which include Medicare, Social Security, and Federal income taxes withheld from employees. This is particularly important because these organizations have the benefit of charitable status, and the Government has paid them millions of dollars of Medicare and Medicaid funds.

About these ads

Affordable Care Act: Improvements Needed to IRS’s Medical Device Excise Tax Program

August 28, 2014 Comments off

Affordable Care Act: Improvements Needed to IRS’s Medical Device Excise Tax Program
Source: Treasury Inspector General for Tax Administration

The Internal Revenue Service (IRS) needs to improve its strategy to ensure accurate reporting and payment of the Medical Device Excise Tax, according to a new report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA).

The Affordable Care Act includes an excise tax equal to 2.3 percent of the sales price for medical devices sold beginning January 1, 2013. Manufacturers, producers, and importers are responsible for collecting the excise tax and must file a Form 720, Quarterly Federal Excise Tax Return. The Joint Committee on Taxation estimated revenues from the medical device excise tax of $20 billion for Fiscal Years 2013 through 2019.

The overall objective of TIGTA’s review was to assess the IRS’s processing of tax returns reporting the medical device excise tax and its efforts to identify taxpayer noncompliance.

TIGTA found that both the number of Forms 720 filed reporting the medical device excise tax and the amount of associated revenue reported were lower than estimated.

The IRS is attempting to develop a compliance strategy to ensure that businesses are compliant with the filing and payment requirements and has taken several measures to advise medical device manufacturers of the new excise tax. However, the IRS cannot identify the population of medical device manufacturers registered with the Food and Drug Administration that are required to file a Form 720 and pay the excise tax.

In addition, processing controls do not ensure the accuracy of medical device excise tax figures reported on paper-filed Forms 720. TIGTA’s analysis of 5,107 Forms 720 processed for the first half of 2013 identified discrepancies in the amount of the excise tax and/or taxable sales amount captured from 276 paper-filed tax returns. TIGTA identified medical device excise tax discrepancies totaling almost $117.8 million when comparing the excise tax amount captured by the IRS from the Form 720 to the excise tax amount that TIGTA calculated.

Finally, the IRS erroneously assessed 219 failure-to-deposit penalties totaling $706,753 against businesses filing a Form 720 for the six months ending June 30, 2013, which was designated a penalty relief period. The IRS had reversed 133 of the 219 penalty assessments. When TIGTA alerted the IRS of the remaining 86 penalties, IRS management reversed the penalties and issued apology letters to the affected taxpayers.

“While the IRS has taken steps to educate medical device manufacturers of the medical device excise tax during implementation, it faces challenges to definitively identify manufacturers subject to the medical device excise tax reporting and payment requirements,” said J. Russell George, Treasury Inspector General for Tax Administration.

TIGTA recommended that the IRS continue refining its compliance strategy to include actions that can be taken to identify noncompliant manufacturers. Additionally, TIGTA recommended that the IRS review the 276 tax returns TIGTA identified to determine the proper excise tax owed, establish a process to verify the accuracy of the medical device excise tax amount for paper-filed Forms 720, and initiate a process to correspond with taxpayers to obtain missing taxable sales or tax amounts.

The IRS agreed with TIGTA’s recommendations and plans to consider alternative strategies for identifying noncompliant manufacturers, identify programming changes needed to improve the math verification for paper-filed Forms 720, and implement procedures for corresponding with taxpayers if the changes can be accomplished within budgetary constraints. The IRS also indicated that approximately two-thirds of the paper-filed tax returns TIGTA identified were reviewed.

TIGTA Issues Report on the IRS’s External Leads Program

August 28, 2014 Comments off

TIGTA Issues Report on the IRS’s External Leads Program
Source: Treasury Inspector General For Tax Administration

Participation in the Internal Revenue Service (IRS) External Leads Program is growing, resulting in the receipt of a significantly larger volume of leads about questionable tax refunds, but the IRS is not always verifying the leads timely, according to a new report by the Treasury Inspector General for Tax Administration (TIGTA).

The IRS’s External Leads Program receives leads about questionable tax refunds identified by a variety of partner organizations that include financial institutions, brokerage firms, government and law enforcement agencies, State agencies and tax preparers. The questionable tax refunds include Treasury checks, direct deposits, and prepaid debit cards.

The overall objective of this review was to assess the effectiveness of the IRS’s External Leads Program in recovering questionable tax refunds.

Since taking over the External Leads Program in January 2010, the IRS’s Wage and Investment Division has performed outreach in an effort to continuously increase the number of organizations participating in this program, TIGTA found. Participation and the number of questionable refunds returned and dollars associated have grown significantly. The IRS measures the External Leads Program’s success by volume and dollars associated with questionable returned refunds.

The program has grown from 10 partner financial institutions returning $233 million in 2010 to 258 partner financial institutions and partner organizations returning more than $576 million in 2013.

“The IRS’s External Leads Program has more than doubled the amount of questionable refunds returned over the past three years, thus saving tax dollars,” said J. Russell George, Treasury Inspector General for Tax Administration. “However, opportunities exist to improve the program,” George added.

According to the report, the IRS is not always verifying leads timely, and verification time frame goals differ significantly based on the lead type. The timely verification goals do not take into consideration the burden on legitimate taxpayers whose refund is being held until the verification is completed.

In addition, leads are inconsistently tracked in multiple inventory systems, and the inventory systems do not provide key information such as how the lead was resolved.

TIGTA recommended that the IRS establish more consistent time frames to verify leads; communicate these verification time frames to external partners; develop a process to ensure that leads are verified timely; consolidate the current lead inventory tracking systems into a single tracking system; and ensure that key information is captured as to how each lead is resolved.

The IRS agreed with TIGTA’s recommendations and is evaluating the treatment streams and work processes associated with the various types of referrals received in the External Leads Program to identify appropriate time frames; working to improve the effectiveness of existing reporting capabilities in evaluating program quality and timeliness; and evaluating the feasibility and potential benefits of consolidating the independent inventory tracking databases into one system.

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 Issues Report On Accuracy Of Information And Family Size Verification Requests (ACA)

August 5, 2014 Comments off

TIGTA Issues Report On Accuracy Of Information And Family Size Verification Requests
Source: Treasury Inspector General for Tax Administration

The Internal Revenue Service (IRS) is generally providing accurate income and family size information to Health Insurance Exchanges for use in determining eligibility of individuals for health insurance and the Advance Premium Tax Credit, according to a new report from the Treasury Inspector General for Tax Administration (TIGTA).

Beginning Jan. 1, 2014, most individuals must obtain health insurance that meets minimum requirements. Health Insurance Exchanges are intended to provide a place for Americans to shop for health insurance. Qualified individuals may request the Premium Tax Credit to assist with paying for health insurance. The credit may be paid directly to individual’s health insurance provider as a partial payment for their monthly premiums. This is known as the Advance Premium Tax Credit (APTC).

This audit was initiated to ensure that the IRS is providing accurate information to the Exchanges to assist in determining an individual’s eligibility to use the Exchange and receive the APTC.

“In nearly all instances, the IRS correctly provided accurate information to the Health Exchanges on income and family sizes,” said J. Russell George, Treasury Inspector General for Tax Administration. “Accurate information is essential for an Exchange to determine if an applicant is eligible to obtain insurance coverage through the Exchange.”

TIGTA’s review of the IRS’s response to 101,018 Income and Family Size Verification information requests between Oct. 1 and Oct. 4, 2013 showed that the IRS, based on the information provided by the Exchange, provided accurate responses for 100,985 (99.7) percent of the 101,018 requests.

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 — Fiscal Year 2014 Statutory Review of Disclosure of IRS Collection Activity With Respect to Joint Returns

July 24, 2014 Comments off

Fiscal Year 2014 Statutory Review of Disclosure of Collection Activity With Respect to Joint Returns
Source: Treasury Inspector General for Tax Administration

Highlights of Reference Number: 2014-30-046 to the Internal Revenue Service Commissioners for the Small Business/Self-Employed and Wage and Investment Divisions.

IMPACT ON TAXPAYERS
Internal Revenue Code (I.R.C.) Section (§) 6103(e)(8) gives joint filer taxpayers who are no longer married or no longer reside in the same household the right to request information regarding the IRS’s efforts to collect delinquent taxes on their joint tax return liabilities. If the IRS does not provide employees sufficient guidance for handling those requests, taxpayer rights could potentially be violated.

WHY TIGTA DID THE AUDIT
This audit was initiated because the IRS Restructuring and Reform Act of 1998 added I.R.C. § 7803(d)(1)(B), which requires TIGTA to annually review and certify the IRS’s compliance with I.R.C. § 6103(e)(8). The objective of this review was to determine whether the IRS is complying with the provisions of I.R.C. § 6103(e)(8) as related to the disclosure of collection activities with respect to joint filers.

WHAT TIGTA FOUND
IRS procedures provide employees with sufficient guidance for handling joint filer collection activity information requests. However, TIGTA could not determine whether the IRS fully complied with I.R.C. § 6103(e)(8) requirements when responding to written collection activity information requests from joint filers. IRS management information systems do not separately record or monitor joint filer requests, and there is no legal requirement for the IRS to do so. Further, TIGTA does not recommend the creation of a separate tracking system.

WHAT TIGTA RECOMMENDED
TIGTA made no recommendations in this report. IRS officials were provided an opportunity to review the draft report and did not provide any comments.

Follow

Get every new post delivered to your Inbox.

Join 901 other followers