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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.

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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.

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.

TIGTA — IRS in Compliance with Requirements for Donating, Recycling Unneeded Computers

June 18, 2014 Comments off

IRS in Compliance with Requirements for Donating, Recycling Unneeded Computers
Source: Treasury Inspector General for Tax Administration
From email:

The Internal Revenue Service (IRS) needs to improve its processes for disposing of unneeded computers, printers, and servers, according to a report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA).

TIGTA reviewed the accuracy of the disposal asset inventory and the IRS’s actions taken or planned to fulfill General Services Administration (GSA) requirements.

While the IRS is complying with GSA requirements to recycle or donate used information technology (IT) equipment, TIGTA found several areas for improvement. According to the report, the IRS needs to: improve documentation to ensure compliance with media sanitization guidelines; report any IT equipment that cannot be located to the Computer Security Incident Response Center as required; and improve documentation of disposal actions.

The IRS disposed of 63,031 desktop computers and 44,734 laptops between 2009 and 2012 through a combination of recycling and donating to schools. However, it does not effectively track which equipment is recycled or donated, making it difficult to measure compliance with GSA requirements.

TIGTA made eight recommendations to improve documentation of the removal of all data from IT equipment before it is donated and the equipment’s final destination, and the reporting of lost or stolen equipment. The IRS agreed with TIGTA’s recommendations and is taking actions to implement them.

TIGTA — Review of Fair Tax Collection Practices Violations During Fiscal Year 2013

June 10, 2014 Comments off

Review of Fair Tax Collection Practices Violations During Fiscal Year 2013 (PDF)
Source: Treasury Inspector General for Tax Administration

IMPACT ON TAXPAYERS
The abuse or harassment of taxpayers by IRS employees while attempting to collect taxes reflects poorly on the IRS and can have a negative impact on voluntary compliance. It is important that taxpayers receive fair and balanced treatment from IRS employees when attempting to collect taxes.

WHY TIGTA DID THE AUDIT
The overall objective of this review was to obtain information on any reported IRS administrative or civil actions resulting from violations of Fair Tax Collection Practices (FTCP) (Internal Revenue Code Section 6304) for cases opened after July 22, 1998, and closed during Fiscal Year 2013. This information will be used to comply with the IRS Restructuring and Reform Act of 1998 requirements that TIGTA include in one of its Semiannual Reports to Congress information regarding administrative or civil actions related to FTCP violations.

WHAT TIGTA FOUND
Two FTCP violations were identified for cases on the IRS Human Capital Officer Workforce Relations’ Automated Labor and Employee Relations Tracking System that were closed in Fiscal Year 2013. Both employees were revenue officers performing collection work, and each case involved the revenue officers contacting taxpayers directly, instead of contacting the taxpayer’s power of attorney, as required. The IRS took administrative action of at least admonishment against both employees.

In addition, no cases were identified that were miscoded as FTCP violations, or that should have been coded as potential FTCP violations but were not. Also, there were no civil actions resulting in monetary awards for damages to taxpayers because of an FTCP violation.

WHAT TIGTA RECOMMENDED
TIGTA made no recommendations in this report. However, key IRS management officials reviewed the report prior to issuance and agreed with the facts and conclusions presented.

TIGTA — Expansion of the Delinquent Return Refund Hold Program Could Improve Filing Compliance and Help Reduce the Tax Gap

June 5, 2014 Comments off

Expansion of the Delinquent Return Refund Hold Program Could Improve Filing Compliance and Help Reduce the Tax Gap
Source: Treasury Inspector General for Tax Administration

IMPACT ON TAXPAYERS
The IRS has the authority to delay issuing income tax refunds for up to six months while it investigates return delinquencies from other tax years. Holding refunds encourages taxpayers to take action and resolve their delinquent filing obligations earlier.

WHY TIGTA DID THE AUDIT
In Calendar Year 2012, the Delinquent Return Refund Hold Program collected nearly $242 million, which was applied to balances due on delinquent returns. This audit was initiated to determine the effectiveness of the Program as a tool to promote filing compliance.

WHAT TIGTA FOUND
For Calendar Years 2008 through 2012, the Program held an average of 156,422 refunds per year. During the same period, the Program secured an average of 64,222 returns from taxpayers per year and coordinated with the ASFR program to prepare and post an additional 117,895 substitute returns per year.

TIGTA reviewed two separate random samples of 30 taxpayer cases each in which a refund was held and the refund hold was either manually or systemically released. Results showed employees followed procedures when working cases and when refund holds were released.

TIGTA compared delinquent return data for a population of refund hold cases with a certain dollar amount above the threshold criteria to a population of cases with a certain dollar amount below the threshold criteria (i.e., refunds were not held for these cases). Analysis showed that 88 percent of delinquencies associated with the held refunds were subsequently resolved, compared with less than one percent of delinquencies associated with cases for which refunds were not held, thus indicating the value of this Program in improving filing compliance.

IRS management has considered expanding the Program by lowering the dollar threshold but has not because of limited resources. However, taxpayers who become compliant with their prior period filing requirements could remain compliant in future years and reduce the need for additional enforcement resources in subsequent filing seasons. TIGTA also identified other opportunities for expansion.

The IRS has not established performance measures to evaluate the Program’s primary goal of increasing taxpayer filing compliance. As a result, management does not have complete information about how well the Program is achieving its goal, or if it is an effective tool for improving taxpayer filing compliance over time.

WHAT TIGTA RECOMMENDED
TIGTA recommended that the IRS: 1) consider opportunities to expand the use of the Program as resources become available and 2) develop specific performance measures to compare actual results with management’s goal to improve filing compliance.

In response to the report, IRS management agreed with both recommendations. However, management did not commit to a specific corrective action plan to expand the Program and agreed only to explore the development of performance measures, with implementation dependent on the availability of resources.

TIGTA continues to believe that expansion of this Program is important as it represents an opportunity to increase both taxpayer filing compliance and revenue at a lower cost than traditional Collection programs. In addition, until specific performance measures are implemented, management will not have complete information about how well the Program is achieving its goals.

Significant Discrepancies Exist Between Alimony Deductions Claimed by Payers and Income Reported by Recipients

May 19, 2014 Comments off

Significant Discrepancies Exist Between Alimony Deductions Claimed by Payers and Income Reported by Recipients (PDF)
Source: Treasury Inspector General for Tax Administration
From email:

A report from the Treasury Inspector General for Tax Administration (TIGTA) publicly released today identifies a $2.3 billion gap between the amount of alimony deductions claimed by taxpayers in 2010 and corresponding income reported.

Individuals who pay alimony can deduct the amount paid from income on their tax return to reduce the amount of tax an individual must pay. Alimony recipients must, in turn, claim the amount received as income on their tax return. An alimony income reporting discrepancy occurs either when individuals claim deductions for alimony which they did not pay or individuals do not report alimony income they received.

TIGTA initiated this audit to evaluate whether there is an alimony reporting gap and to assess controls the Internal Revenue Service (IRS) has in place to promote alimony reporting compliance.

In Tax Year 2010, 567,887 taxpayers claimed alimony deductions totaling more than $10 billion. TIGTA’s analysis of returns with an alimony deduction claim identified 266,190 (47 percent) tax returns in which it appears that individuals claimed alimony deductions for which income was not reported on a corresponding recipient’s tax return or the amount of alimony income reported did not agree with the amount of the deduction taken. This alimony gap totaled more than $2.3 billion.

Apart from examining a small number of tax returns, the IRS generally has no processes or procedures to address this substantial compliance gap, TIGTA found.

TIGTA Report: IRS Awards Program Complies with Federal Regulations; Some Employees with Tax and Conduct Issues Received Awards

April 23, 2014 Comments off

TIGTA Report: IRS Awards Program Complies with Federal Regulations; Some Employees with Tax and Conduct Issues Received Awards
Source: Treasury Inspector General for Tax Administration

While an award program for Internal Revenue Service (IRS) employees complies with Federal regulations, some employees with tax and conduct issues received awards, according to a report released publicly today by the Treasury Inspector General for Tax Administration (TIGTA).

“These awards are designed to recognize and reward IRS employees for a job well done, and that is appropriate, because the IRS should encourage good performance,” said J. Russell George, Treasury Inspector General for Tax Administration. “However, while not prohibited, providing awards to employees who have been disciplined for failing to pay Federal taxes appears to create a conflict with the IRS’s charge of ensuring the integrity of the system of tax administration,” he added.

TIGTA conducted its audit because new Federal guidance issued in FY 2011 requires agencies to reduce spending on awards programs beginning in FY 2012. The overall objective of TIGTA’s review was to evaluate the IRS’s compliance with procedures for expenditures on awards and to review the IRS’s controls over awards made to employees with conduct and performance issues.

TIGTA found that the IRS awards program complied with Federal requirements to limit awards expenditures and saved additional funds by keeping aggregate incentive payments, individual employee compensation, and aggregate awards below the Federal limits. For FY 2011, the IRS awarded almost $92 million in cash and almost 520,000 hours of time off to 70,500 of its approximately 104,400 employees. For FY 2012, the IRS awarded $86 million in cash and almost 490,000 hours of time off to 67,870 of its approximately 98,000 employees.

However, between October 1, 2010 and December 31, 2012, more than 2,800 employees with recent substantiated conduct issues resulting in disciplinary action received more than $2.8 million in monetary awards and more than 27,000 hours in time-off awards. Among these, more than 1,100 IRS employees with substantiated Federal tax compliance problems received more than $1 million in cash awards and more than 10,000 hours in time-off awards.

TIGTA recommended that the IRS Human Capital Officer determine the feasibility of implementing a policy requiring management to consider conduct issues resulting in disciplinary actions, especially the nonpayment of taxes, prior to awarding all types of performance and discretionary awards.

The IRS agreed with TIGTA’s recommendation and plans to conduct a study by June 30, 2014 for the implementation of such a policy.

Taxation — Interim Results of the 2014 Filing Season

April 21, 2014 Comments off

Interim Results of the 2014 Filing Season
Source: Treasury Inspector General for Tax Administration

IMPACT ON TAXPAYERS
The filing season, defined as the period from January 1 through mid-April, is critical for the IRS because it is during this time that most individuals file their income tax returns and contact the IRS if they have questions about specific laws or filing procedures.

WHY TIGTA DID THE AUDIT
The closure of Government operations between October 1 and October 16, 2013, reduced the time the IRS had to implement tax law changes and bring tax return processing systems online. The objective of this review was to provide selected information related to the IRS’s 2014 Filing Season. TIGTA plans to issue the final results of our analysis of the 2014 Filing Season in September 2014.

WHAT TIGTA FOUND
As a result of the Government closure, the IRS delayed the start of the filing season from January 21, 2014, to January 31, 2014. As of March 7, 2014, the IRS had received more than 67.1 million tax returns—more than 62.2 million (92.6 percent) were filed electronically and nearly five million (7.4 percent) were filed on paper. The IRS has issued more than 55.4 million refunds totaling more than $164 billion.

The IRS continues to expand identity theft filters to identify fraudulent tax returns. As of February 28, 2014, the IRS reports that it identified and confirmed 28,076 fraudulent tax returns involving identity theft. In addition, the IRS identified 57,316 tax returns with $385 million claimed in fraudulent refunds and prevented the issuance of $336 million (87.3 percent) of the fraudulent refunds it identified. The IRS also identified 36,801 prisoner tax returns for screening.

The use of the split refund option to direct deposit a refund into multiple bank accounts continues to grow. Through March 6, 2014, a total of 585,331 individuals chose to split refunds totaling more than $2.6 billion into multiple accounts. However, TIGTA continues to identify that some taxpayers and return preparers misuse this option to direct a portion of a tax refund to a preparer for payment of services.

TIGTA also found that some paid tax return preparers continue to be noncompliant with Earned Income Tax Credit due diligence requirements, but the number has decreased substantially when compared to the same period last filing season.

Finally, the IRS plans to assist 5.6 million taxpayers through face-to-face contact at the Taxpayer Assistance Centers during Fiscal Year 2014, which is one million fewer taxpayers than were assisted during Fiscal Year 2013. As of March 8, 2014, approximately 46.3 million taxpayers had contacted the IRS by calling one of the various toll-free Customer Account Services lines. The IRS continues to offer more self-assistance options that taxpayers can access 24 hours a day, seven days a week, including its IRS2Go app; YouTube channels; interactive self-help tools on IRS.gov; and Twitter, Tumblr, and Facebook accounts. However, the IRS did not always ensure that the self-help tools were updated with the most current tax information before the start of the filing season.

WHAT TIGTA RECOMMENDED
This report was prepared to provide interim information only. Therefore, no recommendations were made in the report.

Millions of Dollars in Potentially Improper Claims for the Qualified Retirement Savings Contributions Credit Are Not Pursued

April 10, 2014 Comments off

Millions of Dollars in Potentially Improper Claims for the Qualified Retirement Savings Contributions Credit Are Not Pursued (PDF)
Source: Treasury Inspector General for Tax Administration

For Tax Year 2011, TIGTA determined that taxpayers potentially made approximately $53 million in improper claims for contributions made to a qualifying retirement account. Based on a comparison with third party data, these claims appear to be potentially either false or overstated. In the future, if the IRS identifies and addresses taxpayers who are potentially ineligible to receive the saver’s credit, it could recover approximately $264 million over five years.

TIGTA — Millions of Dollars in Potentially Improper Self-Employed Retirement Plan Deductions Are Allowed

March 31, 2014 Comments off

Millions of Dollars in Potentially Improper Self-Employed Retirement Plan Deductions Are Allowed (PDF)
Source: Treasury Inspector General for Tax Administration

IMPACT ON TAXPAYERS
Self-employed taxpayers may deduct contributions that are made to their own Simplified Employee Pension (SEP) or other qualified retirement plan account on line 28 of their individual tax return under certain circumstances.

WHY TIGTA DID THE AUDIT
The overall objective was to determine whether the IRS’s controls and third‑party data are adequate to identify improper deductions for contributions made by self‑employed taxpayers to their own SEP plan retirement account.

WHAT TIGTA FOUND
This could be verified using information provided by taxpayers when individual tax returns are filed. If the IRS improves controls, it could prevent improper deductions and potentially protect $71 million in revenue over five years. In addition, TIGTA found that the IRS could better use third‑party data to detect potentially improper SEP deductions. For example, to be able to claim a SEP deduction on line 28 of Form 1040, self‑employed taxpayers must show net earnings on a self-employed business. If the IRS improves controls, it could detect improper deductions and potentially realize $29 million in revenue over five years.

WHAT TIGTA RECOMMENDED
TIGTA recommended that the IRS enhance controls to prevent and detect improper claims on line 28 and assess the need for additional third‑party data to verify line 28 deductions. In their response, IRS management disagreed with TIGTA’s conclusion…but they agreed that certain actions can be taken to improve existing processes. TIGTA does not believe that the IRS’s corrective actions are sufficient. This audit identified millions of dollars in potentially improper or fraudulent claims… TIGTA continues to believe that the IRS should consider additional controls to prevent or detect potentially improper retirement plan deductions.

IRS — Improvement Is Needed to Better Enable Frontline Employee Identification of Potentially Dangerous and Caution Upon Contact Designations

March 28, 2014 Comments off

Improvement Is Needed to Better Enable Frontline Employee Identification of Potentially Dangerous and Caution Upon Contact Designations
Source: Treasury Inspector General for Tax Administration

IMPACT ON TAXPAYERS
The IRS has approximately 25,000 employees who have direct contact with taxpayers and their representatives (hereafter referred to as frontline employees). The safety of its employees is a top priority for the IRS. As such, the IRS has programs to help protect employees when interacting with individuals who are known to be violent, abusive, or pose some other type of danger. Examples include the Potentially Dangerous Taxpayer (PDT) and Caution Upon Contact (CAU) programs.

WHY TIGTA DID THE AUDIT
This audit was initiated in response to a Treasury Inspector General for Tax Administration Office of Investigations referral that identified paid tax return preparers who may pose a threat to IRS employees conducting official business. Frontline IRS employees can be exposed to many difficult, threatening, and dangerous situations. The overall objective of this review was to determine the adequacy of processes and procedures for employees who have direct contact with taxpayer representatives to identify those representatives who are designated as potentially dangerous or who need to be approached with caution upon contact.

WHAT TIGTA FOUND
The IRS has not developed sufficient procedures to enable frontline employees to readily identify whether a taxpayer representative has been designated as PDT or CAU. While a frontline employee can research an individual’s tax account for the PDT or CAU designation using the individual’s Social Security Number (SSN), the employee typically does not have a taxpayer representative’s SSN. The employee generally must search for the representative’s tax account using the representative’s name. Without the SSN, the employee is unable to definitively identify and examine the representative’s tax account for a PDT or CAU indicator.

As of August 29, 2013, the IRS designated 84 taxpayer representatives with a PDT or CAU indicator. Although this number is a small percentage of the 2.3 million representatives in the Centralized Authorization File, the safety of frontline employees, others working in the same facilities, and taxpayers is at risk when these employees unknowingly meet with potentially dangerous taxpayer representatives. IRS employees reported four incidents of physical assault by taxpayer representatives in Calendar Years 2010 through 2012. The IRS agreed that even one assault is one too many.

WHAT TIGTA RECOMMENDED
TIGTA recommended that the Deputy Commissioner for Services and Enforcement: 1) develop a process to enable frontline employees to readily access information that identifies whether a taxpayer representative has been designated as a PDT or CAU; and 2) ensure that internal guidance is updated with procedures to research taxpayer representative designations and that outreach and training is performed to ensure that frontline employees are knowledgeable of the revised process.

IRS management’s response to the report states that they believe their current procedures are appropriate to ensure the safety of employees. However, TIGTA remains concerned that frontline employees do not have a process to readily identify whether a taxpayer representative has been designated as PDT or CAU.

Changes in ACA Implementation Will Create Challenges for IRS Customer Service

March 24, 2014 Comments off

Changes in ACA Implementation Will Create Challenges for IRS Customer Service
Source: Treasury Inspector General for Tax Administration

The Internal Revenue Service (IRS) has developed a customer service strategy that includes sufficient plans to assist individuals in understanding the tax implications of the Affordable Care Act (ACA), however changes in the law’s implementation will create challenges that could affect this strategy.

That is the primary finding of a report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA). TIGTA conducted its audit to evaluate the IRS’s efforts to provide individuals assistance related to the ACA provisions on obtaining the minimum essential coverage and the tax credit to offset health care expenses.

Signed into law in March 2010, the ACA includes tax provisions that require individuals to maintain minimum essential health care coverage. It also provides a tax credit (Premium Tax Credit) to offset the health care expenses of qualified individuals. The IRS will impose a penalty on any taxpayer who, after Calendar Year 2013, fails to maintain the minimum essential coverage, for three months or more and does not qualify for an exemption.

Bankruptcy Procedures Designed to Protect Taxpayer Rights and the Government’s Interest Were Not Always Followed

March 13, 2014 Comments off

Bankruptcy Procedures Designed to Protect Taxpayer Rights and the Government’s Interest Were Not Always Followed
Source: Treasury Inspector General for Tax Administration

IMPACT ON TAXPAYERS
The bankruptcy automatic stay provision prohibits the IRS from taking certain collection actions against a debtor (taxpayer) as soon as it learns, or is notified by a U.S. bankruptcy court, that a bankruptcy petition has been filed. Similarly, the debtor may be granted a discharge, which remains after the case is closed and is a permanent injunction order prohibiting the IRS from taking any form of collection action against the debtor personally with respect to discharged debts. If the IRS does not observe the automatic stay or the discharge injunction, taxpayers’ rights could potentially be violated and the IRS could be sued for damages.

WHY TIGTA DID THE AUDIT
In Fiscal Year 2012, IRS data showed that the Field Insolvency function received 306,920 bankruptcy cases on taxpayers owing approximately $2.5 billion in taxes, penalties, and interest. This audit was initiated to determine whether the function has effective controls and procedures in place to take appropriate and timely actions to protect the Government’s interest and taxpayers’ rights during bankruptcy proceedings.

WHAT TIGTA FOUND
Field Insolvency function specialists frequently did not follow required procedures when working bankruptcy cases. Although TIGTA did not identify any violations of taxpayers’ rights and/or failure to protect the Government’s interest during this review, there is a higher risk that this could occur when procedures are not followed.

TIGTA’s review of three random samples of closed bankruptcy cases showed that specialists did not always follow established procedures in 17 (57 percent) of 30 Chapter 7 cases, 15 (50 percent) of 30 Chapter 11 cases, and 13 (43 percent) of 30 Chapter 13 cases reviewed. Specifically, specialists did not always timely or properly conduct the initial case analysis, follow up on scheduled case actions within a reasonable time, or timely or properly close cases.

TIGTA also reviewed a random sample of 30 bankruptcy cases with Automated Proof of Claim flag conditions (errors that need to be resolved by a specialist). Specialists did not timely or properly resolve the flag conditions in 12 (40 percent) of 30 cases.

WHAT TIGTA RECOMMENDED
TIGTA recommended that the Director, Field Collection, Small Business/Self-Employed Division: 1) enhance casework priorities and efficiencies; 2) ensure that specialists are properly conducting the initial analysis and closing actions; 3) ensure that the Automated Insolvency System follow-up tool is the preferred method for creating follow-ups; 4) ensure that case actions are properly documented for Automated Proof of Claim flag conditions; and 5) ensure that the Flagged Cases Report is the preferred method for monitoring cases.

In their response to the report, IRS officials agreed with all of our recommendations and plan to take corrective actions.

Internal Revenue Service’s Executive Long-Term Taxable Travel

February 24, 2014 Comments off

Internal Revenue Service’s Executive Long-Term Taxable Travel (PDF)
Source: Treasury Inspector General for Tax Administration

We reviewed the travel records for 31 executives, less than 10 percent of the IRS executives employed, to determine whether their travel appeared to be properly classified as taxable or nontaxable. We found that the tax classification of travel for nine executives appeared to be incorrect based on their travel patterns and the IRS’s validation, and for three executives, the classification was not made in a timely manner as required by Internal Revenue Manual 1.32.11.9, Taxable Travel Reimbursement. 9 Consequently, not all executives who were in a LTTT status were correctly and/or timely classified as such; therefore, the IRS did not withhold the appropriate amount of taxes on the travel reimbursements paid to some executives.

Without an effective periodic assessment and management review of the executives’ travel activities, the IRS cannot verify that its executives’ travel expenses are properly classified as LTTT when they should be. The inaccurate reporting of the LTTT resulted in the executives’ potentially underreporting income, Federal, State, Medicare, and Federal Insurance Contributions Act taxes.

IRS Vendors Owe Hundreds Of Millions Of Dollars In Federal Tax Debt

December 24, 2013 Comments off

IRS Vendors Owe Hundreds Of Millions Of Dollars In Federal Tax Debt
Source: Treasury Inspector General for Tax Administration

More than 1,100 vendors doing business with the Internal Revenue Service (IRS) owe a combined $589 million in Federal tax debt, according to a new report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA).

Federal law generally prohibits agencies from contracting with businesses that have unpaid Federal tax liabilities.

TIGTA reviewed the IRS’s controls over the integrity and validity of vendors receiving payments from the IRS, including the vendor’s tax compliance and suspension and debarment status. TIGTA also reviewed controls over the IRS’s Vendor Master File (VMF), which contains information about vendors that enables them to do business with the IRS.

The vast majority of vendors that conduct business with the IRS meet their Federal tax obligations. However, TIGTA found that 1,168 IRS vendors (7 percent) had a combined $589 million of Federal tax debt as of July 2012, the most recent data for which information was available at the time TIGTA conducted the review. Few of the vendors had a current tax payment plan.

TIGTA: IRS Must Do More To Reduce Fraud Involving Employer Identification Numbers

December 10, 2013 Comments off

TIGTA: IRS Must Do More To Reduce Fraud Involving Employer Identification Numbers
Source: Treasury Inspector General for Tax Administration

While the Internal Revenue Service (IRS) has developed processes to authenticate individuals applying for an Employer Identification Number (EIN), it needs to do more to prevent fraud committed using stolen EINs, according to a new report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA).

The IRS issues EINs to identify taxpayers’ business accounts. Individuals attempting to commit tax refund fraud steal or falsely obtain an EIN to file tax returns that report false income and withholding. TIGTA’s report found that such fraud could top $11.4 billion in potentially fraudulent refunds over a five-year period.

The overall objective of TIGTA’s review was to assess the IRS’s processes for issuing EINs and identifying stolen or falsely obtained EINs used to report income and withholding.

TIGTA found that the IRS has developed processes to both authenticate individuals applying for an EIN and ensure that there is a valid business reason to obtain an EIN. However, TIGTA identified 767,071 Tax Year 2011 electronically filed individual tax returns with refunds based on falsely reported income and withholding. Of the 285,670 EINs used on these tax returns:

+ 277,624 were stolen EINs used to report false income and withholding on 752,656 tax returns with potentially fraudulent refunds issued totaling more than $2.2 billion.
+ 8,046 were falsely obtained EINs used to report false income and withholding on 14,415 tax returns with potentially fraudulent refunds issued totaling more than $50 million.

The IRS has developed a number of processes to prevent fraudulent refunds claimed using stolen and falsely obtained EINs. However, the IRS does not have the third-party Form W-2 information needed to make significant improvements in its detection efforts. Nonetheless, the IRS does maintain data that could increase its ability to detect tax returns with false income and withholding associated with stolen or falsely obtained EINs.

The IRS Needs to Improve Its Procedures to Ensure That Taxpayers Can Successfully Access Their Tax Account Information Online in a Secure Manner

December 5, 2013 Comments off

The IRS Needs to Improve Its Procedures to Ensure That Taxpayers Can Successfully Access Their Tax Account Information Online in a Secure Manner
Source: Treasury Inspector General for Tax Administration

The IRS should develop better procedures to provide taxpayers with secure online access to their tax account information. This is the finding of a new audit report issued today by the Treasury Inspector General for Tax Administration (TIGTA).

The IRS Restructuring and Reform Act of 1998 (RRA 98) requires the IRS to develop procedures to allow taxpayers filing returns electronically to review their accounts online. Since the enactment of this legislation, the IRS initiated the My IRS Account project to provide taxpayers with an online system to view, access, update, and manage their tax account. After 32 months of development and approximately $10 million in expenditures, the project was cancelled due to an ineffective enterprise-wide eAuthentication solution. eAuthentication is the process of establishing and verifying user identities electronically to a system.

TIGTA conducted this audit at the request of the IRS Oversight Board and found that none of the current applications that the IRS has developed and implemented met the intent of RRA 98. These applications only allow taxpayers to view a limited portion of their tax account information or to request tax transcripts be sent to certain lending institutions electronically. The IRS is planning to deploy the Get Transcript application in January 2014 and will enable taxpayers to access their tax account to obtain transcript information via the Internet.

TIGTA also determined that the IRS successfully deployed an eAuthentication solution for applications already deployed. However, the IRS has not completed required capacity testing to ensure the online applications can support the expected number of users. TIGTA also noted that cost information for the project was not readily obtainable for project management.

Improvements Needed to ACA Health Care Premium Tax Credit Project

December 5, 2013 Comments off

Improvements Needed to ACA Health Care Premium Tax Credit Project
Source: Treasury Inspector General for Tax Administration

The Internal Revenue Service (IRS) needs to strengthen systems development controls for the Premium Tax Credit (PTC) Project, the Treasury Inspector General for Tax Administration (TIGTA) concludes in a new report publicly released today.

The PTC is part of the Affordable Care Act (ACA). Beginning January 2014, eligible taxpayers who purchase health insurance through the Health Insurance Marketplace (an Exchange) may qualify for and request a refundable tax credit (the PTC) to assist with paying their health insurance premium. The credit is claimed on the taxpayer’s Federal tax return at the end of each coverage year. Because it is a refundable credit, taxpayers who have little or no income tax liability can still benefit. The PTC can also be paid in advance to a taxpayer’s health insurance provider to help cover the cost of premiums. This credit is referred to as the Advanced Premium Tax Credit (APTC).

The IRS’s implementation plan for ACA Exchange provisions includes providing information that will support the Department of Health and Human Services and the Exchanges in three main areas: eligibility and enrollment; developing calculations for the maximum APTC; and reconciling PTCs with reported taxable income.

TIGTA reviewed whether the IRS is adequately managing systems development risks for the PTC Project. TIGTA evaluated the IRS’s key management controls and processes for risk management, requirements and change management, testing, security, and fraud detection for the PTC Project.

TIGTA found that the IRS has completed development and testing of the software used to calculate the Advanced Premium Tax Credit and the Remainder Benchmark Household Contribution (RBHC) which is the household’s contribution towards the monthly insurance premium.

In addition, the IRS developed a process to verify the accuracy of the PTC calculations. Based on an analysis of IRS test cases for the software, TIGTA was able to replicate the IRS’s results showing that the software accurately calculated the maximum APTC and RBHC amounts for eight specific test cases within the IRS test environment. While the IRS was able to accurately calculate the maximum APTC amounts within the software testing environment, TIGTA was unable to assess the software’s full operational capabilities based on the test cases.

Identity Theft: IRS Detection Has Improved, Yet Billions Still Lost in 2011 Returns

November 7, 2013 Comments off

Identity Theft: IRS Detection Has Improved, Yet Billions Still Lost in 2011 Returns
Source: Treasury Inspector General for Tax Administration

Expanded identity theft detection efforts at the Internal Revenue Service (IRS) are helping to identify fraudulent tax returns, however, billions of dollars of potentially fraudulent refunds continue to be paid, according to a report released publicly today by the Treasury Inspector General for Tax Administration (TIGTA).

TIGTA’s report is a follow-up to a July 2012 report that found billions of dollars were being lost to identity theft in 2010. This report�s objective was to determine whether the IRS has improved its procedures to identify and prevent fraudulent tax refunds resulting from identity theft.

TIGTA’s analysis of Tax Year 2011 returns found that approximately 1.1 million undetected tax returns that were filed using a Social Security Number have the same characteristics of IRS- confirmed identity theft tax returns. Potentially fraudulent tax refunds issued total approximately $3.6 billion in 2011, which is down by $1.6 billion compared to the $5.2 billion TIGTA reported for Tax Year 2010.

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