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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.

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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.

TIGTA Report: The IRS Needs to Improve Customer Service for Identity Theft Victims

November 7, 2013 Comments off

TIGTA Report: The IRS Needs to Improve Customer Service for Identity Theft Victims
Source: Treasury Inspector General for Tax Administration

It took the Internal Revenue Service (IRS) an average of 312 days to resolve tax-related identity theft cases, according to a new report released by the Treasury Inspector General for Tax Administration (TIGTA) that studied a statistical sample of these cases.

This audit was a follow-up to a May 2012 identity theft audit report (PDF).

The IRS reported that identity theft affected 1.2 million taxpayers in Calendar Year 2012, and an additional 1.6 million were affected in Calendar Year 2013, as of June 29, 2013.

TIGTA’s review of a statistical sample of 100 identity theft cases closed between August 1, 2011 and July 31, 2012 found that the IRS correctly determined the rightful owner of the Social Security Number in all cases. However, taxpayers faced delays, with some cases having significant inactivity during case processing. Inactivity on the 100 identity theft cases averaged 277 days. This is due, in part, to assistors being required to also answer telephone inquiries during the Filing Season.

In addition, tax accounts were not correctly resolved for 25 percent of the cases reviewed by TIGTA, resulting in delayed refunds and/or incorrect refunds to all 25 taxpayers. TIGTA surveyed 183 IRS assistors who work identify theft cases. Seventy-three percent of those surveyed stated that the IRS’s identity theft procedures are confusing.

+ Full Report (PDF)

Some IRS Contractor Employees Owe Millions of Dollars in Federal Tax Debts

October 28, 2013 Comments off

Some IRS Contractor Employees Owe Millions of Dollars in Federal Tax Debts
Source: Treasury Inspector General for Tax Administration

Although the Internal Revenue Service (IRS) requires its employees to file their Federal tax returns on time and pay any Federal tax debt, hundreds of the employees of IRS contractors are not held to that same standard, according to a report published today by the Treasury Inspector General for Tax Administration (TIGTA).

“Because many contractor employees have access to sensitive IRS systems and facilities, the IRS should address tax noncompliance for these employees in a similar manner as it would for its own employees,” said J. Russell George, Treasury Inspector General for Tax Administration.

TIGTA’s review identified weaknesses in the IRS’s existing practices that allowed contractor employees with Federal tax debts and instances of nonfiling to go undetected after the IRS initially granted staff-like access because the IRS does not continuously monitor contractor employee tax compliance in the same way it monitors IRS employee tax compliance. Instead, the IRS reviews contractor tax compliance only once every five years or if the contract employee has longer than a two-year break in service.

TIGTA conducted its review to determinate the effectiveness of the IRS background investigation process to identify contractor employees who do not file required Federal tax returns or who owe Federal taxes but are not currently on a payment plan. The Internal Revenue Manual requires all IRS employees, and contract employees, to file their Federal tax returns on time and pay any Federal tax debt.

TIGTA found that as of June 14, 2012, 691 (5 percent) of the 13,591 IRS contractor employees reviewed by TIGTA had $5.4 million in Federal tax debt. These debts were either agreed to by the taxpayers or affirmed by the court. Of the 691 contractor employees, 352 were not currently on a payment plan to resolve their tax debt. Most of the contractor employees appeared to have been compliant when their initial staff-like access was granted. However, at least 319 contractor employees had tax debt assessed after they were granted staff-like access, and these employees were not currently on a payment plan. Under IRS policy, these 319 contractor employees were not eligible for staff-like access and should not have had access to IRS facilities, systems and data.

TIGTA made three recommendations including further evaluating contractor employees TIGTA identified as potentially noncompliant and promptly bringing those individuals into compliance or removing them from IRS contracts. The IRS agreed with our recommendations and stated that they plan to establish and implement policies to ensure that contractor employees are tax compliant.

Treasury Inspector General — Review of the August 2010 Small Business/Self-Employed Division’s Conference in Anaheim, California

June 4, 2013 Comments off

Review of the August 2010 Small Business/Self-Employed Division’s Conference in Anaheim, California

Source: Treasury Inspector General for Tax Administration

IMPACT ON TAXPAYERS

Excessive spending by Federal agencies on management conferences has been highlighted by recent Inspectors General reports and the subject of congressional hearings. Effective cost management is especially important given the current economic environment and focus on efficient spending. TIGTA identified several ways the IRS could enhance controls over conference spending.

WHY TIGTA DID THE AUDIT

This audit was initiated to identify the IRS’s spending on conferences during Fiscal Years 2010 through 2012. Our primary focus was on the August 2010 Small Business/Self-Employed (SB/SE) Division’s All Managers Conference in Anaheim, California. This conference was selected because TIGTA received an allegation of excessive spending and it was the most expensive conference during this period.

WHAT TIGTA FOUND

The SB/SE Division conducted a conference for an estimated 2,609 SB/SE Division executives and managers at a reported cost of $4.1 million at the Marriott, Hilton, and Sheraton hotels located in Anaheim, California. Procedures at the time of the conference did not require IRS management to track and report actual conference costs. As a result, TIGTA could not validate the conference cost reported by the IRS.

TIGTA determined that the IRS did not use available internal personnel to assist in searching for the most cost-effective location as required. Instead, SB/SE Division management approached two non‑governmental event planners to identify a suitable off-site location for the conference. These two planners were not under contract with the IRS; hence they had no incentive to negotiate a favorable room rate for the IRS.

Instead, the three hotels paid the event planners an estimated $133,000 commission based on the cost of rooms paid for by the IRS.

The IRS may have been able to negotiate a lower lodging rate to reduce conference expenses if it had not used non-governmental event planners and eliminated some of the negotiated concessions provided by the hotels (e.g., daily continental breakfast, a welcome reception with two drink coupons for all attendees, a significant number of suite upgrades). TIGTA also identified other questionable expenses related to the conference including planning trips, outside speakers, video productions, an information corridor, and promotional items and gifts for IRS employees.

WHAT TIGTA RECOMMENDED

TIGTA recommended that the IRS verify that costs are being tracked for recent conferences; track conference attendance; ensure that applicable IRS personnel are used to plan future conferences; develop procedures outlining the appropriate use of non-governmental event planners for IRS conferences; establish procedures related to planning trips, information corridors, videos, and other technology for future conferences; evaluate whether hotel upgrades should be used for future conferences; and ensure that taxable travel is identified and Forms W-2, Wage and Tax Statement, are issued to applicable employees.

In their response to the report, IRS officials agreed with all nine of TIGTA’s recommendations. The IRS plans to issue additional guidance related to conference spending and attendance, tracking Continuing Professional Education credits, the use of event planners, soliciting upgrades, video productions, planning trips, and the conference approval process. The IRS also stated that it plans to issue Forms W-2 to all applicable employees.

Treasury Inspector General for Tax Administraion — Inappropriate Criteria Were Used to Identify Tax-Exempt Applications for Review

May 15, 2013 Comments off

Inappropriate Criteria Were Used to Identify Tax-Exempt Applications for Review (PDF)
Source: Treasury Inspector General for Tax Administration\

IMPACT ON TAXPAYERS
Early in Calendar Year 2010, the IRS began using inappropriate criteria to identify organizations applying for tax-exempt status to review for indications of significant political campaign intervention. Although the IRS has taken some action, it will need to do more so that the public has reasonable assurance that applications are processed without unreasonable delay in a fair and impartial manner in the future.

WHY TIGTA DID THE AUDIT
TIGTA initiated this audit based on concerns expressed by members of Congress. The overall objective of this audit was to determine whether allegations were founded that the IRS: 1) targeted specific groups applying for tax-exempt status, 2) delayed processing of targeted groups’ applications, and 3) requested unnecessary information from targeted groups.

WHAT TIGTA FOUND
The IRS used inappropriate criteria that identified for review Tea Party and other organizations applying for tax-exempt status based upon their names or policy positions instead of indications of potential political campaign intervention. Ineffective management: 1) allowed inappropriate criteria to be developed and stay in place for more than 18 months, 2) resulted in substantial delays in processing certain applications, and 3) allowed unnecessary information requests to be issued.

Although the processing of some applications with potential significant political campaign intervention was started soon after receipt, no work was completed on the majority of these applications for 13 months. This was due to delays in receiving assistance from the Exempt Organizations function Headquarters office. For the 296 total political campaign intervention applications TIGTA reviewed as of December 17, 2012, 108 had been approved, 28 were withdrawn by the applicant, none had been denied, and 160 were open from 206 to 1,138 calendar days (some for more than three years and crossing two election cycles).

More than 20 months after the initial case was identified, processing the cases began in earnest. Many organizations received requests for additional information from the IRS that included unnecessary, burdensome questions (e.g., lists of past and future donors). The IRS later informed some organizations that they did not need to provide previously requested information. IRS officials stated that any donor information received in response to a request from its Determinations Unit was later destroyed.

WHAT TIGTA RECOMMENDED
TIGTA recommended that the IRS finalize the interim actions taken, better document the reasons why applications potentially involving political campaign intervention are chosen for review, develop a process to track requests for assistance, finalize and publish guidance, develop and provide training to employees before each election cycle, expeditiously resolve remaining political campaign intervention cases (some of which have been in process for three years), and request that social welfare activity guidance be developed by the Department of the Treasury.

In their response to the report, IRS officials agreed with seven of our nine recommendations and proposed alternative corrective actions for two of our recommendations. TIGTA does not agree that the alternative corrective actions will accomplish the intent of the recommendations and continues to believe that the IRS should better document the reasons why applications potentially involving political campaign intervention are chosen for review and finalize and publish guidance.

Most Taxpayers Whose Identities Have Been Stolen to Commit Refund Fraud Do Not Receive Quality Customer Service

May 9, 2012 Comments off

Most Taxpayers Whose Identities Have Been Stolen to Commit Refund Fraud Do Not Receive Quality Customer Service (PDF)
Source: Special Inspector General for Tax Administration

IMPACT ON TAXPAYERS
The Federal Trade Commission reported that identity theft was the number one complaint in Calendar Year 2011, and government documents/benefits fraud was the most common form of reported identity theft. As of December 31, 2011, the IRS’s Incident Tracking Statistics Report showed that 641,052 taxpayers have been affected by identity theft in Calendar Year 2011. The IRS is not effectively providing assistance to victims of identity theft, and current processes are not adequate to communicate identity theft procedures to taxpayers, resulting in increased burden for victims of identity theft.

WHY TIGTA DID THE AUDIT
This audit was initiated because the number of identity theft cases in the IRS has grown significantly over the last few years, overwhelming IRS resources and burdening taxpayers. Taxpayers testifying before Congress stated that they had to talk to multiple IRS employees and were provided conflicting instructions.

WHAT TIGTA FOUND
Identity theft cases are not worked timely and can take more than a year to resolve. Communications between the IRS and victims are limited and confusing, and victims are asked multiple times to substantiate their identity.

When taxpayers call the IRS to advise it that their electronic tax return was rejected because it appears another individual has already filed a tax return using their identity, the IRS instructs them to mail in a paper tax return with the Form 14039, Identity Theft Affidavit, attaching supporting identity documents. However, the IRS has been processing these tax returns using standard processing procedures.

Identity theft guidelines and procedures are dispersed among 38 different Internal Revenue Manual sections. These guidelines are inconsistent and conflicting, and not all functions have guidelines on handling identity theft issues.

The IRS uses little of the data from the identity theft cases to identify any trends, etc., that could be used to detect or prevent future refund fraud.

WHAT TIGTA RECOMMENDED
TIGTA recommended that the IRS: 1) establish accountability for the Identity Theft Program; 2) implement a process to ensure that IRS notices and correspondence are not sent to the address listed on the identity thief’s tax return; 3) conduct an analysis of the letters sent to taxpayers regarding identity theft; 4) ensure taxpayers are notified when the IRS has received their identifying documents; 5) create a specialized unit in the Accounts Management function to exclusively work identity theft cases; 6) ensure all quality review systems used by IRS functions and offices working identity theft cases are revised to select a representative sample of identity theft cases; 7) revise procedures for the Correspondence Imaging System screening process; and 8) ensure programming is adjusted so that identity theft issues can be tracked and analyzed for trends and patterns.

The IRS agreed with all our recommendations. It has established a governance structure to oversee the enterprise‑wide identity theft initiatives and plans to expand its identity theft indicator codes identifying claims of identity theft. It plans to review its suite of identity theft letters and to update its guidance instructing employees to notify taxpayers acknowledging receipt of documentation. The IRS currently has specialized units in the Accounts Management function working only identity theft cases. Finally, the IRS plans to create a specific quality review for identity theft cases and is currently evaluating options for enhancing its ability to track and analyze the fraudulent identity theft information removed from a taxpayer account.

Taxpayers Do Not Always Receive Quality Responses When Corresponding About Tax Issues

August 15, 2011 Comments off

Taxpayers Do Not Always Receive Quality Responses When Corresponding About Tax Issues (PDF)
Source: Treasury Inspector General for Tax Administration

Highlights of Reference Number: 2011-40-058 to the Internal Revenue Service Commissioner for the Wage and Investment Division.

IMPACT ON TAXPAYERS
In November 1998, the Internal Revenue Service (IRS) issued Policy Statement P-6-12 requiring employees to initiate a response to taxpayer correspondence within 30 calendar days. Although most responses to taxpayers’ correspondence tested were accurate, most responses were not timely. When taxpayers’ issues are not addressed timely, taxpayers are mailed interim letters. However, none of the systemically issued interim letters provide taxpayers with any information specific to their accounts, and the content is not clear regarding what taxpayers need to do.

WHY TIGTA DID THE AUDIT
This audit was initiated to determine whether the IRS was appropriately processing correspondence from taxpayers or their representatives when required to meet its own policy requirements to respond to a taxpayer within 30 calendar days or provide an update on the status of the response.

WHAT TIGTA FOUND Two statistical samples and one judgmental sample from three IRS functions showed that most taxpayers do not receive quality responses to their correspondence.

  • Of 73 correspondence cases sampled from the Accounts Management function, only 14 (19 percent) taxpayers received timely and accurate responses.
  • Of 48 correspondence cases sampled in the Automated Underreporter Program, all 48 taxpayers received accurate responses, but only 27 (56 percent) of 48 taxpayers received their responses timely.
  • Of 73 correspondence cases from the Field Assistance Office, only six (8 percent) taxpayers received timely and accurate responses.

In addition, interim letters, required to be sent to taxpayers if a response cannot be issued within the 30 calendar days, were not always issued. Not all procedures are being followed. Cases are not properly categorized, suspensed, or linked, and the quality review process does not ensure all procedures were followed.

Finally, the IRS is not following Policy Statement P-6-12 guidelines and has not implemented any measures or processes to monitor and evaluate Policy Statement P-6-12 correspondence to ensure taxpayers receive timely responses to their correspondence.

WHAT TIGTA RECOMMENDED
TIGTA recommended and the IRS generally agreed to: 1) clarify instructions to ensure employees follow procedures; 2) revisit Policy Statement P-6-12 guidelines to ensure they reflect the IRS’s current procedures and expectations; 3) complete the study of the interim letters; and 4) update quality review procedures to include a review of correspondence category codes and a determination as to whether cases should have been suspensed and/or linked.

The IRS did not agree with the outcome measures claimed in the report, stating the projections were based on non-representative samples. However, the samples were random samples from the defined universe of cases. As such, TIGTA believes they are representative. The five-year projections are, in fact, forecasts. This type of forecasting is used by the Federal Government in many circumstances.

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