Tax Administration:

Opportunities to Improve Compliance Decisions and Service to Taxpayers through Enhancements to Appeals' Feedback Project

GAO-06-396: Published: Mar 24, 2006. Publicly Released: Apr 18, 2006.

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Taxpayers disagreeing with Internal Revenue Service (IRS) compliance decisions can request an independent review by IRS's Appeals Office (Appeals). In 2004 the Commissioner requested that Appeals establish a feedback program to share the results of Appeals' reviews with the compliance programs. GAO was asked to assess whether (1) information on Appeals results would provide useful feedback to IRS operating divisions to benefit compliance programs, Appeals, and taxpayers through better case resolution and (2) the feedback project is being effectively managed to maximize its potential to improve IRS's performance and thereby reduce disputes with taxpayers.

Appeals' case result information has the potential to help compliance programs improve taxpayer service, but realizing improvements requires investments in data collection and analysis that must be considered in light of the likely benefits. Based on a review of 153 Appeals cases, GAO estimates that 41 percent of the 102,623 cases closed in fiscal year 2004 were not fully sustained. Of these, about half were not sustained because Appeals applied a law or regulation differently than the programs. Lacking such information, officials could not assess whether actions like additional guidance were needed. However, identifying specific provisions that were interpreted differently would require data gathering and analysis. Because the differences span a host of laws and regulations, corrective action may only affect a small number of cases. Improved decision making, however, can benefit compliance programs, Appeals, and taxpayers. An initial data analysis, such as identifying programs with high nonsustention rates due to differences in applying laws or regulations, would help to target areas most likely to benefit from feedback. Appeals has taken several initial steps to launch the feedback project. During 2005, for example, Appeals and the compliance programs began to identify additional information needs. In addition, Appeals and the compliance programs could refine the feedback project's objectives to target the results-oriented improvements that are logical benefits of information sharing. Obtaining agreement between Appeals and the programs on objectives may not be easy because their perspectives differ on the steps needed to improve operations, but is necessary. Also, Appeals' plans to update its information system to provide additional data on case results will be hindered by inaccurate data. We found that several important data fields had error rates up to 14 percent. Appeals staff cited several reasons for this, including weak data verification procedures.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: Although IRS analyzed Appeals feedback information, identified issues, and performed joint reviews with Appeals, Appeals did not develop results-oriented objectives and associated performance measures that could show whether its feedback program had improved case outcome results.

    Recommendation: To ensure that the feedback project reaches its maximum potential in improving case results, the Commissioner of Internal Revenue should direct Appeals, in partnership with the compliance programs, to further develop results-oriented objectives and associated performance measures for the feedback project.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: The compliance programs and Appeals have identified actions needed to address problems in multiple areas based on identification of the most promising areas for feedback projects. Based on an analysis of statistics on the recovery rate, the Estate and Gift Tax program reviewed case files with Appeals to determine why recovery rates were extremely low and made several recommendations to improve decision making which included improving valuation procedures. In addition, after analyzing data showing that Appeals conceded a high percentage of its cases, Collection and Appeals reviewed Trust Fund Recovery Penalty (TFRP) program case files and subsequently recommended additional training for Appeals on weighing hazards of litigation in reaching settlement decisions. Similarly, after determining that a large percentage of Offer-in-Compromise (OIC) cases were being closed by Appeals because of changes in property valuations, Appeals and the Small Business/Self-Employed (SB/SE) Division jointly reviewed OIC case files in June 2009 and identified instances in which both Appeals and the OIC program incorrectly assessed property title, encumbrance and lien priority issues. Corrective action recommended from this review included training for Appeals and SB/SE on lien priorities. It was not until the completion of this action that IRS's actions to address our recommendation were sufficient.

    Recommendation: To ensure that the feedback project reaches its maximum potential in improving case results, the Commissioner of Internal Revenue should direct Appeals, in partnership with the compliance programs, to further investigate the most promising areas and assess whether actions, such as additional guidance or training, are needed to improve the quality of compliance programs' case decisions.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Closed - Implemented

    Comments: In June 2009, Appeals and the Small Business/Self-Employed (SB/SE) Division analyzed case-results data and found a large increase in the percentage of Offer-in-Compromise cases that were not being sustained by Appeals due to changes in property valuations. A review was subsequently performed to identify whether improvements were needed. It was not until the completion of this action that IRS's actions to address our recommendation were sufficient.

    Recommendation: To ensure that the feedback project reaches its maximum potential in improving case results, the Commissioner of Internal Revenue should direct Appeals, in partnership with the compliance programs, to analyze Appeals case-results data, such as the workstream sustention rates, reasons for nonsustention, or staff hours spent per case, to identify areas in which improvements are likely to generate the greatest benefits to the compliance programs, Appeals, and taxpayers.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  4. Status: Closed - Implemented

    Comments: In August 2011, Appeals implemented an automated Appeals Inventory Validation Process (AIVP). During this process, Appeals validates critical case-closing data fields when each case is closed. These validations did not occur under its prior inventory validation process. The AIVP includes validation tracking logs and ACDS data accuracy reports to track ACDS data accuracy validations and results.

    Recommendation: To ensure that the feedback project reaches its maximum potential in improving case results, the Commissioner of Internal Revenue should direct Appeals to build upon its current efforts to improve the quality of Appeals information for the feedback project by establishing internal controls to verify, on an ongoing basis, the accuracy of the data entered into Appeals information systems on case results.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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