IRS Referral Programs:

Opportunities Exist to Strengthen Controls and Increase Coordination across Overlapping Programs

GAO-16-155: Published: Feb 23, 2016. Publicly Released: Mar 24, 2016.

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What GAO Found

Information referrals from the public alleging tax noncompliance must be submitted on paper forms by mail to the Internal Revenue Service (IRS). These referrals are manually screened by clerical staff and routed by mail to units across IRS for further action, as shown in the figure.

Process for Screening and Routing Information Referrals for Further Review

Process for Screening and Routing Information Referrals for Further Review

Ineffective internal controls undercut IRS management of the information referral process. IRS does not have an organizational structure for information referrals with clear leadership for defining objectives and outcomes for measuring cost-effectiveness and results. Without clear leadership, IRS does not know how effectively it is leveraging information referrals to address the tax gap. IRS has incomplete documentation of procedures for the information referral process, increasing the risk of delays and added costs in routing the information for further action. Although one-quarter of the information referrals in fiscal year 2015 were sent for destruction after screening, IRS has not documented procedures for supervisory review of those referrals prior to destruction. Without procedures to address these control deficiencies, IRS is compromised in its ability to know how effectively it is leveraging tax noncompliance information reported by the public.

Fragmentation and overlap across IRS's general information referral process and eight specialized referral programs, such as for reporting identity theft and misconduct by return preparers, can confuse the public trying to report tax noncompliance to IRS. Yet coordination between referral programs is limited, and IRS does not have a mechanism for sharing information on crosscutting issues and collaborating to improve the efficiency of operations across the mix of referral programs. As a result, IRS may be missing opportunities to leverage resources and reduce the burden on the public trying to report possible noncompliance.

Why GAO Did This Study

Reports by the public of suspected underreporting of taxes or other tax violations can help IRS detect millions of dollars in taxes that would otherwise go uncollected. Productive referrals can help address the net $385 billion tax gap—the difference between the amount of taxes paid voluntarily on time and the amount owed. IRS received about 87,000 information referrals in fiscal year 2015.

GAO was asked to assess the overall effectiveness of the information referral process. This report (1) describes IRS's process for screening and routing information referrals; (2) assesses the controls for the information referral screening and routing process; and (3) evaluates the coordination between the information referral process, the Whistleblower Office, and other IRS referral programs. GAO reviewed IRS guidance, processes, and controls for the information referral process, assessed whether IRS's processes followed Standards for Internal Control in the Federal Government , and interviewed IRS officials.

What GAO Recommends

GAO recommends, among other things, that IRS establish an organizational structure that identifies responsibility for defining objectives and for measuring results for information referrals; document procedures for the information referral process; and establish a coordination mechanism across IRS referral programs. IRS agreed with GAO's recommendations.

For more information, contact Jessica Lucas-Judy at (202) 512-9110 or lucasjudyj@gao.gov.

Recommendations for Executive Action

  1. Status: Open

    Comments: As of May 2016, IRS has taken some action to implement this recommendation. IRS told us it established a cross-functional team in February to conduct a comprehensive review of IRS's referral programs, including the information referral process. IRS plans to complete its review and have a plan for the organizational structure with defined lines of responsibility by December 2016.

    Recommendation: The Commissioner of Internal Revenue should establish, document, and implement an organizational structure identifying responsibility for defining objectives with an appropriate line of reporting for measuring costs and results for information referrals.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Open

    Comments: As of May 2016, IRS has taken some action on this recommendation. IRS told us it established a cross-functional team in February to conduct a comprehensive review of IRS's referral programs, including the information referral process. IRS plans to complete its review and have a plan for the organizational structure with defined lines of responsibility by December 2016. Once IRS approves the organizational structure, IRS will establish and document Internal Revenue Manual procedures for supervisory review and segregation of duties for information referral inventory reporting. IRS plans to implement our recommendation by September 2017.

    Recommendation: The Commissioner of Internal Revenue should ensure that the IRM has internal controls for processing information referrals by establishing, documenting, and implementing supervisory review and segregation of duties for inventory management reporting procedures.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Open

    Comments: As of May 2016, IRS has taken some action on this recommendation. IRS told us it established a cross-functional team in February to conduct a comprehensive review of IRS's referral programs, including the information referral process. IRS plans to complete its review and have a plan for the organizational structure with defined lines of responsibility by December 2016. Once IRS approves the organizational structure, IRS will establish and document Internal Revenue Manual procedures, including criteria for retaining information referrals for destruction. IRS plans to implement our recommendation by September 2017.

    Recommendation: The Commissioner of Internal Revenue should ensure that the IRM has internal controls for processing information referrals by establishing, documenting, and implementing ongoing monitoring of information referrals retained for destruction, including a mechanism for tracking the reasons referrals were retained prior to destruction.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  4. Status: Open

    Comments: As of May 2016, IRS has taken some action on this recommendation. IRS told us it established a cross-functional team in February to conduct a comprehensive review of IRS's referral programs, including the information referral process. IRS plans to complete its review and have a plan for the organizational structure with defined lines of responsibility by December 2016. Once IRS approves the organizational structure, IRS will establish and document Internal Revenue Manual procedures, including guidelines for IRS units receiving information referrals. IRS plans to implement our recommendation by September 2017.

    Recommendation: The Commissioner of Internal Revenue should ensure that the IRM has internal controls for processing information referrals by establishing, documenting, and implementing procedures for each IRS operating unit receiving information referrals to provide feedback on the number and types of referrals misrouted and on their disposition, and a mechanism to analyze patterns of misroute errors.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  5. Status: Open

    Comments: As of May 2016, IRS has taken some action to implement this recommendation. IRS told us it established a cross-functional team in February to conduct a comprehensive review of IRS's referral programs. Among other things, this team is to explore aligning all IRS referral programs within one organizational unit to improve efficiency in coordination, communication, and information sharing across the referral programs. IRS plans to implement our recommendation by December 2017.

    Recommendation: The Commissioner of Internal Revenue should establish a coordination mechanism to facilitate communication and information sharing across IRS referral programs on crosscutting tax issues and ways to improve efficiency in the mechanisms for public reporting of possible tax violations.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  6. Status: Open

    Comments: As of May 2016, IRS has taken some action to implement this recommendation. IRS told us it established a cross-functional team in February to conduct a comprehensive review of IRS's referral programs. Among other things, the team is to explore options to consolidate the initial screening operations and determine the scope and complexity for moving the referral process to an online format. According to IRS, an electronic submission process is expected to provide better access to the program and reduce the burden associated with making a written report or referral. IRS noted, however, that it would be important to take actions to ensure that the volume of actionable referrals received through improved intake and classification processes can be absorbed into and balanced with other workload priorities. IRS said the team will review all findings and formulate options for intake, classification, forms, and online services. IRS plans to implement our recommendation by December 2016.

    Recommendation: The Commissioner of Internal Revenue should direct the referral programs to establish a mechanism to coordinate on a plan and timeline for developing a consolidated, online referral submission in order to better position IRS to leverage specialized expertise while exploring options to further consolidate the initial screening operations.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  7. Status: Open

    Comments: As of May 2016, IRS has taken some action on this recommendation. IRS told us it established a cross-functional team in February to conduct a comprehensive review of IRS's referral programs, including the information referral process. IRS plans to complete its review and have a plan for the organizational structure with defined lines of responsibility by December 2016. Once IRS approves the organizational structure, IRS will document new and updated screening and routing procedures in the Internal Revenue Manual as well as guidance for the Image Control Team and other IRS units receiving information referrals. IRS plans to implement our recommendation by September 2017.

    Recommendation: The Commissioner of Internal Revenue should ensure that the Internal Revenue Manual (IRM) has internal controls for processing information referrals by establishing, documenting, and implementing procedures for maintaining and communicating the information referral screening and routing guidelines to the Image Control Team (ICT) and IRS units receiving information referrals as well as procedures for ICT screening and routing operations.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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