IRS' Audits of Individual Taxpayers and Its Audit Quality Control System Need To Be Better
GGD-79-59: Published: Aug 15, 1979. Publicly Released: Sep 14, 1979.
- Full Report:
The quality of the Internal Revenue Services (IRS) audits of taxpayers' individual income tax returns needs to be improved. When IRS does less than quality audits some taxpayers may pay more than they owe, tax revenues may be lost, and voluntary compliance may suffer.
The IRS system for identifying and correcting less than quality audits is not as effective as it should be. In fact, the system led IRS to believe that audit quality was not in need of improvement. IRS definition of audit quality does not provide adequate measurement criteria. Most of the reasons for quality problems are connected to the time pressure exerted by management, whether real or perceived, to do audits as quickly as possible. Several weaknesses have kept IRS from receiving accurate and complete audit quality information. Reviewers have no standards to follow when reviewing audit cases. Management receives an incorrect picture of audit quality and reviews are inconsistent in their quality assessments. Reviewers sometimes expedite the review process by resolving questions over the telephone. The quality control system was unable to provide IRS with needed information. The data provided were not sufficient to tell the level of audit quality being attained or in identifying problem areas which need attention. Consequently, IRS cannot make informed decisions on necessary corrective actions or adequately consider audit quality when deciding how many audits to do.
Recommendation for Executive Action
Comments: Please call 202/512-6100 for additional information.
Recommendation: IRS should: (1) define audit quality in measureable terms so that examiners know what is expected of them; (2) establish criteria for measuring audit quality; (3) revise the quality control system so that all types of errors in terms of the established measurement criteria are recorded and reported; (4) establish standards for reviewers to follow in evaluating audit quality and in documenting their work so that the consistency and accuracy of their evaluations can be determined; (5) establish criteria to ensure uniform interpretation of the error-rate data being produced by the quality control system; and (6) establish a uniform sampling plan for selecting audit cases to evaluate. In addition, IRS should: (1) conduct a controlled study to determine how long it takes to do a quality audit and plan the annual number of audits to be done using these results; (2) clarify that tax auditors have authority to expand the audit to signficant items not identified by the classifier; (3) require examiners to probe for unclaimed deductions and credits; (4) establish standards for group managers to follow in evaluating audit quality and in documenting their review efforts; and (5) require tax auditors to document and reviewers to include in their reviews the taxpayer's reasons for claiming more than the tax auditor allowed, even though the taxpayer agreed to the adjustment of the issue.