Tax Administration:

IRS Can Strengthen Its Efforts to See That Taxpayers Are Treated Properly

GGD-95-14: Published: Oct 26, 1994. Publicly Released: Oct 26, 1994.

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Pursuant to a congressional request, GAO reviewed whether the Internal Revenue Service (IRS) has adequate controls to prevent taxpayer abuse and whether additional appropriations are needed to strengthen IRS ability to prevent taxpayer mistreatment.

GAO found that: (1) although IRS has undertaken several initiatives to prevent taxpayer abuse, evidence of abuse remains; (2) IRS has implemented a wide range of controls, processes, and oversight offices to govern staff behavior in their contacts with taxpayers; (3) IRS needs to better define taxpayer abuse and develop management information about its frequency and nature so that it can strengthen abuse prevention procedures, and identify and minimize the frequency of future abuses, and Congress can better evaluate IRS performance in protecting taxpayers' rights; (4) IRS needs to strengthen its controls and procedures to reduce unauthorized access to computerized tax information by IRS employees, inappropriate selection of tax returns during information gathering projects, embezzlement of taxpayers' cash payments, questionable trust fund recovery penalties, and information-handling problems that contribute to taxpayer frustration; (5) proposed taxpayer protection legislation would aid IRS in providing taxpayers with information needed to better deal with trust fund recovery penalties; (6) the allegation of potential abuse involving possible improper contacts with IRS by White House staff was unfounded; (7) the White House has provided explicit guidance for its staff regarding IRS contacts and IRS should improve its procedures for handling White House contacts; and (8) although Congress may not need to provide additional appropriations to IRS to prevent taxpayer abuse, additional appropriations may be needed to resolve IRS information-handling problems as part of its Tax Systems Modernization (TSM) program.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: Legislation has been signed into law (H.R. 2337/P.L. 104-168) that requires IRS to disclose to a responsible person who requests in writing the results of its efforts to collect the trust fund recovery penalty from other responsible persons.

    Matter: To better enable taxpayers and IRS to resolve trust fund liabilities, Congress should amend the Internal Revenue Code to allow IRS to provide information to all responsible officers regarding its efforts to collect the trust fund recovery penalty from other responsible officers.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: IRS believes its current procedures regarding third party contacts cover these situations adequately.

    Recommendation: To strengthen controls for preventing taxpayer abuse within certain areas of IRS operations, the Commissioner of Internal Revenue should provide guidance for IRS employees on how they should handle White House contacts other than those involving tax checks of potential appointees or routine administrative matters.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: In agency comments, IRS stated that this is being done on a continuing basis through quality review programs and the Problem Resolution Program. This is part of a long-range effort by IRS to reduce taxpayer burden.

    Recommendation: To strengthen controls for preventing taxpayer abuse within certain areas of IRS operations, the Commissioner of Internal Revenue should seek ways to alleviate taxpayers' frustration in the short-term by analyzing the most prevalent kinds of information-handling problems and ensuring that requirements now being developed for TSM information systems provide for long-term solutions to those problems.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Closed - Implemented

    Comments: Since March 1996, IRS has included Notice 784, "Could You Be Personally Liable for Certain Unpaid Federal Taxes?" with the first balance-due notice for business taxes. Also, Publication 334, "Tax Guide for Small Business," and Circular E, "Employers Tax Guide," have been reviewed to explain the potential liability for trust fund taxes.

    Recommendation: To strengthen controls for preventing taxpayer abuse within certain areas of IRS operations, the Commissioner of Internal Revenue should better inform taxpayers about their responsibility and potential liability for the trust fund recovery penalty by providing taxpayers with special information packets.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  4. Status: Closed - Implemented

    Comments: On May 29, 1996, a procedural memo was issued to the Regional Chief Compliance Officers informing the field that all group managers were to make random, unannounced reconciliations of Forms 809 throughout the year, in addition to the yearly reconciliation made in conjunction with the Teller function. This new procedure went into effect immediately upon receipt of the memo by the field. IRS intends to publish the new procedures in the Internal Revenue Manual (IRM) as a revision to the Group Managers Handbook. However, to date it has been unable to do so because of a lack of publishing funds and an indefinite moratorium on IRM changes in conjunction with the ongoing efforts of a Compliance/Taxpayer Service IRM Redesign group. IRS also has added a statement to Publication 594 encouraging taxpayers to pay by check or money order.

    Recommendation: To strengthen controls for preventing taxpayer abuse within certain areas of IRS operations, the Commissioner of Internal Revenue should reconcile all outstanding Form 809 cash receipts more often than once a year, and stress in forms, notices, and publications that taxpayers should use checks or money orders whenever possible to pay their tax bills, rather than cash.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  5. Status: Closed - Implemented

    Comments: IRS is updating a memorandum to the field stressing the sensitive nature of information gathering projects and the need for management to closely monitor how these projects are carried out.

    Recommendation: To strengthen controls for preventing taxpayer abuse within certain areas of IRS operations, the Commissioner of Internal Revenue should revise the guidelines for information gathering projects to require that specific criteria be established for selecting taxpayers' returns to be examined during each project and to require that there is a separation of duties between staff who identify returns with potential for tax changes and staff who select the returns to be examined.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  6. Status: Closed - Implemented

    Comments: IRS identified several safeguards that will be incorporated into TSM systems, as well as some recent safeguards that have been incorporated into its existing computer systems. However, the TSM Security Architecture developed by IRS in November 1995 was found by GAO to be incomplete.

    Recommendation: To strengthen controls for preventing taxpayer abuse within certain areas of IRS operations, the Commissioner of Internal Revenue should ensure that TSM provides the capability to minimize unauthorized employee access to taxpayer information in the computer system that eventually replaces the Integrated Data Retrieval System.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  7. Status: Closed - Not Implemented

    Comments: IRS disagreed with this recommendation. The Acting Commissioner reasoned that taxpayers were "abused" only in cases in which IRS employees violated a law, regulation, or OGE Rules of Conduct and that the Service has in place systems to track and manage these cases. He further stated his belief that, viewed collectively, these systems identify and gather management information necessary to track such cases.

    Recommendation: To improve IRS ability to manage its interactions with taxpayers, the Commissioner of Internal Revenue should establish a service-wide definition of taxpayer abuse or mistreatment and identify and gather the management information needed to systematically track its nature and extent.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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