Internal Revenue Service:

IRS Initiatives to Resolve Disputes Over Tax Liabilities

GGD-97-71: Published: May 9, 1997. Publicly Released: May 9, 1997.

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GAO reviewed the Internal Revenue Service's (IRS) initiatives to resolve tax liabilities disputes without litigation, focusing on IRS': (1) design of these initiatives and taxpayers' use of them; and (2) plans for evaluating the impacts of its new initiatives on the stated goals.

GAO noted that: (1) since 1990, IRS Appeals, Chief Counsel, and Examination have implemented at least eight initiatives to improve dispute resolution between IRS and taxpayers over certain tax issues; (2) each of the initiatives apply to specific groups of taxpayers, generally large corporations; (3) two of these initiatives seek to prevent disputes, three seek to resolve disputes before they reach Appeals, and two seek to resolve disputes in Appeals more quickly; (4) only one initiative uses a neutral third person as a mediator to help resolve disputes in Appeals; (5) generally, the goals of these initiatives are to reduce the overall time, costs, and taxpayer burden of dispute resolution; (6) in June 1996, IRS identified 276 taxpayers that had used or were using 1 of IRS' 8 initiatives to resolve tax disputes since 1990; (7) as of November 30, 1996, IRS data showed that these taxpayers had used IRS' initiatives to resolve 209 disputes over tax issues; (8) this is a small fraction of the relevant disputed tax issues since 1990; (9) various reasons exist for the limited use of the initiatives to date; (10) also, IRS officials said use of the initiatives ultimately depends on the willingness of eligible taxpayers; (11) IRS has established some performance measures intended to evaluate the impacts of its initiatives on reducing the time, costs, and taxpayer burden in dispute resolution; (12) GAO's analysis indicated that many of these measures will not allow IRS to directly gauge the initiatives' impacts on these goals; (13) Appeals has established some measures, such as the level of taxpayer satisfaction, that are more directly related to its initiatives' goals of reducing the time, costs, and burden of dispute resolution; (14) IRS officials said they thought it was too early to assess the impacts of all of their initiatives and was difficult to obtain data that would isolate the impacts, particularly when the issues being resolved are highly technical and can carry over to future tax years; (15) IRS officials described ongoing efforts to develop other measures, in conjunction with a special IRS task force, by the spring of 1998; and (16) measures that more directly gauge the impacts of the initiatives on their goals would help IRS determine, after sufficient data are available over a period of time, whether and the extent to which the initiatives had the intended effects of reducing the time, costs, and burden of resolving tax disputes.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: IRS' Large and Mid-Size Business (LMSB) Division completed the development of a set of balanced performance measures for its Fast Track Appeals Dispute Resolution pilot program in November 2001. LMSB has been analyzing the measures results throughout the pilot, and the data confirms that reductions in time, cost, and burden are accruing to both taxpayers and the IRS as a result of the pilot program. In November 2002, LMSB completed an analysis of the results and assessed the overall effectiveness and usefulness of these measures. Measures have been established for use with the permanent Fast Track Appeals Dispute Resolution Program.

    Recommendation: The Commissioner of Internal Revenue should hold the IRS functions accountable, in conjunction with the special measures task force, for completing the development of performance measures that directly gauge the impacts of the dispute resolution initiatives on their stated goals.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: IRS's LMSB (Large & Mid-Sized Business) Division completed the development of a set of balanced performance measures for its Fast Track Appeals Dispute Resolution pilot program in November 2001. LMSB has assessed the effectiveness and usefulness of these measures and has recommended a final set of measures for use with the permanent Fast Track Appeals Dispute Resolution Program.

    Recommendation: The Commissioner of Internal Revenue should hold the IRS functions accountable, in conjunction with the special measures task force, for setting milestones to measure these impacts.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Closed - Implemented

    Comments: LMSB completed the development of a set of balanced performance measures for its Fast Track Appeals Dispute Resolution pilot program in November 2001. LMSB has been analyzing the measures results throughout the pilot, and the data confirms that reductions in time, cost, and burden are accruing to both taxpayers and the IRS as a result of the pilot program. LMSB has completed an analysis of the results and assessed the overall effectiveness and usefulness of these measures. A final set of measure has been established for use with the permanent Fast Track Appeals Dispute Resolution Program. LMSB will then consider similar approaches for other dispute resolution initiatives.

    Recommendation: Using these measures, the functions should, after sufficient data are available over a period of time, analyze whether each initiative reduces the time, cost, and taxpayer burden of dispute resolution.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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