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    Subject Term: "Income taxes"

    30 publications with a total of 98 open recommendations including 6 priority recommendations
    Director: James R. McTigue, Jr.
    Phone: (202) 512-9110

    2 open recommendations
    Recommendation: The Commissioner of Internal Revenue should re-establish long-term, quantitative goals for improving voluntary compliance. (Recommendation 1)

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
    Recommendation: The Commissioner of Internal Revenue should instruct the appropriate officials to develop and document a strategy that outlines how IRS will use National Research Program data to update compliance strategies that could help address the tax gap. (Recommendation 2)

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
    Director: Wilshusen, Gregory C
    Phone: (202) 512-6244

    10 open recommendations
    Recommendation: To help strengthen information security controls over key financial and tax processing systems, and to more effectively implement security-related policies and plans, the Commissioner of Internal Revenue, in addition to addressing previously made but still unresolved recommendations from our prior audits, should implement the audit plans for the 12 systems and applications that we reviewed in the production computing environment.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
    Recommendation: To help strengthen information security controls over key financial and tax processing systems, and to more effectively implement security-related policies and plans, the Commissioner of Internal Revenue, in addition to addressing previously made but still unresolved recommendations from our prior audits, should ensure that system administrators and security operations analysts are alerted in the event of audit processing failures.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
    Recommendation: To help strengthen information security controls over key financial and tax processing systems, and to more effectively implement security-related policies and plans, the Commissioner of Internal Revenue, in addition to addressing previously made but still unresolved recommendations from our prior audits, should update information contingency plan test procedures to include updating contingency plans to reflect changes to the current operating environment.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
    Recommendation: To help strengthen information security controls over key financial and tax processing systems, and to more effectively implement security-related policies and plans, the Commissioner of Internal Revenue, in addition to addressing previously made but still unresolved recommendations from our prior audits, should ensure that approved risk-based decisions pertaining to database configurations are based on suitable justification.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
    Recommendation: To help strengthen information security controls over key financial and tax processing systems, and to more effectively implement security-related policies and plans, the Commissioner of Internal Revenue, in addition to addressing previously made but still unresolved recommendations from our prior audits, should develop, document, and implement the use of detailed procedures to facilitate the periodic review and analysis of audit records for its financial systems.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
    Recommendation: To help strengthen information security controls over key financial and tax processing systems, and to more effectively implement security-related policies and plans, the Commissioner of Internal Revenue, in addition to addressing previously made but still unresolved recommendations from our prior audits, should develop an enterprise-wide system owner procedural document to control critical mainframe operating system commands.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
    Recommendation: To help strengthen information security controls over key financial and tax processing systems, and to more effectively implement security-related policies and plans, the Commissioner of Internal Revenue, in addition to addressing previously made but still unresolved recommendations from our prior audits, should regularly update configuration standards and guidelines for network devices to incorporate recommendations from industry leaders, security agencies, and key practices from IRS partners to address known vulnerabilities applicable to IRS's environment.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
    Recommendation: To help strengthen information security controls over key financial and tax processing systems, and to more effectively implement security-related policies and plans, the Commissioner of Internal Revenue, in addition to addressing previously made but still unresolved recommendations from our prior audits, should implement a compliance verification application, or other appropriate process, to ensure configuration policies are comprehensively tested on the mainframe.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
    Recommendation: To help strengthen information security controls over key financial and tax processing systems, and to more effectively implement security-related policies and plans, the Commissioner of Internal Revenue, in addition to addressing previously made but still unresolved recommendations from our prior audits, should ensure that all known significant audit findings and recommendations related to financial reporting, which includes those in GAO's public and limited official use only reports, that directly relate to the objective of A-123 internal control tests are reviewed and monitored.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
    Recommendation: To help strengthen information security controls over key financial and tax processing systems, and to more effectively implement security-related policies and plans, the Commissioner of Internal Revenue, in addition to addressing previously made but still unresolved recommendations from our prior audits, should identify and review service organizations' listing of user controls that are deemed relevant and test those controls to appropriately draw conclusions about the operating effectiveness of controls.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
    Director: Beryl H. Davis
    Phone: (202) 512-2623

    15 open recommendations
    Recommendation: To improve annual reporting on PTC improper payments, control activities related to eligibility determinations, and calculations of advance PTC, the Secretary of Health and Human Services should direct the Administrator of CMS to annually report improper payment estimates and error rates for the advance PTC program.

    Agency: Department of Health and Human Services
    Status: Open

    Comments: HHS concurred with this recommendation. HHS stated that in FY 2016, it completed a risk assessment of the advance PTC program and reported results in the FY 2016 Agency Financial Report. Currently, HHS is unable to specify the year the rate and amount will be reported due to the complexity and timing of the error rate measurement methodology process, which involves conducting pilot testing, using those pilots to refine the methodology, and then undergoing the rulemaking process before implementing the methodology to ensure accurate and efficient reporting of an improper payment rate.
    Recommendation: To improve annual reporting on PTC improper payments, control activities related to eligibility determinations, and calculations of advance PTC, and until annual reporting of improper payment estimates and error rates for the advance PTC program is performed, the Secretary of Health and Human Services should direct the Administrator of CMS to disclose significant matters relating to the Improper Payments Information Act (IPIA) estimation, compliance, and reporting objectives for the advance PTC program in the agency financial report, including CMS's progress and timeline for expediting the achievement of those objectives and the basis for any delays in meeting IPIA requirements.

    Agency: Department of Health and Human Services
    Status: Open

    Comments: HHS concurred with this recommendation. HHS stated that it reported information on the status of the advance PTC risk assessment in the FY 2014 to FY 2016 Agency Financial Reports. Now that the program's improper payment risk assessment is completed, HHS will continue to report on its progress in designing and implementing an improper payment estimate for the advance PTC program in future Agency Financial Reports.
    Recommendation: To improve annual reporting on PTC improper payments, control activities related to eligibility determinations, and calculations of advance PTC, the Secretary of Health and Human Services should direct the Administrator of CMS to design and implement procedures for verifying the identities of phone and mail applicants to reasonably assure that ineligible individuals are not enrolled in qualified health plans in the marketplaces or provided advance PTC.

    Agency: Department of Health and Human Services
    Status: Open

    Comments: HHS neither agreed nor disagreed with this recommendation. However, regarding verification of filer identity, HHS stated that for individuals starting a new application via phone, the call center representatives use verbal attestations for identity verifications from individuals. HHS stated that for paper applications, individuals must provide names and complete addresses as well as other information. In addition, HHS stated that individuals must attest that the information they provide on all applications is accurate by signing under penalty of perjury. GAO continues to believe that because CMS does not validate the identities of individuals who apply by phone or mail, CMS is vulnerable to enrolling ineligible individuals in qualified health plans with advance PTC.
    Recommendation: To improve annual reporting on PTC improper payments, control activities related to eligibility determinations, and calculations of advance PTC, the Secretary of Health and Human Services should direct the Administrator of CMS to assess and document the feasibility and availability of obtaining sufficiently reliable data to verify individuals' residencies and lack of minimum essential coverage from nonfederal employers and, if appropriate, design and implement procedures for using such data in its verification processes.

    Agency: Department of Health and Human Services
    Status: Open

    Comments: HHS concurred with this recommendation. HHS stated that its previous assessments of available electronic data sources did not identify any comprehensive national data source for verifying residency. HHS recently conducted a study to assess the feasibility of developing an employer-sponsored coverage database and determined that development would be costly and highly burdensome given available resources. Additionally, HHS stated that it would impose extra burden on employers to collect the information needed to build a comprehensive employer-sponsored coverage database. HHS will continue to assess and document whether any sufficiently reliable data sources exist and examine the feasibility of implementation.
    Recommendation: To improve annual reporting on PTC improper payments, control activities related to eligibility determinations, and calculations of advance PTC, the Secretary of Health and Human Services should direct the Administrator of CMS to design and implement procedures for sending notices to nonfederal employers routinely and terminating advance PTC for individuals who have access to minimum essential coverage from their employers.

    Agency: Department of Health and Human Services
    Status: Open

    Comments: HHS neither agreed nor disagreed with this recommendation. However, regarding sending notices to nonfederal employers, HHS stated that it is evaluating its 2016 employer notice program to determine the best approach for notifying employers in the future. Such an evaluation may provide useful information; however, GAO continues to believe that designing and implementing procedures for sending notices to nonfederal employers and terminating advance PTC to individuals with access to employer-sponsored coverage can reduce the risk of providing advance PTC to issuers on behalf of ineligible individuals.
    Recommendation: To improve annual reporting on PTC improper payments, control activities related to eligibility determinations, and calculations of advance PTC, the Secretary of Health and Human Services should direct the Administrator of CMS to assess and document the feasibility of approaches for (1) identifying duplicate government-sponsored coverage for individuals receiving Medicaid and Children's Health Insurance Program coverage in federally facilitated marketplace states outside of the states where they attest to residing and (2) periodically verifying individuals' continued eligibility by working with other government agencies to identify changes in life circumstances that affect advance PTC9 eligibility--such as commencement of duplicate coverage or deaths-- that may occur during the plan year and, if appropriate, design and implement these verification processes.

    Agency: Department of Health and Human Services
    Status: Open

    Comments: HHS concurred with this recommendation. HHS stated that its preliminary analysis indicates that identifying government sponsored coverage for individuals receiving Medicaid and CHIP in Federally-facilitated Exchange states outside of the state where the applicant is enrolled in coverage would add several months to the time needed to execute the process of identifying duplicate enrollees and ending their advance PTC. Such additional time would significantly reduce the timeliness and effectiveness of the process and lead to an increase in burden on the state Medicaid systems used to verify duplicate coverage. HHS stated that it will continue this analysis and document the feasibility of approaches for identifying duplicate government sponsored coverage for individuals receiving Medicaid and CHIP coverage in Federally-facilitated Exchange states outside the application state of the consumer as well as periodically verifying individual's continued eligibility. In addition, HHS stated that it has implemented a Periodic Data Matching process to proactively identify consumers who may be receiving Minimum Essential Coverage through Medicare, and thus are no longer eligible for financial assistance to help pay for Exchange coverage. HHS is also exploring approaches to identifying Exchange enrollees who may be deceased and should thus be disenrolled from coverage.
    Recommendation: To improve annual reporting on PTC improper payments, control activities related to eligibility determinations, and calculations of advance PTC, the Secretary of Health and Human Services should direct the Administrator of CMS to assess and document the feasibility of approaches for terminating advance PTC on a timelier basis and, as appropriate, design and implement procedures for improving the timeliness of terminations.

    Agency: Department of Health and Human Services
    Status: Open

    Comments: HHS concurred with this recommendation. HHS stated that it continues to assess the feasibility of terminating advance PTC at various times of the month as a result of consumers not resolving inconsistencies. HHS currently terminates advance PTC between the 1st and 15th of the month following the end of the inconsistency clock in order to accommodate issuer processes. HHS stated that processing in these cohorts also allows for operational and quality efficiencies for HHS since processes can be completed in batches.
    Recommendation: To improve annual reporting on PTC improper payments, control activities related to eligibility determinations, and calculations of advance PTC, the Secretary of Health and Human Services should direct the Administrator of CMS to design and implement procedures for verifying compliance with applicable tax filing requirements--including the filing of the federal tax return and the Form 8962, Premium Tax Credit--necessary for individuals to continue to be eligible for advance PTC.

    Agency: Department of Health and Human Services
    Status: Open

    Comments: HHS concurred with this recommendation. HHS stated that the IRS provides information to Exchanges on consumers who received advance PTC in the prior coverage year but have not taken the necessary steps to file a tax return and reconcile advance PTC. Beginning in Open Enrollment for 2018, the Federally-facilitated Exchange will end advance PTC on behalf of the tax filers who have not filed or have not reconciled advance PTC when that information is reported to the Exchange by IRS.
    Recommendation: To improve annual reporting on PTC improper payments, control activities related to eligibility determinations, and calculations of advance PTC, the Secretary of Health and Human Services should direct the Administrator of CMS to design and implement procedures for verifying major life changes using documentation submitted by applicants enrolling during special enrollment periods.

    Agency: Department of Health and Human Services
    Status: Open

    Comments: HHS concurred with this recommendation. HHS stated that it is continually monitoring the operations of the Exchange and has taken several steps to analyze and strengthen current rules and procedures to ensure that only those who are eligible enroll through special enrollment periods. While special enrollment periods provide a criticial pathway to coverage for qualified individuals who experience qualifying events, it's equally important that special enrollment periods are not misused or abused. HHS also stated that in April 2017, it issued a final rule on Market Stabilization that promotes program integrity by requiring individuals to submit supporting documentation for special enrollment periods and ensures that only those who are eligible are able to enroll. It will encourage individuals to stay enrolled in coverage all year, reducing gaps in coverage and resulting in fewer individual mandate penalties and help to lower premiums. This process will begin in June 2017.
    Recommendation: To improve annual reporting on PTC improper payments, control activities related to eligibility determinations, and calculations of advance PTC, the Secretary of Health and Human Services should direct the Administrator of CMS to design and implement procedures for verifying with IRS (1) household incomes, when attested income amounts significantly exceed income amounts reported by IRS or other third-party sources, and (2) family sizes.

    Agency: Department of Health and Human Services
    Status: Open

    Comments: HHS neither agreed nor disagreed with this recommendation. However, regarding verification of household income and family sizes, HHS stated that as part of its eligibility verification requirements, it verifies consumer-reported income with data from IRS. However, HHS stated that because household incomes may fluctuate year to year, it is difficult for consumers to project income for the year in advance. According to HHS, in instances where applicant-reported income is higher than the IRS data, HHS accepts the consumer attestation. However, HHS stated that it will assess the feasibility and burden on individuals of setting a reasonable threshold for the generation of annual household income inconsistencies that would require additional verification for consumer-attested income that significantly exceeds income amounts reported by IRS or other third party sources. We believe that such an evaluation is a reasonable step to address our recommendation to enhance the effectiveness and efficiency of the program related to verification of household income. In addition, HHS stated that it currently accepts attestation when the family size provided by the individual does not match IRS's records. HHS stated that establishing a process to verify family size with IRS would require significant operational and privacy complexity. While we recognize that there may be certain complexities in the verification of family sizes, it is important that CMS develop policies and procedures to reasonably assure that such verifications are made on a regular basis.
    Recommendation: To comply with improper payments reporting requirements and improve procedures related to processing PTC information on tax returns, the Commissioner of Internal Revenue should direct the appropriate officials to assess the program against applicable IPIA-defined thresholds and conclude on its susceptibility to significant improper payments, and revise the scope of its improper payments susceptibility assessment for the PTC program to include instances in which advance PTC is greater than or equal to the amount of PTC claimed on the tax return. If the program meets the IPIA definition for being susceptible to significant improper payments based on this assessment, estimate and report improper payments associated with the PTC program consistent with IPIA requirements.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: The IRS partially agreed with this recommendation. IRS stated that instances in which the advance payment of the PTC is greater than or equal to the amount of the PTC claimed on the tax return do not result in the IRS increasing the outlay related to PTC, and so by definition these occurrences are not subject to IPIA, as amended. The IRS understands and shares the concern about the misreporting of items on tax returns, including cases where the taxpayer misreports excess advance PTC, but the IRS has many compliance programs that operate outside the scope of IPIA and that address taxpayer error and noncompliance. The IRS conducted its fiscal year 2016 PTC improper payment risk assessment consistent with guidance from the Office of Management and Budget (OMB), which concurred with our methodology. However, the IRS is committed to discussing with OMB a future change to the agreed-upon procedures to assessing PTC improper payments as part of our larger and ongoing discussions with OMB about the administration of refundable tax credits and the challenges of reporting those credits through the framework of improper payments legislation and guidance.
    Recommendation: To comply with improper payments reporting requirements and improve procedures related to processing PTC information on tax returns, the Commissioner of Internal Revenue should direct the appropriate officials to assess and document the feasibility of approaches for incorporating information from the marketplaces on individuals who did not demonstrate that they met the eligibility requirements for citizenship or lawful presence in the tax compliance process. If determined feasible, IRS should work with Treasury to require marketplaces to periodically provide such information on individuals and use such information to recover advance PTC made for those individuals.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: The IRS agreed with this recommendation. IRS stated that it will evaluate the feasibility of receiving information from the marketplaces, and the value of using that information in its processes. If IRS determines that obtaining the data would be feasible and using it would be cost-effective, IRS will consult with Treasury on regulations or other guidance needed to obtain the information. Although eligibility determinations for the advance PTC are made outside the IRS's purview, the IRS has taken steps to ensure that the PTC is administered fairly and properly. For example, IRS has updated guidance in Publication 974, Premium Tax Credit, to clarify that any advance payment of the PTC made on behalf of individuals who did not meet the citizenship or lawful presence requirements must be repaid in full. Taxpayers are required to report the excess advance PTC on their tax returns. If they do not, IRS will address it through post-filing compliance. We will request and review supporting documentation for IRS's reported actions.
    Recommendation: To comply with improper payments reporting requirements and improve procedures related to processing PTC information on tax returns, the Commissioner of Internal Revenue should direct the appropriate officials to assess whether IRS should require its examiners to verify health care coverage of individuals to determine eligibility for PTC. To do this, IRS should complete its evaluation of the level of noncompliance related to duplicate health insurance coverage. Based on this evaluation and if cost effective, IRS should design and implement formal policies and procedures to routinely identify individuals inappropriately receiving PTC because of their eligibility for or enrollment in health care programs outside of the marketplaces and notify such individuals of their ineligibility for PTC.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: IRS agreed with this recommendation. IRS stated that it developed an Affordable Care Act (ACA) Compliance Strategy in October 2016, which included post-filing checks for the PTC. The IRS must rely upon post refund checks to verify if taxpayers had other healthcare coverage and therefore were not eligible to claim the PTC. For tax year 2017 the IRS plans to implement additional capabilities to evaluate coverage. The IRS will continue to evaluate the results and design and implement cost effective policies and procedures that routinely identify individuals inappropriately receiving PTC, as warranted.
    Recommendation: To comply with improper payments reporting requirements and improve procedures related to processing PTC information on tax returns, the Commissioner of Internal Revenue should direct the appropriate officials to design and implement procedures in the Internal Revenue Manual (IRM) for examiners in the post-filing compliance units to review tax returns for health insurance coverage for the entire year, and to identify and assess individual shared responsibility payments (SRP) from those who are not appropriately reporting SRPs on their tax returns.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: IRS disagreed with this recommendation. However, IRS stated that, among other things, it has drafted a new IRM section for examiners who are responsible for reviewing tax returns to determine whether health insurance is reflected for the taxpayer for the entire year, and for identifying and assessing SRP on taxpayers who are not appropriately reporting SRP on their tax returns. IRS stated that the IRM section is pending approval by Exam Policy. Although IRS stated that it disagreed with our recommendation, we believe that the actions that IRS described in its response to our draft report would sufficiently address our recommendation if implemented effectively.
    Recommendation: To comply with improper payments reporting requirements and improve procedures related to processing PTC information on tax returns, the Commissioner of Internal Revenue should direct the appropriate officials to design and implement procedures in the IRM to regularly notify nonfilers of the requirement to file tax returns in order to continue to receive advance PTC in the future.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: The IRS partially agreed with this recommendation. IRS stated that using a research-based approach to evaluate the 2015 tax filing season, it developed a post-compliance process for sending notices to individuals who received advance PTC paid on their behalf in the previous calendar year but failed to file a tax return and also to those who requested an extension to file. IRS stated that being flexible in its approach has allowed IRS to refine the process to improve efficiency and effectiveness. IRS further stated that based on the 2017 research analysis, IRS will determine whether the information should be included in an existing IRM. We agree that IRS should review its process to improve the efficiency and effectiveness of its operations. However, we continue to believe that designing and implementing procedures to regularly notify non-filers of the need to file to continue receiving advance PTC decreases the risk that the ad hoc notification process will not be followed consistently in each filing season.
    Director: James R. McTigue Jr.
    Phone: (202) 512-9110

    14 open recommendations
    Recommendation: As LB&I finishes implementing its new approach and decides which selection methods will be used with the campaigns, the Commissioner of Internal Revenue should ensure that the documentation gaps in policies and procedures are addressed for six internal control principles for the selection methods that will be used, including defining objectives to identify risk and defining risk tolerances.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
    Recommendation: As LB&I finishes implementing its new approach and decides which selection methods will be used with the campaigns, the Commissioner of Internal Revenue should ensure that the documentation gaps in policies and procedures are addressed for six internal control principles for the selection methods that will be used, including identifying, analyzing, and responding to risks to achieving the objectives.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
    Recommendation: As LB&I finishes implementing its new approach and decides which selection methods will be used with the campaigns, the Commissioner of Internal Revenue should ensure that the documentation gaps in policies and procedures are addressed for six internal control principles for the selection methods that will be used, including designing control activities to achieve objectives and responding to risks.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
    Recommendation: As LB&I finishes implementing its new approach and decides which selection methods will be used with the campaigns, the Commissioner of Internal Revenue should ensure that the documentation gaps in policies and procedures are addressed for six internal control principles for the selection methods that will be used, including using quality information to achieve objectives.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
    Recommendation: As LB&I finishes implementing its new approach and decides which selection methods will be used with the campaigns, the Commissioner of Internal Revenue should ensure that the documentation gaps in policies and procedures are addressed for six internal control principles for the selection methods that will be used, including communicating internally the necessary quality information about the objectives.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
    Recommendation: As LB&I finishes implementing its new approach and decides which selection methods will be used with the campaigns, the Commissioner of Internal Revenue should ensure that the documentation gaps in policies and procedures are addressed for six internal control principles for the selection methods that will be used, including evaluating issues and remediating identified internal control deficiencies on a timely basis.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
    Recommendation: Also in accordance with federal internal control standards, the Commissioner should direct LB&I to adopt a standard process for monitoring audit selection decisions in the field, such as by modifying the existing quality control system.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
    Recommendation: To further ensure that the new campaigns under LB&I's new approach for addressing tax compliance are implemented successfully, the Commissioner should create a timetable with specific dates for implementing its new compliance approach.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
    Recommendation: To further ensure that the new campaigns under LB&I's new approach for addressing tax compliance are implemented successfully, the Commissioner should establish metrics to help determine whether the campaign effort overall meets LB&I's goals.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
    Recommendation: To further ensure that the new campaigns under LB&I's new approach for addressing tax compliance are implemented successfully, the Commissioner should finalize and document plans to evaluate the human resources expended on campaign activities.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
    Recommendation: To further ensure that the new campaigns under LB&I's new approach for addressing tax compliance are implemented successfully, the Commissioner should document lessons learned from stakeholder input and past performance.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
    Recommendation: To further ensure that the new campaigns under LB&I's new approach for addressing tax compliance are implemented successfully, the Commissioner should monitor overall performance across future campaigns, not just individual compliance projects, and in doing so ensure that the data used for monitoring accounts for the costs beyond the auditor's time can clearly be linked with specific selection methods, including the Discriminant Analysis System method, to the extent that the selection methods continue to operate.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
    Recommendation: To further ensure that the new campaigns under LB&I's new approach for addressing tax compliance are implemented successfully, the Commissioner should develop and document criteria to use in choosing selection methods for campaigns using audits.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
    Recommendation: To further ensure that the new campaigns under LB&I's new approach for addressing tax compliance are implemented successfully, the Commissioner should set a timetable to analyze and mitigate risks and document specific metrics for assessing mitigation of identified risks.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.
    Director: James R. McTigue, Jr.
    Phone: (202) 512-9110

    4 open recommendations
    Recommendation: To strengthen efforts to identify and address noncompliance with the EITC, ACTC, and AOTC, the Commissioner of Internal Revenue should direct Refundable Credits Policy and Program Management (RCPPM) to, building on current efforts, develop a comprehensive operational strategy that includes all the RTCs for which RCPPM is responsible. The strategy could include use of error rates and amounts, evaluation and guidance on the proper use of indicators like no-change and default rates, and guidance on how to weigh trade-offs between equity and return on investment in resource allocations.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: As of February 2017, IRS is taking steps toward developing a comprehensive compliance strategy that includes the three refundable tax credits GAO reviewed, as well as the PTC. These steps include initial planning meetings with Lean Six Sigma consultants and refundable credit policy and program managers and soliciting volunteers for the teams needed to develop the strategy. GAO will continue to monitor the progress of this effort.
    Recommendation: To strengthen efforts to identify and address noncompliance with the EITC, ACTC, and AOTC, the Commissioner of Internal Revenue should direct Refundable Credits Policy and Program Management (RCPPM) to assess whether the data received from the Department of Education's Postsecondary Education Participants System (PEPS) database (a) are sufficiently complete and accurate to reliably correct tax returns at filing and (b) provide additional information that could be used to identify returns for examination; if warranted by this research, IRS should use this information to seek legislative authority to correct tax returns at filing based on PEPS data.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: In February 2016, Refundable Credits Policy and Program Management asked Wage & Investment Strategy & Solutions (WISS) to test the Department of Education's Postsecondary Education Participants System database (PEPS) to match and validate the EINS reported on Form 8863, Education Credits. According to IRS, preliminary assessment of the PEPS database indicates that it is not a sufficiently complete database to confirm AOTC eligibility during return processing or post processing. GAO reviewed the study results and submitted several follow-up questions to IRS in May 2017. GAO followed-up with IRS on the status of that information request in June 2017.
    Recommendation: To strengthen efforts to identify and address noncompliance with the EITC, ACTC, and AOTC, the Commissioner of Internal Revenue should direct Refundable Credits Policy and Program Management (RCPPM) to take necessary steps to ensure the reliability of collections data and periodically review that data to (a) compute a collections rate for post-refund enforcement activities and (b) determine what additional analyses would provide useful information about compliance results and costs of post-refund audits and document-matching reviews.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: IRS raised concerns about the cost of studying collections data for post-refund enforcement activities. GAO recognizes that gathering collections data has costs. However, a significant amount of enforcement activity is occurring after refunds have been paid, and use of these data could better inform resource allocation decisions and improve the overall efficiency of enforcement efforts.
    Recommendation: To strengthen efforts to identify and address noncompliance with the EITC, ACTC, and AOTC, the Commissioner of Internal Revenue should direct Refundable Credits Policy and Program Management (RCPPM) to, as RCPPM begins efforts to track the number of erroneous returns claiming the ACTC or AOTC identified through pre-refund enforcement activities, such as screening filters and use of math error authority, it should develop and implement a plan to collect and analyze these data that includes such characteristics as identifying timing goals, resource requirements, and the appropriate methodologies for analyzing and applying the data to compliance issues.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: As of February 2017, IRS is taking steps toward developing a comprehensive compliance strategy that includes the three refundable tax credits GAO reviewed, as well as the PTC. These steps include initial planning meetings with Lean Six Sigma consultants and refundable credit policy and program managers and soliciting volunteers for the teams needed to develop the strategy. GAO will continue to monitor the progress of this effort.
    Director: Jessica Lucas-Judy
    Phone: (202) 512-9110

    7 open recommendations
    including 1 priority recommendation
    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: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: As of January 2017, IRS has taken some action to implement this recommendation. IRS told us it established a cross-functional team in February 2016 to conduct a comprehensive review of IRS's referral programs, including the information referral process. IRS completed its review and plan for the organizational structure in December 2016. The Wage and Investment division will retain the intake and screening responsibilities. The Small Business and Self-Employed division will be responsible for defining objectives and monitoring results for information referrals. We continue to monitor IRS implementation of the planned cost and results measurement and reporting.
    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: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: As of January 2017, IRS has taken some action on this recommendation. IRS told us it established a cross-functional team in February 2016 to conduct a comprehensive review of IRS's referral programs, including the information referral process. IRS completed its review and plan for the organizational structure in 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 this 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: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: As of January 2017, IRS has taken some action to implement this recommendation. IRS told us it established a cross-functional team in February 2016 to conduct a comprehensive review of IRS's referral programs, including the information referral process. IRS completed its review and plan for the organizational structure in 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 this 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: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: As of January 2017, IRS has taken some action to implement this recommendation. IRS told us it established a cross-functional team in February 2016 to conduct a comprehensive review of IRS's referral programs, including the information referral process. IRS completed its review and plan for the organizational structure in 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 this recommendation by September 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: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: As of March 2017, IRS had taken some action to establish a coordination mechanism to help IRS referral programs communicate and share information, as GAO recommended in its February 2016 report. IRS established a cross-functional team in February 2016 to comprehensively review IRS's referral programs. Among other things, this team is to explore aligning all IRS referral programs within an organizational structure to more efficiently coordinate, communicate, and share information across the referral programs by December 2017. As of March 2017, the Deputy Commissioner of Services and Enforcement directed the largest recipient of referrals to facilitate quarterly meetings in order to improve communication and information sharing across multiple IRS referral programs. The meetings are scheduled to begin by summer 2017.
    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: Department of the Treasury: Internal Revenue Service
    Status: Open
    Priority recommendation

    Comments: As of March 2017, IRS had taken some action to establish a mechanism to coordinate on a plan and timeline for developing a consolidated, online referral submission, as GAO recommended in its February 2016 report. IRS established a cross-functional team in February 2016 to comprehensively review IRS's referral programs. Among other things, the team has explored 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. In November 2016, the cross-functional team requested information technology resources for fiscal year 2019 to develop an online system which could potentially replace four separate referral forms, filter out incomplete referrals, and electronically route referrals for further IRS action. IRS assessed options for consolidating all forms for the various referral programs and determined that consolidating them to a single form was not feasible due to the technical nature and complexity of the various referral types. As of March 2017, the cross-functional team has worked with IRS On Line Services to develop an online application prototype and is also considering the cost-effectiveness of a commercial off-the-shelf product. According to the IRS, the online application will make it easier for the public to report possible tax violations. Also, the online system will improve efficiency in coordination and provide reports that will be incorporated into the quarterly coordination meetings, to achieve a broader collaborative mechanism across the multiple referral programs. IRS has said it will consider further consolidating the referral programs once the online application is in place.
    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: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: As of January 2017, IRS has taken some action on this recommendation. IRS told us it established a cross-functional team in February 2016 to conduct a comprehensive review of IRS's referral programs, including the information referral process. IRS completed its review and plan for the organizational structure in 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 this recommendation by September 2017.
    Director: Mctigue Jr, James R
    Phone: (202) 512-9110

    2 open recommendations
    Recommendation: To better ensure the EO unit's adherence to the TE/GE division's mission of "applying the tax law with integrity and fairness to all" in selecting exempt organizations to review or examine, the Commissioner of Internal Revenue should direct EO to develop, document, and implement additional monitoring procedures in order to ensure case selection controls, including ensuring that procedures for obtaining required signatures and documenting explanations for selection decisions, are being followed.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: The Internal Revenue Service's Exempt Organizations (EO) unit issued a memo, in October 2015, to Area Managers requiring that they complete monthly sample reviews of closed and dismissed cases to ensure that proper managerial approvals are documented. EO also issued a memo, in April 2016, to examination staff and managers, emphasizing the importance of documenting justifications for examination dismissals. Additionally, operational reviews are conducted to ensure that the monitoring samples are being reviewed. In January 2017, EO's Exempt Organization Classification Area (EOCA) resumed quality reviews, which includes a review of documentation and EOCA database entries. As of May 2017, monitoring has not increased for EO referrals.
    Recommendation: In addition, the Commissioner of Internal Revenue should determine what additional controls may be needed to ensure that all closed examination files are tracked and maintained accurately.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: In 2016, the Tax Exempt and Government Entities Unit (TE/GE) reviewed its internal processes and procedures and met with the Wage and investment (W&I) Files Unit to discuss procedures for requesting closed case files, according to Exempt Organizations Examinations (EOE) officials. TE/GE developed a desk guide for the Exempt Organizations Case Selection and Delivery Unit to document the procedures for requesting, tracking and monitoring closed case file requests. In addition, TE/GE provided recommendations to the W&I Files unit on modifications to the Internal Revenue Manual (IRM) that would facilitate coordination; as of June 2017, W&I has not implemented these recommendations. The EOE unit will also continue to expand electronic case management efficiencies.
    Director: James R.McTigue, Jr.
    Phone: (202) 512-9110

    3 open recommendations
    Recommendation: Congress should consider expanding the mandate for 501(c)(3) organizations to electronically file their tax returns to cover a greater share of filed returns.

    Agency: Congress
    Status: Open

    Comments: The threshold over which Treasury/IRS can require electronic reporting is still 250 returns. As of February 18, 2016, there is no proposed legislation in the current Congress which would amend this threshold.
    Recommendation: To improve oversight of charitable organizations, the Commissioner of Internal Revenue should direct EO to develop quantitative, results-oriented compliance goals and additional performance measures and indicators that can be used to assess impact of exams and other enforcement activities on compliance.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: IRS reported it has taken a series of actions to implement this recommendation. First, in FY 2016, IRS implemented a new data-driven case selection model to identify the most non-compliant returns based upon what is reported. Starting in FY 2017, IRS plans to measure the effectiveness of these new data-analytic models and use that performance information as the basis for ongoing discussions with EO Examinations managers on which queries are yielding results and which need to be modified or deleted from the work plan. IRS also developed a weighted disposal code measure, which is intended to help examiners prioritize case selection according to criteria that give more weight to more consequential outcomes. For example, a data mining query generating a lot of revocations would take priority over a query that may only generate written advisories. IRS incorporated the new measure into its current and future work plan monitoring and projections. IRS also began discussions with TE/GE Research and SOI to figure out how to define compliance for the EO population, establish a compliance baseline, and how to develop methods to measure the impact of enforcement actions on voluntary compliance levels in the EO population. Once all these actions are fully implemented, IRS will be in a better position to use this information to develop quantitative, results-oriented compliance goals and additional performance measures and indicators that can be used to assess impact of exams and other enforcement activities on compliance.
    Recommendation: To improve oversight of charitable organizations, the Commissioner of Internal Revenue should continue to work with Treasury officials to do the following: review the flexibility afforded under the Pension Protection Act of 2006 consistent with statutory protections of taxpayer data, clarify what flexibility state regulators have in how they protect and use federal tax data, make modifications to guidance, policies, or regulations as warranted, and clearly communicate this information with state charity regulators.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: In 2016, IRS reported taking three actions to implement this recommendation. First, IRS coordinated a training session for State Charity Regulators on safeguards. The training included a review of the Safeguards Security Report (SSR) and covered several topics including current period safeguard activities, changes to safeguarding procedures, and disposal of information. According to IRS, there were 53 participants representing 45 different states. IRS also revised the 6104 (c)Memorandum of Understanding (MOU) inserting a new paragraph that instructs state charity regulators to contact the Tax Exempt/Government Entities (TEGE) Liaison if there are questions about whether an administrative or judicial proceeding has been initiated. This puts in place a mechanism to provide assurance to the regulator if they have concerns. Third, TEGE officials met with the Department of the Treasury and Office of Chief Counsel to discuss the Priority Guidance Plan for 2015-2016. According to IRS, this meeting included a discussion about flexibility afforded under the PPA and how state regulators can protect and use federal tax data consistent with statutory protections of taxpayer data. More recently, IRS informed us that they made additional changes to the MOU to address concerns raised by state charity officials about re-disclosures. IRS also reported on information-sharing efforts to publicize these changes among state charity regulators including a presentation at the annual National Association of State Charity Officials conference and a virtual presentation that reached over 100 participants representing 33 states. IRS informed state charity regulators that the MOU had been revised to address their concerns about re-disclosures in proceedings had been addressed in the MOU. The TEGE Liaison made a presentation at the Annual NASCO Conference in Washington DC on October 6, 2015 and included this information in the presentation.
    Director: Mctigue Jr, James R
    Phone: (202) 512-7968

    3 open recommendations
    including 2 priority recommendations
    Recommendation: Congress should consider altering the TEFRA audit procedures to require partnerships to designate a qualified Tax Matters Partner (TMP) and, if that TMP is an entity, to also identify a representative who is an individual and for partnerships to keep the designation up to date.

    Agency: Congress
    Status: Open

    Comments: In October 2015, H.R. 1314 was amended to include the Bipartisan Budget Act of 2015, which included provisions that would repeal the TEFRA audit procedures and put in place new audit procedures for partnerships with more than 100 partners. This legislation was signed into law in November 2015. According to the legislation, the new audit procedures would require partnerships to designate a qualified representative for the partnership audit. However, the legislation did not require audited partnerships to identify a representative who is an individual nor do they require that audited partnerships keep the designation up to date as suggested in GAO's report. The legislation does give IRS the authority to develop regulations about how the partnership representative should be designated by the partnership and such regulations may address the items in GAO's report. Currently regulations are under development at IRS. The legislation specifies that the new partnership audit procedures apply to partnership returns filed for tax years beginning after December 31, 2017.
    Recommendation: The Commissioner of Internal Revenue should track the results of large partnerships audits: (a) define a large partnership based on asset size and number of partners; (b) revise the activity codes to align with the large partnership definition; and (c) separately account for field audits and campus audits.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open
    Priority recommendation

    Comments: No executive action taken. IRS said that it plans to address parts of GAO's September 2014 recommendation about tracking the audit results on large partnerships but has not yet done so. In November 2014, IRS said that it plans to define large partnerships using asset size and the number of partners and to find an alternative method to account for field and campus large partnership cases using existing capabilities, but that revising IRS's activity codes to enable it to track large partnership audits would be dependent on future funding. In March 2017, IRS told GAO that it would need until September 2017 to address this recommendation as IRS continues to monitor efforts to implement the Bipartisan Budget Act (BBA). Section 1101 of the Bipartisan Budget Act of 2015 (Public law 114-74), which was enacted in November 2015, includes provisions that repeal TEFRA audit procedures and put in place audit procedures that would require partnerships with more than 100 partners to pay audit adjustments at the partnership level, among other changes. IRS explained that these changes significantly alter the procedural and administrative components of partnerships. IRS said it would need this additional time to analyze options and determine the most appropriate steps for effectively tracking the results of large partnership audits. Without changes to tracking partnership audit results, IRS cannot conduct analysis to identify ways to better plan and use IRS resources in auditing large partnerships as well as analyze whether large partnerships present a high noncompliance risk.
    Recommendation: The Commissioner of Internal Revenue should analyze the audit results by these activity codes and types of audits to identify opportunities to better plan and use IRS resources in auditing large partnerships.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open
    Priority recommendation

    Comments: As of October 2016, the Internal Revenue Service (IRS) said that based on completion of GAO's recommendations on tracking results and after sufficient large partnership audit results have been obtained, it still plans to conduct a study to analyze these results and recommend any ways in which resource use can be improved. IRS still expects to complete this analysis by September 2018.
    Director: Mctigue Jr, James R
    Phone: (202) 512-7968

    8 open recommendations
    including 1 priority recommendation
    Recommendation: If IRS delays are continuing, the Commissioner of the Internal Revenue Service should further revise the notices to provide more realistic response times based on the data and take other appropriate actions to ensure efficient use of IRS tax examiner resources. For example, IRS could choose to provide taxpayers who call IRS with a recorded message notifying them of delays in IRS responding and when to expected an IRS response.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: IRS revised the automated telephone message that taxpayers hear when they call but has not revised its notices. The new message provides taxpayers information on the correspondence audit workload and time frames and asks that they allow a certain number of days before calling to check on the status of their audit. However, IRS has yet to further revise notices to provide more realistic time frames. In July 2016, IRS officials said they were in the process of revising the notices in order to allow individual correspondence audit offices to enter a customized response date based on their respective inventory levels at the time notices are sent. As of March 2017, IRS officials said additional programming changes will delay implementation until July 2017.
    Recommendation: To clarify the desired results of the correspondence audit program and its linkages to IRS-wide activities, the Commissioner of the Internal Revenue Service should establish formal program objectives.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open
    Priority recommendation

    Comments: IRS correspondence audit program officials planned a working group to develop formal program objectives. In November 2016, IRS officials provided documents intended to define the program objectives, but the objectives were unclear. As of March 2017, officials said they had no planned date by which to clearly document the objectives, but said they expect to describe them in program guidance changes anticipated in the next 12 to 18 months.
    Recommendation: To clarify the desired results of the correspondence audit program and its linkages to IRS-wide activities, the Commissioner of the Internal Revenue Service should ensure that the program measures reflect those objectives.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: IRS officials said that, among other actions, they plan to review and update program documentation and guidance as warranted to ensure a clear link between correspondence audit program objectives and related measures. IRS officials provided documentation in August 2016, but program measures could not be clearly linked to objectives because the objectives were not clear. As of March 2017, officials had no planned date by which to clearly document the program objectives and their links with program measures.
    Recommendation: To clarify the desired results of the correspondence audit program and its linkages to IRS-wide activities, the Commissioner of the Internal Revenue Service should clearly link those measures with strategic IRS-wide goals on ensuring compliance in a cost-effective way while minimizing taxpayer burden.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: IRS officials said that, among other actions, they plan to review and update program documentation and guidance as warranted to ensure that program measures clearly link to IRS strategic goals. IRS officials provided documentation in August 2016, but measures for the program could not be clearly linked to either the program objectives or IRS goals because the objectives were not clear. As of March 2017, officials had no planned date by which to clearly document how the program measures link to the objectives and IRS strategic goals.
    Recommendation: To better inform decisions being made about the correspondence audit program, the Commissioner of the Internal Revenue Service should document how the decisions are to be made using the performance information (including criteria and tolerances used).

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: IRS officials agreed with the recommendation and said they would thoroughly document the program plan development process but did not refer to documenting how program decisions are to be made using performance information. In April 2016, officials provided documents describing current correspondence audit planning processes, but the documents lacked specifics on the decisions and performance information, criteria, and tolerances used. IRS officials said they would provide documentation on these specific details in Spring 2017.
    Recommendation: To better inform decisions being made about the correspondence audit program, the Commissioner of the Internal Revenue Service should track and use other program data that have not been used to provide more complete performance information. Examples of data that could be tracked and used include how much of the recommended tax amounts is collected over time; taxpayer burden and experience such as how often audits are resolved in one contact, how often taxpayers correspond or call, and how long taxpayers wait for IRS to respond to their documents and for the audit to close; and costs beyond the direct audit time, such as the costs to answer taxpayer calls per audit, assess the recommended tax, and collect those tax assessments.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: IRS officials said they would evaluate the methodology used in several existing studies to determine the most productive use of collectability data and evaluate the feasibility of collecting and using additional data. In April 2016, officials provided information on researching and testing of a new audit planning method during fiscal year 2016, using costs and collection results data. In November 2016, IRS officials said they had implemented the planning method to consider collection results for fiscal year 2017 but had not yet provided supporting documentation on how the method has used the collection results or on the status of efforts to use other program data, such as whether or when IRS will use performance information on costs and taxpayer burden related to audits. IRS officials said they will provide the documentation in Spring 2017.
    Recommendation: To better ensure an effective investment of resources in the CEAP efforts, the Commissioner of the Internal Revenue Service should clearly document the intended benefits of ongoing efforts to address identified problems, and the process for measuring and tracking actual benefits.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: IRS Correspondence audit program officials said they would document the expected benefits of ongoing changes by June 2016. We have since asked IRS officials to provide related documents. As of April 2017, we are awaiting documents.
    Recommendation: To better ensure an effective investment of resources in the CEAP efforts, the Commissioner of the Internal Revenue Service should develop a plan and timeline for implementing the CEAP contractor's recommendations on possible ways to improve the (a) selection of correspondence audit workload and (b) allocation of resources between providing telephone assistance and reviewing taxpayer correspondence to resolve audits or develop justifications for not implementing the recommendations.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: IRS officials agreed with the recommendation and said they would continue to pursue efforts with research functions to further improve workload selection and maximize resource usage. However, they did not refer to any plan or timeline for implementing contractor recommendations to improve the selection of correspondence audit workload and allocation of examiner resources, or develop justifications for not implementing those recommendations. In March 2017, officials confirmed that IRS does not intend to implement the contractor's recommendations or to evaluate them, for example, by developing justifications for not implementing them.
    Director: Mctigue Jr, James R
    Phone: (202) 512-7968

    2 open recommendations
    Recommendation: Congress should consider expanding the mandate for partnerships and corporations to electronically file their tax returns to cover a greater share of filed returns.

    Agency: Congress
    Status: Open

    Comments: No legislation enacted as of March 2017. Current law requires entities that file more than 250 returns during a year or partnerships with more than 100 partners to file electronically. A bill has been introduced in Congress, S. 3178, which would gradually lower the threshold to 20 returns. Requiring greater digitization of tax return information, as GAO suggested in May 2014, would help the Internal Revenue Service identify which partnership and S corporation tax returns would be most productive to examine. Improving IRS's selection of partnership and S corporation returns to examine would also benefit compliant taxpayers whose returns may otherwise be selected for examination. Further, expanded e-filing would reduce IRS's tax return processing costs.
    Recommendation: While IRS works to improve the quality of its Schedule K-1 data, the Commissioner of Internal Revenue should develop a plan for conducting testing or other analysis to determine whether the improved Schedule K-1 data, perhaps combined with other IRS information about businesses and taxpayers, could be used more effectively to ensure compliance with the reporting of flow-through income.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: IRS stated that it understands the objective of this recommendation and, at such time that resources are available to enhance capabilities, it would consider the proposed methodology of advanced testing. However, based on current and anticipated budget constraints, it does not expect its plans to change in the near future.
    Director: Garcia-diaz, Daniel
    Phone: (202) 512-3841

    1 open recommendations
    including 1 priority recommendation
    Recommendation: To further improve agency controls that help prevent payments to participants whose incomes exceed eligibility limits, the Secretary of Agriculture should direct the Administrator of FSA to implement a process to verify that accountants' and attorneys' statements accurately reflect participants' incomes as reported on income tax returns and supporting documentation or other equivalent documents.

    Agency: Department of Agriculture
    Status: Open
    Priority recommendation

    Comments: The Department agreed with this recommendation at the time of our report but, as of April 2017, has not acted to implement it because of the sensitive nature of questioning accountants' and attorneys' professional judgement. However, we believe doing so would reduce the likelihood of improper payments supported by U.S. taxpayers and would be an appropriate action for the agency to take.
    Director: White, James R
    Phone: (202) 512-9110

    1 open recommendations
    Recommendation: To ensure that IRS is meeting the stated goals of CAP, the Principal Deputy Commissioner of Internal Revenue and Deputy Commissioner for Services and Enforcement should track savings from Compliance Maintenance and CAP overall and develop a plan for reinvesting any savings.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: As of March 2017, IRS had taken some steps to implement this recommendation, but is not fully tracking the amount of dollar savings from using CAP nor developing a plan to reinvest any savings, as GAO recommended in August 2013. IRS is tracking savings by analyzing and comparing the workload inventory of account coordinators who handle CAP cases against team coordinators who handle non-CAP cases. This caseload comparison is a part of IRS's annual CAP evaluation and was included in its June 2014 CAP evaluation plan. Based on GAO's review of the evaluation plan and results, IRS's caseload comparison did not show the amount of dollar savings from CAP. The comparison for tax years 2010 through 2012 showed that account coordinators handling CAP cases exclusively or in conjunction with non-CAP cases have a larger caseload than team coordinators handling non-CAP cases. In addition, IRS has not developed a plan for reinvesting any savings, as GAO recommended in August 2013. Such a plan could help IRS increase audit coverage. IRS stated that it cannot measure the CAP's impact on audit coverage because audit coverage is based on staffing and compliance priorities. Also, IRS said that while quantifying monetary savings would be difficult, it has reinvested its savings by expanding account coordinators' caseloads as shown in the average caseload of CAP and non-CAP cases worked. However, without a plan for tracking savings and using them to increase audit coverage, IRS cannot be assured that the savings are effectively invested in either CAP or non-CAP taxpayers with a high compliance risk. IRS is evaluating the CAP program to determine how it fits with IRS's future vision for examinations. It has no timetable for completing this evaluation. IRS did not accept new CAP applications for 2016, deciding that CAP would be limited to taxpayers who are in the program for 2017.
    Director: White, James R
    Phone: (202)512-5594

    1 open recommendations
    Recommendation: To increase the effectiveness of IRS's examinations individual tax returns, the Commissioner of Internal Revenue should transcribe data from paper-filed Form 1040 Schedules C and E that are not currently transcribed and make that data available to SB/SE examiners for classification. If IRS has evidence that the costs related to transcribing all such data on Schedules C and E are prohibitive, IRS could do one or both of the following actions: (1) transcribe less data by transcribing only the missing data for selected line items, such as certain, large expense line items, or (2) develop a budget proposal to fund an initiative for transcribing Schedule C and E.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: As of March 2017, IRS had completed its study on whether to transcribe more data from paper-filed returns by comparing the benefits to classifying tax returns for audit from doing this transcription. They said the benefits to be derived from additional transcription are not significant and would not outweigh the added cost. However, IRS has not provided specific information about the costs and benefits from transcribing information from Schedules C and E that we mentioned in our recommendation. Having more data transcribed and electronically available from these areas likely will improve the classification of audits as well as the quality of the audits, according to examiners we spoke with for the report.
    Director: White, James R
    Phone: (202) 512-9110

    1 open recommendations
    Recommendation: The Acting Commissioner of Internal Revenue should take the following action outline a strategy that defines appropriate levels of telephone and correspondence service and wait time and lists specific steps to manage service based on an assessment of time frames, demand, capabilities, and resources.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: IRS has made progress in developing a customer service strategy with defined appropriate levels of service and steps needed to provide such service, as we recommended; however, as of March 2017, IRS has not completed its efforts. In December 2015, concerned that the Department of the Treasury and IRS did not believe they needed to develop a comprehensive customer service strategy, we suggested that Congress consider requiring Treasury to develop such a strategy in consultation with IRS that would, among other things, determine appropriate telephone and correspondence levels of service. This includes establishing a customer service standard and identifying the resources required to achieve that standard. Taking these steps would increase transparency and help IRS communicate its resource needs, while helping Congress make more informed decisions about IRS's budget. In February 2016, IRS announced a "Future State" vision for agency-wide operations, which aims to improve services across different taxpayer interactions such as individual online account assistance, exams, and collections. In December 2016, IRS reported that it had undertaken a study on benchmarking its telephone performance against the best in the business, which we are currently reviewing. It also reported that many of our taxpayer service-related recommendations will ultimately be incorporated into IRS's Future State initiative. In November 2016, IRS provided documentation on the goals of the initiatives, which included goals on improving taxpayer service. However, this documentation does not include specific numerical targets that IRS expects to achieve for those goals. We will continue to assess this initiative as IRS works to develop it. However, it is unclear the extent to which and when our recommendations will be fulfilled by IRS's initiative. We maintain that Treasury should develop a comprehensive strategy in consultation with IRS which would enable IRS to make a more informed request to Congress about resource requirements needed to deliver specific levels of service. Finalizing a long-term comprehensive strategy will help ensure IRS is maximizing the benefit to taxpayers and possibly reduce costs in other areas, such as for IRS's telephone operations.
    Director: Mctigue Jr, James R
    Phone: (202) 512-7968

    3 open recommendations
    including 1 priority recommendation
    Recommendation: To better ensure that IRS's limited enforcement resources are allocated in a manner that maximizes the revenue yield of the income tax, subject to other important objectives of tax administration, such as minimizing compliance costs and ensuring equitable treatment across different groups of taxpayers, the Commissioner of Internal Revenue should review disparities in the ratios of direct revenue yield to costs across different enforcement programs and across different groups of cases within programs and determine whether this evidence provides a basis for adjusting IRS's allocation of enforcement resources each year. As part of this review, IRS should develop estimates of the marginal direct revenue and marginal direct cost within each enforcement program and each taxpayer group.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open
    Priority recommendation

    Comments: IRS agrees in principle to using ratios of direct revenue yield-to-cost to adjust its enforcement resource allocation, as GAO recommended in December 2012; however, IRS officials plan to wait until it has developed such ratios at the marginal level (e.g., for the last cases worked within specific categories of exams) before they make such adjustments. GAO maintains that IRS has a basis to adjust its allocation of enforcement resources each year and could improve resource allocation immediately (while it is still working to develop the marginal ratios) by using average yield-to-cost ratios for each category. IRS has developed a methodology for estimating marginal ratios for limited subsets of cases within their correspondence examination program. IRS officials are working to apply this methodology to other cases within that program; however, they expect this effort will be complex and time consuming and officials did not have a timeline for full implementation as of March 2017. If IRS does not take into account some measure of revenue yield per dollar of cost when making allocation decisions, it will miss an opportunity to collect significant amounts of additional revenue.
    Recommendation: To better ensure that IRS's limited enforcement resources are allocated in a manner that maximizes the revenue yield of the income tax, subject to other important objectives of tax administration, such as minimizing compliance costs and ensuring equitable treatment across different groups of taxpayers, the Commissioner of Internal Revenue should review disparities in the ratios of direct revenue yield to costs across different enforcement programs and across different groups of cases within programs and determine whether this evidence provides a basis for adjusting IRS's allocation of enforcement resources each year. As part of this review, IRS should compile data on the amount of time that specific grades of examiners and downstream employees spend on specific categories of exams that can be identified in ERIS.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: IRS has developed a methodology to estimate for each closed correspondence audit the total cost to IRS to identify, assess, and collect whatever direct revenue is collected from that audit. These estimated take into account the actual time applied in Examination and Appeals, as well as the job series and grades of the Exam and Appeals employees who handled each return. Collections cost do not vary significantly across the population of correspondence audits, so an average cost factor is used for that portion of the costs. IRS anticipates that expanding this estimation effort to other enforcement programs, such as field examination will require a much larger effort. As of December 2015, officials did not yet have a timeline for full implementation. If IRS does not take into account some measure of revenue yield per dollar of cost when making allocation decisions, it will miss an opportunity to collect significant amounts of additional revenue.
    Recommendation: To better ensure that IRS's limited enforcement resources are allocated in a manner that maximizes the revenue yield of the income tax, subject to other important objectives of tax administration, such as minimizing compliance costs and ensuring equitable treatment across different groups of taxpayers, the Commissioner of Internal Revenue should review disparities in the ratios of direct revenue yield to costs across different enforcement programs and across different groups of cases within programs and determine whether this evidence provides a basis for adjusting IRS's allocation of enforcement resources each year.As part of this review, IRS should explore the potential of estimating the marginal influence of enforcement activity on voluntary compliance, potentially taking advantage of new NRP data.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: IRS has not yet found a way to use NRP data or other data sources to estimate the indirect effects of audits. While they continue to explore alternative ways to estimate these effects, they expect to continue to account for these effects subjectively as they develop their enforcement resource allocation plans. As of December 2015, officials did not yet have a timeline for full implementation. If IRS does not take into account some measure of revenue yield per dollar of cost when making allocation decisions, it will miss an opportunity to collect significant amounts of additional revenue.
    Director: White, James R
    Phone: (202) 512-9110

    2 open recommendations
    Recommendation: The Commissioner of Internal Revenue should develop a new refund timeliness measure and goal to more appropriately reflect current capabilities.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: As of March 2017, IRS had not developed a new measure for refund timeliness. In August 2016, IRS reiterated that it has no plans to develop a new refund timeliness performance measure or goal, nor does it plan to revise its existing measure or goal to issue refunds due for tax returns filed on paper within 40 days. During the 2016 tax filing season, taxpayers filed nearly 90 percent of returns electronically, and, as a means to set taxpayer expectations, IRS publicly reports that about 90 percent of taxpayers owed a refund received it in less than 21 days. Accordingly, we continue to believe that IRS's sole performance measure of issuing paper-filed refunds within 40 days is outdated and does not acknowledge advances in technology that allow IRS to issue refunds faster. We agree with IRS that the environment has changed considerably since we made this recommendation--the growth in identity theft refund fraud has increased the need for additional scrutiny of tax refunds, which can add to the time needed to process tax returns. IRS can take into account its concerns and set a performance measure and goal that would be both challenging and obtainable. Without a measure and goal to assess refund timeliness that includes both paper and electronically filed returns and is reflective of IRS's current capabilities, IRS is missing opportunities to provide optimum levels of taxpayer service while also ensuring that taxpayers receive accurate refunds. As such, we believe that our recommendation remains valid.
    Recommendation: The Commissioner of Internal Revenue should complete an Internet strategy that (1) provides a justification for the implementation of online self-service tools and includes an assessment of providing online self-service tools that allow taxpayers to access and update elements of their account online; (2) acknowledges the cost and benefits to taxpayers of new online services; (3) sets the time frame for when the online service would be created and available for taxpayer use; and (4) includes a plan to update the strategy periodically.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: IRS has made progress in improving its online services strategy, as we recommended; however, as of March 2017 IRS has not yet completed its efforts. In February 2016, IRS announced its new "Future State" vision for agency-wide operations, which aims to improve services across different taxpayer interactions such as individual account assistance, exams, and collections. IRS requested funding in the fiscal year 2017 budget justification to enhance web applications, including the online account component of its Future State Initiative. In December 2016, IRS took a step forward with this by announcing that it had launched a new online tool that would allow taxpayers to view their IRS account balance, including the amount they owe for tax, penalties, and interest. However, the documentation IRS provided on the Future State Initiative did not fully address our recommendation. For example, it is missing the costs and benefits to taxpayers of the online services, and time frames for when the online services would be created and available for taxpayers. We will continue to assess the new initiative as IRS continues its development. A long-term comprehensive strategy for its online services will help ensure IRS is maximizing the benefit to taxpayers from this investment and reduce costs in other areas, such as for IRS's telephone operations.
    Director: Mctigue, James R Jr
    Phone: (202)512-3000

    1 open recommendations
    Recommendation: To better ensure that economically similar outcomes are taxed similarly and minimize opportunities for abuse, the Secretary of the Treasury should undertake a study that compares the current approach to alternative approaches for the taxation of financial derivatives. To determine if changes would be beneficial, such a study should weigh the tradeoffs to IRS and taxpayers that each alternative presents, including simplicity, administrability, and economic efficiency.

    Agency: Department of the Treasury
    Status: Open

    Comments: Treasury disagreed with this recommendation based on the fact that many outside studies already exist and IRS did not comment. While Treasury disagreed with the recommendation, debate on tax reform, both in Congress and within IRS, continues and actions to ensure that economically similar outcomes are taxed similarly seem likely. GAO continues to maintain that further study is needed in coordination with IRS. If financial derivatives are included in tax reform, this could lead to savings for the federal government. GAO will continue to monitor progress on tax reform and whether it includes changes to the taxation of financial derivatives consistent with the recommendation.
    Director: White, James R
    Phone: (202)512-5594

    1 open recommendations
    Recommendation: To ensure that IRS can adequately enforce certain tax provisions, Congress may wish to consider providing IRS with MEA to use tax return information from previous years to ensure that taxpayers do not improperly claim credits or deductions in excess of lifetime limits where applicable.

    Agency: Congress
    Status: Open

    Comments: As of April 2017, Congress had not yet provided IRS with math error authority (MEA) to use tax return information from previous years to ensure that taxpayers do not improperly claim credits or deductions in excess of lifetime limits.
    Director: White, James R
    Phone: (202)512-5594

    2 open recommendations
    Recommendation: To understand the scope of the business nonfiler population, the Commissioner of Internal Revenue should estimate the magnitude of business nonfiling among businesses registered with IRS, using data from its operational files to select cases for further investigation. Based on the results of this work IRS should develop a tax gap estimate for the impact of business nonfiling insofar as doing so is cost-effective.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: As of August 2017, IRS said it did not plan to develop a partial estimate of the business nonfiler rate, as we recommended in August 2010. IRS reported that funding would likely be unavailable for it to do so using operational data. According to IRS, its existing operational data on business nonfilers are sufficient. However, even a partial estimate could give IRS additional information that would be useful in its strategic planning and help it determine what priority it should place on this type of noncompliance.
    Recommendation: To monitor the performance of business nonfiler activities, the Commissioner of Internal Revenue should set a deadline for developing data that can be used to measure the performance of the BMF CCNIP and its business nonfiler compliance activities overall.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: IRS has determined that it does not have the necessary data that could be used to measure its business nonfiler efforts across the agency and that it therefore cannot set a deadline for developing such data, as GAO recommended in August 2010. According to IRS, developing such data would be prohibitively costly. Rather, as of August 2017, IRS plans to continue to use the data at the operating division level. Without going through the process of developing performance data, IRS is unable to know what data would aid in monitoring and evaluating its business nonfiler efforts. Absent cross-agency performance data, IRS is unable to fully understand the outcomes of its business nonfiler efforts.
    Director: White, James
    Phone: (202) 512-9039

    2 open recommendations
    Recommendation: Given the increasing extent of business travel to the U.S. and the eroding effect of inflation, Congress may wish to consider raising the amount of U.S. income paid by a foreign employer that is exempt from tax for nonresidents who meet the other conditions of the exemption.

    Agency: Congress
    Status: Open

    Comments: As of August 2017, the Congress had not raised the amount of U.S. income paid by a foreign employer that is exempt from tax for nonresidents who meet the other conditions of the exemption.
    Recommendation: Given the difficulty of enforcing the requirement for aliens to obtain certificates of compliance--sailing permits--before departing the country and the existence of withholding requirements and tax treaties, Congress may wish to consider eliminating the sailing permit requirement.

    Agency: Congress
    Status: Open

    Comments: As of August 2017, the Congress has not eliminated the sailing permit requirement.
    Director: White, James
    Phone: (202) 512-3000

    1 open recommendations
    Recommendation: The Congress may wish to consider broadening IRS's ability to use math error authority (MEA), with appropriate safeguards against misuse of that authority.

    Agency: Congress
    Status: Open

    Comments: Congress has expanded IRS's math error authority in certain circumstances, but not as broadly as we suggested in February 2010. Congress enacted legislation in December 2015 that expands the circumstances in which IRS may use math error authority. Section 208 of division Q of the Consolidated Appropriations Act, 2016 (Public Law 114-113) gives IRS the authority to use math error authority if (1) a taxpayer claimed the Earned Income Tax Credit, Child Tax Credit, or the American Opportunity Tax Credit (AOTC) during the period in which a taxpayer is not permitted to claim such credit as a consequence of either having made a prior fraudulent or reckless claim; or (2) a taxpayer omitted information required to be reported because the taxpayer made prior improper claims of the Child Tax Credit or the AOTC. While expanding math error authority is consistent with what we recommended Congress consider, we had suggested that math error authority be authorized on a broader basis with appropriate controls rather than on a piecemeal basis. Our previous work has identified additional tax provisions for which expanded math error authority would be helpful, such as the First-Time Homebuyer Credit, Individual Retirement Accounts, and Residential Energy Property Credit. While Congress expanded math error authority for the First-Time Homebuyer Credit in November 2009 and for other individual credits as previously described, we maintain that a broader authorization of math error authority with appropriate controls would enable IRS to correct obvious noncompliance, would be less intrusive and burdensome to taxpayers than audits, and would potentially help taxpayers who underclaim tax benefits to which they are entitled. If Congress decides to extend broader math error authority to IRS, controls may be needed to ensure that this authority is used properly. Our prior work identified potential controls, such as requiring IRS to report on its use of math error authority. The administration also requested that Congress grant the Department of the Treasury regulatory authority to expand IRS's use of math error authority as part of its budget submission for fiscal year 2017. The 114th Congress did not provide Treasury with such authority. The Joint Committee on Taxation estimated this change could raise $274 million through fiscal years 2018 through 2026.
    Director: Brostek, Michael
    Phone: (202)512-9039

    1 open recommendations
    Recommendation: To improve compliance with shareholder basis rules, Congress may wish to require S corporations to calculate and report shareholder's stock and debt basis as completely as possible. S corporations would report the calculation on the Schedule K-1 and send it to shareholders as well as IRS. If Congress judges that stock purchase price information that is currently only available to shareholders should not be transmitted to the S corporation due to privacy concerns, an alternative is to require that S corporations report less complete basis calculations using information already available to the S corporation.

    Agency: Congress
    Status: Open

    Comments: As of August 2017, Congress had not enacted legislation to require S corporations--a federal business type that provides certain tax benefits like passing income and losses to shareholders' individual returns-- to calculate and report shareholder's stock and debt basis as completely as possible and report the calculation to shareholders and IRS, as GAO suggested in December 2009.
    Director: White, James R
    Phone: (202)512-9110

    1 open recommendations
    Recommendation: In order to better assess whether changes are needed in the way IRS administers activities not engaged in for profit provisions, the Commissioner of Internal Revenue should take steps to estimate the extent of activities not engaged in for profit noncompliance from its ongoing research programs.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: IRS is researching sole proprietor noncompliance, as GAO recommended in September 2009. It is focusing on those who improperly claim business losses (i.e., not profits). IRS's Office of Research, Analysis and Statistics is using the reporting compliance study of Form 1040 filers to gather the data on such noncompliant business losses. This research covered sampled tax returns filed for tax years 2009, 2010, and 2011 and used audits of the sampled tax returns that are filed for each tax year. In November 2016, IRS research officials provided the initial rough estimates of the percentage of disallowed losses and associated dollar amounts for all 3 tax years but as of March 2017, they had not yet indicated how these estimates helped IRS to understand the nature of the tax noncompliance. The officials cautioned that their ability to develop the estimates depends on the number of observations that can be applied from each tax year. This research, when completed, could help IRS to identify noncompliant sole proprietor issues and take action to reduce losses.
    Director: White, James R
    Phone: (202)512-3000

    2 open recommendations
    Recommendation: In order to ensure the most efficient, fair, and consistent administration of civil tax penalties, and that penalties are achieving their purpose of encouraging voluntary compliance, the Commissioner of Internal Revenue should direct the Office of Servicewide Penalties (OSP) to evaluate penalty administration and penalties' effect on voluntary compliance.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: The Office of Servicewide Penalties (OSP) initiated a plan to comprehensively evaluate penalty administration and the impact of penalties on voluntary compliance. They stated that they understand such a plan will be useful in identifying priorities and determining additional potential resource needs. However, OSP put this plan on hold while they developed a business case for obtaining more staff and resources. OSP is in the process of obtaining feedback to refine their business case for final submission. While they await approval of the business case they have not done any work on the comprehensive plan. As the comprehensive plan remains incomplete, OSP has not yet undertaken an evaluation of penalties' effect on voluntary compliance. In December 2011 OSP formed a Civil Penalties Administrative Improvement Initiative team that has the goal of making improvements to civil penalty administration. Activities underway as of February 2013 include developing measures to improve taxpayer consistency and taking actions to improve the Reasonable Cause Assistant computer system. We learned in February 2015 that the program is now under a new executive. When we met with the new agency officials in April 2015 they told us that they had a new effort underway to develop a comprehensive strategy that examines the impact of penalties on voluntary compliance while ensuring quality. IRS finalized a Penalty Performance Plan on March 6, 2017, which we are currently reviewing.
    Recommendation: In order to ensure the most efficient, fair, and consistent administration of civil tax penalties, and that penalties are achieving their purpose of encouraging voluntary compliance, the Commissioner of Internal Revenue should direct OSP to develop and implement a plan to collect and analyze penalty-related data. The plan should address the constraints officials have identified as impeding progress in analyzing penalties.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: Office of Servicewide Penalties (OSP) initiated a plan to comprehensively evaluate penalty administration and the impact of penalties on voluntary compliance. However, OSP put this plan on hold while they developed a business case for obtaining more staff and resources. As of February 2013 the business case has not progressed and OSP has taken no additional action to complete the comprehensive plan. We learned in February 2015 that the program is now under a new executive. When we met with the new agency officials in April 2015 they told us that they had a new effort underway to develop a comprehensive strategy that examines the impact of penalties on voluntary compliance while ensuring quality. IRS finalized a Penalty Performance Plan on March 6, 2017, which we are currently reviewing.
    Director: White, James R
    Phone: (202)512-5594

    3 open recommendations
    Recommendation: To simplify the burden that the corporate exemption places on payers to distinguish payees' business status and also provide greater information reporting, Congress may wish to consider requiring payers to report payments to corporations on the form 1099 MISC, as we previously suggested and as proposed in the Bush Administration's budget.

    Agency: Congress
    Status: Open

    Comments: No legislative action has been identified to require payers engaged in a trade or business to report on payments to corporations for services, thereby reducing these payers' burden to determine which payments require reporting. On March 23, 2010, Congress enacted section 9006 of the Patient Protection and Affordable Care Act of 2010 (Public Law 111-148), which expanded information reporting to include payments made to corporations, consistent with GAO's January 2009 matter for congressional consideration. The provision also required payers to report payments for property and gross proceeds. The provision was to be effective for payments after December 31, 2011, requiring payers to report beginning in January 2013 on payments to corporations made in 2012 for property or services. However, Congress repealed the provision on April 14, 2011, by section 2 of the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 (Public Law 112-9).
    Recommendation: To gauge the extent of 1099-MISC payer noncompliance and its contribution to the tax gap, the Commissioner of Internal Revenue should, as part of future research studies, develop an estimate of 1099-MISC payer noncompliance.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: According to IRS, developing such an estimate requires a multi-pronged approach and a large amount of coordinated effort. One prong is to determine the extent of filing compliance among employers. A second prong would determine the extent to which 1099-MISC payers properly report their payments. Starting with the Tax Year 2001 individual income tax reporting compliance study, the National Research Program (NRP) office has been collecting some data related to Form 1099-MISC compliance, from both the payer and payee perspectives. With the ongoing annual individual income tax reporting compliance studies, the IRS will gather more data on this issue. However, by themselves, these efforts will not provide a comprehensive picture of the scope of potential Form 1099-MISC non-compliance. Additional data will be generated by the NRP reporting compliance study for employment tax. As part of the NRP employment tax research, IRS examiners were to review taxpayers' Form 1099 filing compliance. Data collected from these studies should shed some light on whether employers are appropriately reporting required payments on Form 1099-MISC. As of July 2017, IRS had completed portions of its analysis of the NRP employment tax sample results and was working to resolve data issues. IRS estimates its analysis of the extent of Form 1099-MISC payer noncompliance will be complete by December 2017. We will continue to monitor IRS's progress.
    Recommendation: To gauge the extent of 1099-MISC payer noncompliance and its contribution to the tax gap, the Commissioner of Internal Revenue should, as part of future research studies, determine the nature and characteristics of those payers that do not comply with 1099-MISC reporting requirements so that this information can be factored into an IRS-wide strategy for increasing 1099-MISC payer compliance.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: IRS researchers are collecting data on 1099-MISC reporting as part of its National Research Program (NRP) study on employment taxes, a program that involves examinations of a sample of tax returns expected to culminate in 2015. The examinations include tax years 2008 through 2010. As part of the NRP employment tax research, IRS examiners were to review taxpayers' Form 1099 filing compliance. Collecting data on this issue will enable IRS to study the nature and characteristics of payers that do not comply with 1099-MISC reporting requirements. As of July 2017, IRS had completed portions of its analysis of the NRP employment tax sample results and was working to resolve data issues. IRS estimates its 1099-MISC payer reporting compliance analysis will be completed in December 2017.We will continue to monitor IRS's progress.
    Director: White, James R
    Phone: (202) 512-5594

    1 open recommendations
    Recommendation: Given the potential for improving compliance now and in the future, Congress may wish to provide IRS with the authority to use math error checks to identify and correct returns with ineligible (1) IRA "catch-up" contributions, and (2) contributions to traditional IRAs from taxpayers over age 70-1/2.

    Agency: Congress
    Status: Open

    Comments: As of April 2017, the Congress has not provided IRS with the math error authority to ensure that taxpayers comply with certain catch-up and contributions requirements.
    Director: White, James R
    Phone: (202) 512-9039

    1 open recommendations
    Recommendation: As Congress considers whether tax-exempt governmental bonds should be used for professional sports stadiums that are generally privately used, it may also wish to consider whether other facilities, including hotels and golf courses, that are privately used should continue to be financed with tax-exempt governmental bonds.

    Agency: Congress
    Status: Open

    Comments: No legislative action enacted as of March 2017. A bill was introduced in Congress in February 2017 (H.R. 811) which, if enacted, would, in general, not allow tax-exempt government bonds to be used to finance professional sports stadiums. Reconsidering the tax-exempt status of certain bonds could generate hundreds of millions of dollars in additional federal revenue.
    Director: White, James R
    Phone: (202)512-5594

    1 open recommendations
    Recommendation: The Secretary of the Treasury should ensure that the tax gap strategy includes (1) a segment on improving sole proprietor compliance that is coordinated with broader tax gap reduction efforts and (2) specific proposals, such as the options we identified, that constitute an integrated package.

    Agency: Department of the Treasury
    Status: Open

    Comments: As of August 2017, Treasury has taken no action to address this recommendation and has not provided GAO with plans to do so. Treasury's tax gap strategy does not cover sole proprietor compliance in detail while coordinating it with broader tax gap reduction efforts as GAO recommended in July 2007. In March 2016, Treasury officials reported to GAO that they have implemented or proposed several actions to address the tax gap among sole proprietors, such as requiring reporting on payment card payments and improved audit selection procedures for sole proprietors. However, GAO's July 2007 report noted there are many trade offs involved in various options for improving sole proprietor compliance. GAO recommended that Treasury's strategy for reducing the tax gap include a segment on sole proprietor compliance that is coordinated with broader tax gap reduction efforts.
    Director:
    Phone:

    2 open recommendations
    Recommendation: The Commissioner of Internal Revenue should match independent contractors' information returns with their tax returns to more systematically identify employers who are misclassifying employees as independent contractors and to better target audit resources for doing employment tax examinations.

    Agency: Department of the Treasury: Internal Revenue Service
    Status: Open

    Comments: Call 202/512-6100 for additional information.
    Recommendation: Section 630 of the Revenue Act of 1978 restricts IRS' authority to ensure that current and future classifications will be correct. In view of the equity issues and tax revenues involved, Congress may wish to consider repealing this restriction against requiring employers to prospectively reclassify employees who have been misclassified as independent contractors.

    Agency: Congress
    Status: Open

    Comments: Call 202/512-6100 for additional information.