Special IRS Examination Procedures Are Needed for Certain Returns Containing International Tax Issues

GGD-82-77: Published: Aug 27, 1982. Publicly Released: Aug 27, 1982.

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GAO reviewed the Internal Revenue Service's (IRS) Office Audit Program for returns containing international tax issues. Under this program, IRS selects and examines certain tax returns filed by U.S. citizens residing overseas and nonresident aliens.

The responsibility for conducting examinations of returns containing international tax issues has been centralized in the IRS Foreign Operations District Office. At the request of a taxpayer, however, the Foreign Operations District will transfer a return to a domestic district to carry out and complete an examination. GAO found that domestic district office examinations of returns containing international issues are not as effective and efficient as they could be. Although such returns contain special issues, they are generally handled in the same manner as U.S. resident tax returns and are not afforded special treatment. This lack of special treatment can reduce the effectiveness and timeliness of examinations. GAO found that some returns containing international issues are examined by domestic district tax auditors who have not been provided sufficient training or guidance. Moreover, domestic district return assignment practices do not provide tax auditors either the opportunity to become familiar with the issues through experience or the time to research the laws and regulations before scheduled interviews with taxpayers. Finally, GAO found that the Foreign Operations District does not always adequately summarize work performed before transferring returns to domestic districts or specify the name and telephone number of an appropriate person for a domestic tax auditor to call should questions arise concerning prior examination work.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    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, to improve domestic district offices' examinations of individual income tax returns containing international issues, provide a limited number of tax auditors in selected domestic district offices with training in these issues. This should be done in those district offices which have a case workload sufficient to justify expenditures on such training.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Not Implemented

    Comments: IRS partially implemented the recommendation by giving training manuals to the tax auditors who attended training courses. However, it will not provide the manuals to districts whose tax auditors do not receive international training.

    Recommendation: The Commissioner of Internal Revenue should provide each IRS domestic district office with Foreign Operations District training manuals and other appropriate reference documents for use by tax auditors conducting examinations of returns containing international issues.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Closed - Implemented

    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 revise return assignment procedures to provide tax auditors the experience and preparation time needed to examine returns transferred by the Foreign Operations District. Specifically, returns should be assigned to selected tax auditors designated to examine returns containing international issues. Also, returns should be assigned in advance of scheduled taxpayer interviews to allow tax auditors the time to research issues and to review examination work already performed.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  4. Status: Closed - Not Implemented

    Comments: IRS disagrees with GAO that existing information in the case files does not adequately summarize the work done.

    Recommendation: The Commissioner of Internal Revenue should require that the Foreign Operations District develop and make effective use of standard summary information reports for returns transferred to domestic district offices. The reports should clearly explain the international tax issues involved, the work done, and the conclusions reached, and they should describe any special circumstances concerning the transferred return. Also, the summary report should contain the name and telephone number of an appropriate Foreign Operations District contact. Finally, the Commissioner should require that Foreign Operations District group managers ensure that case files contain summaries before the files are transferred to domestic district offices.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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