Tax Administration: IRS Is Improving Its Controls for Ensuring That
Taxpayers Are Treated Properly (Letter Report, 08/30/96, GAO/GGD-96-176).
Pursuant to a congressional request, GAO examined the: (1) adequacy of
the Internal Revenue Service's (IRS) controls to protect against abuse
of taxpayers; (2) extent of information available concerning abuse
allegations received and investigated by IRS, the Department of the
Treasury Office of the Inspector General (OIG), and the Department of
Justice (DOJ); and (3) OIG role in investigating abuse allegations.
GAO found that: (1) the adequacy of IRS controls against taxpayer abuse
is uncertain because IRS does not have the capability to capture
management information on taxpayer abuse; (2) IRS is establishing a
tracking system to handle taxpayer complaints and reviewing its
management information systems to determine the best way to capture
relevant information for the complaint system; (3) the tracking system
will enable IRS to better identify instances of taxpayer abuse and
ensure that actions are taken to prevent their recurrence; (4) IRS is
improving controls over its employees' access to computerized taxpayer
accounts, establishing an expedited appeals process for some collection
actions, and classifying recurring taxpayer problems by major issues;
(5) it is not possible to determine the extent to which allegations of
taxpayer abuse are received and investigated, since IRS, OIG, and DOJ
information systems do not include specific data elements on taxpayer
abuse; (6) OIG has increased the number of investigations involving
senior IRS employees' alleged misconduct, fraud, and abuse; (7) OIG
refers most of these allegations to IRS for investigation and
administrative action; and (8) IRS is taking a considerable amount of
time to respond to OIG investigations and referrals regarding senior IRS
officials' disciplinary actions.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: GGD-96-176
TITLE: Tax Administration: IRS Is Improving Its Controls for
Ensuring That Taxpayers Are Treated Properly
DATE: 08/30/96
SUBJECT: Tax administration systems
Management information systems
Internal controls
Government collections
Taxpayers
Investigations into federal agencies
Inspectors General
Tax law
Tax information confidentiality
IDENTIFIER: IRS Problem Resolution Program
IRS Problem Resolution Office Management Information System
IRS Tax System Modernization Program
TSM
IRS Internal Security Management Information System
IRS Automated Labor Employee Relations Tracking System
IRS OIG Management Information System
IRS Congressional Correspondence Tracking System
IRS Commissioner's Mail Tracking System
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Cover
================================================================ COVER
Report to the Chairman, Committee on Finance, U.S. Senate
August 1996
TAX ADMINISTRATION - IRS IS
IMPROVING ITS CONTROLS FOR
ENSURING THAT TAXPAYERS ARE
TREATED PROPERLY
GAO/GGD-96-176
Proper Treatment of Taxpayers
(268731)
Abbreviations
=============================================================== ABBREV
ALERTS - Automated Labor and Employee Relations Tracking System
DOJ - Department of Justice
EOUSA - Executive Office of the United States Attorneys
GS - General Schedule
IDRS - Integrated Data Retrieval System
IG - Inspector General
IGP - Information Gathering Projects
IRS - Internal Revenue Service
ISMIS - Internal Security Management Information System
OIG - Office of Inspector General
OIG/OIMIS - Office of Inspector General Office of Investigations
Management Information System
PROMIS - Problem Resolution Office Management Information System
SES - Senior Executive Service
TSM - Tax Systems Modernization
Letter
=============================================================== LETTER
B-271975
August 30, 1996
The Honorable William V. Roth, Jr.
Chairman, Committee on Finance
United States Senate
Dear Mr. Chairman:
In 1988, concerns about the Internal Revenue Service's (IRS)
treatment
of taxpayers and allegations of taxpayer abuse led Congress to enact
Subtitle J of the Miscellaneous Revenue Act of 1988 (P.L. 100-647),
commonly known as the Taxpayer Bill of Rights. In response to
continuing congressional concerns about taxpayer rights, we issued a
report\1 in which we concluded that IRS needed to take various
actions to strengthen its controls to better ensure that taxpayers
are treated properly.
This report responds to your request that we determine (1) the
adequacy of IRS' controls to protect against taxpayer abuse; (2) the
extent of information available concerning abuse allegations received
and investigated by IRS, the Department of the Treasury Office of the
Inspector General (OIG), and the Department of Justice (DOJ); and (3)
the role of the OIG in investigating abuse allegations.
--------------------
\1 Tax Administration: IRS Can Strengthen Its Efforts to See That
Taxpayers Are Treated Properly (GAO/GGD-95-14, Oct. 26, 1994).
BACKGROUND
------------------------------------------------------------ Letter :1
IRS is responsible for administering our nation's voluntary tax
system in a fair and equitable manner. To do so, IRS has roughly
100,000 employees, many of whom interact directly with taxpayers. In
fiscal year 1994, IRS
-- processed over 200 million tax returns,
-- issued about 86 million tax refunds,
-- handled about 39 million calls for tax assistance,
-- conducted about 1.4 million tax audits, and
-- issued about 19 million collection notices for delinquent taxes.
These activities resulted in millions of telephone and personal
contacts with taxpayers. Many of these interactions have the
potential to make taxpayers feel as if they have been mistreated or
abused by IRS employees with whom they have dealt or by the "tax
system" in general.
IRS has several offices that are involved in handling taxpayers'
concerns about how they have been treated, including those alleging
taxpayer abuse, which are not resolved through normal daily
operations. IRS' Inspection Service (Inspection), which includes the
Internal Audit and Internal Security Divisions, is to investigate
taxpayer allegations involving potential criminal misconduct by IRS
employees. Problem Resolution Offices in IRS' district offices and
service centers are to help taxpayers who have been unable to resolve
their problems through normal IRS channels with other IRS staff.
IRS' Office of Legislative Affairs is to track responses to
congressional inquiries, often on behalf of constituents, as well as
direct correspondence with the Commissioner or other IRS executives
involving the tax system or IRS' administration of it.
OIG and DOJ may also get involved with taxpayer abuse allegations.
OIG may investigate allegations involving senior IRS officials, those
who serve in General Schedule (GS) grade-15 positions or higher, as
well as IRS Inspection employees. IRS employees accused of criminal
misconduct may be prosecuted by a DOJ U. S. Attorney. IRS
employees who are sued by taxpayers for actions taken within the
employees' official duties may be defended by attorneys with the DOJ
Tax Division.
In our 1994 report on IRS' controls to protect against taxpayer
abuse, we were unable to determine the overall adequacy of IRS'
controls and made several recommendations to improve them. Foremost
among our recommendations was that IRS define taxpayer abuse and
collect relevant management information to systematically track its
nature and extent. At that time, in the absence of an IRS
definition, we defined taxpayer abuse to include instances when (1)
an IRS employee violated a law, regulation, or the IRS Rules of
Conduct; (2) an IRS employee was unnecessarily aggressive in applying
discretionary enforcement power; or (3) IRS' information systems
broke down, e.g. when taxpayers repeatedly received tax deficiency
notices and payment demands despite continual contacts with IRS to
resolve problems with their accounts. Other recommendations in our
1994 report addressed such concerns as unauthorized access to
computerized taxpayer information, improper use and processing of
taxpayer cash payments, and the need for IRS notification of
potential employee liability for trust fund recovery penalties. IRS
did not agree with the need to define taxpayer abuse--a term it found
objectionable--nor to track its nature and extent; but IRS agreed to
take corrective action on many of our other recommendations.
RESULTS IN BRIEF
------------------------------------------------------------ Letter :2
While IRS has made some improvements to its controls over the
treatment of taxpayers since our 1994 report, we remain unable to
reach a conclusion on the overall adequacy of IRS' controls. We
cannot determine the adequacy of these controls because IRS officials
have not yet established a capability to capture management
information that is needed to ensure that abuse is identified and
addressed and to prevent its recurrence. We are, however, encouraged
by a recent commitment on the part of IRS' Deputy Commissioner to
establish a tracking system for taxpayer complaints. IRS has defined
"taxpayer complaints" using a definition that is comparable to one we
used for "taxpayer abuse" in our 1994 report and is currently
reviewing its management information systems to determine the best
way to capture the relevant information needed for a complaints
tracking system. If effectively designed and implemented, we believe
such a system could allow IRS to better ensure that instances of
taxpayer abuse can be identified and addressed and that actions can
be taken to prevent them in the future.
Since we last reported on IRS' controls to prevent taxpayer abuse,
IRS has (1) initiated actions to implement many of the
recommendations we made in our 1994 report (see app. I), (2)
initiated other actions in anticipation of provisions included in the
recently enacted Taxpayer Bill of Rights 2,\2 and (3) started to use
data accumulated through its Problem Resolution Program in an effort
to identify possible systemic problems. Examples of these actions
include (1) improving controls over IRS employee access to
computerized taxpayer accounts, (2) establishing an expedited appeals
process for some IRS collection actions, and (3) identifying
recurring taxpayer problems and categorizing them by major issues,
such as penalties imposed on taxpayers. If effectively implemented,
these cumulative actions could improve IRS' overall treatment of
taxpayers and better protect against taxpayer abuse.
The extent to which taxpayer abuse allegations are received and
investigated by IRS, OIG, and DOJ cannot be determined from readily
available information. Information systems maintained by IRS, OIG,
and DOJ were designed as case tracking and resource management
systems intended to serve the management information needs of
particular functions, such as IRS' Internal Security Division. (See
appendix II.) None of these systems include specific data elements
for "taxpayer abuse;" however, they contain data elements that
encompass broad categories of misconduct, taxpayer problems, or legal
actions. Without reviewing specific case files, information
contained in these systems related to allegations and investigations
of taxpayer abuse is not easily distinguishable from information on
allegations and investigations that do not involve taxpayers.
Consequently, as currently designed, these systems cannot be used
individually or collectively to account for IRS' handling of all
instances of alleged taxpayer abuse.
OIG is responsible for investigating allegations of waste, fraud, and
abuse-- which includes misconduct--involving senior IRS officials,
GS-15s or higher, as well as Inspection employees. OIG officials
stated that these investigations rarely involve taxpayer abuse
allegations, because senior IRS officials and Inspection employees
usually do not interact directly with taxpayers. OIG officials said
that they generally handle allegations involving IRS executives; but
after a preliminary review, they often refer allegations against
GS-15s and allegations involving administrative matters or tax
disputes either to Inspection for investigation or to IRS management
for administrative action. Both OIG and IRS officials expressed
satisfaction with this arrangement and said they believe that
allegations involving senior IRS officials and Inspection employees
are being properly handled. While we did not independently test the
effectiveness of this OIG/IRS arrangement, we found no evidence to
suggest these allegations are not being properly handled.
--------------------
\2 Taxpayer Bill of Rights 2 (P.L. 104-168).
SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :3
To determine the adequacy of IRS' current controls over taxpayer
abuse, we identified and documented actions taken by IRS in response
to the recommendations in our 1994 report. We also identified any
additional actions that IRS has initiated since then, relative to how
IRS treats taxpayers. Finally, we discussed with IRS officials a
recent commitment they made to define and establish a taxpayer
complaints tracking system and the current status of this effort.
To determine the extent of information available concerning the
number and outcomes of abuse allegations received and investigated by
IRS, OIG, and DOJ, we interviewed officials from the respective
organizations and reviewed documentation relative to their
information systems. We were told that the information systems
maintained by these organizations do not include specific data
elements for alleged taxpayer abuse. However, these officials said
they believed that examples of alleged taxpayer abuse may be found
within other general data categories in five IRS systems, two DOJ
systems, and an OIG system. For example, IRS officials indicated
that alleged taxpayer abuse might be found in a system used to track
disciplinary actions against employees. This information is captured
under the general data categories of "taxpayer charge or complaint"
and "misuse of position or authority." Similar examples were provided
by officials from each organization as described in appendix II.
We discussed the general objectives and uses of the relevant
information systems with officials from the respective agencies. We
also reviewed examples of the data produced by these systems under
the suggested general data categories to ascertain if it was possible
from these examples to determine whether taxpayer abuse may have
occurred. We did not attempt to verify the accuracy of the data we
received, because to do so would require an extensive, time-consuming
review of related case files. This was beyond the scope and time
available for this study.
To determine OIG's role in investigating allegations of taxpayer
abuse, we obtained and reviewed Treasury orders and directives
establishing and delineating the responsibilities of OIG, as well as
a 1994 Memorandum of Understanding between OIG and IRS outlining
specific procedures to be followed by each staff for reporting and
investigating allegations of misconduct and fraud, waste, and abuse.
We also obtained statistics from OIG staff concerning the number of
allegations they received and investigations they conducted involving
IRS employees for fiscal year 1995-- the latest year for which data
were available. In addition, we discussed OIG's role and the
relationship between OIG and IRS staffs with senior officials from
both OIG and IRS.
We requested comments on a draft of this report from the Commissioner
of Internal Revenue, the Treasury Inspector General, and the Attorney
General. On August 9, 1996, we received written comments from IRS,
which are summarized on page 15 and are reprinted in appendix III.
We also received written comments, which were technical in nature,
from both the Treasury's OIG and DOJ. These comments have been
incorporated in the report where appropriate.
We performed our audit work in Washington, D.C., between April and
July 1996 in accordance with generally accepted government auditing
standards.
ADEQUACY OF IRS CONTROLS TO
PROTECT AGAINST TAXPAYER ABUSE
REMAINS UNCERTAIN
------------------------------------------------------------ Letter :4
While IRS has made improvements in its controls over the treatment of
taxpayers since our 1994 report, we are still unable to reach a
conclusion at this time on the overall adequacy of IRS' controls. We
cannot determine the adequacy of these controls because IRS officials
have not yet established a capability to capture management
information, which is needed to ensure that abuse is identified and
addressed and to prevent its recurrence. We are, however, encouraged
by a recent commitment on the part of IRS' Deputy Commissioner to
establish a tracking system for taxpayer complaints. Such a system
has the potential to greatly improve IRS' controls to protect against
taxpayer abuse and better ensure that taxpayers are treated properly.
IRS OFFICIALS HAVE EXPRESSED
COMMITMENT TO ESTABLISHING A
COMPLAINTS TRACKING SYSTEM
---------------------------------------------------------- Letter :4.1
In exploring how IRS could satisfy a mandate included in the recently
enacted Taxpayer Bill of Rights 2 to report annually to Congress on
employee misconduct and taxpayer complaints, IRS recognized and
acknowledged that such a mandate could not be satisfied with its
existing information systems and that a definition for "taxpayer
complaints" would be necessary, along with sufficient related
management information to ensure that complaints are identified,
addressed, and analyzed to prevent their recurrence.
Although IRS said it still believes the term "taxpayer abuse" is
misleading, inaccurate, and inflammatory, IRS decided to use the
basic elements that we used in our 1994 report definition for
taxpayer abuse as a starting point to develop a definition for
taxpayer complaints. The basic elements from our report included
when (1) an IRS employee violated a law, regulation, or the IRS Rules
of Conduct; (2) an IRS employee was unnecessarily aggressive in
applying discretionary enforcement power; or (3) IRS' information
systems broke down, e.g. when taxpayers repeatedly received tax
deficiency notices and payment demands despite continual contacts
with IRS to resolve problems with their accounts.
With input from members of IRS' Executive Committee, an IRS task
group decided upon the following definition for taxpayer complaints:
an allegation by a taxpayer or taxpayer representative that (1) an
IRS employee violated a law, regulation, or the IRS Rules of Conduct;
(2) an IRS employee used inappropriate behavior in the treatment of
taxpayers while conducting official business, such as rudeness,
overzealousness, excessive aggressiveness, discriminatory treatment,
intimidation, and the like; or (3) an IRS system failed to function
properly or within prescribed time frames. This definition was
endorsed by the IRS Deputy Commissioner in a June 17, 1996,
memorandum.
IRS has decided to use the Problem Resolution Office Management
Information System (PROMIS), with modifications, as a platform for
compiling information about taxpayer complaints involving
inappropriate employee behavior and systemic breakdowns. However,
numerous decisions remain concerning how to track and assess the
handling of all taxpayer complaints. For example, IRS already has
two systems that are designed to capture data relevant to alleged
employee misconduct. PROMIS is currently designed to capture data
relevant to possible systemic breakdowns. The two systems capturing
misconduct information, however, do not capture data in a manner that
is comparable to one another or to PROMIS. IRS officials readily
concede that at present, there is no IRS information system designed
to capture data relevant to complaints of inappropriate employee
behavior. They realize that to capture and compile information
relevant to all three elements of the taxpayer complaints definition
in a comparable and uniform manner will be a considerable challenge,
especially for the highly subjective element involving inappropriate
employee behavior. However, the officials assured us that they are
now committed to rising to that challenge.
While we are encouraged by IRS' commitment, we recognize the
formidable challenge IRS faces to capture complete, consistent, and
accurate information about the IRS definition for taxpayer
complaints. Rising to the challenge, however, is critical for IRS to
have adequate controls to protect against taxpayer abuse as well as
being able to satisfy its new requirement to annually report to
Congress on employee misconduct and taxpayer complaints.
OTHER IRS INITIATIVES SHOULD
IMPROVE RELATED CONTROLS
---------------------------------------------------------- Letter :4.2
Since our 1994 study, IRS has initiated various actions to implement
our recommendations, as described in appendix I. For example, among
other actions, IRS has initiated the following :
-- Regarding unauthorized employee access to computerized taxpayer
accounts, IRS (1) issued a 12-point Information Security Policy
to all employees in January 1995, stressing the importance of
taxpayer privacy and the security of tax data and (2) has begun
development of an Information System Target Security
Architecture to include management, operational, and technical
controls for incorporation in the Tax System Modernization
Program--a long- term effort to modernize IRS' computer and
telecommunications systems.\3
-- Regarding the improper use and processing of taxpayer cash
payments, IRS (1) included statements in its 1995 forms and
instructions encouraging taxpayers to make payments with either
a check or money order rather than cash and (2) is instructing
its managers to conduct periodic unannounced reconciliations of
cash receipts used by the IRS staff who collect taxes from
taxpayers.
-- Regarding the need for IRS to notify employers of the potential
liability of their officers and employees for a trust fund
recovery penalty when businesses fail to collect or pay withheld
income, employment, or excise taxes, IRS has included notices of
this liability in both Publication 334, "Tax Guide for Small
Businesses" and Circular E, "Employer's Tax Guide."
In addition to these actions, IRS has recently undertaken other
initiatives in anticipation of some provisions included in the
recently enacted Taxpayer Bill of Rights 2. In January 1996, IRS
announced a series of initiatives designed to reduce taxpayer burden
and make it easier for taxpayers to understand and exercise their
rights. These initiatives included (1) enhanced powers for the
Taxpayer Ombudsman, such as explicit authority to issue a refund to a
taxpayer to relieve a severe financial hardship; (2) notification of
a spouse regarding any collection action taken against a divorced or
separated spouse for a joint tax liability; (3) increased
computerized record storage and electronic filing options for
businesses; (4) expedited appeals procedures for employment tax
issues; and (5) a test of an appeals mediation procedure.
IRS has also started to use information on taxpayer problems captured
in PROMIS. IRS recently used this system to identify the volume of
taxpayer problems categorized by various major issues, such as refund
inquiries, collection actions, penalties, and the earned income tax
credit. The Ombudsman has requested IRS' top executives to review
the major issues identified for their respective offices or regions
in an effort to devise cost-effective ways to reduce these problems.
While we did not test the implementation of these various
initiatives, they appear to be conceptually sound and thus we believe
that, if effectively implemented, they should help to strengthen IRS'
overall controls and procedures to identify, address, and prevent the
recurrence of taxpayer abuse.
--------------------
\3 In prior reports and testimonies, we have challenged the
completeness and adequacy of IRS' Architecture to effectively satisfy
the modernization needs.
EXTENT OF TAXPAYER ABUSE NOT
DISTINGUISHABLE IN IRS, OIG,
AND DOJ INFORMATION SYSTEMS
------------------------------------------------------------ Letter :5
It is not possible to readily determine the extent to which
allegations of taxpayer abuse are received and investigated from the
information systems maintained by IRS, OIG, and DOJ. These systems
were designed as case tracking and resource management systems
intended to serve the management information needs of particular
functions, such as IRS' Internal Security Division. None of these
systems include specific data elements for "taxpayer abuse;" however,
they contain data elements that encompass broad categories of
misconduct, taxpayer problems, or legal actions. Without reviewing
specific case files, information contained in these systems related
to allegations and investigations of taxpayer abuse is not easily
distinguishable from information on allegations and investigations
that do not involve taxpayers. Consequently, as currently designed,
these systems cannot be used individually or collectively to account
for IRS' handling of all instances of alleged taxpayer abuse.
Officials of the respective organizations indicated that several
information systems might include information related to taxpayer
abuse allegations--five maintained by IRS, two by DOJ, and one by
OIG--as described in appendix II. For example:
-- Two of the IRS systems--the Internal Security Management
Information System (ISMIS) and the Automated Labor and Employee
Relations Tracking System (ALERTS)--capture information on cases
involving employee misconduct, which may in some cases involve
taxpayer abuse. ISMIS is used to determine the status and
outcome of Internal Security investigations of alleged employee
misconduct; ALERTS is used to track disciplinary actions taken
against employees. While ISMIS and ALERTS both track aspects of
alleged employee misconduct, these systems do not share common
data elements or otherwise capture information in a consistent
manner.
-- IRS also has three systems that include information on concerns
raised by taxpayers. These systems include two maintained by
the Office of Legislative Affairs--the Congressional
Correspondence Tracking System and the Commissioner's Mail
Tracking System--as well as PROMIS, which we described earlier.
The two Legislative Affairs systems basically track taxpayers'
inquiries, including those made through congressional offices,
to ensure that responses are provided by appropriate IRS
officials. PROMIS tracks similar information to ensure that
taxpayers' problems are resolved and to determine whether the
problems are recurring in nature.
-- OIG has an information system known as the OIG Office of
Investigations Management Information System (OIG/OIMIS) that is
used to track the status and outcomes of OIG investigations as
well as the status and outcomes of actions taken by IRS in
response to OIG investigations and referrals. As discussed
further in the next section of this report, most OIG
investigations do not involve allegations of taxpayer abuse
because those IRS employees that OIG typically
investigates--primarily senior-level officials--usually do not
interact directly with taxpayers.
-- DOJ has two information systems that include data that may be
related to taxpayer abuse allegations and investigations. The
Executive Office of the U. S. Attorneys maintains a
Centralized Caseload System that is used to consolidate the
status and results of civil and criminal prosecutions conducted
by offices of the U. S. Attorney throughout the country.
Cases involving criminal misconduct by IRS employees would be
referred to and may be prosecuted by the U.S. Attorney in the
particular jurisdiction in which the alleged misconduct
occurred. The Tax Division also maintains a Case Management
System that is used for case tracking, time reporting, and
statistical analysis of litigation cases conducted by the Tax
Division. Lawsuits against either IRS or IRS employees are
litigated by the Tax Division, with representation provided to
IRS employees if the Tax Division determines that the actions
taken by the employees were within the scope of employment.
The officials familiar with these systems stated that, while the
systems include data elements in which potential taxpayer abuse may
have occurred, they do not include a specific data element for
taxpayer abuse, which could be used to easily distinguish abuse
allegations from others not involving taxpayers. For example,
officials from the Executive Office for the U. S. Attorneys stated
that the public corruption and tort categories of their Case
Management System may include instances of taxpayer abuse, but the
system could not be used to identify such instances without a review
of individual case files.
From our review of data from these systems, we concluded that none of
them, either individually or collectively, have common or comparable
data elements that can be used to identify the number or outcomes of
taxpayer abuse allegations or related investigations and actions.
Rather, each system was developed to provide information for a
particular organizational function, usually for case tracking,
inventory, or other managerial purposes relative to the mission of
that particular function. While each system has data elements that
could reflect how taxpayers have been treated, as described in
appendix II, the data elements vary and may relate to the same
allegation and same IRS employee. Without common or comparable data
elements and unique allegation and employee identifiers, these
systems do not collect information in a consistent manner that could
be used to accurately account for all allegations of taxpayer abuse.
THE ROLE OF THE TREASURY OIG IN
INVESTIGATING TAXPAYER ABUSE
ALLEGATIONS
------------------------------------------------------------ Letter :6
OIG is responsible for investigating allegations of misconduct and
waste, fraud, and abuse involving senior IRS officials, GS-15s and
above, as well as IRS Inspection employees. OIG also has oversight
responsibility for the overall operations of Inspection. Since
November 1994, OIG has had increased flexibility for referring
allegations involving GS-15s to IRS for investigation or
administrative action. This was due to resource constraints and an
increased emphasis by OIG on investigations involving criminal
misconduct and procurement fraud across all Treasury bureaus. In
fiscal year 1995, OIG conducted 44 investigations--14 percent of the
321 allegations it received--for the most part, implicating senior
IRS officials. OIG officials stated that these investigations rarely
involved allegations of taxpayer abuse because senior IRS officials
and Inspection employees usually do not interact directly with
taxpayers.
OIG and Inspection have a unique relationship, relative to that of
OIG and other Treasury bureau audit and investigative authorities.
The IRS Chief Inspector, who reports directly to the IRS
Commissioner, is responsible for IRS internal audits and
investigations as well as coordinating Inspection activities with
OIG. Inspection is to work closely with OIG in planning and
performing its duties, and is to provide information on its
activities and results to OIG for incorporation into OIG's semiannual
report to Congress. Disputes the IRS Chief Inspector may have with
the Commissioner can be resolved through OIG and the Secretary of the
Treasury, to whom OIG reports.
The Department of the Treasury established the Office of the
Inspector General (IG) consistent with the authority provided in the
"Inspector General Act of 1978,"\4 although Treasury already had
internal audit and investigation capabilities for the Department as
well as its bureaus. The existing capabilities included Inspection,
which was responsible for all audits and investigations of IRS
operations. Among OIG's express authorities were the investigation
of allegations implicating senior IRS officials and the oversight of
Inspection's audit and investigative activities. OIG resources to
discharge these responsibilities were augmented in fiscal year 1990,
by the transfer of 21 staff years from IRS' appropriations to that of
OIG. The IG Act was amended in 1988 with special provisions included
to, among other things, ensure the privacy of tax- related
information. These provisions did not limit OIG's authority but
required an explicit accounting of OIG's access to tax-related
information in performing audits or investigations of IRS operations.
The OIG's authorities were also articulated in Treasury Order 114-01
signed by the Secretary of the Treasury in May 1989.
Specifically related to OIG investigative authorities, in September
1992, the Treasury IG issued Treasury Directive 40-01 summarizing the
authority vested in OIG and the reporting responsibilities of various
Treasury bureaus. Among the responsibilities of law enforcement
bureaus, including IRS, are to (1) provide a monthly report to OIG
concerning significant internal investigative and audit activities,
(2) notify OIG immediately upon receiving allegations involving
senior officials or internal affairs or inspection employees, and (3)
submit written responses to OIG detailing actions taken or planned in
response to OIG investigative reports and OIG referrals for agency
management action.
Under procedures established in a Memorandum of Understanding between
OIG and IRS in November 1994, the requirement for immediate referrals
to OIG of all misconduct allegations was reiterated and supplemented.
OIG has the discretion to refer any allegation to IRS for appropriate
action, i.e., either investigation by Inspection or administrative
action by IRS management. If IRS officials believe that an
allegation referred by OIG warrants OIG attention, they may refer the
case back to OIG requesting that OIG conduct an investigation.
OIG officials advised us that under the original 1992 directive, they
generally handled most allegations implicating Senior Executive
Service (SES) and Inspection employees, while reserving the right of
first refusal on GS-15 employees. Under the procedures adopted in
1994, which were driven in part by resource constraints and OIG's
need to do more criminal misconduct and procurement fraud
investigations across all Treasury bureaus, OIG officials stated they
have generally referred allegations involving GS- 15s and below to
IRS for investigation or management action. The same is true for
allegations against any employees, including those in SES, involving
administrative matters and allegations dealing primarily with tax
disputes. OIG officials said that a determination is made by OIG
after a preliminary review of the merits of the allegations whether
to investigate, refer to IRS to either investigate or take
administrative action, or to take no action at all. Table 1
summarizes the number and disposition of allegations received by OIG
involving IRS in fiscal year 1995.
Table 1
Disposition of Allegations Involving IRS
Employees Handled by Treasury OIG (FY
1995)
Disposition of allegation Number
---------------------------------------- ----------------------------
Referred to IRS\a 201
No action taken 71
OIG investigation 44
Other 5
======================================================================
Total 321
----------------------------------------------------------------------
\a OIG management information could not be used to distinguish
between referrals to Internal Security or IRS management without
reviewing related case files.
Source: OIG Management Information System.
In fiscal year 1995, OIG received 321 allegations, many of which
involved senior IRS officials. After a preliminary review, OIG
decided no action was warranted on 71 of the allegations, referred
201 to IRS--either for investigation or administrative
action--investigated 44, and closed 5 others for various
administrative reasons.
OIG officials stated that, based on their investigative experience,
most allegations of wrongdoing by IRS staff that involve taxpayers do
not involve senior level IRS officials or Inspection employees.
Rather, these allegations typically involve those IRS Examination and
Collection employees who most often interact directly with taxpayers.
OIG officials are to assess the adequacy of IRS' actions in response
to OIG investigations and referrals as follows: (1) IRS is required
to make written responses on actions taken within 90 days and 120
days, respectively, on OIG investigative reports of completed
investigations and OIG referrals for investigations or management
action; (2) OIG investigators are to assess the adequacy of IRS'
responses before closing the OIG case; and (3) OIG Office of
Oversight is to assess the overall effectiveness of IRS Inspection
capabilities and systems through periodic operational reviews. In
addition to assessing IRS' responses to OIG investigations and
referrals, each quarter the IG, Deputy IG, and Assistant IG for
Investigations meet to brief the IRS Commissioner, Deputy
Commissioner, and Chief Inspector on the status of allegations
involving senior IRS officials, including those being investigated by
OIG and those awaiting IRS action.
While officials from both agencies agree that the arrangement is
working well to ensure allegations involving senior IRS officials and
Inspection employees are being handled properly, OIG officials
expressed some concern with the amount of time IRS typically takes to
respond with actions on OIG investigations and referrals. IRS
officials acknowledged that responses are not always within OIG time
frames because, among other reasons, determinations about taking
disciplinary actions and imposing such actions may take a
considerable amount of time. Also, they said some cases must be
returned for additional development by OIG, which may prolong the
time for completion. The IRS officials, however, also suggested that
actions on OIG referrals are closely monitored as evidenced by their
inclusion in discussions during quarterly IG briefings with the
Commissioner. While we did not independently test the effectiveness
of this OIG/IRS arrangement, we found no evidence to suggest these
allegations are not being properly handled.
--------------------
\4 While Treasury had established an OIG consistent with the
authority provided in the IG Act of 1978, the IG Act Amendments of
1988 provided statutory authority for a presidential appointed and
Senate confirmed Treasury IG.
CONCLUSIONS
------------------------------------------------------------ Letter :7
IRS has taken specific steps in relation to certain recommendations
made in our 1994 report and initiated other actions to strengthen its
controls over taxpayer abuse by its employees. Even so, at this
time, we remain unable to determine the adequacy of IRS' system of
controls to identify, address, and prevent instances of abuse.
However, we are encouraged by IRS' recent decision to develop a
taxpayer complaint tracking system that essentially adopts the
definition of taxpayer abuse included in our 1994 report as a
starting point for defining the elements of taxpayer complaints.
We believe this is a critically important commitment that IRS must
sustain. If effectively designed and implemented, IRS should have an
enhanced ability to identify, address, and protect against the
mistreatment of taxpayers by IRS employees or the tax system in
general. While we are encouraged by IRS' commitment, we also
recognize the formidable challenge IRS faces in developing an
effective complaints tracking system.
IRS needs a more effective complaints tracking system because, while
IRS, OIG, and DOJ information systems contain data about the
treatment of taxpayers, the data relevant to employee misconduct or
taxpayer complaints are not readily or easily distinguishable from
other allegations that do not involve taxpayers. The systems do not
have the same employee identifiers or common data elements. Nor are
the data captured in a consistent manner that allows for
consolidation relative to the number or outcome of taxpayer
complaints using the definition IRS is adopting.
Given IRS' recent commitment and related efforts it has under way to
design and implement a taxpayer complaints tracking system and the
recently enacted Taxpayer Bill of Rights 2, we are making no new
recommendations at this time.
AGENCY COMMENTS AND OUR
EVALUATION
------------------------------------------------------------ Letter :8
The IRS Chief, Management and Administration commented on a draft of
this report by letter dated August 9, 1996, (see app. III) in which
he reiterated IRS' commitment to preserving and enhancing taxpayers'
rights. The Treasury's OIG and DOJ also provided technical comments,
which we incorporated in this report where appropriate.
---------------------------------------------------------- Letter :8.1
As agreed with your staff, unless you announce the contents of this
report earlier, we plan no further distribution of this report until
15 days from the date of this letter. At that time, we will send
copies of this report to the Ranking Minority Member, Senate
Committee on Finance; the Chairman and the Ranking Minority Member,
Senate Committee on Governmental Affairs; and the Chairman and the
Ranking Minority Member, House Committee on Ways and Means. We will
also send copies to other interested congressional committees, the
Commissioner of Internal Revenue, the Treasury Inspector General, the
Attorney General, and other interested parties. We will also make
copies available to others upon request.
The major contributors to this report are listed in appendix IV. If
you have any questions concerning this report, please contact me at
(202) 512- 9044.
Sincerely yours,
Natwar M. Gandhi
Associate Director, Tax Policy
and Administration Issues
SUMMARY OF IRS ACTIONS IN RESPONSE
TO THE 1994 GAO REPORT ON TAXPAYER
ABUSE
=========================================================== Appendix I
GAO recommendation IRS action taken or planned
--------------------------------------- ---------------------------------------
Establish a servicewide definition of IRS has recently established a
taxpayer abuse or mistreatment and definition for "taxpayer complaints"
identify and gather the management and is now committed to establishing a
information needed to systematically complaints tracking process.
track its nature and extent.
Ensure that Tax Systems Modernization Issued a 12-point Information Security
provides the capability to minimize Policy to all IRS staff; published
unauthorized employees access to "High-Level Security Requirements;" and
taxpayer information in the computer started development of an Information
system that eventually replaces the System Target Security Architecture.
Integrated Data Retrieval System.
Revise the guidelines for information Issued an updated memorandum to field
gathering projects to require that staff regarding the highly sensitive
specific criteria be established for nature of information gathering
selecting taxpayers' returns to be projects.
examined during each project and to
require that there is a separation of
duties between staff who identify
returns with potential for tax changes
and staff who select the returns to be
examined.
Reconcile all outstanding cash receipts IRS is instructing its managers to
more often than once a year and stress conduct random unannounced
in forms, notices, and publications reconciliations of cash receipts used
that taxpayers should use checks or by IRS staff who receive cash payments
money orders whenever possible to pay from taxpayers. Revised Publication
their tax bills, rather than cash. 594, "Understanding the Collection
Process," Publication 17, "Your Federal
Income Tax," and the 1995 1040 tax
package to encourage taxpayers to pay
with checks or money orders, rather
than cash.
Better inform taxpayers about their Revised Publication 334, "Tax Guide for
responsibility and potential liability Small Business," and Circular E,
for the trust fund recovery penalty by "Employer's Tax Guide," to explain the
providing taxpayers with special potential liability for the trust fund
information packets. recovery penalty if amounts withheld
are not remitted to the government; and
started including Notice 784, "Could
You Be Personally Liable for Certain
Unpaid Federal Taxes?" with the first
balance due notice for business taxes.
Provide specific guidance for IRS No actions taken or planned. Because we
employees on how they should handle did not find instances of improper
White House contacts other than those contacts, IRS is of the opinion that
involving tax checks of potential current procedures covering third-
appointees or routine administrative party contacts are adequate.
matters.
Seek ways to alleviate taxpayers' Requested top executives to review
frustration in the short term by major issues the Ombudsman identified
analyzing the most prevalent kinds of via the Problem Resolution Program that
information-handling problems and have resulted in repeat taxpayer
ensuring that requirements now being problems.
developed for Tax Systems Modernization
information systems provide for long-
term solutions to those problems.
--------------------------------------------------------------------------------
Source: 1994 GAO report and IRS responses and subsequent actions.
IRS, TREASURY OIG, AND DOJ
INFORMATION SYSTEMS WITH DATA
ELEMENTS ON POTENTIAL TAXPAYER
ABUSE
========================================================== Appendix II
Data elements in which
Name of information Primary use of potential taxpayer abuse
system information system may be found\a
------------------------- ------------------------- --------------------------
IRS -Internal Security Internal Security --Miscellaneous employee
Management Information management use this misconduct
System (ISMIS) system to track the
status of investigations --Computer improper
and for operational and access
workload management.
--Intimidation/
harassment
--Disclosure of
confidential information
IRS -Automated Labor and Labor Relations staff use --Taxpayer charge or
Employee Relations this system to track the complaint
Tracking System (ALERTS) status and results of
possible disciplinary --Misuse of position/
action relative to IRS authority
employee behavior.
IRS -Problem Resolution Problem Resolution Office --Taxpayer treatment
Office Management staff use this system to
Information System monitor the status of --Collection actions
(PROMIS) open taxpayer problems to
generate statistics on
the volume of problems
received by major
categories.
IRS -Commissioner's Mail Legislative Affairs staff --Complaints
Tracking System use this system to track
correspondence to the
Commissioner and other
IRS office heads/
executives.
IRS -Congressional Legislative Affairs staff --Integrity
Correspondence Tracking use this system to track
System correspondence from --Employee conduct
congressional sources and
from referrals by the
Treasury Department and
the White House.
Treasury OIG -Office of OIG management and desk --Tax dispute/inquiry
Investigations Management officers use the system
Information System (OIG/ to monitor the status of --Unethical/improper
OIMIS) OIG investigations and to conduct
monitor whether required
responses to OIG --Criminal/other
investigations and
referrals to the Treasury
bureaus, such as IRS,
have been received.
DOJ EOUSA\b -Centralized EOUSA management use the --Torts
Caseload System system to monitor the
status and results of --Public corruption
civil and criminal
prosecutions and to
oversee field office
caseloads.
DOJ Tax Division -Case Tax Division management --Torts
Management System uses the system to
monitor the status and --Suits for unauthorized
results of civil and disclosure of tax
criminal cases, manage information
attorney caseloads, and
prepare internal and --Suits for failure to
external reports, such as release a lien or for
for the Office of unreasonable IRS
Management and Budget and collection action
the Congress.
--------------------------------------------------------------------------------
\a Based on the opinion of agency officials responsible for these
information systems, these systems do not include a specific data
element for "taxpayer abuse."
\b EOUSA is Executive Office of the U.S. Attorneys.
Source: IRS, Treasury OIG, and DOJ officials and related information
system documents.
(See figure in printed edition.)Appendix III
COMMENTS FROM THE INTERNAL REVENUE
SERVICE
========================================================== Appendix II
MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix IV
GENERAL GOVERNMENT DIVISION,
WASHINGTON, D.C.
Mark Gillen, Assistant Director
Robert McKay, Evaluator-in-Charge
James O'Donnell, Evaluator
OFFICE OF GENERAL COUNSEL,
WASHINGTON, D.C.
Rachel DeMarcus, Assistant General Counsel
Shirley A. Jones, Attorney Advisor
*** End of document. ***