Tax Administration: IRS' Problem-Solving Days (Letter Report, 10/16/98,
GAO/GGD-99-1).

In November 1997, the Internal Revenue Service (IRS) held the first in a
series of problem-solving days in its 33 districts. Between November
1997 and July 1998, these events attracted more than 22,000 taxpayers,
who met with IRS staff in an attempt to resolve their tax problems. IRS
advertised its problem-solving days in national and local newspapers as
well as in television and radio spots.  Taxpayers and practitioners were
urged to call in advance to schedule appointments to discuss their tax
problems.  Some taxpayers who called in advanced were able to resolve
their problems over the phone.  For taxpayers who scheduled an
appointment, IRS was generally able to provide information about the
taxpayers' case at the time of the appointment. Taxpayers who walked in
without an appointment generally were able to meet with IRS staff to
discuss their situation.  Surveys found that taxpayers were generally
satisfied with the initiative, even though not all taxpayers who
participated in the problem-solving days were able to fully resolve
their problems. IRS has reviewed the types of problems that taxpayers
have sought to resolve on problem-solving days and identified four main
problem areas: penalties, audit reconsiderations, installment
agreements, and offers in compromise. IRS now has task groups reviewing
each of these areas to identify administrative or legislative actions
needed to reduce such problems in the future.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-99-1
     TITLE:  Tax Administration: IRS' Problem-Solving Days
      DATE:  10/16/98
   SUBJECT:  Tax consultants
	     Tax returns
	     Taxpayers
	     Income taxes
	     Federal taxes
	     Quality assurance
	     Customer service
	     Program evaluation
	     Tax administration
	     Surveys
IDENTIFIER:  IRS Problem Resolution Program

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TAX ADMINISTRATION: IRS' Problem-Solving Days GAO/GGD-99-1 United
States General Accounting Office

GAO Report to the Chairman, Committee on Finance, U. S. Senate

October 1998 TAX ADMINISTRATION IRS' Problem- Solving Days

GAO/GGD-99-1

  GAO/GGD-99-1

GAO United States General Accounting Office

Washington, D. C. 20548 General Government Division

B-278847 October 16, 1998 The Honorable William V. Roth, Jr.
Chairman, Committee on Finance United States Senate

Dear Mr. Chairman: In November 1997, the Internal Revenue Service
(IRS) held the first in a series of problem- solving days (PSD)
within each of its 33 districts. The purpose of these events was
to enable taxpayers with unresolved tax problems to meet with IRS
staff in an effort to resolve these problems.

This report responds to your request that we monitor and report on
IRS' PSD initiative. Specifically, you asked us to determine (1)
how the PSDs were organized and advertised and what IRS did to
make them conducive to discussing and resolving taxpayers' ongoing
tax problems, (2) taxpayers' overall satisfaction with the
initiative and the extent to which taxpayers' problems were
resolved, and (3) whether IRS identified any systemic problems or
lessons learned and took subsequent actions on them.

Results in Brief IRS began holding monthly PSDs in November 1997
to assist taxpayers in getting their tax problems resolved. To
advertise the initiative, IRS used

various means, including national and local newspapers,
television, and radio. Taxpayers and practitioners were advised to
call in advance to schedule appointments to discuss their tax
problems with IRS staff. Some taxpayers who called in advance were
able to get their problems resolved over the telephone. For
taxpayers who scheduled an appointment in advance, IRS was
generally able to have information about the taxpayers' case
available at the time of the appointment. Taxpayers who walked in
without an appointment were generally afforded an opportunity to
meet with IRS staff to discuss their tax problems. Also, during
PSDs each participating IRS office was staffed with employees from
various functional groups, such as Examination and Collection, to
provide a range of expertise and thus make the initiative
conducive to discussing and resolving taxpayers' tax problems.

IRS' initial national PSD was held at each of its 33 district
offices on November 15, 1997, and about 6,300 taxpayers attended.
A subsequent national PSD, held on May 16, 1998, was attended by
about 2,500 taxpayers. IRS held additional problem- solving events
each month on various days and at various locations within each
district. Overall, between November 1997

GAO/GGD-99-1 IRS' Problem- Solving Days Page 1

B-278847

and July 1998, these events attracted more than 22,000 taxpayers.
Many of these events were held on weekends and during off- duty
hours, and IRS estimated that it incurred incremental costs of
about $11.5 million through the end of July 1998, primarily in the
form of overtime salaries and related personnel compensation.
Costs, such as rent and moving and installation of computers, were
also incurred when PSDs were held at sites other than an IRS
office. These costs do not include the costs to taxpayers in terms
of personal time and travel required to attend these events.

Surveys that we and IRS have conducted of taxpayers who
participated in a PSD have shown that they generally had favorable
reactions to the PSD initiative, even though not all taxpayers at
that time had their problems fully resolved. Our survey of
taxpayers attending the first PSD indicated that about 91 percent
believed it was a good idea, even though only about 34 percent of
taxpayers reported that their problems had been fully resolved by
the time they responded to our questionnaire. IRS surveys of
taxpayers attending PSDs each month and a follow- up telephone
survey conducted by IRS in April and May 1998 also indicated a
generally positive response to the initiative. However, taxpayers
responding to the IRS surveys indicated that IRS' effort to
resolve their problems could be improved.

IRS has reviewed the types of problems that taxpayers have sought
to resolve on PSDs and identified four main problem areas:
penalties, audit reconsiderations, installment agreements, and
offers in compromise. Currently, IRS has task groups reviewing
each of these problem areas to identify administrative or
legislative actions needed to reduce such problems in the future.

According to IRS officials who have studied the overall PSD
initiative, an important lesson learned was that taxpayers with
ongoing tax problems wanted to discuss them face to face with IRS
staff to finally get their problems resolved. In addition, the IRS
staff participating in PSDs indicated that the cross- functional
approach to problem solving helped provide the technical expertise
necessary to resolve many of the taxpayers' problems they
encountered. IRS is also studying ways to incorporate problem-
solving lessons learned from the PSD initiative into its day- to-
day operations, such as providing taxpayers with appointments and
having necessary technical support on hand to assist taxpayers in
resolving their tax problems. IRS plans to continue holding PSDs
through April 1999, when it is to decide if there is a continuing
need for such events.

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B-278847

Background During Senate Finance Committee oversight hearings held
in September 1997, several taxpayers testified about problems they
had

experienced when dealing with IRS. In response, the then Acting
Commissioner of Internal Revenue announced that IRS would hold
monthly PSDs in each of its 33 districts, beginning in November
1997. According to the Acting Commissioner, the objective of this
initiative was to provide taxpayers with an opportunity to meet
face to face with IRS staff to help resolve ongoing tax problems,
such as misapplied tax payments, nonreceipt of refunds, and
disputed tax bills, that they had been unable to resolve through
regular IRS channels.

Each IRS district office is responsible for planning and
implementing the PSDs, under the overall coordination of the
national Taxpayer Advocate. The Office of the Taxpayer Advocate
(OTA) administers the Problem Resolution Program (PRP), which was
established in 1976 and currently operates in all IRS district
offices and service centers to assist taxpayers in resolving tax
problems or those who are suffering financial hardship. Other
responsibilities of OTA include conducting advocacy projects to
identify and address systemic and procedural deficiencies that
contribute to the problems experienced by taxpayers and
representing taxpayers' interests in the formulation of IRS
policies and procedures.

Scope and Methodology

To identify how IRS implemented the PSD initiative, we met with
the IRS national Taxpayer Advocate and his staff and obtained and
reviewed national office guidance to the district offices
concerning planning and implementing the PSDs. We also obtained
and reviewed the PSD implementation plans from eight IRS districts
and met with district office officials concerning these plans
prior to the initial PSD held on November 15, 1997. We then
attended the initial PSDs at these eight districts. We also
attended the PSDs at two districts during December 1997 and at two
districts during May 1998.

To determine taxpayers' overall satisfaction with the initiative
and the extent to which taxpayers' problems were resolved, we
obtained and reviewed available IRS statistics concerning the
status of PSD cases in general and the specific results of closed
PSD cases, as well as summary reports on the results of IRS'
monthly taxpayer surveys and a summary report on the results of
IRS' April and May 1998 taxpayer follow- up telephone survey. We
also mailed a questionnaire to a stratified probability sample of
the taxpayers who visited the 33 IRS sites on the initial PSD held
on November 15, 1997. (App. I describes our sample, response rate,
and

GAO/GGD-99-1 IRS' Problem- Solving Days Page 3

B-278847

procedures to assess sources of nonsampling error.) We then
analyzed the responses to determine at the time of our survey,
among other things, the extent to which (1) taxpayers' problems
were resolved either during or since the November 15 PSD, (2)
taxpayers considered the PSD to be a good idea, and (3) taxpayers
were aware of the Problem Resolution Office located in each IRS
district office. 1 (See app. II for the results of our taxpayer
survey.)

To determine systemic problems identified, lessons learned, and
subsequent actions taken by IRS, we met with the national Taxpayer
Advocate and his staff, a district office official who led a study
of the overall PSD initiative, and a regional office
representative of IRS' Taxpayer Equity Task Force. We obtained and
reviewed pertinent documentation from these officials, including a
compilation of lessons learned that was submitted to the National
Office by the district offices, a copy of the report prepared at
the conclusion of the PSD study, and minutes of meetings held by
the Taxpayer Equity Task Force. We also discussed the objectives
and status of ongoing task group studies of the four major areas
that contributed to taxpayer problems identified during the PSD
initiative with representatives from each of these task groups.
(See app. III for definitions of these major problem areas.)

We did our work from November 1997 to August 1998 in accordance
with generally accepted government auditing standards. The work
was done at IRS' National Office and at the following nine
district offices: Upstate New York, Delaware/ Maryland, Georgia,
North Florida, Illinois, Kansas/ Missouri, South Texas, Northern
California, and Southern California. We selected the IRS offices
that we visited on the basis of geographic dispersion and the
availability and proximity of our staff to assist in the audit
work.

We requested comments on a draft of this report from the
Commissioner of Internal Revenue. His written comments are
discussed at the end of this letter and shown in appendix IV.

IRS' Implementation of the PSD Initiative

IRS' district offices are responsible for holding PSDs with
guidance from OTA. IRS held its initial PSD in November 1997 and
has held PSD events each month since then. Through the end of
July, the PSD initiative had enabled

1 Since our results came from a sample of taxpayers, they are
subject to sampling errors that are expressed as 95- percent
confidence intervals. We are 95 percent confident that our
sampling procedures provide results in this report that are within
eight percentage points of what the results would have been if we
had surveyed all participating taxpayers.

GAO/GGD-99-1 IRS' Problem- Solving Days Page 4

B-278847

over 22,000 taxpayers to meet with IRS staff in an effort to
resolve their ongoing tax problems.

OTA is responsible for monitoring and coordinating the overall PSD
initiative. OTA provided general guidance to the district offices
concerning how PSD events were to be planned, advertised, and
implemented, including the necessary staffing, security, and
information systems. OTA also selected the specific dates
(November 15, 1997, and May 16, 1998) on which national events
were held, and district offices decided the dates and locations
for additional local problem- solving events each month. Most
districts chose to hold PSDs in various locations within the
districts to provide taxpayers throughout the geographic area of
the districts an opportunity to meet with IRS staff to discuss
their problems without traveling to the main district offices.
Many districts also elected to hold these events during the week
rather than on a Saturday. For example, in March 1998, 22
districts held a PSD on a weekday using extended business hours to
accommodate taxpayers who could not visit during regular business
hours. The other 11 districts held PSDs on Saturdays.

According to IRS officials, the national office and district
offices coordinated their efforts to ensure that PSD events were
advertised both nationally and locally through newspapers, press
releases, television, and radio. Local congressional offices and
practitioner groups were also advised of dates and locations for
upcoming problem- solving events. Taxpayers and practitioners were
advised to call in advance to schedule appointments. Those who
called in advance regarding tax problems were given appointments,
and their tax accounts were researched to facilitate discussing
and resolving their problems on the PSD. In addition, some
taxpayers who called IRS regarding a PSD were able to get their
problems resolved over the telephone without visiting an IRS
office. However, due to the complexity of their tax problems, many
taxpayers chose to visit an IRS office to discuss their problems
face to face. Walk- ins who attended a PSD without an appointment
were also generally provided an opportunity to meet with IRS staff
to discuss their tax problems.

During PSDs, the participating offices we visited were generally
staffed with IRS employees from various operating groups, such as
Customer Service, Examination, and Collection, who had a wide
range of expertise in various tax matters and were available to
assist taxpayers, thus making the initiative conducive to
discussing and resolving their ongoing tax problems. This
arrangement enabled IRS staff, who initially met with taxpayers to
discuss their problems and who may not have had the

GAO/GGD-99-1 IRS' Problem- Solving Days Page 5

B-278847

required training or expertise necessary to resolve a particular
type of problem, to call upon other IRS staff for assistance. For
example, if a taxpayer wanted to discuss a technical issue and the
initial IRS employee had not been trained in that area, the
employee could ask a specialist to assist the taxpayer. According
to the IRS official who led a study of the PSD initiative, this
cross- functional approach was particularly helpful in dealing
with many of the taxpayers who had multiple problems that had
remained unresolved for long periods of time. The official said
that IRS staff also considered this approach useful because it
helped them to better understand taxpayers' problems and to
develop possible solutions.

Each participating office we visited had also arranged for
computer terminals, information systems, and technical support as
well as office space and security to accommodate as many taxpayers
as possible during these events. In some instances, space
limitations made it necessary for these events to be held at
locations other than an IRS office.

IRS' initial national PSD, which was held at each of the 33
district offices on Saturday, November 15, 1997, was attended by
about 6,300 taxpayers and received generally favorable press
coverage and reactions from taxpayers. IRS held a second
nationwide PSD at each district office on Saturday, May 16, 1998,
which was attended by about 2,500 taxpayers. IRS' district offices
have also held additional monthly PSD events between November 1997
and July 1998. More than 22,000 taxpayers had attended PSDs
through the end of July 1998.

According to OTA, the incremental costs for planning and holding
these events, as well as for following up on the taxpayers' cases
that resulted from them, were about $11.5 million through the end
of July 1998, primarily resulting from overtime salaries and
related personnel compensation. Additional costs, such as rent,
and moving and installation of computers, were incurred when PSD
events were held at locations other than an IRS office. IRS
estimated that the overall costs for holding PSDs during fiscal
year 1998 likely would be about $15 million. These estimates do
not include the costs to the taxpayers in both the money and time
they spent in an effort to get their problems resolved through the
PSD initiative, nor do the estimates reflect IRS' and taxpayers'
costs from previous attempts to resolve their problems. For
example, our survey of taxpayers who participated in the initial
PSD indicated that all had made prior attempts to resolve their
problems, including about 86 percent who had tried over the
telephone, about 63 percent who had tried through the mail, and
about 42 percent who had tried in person. As these percentages

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B-278847

indicate, many taxpayers used more than one method in attempting
to resolve their problems. Based on their previous attempts to
resolve their problems, about 39 percent of taxpayers responded
that they had participated in the PSD because they considered it
to be their last resort.

Taxpayers Had Generally Favorable Reactions to PSDs, Although Many
Problems Were Not Resolved

Surveys that we and IRS conducted of taxpayers who participated in
a PSD have shown that taxpayers have had generally favorable
reactions concerning the PSD initiative. In particular, the
results of our taxpayer survey showed that the vast majority of
taxpayers who participated in the first PSD felt that (1) it was
easy to schedule an appointment for this event, (2) they were
treated courteously by IRS employees, and (3) they appreciated the
opportunity to meet face to face with IRS staff to discuss their
problems. Overall, about 91 percent 2 of taxpayers believed that
the PSD was a good idea. This 91 percent included all taxpayers
who felt that their problems had been fully resolved and about 86
percent of those who felt that their problems had not been fully
resolved at the time of our survey.

Since the beginning of the PSD initiative, IRS has conducted
monthly surveys of taxpayers who attended a PSD. The monthly
surveys have addressed issues such as promptness of service,
convenience of office hours, employee courtesy, and IRS' effort to
resolve taxpayers' problems. Overall, the results of these monthly
surveys have been favorable. However, each month survey
respondents indicated that IRS' effort to resolve their problems
could be improved.

In addition to its monthly surveys, IRS conducted a follow- up
telephone survey in April and May 1998 of taxpayers who had
participated in the PSD initiative, either in person or by
telephone. The results of the follow- up telephone survey led IRS
to revise the format of its monthly surveys in an effort to obtain
more detailed information, particularly about whether taxpayers'
problems had been resolved during the PSD and, if not, the reasons
why.

Although in general the surveys indicated PSDs have been well
received by participating taxpayers, many taxpayers' problems were
not resolved through the initiative. Our survey indicated that
about 25 percent of participating taxpayers initially felt that
their problems had been fully resolved during the November 15th
PSD. Some of these taxpayers about

2 Because our survey was based on a sample and subject to sampling
errors, our result of 91 percent is surrounded by a 95- percent
confidence interval of + 4 percentage points.

GAO/GGD-99-1 IRS' Problem- Solving Days Page 7

B-278847

9 percent responded that they believed their problems were not
resolved after all. However, a greater number of taxpayers who
initially felt that their problems had not been resolved during
the November 15th PSD about 18 percent responded that they
believed their problems had since been fully resolved. The net
result was that an estimated 34 percent of these taxpayers felt
that their problems had been fully resolved at the time of our
survey. 3

In addition, about 67 percent of the taxpayers responding to our
survey said that they left the PSD knowing what further steps
needed to be taken to get their problems resolved. It is important
to recognize that certain problems may take longer to resolve than
others, and it is possible that some taxpayers who did not have
their problems resolved at the time of our survey may have had
them resolved since then.

Further, some taxpayers may not consider their problems resolved
unless IRS makes a change in their favor. 4 According to IRS
officials, PSD cases that resulted in no changes would usually be
for one of two reasons: (1) IRS determined that there was no basis
on which to make a change, such as instances in which taxpayers
failed to furnish requested additional information or (2) the tax
laws did not allow IRS the flexibility to make a change, such as
instances in which the statute of limitations period for sending
tax refunds to taxpayers had expired.

IRS Is Considering Ways to Institutionalize Lessons Learned During
the PSD Initiative

IRS has conducted various studies related to the PSD initiative.
These efforts include studies to identify the main causes,
including systemic problems, of some major problem areas raised by
taxpayers on PSDs, a Taxpayer Equity Task Force convened by the
national Taxpayer Advocate, and an overall review of the PSD
initiative to identify lessons learned and the need for continued
problem- solving events. IRS' field offices have also begun on
their own to initiate some actions to better resolve taxpayers'
problems.

IRS has analyzed the types of problems taxpayers have sought to
resolve on PSDs since the beginning of the initiative and
identified four main problem areas: penalties, audit
reconsiderations, installment agreements, and offers in
compromise. IRS currently has task groups reviewing each of these
problem areas in an effort to identify possible actions that could
reduce

3 For this estimate of 34 percent, the 95- percent confidence
interval is + 6 percentage points. 4 OTA does not have the results
of all closed PSD cases. However, one IRS region that has tracked
the results of its closed PSD cases since the initiative began
indicated that through the end of July 1998, about 45 percent of
closed cases were either fully or partially changed in favor of
the taxpayers.

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B-278847

such problems in the future. With the exception of the review
involving installment agreements, which began in May 1998 and is
not scheduled to be completed until fiscal year 1999, each task
group was expected to conclude its study with a report including
recommendations by the end of September 1998. In addition to these
reviews of the four main problem areas, the Taxpayer Advocate has
convened a Taxpayer Equity Task Force to assist in identifying
both administrative and legislative provisions that may have
resulted in unintended consequences for taxpayers and thus may
have had an impact on the resolution of their problems. The
Taxpayer Equity Task Force has coordinated its efforts with the
various task groups that are conducting the four reviews, to avoid
duplicating efforts as well as to ensure that its findings are
shared with and considered by the task groups.

Each of these four main problem areas has been identified by IRS
in the past and has been the focus of prior studies. In that
regard, the Taxpayer Advocate's Annual Reports to the Congress,
for both fiscal years 1996 and 1997, mention each of these problem
areas as a major source of PRP cases and the focus of taxpayer
advocacy projects conducted by IRS' field offices. For example,
during fiscal year 1997, one IRS region studied taxpayer
complaints concerning installment agreements and offered several
recommendations to reduce taxpayer burden and improve taxpayer
satisfaction pertaining to this area. At the time of our review,
IRS had acted upon one of the 15 recommendations from this
project. According to an OTA official, the findings from this
project will be used as a starting point for the task group
studying installment agreements.

In addition to these reviews of specific PSD problem areas, IRS
has also conducted an overall review of the PSD initiative to
determine the lessons learned over the course of the initiative
and the need for continued problem- solving events in the future.
According to IRS officials involved in this review, among the
lessons learned from PSDs were that many taxpayers who attended
did so because they wanted to discuss their ongoing tax problems
face to face with IRS staff in an effort to finally get them
resolved. In addition, the officials said IRS staff appreciated
the opportunity to deal directly with taxpayers concerning their
problems. They also thought that the cross- functional, problem-
solving approach used on PSDs provided the degree of technical
expertise necessary to help many taxpayers with their problems.

A report based on the lessons learned that were identified during
this review concluded that IRS should focus attention on making
the

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B-278847

problem- solving process used during PSDs a part of its everyday
operations. Recommendations in the report included (1) adopting a
policy in each district office whereby taxpayers may make
appointments in advance or simply walk in to get their problems
resolved, (2) providing access to cross- functional technical
resources on demand, (3) expanding and standardizing walk- in
hours, (4) establishing a network in each district office to help
employees with difficult cases, and (5) continuing monthly PSDs
until a day- to- day problem- solving capability has been
established.

In response to this study, IRS' Taxpayer Treatment and Service
Improvements Executive Steering Committee indicated that monthly
PSDs will continue through April 1999, at which time IRS will
assess whether there is a continuing need for them. In addition,
IRS is studying ways to incorporate lessons learned from the PSDs
into its day- to- day operations to better assist taxpayers in
resolving their tax problems, by establishing procedures for
providing taxpayers with appointments and for providing the
necessary technical support. We agree that assisting taxpayers in
resolving their tax problems and making such assistance an
integral part of IRS' day- to- day operations could be beneficial
to both taxpayers and IRS.

In addition to the various studies undertaken, IRS' field offices
have begun taking actions on their own to better assist taxpayers
in getting problems resolved. For example, according to IRS
regional officials each of the district offices in one region has
established cross- functional teams that are available to assist
other employees in resolving cases involving difficult tax
problems. This approach has been recommended by the national
office for nationwide implementation. In addition, according to
IRS regional officials some districts have begun to provide
taxpayers with appointments to discuss their tax problems, some
have provided for walk- in service during normal business hours,
and some have established evening hours for conducting audits.

Congress recently passed legislation that should also aid
taxpayers in getting tax problems resolved. The Internal Revenue
Service Restructuring and Reform Act of 1998 (P. L. 105- 206) (1)
strengthens the role of the national Taxpayer Advocate by
expanding the authority to assist taxpayers; (2) replaces the
current problem resolution program with local taxpayer advocates
reporting directly to the national Taxpayer Advocate; (3) requires
the national Taxpayer Advocate to report annually to Congress, at
least 20 of the most serious problems encountered by taxpayers and
the actions taken by IRS concerning these problems; (4) requires
IRS to publish the telephone numbers for each local office of

GAO/GGD-99-1 IRS' Problem- Solving Days Page 10

B-278847

the Taxpayer Advocate; and (5) requires IRS to publish a
taxpayer's right to contact the local Taxpayer Advocate on the
statutory notice of deficiency, including the location and
telephone number of the appropriate office. 5 These changes, if
effectively implemented, should be helpful to taxpayers. Based on
our survey, only about 31 percent of taxpayers participating in
the November 15th PSD reported that they had prior contact with
IRS' Problem Resolution Office, which, before the PSD initiative,
was the main avenue for taxpayers to get assistance in resolving
ongoing tax problems. About 63 percent of taxpayers reported that
they were unaware this particular office existed.

Conclusions IRS' PSD initiative has proven to be beneficial to
both taxpayers and IRS from several standpoints. For instance, it
has given some taxpayers an

opportunity to discuss their ongoing tax problems face to face
with IRS employees, and it has resulted in some taxpayers
reporting that their problems were fully resolved. Although most
of the surveyed taxpayers' problems were not immediately resolved
through the initiative, a majority of them reported that they were
informed of the steps they needed to take to get their problems
resolved. Most of the surveyed taxpayers also reported that they
were treated courteously by the IRS employees that they dealt with
during the initiative. For their part, IRS officials said that IRS
employees welcomed the opportunity to meet directly with taxpayers
in an effort to assist them and felt that the cross- functional
approach used during the initiative was very beneficial for
resolving taxpayers' problems. The positive benefits of the
initiative, however, were gained through costs to both
participating taxpayers and IRS.

The major problem areas that IRS identified as leading to PSD
cases were similar to problems that IRS had previously identified
and studied as part of the Problem Resolution Program. IRS'
ongoing studies to identify possible systemic deficiencies causing
these problems could result in recommended actions to reduce or
eliminate the incidence of such problems in the future. In
addition, the lessons learned from the PSD initiative in general
should help IRS carry out the Taxpayer Advocate's responsibilities
mandated by the Internal Revenue Service Restructuring and Reform
Act of 1998 and improve its day- to- day capability to resolve
taxpayers' ongoing tax problems. Improving this capability could
lead to

5 IRS sends a statutory notice of deficiency to inform taxpayers
of the additional taxes that have been determined to be owed after
taxpayers have received an earlier notice about tax adjustments
that had been recommended by an auditor. Generally, the statutory
notice gives the taxpayer 90 days to file a petition with the Tax
Court for a determination of the deficiency.

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B-278847

less dependence on monthly PSDs and the added costs associated
with these events to both taxpayers and IRS.

Agency Comments and Our Evaluation

We requested comments on a draft of this report from the
Commissioner of Internal Revenue or his designee. In a September
15, 1998, meeting, the national Taxpayer Advocate and members of
his staff provided oral comments in which they agreed with the
report's findings. The Commissioner of Internal Revenue provided
us with written comments on October 1, 1998, in which he expressed
IRS' commitment to improve the PSD program to meet the needs of
taxpayers. He also said that IRS needs to work to resolve taxpayer
problems at the original point of contact with IRS. (See app IV.)

As agreed with your office, unless you announce the contents of
this report earlier, we plan no further distribution of this
report until 30 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 Ranking Minority
Member, House Committee on Ways and Means; various other
congressional committees; the Director of the Office of Management
and Budget; the Secretary of the Treasury; the Commissioner of
Internal Revenue; and other interested parties.

The major contributors to this report are listed in appendix V. If
you or your staff have any questions concerning this report,
please contact me or Joseph Jozefczyk, Assistant Director, on
(202) 512- 9110.

Sincerely yours, James R. White Director, Tax Policy and

Administration Issues

GAO/GGD-99-1 IRS' Problem- Solving Days Page 12

GAO/GGD-99-1 IRS' Problem- Solving Days Page 13

Contents Letter 1 Appendix I Problem- Solving Day Taxpayer
Participant Survey Methodology

16 Appendix II Summary of Taxpayer Responses to Our Survey
Concerning Problem- Solving Day

19 Survey Questions and Responses 19

Appendix III Definition of the Main Problem Areas Identified
During Problem- Solving Days

24 Appendix IV Comments From the Internal Revenue Service

25 Appendix V Major Contributors to This Report

26

Abbreviations

IRS Internal Revenue Service OTA Office of the Taxpayer Advocate
PRP Problem Resolution Program PSD Problem- Solving Day

GAO/GGD-99-1 IRS' Problem- Solving Days Page 14

GAO/GGD-99-1 IRS' Problem- Solving Days Page 15

Appendix I Problem- Solving Day Taxpayer Participant Survey
Methodology

To obtain participating taxpayers' views on IRS' Problem Solving
Days (PSD), we mailed questionnaires to a sample of PSD
participants in December 1997. The results presented in this
report are based on 201 responses to our questionnaire and are
presented in detail in appendix II.

We drew our sample to represent the population of all taxpayers
that visited an IRS office during the November 15, 1997, PSD and
were recorded as participants with a full address in an IRS
database. To obtain a probability sample of participants, we first
drew 600 taxpayer names from a list of all 8,099 taxpayers that
IRS had identified in its Problem Resolution Office Management
Information System database by December 3, 1997, as having had any
type of contact with IRS concerning the November 15, 1997, PSD. We
excluded 427 taxpayers with incomplete addresses before forming
this list. The sample was randomly drawn from three strata that we
defined by the date and closure status of the case. Of the 365
taxpayers that we were able to contact, we found that 243 had
actually visited a November 15, 1997, PSD site and thus were
eligible for our study. The remainder (122) had not visited IRS
during the PSD. Completed questionnaires were obtained from 201
respondents. All results presented in this report have been
weighted to estimate the views and experiences of the on- site
participants after adjusting for nonresponse rates within the
three sample strata.

Because we surveyed a sample of on- site participants, our results
are estimates of all participants' characteristics and thus are
subject to sampling errors that are associated with samples of
this size and type. Our confidence in the precision of the results
from this sample is expressed in 95- percent confidence intervals.
The 95- percent confidence intervals are expected to include the
actual results for 95 percent of the samples of this type. We
calculated confidence intervals for our study results using
methods that are appropriate for a stratified, probability sample.
For the percentages presented in this report, we are 95 percent
confident that the results we would have obtained if we had
studied the entire study population are within + 8 or fewer
percentage points of our results. For example, our estimate that
about 91 percent of the participants feel that the PSD was a good
idea is surrounded by a 95- percent confidence interval of + 4
percentage points and thus stretches from 87 to 95 percent.

In addition to these sampling errors, the practical difficulties
in conducting surveys of this type may introduce other types of
errors, commonly referred to as nonsampling errors. For example,
questions may be misinterpreted or the respondents' answers may
differ from those of

GAO/GGD-99-1 IRS' Problem- Solving Days Page 16

Appendix I Problem- Solving Day Taxpayer Participant Survey
Methodology

people who do not respond. We took several steps in an attempt to
reduce such errors. The questionnaire was pretested with eligible
taxpayers. All initial sample nonrespondents were sent a follow-
up questionnaire mailing. All data were double keyed during entry.
Computer analyses were performed to identify inconsistencies or
other indications of errors and all computer analyses were checked
by a second independent analyst. The low response rate is of
special concern for this study. Of the initial 600 sampled
taxpayers, 54 percent either returned a complete, usable
questionnaire (201) or responded that they were not eligible for
the survey because they had not visited an IRS site during the
November 15, 1997, PSD (122 sample selections). The difference in
this response rate for the three sample strata was small (7
percentage points) and not statistically significant.

To help evaluate the low response rate, we conducted a small-
scale telephone follow- up survey of nonrespondents and did not
find large or statistically significant differences between
respondents and nonrespondents. For the telephone follow- up
survey, we contacted a subsample of the sample that had not
responded to the initial or follow- up mailings. We obtained
telephone numbers from IRS or through local directory assistance
services. Sixty- one of the 75 selected cases were reached after a
minimum of 15 telephone calls had been attempted during morning,
afternoon, and evening hours on both weekends and weekdays. The
small difference between the eligibility rate of 66 percent for
these 61 follow- up taxpayers (21 were not eligible for our sample
because they had not visited an IRS office during the PSD), and
the eligibility rate of 67 percent for the respondents to the main
survey is not statistically significant and does not indicate that
the procedures followed in the main survey are overestimating the
participation in the PSD. Of the remaining 40 follow- up contacts,
6 refused to participate; and 34 answered the telephone survey
follow- up questions, which were compared with the results of the
mail survey. The answers provided by these 34 follow- up
respondents were not statistically significantly different from
those provided by the mail survey respondents for the major
questions that were compared. About 88 percent of the telephone
follow- up respondents and 91 percent of the mail survey
respondents reported that they felt the PSD was a good idea. About
18 percent of the telephone follow- up respondents and 24 percent
of the mail survey respondents reported that their problems had
been fully resolved on the PSD.

The low response for the entire survey means that findings could
differ from those that would have been obtained from the full
sample. The

GAO/GGD-99-1 IRS' Problem- Solving Days Page 17

Appendix I Problem- Solving Day Taxpayer Participant Survey
Methodology

results from this small- scale follow- up of nonrespondents
provide some evidence that the differences are not likely to be
large.

GAO/GGD-99-1 IRS' Problem- Solving Days Page 18

Appendix II Summary of Taxpayer Responses to Our Survey Concerning
Problem- Solving Day

Following is a summary of responses to the survey we sent to a
random sample of participants soon after the initial problem-
solving day on November 15, 1997. The results in this appendix
have been weighted to account for the initial selection rates and
subsequent response rates in each of the three sample strata. For
questions for which the respondent was to check all that apply,
the percent of total survey respondents checking each response is
provided and generally exceeds 100 percent in total. For questions
for which the respondent was to check one, responses are expressed
as a percent of the total responses to that question and should
equal 100 percent (exceptions may occur through rounding).

Survey Questions and Responses

1. How did you learn that IRS was planning to hold a problem-
solving day on November 15, 1997? (Check all that apply.)

Source Percent

Newspaper announcement 51% Television announcement 32 Radio
announcement 16 Word of mouth 16 Other 15

2. What was the primary reason you decided to participate in the
IRS problem- solving day? (Check one.)

Primary reason Percent

Announcement seemed like a good opportunity to resolve problem 51%
Considered this a last resort 39 Encouraged by someone else 6
Other 4 Note: Three taxpayers did not respond to this question.

GAO/GGD-99-1 IRS' Problem- Solving Days Page 19

Appendix II Summary of Taxpayer Responses to Our Survey Concerning
Problem- Solving Day

3. Did you make an appointment with IRS for problem- solving day
or did you walk in without an appointment? (Check one.)

Participation method Percent

Made an appointment 72% Walked in 28 Note: One taxpayer did not
respond to this question.

4. If you made an appointment, was it easy or difficult to
schedule it? (Check one.)

Appointment process Percent

Easy 88% Difficult 12 Note: Sixty taxpayers skipped this question
based on their answer to the prior question or otherwise did not
respond to this question.

5. What type of tax returns were you discussing with IRS on
problem- solving day? (Check all that apply.)

Type of tax return Percent

Individual 85% Business 22 Schedule C 3 Other 5

6. What was the nature of the ongoing problems you tried to
resolve with IRS on problem- solving day? (Check all that apply.)

Nature of problem Percent Nature of problem Percent

Penalties 34% Offer in compromise 22% Disputed bill or assessment
34 Levy 20 Disputed payment 29 Nonreceipt of refund 8 Lien 24
Seizure 7 Installment agreement 23 Other 19

GAO/GGD-99-1 IRS' Problem- Solving Days Page 20

Appendix II Summary of Taxpayer Responses to Our Survey Concerning
Problem- Solving Day

7. Prior to participating in problem- solving day, what methods
had you used to resolve your problems with IRS? (Check all that
apply.)

Prior resolution methods Percent

Telephone 86% Mail 63 In person 42 Other 19

8. Was your problem with IRS resolved on problem- solving day?
(Check one.)

Status on problem- solving day Percent

Fully resolved 25% Partially resolved 30 Not resolved 45

9. Did you leave problem- solving day knowing what further steps
needed to be taken to get your problem solved? (Check one.)

Knew steps needed for problem resolution Percent

Yes 67% No 33 Note: Fifty- five taxpayers skipped this question
based on their answer to the prior question or otherwise did not
respond to this question.

10. Do you now have a contact person at IRS to follow up with
concerning your problem? (Check one.)

IRS contact person Percent

Yes 68% No 32 Note: Fifty- four taxpayers skipped this question
based on their answer to the prior question or otherwise did not
respond to this question.

GAO/GGD-99-1 IRS' Problem- Solving Days Page 21

Appendix II Summary of Taxpayer Responses to Our Survey Concerning
Problem- Solving Day

11. If your problem was not resolved or was partially resolved on
problem- solving day, has it been fully resolved since then?
(Check one.)

Problem resolved since problem- solving day Percent

Yes 18% No 82 Note: Fifty- three taxpayers skipped this question
based on their answer to the prior question or otherwise did not
respond to this question.

12. If you left problem- solving day thinking that your problem
was resolved or knowing what steps needed to be taken, has IRS
said or done anything since then that leads you to believe that
your problem may not be resolved after all? (Check one.)

Problem not resolved after all Percent

Yes 9% No 91 Note: One hundred thirty- one taxpayers skipped this
question based on their answer to the prior question or otherwise
did not respond to this question.

13. Were you treated courteously by IRS employees during and since
problem- solving day? (Check one.)

During problem- solving day Percent Since problem- solving day
Percent

Yes 96% Yes 62% No 4 No 12

No contact since 25 Note 1: Six taxpayers did not respond to this
question concerning their treatment by IRS during the problem-
solving day.

Note 2: Fifteen taxpayers did not respond to this question
concerning their treatment by IRS since the problem- solving day.

GAO/GGD-99-1 IRS' Problem- Solving Days Page 22

Appendix II Summary of Taxpayer Responses to Our Survey Concerning
Problem- Solving Day

14. Based on your experience, do you think that IRS' problem-
solving day was a good idea? (Check one.)

Problem- solving day a good idea Percent

Yes 91% No 9 Note: Six taxpayers did not respond to this question.

15. Each IRS district office has an office called the Problem
Resolution Office, which was established to help taxpayers resolve
their tax problems. This office is headed by a Taxpayer Advocate.
Have you ever contacted a Problem Resolution Office in order to
resolve tax problems? (Check one.)

Prior contact with Problem Resolution Office Percent

Yes 31% No, but I knew such an office existed 6 No, I was not
aware such an office existed 63 Note: Four taxpayers did not
respond to this question.

GAO/GGD-99-1 IRS' Problem- Solving Days Page 23

Appendix III Definition of the Main Problem Areas Identified
During Problem- Solving Days

IRS has analyzed the types of problems that taxpayers have sought
to resolve on problem- solving days since the beginning of the
initiative and identified four main problem areas, including (1)
penalties, (2) audit reconsiderations, (3) installment agreements,
and (4) offers in compromise. Following are definitions for each
area.

Penalties The Internal Revenue Code contains various provisions
authorizing IRS to impose financial penalties on a taxpayer for
violation of provisions in the code. For example, section 6651 of
the code authorizes IRS to assess a penalty if a taxpayer fails to
file a required tax return or fails to pay a tax liability on
time. IRS assesses the penalty in addition to the taxes and
interest owed by the taxpayer.

Audit Reconsiderations Treasury Regulation 301.6404- 1 authorizes
IRS to reconsider an audit assessment. For example, if a taxpayer
disputes an assessment and provides additional information to
support his or her position, IRS may reconsider and abate the
assessment.

Installment Agreements Section 6159 of the Internal Revenue Code
authorizes IRS to allow taxpayers to pay their taxes in
installments, with interest, in order to facilitate payment of the
tax liability.

Offers in Compromise Section 7122 of the Internal Revenue Code
authorizes IRS to compromise tax debts. Offers in compromise are
taxpayer proposals to settle tax debts for less than the amount
owed.

GAO/GGD-99-1 IRS' Problem- Solving Days Page 24

Appendix IV Comments From the Internal Revenue Service

GAO/GGD-99-1 IRS' Problem- Solving Days Page 25

Appendix V Major Contributors to This Report

General Government Division, Washington, D. C.

Joseph E. Jozefczyk, Assistant Director Robert McKay, Evaluator-
in- Charge Charles Woodward III, Senior Evaluator Nilsa Perez,
Senior Evaluator Thomas Richards, Senior Evaluator Kelsey Bright,
Senior Evaluator Stuart Kaufman, Senior Social Science Analyst
James Fields, Senior Social Science Analyst Jerome Sandau, Social
Science Analyst

Atlanta Field Office Clarence Tull, Senior Evaluator Sally Gilley,
Evaluator

Chicago Field Office Thomas Venezia, Senior Evaluator Kansas City
Field Office

H. Yong Meador, Evaluator San Francisco Field Office

Susan Malone, Senior Evaluator

(268824) GAO/GGD-99-1 IRS' Problem- Solving Days Page 26

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