Tax Administration: IRS' Abatement Process in Selected Locations (Letter
Report, 07/02/1999, GAO/GGD-99-98).
Each year from 1995 through 1998, the Internal Revenue Service (IRS)
abated about $30 billion in tax, penalty, and interest assessments in
the tax accounts of individuals and businesses. Abatements reduce
assessments and can occur for various reasons, from correcting errors
made by IRS and taxpayers to providing relief from penalties when
taxpayers have reasonable cause for failing to comply with tax
requirements. The process for making abatements is important for
ensuring the equitable treatment of taxpayers across IRS' 10 service
centers and 33 district offices. This report describes (1) IRS' process
for making abatements from initiation through final review in selected
IRS locations--the Kansas City Service Center, the Fresno Service
Center, the Kansas City District Office, and the Northern California
District Office--and (2) IRS' efforts to improve the abatement process.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: GGD-99-98
TITLE: Tax Administration: IRS' Abatement Process in Selected
Locations
DATE: 07/02/1999
SUBJECT: Income taxes
Indebtedness waivers
Taxpayers
Tax administration
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United States General Accounting Office GAO Report to
the Joint Committee on Taxation July 1999 TAX
ADMINISTRATION IRS' Abatement Process in Selected Locations
GAO/GGD-99-98 United States General Accounting Office GAO
Washington, D.C. 20548 General Government Division B-282811 July
2, 1999 The Honorable Bill Archer Chairman The Honorable William
V. Roth, Jr. Vice Chairman Joint Committee on Taxation For fiscal
years 1995 through 1998, the Internal Revenue Service (IRS)
annually abated about $30 billion in tax, penalty, and interest
assessments in the tax accounts of individual and business
taxpayers. Abatements reduce assessments and can occur for a
variety of reasons, such as to correct errors made by IRS and
taxpayers and to provide relief from penalties when taxpayers have
reasonable cause for failing to comply with tax requirements. The
process for making abatements is important for ensuring the
equitable treatment of taxpayers across IRS' 10 service centers
and 33 district offices. In a letter dated February 2, 1999, you
asked us to describe IRS' abatement process in order to help the
Committee fulfill a requirement in the IRS Restructuring and
Reform Act of 1998 to report on the administration of penalty and
interest assessments by July 22, 1999.1 On the basis of
discussions with your office, our objectives were to describe (1)
IRS' process for making abatements from initiation through final
review in selected IRS locations and (2) IRS' efforts to improve
the abatement process. As agreed with your office, the selected
locations were the Kansas City Service Center, Fresno Service
Center, Kansas City District Office, and Northern California
District Office. An abatement may be initiated by a request from a
taxpayer or by IRS. Results in Brief Once initiated, IRS'
abatement process depends on the type, complexity, and source of
the assessment being abated. According to IRS officials, these
factors determine the IRS work group, such as those that audit tax
returns or answer taxpayer inquiries, that makes the abatement
decision.2 The work group, in combination with the type and
complexity of the assessment being abated, influence the type and
grade level of staff making abatement decisions, the criteria and
supervisory review used to guide decisions, and the quality review
done after the decisions are made. 1As also requested in this
letter, we have reported the number and amount of abatements of
tax, penalty, and interest assessments for individual and business
taxpayers. See Tax Administration: IRS' Abatement of Assessments
in Fiscal Years 1995-98 (GAO/GGD-99-77, June 4, 1999). 2For this
report, "work group" is a generic term for branches and other
offices. Page 1
GAO/GGD-99-98 IRS' Abatement Process in Selected Locations B-
282811 IRS does not have quantitative data on details of the
abatement process. An abatement is just one type of adjustment
that IRS can make to taxpayer accounts. For example, IRS staff
also adjust accounts to reflect the dates and amounts of various
types of assessments and payments. Although it has data on the
number and amount of abatements, IRS cannot extract any
quantitative data about the abatement process from data on all
types of adjustments. Determining the costs and benefits of
collecting data on just the abatement process is beyond the scope
of this report. IRS' recent efforts to improve the abatement
process have generally involved task forces that have been
studying various IRS concerns, including, for example, the
administration of penalties and treatment of taxpayers. Although
the studies have not focused on abatements, they have produced
some proposals that would affect the abatement process, such as
the documentation required to support abatements. During 1993-94,
concerns about the inventory of tax debts prompted IRS to study
abatements at its 10 service centers. This study identified 259
problems and referred 158 to various IRS work groups for analysis
and implementation of any needed changes. IRS never formally
released a final study. According to IRS records from its master
files on individual and business Background returns, IRS
annually abated, on average, about 10 million tax, penalty, and
interest assessments, totaling nearly $30 billion, in fiscal years
1995 through 1998. In fiscal year 1998, IRS abated 11.3 million
assessments-3.1 million tax, 4.7 million penalty, and 3.5 million
interest assessments. These abatements totaled about $22.2 billion
in tax, $4.8 billion in penalty, and $2.1 billion in interest
assessments. An assessment is a formal bookkeeping entry that IRS
makes to record the amount of tax, penalty, or interest charged to
a taxpayer's account. An assessment establishes not only the
taxpayer's liability for amounts due and unpaid, but also IRS'
right to collect. Taxpayers essentially assess their taxes owed
when they file their tax returns.3 IRS may assess additional taxes
owed, as well as penalty and interest amounts, through an
enforcement program.4 Taxpayers also may file an amended return or
3IRS records the assessment as the amount of tax reported on these
filed returns. 4Before assessing a tax deficiency, IRS is required
to provide the taxpayer with a notice of the proposed assessment.
Upon receiving the notice, the taxpayer has 90 days (150 days if
outside the United States) to file a petition with the Tax Court
for a redetermination of the deficiency. Upon expiration of the
filing period, IRS may assess the proposed deficiency. Page 2
GAO/GGD-99-98 IRS' Abatement Process in Selected Locations B-
282811 otherwise notify IRS of an error, which may lead to
additional assessments. Section 6404 of the Internal Revenue Code
(as well as various other sections) authorizes IRS to abate an
assessment under certain conditions. For example, IRS abates an
erroneous assessment, which can be caused by either IRS or the
taxpayer.5 A taxpayer may make an error on the original tax
return, such as not claiming deductions. Or, IRS may assess
incorrect tax amounts as a result of errors made when matching
income reported by taxpayers with income reported by third parties
(such as employers) on payments made to the taxpayers. IRS abates
a tax assessment of the correct amount for various reasons. For
example, as a result of an audit, IRS may correctly assess an
additional tax amount for one tax year, but a taxpayer can carry
back net operating losses incurred in other tax years to reduce
the additional tax liability in that prior tax year. Also, IRS
abates an unpaid assessment that involved the correct amount of
tax owed but that was made after the time period allowed for
assessing additional tax liabilities. Further, IRS abates multiple
assessments of the correct amount after that amount is paid. In
these cases, IRS assesses multiple taxpayers (such as partners or
officers in a business) for the amount owed by the business,
knowing that the extra assessments are to be abated after full
payment is received. Whenever IRS abates a tax assessment, any
related penalty or interest assessments are also abated. Further,
IRS abates certain penalties when a taxpayer provides a reasonable
cause for failing to meet a responsibility, such as not paying a
tax assessment or not filing a return on time. Reasonable causes
can include illness or other nonfinancial hardships and reliance
on incorrect written advice from IRS on technical issues. IRS also
abates certain interest assessments that accrue, for example,
because of * an unreasonable error or delay by IRS in assigning
staff to the case, sending notices to taxpayers, transferring a
case to another IRS office, or performing other procedural or
managerial actions and * delays in filing income tax returns and
paying taxes because of a natural disaster for those living in a
presidentially-declared disaster area. IRS' interactions with
taxpayers on abatements and other types of adjustments to
taxpayers' accounts usually occur through IRS' 10 service centers
or 33 district offices. Major activities at the service centers
include 5IRS does not track the amounts abated because of IRS
errors or taxpayer errors. Page 3
GAO/GGD-99-98 IRS' Abatement Process in Selected Locations B-
282811 processing tax returns and related tax schedules from
taxpayers and information returns from third parties that report
payments, such as wages and interest. In addition, service centers
provide services to taxpayers, such as responding to taxpayer
inquiries, as well as perform enforcement functions, such as
audits and collection, usually through correspondence or the
telephone. District offices also offer services to taxpayers as
well as perform enforcement functions. IRS staff at the district
offices are more likely to interact with taxpayers through face-
to-face meetings because the issues tend to be more complex or
otherwise require more explanation. To describe IRS' process for
making abatements from initiation through Scope and final
review in selected IRS locations, we talked to IRS National Office
Methodology work groups that could make abatements and the IRS
office that administers penalties. We reviewed the Internal
Revenue Manual sections and other IRS documents that govern the
abatement process. Our visits to two service centers and two
district offices, as discussed below, also helped us describe the
process. Specifically, we visited an IRS service center and
district office in the Kansas-Missouri area and a service center
and district office in California. We chose these four locations
in consultation with your office. We were able to do more work in
some of the four locations, depending on which ones we visited
first, the availability of data, and the responsiveness of IRS
staff within the time frame of our review. Given time constraints,
we did not visit more service centers or district offices. As a
result, we do not know how similar or different the process was at
the other 8 service centers and 31 district offices. Nor did we
attempt to determine whether (1) any differences in the abatement
process at the two service centers and two district offices
produced significant effects, particularly for similarly situated
taxpayers; (2) IRS staff followed the process and related criteria
in making abatement decisions; (3) the process was appropriate and
adequately controlled;6 or (4) IRS should be collecting more
quantitative data on its abatement process. During each visit, we
interviewed officials from IRS work groups that made abatements.
We identified these groups from information provided by IRS'
National Office and the four locations we visited. To confirm our
understanding of the abatement process, we wrote summaries for
each 6We did not evaluate IRS' controls for the abatement process
because of time constraints and because we have another study
under way that is addressing IRS' controls, including those for
the abatement process. Page 4
GAO/GGD-99-98 IRS' Abatement Process in Selected Locations B-
282811 location and received comments on these summaries from
officials at each location as well as IRS' National Office. The
summaries incorporating IRS' comments can be found in appendixes
I-IV. To describe IRS' efforts to improve the abatement process,
we interviewed officials in IRS' National Office as well as
selected staff in field offices who had worked on a task force or
study that addressed abatements in some way. We also collected any
available studies. As with our work on the abatement process, we
asked the responsible IRS officials to comment on our summary of
these efforts. We performed our audit at IRS headquarters offices
in Washington, D.C.; the Kansas City Service Center in Kansas
City, MO; the Fresno Service Center in Fresno, CA; the Kansas-
Missouri District Office in St. Louis, MO; and the Northern
California District Office in Oakland, CA. Our work was done
between February and June 1999 in accordance with generally
accepted government auditing standards. On June 22, 1999, we met
with representatives of the IRS Commissioner from the Customer
Service and Examination Divisions as well as the Taxpayer Advocate
and Legislative Affairs Offices to obtain their comments on a
draft of this report, which are discussed near the end of this
letter. At the two service centers and two district offices we
visited, IRS' IRS' Abatement abatement process depended on the
type, complexity, and source of the Process Varied assessment
being abated. The process varied in terms of (1) how abatements
are initiated, (2) which IRS work groups make abatement decisions,
(3) what level of staff makes the decisions, (4) what tools guide
the decisions, and (5) how IRS reviews quality. We did not attempt
to evaluate whether any variations in the process affected
abatement decisions. Nor do we know how similar or different the
process is at the other 8 service centers and 31 district offices.
IRS did not have quantitative data on the details of the abatement
process, even though IRS' master files have data on the overall
number and amount of abatements. An abatement is just one type of
adjustment made to taxpayer accounts. IRS staff also adjust
accounts to reflect the dates and amounts of various types of
assessments, payments, and refunds. IRS cannot extract
quantitative data about the abatement process from data on all
types of adjustments. For example, IRS did not have data on the
number of abatements made by type of IRS group and staff or
reviewed by Page 5 GAO/GGD-99-98 IRS' Abatement
Process in Selected Locations B-282811 IRS supervisors.
Determining the costs and benefits of collecting such data on the
abatement process was beyond the scope of this report. The two
service centers and two district offices we visited did not track
Taxpayers and IRS Staff how the abatements were initiated. IRS
officials, however, identified three May Initiate Abatements
basic ways of initiating abatements. First, taxpayers can initiate
a request (also known as claim) for an abatement by filing an
amended tax return (e.g., Form 1040-X for individuals and Form
1120-X for corporations); by filing an IRS Form 843, Claim for
Refund and Request for Abatement; by writing a letter; or by
making a phone call. Taxpayers would generally initiate these
requests to correct errors on the original return they filed or to
seek relief from penalties when they have reasonable cause for
failing to comply with tax requirements. Second, taxpayers can
request an abatement of an additional assessment generated by an
IRS enforcement program.7 In these cases, the taxpayer would be
responding to a notice about the assessment, such as a collection
notice. These taxes might have been assessed because the taxpayer
had not responded adequately to notices about the recommended
assessment of additional tax amounts. For example, an audit may
recommend additional assessments that the taxpayer did not
challenge when the audit closed. The taxpayer might later decide
to challenge the assessment and ask IRS for an abatement.8
Similarly, after receiving a notice of additional assessments,
taxpayers may claim a reasonable cause for not timely paying the
correct tax amount and ask IRS to abate certain types of
penalties. Third, in some cases, IRS staff can initiate the
abatement. For example, an IRS auditor might find evidence that a
taxpayer overstated the tax liability on the original tax return.
This evidence could lead to an abatement, depending on the results
from the rest of the audit. 7Section 6404 (b) of the Internal
Revenue Code states that a taxpayer may not file a request for
abatement of income, estate, or gift tax. Rather, a taxpayer
should dispute these tax assessments by paying the tax and filing
a request for a refund. IRS does, however, reduce some of these
tax assessments without payment when the taxpayer requests an
abatement of an audit assessment and provides support for the
abatement. These requests are known as audit reconsiderations.
8Before IRS assesses additional taxes that an auditor recommends,
a taxpayer can challenge the recommended assessment in Examination
or IRS' Office of Appeals. Also, upon receiving a notice of a
proposed assessment, a taxpayer has 90 days (150 days if outside
the United States) to file a petition with the Tax Court. Some
taxpayers, for whatever reasons, bypass these options, which
results in the recommended taxes being assessed, along with
related penalty and interest assessments. Page 6
GAO/GGD-99-98 IRS' Abatement Process in Selected Locations B-
282811 Various IRS work groups at the two service centers and two
district offices Various IRS Work Groups we
visited had the authority to abate assessments. According to IRS
Make Abatement Decisions officials, the type,
complexity, and source of the assessment being abated determine
which IRS work group makes the abatement decision. Using these
factors as well as IRS routing criteria, a work group that
initially receives a requested abatement is to determine whether
it should make the abatement decision. If the determination is to
route the abatement to another work group, the abatement process
to be followed is to be guided by the general IRS criteria for the
type of abatement being reviewed and the specific review process
of that group. Each work group can abate different types of tax,
penalty, and interest issues. Table 1 shows examples of the most
common types or sources of abatements made by work groups at the
two service centers, as identified by IRS officials.9 Table 1:
Examples of Abatements Made
Examples of abatements at two service centers in the Kansas City
and Fresno Service Work group
Kansas City Fresno Centers, as of
April 1999 Adjustments Branch
Amended returns Amended returns
Collection Branch
Substitute for returna Substitute for returna
Customer Service Branch
Penalties Penalties Examination
Branch Category A
claims,b Audit reconsiderationsc audit
reconsiderationsc Joint Compliance Branch
Does not existd Category A claimsb
Underreporter Branch Does
not existe Apparent overreported income
Automated Collection Branch
Penalties, erroneous Does not existg
substitute for returnf Document Perfection Branch
Simple claims on Not applicableh amended
returns aReturns filed by IRS on the basis of information returns
that reported income paid to a taxpayer who did not file a tax
return. bCategory A claims involve issues that are complex or
sensitive, or prone to noncompliance. cAudit reconsiderations
occur when taxpayers ask IRS to reconsider assessments made in
prior audits. dIn Kansas City, this work is done through the
Examination Branch. eKansas City's underreporter cases are handled
at the Austin or Ogden Service Centers. fErroneous substitute for
returns involve those sent to taxpayers who had filed their
returns before receiving the SFR filed by IRS. gIn Fresno, this
work is done as part of the Collection Branch. hAlthough Fresno
has a Document Perfection Branch, it usually handles simple
requests on amended returns in its Adjustments Branch. Source: GAO
interviews and documents collected at each service center. 9Each
service center had other work groups that made abatements, such as
groups that deal with criminal investigations, quality assurance,
and account services. We do not discuss these groups here because
IRS officials told us these groups made few abatements. Page 7
GAO/GGD-99-98 IRS' Abatement Process in Selected Locations B-
282811 As table 1 shows, each service center organized itself
somewhat differently. As a result, each service center had
branches that the other center did not have. For example, Fresno
had a Joint Compliance Branch that did not exist in Kansas City.
This branch dealt with, among other things, abatement requests
(known as category A claims) that were complex, sensitive, or
involved types of taxpayers prone to noncompliance. Kansas City
usually handled category A requests in its Examination Branch.
Also, Kansas City allowed clerical staff in its Document
Perfection Branch to abate simple requests made on amended
returns. Fresno usually handled this type of request in its
Adjustments Branch. The two district offices generally relied on
three divisions to abate assessments. Table 2 shows examples of
the types or sources of abatements made by the divisions, as
identified by officials at the district offices. Table 2: Examples
of Abatements Made
Examples of abatements at two district offices in the Kansas-
Missouri and Northern Division
Kansas-Missouri
Northern California California District Offices, as of April
Collection Various uncollectibles,
such as Various uncollectibles, such as 1999
bankruptcies; various penalties bankruptcies; various penalties
Customer Service Federal tax deposit penalty
Various types of penalties Examination
Audit reconsiderations,a claims Audit
reconsiderations,a claims aAudit reconsiderations occur when
taxpayers ask IRS to reconsider assessments made in prior audits
Source: GAO interviews and documents collected at each district
office. As table 2 shows, each of the three divisions at both
districts made similar types of abatements. Although none of the
divisions tracked the number of abatements, IRS officials
indicated that the Collection and Customer Service Divisions made
the most abatement decisions, many of which involved penalties.
The officials said that in the Examination Division, the
abatements usually involved tax assessments related to a prior
audit, which could also involve penalties, or some form of
taxpayer claim. In addition, at the two service centers and two
district offices, the Office of the Taxpayer Advocate had
authority to make certain types of abatements.10 However,
officials at most locations we visited said that the Advocate's
Office usually referred requests for abatements to other work
groups (such as the Collection Division) and then tracked actions
taken to 10The Office of the Taxpayer Advocate is to represent the
interests of taxpayers. For abatements, the Advocate would get
involved if taxpayers had difficulty solving their tax problems
through IRS' regular channels or if they had major hardships in
meeting their tax responsibilities. Page 8
GAO/GGD-99-98 IRS' Abatement Process in Selected Locations B-
282811 help ensure the proper and timely resolution of a
taxpayer's problem. Because these work groups usually made any
related abatements, the Office of the Taxpayer Advocate would make
few abatements compared to the other work groups. Various types
and grades of IRS staff, ranging from clerks to mid-level Both
Lower and Higher staff, can make abatement decisions,
depending on the type, complexity, Graded Staff Can Make and
source of the assessment being abated. Along with other duties,
these Abatement Decisions IRS staff handled many types of
adjustments to taxpayers' accounts other than abatements. None of
the work groups tracked how many of these adjustments involved
abatements. Both service centers had a wide range of graded staff
who made abatement decisions. The staff ranged from federal pay
grades GS-3 to GS- 9 in one service center and GS-4 to GS-12 in
the other.11 According to officials at the two service centers,
staff known as customer service representatives and tax examiner
assistants made most abatement decisions. In one service center,
grades of customer service representatives ranged from GS-5 to GS-
8 and tax examiner assistants ranged from GS-4 to GS-8. In the
other service center, the grades were GS- 6 to GS-9 and GS-6 to
GS-7, respectively. The two district offices also had various
staff make abatement decisions in the three divisions. These staff
ranged from federal pay grades GS-5 to GS- 13.12 According to
officials at the two district offices, staff known as customer
service representatives (GS-5 to GS-9) and revenue officers (GS- 7
to GS-12) made the majority of the abatements. The two districts
we visited did not differ very much in who made abatement
decisions.13 According to information provided by officials at
both service centers and Various Tools Can Guide both district
offices, staff making abatement decisions are to be guided by
Abatement Decisions such tools as training, information
provided by the taxpayer or IRS' computers, criteria in IRS
manuals, and supervisory involvement. Descriptions of these four
tools follow. 11The GS, or General Schedule, system ranges from
GS-1 to GS-15. Excluding locality or other special pay
adjustments, the 1999 pay for GS-3 to GS-12 ranges from about
$16,000 to about $59,000. 12Excluding locality or other special
pay adjustments, the 1999 pay for GS-5 to GS-13 ranges from about
$21,000 to about $70,000. 13Even so, when we asked about staff
that made abatements, officials at the Kansas-Missouri District
Office were more likely to identify various types of specialists
who were to assist such staff. Page 9
GAO/GGD-99-98 IRS' Abatement Process in Selected Locations B-
282811 * IRS is to provide training on the various duties,
including abatements, assigned to staff. The training can include
such things as basic tax laws, IRS forms, adjustments in general,
amended returns, and other generic tax issues. Training also can
cover specific types of adjustments, including abatements to be
made to taxpayer accounts. The training is to include classroom
and on-the-job instruction. * Staff can use various types of
information provided by taxpayers or through IRS computers to help
make abatement decisions. For example, taxpayers can provide
additional information that they did not provide during an audit
when they ask IRS to abate assessments made in that audit. Or,
staff can use information in taxpayers' accounts to confirm
taxpayer actions, such as the date a return was filed or a payment
was made. To the extent that the computerized information is
sufficient, IRS staff could use it to verify oral justifications
from taxpayers for making the abatement. If the information is not
sufficient, IRS may need to request additional support from the
taxpayer. * Criteria for making abatement decisions vary with the
type and amount of the abatement and complexity of the issues. For
example, the criteria for decisions about whether to abate a tax
assessment would depend on the tax laws and regulations governing
the specific tax issue (such as a dependency exemption) and the
justification provided by the taxpayer in requesting the
abatement. Also, for each type of penalty, IRS has various dollar
tolerances that dictate the type of justification needed from the
taxpayer to grant the abatement and whether that justification
needs to be documented by the taxpayer rather than be provided
orally. Because IRS labels the criteria and dollar tolerances as
"official use only," which means the information is sensitive, we
cannot disclose the specific criteria or tolerances. * Dollar
tolerances also can affect whether supervisors are to review
proposed decisions by staff to abate assessments.14 IRS did not
have data on how many of the 11.3 million abatements in fiscal
year 1998 had been reviewed by supervisors before the decision was
finalized. However, supervisors are only required to review a few
types of abatement decisions before they are finalized, such as
those on certain types of penalty and interest abatements as well
as on large-dollar abatements. Also, officials at some of the
locations we visited said that few abatement decisions would be
reviewed by supervisors before being finalized because of the
large number of adjustments, including abatements, to be
processed. 14According to service center officials, supervisors
also reviewed a small percentage of all adjustments after they
were made in order to evaluate the performance of the staff.
Although these reviews of closed cases did not influence the
original abatement decisions, supervisors are required to tell
staff to correct any errors that these reviews uncover. Page 10
GAO/GGD-99-98 IRS' Abatement Process in Selected Locations B-
282811 The two service centers and two district offices each have
a separate staff IRS Review Programs Do to review the
quality of decisions, including those on abatements, after Not
Track the Quality of they are made. None of the locations
we visited tracked the number of Abatement Decisions
abatement decisions reviewed for quality as either a percentage of
all adjustments reviewed or of all abatement decisions made. The
officials we interviewed at all locations could not say what
percentage of abatements might be subjected to such quality
reviews. IRS had multiple review programs because each work group
has a different set of quality standards. Each program is to use
the quality standards established for the types of adjustments
made in a specific work group. For example, standards for a
collection work group would differ from standards for an
examination group. As a result, in both service centers, the
Service Center Collection Quality System is to be used to review
the quality of the work in the Collection Branch. Across the two
district offices, IRS also had a review program for each division
(such as the Examination Division). Officials at both service
centers and both district offices also told us that these programs
usually are to select cases for review on the basis of random
sampling, and the results are to be used to identify systemic
quality problems in an IRS work group. Due to our time
constraints, we did not evaluate these IRS quality review
programs. IRS' efforts to improve the abatement process have
involved task force IRS' Efforts to Improve studies that IRS
initiated in response to specific concerns. For example, the
Abatement Process since 1997, task forces have studied issues,
such as penalty administration and taxpayer treatment, because of
concerns about taxpayer burden and equity. Although they did not
focus on abatements, the studies have produced some proposals that
would affect the abatement process, such as the documentation
required to support abatements. IRS officials said they initiated
these task forces because a 1997 report on reinventing service at
IRS called for IRS to, among other things, promote fair and
consistent treatment of taxpayers in penalty administration. The
report also called for IRS to comprehensively review all penalties
and report to Congress on its findings as well as needed
legislative changes. The report further recommended that the
overall process for handling penalties be streamlined. For
example, the report mentioned that one way to streamline would be
for IRS employees to have expanded authority to abate certain
types of penalties on the basis of oral requests from taxpayers.
If done, this action could reduce the burden on taxpayers by
requiring less documentation or supervisory approval. Page 11
GAO/GGD-99-98 IRS' Abatement Process in Selected Locations B-
282811 In September 1998, IRS released a study by its penalty task
force, as recommended in the 1997 report. IRS reported that for
fiscal year 1996, 34 million penalties totaling $13.2 billion were
assessed, of which 12 percent and 43 percent, respectively, were
abated. Several recommendations focused on the need for (1)
consistent treatment of taxpayers; (2) viable management of
information systems; (3) clearer penalty policy; and (4) improved
penalty administration to allow, among other things, IRS telephone
assistors to make abatements for larger amounts on the basis of
oral testimony from taxpayers. IRS officials said that legislative
changes would be necessary to implement some of the
recommendations. These officials also said they are considering
the first three recommendations and are planning to expand
authority for abating certain penalties for reasonable cause on
the basis of oral testimony from taxpayers. Another task force on
taxpayer equity has been studying various IRS programs and issues
and had finished several reports as of June 1999. These programs
and issues, for example, address taxpayers that do not file
required tax returns, make estimated tax payments on a quarterly
basis, or make required federal tax deposits. Also included are
studies of taxpayers that ask IRS to reconsider an assessment made
in a previous audit. At least three of this task force's reports
have made proposals that could affect abatements. These proposals
involve (1) easing interest abatement criteria through legislative
change, (2) encouraging oral agreements on abatements between IRS
and taxpayers over the phone to minimize documentation, and (3)
clarifying a penalty abatement policy statement. As for other
efforts, an IRS study of an automated program to create substitute
returns for apparent nonfilers has suggested several steps to deal
with unproductive or erroneous assessments that create additional
work later, including abating these assessments. Further, IRS is
testing an automated system to help make abatement decisions
related to reasonable cause. IRS is also developing ways to help
small business taxpayers meet their federal tax deposit
requirements, which could reduce the need for abatements that are
associated with these deposits. Finally, IRS' Collection Division
officials said they had a team working on redesigning the
collection process, but the team was not focusing on abatements.
Before initiating these task forces and efforts, IRS undertook a
major study during 1993-94 of the causes of abatements. According
to the director of the study, IRS used about 150 employees across
its 10 service centers. IRS did this study because of concerns
about the inventory of tax debts-about 25 percent of IRS' accounts
receivable were being abated. Page 12 GAO/GGD-99-
98 IRS' Abatement Process in Selected Locations B-282811 The study
identified problems in various IRS processes that resulted in IRS
and taxpayer errors that had to be corrected through abatements.
Some examples of IRS errors included miscalculated interest,
incorrect posting to accounts, and overlooked support for
taxpayers' reasonable cause claims. Examples of taxpayer errors
included using the wrong form or coupon, omitting or misstating
taxpayer identification numbers, and making math mistakes. The
study identified 259 potential problems, of which 158 were
referred to the responsible IRS functions for further analysis and
implementation of changes, if necessary, to solve a problem. The
study team determined that the other 101 problems did not merit
such a referral because analysts at the service centers could
address the problem or no further changes were needed. IRS never
formally released a final report on the study results. On June 22,
1999, we met with representatives of the IRS Commissioner Agency
Comments from the Customer Service and Examination Divisions as
well as the Taxpayer Advocate and Legislative Affairs Offices.
These representatives said that our report provided good
information and appropriately described the abatement process at
selected organizations in the district offices and service
centers. We are sending copies of this report to Representative
Charles B. Rangel, Ranking Minority Member, House Committee on
Ways and Means, and Senator Daniel P. Moynihan, Ranking Minority
Member, Senate Committee on Finance. We are also sending copies to
the Honorable Robert E. Rubin, Secretary of the Treasury; the
Honorable Charles O. Rossotti, Commissioner of Internal Revenue;
the Honorable Jacob Lew, Director, Office of Management and
Budget; and other interested parties. We will also send copies to
those who request them. If you or your staff have any questions
concerning this report, please contact me or Tom Short on (202)
512-9110, or Royce Baker on (913) 384- 3222. Other major
contributors are acknowledged in appendix V. Cornelia M. Ashby
Associate Director, Tax Policy and Administration Issues Page 13
GAO/GGD-99-98 IRS' Abatement Process in Selected Locations
Contents 1 Letter 16 Appendix I Kansas City Groups
That Make Abatements 16
Abatement Processes Staffing
20 Abatement Training
21 at the Kansas City Supervisory and Quality Reviews
22 Service Center 25 Appendix II Fresno Groups That
Make Abatements 25
Abatement Processes Staffing
30 Abatement Training
30 at the Fresno Service Supervisory Review
31 Center Quality Review
32 33 Appendix III Kansas-Missouri Groups That Make
Abatements 33 Abatement
Processes Staffing
35 Abatement Training
36 at the Kansas-Missouri Supervisory Review
37 District Office Quality Review
38 39 Appendix IV Northern California Groups That
Make Abatements 39 Abatement
Processes Staffing
42 Abatement Training
42 at the Northern Supervisory Review
43 California District Quality Review
44 Office 45 Appendix V GAO Contacts and Staff Acknowledgments
Tables Table 1: Examples of Abatements Made in
the Kansas 7 City and Fresno Service
Centers, as of April 1999 Page 14 GAO/GGD-99-98
IRS' Abatement Process in Selected Locations Contents Table 2:
Examples of Abatements Made in the Kansas-
8 Missouri and Northern California District Offices, as of April
1999 Table I.1: Examples of Abatements at the Kansas City
17 Service Center Table I.2: Peak Staffing Levels at Kansas City
by Branch 21 and Type and Grade Level
of Staff, March 1999 Table I.3: KCSC Closed Cases, Cases Reviewed
for 24 Quality, and
Requirements for Supervisory Review in 1998 Table II.1: Examples
of Abatements at Fresno Service
26 Center Table II.2: Peak Staffing Levels at Fresno by Type of
Staff 30 and Grade Level, April 1999
Table III.1: Examples of Abatements at Kansas-Missouri
33 District Office Table III.2: Staffing Levels at Kansas-Missouri
by Type of 36 Staff and Grade Level,
April 1999 Table IV.1: Examples of Abatements at Northern
39 California District Office Table IV.2: Staffing Levels by Type
of Staff and Grade 42 Level, May
1999 Abbreviations EIC Earned income credit FSC
Fresno Service Center GS General Schedule IRS
Internal Revenue Service KCSC Kansas City Service
Center KMDO Kansas-Missouri District Office NCDO
Northern California District Office PRP Problem
Resolution Program SFR Substitute for return Page
15 GAO/GGD-99-98 IRS' Abatement Process in
Selected Locations Appendix I Abatement Processes at the Kansas
City Service Center IRS' Kansas City Service Center (KCSC)
processes individual and business tax returns, payments, and
taxpayer inquiries from Illinois, Iowa, Minnesota, Missouri, and
Wisconsin. The service center also responds to taxpayer inquiries
nationwide through toll-free numbers. In addition, KCSC conducts
compliance activities, such as doing audits, securing delinquent
returns, and collecting unpaid taxes. Different IRS work groups
make abatements at the Kansas City Service Kansas City Groups
Center.1 According to KCSC officials, three divisions-Compliance,
That Make Abatements Customer Service, and Processing-routinely
make abatements. Each division has at least one work group that
makes abatement decisions. Additionally, the Taxpayer Advocate's
Office can make abatements. According to IRS officials, the
Quality Assurance Management Support Division has abatement
authority, but due to the nature of its workload it rarely makes
abatements. As a result, we did not summarize the division's
processes. Each of the work groups is responsible for making
abatements of different types. Table I.1 shows these groups as
well as examples of the types of abatements made by each. 1An
abatement occurs when IRS reduces the assessment of tax, penalty,
or interest against taxpayers for various reasons (e.g., an
incorrect assessment or taxpayer had a reasonable cause for not
complying with filing or payment requirements). An abatement may
be initiated by a request from a taxpayer, by a taxpayer in
response to IRS actions, or solely by IRS. For example, a taxpayer
may file an amended return to claim changes to the original
return. Factors such as the type, complexity, and source of the
abatement determine which IRS group makes the abatement. Page 16
GAO/GGD-99-98 IRS' Abatement Process in Selected Locations
Appendix I Abatement Processes at the Kansas City Service Center
Table I.1: Examples of Abatements at the Kansas City Service
Center Division or office Work group
Type of abatement Compliance Collection Branch
Substitute for return (SFR)a Examination Branch
Claims, including category A claims,b SFR, and audit
reconsiderationsc Customer Service Automated
Collection Systems Branch Erroneous SFR cases,d penalties abated
for reasonable cause Adjustments/Correspondence Branch
Claims on amended returns, various types of penalties Customer
Service Branch Various types of penalties
Taxpayer Relations Branch Taxpayer inquiries
about assessments Processing Document
Perfection Branch Simpler claims made by
individuals Taxpayer Advocate Office Problem Resolution
Program (PRP) Selected cases that meet PRP criteria
(e.g., not resolved elsewhere in IRS) aIRS files a substitute for
return when a taxpayer has not filed a tax return but IRS receives
third-party information that shows enough income to file a tax
return. bCategory A claims involve issues that are complex,
sensitive, or prone to noncompliance. cAudit reconsiderations
occur when taxpayers ask IRS to reconsider assessments made in
past audits. dErroneous SFRs involve those sent to taxpayers who
had filed their returns before receiving the SFR filed by IRS.
Source: Information provided by IRS officials. In the following,
we briefly describe the types of abatements made at each of the
work groups. We also identify the workload at each work group for
all types of adjustments to taxpayers' accounts, including
abatements. None of the groups, however, had data on the portion
of their workload that involved abatements. We did not
independently verify the accuracy of workload data provided by
IRS. According to IRS officials, the Compliance Division has two
branches that Compliance Division
routinely make abatements, as summarized below. Collection Branch
The Collection Branch is responsible for collecting taxes from
individuals who have filed but have not paid the total amount due
or who have not filed their tax return. For these nonfilers,
according to branch officials, a common abatement comes from
substitute for return (SFR) cases. Taxpayers receiving an SFR may
choose to file a return in order to reduce their tax liability.
When the return is filed and accepted by IRS, the branch is to
abate the difference between the taxes assessed on the SFR and the
taxpayer's return. If the taxpayer's return meets certain
criteria, such as a large difference between the taxpayer's and
SFR's assessments, classification staff from the Examination
Branch are to review the return and determine whether to audit it.
For fiscal year 1998, Collection Branch officials reported that
the branch closed 1.2 million nonfiler and late payment cases, but
it did not track how many of them involved abatements. Page 17
GAO/GGD-99-98 IRS' Abatement Process in Selected Locations
Appendix I Abatement Processes at the Kansas City Service Center
Examination Branch The Classification Section in the
Examination Branch is the only section in the branch that
routinely makes abatements in the course of its operations,
according to Examination officials. The Classification Section is
responsible for screening questionable claims, SFR returns, and
requests for audit reconsideration. The Classification Section is
to receive category A claims from the Adjustments/Correspondence
Branch (also referred to as the Adjustments Branch) for acceptance
or selection for audit. Category A claims are more complex,
sensitive, or prone to noncompliance than other claims. For
calendar year 1998, Classification Section officials reported that
the section screened more than 26,000 claims, but it did not track
the number that resulted in abatements. Further, the
Classification Section is to review questionable returns filed by
taxpayers to replace SFRs and requests for audit reconsiderations.
When reviewing SFR cases and audit reconsiderations,
Classification is to accept the data provided by the taxpayer in
support of an abatement, or select the case for audit.2 If a case
is selected, staff in the Examination Branch or a district office
are to decide on any abatements. For calendar year 1998,
Classification Section officials reported that the section
received nearly 11,000 SFR, audit reconsideration, and other
cases. These officials did not track how much of this work
resulted in abatements. The Customer Service Division has the
following branches that can make Customer Service Division
abatements. Automated Collection Systems The Automated
Collection Systems Branch operates an automated call Branch
system, which is used to collect taxes from taxpayers that have
delinquent accounts and to secure delinquent returns. Abatements
can arise when IRS staff talk over the telephone with taxpayers
who have had levies placed on their assets because of delinquent
taxes or have received a notice that IRS has no record of their
return. In particular, the branch is supposed to make abatements
in erroneous SFR cases-cases in which IRS erroneously believes
that a taxpayer failed to file a required tax return, but the
taxpayer had, in fact, filed. The branch also can abate penalties
if the taxpayer has a reasonable cause for not complying
originally. For calendar year 1998, IRS officials said that the
2In reviewing audit reconsiderations, the staff typically review
the adequacy of documentation provided by the taxpayer to counter
the additional assessments made after the past audit. Page 18
GAO/GGD-99-98 IRS' Abatement Process in Selected Locations
Appendix I Abatement Processes at the Kansas City Service Center
Automated Collection Systems Branch worked more than 119,000
cases, but it did not track how many of them involved abatements.
Adjustments/Correspondence The Adjustments/Correspondence
Branch receives inquiries from Branch
taxpayers by phone or correspondence. According to branch
officials, most taxpayer contacts are in response to penalty
notices. The officials stated that the branch often abates
failure-to-file penalties for reasonable cause. The branch is also
supposed to process claims that require additional information
from the taxpayer or from IRS databases. For fiscal year 1998, the
branch reported closing over 989,000 cases, but it did not track
how many of them involved abatements. Customer Service Branch
The Customer Service Branch receives telephone inquiries from
taxpayers about their assessments. According to IRS officials,
taxpayers usually call to resolve issues on their tax accounts
after receiving an IRS notice. These officials stated that late
payment and failure-to-file penalties are their most common
abatement cases. For fiscal year 1998, the toll-free telephone
site answered over 1.2 million telephone calls. Branch officials
did not track how many of these calls involved abatements.
Taxpayer Relations Branch Taxpayer Relations is to help
taxpayers resolve a wide variety of problem cases. In addition to
the taxpayers, the branch receives referrals from other IRS
offices, congressional offices, and the White House. According to
IRS officials, typical abatements involve penalties and incorrect
tax assessments. For calendar year 1998, IRS officials reported
that the branch worked nearly 100,000 cases, but it did not track
how many of these cases involved abatements. Processing Division
Document Perfection Branch Within the division, only the
Document Perfection Branch made abatements. The Document
Perfection Branch is to screen amended returns from individual
taxpayers and identify those with issues that require additional
information from a taxpayer or IRS computer systems. If additional
information is not required, Document Perfection is to process the
return, along with any resulting abatement. Returns that require
information and amended returns from business taxpayers are
forwarded to the Adjustments/Correspondence Branch. Document
Perfection officials reported that the branch screened about
262,000 amended returns in calendar year 1998. The officials also
reported that Document Perfection processed about 95,000 of these
cases and routed the rest to other functions for processing.
Branch officials did not track how many of these cases resulted in
abatements. Page 19 GAO/GGD-99-98 IRS'
Abatement Process in Selected Locations Appendix I Abatement
Processes at the Kansas City Service Center The Taxpayer
Advocate's Office was created to help taxpayers who have Taxpayer
Advocate's Office been unsuccessful in resolving their problems
through normal channels of assistance. The office ultimately
reports to the National Taxpayer Advocate. Its involvement with
abatements can arise from two taxpayer assistance programs-
hardship relief requests and the Problem Resolution Program (PRP),
which assists taxpayers in resolving persistent problems.
Taxpayers may submit Form 911 asking for hardship relief under the
Application for Taxpayer Assistance Order, according to IRS
officials. The Advocate's staff makes a determination on these
requests. PRP exists to help taxpayers that have been unsuccessful
in resolving their tax problems through regular channels. The
Kansas City Taxpayer Advocate has a small staff; thus, for most
PRP cases, it relies on staff in the divisions, such as those in
Customer Service, to try to resolve the problem. The Taxpayer
Advocate monitors the progress of the cases until they are
resolved. Staffing for some of the branches varies with the time
of year, according to Staffing IRS
officials. During peak periods (usually during the months when
taxpayers are filing returns), staffing levels may temporarily
increase, and the staff may sometimes be temporarily assigned to
Customer Service to answer taxpayer inquiries about tax law or
filing requirements. Table I.2 shows the peak staffing level by
the type and grade (GS) level of staff who make abatement
decisions for those work groups that make most of the abatements,
according to IRS officials. Most service center staff making
abatements were tax examining assistants, customer service
representatives, or tax examining clerks, according to IRS
officials. Tax examining assistants are responsible for obtaining
returns and other taxpayer information necessary to adjust
taxpayer accounts and examining selected tax issues on income tax
returns. Customer service representatives provide assistance to
individuals and businesses through telephone contact. Tax
examining clerks have duties that are less complex. They review
IRS documents and tax returns, prepare coded entries to amend
records, and refer questionable returns and documents for review.
Page 20 GAO/GGD-99-98 IRS' Abatement Process
in Selected Locations Appendix I Abatement Processes at the Kansas
City Service Center Table I.2: Peak Staffing Levels at Kansas City
by Branch and Type and Grade Level of Staff, March 1999 Tax
examining Tax examining Correspondence Customer
service Tax assistant clerk
examination technician representative auditor Division
Branch (GS-4 to GS-8) (GS-3 to GS-5)
(GS-5 to GS-7) (GS-5 to GS-8) (GS-9) Total Compliance
Collection 185 0
0 0 0 185 Examination
49a 13b 96c
01 2 170 Customer Automated Collection Service Systems
174 0 0
0 0 174 Adjustments 0
0 0 264d
0 264 Customer Service 0
0 0 108e
0 108 Taxpayer Relations 58
0 0 0
0 58 Processing Document Perfection 64f
266g 00 0 330 Totalh
530 279 96
372 12 1,289 Note 1: Staffing levels do not include
managerial and support staff. Note 2: Branches with a consistent
level of staffing will not have a nonpeak staffing level. aNonpeak
staff of 45 bNonpeak staff of 11. cNonpeak staff of 70. dNonpeak
staff of 108. eNonpeak staff of 99. fNonpeak staff of 31. gNonpeak
staff of 0. hDoes not include 5 staff from the Taxpayer Advocate's
Office. Source: IRS officials. In general, training to be given in
the work groups that made abatements Abatement Training
did not focus on abatements; rather, it focused on the range of
duties for the various types of staff. Through our interviews and
reviews of documents at KCSC, we learned the following about the
training that each work group should provide. Before working on a
program they have not worked before (such as SFR Collection Branch
cases), tax examining assistants are to receive between 3 and 10
days of classroom training on that program. After completing the
training, they are to be assigned on-the-job instructors to
provide additional guidance on working cases. Staff doing
abatements are to receive training on the basic types of
Examination Branch adjustments associated
with the income tax laws. They also are to receive on-the-job
instruction as they do audits. New customer service
representatives are to receive about 3 months of Automated
Collection classroom training. The initial
training is to address basic skills, such as Systems Branch
entering data into IRS' computer system. Afterward, the customer
service representatives are to take classes on each of the
programs handled in the Page 21 GAO/GGD-
99-98 IRS' Abatement Process in Selected Locations Appendix I
Abatement Processes at the Kansas City Service Center branch.
After a class on a particular program, the customer service
representatives are to work that program for a few weeks to
reinforce what they have learned. Then, they are to take a class
on another program. Training is to cover the abatement of tax and
penalties in some form. Adjustments/ Customer
service representatives responsible for business returns initially
Correspondence Branch are to receive a 5-week training
class on the Business Master File and employment tax forms. Later,
they are to receive training on IRS forms and notices. Then, they
are to receive several weeks of on-the-job training. Customer
service representatives responsible for individual tax returns are
to receive training on the Individual Master File as well as on
amended returns, penalty abatements, and refunds for individuals.
The training for abating selected types of interest assessments
requires on-the-job coaching for several months. Before taking
phone calls in which the taxpayer is asking for penalty Customer
Service Branch abatements, a new staff member is to receive
courses on determining penalty abatements. A staff member working
on Business Master File cases is also supposed to attend courses
on computing and abating penalties associated with the deposit of
federal taxes. All staff working abatement cases are to receive
training on Taxpayer Relations Branch comprehending computer
transcripts, using IRS' computer system, and adjusting accounts on
the Individual and Business Master Files, including making
abatements. In addition, staff are to receive specific training on
programs such as Problem Resolution and Penalty Appeals, which can
result in abatements. New hires are to receive a 10-day class on
the Form 1040. Staff that have Document Perfection prior
IRS experience are to receive between 4 and 9 days of training,
Branch depending on their duties. A class on
editing amended returns is required for staff that review such
returns and determine abatements and assessments. Staff making the
abatement decision usually adjust the taxpayer's account,
Supervisory and according to IRS officials. The
exceptions are in the Examination and Quality Reviews
Document Perfection Branches. Staff in these branches recommend
abatements and forward the case to other staff who are responsible
for adjusting a taxpayer's account. IRS officials described two
types of supervisory review of the abatement decisions made by
staff: one occurring before the decision is made, and Page 22
GAO/GGD-99-98 IRS' Abatement Process in Selected Locations
Appendix I Abatement Processes at the Kansas City Service Center
one after. The latter supervisory review of closed decisions is
done to evaluate employee performance. IRS officials also
described various types of quality review programs. Reviewers in
these programs were to review cases closed in the work group to
measure adherence to specific quality standards, which varied with
each work group and type of case. According to staff we
interviewed, the closed cases for review were to be selected using
random sampling.3 Neither the supervisory nor quality reviews
solely addressed abatements; rather, they covered all types of
adjustments, including assessments and abatements. As a result,
KCSC officials did not have data on the percentage of abatement
decisions that were reviewed. IRS officials said that other than
for a few specific types of cases, the first type of supervisory
review, which would occur before the abatement decision, was
usually not required. Exceptions were abatements that involved
certain types of civil penalties over a specific dollar amount,
certain types of Examination assessments, and a selected type of
interest assessment. Specific criteria associated with these types
of abatements are considered to be sensitive information and may
not be disclosed. The work groups we visited had some data on the
review of various types of closed cases by supervisors or quality
review staff. Table I.3 shows the number of cases closed and
reviewed for quality and the requirements for supervisory review
for purposes of evaluating staff performance. As noted in table
I.3, the number of closed cases subjected to supervisory review
for performance evaluation purposes differed in each branch. For
example, Customer Service required its supervisors to review eight
telephone calls and four paper cases per month. According to
officials in all the branches, these requirements meant that only
a small percentage of all cases would be reviewed. For example, a
supervisor would be likely to review about 1 percent of the phone
calls that customer service representatives answer in a month.
About 10-15 percent of Taxpayer Relations' completed cases would
be reviewed, according to branch officials. If supervisors were to
find a performance deficiency, they should tell the staff member
to correct any errors, and they might choose to review all cases
closed by that staff member. 3The scope and time frame for our
work did not allow us to verify whether these closed cases were
selected through random sampling or to analyze the results of the
various types of quality reviews. Page 23
GAO/GGD-99-98 IRS' Abatement Process in Selected Locations
Appendix I Abatement Processes at the Kansas City Service Center
Table I.3: KCSC Closed Cases, Cases Reviewed for Quality, and
Requirements for Supervisory Review in 1998 Total closed
Fiscal or calendar Number reviewed Supervisory review
KCSC branch cases year
1998 for quality requirements Collection
1,225,171 Fiscal 8,403
8 per month per employee Examination 37,168
Calendar 427 Quarterly review of
workload of each employee. Adjustments/Correspondence
989,118 Fiscal 461
5 per week per employee Customer Service Calls:
1,211,273 Fiscal Calls: 1,457
8 calls and 4 paper cases per Paper 20,798
Paper: 435 month per employee Automated Collection
Systems Calls: 90,597 Calendar
Calls: 579 3-5 calls and 5 paper cases Paper: 28,456
Paper: 1,681 per month per employee Taxpayer Relations
99,542 Calendar 406
10-15 per employee per week Document Perfection
Screened: 261,664 Calendar 440
30-47 per employee per week Adjusted: 94,525 Note: All numbers
include both abatement and assessment cases because IRS does not
track abatement cases separately. Source: Developed from
interviews with IRS officials. Separate offices in the service
center managed the quality review programs. For example: * The
Quality Assurance Branch was to do quality reviews of cases closed
in the Adjustments/Correspondence, Customer Service, Taxpayer
Relations, and Document Perfection Branches. This review program
is called the Program Analysis System. * Collection Branch
correspondence cases are to be reviewed under the Service Center
Collection Quality System. * The Automated Collection Systems
Branch has two review systems. Toll- free calls are to be reviewed
under the Quality Management Information System. Correspondence
cases are to be reviewed under the Written Products Data
Collection Instrument program. * Examination Branch closed cases
are to be reviewed by Quality Measure Support staff. * Taxpayer
Advocate cases are to be reviewed at the Brookhaven Service Center
Centralized Quality Location in New York. Quality review officials
told us that they do not correct defective cases. Instead, they
are to report any errors they find to the appropriate official in
the branch where the case originated. The branch official then is
to work with the employee who made the error to correct the
mistake. Page 24 GAO/GGD-99-98 IRS'
Abatement Process in Selected Locations Appendix II Abatement
Processes at the Fresno Service Center The Fresno Service Center
(FSC) processes various types of tax returns, conducts audits
through correspondence, and responds to taxpayer inquiries from
Hawaii and parts of California. FSC also responds to taxpayer
inquiries nationwide through IRS' toll-free numbers. In addition
to auditing, FSC operates compliance programs that use third-party
information reporting to identify taxpayers who do not file tax
returns or who file returns but understate their tax liability.1
Different IRS work groups make abatements at the Fresno Service
Center.2 Fresno Groups That Three divisions, including
Compliance, Customer Service, and Quality Make Abatements
Assurance and Management Support, can make abatements. Each
division also has at least one branch that makes abatement
decisions. Additionally, the Taxpayer Advocate's Office can make
abatements. These work groups are responsible for making different
types of abatements. Table II.1 shows the work groups as well as
examples of the type of abatements made by each. 1In this
Information Reporting Program, IRS computers match information
reported by third parties, such as banks and employers, to
information reported on tax returns. If this match indicates that
a taxpayer did not report all income or file a tax return, staff
at the service center are to contact the taxpayer to resolve the
discrepancy. 2An abatement occurs when IRS reduces the assessment
of tax, penalty, or interest against taxpayers for various reasons
(e.g., an incorrect assessment or taxpayer had a reasonable cause
for not complying with filing or payment requirements). An
abatement may be initiated by a request from a taxpayer, by a
taxpayer in response to IRS actions, or solely by IRS. For
example, a taxpayer may file an amended return to claim changes to
the original return. Factors such as the type, complexity, and
source of the abatement determine which IRS group makes the
abatement. Page 25
GAO/GGD-99-98 IRS' Abatement Process in Selected Locations
Appendix II Abatement Processes at the Fresno Service Center Table
II.1: Examples of Abatements at Fresno Service Center Division or
office Work group
Type of abatement Compliance Examination Branch
Audit reconsiderationa and audits Criminal Investigation Branch
Overstated income from false W-2s (Statement of Earnings) Joint
Compliance Branch Category A claimsb and
interest claims, substitute for return,c offer-in-compromise,
audit reconsideration Underreporter Branch
Responses to IRS underreporter notices Customer Service
Customer Service Branch Taxpayer
inquiries about assessments Adjustments Branch
Claims on amended returns filed by taxpayers Collection Branch
Substitute for return Quality Assurance and Accounting
Branch Credits on masterfile
accounts Management Support Quality and Management
Support Branch Various types of abatements based on
reviews of notices sent to taxpayers Taxpayer Advocate Office
Problem Resolution Program and Taxpayer Various types of taxpayer
claims that meet set criteria (e.g., Advocate
problems not satisfactorily handled by other IRS groups) aAudit
reconsideration occurs when taxpayers ask IRS to reconsider
assessments made in past audits. bCategory A claims involve issues
that are complex, sensitive, or prone to noncompliance. cIRS files
a substitute for return when a taxpayer has not filed a tax return
but IRS receives third-party information that shows enough income
to file a tax return. Source: Information provided by IRS
officials. In the following, we briefly describe the types of
abatements made at each of the work groups. We also identify the
case workload at each group for all types of adjustments,
including abatements, to a taxpayer's account. However, none of
these groups had data on the portion of the workload that involved
abatements. The Compliance Division has four branches that can
make abatements, as Compliance Division
summarized below. Examination Branch The
Examination Branch is responsible for conducting correspondence
audits at the service center. Abatements can occur when taxpayers
ask IRS to reconsider (or reaudit) assessments made in past
audits. According to IRS officials, in these audits, the taxpayer
typically finds documentation that counters the additional
assessments. If IRS accepts the taxpayer's documentation, the
additional assessments are to be abated. The Examination Branch
may also make various types of abatements in cases referred by the
Criminal Investigation Branch or by the National Office. The
branch also may abate assessments arising from the computer
matching that IRS does to identify math and other errors. During
fiscal year 1998, the branch processed nearly 132,000 cases.
Additionally, it processed about 285,000 amended returns (1040X).
Page 26 GAO/GGD-99-98 IRS' Abatement
Process in Selected Locations Appendix II Abatement Processes at
the Fresno Service Center Examination officials did not track
which cases had abatements; however, branch officials said that
the branch abates few assessments. Criminal Investigation Branch
The Criminal Investigation Branch is responsible for investigating
all kinds of criminal activity related to the tax system. A
typical abatement case involves a taxpayer filing a false Form W-
2, Statement of Earnings, claiming excessive income and withheld
tax. In these cases, the taxpayer claims excessive income in order
to claim an excessive earned income credit (EIC). The taxpayer
claims but never pays the excessive withheld tax in order to get a
tax refund. Upon identifying these fraudulent schemes, the branch
is to abate the excess tax liability that was claimed (but not
paid) and to stop the erroneous refund or collect the overpaid EIC
and refund. Joint Compliance Branch The Joint Compliance
Branch has three sections that process abatement cases.
Classification and Research. This section processes category A
claims referred from the Adjustments Branch as well as interest
abatement cases. Category A consists of claims and amended returns
that are more complex, sensitive, or prone to noncompliance than
other claims. Selected category A claims are referred to field
offices for further examination and possible abatement decisions.
The abatement decisions for nonselected category A claims are made
in Joint Compliance. During fiscal year 1998, about 18,300
category A claims were processed, and about 2,000 were sent to
field offices. The section also processed about 400 claims for
interest abatement. Automated Substitute for Return. This section
processes abatements for the amounts overassessed on a substitute
for return (SFR). These abatements are necessary when the taxpayer
files a delinquent return that reports a lower tax liability than
that assessed on the substitute return prepared by IRS. During
fiscal year 1998, the section chief estimated that the branch had
made between 500 and 1,000 such abatements at Fresno.
Miscellaneous Balance Due. This section processes offers-in-
compromise for wage earners with income under $10,000,3 and trust
fund recovery 3By agreeing to an offer-in-compromise with a
taxpayer, IRS accepts a lower dollar amount to settle a balance
due. FSC is planning a prototype for making offer-in-compromise
abatements for wage earners and schedule C and F returns of up to
$50,000. Page 27
GAO/GGD-99-98 IRS' Abatement Process in Selected Locations
Appendix II Abatement Processes at the Fresno Service Center
cases.4 Branch officials did not track how much of the workload
involved abatements. Underreporter Branch The
Underreporter Branch is to process cases involving the amount of
income reported on tax returns. These cases are generated in IRS'
Martinsburg Computing Center by comparing income amounts reported
on information returns and on the tax return. Overall, the typical
case involves a taxpayer underreporting income on the tax return.
However, in the typical abatement case, the taxpayer overstates
some type of income on the tax return, thus overstating the tax
liability. To get this overstated tax liability abated, the
taxpayer must file an amended return. The Underreporter Branch at
FSC processed about 11,400 cases that potentially required
abatements. Branch officials, however, did not track how many
actual abatements were made. The Customer Service Division has the
following branches that can make Customer Service Division
abatements. None of the branches had information on the number of
abatements made. Customer Service Branch The Customer Service
Branch receives taxpayer inquiries about assessments by phone or
correspondence. These inquiries are usually in response to notices
or correspondence sent by IRS about various types of possible
errors on a tax return. An abatement may occur when a taxpayer
requests that IRS abate a failure-to-file penalty due to
reasonable cause. Adjustments Branch The Adjustments
Branch also may process abatements initiated through telephone
contacts with taxpayers about their assessments. Further, the
branch is responsible for processing claims on amended returns.
However, as noted earlier, category A claims are to be referred to
the Joint Compliance Branch and some non category A claims may be
handled by the Examination Branch. Collection Branch
The Collection Branch is responsible for call sites at which
abatements may arise when taxpayers telephone IRS staff about
various types of assessments. Branch officials said the primary
source of abatements is the SFR program, in which taxpayers have
received a substitute return and IRS has taken action to collect
the tax shown on it. If the taxpayer then files a return showing a
lower tax that is accepted by IRS, the branch is to abate the
difference between the tax amounts assessed on the substitute
4Trust fund recovery involves the abatement of trust fund
penalties assessed against one or more taxpayers when the balance
due to the Social Security Trust Fund is received from one of
these taxpayers (usually an officer of the business that owed
trust fund taxes). Page 28
GAO/GGD-99-98 IRS' Abatement Process in Selected Locations
Appendix II Abatement Processes at the Fresno Service Center
return and taxpayer's return. During fiscal year 1998, the branch
had about 383,000 phone contacts and 2.8 million pieces of
correspondence. However, the branch did not track the number of
contacts that involved abatements. The following branches in the
Quality Assurance and Management Support Quality Assurance and
Division process abatements. Management Support Division
Accounting Branch Accounts Services is the only
section that makes abatement decisions in the Accounting Branch.
Its workload is generated by the Martinsburg Computing Center and
consists of tax returns with unsettled credit balances. These
credit balances may have resulted from SFRs, audits, math errors,
and other transactions. During fiscal year 1998, Accounts Services
processed nearly 113,000 adjustment cases, but it did not track
how many involved abatements. Quality and Management
The Quality and Management Support Branch is responsible for
measuring Support Branch the quality of actions
in other branches by reviewing closed cases. Its Output Review
Section is to review notices to be sent to taxpayers and is to
make abatements if errors are found. Errors that are found in
other quality reviews are to be referred to the initiating branch
for correction. During fiscal year 1998, the Output Review Section
reviewed about 37,000 individual notices and nearly 24,000
business notices. IRS officials did not have information on how
many of these reviews involved abatements. The Taxpayer Advocate's
Office reports to the Executive Office of Service Taxpayer
Advocate's Office Center Operations that, in turn, reports to the
National Taxpayer Advocate. The office is responsible for the
Problem Resolution Program, which is to help those who meet
certain criteria, such as taxpayers that have any contact *
indicating that IRS' systems have not resolved the taxpayer's
problems, * indicating that the taxpayer has not received an IRS
response by the date promised, or * involving the same issue at
least 30 days after an initial inquiry or complaint, or 60 days
for an original or amended return. During fiscal year 1998,
Fresno's Taxpayer Advocate's Office closed over 20,000 cases, but
it did not track how many of them included abatements. Page 29
GAO/GGD-99-98 IRS' Abatement Process in Selected Locations
Appendix II Abatement Processes at the Fresno Service Center
Staffing for some work groups varies with the time of year and the
Staffing function of the
group. During peak periods (usually during the months that
taxpayers are filing returns), staffing levels may temporarily
increase, and the staff may sometimes be used for work other than
making adjustments, such as answering taxpayer inquiries about the
tax law or filing requirements. Table II.2 shows the peak staffing
level by the type and grade (GS) level of staff who make abatement
decisions for those work groups that make most of the abatements,
according to IRS officials. Table II.2: Peak Staffing Levels at
Fresno by Type of Staff and Grade Level, April 1999 Tax examiner
Revenue agent/ Account Customer service
assistant tax auditor technicians
representative Division or office Work group
(GS-6 to GS-7) (GS-9 to GS-12) (GS-4 to GS-7)
(GS-6 to GS-9) Total Compliance Examination
333a 00
0 333 Criminal Investigation 56
0 0 0 56 Joint
Compliance 124
20 0 0 144
Underreporter 206b
00 0 206 Customer Service
Customer Service 0
0 0 354 354 Adjustments
0 0 0 365
365 Collections 316
0 0 0 316 Quality
Assurance and Accounting
176 0 104c
0 280 Management Support Quality and Management Support
175d 00
0 175 Taxpayer Advocate's Problem Resolution and Taxpayer
Office Advocate
73 0 0
0 73 Total
1,459 20 104
719 2,302 Note: Branches with a consistent level of staffing will
not have a nonpeak staffing level. aNonpeak staff of 258 bNonpeak
staff of 136. cNonpeak staff of 265. dNonpeak staff of 135.
Source: IRS officials. For the most part, those making abatements
were tax examiner assistants and customer service representatives.
These staff had varying duties, including reviewing notices and
interest computations, responding to customer inquiries,
processing correspondence, reviewing tax returns to detect fraud,
and resolving taxpayer problems. In general, training to be given
in the work groups that made abatements Abatement Training
did not focus on abatements. Rather, the training focused on the
range of duties for the various types of staff. Based on our
discussions at Fresno, the following briefly describes the
training to be provided. Tax examiners assistants are to receive
40 hours of initial classroom Examination Branch
training, plus 40 hours of on-the-job training; 80 hours of
classroom Page 30 GAO/GGD-99-98 IRS'
Abatement Process in Selected Locations Appendix II Abatement
Processes at the Fresno Service Center training on basic income
tax; 80 hours of classroom training, plus 120 hours of on-the-job
training on amended returns; 40 hours of classroom training on
EIC, plus 40 hours of on-the-job training; and 40 hours of
classroom training as a refresher each year. Newly hired staff are
to receive 2 weeks of training followed by 2-4 months Criminal
Investigation of on-the-job training. All staff are to
attend a 2-week refresher class each Branch
year. Joint Compliance staff are to receive classroom and on-the-
job training Joint Compliance Branch that covers
various topics, such as the guidance and instructions in the
Internal Revenue Manual, the processes for making adjustments, and
the tax law. Branch staff are to receive annual training on phases
of the underreporter Underreporter Branch programs
being worked for a tax year. This training is to include screening
cases, writing responses, reviewing statutes, and learning other
core skills. Staff making interest abatements also are to attend
bimonthly meetings. These staff are to receive roughly the same
training, which is to include Customer Service,
120 hours of classroom training, primarily in refund and EIC
issues. After Adjustment, and Collection several months of
on-the-job training, they are to receive an additional 120
Branches hours of training on more
complex issues, such as how to handle balance- due accounts,
installment agreements, and return delinquencies. All Accounting
Branch training is to be on-the-job training. New staff are to
Accounting Branch have a coach who assists them
through each of the steps involved in adjusting accounts. Staff in
the Output Review Section are to receive 2 weeks of classroom
Quality and Management training on the Notice Review
Processing System and on-line notice Support Branch
review. They also are to receive 4-6 weeks of on-the-job training.
Staff must have 2-3 years of experience dealing with adjustments,
Taxpayer Advocate's Office customer service, or collection before
being selected for the staff. Once selected, staff are to receive
classroom training for PRP caseworkers, including PRP quality
standards. The branches at the Fresno Service Center had two types
of supervisory Supervisory Review review of
abatement decisions made by staff. One is to occur before the
decision is made and one after the decision. Regardless of the
type of review, FSC officials did not collect data on the number
of reviews done Page 31 GAO/GGD-99-98 IRS'
Abatement Process in Selected Locations Appendix II Abatement
Processes at the Fresno Service Center by supervisors or the
percentage of abatement decisions that were reviewed. According to
FSC officials, supervisory review and approval of abatement
decisions before they are finalized is required for a few types of
abatements. For example, abatement decisions involving
comparatively larger dollar amounts or certain types of penalty or
interest abatements generally require supervisory review and
approval.5 Also, FSC officials said that supervisors in each
branch are to review a random sample of closed cases for each
employee each month. These reviews are generally to be conducted
to evaluate employee performance. Each branch gave supervisors the
discretion to determine the percentage of abatement decisions to
review. For example, the supervisors we talked to in at least one
branch said they were likely to consider the past experience and
performance of the staff member as well as the complexity and size
of their caseload. Fresno Service Center has a quality review
program that is designed to Quality Review ensure that
abatement decisions are reviewed for quality by analysts outside
the function making the abatement decision. These analysts at the
service center are to review a sample of cases closed in each of
the branches. The purpose is to measure adherence to specific
quality standards. For example, each branch is subject to quality
reviews for a random sample of closed cases by the Program
Analysis Section. Also, the Output Review Section in the Quality
and Management Support Branch is to review a random sample of
notices in each branch monthly. Finally, a random sample of cases
closed by the Taxpayer Advocate's Office is to be reviewed at the
Brookhaven (NY) Service Center.6 5We are not disclosing the
requirements or criteria for making these abatement decisions
because of their sensitivity. 6We did not analyze the samples to
verify whether they were, in fact, randomly drawn. Page 32
GAO/GGD-99-98 IRS' Abatement Process in Selected Locations
Appendix III Abatement Processes at the Kansas-Missouri District
Office The Kansas-Missouri District Office (KMDO) is located in
St. Louis and has satellite offices across its two-state area. The
district is responsible for auditing a variety of individual and
business tax returns and for responding to taxpayer inquiries. It
is also responsible for compliance programs that use third-party
information to identify taxpayers who do not file tax returns or
who understate their tax liability on filed returns. Different
work groups within the district make abatements.1 Of the five
Kansas-Missouri divisions in KMDO,
four make abatement decisions, usually through one or Groups That
Make more branches. The division not
making abatements is Criminal Investigation, whose primary
workload involves investigating fraudulent or Abatements
illegal activities. Each division or office responsible for making
abatements is shown in table III.1, which also lists examples of
the type of abatements. Table III.1: Examples of Abatements at
Division or office Type of abatement
Kansas-Missouri District Office Collection Division
Discharged bankruptcies, offers-in-compromise,a trust fund
recovery penaltiesb Customer Service Division Federal tax
deposits,c taxpayer inquiries about assessments Examination
Division Audit reconsiderations,d
claims Office of Taxpayer Collection
hardships and Problem Resolution Program Advocate
(PRP)e aBy agreeing to an offer-in-compromise with a taxpayer, IRS
accepts a lower dollar amount to settle a balance due. bIRS makes
concurrent assessments against more than one officer or
shareholder of a business that has not paid withheld employment
taxes. Once the taxes are paid, the other assessments are abated.
cIRS is to abate penalties erroneously assessed for failing to
properly deposit federal taxes. dAudit reconsiderations occur when
taxpayers ask IRS to reconsider assessments made in past audits.
eStaff from the divisions resolve many PRP cases. Source:
Information provided by IRS officials. Several factors affect
which group makes the abatement decision, including the following.
* Type of case. Cases can vary by type of taxes (such as gift or
excise), type of taxpayers (such as large corporation), and type
of transactions (such as bankruptcy). 1An abatement occurs when
IRS reduces the assessment of tax, penalty, or interest against
taxpayers for various reasons (e.g., an incorrect assessment or
taxpayer had a reasonable cause for not complying with filing or
payment requirements). An abatement may be initiated by a request
from a taxpayer, by a taxpayer in response to IRS actions, or
solely by IRS. For example, a taxpayer may file an amended return
to claim changes to the original return. Factors such as the type,
complexity, and source of the abatement determine which IRS group
makes the abatement. Page 33
GAO/GGD-99-98 IRS' Abatement Process in Selected Locations
Appendix III Abatement Processes at the Kansas-Missouri District
Office * Division function. The normal workload of the work group
affects which group makes a specific abatement decision. For
example, the Collection Division would make abatements in working
cases, such as bankruptcy cases. Customer Service Division
abatements could come from responding to taxpayer inquiries, such
as those involving federal tax deposits. * Status of taxpayer
account. For example, if a taxpayer is being audited by the
district office and files an amended return or claim for refund
with the service center, this return or claim is forwarded to the
appropriate Examination group conducting the audit. Summarized
below are the responsibilities of each division and office, its
workload, and examples of abatements. The Collection Division is
responsible for the collection of taxes from Collection Division
businesses and individuals who have an outstanding balance due or
who have not filed required tax returns. In fiscal year 1998, the
Collection Division closed about 14,300 cases, but Division
officials could not identify how many cases involved abatements
because they were not separately tracked. Abatements in the
division involve issues such as offers-in-compromise, trust fund
recovery cases, and bankruptcy.2 According to Collection
officials, the most common abatements come from discharged
bankruptcies, in which IRS makes abatements at the direction of a
court. Offer-in-compromise cases involve an agreement by IRS to
accept a taxpayer's offer to settle an outstanding assessment for
less than the total due. In trust fund recovery cases, IRS has
made assessments against officers or shareholders of a business
that has not properly deposited its employment taxes and then is
to abate the residual assessments after the tax liability has been
paid. The Customer Service Division takes taxpayers' calls and
correspondence Customer Service Division regarding inquiries
about issues such as assessments. Taxpayer correspondence is
forwarded to the IRS district office nearest the taxpayer for
handling. During February 1998 through January 1999, the division
closed nearly 17,000 cases. Customer Service officials said they
did not track how many cases involved abatements. According to
division officials, the most common type of abatement results from
penalty assessments in failure-to-deposit cases. For IRS to abate
this 2For these types of cases, IRS abates the aggregated balance
due; it does not break out the specific types of tax, penalty, or
interest assessments. Page 34
GAO/GGD-99-98 IRS' Abatement Process in Selected Locations
Appendix III Abatement Processes at the Kansas-Missouri District
Office penalty, the taxpayer must demonstrate a reasonable cause
for not making the required tax deposits by the due date. If IRS
agrees that the reason is valid, the penalty is to be abated. The
Examination Division is responsible for auditing individual and
Examination Division business tax returns selected by
scoring criteria that identify returns with the greatest potential
tax noncompliance. During fiscal year 1998, the Examination
Division closed almost 19,000 cases. An Examination official said
that the division has not tracked the number of cases that
involved abatements, but that the division abates few assessments.
This is because audits tend to focus on returns with potentially
higher noncompliance, which is more likely to lead to additional
taxes being assessed rather than assessed taxes being abated.
According to Examination officials, abatements come largely from
claims involving audit reconsiderations that the service center
sends to the district for review before being accepted. The
Special Programs Section in Examination works the claim and can
decide to accept or audit the claim. Audit reconsideration cases
result when taxpayers ask IRS to revisit a prior audit that
assessed additional taxes. The taxpayer believes that the taxes
should not have been assessed. If the taxpayer provides support
for that belief and IRS agrees, any excess tax amount is to be
abated. The Taxpayer Advocate's Office is to assist taxpayers
through the Problem Taxpayer Advocate's Office Resolution Program
(PRP) and other activities after other IRS contacts have not
resolved the taxpayer's concerns or when taxpayers ask for help.
During a recent 6-month period, an Advocate official said that the
office worked about 230 cases but did not know the number
involving abatements because they were not separately tracked.
According to the Advocate official, the office routinely sends
cases to a group in the Customer Service Division staffed with
employees from other divisions. There, the case is to be worked by
a division employee and monitored by the Advocate's Office to see
that it is closed properly and timely. District officials said
that most abatement decisions are made by Staffing
authorized staff in the Collection and Customer Service Divisions.
Also, a few abatements are made by staff in the Examination
Division and Taxpayer Advocate's Office. Table III.2 summarizes
the type and number of staff that make abatement decisions in the
district, according to IRS officials. Page 35
GAO/GGD-99-98 IRS' Abatement Process in Selected Locations
Appendix III Abatement Processes at the Kansas-Missouri District
Office Table III.2: Staffing Levels at Kansas-Missouri by Type of
Staff and Grade Level, April 1999 Staff type and grade
Collection Customer Servicea Examinationb Taxpayer Advocate Total
Revenue officer (GS-7 to GS-12)
149 c 00 0 149 Tax
examiner assistant (GS-5 to GS-9)
17 0 24 0 41
Customer/taxpayer service representative (GS-5 to GS-8)
8 480 0 0 488
Customer/taxpayer service specialist (GS-6 to GS-11)
1 33 0 0 34
Revenue agent (GS-9 to GS-13)
0 0 394 0 394
Tax auditor (GS-9)
0 0 42 0 42
PRP analyst (GS-9 to GS-12)
0 0 0 9 d 9
Total
175 513 460 9 1,157
aExcludes 8 tax law specialists who advise staff that make
abatements. bExcludes 5 lawyers who advise staff that make
abatements. cIncludes revenue officer aides who do research for
revenue officers. dExcludes a taxpayer advocate and 2 management
assistants. Source: IRS officials. These staff have various
duties, as discussed below. Revenue officers work various types of
delinquent accounts and Collection Division
investigations in the office and field. Also, they may work on
specific programs, such as trust fund recovery penalties and lien
withdrawals. Attorneys and district counsel assist with complex
issues, such as bankruptcy. Revenue officer aides assist revenue
officers by performing courthouse research and other duties.
Customer service representatives provide service to taxpayers who
have Customer Service Division contacted IRS via
correspondence, telephone, or visits. They help prepare returns
and answer questions regarding tax law, IRS procedures, and
individual accounts. Revenue agents and tax auditors audit various
types of tax returns, such as Examination Division
income tax returns. Staff monitor cases sent to the divisions to
ensure that they are resolved Taxpayer Advocate's Office promptly
and appropriately. In general, training to be given in the
divisions and offices that made Abatement Training
abatements did not focus on abatements; rather, it focused on the
range of duties for the various types of staff. The following
briefly describes the training to be provided. Revenue officers
are to receive three phases of classroom training and on-
Collection Division the-job training after
each phase. Afterward, they are to be assigned a Page 36
GAO/GGD-99-98 IRS' Abatement Process in Selected Locations
Appendix III Abatement Processes at the Kansas-Missouri District
Office mentor to provide additional on-the-job training. Revenue
officer aides receive no formal classroom training. All their
training is on-the-job. Employees dealing with bankruptcy cases
are to receive training on bankruptcy issues, including 1 year of
on-the-job training. IRS officials said employees handling the
other types of abatements, such as offer-in- compromise and trust
fund recovery cases, usually come from other IRS functions at
which they have already received training to handle these issues.
Customer service representatives are to receive three phases of
tax law Customer Service Division classroom training and
four additional phases of accounts-related classroom training.
These courses include installment agreements; credit transfers;
refund releases; tax adjustments; and penalty abatements. All
classroom training is to be supplemented with on-the-job training.
Staff making abatements in the division are to receive many hours
of Examination Division classroom and on-the-job
training, which varies by the type of staff. This training mostly
addresses tax law and auditing topics, such as claims and audit
reconsiderations. Revenue agents in specialty fields are to
receive special training (e.g., a 3-week excise tax course). PRP
analysts are to receive some specialized training. However, an
Taxpayer Advocate's Office Advocate official explained that its
office has recruited staff from other IRS divisions that should
already have been trained in collection and audit issues that the
office addresses. At the district, except for one division, the
staff making the abatement Supervisory Review
decision is usually the same staff that enters information about
the decision into the taxpayer accounts on the computer. The
exception is the Examination Division, where the staff making the
decision do not have access for computer entry. Two types of
supervisory review can affect abatement decisions made by staff.
One occurs before the decision is made and one occurs after the
decision. Neither of these types of review focus on abatements;
rather, they cover all types of adjustments. As a result, KMDO did
not have data on the percentage of abatement decisions that were
reviewed. First, supervisors may review proposed decisions to
approve them before they are finalized. KMDO did not have similar
requirements for these reviews across the divisions. However,
Collection officials told us that their supervisors are to review
all cases. Examination officials said they Page 37
GAO/GGD-99-98 IRS' Abatement Process in Selected Locations
Appendix III Abatement Processes at the Kansas-Missouri District
Office have no requirement except that supervisors are responsible
for the quality of the cases closed in their groups. Second, KMDO
officials said that supervisors are supposed to review a random
sample of closed cases for each employee each month. These reviews
are generally conducted for performance evaluation, and the
requirements differ across the divisions. For example, Customer
Service officials told us that their supervisors are to review at
least 25 percent of the cases closed by each employee. Each
division is subject to reviews by a quality measurement system.
Quality Review Under this system, district office reviewers are
to check the quality of work in closed cases against specific
quality standards. These standards differ for each division. The
closed cases selected for review are to be randomly drawn from all
types of cases closed in a division.3 KMDO did not have data on
how many quality reviews addressed abatement decisions because
abatement cases were not reviewed separately. In the Collection
Division, for example, a sample of nine closed cases per branch is
to be pulled for a nationally centralized review under the
Collection Quality Measurement System. Similarly, in the Customer
Service Division, Quality Assurance reviewers are required to do a
closed case review on paper transactions. The sampling plan for
each review period is developed in the National Office. At the
time of our work, for example, the Quality Assurance Office was
slated to review every 107th closed case. Examination also has
closed cases reviewed under a national quality measurement system.
The Taxpayer Advocate Office's review only covers those relatively
few cases that are not referred to and closed at another division.
3Our objectives did not include testing whether IRS used random
sampling as described. Page 38
GAO/GGD-99-98 IRS' Abatement Process in Selected Locations
Appendix IV Abatement Processes at the Northern California
District Office The Northern California District Office is located
in Oakland and is responsible for Northern California from the
Oregon border to just south of San Francisco. The district office
has six operating divisions: Collection, Customer Northern
California Service, Criminal Investigation,
Research and Analysis, Examination, and Groups That Make
Quality Assurance. Staff in three of the divisions can make
abatements through one or more branches.1 The Taxpayer Advocate's
Office can also Abatements make
abatements, but Advocate officials said their office makes few
abatements because most of their cases are referred to the other
divisions or the service center for the actual decision. Table
IV.1 shows the divisions or offices that make abatements as well
as examples of the type of abatements made by each. Table IV.1:
Examples of Abatements at Division or office
Type of abatement Northern California District Office
Collection Division
Penalties for reasonable cause for not paying tax debts or filing
required tax returns, trust fund recovery penalties,a discharged
bankruptcies Customer Service Division
Various penalties for reasonable cause Examination Division
Audit refunds and audit reconsideration,b category A claims and
interest claimsc Office of Taxpayer Advocate
Issues certain taxpayers have had difficulty getting resolved,
penalties for reasonable cause aIRS makes concurrent assessments
against more than one officer or shareholder of a business that
has not paid withheld employment taxes. Once the taxes are paid,
the other assessments are abated. bAudit reconsiderations occur
when taxpayers ask IRS to reconsider assessments made through past
audits. cCategory A claims involve issues that are complex,
sensitive, or prone to noncompliance. Source: Information provided
by IRS officials. In the following, we briefly describe the types
of abatements made at each division or office. We also identify
the caseload for all types of adjustments, including abatements,
to taxpayers' accounts. None of the divisions had data on the
portion of the caseload that involved abatements. The Collection
Division is responsible for processing cases involving tax
Collection Division delinquency accounts and
tax delinquency investigations. In the former, a tax liability has
been assessed but not paid; in the latter, IRS is trying to 1An
abatement occurs when IRS reduces the assessment of tax, penalty,
or interest against taxpayers for various reasons (e.g., an
incorrect assessment or taxpayer had a reasonable cause for not
complying with filing or payment requirements). An abatement may
be initiated by a request from a taxpayer, by a taxpayer in
response to IRS actions, or solely by IRS. For example, a taxpayer
may file an amended return to claim changes to the original
return. Factors such as the type, complexity, and source of the
abatement determine which IRS group makes the abatement Page 39
GAO/GGD-99-98 IRS' Abatement Process in Selected Locations
Appendix IV Abatement Processes at the Northern California
District Office obtain an unfiled tax return to determine whether
a tax liability exists. The division may abate penalties for these
cases. The division receives these cases from the service center
and has field branches whose staff can make abatement decisions.
During fiscal year 1998, the division processed about 13,600
cases, but it did not track how many of them were abatements.
According to district officials, in a typical Collection Division
case, a revenue officer contacts a taxpayer who has not fully paid
a tax liability. The taxpayer requests that the failure-to-pay
penalty be abated and provides evidence of reasonable cause. The
officer is to review the information provided by the taxpayer and
make a decision on whether to abate the failure-to-pay penalty.
The criteria for Collection abatements are contained in the
Internal Revenue Manual, chapter 21.2 Evidence required to make
the abatement includes statements or documents from the taxpayer
supporting the reasonable cause claim. Information about the
abatement decision is to be maintained in case files at the
service center. Abatements in the Customer Service Division result
from requests by Customer Service Division taxpayers to abate
certain types of penalties for reasonable cause. Customer service
representatives are to collect evidence from the taxpayer on the
reasonable cause and make the abatement decision. Documentation on
these decisions is to be maintained in the case file at the
service center. Officials from Customer Service could not provide
caseload data on these or other types of case decisions for fiscal
year 1998. According to district officials, these penalty
abatement cases typically involve penalties for failure to file a
required tax return on time or failure to pay assessments on time.
The criteria for Customer Service abatements are also contained in
the Internal Revenue Manual, chapter 21. The Customer Service
Division refers some abatement cases to other IRS functions for
processing. Taxpayer contacts concerning claims or requesting
audit reconsideration can be referred to the district's
Examination Division or to the service center. Requests for
abatement of very large dollar penalties and of assessments to be
paid under installment agreements can be referred to the
Collection Division for processing. Abatements in the Examination
Division originate as claim referrals from Examination Division
the service centers, reconsideration of assessments from prior
audits, requests for interest reduction, and tax reductions
identified during audits. 2Because these criteria are considered
to be sensitive information, we are not disclosing them in any
detail throughout this appendix. Page 40
GAO/GGD-99-98 IRS' Abatement Process in Selected Locations
Appendix IV Abatement Processes at the Northern California
District Office Examination staff also are to process abatements
referred to them from the district's taxpayer advocate. The
Examination Division might refer cases to other divisions or IRS
offices either because the taxpayer moved or because the taxpayer
has a representative who lives elsewhere. During fiscal year 1998,
the division closed about 44,200 cases, but the percentage that
involved abatements was not tracked. According to district
officials, a typical Examination abatement case is one in which
the taxpayer requests that the findings of a prior audit be
reconsidered. Examination staff are to review the issues and make
a decision on whether to abate the amount being questioned.
Abatements are also considered to be common for category A claims,
which are usually referred from the service center and consist of
claims and amended returns that are sensitive, prone to
noncompliance, or more complex than other claims. The criteria for
Examination abatements are contained in the Internal Revenue
Manual, chapter 21. Evidence required for Examination abatements
typically includes information from audit files, tax returns, or
other documentation provided by the taxpayer that is to be
maintained in the case file. The Taxpayer Advocate's Office is
responsible for helping taxpayers Taxpayer Advocate's Office
resolve tax-related problems. The office should receive cases that
meet certain criteria, such as repetitive IRS contacts over a
short time period or taxpayer problems that have not been resolved
through regular channels for a long period of time. Advocate
officials told us that they refer most cases to divisions, service
centers, and other districts. For example, cases might be referred
to the Examination and Collection Divisions, which have
caseworkers to handle these cases. Primarily for geographic
reasons, some cases are referred to other districts-that is, to
move the case closer to where the taxpayer is located and the
actions are being taken. Generally, the workload does not vary
much throughout the year and consists primarily of processing
taxpayer requests for reduction or elimination of penalties. This
workload totaled about 4,000 cases in fiscal year 1998, but the
percentage that involved abatements was not tracked. Advocate
officials said their office makes the final decision on a small
number of abatements. Page 41 GAO/GGD-99-98
IRS' Abatement Process in Selected Locations Appendix IV Abatement
Processes at the Northern California District Office According to
Advocate officials, a typical case would involve abating a
failure-to-file penalty when a taxpayer had reasonable cause for
not filing by the required due date. A taxpayer may initiate this
action by providing information on why the penalty should be
abated (e.g., taxpayer was hospitalized). The criteria for
abatements are in the Internal Revenue Manual, chapter 21.
Evidence required to make the abatement includes statements from
the taxpayer on the reasonable cause claim. This evidence is to be
kept in the case file. According to IRS officials, district office
staffing does not vary much Staffing
seasonally because the workload remains fairly constant. Table
IV.2 summarizes the type and level of staff that make abatement
decisions in the district, according to IRS officials. Table IV.2:
Staffing Levels by Type of Staff and Grade Level, May 1999 Staff
type and gradea Collection
Customer Service Examination Taxpayer Advocate
Total Revenue officer (GS-7 to GS-12)
227 0 0
0 227 Tax examiner assistant (GS-5 to GS-9)
20 8 0
2 30 Customer service representative (G-5 to GS-9)
0 213 0
0 213 Revenue agent (GS-9 to GS-13)
0 0 411
0 411 Tax auditor (GS-9 to GS-12)
0 0 108
0 108 PRP specialist (GS-11)
00 0 5 5 Total
247 221 519
7 994 aStaff at the highest grade levels usually fill
supervisory positions. Source: IRS officials. In general, training
to be given in the divisions and offices that made Abatement
Training abatements did not focus on
abatements. Rather, the training focused on the range of duties
for the various types of staff. The following briefly describes
the training to be provided. Training targeted at abatements is
limited. According to district officials, Collection Division
the only training directed at abatements was a class on processing
Form 3870, Request for Adjustment. Otherwise, the staff making
abatement decisions are to receive training in three phases,
consisting of over 300 classroom hours. This training is to cover
the collection process, including abatements, adjustments, forms,
and reasonable cause for abatements. Other training is to be
provided on-the-job. Staff making abatements in the division are
to receive the basic training Customer Service Division
module, which includes case processing, telephone routing,
customer service core skills, disclosure policies, and telephone
training. Other training modules provide more specialized and
advanced courses, such as computing and adjusting penalties and
determining penalty relief. Page 42
GAO/GGD-99-98 IRS' Abatement Process in Selected Locations
Appendix IV Abatement Processes at the Northern California
District Office Staff making abatements are to receive classroom
and on-the-job training. Examination Division This
training mostly addresses the tax law and auditing. None of the
training focused on abatements. As of April 1999, the staff had
not yet been trained on the new process for audit reconsideration
in which the requests for reconsideration are to be submitted
directly to the service center and subsequently referred to
Examination for action. Staff working the cases are to receive
classroom training. Initially, they are Taxpayer Advocate's Office
to receive 16 hours of PRP caseworker training and on-the-job
training for making adjustments on the computer system. The PRP
caseworker- training course was being updated, and additional
classroom training for PRP specialists and analysts is to be
added. Staff that make abatement decisions usually are not the
same staff that Supervisory Review enter
information about decisions into taxpayers' computerized accounts.
According to district officials, this improves internal control.
Exceptions are the Taxpayer Advocate's Office and Customer Service
Division, where the same individual makes the decision and enters
the information. Two types of supervisory review can affect
abatement decisions made by staff. One occurs before the decision
is made and one occurs after the decision. Regardless of the type
of review, district officials did not collect data on either the
number of reviews done by supervisors or the percentage of
abatement decisions that were reviewed. First, supervisors may
review decisions before they are made for purposes of approval.
The requirements for such a review differed according to various
division officials. For example, supervisors in the Taxpayer
Advocate's Office and Collection Division are to review all
requests for abatement and those in Customer Service are to review
large-dollar abatements. The other divisions did not require
supervisors to review and approve abatement decisions before they
became final. Second, district officials said that supervisors are
to review a random sample of closed cases for each employee each
month. These reviews are generally conducted for performance
evaluation, and the requirements differ across the district.
Following is a summary of supervisory review requirements for each
division and office. According to district officials, supervisors'
reviews are to be conducted Collection Division
using the Collection Management Information System. Supervisors
are to look for appropriate documentation and data. IRS does not
maintain data on the number or percent of cases reviewed. Page 43
GAO/GGD-99-98 IRS' Abatement Process in Selected Locations
Appendix IV Abatement Processes at the Northern California
District Office District officials said that supervisors are to
review five closed cases each Customer Service Division
month for each employee to evaluate performance for the critical
elements in the job description. Supervisors also are to make
additional random reviews to ensure quality. According to district
officials, supervisors are to review a sample of closed
Examination Division cases for employee evaluations.
The division has no specific criteria for the number of cases to
be reviewed. Supervisors may choose to review a higher or lower
number of closed cases depending on the auditor's skill level and
experience and the supervisor's workload. District officials told
us that supervisors are to review all staff decisions. Taxpayer
Advocate's Office Reviews are to be used for both quality control
and staff evaluations. Reviewers at the district office review
closed cases in the divisions to Quality Review
check the quality of the work against specific quality standards.
These standards differed for each division, but in general, the
standards focused on communication, timeliness, and accuracy.
District officials said that the cases selected for review are to
be randomly drawn from all types of cases closed in a division.3
Because abatement cases are not reviewed separately, district
officials did not have data on how many quality reviews addressed
abatement decisions. Specifically, district officials provided the
following information about the review of closed cases in each
division or office by independent reviewers. * The Quality
Assurance Division reviews a monthly sample of closed cases from
the Taxpayer Advocate's Office. According to district officials,
Quality Assurance reviews 16 cases plus 100 percent of the cases
initiated from IRS' periodic problem solving days. * The
Collection Division reviewed between 5 and 10 percent of the
closed cases-about 1,300 reviewed cases in fiscal year 1998-as
part of the Collection Quality Measurement System. * The Customer
Service Division's Automated Compliance Section reviewed 439 cases
during fiscal year 1998. * Examination Division cases underwent
Quality Assurance review against the Examination Quality
Standards. In fiscal year 1998, 506 closed audit cases were
reviewed as part of this Examination Quality Measurement System.
3Our objectives did not include testing whether IRS used random
sampling as described. Page 44
GAO/GGD-99-98 IRS' Abatement Process in Selected Locations
Appendix V GAO Contacts and Staff Acknowledgments Tom Short (202)
512-9110 GAO Contacts Royce Baker (913) 384-3222
Acknowledgments In addition to those named above, Lawrence
Dandridge, Rodney Hobbs, Stephen Pruitt, Louis Roberts, Elizabeth
Scullin, and Kathleen Seymour made key contributions to this
report. Page 45 GAO/GGD-99-98 IRS' Abatement
Process in Selected Locations Page 46 GAO/GGD-99-98 IRS'
Abatement Process in Selected Locations Page 47 GAO/GGD-99-98
IRS' Abatement Process in Selected Locations Page 48 GAO/GGD-
99-98 IRS' Abatement Process in Selected Locations Ordering
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