Publication 3372 TIGTA Semiannual Report

Treasury Inspector General for Tax Administration Office of Audit

In addition, the Office

of Audit works with The Assistant Inspector

INTRODUCTION

the Office of Investi-General for Audit

gations, as appropriate, (AIGA) is under the

in response to allegageneral supervision of

tions of misconduct, the TIGTA. The AIGA

fraudulent activities, oversees the Office of

waste, and abuse. Audit and is respon-

The Office of Audit

sible for the develop-

also participates with

ment and execution of

the Office of Investi

the nationwide audit

gations in the TIGTA

program for Internal

National Integrity

Revenue Service (IRS)

_{activities
and opera-tions, including the}Program. (See the National Integrity Program _{activities
of the IRS’ Oversight Board and}section of this report for information on joint audit and investigations efforts involving

Office of Chief Counsel.

proactive integrity projects.) The mission of the Office of Audit is to promote the sound administration of the nation’s tax laws by conducting ^{AUDIT PLANNING}comprehensive, independent performance and

^{financial
audits of IRS programs and}To accomplish its mission, the Office of Audit ^{operations
to:}developed and published an annual audit plan,

• assess efficiency, economy, effectiveness and program accomplishments;

which describes the audit focus and direction

for FY 1999. The FY 1999 plan includes both

mandatory audits required by Federal statute

or regulation and discretionary audit work

• ensure compliance with appli-approved by the AIGA. cable laws and regulations; and,

Mandatory Audit Coverage

• prevent, detect, and deter fraud, _{waste and abuse.}Mandatory audit coverage includes

information technology, taxpayer protection^{Audit recommendations are made to:}and rights, contracting and the Government

_•_{improve tax
administration}Performance and Results Act (GPRA). See

_services;Appendix VI for a listing of mandatory audit requirements and TIGTA’s status of work on

• strengthen controls over IRS these audits. programs and operations; and,

Additionally, the Office of Audit is planning

• timely report on program and to implement a multi-year audit approach to

operational deficiencies. reviewing IRS’ implementation of GPRA. This Act is intended to improve the quality and delivery of government services. The Act also holds federal agencies accountable for program results by emphasizing goal setting, customer satisfaction, and results measurement.

For FY 1999, the Office of Audit plans to perform high level assessments in the areas of IRS’ strategic planning process, GPRA communication and training process, and performance measure validity (customer satisfaction, employee satisfaction, and business results). The results of these assessments will be used to determine the number of individual audits needed to thoroughly evaluate IRS’ implementation of GPRA.

The Office of Audit is also responsible for conducting reviews on the financial operations of the IRS. In FY 1999, the Office of Audit staff will perform audit tests in support of the audit of IRS financial statements. This assignment is part of a training effort with the General Accounting Office (GAO), which has exercised its authority to conduct the audit and opine on the IRS financial statements for FY 1999. Involvement will better position the Office of Audit to eventually assume responsibility from GAO for auditing the IRS financial statements. In addition, at the request of the Department’s Assistant Secretary for Management/Chief Financial Officer, the Office of Audit is separately assessing the design of and monitoring progress on the IRS action plan that is addressing IRS’ long-standing problems with financial management.

Discretionary Audit Coverage

Discretionary audit work is dependent on the resources remaining after staff has been assigned to accomplish the mandatory audit requirements. The Office of Audit’s planned discretionary work was identified through a comprehensive, high-level risk assessment process, which was designed to prioritize workload by focusing on the areas of greatest risk to IRS.

Each year, the Office of Audit solicits input and suggestions for audit coverage from the Commissioner and IRS executives. Those suggestions are then incorporated into the audit plan development process. In the future, audit requests also may originate from the Congress and the IRS Oversight Board.

This process applies risk factors to key audit areas in IRS, and documents and summarizes results to aid the Office of Audit management in selecting areas for coverage. Risk factors are the criteria used to identify the relative significance of, and the likelihood that, conditions or events may occur that adversely affect the organization. Some of the factors used in evaluating the risks associated with IRS' auditable areas include: impact of new programs; tax law changes; adequacy and effectiveness of internal controls; prior audit findings; and, stakeholder concerns.

Follow-up on Audit Reports with Unimplemented Corrective Actions

Due to the large number of previously issued audit reports with unimplemented corrective actions (See Appendix III), we are developing a strategic approach in our Fiscal Year 2000 audit plan to review the status of each of these recommendations to determine if:

• the time frame for implemen-
tation of the corrective action
seems reasonable;

• the pending corrective action item should be closed due to changing conditions that have mitigated the need for additional action; or,

• a follow-up audit is warranted to assess the status of IRS’ implementation of the corrective action.

SIGNIFICANT AUDIT RESULTS

During this reporting period, the Office of Audit initiated the majority of its in-process audits after formulating an annual audit plan which was based largely on the recently developed risk assessment process. The majority of those final audit reports will be issued in the remaining six months of FY 1999.

The Office of Audit also lost the availability of some of its senior management and staff from time normally expended on managing and conducting audits, to activity involving the legislative requirements of RRA98, including planning and preparation for the new TIGTA mandated annual reviews and the IRS’ preparations for implementing the many provisions of RRA98.

With the remaining direct staff resources available, the Office of Audit issued 27 audit reports covering topics such as Year 2000 Conversion, Filing Season Readiness, and Information Technology.

Audit resources were focused in the areas having the most significant and inherent risks to IRS. The results of the most significant reviews are discussed in the following sections.

Year 2000 (Y2K) Compliance Progress

December 1999
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1 2 3 4
5 6 7 8

January 2000

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Su Mo Tu We Th Fr Sa

19 20 21 22

26 27 28 29

2 3 4 5 6 7 8

9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

The Y2K century date change (CDC) is one of the most critical problems facing business and government data processing organizations. The Y2K problem is extremely critical for IRS, because the CDC could affect every aspect of tax administration. Virtually all IRS functions, to some degree, rely on automated computer processes.

To maximize system-processing capabilities and to preserve data storage space, many date fields in IRS’ system programs and applications have been limited to a two-digit representation (i.e., 98 for 1998).

IRS estimates the cost for Y2K changes will be approximately $850 million through FY 1999. These costs include updating and testing over 80 mainframe computers (Tier I computers), 75,000 computer application programs, 1,400 minicomputers (Tier II computers), and 100,000 desktop computers (Tier III computers), as well as data communications networks comprising more than 50,000 individual product components.

IRS management estimates 50 million lines of programming code need to be reviewed for possible changes. If mission critical code is not Y2K compliant, IRS systems may not run, causing the processing of tax returns to slow down or stop.

As a result, taxpayers may not receive timely refunds or notices, and account adjustments may not be processed. As the Year 2000 approaches, it is imperative that all major tax-processing systems be Y2K compliant to avoid processing shutdowns.

The Office of Audit has conducted several reviews to assess IRS efforts for ensuring that all IRS systems (Tier I, II, and III) and programs are Y2K compliant, including project management, inventory and tracking, and software and hardware issues.

In-process reviews include:

• Preparation of Tier II Systems (minicomputer) for CDC;

• Management Controls for Oversight of IRS CDC;

• Y2K Conversion Efforts – Tier III (desktop computers);

• Y2K End-to-End Systems Integration Test II and III;

• Effectiveness of Y2K Testing Efforts; and,

• Y2K External Trading Partner Issues – Phase II.

Highlighted final audit reports include:

Follow-Up Review of Corrective Actions Resulting from Audit’s Phase III Code Review (Report No. 090102)

TIGTA auditors conducted an on-line review of IRS’ Y2K conversion and testing to determine the effectiveness of efforts in converting those application components that comprise the bulk of the tax processing systems. (Report No. 083605). As the Y2K situation is extremely critical, this follow-up audit was completed in October 1998 to determine if the corrective actions, identified in the June review, were completed.

During the follow-up review, the Office of Audit analyzed 32 corrective actions that were identified in the previous report, and identified three significant areas warranting additional attention.

The original audit identified 42 components where the date field was defined as a character rather than as a numeric field. IRS was advised that greater adherence and

clarification were needed to IRS programming standards to avoid any risk that this programming error could affect future IRS processing.

At the time of the October 1998 follow-up review, the CDC Project Office had not implemented a change in IRS’ programming standards.

The Office of Audit's report noted two additional areas requiring further IRS action. Specifically, the CDC Project Office should:

• coordinate the development and
issuance of documented
procedures for recompiling all
IRS programs after the related
system macros are modified; and,

• develop a more aggressive schedule for ensuring the development of test deliverables for all commercial-off-the-shelf (COTS) products.

The Office of Audit recommended that the CDC Project Office review the original recommendations and coordinate the development and issuance of all documented procedures for recompiling all IRS programs after related system macros are modified.

Also, the testing and certification of all COTS products should be made a priority because of the potential impact these products could have on the comprehensive testing effort currently underway.

IRS management agreed with the recommendations and has completed the corrective action on all reported audit issues. One action included hiring an outside consultant to review 100 percent of the programming code questioned.

Evaluation of the Service’s Efforts to Implement Year 2000 Compliance for External Trading Partners (Report No. 091303)

In 1996, IRS established the CDC Project Office with an objective to ensure that all systems are Y2K compliant. This requires close coordination with many External Trading Partners (ETPs)—organizations that exchange data with IRS—including state, local, and foreign governments; banks; and other Federal agencies. The CDC Project Office has encountered delays in completing several ETP activities.

The Office of Audit evaluated IRS’ efforts to implement Y2K compliance of the external data exchanges. The Office of Audit reported the CDC Project Office has made considerable progress in completing an inventory of external data exchanges and communicating IRS’ Y2K format changes with ETPs.

The Office of Audit recommended that IRS management continue its efforts to ensure that IRS systems meet Y2K compliant standards and that discrepancies in the inventory of externally exchanged data files and data exchanges are corrected.

IRS management was responsive to the findings during this on-line review and has initiated corrective action.

Review of Phase 4 Year 2000 Conversion and Testing (Report No. 090403)

Based on prior audit recommendations (Report No. 083605), IRS initiated actions to improve its Y2K certification efforts and improve the accuracy of its Applications Program Registry (APR) data. The APR contains inventory data on the phase, number and status of Y2K programs by linking the standardized project name and phase with IRS’ Integrated Network and Operations Management System (INOMS). INOMS tracks Automated Data Processing equipment used throughout IRS.

IRS also is working toward being classified as a Capability Maturity Model Level organization to institutionalize effective management processes for software projects, which will allow for repetition of successful practices developed on earlier projects.

The Office of Audit reported that IRS needs to continue with its efforts to improve the accuracy of the APR, ensure developers and testers document test activities and give greater consideration to how Y2K programming changes will affect hardware capacity and system performance.

In addition, the Office of Audit noted the CDC Project Office has not established controls to verify the accuracy of Y2K compliance certifications. Since these certifications are not validated, the CDC Project Office is unable to fully assess the risk that exists for programs that are not Y2K compliant. IRS management agreed with the findings and has initiated corrective action.

Review of the Service’s Year 2000 Non-Information Technology Project (Report No. 090503)

Although Y2K conversion efforts primarily focus on information systems, there are numerous facility systems and personal property items that use microchips, software, firmware, or other mechanisms for controlling time and date logic that could be impacted by the CDC. These systems comprise the Non-Information Technology (Non-IT) environment.

The Office of Audit reported that IRS has initiated steps to prepare its Non-IT environment for Y2K. However, a significant amount of work must still be completed to ensure Non-IT equipment becomes Y2K compliant. In addition, the CDC Project Office needs to enhance its program management efforts to better direct and coordinate Non-IT conversion activities.

The Office of Audit recommended that the CDC Project Office define and document the requirements for all phases of IRS’ Non-IT conversion process; require supporting functions to provide detailed work breakdown schedules; and, determine whether the process used to certify investigative equipment was appropriate.

Also, IRS’ Office of Management and Finance, in conjunction with the functional area chiefs, should ensure all IRS occupied buildings are prioritized for conversion. IRS management agreed with the findings and has initiated corrective action.

Review of the Service’s Efforts to Prepare Its Tier II Infrastructure for the Year 2000 (Report No. 091206)

This report included the results of the Office of Audit's review of IRS’ efforts to prepare its Tier II (minicomputer) infrastructure for the CDC.

Although the majority of IRS’ tax processing occurs at the Tier I (mainframe computer) level, there is a significant amount of processing at the minicomputer level. As a result, some minicomputer systems feed data to the mainframe computer systems.

The report recommended that IRS better focus, manage, and control its CDC effort to assure business continuity. Critical improvements are needed for: planning and coordination of the conversion effort; inventory management; and, contingency planning. In addition, IRS management needs to ensure consistency between Y2K needs and the INOMS instructions to improve the accuracy and completeness of the inventory.

The Office of Audit identified that the platform inventory is complete, but nearly half of the 837 platforms reviewed were recorded inaccurately. The COTS software inventory also was incomplete and inaccurate. Approximately 28 percent of the 411 products were not recorded on INOMS, and 22 percent were recorded with the incorrect version.

During the audit, IRS management addressed the issues that the Office of Audit presented. However, the final report was issued without IRS management’s response to all reported issues.

Subsequent to the issuance of the final report, IRS management provided a response and has initiated corrective action on all reported audit issues.

Review of the Internal Revenue Service’s Effectiveness in the Monitoring and Reporting of Year 2000 Funds (Report No. 092204)

The CDC Project Office established a Budget Office to obtain, distribute and manage Y2K appropriated funds. The Budget Office is responsible for managing Information Systems (IS) and non-IS funds for the CDC project and to track budgetary information for the CDC Project Office, IRS executives, and other internal and external stakeholders.

The Budget Office also is responsible for monitoring and reporting the availability and use of congressionally mandated funds; unobligated funds transferred from expired IRS accounts; and, supplemental full time equivalents (FTEs) from within IRS' operational budget.

IRS has been effective in accounting for its Y2K funds. However, more attention is needed in the identification of decreased funding requirements and the recording of Y2K payroll expenditures. While the Budget Office uses a working budget report and biweekly budget meetings for monitoring and assessing additional budget needs, IRS management must become more proactive in identifying unused funds.

In addition, IRS needs to ensure that complete and accurate information is recorded and reported for Information Systems’ FTEs expended on Y2K efforts. Further, time charges to the Y2K Project Cost Accounting Subsystem (PCAS) codes are not complete, accurate, or properly classified.

The Office of Audit recommended that IRS improve its monitoring procedures of available funds and ensure that appropriate PCAS codes are used and that time charges are accurately and completely reported. IRS agreed with the findings and has initiated corrective action.

Review of the Internal Revenue Service’s Year 2000 Efforts to Inventory Telecommunications and Commercial Off-the-Shelf Products (Report No. 092402)

The CDC Project Office has the responsibility for controlling IRS’ Y2K effort to inventory, convert, upgrade, or replace computer-related equipment and software so that all automated data processing functions continue uninterrupted into Y2K.

The Office of Audit review was conducted to provide a preliminary assessment of the adequacy of IRS efforts in two areas: the inventory of telecommunications equipment; and, the inventory of system software and COTS products. Technical expertise for this review was acquired under contract.

The review by the Office of Audit indicated that CDC still has significant work to accomplish to complete the telecommunications inventory and to reexamine the completeness of the COTS product inventory.

To minimize risks associated with inaccurate or incomplete inventories, the Office of Audit recommended that CDC Project Office management improve its guidance on how these products are to be reported in the inventory and to re-examine the completeness of its COTS inventory. In addition, an independent verification of the INOMS inventory of COTS products should be conducted for all Tier I (mainframe) computer systems. IRS management agreed with the recommendations and initiated appropriate corrective actions.

Review of the Internal Revenue Service’s Year 2000 Contingency Planning Efforts (Report No. 092705)

The Y2K problem is complicated by the size, complexity, and interdependencies of the IRS’ computer systems. The consequences of system failures and the absolute deadline make it a critical task for an organization as large and as reliant on computers as the IRS. Because of the enormity of the task, there is risk that all systems will not be converted in time.

The Office of Audit’s review of IRS’ contingency plans indicated that IRS has not devoted sufficient emphasis to Y2K contingency planning. The database used for tracking the conversion process was inaccurate and has not improved. The unreliable data hinders IRS management’s ability to monitor conversion progress and prepare contingency plans for systems at risk of not meeting the conversion deadlines. Even when the data did identify systems at risk, IRS management did not follow its own processes and did not ensure that contingency plans were timely developed. In addition, IRS had not properly coordinated the Y2K contingency planning efforts with its overall contingency planning efforts for disasters and other types of failures.

The Office of Audit recommended the following corrective actions:

• review Y2K inventory files on a recurring basis;

• establish validity checks;

• establish procedures to identify and monitor components and systems that have not completed the Y2K milestones;

• establish procedures to identify “at risk” systems during the certification process;

• adhere to the formal Contingency Request Memorandum process;

• assign responsibility for the IRS’ overall contingency management strategy; and,

• consider monitoring the status of contingency planning as part of the Y2K report.

The Office of Audit did not agree that IRS management’s response adequately addressed the problems and corrective actions and included “auditor comments” in the final report transmittal to the Commissioner.

Filing Season Readiness

IRS’ 1999 and 2000 filing seasons will be impacted by numerous organizational and legislative changes. Legislation enacted in 1997 and 1998 in the Taxpayer Relief Act, Balanced Budget Act, and RRA98 is the most extensive and complicated legislation IRS has faced since the Tax Reform Act of 1986.

The 1999 and 2000 filing seasons will be further complicated by ongoing efforts to meet Y2K deadlines, consolidate IRS mainframe processing to two sites, and implement National Performance Review recommendations.

In light of these changes, the Office of Audit conducted reviews to assess IRS’ ability to timely and effectively process returns, issue refunds, and answer taxpayer questions.

In-process reviews include:

• Information Systems’ Quality Assurance Over Key Tax Laws for 1999 Filing Season;

• Walk-In Assistance On-Line 1999 Filing Season;

• Toll-Free Services During the 1999 Filing Season;

• Early Implementation of Tax Laws – 1999 Filing Season;

• 1999 Filing Season Readiness – Individual Master File;

• Taxpayer Assistance on Key Tax Laws – 1999 Filing Season; and,

• Implementation of Legislative Provisions – Year 2000 Filing Season, Individual Master File/Non-Individual Master File.

Highlighted final audit reports include:

Executive Compilation and Interpretation of the 1998 Filing Season (Report No. 091903)

The Office of Audit evaluated the 1998 filing season in terms of the progress IRS was making to become a “customer focused” organization based on the IRS Commissioner’s concept for modernizing IRS and on IRS' Customer Service Task Force report, “Reinventing Service at the IRS.”

Success of the 1998 filing season was determined by how IRS prepared for and met the needs of taxpayers in the areas of: processing tax returns (both paper and electronic individual tax returns); issuing timely refunds; providing customer assistance at walk-in sites; and, through the expansion of toll-free telephone service.

The review showed that IRS had a successful 1998 filing season. This success included significant increases in the number of returns filed electronically, implementation of a number of tax law changes, and significant improvements in customer service through the expansion of toll-free telephone service and the introduction of Saturday walk-in service. In addition, IRS was able to process returns accurately and issue refunds timely.

The number of electronic returns filed far surpassed the 1998 goals, which can be attributed to the extensive efforts by IRS to encourage taxpayers to file electronically.

These accomplishments proved to be significant in meeting taxpayer needs and improving customer service to meet the IRS Commissioner’s goal of providing first-rate service to taxpayers. However, the audit results indicated that improvements can be made in electronic filing, simplification of return filing, improving customer service and in meeting the challenges for the 1999 filing season.

The RRA98 goal of 80 percent of tax returns to be electronically filed by the year 2007 poses a difficult challenge and will require elimination of barriers, such as the additional costs to electronically file and the requirements to mail in signature documents and Form W-2 statements.

In response to the Office of Audit’s report, IRS agreed to explore: the possibility of providing a simpler tax form for millions of taxpayers; raising the dollar tolerance on interest and dividends for submitting a separate schedule; and, establishing a taxpayer profile database. The IRS responded that unless it gets Congressional approval, it could not implement the Office of Audit’s recommendation to use “whole dollars only” for all tax return entries to reduce processing errors and taxpayer burden. The Office of Audit added an "auditor comment" to the final

report recommending IRS seek the legislative approval necessary for the change.

Although IRS is taking several actions next filing season to enhance electronic filing, IRS management did not agree that the Office of Audit’s recommendation to encourage increased Telefile usage would provide a strong incentive for more taxpayers to use the System.

Also, the Commissioner did not agree that the IRS should implement a structured process to quickly identify and react during the filing season to taxpayer and IRS processing problems. The Office of Audit remains concerned that IRS does not have an adequate process to quickly identify and react to processing problems during the filing season.

Information Technology

Modernization of IRS’ computer systems and security of taxpayer information have been major concerns over the past several years. Prior efforts to modernize antiquated tax systems fell short of what is required to prepare IRS for the next century.

RRA98 requires TIGTA to evaluate the adequacy and security of IRS technology on an ongoing basis.

Reviews performed in this area focused on assessing IRS’ progress in implementing its

modernization	initiatives,			including
procurement	practices		to	support
modernization	efforts,	and		evaluating

Information Systems’ success in meeting the business needs of operational functions.

In-process reviews include:

• Integrated Submission and Remittance Processing (ISRP) System – Phase III;

• Readiness for Service Center Mainframe Consolidation;

• Telecommunications Costs and Capacities for Mainframe Consolidation;

• Office of Systems Standards and Evaluation;

• Operational Security Controls;

• Logical Access and Security Controls; and,

• Telecommunications Security of IRS Computer Systems.

Highlighted final audit reports include:

Review of the Integrated Submission and Remittance Processing (ISRP) System Software Development and Pilot Activities (Report No. 090903)

The Integrated Submission and Remittance Processing (ISRP) System will replace IRS’ primary data input systems for processing paper tax returns and remittance processing— the Distributed Input System and the Remittance Processing System. This replacement is critical because IRS' existing computer systems are 13 and 20 years old, respectively, and neither is capable of processing dates beyond the year 1999.

The ISRP systems development project is one of four critical Information Systems’ projects monitored monthly by the Commissioner’s Year 2000 Executive Steering Committee. This review focused on IRS' mission-critical need for Y2K compliant systems to process taxpayers’ paper tax returns.

In January 1998, the Office of Audit issued a report on the Initial System Development Activities of the ISRP System (Report No. 082204). This report identified IRS’ aggressive rollout schedule, the absence of contingency plans, and increased development risks for the Residual Remittance Processing System (RRPS) functionality.

The primary objective of this review was to determine if the decisions and activities regarding the design, development, and installation of the ISRP pilot systems were complete and reliable.

The Office of Audit reported mixed results on the pilot system, and risks remain for successful implementation of a nationwide production system. Specifically, the RRPS demonstrated inconsistent reliability as a production system, and neither ISRP subsystem conclusively demonstrated anticipated productivity gains.

There are additional system design, project scheduling and resource allocation risks, which management must continue to monitor and address to ensure successful nationwide implementation before January 1, 2000.

The Office of Audit findings and recommendations were presented to IRS management during the progress of this online review. Any recommendations that were not immediately addressed by IRS management during the review were subsequently resolved or acknowledged by IRS management during pilot operations.

Management Oversight Should Be Strengthened to Improve Administration of the Treasury Information Processing Support Service (TIPSS) Contract (Report No. 090205)

The Treasury Information Processing Support Services (TIPSS) contract consists of multiple contracts to support IRS’ tax system modernization efforts.

While TIPSS is assisting IRS in acquiring information technology services, there is minimum incentive for the contractor to control costs because TIPSS is a cost-plus-fixed-fee contract. Therefore, it is imperative that the contract be effectively administered to allow the Service to monitor and evaluate the contractor’s progress.

The Office of Audit reported that not all controls were effective to ensure services were received in accordance with contract provisions.

In particular the auditors noted that:

• 84 percent of contractor task orders were issued without defining the contractor’s cost, which may lessen the contractor’s motivation to perform the task order as efficiently as possible;

• contractor performance is not being timely evaluated each quarter by the Contracting Officer Technical Representatives; and,

• contractors were invoicing IRS for significantly fewer hours than were originally contracted for under a term contract.

Under a term contract there is an opportunity to renegotiate the contract when it appears the full number of hours will not be needed.

However, the report noted that for eight completed term-type task orders, the contractors invoiced IRS for fewer hours than contracted. This process allowed approximately $490,000 in fixed fees associated with the original contract costs to remain obligated to the contract. Approximately $3,517,000 had not been deobligated on 28 task orders that had been completed for over one year.

Management agreed with the findings and has initiated corrective action.

Evaluation of the Service’s Efforts to Acquire a new Federally Funded Research and Development Center (FFRDC) Contractor (Report No. 091502)

IRS has undertaken a complete redesign and modernization of its computer-based information processing system. To assist with the modernization efforts, IRS is soliciting a prime systems integration (PRIME) contractor and another Federally Funded Research and Development Center (FFRDC) contractor to manage the overall modernization efforts. By establishing a FFRDC, IRS can obtain technical assistance without any organizational conflicts of interest, either real or apparent.

The PRIME contract and the new FFRDC contract will be used in conjunction with several other contracts to implement the planned modernization. The PRIME contractor will implement the modernization blueprint, and the new FFRDC contractor will validate the approach of the PRIME contractor to ensure it is consistent with the modernization blueprint.

The report noted that although IRS is soliciting contractors to assist with its modernization efforts, additional emphasis is needed to define the interrelated roles of the various contractors to ensure all contractors remain free from potential conflicts of interest. To do so, IRS needs to clearly define the responsibilities of all contractors involved in the modernization efforts.

In addition, procurement personnel need to take action to ensure the FFRDC will be free from organizational conflicts of interest.

Management agreed with the findings and has initiated corrective action.

Taxpayer Protection and Rights

RRA98 will result in enhanced taxpayer protection and rights, as well as organizational changes intended to achieve a more efficient and responsive IRS.

In-process reviews include:

• Impact of Examination Quality on Taxpayer Rights and Burden; and,

• Protecting the Privacy of Tax Account Disclosures.

Highlighted final audit reports include:

Review of Taxpayer Requests for Disclosure of Tax Information (Report No. 090804)

In FY 1997, IRS received over 1.1 million requests for tax return information from the public. Requests were made for photocopies of tax returns or for transcripts of tax return information.

Beginning in October 1994, IRS offered to provide taxpayers with transcripts of return information free of charge as an alternative to providing photocopies of returns at a cost to the taxpayer of $14. However, providing transcripts of return information has made IRS extremely vulnerable to unauthorized disclosure of tax return information.

The Office of Audit recommended that IRS implement the following corrective actions:

• processing controls need to be improved;

• requirements for the release of tax return transcripts need strengthening; and,

• written requests from taxpayers need to be properly maintained.

Management agreed with the findings and has initiated corrective actions.

IRS Employee Outside Employment Requests (Report No. 091804)

The Office of Audit presented control issues that were identified during separate integrity reviews in two regions.

Not all employee requests for permission to engage in employment outside the IRS were properly received, approved, and/or monitored by IRS management as required to prevent conflicts of interest between the IRS employees’ official duties and their outside employment. Also, abuses of outside employment authorizations were not detected.

The Office of Audit identified one IRS employee who was preparing tax returns for compensation and referred 56 other IRS employees to the Office of Investigations as possible browsers of tax records for either their outside employers or their spouses’ employers. Based on these referrals, two employees resigned, and IRS management removed one employee and took other disciplinary action on other employees.

To improve the internal control weaknesses, the Office of Audit recommended that:

• national guidelines be updated and clarified;

• a one-time resubmission of all outside employment requests be made to enable a national cleanup of Labor Relations’ and managers’ records;

• employees be reminded that unauthorized research of the tax records of their outside employers, or the tax records of their spouses’ employers, will subject them to disciplinary action; and,

• the Totally Automated Personnel System and Outside Employment System be implemented in each Labor Relations office that has these systems.

Management agreed with the recommendations and has initiated corrective actions.

Follow Up Review of Parent and Dependent Duplicate Exemption Claims (Report No. 091000)

The Office of Audit issued an audit report in 1996 (Report No. 063502) advising IRS management that action was needed to reverse the continuous and costly problem of duplicate use of Social Security Numbers (SSNs).

IRS management agreed with the auditors’ recommendations to minimize both taxpayer burden and the impact on IRS’ resources, and to segment the condition for control and aggressive management. As a result, IRS management placed the Duplicate Dependents Project in its FY 1996 Research Plan.

Since the date this issue was reported, IRS management efforts have shown some positive results in identifying potential solutions for the duplicate SSN problem. However, the initial results are not complete, and IRS management intends to continue testing.

One test IRS management conducted was correspondence examinations on a nationwide sample of repeat taxpayers (those in both the Tax Year 1995 and 1994 duplicate SSN populations). These examinations resulted in approximately $3.2 million in adjustments to taxpayers’ accounts.

IRS management agreed with the facts presented in this follow-up report.

Review of Special Projects in the New Jersey District Collection Division (Report No. 093307)

In FY 1998, the Office of Audit performed two audits in the New Jersey Collection Division that focused on the use of Collection performance measures, statistics, and the use of seizure authority. The Office of Audit concluded that the focus on collection productivity, from a national perspective, had created an overall climate that potentially sets the stage for miscommunications to employees and managers at all levels of the organization.

The reports also indicated that the New Jersey District’s strong focus on achieving organization productivity goals created an atmosphere that impacted front-line collection operations in a manner that placed taxpayers’ rights at risk. Facts identified in the Liquor License Project contributed to this conclusion.

Based on the results of the two audits, the Office of Audit conducted this review of special projects in the Collection Division. The objective was to determine whether projects were established based on sound evidence and support, controlled to ensure that project objectives were achieved, and monitored to ensure that taxpayers’ rights were protected.

IRS has a legitimate need to assist taxpayers in voluntarily meeting their tax obligations by tailoring efforts to the needs of market groups, as well as developing methods to enforce payment when other alternatives are unsuccessful.

The Office of Audit reported that special projects were used to help the New Jersey District Collection Division achieve statistical goals, while resulting in mistreatment of taxpayers. During the audit, the Acting District Director suspended activity on all Collection Division special projects. All special projects have now been closed and the TIGTA Office of Investigations is conducting inquiries into some of the report findings.

To strengthen the use of special projects in a manner consistent with both sound tax administration and concern for taxpayers, the Office of Audit recommended that the District Director approve all levy and seizure actions on special project cases. The Office of Audit also recommended that Collection management certify that all legal and procedural requirements are met prior to seizure or levy.

IRS management also should ensure that enforcement actions taken on special project cases:

• are consistent with enforcement actions taken on non-project cases;

• have a sound basis for initiation; and,

• are properly reauthorized when there are changes in objectives, scope, or project duration.

Finally, special projects should be adequately documented, and District Counsel should review and approve all locally developed notices used on special projects.

IRS management agreed with the findings and has initiated corrective action.

Semiannual Report to the Congress

Treasury Inspector General for Tax Administration Office of Investigations

INTRODUCTION INVESTIGATIVE ACTIVITIES

The TIGTA Office of Investigations is responsible for the development and execution of the nationwide investigative programs relating to oversight of activities of the Internal Revenue Service (IRS) and its operations.

The Office of Investigations is responsible for protecting the integrity of the IRS and for protecting employees of the IRS and related entities against external attempts to corrupt or threaten them when carrying out their responsibilities. This includes investigating allegations of criminal wrongdoing and serious administrative misconduct by IRS employees.

Other areas of responsibility include:

• administering programs to protect IRS employees from violence;

• operating a national complaints center, including a hotline, to receive and process allegations of fraud, waste or abuse; and

• providing forensic examination of documentary evidence.

The Office of

Investigations focuses

on investigating alle

gations of serious

administrative or crim

inal misconduct which

may involve IRS

employees, such as

bribery, financial

fraud, false statements,

computer violations, disclosure of tax information, and abuse of taxpayer rights. During this reporting period, the Office completed 438 employee misconduct investigations.

The Office of Investigations also investigates individuals who attempt to interfere with or corrupt the administration of the federal income tax system, to include investigations of bribery, assault, threat, theft, and embezzlement. During this six-month reporting period the Office of Investigations completed 859 investigations involving these types of allegations.

TIGTA special agents routinely conduct integrity awareness presentations for IRS employees and various professional organizations. These presentations are designed to heighten awareness of integrity and to provide a deterrent effect against fraud and abuse involving IRS programs and operations. During this six-month period the Office of Investigations conducted 409 presentations for 13,241 individuals.

Taxpayer Rights and Protection

The IRS Restructuring and Reform Act of 1998 (RRA98) created new and important taxpayer rights and protections and also provided for mandatory termination of employment for certain acts or omissions by IRS employees. During this reporting period all IRS employees received mandatory training on the RRA98, Section 1203, conduct provisions.

There were no terminations under Section 1203 during this reporting period. See Appendix V for a summary of Section 1203 standards. During this six-month reporting period, TIGTA did not investigate any allegations of unauthorized requests by the IRS Oversight Board for return information and/or contacts relating to specific taxpayers.

Between July 22, 1998 (the enactment date of RRA98) and March 31, 1999, TIGTA initiated 47 investigations relating to alleged “1203” violations. Of these, 32 are currently ongoing, and 15 have been closed and referred to the IRS for administrative adjudication.

In addition, TIGTA received 238 information items that TIGTA provided to IRS managers for actions as they deemed appropriate. These information items are complaints or allegations where TIGTA determined that an investigation was not warranted.

To receive complaints of wrongdoing by IRS employees, TIGTA also has established a toll-free telephone number and has published this telephone number in IRS Publication 1 (Your Rights as a Taxpayer) which is provided to taxpayers who are likely to have direct contact with IRS employees. TIGTA also established a national complaint center to receive and process allegations of fraud, waste, abuse and other forms of wrongdoing.

Threats and Assaults

The Office of Investigations is committed to providing the highest priority in terms of responsiveness and investigative emphasis to threats and assaults against IRS employees. To further ensure the safety of IRS employees and prevent violent situations from occurring, the Office of Investigations has developed an employee protection program to identify individuals who may pose a threat to the safety of IRS employees. During this six-month period, the Office of Investigations completed 353 threat and assault investigations.

Bribery

Bribery of IRS employees is a major concern for the IRS. As a result of frequent contacts IRS employees have with taxpayers, their positions and responsibilities make them potential targets for bribery attempts. The success of TIGTA’s bribery program is dependent upon quality referrals and the cooperation of IRS employees. To enhance both of these aspects, TIGTA special agents take every opportunity to develop solid relationships with employees. In addition, TIGTA special agents frequently provide bribery awareness presentations to these employees. During this six-month reporting period, the Office of Investigations completed 43 bribery investigations. Examples are located in the Significant Criminal and Administrative Investigations section of this report.

Forensic and Technical Services

Criminal investigations often depend upon the forensic analysis of evidence. Fingerprint and handwriting technology, photography, and chemical analysis are just a few of the laboratory tools that assist TIGTA special agents in identifying subjects.

The TIGTA Forensic Science Laboratory (FSL) supports field investigations through timely processing of documentary, physical, and chemical evidence. As the FSL moves toward accreditation and expanded service to field agents, additional personnel are being hired. During this six-month period, the FSL received 79 case submissions, issued 63 reports of laboratory examination, and evaluated over 2,400 items of physical evidence.

During this reporting period the FSL evaluated the broad array of physical evidence encountered by TIGTA special agents. Some examples of the more significant laboratory examinations conducted during this reporting period include:

• handwriting and latent print examinations of stolen remittance checks, totaling $35,718, resulted in eliminating suspicion of a suspect;

• handwriting examinations on collection closing documents totaling over $222,000, resulted in an IRS revenue officer being identified as the author of eight of the nine signatures, despite his denials to the contrary;

• preserving and significantly improving readability of facsimile copies related to an IRS contract fraud investigation; and,

• handwriting examinations of letters sent to a news publisher describing threats to kill IRS agents and Federal judges. A suspect was identified as the author of these letters.

TIGTA also conducts forensic computer analysis of seized computers for evidentiary purposes. Computer technology has rapidly become a tool for criminal activity, used in frauds against businesses, financial institutions and the IRS.

The Technical Services Section provides expertise to TIGTA special agents in the use of technical and electronic investigative equipment, including on-site assistance during investigations.

SIGNIFICANT CRIMINAL AND ADMINISTRATIVE INVESTIGATIONS

The following are brief synopses of some of the significant investigations conducted by TIGTA special agents during this reporting period.

Assault/Threat Investigations

Three Individuals Involved In Threats To Kill High Level Government Officials, Including IRS Employees

On July 1, 1998, as part of a multi-agency task force, TIGTA special agents participated in the arrest of three individuals who were members of a separatist group and charged them with terrorism and use of weapons of mass destruction. During a jury trial, two subjects were found guilty; the third subject was found not guilty. On February 5, 1999, the guilty subjects were each sentenced to 24 years imprisonment and 5 years-supervised release.

The individuals had sent threatening e-mail to the President, the IRS Commissioner, and other high level Government officials. The e-mail stated that IRS employees and their families were targeted for destruction through the use of non-traceable, personal delivery systems, which would inject bacteria and/or viruses for the purpose of killing and causing great suffering.

One of the subjects, an alleged chemist, purchased the materials needed to make the device and talked about making or obtaining botulism, HIV, anthrax, or rabies to be used as the infectious disease/toxin in the delivery device.

Individual Threatens to Use Explosive Devices on IRS Building

An individual entered a plea of guilty to possession of an explosive device, which was to be used to burn an IRS District office. TIGTA special agents acted as members of a task force in the investigation of the suspect, who was allegedly a member of a militia group. The subject told an informant that they should burn the local IRS District office. Based upon the threat against IRS property and the potential for the loss of life, the task force acted quickly to effect the arrest of the suspect.

Bribery Investigations

Two Co-Conspirators Enter a Plea of Guilty in Bribery Case

After attending a TIGTA Bribery Awareness Presentation, an IRS revenue agent reported a bribe overture by a taxpayer purported to be involved in an illegal drug trafficking ring. During a subsequent meeting, the taxpayer gave the revenue agent $1,000 to eliminate a $70,000 tax liability. Subsequently, six other members of the drug ring also offered bribes to the revenue agent.

On November 5, 1998, TIGTA special agents arrested all seven subjects. Two of the subjects entered a plea of guilty to the charges. Trials are pending for the other five subjects.

Former IRS Employee Found Guilty of Accepting Bribes

On December 21, 1998, a former IRS employee was found guilty of accepting bribes from a taxpayer. The taxpayer was also found guilty and sentenced on August 26, 1998, for his guilty plea to bribery and conspiracy. In a separate civil settlement agreement entered into between the IRS and the taxpayer, it was agreed that more than $5 million in taxes and penalties would be paid to the IRS by the convicted taxpayer.

When confronted by TIGTA special agents, an IRS employee confessed that he received a total of $150,000 and ten automobiles from a taxpayer, whose corporations’ assets totaled over $225 million. The total value of the bribe, including the automobiles, amounted to approximately $175,000. In addition, while the IRS employee was cooperating with TIGTA special agents, the taxpayer offered him another $150,000 to fraudulently dispose of other IRS audits involving several of his related companies.

The revenue agent subsequently cooperated with the TIGTA special agents and admitted to accepting an additional $67,500 in bribes and numerous gifts during his 30-year career with the IRS. He also provided information relative to corruption within the IRS district by identifying other revenue agents and managers who were involved in corrupt dealings during this time frame.

Two Former IRS Employees Sentenced for Preparing and Filing Fraudulent Tax Returns

On January 20, 1999, two former IRS employees were found guilty of bribery and conspiracy. One of the employees was sentenced to 21 months incarceration, three years probation, and ordered to pay $279,313 in restitution. The second employee received one-year incarceration, three years probation and ordered to pay $72,785 in restitution.

The TIGTA investigations determined that the two employees conspired with numerous individuals to prepare and file fraudulent Federal income tax returns and IRS audit reports in a scheme to generate fraudulent tax refunds or to eliminate existing tax liabilities. Also, the employees took steps to prevent the fraudulent tax returns from being audited. Both employees often demanded and received bribes of up to one-half of each fraudulent refund. The potential loss to the government in this scheme was estimated at $500,000.

Taxpayer Sentenced for Bribing an IRS Employee

On October 30, 1998, a taxpayer, who admitted paying an IRS employee in exchange for having fraudulent refunds generated to him by the IRS employee, was sentenced to four months incarceration, four months home detention and three years supervised probation. The taxpayer was also ordered to make restitution to the IRS in the amount of $16,887. This investigation was the result of a joint TIGTA Audit/Investigations Integrity Project, which was referred to the Office of Investigations for investigation.

IRS Employee Pleads Guilty to Bribery and Preparing a False Report

On November 30, 1998, an IRS employee entered a plea of guilty to bribery and preparing a false report. The employee also resigned from his IRS position. TIGTA initiated the investigation after an attorney reported that an IRS employee had offered to reduce his tax liability by $100,000 for a $25,000 fee.

During a meeting between the IRS employee and the attorney, the IRS employee gave the attorney a “revised” audit report that indicated he and his wife owed $161,000 in taxes, interest, and penalties for 1995 and 1996, a reduction of around $105,000.

In a second meeting, the attorney met with the IRS employee and gave him an envelope that contained the “revised” audit report signed by him and his wife, a check for the amount shown on the audit report, and $15,000 cash. TIGTA special agents arrested the IRS employee at the end of the meeting.

Disclosure/Improper Computer Access Investigations

IRS Employee Sentenced for Bribery and Unauthorized Disclosure of Tax Information

On January 25, 1999, the first IRS employee indicted for violating the Taxpayer Browsing Protection Act was convicted of bribery, unauthorized disclosure of tax return information and unauthorized inspection of tax returns. The employee was sentenced to imprisonment and supervised probation.

The investigation resulted from information received by TIGTA from an agent investigating an ongoing fraud scheme involving an individual who was using the identities of others to obtain fraudulent loans and credit cards. An informant revealed that the subject had obtained this information from an IRS employee. The subject subsequently entered into a plea agreement with the U.S. Attorney’s office and offered to cooperate with TIGTA regarding the IRS employee’s involvement in the scheme.

The fraudulent scheme resulted in the processing of 13 loan and credit card applications using the names and Social Security Numbers of nine individuals, and a loss of over $238,000 to five financial institutions.

IRS Employee Sentenced for Disclosing Confidential Information

On January 12, 1999, an IRS employee was sentenced to thirty days incarceration, five years probation, and fined $5,000 for disclosing confidential tax information to a third party. This investigation was initiated after a taxpayer reported to TIGTA that she was contacted by a third party and accused of using the third party’s child as a dependent on her Federal tax returns. The third party allegedly demanded $500 or she would report the taxpayer to the IRS. The third party claimed that the friend who gave her this information worked for the IRS.

After TIGTA special agents confronted the employee with the evidence, the employee admitted accessing the taxpayer’s account and disclosing the information to the third party. The employee also admitted to providing TIGTA special agents with a false affidavit and providing false information during an official investigation.

Theft/Embezzlement Investigations

IRS Employee Pleads Guilty to Theft of IRS Tax Remittances

On October 8, 1998, an IRS employee entered a plea of guilty to the theft of IRS tax remittances. The IRS employee sold four tax remittance checks, totaling $455,483, which the IRS employee had stolen, to an undercover operative. One of the four stolen tax remittance checks was for $442,000.

An IRS service center and an IRS lockbox site were also experiencing a rash of stolen checks. In an effort to identify those service center employees who were stealing checks, a TIGTA undercover investigation was initiated.

As a result of the undercover operation, three IRS employees were identified as having sold twelve stolen taxpayer remittances valued at approximately $685,000 to the undercover operative. Action relative to the other IRS employees is pending.

Two Individuals Sentenced for Embezzlement

As a result of a proactive initiative by TIGTA to detect thefts of taxpayer remittances sent to contract lockbox facilities, two individuals were identified as being involved in a conspiracy to steal approximately $17,000 in such remittances.

As a result of the TIGTA investigations, both individuals entered a plea of guilty to one count of conspiracy relating to these thefts, with one being sentenced to four months in prison and three years probation, and the second, three years probation.

Both individuals were also ordered to make restitution of $6,000.

False Statements Investigations

IRS Employee Pleads Guilty To Making False Statements During IRS Audit

On January 11, 1999, an IRS employee entered a plea of guilty to false statements, relating to statements she made, and altered documents she submitted, during an audit of her U.S. Individual Income Tax Return. The audit resulted in adjustments of $24,565 and additional taxes in the amount of $12,032. Prior to being confronted by TIGTA special agents about her actions, the IRS employee filed a petition in U.S. Tax Court, contesting the proposed IRS assessment. The IRS employee resigned after she became aware of the pending criminal investigation.

IRS Employee Resigns After Making False Statements to Supervisors

On November 1, 1998, an IRS criminal investigator resigned her position after a TIGTA investigation determined that she misused a government owned vehicle and provided false statements to her supervisors. The IRS criminal investigator reported to TIGTA that a taxpayer had threatened her relative to her position as a federal law enforcement officer.

The TIGTA investigation disclosed that the IRS criminal investigator was involved in a domestic dispute with another individual. The IRS criminal investigator, accompanied by her husband, whom she had “deputized as a federal agent,” used her assigned IRS enforcement vehicle to confront the individual. Information was received from a local police officer that the information the IRS criminal investigator had provided to her supervisor relative to the incident was in conflict with the facts and circumstances regarding the alleged threat.

Impersonation Investigations

Individual Sentenced for Impersonating a Treasury Agent

On January 29, 1999, an individual was sentenced to two months incarceration and six months probation for impersonating a Treasury agent. TIGTA received information that an individual, identifying himself as a Treasury employee by using a blue and gold Treasury badge and other government identification, attempted to purchase a law enforcement vehicle purportedly for the Treasury Department.

The individual tried to take possession of the vehicle, advising he needed to get “communications and law enforcement equipment installed” and that the federal government would pay for the automobile later. The individual also attempted to purchase five “police package” vehicles, at the government price, from an out-of-state automobile dealership.

Taxpayer Sentenced to 40 Months Incarceration for Impersonating an IRS Employee

On October 21, 1998, a taxpayer entered a plea of guilty to impersonation and credit card fraud and was sentenced to 40 months incarceration. The individual, who worked at an auto parts store, used his position to steal credit information from customers who charged their purchases with a credit card. The individual would then call the customer at home and pose as an IRS official to get additional biographical and financial information. Through this scheme, the individual was able to charge more than $180,000 to the victims’ accounts.

Other Investigations

Improper Use of Enforcement Statistics by IRS Personnel

Based on referrals from the Office of Audit, TIGTA initiated 167 investigations of alleged improper use of enforcement statistics by personnel in the IRS Collection function. Such activities, if proven, would be in violation of provisions of the Taxpayer Bill of Rights.

Of these investigations, 158 (including 13 special project investigations and 145 investigations on individual IRS employees), were referred to a special IRS adjudicative panel. Four cases are pending prosecutive consideration. The remainder were closed as preliminary inquiries because records reviews disproved the alleged questionable actions. Twelve senior managers and National Office Collection employees received reprimands as a result of the investigations.

The adjudicative panel has to date reported 80 administrative actions on IRS field level personnel which included 8 reprimands and/or admonishments. The remainder were closed without action.

Scheme Involving Misuse of EINs

Through a proactive initiative, TIGTA uncovered a scheme involving individuals who misused IRS issued Employer Identification Numbers (EINs) as Social Security Numbers (SSNs) on applications for credit to create new credit identifiers and defraud creditors.

Unfortunately, knowledge of this scheme has become widespread throughout the country through newspaper advertisements and the use of the Internet. Working with the Federal Trade Commission (FTC), the Better Business Bureau, and the State Attorney General offices, TIGTA developed valuable leads on individuals who continue to promote this illegal scheme.

TIGTA also participated with the FTC in providing presentations on the EIN scheme to other law enforcement agencies and U.S. Attorney’s offices. Additionally, TIGTA participated in national news conferences with the FTC to heighten the public’s awareness and knowledge of the scheme.

Suspects used this scheme to purchase various items, including furniture, automobiles and houses. In one case, an individual used this scheme to obtain a $300,000 home mortgage. This individual was subsequently prosecuted.

The EIN issuance process was created to ensure that taxpayers/businesses had a unique number enabling them to file their tax returns, which enhances future compliance efforts.

Abuse of this process can adversely affect the administration of our nation’s tax system.

Individual Pleads Guilty to Mail Fraud

On January 12, 1999, an individual entered a guilty plea to conspiracy to commit mail fraud. Sentencing is pending. Based on information developed in a previous investigation, TIGTA special agents identified this individual who conspired with others in a mail fraud scheme to defraud restaurant owners.

The mail fraud scheme involved the mailing of hundreds of fraudulent IRS forms to owners of various restaurants requesting money purportedly owed to the IRS. As a result of search warrants, TIGTA determined the individuals involved in this scheme planned to mail over 2,000 of these fraudulent IRS forms to various ethnic restaurant owners throughout the United States.

IRS Employee Receives 30-Day Suspension For Violating IRS Employee Rule Of Conduct, Purchase Of Government Property

On October 21, 1998, an IRS employee was suspended for 30 days for violating IRS Employee Rules of Conduct, section 233, relating to her husband’s “business purchase” of government property at an IRS Collection seizure sale.

In her official IRS capacity, the employee maintained an IRS Collection seizure sale mailing list that contained the address of her husband’s automobile towing company.

The IRS employee’s husband attended the official IRS seizure sale and purchased a Chevrolet Corvette. The IRS employee recorded the IRS sale documents and personally identified all bidders. However, she failed to notify the senior revenue officer that her husband was a registered bidder.

Investigative Results

Investigations Opened and Closed

Financial Accomplishments

Bribe Payments (Seized/Recovered)	$317,524
Embezzlement/Theft Funds (Recovered)	$28,855
Fines Ordered by Court	$5,255,820
Restitution Ordered by Court	$6,782,748

Appendix II Statistical Report Tables

Status of Closed Criminal Investigations October 1, 1998 – March 31, 1999

	Employee Subject		Non-Employee Subject	TOTAL 1
Referred – Accepted for Prosecution		26	101		127
Referred – Declined for Prosecution		145	217		362
No Referral 2		343	408		751
Referred - Pending Prosecution Decision		26	71		97

Criminal Dispositions ³October 1, 1998 – March 31, 1999

	Employee Subject	Non-Employee Subject	TOTAL 1
Guilty	23	149		172
Nolo-Contendere	0	12		12
Pre-Trial Diversion	4	40		44
Not Guilty	1	6		7
Dismissed	2	12		14

The above statistics include both Federal and State dispositions.

Includes investigations in which the allegation was disproved and/or insufficient evidence was obtained.

Due to the time involved in criminal adjudication, there is most often no correlation between the data reflected as “Referred – Accepted for Prosecution” in Criminal Status and Criminal Disposition charts.

Appendix II Statistical Report Tables

The following tables summarize the number of complaints received by TIGTA and various components within the IRS and the status and dispositions of serious allegations against IRS employees. [IRC 7803 (d) (2) (A) (i – iv)]

Complaints/Allegations Received by TIGTA and IRS October 1, 1998 – March 31, 1999

	TIGTA Cases	TIGTA Information Items	TOTAL
Number of Complaints Received by TIGTA	1,464	1,160	2,624
Complaints Against IRS Employees	574	548	1,122
TIGTA Proactive Cases on IRS Employees	113		113
Complaints Against Non-Employees	720	612	1,332
Other Proactive TIGTA Initiatives	57		57

		TOTAL
Number	of Complaints Received by IRS 4
	Customer Feedback System (CFS) 5	1,789
	Problem Resolution Program (PRP) 6	119,567
	EEO Informal Complaints	314
	EEO Formal Complaints	395
	Other Employee Misconduct	340
TOTAL		122,405

The IRS provided the counts of taxpayer complaints from three systems/methods: CFS; Automated Labor and Employee Relations Tracking System (ALERTS); and, an inquiry sent to all District Directors and Regional Chiefs who report to Regional Commissioners to determine whether there are local systems for maintaining information on taxpayer complaints. The TIGTA Office of Investigations cannot validate the counts provided by IRS; thus, there is no assurance that duplicate counts do not exist within the IRS systems/methods or between the case counts reported by the IRS and the Office of Investigations. While the IRS currently does not have a centralized system for gathering RRA98 required data (and is aware of that), the TIGTA Office of Audit reported that the IRS is in the process of making significant changes to its "complaint processing system" (including centralizing/integrating the process and validating information to be reported to TIGTA). Through its mandatory audit process, the Office of Audit will continue to monitor the development of the IRS' taxpayer complaint reports system.

The CFS captures data on allegations of inappropriate behavior in the treatment of taxpayers, which may include rudeness, overzealousness, excessive aggressiveness, discriminatory treatment and the like.

The PRP database does not distinguish between complaints, inquiries, problems or issues. For instance, some taxpayers may only wish to have a problem resolved or an inquiry responded to, rather than having a “complaint” about an IRS process or system.

Appendix II Statistical Report Tables

Administrative Status and Dispositions on Closed TIGTA Investigations ⁷October 1, 1998 – March 31, 1999

Removed, Terminated, or Other	39
Suspended/Reduction in Grade	42
Oral or Written Reprimand/Admonishment	50
Closed – No Action Taken	118
Clearance Letter Issued	27
TOTAL DISPOSITIONS	276

Employee Resigned Prior to Adjudication	30

Cases which were referred and/or cases on which action was taken by the IRS during this reporting period. Additionally, TIGTA referred 355 cases during this six-month period that remain pending administrative adjudication by the IRS.