…the 105th Congress created a statutory Inspector General, specifically for oversight of the Internal Revenue Service

…the 105^th Congress created a statutory Inspector General, specifically for oversight of the Internal Revenue Service

“The Treasury Inspector General for Tax Administration

shall exercise all duties and responsibilities of an Inspector

General of an establishment with respect to the Department

of the Treasury and the Secretary of the Treasury on all

matters relating to the Internal Revenue Service. The

Treasury Inspector General for Tax Administration shall

have sole authority under this Act to conduct an audit or

investigation of the Internal Revenue Service Oversight

Board and the Chief Counsel for the Internal Revenue

Service.”

…Section 1103 of Public Law 105-206, The Internal Revenue Service Restructuring and Reform Act of 1998, enacted July 22, 1998…

WASHINGTON, D.C. 20220

INSPECTOR GENERAL
for TAX
ADMINISTRATION

October 29, 1999

The Honorable Lawrence H. Summers
Secretary of the Treasury
Washington, D.C. 20220

Dear Mr. Secretary:

I am forwarding to you the Treasury Inspector General for Tax Administration’s (TIGTA) Semiannual Report to the Congress for the six-month period ending September 30, 1999. I am pleased to report that we have successfully completed our transition period and our new processes have stabilized. We are well positioned to devote our full attention and focus to the complex issues that face the Internal Revenue Service (IRS).

During this period, our organization delivered audit reports and investigative services that promote economy, efficiency and the highest level of integrity within the IRS organization. We issued 47 final audit reports that included $169 million in financial accomplishments. We also closed over 1,600 investigations of alleged criminal wrongdoing and administrative misconduct. Court ordered fines and restitution totaled almost $13 million.

In the Office of Audit, significant resources were devoted to fulfilling the requirements imposed by the IRS Restructuring and Reform Act of 1998 (RRA 98). We issued 16 audit reports to meet our RRA 98 statutory requirements, including reports on IRS’ compliance with new seizure, lien and levy procedures, prohibitions on the use of enforcement statistics and the adequacy and security of information technology. Audits were also completed on other taxpayer protection and rights issues, such as treatment of taxpayers during office audits and selecting returns for examination, and on IRS’ Year 2000 compliance efforts.

TIGTA’s investigative activities also focused on RRA 98 requirements including developing procedures to process Section 1203 misconduct allegations, implementing a new system to track complaints and referrals, and providing guidance to IRS on establishing a compatible IRS complaint tracking system. Investigative efforts also included significant work with the Unauthorized Access to Taxpayer Accounts (UNAX) Detection Project which identified 478 leads of potential illegal access of taxpayer accounts.

I look forward to working with you in addressing the many challenges of overseeing the nation’s tax administration system.

Sincerely,

David C. Williams Inspector General Enclosure

Table of Contents

Office of the Inspector General for Tax Administration ............................................. 1

Authorities..................................................................................................................... 1

Major Issues Facing the IRS......................................................................................... 2

Office of Audit ............................................................................................................... 7

Office of Investigations .............................................................................................. 23

Appendix I

Statistical Reports for the Office of Audit................................................................... 37
Questioned Costs, Funds Put to Better Use, Additional Quantifiable Impact on Tax
Administration

Appendix II

Statistical Reports for the Office of Investigations ..................................................... 41
Investigative Results, Complaints/Allegations Received by TIGTA and IRS,
Administrative Status and Dispositions on Closed TIGTA Investigations

Appendix III

Statistical Reports—Other........................................................................................ 45
Audit Reports With Unimplemented Corrective Actions, Access to Information,
Audit Reports Issued in Prior Reporting Period With No Management Response,
Revised Management Decisions, Disputed Audit Recommendations,
Review of Legislation and Regulations

Appendix IV

TIGTA Audit Report Listing ...................................................................................... 53

Appendix V

Section 1203 Standards........................................................................................... 57

Appendix VI

Statutory TIGTA Reporting Requirements................................................................ 59

Appendix VII

Acronyms................................................................................................................. 65

Appendix VIII

Organization Chart ................................................................................................... 67

Appendix VIII

Treasury Inspector General for Tax Administration September 30, 1999

RRA 98

TIGTA is required to report on IRS’ compliance with various provisions of RRA 98. This semiannual report contains the results of the Office of Audit’s reviews to determine whether the IRS is complying with these provisions and protecting taxpayer rights while it carries out tax administration activities. RRA 98 also requires TIGTA to assess the adequacy and security of IRS’ information technology systems.

The Office of Audit focused significant audit resources in this area during FY 1999. Sixteen audit reports related to the RRA 98 provisions were issued during the reporting period. This includes eight reports on IRS’ information technology systems. Two additional reports will be issued in the next reporting period and one of the provisions will not be reviewed until its effective date in January 2000. In addition, nine audit reports were issued regarding other taxpayer protection and rights issues. Appendix VI provides an explanation of the specific RRA 98 provisions and a list of the reviews conducted in these areas.

Treasury Inspector General for Tax Administration September 30, 1999

Statutory Requirements

Highlighted final audit reports for the RRA 98 statutory provisions include:

The Internal Revenue Service Should Continue Its Efforts to Achieve Full Compliance with Restrictions on the Use of Enforcement Statistics (Report No. 199910073)

In September 1997, the Senate Finance Committee ascertained that in certain IRS offices, employee performance was evaluated in a manner resulting in a work environment driven by statistical accomplishments. This placed both taxpayer rights and the employee evaluation system at risk. As a result, Section 1204, Basis for Evaluation of Internal Revenue Service Employees, was included in RRA 98. This Section prohibits IRS management from using records of tax enforcement results to evaluate employees, or to impose or suggest production quotas or goals for such employees. Instead, one of the standards for evaluating employee performance must be the fair and equitable treatment of taxpayers.

The IRS adopted certification procedures to identify violations of Section 1204. The certification is performed quarterly by first-line managers, and then cross-functional management teams perform an annual independent review. These reviews must include an assessment of the employee performance files and employee evaluations. They may also review documents such as award narratives, minutes of meetings, case reviews, or local memoranda.

The auditors determined the IRS is currently not in full compliance with Section 1204 and some employees still believe IRS managers use records of tax enforcement results inappropriately. The auditors noted the following:

• In 28 IRS offices reviewed, 96 Section 1204 violations were identified.

• Based on questionnaires, 124 (27 percent) of 456 managers and employees perceived records of tax enforcement results had been considered when their last performance evaluations were prepared and communicated to them, or were used as performance expectations or goals.

• During its quarterly certifications and independent reviews, IRS management identified approximately 525 violations.

The Office of Audit did not present recommendations for corrective action beyond IRS management’s proposed regulations for a balanced system of business measures. This system appears to be an appropriate first step in resolving these problems.

In FY 2000, the Office of Audit will assess the effectiveness of the progress and implementation of the balanced system of business measures as it relates to the use of enforcement statistics. In addition, the auditors will evaluate the results of IRS management’s review of the violations identified in this report.

In response to the audit report, IRS management generally agreed with the conditions identified, and stated that they will take whatever steps are necessary to eliminate violations.

The Internal Revenue Service Should Improve Its Federal Tax Lien Procedures (Report No. 199910074)

A federal tax lien (FTL) protects the government’s interest by attaching a claim to the taxpayer’s assets for the amount of unpaid tax liabilities. RRA 98 and I.R.C. Section 6320 require the IRS to notify taxpayers that a FTL has been filed. Taxpayers may request a hearing with the IRS if they believe the FTL is not appropriate. These new requirements became effective for liens filed after January 18, 1999.

Treasury Inspector General for Tax Administration September 30, 1999

During the initial implementation period, IRS management was not consistently implementing the FTL provisions of RRA 98. Taxpayers and their representatives were not always informed of the taxpayers’ right to a hearing once a FTL was filed.

The auditors reviewed 473 cases, of which 157 cases (33 percent) involved 176 potential violations of legislative or procedural requirements (some cases had multiple violations). The auditors’ sample was not statistically valid; therefore, the results may not be representative of cases nationwide. The following are examples of the apparent noncompliance with the provisions of RRA 98 or IRS’ procedures contained in the Internal Revenue Manual:

• Taxpayer representatives (e.g., attorney, accountant, etc.) were not sent a lien notice.

• Lien notices were not mailed to taxpayers within five business days of the FTL filing.

• Taxpayers were not given a full 30 calendar days to request a hearing.

• Undelivered lien notices were not re-sent when another address was available.

• Sufficient documentation was not retained to prove that lien notices were sent to taxpayers or were sent timely.

• Responsible spouses or individual partners in a partnership were not sent a copy of the lien notice.

The Office of Audit recommended that the IRS:

• Change systems to automate the mailing and re-issuance of undeliverable lien notices to all responsible taxpayers.

• Revise procedures to ensure that: (1) the government’s interest is protected,

(2) returned mail is researched completely and processed efficiently, (3) adequate documentation is maintained, and

(4) management information systems

measure compliance with the new FTL

notification requirements.

IRS management agreed with the findings and recommendations and will take corrective action.

The Internal Revenue Service Needs to Improve Compliance with Legal and Internal Guidelines When Taking Taxpayers’ Property for Unpaid Taxes (Report No. 199910072)

IRS procedures and provisions in I.R.C. Sections 6331 through 6344 (1986) are specific as to how to seize taxpayer property. If seizure procedures are followed correctly, taxpayers’ rights and the government’s interest will be protected. RRA 98 places particular emphasis on taxpayer rights and it contains several new provisions for conducting seizures (e.g., approval levels for seizing business assets, exemption of personal residences from seizures if the tax liability is $5,000 or less, etc.).

The Office of Audit evaluated whether the IRS conducted seizures according to legal and internal guidelines. The auditors reviewed all 124 seizures (involving 92 taxpayers) conducted by the IRS during a six-month period beginning July 22, 1998, the date RRA 98 became law.

The IRS did not follow all legal and internal guidelines when conducting seizures in 33 (36 percent) of the 92 taxpayer cases reviewed and 32 of those cases potentially impacted the rights of the taxpayer. The auditors concluded further action is needed to ensure that all guidelines are consistently followed.

Legal seizure provisions were not followed in 19 (21 percent) of the 92 cases. Examples included:

• The IRS did not thoroughly investigate the status of the property before seizing property with little or no value, or did not consider alternatives to the seizure.

Treasury Inspector General for Tax Administration September 30, 1999

• Business property was seized without obtaining the required approvals.

• A notice advising the taxpayer of enforcement action was not provided on all tax periods before the IRS seized the taxpayer’s property.

IRS procedures were not followed in 21 (23 percent) of the 92 cases. Examples included:

• Case histories were not documented to indicate Publication 1, Your Rights As A Taxpayer, was provided to the taxpayer.

• Taxpayers were not personally warned before the seizure action occurred.

• Expenses of the seizures were not added to the taxpayers’ tax liabilities when the property was released.

The Office of Audit recommended that IRS management should:

• Emphasize the need to use the appropriate checklists for all seizures conducted.

• Request an opinion from the IRS Office of Chief Counsel on those seizures that did not follow legal guidelines to determine if the IRS should make restitution to those taxpayers.

IRS management agreed to complete the checklists and to review the applicable seizure cases to determine if any monies should be returned to the taxpayer as a result of an inappropriate seizure.

The Internal Revenue Service Has Not Fully Implemented Procedures to Notify Taxpayers Before Taking Their Funds for Payment of Tax (Report No. 199910071)

Effective in January 1999, the I.R.C. Section 6330 (1986) requires the IRS to advise taxpayers of their right to have their case heard by the Appeals Office, and potentially a court, prior to the IRS taking money from taxpayers’ bank accounts, employers or other parties to pay delinquent taxes. The IRS must wait at least 30 calendar days from the date the taxpayer is notified of the intent to levy and of the taxpayer’s appeal rights before issuing a levy.

The auditors reviewed 284 taxpayer accounts, involving 291 levies requested between mid-January and mid-April 1999, to determine if the IRS was in compliance with the new levy provisions, as well as its own internal levy procedures. In the nine offices tested, the auditors reported that the new procedures have not been effectively implemented. The IRS did not consistently notify taxpayers of the intent to levy and of their appeal rights. As a result, the rights of 204 taxpayers were impacted which could result in the IRS having to make restitution to some of the taxpayers.

Legal provisions were not followed in 92 (32 percent) of the 284 taxpayer accounts reviewed. Internal procedures were not followed in 88 (31 percent) of the taxpayer accounts reviewed. Examples of the provisions and procedures not followed included:

• Taxpayers were not notified of the IRS’ intent to levy and of their appeal rights before levies were issued.

• Taxpayers were notified of the IRS’ intent to levy and of their appeal rights after the levies were issued.

• Taxpayers were notified of the IRS’ intent to levy and of their appeal rights, but levies were issued by the IRS during the 30-day waiting period.

• Taxpayers did not have appropriate information added to their computer account history to show the taxpayer had been notified of the IRS’ plans to levy.

• Taxpayers did not have appropriate information added to their computer account history to show the initially requested levy had been destroyed.

Treasury Inspector General for Tax Administration September 30, 1999

The Office of Audit recommended that IRS management:

• Develop methods to ensure taxpayers are notified of the IRS’ intent to levy and of their right to a hearing before a levy is issued.

• Develop safeguards, such as a quality review system, to prevent notices from being mailed to taxpayers unless issuing a levy is the next planned case action.

• Identify all levies that were issued without properly notifying the taxpayer. Determine, with advice from the IRS Office of Chief Counsel, what steps should be taken regarding any money received as a result of improper levies.

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

Other Taxpayer Protection and Rights Issues

Other reviews on taxpayer protection and rights issues involved: selecting tax returns for audit; protecting tax return data in IRS systems; conducting employment tax examinations; and, making adjustments to taxpayers' accounts.

Highlighted final audit reports include:

The Internal Revenue Service Needs to Improve Treatment of Taxpayers During Office Audits (Report No. 093602)

Historically, the Discriminant Function (DIF) methodology has been the primary workload identification system used by the IRS to select individual tax returns for office audit examinations.

In the last several years, the IRS has migrated from using the DIF and has begun identifying innovative ways of doing business, such as using the Midwest Automated Compliance System (MACS). The MACS provides IRS district office employees the ability to use locally derived, and possibly subjective, criteria to identify and select returns for audit.

The auditors identified weaknesses in the MACS control environment and in actions taken by examiners and managers during the initiation and closing of non-DIF audits. The audit showed that IRS employees accessed over 3,600 accounts over a two-month period and the accesses were not supported by a valid business purpose. Given the extent of control breakdowns identified, the auditors could not give assurance that IRS employees selected returns for examination fairly, or that taxpayers’ personal and financial data was protected from unauthorized and improper disclosure.

The auditors also noted inappropriate actions taken by examiners and managers during the initiation and closing of audits that may have led to improper taxpayer treatment. For example, the auditors could not always find evidence that the IRS had properly informed taxpayers of their rights at the initiation of the audits. In other cases, IRS procedures were not always followed. In two districts, the IRS used discretionary enforcement powers in a way that appeared to create an unnecessary hardship and burden on taxpayers. The two districts mailed a six-page questionnaire requesting more than 80 items of information to 3,500 low-income taxpayers who claimed the Earned Income Tax Credit.

The Office of Audit recommended that the IRS:

• Improve separation of duties by locating MACS in offices other than where the audits will be worked. IRS employees that are responsible for identifying potential MACS returns for audit should not be responsible for working the audits.

• Strengthen specific controls and procedures for initiating and closing audits.

Treasury Inspector General for Tax Administration September 30, 1999

With the exception of centralizing MACS sites, the IRS management agreed to take corrective actions that are consistent with all Office of Audit recommendations. IRS management believes that the management of MACS should be centralized rather than centralizing the MACS sites. In addition, Examination personnel will review alternative approaches to separating case selection and case assignment practices.

The New Jersey District Needs to Execute Levy Actions Consistent With Sound Tax Administration and Concern for Taxpayer Treatment (Report No. 199930069)

The IRS has a legitimate need to use levy action as an administrative means to enforce the collection of taxes. However, when levying taxpayers, the IRS must ensure that appropriate legal and procedural requirements are followed and taxpayers are treated properly.

The Office of Audit conducted a review of levy actions initiated by the New Jersey Collection Division. The review was a follow-up review of two FY 1998 audits which showed significant problems in the district’s use of performance measures and statistics, and in the use of seizure authority.

The Office of Audit reported that the New Jersey District violated IRS policy and procedural requirements in its use of levy authority. These procedures are designed to assess a taxpayer’s ability to pay, and ensure both that the levy is the proper course of action and that taxpayers are notified prior to levy action.

The auditors noted that procedures were not followed in 92 percent of the 264 levies reviewed. Also, taxpayers were not afforded their right to legal notification prior to the levy issuance for five percent of the levies.

The auditors also reviewed the levy case files and noted that 35 levies were issued to taxpayers who were deceased, experiencing medical or financial hardships, not liable for the tax or under audit in the Examination Division.

The district’s practice of levying, as the first action on a taxpayer case without attempting to contact taxpayers, conducting initial analyses, or researching case histories was prevalent in most cases reviewed. This practice was most prevalent in the Department of Labor (DOL) Project, where levies were generally issued as the first action in an effort to close taxpayer cases quickly and help meet statistical goals. The auditors concluded that about 56,000 taxpayers were potentially at risk for improper levy actions.

Although the district’s “Best Practice” documentation indicated that the basis for the DOL initiative was to identify “uncooperative” and delinquent taxpayers for enforcement action, there was virtually no attempt to assess taxpayers’ willingness to cooperate and/or their ability to pay prior to the levy actions.

The Office of Audit recommended that:

• Emphasis be placed on policy and procedural requirements regarding the use of levy authority.

• The district review levy actions taken during the past nine months to identify instances that meet criteria requiring remedies to taxpayers.

IRS management agreed with the auditors' findings and recommendations and implemented corrective actions to ensure at least one attempt to contact the taxpayer is made prior to the levy action.

The Examination Returns Control and Integrated Data Retrieval Systems Can Be Improved to Protect Taxpayer Rights During the Audit Process (Report No. 094206)

The Office of Audit initiated a follow-up review of its October 1996 report (Report No. 070106), which identified control

Treasury Inspector General for Tax Administration September 30, 1999

weaknesses in the Examination Returns Control System (ERCS) and the Integrated Data Retrieval System (IDRS). The Examination Division uses these systems to select cases for audit, and to control and dispose of each case. These control weaknesses could adversely impact the public’s confidence in IRS’ ability to protect the privacy and security of taxpayers’ personal and financial information.

While IRS management had made improvements to enhance ERCS and IDRS controls since the prior audit, the auditors noted that the IRS needed to take additional actions to enhance the effectiveness of Examination controls and to provide further protection of taxpayer rights and tax return information.

The Office of Audit recommended that IRS management:

• Improve ERCS audit trail functionality to include a process for reviewing user activities and providing data to users of the audit trail.

• Improve ERCS controls to eliminate acting managers from having the ability to approve any changes to their inventory.

• Provide more effective oversight over examiners’ capabilities to order tax returns and establish, update, and close Examination records.

• Report the results of Examination management’s analyses of case closures due to errors or unlocatable returns.

IRS management agreed with the facts and recommendations and has agreed to take corrective action.

Internal Revenue Service Procedures Were Not Consistently Followed When North Florida District Revenue Officers Attempted to Improve Tax Compliance in the Construction Trades Industry (Report No. 190303)

The IRS Southeast Regional Commissioner requested that the Office of Audit evaluate complaints made by a former employee regarding the treatment of taxpayers during a Regional Compliance Program (RCP). Revenue officers were alleged to have used unauthorized techniques to work RCP leads on employment tax issues in the construction trades industry project.

In responding to members of the Congress about these complaints, IRS Collection management stated the revenue officers in the RCP group had acted in accordance with IRS policies and procedures. However, the opinions and conclusions of the auditors differed from those offered by Collection management.

The auditors reviewed case files and concluded that taxpayers were treated inconsistently because of how RCP employment tax leads were worked. This occurred because management did not ensure revenue officers working the RCP cases received adequate training, followed appropriate procedures when expanding the leads into examinations and followed Internal Revenue Manual procedures when conducting audits.

IRS management agreed that insufficient training was provided to the revenue officers assigned to the project and that different procedures were used. IRS management also agreed to conduct an independent review of the cases the auditors questioned to determine if Examination audits were conducted instead of the less intrusive compliance checks. IRS management will ask its Chief Counsel to determine any remedial actions that must take place for affected taxpayers.

Treasury Inspector General for Tax Administration September 30, 1999

Information Technology

The Office of Audit evaluates the adequacy and security of IRS technology on an ongoing basis. Reviews focused on assessing the IRS’ progress in implementing its modernization initiatives and the security and adequacy of selected IRS tax processing systems.

Highlighted final audit reports include:

The Service Center Mainframe Consolidation Project Has Made Significant Progress, But Project Execution and Administration Risks Remain (Report No. 199920068)

The Service Center Mainframe Consolidation (SCMC) Project’s goal of consolidating the mainframe processing at ten service centers into two computing centers is a very complex task and requires extensive coordination and effort by several contractors and IRS functions.

While the Project is making significant progress toward its goal, the IRS needs to ensure that future service center consolidations, technical contract administration, and budget accounting are improved. The auditors noted that the IRS had taken actions to define delivery orders that resulted in cost savings of $19 million. However, several procurements, estimated at $7 million, were made without following proper procurement procedures. In addition, the complete cost of the consolidation was not being effectively budgeted, captured and reported by the SCMC Project Office. The auditors estimated that there were approximately $1.07 million in unreported staffing costs in FY 1998 for the three sites tested.

The Office of Audit recommended that IRS management ensure:

• All critical operational and technical aspects of consolidation at computing centers and service centers are standardized, thoroughly tested, appropriately documented and included in employee training.

• Computing centers are adequately staffed.

• Contract requirements were defined by June 1999 and proper procurement procedures were followed to obtain goods and services.

• All consolidation costs were accurately budgeted and reported.

IRS management provided an adequate, detailed response to the first summarized recommendation which was included in a memorandum issued during the audit. However, IRS management did not provide an official response to the draft report that included the remaining recommendations.

The General Controls Environment Over the Internal Revenue Service’s Unisys 2200 Systems Can Be Improved (Report No. 199920063)

The Unisys 2200 mainframe computers are an integral part of IRS’ tax processing system. Virtually all transactions affecting a taxpayer’s account are processed through these systems. They house databases for on-line retrieval of taxpayer information; therefore, it is critical for the systems to have an effective general controls environment.

The Office of Audit reviewed the general controls over IRS’ Unisys 2200 Operating System Environment and concluded that the general controls are adequate to protect sensitive data. However, there are several areas in which controls could be adhered to more uniformly, and where procedures should be established to provide improved system control, security, and standardization.

The auditors recommended several ways to improve controls over taxpayer data files and the common system and database files. In addition, the auditors recommended:

• Modification of the control settings for files that may potentially complicate the mainframe consolidation process.

Treasury Inspector General for Tax Administration September 30, 1999

• Development of a process that will improve the accountability of individuals using the system security user identification.

• Re-issuance of the policy for accounting for deviations of user access profiles from IRS standards.

• Development of C2-level security documentation, security policies, and documentation of risk factors for the Unisys consolidated mainframe environment.

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

Review of the Electronic Fraud Detection System (Report No. 093009)

The number of electronically filed tax returns claiming fraudulent refunds has risen dramatically since electronic filing began in 1986. As a result, the Electronic Fraud Detection System (EFDS) was developed to automate the screening process and identify and review returns with the highest potential for fraud. EFDS improves the detection of fraud by increasing data sources and enhancing scheme development for referral to the districts for criminal prosecution.

The auditors concluded that while EFDS is a significant improvement over the manual procedures previously used, there are still changes that can be made to further improve and manage EFDS. The auditors also found discrepancies in the accounting records that amounted to $22.3 million in understated total costs. The Office of Audit recommended IRS management should:

• Strengthen existing security controls.

• Develop all EFDS applications and ensure the applications are properly functioning.

• Implement controls to maintain accurate and complete cost data for EFDS.

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

Limitations of the Automated Non-Masterfile and the Impact on the Internal Revenue Service (Report No. 093103)

The IRS uses the Automated Non-Masterfile (ANMF) computer system to process tax returns and transactions that cannot be processed on its primary Masterfile computer system. Each of the ten IRS service centers has a separate ANMF database that is not connected with any other ANMF system, or other IRS computer system.

As of September 30, 1997, the ANMF contained 101,216 balance due accounts totaling over $14 billion. The auditors concluded that, overall, the transactions were accurately input to the ANMF and to the accounting system. However, inherent processing problems resulted in the IRS not mailing annual reminder notices of balance due accounts to taxpayers in violation of the Taxpayer Bill of Rights 2 (TBOR2). The accounts also contained incorrect interest and penalty computations. The processing inefficiencies and errors resulted in undue taxpayer burden, increased operating costs, and lost revenue.

The auditors also reported:

• The ANMF contained many old accounts. Over 6,700 accounts were over 10 years old and 220 were over 20 years old. The 6,700 balance due accounts exceeded $750 million in tax, penalty and interest.

• The IRS did not establish the required “freeze” code (used to prevent the issuance of refunds) on the related Masterfile accounts on 21,700 (34 percent) of the 64,000 individual accounts on the ANMF.

• The IRS did not issue a Statement for Recipients of Interest Income,

Treasury Inspector General for Tax Administration September 30, 1999

15 Form 1099-INT, as required by law, to

report interest paid to taxpayers in

27 percent of the 142 cases reviewed.

During the first nine months of FY 1997,

the IRS issued approximately 1,500

refunds in which a Form 1099-INT

should have been issued.

The Office of Audit recommended that the IRS:

• Expedite changes to allow the processing of ANMF accounts on the Masterfile.

• Consolidate the existing ANMFs.

IRS management agreed with the findings and recommendations and prepared requests for computer programs. These include programs to: correct programming errors in penalty and interest computations; identify address changes; and, freeze the refund on Masterfile accounts where there is a related liability on the ANMF. In addition, the IRS plans to conduct a massive cleanup of old accounts on the ANMF to determine if the accounts are valid. The IRS also will generate annual reminder notices in Calendar Year 1999.

With these changes, the IRS will be in compliance with the law by issuing TBOR2 notices and Forms 1099-INT. In addition, receiving these notices will reduce taxpayer burden and could increase taxpayer compliance in reporting interest income.

Century Date Change

The Office of Audit has conducted several reviews to assess IRS’ efforts in ensuring all systems and programs are Y2K compliant. Reviews focused on project management and oversight, testing efforts and exchanging data with outside parties.

Highlighted final audit reports include:

Increased Validation and Oversight of Year 2000 Minicomputer Conversion Efforts Are Needed to Strengthen Testing and to Avoid Further Delays (Report No. 199920054)

The Office of Audit assessed IRS’ efforts to prepare its minicomputer systems for the century date change (CDC) and concluded that the IRS has improved its management of the minicomputer conversion effort. Increased involvement by the CDC Project Office has resulted in assignment of monitoring responsibility, identifying sites where systems are located, issuance of guidance for converting systems, and development of conversion schedules.

However, initial monitoring of the conversion progress was based on self-reporting of critical conversion data, with minimal on-line validation. As a result, the Office of Audit identified weaknesses in systems testing and unmet target dates.

The Office of Audit recommended that:

• The IRS properly classify the risk level for minicomputer systems that did not meet the January 1999 target conversion date.

• The CDC Project Office representatives should independently validate:

(1) conversion dates for systems that did not meet the target, (2) testing performed on each mission critical minicomputer system, and (3) contingency procedures for all systems that were not compliant by March 31, 1999.

The audit resulted in increased oversight of the minicomputer conversion effort. In addition, the audit identified weaknesses that management is addressing to ensure that minicomputer systems that process electronically filed tax returns, answer incoming taxpayer telephone calls, and

Treasury Inspector General for Tax Administration September 30, 1999

process employee payroll will run in the next century.

IRS management has agreed to all recommendations and will initiate corrective actions.

Review of the Internal Revenue Service’s Year 2000 End-to-End System Integration Test Efforts – Overall Planning and Execution of Test 1 (Report No. 094002)

IRS created an off-line test environment to replicate its tax processing environment. The purpose of this test environment is to serve as a final phase for assessing Y2K compliance of IRS’ tax processing software, hardware and communications capabilities. The Information Systems’ Product Assurance function controls this test along with significant levels of contractor support.

Despite initial delays in planning and conducting the End-to-End System Integration Test activities, IRS’ Information Systems Division made significant progress in preparing an overall approach to conducting the test. The auditors noted that the End-to-End System Integration Test Team met their limited objectives for executing Test 1. However, the Office of Audit identified the need for the IRS to prepare a systematic risk analysis of its systems and provide improved oversight over key support systems that will not be included in the nationwide End-to-End test. They also identified the need for the IRS to better coordinate its planning efforts for the End-to-End System Integration Test.

To improve the End-to-End testing, auditors recommended that IRS management:

• Perform a detailed analysis of the IRS systems inventory to assess the business value and potential risk exposure of all its major systems and establish a priority ranking.

• Identify all key operations support systems not selected for the nationally coordinated End-to-End System Integration Test.

• Establish centralized oversight and control over the testing of key support systems within the operations functions.

• Mandate that key operations systems owners use the Product Assurance test bed to perform their Y2K compliance testing.

IRS management agreed to two of the recommendations and has taken corrective action. However, IRS management did not agree to perform a detailed analysis of the business value and potential risk exposure of all major systems because all IRS systems will be end-to-end tested. They also did not agree that the use of the Product Assurance

Treasury Inspector General for Tax Administration September 30, 1999

test bed should be mandated.

Opportunities Remain for the Internal Revenue Service to Further Minimize the Risks Associated With Implementing Year 2000 Compliance for External Trading Partners (Report No. 095202)

In 1996, IRS established the CDC Project Office with an objective to ensure that all systems are Y2K compliant by January 1, 2000. This requires close coordination with many External Trading Partners (ETPs). ETPs are organizations that exchange data with IRS, such as: state, local, and foreign governments, banks, and other federal agencies.

This review was a follow-up audit to a report issued in November 1998 (Report No. 091303). During the current audit, the auditors noted that the CDC Project Office has made considerable progress in identifying ETPs and communicating the IRS’ Y2K standards to them. The Office of Audit recommended continued emphasis in the following areas:

• Implementation of an oversight process to ensure accurate ETP information. One audit test showed that 22 percent of exchange files sampled contained inaccurate dates.

• Delayed project milestones should be completed prior to the final phase of the End-to-End system testing. One audit test showed that approximately 12 percent of the files remain untested.

Reliable management information is needed to assure that IRS’ tax systems will accurately and timely process returns and collect revenue after December 31, 1999. Taxpayer burden will increase if the IRS’ tax systems are not timely prepared to process returns and collect revenue.

IRS management concurred with the facts in the report and has agreed to take corrective action.

Disclosure and Improper Computer Access Investigations

The following investigations resulted from national integrity projects, including the UNAX Detection Project, and investigative strategies involving abuse of IRS computer systems, unauthorized accesses and disclosure of confidential taxpayer records by IRS employees.

IRS Employee Indicted for Unauthorized Access of a Federal Computer in Furtherance of a Criminal Act

An IRS service center employee was indicted on August 3, 1999, for unauthorized access of

Treasury Inspector General for Tax Administration September 30, 1999

a federal computer in furtherance of a criminal act. Based on that charge, the employee’s related criminal acts, solicitation for murder, intimidation of a witness, and armed robbery, were also charged federally.

TIGTA’s investigation began after local police arrested two individuals for an attempted bank robbery. Following the arrest, one of the individuals admitted attempting to rob the bank at the direction of an unidentified IRS employee. The individual also admitted that the IRS employee asked him to kill a witness against the employee in a criminal matter, but that the individual refused. TIGTA was contacted by the local police and advised of the unidentified IRS employee’s involvement.

After TIGTA determined the identity of the IRS employee, it was further determined that the employee had been charged with the gunpoint robbery of a taxpayer making a bank deposit of business receipts. The employee then used IRS computer systems to improperly access the taxpayer’s account. The employee used the information to further his attempts to intimidate and silence her. Due to the severity surrounding the improper use of IRS computer systems, the United States Attorney’s Office assumed jurisdiction of all of the employee’s criminal acts. The employee was terminated from IRS employment.

IRS Employee Pled Guilty to False Statement Charges

On April 7, 1999, an IRS employee was charged in a three-count indictment for false statements and was subsequently arrested by TIGTA special agents. An investigation was initiated after TIGTA identified an improper computer access by an IRS employee to the account of a relative. The investigation revealed that the IRS employee made 170 unauthorized computer accesses to the tax accounts of 20 individuals identified as friends, relatives and neighbors of the employee. During the investigation, TIGTA developed information that the IRS employee also submitted false statements to maintain a residence that was subsidized by the federal government. During a joint investigation with the Department of Housing and Urban Development Office of Inspector General, it was determined the IRS employee defrauded the federal government of approximately $15,000 in rent subsidies during 1994, 1995 and 1996. The employee resigned from the IRS during the investigation. The employee entered a guilty plea to the charges on August 3, 1999.

IRS Employee Sentenced for Disclosing Confidential Information

On June 3, 1999, an IRS employee was sentenced to two years probation and ordered to pay a $1,000 fine and a $100 special assessment after pleading guilty to disclosing confidential information. TIGTA’s investigation revealed that an IRS employee was recommending an accountant to taxpayers under collection activity by the employee. TIGTA identified 12 taxpayers who were clients of the accountant and whose tax records were accessed on multiple occasions in an unauthorized manner by the employee. With the accountant’s cooperation, it was determined that for the last several years the accountant prepared federal and state tax returns for friends and relatives of the employee at no cost. The accountant did this in exchange for tax information and records on his clients. The accountant confirmed that the employee had recommended several clients to the accountant’s practice. One taxpayer told TIGTA special agents that he retained the accountant based on the employee’s recommendation thinking that it would be beneficial in resolving his tax matters. The IRS employee retired during the investigation.

Treasury Inspector General for Tax Administration September 30, 1999

IRS Employee Pled Guilty to Disclosing Confidential Information

On June 22, 1999, an IRS employee pled guilty to one count of disclosing confidential information and was subsequently sentenced to one year probation. This investigation was initiated after the United States Attorney’s Office reported that an IRS employee may have disclosed confidential information regarding an IRS criminal investigation and federal grand jury investigation to the subject of the investigation and to a third party. Both persons were alleged to be personal friends of the subject.

The investigation determined the employee contacted the third party and disclosed that their mutual friend was the subject of a criminal investigation and that they discussed how best to inform their friend. The employee and the third party then met with the subject of the investigation and had a “hypothetical” discussion during which the subject was informed he was in fact the subject of a criminal investigation. It was also determined that the employee contacted the third party again and informed him of scheduled investigative activity regarding the subject. The IRS employee retired while under investigation.

IRS Employee Indicted for Unauthorized Access to IRS Computer System

In June 1999, an IRS employee was indicted by a federal grand jury on eight counts of unauthorized accesses to tax return information. The investigation confirmed that the employee had no authorized reason to access the accounts. On August 11, 1999, the employee pled guilty to unauthorized access.

An IRS Employee Entered Pretrial Agreement for Unauthorized Access to a Federal Computer

On May 13, 1999, an IRS employee entered into a 12-month pretrial agreement that required him to resign from his position with the IRS and not seek re-employment. The employee was indicted by a federal grand jury on two counts of exceeding his authorized access to a federal interest computer. TIGTA’s investigation disclosed that the employee made unauthorized computer accesses of the Treasury Enforcement Communications System (TECS). TECS is a computer system designed to identify individuals involved or suspected of involvement in violation of the laws of the United States. The employee utilized TECS on multiple occasions to research confidential information regarding a taxpayer and his business.

Bribery Investigations

As a result of the frequent contacts IRS employees have with taxpayers, their positions and responsibilities make them potential targets for bribery attempts. Their positions also provide opportunities to extort and solicit bribes from taxpayers and to conspire with individuals who would threaten the integrity of the tax administration process.

Bribery is often a focus of TIGTA’s integrity awareness presentations. IRS employees are educated on how to recognize bribe overtures and their responsibilities in reporting bribe attempts. TIGTA also educates employees about their responsibility to maintain a high standard of integrity. TIGTA presentations have a deterrent effect and could dissuade employees from taking inappropriate advantage of their positions.

During this reporting period, the Office of Investigations completed 49 bribery investigations.

IRS Employee Assisted Car Broker in $20,000 Bribe Pay-Off to Cooperating Revenue Agent

On June 9, 1999, an IRS employee and a car broker were indicted by a federal grand jury

Treasury Inspector General for Tax Administration September 30, 1999

for bribery and conspiracy. The investigation began when TIGTA agents received information alleging that an IRS employee, behind in rent payments, had threatened her landlady with an IRS audit if further attempts to collect the rent and/or eviction procedures were undertaken. It was alleged that the employee had accessed the IRS computer system for tax account information of the landlady and property owner. The investigation confirmed the employee's threats of IRS retaliation against the landlady and improper access to the tax accounts.

Subsequently, the employee initiated contacts with a revenue agent and suggested that if the revenue agent could possibly help the car broker, the revenue agent could receive a car. The revenue agent contacted TIGTA and cooperated in the investigation.

The IRS employee introduced the revenue agent to the car broker who offered $20,000 to secure his IRS audits and prepare fraudulent reports, and another $10,000 to initiate an audit on a former business partner. The IRS employee insisted to the revenue agent that she deserved half of every bribe payment as a finder’s fee. The car broker paid $20,000 to the revenue agent in return for fraudulent audit reports. TIGTA special agents arrested the IRS employee and the car broker on June 10, 1999.

Four Individuals Pled Guilty to Bribery

On July 26, 1999, the last of four individuals entered a guilty plea to federal bribery charges. The four individuals paid a cooperating IRS employee bribes totaling $68,080 for negating approximately $675,000 in delinquent tax liabilities. One individual offered to pay the IRS employee a bribe for negating his delinquent tax liabilities. The bribe was subsequently paid to the cooperating employee. This individual then introduced three additional individuals to the cooperating IRS employee. These individuals also offered and paid the cooperating IRS employee bribes for negating their delinquent tax liabilities. Three of the four individuals were sentenced to a total of 31 months imprisonment, 8 years supervised release and $22,000 in fines. The fourth individual is awaiting sentencing.

Five Individuals Pled Guilty to Bribery Charges

In July and August 1999, four individuals and an enrolled agent were sentenced after pleading guilty to bribery charges. The investigation began after an IRS employee reported a possible bribery overture. The enrolled agent and his client paid a total of $15,000 to the IRS employee for a fictitious tax examination report. The enrolled agent told the IRS employee that he had other clients that would need help if they were audited. A review of tax returns prepared by the enrolled agent was conducted to identify other questionable returns. Audits of two returns resulted in bribes being paid to a second cooperating IRS employee. To eliminate any taxes owed, one individual and his wife paid $1,300 and the other individual paid $2,250 in bribes to the IRS employee.

The enrolled agent received six months jail time, two years supervised release and a $2,000 fine. The initial client received eight months jail time, two years supervised release and a $2,000 fine. The individual and his wife each received two years probation, including five months home detention. The last individual received two years probation and a $1,000 fine.

Theft, Embezzlement and Fraud Investigations

TIGTA investigates incidents of theft, embezzlement, and fraud committed by both internal and external sources. TIGTA also investigates incidents of impersonation where individuals attempt to defraud taxpayers.

Treasury Inspector General for Tax Administration September 30, 1999

Major Tobacco Company Pled Guilty to Illegal Smuggling, Forfeited $10 Million and Fined $5 Million

On July 9, 1999, a major tobacco company forfeited $10 million to federal and state governments, over half of which was deposited into the United States Treasury Asset Forfeiture Fund, after the company pled guilty to charges of illegal smuggling. The company fraudulently transported and sold cigarettes within the United States that had been intended for exporting. The company was fined $5 million. There have been more than 20 individual felony convictions of participants in the operation. TIGTA participated in the multi-agency task force investigating the smuggling operation because of allegations regarding an IRS employee. It was alleged that an employee was misusing IRS computers in connection with the operation; however, the employee was cleared of these allegations.

Two IRS Employees Pled Guilty to Theft of IRS Tax Remittances

Two IRS service center employees entered guilty pleas after being indicted on federal charges of theft of public money and theft of mail. A proactive initiative to detect thefts of taxpayer remittances identified the two employees that inappropriately handled controlled tax remittance items. On April 1, 1999, TIGTA special agents confronted the employees immediately after they failed to properly process the tax payments during separate incidents. Both employees confessed to the thefts and turned over the stolen money. IRS immediately terminated the employees.

Nine Individuals Indicted in Scheme That Included Thefts of Taxpayer Remittances

On May 18, 1999, nine individuals were indicted for conspiracy in a scheme that included the thefts of taxpayer remittances, bank fraud and credit card fraud. The investigation was initiated from information developed from investigations of thefts of tax remittances from a lockbox facility. Lockbox facilities receive and process tax payments and credit the payments to a depository clearing account for subsequent transfer to the IRS. The investigation revealed that the individuals purchased the stolen checks from a variety of sources and deposited the checks in bank accounts that were established in fictitious or assumed identities. The individuals depleted the funds before the taxpayers or IRS knew that the checks were stolen. The investigation revealed that the individuals were responsible for over $1.2 million of fraudulent activities. Two of the individuals were in the process of preparing false identity documents to aid them in the fraudulent use of credit cards that were in their possession when they were arrested. Six of the individuals pled guilty to the charges and three individuals are fugitives.

IRS Employee Charged With Wire Fraud, Money Laundering and Filing False Tax Returns

On July 22, 1999, a federal grand jury indicted an IRS employee on 48 counts for violations of wire fraud, money laundering and filing false tax returns. The employee’s wife, a night manager at a local grocery store, defrauded her employers of over $400,000 through various means, including stolen and converted money orders and wire transfers. The United States Secret Service notified TIGTA after receiving a report concerning the wife's theft. An investigation of the wife by the Secret Service and IRS’ Criminal Investigation Division resulted in the wife being charged with eight counts of stealing money orders and filing false tax returns. A subsequent investigation by TIGTA and IRS’ Criminal Investigation Division of the IRS employee determined that he used the embezzled money to fund numerous gambling trips and pay gambling debts. The income

Treasury Inspector General for Tax Administration September 30, 1999

derived from this scheme was not reported on the employee and his wife’s jointly filed federal income tax returns for tax years 1992-1996.

IRS Employee Found Guilty of Theft of $31,150 in Tax Remittance Checks and Destruction of a Tax Return

On April 20, 1999, a federal grand jury indicted an IRS employee on three counts of theft of public money and destruction of a tax return. The investigation began when a taxpayer reported that her $8,000 tax remittance check, made payable to the IRS, was altered to be payable to an individual. Review of IRS records identified the individual as an IRS employee. Bank records confirmed that the $8,000 check was deposited into the employee’s bank account. Bank employees later notified TIGTA agents that the employee had deposited a second check for $23,150 into her account. A review of that check revealed that it was also altered to the name of the employee. The employee was arrested and admitted that she threw away the tax return that was attached to the $23,150 check. On July 28, 1999, the employee was found guilty of all three counts. The employee was terminated from IRS.

Former IRS Employee Charged in Refund Scheme

A former IRS employee, while employed by the IRS, agreed and colluded with an individual to release or cause the release of a total of 219 Earned Income Tax Credit refunds without the proper justification. The former IRS employee accepted between $150 and $200 from a co-conspirator in exchange for releasing each refund. The refund would typically be claimed in the name of migrant farm workers who failed to present the necessary documentation to claim the refund, and in some cases, failed to file a tax return altogether. The former employee accepted a total of $14,000 in payments for illegally releasing Earned Income Tax Credit refunds.

The former employee entered into a plea agreement that charged felony violations of conspiracy by an employee of the United States Government.

Lockbox Manager Arrested for Embezzlement of Tax Payments

As the result of a taxpayer complaint that a tax payment had not been credited to the taxpayer’s federal income tax liability, a manager at a lockbox facility was arrested on embezzlement charges. When interviewed, the lockbox manager admitted to the theft and negotiation of five tax payments. An inventory of the contents of the employee’s desk revealed 426 personal checks and money orders from taxpayers, totaling in excess of $1.3 million. A federal magistrate ordered that the employee be held without bond based on the discovery that he was an illegal alien using a social security number not officially assigned to him by the Social Security Administration. The INS subsequently placed a detainer on the employee.

Fugitive Sentenced in Multi-Defendant Telemarketing Scheme

On May 28, 1999, an individual, after remaining a fugitive for approximately three years, was sentenced to 30 months imprisonment and three years supervised probation, and ordered to pay $7,573 in restitution to victims for operating a telemarketing scheme. On March 27, 1996, the telemarketer had failed to appear for his sentencing hearing after his conviction on fraud charges, and a fugitive warrant was issued for the individual for violating the conditions of pretrial release. This individual and six conspirators defrauded taxpayers of $141,556 by contacting victims and telling them that they won an automobile, a $5,000 shopping spree or a $2,500 cashier’s check. The victims were told that the company was authorized to collect federal taxes on behalf of the IRS and that the taxes needed to be paid before their “prize” could be awarded.

Treasury Inspector General for Tax Administration September 30, 1999

Individual Arrested for Impersonating an IRS Employee and Mail Fraud

On June 21, 1999, an individual was arrested for a scheme to defraud a taxpayer, his elderly cousin. The individual arranged a telephone call to the taxpayer from a fictitious IRS employee who claimed that the taxpayer owed $11,000 to the IRS. The individual, who prepared the taxpayer’s returns, told the taxpayer to withdraw $10,000 from the bank in cash and he would settle the tax deficiency. The elderly taxpayer provided the individual with $10,000 for the IRS and $500 for his handling of the matter. During conversations recorded by TIGTA special agents, the individual admitted to another relative of the taxpayer that he extorted the funds. The individual was charged with two counts of mail fraud and one count of impersonating a federal officer.

Inmate Indicted for Submitting False Request for Information

On April 13, 1999, a federal grand jury returned an indictment charging an inmate with forgery and false statements. The investigation began after an inmate falsely submitted a tax authorization form to the IRS requesting employer information on a third party. The investigation determined that the inmate had forged the form in an attempt to obtain an address on a taxpayer who the inmate had a history of stalking and harassing. The local IRS disclosure office suspected the form to be forged and forwarded it to TIGTA before any records were released to the inmate. The inmate was identified by his return address that was a corrections facility.

Threat, Assault, and Harassment Investigations

While serving the taxpayers, IRS employees face a difficult and challenging mission. While incidents and threats of violence and harassment are extremely rare when compared to the millions of taxpayer contacts made yearly by IRS employees, sometimes individuals do resort to violent acts. 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. This Office also investigates incidents of harassment by individuals who attempt to undermine IRS employees as they carry out their duties. During this six-month period, the Office of Investigations completed 271 threat and assault investigations.

Individual Threatens to Bomb World Trade Center Building and Other IRS Offices

On May 21, 1999, after receiving notice that his recent appeal in an United States Tax Court had been rejected, a New York resident made threatening telephone calls to IRS District Counsel attorneys. In two separate phone calls, he threatened to bomb the World Trade Center building and several other IRS locations in the New York area. He also threatened to kill several IRS employees and their families and claimed that he had taken a contract out on everyone in the World Trade Center building. An Assistant United States Attorney immediately authorized TIGTA special agents to arrest the individual.

Individual Charged With Threatening to Blow Up IRS Building

On May 26, 1999, an individual who had been charged with attempting to interfere with the administration of internal revenue laws using corrupt or forcible interference pled guilty and subsequently received a three-year suspended sentence. The individual telephoned an IRS service center regarding a notice she received and stated she did not owe taxes to the IRS. She then said she wanted to “bomb the IRS building without anyone in the building.” The individual had been the subject of a 1991 investigation where she threatened to kill several IRS employees. That investigation

Treasury Inspector General for Tax Administration September 30, 1999

led to her arrest and conviction on the same charge.

Individual Arrested After Making Telephonic Threat to IRS Employee

On May 7, 1999, an IRS employee reported that an individual made a telephonic threat during a call concerning his tax liability. The individual stated he knew about ammonium nitrate and that it was used in the bombing of the Oklahoma City building. Based on the severity of his statements, an Assistant United States Attorney agreed to the issuance of an arrest warrant. TIGTA special agents affected the arrest after successfully negotiating with the individual who was armed with knives. After relinquishing his weapons, the individual admitted to making the threatening call to the IRS.

Individual Arrested for Making Threatening Statements

On July 12, 1999, an individual, in a conversation with her accountant, made threatening comments regarding IRS employees. The woman stated to the accountant that she was going down to the IRS office and blow it up. She further indicated she would shoot anybody she saw at the IRS and that she did not care if she went to jail. The accountant reported the comments to TIGTA. When interviewed by TIGTA special agents, she stated she could say anything she wanted. Shortly after this interview, the woman called the accountant’s office and stated she would blow up his office first if he had reported her. The United States Attorney authorized the arrest of the woman.

Individual Pleads Guilty to Threatening Communications

On June 2, 1999, an individual pled guilty to making threatening communications and received two years probation after making hundreds of telephone calls to a local radio station. The individual harassed and threatened employees of the station and an IRS employee who had recently appeared on the station to provide taxpayer education. The subject was arrested and confessed to placing the threatening calls because he was angry with the IRS employee for being on the show and was also angry with the radio station employees for putting the IRS employee on the air.

Individual Injures IRS Employee During an Assault in IRS Office

On June 30, 1999, an individual entered a guilty plea and was sentenced to one year probation, was fined $250, and ordered to pay restitution of $2,058 for medical expenses for assaulting and causing injury to an IRS employee who was on official duty. TIGTA special agents responded to a call for help from an IRS employee who had been assaulted by an unknown man upset over the inconvenient hours for the IRS Customer Service Lobby. The employee had to be taken to the emergency room for treatment. The individual was identified and arrested by TIGTA special agents.

Individual Pleads Guilty to Threatening to Blow Up a Federal Building

On May 28, 1999, an individual entered a guilty plea on charges of attempting to interfere with the administration of internal revenue laws by threats of force. A TIGTA investigation was initiated after an IRS employee reported that the individual called the IRS and threatened to blow up a federal building where IRS employees were located. Earlier that day, the individual had to be removed from the federal building by security guards after causing a disturbance in the IRS office. TIGTA’s investigation disclosed that the individual made numerous telephone calls to various IRS call sites located throughout the country, making additional threatening remarks and referencing the Oklahoma City bombing. On August 13, 1999, the individual

Treasury Inspector General for Tax Administration September 30, 1999

was sentenced to 2 years probation and 50 hours of community service.

Individual Found Guilty of Interfering with the Administration of Internal Revenue Laws

On July 8, 1999, after a three-day trial, an individual was found guilty of attempting to interfere with the administration of internal revenue laws and bankruptcy fraud. This individual filed fraudulent court documents to illegally encumber the personal property of two IRS employees. This action caused difficulties for one of the employees who was attempting to re-finance his personal residence prior to his retirement. Also, in an attempt to avoid payment of taxes, the subject filed bankruptcy, appointed himself as trustee and transferred $40,000 to overseas accounts, beyond the reach of the government.

Treasury Inspector General for Tax Administration September 30, 1999

Audit Reports With Questioned Costs

Three audit reports with questioned costs were issued during this semiannual reporting period.

The term “questioned cost” means a cost that is questioned because of: (1) an alleged violation of a provision of a law, regulation, contract, or other requirement governing the expenditure of funds; (2) a finding that, at the time of the audit, such cost is not supported by adequate documentation (“unsupported cost”); or (3) a finding that expenditure of funds for the intended purpose is unnecessary or unreasonable. The term “disallowed cost” means a questioned cost that management, in a management decision, has sustained or agreed should not be charged to the government.

Audit Reports With Questioned Costs (4/1/99 – 9/30/99) Report Category:	Number of Reports1	Questioned Costs2 (In Thousands)	Unsupported Costs (In Thousands)
1. For which no management decision had
been made by the beginning of the	0	0	0
reporting period.
2. Which were issued during the reporting period.	3	$325	0
3. Subtotals (Item 1 plus Item 2)	3	$325	0
4. For which a management decision was made during the reporting period.	0	0	0
-Dollar value of disallowed costs	0	0	0
-Dollar value of costs not disallowed	0	0	0
5. For which no management decision had
been made by the end of the reporting	3	$325	0
period. (Item 3 minus Item 4)
6. For which no management decision was
made within six months of report	0	0	0
issuance.

See Appendix IV for identification of audit reports involved.

“Questioned Costs” include “Unsupported Costs.”

Treasury Inspector General for Tax Administration September 30, 1999

Investigative Results April 1, 1999 – September 30, 1999

Investigations Opened and Closed

Financial Accomplishments

Bribe Payments (Seized/Recovered)	$3,000
Embezzlement/Theft Funds (Recovered)	$48,030
Fines Ordered by the Courts	$129,629
Restitution Ordered by the Courts	$12,822,199

Treasury Inspector General for Tax Administration September 30, 1999

Status of Closed Criminal Investigations

	Employee Subject		Non-Employee Subject	TOTAL 1
Referred – Accepted for Prosecution		43	104	147
Referred – Declined for Prosecution		214	323	537
No Referral 2		491	437	928
Referred -Pending Prosecution Decision		13	90	103

Criminal Dispositions³

	Employee Subject	Non-Employee Subject	TOTAL 1
Guilty	24	89		113
Nolo-Contendere	1	1		2
Pretrial Diversion	5	6		11
Not Guilty	0	1		1
Dismissed	1	1		2

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 the Status of Closed Criminal Investigations chart and the data in the

Criminal Dispositions chart.

Treasury Inspector General for Tax Administration September 30, 1999

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. [I.R.C. 7803(d)(2)(A)(i – iv)]

Complaints/Allegations Received by TIGTA

	TIGTA Cases	TIGTA Information Items	TOTAL
Number of Complaints Received by TIGTA	2,071	3,021	5,092
Complaints Against IRS Employees	833	2,227	3,060
TIGTA Proactive Cases on IRS Employees	210		210
Complaints Against Non-Employees	959	794	1,753
Other Proactive TIGTA Initiatives	69		69

Complaints/Allegations Received by IRS

	TOTAL
Number of Complaints Received by IRS1
Customer Feedback System (CFS)2		2,110
Problem Resolution Program (PRP)3	15	2,073
EEO Informal Complaints4		1,158
EEO Formal Complaints4		437
Other Employee Misconduct5		235

Number of complaints are not totaled because of significant differences in the nature of issues raised in each complaint system and the potential for duplication. ² CFS data reflects complaints made by taxpayers regarding IRS employee conduct, as required by the Taxpayer Bill of Rights 2.

PRP data reflects efforts to solve individual taxpayer problems, using criteria established by the National Taxpayer Advocate. Since the management information system does not specifically identify complaints, it is not possible to separate complaints from other taxpayer communications involving inquiries and problems.

EEO data on formal and informal complaints includes duplication. The EEO process includes attempts at informal resolution before the case goes into the formal complaint process. Cases in which the informal complaint process was initiated and completed during the reporting period could be counted as received in both categories during the reporting period.

Other employee misconduct includes misconduct allegations addressed through management inquiries, as reflected in two information systems, the Executive Control Management System and the Automated Labor and Employee Relations Tracking System. The IRS believes that an unknown but possibly significant percentage of the allegations are reported in both systems.

Treasury Inspector General for Tax Administration September 30, 1999

Administrative Status and Dispositions on Closed TIGTA Investigations¹

Removed, Terminated, or Other	108
Suspended/Reduction in Grade	67
Oral or Written Reprimand/Admonishment	84
Closed – No Action Taken	196
Clearance Letter Issued	45
TOTAL DISPOSITIONS	500

Employee Resigned Prior to Adjudication	85

Cases which were referred and/or cases on which action was taken by the IRS during this reporting period. Additionally, TIGTA referred 451 cases during this 6-month period that remain pending administrative adjudication by the IRS.

Treasury Inspector General for Tax Administration September 30, 1999

Audit Reports With Unimplemented Corrective Actions

The Inspector General Act of 1978 requires identification of significant recommendations described in previous semiannual reports on which corrective actions have not been completed. The following list is based on information from the Office of Management Control’s automated tracking system maintained by Treasury management officials.

(F = Finding Number, R = Recommendation Number, P = Plan Number)

Report Number	Issued	Report Title and Recommendation Summary
041403	January 1994	Review of the Nonresident Alien Information Documents
		F-1, R-2, P-1. Management should ensure that obvious noncompliance with
		applicable tax laws and regulations be identified during processing.
061610	January 1996	IRS' Efforts in Monitoring Trust Fund Recovery Penalty Assessments Need Improvement F-2, R-3, P-1. IRS should automate the processing of adjustments resulting
		from payments or credits on related Trust Fund Recovery accounts, as part of
		the Service’s modernization efforts.
		F-4, R-1, P-1. The Chief Financial Officer and Assistant Commissioner (Collection) need to define accounts receivable as it relates to Trust Fund
		Recovery (TFR) assessments. Management should re-evaluate the definition
		of accounts receivable related to TFR assessments and make the necessary
		changes to ensure TFR assessments are accurately represented.
060402	January 1996	Review of the Early Intervention Contact Processing
		F-2, R-1, P-2. Early Intervention should consider alternate methods to obtain
		the most current taxpayer locator information.
064102	May 1996	Review of the Preparer Program
		F-1, R-1, P-1. Associate the preparer Taxpayer Identification Number with
		each individual return in the audit stream.
064008	June 1996	The Financial Accounting and Reporting of Collection's Seized Assets Could
		Be Improved
		F-2, R-1, P-4. Management should incorporate a systemic interface between
		the Automated Work Control System seizure module and the general ledger as
		part of Revenue Accounting Control System replacement.
065002	July 1996	Review of the Validity of Assessments
		F-1, R-1, P-1. The Service should review a sample of “No Change” and abated
		Combined Annual Wage Reporting and Social Security Administration penalty
		cases after the processing season to evaluate causes of unproductive cases and
		identify where additional program improvements can be made.
		F-1, R-3, P-1. The Service should continue pursuing the capability to access
		Social Security Administration (SSA) data via computer to enable quick,
		economical processing of Combined Annual Wage Reporting and SSA penalty
		cases.

Treasury Inspector General for Tax Administration September 30, 1999

Audit Reports With Unimplemented Corrective Actions

Report Number	Issued	Report Title and Recommendation Summary
065503	August 1996	Review of The Employment Tax Nonfiler Program
		F-2, R-1, P-1. When Form W-3 information is received from the Social Security Administration match the employer identification number and name
		control to those on the Business Masterfile.
		F-2, R-2, P-1. When the Service Center Unpostable function cannot perfect an
		Employer Identification Number (EIN)/name from the Form W-3, initiate
		Collection contact with the employer to secure any delinquent returns rather
		than terminating processing of those Form W-3 with unperfected EINs.
		F-2, R-3, P-1. Establish a Form W-2/Business Masterfile (BMF) check of
		Employer Identification Numbers (EINs) that appear on Forms W-2 attached to
		electronically filed Forms 1040. Establish employment tax filing requirements
		for those EINs that match an existing BMF account if the account does not
		have a filing requirement and does not contain a subsidiary indicator.
066401	September 1996	Follow-up Review of Information Security Over Small Scale Computer Systems
		F-1, R-1, P-24. Require Regional Commissioners to conduct another self-
		assessment and certification of systems, to be followed by a validation.
071404	February 1997	Productivity of the Underreporter Program
		F-1, R-1, P-1. A Gross Assessment Method should be used to calculate the Underreporter Program productivity.
		F-2, R-1, P-1. A Gross Assessment Method should be used to calculate yield
		to cost ratios, determine productivity rankings, and select inventory for the
		Underreporter Program.
		F-3, R-1, P-1. Actual site costs should be used when calculating productivity
		to increase the accuracy of productivity rankings and obtain a more precise
		measurement of efficiency.
071304	March 1997	Quality of Information Document Processing
		F-1, R-1, P-3, P-4. Review IRS reports (Martinsburg Computing Center
		Report 405-02-12) to determine whether large variances exist between
		processing years in the volume and dollars of information documents.

Treasury Inspector General for Tax Administration September 30, 1999

Audit Reports With Unimplemented Corrective Actions

Report Number	Issued	Report Title and Recommendation Summary
072208	April 1997	Review of Service Efforts to Ensure Compliance of Taxpayers Receiving
		Foreign Sourced Income
		F-1, R-1, P-1, P-2. The Assistant Commissioner (International) should work in
		coordination with the Executive Officer for Customer Service to measure the
		overall impact of Foreign Information Returns Program (FIRP) documents and
		the role FIRP should play in relation to overall compliance efforts.
		F-2, R-1, P-1. The Service should commit to the development of a system to
		process foreign information records received magnetically in the standard
		Organization for Economic Cooperation and Development format.
		F-2, R-4, P-1, P-2, P-3. The Assistant Commissioner (International) should
		coordinate efforts with the Executive Officer for Customer Service and the
		National Director, Submission Processing, to ensure that late filed and prior
		year Foreign Information Returns Program documents are processed and
		available for inclusion in the Information Returns Program initiative, when it
		becomes operational.
072303	April 1997	A Review of Cyberfile
		F-1, R-2, P-1. To reduce the chance of a recurrence of the types of problems
		that impacted Cyberfile’s development, management should ensure that IRS
		guidelines are strengthened to specify project management procedures
		regarding tracking funds paid to vendors for services and vendor
		purchases/leases of IRS-funded equipment.
073804	July 1997	Review of the Inventory Delivery System Development
		F-2, R-4, P-1. The Service should review and update the sampling plan to
		ensure it includes criteria for the evaluation of each sampled account within a
		sub-group to ensure consistency.
		F-2, R-6, P-1. The results of the Self-Monitoring Program should be included
		as one of the factors for determining whether and when Inventory Delivery
		System features should be scheduled for national implementation.
075404	September 1997	Review of the Office of Disclosure F-3, R-2, P-2. The Office of Disclosure should ensure that all requests for tax
		checks, both internally and externally, are properly tracked and controlled.
		F-3, R-3, P-2. The Office of Disclosure should take appropriate measures to
		ensure sensitive data maintained on the inventory control system is properly
		protected. The system should meet C-2 requirements and provide an adequate
		audit trail to monitor users’ activity on the database.
080303	November 1997	Implementation of the Taxpayer Bill of Rights 2
		F-1, R-1, P-1. Alternative methods of obtaining feedback from taxpayers about
		how they were treated should be considered, rather than relying solely on
		employees and managers for input.
		F-1, R-2, P-1, P-2. Form 1040 should be redesigned to capture more specific
		information that can be used for analysis to identify trends for corrective
		action.

Treasury Inspector General for Tax Administration September 30, 1999

Audit Reports With Unimplemented Corrective Actions

Report Number	Issued	Report Title and Recommendation Summary
081004	December 1997	Taxpayer Walk-in Program for the 1997 Filing Season
		F-2, R-1, P-2. Develop a customer-based strategy and a related program with
		applicable goals and measures to evaluate performance of the Walk-In
		Program.
082204	January 1998	Review of the Initial System Development Activities on the Integrated
		Submission and Remittance Processing System
		F-3, R-1, P-1. Ensure that the pilot’s evaluation plan contains sufficient
		measures and data capture to develop quantitative support for projected
		productivity increases if labor savings are claimed as a cost benefit.
		F-3, R-5, P-1. Assess the risks associated with not having the systems
		developer under contract during the Year 2000.
083008	April 1998	Review of the Service’s Electronic Federal Tax Payment System
		Implementation and Enhancements
		F-4, R-2, P-1. IRS management should provide a process for electronic
		submission of authorization data to eliminate manual transcription.
		F-4, R-5, P-1. For the long-term, management should use the authority given
		by the Taxpayer Bill of Rights 2 for alternative forms of authorizations to
		re-engineer the enrollment and authorization processes in the Electronic
		Federal Tax Payment System and substantially reduce, and perhaps eliminate,
		paper enrollments and authorizations.

Treasury Inspector General for Tax Administration September 30, 1999

Audit Reports With Unimplemented Corrective Actions

Report Number	Issued	Report Title and Recommendation Summary
083322	May 1998	Math Error Processing for Revenue Protection Issues F-1, R-1, P-2. Implement the remaining provisions of new laws designed to
		combat filing fraud by budgeting the resources needed to work invalid primary
		and secondary Taxpayer Identification Number cases.
		F-2, R-2, P-1. Change math error notices and Integrated Data Retrieval System
		correspondence dealing with invalid Taxpayer Identification Numbers for
		dependent and Earned Income Tax Credit qualifying children to alert taxpayers
		that the problems may be the result of incomplete or inaccurate name
		information.
		F-3, R-1, P-2. Send notices to taxpayers who used invalid Taxpayer
		Identification Numbers on their previous returns for themselves and their
		spouses.
		F-5, R-1, P-1. Develop programming to automate the research of prior year
		return data by Error Correction when dependent and Earned Income Credit
		Taxpayer Identification Numbers are invalid or missing.
		F-6, R-1, P-3. Develop a job aid or guide for Code & Edit function.
		F-6, R-2, P-1. Develop an error code for returns without dependents but
		claiming Child and Dependent Care Credit.
		F-6, R-3, P-1. Develop an error code for missing provider Taxpayer
		Identification Numbers.
		F-9, R-1, P-2. Provide more training for Error Correction function.
		F-9, R-2, P-1. Develop an error code to identify returns claiming
		Head-of-Household filing status when no valid dependent Taxpayer
		Identification Number is present.
		F-10, R-1, P-1. Include an informal checklist in Revenue Protection Strategy
		math error notices listing the information taxpayers should provide when
		writing or calling the IRS.
083605	June 1998	Review of the Service’s Year 2000 Conversion and Testing for Phase III
		F-4, R-1, P-3. Information Systems management needs to develop a process
		to trace components from the Application Program Registry to executable
		elements on production libraries.
084407	July 1998	Use of Seizure Authority in the Collection Field Function F-1, R-2, P-3, P-6. Communicate new and enhanced procedures during
		upcoming Continuing Professional Education sessions and in appropriate
		training class modules for revenue officers, group managers, and the Special
		Procedures Function.
		F-7, R-1, P-2. Develop a comprehensive certification/review checksheet that
		can be used by appropriate levels of management to attest that all legal and
		procedural requirements have been met.

Treasury Inspector General for Tax Administration September 30, 1999

Audit Reports With Unimplemented Corrective Actions

Report Number	Issued	Report Title and Recommendation Summary
084803	July 1998	Review of the Integration Support Contract
		F-1, R-1, P-2. Procurement and Information Systems should ensure that
		in-depth analysis of contractor labor hours and costs is performed prior to
		payment of the invoices.
		F-3, R-1, P-1. Information Systems should monitor the Government Furnished
		Equipment/Government Furnished Information by establishing a database to
		capture all the equipment and information provided to the vendor under the life
		of the contract.
085812	September 1998	Readiness for Service Center Mainframe Consolidation F-2, R-1, P-1. Unless assurances can be made that experienced Service
		personnel can be relocated when and where needed, Service management
		should develop a contingency plan to provide the needed staffing for critical
		positions at all affected sites.
		F-5, R-1, P-1. Management should ensure security and disaster recovery risks
		are mitigated through a proactive approach of determining the final disaster
		recovery strategy and funding security certification and accreditation activities.
		F-10, R-1, P-1. The Project Management Office should ensure vendor site
		surveys are completed and issued within the 15-day requirement per the
		Service Center Support System contract, and reviewed by Information Systems
		personnel for accuracy and completeness.
		F-11, R-1, P-4, P-5. The Project Management Office should provide additional
		resources to adequately define and validate the delivery order requirements and
		to coordinate with Procurement until all requirements are definitized for price
		negotiations.
090403	October 1998	Review of Phase IV Year 2000 Conversion and Testing
		F-1, R-1, P-1. The Century Date Change Project Office should ensure that the
		Assistant Commissioner (Product Assurance) monitors organizational efforts to
		re-certify the data on the Application Program Registry (APR), ensuring also
		that components tracked and reported on the APR are linked with the correct
		phase and status.
091502	November 1998	Evaluation of the Service’s Efforts to Acquire a New Federally Funded
		Research and Development Center Contractor
		F-1, R-2, P-1. Information Systems personnel should ensure tasks issued to
		each contractor are sufficiently defined to assure the work of the various
		contractors will not overlap.
091903	December 1998	Executive Compilation and Interpretation of the 1998 Filing Season
		F-1, R-2, P-1. Establishing a taxpayer profile database to allow for quicker
		verification of taxpayer account information.
		F-1, R-4, P-3. Eliminating the extra burden placed on taxpayers with balance
		due returns who file electronically.
		F-2, R-1, P-1. To simplify return filing, the Service should improve the
		process used to evaluate the burden placed upon taxpayers by the various tax
		laws and publications.

Treasury Inspector General for Tax Administration September 30, 1999

Audit Reports With Unimplemented Corrective Actions

Report Number	Issued	Report Title and Recommendation Summary
091804	January 1999	IRS Employee Outside Employment Requests F-1, R-1, P-2. Update and clarify national guidelines on the processing,
		approval, and annual review of applications for outside employment. Clearly
		define the role and authority of both management and Labor Relations.
		F-3, R-1, P-1. Require a one-time re-submission of all outside employment
		requests (using Form 7995 revised 1993 or after, which provide for the Social
		Security Numbers), to enable a national cleanup of Labor Relations’ and
		managers’ records.
092402	February 1999	Review of the Internal Revenue Service’s Year 2000 Efforts to Inventory Telecommunications and Commercial Off-the-Shelf Products F-2, R-3, P-1. The Century Date Change Project Office should independently
		verify that the Integrated Network and Operations Management System
		(INOMS) inventory of Commercial Off-the Shelf (COTS) products is complete
		for all Tier I systems. This verification could be accomplished by sampling
		COTS products present on several machines and comparing them to the
		INOMS inventory.
092705	March 1999	Review of the Internal Revenue Service’s Year 2000 Contingency Planning
		Efforts
		F-1, R-1, P-1. Review and correct Year 2000 inventory files on a recurring
		basis to ensure information used to identify the need for contingency plans is
		accurate and complete.
		F-1, R-2, P-1. Establish validity checks for the Year 2000 inventory files.
		F-5, R-1, P-2. Assign responsibility for the IRS’ overall contingency
		management strategy, including Year 2000, and the coordination of resources
		to one area.

Treasury Inspector General for Tax Administration September 30, 1999

Review of Legislation and Regulations

The Inspector General Act of 1978 requires Inspectors General to review existing and proposed legislation and regulations and to make recommendations concerning the impact of such legislation or regulations. TIGTA’s Office of Chief Counsel reviewed 158 proposed legislation and regulations during the six-month reporting period.

Treasury Inspector General for Tax Administration September 30, 1999

Appendix IV TIGTA Audit Report Listing April 1, 1999 - September 30, 1999

Report Number	Issued	Report Title
093207	April 1999	The Internal Revenue Service Can Improve Its Reimbursable Program Funds Put to Better Use: $ 175,0001 Protection of Resources: $ 3,840,000 at risk Reliability of Management Information: $ 77,500,000
093602	April 1999	The Internal Revenue Service Needs to Improve Treatment of Taxpayers During Office Audits Taxpayer Burden: 3,500 taxpayer accounts at risk Taxpayer Privacy and Security: 3,600 taxpayer accounts at risk Taxpayer Rights and Entitlements: 1,328 taxpayer accounts at risk
093802	April 1999	Internal Revenue Service’s Invoice Processing for AT&T Toll-Free Telephone Service
094002	April 1999	Review of the Internal Revenue Service’s Year 2000 End-to-End System Integration Test Efforts – Overall Planning and Execution of Test 1
094106	May 1999	Improving Internal Revenue Service Processes for Evaluating and Publicizing Walk-In Services
094206	May 1999	The Examination Returns Control and Integrated Data Retrieval Systems Can Be Improved to Protect Taxpayer Rights During the Audit Process Taxpayer Privacy and Security and Taxpayer Rights and Entitlements: 1,700,000 taxpayer accounts at risk
C94800	May 1999	Cost Verification on Contract TIRNO-94-0028, Modifications 164 and 184
092903	June 1999	The Cost Effectiveness and Security of Taxpayer Data in the Electronic Transcript Delivery System
093009	June 1999	Review of the Electronic Fraud Detection System Taxpayer Privacy and Security: 121,000,000 taxpayer accounts at risk Reliability of Management Information: $ 22,300,000 understated costs
095001	June 1999	The Internal Revenue Service Has Improved Controls Over the Use of Interagency Agreements
190103	June 1999	Weak Internal Controls Exposed Taxpayer Payments to Embezzlement in the Delaware-Maryland District Revenue Protected: $ 77,000 Protection of Resources: $ 10,700,000 at risk
C95100	June 1999	Contract Audit Closing Statement TIRNO-94-C-00084 Questioned Costs: $ 98,158
091104	July 1999	The Internal Revenue Service Should Improve Procedures to Identify and Resolve Incorrect and Missing Taxpayer Identification Numbers Revenue Protected: $ 352,622 Taxpayer Rights and Entitlements: $ 15,617

¹ This figure represents a five-year projection.

Treasury Inspector General for Tax Administration September 30, 1999

TIGTA Audit Report Listing

Report Number	Issued	Report Title
190303	July 1999	Internal Revenue Service Procedures Were Not Consistently Followed When North Florida District Revenue Officers Attempted to Improve Tax Compliance in the Construction Trades Industry Taxpayer Rights and Entitlements: 664 taxpayer accounts at risk
1999-1C-055	July 1999	Report on Audit of Public Vouchers Numbered 1 through 18 TIRNO-98-C-00041 Questioned Costs: $ 119,517
095202	August 1999	Opportunities Remain for the Internal Revenue Service to Further Minimize the Risks Associated With Implementing Year 2000 Compliance for External Trading Partners Reliability of Management Information: 22% files with incorrect dates
093402	August 1999	The Internal Revenue Service Could Reduce the Burden Placed on Business Taxpayers When Resolving Account Overpayments
093903	August 1999	The Internal Revenue Service Can Improve Customer Service by Accelerating Refund Payments Funds Put to Better Use: $ 150,000,000
1999-1C-056	August 1999	Audit of Firm Fixed Price Proposal for Contract Modification Number 240 TIRNO-94-D-00028 Questioned Costs: $ 107,400
092303	August 1999	The Internal Revenue Service Needs to Increase the Capacity, Follow Up on Reported Problems, and Encourage Voluntary Use of the Electronic Federal Tax Payment System
1999-1C-059	August 1999	Audit of Fiscal Year 1996 Incurred Costs For TIR-95-0062
199920054	August 1999	Increased Validation and Oversight of Year 2000 Minicomputer Conversion Efforts Are Needed To Strengthen Testing and To Avoid Further Delays
093708	August 1999	The Internal Revenue Service’s Efforts to Increase the Telephone Level of Access Can Be Improved
199920063	August 1999	The General Controls Environment Over the Internal Revenue Service’s Unisys 2200 Systems Can Be Improved
199910064	August 1999	The Internal Revenue Service Can Improve Its Process for Accurately and Timely Reporting Revenue Accounting Activities
093103	September 1999	Limitations of the Automated Non-Masterfile and the Impact on the Internal Revenue Service
094602	September 1999	Effectiveness of the Internal Revenue Service’s Management of the Customer Service Call Router Pilot
199940060	September 1999	The Problem Solving Day Program in the Ohio District Has Been Generally Successful Reliability of Management Information: $ 514,000 incorrectly classified
199940062	September 1999	The Internal Revenue Service Can Improve Its Electronic Return Preparer Fraud Activities
093506	September 1999	The Internal Revenue Service Needs Additional Emphasis On Computer Component Retirement Decisions to Be Ready for the Year 2000

Treasury Inspector General for Tax Administration September 30, 1999

TIGTA Audit Report Listing

Report Number	Issued	Report Title
094900	September 1999	An Evaluation of the Impact of Raising the Threshold Requirements for Making Estimated Tax Payments
199940065	September 1999	Improvements Can Be Made in Providing Assistance to Taxpayers Taxpayer Burden: 130,000 electronic mail inquiries
199910061	September 1999	Opportunities to Improve the Effectiveness of Internal Revenue Service Advocacy Efforts
199910072	September 1999	The Internal Revenue Service Needs to Improve Compliance with Legal and Internal Guidelines When Taking Taxpayers’ Property for Unpaid Taxes Taxpayer Rights and Entitlements: 32 taxpayer accounts
199940057	September 1999	Controls Should Be Strengthened Over Business Taxpayer Accounts with Frozen Million Dollar Refunds Protection of Resources: $ 17,500,000 at risk
199930069	September 1999	The New Jersey District Needs to Execute Levy Actions Consistent with Sound Tax Administration and Concern for Taxpayer Treatment Taxpayer Rights and Entitlements: 56,000 taxpayer accounts at risk
094505	September 1999	The Internal Revenue Service’s Individual Taxpayer Identification Number Program Was Not Implemented in Accordance with Internal Revenue Code Regulations
199920068	September 1999	The Service Center Mainframe Consolidation Project Has Made Significant Progress, But Project Execution and Administration Risks Remain Funds Put to Better Use: $ 19,000,000 Protection of Resources: $ 7,000,000 Reliability of Management Information: $ 1,070,000
199910074	September 1999	The Internal Revenue Service Should Improve Its Federal Tax Lien Procedures Taxpayer Rights and Entitlements: 157 taxpayer accounts at risk
199910070	September 1999	The Internal Revenue Service Can Further Improve Its Complaint Processing Procedures and Systems
199920066	September 1999	The Internal Revenue Service Needs to Improve Information Systems Quality Assurance Efforts over Key Tax Law Changes for the 2000 Filing Season
199910073	September 1999	The Internal Revenue Service Should Continue Its Efforts to Achieve Full Compliance with Restrictions on the Use of Enforcement Statistics
199910071	September 1999	The Internal Revenue Service Has Not Fully Implemented Procedures to Notify Taxpayers Before Taking Their Funds for Payment of Tax Taxpayer Rights and Entitlements: 204 taxpayer accounts at risk
199910077	September 1999	The Internal Revenue Service’s Procedures for Responding to Written Requests for Collection Activity From Joint Return Filers Vary From Statutory Requirements
199910076	September 1999	The Internal Revenue Service Needs to Enhance Guidance on and Monitoring of Compliance with Procedures for Directly Contacting Taxpayers and Their Representatives
199910080	September 1999	The Internal Revenue Service Is Addressing the Use of the Illegal Tax Protestor and Nonfiler Designations

Treasury Inspector General for Tax Administration September 30, 1999

TIGTA Audit Report Listing

Treasury Inspector General for Tax Administration September 30, 1999

Section 1203 Standards

In general, the Commissioner of Internal Revenue shall terminate the employment of any employee of the IRS if there is a final administrative or judicial determination that such employee committed any act or omission described in the performance of the employee’s official duties. Such termination shall be removal for cause on charges of misconduct.

Acts or omissions are:

(1) willful failure to obtain the required approval signatures on documents authorizing the seizure of a taxpayer’s home, personal belongings, or business assets;

(2) providing a false statement under oath with respect to a material matter involving a taxpayer or taxpayer representative;

(3) with respect to a taxpayer, taxpayer representative, or other employee of the IRS, the violation of –

•any right under the Constitution of the United States, or

•any civil right established under –

(i) Title VI or VII of the Civil Rights Act of 1964¹,

(ii) Title IX of the Education Amendments of 1972²,

(iii) The Age Discrimination in Employment Act of 1967³,

(iv) The Age Discrimination Act of 1975⁴,

(v) Section 501 or 504 of the Rehabilitation Act of 1973⁵, or

(vi) Title I of the Americans with Disabilities Act of 1990⁶;

(4) falsifying or destroying documents to conceal mistakes made by any employee with respect to a matter involving a taxpayer or taxpayer representative;

(5) assault or battery on a taxpayer, taxpayer representative, or other employee of the IRS, but only if there is a criminal conviction, or a final judgment by a court in a civil case, with respect to the assault or battery;

(6) violations of the Internal Revenue Code, Department of Treasury regulation, or policies of the IRS (including the Internal Revenue Manual) for the purpose of retaliating against, or harassing a taxpayer, taxpayer representative, or other employee of the IRS;

(7) willful misuse of the provisions of Section 6103 of the Internal Revenue Code for the purpose of concealing information from a Congressional inquiry;

¹42 U.S.C. § 2000e ² 20 U.S.C. §§ 1681-1688 ³ 29 U.S.C. §§ 621-634 ⁴ 42 U.S.C. §§ 6101-6107 ⁵ 29 U.S.C. §§ 701 & 794 ⁶ 42 U.S.C. §§ 12111 et seq.

Treasury Inspector General for Tax Administration September 30, 1999

Statutory TIGTA Reporting Requirements

Shortly after the July 22, 1998, passage of the legislation that created TIGTA, the former IRS Internal Audit staff began planning the audit work around the 11 statutory provisions. Sixteen final audit reports were issued in September 1999 that dealt with taxpayer protection and rights, and the adequacy and security of the technology of the IRS. Final reports for two statutory audits of taxpayer protection and rights were not issued as of September 30, 1999, but will be issued during the next reporting period.

Reference to Mandated Coverage	Explanation of the Provision	Comments/TIGTA Audit Status
Restrictions on the	An evaluation of the	Final report issued, Report No. 199910073
Use of Enforcement	compliance of the IRS with	This report has been highlighted in this semiannual
Statistics	restrictions under § 1204 of	report and a synopsis of the report is listed in the
	RRA 98 on the use of	Statutory Requirements section.
I.R.C.	enforcement statistics to
§ 7803(d)(1)(A)(i)	evaluate IRS employees.
Restrictions on	An evaluation of the	Final report issued, Report No. 199910076
Directly Contacting Taxpayers	compliance of the IRS with restrictions under § 7521 of RRA 98 on directly	The IRS has procedures that should enable it to protect taxpayers’ rights during an interview with the taxpayer or when IRS employees appropriately
I.R.C.	contacting taxpayers who	bypass a representative and contact a taxpayer
§ 7803(d)(1)(A)(ii)	have indicated that they	directly. However, the auditors could not determine
	prefer their representatives	whether IRS employees complied with the
	be contacted.	procedures or protected taxpayers’ rights because
		the auditors could not identify or review cases.
		Current IRS management information systems do
		not separately record or monitor cases where
		taxpayers requested representation during an
		interview, and there is no requirement for the IRS to
		maintain separate records for these situations.
Filing of a Notice of	An evaluation of the	Final report issued, Report No. 199910074
Lien	compliance of the IRS with	This report has been highlighted in this semiannual
	required procedures under	report and a synopsis of the report is listed in the
I.R.C.	I.R.C. § 6320 upon the	Statutory Requirements section.
§ 7803(d)(1)(A)(iii)	filing of a notice of lien.

Treasury Inspector General for Tax Administration September 30, 1999

Statutory TIGTA Reporting Requirements

Reference to Mandated Coverage	Explanation of the Provision	Comments/TIGTA Audit Status
Seizures and Levies	An evaluation of the compliance of the IRS with	Final report issued, Report No. 199910072 (Seizure) and Final Report No. 199910071 (Levy)
I.R.C. § 7803(d)(1)(A)(iv)	required procedures under Subchapter D of	These reports have been highlighted in this semiannual report and a synopsis of each report is
	Chapter 64 for seizure of	listed in the Statutory Requirements section.
	property for collection of
	taxes, including required
	procedures under
	I.R.C. § 6330 regarding levies.
Taxpayer Designations – Illegal Taxpayer Designation and Nonfiler Designation I.R.C. § 7803(d)(1)(A)(v)	An evaluation of the compliance of the IRS with restrictions under § 3707 of RRA 98 on designation of taxpayers.	Final report issued, Report No. 199910080 The IRS has taken actions and is substantially in compliance with RRA 98 as it relates to no longer designating taxpayers as Illegal Tax Protestors (ITP), removing the ITP designation from the Individual Masterfile, and disregarding the ITP designation made on or before July 22, 1998, on other IRS computer and paper files.
Disclosure of	Review and certify	Final report issued, Report No. 199910077
Collection Activities	whether or not the IRS is	To comply with statutory requirements, the IRS
with Respect to Joint Returns	complying with I.R.C. 6103(e)(8) to disclose information to an	developed procedures for responding to taxpayers who file jointly and submit written requests for information on the IRS’ collection activity.
I.R.C.	individual filing a joint	However, these procedures allow IRS employees to
§ 7803(d)(1)(B)	return on collection	provide both oral and written responses to
I.R.C. § 6103(e)(8)	activity involving the other	taxpayers. This is different from the statutory
	individual filing the return.	requirements, which require the IRS to provide
		written responses if taxpayers or their representatives send in a written request. The IRS
		controls general correspondence from taxpayers but
		is not required to maintain separate records of the
		joint filer requests. The IRS also does not have a
		process to ensure that employees are following
		procedures for responding to the joint filer requests. Therefore, the auditors could not determine if the
		IRS is complying with the statutory requirements
		and protecting taxpayer rights, because they could
		not readily identify any joint filer requests from
		taxpayers in the IRS’ records or verify whether the
		IRS properly answered the joint filer requests.

Treasury Inspector General for Tax Administration September 30, 1999

Statutory TIGTA Reporting Requirements

Reference to Mandated Coverage	Explanation of the Provision	Comments/TIGTA Audit Status
Complaints and Allegations of Employee Misconduct and Terminations and Mitigation for Certain Proven Violations Committed by IRS Employees I.R.C. § 7803(d)(1)(E) I.R.C. § 7803(d)(2)(A)	List any terminations or mitigation under § 1203 of RRA 98, § 1102(a).	Final report issued, Report No. 199910070 The IRS currently does not have an integrated complaint processing system for identifying and reporting taxpayer complaints and allegations of employee misconduct. Instead, it uses various existing systems and procedures that were implemented prior to RRA 98. However, the IRS is taking significant actions to improve its complaint processing procedures and systems.
Administrative or Civil Actions with Respect to the Fair Debt Collection Practices Act of 19961 I.R.C. § 7803(d)(1)(G)(i)(ii) I.R.C. § 6304 § 3466 of RRA 98	Include information regarding any administrative or civil actions with respect to violations of the fair debt collection provision of I.R.C. § 6304, including a summary of such actions, and any resulting judgments or awards granted.	A draft report was issued to IRS management and the final report will be issued during the next reporting period. Information provided by the Department of Justice’s Tax Division showed that during the period July 22, 1998, to March 31, 1999, there were no civil actions resulting in money paid out to taxpayers as a result of Fair Debt Collection Practices Act (FDCPA) violations by IRS employees. However, through a review of the IRS’ various management information systems, the auditors identified two FDCPA violations that resulted in employee administrative action for the period July 22, 1998, through March 18, 1999.

¹15 U.S.C §§ 1601 & 1692 (1994)

Treasury Inspector General for Tax Administration September 30, 1999

Statutory TIGTA Reporting Requirements

Reference to Mandated Coverage	Explanation of the Provision	Comments/TIGTA Audit Status
Denial of Requests for Information I.R.C. § 7803(d)(1)(F) I.R.C. § 7803(d)(3)(A)	Include information regarding improper denial of requests for information from the IRS, based on a statistically valid sample of the total number of determinations made by the IRS to deny written requests to disclose information to taxpayers on the basis of I.R.C. § 6103 or § 552(b)(7) of Title 5, U.S.C.	Audit work has been completed and a final report will be issued during the next reporting period. This first audit was broadened to include a review of all denied FOIA requests. In addition, we did not review I.R.C. § 6103 requests because we could not identify denied requests on IRS' computer systems. The auditors found that the IRS improperly withheld information that should have been provided to the requester for: •12.4 percent of the denied or partially denied FOIA requests. •8.8 percent of the denied or partially denied Privacy Act1 requests that were processed as FOIA requests.
Adequacy and Security of the Technology of the IRS	An evaluation of the adequacy and security of the technology of the IRS.	During this reporting period, the Office of Audit issued eight reports in this area. Final Reports Issued: Report No. 199920068
		Report No. 199920063
I.R.C. § 7803(d)(1)(D)		Report No. 199940062 Report No. 094602
		Report No. 093103
		Report No. 093009
		Report No. 092903
		Report No. 092303

¹ 5 U.S.C. § 552a (1994)

Treasury Inspector General for Tax Administration September 30, 1999

Statutory TIGTA Reporting Requirements

Treasury Inspector General for Tax Administration September 30, 1999

Acronyms
ANMF	Automated Non-Masterfile	I.R.C.
APR	Applications Program Registry	IRS
ATLAS	Audit Trail Lead Analysis System	ISC
CDC	Century Date Change	ITIN
CFS	Customer Feedback System
COTS	Commercial-Off-The-Shelf	ITP
DIF	Discriminant Function	MACS
DOL	Department of Labor
EFDS	Electronic Fraud Detection	PMO
	System	PRP
ERCS	Examination Returns Control	RCP
	System	RRA 98
ESC	Executive Steering Committee
ETP	External Trading Partner	SED
FAA	Federal Aviation Administration	SSA
FCL	Federal Computer Laboratory	TBOR2
FDCPA	Fair Debt Collection Practices Act	TECS
FIRP	Foreign Information Returns
	Program	TFR
FOIA	Freedom of Information Act	TFSD
FSL	Forensic Science Laboratory
FTL	Federal Tax Lien	TIGTA
FY	Fiscal Year
GAO	General Accounting Office	TIPSS
GPRA	Government Performance and
	Results Act of 1993	TRA 97
IG	Inspector General	UNAX
IDRS	Integrated Data Retrieval System
INOMS	Integrated Network and	U.S.C.
	Operations Management System	Y2K
INS	Immigration and Naturalization
	Service

Internal Revenue Code Internal Revenue Service Integration Support Contract Individual Taxpayer Identification Number Illegal Tax Protestor Midwest Automated Compliance System Project Management Office Problem Resolution Program Regional Compliance Program Restructuring and Reform Act of 1998 Strategic Enforcement Division Social Security Administration Taxpayer Bill of Rights 2 Treasury Enforcement Communications System Trust Fund Recovery Technical and Forensic Support Division Treasury Inspector General for Tax Administration Treasury Information Processing Support Services Taxpayer Relief Act of 1997 Unauthorized Access to Taxpayer Accounts United States Code Year 2000

Treasury Inspector General for Tax Administration September 30, 1999

Semiannual Report to the Congress

Organization Chart

Treasury Inspector General for Tax Administration September 30, 1999

Reports With Recommendations That Funds Be Put to Better Use (4/1/99 – 9/30/99) Report Category	Number of Reports1	Amount (In Thousands)
1. For which no management decision had been made by the beginning of the reporting period.	0	0
2. Which were issued during the reporting period.	3	$169,175 2
3. Subtotals (Item 1 plus Item 2)	3	$169,175
4. For which a management decision was made during the reporting period.	3	$169,175
� Dollar value of recommendations that were agreed to by management
-Based on proposed management action	3	$169,175
-Based on proposed legislative action	0	0
� Dollar value of recommendations that were not agreed to by management	0	0
5. For which no management decision had been made by the end of the reporting period. (Item 3 minus Item 4)	0	0
6. For which no management decision was made within six months of issuance.	0	0

Reports With Additional Quantifiable Impact on Tax Administration (4/1/99 – 9/30/99) Outcome Measure Category	Number of Reports in Category1	Number of Taxpayer Accounts	Number of Hours	Dollar Value (In Thousands)	Other
1. Taxpayer Rights and Entitlements at Risk	8	1,758,385 2		$16
2. Reduction of Burden on Taxpayers	2	3,500			130,000 5
3. Increased Revenue or Revenue Protected	2			$430
4. Taxpayer Privacy and Security	3	122,703,600 2,3
5. Protection of Resources	4			$39,040
6. Reliability of Management Information	5			$101,384 4	See Note 6