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DEPARTMENT OF THE TREASURY
WASHINGTON, D. C. 20220
INSPECTOR GENERAL for TAX
ADMINISTRATION
April 28, 2000
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 March 31, 2000. We have
made significant strides in our programs as we marked our one year anniversary as an
independent Inspector General organization. We have issued almost as many audit reports in
this period, as we did for all of Fiscal Year 1999. Similarly, we closed two-thirds more
investigations this semiannual period, as compared to the same period last year.
Our organization delivered audit reports and investigative services that promote
economy, efficiency and integrity within the IRS organization. We issued 61 final audit
reports that
included $77.2 million in financial accomplishments. We also closed over 2,100
investigations of alleged criminal wrongdoing and administrative misconduct. Investigative
recoveries totaled
over $8.8 million.
In the Office of Audit, audit work focused on the major challenges facing the IRS,
including modernization efforts, financial management, customer service, compliance
activities and tax
return processing activities. Audits to address our Fiscal Year 2000 annual requirements
imposed by the IRS Restructuring and Reform Act of 1998 have been initiated and our
results
will be included in the next reporting period.
TIGTA continues to conduct investigative activities that support the protection of
taxpayers and IRS employees. To heighten awareness and provide a deterrent effect against
fraud and
misconduct, TIGTA special agents conducted integrity awareness presentations to over
13,700 individuals. The vast majority of these individuals were IRS employees, but also
included local law enforcement, tax practitioner and community groups. In addition, TIGTA
received over 4,200 complaints of alleged criminal wrongdoing or administrative
misconduct,
1,680 of which warranted further investigation.
I look forward to continuing our work overseeing the nation's tax administration system.
Sincerely,
David C. Williams Inspector General
Enclosure 1
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Semiannual Report to the Congress
Treasury Inspector General for Tax Administration March 31, 2000
Table of Contents
Office of the Inspector General for Tax
Administration................................................ 1
Authorities..........................................................................................................................
1
Major Issues Facing the IRS ............................................................................................
1
Office of
Audit....................................................................................................................
7
Office of Investigations ..................................................................................................
19
Appendix I Statistical Reports for the Office of Audit
...................................................................... 33
Questioned Costs, Funds Put to Better Use, Additional Quantifiable Impact on Tax
Administration
Appendix II Statistical Reports for the Office of Investigations
........................................................ 37
Investigative Results, Complaints/ Allegations Received by TIGTA, Status of
Complaints/ Allegations Received by TIGTA, Complaints/ Allegations Received by IRS
Appendix III Statistical Reports— Other ...........................................................................................
43
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 ..........................................................................................
55
Appendix V Section 1203 Standards ...............................................................................................
61
Appendix VI Statutory TIGTA Reporting
Requirements................................................................... 63
Appendix VII Year 2000 Compliance
Audits......................................................................................
67
Appendix VIII Acronyms .....................................................................................................................
71
Appendix IX Organization Chart .......................................................................................................
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Semiannual Report to the Congress
Treasury Inspector General for Tax Administration March 31, 2000
Office of the Treasury Inspector General for Tax Administration
INFORMATION ABOUT THE TREASURY INSPECTOR GENERAL
FOR TAX ADMINISTRATION
The Office of the Treasury Inspector General for Tax Administration (TIGTA) provides
independent oversight of Internal Revenue Service (IRS) activities, the IRS Oversight
Board and the IRS Office of Chief Counsel. TIGTA is organizationally placed within the
Department of the Treasury, but is independent of the Department and all other
Treasury offices. TIGTA's focus is devoted entirely to tax administration.
TIGTA's audit and investigative activities are designed to:
· Promote economy, efficiency, and effectiveness in the administration of the
nation's tax system.
· Detect and deter fraud and abuse in IRS programs and operations.
· Protect the IRS against external attempts to corrupt or threaten its employees.
Other responsibilities include:
· Investigating allegations of misconduct by IRS employees.
· Reviewing and making recommendations regarding existing and proposed
legislation and regulations relating to the programs and operations of the IRS and
TIGTA.
· Recommending actions to resolve fraud, abuses and deficiencies in the programs
and operations of the IRS.
· Informing the Secretary of the Treasury and the Congress of problems and the
progress made in resolving them.
The functions that carry out these duties are the Offices of Audit, Investigations,
Chief
Counsel, Information Technology and Management Services.
AUTHORITIES
TIGTA has all the authorities granted under the Inspector General Act of 1978 1 .
TIGTA
also has access to tax information in the performance of its responsibilities and the
authority to report criminal violations directly to the Department of Justice. The
Inspector
General and the Commissioner of Internal Revenue have established policies and
procedures delineating responsibilities to investigate offenses under the internal
revenue laws.
In addition, the IRS Restructuring and Reform Act of 1998 2 (RRA 98) amended the Inspector
General Act of 1978 to give TIGTA statutory authority to carry firearms and execute the
provisions of I. R. C. Section 7608( b)( 2). These provisions include the law enforcement
authority to execute and serve search warrants, serve subpoenas and make arrests.
MAJOR ISSUES FACING THE IRS
As the nation's tax administrator, the IRS collects 95 percent of federal tax
revenues. In
Fiscal Year (FY) 1999, the IRS collected a record $1.9 trillion. This task is carried
out in
an environment where providing customer service and fairly enforcing tax laws go hand
in hand. IRS processes more than 200 million tax returns and provides assistance to more
than 100 million taxpayers annually. IRS also
1 Pub. L. No. 95-452, 92 Stat. 1101, as amended,
at 5 U. S. C. app. 3 (1994 & Supp. II 1996) 2 Pub. L. No. 105-206, 112 Stat. 685
5
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implements tax law changes and manages over 700 office locations.
In December 1999, TIGTA advised Congress of the following major challenges facing the
IRS in FY 2000:
· Processing returns and implementing tax law changes during the tax filing season.
· Providing customer service and ensuring tax compliance.
· Managing finances.
· Modernizing the IRS:
4 Organization restructuring.
4 Technology modernization.
4 Year 2000 compliance.
· Providing security over information systems.
· Protecting taxpayer rights.
· Implementing the Government Performance and Results Act of 1993 3
(GPRA).
· Providing quality customer service operations.
· Protecting revenue and minimizing tax filing fraud.
· Addressing the impact of the global economy on tax administration.
These major challenges have been the focus of TIGTA's audit and investigative
activities
during this six-month reporting period. The following sections provide a summary of the
issues and what TIGTA has done to address them. Details of audit and investigative
activities, as well as information on statutory requirements, can be found on pages
7 through 17, 19 through 31, and in Appendix VI, respectively.
3 Pub. L. No. 103-62, 107 Stat. 285
PROCESSING RETURNS AND IMPLEMENTING TAX LAW
CHANGES DURING THE TAX FILING SEASON
The IRS' 1999 tax filing season was impacted by numerous legislative changes that went
into effect for Tax Year 1998. The IRS also made changes to improve tax forms and
publications for taxpayers who claim the Earned Income Tax Credit or the Child Tax
Credit. In addition, tax packages included two labels for mailing returns back to the IRS,
one for a refund and one for a payment. This effort will reduce mail sorting at the
service
centers and improve overall processing efficiency.
TIGTA conducted comprehensive reviews of the IRS' implementation of tax law changes
that impacted returns processed during the 1999 filing season. Several recommendations
were made to correct processing errors and improve implementation of legislative
provisions. TIGTA also made recommendations to improve tax payment and
processing activities for the 2000 tax filing season.
PROVIDING CUSTOMER SERVICE AND ENSURING TAX COMPLIANCE
As part of the modernization efforts, the IRS is reengineering its business
processes and
technology to focus on providing world class customer service to taxpayers. While doing
this, the IRS must also enforce the tax laws and ensure that taxes owed the government
are collected.
In recent years, the IRS has experienced a significant drop in traditional compliance
activities, such as auditing returns and collecting delinquent taxes. The IRS
Commissioner has advised Congress that part of the decline is due to a decreasing number
of employees to conduct audits and an increasing number of tax returns. Congress
was also advised that some IRS employees may be reluctant to take enforcement actions
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because of the mandatory termination provisions in Section 1203 of RRA 98 4 . In
addition, implementing RRA 98 provisions have placed additional demands on the
agency's resources.
Congress has recently emphasized that the intent of RRA 98 was not for the IRS to stop
collecting revenue and enforcing the tax laws.
In March 2000, the Inspector General briefed all IRS collection managers on investigations
related to Section 1203 violations. The briefing was intended to reduce employees'
concerns about potential Section 1203 investigations.
TIGTA addressed the use of compliance resources to augment telephone service during
an audit of the IRS' toll-free telephone service. TIGTA also addressed improving
compliance with estate taxes and fuel tax credits and improving customer service to
these taxpayers. TIGTA estimates potential increased revenue totaling $354.7 million
from estate taxes and $15.8 million from fuel tax credits.
MANAGING FINANCES
Financial management continues to be a concern for the IRS. The General Accounting
Office (GAO) was unable to render an opinion on five out of the IRS' six FY 1999
financial statements. GAO cited major concerns with unpaid taxes, improperly paid
refunds, accountability for property and equipment and inadequate budget controls.
Although IRS has taken some actions to improve financial management, long-term
solutions must be implemented to achieve permanent results.
TIGTA's Office of Audit provided assistance to GAO on the financial statement review.
In
addition, TIGTA provided audit coverage in several other financial management areas
4 Provisions in Section 1203 of RRA 98 provide
for the mandatory termination of IRS employees for specific categories of employee
misconduct.
including a review of one of the IRS' main accounting systems and a review of
accounting controls over deposit discrepancies. TIGTA also reviewed IRS'
contract award practices and recommended improvements in planning for acquisitions
and in managing contract close-outs.
MODERNIZING THE IRS
Creating a modernized IRS is a top priority of the Commissioner and will result in
a more
efficient and responsive agency. The ability to achieve the IRS' modernization concept
is
largely dependent on restructuring the organization to better meet taxpayer needs
and developing new technology to correct deficient systems. Year 2000 compliance
remains a modernization concern since it continues to pose risks until IRS completes its
full production cycles.
Organization Restructuring
IRS' restructuring efforts continue to move forward. As mandated by RRA 98, the
IRS'
modernization concept incorporates changes to revamp business practices and restructure
the organization to better serve taxpayers. The IRS is creating operating units that serve
taxpayer segments and their specific needs. The operating divisions are: Wage and
Investment, Small Business/ Self-Employed, Large and Mid-Size Business and Tax
Exempt and Government Entities. Organizational teams have been formed to
refine implementation plans. The Tax Exempt and Government Entities Division is
operational and the remaining divisions are expected to be operational by October 2000.
TIGTA continues to monitor IRS' restructuring efforts. During this reporting
period, the Office of Audit issued a consolidated report of several audits that
focused on improving service to business taxpayers. Business taxpayers filed
approximately 47 million tax returns and paid an estimated $1.3 trillion in taxes in FY
1996.
TIGTA's reviews identified opportunities that 7
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would result in improved processes within the IRS and reduced burden for approximately
18 million business taxpayers.
Technology Modernization
Achieving IRS' modernization concept requires replacing almost all of its current
information technology systems. This has been a slow process that has been ongoing for
more than a decade. The IRS has taken steps to improve management of the information
technology effort including expanding the role of the Chief Information Officer and
obtaining assistance from a consortium of technology and business providers.
There are still obstacles that IRS must overcome to be successful. One obstacle is
the ability to oversee a project as large as the IRS modernization while effectively
transitioning Information Systems employees and processes into a new organization. Also,
relationships between contractors and vendors must be coordinated to assure useful
products
are delivered.
TIGTA provided significant coverage of IRS information technology efforts by evaluating
the electronic filing system that allows small business taxpayers to file quarterly tax
returns
by telephone. TIGTA also reviewed the roll-out of the new computer system that
processes millions of paper tax returns and payment documents.
Year 2000 Compliance
The IRS devoted significant resources and executive level attention to making its
systems Year 2000 compliant. As a result, IRS has been successful with the century date
change. The IRS is continuing to monitor its systems to assure potential production
problems do not impair its ability to process tax information and compute tax liabilities,
including interest and penalties.
Prior to December 31, 1999, TIGTA's Office of Audit conducted numerous audits of the
Year 2000 compliance efforts and made valuable recommendations that helped IRS
have a successful conversion. (Appendix VII lists the significant Year 2000 compliance
audit reports issued during this reporting period.) The Office of Audit will continue to
monitor the Year 2000 issue through the 1999 tax filing season.
PROVIDING SECURITY OVER INFORMATION SYSTEMS
The IRS has made progress in addressing computer security issues, but significant
risks
still exist. The IRS is addressing these vulnerabilities through a risk-based approach,
which was initially geared to identifying and correcting security weaknesses at its major
computing and tax processing centers. Over the past two years, the IRS has expanded its
computer security assessments to other IRS facilities. These efforts should help reduce
the risk of unauthorized access to sensitive taxpayer information and/ or destruction of
major IRS systems and data.
TIGTA audits have identified weaknesses in physical security controls over the IRS'
computer facilities, networks and systems. In addition, information systems recovery
plans
need improvement to ensure that business can be resumed in the event of a disaster. Until
these weaknesses are resolved, IRS systems are vulnerable to unauthorized access or loss.
TIGTA's Office of Investigations continues to address security over IRS computer
systems
through the Unauthorized Access to Taxpayer Accounts (UNAX) Detection Project. This
project detects potential unauthorized accesses to electronic taxpayer records on IRS
systems. During this reporting period, TIGTA identified 268 potential leads of
which 120 were referred to field offices for investigation. These alleged abuses continue
to comprise the largest segment of investigations of IRS employees.
As required by RRA 98, TIGTA will provide its annual assessment of IRS' computer
security in its next semiannual report. 8
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PROTECTING TAXPAYER RIGHTS
RRA 98 established over 70 taxpayer rights provisions, which impose process
changes or
additional IRS procedures. TIGTA is required to review IRS' progress in
implementing some of these provisions annually.
TIGTA's FY 1999 audit work indicated that IRS was making progress, however, the
provisions had not yet been successfully implemented. TIGTA has initiated audits of
key RRA 98 provisions as required by the Act. The findings and recommendations will
be discussed in the next reporting period. Two audits that began in FY 1999 are
presented in this report on pages 14 and 15.
TIGTA also protects taxpayers and their rights by addressing IRS employee
misconduct. Provisions in Section 1203 of RRA 98 provide for the mandatory
termination of IRS employees for specific categories of employee misconduct. Some of
the misconduct includes: violation of Constitutional or civil rights of taxpayers or
IRS employees; intentional misconduct involving a taxpayer matter; threatening
taxpayers with an audit for personal gain; or willful understatement by an employee of his
or her own federal tax liability. The misconduct identified in Section 1203 has
always been subject to discipline by IRS; however, the mandatory penalty serves notice
that a high standard of conduct is expected of IRS employees to ensure the trust and
confidence of the public.
TIGTA's Office of Investigations continues to work with IRS to refine procedures regarding
assessment, referral and investigation of allegations of misconduct that are covered by
Section 1203. TIGTA also operates a toll-free hotline number, an e-mail address and a
central post office box. Complaints and allegations can be made anonymously to the
hotline or by letter. In addition, TIGTA is working with the IRS Commissioner's
Complaint Processing and Analysis Group to
provide guidance on establishing an IRS complaint tracking system that is compatible
with TIGTA's system.
IMPLEMENTING GPRA
GPRA was created to improve the efficiency and effectiveness of federal programs
by
establishing a system to set goals for program performance and increase accountability
for
results. The overall goal of GPRA is to improve agency performance and to provide
objective information to Congressional and executive branch decision-makers that assists
them in appropriating and allocating federal funds.
The IRS is developing a balanced performance measurement system. The new
approach to measurement is intended to shift the focus away from achieving specific
targets
or numbers to achieving the overall mission.
TIGTA completed a review of IRS' strategic planning process relative to the goals and
requirements of GPRA. TIGTA recommended that IRS designate an executive
office responsible for coordinating and ensuring GPRA requirements are met.
TIGTA also reviewed IRS' development of the Annual Program Performance Report and
recommended process improvements for timely and accurately gathering and validating
performance data to ensure that the report contains the information intended by
Congress.
PROVIDING QUALITY CUSTOMER SERVICE OPERATIONS
As stated earlier, providing top quality service to each taxpayer is part of IRS'
modernization
plans. Although IRS implemented numerous initiatives during the 1999 filing season that
were intended to enhance customer service, the IRS was not able to handle the level of
customer demand on its toll-free telephone lines satisfactorily. The cost to provide
toll-free telephone service during the 1999 filing season increased while productivity
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decreased. About 19.5 million calls received busy signals and the level of service
declined
from 73 percent for the 1998 filing season to 51 percent.
In March 2000, the IRS Commissioner advised Congress that the level of service had
reached 65 percent during the current filing season. This shows improvement since
TIGTA's last review; however, the area remains a concern as toll-free telephone
service plays such a critical role in IRS' customer service initiative.
In addition, IRS' written communications, such as notices, are widely criticized for
being
difficult to understand. Clarity and tone of communications have been on the IRS
Taxpayer Advocate's list of the top problems
facing taxpayers for several years.
TIGTA completed an audit of IRS' walk-in services and recommended that IRS develop a
national process to monitor the implementation and delivery of current and
future key customer service initiatives.
PROTECTING REVENUE AND MINIMIZING TAX FILING FRAUD
Fraudulent refund claims, particularly related to the Earned Income Tax Credit (EITC),
have been a concern to the IRS for many years. Massive EITC scams have been
identified in the past and have included instances in which taxpayer Social Security
Numbers were used by perpetrators of fraud. In addition, there are indications that
fraudulent refund claims may be migrating to business returns. A refund scheme of over
$250 million involving fiduciary returns was identified in FY 1999. Fraud has also been
identified with quarterly excise tax returns.
In FY 2000, the IRS launched a campaign to educate tax preparers on EITC requirements.
IRS has also implemented processing changes to disallow EITC claims if secondary Social
Security Numbers are invalid. Although IRS is making progress in this area, the risks are
still great.
In a review of IRS' program to identify questionable refunds, TIGTA found that IRS
can strengthen controls to ensure fraudulent returns are identified and refunds are
stopped
as appropriate. For example, personnel could better use information available on automated
systems to identify fraudulent refund schemes. TIGTA also recommended that IRS
re-emphasize the need to verify potentially fraudulent returns in a timely manner.
ADDRESSING THE IMPACT OF THE GLOBAL ECONOMY ON TAX
ADMINISTRATION
The global economy is growing rapidly and has resulted in sophisticated business
transactions. United States (U. S.) exports nearly tripled from 1985 to 1996, growing
to
more than $1 trillion. In addition, imports more than doubled during the same period to
more than $1.1 trillion.
The GAO and TIGTA have previously reported serious internal control and systemic
weaknesses in the IRS' administration of its international programs. The IRS continues
to
struggle to increase compliance in an ever-growing international economy.
Significant improvements are needed in international compliance programs to focus
on nonfiling, transfers of assets by U. S. citizens to foreign trusts, foreign tax credit
claims and foreign-sourced income.
The IRS' new Large and Mid-Size Business Division will have a strong emphasis on
international issues. The approved structure will attempt to integrate international
expertise throughout the entire division. The rationale is that this will provide more
consistent taxpayer treatment across industry lines. In addition, International Tax
Examination Specialists will migrate to specific industries. The IRS has indicated that
it has undertaken several international tax administration and compliance programs to
address our concerns in areas such as transfer pricing, tax credits, foreign trust,
non-filers
and foreign-sourced income reporting issues. 10
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Treasury Inspector General for Tax Administration Office of Audit
INTRODUCTION
The Office of Audit identifies opportunities to improve administration of the nation's
tax
laws by conducting comprehensive, independent performance and financial audits
of IRS programs and operations to:
· Assess efficiency, economy, effectiveness and program accomplishments.
· Ensure compliance with applicable laws and regulations.
· Prevent, detect, and deter fraud, waste, and abuse.
THE AUDIT PROGRAM
To assist the IRS in meeting the challenges it faces in FY 2000 and other crucial tax
administration initiatives, the Office of Audit has developed a comprehensive audit
program. The program will help the IRS assure that tax administration programs are
efficient and effective, and minimize fraud, waste and abuse.
The audit program is presented in the Annual Audit Plan which communicates audit
priorities for the current fiscal year. Many of the activities described in the Plan
address the
fundamental goals related to the IRS' mission to administer its programs effectively and
efficiently. Major management issues, as well as specific areas of concern to the Congress
and the IRS Commissioner, are also addressed. As such, audit work is organized
around the IRS' core business activities with emphasis on the statutory coverage imposed
by RRA 98. Audit work also focuses on other statutory authorities and standards involving
computer systems and financial management.
SIGNIFICANT AUDIT RESULTS
During this reporting period, the Office of Audit issued 61 audit reports which are
listed
in Appendix IV.
The results of the most significant reviews are discussed in the following sections.
Processing Returns and Implementing Tax Law Changes
During the Filing Season
The Internal Revenue Service Could Enhance the Process for Implementing
New Tax Legislation (Reference No. 2000-40-029)
Implementing legislative changes for the 1999 filing season required hundreds of
actions by the IRS, including revising and developing forms and instructions, changing
computer programs, training employees and revising procedures and regulations.
The process for developing tax forms, instructions and computer programs to
implement new tax legislation was effective. However, the Office of Audit recommended
that the implementation process include procedures to ensure IRS executives are made
aware of critical actions that are overdue. Also, the IRS could improve its customer
service by notifying taxpayers who may qualify for, but did not claim, the Child Tax
Credit.
IRS management agreed that increased emphasis should be placed on highly
significant legislative provisions. However, they did not agree to implement the
recommendation to notify taxpayers who appeared to be eligible for the Child Tax
Credit. Instead, IRS will communicate with taxpayers regarding this credit through 11
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outreach programs. Based on an analysis of IRS computer files, the Office of Audit
estimates there could be as many as 1.7 million taxpayers who qualified, but did
not claim the credit in Tax Year 1998.
Taxpayers and the Internal Revenue Service Experienced Problems With
Some New Tax Provisions (Reference No. 2000-40-045)
The Taxpayer Relief Act of 1997 contained nearly 300 new provisions and almost half
were effective for Tax Year 1998. Many of the new legislative provisions received
considerable political attention, indicating Congress' interest in ensuring the new tax
law
provisions were implemented by the IRS as intended.
The Office of Audit found that the IRS properly processed most tax returns affected
by the provisions. However, taxpayers and the IRS did experience some problems related
to preparing and processing tax returns. Specifically, the Office of Audit identified a
problem with the IRS' computer programs to implement the tax law provisions for EITC
Recertification. When IRS management was advised of this problem, they immediately
revised their programs. This ensured 6,500 refunds were not unnecessarily delayed
and prevented over 17,000 disqualified taxpayers from receiving EITCs of over
$30.6 million.
The Office of Audit made several other recommendations including initiating a post
review of Error Resolution cases impacted by specific legislative provisions and
ensuring
that taxpayer notices are technically accurate, clearly address the taxpayers' errors and
contain clear instructions to correct the error.
The IRS should also consider the feasibility and cost effectiveness of conducting limited
computer research to correct inaccurate names and Taxpayer Identification Numbers
entered
on tax returns.
IRS management agreed to implement the recommendations to ensure that legislative
changes are properly implemented. However, they did not implement the recommendation
to correct inaccurate names and Taxpayer Identification Numbers. IRS management
believes taxpayers would not benefit in the long run, since they would not be informed of
the changes and would continue to use the wrong information. IRS management also
indicated this would increase the workload for the Error Resolution function and
unnecessarily delay the processing of all
returns.
The Office of Audit disagreed with the IRS' response. The IRS could issue a notice
explaining the taxpayer's mistake and encouraging the taxpayer to use the correct
information in succeeding years.
Providing Customer Service and Ensuring Tax Compliance
Toll-Free Telephone Service Levels Declined in 1999 Despite Costly Efforts
to Achieve World Class Performance (Reference No. 2000-30-062)
In 1999, the IRS implemented several new business initiatives and technological changes
intended to provide a world class customer service operation. The IRS' toll-free
telephone system is a cornerstone in this effort.
The Office of Audit found that the IRS was not able to handle the level of customer
demand on its toll-free telephone lines satisfactorily during the 1999 filing season.
The level of telephone service on the three main telephone lines declined from 73 percent
in the prior filing season to 51 percent. Almost 16 million more taxpayers received
busy signals. Also, during the first six months of FY 1999, the accuracy of answers to tax
law questions declined from 79 percent to 72 percent. For the same period, total labor
costs increased by over $30 million from the 12
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prior fiscal year yet 1.4 million fewer calls were answered.
To provide both effective and economical toll-free telephone service, the IRS needs
different management approaches. For example, the IRS needs to employ a systems
management approach throughout the entire Customer Service organization, to include
eliminating reliance on compliance resources. IRS management should also: evaluate the
number of call sites; more timely and accurately conduct resource planning; reduce
hours of "live" assistance; and, provide managers with tools to monitor
productivity
of telephone assistors.
IRS management agreed that telephone performance during the 1999 filing season fell
short of their goals and has taken action to implement some of the Office of Audit's
recommendations. However, management believed several recommendations might not
be consistent with the integrated solutions and approaches that they are developing.
Management did commit to consider fully these recommendations as they modernize the
IRS. Management also declined to study the number of call sites and hours of live
assistance, and stated Compliance resources will continue to be used to augment toll-free
operations. The remaining recommendations with which management disagreed are
detailed in the body of the report.
The Internal Revenue Service Needs to Strengthen Its Operating Controls for
the Tax-Exempt Bond Program (Reference No. 2000-10-047)
IRS management has not addressed all corrective actions reported in a prior audit
report (Reference No. 062604 dated March 1996) to effectively manage the
tax-exempt bond program.
Unless corrective actions are effectively implemented, the IRS cannot rely upon its
automated or manual systems to: account for all incoming bond returns; ensure all
remittances are timely deposited; and, provide sufficient information to help ensure
effective
program management. The need to fully implement an automated processing system
for tax-exempt bonds continues to represent a Federal Managers' Financial Integrity Act 5
(FMFIA) material weakness.
The Office of Audit recommended that IRS management: ensure that all Forms 8038-T,
Arbitrage Rebate and Penalty in Lieu of Arbitrage Rebate, bond returns are input into
the designated automated system; periodically monitor the bond return information systems
to resolve promptly any concerns that may impact processing; and, follow all shipment
procedures. Also, the IRS should revise its tax-exempt bond preparation instructions to
include the correct address where bond returns should be filed, record late-filed bond
returns, promptly resolve these late-filed returns with taxpayers and process all bond
cases selected for audit on the appropriate management information system.
IRS management agreed with the recommendations. Management indicated
that until the Masterfile 6 is upgraded to process tax-exempt bond returns, the program
will continue to be a FMFIA material weakness.
Opportunities Exist for Further Reducing Erroneous Fuel Tax Credits
(Reference No. 2000-30-057)
During 1998, the IRS received nearly 450,000 individual income tax returns that
claimed a total of $106 million in tax credits for federal excise taxes paid on certain
fuels.
The Office of Audit initiated a review of corrective actions taken in response to a prior
audit (Report No. 070804 dated
5 31 U. S. C. §§ 1105-1106, 1113, and 3512 (1994)
6 The Masterfile is the IRS' database that stores
various types of taxpayer account information. This database includes individual,
business,
employee plans and exempt organization and bond
data. 13
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December 1996) which had identified the need for improved processing controls and
additional taxpayer education to reduce erroneous fuel tax credits.
The Office of Audit reported that the actions taken by the IRS were only partially
successful. For example, the changes to the returns processing procedures had helped to
ensure that almost all returns claiming fuel tax credits were computer-identified, when
appropriate, for manual screening by the Examination function. However, the actions
taken have been ineffective for ensuring that prior year returns are checked when fuel tax
credits are disallowed on the current year returns. Prior year returns were not checked
for 79 percent of the returns where the fuel tax credit was disallowed. The potentially
unallowable fuel tax credits claimed on the prior year returns totaled nearly $794,000.
In addition, nearly 16,000 taxpayers improperly claimed a total of $2.45 million in
tax credits for undyed diesel fuel on their 1997 tax returns. Almost 80 percent of these
returns were professionally prepared. Approximately 15,000 of these
16,000 taxpayers actually received tax credits totaling $1.78 million.
Opportunities exist for the IRS to further reduce erroneous fuel tax credits by
re-emphasizing certain procedures on the regulations prohibiting credits for undyed
diesel fuel used in farming. The Office of Audit recommendations of providing
educational notices to taxpayers and professional return preparers, and
re-emphasizing certain procedures for screening returns claiming fuel tax credits will
assist the IRS in protecting a significant amount of tax revenue on an annual basis.
IRS management agreed with the findings and will implement all of the recommendations
except for sending information notices to taxpayers who claimed credits for undyed
diesel fuel that did not meet the criteria for Examination screening. Instead, the IRS
will
change the Examination screening criteria to identify a greater number of returns
claiming
fuel tax credits for audits. The Office of Audit concurred with this corrective action.
The Internal Revenue Service Can Improve the Estate Tax Collection
Process (Reference No. 2000-30-059)
As of September 1998, there were over 11,000 estate accounts with tax balances
totaling $3.2 billion dollars. The Office of Audit found that the IRS estate tax
collection
process was not effective in protecting the government's interest or in protecting
taxpayers' rights. IRS employees did not take necessary actions when granting installment
agreements and payment extensions. These actions included securing a bond or lien
before granting installment agreements, properly evaluating payment extension
requests, properly calculating and billing interest, and providing taxpayers the
publication that explains their rights. IRS employees also did not properly record or
release estate tax liens. For example, 1,270 estate accounts have tax liens against
their assets even though the tax balances have been paid. In addition, the collection
statute
of limitations expiration was calculated incorrectly, causing tax amounts owed to be
abated prematurely or late.
The Office of Audit made 11 specific recommendations to assist the IRS in applying
the provisions of the law to help ensure estate taxes are collected timely; ensure
records are
accurate so that estates are treated equitably; and, provide employees the necessary
guidance to evaluate estate tax documents and requests.
Additionally, guidance is needed to ensure executors requesting an estate tax
installment
agreement provide a bond or elect a lien that lasts the full term of the agreement. IRS
management review is needed to help employees properly determine whether 14
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11
requests for extensions of time to pay show adequate reasonable cause. A processing
change for both types of requests is needed so that required notices with taxpayer rights
information are sent to estates.
Finally, IRS management needs to: review the Collection Statute Expiration Date computer
programming to ensure all calculations are accurate; reinstate tax on accounts that
have
been abated prematurely; and, abate the tax on accounts that are past the expiration date.
IRS' response indicated general agreement with the audit findings and recommendations.
However, management only agreed to explore the feasibility of implementing two of the
recommendations, identifying and releasing liens that have been paid in full and reversing
erroneous estate tax abatement transactions.
The Internal Revenue Service Needs to Improve Its Coordinated Oversight of
the Substitute for Return Process (Reference No. 2000-40-055)
The IRS uses the Substitute for Return (SFR) to establish a tax liability for nonfiling
taxpayers based on available income and expense information. The SFR is a critical
component of the IRS' strategy for dealing with taxpayers who fail to file required tax
returns. The IRS reported the SFR Program contacts over one million taxpayers each year.
The Office of Audit recommended that the IRS establish uniform policies and procedures
to ensure coordination among the functions processing the SFR accounts. The IRS also
should develop a process to monitor the future filing compliance of taxpayers with SFR tax
assessments while tracking and measuring SFR revenues, costs and account resolutions.
IRS management's response was not received prior to the issuance of the audit report.
The Internal Revenue Service Can Further Reduce the Burden on
Taxpayers Who Disagree with Proposed Assessments
(Reference No. 2000-10-033)
Resolving unagreed tax examinations is a burdensome process for taxpayers and a
costly one for the IRS. The Office of Audit determined if corrective actions in
response to
a previous audit report (Reference No. 980903 dated November 1997) were
effective. The corrective actions focused on reducing the number of taxpayers who do not
respond to the final notice of assessment and petition the U. S. Tax Court instead.
The Office of Audit found the number of taxpayers petitioning the U. S. Tax Court
declined significantly since the prior review. As a result, taxpayers spent 225,000 fewer
days dealing with the IRS and IRS costs were reduced by $800,000 between FY 1997 and
1998. However, the IRS did not complete all corrective actions listed in the prior report.
The Office of Audit recommended that the IRS should ensure the most current address is
available so letters are sent to the proper address. This would enable the IRS to locate
more taxpayers and resolve issues with less correspondence and through less formal
procedures than petitioning the U. S. Tax Court. Also, the IRS should ensure that audit
groups adhere to its correspondence procedures to avoid taxpayers' perceptions
that they are not treated properly.
IRS management generally agreed with the recommendations and will implement
appropriate corrective actions. For the first recommendation, the Office of Audit
accepted
IRS' solution to use additional address research techniques to ensure letters are sent
to the taxpayer's current address. 15
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Managing Finances
Cost Savings Can Be Achieved Through Improved Monitoring of the
Treasury Communications System Contract (Reference No. 2000-10-028)
The Treasury Communications System (TCS) contract is for the design, implementation,
management, operation, maintenance and enhancement of a "worldwide"
communications network for the Department of the Treasury and its bureaus. The TCS is
the largest civilian, centrally managed and secure communications network in operation
today. In January 1999, the TCS served over 6,000 locations with approximately
150,000 users. The IRS usage encompasses a significant portion of the contract.
Although progress has been made, the IRS needs to improve the monitoring and
administering of the contract. The Office of Audit identified approximately $701,000 in
questionable or unnecessary contract costs that could total approximately $6.3 million
over the next five years. This is a result of not verifying invoices properly to ensure
that all
costs are appropriate.
The Office of Audit recommended that the IRS perform an in-depth analysis of TCS
invoices to identify billings for circuits and equipment that no longer exist. Also,
the IRS
should implement a process to ensure that it is receiving the appropriate credits when
billing
issues arise. Additionally, the IRS should impose appropriate invoice credits when the
contractor does not meet established completion dates.
IRS management agreed with the recommendations and is taking corrective
action.
Improvements Are Needed in Planning for the Acquisition of Goods and
Services and in Managing Contract Closeouts (Reference No. 2000-10-044)
The Office of Audit reviewed pre-and post-contract award practices to determine
whether the IRS is planning for and administering contracts effectively and
efficiently. The IRS implemented an on-line processing system that has enhanced contract
administration. Contracting officer's technical representatives are ensuring goods
and services received comply with contract terms. However, the IRS can further improve
the planning for and administration of contracts. The Office of Audit identified
approximately $2 million of government funds that were unnecessarily expended or
placed at risk because there was inadequate planning by program offices or excess funds
were not deobligated on completed contracts.
The Office of Audit recommended that IRS management advise program offices to
prepare acquisition plans and funding documents properly before contracting actions
are taken and ensure all Procurement personnel properly update closeout and
completion information. Both the Procurement function and program offices
should ensure that sufficient quantities are ordered to satisfy guaranteed minimums, and
that minimums are not set too high. Also, additional oversight of outstanding
obligations is needed to ensure funds are expended properly or deobligated timely, and
that contracts are closed out properly and excess funds deobligated timely.
IRS management concurred with the findings and agreed to take corrective action on most
of the recommendations. IRS management concluded requiring the preparation of
acquisition plans prior to issuing the solicitation and notifying program offices to
provide timely requisitions are unnecessary because the appropriate mechanisms are
already in place. IRS management will place 16
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13
policy guidance on the IRS procurement Intranet site to allow broader access by IRS
personnel. The Office of Audit believes that the presence of a requirement does not ensure
its proper or timely implementation.
Modernizing the IRS
The modernization efforts include the organization restructuring, technology
modernization and Year 2000 compliance.
Organization Restructuring
Consolidated Report on Opportunities for the Internal Revenue Service to
Improve Service to Business Taxpayers (Report No. 2000-30-015)
The current IRS systems and procedures for business taxpayers were designed primarily
to
facilitate IRS operations, rather than address the individual needs of taxpayers. As a
result,
existing systems and procedures are often complex, confusing and burdensome.
The Office of Audit conducted reviews and analyses of five IRS processes which business
taxpayers are involved with frequently: providing upfront education and assistance;
establishing a new business entity; processing Federal Tax Deposits (FTD); monitoring FTD
compliance; and, processing tax returns.
The Office of Audit recommended actions to reduce burden and improve service to
business taxpayers. Adoption of these recommendations could result in eliminating
approximately 219,000 notices to business taxpayers who have not yet hired employees,
notifying taxpayers earlier when FTD payments have not been made and improving
taxpayer educational opportunities.
IRS management agreed with the recommendations and has initiated corrective
action.
Technology Modernization
The Internal Revenue Service Needs to Encourage Taxpayer Use, Improve
Customer Service, and Enhance Computer Controls of the 941 TeleFile
Program (Reference No. 2000-20-004)
The 941 TeleFile Program is an integral part of the IRS strategy to provide
businesses with
flexible and convenient ways to file returns. In 1998, TeleFile was expanded to allow
small business taxpayers nationwide to file their Employer's Quarterly Federal Tax
Returns (Form 941) by telephone.
The Office of Audit found that IRS established effective processes for ensuring
the 941 TeleFile Program was successfully implemented, however, actions are needed to
market the Program to eligible users and to improve customer service. Improvements in
these two areas should enhance the IRS' ability to achieve its goal of 16 million
electronic employment tax returns by the Year 2002.
The Office of Audit recommended that IRS management analyze previous customer
feedback information to identify ways to increase participation. Also, the IRS should
educate taxpayers on the requirements for using the 941 TeleFile System, as well as any
program changes, and ensure quality customer service. In addition, the Office of Audit
recommended enhancements to the system to prevent the processing of duplicate Form 941
TeleFile returns and to verify the filing history and electronic signatures of the
taxpayers or taxpayer representatives.
IRS management agreed with the findings and recommendations and has initiated
appropriate corrective action. 17
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The Integrated Submission and Remittance Processing System
Development Project Has Made Significant Progress, But Operating
Risks Remain
(Reference No. 2000-40-053)
The Integrated Submission and Remittance Processing (ISRP) System was first piloted
during the 1998 filing season. It replaced the IRS' computer systems used to process
approximately 170 million paper tax returns and 50 million payments each year. The
ISRP System was necessary because the existing computers could not process data
after December 31, 1999. The IRS began processing both paper tax returns and
payment documents through ISRP in August 1999.
The ISRP System project made significant progress; however, risks continue to affect
the
integration of the system with other IRS operations. Specifically, the Office of Audit
recommended that the IRS improve the ISRP System's control and accountability of all
documents processed, update submission processing contingency plans and improve
ISRP controls designed to safeguard taxpayer information.
IRS management has implemented all corrective actions.
Year 2000 Compliance
The Office of Audit issued 11 audit reports that assessed IRS' efforts to prepare its
systems for the Year 2000. The overall audit objectives, recommendations and corrective
actions for the most significant reports are included in Appendix VII.
Protecting Taxpayer Rights
The Internal Revenue Service Is Now Tracking Potential Fair Debt Collection
Practices Act Violations, But May Not Always Be Properly Reporting
Violations (Reference No. 2000-10-014)
RRA 98 7 requires the IRS to comply with several restrictions on collection
practices
contained in the Fair Debt Collection Practices Act (FDCPA) of 1996 8 . For
example, IRS employees are not to communicate with taxpayers in connection
with the collection of any unpaid tax at unusual or inconvenient times. In addition,
taxpayers whose FDCPA rights are violated can now file a civil action for damages against
the government.
RRA 98 requires TIGTA to provide information to Congress regarding any
administrative or civil actions related to FDCPA violations, including a summary of
employee administrative actions or money paid as part of a civil action.
The Office of Audit did not identify any civil actions where money has been paid to
taxpayers as a result of FDCPA violations for two reasons. First, IRS management
information systems did not reflect FDCPA violations at the time of this review. Second,
IRS management may not have always properly reported potential FDCPA
violations.
During this limited review, the Office of Audit identified two areas needing IRS
management attention: upgrading existing management information systems to track
FDCPA violations and identify monetary settlements to taxpayers, and reporting
potential FDCPA violations.
IRS management agreed with the issues presented in the report and has already taken
corrective action on the first issue.
7 I. R. C. § 6304
8 15 U. S. C. §§ 1601 and 1692 18
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The Internal Revenue Service Needs to Improve Its Compliance With
Procedures When Processing Requests for Information Under the
Freedom of Information Act
(Reference No. 2000-10-058)
The Office of Audit is required by RRA 98 to perform periodic audits of a statistically
valid
sample of requests for information which the IRS denied on the basis of the Freedom of
Information Act 9 (FOIA) exemption (b)( 7) and I. R. C. § 6103. In addition, the Privacy
Act of 1974 10 requires federal government agencies to consider whether information that
is exempt under the Privacy Act should be
disclosed to the requester under the FOIA.
IRS records indicate that in FY 1998, the IRS either completely or partially denied
information requested under FOIA, for about 3,700 of the nearly 31,000 requests
received.
The Office of Audit reviewed a statistically valid sample of cases for the period,
July 22, 1998 to December 31, 1998. Audit results indicated that the IRS improperly
withheld information to the requester in 41 of 340 cases (12.1 percent) and denied or
partially denied Privacy Act Requests for 13 of 171 cases (7.6 percent). For the vast
majority of imperfect requests, the IRS correctly informed the requester that
additional information was needed.
Also, the IRS did not always follow the FOIA and IRS procedural guidelines in processing
FOIA and Privacy Act requests. As a result, timely and consistent responses were not
always provided on fully and partially denied requests.
The Office of Audit recommended that the IRS improve its management practices and
oversight to ensure FOIA requests are processed in accordance with the statute, as
well as with IRS procedures.
9 5 U. S. C. § 552 (1996)
10 5 U. S. C. § 552a (1996)
IRS management's response was not received prior to issuance of the audit report.
The Internal Revenue Service Needs to Improve Telephone Authentication
Practices to Better Prevent Unauthorized Tax Account Disclosures
(Reference No. 2000-10-026)
The Office of Audit conducted a follow-up review of the effectiveness of
corrective
actions to strengthen controls for authenticating the identity of taxpayers who
request account information over the phone. These control weaknesses had been identified
in a previous audit report (Report No. 075202 dated September 1997) which highlighted a
significant risk for unauthorized disclosure of taxpayer information.
The risk of unauthorized disclosure of taxpayer information remains because
employees did not comply with revised procedures and were not required to use items
of authentication that were confidential to the caller and the IRS. In 65 of 100 test
calls,
IRS employees requested only one or none of the additional verification items required for
high-risk situations. Most of the identifying information asked for was available
commercially from on-line Internet sources.
The Office of Audit recommended that IRS management strengthen authentication
procedures by providing Customer Service Representatives with training on
authenticating identities and revising national guidelines to include authentication
verifiers
that would be known only to the IRS and the taxpayer.
IRS management agreed with the first recommendation and will emphasize the need
to comply with existing authentication requirements when high-risk situations are
encountered. However, they stated adding probes to authenticate call-in taxpayers would
be burdensome to the taxpayers and IRS employees. 19
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16
Implementing GPRA
Letter Report: The Internal Revenue Service Should Improve Its Process to
Ensure the Fiscal Year 1999 Performance Report Will Contain the
Information Intended by the Congress (Reference No. 2000-10-061)
GPRA requires agencies to submit to the President and the Congress annual
performance plans that set goals with measurable target levels of performance.
Beginning in FY 2000, federal agencies are required to report on their successes in
achieving the goals established in the prior year's performance plans in an Annual
Program Performance Report (APPR). The Office of Audit reviewed IRS' development
of the FY 1999 APPR.
The IRS' process for developing the APPR needs to be improved. Current practices do
not provide adequate time for IRS management to: assemble data for the report;
analyze the data to ensure that they clearly assess program goals; verify and validate the
data to ensure that it is reliable and credible; and, timely submit the data to the
Department
of the Treasury.
The Office of Audit recommended that IRS management ensure that any data limitations
are disclosed properly in the APPR. Further, if any of the expected performance data
cannot be obtained, the IRS should specify the steps it will take to gather the data for
the next
APPR. Also, the IRS should develop a single set of authoritative instructions for timely
gathering and verifying data needed for GPRA reporting.
IRS management agreed that it is crucial that data collected to measure performance is
verified and validated before being included in the budget. The IRS is reorganizing its
headquarters operations and will be establishing an office with the responsibility
of overseeing the verification and validation of data.
The Internal Revenue Service Should Improve Its Process to Ensure That All
Government Performance and Results Act Requirements Are Satisfied
(Reference No. 2000-10-016)
GPRA is intended to improve quality and delivery of service by holding federal
agencies accountable, through the budget appropriation process, for program results by
emphasizing goal setting and results measurement. The law requires executive
agencies to prepare multi-year strategic plans and annual performance plans, and to report
results in achieving planned goals. The Office of Audit reviewed the IRS' strategic
planning process relative to the goals and requirements set forth by GPRA.
The Office of Audit recommended that the IRS designate an executive office responsible
for coordinating and ensuring functions develop the performance measures and
systems to capture and validate data needed to fully comply with GPRA. This will improve
IRS' process for ensuring that all GPRA requirements are fully satisfied.
Without specific executive oversight, there is a high risk that much of the work done
on the
measures and plans could be lost during the IRS reorganization. This loss could further
delay the IRS' ability to produce GPRA-compliant measures, plans and
performance reports; and it would weaken the data needed to justify future budgets.
IRS management agreed with the recommendation and has taken corrective
action.
TIGTA SUPPORTS THE IRS IN ASSISTING FOREIGN TAX
ADMINISTRATIONS
A TIGTA Audit Director is on detail to the IRS' Office of Tax Administration Advisory
Services (TAAS). At the request of foreign governments, TAAS provides a variety of tax
20
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17
advisory services under reimbursable agreements and has worked with the Greek
Ministry of Finance for the last three years. The Audit Director is stationed in Athens,
Greece, under the direction of a TAAS Project Manager and serves as the Internal Audit
Team Advisor. The Team's advisory services include strategic planning, collection and
examination management, management information systems development and internal
audit processes.
The Audit Director is assigned to a cross-functional team of Ministry of Finance
staff members charged with the responsibility of developing, implementing and enhancing
internal audit processes. This includes
developing internal auditing rules and procedures and a code of ethics for Ministry
of Finance employees, based on international internal auditing standards.
The Audit Director and TAAS Project Manager meet regularly with the team and
Ministry of Finance management, to present and answer inquiries on internal auditing
theory and to offer advice on how the concepts and principles are practiced in the
IRS and the U. S. Treasury Department. During the reporting period, the Audit
Director and TAAS Project Manager worked closely with the Ministry of Finance's School
of Education to develop a seminar on organizational integrity. The seminar was
presented in an interactive mode, with participation of 32 senior level executives and
managers from the Directorate of Inspection.
In addition, the Audit Director has established international contacts with Chapters of
the
Institute of Internal Auditors in the United States, Greece and France. This will
foster a
continuing relationship between the Directorate of Inspection's Internal Audit
Department and other American and European Community internal auditing
professionals.
The great Parthenon in Athens, Greece. 21
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Treasury Inspector General for Tax Administration Office of Investigations
INTRODUCTION
The Office of Investigations administers investigative programs that protect the
integrity of the IRS and detect and prevent fraud within IRS programs. This includes
investigating allegations of criminal wrongdoing and administrative misconduct by
IRS employees, as well as protecting IRS employees from external threats.
Specific areas of responsibility include:
· Administering programs to protect IRS employees from violence.
· Operating a national complaint center, including a hotline, to receive and process
allegations of fraud, waste or abuse.
· Providing forensic examination of documentary evidence.
· Providing technical and investigative assistance, equipment, training and other
specialized services to enhance investigative operations.
· Administering a proactive program to detect and deter fraud in IRS programs
and operations.
PROTECTION OF TAXPAYERS AND IRS EMPLOYEES
TIGTA is dedicated to ensuring taxpayers and IRS employees the highest degree of
integrity,
fairness and trust in our tax administration system.
To heighten awareness and provide a deterrent effect against fraud and misconduct,
TIGTA special agents routinely conduct integrity awareness presentations for IRS
employees and various professional organizations, including local law
enforcement agencies, tax practitioners and community groups. During this reporting
period, the Office of Investigations conducted 403 presentations for 13,724 individuals.
Approximately 90% of these individuals were IRS employees.
The Office of Investigations conducts investigations that protect taxpayers from IRS
employees who commit criminal wrongdoing and administrative misconduct. These
investigations may involve allegations of unauthorized access to and disclosure of
confidential taxpayer information, bribery, financial fraud, false statements and abuse of
taxpayer rights. During this six-month reporting period, the Office of Investigations
completed 913 employee misconduct investigations.
When an investigation determines that a taxpayer has been financially or procedurally
harmed by employee misconduct, TIGTA notifies the IRS so that appropriate action can
be taken. TIGTA has notified the IRS on issues such as the unlawful inspection or
disclosure of taxpayer returns or return information 11 and the embezzlement or theft
of tax payments.
The Office of Investigations is also committed to protecting and supporting IRS employees
as they carry out the mission of the IRS. TIGTA investigates individuals who attempt
to interfere with or corrupt the administration of the federal income tax system, to
include
11 A provision of the Taxpayer Browsing
Protection Act of 1997, I. R. C. § 7431( e), provides
for notification to taxpayers of the unlawful inspection or disclosure of their returns
and return
information in cases where an IRS employee is
charged criminally for violations of unauthorized access or disclosure of returns or
return
information. 23
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20
investigations of bribery, assault, threat, theft and embezzlements. During this
reporting
period, the Office of Investigations completed 1,254 investigations involving these types
of
allegations.
Complaint Management Division
The Complaint Management Division (CMD) acts as a national center to process and track
allegations of fraud, waste, abuse and other forms of wrongdoing. CMD operates a
toll-free telephone number, an e-mail address and a central post office box.
CMD's complaint tracking system provides a centralized accounting of all complaints and
the status and final dispositions of those complaints. This system also has the
capability to document and track complaints involving multiple subjects.
To assure all relevant information is evaluated, TIGTA personnel interview
complainants to the extent possible. Also, complainants are provided with a Complaint
Number that can be used to provide additional information about the allegation.
During the reporting period, TIGTA received 4,211 complaints. The status of these
complaints is shown in Appendix II.
Section 1203 Violations
Section 1203 of RRA 98 provides for the mandatory termination of an IRS employee if
the employee commits specific misconduct violations (see Appendix V for a summary of
Section 1203 standards).
TIGTA is dedicated to protecting taxpayers against abuse and misconduct while also
ensuring that IRS employees are not the subject of Section 1203 investigations that
have no basis. During this reporting period, TIGTA received 369 allegations involving
potential Section 1203 violations.
Investigations are opened on Section 1203 allegations where it has been determined,
through preliminary analysis, that there is a basis for the allegation. The only
exceptions
are Section 1203( b)( 8) and (b)( 9) which relate to timely and full payment of taxes. In
some
situations, the IRS may resolve these issues fully and they will not require a TIGTA
investigation.
TIGTA initiated 89 investigations related to alleged Section 1203 violations. Of these, 65
are currently ongoing and 24 are closed. Fourteen of the 24 closed investigations were
referred to the IRS for administrative adjudication. The referred cases may consist
of both substantiated and unfounded Section 1203 allegations.
The IRS terminated 11 employees under Section 1203 during this reporting period.
One termination was the result of a TIGTA investigation.
Some Section 1203 violations, related to internal IRS procedures, require the IRS to
provide TIGTA with a preliminary assessment of whether the internal procedures
appear to have been violated. During the reporting period, TIGTA received
213 complaints that were referred to the IRS for this type of preliminary inquiry.
An example of a Section 1203 investigation follows.
IRS Employee Terminated for Threatening to Audit a Taxpayer
An IRS employee was terminated from employment in November 1999, for
threatening to audit a police officer. Local police arrested the employee for driving
under
the influence of alcohol. While being processed, the employee informed the
arresting officer that he worked for the IRS. The employee made further statements that
the officer reasonably interpreted as a threat to audit or to take some type of
retaliation. 24
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21
The employee was subsequently removed for violating RRA 98 Section 1203( b)( 10).
Strategic Enforcement Division
The Strategic Enforcement Division (SED) is responsible for developing and maintaining
a
program to execute proactive investigations for the detection of unauthorized accesses
to
IRS computer systems (UNAX), fraud in IRS operations and attempts to interfere with the
security of IRS computers. The program focuses on attempted or actual breaches by
both internal and external parties.
SED's operation is a collaborative effort of auditors, special agents and computer
programmers who use computer technology and computer matching to identify criminal
violations, secure evidence, and detect and prevent improper accesses.
SED also provides investigative and forensic data analysis support to special agents.
SED
has assisted agents with computer data analysis on investigations involving stolen
IRS tax remittances, fraudulent tax adjustments and credit card/ identity fraud.
Additionally, SED has computer investigative specialists who assist in seizing
computers,
analyzing computer-related evidence and conducting searches on the Internet.
SED maintains computer research and reference equipment, and assesses technical
threats to the integrity of the IRS network. SED conducts proactive security testing to
ensure that adequate safeguards are in place to defend against newly identified network
vulnerabilities, as well as newly disseminated hacker tools found throughout the Internet.
Threat advisories are disseminated to the IRS, the Department of Treasury and a number of
other federal agencies.
National Investigative Initiatives
A principal component of SED's operation involves the National Investigative
Initiatives
(formerly the National Integrity Program). Projects are initiated from information
developed during successful investigations. The methodology of a crime is used to
develop computer database applications that identify other individuals who may be
perpetrating the same crime. Computer matching is used in proactive national
projects. These projects are included in Computer Matching Act 12 agreements
approved by the Treasury Department's Data Integrity Board and published in the Federal
Register.
UNAX Detection Project
The UNAX Detection Project is a SED national investigative initiative. During this
reporting period, SED identified and analyzed 268 leads of potential unauthorized
accesses
to tax information by IRS employees. This resulted in 120 referrals to field offices for
investigation of violations of the Taxpayer Browsing Protection Act of 1997 13 .
As a result of this ongoing project, a number of UNAX cases have been further developed
and other potential criminal violations have been identified for investigation. These
include: filing fraudulent income tax returns; employees using their official position to
harass taxpayers; and, unauthorized disclosure of tax information. Some examples of these
types of cases are highlighted beginning on page 23.
During data analysis in UNAX investigations, SED also looks to identify systemic
weaknesses in the security features of IRS computer audit trail records which track
accesses to taxpayer account information. For example, an audit trail did not record the
specific tax periods accessed or actions taken
12 Pub. L. No. 101-56, 103 Stat. 149 (1989)
13 Pub. L. No. 105-34, 111 Stat. 1104 (1997) 25
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22
by a system user. TIGTA and IRS are working toward system improvements to
enhance SED's capability to research UNAX violations.
TECHNICAL AND FORENSIC SUPPORT DIVISION
The Technical and Forensic Support Division is responsible for directing programs
concerning Technical Services and the Forensic Science Laboratory (FSL). Each of
these programs provides technical expertise throughout the development and the
adjudication process of investigations.
Technical Services
Technical Services is responsible for providing technical and investigative
assistance, equipment, training and other specialized services to enhance TIGTA's
investigative activities. Technical Services provides crucial support in the collection,
preservation and enhancement of evidence. Technical Services provides audio and video
investigative equipment and assists special agents in using these tools. It is also
Technical Services' mission to enable agent safety, manage surveillance assets and
maintain communications systems and equipment.
Some examples of the types of investigative support provided by Technical Services
include:
· Successfully produced photographs from surveillance video that clearly showed a
former IRS employee at the scene of a robbery. Enlarged photographs of the
employee's weapon were also produced and used for court proceedings.
· A covert video system was used to record a meeting involving tax preparers and
other individuals back-dating tax forms. These individuals had conspired with a
former IRS employee to eliminate the assessment of penalties and interest on tax
estimates. This electronic monitoring was instrumental in developing an additional
investigation, as well as clearing another IRS employee's alleged involvement in
the scheme.
· A former IRS service center employee was captured stealing cash from IRS mail
during a remittance test using a covert video.
Forensic Science Laboratory
Criminal investigations often depend upon the forensic analysis of evidence.
Fingerprint and
handwriting examination, photography and chemical analysis are a few of the laboratory
tools that assist special agents in identifying subjects.
The FSL supports field investigations through timely processing of documentary,
physical
and chemical evidence. The FSL recently obtained upgraded analytical equipment that
is used to evaluate document alterations and decipher erasures. The new equipment allows
for the non-destructive analytical comparison of writing inks to detect evidence of
alteration. TIGTA is the first U. S. forensic laboratory, government or private, to
incorporate this particular unit into its forensic document arsenal.
During this six-month period, the FSL received 100 case submissions, issued
107 reports of laboratory examination and evaluated 2,650 items of physical evidence.
The FSL examined evidence from a number of cases, including:
· A former IRS employee was suspected of signing an application for an Employer
Identification Number to obtain credit and then amassed a debt of $1,181. The FSL
identified the employee's signature on the application for the Employer
Identification Number. She was 26
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Semiannual Report to the Congress
Treasury Inspector General for Tax Administration March 31, 2000
23
convicted of misusing a Social Security Number.
· An IRS employee was suspected of using a government issued credit card to make
personal purchases. The FSL identified the employee's signature on several
original receipts and provided a qualified opinion on two receipts that were of poor
facsimile quality. The employee resigned while under investigation and the
investigation has been referred for prosecution for theft of public funds.
· A taxpayer remitted a money order to the IRS for $391. A laboratory examination
revealed that the money order was originally made payable to the "I. R. S" and
was subsequently overwritten in an IRS employee's name. The FSL identified the
employee as the author of the money order endorsement. The employee
resigned prior to TIGTA's investigation. The employee pled guilty to forgery and
was sentenced to two years probation and ordered to pay $391 restitution.
· An IRS employee was suspected of depositing two counterfeit checks totaling
over $64,000 into a personal checking account. The FSL could not identify the
endorsement signatures on the checks due to the lack of suitable contemporaneous
known signatures for comparison.
However, the FSL did identify the employee's latent print on a withdrawal
transaction form. The employee resigned her position and the investigation has
been accepted by the U. S. Attorney's Office for prosecution for bank fraud.
SIGNIFICANT INVESTIGATIONS
Disclosure and Improper Computer Access Investigations
The following investigations resulted from national investigative initiatives,
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 Pled Guilty to Unauthorized Access of an IRS
Computer
This investigation was initiated after SED identified a potential unauthorized
access of
an IRS computer. The investigation documented 183 unauthorized accesses by an
IRS employee. The accesses were restricted to browsing; no unauthorized adjustments
were made to any of the accounts. Interviews of the taxpayers whose accounts had been
accessed determined the accounts belonged to former high school friends, their spouses and
former employers of the IRS employee. The employee also accessed the tax account of a
professional athlete. The employee resigned from the IRS in December 1999 and
subsequently pled guilty to one count of unauthorized inspection of returns or return
information.
Two IRS Employees Charged in Refund Scheme
In November 1999, a federal grand jury returned a 50-count indictment charging two
IRS employees with conspiracy, filing false 27
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Semiannual Report to the Congress
Treasury Inspector General for Tax Administration March 31, 2000
24
claims and assisting others in filing false federal income tax returns. Computer
analysis determined that one of the employees made unauthorized accesses to obtain
confidential tax information of deceased individuals and used this information to
obtain tax refunds. This employee and a co-worker then conspired to cash a tax refund
check obtained in the name of one of the deceased taxpayers. The employees then
fraudulently filed their own federal income tax returns claiming fictitious child and
dependent care credits for multiple years. Additionally, the employee who made the
unauthorized accesses, assisted and counseled several other individuals in filing what the
employee knew to be fraudulent income tax returns, claiming fictitious credits. Both
employees resigned upon notification of their proposed termination from the IRS.
IRS Employee Utilizes Tax Account Information to Harass Taxpayers
In November 1999, an IRS employee was arrested and charged with using his official
position to harass two taxpayers in relation to a personal dispute. The two taxpayers
received fraudulent notices from the IRS, stating that they were being audited.
Although fictitious, the correspondence was on IRS letterhead and was sent in official IRS
envelopes. The fraudulent correspondence was metered in the mailroom of the IRS office
where the employee worked. One of the notices contained specific taxpayer data from
a prior year return.
In addition to the fraudulent notices, one taxpayer and the other taxpayer's spouse
received several telephone calls from individuals claiming to be the IRS employees
named in the fraudulent correspondence.
The investigation disclosed that the taxpayers were not under audit. The employee's group
secretary, unwittingly at the request of the employee, made accesses to the tax
accounts
of both taxpayers. The timing of the accesses
corresponded to the mailing of the fraudulent notices. In addition, the investigation
determined that the telephone calls were made from the employee's residence and
corresponded with the approximate dates and times of several of the calls received by the
taxpayers.
IRS Employee Sentenced for Unauthorized Access to Tax Accounts
In December 1999, an IRS employee was sentenced to three years probation and was
fined $2,500 after pleading guilty to one count of computer fraud. An investigation
revealed
that the employee made over 1,000 accesses to the tax accounts of relatives, friends and
acquaintances without their permission or knowledge. The employee advised the
accesses were made for personal reasons. The employee resigned after being notified of her
proposed removal.
IRS Employee Sentenced Under the Taxpayer Browsing Protection Act
A federal grand jury returned an indictment charging two counts of unauthorized
inspection of returns or return information by an IRS employee. In October 1999, the
employee pled guilty and was sentenced to twelve months probation and eighty hours of
community service. This was a result of SED identifying suspicious computer accesses by
the employee. The employee resigned from IRS while under investigation.
IRS Employee Pled Guilty to Disclosing Confidential Information
A special agent with IRS Criminal Investigation (CI) reported to TIGTA that the
name of an IRS employee surfaced while conducting an investigation of two
individuals. When the employee was interviewed by the CI special agent, the
employee denied having any relationship with the subjects of the investigation until she
was
shown documents that indicated a financial 28
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Semiannual Report to the Congress
Treasury Inspector General for Tax Administration March 31, 2000
25
relationship. The employee admitted she and her husband were good friends with the
subjects. She also admitted that she had told her husband the subjects were under
investigation.
The matter was referred to TIGTA and the information developed by IRS CI was
corroborated. When interviewed by TIGTA special agents, the IRS employee admitted to
disclosing the existence of the criminal investigation. The employee resigned from
the IRS during the investigation. In December 1999, the employee pled guilty to
one count of disclosure of confidential information and subsequently she was
sentenced.
Bribery Investigations
As a result of frequent contact with taxpayers, IRS employees are potential targets
for
bribery. Their positions also provide opportunities to extort and solicit bribes from
taxpayers and to conspire with individuals who could 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 45 bribery
investigations.
Two Individuals Pled Guilty to Bribery and Conspiracy Charges
In December 1999, a taxpayer and a taxpayer representative were sentenced after
pleading
guilty to five counts of bribery and conspiracy
charges. The investigation began after an IRS employee met with the taxpayer and the
taxpayer's representative to discuss the approximately $60,000 tax liability owed by
the taxpayer. During the meeting, the taxpayer's representative made repeated bribe
overtures to the employee.
During a subsequent meeting, the employee was discussing the taxpayer's delinquency
when the taxpayer's representative slid an envelope under her case file. The taxpayer's
representative and the taxpayer both said it was $500 for her personal use and not for the
delinquent taxes. The taxpayer's representative and the taxpayer paid a total of
$2,500 in bribes to eliminate the tax liability. The two were each sentenced to eight
months
confinement, three years supervised release and fined $3,000.
Individual Charged with Bribery
In December 1999, an individual was indicted by a federal grand jury on three
counts of
bribery of a public official. TIGTA special agents subsequently arrested the
individual.
This individual made a bribe offer to an IRS employee regarding his tax debt. The
individual had previously submitted an offer to pay $15,000 on his tax deficiency of
approximately $79,000, but IRS had rejected it. The individual initially offered to pay
the
employee's airfare and admittance to the Olympics in Sydney, Australia, if the
employee would accept his Offer-in-Compromise. The individual later
made three payments on his final bribe of $1,500. The individual was interviewed and
confessed to the bribe offer and payments.
IRS Employee Indicted for Conspiracy
TIGTA initiated an undercover operation in response to a complaint that the owners
of a
tax preparation business had conspired with an unknown IRS employee to perform illegal
actions on taxpayer accounts. During several meetings between the tax preparers and an
29
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Semiannual Report to the Congress
Treasury Inspector General for Tax Administration March 31, 2000
26
undercover agent posing as a taxpayer, the preparers admitted that they had a contact
in
the IRS.
During the undercover operation, the tax preparer submitted a payment offer of
$10,000 to IRS to resolve the undercover agent's tax liability. In an effort to get the
offer accepted, the preparer advised the undercover agent how to hide assets until the
tax matter was resolved. When the offer was rejected, the IRS returned the cashiers check
to the tax preparer who converted the check for his own personal use.
The investigation revealed that the tax accounts of five taxpayers, represented by the
tax preparation business, had been assigned to the same IRS employee and were eventually
placed in uncollectible status. The uncollectible status was achieved using
falsified documentation.
A federal grand jury indicted the employee and the two tax preparers on conspiracy
charges. The employee was also charged with unlawful acts by an IRS employee. In
October 1999, the IRS suspended the employee without pay pending the outcome of
the criminal action.
Storeowner Arrested for Conspiracy, Gratuities, False Statements and Tax
Evasion
In December 1999, TIGTA special agents arrested a storeowner after he was charged
in
a 30-count federal indictment on charges of paying gratuities to a public official,
conspiring to defraud the government, making false statements and evading taxes. The
storeowner and an IRS employee conspired to issue over 40 Employer Identification
Numbers allowing self-employed individuals to avoid the payment of taxes. These
individuals paid the storeowner up to $600 per number. The storeowner, in turn, gave
gratuities to the IRS employee worth several thousand dollars. Using two cooperating
individuals, TIGTA special agents made two
separate purchases of these numbers from the storeowner. During these purchases, the
storeowner stated that an IRS employee had provided him with the numbers for a fee. The
IRS employee resigned prior to the storeowner's arrest and pled guilty to charges
of conspiracy and accepting gratuities.
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.
Accountant Indicted for Misuse of Treasury Names and Symbols and
Wire Fraud
In October 1999, a federal grand jury returned a two-count indictment charging an
accountant with misuse of Treasury names and symbols, and wire fraud. The accountant
was denied credit to lease a new luxury automobile due to federal tax liens filed
against him. The accountant altered a fax containing the official IRS seal and used it to
indicate that the tax liens had been satisfied. The accountant then faxed the altered
document to a car dealership which in turn faxed it to a bank. When interviewed, the
accountant admitted to altering the document and faxing it to the dealership.
Individual Charged With Impersonating an IRS Employee
In October 1999, an individual was arrested by TIGTA special agents and charged
with
committing a crime while on conditions of release. IRS CI contacted TIGTA and
reported that the individual had been convicted on federal charges of conspiracy
and trafficking in counterfeit computer chips. While awaiting sentencing, the individual
contacted three clients of his ex-wife's 30
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Semiannual Report to the Congress
Treasury Inspector General for Tax Administration March 31, 2000
27
daycare business. The individual advised the clients that he was from the IRS and was
conducting an audit of the daycare business. TIGTA special agents interviewed the clients
and determined that the individual asked about their method of payment for daycare
services and if they reported this as a deduction. The three clients provided
personal tax information because the individual stated that he was from the IRS. In
November 1999, the individual was indicted and charged with six counts of impersonating
an IRS employee.
Mail Courier Pled Guilty to Theft of IRS Tax Remittances
In November 1999, a mail courier pled guilty to theft of public money. Previously, the
courier had been employed with an IRS contractor that transported tax remittances
between the IRS and the Federal Reserve Bank.
TIGTA's investigation began after an audit of the teller function disclosed missing
payments. It was determined that the courier was only depositing check tax remittances and
he was stealing all cash tax remittances. A total of $7,000 in tax remittances was
identified as being stolen. As part of the courier's plea agreement, the $7,000 must be
repaid. He was also sentenced to four years probation, the first two months with
electronically monitored home confinement.
Former IRS Employee Arrested on Federal Fugitive Warrant
In September 1991, a warrant was issued on an IRS employee for failing to appear for a
federal court arraignment. Previously, this employee was indicted on nine counts of
embezzlement, theft and false statements. This employee worked in an IRS office where
she accepted tax payments from taxpayers. Rather than applying these payments to
taxpayers' accounts, she allegedly altered the checks and made them payable to herself.
Approximately $60,000 was identified as being embezzled.
During 1999, information was developed that the former employee had fled to Europe. A
subsequent investigation revealed that she was to visit the U. S. TIGTA special agents
arrested the former employee as she disembarked from an airplane in
December 1999. She is being held in custody pending further prosecutorial action.
IRS Employee Pled Guilty to Wire Fraud
An investigation determined that over a two-year period, an IRS employee submitted
86 fraudulent time sheets and received approximately $5,500 in salary that he was
not entitled to receive. TIGTA's investigation disclosed that the employee also failed to
timely deposit approximately $208,000 in taxpayer remittances. While no taxpayer
suffered a financial loss or harm, the government lost approximately $1,500 in
interest payments as a result of not depositing the remittances timely. This employee also
was found to have accessed IRS computer records and disclosed confidential taxpayer
information to unauthorized individuals. In January 2000, the IRS employee resigned his
position in lieu of termination after entering into a plea agreement with the U. S.
Attorney's office. The employee was charged in an 86-count indictment for wire fraud.
Individual Charged in Connection With Impersonation of an IRS Criminal
Investigation Special Agent
In July 1999, an individual falsely assumed the identity of an IRS special agent
when he
allegedly faxed a threatening communication to a company. The faxed letter appeared to
be
on official IRS letterhead and identified the individual as a special agent. In the
letter, the
individual threatened to take legal action against the company due to a business dispute
between himself and other parties. In 31
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Treasury Inspector General for Tax Administration March 31, 2000
28
September 1999, a police officer stopped the individual on a routine traffic stop. The
individual identified himself as an IRS special agent. The officer observed the individual
wearing what appeared to be an official IRS special agent polo shirt. When unable to
provide a valid driver's license or special agent credentials, the individual was
arrested.
The police provided the individual's arrest information to TIGTA. TIGTA had been
attempting to locate him for questioning regarding the fax he allegedly sent to the
company. In October 1999, the individual was indicted by a federal grand jury for
impersonation of an officer or employee of the U. S. Government. The individual pled
guilty to one count in December 1999.
IRS Employee Was Charged With Theft
In October 1999, an IRS service center employee was charged with one count of
theft
of a tax remittance, which had been placed in the employee's work bin by TIGTA special
agents. This was part of a TIGTA proactive initiative to detect thefts of taxpayer
remittances.
The employee failed to process the tax remittance properly. The money order was
later negotiated by an acquaintance of the employee. The acquaintance indicated the
employee provided the money order as repayment on a personal debt. The IRS
subsequently terminated the employee. An agreement was reached in court requiring the
employee to pay restitution in exchange for deferment of the criminal charge.
Federal Charges Filed on an Individual for Impersonation
After being issued a parking ticket, an individual went to the police station to
complain about the ticket. When the officers refused to void the ticket, the individual
became belligerent and stated that he worked for the IRS and he would obtain the Social
Security Number of the officer who issued the ticket and would "make sure he is
audited for
the rest of his life." The incident was both audio and video recorded as a matter of
practice by the police department. When confronted by TIGTA special agents, the man
admitted he impersonated an IRS employee because he was angry with the IRS for having
been audited seven years in a row. This statement proved to be false. In February
2000, the individual was charged with impersonating an officer or employee of the
U. S. Government. He was sentenced to pre-trial diversion in March 2000.
Individual Sentenced for Participation in Tax Refund Scheme With an IRS
Employee
An individual conspired with an IRS employee who had designed and implemented
an extensive fraudulent electronic tax return refund scheme. The employee obtained the
names, Social Security Numbers and addresses of individuals who had no prior tax
filing history. For a $500 fee, the employee used this information to prepare fraudulent
tax
returns that resulted in the maximum EITC refund of between $2,000 and $3,000. The
individual conspired with the employee to file a fraudulent return. As a result of the
investigation, the employee was convicted and resigned from the IRS. The individual
pled guilty to charges of conspiracy, theft of public monies, bank fraud, conspiracy-false
32
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Semiannual Report to the Congress
Treasury Inspector General for Tax Administration March 31, 2000
29
claims, false claims and firearms violations. In January 2000, the individual was
sentenced
to one year and nine months incarceration, three years supervised probation and a $550
special assessment fine. The investigation was conducted with a task force formed by
the U. S. Attorney's Office that included TIGTA, the U. S. Secret Service, the Postal
Inspection Service, the Social Security Administration Office of Inspector General,
IRS CI and the New York City Department of Investigations.
Tax Practitioner Pled Guilty to Making False Statements to the IRS
TIGTA investigated a complaint from an IRS employee who alleged that a tax
practitioner
was falsely claiming to be a certified public accountant (CPA), and was filing false IRS
power-of-attorney forms to gain access to taxpayer records in the course of his business.
TIGTA's investigation revealed that on at least 17 occasions, the accountant submitted
false power-of-attorney forms to the IRS, claiming to be a CPA. He had previously lost
his CPA license. In October 1999, the tax practitioner pled guilty to one count of
making false statements. He was sentenced to three years supervised release.
IRS and Lockbox Employees and a Third Individual Charged With
Embezzlement
Between October 1999 and January 2000, an IRS employee and a lockbox facility
employee, who received checks in the course of their routine duties at the IRS and the
lockbox facility, pled guilty to charges of embezzlement. A third individual, who
conspired with the lockbox employee, also pled guilty to embezzlement. Lockbox
facilities receive and process tax payments and credit the payments to a depository
clearing account for subsequent transfer to the U. S. Treasury.
The amounts embezzled varied from $380 to more than $6,000. The common scheme was
for the employees to steal the checks that had been sent to the IRS for payment of taxes,
have the checks pass through several hands and ultimately have someone other than the
employee cash the check. The proceeds were then divided among the employees and the
persons handling and cashing the checks. These investigations were the result of
TIGTA's proactive efforts, as well as a taxpayer reporting the theft of a tax payment.
The IRS employee was fired immediately and sentenced to a two-year suspended sentence.
The lockbox employee also was terminated immediately and sentenced to six months
probation. The third individual was sentenced to 1 day of incarceration, 3 years
supervised
release and 30 hours community service.
Return Preparer Sentenced
A return preparer, who is a convicted felon, fraudulently advised taxpayers that
he was a
CPA authorized to represent taxpayers before the IRS. The return preparer also
committed
identity fraud by using the Social Security Number of a taxpayer to obtain credit and file
a fraudulent tax return in an attempt to secure a tax refund. The return preparer did not
want
to file a return under his own name since he owed the IRS over $400,000 in back taxes. In
January 2000, the preparer was sentenced to prison and supervised probation after he pled
guilty to charges of misuse of a Social Security Number. In addition, the judge
barred him from engaging in any activity of a financial or accounting nature after his
release.
Narcotics Investigations
TIGTA investigates incidents involving the illegal sale or purchase of controlled
substances by IRS employees. IRS employees who abuse narcotics often are
involved in additional criminal activity that 33
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Semiannual Report to the Congress
Treasury Inspector General for Tax Administration March 31, 2000
30
undermines the integrity of the IRS. During this reporting period, the Office of
Investigations completed 37 investigations of allegations of employee misconduct involving
narcotics abuse or trafficking.
IRS Employee Pled Guilty to Sale of Controlled Substances
In October 1999, an IRS employee pled guilty to one count of selling controlled
substances.
She was sentenced to 3 years probation, 180 days of work furlough and $400 in fines
and restitution. She was initially suspended and then subsequently terminated.
Information was developed by TIGTA, in conjunction with a multi-agency Drug
Enforcement Administration Narcotics Task Force, that an IRS employee was selling
controlled substances. A confidential informant provided information that he had
met the IRS employee and her ex-husband approximately 20 years ago. The informant
had purchased drugs from the ex-husband until the ex-husband's death. Upon the
ex-husband's death, the IRS employee took over the drug business and began to deliver
crystal methamphetamine to the informant's residence. The informant and an undercover
officer each made a drug purchase from the employee.
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 391
threat,
assault or harassment investigations.
Individual Arrested After Making Bomb Threat to IRS
In November 1999, TIGTA special agents arrested an individual charging him with
making a telephonic bomb threat to the IRS. The threat was made to an unpublished IRS
office telephone number located inside a federal building. TIGTA initially focused on
the individual after he failed to appear for his scheduled appointment with the IRS just
prior
to the threat being received. Further investigative leads identified the location of
the pay telephone used to make the threatening call. Interviews of persons using
the pay telephone before and after the call identified the same suspect. Further, the IRS
employee who received the threat subsequently spoke to the suspect over the
telephone and confirmed the voice to be that of the caller of the threat. The individual
pled
guilty to one count of corrupt or forcible interference in February 2000.
Foreign Nationals Pled Guilty to Kidnapping IRS Employee
Through the effort of a multi-agency task force consisting of investigators and
special
agents from TIGTA, the Federal Bureau of Investigation, and the U. S. Immigration and
Naturalization Service, three individuals were identified in the kidnapping of an IRS
employee. The three individuals had apparently kidnapped the employee under the
mistaken belief that the employee was part of an international criminal organization.
After
kidnapping the IRS employee, the individuals demanded a $100,000 ransom from the
employee's immediate supervisor, who they also mistakenly believed was part of the same
criminal organization. After the IRS 34
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Semiannual Report to the Congress
Treasury Inspector General for Tax Administration March 31, 2000
31
employee freed himself, he was able to provide a limited description of his captors.
After an intensive investigation, the three individuals were arrested. In January 2000,
they pled guilty to a six-count federal indictment charging them with
hostage-taking, conspiracy, use of a firearm in the commission of a crime and possession
of
false identification documents. Two other foreign nationals, who were subsequently
identified as also having been involved in the kidnapping, were indicted for misprision of
a
felony. These two individuals subsequently pled guilty.
Individual Pled Guilty to Corrupt Interference With Administration of
Internal Revenue Laws and Bankruptcy Fraud
In January 2000, an individual pled guilty to interfering with internal revenue laws
and
bankruptcy fraud for corrupt purposes. The individual sent threatening correspondence
and legal pleadings from fictitious lawsuits to IRS employees in an effort to prevent the
collection of taxes. The individual also falsely declared income on a bankruptcy
petition. The individual was sentenced in March 2000, to three years probation and a
$100 special assessment.
Individual Makes Bomb Threats to Federal Agencies
In November 1999, TIGTA special agents were notified that a written bomb threat was
found in an IRS office. Local police conducted a search of the building but found
no bombs.
TIGTA's investigation of the threatening note revealed that the Federal Bureau of
Investigation and the U. S. Immigration and Naturalization Service Offices had received
similar notes. Several days later, the individual surrendered to the U. S. Marshal
Service, admitting that he submitted the threatening notes to the government agencies.
He gave no details of why he made the threats. The individual was charged with
threatening to use weapons of mass destruction and remains incarcerated.
Individual Arrested for Unlawful Entry Into an IRS Office
During the course of an investigation involving an IRS employee, information was
reported to TIGTA that this same employee had been assaulted and removed forcibly from
an IRS work site by a male companion. The alleged incident took place in a building with
video surveillance cameras. TIGTA special agents secured the videotapes and, through
the use of video/ photographic enhancement techniques, isolated the incident on the tapes,
and made a positive identification of the suspect. Subsequently, it was learned that this
same individual had other unrelated assault charges pending against him. The Assistant
U. S. Attorney's Office accepted the case for prosecution and issued a warrant for the
individual's arrest.
In January 2000, the individual was allowed to plead guilty to an unrelated assault charge
in exchange for the unlawful entry charge being dropped. The individual was sentenced
to 120 days incarceration. 35
35 Page 36 37
36
36 Page 37 38
Semiannual Report to the Congress
Appendix I Statistical Reports for the Office of Audit
Audit Reports With Questioned Costs
Treasury Inspector General for Tax Administration March 31, 2000
33
One audit report with questioned costs was 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.
Reports With Questioned Costs
(10/ 1/ 99-3/ 31/ 00)
Report Category
Number
of Reports 1
Questioned Costs 2 (In Thousands) Unsupported Costs (In Thousands)
1. For which no management decision had been made by the beginning of the
reporting period.
Not
available
Not
available
Not
available
2. Which were issued during the reporting period. 1 $5,508 0
3. Subtotals (Item 1 plus Item 2) 1 $5,508 0
4. For which a management decision was made during the reporting period.
-Dollar value of disallowed costs
-Dollar value of costs not disallowed
0
0
0
0
0
0
0
0
0
5. For which no management decision had been made by the end of the reporting
period. (Item 3 minus Item 4)
1 $5,508 0
6. For which no management decision was made within six months of report
issuance. 0 0 0
1 See Appendix IV for identification of audit reports involved.
2 "Questioned Costs" include "Unsupported Costs."
. 37
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Semiannual Report to the Congress
Appendix I Statistical Reports for the Office of Audit
Audit Reports With Recommendations That Funds Be Put To Better Use
Treasury Inspector General for Tax Administration March 31, 2000
34
Seven reports with recommendations that funds be put to better use were issued during
this semiannual reporting period.
The term "recommendation that funds be put to better use" means a recommendation
that funds could be used more efficiently if management took actions to implement and
complete the
recommendation, including: (1) reductions in outlays; (2) deobligations of funds from
programs or operations; (3) costs not incurred by implementing recommended improvements
related to
operations; (4) avoidance of unnecessary expenditures noted in pre-award reviews of
contract or grant agreements; or (5) any other savings which are specifically identified.
The term
"management decision" means the evaluation by management of the findings and
recommendations included in an audit report and the issuance of a final decision
concerning its
response to such findings and recommendations, including actions concluded to be
necessary.
Reports With Recommendations That Funds Be Put to Better Use
(10/ 1/ 99-3/ 31/ 00)
Report Category
Number of
Reports 1
Amount (In Thousands)
1. For which no management decision had been made by the beginning of the reporting
period. Not available Not
available
2. Which were issued during the reporting period. 7 $71,655
3. Subtotals (Item 1 plus Item 2) 7 $71,655
4. For which a management decision was made during the reporting
period. 2
§ Dollar value of recommendations that were agreed to by management
-Based on proposed management action
-Based on proposed legislative action
§ Dollar value of recommendations that were not agreed to by management
6
6
6
0
1
$68,355
$23,355
$23,355
0
$ 45,000
5. For which no management decision had been made by the end of the reporting period.
(Item 3 minus Item 4) 1 $3,300
6. For which no management decision was made within six months of issuance. 0 0
1 See Appendix IV for identification of audit reports involved.
2 One report is shown in two categories. Management agreed with one recommendation ($ 21
million) and disagreed with
two recommendations ($ 45 million). 38
38 Page 39 40
Semiannual Report to the Congress
Appendix I Statistical Reports for the Office of Audit
Audit Reports With Additional Quantifiable Impact on Tax Administration
Treasury Inspector General for Tax Administration March 31, 2000
35
In addition to questioned costs and funds put to better use, the Office of Audit has
identified other measures that demonstrate the value of audit recommendations on tax
administration and IRS
business operations. These issues are of interest to the IRS and Treasury executives, the
Congress, and the taxpaying public, and are expressed in quantifiable terms to provide
further
insights to the value and potential impact of the Office of Audit's products and services.
Including this information also advances the intent and spirit of GPRA.
Definitions of these additional measures are:
1. Taxpayer Rights and Entitlements at Risk: The protection of due process (rights)
that is granted to taxpayers by law, regulation, or IRS policies and
procedures. These rights most commonly arise in the performance of filing tax returns,
paying delinquent taxes, and examining the accuracy of tax liabilities.
The acceptance of claims for and issuance of refunds (entitlements) are also included in
this category, relating to instances when taxpayers have a legitimate
assertion to overpayments of tax.
2. Reduction of Burden on Taxpayers : The decreased need for, frequency of, or time
spent on contacts, record keeping, preparation, or costs to comply with tax
laws, regulations, and IRS policies and procedures by individuals or businesses.
3. Increased Revenue or Revenue Protected: Assessment or collection of additional
taxes (increased revenue), or proper denial of claims for refund,
including recommendations that prevent erroneous refunds or efforts to defraud the tax
system (revenue protection).
4. Taxpayer Privacy and Security: Protection of taxpayer financial and account
information (privacy). Processes and programs that provide protection of tax
administration, account information and organizational assets (security).
5. Protection of Resources: Safeguarding human and capital assets, used by or in
the custody of the organization, from inadvertent or malicious injury, theft,
destruction, loss, misuse, overpayment, or degradation. This measure will often be
expressed as a value of the entity or program affected by the issue( s)
described in the audit report.
6. Reliability of Management Information: Ensuring the accuracy, validity,
relevance, and integrity of data (including the sources, applications and
processing of data) used by the organization to plan, monitor and report on its
financial and operational activities. This measure will often be expressed as an
absolute value (i. e., without regard to whether a number is positive or negative) of
overstatements or understatements of amounts recorded on the organization's
documents or systems. 39
39 Page 40 41
Semiannual Report to the Congress
Appendix I Statistical Reports for the Office of Audit
Audit Reports With Additional Quantifiable Impact on Tax Administration
Treasury Inspector General for Tax Administration March 31, 2000
36
The number of taxpayer accounts, hours, and dollar values shown in this chart were
derived from analyses of historical data, and are thus considered potential barometers of
the impact of audit
recommendations. Actual results will vary depending on the timing and extent of
management's implementation of the corresponding corrective actions, and the number of
accounts or
subsequent business activities applicable from the dates of implementation. Also, a report
may have multiple issues pertaining to a single outcome and issues that impact more than
one outcome
measure category.
Reports With Additional Quantifiable Impact on Tax Administration
(10/ 1/ 99-3/ 31/ 00)
Outcome Measure Category
Number of
Reports in
Category 1
Number of Taxpayer
Accounts
Number of
Hours
Dollar Value (In Thousands) Other 3
1. Taxpayer Rights and Entitlements at Risk 5 1,710,664 $5,450 1,854 4
2. Reduction of Burden on Taxpayers 7 6,106,982 5
3. Increased Revenue or Revenue Protected 6 $997,856 2
4. Taxpayer Privacy and Security 0
5. Protection of Resources 0
6. Reliability of Management Information 7 4,787 $61,936 6
1 See Appendix IV for identification of audit reports involved.
2 For four reports (2000-30-059, 2000-30-062, 2000-40-045, 2000-40-029), IRS management
did not concur with TIGTA's
quantification of revenue projections totaling $947.3 million. 3 Some reports
contained "Other" quantifiable impacts besides the number of taxpayer accounts,
number of hours and
dollar value. These outcome measures are described in the footnotes below. 4 Freedom
of Information Act and Privacy Act requests improperly withheld or not timely processed.
5 Other measures of burden reduction consists of: 33,500 tax returns (number of individual
taxpayers not determined);
129 Freedom of Information Act and Privacy Act requests in which additional information
could have been furnished to the taxpayers; reduction of 225,000 calendar days to resolve
disagreements; and, 11.4 million additional telephone calls
that could have been answered. 6 Other reliability of management information
measures consists of: three potential Fair Debt Collection Practices Act
violations that were not identified; 664 Freedom of Information Act request files that
were not documented adequately; and, 7,800 tax returns were not controlled properly. 40
40 Page 41 42
Semiannual Report to the Congress
Appendix II Statistical Reports for the Office of Investigations
Treasury Inspector General for Tax Administration March 31, 2000
37
Investigative Results October 1, 1999 – March 31, 2000
Investigations Opened and Closed
Total Investigations Opened 1,948
Total Investigations Closed 2,167
Financial Accomplishments
Embezzlement/ Theft Funds Recovered $208,671
Court Ordered Fines, Penalties and Restitution $8,597,256
Out-of-Court Settlements $0 41
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Semiannual Report to the Congress
Appendix II Statistical Reports for the Office of Investigations
Treasury Inspector General for Tax Administration March 31, 2000
38
Status of Closed Criminal Investigations
Employee Non-Employee TOTAL 1
Referred – Accepted for Prosecution 18 105 123
Referred – Declined for Prosecution 222 232 454
No Referral 2 718 644 1,362
Referred -Pending Prosecution Decision 25 102 127
Criminal Dispositions 3
Employee Non-Employee TOTAL 1
Guilty 17 62 79
Nolo-Contendere 1 2 3
Pre-trial Diversion 3 13 16
Not Guilty 0 0 0
Dismissed 2 6 8
1 The above statistics include both federal and state dispositions.
2 Includes investigations in which the allegation was disproved and/ or insufficient
evidence was obtained.
3 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. 42
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Semiannual Report to the Congress
Appendix II Statistical Reports for the Office of Investigations
Treasury Inspector General for Tax Administration March 31, 2000
39
Administrative Status and Dispositions on Closed TIGTA Investigations 1
Removed, Terminated or Other 86
Suspended/ Reduction in Grade 39
Oral or Written Reprimand/ Admonishment 108
Closed – No Action Taken 157
Clearance Letter Issued 66
TOTAL DISPOSITIONS 456
Employee Resigned Prior to Adjudication 53
1 Investigations which were referred and/ or investigations on which action was
taken by the IRS during this reporting
period. Additionally, TIGTA referred 688 investigations during this 6-month period that
remain pending administrative adjudication by the IRS. 43
43 Page 44 45
Semiannual Report to the Congress
Appendix II Statistical Reports for the Office of Investigations
Treasury Inspector General for Tax Administration March 31, 2000
40
The following tables summarize the number of complaints received by TIGTA and various
components within the IRS and the status and dispositions of the complaints.
Complaints/ Allegations Received by TIGTA
Number of Complaints/ Allegations Received by TIGTA 4,211
Complaints Against IRS Employees 2,086
Complaints Against Non-Employees 2,125
Status of Complaints/ Allegations Received by TIGTA
Status of Complaints
Warranted Further Investigation 1,680
In Process Within TIGTA 475
Referred to the IRS for Action 719
Referred to the IRS for Information Only 539
Referred to a Non-IRS Entity 1 28
Closed With No Referral 770
TOTAL COMPLAINTS 4,211
1 A non-IRS entity includes other law enforcement entities or federal agencies. 44
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Semiannual Report to the Congress
Appendix II Statistical Reports for the Office of Investigations
Treasury Inspector General for Tax Administration March 31, 2000
41
Complaints/ Allegations Received by IRS
Number of Complaints 1
Customer Feedback System (CFS) 2 1,351
Taxpayer Advocate Management Information System (TAMIS) 3 122,194
EEO Informal Complaints 577
EEO Formal Complaints 4 351
Other Employee Misconduct 216
1 Number of complaints is not totaled because of significant differences in the
nature of issues raised in each complaint
system and the potential for duplication. 2 This system contains data on allegations of
employee misconduct as mandated by the Taxpayer Bill of Rights 2. The
CFS does not contain data on allegations meeting Section 1203 criteria that have
been referred to TIGTA for adjudication.
3 Formerly the Problem Resolution Program. TAMIS does not distinguish between a complaint
(against a system,
process, policy or employee), a problem (with a tax account) or an inquiry. Such
classification is considered interpretive of the state of mind of the individual
presenting the issue and is therefore considered impractical.
4 Formal complaints are unresolved pre-complaints (i. e., complaints that are not settled,
withdrawn or otherwise dropped)
that are filed by complainants with one of the four Department of Treasury Regional
Complaint Centers. 45
45 Page 46 47
46
46 Page 47 48
Semiannual Report to the Congress
Appendix III Statistical Reports— Other
Audit Reports With Unimplemented Corrective Actions
Treasury Inspector General for Tax Administration March 31, 2000
43
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 IRS Office of Management Control's
automated tracking system maintained by Treasury management officials.
(F = Finding Number, R = Recommendation Number, P = Plan Number)
Reference 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 IRS' modernization efforts.
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 the Revenue Accounting Control System replacement.
065002 July 1996 Review of the Validity of Assessments
F-1, R-3, P-1. The Service should continue pursuing the capability to access Social
Security Administration data via computer to enable quick, economical
processing of Combined Annual Wage Reporting and Social Security Administration penalty
cases. 47
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Appendix III Statistical Reports— Other
Audit Reports With Unimplemented Corrective Actions
Treasury Inspector General for Tax Administration March 31, 2000
44
Reference 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-3, P-1. Establish a Form W-2/ Business Masterfile cross-check of Employer
Identification Numbers that appear on Forms W-2 attached to
electronically filed Forms 1040. Establish employment tax filing requirements for those
Employer Identification Numbers that match an existing Business
Masterfile 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.
072208 April 1997 Review of Service Efforts to Ensure Compliance of Taxpayers Receiving
Foreign-Sourced Income
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-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. 48
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Appendix III Statistical Reports— Other
Audit Reports With Unimplemented Corrective Actions
Treasury Inspector General for Tax Administration March 31, 2000
45
Reference Number Issued Report Title and Recommendation Summary
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, Internal Audit recommended that
management 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 user 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.
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-5, P-1. Assess the risks associated with not having the systems developer under
contract during the Year 2000. 49
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Appendix III Statistical Reports— Other
Audit Reports With Unimplemented Corrective Actions
Treasury Inspector General for Tax Administration March 31, 2000
46
Reference Number Issued Report Title and Recommendation Summary
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.
083322 May 1998 Math Error Processing for Revenue Protection Issues
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 Tax Credit
Taxpayer Identification Numbers are invalid or missing.
F-10, R-1, P-1. Include an informal checklist in the Revenue Protection Strategy math
error notices listing the information taxpayers should provide
when writing or calling the IRS.
084407 July 1998 Use of Seizure Authority in the Collection Field Function
F-1, R-2, P-3. 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.
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. 50
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Appendix III Statistical Reports— Other
Audit Reports With Unimplemented Corrective Actions
Treasury Inspector General for Tax Administration March 31, 2000
47
Reference Number Issued Report Title and Recommendation Summary
085812 September 1998 Readiness for Service Center Mainframe Consolidation
F-2, R-1, P-1. Unless assurances can be made that experienced IRS personnel can be
relocated when and where needed, IRS 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.
091903 December 1998 Executive Compilation and Interpretation of the 1998 Filing
Season
F-2, R-1, P-1. To simplify return filing, the IRS should improve the process used to
evaluate the burden placed upon taxpayers by the various tax laws and
publications.
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.
092705 March 1999 Review of the Internal Revenue Service's Year 2000 Contingency
Planning Efforts
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. 51
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Appendix III Statistical Reports— Other
Audit Reports With Unimplemented Corrective Actions
Treasury Inspector General for Tax Administration March 31, 2000
48
Reference Number Issued Report Title and Recommendation Summary
093602 April 1999 The Internal Revenue Service Needs To Improve Treatment of
Taxpayers During Office Audits
F-1, R-3, P-2. Require a separation of duties among auditors who identify Midwest
Automated Compliance System returns with potential tax changes,
auditors who select Midwest Automated Compliance System returns to be audited, and
auditors who conduct the examinations.
F-1, R-4, P-2. Ensure that all Midwest Automated Compliance System data discs forwarded
from the Midwest Automated Compliance System
Development Center to district offices are properly accounted for and secured.
F-2, R-3, P-2. Ensure examiners, including managers, are better informed and educated
about IRS procedures that are designed to ensure taxpayers are
treated properly during audits.
F-2, R-4, P-1. Clarify the Internal Revenue Manual to provide specific guidance for
conducting correspondence audits in district office settings.
094206 May 1999 The Examination Returns Control and Integrated Data Retrieval
Systems Can Be Improved to Protect Taxpayer Rights During the Audit Process
F-3, R-1, P-1, P-2. The Assistant Commissioner (Examination), with input from the
Chief Information Officer, should ensure the following issues are
addressed to enable the Examination Returns Control System audit trail to be used to its
fullest extent.
F-4, R-1, P-4. The Assistant Commissioner (Examination), with input from the Chief
Information Officer, should develop and submit a Request for
Information Services to eliminate acting managers from having the ability to approve any
changes to their inventory. 52
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Appendix III Statistical Reports— Other
Audit Reports With Unimplemented Corrective Actions
Treasury Inspector General for Tax Administration March 31, 2000
49
Reference Number Issued Report Title and Recommendation Summary
093009 June 1999 Review of the Electronic Fraud Detection System
F-1, R-2, P-2. Initial and periodic password changes should be systemically enforced
for the Electronic Fraud Detection System (EFDS) application
program.
F-1, R-3, P-2. Workstation terminals should be disabled after a selected number of failed
login attempts to the EFDS application program.
F-1, R-4, P-2. Password change information should be part of the EFDS application audit
trail.
F-2, R-1, P-2. Program the EFDS application trail to record all accesses to taxpayer data.
F-2, R-2, P-2. Design an audit trail application to record accesses to taxpayer data
through secondary sources such as the database administrator, system
query tools, or contract vendors.
F-3, R-1, P-2. The EFDS Project Office should work with EFDS developers to ensure that the
following programming changes are made. The EFDS
application audit reports should be changed to include a date range field and
service center site field where applicable.
F-3, R-4, P-2. The Chief Information Officer should complete this assessment, taking
into consideration the audit trail issues referred to in this Memorandum
of Understanding to improve the usefulness of the EFDS application audit trail.
F-3, R-5, P-2. Because of the sensitivity of the data maintained on the EFDS, and the
number of people who have access to the system (with more planned in
the future), the audit trail problems referred to in the report should be included by
the IRS as a Federal Managers' Financial Integrity Act material weakness.
F-5, R-2, P-1. EFDS will soon undergo a new security certification. Taking into account
the audit trail and documentation issues discussed in this report, it
is questionable whether EFDS should have received its prior security certification. In the
upcoming certification process, Information Systems
should ensure that the issues discussed in this report are corrected, and that all other
controls necessary for a proper certification are in place and functioning. 53
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Audit Reports With Unimplemented Corrective Actions
Treasury Inspector General for Tax Administration March 31, 2000
50
Reference Number Issued Report Title and Recommendation Summary
199920063 August 1999 The General Controls Environment Over the Internal Revenue
Service's Unisys 2200 Systems Can Be Improved
F-1, R-1, P-1. The Chief Information Officer should ensure that the ten files
identified by TIGTA with taxpayer information are immediately secured to
prevent system users from casually reviewing the taxpayer data contained in the files
without such access being reported to management.
F-2, R-1, P-1. The Chief Information Officer should standardize control settings for
files common to the Unisys 2200 production mainframes.
F-3, R-1, P-1. The Chief Information Officer should ensure all improperly owned files are
identified and assigned an owner present on the Unisys 2200
system at each service center, with the exception of files required to be unowned, prior
to movement of that service center's mainframe to the
consolidated Unisys 4800 environment.
F-3, R-2, P-1, P-2, P-3, P-4, P-5, P-6. The Chief Information Officer should institute a
policy requiring that all files owned by users being removed from
the Unisys 2200 and Unisys 4800 systems either be deleted or assigned to a
user present on the system.
F-4, R-1, P-1. The Chief Information Officer should examine the possibility of tracking
individual user actions while using the MASTER user-id on the
Unisys 4800 system and, if possible, implement this feature as soon as feasible.
F-6, R-1, P-1. The Chief Information Officer should ensure that all required
C-2 documentation is prepared for the Unisys 4800.
F-6, R-2, P-1. The Chief Information Officer should develop and maintain a security
policy for the Unisys 4800.
F-6, R-3, P-1. The Chief Information Officer should conduct and document an assessment
of the risk factors for the Unisys 4800.
199910074 September 1999 Internal Revenue Service Should Improve Its Federal Tax
Lien Procedures
F-1, R-2, P-1. Change the IRS systems to automatically send the IRS Restructuring and
Reform Act of 1998 lien notice to all responsible spouses
and all appropriate business partners.
F-1, R-3, P-1. Revise procedures to ensure that the IRS Restructuring and Reform Act of
1998 lien notice is sent to a taxpayer's representative.
F-1, R-5, P-1. Revise procedures to ensure that envelopes for requests for hearings
(Forms 12153) are retained if they are received after the 30 calendar-day
period for requesting a hearing has lapsed.
F-1, R-6, P-1. Revise procedures to ensure that the Notice of Federal Tax Lien (Form 668Y)
is printed shortly after being input on the IRS' lien system and
mailed the same day.
F-1, R-7, P-1. Revise procedures to ensure that case files are researched for a different
address when an IRS Restructuring and Reform Act of 1998 lien
notice is returned to the IRS because it could not be delivered to the taxpayer.
F-1, R-8, P-1. Revise procedures to ensure that existing management information systems
measure compliance with the new IRS Restructuring and
Reform Act of 1998 federal tax lien notification requirements. 54
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Audit Reports With Unimplemented Corrective Actions
Treasury Inspector General for Tax Administration March 31, 2000
51
Reference Number Issued Report Title and Recommendation Summary
199910072 September 1999 The Internal Revenue Service Needs to Improve Compliance
With Legal and Internal Guidelines When Taking Taxpayers' Property for Unpaid Taxes
F-2, R-1, P-1. Complete the seizure and post-seizure checklists that are being
developed and ensure that pertinent 26 U. S. C. § 6331 through § 6344 and
Internal Revenue Manual requirements are included.
F-2, R-2, P-1. Use memoranda, training sessions, group meetings, etc., to emphasize that
IRS employees use the appropriate checklists for all seizures
conducted.
F-2, R-3, P-1, P-2, P-3, P-4. Ensure that Collection management and other appropriate
management officials verify that all applicable items on the Pre-seizure
Checklist are completed prior to approving the seizure and that all applicable items on
the seizure and post-seizure checklists under development
are completed.
F-2, R-4, P-1, P-2, P-3. Determine from a legal standpoint what steps should be taken
regarding any money received as a direct result of conducting seizures
without following the provisions in 26 U. S. C. § 6331 through § 6344.
199910071 September 1999 The Internal Revenue Service Has Not Fully Implemented
Procedures to Notify Taxpayers Before Taking Their Funds for Payment of Tax
F-1, R-2, P-1. Develop safeguards, such as a quality review system, to prevent notices
from being mailed to taxpayers unless issuing a levy is the next planned
action on a case.
199920068 September 1999 The Service Center Mainframe Consolidation Project Has Made
Significant Progress, But Project Execution and Administration Risks Remain
F-1, R-1, P-1, P-3. Ensure all critical operational and technical aspects of
consolidation at computing centers and service centers (including Kansas City
Service Center) are: 1) standardized; 2) thoroughly tested; 3) documented appropriately;
and, 4) included in employee training.
F-2, R-1, P-1. IRS management should ensure that all delivery orders are definitized by
June 1999. The Service Center Mainframe Consolidation
Project Office should validate the inventory of goods and services ordered (including
validating accuracy, quantity, and delivery schedule and sites).
F-2, R-2, P-1. IRS management should ensure that all delivery orders are definitized by
June 1999. The Procurement Division should validate the goods
and services ordered for pricing accuracy.
F-2, R-3, P-1. IRS management should ensure that proper procedures are followed. The
Service Center Mainframe Consolidation Project Office should
establish full-time Government Task Managers and support staff on-site to monitor and
verify deliveries, hours worked by the contractor, and travel taken
by the contractor.
F-3, R-1, P-1, P-2, P-3. The Chief Information Officer should ensure that all
consolidation costs, whether incurred at the Project Office or field levels, are
accurately budgeted, captured, and reported. 55
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Audit Reports With Unimplemented Corrective Actions
Treasury Inspector General for Tax Administration March 31, 2000
52
Reference Number Issued Report Title and Recommendation Summary
093103 September 1999 Limitations of the Automated Non-Masterfile and the Impact on
the Internal Revenue Service
F-3, R-2, P-2. Using the existing computer listings of Non-Masterfile Accounts
Receivable and Transaction Code 130s generated the 39 th week of
the year, conduct an annual match to identify accounts without a "freeze."
199940065 September 1999 Improvements Can Be Made in Providing Assistance to Taxpayers
F-1, R-1, P-1. Require each call site to identify assistors who have not been
sufficiently trained on the Taxpayer Relief Act of 1997, and require employees,
without proof of training, to complete the 1998 Continuing Professional Education
course, or some other type of comparable training.
F-1, R-2, P-1. Coordinate with Corporate Education to mandate all telephone assistor
training be captured on the Administrative Corporate Education
System and establish a monitoring system to ensure all assistors have been properly
trained.
094505 September 1999 The Internal Revenue Service's Individual Taxpayer
Identification Number Program Was Not Implemented in Accordance With Internal Revenue Code
Regulations
F-1, R-2, P-1. The IRS needs to include a Privacy Act statement on the Form W-7
application form.
199940057 September 1999 Controls Should Be Strengthened Over Business Taxpayer
Accounts With Frozen Million Dollar Refunds
F-1, R-1, P-1. Modify the "Million Dollar Refund Freeze" indicator program
in the IRS' computer system to provide the option to release business taxpayer
account credit balances plus computed interest that total less than $1 million (i. e.,
when the refund due drops below $1 million at any point in time).
F-4, R-1, P-1. Enhance current Internal Revenue Manual procedures to identify and
expedite the resolution of a "Million Dollar Refund Freeze." 56
56 Page 57 58
Semiannual Report to the Congress
Appendix III Statistical Reports— Other
Treasury Inspector General for Tax Administration March 31, 2000
53
Access to Information
The Inspector General Act of 1978 requires Inspectors General to report on
unreasonable refusals of information available to the agency which relate to programs and
operations for which the
Inspector General has responsibilities. There were no instances where information or
assistance
requested by TIGTA was refused.
Audit Reports Issued in Prior Reporting Period With No Management Response
The Inspector General Act of 1978 requires a summary of each audit report issued
before the beginning of the current reporting period for which no management response has
been received
by the end of the current reporting period. There are no prior reports where management's
response was not received.
Revised Management Decisions
The Inspector General Act of 1978 requires Inspectors General to provide a description
and explanation of the reasons for any significant revised management decisions made
during the
reporting period. There were no such decisions during this six-month reporting period.
Disputed Audit Recommendations
The Inspector General Act of 1978 requires Inspectors General to provide information
on significant management decisions in response to audit recommendations, with which the
Inspectors General disagree. As of March 31, 2000, there were no significant
recommendations that were disputed.
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 162 proposed
legislation and regulations during the six-month reporting period. 57
57 Page 58 59
58
58 Page 59 60
Semiannual Report to the Congress
Appendix IV
TIGTA Audit Report Listing
Treasury Inspector General for Tax Administration March 31, 2000
55
October 1, 1999 – March 31, 2000
Report Number Issued Report Title
2000-1C-001 October 1999 Audit of Fiscal Years 1997 and 1998 Incurred Costs for
Subcontractor Under TIRNO-95-D-00067
2000-1C-002 October 1999 Audit of Fiscal Year 1997 Incurred Costs for TIR-92-0014
2000-1C-003 October 1999 Audit of Fiscal Years 1996 and 1997 Incurred Costs for
TIRNO-94-D-00089
2000-20-004 October 1999 The Internal Revenue Service Needs to Encourage Taxpayer
Use, Improve Customer Service, and Enhance Computer Controls of the 941 TeleFile
Program
Taxpayer Burden: 758,294 taxpayer accounts at risk
33,500 tax returns at risk
460,000 Form 941 filers whose inquiries may not be effectively
resolved
Reliability of Information: 23,000 Form 941 signatures not
validated
17 taxpayer accounts filing multiple returns
2000-20-007 October 1999 The Internal Revenue Service's Oversight of the Year 2000
Conversion Can Be Strengthened
2000-40-010 October 1999 Management Advisory Report: Percentage of Rejected
Electronically Filed Returns
2000-10-005 November 1999 The Internal Revenue Service May Not Achieve Its 100
Percent Analysis and Validation Objectives for Year 2000 Readiness
2000-20-008 November 1999 The Internal Revenue Service Can Improve Management
Controls Over the Year 2000 End-to-End Systems Integration Test
2000-20-009 November 1999 The Internal Revenue Service Can Increase Storage
Capacity on Several IBM Mainframe Systems Through Improved Maintenance
2000-40-006 November 1999 The Internal Revenue Service Needs to Allocate Adequate
Resources to Work Correspondence Cases Timely and Consistently
2000-40-011 November 1999 The Internal Revenue Service Improved Its Process for
Screening Prospective Preparers and Transmitters of Electronic Returns for 1999
Electronic Filing
2000-1C-020 December 1999 Agreed Upon Procedures for TIRNO-99-D-00001
2000-10-012 December 1999 The Interim Revenue Accounting Control System Is Reliable 59
59 Page 60 61
Semiannual Report to the Congress
Appendix IV
TIGTA Audit Report Listing
Treasury Inspector General for Tax Administration March 31, 2000
56
Report Number Issued Report Title
2000-10-014 December 1999 The Internal Revenue Service Is Now Tracking Potential
Fair Debt Collection Practices Act Violations, But May Not Always Be Properly
Reporting Violations
Taxpayer Rights and Entitlements: 2.5 million taxpayers at risk
Reliability of Information: 3 potential violations not identified
2000-10-016 December 1999 The Internal Revenue Service Should Improve Its Process
to Ensure That All Government Performance and Results Act Requirements Are Satisfied
Protection of Resources: $1.66 billion budgeted for key programs that had no
performance goals or
measures
2000-10-017 December 1999 Improvements Are Needed in Planning and Awarding Internal
Revenue Service Contracts to 8( a) Businesses
2000-20-019 December 1999 Management Advisory Report: The Internal Revenue Service
Took Actions to Correct Concerns Raised in Our Report on Computer Component
Retirement Decisions for the Year 2000
2000-20-021 December 1999 The Internal Revenue Service Needs to Significantly
Improve the Inventory Used to Monitor Its Year 2000 Conversion Efforts
2000-20-022 December 1999 Improved Project Management Is Needed to Ready Personal
Computers for the Year 2000
2000-20-023 December 1999 Management Advisory Report: Various Risks Remain in the
Year 2000 Conversion Effort for Personal Computer Systems
2000-20-024 December 1999 Management Advisory Report: The Internal Revenue Service
Has Made Significant Progress in Converting Minicomputer Systems for the Year
2000, But Risks Remain
2000-20-025 December 1999 The Internal Revenue Service Can Take Further Action to
Ensure a Successful Year 2000 Rollover Period
2000-30-015 December 1999 Consolidated Report on Opportunities for the Internal
Revenue Service to Improve Service to Business Taxpayers
Taxpayer Burden: 18 million business filers filed 47 million
returns
2000-40-018 December 1999 The Internal Revenue Service Can Improve the Effectiveness
of Questionable Refund Detection Team Activities
Revenue Protected: $3,100,000
Taxpayer Rights and Entitlements: 63 taxpayer accounts at risk
2000-10-013 January 2000 The Internal Revenue Service Has Enhanced Controls Over
High Intensity Drug Trafficking Area Funds
Protection of Resources: $1.3 million of funds protected by an improved control
environment
2000-10-027 January 2000 The Internal Revenue Service Has Improved Revenue
Accounting Controls Over Deposit Discrepancies
2000-1C-034 February 2000 Agreed Upon Procedures for (TIRNO-99-R-00009) 60
60 Page 61 62
Semiannual Report to the Congress
Appendix IV
TIGTA Audit Report Listing
Treasury Inspector General for Tax Administration March 31, 2000
57
Report Number Issued Report Title
2000-1C-035 February 2000 Agreed Upon Procedures for (TIRNO-99-R-00009)
2000-1C-040 February 2000 Agreed Upon Procedures for (TIRNO-99-R-00009)
2000-1C-041 February 2000 Agreed Upon Procedures for (TIRNO-99-R-00009)
2000-1C-042 February 2000 Agreed Upon Procedures for (TIRNO-99-R-00009)
2000-1C-043 February 2000 Agreed Upon Procedures for (TIRNO-99-R-00009)
2000-1C-048 February 2000 Agreed Upon Procedures for (TIRNO-99-R-00009)
2000-10-026 February 2000 The Internal Revenue Service Needs to Improve Telephone
Authentication Practices to Better Prevent Unauthorized Tax Account Disclosures
2000-10-028 February 2000 Cost Savings Can Be Achieved Through Improved Monitoring
of the Treasury Communications System Contract
Questioned Costs: $5,508,000 1
Funds Put to Better Use: $ 775,000 1
2000-10-033 February 2000 The Internal Revenue Service Can Further Reduce the
Burden on Taxpayers Who Disagree With Proposed Assessments
Funds Put to Better Use: $ 800,000
Taxpayer Burden: 225,000 fewer calendar days to resolve cases
2000-20-030 February 2000 The Internal Revenue Service Needs to Strengthen the
Controls Over the Year 2000 Conversion of Its Telecommunications Equipment
2000-20-039 February 2000 The Internal Revenue Service Can Improve Information
Systems Physical Security
2000-40-032 February 2000 Walk-In Initiatives for the 1999 Filing Season Improved
Customer Service to Taxpayers
Taxpayer Burden: 6 million taxpayer contacts
2000-40-036 February 2000 Management Advisory Report: The Internal Revenue Service
Should Improve Controls Over Photocopy User Fees at the Fresno Service Center
2000-40-037 February 2000 Management Advisory Report: The Internal Revenue Service
Should Improve Controls Over Photocopy User Fees at the Memphis Service Center
2000-40-038 February 2000 Management Advisory Report: The Internal Revenue Service
Should Improve Controls Over Photocopy User Fees at the Kansas City Service
Center
2000-1C-046 March 2000 Agreed Upon Procedures for (TIRNO-99-R-00009)
2000-1C-049 March 2000 Agreed Upon Procedures for (TIRNO-99-R-00009)
1 Monetary benefits projected over a five-year period. 61
61 Page 62 63
Semiannual Report to the Congress
Appendix IV
TIGTA Audit Report Listing
Treasury Inspector General for Tax Administration March 31, 2000
58
Report Number Issued Report Title
2000-1C-050 March 2000 Agreed Upon Procedures for (TIRNO-99-R-00009)
2000-1C-056 March 2000 Agreed Upon Procedures for (TIRNO-99-D-00001)
2000-10-044 March 2000 Improvements Are Needed in Planning for the Acquisition of
Goods and Services and in Managing Contract Closeouts
Funds Put to Better Use: $ 669,000
Reliability of Information: $1,335,834 in funds wasted or placed at risk of waste
2000-10-047 March 2000 The Internal Revenue Service Needs to Strengthen Its
Operating Controls for the Tax-Exempt Bond Program
Reliability of Information: 95,223 returns processed
2000-10-058 March 2000 The Internal Revenue Service Needs to Improve Its Compliance
with Procedures When Processing Requests for Information Under the Freedom
of Information Act
Taxpayer Rights and Entitlements: 1,854 Freedom of Information Act (FOIA) and
Privacy Act (PA) requests
not properly handled
Taxpayer Burden: 129 FOIA and PA requests not properly
handled
Reliability of Information: 664 FOIA and PA requests not adequately documented
2000-10-061 March 2000 Letter Report: The Internal Revenue Service Should Improve
Its Process to Ensure the Fiscal Year 1999 Performance Report Will Contain the
Information Intended by the Congress
2000-20-031 March 2000 The Internal Revenue Service Needs to Complete Disaster
Recovery and Business Resumption Plans
Protection of Resources: 30 IRS locations and 106 computer data files at risk
2000-20-052 March 2000 The Internal Revenue Service Needs to Assure That All
Mission Critical Systems Are Subject to a Full Year 2000 End-to-End Systems Integration
Test
2000-30-057 March 2000 Opportunities Exist for Further Reducing Erroneous Fuel Tax
Credits
Increased Revenue: $15,870,000 1
1 Monetary benefits projected over a five-year period. 62
62 Page 63 64
Semiannual Report to the Congress
Appendix IV
TIGTA Audit Report Listing
Treasury Inspector General for Tax Administration March 31, 2000
59
Report Number Issued Report Title
2000-30-059 March 2000 The Internal Revenue Service Can Improve the Estate Tax
Collection Process
Funds Put to Better Use: $ 10,700
Increased Revenue: $354,741,000
Taxpayer Rights and Entitlements: 10,601 taxpayer accounts at risk
$ 580,000 credited to taxpayer accounts as part of IRS corrective action
Reliability of Information: 4,770 taxpayer accounts at risk
2000-30-062 March 2000 Toll-Free Telephone Service Levels Declined in 1999 Despite
Costly Efforts to Achieve World Class Performance
Funds Put to Better Use: $ 66,000,000
Increased Revenue: $314,000,000
Taxpayer Burden: 11,400,000 additional phone calls that can be answered
2000-40-029 March 2000 The Internal Revenue Service Could Enhance the Process for
Implementing New Tax Legislation
Increased Revenue: $238,800,000
Taxpayer Burden: 2,267,591 taxpayer accounts at risk
Taxpayer Rights and Entitlements: 1,700,000 taxpayer accounts at risk
2000-40-045 March 2000 Taxpayers and the Internal Revenue Service Experienced
Problems With Some New Tax Provisions
Increased Revenue: $71,345,000
Taxpayer Burden: 1,180,867 taxpayer accounts at risk
Taxpayer Rights and Entitlements: $ 4, 870,000 in denied credits and
deductions
2000-40-053 March 2000 The Integrated Submission and Remittance Processing System
Development Project Has Made Significant Progress, But Operating Risks Remain
Funds Put to Better Use: $ 100,000
Taxpayer Burden: 1,900,230 taxpayer accounts at risk
Taxpayer Burden/ Taxpayer Privacy and Security: 100,000,000 taxpayer accounts at risk of
processing problems and unauthorized access and misuse of tax return data
Reliability of Information: 7,800 taxpayer accounts at risk
$9,000,000 in underfunding of critical submission processing programs
2000-40-054 March 2000 The Internal Revenue Service's Planning Process Needs
Improving to Fully Resolve All Issues Affecting Tax Return Processing Activities
Funds Put to Better Use: $ 3,300,000
Reliability of Information: $51,600,000 needed to fund 1,000 staff years not budgeted 63
63 Page 64 65
Semiannual Report to the Congress
Appendix IV
TIGTA Audit Report Listing
Treasury Inspector General for Tax Administration March 31, 2000
60
Report Number Issued Report Title
2000-40-055 March 2000 The Internal Revenue Service Needs to Improve Its
Coordinated Oversight of the Substitute for Return Process
Taxpayer Rights and Entitlements/ Taxpayer Burden: 1,000,000 taxpayer accounts at
risk
2000-40-060 March 2000 The Process of Developing Tax Forms for Individual Taxpayers
Should Be Further Improved
Note: Outcome measures are shown in italicized type. A taxpayer's account may be
impacted by multiple recommendations. 64
64 Page 65 66
Semiannual Report to the Congress
Appendix V
Section 1203 Standards
Treasury Inspector General for Tax Administration March 31, 2000
61
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 in
the
performance of official duties such employee committed any act or omission. 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 1964 1 ,
(ii) Title IX of the Education Amendments of 1972 2 ,
(iii) The Age Discrimination in Employment Act of 1967 3 ,
(iv) The Age Discrimination Act of 1975 4 ,
(v) Section 501 or 504 of the Rehabilitation Act of 1973 5 , or
(vi) Title I of the Americans with Disabilities Act of 1990 6 ;
(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;
1 42 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. 65
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Semiannual Report to the Congress
Appendix V
Section 1203 Standards
Treasury Inspector General for Tax Administration March 31, 2000
62
(8) willful failure to file any return of tax required under the Internal Revenue Code
of 1986 on or before the date prescribed therefor (including any extensions), unless such
failure is due to
reasonable cause and not to willful neglect;
(9) willful understatement of federal tax liability, unless such understatement is due to
reasonable cause and not to willful neglect; and,
(10) threatening to audit a taxpayer for the purpose of extracting personal gain or
benefit.
In general, the Commissioner of Internal Revenue may take a personnel action other than
employment termination for an act or omission above. The exercise of this authority shall
be at
the sole discretion of the Commissioner and may not be delegated to any other officer. The
Commissioner in his sole discretion may establish a procedure which will be used to
determine
whether an individual should be referred to the Commissioner for a determination by the
Commissioner. Any determination of the Commissioner in these matters may not be appealed
in
any administrative or judicial proceeding. 66
66 Page 67 68
Semiannual Report to the Congress
Appendix VI
Statutory TIGTA Reporting Requirements
Treasury Inspector General for Tax Administration March 31, 2000
63
In FY 1999, TIGTA completed the statutory reviews required annually by RRA 98. Most of
the results were included in TIGTA's September 1999 Semiannual Report to the Congress with
the
exception of two audit reports, highlighted in this report on pages 14 and 15. The table
below reflects the status of the RRA 98 statutory reviews that have been initiated for FY
2000. Eight 1
statutory audit reports were issued in this reporting period that dealt with taxpayer
protection and
rights, and the adequacy and security of IRS technology.
Reference to Statutory Coverage Explanation of the Provision Comments/ TIGTA Audit
Status
Restrictions on the Use of Enforcement
Statistics
I. R. C. § 7803( d)( 1)( A)( i)
An evaluation of the compliance of the IRS with
restrictions under § 1204 of
RRA 98 on the use of enforcement statistics to
evaluate IRS employees.
Audit fieldwork in process.
Restrictions on Directly Contacting
Taxpayers
I. R. C. § 7803( d)( 1)( A)( ii)
An evaluation of the compliance of the IRS with
restrictions under § 7521 of
RRA 98 on directly contacting taxpayers who
have indicated that they prefer their representatives
be contacted.
Follow-up audit planned on the initial corrective actions taken by the IRS in response
to the prior
report.
Filing of a Notice of Lien
I. R. C. § 7803( d)( 1)( A)( iii)
An evaluation of the compliance of the IRS with
required procedures under I. R. C. § 6320 upon the
filing of a notice of lien.
Audit fieldwork in process.
Levies
I. R. C.
§ 7803 (d)( 1)( A)( iv)
An evaluation of the compliance of the IRS with
required procedures under
I. R. C § 6330 regarding levies.
Audit fieldwork in process.
Seizures
I. R. C. § 7803( d)( 1)( A)( iv)
An evaluation of the
compliance of the IRS with required procedures under
Subchapter D of Chapter 64
for seizure of property for collection of taxes.
Audit fieldwork in process.
1 This includes: two taxpayer protection and rights audits that began in FY 1999,
but the reports were issued in FY 2000;
two audit reports on the security of IRS technology; and, four audit reports on IRS
information technology. All information technology program reviews are considered
mandatory because of the RRA 98 requirement to report
annually on the adequacy and security of IRS technology. 67
67 Page 68 69
Semiannual Report to the Congress
Appendix VI
Statutory TIGTA Reporting Requirements
Treasury Inspector General for Tax Administration March 31, 2000
64
Reference to
Statutory Coverage
Explanation of the Provision Comments/ TIGTA Audit Status
Taxpayer Designations – Illegal
Tax Protester 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.
Audit fieldwork in process.
Disclosure of Collection Activities
with Respect to Joint
Returns
I. R. C. § 7803( d)( 1)( B)
I. R. C. § 6103( e)( 8)
Review and certify whether or not the IRS is complying
with I. R. C. § 6103( e)( 8) to
disclose information to an individual filing a joint
return on collection activity
involving the other individual filing the return.
Follow-up audit planned on the initial corrective actions taken by the IRS in response
to the prior
report.
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).
Audit planning has been initiated to evaluate IRS management's actions to improve its
complaint processing procedures and systems.
Administrative or Civil Actions with
Respect to the Fair
Debt Collection Practices Act of 1996
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.
Audit planning has been initiated. 68
68 Page 69 70
Semiannual Report to the Congress
Appendix VI
Statutory TIGTA Reporting Requirements
Treasury Inspector General for Tax Administration March 31, 2000
65
Reference to
Statutory 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 5 U. S. C. § 552( b)( 7).
Audit fieldwork in process.
Adequacy and Security of the
Technology of the IRS
I. R. C. § 7803( d)( 1)( D)
An evaluation of the adequacy and security of the
technology of the IRS.
TIGTA's annual assessment of the adequacy and security of IRS technology will be provided
in
the next Semiannual Report to the Congress.
For highlights of recent information technology audits, see pages 13 and 14.
Extensions of the
Statute of Limitations for Assessment of Tax
I. R. C. § 7803( d)( 1)( C)
I. R. C. § 6501
Include information
regarding extensions of the statute of limitations for
assessment of tax under
I. R. C. § 6501 and the provision of notice to
taxpayers regarding the
right to refuse or limit the extension to particular
issues or a particular period
of time.
Audit fieldwork in process. 69
69 Page 70 71
70
70 Page 71 72
Semiannual Report to the Congress
Appendix VII
Year 2000 Compliance Audits
Treasury Inspector General for Tax Administration March 31, 2000
67
Reference Number Report Title and Recommendation Summary Management Response
2000-10-005 The Internal Revenue Service May Not Achieve Its 100 Percent
Analysis and Validation Objectives for
Year 2000 Readiness
Objectives: Determine whether the IRS timely implemented corrective actions to
previous TIGTA audit recommendations
related to Year 2000 (Y2K) compliance testing and to assess the effectiveness of the
IRS' efforts to analyze and validate
Y2K compliance of application code and tax processing commercial off-the-shelf products.
Recommendations: The Office of Audit recommended that IRS management ensure those
organizations that have not
certified their respective Information Technology inventories do so immediately. In
addition, management should ensure
timely responses are provided to the contractor's requests for information and responses.
Further, in the event that the
100 percent analysis and validation will not be completed, management should prioritize
application code and
commercial off-the-shelf products, to ensure critical applications are Y2K compliant.
IRS management agreed with the recommendations concerning the
need for improvements in the corporate Information
Technology inventory system and responsiveness to the
contractor.
2000-20-007 The Internal Revenue Service's Oversight of the Year 2000 Conversion
Can Be Strengthened
Objective: Assess the IRS' Century Date Change (CDC) Project Office's
effectiveness in providing management
oversight to ensure that the goals and objectives of the Y2K
conversion efforts will be met.
Recommendations: To strengthen management oversight of the Y2K conversion effort, the
CDC Project Office should:
ensure the accuracy and reliability of information used to manage the conversion
effort; identify interdependencies
among events, activities, and schedule slippage to manage delays within the overall Y2K
project better; and, continue to
use contractor support to evaluate the impact of requests to delay conversion of certain
components. In addition, the CDC
Project Office should prioritize non-compliant systems and focus resources on the highest
priority projects requiring
contingency planning.
IRS management generally agreed with the facts cited in the
report and they are taking appropriate action. 71
71 Page 72 73
Semiannual Report to the Congress
Appendix VII
Year 2000 Compliance Audits
Treasury Inspector General for Tax Administration March 31, 2000
68
Reference Number Report Title and Recommendation Summary Management Response
2000-20-008 The Internal Revenue Service Can Improve Management Controls Over
the Year 2000 End-to-End Systems
Integration Test
Objective: To assess the IRS' planning efforts for the End-to-End (E2E) Testing
System Integration Test II and Test III, and
the execution of Test II.
Recommendations: Oversight control for the Year 2000 E2E Systems Integration Test could be
improved through quality
checks of contractors' deliverables to assure they meet their intended objectives.
Additionally, configuration management
controls over the E2E Systems Integration Test platform should be improved to facilitate a
smooth transition from the
testing environment to production in December 1999.
IRS management agreed with the findings and recommendations
and initiated corrective actions.
2000-20-021 The Internal Revenue Service Needs to Significantly Improve the
Inventory Used to Monitor Its Year 2000
Conversion Efforts
Objectives: The objectives of this review were to assess whether the: IRS'
telecommunications equipment has been
inventoried completely and accurately, preliminary risk assessment of this equipment
has been appropriately factored
in the IRS' overall Y2K conversion plans, and the Y2K initiatives for inventorying tax
processing commercial off-the-shelf
and network operating systems products are progressing as planned and are being completed
effectively and timely.
Recommendations: To minimize the Y2K-related risks associated with inaccurate or
incomplete inventories, the
Office of Audit recommended that IRS management develop and implement specific inventory
processes and procedures to
be followed by system managers and administrators at the field offices to ensure a
comprehensive inventory. Also, IRS
management should conduct independent assessments of the inventory at critical IRS
installations to ensure inventory
accuracy and completeness for Y2K efforts. Over the longer term, the Office of Audit
recommended that the IRS evaluate
and implement automated inventory and network management
tools.
IRS management agreed with the recommendations presented in
this report and they are taking corrective action. 72
72 Page 73 74
Semiannual Report to the Congress
Appendix VII
Year 2000 Compliance Audits
Treasury Inspector General for Tax Administration March 31, 2000
69
Reference Number Report Title and Recommendation Summary Management Response
2000-20-030 The Internal Revenue Service Needs to Strengthen the Controls Over
the Year 2000 Conversion of Its
Telecommunications Equipment
Objective: The overall objective of this review was to assess the effectiveness of
the IRS' Y2K telecommunications
products implementation processes, particularly management's progress in providing
oversight and in ensuring goals and
objectives are being met.
Recommendations: The Office of Audit recommended that IRS management ensure the final Y2K
planning efforts
include strategies to mitigate the risk of telecommunications failures at local IRS
sites with unvalidated inventories. IRS
management should also assure that the Y2K assessment is complete for the items where the
compliance status could not
be determined, and that the assessment process is completed for all other
telecommunications equipment. Also, the IRS
should develop and implement an interim configuration management process for assuring the
Y2K readiness of the
IRS telecommunications environment. If this is not possible, the IRS should ensure the
final Y2K planning efforts mitigate
the risk that non-Y2K compliant equipment is in production.
As of the issuance date of this final report, IRS management
was in the process of developing a response outlining the actions
it has taken or will take to address the issues presented in
this report.
2000-20-052 The Internal Revenue Service Needs to Assure That All Mission
Critical Systems Are Subject to a Full Year 2000
End-to-End Systems Integration Test
Objective: The overall objective of this review was to assess the effectiveness of
the preparation for and execution of the
last segment, Test 3, of the IRS' Y2K E2E Systems Integration Test.
Recommendations: The Office of Audit recommended that IRS management assess whether all
risks were adequately
addressed. In addition, IRS management should assure that the strategy to deal with Y2K
issues after January 1, 2000,
includes any E2E Systems Integration Test issues that could not be adequately addressed
before December 31, 1999.
Although January 1, 2000, has past without any significant glitches in the IRS' systems,
it is still prudent to address the
issues in this report because the 2000 filing season for tax returns has not yet reached
its peak.
As of the date this final report was issued, IRS management
was in the process of developing a response outlining the actions
it has taken, or will take, to address the issues in this report. 73
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Semiannual Report to the Congress
Appendix VIII
Acronyms
Treasury Inspector General for Tax Administration March 31, 2000
71
APPR Annual Program Performance Report
CDC Century Date Change CFS Customer Feedback System
CI IRS Criminal Investigation CMD Complaints Management Division
CPA Certified Public Accountant E2E End-to-End
EFDS Electronic Fraud Detection System
EITC Earned Income Tax Credit FDCPA Fair Debt Collection Practices Act
of 1996 FMFIA Federal Managers' Financial
Integrity Act FOIA Freedom of Information Act
FSL Forensic Science Laboratory FTD Federal Tax Deposit
FY Fiscal Year GAO General Accounting Office
GPRA Government Performance and Results Act of 1993
I. R. C. Internal Revenue Code IRS Internal Revenue Service
ISRP Integrated Submission and Remittance Processing System
RRA 98 IRS Restructuring and Reform Act of 1998
SED Strategic Enforcement Division SFR Substitute for Return
TAAS Tax Administration Advisory Services
TAMIS Taxpayer Advocate Management Information System
TCS Treasury Communication System TIGTA Treasury Inspector General for
Tax Administration UNAX Unauthorized Access to Taxpayer
Accounts U. S. United States
U. S. C. United States Code Y2K Year 2000 75
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Semiannual Report to the Congress
Appendix IX
Organization Chart
Treasury Inspector General for Tax Administration March 31, 2000
73
Chief Counsel to the Inspector General
Associate IG, Information Systems
Programs
Associate IG, Small Business &
Corporate Programs
Associate IG, Headquarters Operations &
Exempt Organization Programs
Associate IG, Wage & Investment
Income Programs
Deputy Inspector General for
Audit
Associate IG for Investigations
(Investigative Support)
Deputy Associate IG for Investigations
(Field Divisions)
Associate IG for Investigations
(Field Divisions)
Deputy Inspector General for
Investigations
Assistant Inspector General for
Management Services
Assistant Inspector General for
Information Technology
Inspector General for Tax
Administration 77
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