Message from TIGTA’s Inspector General ........................................................................... 1

TIGTA’s Profile ........................................................................................................................ 3

Statutory Mandate ........................................................................................................... 3

Organizational Structure .................................................................................................. 4

Authorities ....................................................................................................................... 4

TIGTA Office Locations Throughout The Nation .......................................................... 5

Promote the Economy, Efficiency, and Effectiveness of Tax Administration .......... 7

Systems Modernization .................................................................................................... 7

Tax Compliance Initiatives .............................................................................................. 8

Security of the IRS .......................................................................................................... 11

Providing Quality Customer Service Operations ............................................................. 12

Erroneous Payments ........................................................................................................ 13

Processing Returns and Implementing Tax Law Changes ............................................... 14

Human Capital ................................................................................................................ 16

Protect the Integrity of Tax Administration .................................................................... 19

Employee Integrity .......................................................................................................... 21

Employee and Infrastructure Security ............................................................................. 23

External Attempts to Corrupt Tax Administration .......................................................... 24

Special Achievements ....................................................................... 29

Audit Statistical Reports ....................................................................................................... 30

Audit Reports with Questioned Costs ............................................................................. 30

Reports with Recommendations That Funds Be Put to Better Use ................................ 31

Reports with Additional Quantifiable Impact on Tax Administration ............................ 32

Investigations Statistical Reports ........................................................................................ 35

Complaints/Allegations Received by TIGTA .................................................................. 35

Status of Complaints/Allegations Received by TIGTA .................................................. 35

Investigations Opened and Closed .................................................................................. 35

Financial Accomplishments ............................................................................................. 35

Status of Closed Criminal Investigations ........................................................................ 36

Criminal Dispositions ....................................................................................................... 36

Administrative Disposition on Closed TIGTA Investigations ........................................ 37

Appendices

Appendix I - Statistical Reports – Other ............................................................................. 39

Audit Reports with Significant Unimplemented Corrective Actions .............................. 39

Statistical Reports - Other ................................................................................................ 46

Appendix II - Audit Products ................................................................................................ 47

October 1, 2004 - March 31, 2005 ................................................................................... 47

Appendix III – TIGTA’s Statutory Reporting Requirements ............................................. 51

Appendix IV - Section 1203 Standards ............................................................................... 55

Appendix V - Data Tables Provided by the IRS (Employee Misconduct Reports) ....... 57

IRS Memorandum ........................................................................................................... 57

Report of Employee Misconduct for the Period 10/01/04 - 3/31/05

Summary by Disposition Groups ..................................................................................... 58

Report of Employee Misconduct for the Period 10/01/04 - 3/31/05

National Summary ........................................................................................................... 59

Summary of Substantiated §1203 Allegations Recorded in ALERTS

for the Period 10/01/04 - 3/31/05 ..................................................................................... 60

T

IGTA’s Office of Audit strives to promote the economy, efficiency, and effectiveness of tax administration. We provide audit recommendations to improve IRS systems and operations, while ensuring fair and equitable treatment of taxpayers. Our comprehensive, independent performance and financial audits of IRS programs and operations focus on mandated reviews and high-risk challenges facing the IRS.

The IRS’ implementation of audit recommendations results in cost savings and increased or protected revenue, reduction of taxpayer burden, and protection of: taxpayer rights and entitlements; taxpayer privacy and security; and IRS resources.

Each year, we identify and address the major management challenges facing the IRS. These challenge areas for Fiscal Year (FY) 2005 are outlined in the chart below:

IRS’ Major Management Challenges •

Systems Modernization •

Tax Compliance Initiatives •

Security of the IRS •

Integrating Performance and

Financial Management •

Complexity of the Tax Law •

Providing Quality Customer

Service Operations •

Erroneous and Improper Payments •

Processing Returns and

Implementing Tax Law Changes •

Taxpayer Protection and Rights •

Human Capital

Audit emphasis is placed on statutory coverage required by the RRA 98, as well as on areas of concern to the Congress, the Secretary of the Treasury, the Commissioner of Internal Revenue, and other key stakeholders.

The following audit summaries highlight significant audits completed during this

6-month reporting period that fall into the IRS’ Major Management Challenges categories.

Systems Modernization

The IRS is currently engaged in the Business Systems Modernization (BSM) Program to modernize its systems and associated processes. All of the BSM projects initiated to date have experienced cost overages and schedule delays. In

mid-2003, the IRS and the PRIME contractor[3] initiated four studies to help identify the root causes of these problems and make recommendations to remedy them. Key IRS executives and stakeholders reviewed the results of these studies, acknowledged BSM shortcomings, and developed actions to address the studies’ recommendations and resolve longstanding BSM issues. Collectively, these actions became known as the BSM Challenges Plan.

We determined that the majority of recommendations were not fully addressed by the BSM Challenges Plan. Also, the IRS did not create a measurement plan to determine whether actions taken resulted, or will result, in actual improvements in the BSM Program. Many BSM Challenges Plan actions were closed before all significant activities were completed.

The BSM Challenges Plan Did Not Completely Address the 21 BSM-Related Study Recommendations

We recommended the IRS reevaluate those recommendations that were not addressed by the BSM Challenges Plan to determine whether corrective actions should be taken and create an overall measurement plan to determine whether activities are leading to BSM Program improvements. The IRS should also ensure stakeholders understand that additional work is necessary to complete actions in the Plan, and new activities taken in furtherance of the Plan should be tracked. IRS management agreed with our recommendations and acknowledged there was significant work ahead in the BSM Program.

Report Reference No. 2005-20-014

During this reporting period, TIGTA analyzed the Custodial Accounting Project (CAP), which was designed to help correct longstanding weaknesses in IRS financial management systems. Our analysis of the CAP illustrates the continuing need for improvement in the BSM Program. The BSM Office, the contractor, and the end user were making progress to deploy the CAP. However, the IRS and the CAP contractor did not adequately manage system testing of requirements during its first release. For example, system requirements were not tracked and, therefore, could not be tested successfully. In addition, the IRS approved changes without always knowing which system requirements were affected and accepted test results that could not be verified. IRS management agreed with our recommendations and modified its approach to requirements management for future CAP releases.

Report Reference No. 2005-20-019

Tax Compliance Initiatives

The Limited Issue Focused Examination (LIFE)[4] process has merit for reducing the
length of examinations. IRS’ Large and Mid-Size Business Division statistics showed that LIFE cases, on average, were completed in 236 fewer days than non-LIFE cases. However, efforts to incorporate this process into the examinations of large businesses have made little progress. As of September 2004, only about 4.2 percent of the examinations initiated for large businesses involved the LIFE process.

TIGTA is concerned by the results from the LIFE process. Statistics show LIFE cases were generating significantly less additional recommended taxes than other large business examinations. Our analysis indicated if the IRS allocated 5 percent of the available examinations of large businesses to the LIFE process over the next 5 years, the amount of recommended additional taxes could drop an average of $349 million a year, or $1.7 billion over

5 years.

We recommended the IRS develop and implement a plan for analyzing data on LIFE examinations that is reliable and can help correct problems identified, clarify the integration of the Currency and Cycle Time Improvement Initiative [5] with the LIFE process, and ensure mid-level managerial reviews include evaluating open cases and assessing whether the

LIFE process is being used in examinations. IRS management generally agreed with our recommendations.

Report Reference No. 2005-30-029

For Tax Year (TY) 2001, the IRS estimated the gross tax gap[6] attributable to the underreporting and underpaying of employment taxes was $73.3 billion. However, the IRS has not used the Automated 6020(b) Program[7] to address business taxpayer filing noncompliance throughout most of the past decade due to various organizational changes, programming problems, and funding issues. The number of direct hours the IRS applied to the Automated 6020(b) Program steadily declined from a high of 43,209 in FY 1993 to a low of 1,151 in FY 2001, before increasing to 6,542 in FY 2003 after the IRS centralized administration of the Program. The declining trends in resources applied to the Automated 6020(b) Program adversely affected the results. The amount of taxes assessed by the Program declined from $206.8 million in FY 1998 to $3.6 million in FY 2002, but then increased to $60.6 million in FY 2003.

Taxes Assessed by the Automated 6020(b) Program, FYs 1996-2003

Source: Collection Activity Reports (FYs 1996-2003).

To improve the effectiveness and efficiency of the Automated 6020(b) Program for addressing business filing noncompliance, we recommended the IRS: replace the computer system supporting the Program with one that interfaces with its other systems; modify the dollar criterion to select additional cases that may otherwise remain unworked; modify the Program to add nonfiled excise tax returns; and evaluate the computation used for assessing proposed unemployment tax assessments. IRS management agreed with the recommendations.

Report Reference No. 2005-30-053

To improve IRS tax compliance initiatives, TIGTA reviewed pass-through businesses during this reporting period. Pass-through businesses, such as partnerships and S corporations, are not subject to income taxes, although they have a significant impact on tax administration. For TY 2001, $276.3 billion passed through over 2.1 million partnerships to their individual partners. The incidence of late-filed returns, measured as a percentage of total returns filed, is nearly two times higher among partnerships and nearly four times higher among S corporations, than it is among individual taxpayers, and it is rapidly growing. Between Calendar Years (CY) 2000 and 2003, the number of late-filed partnership returns increased

22 percent (from 167,000 to 203,000). During the same period, the number of late-filed S corporation returns increased 28 percent (from about 450,000 to 577,000).

Late-filed partnership and S corporation returns can have an adverse effect on the filing and reporting compliance of the individual partners and shareholders. Our analysis of TY 2001 tax return data for more than 817,000 individual partners and shareholders indicated late filing of returns by pass-through businesses may have contributed to 49 percent of these taxpayers obtaining an extension of time to file their individual tax returns, 108,587 late-filed individual tax returns, and more than

$1 billion not being reported on individual income tax returns. We estimated more than $354 million in individual income taxes was not paid on this unreported pass-through income.

We recommended the IRS amend the tax regulations and/or develop legislative proposals to address several key issues that would encourage greater voluntary compliance with filing and reporting requirements for pass-through entities. IRS management disagreed with some of the recommendations presented in the report. The decision to implement the remaining recommendations requires input and concurrence from the Department of the Treasury. The IRS will consult with Treasury on these issues.

Report Reference No. 2005-30-048

Also in the area of tax compliance, TIGTA received requests from the IRS in November 2004 to evaluate a new process for reviewing allegations of potential political activity by tax-exempt organizations. There had been several media reports of allegations that the IRS Tax Exempt and Government Entities Division was examining this type of activity for politically motivated reasons just before the 2004 Presidential election. Based on the extent of our audit work, we did not identify any indications that inappropriate actions, such as political influence, may have been taken in handling these referrals. We reviewed samples of information items that were handled under the new process and determined the Exempt Organization (EO) Referral Committee followed a consistent process when it reviewed the items, regardless of the source of the allegation or the potential political activity. We did not identify any case in which the same criteria were used to select one information item for examination and to decline a similar item for examination.

However, the IRS experienced delays in expediting the classification and examination processes. As a result, management did not send contact letters to organizations until September 21, 2004,

6 weeks before the scheduled elections. We believe contacting organizations so close to the election and the late publicity about this project contributed to the allegations of improper motivation on the part of the IRS.

We recommended IRS management formalize guidelines for reviewing allegations of potential noncompliance, establish realistic time standards for classifying information items and forwarding them to an examination group, and initiate any future expedited review process earlier in the election year. Further, we recommended IRS management issue a press release in future election years outlining an expedited process to review allegations of potential political intervention. IRS management agreed with our recommendations and proposed corrective action.

Report Reference No. 2005-10-035

Security of the IRS

During FYs 2002 through 2004, IRS management initiated and/or completed several actions that demonstrated increased emphasis on emergency management and preparedness, including disaster recovery planning. However, significant disaster recovery program weaknesses continue to be unresolved. Our analysis of 11 prior TIGTA audit reports identified such weaknesses, including:

· Modernization systems being placed into production without a disaster recovery capability;

· Insufficient disaster recovery capacity;

· Roles and responsibilities not assigned and employees not trained; and

· Annual tests not conducted or ineffective.

Also, 27 of 44 corrective actions for prior recommendations were not completed and insufficient management oversight hampered the identification and resolution of program weaknesses. However, management’s efforts to correct these problems have also been limited, in part, by shrinking budgets. IRS management agreed with the report recommendations and will declare the Disaster Recovery Program a material weakness.

Report Reference No. 2005-20-024

IRS employees have become more cognizant of security risks inherent in their daily activities. However, a hacker or disgruntled employee may still be able to obtain usernames and passwords to gain unauthorized access to IRS systems. We placed telephone calls to 100 managers and employees posing as Information Technology helpdesk personnel trying to correct a network problem. Under this scenario, we convinced 35 managers and employees to provide their user account names and passwords. While our results represent a 50 percent improvement over a similar test conducted in August 2001, additional security awareness and emphasis are needed to reinforce IRS employees’ security responsibilities. IRS management agreed with our recommendations and proposed corrective actions.

Report Reference No. 2005-20-042

Providing Quality Customer Service Operations

Helping people understand their tax obligations and making it easier for them to participate in the tax system is the first step toward compliance. Taxpayers have several options when they need IRS assistance, including face-to-face assistance at the Taxpayer Assistance Centers (TAC), toll-free telephone numbers, and Internet access through the IRS Web site (IRS.gov). The quality of each of these services influences a taxpayer’s ability and desire to comply voluntarily with tax laws.

Customer Service at TACs

The IRS is improving customer service for taxpayers that visit the TACs to ask tax law questions, but more improvement is needed for the IRS to provide top-quality customer service. Although the accuracy of responses to tax law questions increased by 24 percent, based on the audit work we completed from January 2002 through April 2004, the IRS did not meet its
80 percent accuracy goals for FYs 2003 and 2004, and it showed nominal improvement in decreasing the number of incorrect responses. We believe the IRS will not achieve its accuracy goal if employees continue to answer tax law questions without using the tools provided by IRS management, and if the IRS does not implement an effective quality review program. Because we have issued similar recommendations in previous reports, we did not make recommendations in this report.

Report Reference No. 2005-40-021

As for customer service provided via the Internet, the IRS redesigned its Web site in 2002. The IRS decentralized responsibility for current and future Web content to its various operating divisions and functions. In addition, the IRS developed and issued guidelines in this area on September 30, 2002, and implemented software to allow authorized users to directly manage Internet content.

A large portion of the content on the IRS Web site is relevant to approximately 121 million individual taxpayers whose income is derived from wages and investments yielding interest, dividends, or capital gains. The IRS Wage and Investment (W&I) Division serves these individual taxpayers and is responsible for ensuring all information pertaining to these taxpayers is accurate and current. The W&I Division proactively developed specific procedures for employees to follow in publishing content on IRS.gov. However, improvements are needed to ensure this content is current and accurate. Sufficient management controls are not in place to ensure only authorized individuals have access to IRS.gov content and all content is tracked and reviewed prior to posting. In addition, key quality assurance procedures are not always followed to ensure the IRS responds to taxpayers who notify them of Web site errors, and employees follow procedures for reviewing content changes and documenting annual certifications. We recommended the IRS develop a process to ensure only authorized personnel have access to IRS.gov content and all procedures are followed. IRS management agreed with these recommendations.

Report Reference No. 2005-40-026

Also in the area of customer service via the Internet, the IRS has made significant progress in attracting taxpayers to electronically file their tax returns (e-file).[8] In addition the number of taxpayers participating in e-file has increased from approximately 19 million in 1997 to 60.5 million in 2004.[9] However, opportunities exist to improve tax software packages used to prepare and process

e-filed tax returns.

The IRS uses electronic file specifications to program its computers that prepare and process e‑filed tax returns. The IRS appropriately updated these specifications with TY 2003 tax law provisions. However, inaccurate programming specifications used to program and process TYs 2001 and 2002 tax returns caused systemic errors in some software used to

e-file certain tax returns. The IRS tests all tax return preparation software used to e‑file individual tax returns, but the tests are not created to check for misapplication of the tax law. Four out of the five TY 2003 tax return preparation software packages tested incorrectly prepared tax returns based on facts we presented in the tests. In addition, the tax software packages’ own internal validity checks did not identify the errors.

We recommended the IRS develop procedures to ensure electronic file specifications are reviewed for accuracy and consistency, and conduct additional testing on any selected tax return preparation software before being used by its employees and volunteers to prepare tax returns. The IRS agreed with our recommendation on file specifications. However, the IRS believes it would not be feasible to perform additional software testing without impeding its availability to IRS employees and volunteers and delaying tax return processing. In addition, the IRS cannot contractually require software developers to place their products under the IRS’ process for more stringent testing.

Report Reference No. 2005-40-025

Erroneous Payments

The IRS has historically experienced problems by making erroneous payments involving the Earned Income Tax Credit (EITC). EITC is a refundable credit designed to help move low-income taxpayers above the poverty level. During 2003, over 21 million taxpayers received the EITC, totaling almost $37 billion. The IRS estimated that 27 to 32 percent of the EITC claimed on TY 1999 returns should not have been paid.

The IRS has initiated several programs to attempt to improve compliance with the EITC. We reviewed one initiative, the EITC Recertification Program, to determine if actions taken in response to a prior TIGTA report were effective. The IRS did take some corrective actions, such as solving a programming problem we identified. This corrective action allowed over 21,000 taxpayers to correctly receive more than $4.7 million in EITC. However, many of the actions taken were ineffective, incomplete, or inaccurate. We still identified taxpayers not receiving the EITC, taxpayers not timely receiving refunds, taxpayers subjected to unnecessary examinations, unclear or confusing communications, and loss of Federal Government funds. For instance:

· Approximately 51,000 taxpayers received more than $110 million of EITC without demonstrating entitlement;

· Over 10,000 taxpayers were improperly denied almost $21 million;

· Over 3,200 taxpayer accounts had refunds totaling approximately
$4 million incorrectly suspended for an average of 1 year; and

· The IRS sent taxpayers approximately 850,000 letters or electronic messages that did not clearly or accurately communicate the EITC recertification requirements.

IRS management generally agreed with our recommendations to help improve the application and administration of the EITC Recertification Program.

Report Reference Nos. 2005-40-015 and 2005-40-039

Processing Returns and Implementing Tax Law Changes During the Tax Filing Season

Overall, the IRS had a successful 2004 Filing Season. Through May 2004, the IRS had processed over 117 million returns (including over 60 million processed electronically – an increase of nearly
16 percent over last year). Most of these returns were processed accurately and timely. In addition, the IRS reported that the number of free file and on-line filings from home computers increased by

25 percent (3.5 million) and 22 percent (14.4 million), respectively, compared to last year. The IRS correctly implemented key tax law changes that affected TY 2003 returns, and provided taxpayers serving in a combat zone the benefits and special treatment to which they are entitled. Such benefits include extensions of time to file tax returns or pay taxes and the suspension of any audit or collection activities. The IRS also accurately processed returns claiming the Health Coverage Tax Credit (HCTC), which was established to help certain displaced workers and retirees pay for their health insurance.

However, not all tax law changes have been effectively implemented, and these continuing issues could result in a loss of taxpayer entitlements or erroneous tax reductions. We estimated almost 5,000 taxpayers continued to receive more than $3 million in erroneous deductions for student loan interest while over 286,000 taxpayers had potential unclaimed Additional Child Tax Credits (ACTC) amounting to approximately $152 million.

Almost 17,000 single taxpayers were allowed questionable “dual benefits” of approximately $30 million for the tuition and fees deduction and $11 million for the Education Credit. We also identified some processing improvements needed to aid the administration of Combat Zone and HCTC provisions.

We recommended the IRS ensure computer programs accurately identify and correct errors on returns, ensure a computer change is made to continue to identify taxpayers that appear eligible for, but do not claim, the ACTC, and strengthen controls to identify and prevent erroneous tax reductions during initial tax return processing. We further recommended the IRS add a specific line for the HCTC to the Individual Income Tax Return (Form 1040), transcribe information from the Health Coverage Tax Credit (Form 8885) attachment to Form 1040, and implement pre-refund systemic validity and compliance checks. Lastly, we recommended the IRS ensure Combat Zone indicators on its Master File are accurate, updated timely, and verified annually.

Report Reference Nos. 2005-40-016 and 2005-40-017

In a separate audit report, related to processing returns, we addressed the inconsistent treatment of taxpayers who become subject to the Failure to Pay (FTP) tax penalty. IRS computers are programmed to charge interest on accrued FTP tax penalties only after they are assessed. This shortcoming applies to the automated administration of the FTP tax penalty for taxpayer accounts (the majority of FTP tax penalty cases). By not periodically assessing penalties, the IRS is forgoing interest charges of more than

$4.5 billion for a 5-year period, of which we estimated more than $1.8 billion could be collected.

In contrast, for accounts that are manually administered, some of which belong to taxpayers in disaster areas or military combat zones, interest is assessed on the FTP tax penalty. The FTP tax penalties on these accounts are computed manually because IRS computers are not programmed to handle their complex or varying tax issues. Because FTP tax penalties are periodically assessed on these accounts, interest is charged on the penalties from the time of their assessment. For CYs 2001 and 2002, we estimated over 126,000 of these accounts contained more than $8.7 million in interest charges through December 31, 2003, even though taxpayers with accounts handled by computer never incur these interest charges.

To ensure all taxpayers are treated equitably and all monies owed the Federal Government are correctly assessed, we recommended the IRS make programming changes to assess accrued FTP tax penalties on a periodic basis. We also recommended the IRS work with the Department of the Treasury to request clarifying legislation regarding the need for separate notices to be issued to taxpayers in these cases. IRS management generally agreed with our recommendations and is taking steps to address this issue.

Report Reference No. 2005-30-052

Human Capital

The Department of the Treasury implemented a human resources management system called HR Connect, based on promising capabilities and the belief that it offered a cost-effective solution for the Department and its bureaus’ redundant, expensive, and inefficient human resources systems. However, some of the original program features and cost/benefits were changed or eliminated. The business case analyses submitted to the Office of Management and Budget (OMB) were not consistent and did not include complete information on systems that were to be replaced. The Department and the IRS incurred unexpected costs for maintaining software and systems that were to be replaced, incurred additional costs for modifying the HR Connect system, and scaled back expectations for system capabilities.

The HR Connect Program Office did not provide adequate oversight of the contractor and major portions of the system implementation. The costs to implement and operate similar software at other Federal Government agencies were significantly lower. The Department of the Treasury paid $173 million to implement HR Connect, while similar human resource systems at the Coast Guard and the United States Department of Agriculture cost
$24 million and $15 million, respectively. The project experienced significant delays, and the Program Office extended the system life cycle from 10 to 15 years to show a higher return on investment. The underlying analysis to support the

$899 million in projected savings was unsubstantiated, especially savings related to staff reassignments or reductions.

We recommended the Department of the Treasury ensure future business case analyses submitted to the OMB explain revisions and impact on the investment, and reevaluate the duties delegated to the contractor to ensure proper oversight. We also recommended the Department of the Treasury identify and monitor custom modifications made to the software, coordinate with other agencies to achieve a more cost-effective model for operating and maintaining the system, properly account for system costs, and assess the likelihood of projected benefits so future decisions are based on correct information. The Department of the Treasury’s management agreed with our recommendations and proposed corrective actions to address these problems.

Report Reference No. 2005-10-037

In 1999, the IRS and the National Treasury Employees Union agreed to establish the Human Resources Investment Fund (HRIF) to help employees obtain appropriate training to move into IRS critical occupations and improve the skills of the employees currently in these positions. The IRS was required to set aside at least 2 percent of its annual training budget for the HRIF. For

FYs 2002 and 2003, the IRS approved more than $6.1 million and 11,000 courses for 5,100 employees. However, only
46 percent of the $6.1 million reported as “disbursed” was actually spent. Additionally, the IRS did not maintain adequate records to track participants, which prevented it from assessing this program. As a result, the IRS did not know whether employees passed or failed the courses or whether the IRS should seek reimbursement from employees for failed or uncompleted courses.

The program’s efficiency is also questionable since its administrative costs exceeded the actual tuition paid. For

FYs 2002 and 2003, the IRS paid approximately $4.4 million to administer the program, but paid only $2.8 million in employee tuition assistance. The IRS could use other existing processes to allocate tuition assistance more effectively and better accomplish the intended objectives of the HRIF. The IRS could use its new automated training system of record, the Enterprise Learning Management System, to track the success of these initiatives.

We recommended the IRS request reimbursement from employees who failed or did not complete approved courses, as appropriate. We also recommended the IRS consider eliminating the HRIF and redesign its approach to providing tuition assistance, which could save more than

$2 million in annual administrative costs. While they disagreed with the estimated annual savings, IRS management agreed with the recommendations and proposed corrective actions to address the problems identified in the report.

Report Reference No. 2005-10-070

Our strategy for ensuring employee integrity, employee and infrastructure protection, and protecting the IRS against external attempts to corrupt tax administration is to focus TIGTA special agents on high impact investigations that protect the ability of the IRS to collect the nation’s tax revenue.

Employee Integrity

The IRS’ ability to deliver taxpayer service, enforce tax laws effectively, and collect the proper amount of taxes owed can be undermined by employee misconduct. We investigate employee misconduct allegations, including extortion, theft, taxpayer abuses, false statements, and financial fraud, as well as contractor misconduct and wrongdoing. During the reporting period, we completed 935 employee integrity investigations.

Protecting Taxpayer Identification Information To protect the sanctity of taxpayer information, TIGTA conducts proactive initiatives to identify IRS employees who improperly access confidential information and records of taxpayers. Through the identification and prosecution of IRS employees responsible for wrongfully accessing confidential taxpayer information, TIGTA helps minimize opportunities for identity theft by IRS personnel. As an integral part of our employee integrity program, we conduct proactive integrity initiatives designed to uncover fraud in IRS operations and to identify internal control weaknesses that may have permitted the fraud to go undetected or unreported. A primary resource used in this effort is our Strategic Enforcement Division (SED). Through SED’s data mining capacity, we proactively detect IRS employees who may have improperly accessed and/or disclosed confidential taxpayer information. During this reporting period, our Unauthorized Access (UNAX) Program led to the initiation of 240 investigations involving apparent unauthorized access of IRS computer systems.

The following cases are examples of IRS employee integrity investigations conducted during this reporting period.

IRS Agent Arrested for Scheme to Defraud the United States

In February 2005, an IRS employee was arrested in New Jersey for knowingly defrauding the United States. The employee allegedly managed and controlled the financial affairs of a real estate development and home construction company. Allegedly, the IRS employee diverted proceeds from the sale of real estate to various bank accounts and individuals. As a result, the company and its owner defrauded the United States of taxes owed on approximately $600,000.

IRS Tax Examining Assistant Pleads Guilty to Unauthorized Disclosure of Tax Information

In January 2005, an IRS Tax Examining Assistant pled guilty in Wisconsin to unauthorized disclosure of tax return and return information. In a plea agreement, the IRS employee admitted to willfully disclosing tax information of individuals, including their names, addresses, and social security numbers. The employee disclosed the information to her daughter, who used this information for personal business purposes.

IRS Employee Charged with False Statements Involving Improper Accesses of Taxpayer Accounts

In February 2005, an IRS employee was charged in Michigan with making false statements and witness tampering. Allegedly, the IRS employee improperly accessed 12 individuals’ tax accounts and instructed one individual to lie to

TIGTA’s Technical and Firearms Support Division and Forensic Science Laboratory TIGTA’s investigative efforts are greatly enhanced by its Technical and Firearms Support Division and Forensic Science Laboratory. Each of these programs provides technical expertise throughout our investigations. During the reporting period, the Technical and Firearms Support Division provided electronic or surveillance support in 101 investigative requests, while the Forensic Science Laboratory conducted 60 forensic examinations.

investigators if ever questioned about the

matter. The employee was also charged with falsely stating to investigators that

she did not conduct the accesses and/or contact the individual.

Former IRS Contract Employee Sentenced for Stealing More Than $231,000 from an IRS Lockbox Facility

In February 2005, a former IRS contract employee was sentenced in Texas for embezzlement, and aiding and abetting. The former contract employee stole and converted more than $231,000 in tax remittance checks from an IRS lockbox. The individual deposited the remittance checks into bank accounts in assumed names. The individual was sentenced to 71 months in prison, 3 years’ supervised release, and was ordered to pay more than $194,000 in restitution. Upon release from prison, he will be turned over to U.S. Immigration for deportation proceedings.

Two Individuals Arrested for More Than $1 Million in False Claims

In January 2005, two individuals were arrested in Maryland for false claims, conspiring to defraud the United States with respect to claims, obstruction of a federal audit, and aiding and abetting. The individuals are alleged to have posed as the president and vice president of a corporation contracted to plan, manage, and coordinate the IRS’ nationwide tax forums. Allegedly, the individuals created fictitious invoices and documents to support underreported income and overreported expenses to the IRS, resulting in the IRS’ payment of more than $1 million in management fees. The individuals are also alleged to have failed to provide records subpoenaed by TIGTA’s Office of Audit.

Employee and Infrastructure Security

The IRS collected $2 trillion in revenue for the Federal Government in Calendar Year 2004. This revenue is used to fund Federal programs related to housing, health care, clean air, national defense, social security, highways, and more. Threats and assaults against IRS employees, facilities, and data infrastructure [mja5] impede the IRS’ efforts to collect tax revenue.

Recognizing the vital nature of the IRS’ responsibility, the Congress directed TIGTA to protect the IRS from external threats. To meet this challenge, we operate a nationwide Criminal Intelligence Program (CIP) designed to identify and neutralize threats, assaults, and violent acts targeted against IRS facilities, employees, and operations. As part of the Program, TIGTA participates in FBI Joint Terrorism Task Forces throughout the country and assists the IRS in developing and enhancing its employee safety and infrastructure security programs. During this reporting period, we completed

162 investigations of threats and assaults directed at IRS employees and facilities, and issued 199 advisories notifying IRS management of potential threats.

The following cases are examples of IRS employee and infrastructure security investigations conducted during this reporting period.

Individual Convicted for Soliciting to Murder an IRS Employee

In January 2005, an individual in Idaho was found guilty on three counts of solicitation to commit a crime of violence. The individual solicited another individual to murder an IRS Special Agent, an Assistant United States Attorney, and a Federal Judge who were assigned to the individual’s Federal tax violations.

Individual Arrested for Threatening to Mail a Bomb to an IRS Revenue Officer

In December 2004, an individual was arrested in Michigan for corruptly interfering with the due administration of internal revenue laws. The individual allegedly threatened to mail a bomb to an IRS Revenue Officer who was performing his official duties.

Criminal Complaint Filed Against an Individual Charging Him with Threats Against Public Officials and Others

In February 2005, a criminal complaint was filed in Maine charging an individual with: knowingly and willfully making a threat to kill the President of the United States; knowingly making threats via electronic mail to injure members of a research institute; and knowingly making threats via electronic mail to injure agents of the IRS. The individual was also charged with knowingly depositing or causing to be deposited in the United States mail a written communication containing threats to injure a person, namely IRS agents; and knowingly making threats via electronic mail to injure an employee of a television station.

Individual Charged with Assaulting IRS Employees

In March 2005, an individual was indicted in California for assaulting a Revenue Officer resulting in the infliction of bodily injury. Allegedly, the individual used force to assault and interfere with two IRS employees while they were engaged in the performance of their official duties, resulting in the infliction of bodily injury to one IRS employee.

External Attempts to Corrupt Tax Administration

TIGTA is dedicated to investigating external attempts to corrupt or interfere with the administration of internal revenue laws. Examples of these attempts include bribes offered by taxpayers to compromise IRS employees, the use of fraudulent IRS documentation to commit crimes, impersonation of IRS officials, and the corruption of IRS programs through procurement fraud. External attempts to corrupt tax administration impede the IRS’ ability to collect revenue.

Bribery investigations are an important priority for us. With the IRS planning to increase revenue collection from delinquent taxpayers, more attempts by taxpayers to bribe IRS employees involved in those collection activities may occur. Since October 1, 2004, we have conducted

21 investigations into bribery allegations involving taxpayers. In addition, we conducted 60 investigations of attempts to manipulate or corrupt IRS systems and operations, and 233 investigations into fraud and other related activities.

Procurement Fraud Program The Procurement Fraud Section (PFS) within TIGTA’s Special Inquiries and Intelligence Division (SIID) is dedicated to the identification and investigation of procurement fraud within the IRS. The PFS achieves its goals through proactive and reactive investigations, fraud awareness presentations, proactive investigative initiatives, data analyses, and liaisons. These activities, while labor intensive, relate directly to TIGTA’s core mission of preventing external attempts to corrupt the IRS’s ability to effectively administer the tax laws. The IRS has also placed special emphasis on technology modernization and outsourcing. To accomplish its modernization program, the IRS will continue to rely heavily on contractor support. With IRS procurement expenditures and commitments in the billions of dollars over the life of current contracts, the opportunity for contract fraud is always present. We have established a Procurement Fraud Section (PFS) to identify procurement fraud, prosecute the responsible individuals, and recover monies owed to the Federal Government. During this reporting period, results of the PFS have been impressive, with more than $1.5 million in recoveries and nine fraud awareness presentations made to179 individuals.

The following cases are examples of investigations of external attempts to corrupt tax administration conducted during this reporting period.

Individuals Found Liable for More Than $1.5 Million for False Claims Submitted to the IRS

In Fall 2004, a husband and wife were held jointly liable in Maryland for violating the Civil False Claims Act. According to the Court, the husband owned and controlled

two companies – one that acted as a subcontractor, the other as a middleman – on an IRS contract to repair laptop computers. The husband vastly inflated his company’s costs, causing the prime contractor to submit overpriced invoices for services to the IRS. The wife sat on the Board of Directors of each company. The Court found treble damages in excess of $1.2 million and assessed an additional $220,000 in civil penalties, for a total award of more than $1.5 million to

the government.

Tax Accountant Sentenced for Wire Fraud Involving a Tax Liability

In January 2005, a tax accountant was sentenced in Pennsylvania for wire fraud. The tax accountant negotiated an IRS installment agreement on behalf of one of his clients. The tax accountant instructed his client to wire him payments so he could forward them to the IRS. He did not forward the payments to the IRS, but converted more than $148,000 for his own use. The tax accountant was sentenced to 37 months in prison, 3 years’ supervised release, and ordered to pay $95,400

in restitution.

Individual Pleads Guilty to Impersonating an IRS Employee

In February 2005, an individual pled guilty in New Jersey to impersonating an IRS employee. An IRS Revenue Officer issued a notice of levy of funds to a business where the individual was a subcontractor. The levy was for a tax liability of more than $46,000 owed by the individual. The individual called the business owner, purporting to be the IRS Revenue Officer, and falsely advised the business owner

that the levy had been released. To confirm the phone call, the individual faxed a false letter (again, purportedly from the IRS Revenue Officer) to the business owner.

“There is no crime more serious than bribery. Other offenses violate one law while corruption strikes at the foundation of all law.” U.S. President Theodore Roosevelt December 7, 1903 The White House, Washington, DC

Individual Sentenced for Bribing an IRS Employee

In January 2005, an individual was sentenced in New York for bribery. The individual paid an IRS employee $10,000 in cash to assess no additional taxes for her CY 2000 and 2002 tax returns. The individual also made a $5,000 payment to the IRS employee to reduce her 2001 tax liability from $37,000 to approximately $5,000.

Individual Sentenced for Theft of IRS Grant Funds

In January 2005, an individual was sentenced in Ohio for theft of government property. The individual, representing himself as the finance director of a nonprofit organization, falsely obtained more than $16,800 in IRS grant funds under the Tax Counseling for the Elderly Program. The individual was sentenced

to 4 months’ home confinement, 3 years’ probation, 100 hours of community service, and ordered to pay $18,675

in restitution.

Individual Pleads Guilty to Interfering with the Administration of Internal Revenue Laws

In January 2005, an individual pled guilty in North Carolina to interfering with the administration of internal revenue laws, and aiding and abetting. The individual

fraudulently represented himself as an attorney and assisted others in filing fraudulent tax returns. The individual also filed fictitious arrest warrants against the IRS agents investigating the case, and advised three different witnesses not to appear before a Federal grand jury.

Reference Number	Issued	Projected Completion Date	Report Title and Recommendation Summary (F = Finding Number, R = Recommendation Number, P = Plan Number)
093602	April 1999	10/01/05	*The Internal Revenue Service Needs To Improve Treatment of Taxpayers During Office Audits* F-1, R-4, P-2. Ensure that all MACS data discs forwarded from the MACS Development Center to district offices are properly accounted for and secured.
2000-30-059	March 2000	05/15/05 05/15/05	*The Internal Revenue Service Can Improve the Estate Tax Collection Process* F-2, R-2, P-1. Develop procedures to periodically reconcile tax liens on the ALS with information shown on the taxpayer accounts. F-2, R-3, P-1. Clarify procedures to employees that all estate tax liens should be recorded on the ALS.
2000-30-130	September 2000	10/15/05	*Opportunities Exist to Enhance the International Field Assistance Specialization Program* F-2, R-1, P-1. Improve the management information system by linking the International Field Assistance Specialization Program indicator to specific issues listed in the International Case Management System.
2000-30-162	September 2000	11/15/06	*The Internal Revenue Service Needs to Better Address Bankruptcy Automatic Stay Violations* F-1, R-2, P-1. Provide additional computer programming enhancements to improve the value of litigation transcripts.
2001-10-027	January 2001	09/15/05	*Improved Case Monitoring and Taxpayer Awareness Activities Can Enhance the Effectiveness of the Tax Practitioner Disciplinary Proceedings Program* F-1, R-1, P-1. Upgrade the automated case management system to provide more timely and accurate data on case activities and the use of program resources.
2001-20-043	February 2001	06/01/06	*Electronic Signature Initiatives Could Be Better Defined and Evaluated* F-1, R-2, P-1. Ensure that all operational alternative signature initiatives comply with the requirements.
2001-30-052	March 2001	05/15/05 05/15/05 01/01/07	*Program Improvements Are Needed to Encourage Taxpayer Compliance in Reporting Foreign Sourced Income* F-1, R-1, P-1. Ensure the prior recommendations are implemented. Establishing a formal program with goals, objectives, processes and measures could help ensure that sufficient management attention is devoted to improving the use of the Routine Exchange of Information Program for compliance. F-2, R-1, P-1. Identify the highest risk foreign sourced income documents and use them to coordinate with tax treaty partners to positively identify the U.S. taxpayers involved. F-3, R-1, P-1, P-2. Improve systems that process data the IRS receives on foreign sourced income.
2002-30-156	September 2002	10/15/05	*The Internal Revenue Service Does Not Penalize Employers that File Wage and Tax Statements with Inaccurate Social Security Numbers* F-1, R-1, P-1. Ensure that the IRS initiate, as proposed in their response to our memorandum dated February 1, 2002, a regularly scheduled program for proposing penalties for Forms W-2 with inaccurate name/SSN combinations.
2002-10-187	September 2002	05/15/05	*The New Suspension of Interest Provision Is Not Always Calculated Correctly* F-2, R-2, P-1. Identify disaster relief taxpayers and refund the amounts that were automatically collected on the under assessed interest.
2003-40-023	November 2002	10/01/05	*Trends in Customer Service in the Taxpayer Assistance Centers Show Procedural and Training Causes for Inaccurate Answers to Tax Law Questions* F-5, R-2, P-1. Explore other options such as the planned remote monitoring by TAC managers, for conducting quality reviews of TAC employees on a regular basis.
2003-20-035	December 2002	06/15/05 06/01/05	*Additional Cost Savings and Increased Productivity in the Print Operation and Computer Support Function Can Be Achieved at the Campus Locations* F-1, R-1, P-1. Increased coordination should be required with users to discontinue printing reports that are currently available in both printed and electronic format and convert additional reports to the EONS. F-2, R-3, P-1. Ensure that managers compare results against performance measure goals and take actions to improve operational efficiency.
2003-20-049	February 2003	06/15/05 12/15/05 10/15/05 10/15/05	*Employee Background Investigations Were Normally Completed; However, the Contractor Employee Background Investigation Program Needs Improvement* F-2, R-3, P-1. Ensure that all contractor employees have properly paid their tax obligations. F-2, R-5, P-2. Ensure that personnel in the Real Estate and Facilities area of the Agency-Wide Shared Services are adequately trained regarding the requirements for issuing a contractor employee an IRS identification badge. F-3, R-1, P-1. Ensure that a consolidated or integrated system is implemented to effectively manage all background investigations and identification badges, incorporating the needs of all stakeholders and eliminating the use of stand-alone systems such as the Security Entry Tracking System and the Procurement Background Investigation Program. F-3, R-2, P-1. Ensure that until a single system is implemented, all COTRs are required to use the Procurement Background Investigation Program regardless of their organizational placement, and complete periodic reconciliations between the contractor employee background investigation information and the identification badge information at each IRS facility are conducted to detect the issuance of contractor employee identification badges without completion of required background investigations.
2003-10-054	March 2003	10/01/07	*The Internal Revenue Service Needs to Establish an Effective Process to Accurately Identify, Record, and Report Unemployment Trust Fund Administrative Expenses* F-1, R-3, P-1. Ensure that the ability to record and report trust fund administrative expenses, as currently envisioned in the IFS development plans is properly implemented.
2003-10-094	March 2003	04/15/05	*Improvements Are Needed in the Monitoring of Criminal Investigation Controls Placed on Taxpayers’ Accounts When Refund Fraud is Suspected* F-1, R-2, P-1. Ensure that regular reviews of the Questionable Refund Program are conducted to assess compliance with procedures and that feedback is provided regarding program effectiveness. Also, analyses of the FDCs’ control listing data should be analyzed to ensure reviews are done and accounts are resolved.
2003-20-082	March 2003	02/01/05	*Penetration Test of Internal Revenue Service Computer Systems* F-5, R-1, P-1. Apply proper security patches and/or registry settings.
2003-40-139	June 2003	08/15/05	*Opportunities Exist to Improve the Administration of the Earned Income Tax Credit* F-1, R-2, P-1. Establish a consistent method to measure progress toward the EITC Program’s long-term goals.
2003-20-118	July 2003	06/30/05 12/15/06	*Security Over Computers Used in Telecommuting Needs to Be Strengthened* F-1, R-6, P-1. Require front-line managers to periodically check their employees’ laptop computers to ensure that sensitive data are being stored and encrypted properly. F-2, R-2, P-1, P-2. Consider installing personal firewall and IDS software on SDI laptop computers and require CSIRC to centrally monitor the generated logs.
2003-30-162	August 2003	P-1: 08/15/05 P-2: 07/15/05 08/15/05 08/15/05	*The Regulations for Granting Extensions of Time to File are Delaying the Receipt of Billions of Tax Dollars and Creating Substantial Burden for Compliant Taxpayers* F-1, R-1, P-1, P-2. Revise the tax regulations applicable to individual taxpayers. F-1, R-2, P-1. Consider changing the regulations to eliminate the requirement for taxpayers to file an application with the IRS in order to receive extensions of time to file a tax return. F-1, R-3, P-1. Revise the tax package instructions.
2003-30-176	August 2003	11/15/05	*Interest Paid to Large Corporations Could Significantly Increase Under a Proposed New Revenue Procedure* F-1, R-2, P-1. Gather pertinent information concerning the effect the proposed procedure will have on reducing the length of examinations and interest costs by conducting a pilot program to demonstrate the actual benefits that could be achieved.
2003-40-180	August 2003	07/15/06	*More Information Is Needed to Determine the Effect of the Automated Underreporter Program on Improving Voluntary Compliance* F-2, R-1, P-1. Improve the current management information system process to capture data sufficient to establish baselines and long-term measures and goals.
2003-10-201	September 2003	07/01/05	*Lead Development Centers Do Not Significantly Contribute to Increases in Legal Source Cases* F-3, R-1, P-1. Ensure that the data in the LDC database are consistent and issue instructions on how to use the LDC database.
2003-10-212	September 2003	P-1, P-2: 07/15/05 P-3, P-4: 10/15/05	*Information on Employee Training Is Not Adequate to Determine Training Cost or Effectiveness* F-3, R-2, P-1, P-2, P-3, P-4. Ensure the IRS training and financial systems can provide information needed for the IRS to assess its own training efforts.
2003-20-219	September 2003	04/01/05	*The Cost and Schedule Estimation Process for the Business Systems Modernization Program Has Been Improved, But Additional Actions Should Be Taken* F-1, R-4, P-1. Ensure that the SEI is requested to conduct an independent review of the cost and schedule estimation system once the initial validation is complete and policies and procedures are fully implemented.
2004-20-001	October 2003	11/15/05	*Risks Are Mounting As the Integrated Financial System Project Team Strives to Meet An Aggressive Implementation Date* F-2, R-1, P-1. Ensure the disaster recovery environment is completely built-out and tested.
2004-40-004	October 2003	02/15/06 02/15/06	*The Selection of Earned Income Tax Credit Returns for Examination can Be Improved to Further Prevent Payment of Erroneous Claims* F-1, R-1, P-1. Complete an analysis of the historical Dependent Database examination data to determine if there is a relationship between the direct examination time, rules identified, and disposition of examinations. F-1, R-2, P-1. Incorporate a cost benefit analysis into the Dependent Database Risk-Based Scoring Model.
2004-40-013	November 2003	01/01/07 01/01/06	*Improvements Are Needed in the Screening and Monitoring of E-File Providers to Protect Against Filing Fraud* F-1, R-2, P-1. Enhance the screening procedures for E-File Providers to include sending scanned fingerprints to the FBI electronically. F-1, R-3, P-1. Enhance the screening procedures for E-File Providers to include verifying that individuals who provide professional certifications in lieu of a fingerprint card are in current standing with the organization to which the professional certification relates.
2004-20-027	January 2004	09/30/05 09/30/05	*Inadequate Accountability and Training for Key Security Employees Contributed to Significant Computer Security Weaknesses* F-1, R-1, P-2. Develop a methodology to evaluate system administrators’ and security specialists’ performance of their roles and responsibilities. F-1, R-2, P-4. Ensure the current effort to identify security training needs will result in appropriate security training for employees with key security duties.
2004-30-038	January 2004	12/15/05	*Access to the Toll-Free Telephone System Was Significantly Improved in 2003, But Additional Enhancements Are Needed* F-3, R-1, P-1. Develop an Activity Based Costing system that reliably captures and reports both the total cost and the cost-per-call of providing services on each toll-free product line.
2004-20-063	March 2004	02/01/05 06/30/05	*Insufficient Contractor Oversight Put Data and Equipment at Risk* F-1, R-1, P-3. Ensure the PRIME contractor’s access privileges are limited to only those required to accomplish their responsibilities. F-2, R-1, P-1. Ensure COTRs and security administrators carry out their responsibilities to periodically review contractor compliance with established security standards and controls.
2004-30-068	March 2004	02/15/06 07/15/05	*Additional Efforts Are Needed to Improve the Bank Secrecy Act Compliance Program* F-2, R-1, P-1. Develop standard risk-based case selection criteria that would provide minimum requirements and parameters for case selection. F-2, R-2, P-1. Reinforce the importance of case documentation with specific instructions or case models and implement a centralized quality review process.
2004-40-098	May 2004	01/15/06	*Better Use of the National Account Profile During Returns Processing Can eliminate Erroneous Payments* F-2, R-1, P-1. Conduct studies on the accuracy of EITC claims on tax returns for individuals that have been claimed for EITC purposes that are 20 or more years older than the primary taxpayer, or are listed as children that are up to 19 years older than the primary taxpayer.
2004-30-106	June 2004	08/15/05 08/15/05 08/15/05 08/15/05 08/15/05 08/15/05	*Changes to the Regulations for Granting Extensions of Time to File Corporate Tax Returns Are Needed to Alleviate Significant Problems With Administering the Tax Laws* F-1, R-1, P-1. Revise the tax regulations applicable to corporations to eliminate the requirement that corporations make tentative estimates of their tax liabilities to obtain an extension of time to file. F-1, R-2, P-1. Revise the tax regulations applicable to corporations to grant extensions of time to file only to payment-compliant corporations. F-1, R-4, P-1. Revise the tax regulations applicable to corporations to establish safeguards to protect reasonable compliant corporations from unwarranted assessments of the delinquency penalty. F-1, R-5, P-1. Revise the tax regulations applicable to corporations to provide for the assessment of the delinquency penalty on all taxes not paid by the normal tax return due date. F-1, R-7, P-1. Consider changing the regulations to eliminate the requirement that taxable corporations must apply to the IRS to receive extensions of time to file tax returns. F-1, R-8, P-1. Develop a legislative proposal for submission to the Treasury Department to change the Internal Revenue Code to require assessments of the higher interest and Failure to Pay penalties.
2004-30-127	August 2004	01/15/07 06/15/05	*The Return Delinquency Notice Program Could Be Used More Effectively to Promote Filing Compliance and Reduce the Tax Gap* F-2, R-1, P-1, P-2. Reevaluate the administrative dollar tolerance for freezing refunds to determine if it can be reset at a lower level. F-2, R-2, P-1, P-2. Expand the management information reports to provide data for measuring program effectiveness and results and for setting workload selection tolerance levels.
2004-20-129	August 2004	12/31/05	*The Certification and Accreditation of Computer Systems Should Remain in the Computer Security Material Weakness* F-1, R-1, P-2. Keep the certification and accreditation of computer systems as part of the computer security material weakness until a sufficient number of systems has been certified and accredited.
2004-20-135	August 2004	12/15/05 05/15/05 08/30/05	*The Audit Trail System for Detecting Improper Activities on Modernized Systems Is Not Functioning* F-1, R-2, P-1. Ensure alternatives are developed for reviewing audit trails for modernized application in the event the SAAS deficiencies cannot be corrected. F-2, R-1, P-1. Ensure the SAAS operating procedures are fully developed and finalized so that business units can conduct effective and efficient audit trail reviews of modernized applications. F-2, R-2, P-1. Ensure periodic compliance reviews are conducted once the SAAS is functional to ensure the CSIRC and business unit managers carry out their roles and responsibilities to review audit trails.
2004-40-151	August 2004	08/15/05	*The Effectiveness of the Kiosk Program Cannot Be Determined* F-1, R-1, P-1, P-2. Develop guidelines and strategies to enable the efficient and effective oversight of the Kiosk Program.
2004-20-131	September 2004	06/01/05 01/01/06 06/01/05	*The Use of Audit Trails to Monitor Key Networks and Systems Should Remain Part of the Computer Security Material Weakness* F-1, R-2, P-1, P-2. Continue updating and implementing the Tier 2 eTrust audit trail software on all applicable servers and ensure audit trails are being regularly generated and reviewed. F-2, R-2, P-1. Keep the audit trails area as part of the computer security material weakness until critical applications are removed from Tier 2 unconsolidated UNIX servers or consolidated into a more secure environment. F-2, R-4, P-1. Develop and implement a reasonable approach for reviewing audit trails over major applications.
2004-30-133	September 2004	08/15/05	*The Controls for Examination Processes for Industry Cases With International Transfer Pricing Issues Can Be Improved* F-1, R-1, P-1. Reemphasize the Transfer Pricing Compliance Directive and incorporate it into the Internal Revenue Manual.
2004-20-155	September 2004	10/15/05 10/15/05 10/15/05 10/15/05 P-1: 07/15/05 P-2: 11/01/05 P-3: 12/15/05	*Computer Security Roles and Responsibilities and Training Should Remain Part of the Computer Security Material Weakness* F-1, R-1, P-1. Keep security roles and responsibilities as part of the computer security material weakness until corrective actions related to recommendations in a previous report have been addressed. F-2, R-1, P-1. Complete actions to correct weaknesses regarding segregation of duties and remove this area from the computer security material weakness. F-3, R-1, P-1. Keep the security training area as part of the computer security material weakness until all employees with key security responsibilities have been adequately trained. F-3, R-2, P-1. Establish a process to identify employees with key security responsibilities, monitor their participation in training courses, and follow up with managers, if necessary. F-3, R-3, P-1, P-2, P-3. Ensure employees with key security responsibilities are adequately trained to perform security duties and tasks.
2004-20-158	September 2004	10/15/05 01/15/05 10/15/05 09/01/05 10/15/05	*Network Access, System Access, and Software Configuration Should Remain Part of the Computer Security Material Weakness* F-1, R-1, P-1. Keep the network access control area as part of the computer security material weakness until the IRS can demonstrate a repeatable process for ensuring router configurations are secure. F-1, R-2, P-1. Periodically follow up to ensure the Enterprise Networks organization complies with router standards and has a change management system to document changes to routers. F-2, R-1, P-1. Keep any applications and system access as part of the computer security material weakness until the IRS has demonstrated an effective, repeatable process for testing and correcting vulnerabilities. F-2, R-4, P-1, P-3. Test operating system access controls on CI, Counsel, and Appeals function systems. F-3, R-1, P-1. Keep system software configuration as part of the computer security material weakness until configuration management procedures are implemented and working as intended in the UNIX environment.
2004-10-166	September 2004	01/15/06 09/15/05	*The Taxpayer Advocate Service Needs to Improve Case Management to Ensure Taxpayer Problems Are Resolved Timely* F-2, R-1, P-1. Alert TAS managers that case advocates are not closing cases after all actions are completed. F-3, R-1, P-4. Provide additional guidance to case advocates on communicating with IRS operating divisions to coordinate case resolution and set achievable deadlines for completing Operations Assistance Requests.
2004-10-182	September 2004	10/15/05 10/01/06 10/15/06	*The Internal Revenue Service Faces Significant Challenges to Reduce Underused Office Space Costing $84 Million Annually* F-1, R-2, P-1. Justify the funding request for space for anticipated new hires by maximizing the use of existing space to house the new employees and determine the funding request based on anticipated needs. F-2, R-3, P-1. Consider allocating rent funds to the operating divisions to help ensure more efficient use of space and more communication between the facility managers and the local operating divisions; consider incentives and consequences to ensure better cooperation. F-3, R-1, P-1. Require facility managers to report vacancies based on division requirements for telecommuting employees.

Statistical Reports – Other

Appendix II – Audit Products

October 1, 2004 – March 31, 2005

Audit Products
Reference Number	Report Title
October 2004
2005-40-001	Injured Spouse Guidance Is Not Consistent
2005-1C-002	TIRNO-00-D-00020 and TIRNO-95-D-00066 Cumulative Allowance Cost Worksheet Fiscal Year Ended June 30, 2002
2005-1C-003	Final Vouchers Audit for TIRNO-95-D-00065
2005-10-009	Progress Has Been Made in Improving the Financial Management of Reimbursable Work Authorizations
2005-40-006	Initial Results of the Fiscal Year 2004 Earned Income Tax Credit Concept Tests Provide Insight on Ways Taxpayer Burden Can Be Reduced in Future Tests (Taxpayer Burden: 19,769 taxpayers receiving untimely replies from the IRS or that would not be subjected to the FY 2005 filing status test)
2005-40-008	The Wage and Investment Division’s Automated Underreporter Program Effectively Monitored Performance Data to Meet Annual Program Goals
2005-20-004	The Business Systems Development Organization Can Improve Management of Information Services Requests (Funds Put to Better Use: $20,000; Inefficient Use of Resources: $3 million) Note: monetary benefit projected over a 5-year period.
2005-40-007	The Wage and Investment Division’s Discretionary Examination Program Effectively Monitored Performance Data to Meet Annual Program Goals
November 2004
2005-30-012	The High Income Taxpayer Strategy Was Effectively Implemented, Although Its Success Still Needs to Be Determined
2005-30-011	Implementation of the Collection Field Function Consultation Initiative Was Carefully Coordinated, but Some Aspects Could Be Enhanced
2005-20-005	To Ensure the Customer Account Data Engine’s Success, Prescribed Management Practices Need to Be Followed
2005-30-010	The Internal Revenue Service Is Making Progress in Addressing Compliance Among Small Businesses Engaged in Electronic Commerce
December 2004
2005-30-013	Improvements Are Needed in the Timeliness and Accuracy of Offers in Compromise Processed by Field Offer Groups (Increased Revenue: $135,000 for 11 taxpayers; Taxpayer Rights and Entitlements: $5,000 for 1 taxpayer)
2005-20-014	The Internal Revenue Service Should Ensure the Root Causes of Business Systems Modernization Performance Problems Are Successfully Addressed
2005-40-015	Application of the Earned Income Credit Two-Year Ban Could Be More Consistent, Accurate, and Clear to Taxpayers (Taxpayer Burden: 8,637 notices with unclear explanations and 3,235 taxpayers that either may not have understood which years were banned or what was required to recertify; Taxpayer Rights and Entitlements: 384 taxpayers with Earned Income Tax Credit banned in error)
2005-40-017	The Health Coverage Tax Credit Was Accurately Processed During the 2004 Filing Season
2005-40-018	Toll-Free Account Assistance to Taxpayers Is Professional and Timely, and the Quality of Information Provided Has Improved (Taxpayer Burden: 38 incorrect answers; Taxpayer Privacy and Security: 14 calls not authenticated; Reliability of Information: 14 non-authenticated calls not included in the Customer Accuracy measure)
2005-20-019	System Requirements Were Not Adequately Managed During the Testing of the Custodial Accounting Project
2005-10-020	The Exempt Organizations Function’s Market Segment Approach Needs Further Development
2005-40-016	The 2004 Filing Season Was Completed Timely and Accurately, but Some Tax Law Changes Have Not Been Effectively Implemented (Revenue Protection: $3.3 million for 21,929 taxpayers; Taxpayer Rights and Entitlements: $151.6 million for 286,169 taxpayers)
2005-40-021	Customer Service at the Taxpayer Assistance Centers Is Improving but Is Still Not Meeting Expectations
January 2005
2005-40-025	Opportunities Exist to Improve Tax Software Packages
2005-20-027	The Method of Tracking Corrective Actions for Known Security Weaknesses Has Not Been Adequately Developed
2005-20-023	The Modernization Program Is Establishing a Requirements Management Office to Address Requirements Development and Management Problems (Funds Put to Better Use: $1.25 million)
2005-30-022	Enhancing Internal Controls for the Internal Revenue Service’s Excess Collections File Could Improve Case Resolution (Taxpayer Rights and Entitlements: $931 million for 57 taxpayers)
February 2005
2005-40-026	Processes Used to Ensure the Accuracy of Information for Individual Taxpayers on IRS.gov Need Improvement
2005-20-036	Security Controls for the Counsel Automated System Environment Management Information System Could Be Improved
2005-10-037	The Department of the Treasury’s HR Connect Human Resources System Was Not Effectively Implemented (Inefficient Use of Resources: $41 million; Reliability of Information; $680 million of overstated benefits)
2005-20-028	The Internal Revenue Service Has Appropriate Processes to Accept Modernization Program Software From Developers
2005-1C-030	Compensation System Audit
2005-1C-031	Report on Follow-Up Audit of Labor Accounting System
2005-1C-032	Report on Application of Agreed-Upon Procedures – Quick Closeout for Contract Number TIRNO-95-D-00065, Delivery Order Number 0015
2005-10-035	Review of the Exempt Organizations Function Process for Reviewing Alleged Political Campaign Intervention by Tax Exempt Organizations
2005-30-029	The Limited Issue Focused Examination Process Has Merit, but Its Use and Productivity Are Concerns (Increased Revenue: $1.7 billion) Note: monetary benefit projected over a 5-year period.
2005-40-041	Fiscal Year 2005 Statutory Review of Disclosure of Collection Activity With Respect to Joint Returns
2005-20-038	Sensitive Data Sent Via Email Is Adequately Protected, but Controls Could Be Streamlined
2005-40-040	Fiscal Year 2005 Statutory Review of Restrictions on Directly Contacting Taxpayers
March 2005
2005-20-024	The Disaster Recovery Program Has Improved, but It Should Be Reported As a Material Weakness Due to Limited Resources and Control Weaknesses
2005-1C-034	Incurred Cost Audit for Fiscal Year 2000 (Questioned Costs: $245,116)
2005-40-039	The Earned Income Credit Recertification Program Continues to Experience Problems (Funds Put to Better Use: $26.5 million affecting 14,800 taxpayers; Taxpayer Rights and Entitlements: $29.8 million for 36,800 taxpayers; Taxpayer Burden: 17,000 taxpayers unnecessarily audited, 50,000 taxpayers spending an average of 1 hour each to complete unnecessary tax forms, and 480,000 communications to taxpayers that were incomplete, inaccurate or unclear)
2005-20-042	While Progress Has Been Made, Managers and Employees Are Still Susceptible to Social Engineering Techniques
2005-10-051	There Were No Administrative or Civil Actions With Respect to Violations of Fair Tax Collection Practices in Calendar Year 2004
2005-1C-033	Accounting System Deficiencies Found During Incurred Cost Audit
2005-20-050	All Small-Scale Information Technology Projects Should Be Included in the Investment Inventory, and Related Procurement Requisitions Should Be Properly Reviewed and Approved (Reliability of Information: $1.4 million in project costs not accurately recorded)
2005-30-052	Procedures Regarding the Failure to Pay Tax Penalty Result in Inconsistent Treatment of Taxpayers and Hundreds of Millions of Dollars in Lost Revenue (Increased Revenue: $1.87 billion for 9.9 million taxpayers) Note: monetary benefit projected over a 5-year period.
2005-10-068	The Internal Revenue Service’s Federal Financial Management Improvement Act Remediation Plan As of December 31, 2004
2005-1C-043	Forward Pricing Indirect Rate Review for Fiscal Year 2003
2005-1C-044	Comprehensive Labor Audit for Fiscal Year 2004
2005-1C-045	Report on Noncompliance With Cost Accounting Standard 410, Allocation of Business Unit General Administrative Expenses to Final Cost Objectives
2005-1C-047	Report on Audit of Direct and Indirect Costs for Contractor’s Fiscal Year 2003 – Company 1
2005-1C-057	TIRNO-00-D-00024 Supplemental Report on Audit of Contractor’s Fiscal Year 2000 Incurred Costs
2005-1C-058	Report on Audit of Direct and Indirect Costs for Contractor’s Fiscal Year 2003 – Company 6
2005-30-055	Trends in Compliance Activities Through Fiscal Year 2004
2005-1C-056	Report on Fiscal Year 2004 Labor Floor Checks
2005-20-069	Security Controls for the Appeals Centralized Database System Could Be Improved
2005-30-048	Stronger Sanctions Are Needed to Encourage Timely Filing of Pass-Through Returns and Ensure Fairness in the Tax System (Increased Revenue: $7.9 billion) Note: monetary benefit projected over a 5-year period.
2005-10-070	The Human Resources Investment Fund Is Not a Cost-Effective Method of Providing Tuition Assistance (Funds Put to Better Use: $353,720; Inefficient Use of Resources: $10.3 million) Note: monetary benefit projected over a 5-year period.
2005-30-053	Opportunities Exist to Improve the Effectiveness and Efficiency of the Automated 6020(b) Program (Increased Revenue: $534.8 million) Note: monetary benefit projected over a 5-year period.
2005-10-054	The Criminal Investigation Function Has Made Progress in Investigating Criminal Tax Cases; However, Challenges Remain

Reference to Statutory Coverage	Explanation of the Provision	Comments/TIGTA Audit Status
Enforcement Statistics Internal Revenue Code (I.R.C.) § 7803(d)(1)(A)(i)	Requires TIGTA to evaluate the IRS’ compliance with restrictions under section 1204 of RRA 98 on the use of enforcement statistics to evaluate IRS employees.	Audit fieldwork in progress.
Restrictions on Directly Contacting Taxpayers I.R.C. § 7803(d)(1)(A)(ii)	Requires TIGTA to evaluate the IRS’ compliance with restrictions under I.R.C. § 7521 on directly contacting taxpayers who have indicated they prefer their representatives be contacted.	*Reference No. 2005-40-040, February 2005* As in prior reviews, TIGTA could not determine whether IRS employees followed proper procedures to stop an interview if the taxpayer requested to consult with a representative. Neither TIGTA nor the IRS could readily identify cases where a taxpayer requested a representative or the IRS contacted the taxpayer directly and bypassed the representative. IRS management information systems do not separately record or monitor direct contact requirements, and the Congress has not explicitly required the IRS to do so. TIGTA does not recommend the creation of a separate tracking system.
Filing of a Notice of Lien I.R.C. § 7803(d)(1)(A)(iii)	Requires TIGTA to evaluate the IRS’ compliance with required procedures under I.R.C. § 6320 upon the filing of a notice of lien.	Discussion draft audit report issued to IRS management.
Extensions of the Statute of Limitations for Assessment of Tax I.R.C. § 7803(d)(1)(C) I.R.C. § 6501(c)(4)(B)	Requires TIGTA to 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 progress.
Levies I.R.C. § 7803(d)(1)(A)(iv)	Requires TIGTA to evaluate the IRS’ compliance with required procedures under I.R.C. § 6330 regarding levies.	Audit fieldwork in progress.
Collection Due Process I.R.C. § 7803(d)(1)(A)(iii) and (iv)	Requires TIGTA to evaluate the IRS’ compliance with required procedures under I.R.C. §§ 6320 and 6330 regarding the taxpayers’ rights to appeal lien or levy actions.	Audit fieldwork in progress.
Seizures I.R.C. § 7803(d)(1)(A)(iv)	Requires TIGTA to evaluate the IRS’ compliance with required procedures under I.R.C. §§ 6330 through 6344 when conducting seizures.	Discussion draft audit report issued to IRS management.
Taxpayer Designations – Illegal Tax Protester Designation and Nonfiler Designation I.R.C. § 7803(d)(1)(A)(v)	An evaluation of IRS’ compliance with restrictions under section 3707 of RRA 98 on designation of taxpayers.	Audit fieldwork in progress.
Disclosure of Collection Activities With Respect to Joint Returns I.R.C. § 7803(d)(1)(B) I.R.C. § 6103(e)(8)	Requires TIGTA to review and certify whether 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.	*Reference No. 2005-40-041, February 2005* This is the seventh year that TIGTA could not determine whether the IRS is complying with the statutory requirements for responding to written requests from joint filers, because both TIGTA and the IRS are still unable to readily identify joint filer requests received nationwide. IRS management has decided not to develop a new management control process to track joint filer requests. IRS management information systems do not separately record or monitor joint filer requests, and the Congress has not explicitly required the IRS to do so. TIGTA does not recommend the creation of a separate tracking system.
Taxpayer Complaints I.R.C. § 7803(d)(2)(A)	Requires TIGTA to include in each of its Semiannual Reports to Congress the number of taxpayer complaints received and the number of employee misconduct and taxpayer abuse allegations received by IRS or TIGTA from taxpayers, IRS employees and other sources.	Statistical results on the number of taxpayer complaints received are shown on page 35.
Administrative or Civil Actions With Respect to the Fair Debt Collection Practices Act of 1996 I.R.C. § 7803(d)(1)(G) I.R.C. § 6304 Section 3466 of RRA 98	Requires TIGTA to 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.	*Reference No. 2005-10-051, March 2005* There were no administrative or civil actions with respect to violations of fair tax collection practices in Calendar Year 2004.
Denial of Requests for Information I.R.C. § 7803(d)(1)(F) I.R.C. § 7803(d)(3)(A)	Requires TIGTA to include information regarding improper denial of requests for information from 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 progress.
Adequacy and Security of the Technology of the IRS I.R.C. § 7803(d)(1)(D)	Requires TIGTA to evaluate the IRS’ adequacy and security of its technology.	*Information Technology Reviews:* Reference Number 2005-20-004, October 2004 Reference Number 2005-20-005, November 2004 Reference Number 2005-20-014, December 2004 Reference Number 2005-20-019, December 2004 Reference Number 2005-20-023, January 2005 Reference Number 2005-20-028, February 2005 Reference Number 2005-20-050, March 2005 *Security Reviews:* Reference Number 2005-20-027, January 2005 Reference Number 2005-20-036, February 2005 Reference Number 2005-20-038, February 2005 Reference Number 2005-20-024, March 2005 Reference Number 2005-20-042, March 2005 Reference Number 2005-20-069, March 2005

Reference to Statutory Coverage

Explanation of the Provision

Comments/TIGTA Audit Status

Enforcement Statistics

Internal Revenue Code (I.R.C.)

§ 7803(d)(1)(A)(i)

Requires TIGTA to evaluate the IRS’ compliance with restrictions under section 1204 of RRA 98 on the use of enforcement statistics to evaluate IRS employees.

Audit fieldwork in progress.

Restrictions on Directly Contacting Taxpayers

I.R.C.

§ 7803(d)(1)(A)(ii)

Requires TIGTA to evaluate the IRS’ compliance with restrictions under I.R.C. § 7521 on directly contacting taxpayers who have indicated they prefer their representatives be contacted.

Reference No. 2005-40-040, February 2005

As in prior reviews, TIGTA could not determine whether IRS employees followed proper procedures to stop an interview if the taxpayer requested to consult with a representative. Neither TIGTA nor the IRS could readily identify cases where a taxpayer requested a representative or the IRS contacted the taxpayer directly and bypassed the representative. IRS management information systems do not separately record or monitor direct contact requirements, and the Congress has not explicitly required the IRS to do so. TIGTA does not recommend the creation of a separate tracking system.

Filing of a Notice of Lien

I.R.C.

§ 7803(d)(1)(A)(iii)

Requires TIGTA to evaluate the IRS’ compliance with required procedures under I.R.C.

§ 6320 upon the filing of a notice of lien.

Discussion draft audit report issued to IRS management.

Extensions of the Statute of Limitations for Assessment of Tax

I.R.C.

§ 7803(d)(1)(C)

I.R.C.

§ 6501(c)(4)(B)

Requires TIGTA to 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 progress.

Levies

I.R.C.

§ 7803(d)(1)(A)(iv)

Requires TIGTA to evaluate the IRS’ compliance with required procedures under I.R.C.

§ 6330 regarding levies.

Audit fieldwork in progress.

Collection Due Process

I.R.C.

§ 7803(d)(1)(A)(iii) and (iv)

Requires TIGTA to evaluate the IRS’ compliance with required procedures under I.R.C.

§§ 6320 and 6330 regarding the taxpayers’ rights to appeal lien or levy actions.

Audit fieldwork in progress.

Seizures

I.R.C.

§ 7803(d)(1)(A)(iv)

Requires TIGTA to evaluate the IRS’ compliance with required procedures under I.R.C.

§§ 6330 through 6344 when conducting seizures.

Discussion draft audit report issued to IRS management.

Taxpayer Designations – Illegal Tax Protester Designation and Nonfiler Designation

I.R.C.

§ 7803(d)(1)(A)(v)

An evaluation of IRS’ compliance with restrictions under section 3707 of RRA 98 on designation of taxpayers.

Audit fieldwork in progress.

Disclosure of Collection Activities With Respect to Joint Returns

I.R.C.

§ 7803(d)(1)(B)

I.R.C.

§ 6103(e)(8)

Requires TIGTA to review and certify whether 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.

Reference No. 2005-40-041, February 2005

This is the seventh year that TIGTA could not determine whether the IRS is complying with the statutory requirements for responding to written requests from joint filers, because both TIGTA and the IRS are still unable to readily identify joint filer requests received nationwide. IRS management has decided not to develop a new management control process to track joint filer requests. IRS management information systems do not separately record or monitor joint filer requests, and the Congress has not explicitly required the IRS to do so. TIGTA does not recommend the creation of a separate tracking system.

Taxpayer Complaints

I.R.C.

§ 7803(d)(2)(A)

Requires TIGTA to include in each of its Semiannual Reports to Congress the number of taxpayer complaints received and the number of employee misconduct and taxpayer abuse allegations received by IRS or TIGTA from taxpayers, IRS employees and other sources.

Statistical results on the number of taxpayer

complaints received are shown on page 35.

Administrative or Civil Actions With Respect to the Fair Debt Collection Practices Act of 1996

I.R.C.

§ 7803(d)(1)(G)

I.R.C.

§ 6304
Section 3466 of
RRA 98

Requires TIGTA to 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.

Reference No. 2005-10-051, March 2005

There were no administrative or civil actions with respect
to violations of fair tax collection practices in
Calendar Year 2004.

Denial of Requests for Information

I.R.C.

§ 7803(d)(1)(F)

I.R.C.

§ 7803(d)(3)(A)

Requires TIGTA to include information regarding improper denial of requests for information from 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 progress.

Adequacy and Security of the Technology of the IRS

I.R.C.

§ 7803(d)(1)(D)

Requires TIGTA to evaluate the IRS’ adequacy and security of its technology.

Information Technology Reviews:

Reference Number 2005-20-004, October 2004

Reference Number 2005-20-005, November 2004

Reference Number 2005-20-014, December 2004

Reference Number 2005-20-019, December 2004

Reference Number 2005-20-023, January 2005

Reference Number 2005-20-028, February 2005

Reference Number 2005-20-050, March 2005

Security Reviews:

Reference Number 2005-20-027, January 2005

Reference Number 2005-20-036, February 2005

Reference Number 2005-20-038, February 2005

Reference Number 2005-20-024, March 2005

Reference Number 2005-20-042, March 2005

Reference Number 2005-20-069, March 2005

The memorandum below is an IRS transmittal to TIGTA. The tables that follow contain information exactly as provided by the IRS to TIGTA and consist of IRS employee misconduct reports from the IRS Automated Labor and Employee Relations Tracking System (ALERTS). Also, data concerning substantiated I.R.C. § 1203 allegations are included. IRS management conducted inquiries into the cases reflected in these tables.

Report of Employee Misconduct for the Period

October 01, 2004 to March 31, 2005

Summary by Disposition Groups

Disposition	TIGTA Investigations	Administrative Cases	Employee Tax Matter Cases	Background Investigations	Total


Removal	50	72	26	1	149
Separation of Probationary Employees	5	118	25	32	180
Separation of Temporary Employees		4	10	10	24
Resignation/Retirement	69	104	91	30	294
Suspensions	77	205	63	7	352
Reprimands	77	330	427	16	850
Counseling		353	808	65	1,226
Alternative Discipline	20	92	33	3	148
Clearance	124	115	18		257
Closed Without Action	208	441	208	92	949
Closed Without Action (Caution Statement)	126	72	140	49	387
Forwarded to TIGTA		19			19
Total	756	1,925	1,849	305	4,835

Source: Automated Labor and Employee Relations Tracking System (ALERTS)

This report is being produced in accordance with 26 USC § 7803(d)(2) and § 4(a)2 of Treasury Delegation Order 115-01, January 14, 1999

Extract Date: Saturday, April 2, 2005 Report ID = T1R3a

Report of Employee Misconduct for the Period

October 01, 2004 to March 31, 2005

National Summary

Case Type	Opening Inventory	Conduct Cases Received	Cases Closed			Closing Inventory
			Conduct Issues	Duplicates	Non-Conduct Cases


TIGTA Investigations ROI[10]	570	837	(756)	(8)	(0)	643
Administrative Case[11]	673	2,493	(1,925)	(11)	(7)	1,223
Employee Tax Compliance Case[12]	1,144	2,050	(1,849)	(52)	(0)	1,293
Background Investigations[13]	158	262	(305)	(1)	(0)	114
Total	2,545	5,642	(4,835)	(72)	(7)	3,273

Source: Automated Labor and Employee Relations Tracking System (ALERTS)

This report is being produced in accordance with 26 USC § 7803(d)(2) and § 4(a)2 of Treasury Delegation Order 115-01, January 14, 1999

Extract Date: Saturday, April 2, 2005 Report ID = T1R1

[2] Public Law No. 105-206, 112 Stat. 685 (codified as amended in scattered sections of 2 U.S.C., 5 U.S.C. app., 16 U.S.C., 19 U.S.C., 22 U.S.C., 23 U.S.C., 26 U.S.C., 31 U.S.C., 38 U.S.C., and

49 U.S.C.).

[3] The PRIME contractor is the Computer Sciences Corporation, which heads an alliance of leading technology companies brought together to assist with the IRS’ efforts to modernize its computer systems and related information technology.

[4] The LIFE was introduced publicly in December 2002 as a streamlined alternative to the traditional full-scope examination process.

[5] This initiative was more aggressive than LIFE in holding examiners accountable for closing examinations. It directed examiners to meet specific dates by establishing time periods for requesting and submitting tax records and presenting and responding to examination results.

[6] The gross tax gap is the difference between the amount taxpayers owe the Federal Government and the amount they voluntarily and timely pay.

[7] IRC § 6020(b) (2004) provides the IRS with the authority to prepare and process certain returns for a nonfiling business taxpayer if the taxpayer appears to be liable for the return, the person required to file the return does not file it, and attempts to secure the return have failed.

[8] E-file is a way to electronically file a tax return with the IRS using an authorized e-file provider or personal computer.

[10] TIGTA Investigations (ROI) - Any matter involving an employee in which TIGTA conducted an investigation into alleged misconduct and referred a

Report of Investigation (ROI) to IRS for appropriate action.

[11] Administrative Case - Any matter involving an employee in which management conducted an inquiry into alleged misconduct.

[12] Employee Tax Compliance Case - Any conduct matter that is identified by the Employee Tax Compliance program which becomes a matter of official

interest.

[13] Background Investigations - Any matter involving an NBIC investigation into an employee's background that is referred to management for

appropriate action.

[14] The cases reported as "Removals" and "Penalty Mitigated" (see column above) do not reflect the results of any third party appeal.

Reports With Questioned Costs
Report Category	Number	Questioned Costs (In Thousands)	Unsupported Costs (In Thousands)
1. Reports with no management decision at the beginning of the reporting period	5	$707	$684
2. Reports issued during the reporting period	1	$245	$0
3. Subtotals (Item 1 plus Item 2)	6	$953²	$684
4. Reports for which a management decision was made during the reporting period³ a. Value of disallowed costs b. Value of costs not disallowed	2 1	$14 $3	$0 $0
5. Reports with no management decision at the end of the reporting period (Item 3 minus Item 4)	4	$936	$684
6. Reports with no management decision within 6 months of issuance	3	$691	$684

Reports With Recommendations That Funds Be Put to Better Use
Report Category	Number	Amount (in thousands)
1. Reports with no management decision at the beginning of the reporting period	4	$345,256
2. Reports issued during the reporting period	4	$28,124
3. Subtotals (Item 1 plus Item 2)	8	$373,379²
4. Reports for which a management decision was made during the reporting period a. Value of recommendations to which management agreed
i. Based on proposed management action	6	$68,910
ii. Based on proposed legislative action	0	$0
b. Value of recommendations to which management did not agree³	1	$9,770
5. Reports with no management decision at end of the reporting period (Item 3 minus Item 4)	2	$294,700
6. Reports with no management decision within 6 months of issuance	2	$294700

Reports with Additional Quantifiable Impact on Tax Administration
Outcome Measure Category	Number of Reports¹	Number of Taxpayer Accounts	Number of Hours	Dollar Value (in thousands)	Other²
Taxpayer Rights and Entitlements at Risk	5	323,411		$1,112,426³
Reduction of Burden On Taxpayers	4	90,042	50,000		*
Increased Revenue	5	9,904,015		$12,023,990⁴
Revenue Protection	1	21,929		$3,310
Taxpayer Privacy and Security	1	14
Inefficient Use of Resources	3			$54,349⁵
Protection of Resources	0
Reliability of Management Information	3	14⁶		$681,408⁷

Status of Closed Criminal Investigations
Criminal Referrals¹	Employee	Non-Employee	Total
Referred – Accepted for Prosecution	41	90	131
Referred – Declined for Prosecution	368	238	606
Referred – Pending Prosecutorial Decision	37	59	96
TOTAL CRIMINAL REFERRALS	446	387	833
No Referral	501	358	859

Administrative Disposition on Closed TIGTA Investigations¹
Removed, Terminated or Other	204
Suspended/Reduction in Grade	65
Oral or Written Reprimand/Admonishment	71
Closed – No Action Taken	129
Clearance Letter Issued	112
Employee Resigned Prior to Adjudication	85
TOTAL ADMINISTRATIVE DISPOSITIONS	666

TABLE OF CONTENTS

TIGTA’s profile

T

Our primary functional offices are the Office of Audit (OA) and the Office of Investigations (OI). Our Offices of Chief Counsel, Information Technology, and Management Services support OA and OI efforts (see organizational chart, next page). TIGTA conducts audits and investigations designed to:

Promote the ECONOMY, EFFICIENCY, AND EFFECTIVENESS OF TAX ADMINISTRATION

T

protect the integrity of tax administration

T

IRS Agent Arrested for Scheme to Defraud the United States

IRS Tax Examining Assistant Pleads Guilty to Unauthorized Disclosure of Tax Information

IRS Employee Charged with False Statements Involving Improper Accesses of Taxpayer Accounts

Former IRS Contract Employee Sentenced for Stealing More Than $231,000 from an IRS Lockbox Facility

Two Individuals Arrested for More Than $1 Million in False Claims

Individual Convicted for Soliciting to Murder an IRS Employee

Individual Arrested for Threatening to Mail a Bomb to an IRS Revenue Officer

Criminal Complaint Filed Against an Individual Charging Him with Threats Against Public Officials and Others

Individual Charged with Assaulting IRS Employees

Individuals Found Liable for More Than $1.5 Million for False Claims Submitted to the IRS

Tax Accountant Sentenced for Wire Fraud Involving a Tax Liability

Individual Pleads Guilty to Impersonating an IRS Employee

Individual Sentenced for Bribing an IRS Employee

Individual Sentenced for Theft of IRS Grant Funds

Individual Pleads Guilty to Interfering with the Administration of Internal Revenue Laws

special achievements

Audit Statistical Reports

INVESTigations STATISTICAL REPORTS

Appendix I – Statistical Reports – Other

Appendix II – Audit Products

appendix iii- tigta’s Statutory Reporting Requirements

Appendix IV – Section 1203 Standards

Appendix v – DATA TABLEs provided by the irs

Criminal Dispositions¹
	Employee	Non-Employee	Total
Guilty	18	74	92
Nolo-Contendere (no contest)	1	0	1
Pre-trial Diversion	7	19	26
Deferred Prosecution	1	9	10
Not Guilty	0	1	1
Dismissed	1	10	11
TOTAL CRIMINAL DISPOSITIONS	28	113	141

§ 1203 Violation	Removals[14]	Resigned/ Retired	Probation Separation	Removed On Other Grounds	Penalty Mitigated	In Personnel Process	Total
Seizure Without Approval	0	0	0	0	0	1	1
False Statement Under Oath	0	0	0	0	0	0	0
Constitutional & Civil Rights Issues	0	0	0	0	0	1	1
Falsifying or Destroying Records	1	0	0	0	0	0	1
Assault or Battery	1	0	0	0	0	0	1
Retaliate or Harass	0	0	0	0	0	1	1
Misuse of §6103	0	0	0	0	0	0	0
Failure to File Federal Tax Return	20	5	9	11	42	69	156
Understatement of Federal Tax Liability	8	9	2	3	27	47	96
Threat to Audit for Personal Gain	0	0	0	0	0	0	0
Totals	30	14	11	14	69	119	257