TREASURY INSPECTOR GENERAL FOR TAX
ADMINISTRATION
TAX EXAMINERS DID NOT ALWAYS RESOLVE
RETURN DELINQUENCY CASES, AND COMPUTER CHECKS DID NOT IDENTIFY UNFILED RETURNS
Issued on December 20, 2007
Highlights
Highlights of Report
Number: 2008-30-027 to the Internal
Revenue Service Commissioner for Small Business/Self-Employed
Division.
IMPACT ON TAXPAYERS
In Calendar
Year 2006, the Internal Revenue Service (IRS) reported it issued more than 1.6
million Return Delinquency notices to business taxpayers that had not filed
required tax returns by the return due date. Some of
the Return Delinquency cases reviewed were not resolved accurately and timely,
and the IRS needs to improve its computer program to identify business
taxpayers that may be liable for employment taxes.
Accurate and timely case resolution actions reduce taxpayer burden and redefined
return delinquency identification criteria increase revenue.
WHY TIGTA DID THE AUDIT
This audit was initiated to determine whether the IRS’ Compliance
Services Collection Operations administered the Return Delinquency Program in a
manner that ensured accurate and timely resolution on Return Delinquency notice
responses. TIGTA performed the audit in two
IRS campuses. This audit was part of
TIGTA’s Fiscal Year 2007 Annual Audit Plan.
WHAT
TIGTA FOUND
TIGTA determined
some operational internal controls were effectively established. Managers systemically assigned Return
Delinquency cases to tax examiners, managers received proper training, and
managers at one Campus conducted required operational and workload reviews.
However, our review determined that tax examiners’
actions on 36 (24 percent) of 150 cases reviewed were incorrect, incomplete, or
not timely. In 23 cases, the tax
examiners did not make the correct case resolution decision, inappropriately
eliminated future inquiries for missing returns, or did not complete internal
processing requirements. The remaining
13 case actions were not completed within the IRS’ 45-day time standard.
Our review also identified a serious weakness where
the Return Delinquency computer program did not identify an unfiled Employer’s
Quarterly Federal Tax Return (Form 941) when an Employer’s Annual Federal
Unemployment (FUTA) Tax Return (Form 940) was filed. As a result, a significant amount of dollars
may not be collected on accounts without corresponding Forms 941.
TIGTA
identified 28,933 taxpayers on IRS computer records that filed a 2005 Form 940
and reported more than $3 billion in taxable Federal Unemployment Tax Act [26
U.S.C. § 3311 (2005)] wages, but these taxpayers had not filed Form 941 for any
quarter of 2005. Since the Federal
Unemployment Tax Act tax is imposed on only the first $7,000 in wages paid to each
employee during the calendar year, the potential amount of unreported wages
paid subject to Federal income tax withholding, Social Security, and Medicare
taxes could significantly exceed the taxable Federal Unemployment Tax Act
wages, and the related unpaid tax could be significant.
WHAT TIGTA RECOMMENDED
TIGTA
recommended a Campus Compliance Services Collection Operations manager ensure
reviews that assess team managers’ practices in performing technical case
reviews are completed quarterly. The
Director, Campus Filing and Payment Compliance, Small Business/Self-Employed
Division, should modify the Return Delinquency case creation criteria to ensure
delinquency inquiries are made of related tax period Forms 941 and Form 940 and
should revise procedures to require full compliance checks for delinquent
employment tax returns of “in business” employers.
The Commissioner, Small
Business/Self-Employed
READ THE
FULL REPORT
To view the report,
including the scope, methodology, and full IRS response, go to:
http://www.treas.gov/tigta/auditreports/2008reports/200830027fr.html.
Email Address: inquiries@tigta.treas.gov
Phone Number: 202-622-6500
Web Site:
http://www.tigta.gov