TREASURY INSPECTOR GENERAL
FOR TAX ADMINISTRATION
Office of Audit
Although the
Large and Mid-Size Business Division’s Currency Initiative Was Considered a
Success, Improvements Could Be Made in Future Initiatives
Issued on September 26, 2008
Highlights
Highlights of
Report Number: 2008-30-181 to the
Internal Revenue Service Commissioner for the Large and Mid-Size Business Division.
IMPACT ON TAXPAYERS
The Internal Revenue Service (IRS)
considers reducing the time, costs, and burdens of large corporate examinations
to be extremely important. In October
2003, the Commissioner, Large and Mid-Size Business (LMSB)
Division, initiated the Fiscal Year 2004 Currency and Cycle Time Improvement
Initiative (currency initiative) with a goal to “realize significant gains in
cycle time, currency, return closures, rates, and audit coverage
performance.” Although the LMSB
Division’s examination performance statistics improved in the years following
the currency initiative, the initiative also received adverse media coverage
alleging that significant tax issues could have been overlooked in examinations
that were closed prematurely, which could have reduced the amount of taxes
assessed and collected from corporate taxpayers.
WHY TIGTA DID THE AUDIT
This audit was initiated to evaluate whether the design and
implementation of the currency initiative allowed the LMSB Division to more
efficiently close examinations while effectively addressing mandatory and
high-risk material issues.
WHAT
TIGTA FOUND
Based
on several performance measures, the LMSB Division has increased the efficiency
of its examinations since the currency initiative. Both the average number of months required by
an examination group to close an examination of a return and case cycle time
for corporate examinations have declined.
In addition, examination coverage has increased along with the amounts
of assessments that examiners are recommending.
Although the
currency initiative was considered a success, there are opportunities for
improvement. Some LMSB Division personnel expressed resistance to the changes
introduced by the initiative. Another
concern was that significant tax issues might have been overlooked in
examinations closed prematurely to meet initiative deadlines. TIGTA reviewed 30 judgmentally selected
corporate examinations closed during the initiative. In 14 (47 percent) of the
30 cases, TIGTA found no evidence that examiners used the Case Analysis
Worksheet that was designed for use during the currency initiative to reduce
the risk of missing significant tax issues.
Some of the 14 cases were in early or late stages of review, with issues
not yet identified or nearing completion, but the guidance for the Case
Analysis Worksheet did not provide an exception for such cases.
TIGTA further
evaluated the 30 cases by comparing the issues identified for examination
during planning to those ultimately examined and identified 3 cases in which 1
or more issues were dropped from the examination with little or no supporting documentation. Without access to the financial records for
the 30 cases reviewed, TIGTA could not determine whether any of the
corporations avoided paying additional taxes that might have been owed. However, the LMSB Division could have more
closely followed best practices and possibly addressed the challenges it faced
during the currency initiative.
WHAT TIGTA RECOMMENDED
TIGTA recommended that the Commissioner, LMSB Division,
ensure that a standardized framework for planning and carrying out initiatives
of this magnitude is incorporated into the official LMSB Division policies and
procedures and includes steps for fully assessing implementation barriers and
detailed pilot testing.
In
their response to the report, IRS officials agreed
with the recommendation, stating that the LMSB Division plans to 1) consider
use of a standardized framework with detailed steps for managers to follow, and
2) issue a guidance memorandum to LMSB Division directors responsible for
review and approval of the design and implementation of major process
improvement initiatives in the LMSB Division.
Although the IRS agreed with our findings and recommendation, it did not
fully commit to using a standardized framework with detailed steps for the
design and implementation of future major process improvement initiatives. TIGTA continues to believe that without a
standardized framework in place for future initiatives, the IRS remains at risk
of experiencing challenges similar to those it faced with the Fiscal Year 2004
currency initiative.
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/200830181fr.html.
Email Address: inquiries@tigta.treas.gov
Phone Number: 202-622-6500
Web Site:
http://www.tigta.gov