The Timeliness of Processing Taxpayer Requests for Appeals
Review of Collection Decisions Has Improved
September 2004
Reference Number: 2004-10-185
This report has cleared the Treasury
Inspector General for Tax Administration disclosure review process and
information determined to be restricted from public release has been redacted
from this document.
September
27, 2004
MEMORANDUM FOR
CHIEF, APPEALS
DEPUTY
COMMISSIONER FOR SERVICES AND ENFORCEMENT
FROM: Gordon C. Milbourn III /s/Gordon C.
Milbourn III
Acting Deputy Inspector General for Audit
SUBJECT: Final Audit Report - The Timeliness of
Processing Taxpayer Requests for Appeals Review of Collection Decisions Has
Improved (Audit # 200310038)
This
report presents the results of our review of the processing of taxpayer requests
for Office of Appeals (Appeals) review of collection decisions. The overall
objective of this review was to evaluate the timeliness of processing taxpayer
requests for Appeals review of collection decisions for Collection Due Process
(CDP) and Offer in Compromise (OIC) cases.
Cases involving collection decisions, such as CDP and OIC cases, are
relatively new to Appeals and currently account for about one-half of the
Appeals workload.
In summary, early results of
the centralization of processing and the use of electronic transfer for Appeals
OIC cases indicate an improvement in the timeliness of case transfer and
assignment. However, the Internal
Revenue Service (IRS) Collection functions delayed transferring CDP cases to
Appeals to continue their own efforts to resolve the cases. In Fiscal Year (FY) 2003, delays averaged 112
calendar days after the taxpayers had requested an Appeals hearing.
To better track CDP hearing
requests and provide management information to project workloads, the IRS
implemented the Collection Due Process Tracking System (CDPTS) in March 2003. However, because the CDPTS is new, many cases
were still not being recorded on it at the time of our review. For the last quarter of FY 2003, 29 percent
of CDP cases completed by Appeals and recorded in the Appeals Centralized
Database System (ACDS) were not recorded in the CDPTS. Although the percentage of cases missing from
the CDPTS improved by January 2004 to 9 percent, there is still a risk of cases
not being controlled on the CDPTS.
Appeals is taking actions to
reduce the number of overage CDP cases being sent back to the Collection
functions; however, we found collection activity was not resumed on some CDP
cases after the Appeals process was completed.
From a sample of 200 CDP cases completed by Appeals in the last quarter
of FY 2003, 11 of the 42 cases returned to the Collection Field function (CFf) still
had a hold or freeze on the taxpayers’ accounts, making the information unreliable for timely resumption
of collection enforcement action. These 11 taxpayer accounts had over $2
million in tax liabilities.
Additionally, 11,555 records
recorded on the ACDS between FY 1999 and February 2, 2004, contained unreliable information such as incomplete
and incorrect dates for certain actions (e.g., when the taxpayer requested a
CDP hearing or when Appeals received the request). Appeals
advised us that certain additional automated data validations for the ACDS
would be implemented to address some errors we found. However, Appeals did not propose an automated
data validation to prevent or correct some blank fields because, for some (but
not CDP) cases, it is acceptable to have certain fields remain blank.
We recommended the Deputy
Commissioner for Services and Enforcement instruct Collection function
employees to forward CDP cases timely to Appeals after taxpayers request a CDP
hearing. In addition, the Deputy
Commissioner for Services and Enforcement and the Chief, Appeals, should
establish a process to reconcile CDP hearing requests in the CDPTS and the
ACDS. We also recommended the Deputy
Commissioner for Services and Enforcement develop and distribute a CDPTS
management report to identify CDP cases that have been closed from Appeals but
have not had collection action resumed timely.
Further, the Chief, Appeals, should implement data validation steps to
the ACDS which would prevent employees from leaving certain date fields blank
for CDP cases.
Management’s
Response: In general, IRS management agreed with our recommendations. However, management’s corrective action
differed from our recommendation to instruct Collection function employees to
forward a CDP case timely to Appeals after a taxpayer requests a CDP hearing
without making extended attempts to resolve the case unless initiated by the
taxpayer. Rather than requiring taxpayers to initiate
discussions, IRS management will clarify procedures to emphasize the need to
obtain a taxpayer’s concurrence to continue discussion to resolve a case prior
to its transfer to Appeals.
In its Appeals Quality Measurement System
case reviews on CDP cases, Appeals will determine whether there is an
indication the Compliance function inappropriately delayed forwarding a case to
Appeals. Appeals will initiate
programming to produce validation reports comparing the CDPTS data with the
ACDS data.
Appeals
will also initiate validation reports that will identify a blank field as a
potential error that needs to be researched and corrected if an entry is
required. The Small Business/Self-Employed
Division will develop and distribute a CDPTS management report to identify CDP
cases that have been closed by Appeals but have not had the collection
suspension reversed.
Because
management believes discussion with a taxpayer before his or her case is
transferred to Appeals can facilitate resolution once the case reaches Appeals,
management did not agree 23,500 cases would benefit from immediate
transfer. Furthermore, management stated
that the CFf maintains control over cases with a freeze or hold; therefore,
they do not believe the cases we identified with $2 million outstanding were
not being pursued for payment.
Management’s complete response to the draft report is included as
Appendix V.
Office of
Audit Comment: While we believe the alternate corrective
action to our first recommendation may help reduce delays in transferring CDP
cases, we remain concerned that transfer of these cases to Appeals will be
unnecessarily delayed while a Collection function attempts to obtain taxpayer
concurrence to continue discussions to resolve these cases. While we still believe our
recommendation is worthwhile, we do not intend to elevate our concern over this
matter to the Department of the Treasury for resolution.
We also believe our outcome measures are valid. The 23,500 taxpayers we identified would have
had their hearing requests sent to Appeals much sooner if the IRS had followed
our recommendation. Management was unable
to demonstrate whether further attempts to discuss the collection matters with
the taxpayers provided a significant benefit to the resolution of these cases
in Appeals. Regarding the cases we
identified with a freeze or
hold, the purpose of such a freeze or hold is to prevent collection enforcement
action, regardless of whether the case is controlled in the CFf. The $2 million we cited was not being
pursued. Therefore, we disagree with
management’s assertions related to our outcome measures.
Copies of this
report are also being sent to the IRS managers affected by the report
recommendations. Please contact me at
(202) 622-6510 if you have questions or Daniel R. Devlin, Assistant Inspector
General for Audit (Headquarters Operations and Exempt
Organizations Programs), at (202) 622-8500.
The New Process
for Transferring Offer in Compromise Cases Has Improved Timeliness
Collection Due Process Requests Are Not Sent to Appeals Timely
Appeals Is Taking Actions to Reduce Overage Collection Due Process Cases
The Appeals Centralized Database System Contains Unreliable Information
Appendix
I – Detailed Objective, Scope, and Methodology
Appendix
II – Major Contributors to This Report
Appendix
III – Report Distribution List
Appendix IV
– Outcome Measures
Appendix V –
Management’s Response to the Draft Report
The Internal Revenue Service (IRS) Office of Appeals (Appeals) provides taxpayers with an independent review, after an examination is completed or collection action is proposed, to settle disputes without litigation. Disputes involving the collection of taxes account for about one-half of the Appeals workload. The majority of collection cases for which taxpayers request an Appeals hearing are in the following two categories:
·
Collection
Due Process (CDP) – When taxpayers
are notified of an IRS lien or intent to levy, they have the right to request a CDP hearing with
Appeals.
·
Offer in Compromise (OIC) – An OIC is an
offer by a taxpayer to the IRS to settle a tax debt for less than the full
amount. A taxpayer has the right to an Appeals hearing if the IRS rejects the
taxpayer’s offer.
Taxpayer appeal rights for both of these categories were established in the IRS Restructuring and Reform Act of 1998 (RRA 98). Since the RRA 98 was enacted, the number of collection-related cases in Appeals has increased significantly. Table 1 shows, for Fiscal Year (FY) 2003, the number of these two types of cases received by Appeals, the number closed, the number still in process at the end of the year, and the average time it took for Appeals to process the cases.
Table 1: Appeals Processing of Collection Cases for FY
2003
Case Type
|
Receipts
|
Closures
|
Ending
|
Time to
Process in Calendar Days
|
Collection Due Process
|
31,848
|
27,467
|
21,412
|
253
|
Offer in Compromise
|
16,861
|
13,462
|
11,385
|
313
|
Total
|
48,709
|
40,929
|
32,797
|
|
Source: The Office of Appeals Business Performance
Review, November 2003.
In most instances, when a taxpayer requests an Appeals hearing for a case involving the collection of taxes, the IRS suspends further collection action until Appeals has made a determination on the case. As such, it is important that the IRS maintain proper control over the cases throughout the Appeals process. Timely transmittal of the cases to and from Appeals is important to allow for prompt resumption of collection and enforcement action once the Appeals determination is made.
To help expedite Appeals case transfer and processing, in February 2003, Appeals reorganized its Records and Processing functions into one function called the Appeals Processing Service (APS) that controls the case processing and technical services for Appeals. The IRS Collection and Examination functions send a taxpayer’s request for an Appeals review to the APS function, which inputs the case information on the computer inventory system called the Appeals Centralized Database System (ACDS) and then forwards the case for assignment to an Appeals officer. Once the Appeals officer makes a decision, the case is sent back to the APS function for closing, which includes completing the information on the ACDS, issuing appropriate closing letters, making applicable adjustments to the taxpayer’s tax account for examination decisions, and sending the case with applicable instructions back to the appropriate IRS function.
Further, Appeals has realigned
or plans to realign case processing and technical services and plans to
modernize its process by gaining direct access to IRS computer systems and
receiving case information electronically.
Because the IRS Collection functions centralized OIC case processing at
the
This review was performed at the Appeals APS function
offices located in Brookhaven and Hempstead,
During October 2003, Appeals centralized its OIC case processing to align with the IRS Centralized OIC function. All taxpayer OICs are forwarded to the Centralized OIC function so this function can evaluate each OIC to determine whether it can be processed and who should investigate the case. Either the Centralized OIC function or a field Compliance function employee investigates the offer to determine if it will be accepted or rejected. If an OIC is rejected and the taxpayer requests a review by Appeals, the Centralized OIC function or field Compliance function will forward the case to the centralized APS function in the Brookhaven Campus. The APS function will establish the taxpayer request on the ACDS using “e-Case” to electronically transfer case information from the Automated Offer in Compromise System (AOIC). The APS function will then forward the case for assignment to an Appeals officer. Once the Appeals officer’s decision is approved, the case is returned to the APS function, which closes the case on its inventory system and returns it with instructions to the originating function.
Early results of the centralization of processing and use of electronic transfer of case data indicate an improvement in the timeliness of case transfer and assignment. The average time between the date on which a taxpayer requests an Appeals hearing of a rejected OIC and the date on which the case is assigned to an Appeals officer decreased from 61 to 48 calendar days. Appeals expects this time period to decrease as the process is further refined. The average time for the APS function to return a completed Appeals OIC case to the Centralized OIC function decreased from 14 days to 1 day. In addition, we reviewed a statistical sample of 50 of the 1,248 OIC cases closed by Appeals in January 2004. We found that all of them were returned to the Centralized OIC function and actions taken to resume any necessary collection actions were timely.
Further, the OIC cases were properly recorded on both the AOIC and the ACDS. For cases processed in Appeals in January 2004, after the APS function centralization of Appeals’ OIC cases, we compared the information on these two inventory systems for cases in which taxpayers requested an Appeals hearing of a rejected OIC. The Appeals OIC cases were properly recorded on both inventory systems.
To evaluate the case controls over CDP cases throughout the appeals process, we reviewed a judgmental sample of 84 CDP case files from 4 APS function sites. For the cases in our sample, there were significant delays by the Collection functions in transferring the cases to the APS function—it took an average of 93 days before the APS function received the CDP hearing requests from the Collection functions. To further evaluate the length of time it was taking a CDP hearing request to be assigned to an Appeals officer, we reviewed inventory information recorded on the ACDS during the period FY 1999 through February 2, 2004. The greatest amount of time occurred between the date on which a taxpayer requested a CDP hearing and the date on which the Appeals APS function received the request. Data from the ACDS indicate that, from the year 2000 forward, the Collection functions have been significantly delaying the transfer of CDP hearing requests. Table 2 shows the average time involved for a CDP hearing request to be assigned to an Appeals officer.
Table 2: Average
Time for CDP Hearing Requests to Be Assigned to Appeals Officers, FYs 1999 –
2004
|
Average Time in Calendar
Days |
Total Calendar Days
for Request to Be Assigned to Appeals Officer |
||
Fiscal Year |
Transfer to Appeals |
Input Case to the
ACDS |
Assign to Appeals
Officer |
|
1999 |
30 |
5 |
5 |
40 |
2000 |
63 |
5 |
8 |
76 |
2001 |
105 |
7 |
9 |
121 |
2002 |
108 |
7 |
8 |
123 |
2003 |
112 |
10 |
7 |
129 |
2004 |
83 |
5 |
5 |
93 |
Source: Treasury Inspector General for Tax
Administration (TIGTA) review of Appeals’ inventory recorded on the ACDS from
FY 1999 through February 2, 2004.
If a taxpayer requests a CDP hearing with Appeals, IRS procedures state that the Collection function employee should work with the taxpayer to resolve the case before the Appeals hearing if the taxpayer is willing. If the taxpayer is willing to resolve the case, this should be documented in the collection case history. If the taxpayer indicates he or she does not want to withdraw the request for a CDP hearing or if discussions with the taxpayer reach an impasse, the Collection function employee should document the case history and forward the case to Appeals.
In the 84 CDP cases we sampled, there were no instances in which the taxpayers initiated contact with the Collection function to try to resolve the cases prior to their transfer to Appeals. Further, in 33 of the 84 cases, the taxpayers did not respond to attempts by the Collection function to contact them. In 6 of the 84 cases, the taxpayers stated, when contacted by the Collection function, that they wanted a CDP hearing.
Collection function personnel advised us that ACS function employees at the four campus sites are directed to resolve a CDP hearing request before sending it to Appeals. Processing goals at the 4 different ACS sites ranged from 60 to 90 days to transfer a case to Appeals. In FY 2003, the 4 ACS campus sites processed 21,934 (73 percent) of the 30,073 CDP hearing requests transferred to Appeals in an average of 128 days. In FY 2004 (as of February 2, 2004), they had processed 5,602 (74 percent) of the 7,528 CDP hearing requests transferred to Appeals in an average of 91 days. We were advised that, if further resolution was not attempted, the CDP hearing requests would be ready to transfer to Appeals within 30 days.
Few CDP hearing requests
are resolved by the Collection functions
In the FY 2003 Annual Report to Congress, the National Taxpayer Advocate expressed concern with delays in transferring CDP hearing requests to Appeals. The Chief, Appeals, responded that this process allows taxpayers to resolve collection disputes at the lowest possible level, with the least amount of delay; approximately 10 to 12 percent of the CDP hearing requests are resolved by the Collection functions.
Based on our analysis, the number of CDP hearing requests resolved by the Collection functions in FY 2003 was approximately 3,500, which represents about 10 percent of the cases. However, the Collection functions still took an average of 109 days to resolve this 10 percent and delayed the rest of the CDP hearing requests by 129 calendar days (4 months), even though there was no resolution prior to the case transfer. We identified 23,500 taxpayers that had their requests for a CDP hearing delayed by the Collection functions by more than 45 calendar days in FY 2003. These taxpayers may not be aware that their CDP hearing requests have not been forwarded to Appeals timely.
1. The Deputy Commissioner for Services and Enforcement should instruct Collection function employees to forward CDP cases timely to Appeals after taxpayers request a CDP hearing. While Collection function employees should contact taxpayers if necessary to ensure completeness of a CDP hearing request, no extended attempts should be made to resolve a CDP hearing request unless the taxpayer initiates the discussion to resolve the case prior to its transfer to Appeals. Procedures should be updated and clarified to reflect this instruction.
Management’s Response: Although IRS management believes current procedures address this issue by stressing the need to forward CDP cases timely to Appeals, they will reemphasize and clarify CDP case processing time periods and procedures. However, rather than requiring taxpayers to initiate discussions, IRS management will clarify procedures to emphasize the need to obtain a taxpayer’s concurrence to continue discussion to resolve the case prior to its transfer to Appeals. In its Appeals Quality Measurement System case reviews on CDP cases, Appeals will determine whether there is an indication the Compliance function inappropriately delayed forwarding a case to Appeals.
Because management believes discussion with a taxpayer before his or her case is transferred to Appeals can facilitate resolution once the case reaches Appeals, management did not agree 23,500 cases would benefit from immediate transfer.
Office
of Audit Comment: While we believe the alternate corrective
action to our recommendation may help reduce delays in transferring CDP cases,
we remain concerned that transfer of these cases to Appeals will be
unnecessarily delayed while the Collection function attempts to obtain taxpayer
concurrence to continue discussions to resolve these cases.
We also believe our outcome measure is valid. The 23,500 taxpayers we identified would have had their hearing requests sent to Appeals much sooner if the IRS had followed our recommendation. Management was unable to demonstrate whether further attempts to discuss the collection matters with the taxpayers provided a significant benefit to the resolution of these cases in Appeals.
To better track CDP hearing requests and provide management information to project workloads, the IRS implemented the Collection Due Process Tracking System (CDPTS) in March 2003. This system should track all CDP cases from taxpayer request through resolution and is used by both the Collection functions and Appeals. It also electronically updates some actions on a taxpayer’s tax account.
Because the CDPTS is new, many cases were still not being recorded on it at the time of our review. For the last quarter of FY 2003, 2,240 (29 percent) of the 7,675 CDP cases completed by Appeals and recorded on the ACDS were not in the CDPTS. The percentage had improved by January 2004, when only 178 (9 percent) of the 1,928 CDP cases completed by Appeals and recorded on the ACDS were not in the CDPTS.
Currently, management reports are being designed for the CDPTS. When these reports are completed and distributed, the CDPTS should provide management information for the aging of cases, status of cases (including resolution), and other inventory statistics. The CDPTS will be less useful if it does not include all CDP hearing requests.
2.
The Deputy Commissioner for Services and
Enforcement and the Chief, Appeals, should establish a process to reconcile CDP
hearing requests in both the CDPTS and the ACDS.
Management’s Response:
Appeals will initiate programming to produce validation reports
comparing the CDPTS data with the ACDS data.
If a taxpayer requests a CDP hearing with Appeals but not within a 30-day period, the taxpayer can still receive an Equivalent Hearing with Appeals. However, an Equivalent Hearing does not suspend collection action and does not provide the taxpayer the right to seek judicial review of the Appeals determination. If a taxpayer timely requests a CDP hearing, the taxpayer has the right to seek judicial review after the appeals process if the taxpayer does not agree with the Appeals decision. In such cases, Appeals will issue a determination letter explaining its decision and advising the taxpayer as to whether the Tax Court or the United States (U.S.) District Court has jurisdiction.
The taxpayer has 30 calendar days from the date of the determination letter to petition the appropriate Court. To provide time for the taxpayer to petition, Appeals will suspend the CDP case. If Appeals determines the taxpayer has not petitioned the Court after the suspension period, it will return the case to the appropriate Collection function for reinstatement of any necessary collection activity.
Historically, Appeals would suspend CDP cases with Tax Court jurisdiction 60 calendar days (30 calendar days past the letter expiration date) and suspend CDP cases with U.S. District Court jurisdiction 180 calendar days. Cases having U.S. District Court jurisdiction were taking longer for Appeals to confirm whether the taxpayer had filed; however, due to improved communications with the U.S. District Court, Appeals changed this suspension period in May 2004 from 180 to 60 calendar days.
Using Appeals’ inventory information on the ACDS as of
February 2004, we determined CDP cases not requiring a determination letter
took approximately 40 calendar days from the date of the Appeals decision to
the date on which the case was returned to the Collection function. CDP cases requiring a determination letter
took approximately 124 calendar days from the date of the Appeals decision to
the date on which the case was returned to the Collection function. Since our analysis was conducted before
Appeals changed the suspension period for CDP cases with U.S. District Court
jurisdiction, we attempted to separate CDP cases between the different Court
jurisdictions. However, we could not
separate the cases because information on the ACDS did not adequately indicate
which Court had jurisdiction or which suspension period was applied for each
case.
To address overage inventories, Appeals periodically suspends APS function work and redirects its staff to reduce overage inventory, including CDP cases on which determination letters have been issued. This happened in March 2003 and again in February 2004.
Appeals plans to minimize future CDP overage inventories by centralizing its processing and obtaining more information for its inventory and staffing allocation. By the first quarter of FY 2005, Appeals plans to centralize its CDP case processing operations into campus sites. This centralization is expected to help alleviate processing backlogs within the current APS function field offices. In addition, Appeals plans to use a new computer inventory system for the APS function to help control cases. This inventory system is called the Processing Employees Automated System and is currently being tested, with implementation planned, at the time of our review, for late FY 2004. This new System will provide management information regarding inventory levels and staffing allocation to help identify APS function processing issues involving staffing needs and overage inventory.
Timely processing of CDP cases on which
determination letters have been issued is important to protect the Federal
Government’s interest. Through quick
reinstatement of any collection actions, lost revenues are minimized. Appeals is addressing this risk by reducing
the suspension period for issuing determination letters with U.S. District
Court jurisdiction, centralizing its CDP case processing, and using a new
computer inventory system to provide management with information regarding
inventory levels and staffing allocation.
If a taxpayer requests a CDP hearing with Appeals within 30 days of notification of an IRS lien or intent to levy, a hold or freeze is placed on the taxpayer’s account to prevent further collection action. When the CDP hearing process is completed due to an agreement with the taxpayer, a decision by Appeals, or a Court determination, the closing instructions are forwarded by the APS function to the appropriate Collection function. Collection action is resumed by releasing the hold or freeze placed on the taxpayer’s account. If a taxpayer requested a CDP hearing with Appeals but not within a 30-day period, the taxpayer can still receive an Equivalent Hearing with Appeals. However, as previously stated, an Equivalent Hearing does not suspend collection action and does not provide the taxpayer the right to seek judicial review of the Appeals determination.
To determine if collection action was renewed after the completion of the CDP hearing process, we reviewed a statistical sample of 200 from the 7,675 CDP hearing requests completed by Appeals in the last quarter of FY 2003. Of the 200 sample CDP hearing requests, 60 involved Equivalent Hearings that did not require a hold or freeze to be placed on the taxpayer’s tax account. Of the 140 timely submitted CDP hearing requests, 98 were sent to Appeals from the ACS function and 42 from the CFf.
In April 2004, we reviewed the 140 CDP hearing requests completed by Appeals to determine if delays in removing the hold or freeze on the taxpayers’ accounts prevented resumption of collection actions. Collection activity had been resumed on all of the 98 CDP hearing requests returned to the ACS function. However, 11 of the 42 CDP hearing requests returned to the CFf still had a hold or freeze on the taxpayers’ accounts more than 6 months after transfer from Appeals. The reasons are shown in Table 3.
Table 3: CDP
Hearing Requests Returned to the
CFf That Still Had a Hold or Freeze on the
Taxpayers’ Accounts
Reason
Hold or Freeze Was Not Timely Removed From Taxpayer’s Account |
Number of Cases |
Oversight
by the revenue officer in the CFf in not releasing the hold or freeze. |
6 |
Appeals had initially sent the closed
CDP case file and instructions to the wrong collection function address, and
there was a delay in sending it to the correct address. |
2 |
Confusion as to whether Appeals or the CFf
was responsible for releasing the hold or freeze. |
1 |
Not enough information in the file to
determine cause. |
2 |
Total |
11 |
Source: TIGTA review, in April 2004, of 42 CDP hearing requests returned to the CFf during the last quarter of FY 2003.
The potential for lost revenue varied in the 11 CDP hearing
requests we identified in our sample. In
two cases, the taxpayers had fully paid the balances due before Appeals
returned the cases to the CFf. For the
other 9 cases, the total dollar amount potentially not being pursued for at
least 6 months was over $2 million at the time of our review. Overall,
based on the results of our sample, we estimate that 1,612 of the 7,675
requests Appeals completed in the last quarter of FY 2003 were referred by the CFf and that 423 (26 percent) of the 1,612 have
an inappropriate hold or freeze on the taxpayers’ accounts, making the
information unreliable for timely resumption of collection enforcement action.
IRS management stated they have started centralizing the
points at which cases are returned to the CFf to help get these CDP hearing
requests back to the correct locations for resumption of collection actions. Nonetheless, there is no notification to
Collection function managers to alert them that an inappropriate hold or freeze
remains on a CDP case that has been closed by Appeals. Information in the CDPTS could be used to
alert Collection function managers about such cases.
3.
The
Deputy Commissioner for Services and Enforcement should develop and distribute a
CDPTS management report to identify CDP cases that have been closed by Appeals but
have not had collection action resumed timely.
Management’s Response: The SB/SE Division will develop and
distribute a CDPTS management report to identify CDP cases that have been
closed by Appeals but have not had the collection suspension reversed.
Notwithstanding, management stated
that the CFf maintains control over cases with a freeze or hold; therefore,
they do not believe the cases we identified with $2 million outstanding were
not being pursued for payment.
Office of Audit Comment: The purpose of such a freeze or hold is to
prevent collection enforcement action, regardless of whether the case is
controlled in the CFf. The cases we
identified with $2 million outstanding were not being pursued for payment
because of a freeze.
During our analysis of the timely
processing of CDP cases discussed earlier in the report, we identified 11,555 records
created on the ACDS between FY 1999 and February 2, 2004, that had unreliable
dates recorded. Dates were missing for
certain actions (e.g., there was no date to indicate when the taxpayer
requested a CDP hearing on some records) or there were negative time periods
between certain actions (e.g., the date recorded indicated Appeals received the
CDP hearing request before the taxpayer had requested a CDP hearing). Some Appeals offices had a higher rate of not
recording data or recording incorrect data.
These records were not used in our time analysis of CDP cases previously
discussed because of their unreliability.
Appeals management advised us that, over the last 2 years, they have created some processes and validation measures to help improve the accuracy of data contained in the ACDS. These include a requirement for managers to sample new and closed cases to test for accuracy, informal reports to help identify errors and make corrections, ongoing monitoring and validation of data, and 21 automated data validation steps to improve accuracy. Moreover, as a result of our audit, Appeals management advised us that certain additional automated data validations would be implemented to address the types of errors we found. The planned actions should help resolve a number of the errors and improve the reliability of data in the ACDS. However, Appeals management did not propose an automated data validation to prevent or correct some blank fields because there are some types of cases (other than CDP cases) for which it is acceptable to have certain fields remain blank.
4.
The Chief, Appeals, should implement data
validation steps to the ACDS which would prevent employees from leaving certain
date fields blank for CDP cases.
Management’s Response: Appeals will
initiate validation reports that will identify a blank field as a potential
error that needs to be researched and corrected if an entry is required.
Appendix I
The overall objective of this review was to evaluate the timeliness of processing taxpayer requests for Office of Appeals (Appeals) review of collection decisions for Collection Due Process (CDP) and Offer in Compromise (OIC) cases. To accomplish our objective, we:
I.
Determined whether the
measures relating to reduction of inventory of CDP and OIC cases as outlined in
the Appeals strategies have been implemented.
II.
Determined whether CDP
and OIC appeals requests are timely forwarded to the Appeals Processing Service
(APS) function sites and are then timely processed to the Appeals officers by
the APS function sites.
A.
Using the Appeals
Centralized Database System (ACDS), analyzed the various steps of the APS
function processing of CDP and OIC cases, from the date on which a taxpayer
requested an Appeals review to the date on which the case was assigned to an
Appeals officer. In addition, we identified
records with missing or inaccurate dates on the ACDS.
B.
Observed processing
and interviewed managers at the Appeals APS function offices in
III.
Evaluated whether the
APS function processing of CDP and OIC cases closed from Appeals was timely.
A.
Using the ACDS,
analyzed the various steps of Appeals processing, from the date on which an
Appeals officer made a final determination to the date on which the Collection
function acknowledged receipt of the returned file. In addition, we identified records with
missing or inaccurate dates on the ACDS.
B.
Evaluated strategies
for the reduction of case processing backlogs.
IV.
Evaluated whether
collection enforcement actions were timely resumed when appropriate after CDP
and OIC cases were closed by Appeals.
A.
From a population of
7,675 CDP cases closed by Appeals during the fourth quarter of Fiscal Year
2003, selected a statistically valid random sample of 200 CDP cases (using a 95
percent confidence level, a 15 percent expected error rate, and a +/- 5 percent
precision rate). We reviewed the closing
documents used to transmit the cases between Appeals and the Collection
functions, the Appeals case activity records, the Appeals case memoranda of
closing instructions, and Integrated Data Retrieval System (IDRS) information
to determine whether the hold or freeze had been removed from the taxpayers’
accounts.
B.
From a population of
1,248 OIC cases closed by Appeals in January 2004, randomly selected a
discovery sample of 50 OIC cases using a probability percentage of 90 percent
and an estimated error rate of 5 percent.
Due to the recent OIC centralization, we sampled the most current month
available on the ACDS. We researched the
Automated Offer in Compromise (AOIC) database and the IDRS to determine whether
the hold or freeze had been removed from the taxpayers’ accounts.
V.
Determined whether
records of taxpayer CDP and OIC appeals requests were accounted for on Appeals
and Collection function databases.
A.
Obtained a download of
the Collection Due Process Tracking System (CDPTS), the ACDS, and the AOIC databases.
B.
Matched CDPTS and AOIC computer records to those on the ACDS.
C.
Requested Collection
function and Appeals reports of reconciliations of the databases and discussed
the status of database usage with Collection function and Appeals employees.
VI.
Determined whether the
Collection functions were timely resolving CDP hearing requests by
correspondence prior to forwarding them to Appeals.
A.
Requested management
reports of the percentage of cases successfully resolved by the Collection
functions after the date on which a taxpayer requested a hearing but before the
case was sent to Appeals.
B.
Analyzed the CDPTS to estimate the percentage of CDP cases closed by the
Collection functions before forwarding to Appeals.
C.
Researched policies
and procedures for forwarding CDP cases to Appeals.
D. Reviewed a judgmental sample of 84 CDP case files in 4 APS function sites to identify trends in case activity prior to the cases being received by Appeals.
Appendix II
Major Contributors to This
Report
Daniel R. Devlin,
Assistant Inspector General for Audit (Headquarters Operations and Exempt
Organizations Programs)
Michael E. McKenney, Director
Aaron R. Foote, Audit
Manager
Yasmin B. Ryan, Lead Auditor
Janice
M. Pryor, Senior Auditor
Daniel
M. Quinn, Senior Auditor
Appendix III
Commissioner C
Office of the
Commissioner – Attn: Chief of Staff C
Commissioner, Small
Business/Self-Employed Division SE:S
Commissioner, Wage
and Investment Division SE:W
Deputy Chief,
Appeals AP
Chief Counsel CC
National Taxpayer
Advocate TA
Director, Office of
Legislative Affairs CL:LA
Director, Office of
Program Evaluation and Risk Analysis
RAS:O
Office of
Management Controls OS:CFO:AR:M
Audit Liaisons:
Chief, Appeals AP
Deputy Commissioner for Services and
Enforcement SE
Commissioner, Small
Business/Self-Employed Division SE:S
Commissioner, Wage and Investment
Division SE:W
Appendix IV
This appendix presents detailed information on the measurable impact that our recommended corrective actions will have on tax administration. These benefits will be incorporated into our Semiannual Report to the Congress.
Type and Value of Outcome Measure:
· Taxpayer Burden – Actual; 23,500 taxpayers in Fiscal Year (FY) 2003 had their requests for a Collection Due Process (CDP) hearing delayed by the Collection functions (see page 4).
Methodology Used to Measure the Reported Benefit:
Using a computer extract from the Appeals Centralized Database System (ACDS), we determined 23,500 of the 30,073 taxpayer requests in FY 2003 for a CDP hearing were not forwarded to the Office of Appeals (Appeals) from the Collection functions within 45 calendar days of the request received date. We used the date of the taxpayer CDP hearing request and the date the case was received by Appeals to determine the length of time. The maximum of 45 calendar days we used includes time for the Collection functions to receive the taxpayer’s CDP hearing request, ensure completeness of the request, obtain additional information if necessary, and transfer the request to Appeals.
Type and Value of Outcome Measure:
· Increased Revenue – Potential; $2 million as of April 2004 was inappropriately suspended from collection enforcement actions (see page 11).
· Increased Revenue – Potential; 423 taxpayer accounts closed by Appeals in the last quarter of FY 2003 have an inappropriate hold or freeze which prevented the resumption of collection enforcement action (see page 11).
Methodology Used to Measure the Reported Benefit:
Using a computer extract from the ACDS, we determined 7,675 CDP cases in the last quarter of FY 2003 had completed the Appeals process and were returned to the Collection functions. We selected a statistical sample of 200 and found 11 cases had inappropriate holds or freezes on the taxpayer accounts. These 11 cases had $2 million in tax liabilities inappropriately suspended from collection enforcement actions. Based on our sample, we estimated 423 taxpayer accounts (using a 95 percent confidence level and a precision of +/‑ 3.1 percent) have an inappropriate hold or freeze which prevented the resumption of collection enforcement action. We did not estimate the amount of tax liabilities inappropriately suspended from collection enforcement actions for these 423 taxpayer accounts.
Type and Value of Outcome Measure:
· Reliability of Data – Actual; 11,555 records created on the ACDS from FY 1999 through February 2, 2004, contained unreliable data for dates (see page 13).
Methodology Used to Measure the Reported Benefit:
Using a computer extract from the ACDS for records created
between FY 1999 and February 2, 2004, we identified 11,555 records with
unreliable data for dates. Dates were missing for certain
actions (e.g., there was no date to indicate when the taxpayer requested a CDP
hearing on some records) or there were negative time periods between certain
actions (e.g., the date recorded indicated that Appeals received the CDP
hearing request before the taxpayer had requested a CDP hearing). As a result of our audit, Appeals
advised us that certain additional automated data validations would be
implemented to address the types of errors we found. However, Appeals did not propose an automated
data validation to prevent or correct some blank fields because there are some
types of cases (other than CDP cases) for which it is acceptable to have
certain fields remain blank. These unreliable records were not
used in any of our testing of CDP cases previously discussed in the report.
Appendix VI
Management’s
Response to the Draft Report
The response was removed due to its
size. To see the response, please go to
the Adobe PDF version of the report on the TIGTA Public Web Page.