SEMIANNUAL
REPORT TO CONGRESS
MARCH
31, 2004
MESSAGE
FROM TIGTA'S ACTING INSPECTOR GENERAL
The
Treasury Inspector General for Tax Administration (TIGTA) plays a vital role in
the Federal Government by ensuring the nation's tax administration system is
operating effectively and is protected internally and externally. This year marks our fifth year of operation
as an Inspector General (IG) organization.
The world has changed dramatically in the past 5 years, particularly
since September 11, 2001. In these days
of terrorist activity and economic challenge, it is more important than ever
that we promote the efficiency and effectiveness of tax administration and
safeguard the operation of this key national system.
The
results of our work for the past 6 months, from October 1, 2003, through March
31, 2004, indicate that TIGTA has risen to the challenges it faces. Our accomplishments during this reporting
period helped improve tax administration and consequently aided taxpayers
nationwide. With the issuance of 81
audit reports, we identified more than $732 million in cost savings, and an
additional $3.45 billion in increased or protected revenue. Our audits assessed such Internal Revenue
Service (IRS) operational and programmatic issues as providing quality customer
service, information technology modernization, information system security, tax
compliance initiatives, and erroneous payments.
To
combat fraud, waste, and abuse, our investigative work centered on IRS employee
and infrastructure security, employee integrity, and external attempts to
corrupt Federal tax administration.
During this reporting period, we received 3,545 complaints of alleged
criminal wrongdoing or administrative misconduct. We opened 1,877 investigations and closed 1,989. Additionally, TIGTA's Office of Chief
Counsel reviewed 116 proposed regulations and legislative requests. Highlights of our work are included in this
Semiannual Report to Congress.
We
are proud of all of our accomplishments during the past 5 years. As we focus on our future, we look forward
to continuing to work with IRS, Congressional, and Treasury officials to help
the IRS address current and future challenges to improve our nation's tax
administration system.
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TABLE
OF CONTENTS Page
Message
from TIGTA's Acting Inspector General
1
TIGTA's
Organizational Structure and Mission
5
Promote
the Economy, Efficiency, and Effectiveness of Tax Administration 9
Providing Quality Customer Service 9
Information Technology
Modernization 11
Information System Security 13
Employee and Infrastructure
Security 14
Enhanced Enforcement Activities - Tax
Compliance 15
Erroneous Payments 20
Protect
the Integrity of Tax Administration
23
Employee Integrity 23
External Attempts to Corrupt Tax
Administration 27
Congressional
Testimony 31
Awards
and Special Achievements 33
Appendices
Appendix
I - Audit Statistical Reports
Audit Reports With Questioned Costs 35
Prior Period Reports 35
Reports With Recommendations That Funds
Be Put to Better Use 36
Reports With Additional Quantifiable
Impact on Tax Administration 37
Appendix
II - Investigations - Statistical Reports
Investigations Opened and Closed 39
Financial Accomplishments 39
Status of Closed Criminal
Investigations 39
Criminal Dispositions 40
Administrative Disposition on Closed
TIGTA Investigations 40
Complaints/Allegations Received by
TIGTA 41
Status of Complaints/Allegations
Received by TIGTA 41
IRS Data Regarding Allegations of
Misconduct Against IRS Employees 42
Report of Employee Misconduct for the
Period 10/01/03 - 3/31/04
Summary by Disposition Groups 42
Report of Employee Misconduct for the
Period 10/01/03 - 3/31/04
National Summary 42
IRS Summary of Substantiated §1203
Inquiries Recorded in ALERTS
for the Period 10/01/03 -
3/31/04 43
Appendix
III - Statistical Reports - Other
Audit
Reports With Significant Unimplemented Corrective Actions 45
Statistical
Reports - Other 53
Appendix
IV - Audit Products
October 1, 2003 - March 31, 2004 55
Appendix
V - Statutory TIGTA Reporting Requirements
59
Appendix
VI - Section 1203 Standards 63
Hotline
Information 64
TIGTA'S
ORGANIZATIONAL
STRUCTURE
AND MISSION
TIGTA
provides independent oversight of IRS activities, the IRS Oversight Board, and
the IRS Office of Chief Counsel.
Although TIGTA is organizationally placed in the Treasury Departmental
Offices and reports to the Secretary of the Treasury and the Congress, it
functions independently from the Departmental Offices and all other offices and
bureaus within the Department. TIGTA's
focus is devoted to all aspects of work related to Federal tax administration.
TIGTA
protects the public's confidence in the tax system by overseeing the IRS as it
strives to achieve its strategic goals, identifying and addressing the IRS'
management challenges, and implementing the President's Management Agenda and
the Department of the Treasury's priorities.
TIGTA's
primary functional offices are the Office of Audit (OA) and the Office of
Investigations (OI). TIGTA's Offices of
Chief Counsel, Information Technology, and Management Services support OA's and
OI's efforts. TIGTA's goal is to
conduct audits and investigations designed to:
*
Promote the economy, efficiency, and effectiveness of tax administration.
*
Protect the integrity of tax administration.
Office
of Audit
TIGTA's
comprehensive, independent performance and financial audits of IRS programs and
operations focus on mandated reviews and high-risk challenges facing the
IRS. The audits address a variety of
issues, including:
*
Information technology
*
Computer and employee security
*
Tax compliance initiatives
*
Performance and financial management
*
Taxpayer protection and rights
*
Tax return processing
*
Customer service
*
Tax fraud
TIGTA
also performs audits to determine if the IRS adequately ensures fair and
equitable treatment of taxpayers. Audit
recommendations result 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.
Office
of Investigations
TIGTA
protects the Department of the Treasury's ability to collect revenue owed to
the Federal Government. TIGTA
accomplishes this goal by providing comprehensive investigative services
focused on three programs: IRS employee
integrity, IRS employee and infrastructure security, and external attempts to
corrupt Federal tax administration.
In
order to focus investigative resources on its primary program areas, TIGTA developed
and implemented a performance model to help it achieve the most return on
investment for the IRS, the Treasury Department, and the American
taxpayer. TIGTA, through its
investigative program, pursuant to its unique statutory charge, has responsibility
to prevent and detect fraud, waste, and abuse in IRS programs and operations,
including:
*
Investigating allegations of criminal violations that impact tax
administration, and of serious administrative misconduct by IRS employees.
*
Conducting proactive investigative initiatives that ferret out criminal and
administrative misconduct in the administration of IRS programs.
*
Operating a Criminal Intelligence Program that manages threat information that
could impact IRS employees and functions.
*
Investigating assaults and threats made against IRS employees, facilities, and
data infrastructures.
*
Investigating fraud, waste, and abuse involving IRS procurements.
*
Conducting Integrity/Fraud Awareness Program presentations for IRS employees
and others, such as tax practitioners and community groups.
*
Operating a hotline to receive and process complaints of fraud, waste, abuse,
and misconduct involving IRS employees and programs.
*
Conducting forensic examinations of physical and electronic evidence to support
investigations.
*
Using technical and investigative support, equipment, training, and other
specialized services to enhance investigative operations.
AUTHORITIES
TIGTA
has all the authorities granted under the Inspector General Act of 1978, as
amended.1 TIGTA also has access to tax
information in the performance of its tax administration responsibilities and
the obligation to report potential criminal violations directly to the
Department of Justice. The IG and the
Commissioner of Internal Revenue have established policies and procedures
delineating responsibilities to investigate potential criminal offenses under
the Internal Revenue laws.
In
addition, the IRS Restructuring and Reform Act of 1998 (RRA 98)2 amended the
Inspector General Act of 1978 to give TIGTA statutory authority to carry
firearms, execute and serve search and arrest warrants, serve subpoenas and
summons, and make arrests as set forth in Section (§) 7608(b)(2) of the
Internal Revenue Code (I.R.C.).
PROMOTE
THE ECONOMY, EFFICIENCY, AND EFFECTIVENESS OF TAX ADMINISTRATION
PROVIDING
QUALITY CUSTOMER SERVICE
The IRS' mission is to provide America's
taxpayers top-quality service by helping them understand and meet their tax
responsibilities, and by applying the tax laws with integrity and fairness to
all. Customer service is a major
concern of the Congress and other stakeholders. The RRA 98 mandated the IRS be more responsive to customer needs. There are many ways in which the IRS
provides customer service, such as walk-in and toll-free telephone assistance,
electronic customer service, and written communications to taxpayers. The IRS must also implement tax law changes
and plan for activities and resources to ensure accurate and timely tax return
processing during the filing season.3
The effectiveness of each of these services influences a taxpayer's
ability and desire to comply voluntarily with the tax laws.
Overall,
the 2003 Filing Season went well and most of the 122 million individual income
tax returns received through May 30, 2003, were processed timely and accurately
with appropriate refunds issued timely.
The IRS also implemented correctly most, but not all, key tax law
changes. TIGTA reported issues with the
retirement savings contribution credits and potential unclaimed Additional
Child Tax Credits (ACTC) that could result in the loss of taxpayer
entitlements. TIGTA also identified
instances of taxpayers receiving "dual benefit" from the tuition and
fees deduction and the education credit, and wrongfully taking deductions for
student loan interest, both of which could result in erroneous tax
reductions. TIGTA recommended the IRS
continue to notify taxpayers who appear to be eligible for the ACTC and
strengthen controls to prevent some taxpayers from receiving tax reductions by
claiming the tuition and fees deduction when they have also claimed an
education credit. IRS management agreed
with our recommendations. TIGTA is
following up on these conditions during its review of the 2004 Filing Season.
The
Congress has given the IRS a goal of having at least 80 percent of all tax
returns electronically filed (e-file) by Calendar Year (CY) 2007. At present, the majority of e-filed tax
returns are processed by Authorized IRS e-file Providers, called Electronic
Return Originators (ERO). According to
the IRS, over
154,000
EROs are authorized to participate in the IRS' e-file Program.
The
IRS regulates EROs through an application screening process and a monitoring
program. TIGTA reported the IRS
continues to authorize individuals to participate in the e-file Program without
ensuring they have met all required screening checks. In 2003, the IRS took steps to strengthen its ERO monitoring
program by requesting computer programming that will monitor continuously the
tax accounts of EROs for suspect transactions.
However, weaknesses in the applicant screening and monitoring program
have allowed filing fraud by EROs.
TIGTA recommended strengthening the ERO screening and monitoring program
and developing goals and measures to assess the effectiveness of the monitoring
program. IRS management agreed to take
action in this area.
In
response to Congressional concerns throughout 2003, TIGTA evaluated whether IRS
employees in Taxpayer Assistance Centers (TAC) provide accurate and timely
responses to taxpayer questions. From
January through October 2003, TIGTA auditors asked 679 tax law questions in 173
TACs and found IRS employees answered 70 percent of the questions correctly. The IRS continues to improve the quality of
service at the TACs, and TIGTA commends the IRS for taking immediate action on
issues identified in previous audit reports.
The IRS has been actively implementing changes, which TIGTA believes
have increased the accuracy rates compared to the same period in CY 2002.
Although
accuracy rates are increasing, additional improvements are needed to provide
taxpayers top-quality assistance. TIGTA
recommended the IRS revise the Quality Assurance Program to include a
systematic methodology to select scenarios and ensure the accuracy and
sufficiency of captured information.
IRS management agreed with the recommendation and has initiated
corrective action. However, IRS
management continues to disagree with TIGTA's method when computing the
accuracy rate. They do not believe
TIGTA's reported accuracy rates are a true measure of the quality of responses
provided at TACs. Excluding the
referrals to publications, service denied, and referrals to other employees,
brings the accuracy rate to 75 percent, which IRS management recognizes is
still inadequate.
Report
Reference Nos. 2004-40-024, 2004-40-003, 2004-40-013, 2004-40-035,
2004-40-037,
and 2004-40-065
Many
aspects of the taxpayer experience in accessing the IRS' toll-free telephone
system were improved significantly during the 2003 Filing Season. However, the IRS has opportunities to
enhance further the taxpayer experience and reduce the costs of providing
toll-free telephone services. A major
improvement opportunity involves continuing difficulties with routing calls
initially to the right Customer Service Representative (CSR). For the 2003 Filing Season, the IRS used
call screeners to route tax law calls manually, at a cost of almost $3.6
million. Another improvement
opportunity involved reducing high Assistor Availability4 levels. The IRS experienced an availability level of
11.2 percent versus a planned level of 5.5 percent, at an estimated additional
cost of almost $6.4 million. In
addition, the IRS still does not have a financial system that will track its
cost-per-call accurately.
To
address call routing problems, TIGTA recommended the IRS develop a set of key
numerical identifiers taxpayers would select to link their calls to the correct
tax law application, revise the menu scripts for tax law lines and test them
for usability prior to implementation, and establish separate toll-free numbers
for general account and tax law calls.
To address continued high Assistor Availability levels, TIGTA
recommended the IRS reevaluate whether some applications would benefit by being
combined into a more pooled environment, retrain the CSRs so they can be
transferred as needed to those applications for which availability is lowest,
and reduce either staffing or hours of operation during those times of day when
call demand is extremely low. TIGTA
also recommended the IRS develop an Activity-Based Costing system that captures
and reports reliably both the total cost and the cost-per-call of providing
services on each toll-free product line.
With the exception of developing a reliable costing system, IRS
management did not agree with our recommendations. In addition, IRS management did not agree with TIGTA's estimates
of the costs of using screeners to route calls manually and those of Assistor
Availability.
Report
Reference No. 2004-30-038
INFORMATION
TECHNOLOGY MODERNIZATION
The
IRS currently is modernizing its computer systems and business processes and
practices, in a program called Business Systems Modernization (BSM). Since the inception of the BSM Program, it
has been designated as high risk, in part because of its size, complexity, and
immense importance to improving IRS performance and accountability. As part of the BSM Program, the IRS and its
modernization contractors have worked to implement projects intended to improve
tax administration and internal management.
To assist in this effort, TIGTA has reviewed several systems under
development and provided recommendations for improvement.
The
e-Services project will provide a set of Web-based business products as
incentives to third parties to increase e-filing, in addition to providing
electronic customer account management capabilities. Although the initial release of the e-Services system was
deployed in late August 2003, the project has continued to experience delays
and cost increases due to requirements changes and testing environment
problems. TIGTA identified
opportunities for improvement in business case development, requirements
management, and testing oversight.
TIGTA
recommended the Chief Information Officer (CIO) ensure system requirements be
fully developed before project development begins and changes after that point
meet stringent criteria. Additionally,
future submissions of project information should include up-to-date cost and
schedule information. To improve
testing, the CIO should require the BSM Office (BSMO) develop incentives to
increase PRIME contractor5 accountability in the areas of software quality and
testing. A process should also be
established to review and accept test plans before allowing the PRIME
contractor to begin testing. The IRS
agreed with most of the recommendations and is taking action to address the
issues identified.
The
Integrated Financial System (IFS) is intended to modernize the IRS' financial systems
and processes. The first release of the
IFS will include such modules as Accounts Payable, Accounts Receivable, and the
General Ledger. The IRS and PRIME
contractor have made progress toward delivering the first release of the IFS by
beginning important testing activities and ensuring compatibility with key
infrastructure components. In addition,
the IFS testing team developed test cases that, for the most part, contained a
set of conditions, data, and expected results for a particular test objective;
a corresponding test script to provide instructions to carry out the test case;
and a test folder to document the results.
Further, the testing team prepared a matrix to map accounting
requirements to the corresponding test cases.
While
progress has been made, testing practices could be improved, project costs have
increased, some functionality has been postponed, and disaster recovery may not
be optimal or fully tested prior to implementation. In addition, some test cases and test scripts were incorrect or
incomplete, and the requirements matrix did not always provide an accurate
traceability of requirements to be tested.
To
help ensure a high-quality system is delivered, TIGTA recommended the CIO
ensure testing practices are strengthened in future tests, the business risks
of untimely IFS implementation are tracked formally, and disaster recovery
capabilities are implemented and tested as soon as possible. In addition, the Chief Financial Officer, in
concert with IFS project management, should ensure subsequent test plans,
cases, and scripts are complete and accurate, and
all
applicable financial system requirements can be readily accounted for
during
the testing process. IRS management
agreed to most of these recommendations and is taking corrective action.
Report
Reference Nos. 2004-20-036, 2004-20-001, and 2004-10-052
The
Federal Financial Management Improvement Act of 1996 (FFMIA)6 requires agencies
to maintain financial management systems that comply substantially with Federal
requirements, or establish a remediation plan with resources, remedies, and
intermediate target dates to bring the agency into substantial compliance. The FFMIA further mandates IGs report to the
Congress instances and reasons when an agency has not met intermediate target
dates.
TIGTA
reviewed the IRS' remediation plan and identified certain intermediate target
dates were missed, extended, or were not established. The analysis also showed remediation plan resources were not
always listed or updated to reflect current cost information. Reasons provided by the IRS for these issues
centered on the delays and revisions to the plans of the individual financial
management projects that are listed in the remediation plan. TIGTA did not offer specific recommendations,
but did comment the IRS needs to actively address and continue to communicate
the challenges it faces concerning the establishment of accurate and consistent
intermediate target dates and resource estimates in light of the implementation
uncertainty of significant IRS financial management projects. IRS management agreed with the conditions
identified in the report.
Report
Reference No. 2004-10-080
INFORMATION
SYSTEM SECURITY
System
administrators and security specialists have day-to-day responsibility for
ensuring IRS computer systems are set up and maintained in a secure
manner. Previous audits identified
security vulnerabilities indicating these duties have not always been performed
effectively. Recent evaluations of
servers and workstations at five locations again identified significant
security vulnerabilities. Employees
with key security responsibilities did not have sufficient training and were
not clear about their responsibilities, and duties were not separated properly
and, in some cases, were duplicated.
TIGTA recommended the IRS train these employees and develop a
methodology to evaluate their performance with respect to security
requirements. The IRS agreed with the
recommendations and is addressing the findings as part of its strategy for
eliminating computer security as a material weakness under the Federal
Managers' Financial Integrity Act of 1982.7
Report
Reference No. 2004-20-027
The
IRS has over 900 contracts with vendors and consultants to conduct many
activities for tax administration.
Contractors are involved extensively in the IRS' information systems
projects, including supplying computer hardware and software and designing and
developing sensitive computer systems.
Because these contractors commonly are given access to IRS computer
systems and, in some cases, taxpayer data, they should be held to the same
security standards as IRS employees.
Contractor
personnel assigned to an IRS modernization project committed numerous security
violations that placed IRS equipment and taxpayer data at risk. In some cases, contractors blatantly
circumvented IRS policies and procedures even when security personnel
identified inappropriate practices. IRS
employees did not carry out their responsibilities for ensuring adequate
security on contractor workstations and servers and for overseeing contractor
activities. The IRS provided
workstations to contractors that did not always comply with IRS policies and
procedures, and contractors added unauthorized software to these
computers. As a result, the likelihood
of unauthorized disclosures of taxpayer information and the spread of virus
infections was increased significantly.
TIGTA recommended contractors' access privileges be limited and their activities
monitored. In addition, all contractor
employees' computer workstations should be updated to meet IRS standards. IRS management agreed with these
recommendations and is taking corrective action.
Report
Reference No. 2004-20-063 (Limited
Official Use)
EMPLOYEE
AND INFRASTRUCTURE SECURITY
Employee
and infrastructure security is a critical element in protecting the Treasury
Department's ability to administer the Federal tax laws. Threats and assaults against IRS employees,
facilities, and data infrastructure impede the Treasury Department from
effective tax administration.
Historically, IRS buildings and operations have been targets of those
who advocate violence against the Federal Government. Since TIGTA has the statutory responsibility to investigate
activities involving threats to IRS personnel and facilities, it dedicates
significant attention to deterring, detecting, and investigating threats from
both foreign and domestic sources.
The
following cases are examples of IRS Employee and Infrastructure Security investigations
TIGTA conducted during this reporting period.
Individual
Charged with Threatening to Blow Up Building
On
February 3, 2004, an individual was charged in Texas with threatening to damage
and destroy a building by use of an explosive.
The individual called the IRS office about a tax refund and asked if it
would be offset to pay delinquent child support. The caller allegedly expressed anger over the IRS allowing this
and threatened to blow up the building.
Individual
Charged with Threatening to Kill IRS Employees
On
February 13, 2004, an individual was charged in Texas with making threats to
IRS employees acting in their official capacities. In response to an IRS notice sent to another taxpayer, the
individual claimed to have Power of Attorney (POA) to represent the taxpayer
before the IRS, and stated intention to do so.
When told the POA form permitting the individual to represent the
taxpayer could not be located, the individual became angry and threatened to
shoot and kill any IRS agents approaching the home.
Individual
Charged with Mailing Threatening Letters to Public Officials
On
November 19, 2003, an individual was indicted in South Dakota for mailing
letters containing a threat. The
individual allegedly mailed written communications to a Senator, an Assistant
Attorney General, and a TIGTA Special Agent containing a threat to commit
murder of another person.
Individual
Arrested for Threatening to Kill TIGTA Special Agent
On
March 12, 2004, an individual was arrested in California for threatening to
kill a Federal law enforcement officer.
The individual allegedly contacted the IRS toll-free telephone number
and made statements about threatening to kill a TIGTA Special Agent. The individual was allegedly identified as a
former IRS employee and blamed the TIGTA Special Agent for the loss of a job.
ENHANCED
ENFORCEMENT ACTIVITIES -
TAX
COMPLIANCE
Correspondence
examinations of taxpayer records are conducted through the mail and generally
involve the IRS asking taxpayers for more support on one or two simple tax
issues. TIGTA auditors determined
correspondence examinations did not always address strategic noncompliance
priorities, and the Small Business/Self-Employed (SB/SE) Division's Campus
Correspondence Examination Program could be used more effectively to reduce the
tax gap and increase voluntary compliance.
In addition, the IRS does not always use the most
cost-effective
method to examine tax returns, and the current Examination Workload Selection
Process results in inequitable treatment of taxpayers.
TIGTA
recommended the IRS expand the tax issues that can be selected for
correspondence examination to ensure more of the inventory addresses strategic
noncompliance priorities, initiate any necessary training programs, and select
the most cost-effective examination techniques based on cost and yield
data. IRS management agreed the Campus
Correspondence Examination Program should work more cases dealing with
strategic priorities and plans to expand the tax issues and types of tax
returns selected for this Program's inventory, after a period of limited
testing. In addition, IRS management
agreed to initiate necessary training programs to ensure the tax examiners have
the skills to examine additional types of SB/SE tax issues. However, SB/SE Division management stated
the RRA 98 prevented them from using cost and yield information to measure
program performance. SB/SE Division
management also disagreed with TIGTA's assessment of their use of the most
cost-effective examination technique and their fair and equitable treatment of
taxpayers.
Report
Reference No. 2004-30-005
In
October 2002, the IRS initiated the return examination phase of the National
Research Program (NRP) to gather the data it needs to measure taxpayer
compliance and support its strategic planning process. The NRP is expected to provide essential
information that will allow the IRS to identify the tax returns with the
highest compliance risks and reduce the burden on compliant taxpayers. The IRS planned to complete the NRP cycle
for 41,000 individual tax returns in time to update the return selection
formulas for 2005. However, delays
occurred in installing computer servers, upgrading computer software, and
assigning cases. As a result, formulas
for selecting tax returns for examination will not be updated until 2006.
The
IRS' efforts to reduce the burden of NRP examinations have yielded some
positive results. In the cases TIGTA
reviewed, wages, interest, and dividends generally were validated before
contact with taxpayers, where applicable.
However, 85 percent of the Forms 1040 TIGTA reviewed had a Schedule A8
and/or a Schedule C9 attached, and the vast majority of the total line items on
these schedules still had to be validated during the face-to-face contact
portion of the examination process.
Certain operational issues could also adversely affect the study results
or the goal to minimize taxpayer burden.
TIGTA
recommended the IRS perform a thorough post-evaluation of the 2002 NRP and
ensure similar problems are minimized for the next NRP cycle. In addition, TIGTA recommended the IRS
revise classroom instruction regarding document request preparation, visit
selected areas to help ensure examinations that were not started or were
recently started are completed by the September 2004 deadline, incorporate
random sampling in the NRP process, and develop interim milestones to help
guide the next NRP cycle. IRS
management agreed with most of the recommendations and is implementing
corrective action.
Report
Reference No. 2004-30-044
In
response to the tragic events of September 11, 2001, the Congress passed, and
the President signed into law, the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001(USA
PATRIOT Act).10 This new law made
changes to the Bank Secrecy Act (BSA),11 effectively including financial
institutions in the war on terrorism.12
The IRS performs compliance checks of non-bank financial institutions as
part of its BSA compliance check program.
This program, however, does not have meaningful performance measures and
the risk of undetected noncompliance still exists. In addition, management information system data are not analyzed
fully, case selection is not risk-based, cases do not have the documentation
necessary to assess civil penalties, examiners cannot access Suspicious
Activity Reports (SAR) for better case development, and education and outreach
should be coordinated better with the Financial Crimes Enforcement Network
(FinCEN). If, during the performance of
a BSA compliance check, IRS examiners encounter large and suspicious
transactions13 between the businesses under review and their customer(s), the
examiners are required to prepare an Anti-Money Laundering referral. These referrals are forwarded for
consideration of an income tax examination of the individual involved with the
transactions. Income tax examinations
from these referrals declined 47 percent from
June
2002 to June 2003. The IRS has now
established these referrals as a
high-priority
item for Fiscal Year (FY) 2004.
TIGTA
reported, however, the Anti-Money Laundering referrals were not always
evaluated comprehensively and selected for examination. Currency transaction information reports
from financial institutions, trades, and businesses could also be used more
effectively in the identification of taxpayers for potential examinations. Although the IRS revised its priority examination
areas to include these referrals for FY 2004, it still does not consider all
currency transaction information in the selection process. For example, the selection of non-filing
taxpayers for examination is based on the amount of known potential income,
such as wages and dividends, but does not consider specifically whether the
taxpayer also has significant cash activity.
The IRS estimates there were over 300,000 potential non-filers with $22
billion in currency transaction activity in Tax Year (TY) 2002. While the filing of a currency transaction
report does not equate to unreported income, the presence of large transactions
indicates the individual deals in large amounts of cash and may be involved in
some type of ongoing business activity.
For
the BSA compliance check program, TIGTA recommended the IRS establish
measurable performance-based indicators, ensure the management information
system provides useful reports for monitoring program performance, develop
standardized risk-based case selection criteria, implement a centralized
quality review process, and coordinate with the FinCEN on education and
outreach strategies and to secure access to SARs. In addition, the IRS should develop a review checklist or other
similar methodology to assist in ensuring all relevant factors are considered
in evaluating Anti-Money Laundering referrals, and begin using currency
transaction information to aid in the selection of individuals and businesses
for income tax examinations. IRS
management agreed with the recommendations and is implementing some corrective
action; however, TIGTA believes more needs to be done to use these reports
better to identify non-filer cases.
Report
Reference Nos. 2004-30-068 and 2004-30-074
Upon
completing an investigation where criminal violations of the law have been
documented, the Criminal Investigation (CI) function forwards the results of
the investigation to the Department of Justice for prosecution. The prosecution process could result in a
sentence being imposed on the subject, which may include conditions relating to
the settlement of civil tax liabilities such as the filing of tax returns or
payment of tax liabilities. The CI
function should take whatever steps are necessary to initiate appropriate legal
action in any instance where subjects have failed to comply with the conditions
of their sentence relating to the settlement of civil tax liabilities.
TIGTA's
review of the CI probation-monitoring program determined existing IRS
procedures did not effectively ensure convicted criminals, who did not comply
with the conditional terms of their sentences requiring the settlement of their
IRS tax liabilities, were reported to the courts for additional legal action,
if necessary. The IRS procedures were
either unclear or did not assign specific responsibility for monitoring
taxpayer accounts. In addition, the CI
function's Management Information System (CIMIS) contained data errors that
could impact analyses used for internal management decisions or results
presented in ad hoc reports provided to stakeholders.
TIGTA
recommended IRS management develop clear and concise guidelines to define
responsibilities and procedures to ensure the IRS controls and monitors the
accounts of criminal subjects whose court sentences require the settlement of
civil tax liabilities. In addition,
TIGTA recommended IRS management ensure court documents are verified, create a
periodic system report for first-line managers, and seek the advice of IRS
Chief Counsel regarding the disclosure of tax returns and tax return
information to probation officers to improve monitoring, develop a process to
verify and validate the data in the CIMIS, and assess the clarity of guidance
for coding some data fields. CI
management generally agreed with the recommendations and will take steps to
enhance the process.
Report
Reference No. 2004-10-060
The
Tax Exempt and Government Entities (TE/GE) Division's Independent Review
Process (IRP) was created to provide TE/GE Division management with an internal
mechanism to ensure consistency, fairness, and accuracy related to processing
of complex cases. The TE/GE Division's
IRP was envisioned as early as 1999, as part of the original plan to create the
TE/GE Division. While the
stand-up14
of the TE/GE Division was completed in December 1999, the IRP did not become
operational until March 2001 when the position of the Senior Technical Advisor
was filled. TIGTA determined TE/GE
Division management followed established procedures when referring cases to the
IRP. However, press coverage related to
TE/GE Division management's actions resulted in confusion and suspicion
regarding the IRP. Effective August 25,
2003, the Commissioner, TE/GE Division, eliminated the IRP.
In
addition, the extensive media coverage of the TE/GE Division management's
actions related to the IRP, coupled with the IRS' limitations on discussing any
details related to particular cases due to I.R.C. Section 6103, could result in
a perception by external stakeholders the IRS has changed its position on allowable
political activity by charitable organizations. TIGTA believes additional clarification on this issue is
necessary. As a result, TIGTA
recommended TE/GE Division management prepare and issue guidance to reemphasize
the IRS' position on political activity and private benefit related to I.R.C.
Section 501(c)(3) organizations. TE/GE
Division management agreed with the recommendation.
Report
Reference No. 2004-10-045 (Limited Official Use)
ERRONEOUS
PAYMENTS
Stewardship
responsibility over public funds is a major challenge facing IRS
management. Both the President and the
Congress have expressed concern with the large amount of erroneous or improper
payments made by Federal agencies. Two
recent pieces of legislation - the Improper Payments Information Act of 200215
and Section 831 of the National Defense Authorization Act for FY 200216 -
provide an impetus for all agencies to address systematically improper payment
activity annually, and to identify and recover contract overpayments. Improper and erroneous payments include
inadvertent errors, payments for unsupported or inadequately supported claims,
payments for services not rendered, payments to ineligible beneficiaries, and
payments resulting from outright fraud and abuse by program participants and/or
Federal employees.
The
Earned Income Tax Credit (EITC) Program, a major Federal effort to assist the
working poor, is a refundable credit available to taxpayers who file returns
with certain earned income. The EITC
was established to offset the impact of Social Security taxes on low-income
families and encourage them to seek employment rather than welfare. Historically, the EITC Program has been
vulnerable to high rates of noncompliance (overclaims),17 which has led the IRS
to declare it a material weakness. The
IRS estimates that, of the $31.3 billion in EITC claims made by taxpayers for
TY 1999, $8.5 to $9.9 billion (27 to
32
percent) should not have been paid. The
General Accounting Office has listed the IRS' administration of the EITC
Program among the high-risk areas for the Federal Government.
IRS
efforts to improve the administration of the EITC Program are ongoing. The IRS reports it has denied approximately
$2.25 billion in erroneous claims since September 2000, and it has implemented
a number of initiatives targeting outreach, education, and compliance
efforts. The IRS has initiated a
significant change to the way it will address EITC noncompliance. This includes conducting an EITC Proof of
Concept Test (Test) to validate EITC applicants who meet certain
pre-certification criteria and require new information on EITC returns.
In
preparing for the 2004 Filing Season, IRS EITC Program management designed the
Test to focus on selecting taxpayers whose EITC claims based on qualifying
children may be unsubstantiated. TIGTA
auditors determined the IRS has a good process for evaluating the results of
this selection process. However, the
IRS cannot determine if the examination selection process ensures resources are
being used to provide the greatest cost-benefit because it does not use cost
data and yield in the evaluation of the selection process. Additionally, the IRS has an effective
process to test the child residency requirements, and used an appropriate systemic
sampling approach to select the sample for the Test and validate the data. But, controls over the Test need to be
strengthened and the IRS needs to complete a cost-benefit analysis of closed
case data in order for the IRS to be able to measure and analyze its success
effectively. IRS management agreed with
the recommendations.
Report
Reference Nos. 2004-40-004 and 2004-40-032
THIS
PAGE LEFT BLANK INTENTIONALLY
PROTECT
THE INTEGRITY OF TAX ADMINISTRATION
EMPLOYEE
INTEGRITY
IRS
employee misconduct undermines the public's trust in the IRS and, as a result,
impedes effective and efficient Federal tax administration. Many of TIGTA's criminal and administrative
investigations are based on allegations or information indicating IRS employees
have misused the public trust. This
abuse by IRS employees manifests itself in a variety of ways, including: extortion, theft, unauthorized access to and
disclosure of confidential taxpayer data, misuse of IRS computer systems,
taxpayer abuses, and financial fraud.
During the reporting period, TIGTA processed 2,165 complaints against
IRS employees.
TIGTA's
strategies to promote employee integrity include both proactive and reactive
investigative programs designed to achieve high-impact, results-oriented,
quality investigations. TIGTA
administers a program of Integrity/Fraud Awareness presentations to IRS
employees and the public. These
presentations educate IRS employees and taxpayers on the ways they can help
prevent waste, fraud, and abuse in IRS operations and programs.
The
following cases are examples of IRS Employee Integrity investigations TIGTA
conducted during this reporting period.
Former
IRS Revenue Agent to Serve Prison Term for $500,000 Bribe
On
March 5, 2004, a former IRS Revenue Agent was sentenced in Texas for
bribery. The former Revenue Agent
solicited a $500,000 bribe from an individual in exchange for ensuring a civil
audit being conducted on a corporation would not reach the individual or be
converted to a criminal investigation.
The former IRS employee accepted an initial payment of $250,000 and
arranged to receive an additional $100,000 before being arrested by TIGTA
agents. The former Revenue Agent was
sentenced to 3 years and 1 month in Federal prison, without parole, 3 years of
supervised release, and was ordered to pay a
$5,000
fine. This prison term represents the
top of the applicable guideline range for this crime.
Former
IRS Contract Employee and Co-conspirator Indicted for Stealing over
$2.6
Million from IRS Lockbox Facility
On
February 18, 2004, a former IRS contract employee and a co-conspirator were
indicted in Texas for conspiracy, theft of Federal Government property, and
embezzlement by a bank employee. The
two individuals allegedly conspired to steal over $2.6 million in tax
remittance checks and money orders made payable to the IRS and/or the Treasury
Department that were mailed to the IRS Dallas Lockbox for processing. They allegedly altered the stolen checks to
change the payee information from the IRS or the Treasury Department to names
of individuals and entities whose identities had been stolen or were fictitious
or fraudulent. The co-conspirators
deposited the stolen checks in bank accounts under their control and withdrew
the proceeds. They also allegedly made
templates and counterfeited checks, which were deposited in the same fraudulent
bank accounts or sold on the black market.
IRS
Employee Pleads Guilty to Improperly Accessing Accounts on IRS Computer
On
February 11, 2004, an IRS employee pleaded guilty in New York to improperly
accessing an IRS computer and obtaining tax return information for three
taxpayers without authorization. The
Federal court has scheduled a sentencing hearing for May 4, 2004, regarding
this matter.
Former
IRS Employee Sentenced in Theft of Taxpayer's Remittances
On
February 24, 2004, a former IRS employee was sentenced in Maine for failing to
deposit money. The former employee, a
Revenue Officer responsible for collecting delinquent taxes from taxpayers, received
$2,070 in cash remittance payments from a taxpayer. The former employee was required to convert the cash to money
orders and forward it for payment to the IRS Deposit Unit within one working
day. However, the money was deposited
into a personal account and was not sent to the IRS Deposit Unit until several
weeks later. The former employee was
sentenced to 2 years probation and ordered to pay a
$1,500
fine.
Former
IRS Employee Sentenced for Possessing False Revenue Officer Credentials with
Intent to Use Them Unlawfully
On
December 1, 2003, a former IRS employee was sentenced in California for
possessing false identification documents.
The former employee admitted to possessing 115 fraudulent IRS Revenue
Officer credentials. The credentials were
produced using three transparencies of an original IRS Revenue Officer
credential bearing the former employee's name, a credential number and issue
date. The former employee possessed the
identification documents with the intent to use or transfer them
unlawfully. The former employee was
sentenced to 2 years probation, including 6 months home detention with
electronic monitoring, and ordered to pay a $10,000 fine.
IRS
Employee Sentenced for Distributing Controlled Substance
On
December 1, 2003, an IRS employee agreed to plead guilty in West Virginia for
distributing a controlled substance.
The IRS employee unlawfully distributed approximately 170 pills
consisting of a mixture or substance containing Diazepam, a controlled
substance. The employee was sentenced
to 3 years probation.
IRS
Employee Arrested for Theft of Government Funds
On
November 24, 2003, an IRS employee was arrested in Maryland for theft of United
States (U.S.) Government property. The
employee allegedly incurred $6,000 worth of personal charges on an IRS-issued
Citibank Purchase Card. Citibank
Purchase Cards are issued to employees for authorized purchases of U.S.
Government supplies and services. Once
an official purchase is made using the Citibank Purchase Card, an approving
official and not the cardholder must authorize it. The IRS employee attempted to conceal the theft by providing
false signatures of IRS approving officials on Citibank purchase statements. The employee no longer works for the IRS.
Former
IRS Employee Sentenced for Impersonating IRS Agent
On
December 15, 2003, an individual was sentenced in Missouri for impersonating an
IRS official. The individual, who no
longer worked for the IRS as of 1999, improperly retained IRS credentials and
falsely pretended to be an agent of the IRS and produced those credentials
during an incident in 2003. The former
IRS employee was sentenced to 6 months home confinement and
6
years probation, and ordered to pay a $500 fine.
IRS
Contractor Arrested for Possessing Child Pornography on IRS Computer
On
October 30, 2003, an IRS contract employee was arrested in Maryland for
possession of child pornography and transportation of obscene matters. The contract employee's IRS-issued computer
allegedly had several computer graphic files containing images of child
pornography. The contract employee
allegedly took and received obscene pictures from an interactive computer
service. The alleged child pornography
files were identified by TIGTA System Intrusion Network Attack Response Team
agents from IRS computer firewall logs, and through forensic examination of the
contract employee's IRS-issued computer.
IRS
Employee Charged with Conspiracy to Commit Identity Theft, Witness Tampering and
Unauthorized Inspection of Tax Return Information
On
January 8, 2004, an IRS employee was indicted in Maryland for conspiring to
commit identity theft, witness tampering, and unauthorized inspection of tax
return information. The employee is
alleged to have fraudulently used a Social Security Number (SSN) issued to
another person; and willfully inspected tax return information without
authority. The employee was also
charged with attempting to corruptly persuade another person with the intent to
influence, delay, and prevent that person's testimony in an official U.S. Court
proceeding.
IRS
Employee Arrested for Receipt and Possession of Child Pornography on
Government-Issued Computer
On
November 21, 2003, an IRS employee was arrested in Texas for receipt and
possession of child pornography on a Government-issued computer. The employee allegedly received child
pornography that had been transported in interstate and foreign commerce by
computer. In a building used by and
under the control of the Government, the employee allegedly possessed a
computer hard drive containing images of child pornography, which consisted of
visual depictions of minors engaged in sexually explicit conduct.
IRS
Employee Charged in Murder-for-Hire Plot
On
October 7, 2003, an IRS employee was indicted in West Virginia in a
murder-for-hire plot. The IRS employee
allegedly used the IRS electronic mail system with the intent to engage in the
plot, which included a payment of $1,000.
EXTERNAL
ATTEMPTS TO CORRUPT
TAX
ADMINISTRATION
TIGTA
remains dedicated to providing quality, high-impact criminal investigations
that protect the IRS from external attempts to corrupt tax administration. External efforts to interfere with
administration of Internal Revenue laws include: bribery, theft of IRS refunds,
fraud by tax preparers, and impersonation of IRS officials.
The
following cases are examples of investigations of External Attempts to Corrupt
Tax Administration TIGTA conducted during this reporting period.
Two
Individuals Charged with Bribery
On
October 30, 2003, an individual was arrested in Arizona for attempting to bribe
an IRS employee. The individual
allegedly offered an IRS employee $20,000 to illegally eliminate approximately
$300,000 in delinquent payroll tax liabilities owed to the IRS by the
individual's business. The individual
made a $2,000 payment to the IRS employee in exchange for making the tax
liability "disappear off the books."
The balance of the bribe was to be paid later. On November 25, 2003, a second individual, an employee of the
individual's business, was charged after making a second $2,000 payment toward
the $20,000 bribe offer on the business owner's behalf.
Individual
Convicted of Filing False Forms with IRS in Effort to Retaliate Against Local
Government Officials
On
January 6, 2004, an individual was convicted in Wisconsin for obstructing and
impeding the Internal Revenue laws. The
individual filed false Reports of Cash Payments Over $10,000 Received in a
Trade or Business (Forms 8300) with the IRS, claiming certain public employees
conducted large reportable cash transactions on the individual's behalf. The individual checked the box
"suspicious transactions" on each Form 8300 and falsely claimed the
public employees had conducted $1.8 billion, $200 million, and $100 million in
cash transactions on the individual's behalf.
The false Forms 8300 were processed by the IRS and penalty notices were
sent to the public employees informing them they must supply additional
information or face penalties. The
individual also allegedly filed false Suspicious Activity Reports with the
IRS. These reports claim 12 public
employees engaged in criminal activity, including check fraud, counterfeit
instruments, misuse of funds, embezzlement, and false statements.
Tax
Preparer Charged with False Statements; Embezzlement; and Obstructing Internal
Revenue Laws
On
October 16, 2003, an individual was indicted in New Jersey for making false,
fictitious, and fraudulent statements and representations to the IRS, and for
obstructing and impeding the administration of the Internal Revenue laws. The individual, who was in the business of
preparing tax returns and representing clients in their dealings with the IRS,
signed and filed with the IRS more than
50
Power of Attorney and Declaration of Representative forms (Form 2848) which
falsely stated the individual was a Certified Public Accountant or an
attorney. The tax preparer allegedly filed
on behalf of clients approximately 1,400 U.S. Individual Income Tax Returns
(Form 1040) on which the individual misrepresented the individual's own
SSN. Allegedly, the individual e-filed
approximately 200 U.S. Electronic Individual Income Tax Returns using an
Electronic Filing Identification Number that had been obtained in the names of
two other individuals. The tax preparer
also allegedly embezzled approximately
$392,000
in client's funds.
Co-conspirators
Sentenced for Telemarketing Fraud
In
October 2003 and December 2003, two individuals were sentenced in Florida for
telemarketing fraud targeted at the elderly.
The co-conspirators fraudulently induced victims to wire transfer money
to pay advance Federal taxes allegedly due on non-existent lottery winnings,
and mailed IRS forms to the victims in support of the fraud. One individual was sentenced to 3 years and
10 months imprisonment, and the other individual was sentenced to 6 years
imprisonment. Additionally, both were
placed on 3 years supervised probation and ordered to pay over $400,000
restitution to victims.
Individual
Charged with Impersonating IRS Employee
On
November 5, 2003, an individual was indicted in Minnesota for bank fraud and
impersonating an IRS employee. The
individual allegedly contacted a victim by telephone and falsely stated the
individual was an employee of the IRS and was engaged in clearing up an IRS
matter that involved the victim. The
IRS impersonator obtained personal identity information from the victim and used
that information to withdraw $9,700 from the victim's savings account.
Individual
Sentenced for Filing Fictitious Documents with IRS
On
December 16, 2003, an individual was sentenced in Minnesota for fraud, false
statements, and issuing fictitious financial instruments with the intent to
defraud. The individual presented
fictitious financial instruments in the form of Sight Drafts18 purporting to be
issued under the authority of the Department of the Treasury, to businesses,
state and local agencies, and the IRS.
After the recipients refused to accept the Sight Drafts as payment, the
individual made an effort to harass, intimidate, and create legal problems for
the businesses, the state and local agencies, and their employees. The individual was sentenced to 2 years and
7 months imprisonment and 3 years probation, and was ordered to pay $250,000
restitution to the victims.
Tax
Preparer Charged with Fraudulently Misrepresenting Taxpayers Before IRS
On
December 16, 2003, an individual was indicted in California for mail fraud and
making false statements and representations to the IRS. Allegedly, to induce victims, the individual
falsely pretended to be a licensed attorney who could prepare their tax returns
and/or handle their tax collection cases.
The individual allegedly signed and filed with the IRS several Power of
Attorney and Declaration of Representative Forms (Form 2848) on behalf of
victim taxpayers in which the individual falsely claimed to be an attorney
licensed in the State of California.
Individual
Charged with Impersonating IRS Auditor
On
January 29, 2004, an individual was indicted in California for impersonating an
IRS Auditor. The individual falsely
pretended to be an IRS Auditor and advised taxpayers the individual could assist
them with their IRS audits. The
individual obtained over $83,000 from taxpayers allegedly as payments toward
the taxpayer's fictitious tax liability.
Individual
Sentenced for Impersonating IRS Official
On
November 14, 2003, an individual was sentenced in Washington for mail fraud and
impersonating a Federal employee or agent.
The individual mailed letters to business owners claiming to be a
"tax examiner specialist" affiliated with the IRS, stating the
targeted businesses had "red flags" on the IRS computer system which
indicated the businesses had engaged in fraudulent tax reporting. The impersonator demanded the business
owners send blank money orders in amounts that varied between $5,000 and
$10,000. The individual threatened if
the business owners did not comply with the demand, the IRS would audit
them. The impersonator was sentenced to
2 years imprisonment with 2 years supervised probation upon release.
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CONGRESSIONAL
TESTIMONY
On
March 10, 2004, Acting IG Pamela J. Gardiner testified before a joint hearing
of the Oversight and Social Security Subcommittees of the Committee on Ways and
Means of the U.S. House of Representatives.
The purpose of the hearing was to focus on the respective responsibilities
of the Social Security Administration, the IRS, and the Department of Homeland
Security in ensuring accurate earnings reporting and tax payments. It also addressed the issue of the degree to
which policies and procedures are coordinated among agencies to prevent misuse
of Social Security Numbers and Individual Taxpayer Identification Numbers
(ITIN). The hearing was designed to
educate policy makers about the ITIN and was entitled, "Social Security
Number and Individual Taxpayer Identification Number Mismatches and
Misuse." TIGTA has been following
the issue of the use and misuse of the ITIN since its first audit report on the
subject in 1999. The dramatic upsurge
in ITIN use was the focus of a TIGTA audit report issued in January 2004 and was
used as the primary document for the testimony.
HYPERLINK
THIS
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AWARDS
AND SPECIAL ACHIEVEMENTS
IACP
RECOGNIZES TIGTA
On
October 22, 2003, the International Association of Chiefs of Police (IACP) presented
TIGTA's Office of Investigations, San Francisco Field Division, with the first
annual IACP/ChoicePoint Award for Excellence in Criminal Investigations. The award recognizes quality achievements in
managing and conducting criminal investigations and promotes the sharing of
information on successful investigative programs and approaches.
TIGTA
INVESTIGATIONS EMPLOYEES RECEIVE IACP AWARD
Left
to Right: Tim Camus, Pat Guiton, David
Buckley, Jeff Gordon, Steve Jones, Alan Hatcher, and Michael Delgado
The
selection panel, comprised of Chiefs of Police, reviewed 230 applications from
all over the nation. Nominations were
evaluated on the significance of the contribution to the advancement of the art
or science of criminal investigations, and innovation in the development or
enhancement of investigative techniques.
Competition
for the award was of the highest caliber, with the District of Columbia sniper
case investigation receiving top honors, and that of the Illinois Homicide
Taskforce selected as the first runner-up.
The second runner-up award was presented to TIGTA in honor of the
investigation of James D. Bell, his Assassination Politics plot, and threats
involving government employees. TIGTA
was the only Federal agency to meet the requirements of the selection panel.
TIGTA
- ONE OF THE BEST PLACES TO WORK
TIGTA
was recognized as one of the "Best Places to Work in the Federal
Government," according to the results of the 2002 Office of Personnel
Management Federal Human Capital Survey.
Some of the highlights of
TIGTA's
results from the survey include:
*
TIGTA ranked #22 overall out of 189 Federal subagencies surveyed.
*
TIGTA ranked in the top 10 of these Federal subagencies in several categories:
*
Pay and Benefits (#1)
*
Work/Life Balance (#2)
*
Strategic Management (#8)
*
Family Culture and Benefits (#9)
*
Teamwork (#10)
*
In 10 categories, TIGTA ranked better than the Federal Government (all other
agencies surveyed).
Please
visit the website www.customersurvey.gov/ for more details.
APPENDIX
I - AUDIT STATISTICAL REPORTS
AUDIT
REPORTS WITH QUESTIONED COSTS
One
audit report with questioned costs was issued during this semiannual reporting
period.1
The
term "questioned cost" means a cost that is questioned because
of: (1) an alleged violation of a
provision of a law, regulation, contract, or other requirement governing the
expenditure of funds;
(2)
a finding, at the time of the audit, such cost is not supported by adequate
documentation ("unsupported cost"); or (3) a finding that expenditure
of funds for the intended purpose is unnecessary or unreasonable. The term "disallowed cost" means a
questioned cost management, in a management decision, has sustained or agreed
should not be charged to the government.
Reports
With Questioned Costs (10/1/03
– 3/31/04) Report
Category |
Number
of Reports |
Questioned
Costs2 (In
Thousands) |
Unsupported
Costs (In
Thousands) |
1. For which no
management decision had been made by the beginning of the reporting period |
1 |
$1 |
$0 |
2. Which were
issued during the reporting period |
1 |
$121 |
$0 |
3. Subtotals
(Item 1 plus Item 2) |
2 |
$122 |
$0 |
4. For which a
management decision was made during the reporting period - Dollar value of disallowed costs - Dollar value of costs not disallowed |
1 1 |
$121 $1 |
$0 $0 |
5. For which no
management decision had been made by the end of the reporting period (Item 3 minus Item 4) |
0 |
$0 |
$0 |
6. For which no
management decision was made within 6 months of report issuance |
0 |
$0 |
$0 |
1 See Appendix IV for identification of audit
reports involved.
2
“Questioned Costs” include “Unsupported Costs.”
PRIOR
PERIOD REPORTS
During
this reporting period, the IRS did not provide TIGTA with the value of
questioned costs for any reports issued before October 1, 2003, for which the
amount of questioned costs could not be determined at the time the reports were
issued.
REPORTS
WITH RECOMMENDATIONS THAT FUNDS BE PUT TO BETTER USE
Two
reports with recommendations that funds be put to better use were issued during
this semiannual reporting period.1 The
term "recommendation that funds be put to better use" means a
recommendation that funds could be used more efficiently if management took
actions to implement and complete the recommendation, including: (1) reductions in outlays;
(2)
deobligations of funds from programs or operations; (3) costs not incurred by
implementing recommended improvements related to operations; (4) avoidance of
unnecessary expenditures noted in pre-award reviews of contract agreements; (5)
preventing erroneous payment of the following refundable credits: Earned Income
Tax Credit and Child Tax Credit; or (6) any other savings which are
specifically identified. The term
"management decision" means the evaluation by management of the
findings and recommendations included in an audit report and the issuance of a
final decision concerning its response to such findings and recommendations,
including actions concluded to be necessary.
1
See Appendix IV for identification of audit reports involved.
Reports
With Recommendations That Funds Be Put to Better Use (10/1/03
– 3/31/04) Report
Category |
Number of Reports |
Amount (In
Thousands) |
1. For which no
management decision has been made by the beginning of the reporting period |
2 |
$44,340 |
2. Which were
issued during the reporting period |
2 |
$732,180 |
3. Subtotals
(Item 1 plus Item 2) |
4 |
$776,520 |
4. For which a
management decision was made during the reporting period Dollar value of
recommendations that were agreed to by management - Based on
proposed management action - Based on
proposed legislative action Dollar value of
recommendations that were not agreed to by management |
0 1 1 |
$0 $711,280 $20,900 |
5. For which no
management decision has been made by the end of the reporting period (Item 3 minus
Item 4) |
2 |
$44,340 |
6. For which no
management decision was made within 6 months of issuance |
2 |
$44,340 |
REPORTS
WITH ADDITIONAL QUANTIFIABLE IMPACT ON TAX ADMINISTRATION
In
addition to questioned costs and funds put to better use, the Office of Audit has
identified additional measures that demonstrate the value of audit
recommendations on tax administration and business operations. These issues are of interest to the IRS and
Treasury executives, the Congress, and the taxpaying public, and are expressed
in quantifiable terms to provide further insights to the value and potential
impact of the Office of Audit's products and services. Including this information also advances
adherence to the intent and spirit of the Government Performance and Results
Act (GPRA).
Definitions
of these additional measures are:
Taxpayer
Rights and Entitlements at Risk: The
protection of due process (rights) that is granted to taxpayers by law,
regulation, or IRS policies and procedures.
These rights most commonly arise in the performance of filing tax
returns, paying delinquent taxes, and examining the accuracy of tax
liabilities. The acceptance of claims
for and issuance of refunds (entitlements) are also included in this category,
relating to instances when taxpayers have a legitimate assertion to
overpayments of tax.
Reduction
of Burden on Taxpayers: Decreases by
individuals or businesses in the need for, frequency of, or time spent on
contacts, record keeping, preparation, or costs to comply with tax laws,
regulations, and IRS policies and procedures.
Increased
Revenue: Assessment or collection of
additional taxes.
Revenue
Protection: Proper denial of claims for
refund, including recommendations that prevent erroneous refunds or efforts to
defraud the tax system.
Taxpayer
Privacy and Security: Protection of
taxpayer financial and account information (privacy). Processes and programs that provide protection of tax
administration, account information, and organizational assets (security).
Inefficient
Use of Resources: Value of efficiencies
gained from recommendations to reduce cost while maintaining or improving the
effectiveness of specific programs; resources saved would be available for
other IRS programs. Also, the value of
internal control weaknesses that resulted in an unrecoverable expenditure of
funds with no tangible or useful benefit in return.
Protection
of Resources: Safeguarding human and
capital assets, used by or in the custody of the organization, from inadvertent
or malicious injury, theft, destruction, loss, misuse, overpayment, or
degradation.
Reliability
of Management Information: Ensuring the
accuracy, validity, relevance, and integrity of data, including the sources of
data and the applications and processing thereof, used by the organization to
plan, monitor, and report on its financial and operational activities. This measure will often be expressed as an
absolute value (i.e., without regard to whether a number is positive or
negative) of overstatements or understatements of amounts recorded on the
organization's documents or systems.
The
number of taxpayer accounts and dollar values shown in the following chart were
derived from analyses of historical data, and are thus considered potential
barometers of the impact of audit recommendations. Actual results will vary depending on the timing and extent of
management's implementation of the corresponding corrective actions, and the
number of accounts or subsequent business activities impacted from the dates of
implementation. Also, a report may have
issues that impact more than one outcome measure category.
REPORTS
WITH ADDITIONAL QUANTIFIABLE IMPACT ON TAX ADMINISTRATION (CONTINUED)
Reports
With Additional Quantifiable Impact on Tax Administration (10/1/03
– 3/31/04) Outcome
Measure Category |
Number
of Reports in Category1 |
Number
of Taxpayer Accounts |
Number
of Hours |
Dollar
Value (In Thousands) |
Other8 |
Taxpayer Rights
and Entitlements at Risk |
6 |
362,814 |
|
$2,264,8913 |
9 |
Reduction of Burden
on Taxpayers |
5 |
46,965,042 2 |
|
|
10 |
Increased
Revenue |
3 |
26 |
|
$29,546 2, 4 |
|
Revenue
Protection |
3 |
596,755 |
|
$3,422,229 2, 5 |
|
Taxpayer
Privacy and Security |
2 |
8,191 |
|
|
|
Inefficient Use
of Resources |
9 |
|
|
$648,730 6 |
|
Protection of
Resources |
0 |
|
|
|
|
Reliability of
Management Information |
5 |
20,237 |
|
$6,110,315 7 |
|
1 See
Appendix IV for identification of audit reports involved.
2 In one report (Reference No. 2004-30-023) IRS
management did not agree the cost of implementing a new policy would outweigh
the potential benefits to tax administration, involving reduction of burden for
265,000 taxpayers, revenue protection of $2.35 billion and increased revenue of
$27.5 million.
3 In one report (Reference No 2004-30-040) IRS management
did not agree penalties and interest could be reduced by $2.1 billion over 5
years, stating that measure was not based on empirical data. In a second report (Reference No.
2004-30-085), IRS management did not agree the TIGTA's statistical method
produced a valid estimate for the
$33 million of taxes overpaid.
4 In one report (Reference No. 2004-30-043) IRS management
disagreed with the $1.87 million in increased revenue because all the balance
due amounts may not be collected.
5 In one report (Reference No. 2004-40-013) IRS management
agrees the $7 million of revenue protection represents a reasonable estimate;
however, they do not agree it is feasible to perform periodic criminal
background checks for all individuals authorized to participate in the e-file Program.
6 In 5 reports, (Reference Nos. 2004-20-041, 2004-30-038,
2004-40-042, 2004-30-040, 2004-30-039) IRS management did not agree with the
$110.6 million in inefficient use of resources.
7 In one report (Reference No. 2004-10-060) IRS management
did not agree the $6 billion overstatement in the management information system
has a measurable impact on tax administration because the IRS does not report information
from these data fields. In a second
report (Reference No. 2004-40-057), IRS management does not agree the 12
potential disclosure errors should be included in the IRS' reported customer
accuracy rate.
8 Some reports contained “Other” quantifiable impacts
besides the number of taxpayer accounts, number of hours, and dollar
value. These outcome measures are
described in the footnotes below.
9 Other measures of taxpayer rights and entitlements
consist of 1,477 FOIA, PA and I.R. C.
§6103 requests that were improperly withheld (Reference No 2004-40-064).
10 Other measure of taxpayer
burden consists of 33 test calls with errors (Reference No. 2004-40-029) and
103 incorrect responses to auditors' questions (Reference No. 2004-40-065).
APPENDIX
II - INVESTIGATIONS - STATISTICAL REPORTS
Investigations Opened and Closed |
|
Total Investigations Opened |
1,877 |
Total Investigations Closed |
1,989 |
Financial Accomplishments |
|
Embezzlement/Theft Funds Recovered |
$635,906 |
Court Ordered Fines, Penalties and
Restitution |
$14,436,061 |
Out-of-Court Settlements |
$1,000 |
Status of Closed Criminal Investigations |
|||
Criminal Referrals1 |
Employee |
Non-Employee |
TOTAL |
Referred – Accepted for Prosecution |
32 |
136 |
168 |
Referred – Declined for Prosecution |
329 |
349 |
678 |
Referred
- Pending Prosecution Decision |
28 |
89 |
117 |
Total Criminal Referrals |
389 |
574 |
963 |
No Referrals |
457 |
575 |
1,032 |
1 Criminal referrals
include both Federal and state dispositions.
Criminal
Dispositions1 |
|||
|
Employee |
Non-Employee |
TOTAL |
Guilty |
21 |
92 |
113 |
Nolo-Contendere |
0 |
0 |
0 |
Pre-trial
Diversion |
4 |
4 |
8 |
Deferred
Prosecution2 |
0 |
3 |
3 |
Not Guilty |
0 |
1 |
1 |
Dismissed3 |
1 |
29 |
30 |
TOTAL CRIMINAL DISPOSITIONS |
26 |
129 |
155 |
1 Final criminal dispositions during the
reporting period. This data may pertain
to investigations referred criminally in prior reporting periods and do not
necessarily relate to the investigations referred criminally in the Status of
Closed Criminal Investigations table.
2 Generally in a deferred prosecution, the
defendant accepts responsibility for his/her actions, and complies with certain
conditions imposed by the court. Upon
defendant’s completion of the conditions, the court dismisses the case. If the defendant fails to fully comply, the
court reinstates prosecution of the charge.
3 Court dismissed charges.
Administrative
Disposition on Closed TIGTA Investigations1 |
|
Removed,
Terminated or Other |
135 |
Suspended/Reduction
in Grade |
61 |
Oral or Written
Reprimand/Admonishment |
93 |
Closed – No
Action Taken |
195 |
Clearance
Letter Issued |
94 |
Employee
Resigned Prior to Adjudication |
46 |
TOTAL ADMINISTRATIVE DISPOSITIONS |
624 |
1 Final administrative dispositions during the
reporting period. This data may pertain
to investigations referred administratively in prior reporting periods and does
not necessarily relate to the investigations closed in the Investigations
Opened and Closed table.
The
following tables summarize the number of complaints received by TIGTA and the
status of the complaints.
Complaints/Allegations Received by TIGTA |
|
Complaints Against IRS Employees |
2,165 |
Complaints Against Non-Employees |
1,380 |
Total Number of Complaints/Allegations |
3,545 |
Status of Complaints/Allegations Received by
TIGTA |
|
Investigations Initiated |
1,265 |
In Process Within TIGTA1 |
261 |
Referred to the IRS for Action |
388 |
Referred to the IRS for Information Only |
840 |
Referred to a Non-IRS Entity2 |
15 |
Closed With No Referral |
593 |
Closed With All Actions Completed |
183 |
TOTAL COMPLAINTS |
3,545 |
1 Complaints for which final determination had
not been made at the end of the reporting period.
2 A non-IRS entity includes other law
enforcement entities or Federal agencies.
Note:
The IRS made 63 referrals to TIGTA that TIGTA determined would more appropriately
be handled by the IRS and, therefore, were returned to the IRS. These are not included in the total
complaints shown above.
IRS
DATA REGARDING ALLEGATIONS OF MISCONDUCT AGAINST IRS EMPLOYEES
The following
tables 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 §1203 allegations are included. IRS management conducted the inquiries into
the cases reflected in these tables.
Report of Employee
Misconduct for the Period 10/01/03 – 3/31/04 Summary by Disposition
Groups |
|||||
Disposition |
TIGTA Investi-gations |
Administra-tive Cases1 |
Employee Tax Matter Cases2 |
Background Investi-gations3 |
Total |
Removal |
53 |
81 |
22 |
4 |
160 |
Separation of
Probationary Employees |
4 |
199 |
15 |
58 |
276 |
Separation of
Temporary Employees |
0 |
2 |
4 |
5 |
11 |
Resignation/Retirement |
68 |
92 |
70 |
25 |
255 |
Suspensions |
75 |
208 |
79 |
5 |
367 |
Reprimands |
89 |
286 |
530 |
20 |
925 |
Counseling |
46 |
293 |
995 |
95 |
1,429 |
Alternative
Discipline |
23 |
72 |
36 |
4 |
135 |
Clearance |
105 |
110 |
9 |
0 |
224 |
Closed Without Action |
321 |
276 |
338 |
148 |
1,083 |
Forwarded to TIGTA |
0 |
5 |
0 |
0 |
5 |
TOTAL |
784 |
1,624 |
2,098 |
364 |
4,870 |
1 Administrative - Any
matter involving an employee in which management conducted an inquiry into
alleged misconduct.
2 Employee Tax Matter -
Any conduct matter that becomes a matter of official interest involving an
employee's tax compliance.
3 This category represents any matter involving a
National Background Investigation Center (NBIC) investigation into an IRS
employee’s background that is referred to IRS management for appropriate
action.
Report of Employee Misconduct for the Period
10/1/03 – 3/31/04 National Summary |
||||||
Case Type |
Opening Inventory |
Conduct Cases Received |
Cases Closed |
Closing Inventory |
||
Conduct Issues |
Duplicates |
Non-Conduct Cases |
||||
TIGTA Investigations – ROI (I)1 |
671 |
765 |
(784) |
(13) |
(0) |
639 |
Administrative Case (A)2 |
717 |
1,672 |
(1,624) |
(18) |
(7) |
740 |
Employee Tax Compliance Case (C)3 |
1,488 |
2,251 |
(2,098) |
(136) |
(0) |
1,505 |
Background Investigations (E)4 |
269 |
207 |
(364) |
(4) |
(0) |
108 |
TOTAL |
3,145 |
4,895 |
(4,870) |
(171) |
(7) |
2,992 |
1 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 the IRS for
appropriate action.
2 Administrative Case – Any matter involving an
employee in which management conducted an inquiry into alleged misconduct.
3 Employee Tax Compliance Case – Any conduct
matter that is identified by the Employee Tax Compliance Program and that
becomes a matter of official interest.
4 This category
represents any matter involving an NBIC investigation into an IRS employee’s
background that is referred to IRS management for appropriate action.
IRS Summary of Substantiated § 1203 Inquiries Recorded in ALERTS for the Period 10/1/03 – 3/31/04 |
|||||||
§
1203 Violation |
Removals |
Resigned/ Retired |
Probation/Separation |
Removed on Other Grounds |
Penalty Mitigated |
In Personnel Process |
TOTAL |
Seizure Without Approval |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
False Statement Under Oath |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
Constitutional &
Civil Rights Issues |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
Falsifying or
Destroying Records |
1 |
0 |
0 |
0 |
1 |
2 |
4 |
Assault or Battery |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
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 |
16 |
7 |
3 |
3 |
19 |
75 |
123 |
Understatement of
Federal Tax Liability |
11 |
5 |
0 |
1 |
7 |
55 |
79 |
Threat to Audit for
Personal Gain |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
TOTAL |
28 |
12 |
3 |
4 |
27 |
133 |
207 |
Note: The cases reported as “Removals” and
“Penalty Mitigated” do not reflect the results of any third-party appeal.
THIS
PAGE LEFT BLANK INTENTIONALLY
APPENDIX
III - STATISTICAL REPORTS - OTHER
AUDIT
REPORTS WITH SIGNIFICANT UNIMPLEMENTED CORRECTIVE ACTIONS
The
Inspector General Act of 1978 requires identification of significant
recommendations described in previous semiannual reports in which corrective
actions have not been completed. The
following list is based on information from the IRS Office of Management
Control's automated tracking system maintained by Treasury management
officials.
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 all MACS data discs forwarded
from the MACS Development Center to district offices are properly accounted
for and secured. |
2000-30-059 |
March 2000 |
01/15/05 01/15/05 |
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 all estate tax liens should be recorded on the ALS. |
2000-20-094 |
June 2000 |
07/01/04 07/01/04 07/01/04 |
A Comprehensive Program for Preventing and Detecting Computer Viruses
Is Needed F-2, R-1, P-1. Develop and implement
IRS-wide procedures detailing the frequency and steps to be followed for
reliably updating anti-virus software on both networked and portable notebook
computers. F-2, R-2, P-1. Establish controls for
ensuring all updates have been successfully accomplished. F-3, R-1, P-1. Develop a system for gathering information to help analyze and
monitor the effectiveness of the program’s virus detection and prevention
activities. |
2000-30-130 |
September 2000 |
04/15/04 |
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. |
`2000-30-154 |
September 2000 |
07/15/04 |
Significant Improvements Are Needed in Processing Gift Tax Payments
and Associated Extensions to File F-1, R-1, P-1. Require all balance due
notices generated for gift tax accounts be reviewed. Tax examiners should be instructed to
review the taxpayers’ corresponding individual income tax and gift tax
accounts to determine if the taxpayers’ gift tax payments and extensions were
correctly processed. |
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 |
12/15/04 |
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 |
11/01/04 01/01/05 |
Electronic Signature Initiatives Could Be Better
Defined and Evaluated F-1, R-1, P-1. Finalize IRS requirements for the use of PINs
as alternative signatures for electronically filed returns based on evolving
guidance and the draft IRS authentication security policy and implementation
guide. F-1, R-2, P-1. Ensure all operational alternative
signature initiatives comply with the requirements. |
2001-30-052 |
March 2001 |
01/01/05 01/01/05 P-1, P-2: 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 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. |
2001-30-099 |
June 2001 |
P-2, P-3: 04/15/04 |
Management Advisory Report: The Internal Revenue Service Could Reduce
the Number of Business Tax Returns Destroyed Because of Missing Information F-1, R-1, P-2, P-3. Make necessary modifications to tax forms
and instructions to ensure taxpayers understand their names, addresses, and
TINs are required on both their tax forms and payment vouchers. |
2001-20-146 |
August 2001 |
09/15/04 |
The Internal Revenue Service Is
Making Progress, But Is Not Yet in Full Compliance With the Requirements of
the Clinger-Cohen Act F-1, R-1, P-1. Prepare an overall strategy, plan and
schedule to bring the IRS in full compliance with the Clinger-Cohen Act. |
2002-30-042 |
December 2001 |
01/15/05 |
The Internal Revenue Service Has Made Some
Progress, but Significant Improvements Are Still Needed to Reduce Errors in
Manual Interest Calculations F-1, R-2, P-1. Establish a national quality review process
that includes all restricted interest cases. |
2002-30-050 |
February 2002 |
05/15/04 07/15/04 |
Significant Efforts Have Been Made to Combat
Abusive Trusts, but Additional Improvements Are Needed to Ensure Fairness and
Compliance Objectives Are Achieved F-2, R-1, P-1. Ensure the Abusive Trust Program
consistently applies the accuracy-related penalty in accordance with IRS
policy, in order to help ensure fair and equitable taxpayer treatment. F-2, R-2, P-1. Provide examiners with formal guidance on
the appropriate application of the accuracy-related penalty, in order to help
ensure its consistent application. |
2002-30-125 |
July 2002 |
05/15/04 |
The Internal Revenue Service Does Not Always Address Subchapter S Corporation
Officer Compensation During Examinations F-3, R-1, P-1. Submit a RIS to existing
(and/or future) information systems (such as Examination Operational
Database) to identify officer compensation-related adjustment assessments
made to |
2002-30-156 |
September 2002 |
07/01/04 |
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 the IRS initiates, as proposed in
its response to our memorandum dated February 1, 2002, a regularly scheduled
program for proposing penalties for Wage and Tax Statements (Forms W-2) with
inaccurate name/SSN combinations. |
2002-30-186 |
September 2002 |
02/15/05 05/15/04 05/15/04 01/15/05 |
The Internal Revenue Service Needs to Simplify Filing Requirements
and Clarify Processing Procedures for Small Business Corporate Returns F-1, R-1, P-1. Simplify the process of filing
election forms and U.S. Income Tax Returns for an S Corporation (Form 1120S)
for new filers by determining if there are alternatives to make it easier for
first-time filers to be granted elections and file their Forms 1120S, and by
considering implementing alternatives and seeking modification of the legal
requirements, as necessary. F-1, R-2, P-1. Develop procedures that
would improve and simplify the process for approving, recording, and
controlling elections and the related notification process to make it easier
for taxpayers to file their Forms 1120S. F-2, R-1, P-1. Establish procedures for
ensuring IRS records accurately reflect the filing of Forms 1120S once the
IRS subsequently verifies an election was granted. Specific procedures should be developed for converting the
Forms 1120 back to the originally intended Forms 1120S. F-2, R-2, P-1. Clarify IRM procedures and
assign responsibility for determining and assessing the correct taxes and
issuing statutory notices of deficiency for small business corporate returns
that could not be processed because the IRS could not verify valid elections
were filed. |
2002-10-187 |
September 2002 |
01/15/05 01/15/05 |
The New Suspension of Interest Provision Is Not Always Calculated
Correctly F-2, R-1, P-1. Identify all taxpayers with
under assessed interest caused by the original Master File computer
programming, regardless of whether or not the interest had been reestablished
on the accounts, and zero out any under assessed amounts to prevent burden on
future disaster relief taxpayers or other taxpayers in special military
conditions. 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 03/15/05 07/01/04 01/15/05 06/15/05 |
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-1, R-2, P-1.
Establish a process for migrating identified efficient report
distribution processes to all campuses. F-1, R-4, P-1.
Defer any upgrades of the new printers until the print requirements
are re-evaluated based on additional reports being available or on the EONS
and the transfer of notice printing to the consolidated print sites. F-2, R-2, P-1.
Ensure performance management reports are created for the print
operation and computer support function based on the performance measures
established in Recommendation 3. F-2, R-3, P-1.
Ensure managers compare results against performance measure goals and
take actions to improve operational efficiency. |
2003-40-022 |
December 2002 |
05/15/04 |
Improvements Are Needed to Prevent the Potential
Disclosure of Confidential Taxpayer Information F-1, R-2, P-3.
Evaluate the safeguard procedures to ensure the procedures address the
content as well as the security of information shared under I.R.C. § 6103. |
2003-20-049 |
February 2003 |
05/15/04 05/15/04 07/15/04 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 all contractor
employees have properly paid their tax obligations. F-2, R-4, P-2. Ensure background
investigations are completed for active contractor employees that obtained
identification badges without a background investigation. F-2, R-5, P-2. Ensure 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 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 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 |
04/01/04 04/01/04 03/31/05 |
The Internal Revenue Service Needs to Establish an Effective Process
to Accurately Identify, Record, and Report Unemployment Trust Fund Administrative
Expenses F-1, R-1, P-1. Develop written procedures
documenting a methodology, including the identification of all systems and
sources of information, that would ensure the most reasonable and timely
means of identifying and reporting all expenses associated with the IRS’
administration of all trust fund taxes. F-1, R-2, P-1. Establish controls to
ensure any amounts reported to the Bureau of the Public Debt are reviewed and
approved by a senior level IRS executive. F-1, R-3, P-1. Ensure the ability to
record and report trust fund administrative expenses, as currently envisioned
in the Integrated Financial System development plans is properly implemented. |
2003-10-094 |
March 2003 |
10/15/04 10/15/04 |
Improvements Are Needed in the Monitoring of Criminal Investigation
Controls Placed on Taxpayers’ Accounts When Refund Fraud is Suspected F-1, R-1, P-1. Consider providing future
report listings to the FDC in an electronic media format and consider changing
the frequency of the report from quarterly to twice a year, during non-peak
processing periods, to allow the FDC to focus their resources on taking
necessary actions to resolve accounts. F-1, R-2, P-1. Ensure regular reviews of
the Questionable Refund Program are conducted to assess compliance with
procedures and 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 |
08/15/04 07/01/04 |
Penetration Test of Internal Revenue Service Computer Systems F-5, R-1, P-1. Apply proper security
patches and/or registry settings. F-6, R-1, P-1. Allow only network services that
are specifically required and explicitly disable all other services. |
2003-40-139 |
June 2003 |
08/15/04 08/15/04 |
Opportunities Exist to Improve the Administration of the Earned
Income Tax Credit F-1, R-1, P-1. Establish long-term goals and
related measures for the EITC Program that reflect the program’s anticipated
outcomes over time. 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 |
06/30/04 07/15/04 07/15/04 07/15/04 |
Security Over Computers Used in Telecommuting Needs to Be
Strengthened F-1, R-1, P-1. Remind telecommuting
employees periodically to store and encrypt sensitive information on secure
locations of their laptop computers. F-1, R-2, P-1. Remind system
administrators to reset security settings after servicing laptop computers. F-1, R-3, P-1. Develop guidance to assist
functional managers in determining whether sensitive data are being stored in
unencrypted areas on their employees’ laptop computers. F-1, R-5, P-1. Consider purchasing
commercial software to provide FIPS-compliant encryption scheme software for
laptops used in telecommuting. |
2003-20-118 |
July 2003 |
06/30/04 07/15/04 12/15/06 |
Security Over Computers Used in Telecommuting Needs to Be
Strengthened (continued) F-1, R-6, P-1. Require front-line managers
to periodically check their employees’ laptop computers to ensure sensitive
data are being stored and encrypted properly. F-2, R-1, P-1. Standardize VPN firewall
configurations and hold the CSIRC responsible for maintaining those
configurations and installing patches timely. F-2, R-2, P-1, P-2, P-3. 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 taxpayer 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 |
07/15/04 07/15/04 07/15/06 |
More Information Is Needed to Determine the Effect of the Automated Underreporter
Program on Improving Voluntary Compliance F-1, R-1, P-1. Finalize the long-term
goals and related measures for the AUR Program that reflect the Program’s
anticipated outcomes over time. F-1, R-2, P-1. Establish a consistent
method to measure progress toward its long-term goals. 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. |
2003-40-185 |
August 2003 |
07/15/04 07/15/04 |
More Information Is Needed to Determine the Effect of the
Discretionary Examination Program on Improving Service to All Taxpayers F-1, R-1, P-1. Finalize the Concept of
Operations that will establish long-term goals and related measures for the
Discretionary Examination Program that reflect the Program’s anticipated
outcomes over time. F-1, R-2, P-1. Establish a consistent
method to measure progress toward the long-term goals. |
2003-10-187 |
September 2003 |
07/15/04 07/15/04 01/01/05 |
The National Taxpayer Advocate Could Enhance the Management of
Systemic Advocacy Resources F-1, R-1, P-1. Formalize the policy of concurrently
working systemic advocacy projects and assignments in support of its Annual
Report to Congress, and implement a process to manage both operations
simultaneously. F-1, R-2, P-1. Establish timeliness and staff resource
standards for conducting systemic advocacy projects based on the experience
to date. F-1, R-3, P-1. Upgrade the SAMS to provide data on
systemic advocacy project activities and staff resources to assist managers
in monitoring and budgeting systemic advocacy resources. |
2003-10-201 |
September 2003 |
10/15/04 04/15/04 10/15/04 04/15/04 10/15/04 |
Lead Development Centers Do Not Significantly Contribute to Increases
in Legal Source Cases F-1, R-1, P-1. Consider increasing the use
of LDC resources on general research projects. F-2, R-1, P-1. Issue procedures for the CI
field offices to follow when submitting leads or research projects to the
LDCs. F-2, R-2, P-1. Issue procedures for the
LDC analysts to follow when researching cases. F-2, R-3, P-1. Issue guidance to
reemphasize the need for field offices to evaluate additional factors that
affect the ability to fully investigate the lead before the lead is sent to
the LDC. F-3, R-1, P-1. Ensure the data in the LDC
database are consistent and issue instructions on how to use the LDC
database. |
2003-10-210 |
September 2003 |
08/15/04 06/15/04 06/15/04 |
The Tax Fraud Hotline Has Not Been an Effective Source for Criminal
Tax Investigation F-1, R-3, P-1. Revise LDC procedures to
specify LDC managers co-located with the call sites should be proactive in
assessing the adequacy of the preparation of Forms 3949 by call site
personnel and in providing specific feedback when necessary to improve trends
in completing the forms. F-2, R-1, P-1. Develop national procedures
that establish specific criteria for and guide the referral of appropriate
QRP and RPP allegations from the hotline directly to the FDCs. F-2, R-2, P-1. Revise the FDC IRM guidance
to specify FDC managers co-located with the call sites should be proactive in
assessing the adequacy of the preparation and referral of Forms 3949 by call
site personnel for QRP and RPP purposes and in providing feedback when
necessary to improve trends in forms. |
2003-10-212 |
September 2003 |
12/15/04 03/15/05 03/15/05 10/15/04 10/15/04 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-1, R-1, P-1. Require all business units to use the IRS
training management information system as their official system of records. F-1, R-2, P-1. Ensure the new Learning Management System
has the appropriate validity checks to ensure data on training courses,
costs, and CPE hours are correct, to avoid input errors. F-1, R-3, P-1. Ensure periodic reviews of the ACES data
are conducted to verify ACES data and make any needed corrections. F-2, R-1, P-1. Develop a method of properly allocating
training costs to courses and employees/students. F-3, R-1, P-1. Ensure a better course numbering scheme is
developed in the LMS to be used to identify the types of training provided
and the skills addressed. 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 |
10/15/04 10/15/04 |
The Cost and Schedule Estimation Process for the
Business Systems Modernization Program Has Been Improved, But Additional
Actions Should Be Taken F-1, R-1, P-1. Ensure all contractors working on BSM projects
follow the PRIME contractor’s policies and procedures for preparing cost and
schedule estimates and provide data for inclusion in the historical database. F-1, R-4, P-1. Ensure 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. |
2003-30-182 |
September 2003 |
04/15/04 |
Continued Progress Is Needed to Improve the Centralized Offer In
Compromise Program F-4, R-1, P-1. Reemphasize COIC employees
should make a thorough analysis of the case files and AOIC history entries
before returning offers. |
STATISTICAL
REPORTS - OTHER
Access
to Information
The
Inspector General Act of 1978 requires IGs to report on unreasonable refusals
of information available to the agency that relate to programs and operations
for which the IG has responsibilities.
As of March 31, 2004, there were no instances where information or
assistance requested by Office of Audit was refused.
Disputed
Audit Recommendations
The
Inspector General Act of 1978 requires IGs to provide information on
significant management decisions in response to audit recommendations with which
the IG disagrees. As of March 31, 2004,
no reports were issued where a significant recommendation was disputed.
Revised
Management Decisions
The
Inspector General Act of 1978 requires IGs to provide a description and
explanation of the reasons for any significant revised management decisions
made during the reporting period. As of
March 31, 2004, no significant management decisions were revised.
Audit
Reports Issued in the Prior Reporting Period With No Management Response
The
Inspector General Act of 1978 requires IGs to provide a summary of each audit
report issued before the beginning of the current reporting period for which no
management response has been received by the end of the current reporting
period. As of March 31, 2004, there
were no prior reports where management's response was not received.
Review
of Legislation and Regulations
The
Inspector General Act of 1978 requires IGs to review existing and proposed
legislation and regulations and to make recommendations concerning the impact
of such legislation or regulations.
TIGTA's Office of Chief Counsel reviewed 116 proposed regulations and
legislative requests during this reporting period.
THIS
PAGE LEFT BLANK INTENTIONALLY
APPENDIX
IV - AUDIT PRODUCTS
OCTOBER
1, 2003 - MARCH 31, 2004
Inspector
General Congressional Testimony |
|
Reference
Number |
Hearing
Title |
March 2004 |
|
2004-OT-084 |
Social Security
Number and Individual Taxpayer Identification Number Mismatches and Misuse |
Audit
Products |
|
Reference
Number |
Report
Title |
October 2003 |
|
2004-20-001 |
Risks Are Mounting as the Integrated
Financial System Project Team Strives to Meet an Aggressive Implementation
Date |
2004-40-002 |
Key Steps Have Been Initiated, but Additional
Emphasis Is Needed on the Oversight of the Wage and Investment Fraud Program |
2004-40-003 |
The 2003 Filing Season Was Completed Timely
and Accurately, but Some New Tax Law Changes Were Not Effectively
Implemented (Revenue Protection: $12.2 million for
57,755 taxpayers; Taxpayer Rights and Entitlements: $131.8 million for
297,916 taxpayers) |
2004-1C-006 |
TIRNO-95-D-00062 and TIRNO-00-D-00011,
Audit of Incurred Costs for |
2004-1C-007 |
Audit of Adequacy and Compliance of Disclosure
Statement Revision 13, Effective January 1, 2003 |
2004-1C-009 |
Audit of Incurred Costs for Fiscal Year
2002 |
2004-40-004 |
The Selection of Earned Income Tax Credit
Returns for Examination Can Be Improved to Further Prevent Erroneous Payments |
2004-1C-008 |
TIRNO-94-D-00090 and TIRNO-00-D-00019,
Audit of Incurred Costs for |
2004-1C-010 |
TIRNO-92-C-00014, TIRNO-00-D-00024,
TIRNO-99-D-0001, TIRNO-95-D-00099, and TIRNO-99-R-0009, Audit of Incurred Costs
for Fiscal Year 2001 |
2004-1C-011 |
Supplemental Report on Audit of Direct and
Indirect Costs for Fiscal Year 2002 |
2004-40-016 |
Increased Taxpayer Awareness and Improved
Guidance Are Needed to Ensure Accurate Direct Deposit of Tax Refunds Claimed
on E-Filed Tax Returns |
November
2003 |
|
2004-40-013 |
Improvements Are Needed in the Screening
and Monitoring of E-File Providers to Protect Against Filing Fraud |
2004-30-005 |
Key Areas of Noncompliance Among Small Business
and Self-Employed Taxpayers Could Be Addressed Through More Effective Use of
Correspondence Examinations |
2004-1C-012 |
Audit of the Adequacy and Compliance of
Disclosure Statement, Revision Number 7 |
2004-1C-015 |
Agreed Upon Procedures for Fiscal Years
2003 through 2005 |
2004-20-014 |
Additional Travel Reimbursement and
Accounting System Computer Program Controls Would Enhance Travel Voucher
Processing and Program Administration
(Questioned Costs:
$120,726; Increased Revenue: $180,485; Inefficient Use of Resources:
$255,571) |
2004-1C-018 |
Audit of the Adequacy of Disclosure
Statement, Revision Number 8 |
2004-20-017 |
Reviews to Determine Architectural Compliance
of Information Technology Acquisitions Need to Be Consistently Performed and
Documented |
December 2003 |
|
2004-1C-019 |
Audit of Revised Budget for Fiscal Year
2004 |
2004-1C-020 |
Report on Examination of Direct and
Indirect Costs and Rates for Fiscal Year Ended March 31, 1999 |
2004-40-024 |
Taxpayer Assistance Center Employees
Correctly Answered More Tax Law Questions During July and August 2003 Than
Compared to One Year Ago |
2004-1C-021 |
Report on Examination of Direct and Indirect
Costs and Rates for Fiscal Year Ended March 31, 2000 |
2004-1C-022 |
Report on Examination of Direct and
Indirect Costs and Rates for Fiscal Year Ended March 31, 2001 |
2004-40-025 |
Improvements Are Needed to Ensure Tax Returns
Are Correctly Prepared at Taxpayer Assistance Centers |
2004-20-026 |
Additional Actions Are Needed to Establish
and Maintain Controls Over Computer Hardware and Software Changes (Inefficient Use of Resources: $216,500) |
2004-40-029 |
Improvement Is Needed in E-Mail Responses
to Complex Tax Questions Submitted Through Toll-Free Telephone Help
Lines (Taxpayer Burden: 33 of 70 test telephone
calls did not receive expected quality service) |
2004-40-032 |
Management Controls Over the Proof of
Concept Test of Earned Income Tax Credit Certification Need to Be Improved |
2004-40-028 |
The Wage and Investment Division Does Not
Have a Reliable System for Identifying Trends Related to Automated
Underreporter Reconsideration Cases (Reliability of Information: 20,225
reconsideration adjustments not captured in the FY 2001 Reconsideration
Management Information System Report; Inefficient Use of Resources: $670,872
in resources expended to process cases that could have been resolved during
the original resolution process) |
January 2004 |
|
2004-40-035 |
Individual Income Tax Return Transactions
Were Timely and Accurately Recorded to Taxpayer Accounts |
2004-1C-030 |
Mandatory Annual Audit Requirement,
Purchases Existence and Consumption Verification |
2004-1C-031 |
Development and Implementation
of an Enterprise Business System |
2004-30-023 |
The Internal Revenue Service’s Individual
Taxpayer Identification Number Creates Significant Challenges for Tax
Administration (Funds Put to Better Use: $711.28 million;
Increased Revenue: $27.5 million; Revenue Protection: $3.4 billion and
530,000 tax returns filed by unauthorized resident aliens; Taxpayer Burden:
265,000 taxpayers whose Social Security Numbers are misused on Forms W-2:
Taxpayer Privacy and Security: 8,179 tax returns prepared by unauthorized
resident aliens) |
2004-20-027 |
Inadequate Accountability and Training for
Key Security Employees Contributed to Significant Computer Security
Weaknesses |
2004-30-033 |
The Office Audit Redesign Pilot Was
Effective in Meeting Its Goals, but Its Implementation Needs to Be Monitored |
2004-40-037 |
Taxpayer Assistance Center Employees
Correctly Answered More Tax Law Questions During September and October 2003
Than Compared to One Year Ago |
2004-20-041 |
The Reorganized Desktop Support Function
Has Not Yet Achieved Planned Goals (Inefficient Use of Resources: $5.6
million) |
2004-30-038 |
Access to the Toll-Free Telephone System Was
Significantly Improved in 2003, but Additional Enhancements Are Needed (Inefficient Use of Resources: $49.9 million) |
2004-40-042 |
The Child Tax Credit Advance Payment Was
Effectively Planned and Implemented, but a Programming Discrepancy Caused Some
Overpayments (Inefficient Use of Resources: $39 million) |
2004-20-034 |
Oversight of the Business Systems
Modernization Contractor Needs Improvement |
2004-30-043 |
Monitoring of Accepted Offers in Compromise
Is Generally Effective, but Some Improvement Is Needed (Increased Revenue: $1.9 million for 26 taxpayers; Taxpayer Rights
and Entitlements: 46 taxpayers whose Federal liens were not released after
the offer amount was fully paid) |
2004-30-044 |
Additional Efforts Could Further Improve the
Execution of the National Research Program |
February 2004 |
|
2004-1C-047 |
TIRNO-00-D-00012, TIRNO-95-D-00063, and
TIRNO-95-D-00064, Supplemental Report on Audit of Incurred Costs for Fiscal
Year 2001 |
2004-1C-048 |
Report on Noncompliance With Cost
Accounting Standard 418 |
2004-1C-049 |
TIRNO-95-D-00061, Audit of Final Vouchers,
Delivery Order Numbers 0011, 3197, and 4669 |
2004-30-040 |
While Progress Toward Earlier Intervention With
Delinquent Taxpayers Has Been Made, Action Is Needed to Prevent Noncompliance
With Estimated Tax Payment Requirements
(Taxpayer Rights
and Entitlements: $2.1 billion reduction in penalties and interest and
Inefficient Use of Resources: $12.9 million reduction in collection costs
achievable by improving compliance through development of a reminder notice) |
2004-30-039 |
The Small Business/Self-Employed Division
Has Taken Actions to Reduce Costly Turnover Among Its Customer Service
Representatives, but Improvement Opportunities Still Exist (Inefficient Use of Resources: $3.3 million savings by reducing cost
associated with turnover of personnel) |
2004-20-036 |
Requirements Changes and Testing Delays
Have Further Increased the Costs and Delayed the Benefits of the e-Services
Project (Reliability of Information: $71.9 million
in increased cost projections from the baseline business case projection) |
2004-1C-050 |
Report on Audit of Forward Pricing Indirect
Rates and Facilities Capital Cost of Money Factors |
2004-1C-051 |
Audit of Proposed Fiscal Year
2004 Direct Labor Rates |
2004-40-059 |
Fiscal Year 2004 Statutory Review of
Restrictions on Directly Contacting Taxpayers |
2004-10-045 |
Review of the Tax Exempt and Government
Entities Division’s Independent Review Process |
2004-30-054 |
Consistent and Effective Manager
Involvement Is Needed in Examinations of Large Businesses |
2004-20-046 |
Sensitive Technology Information Was Posted
on the Internet |
2004-40-057 |
Toll-Free Account Assistance to Taxpayers
Is Professional and Timely, but Improvement Is Needed in the Information
Provided (Taxpayer Burden: 42 calls sampled in which
the taxpayer did not receive the correct answer; Taxpayer Privacy and
Security and Reliability of Information; 12 calls in which there were
potential disclosure errors not included in the IRS’ reported customer
accuracy rate) |
2004-40-065 |
Accuracy Rates Have Increased at Taxpayer Assistance
Centers, but Improvement Is Needed to Provide Taxpayers Top-Quality Customer
Service |
March 2004 |
|
2004-10-052 |
Improvements Are Needed for Subsequent
Integrated Financial System Testing |
2004-20-061 |
The Custodial Accounting Project Team Is
Making Progress; However, Further Actions Should Be Taken to Increase the
Likelihood of a Successful Implementation |
2004-30-055 |
The Program to Determine Worker Status for Federal
Tax Purposes Needs Expanded Goals and Increased Operational Oversight |
2004-40-069 |
Forms and Publications for Tax Year 2003
Properly Explain Specific Tax Law Changes Affecting Individual Taxpayers |
2004-30-070 |
The Detroit Computing Center Adequately
Processed Paper Bank Secrecy Act Documents, but Quality Reviews Should Be
Implemented to Ensure Compliance With Quality Standards |
2004-30-062 |
Preparations Were Successful for Implementation
of New Business Provisions in the Jobs and Growth Tax Relief Reconciliation
Act of 2003 |
2004-10-060 |
Courts Are Not Always Notified When
Criminals Fail to Comply With Their Sentences to Settle Civil Tax
Liabilities (Reliability of Information: $6 billion in
criminal deficiency and fines are overstated in the management information
system) |
2004-30-068 |
Additional Efforts Are Needed to Improve
the Bank Secrecy Act Compliance Program |
2004-40-058 |
Fiscal Year 2004 Statutory Review of
Disclosure of Collection Activity With Respect to Joint Returns |
2004-1C-071 |
Audit of Adequacy and Compliance of
Disclosure Statement, Revision 14, Effective January 1, 2004 |
2004-1C-056 |
TIRNO-00-D-00012, TIRNO-95-D-00063, and TIRNO-95-D-00064,
Supplemental Report on Audit of Incurred Costs for Fiscal Year 2001 |
2004-20-053 |
The Master File Disaster Recovery Exercise
Was Completed, but Significant Vulnerabilities Should Be Addressed |
2004-40-066 |
Fiscal Year 2004 Statutory Audit of
Compliance With Legal Guidelines Restricting the Use of Records of Tax
Enforcement Results |
2004-20-063 |
Insufficient Contractor Oversight Put Data
and Equipment at Risk |
2004-1C-077 |
Accounting System Review |
2004-40-075 |
More Could Be Done to Make It Easier for
Taxpayers to Locate Taxpayer Assistance Centers |
2004-40-067 |
Appeals Complied With the Provisions of the
Law for the Collection Due Process (Taxpayer Rights and Entitlements: 537 cases
in which hearing officers did not provide a taxpayer-requested levy hearing
or did not document all issues raised by the taxpayer) |
2004-30-085 |
Most Taxpayers That Could Benefit From the
Farm Income Averaging Provision Are Not Using It (Taxpayer
Rights and Entitlements: 64,315 taxpayers could save $33,057,910) |
2004-40-064 |
Improvements Are Needed to Ensure
Compliance With the Freedom of Information Act (Taxpayer
Rights and Entitlements: 1,477 incomplete IRS responses to FOIA, Privacy Act
and I.R.C. Section 6103 requests) |
2004-1C-078 |
Incurred Costs Audit for Fiscal Year Ended
March 31, 2002 |
2004-30-074 |
The Use of Anti-Money Laundering Referrals
and Currency Transaction Information in the Income Tax Examination Process Could
Be Improved |
2004-10-082 |
The Area Distribution Centers’ Competitive
Sourcing Submission Was Reasonable; However, Improvements Could Be Made to
the Overall Competitive Sourcing Process
(Reliability of Information:
$38.4 million is the absolute value of recommendations to improve the
accuracy of the In-House Cost Estimate and Technical Performance Plan) |
2004-10-080 |
The Internal Revenue Service’s Federal
Financial Management Improvement Act Remediation Plan as of December 31, 2003 |
2004-20-081 |
Key Security Controls of the Criminal
Investigation Management Information System Have Not Been Implemented |
2004-20-072 |
Modernized e-File Project Integration
Difficulties Have Delayed Its Deployment |
2004-40-076 |
Opportunities Exist to Transition Taxpayers
From Submitting Computer-Prepared Tax Returns on Paper to E-Filing (Inefficient Use of Resources: $537 million reduction in costs to
process paper returns; Taxpayer Burden: 46.7 million taxpayers that would
benefit from filing e-file returns) |
APPENDIX
V - STATUTORY TIGTA REPORTING REQUIREMENTS
Fourteen
statutory audit reports that dealt with the adequacy and security of IRS
technology were issued during this reporting period. In FY 2004, TIGTA completed five statutory reviews that are
required annually by Internal Revenue Service Restructuring and Reform Act of
1998 (RRA 98). The following table
reflects the status of the FY 2004 RRA 98 statutory reviews.
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) |
An evaluation
of IRS’ compliance with restrictions under Section 1204 of RRA 98
on the use of enforcement statistics to evaluate IRS employees. |
Reference No. 2004-40-066, March 2004
The IRS is complying with the law.
A review of |
Restrictions on Directly Contacting
Taxpayers I.R.C. § 7803(d)(1)(A)(ii) |
An evaluation
of IRS’ compliance with restrictions under I.R.C. § 7521 on directly contacting taxpayers who have
indicated they prefer their representatives be contacted. |
Reference No. 2004-40-059, February 2004
As in the 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) |
An evaluation
of IRS’ compliance with required procedures under I.R.C. § 6320 upon the
filing of a notice of lien. |
Draft audit
report issued. |
Extensions of the Statute of Limitations
for Assessment of Tax I.R.C. § 7803(d)(1)(C) I.R.C. § 6501(c)(4)(B) |
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) |
An evaluation of
IRS’ compliance with required procedures under I.R.C. § 6330 regarding levies. |
Discussion
draft audit report issued to IRS management. |
Collection Due Process I.R.C. § 7803(d)(1)(A)(iii) and
(iv) |
An evaluation of
IRS’ compliance with required procedures under I.R.C. §§ 6320 and 6330 regarding the taxpayers’ rights
to appeal lien or levy actions. |
Reference Number 2004-40-067, March 2004
The Appeals Officers and Settlement Officers (hearing
officers) substantially complied with the requirements of the law when
conducting Collection Due Process (CDP) hearings. In While the hearing officers substantially complied with the
requirements of the law when conducting CDP hearings, the hearing officers
did not address all the issues raised by the taxpayers in the determination
letters and the summary notice of determinations in approximately 11 percent
of the cases reviewed. |
Seizures I.R.C. § 7803(d)(1)(A)(iv) |
An evaluation
of IRS’ compliance with required procedures under I.R.C. §§ 6330 through 6344 when conducting seizures. |
Audit
fieldwork in progress. |
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) |
Review and
certify whether or not 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. 2004-40-058, March 2004
This is the
sixth year 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 is prepared by TIGTA’s Office
of Investigations and is reflected in Appendix II. TIGTA’s Office of Audit’s annual review of IRS management’s process
for accumulating and reporting taxpayer complaint data is currently in the
audit planning process. |
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 |
Include
information regarding any administrative or civil actions with respect to violations
of the fair debt collection provision of I.R.C.
§ 6304, including a summary of such actions, and any resulting
judgments or awards granted. |
Audit fieldwork
in progress. |
Denial of Requests for Information I.R.C. § 7803(d)(1)(F) I.R.C. § 7803(d)(3)(A) |
Include
information regarding improper denial of requests for information from 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 |
Reference Number 2004-40-064, March 2004
The IRS
improperly withheld information from requesters in 4.4 percent of the Freedom of Information Act (FOIA) and Privacy Act (PA) requests, and 14.6 percent
of the I.R.C. § 6103 requests reviewed. TIGTA’s statistically valid samples were
taken from cases closed during the period January 1 through June 30,
2003. TIGTA estimated information was
improperly withheld from responses to 369 FOIA
and PA requests and |
Adequacy and Security of the Technology of
the IRS I.R.C. § 7803(d)(1)(D) |
Evaluation of
IRS’ adequacy and security of its technology. |
Information
Technology: Reference No. 2004-20-001,
October 2003 Reference No.
2004-20-014, November 2003 Reference No.
2004-20-017, November 2003 Reference No.
2004-20-026, December 2003 Reference No.
2004-20-034, January 2004 Reference No.
2004-20-041, January 2004 Reference No.
2004-20-036, February 2004 Reference No.
2004-20-061, March 2004 Reference No.
2004-20-072, March 2004 Security
Reviews: Reference No.
2004-20-027, January 2004 Reference No.
2004-20-046, February 2004 Reference No.
2004-20-063, March 2004 Reference No.
2004-20-081, March 2004 Reference No.
2004-20-053, March 2004 |
APPENDIX
VI - SECTION 1203 STANDARDS
In
general, the Commissioner of Internal Revenue shall terminate the employment of
any employee of IRS if there is a final administrative or judicial
determination that in the performance of official duties such employee
committed the misconduct violations outlined below. Such termination shall be a removal for cause on charges of misconduct.
Misconduct
violations include:
*
Willful failure to obtain the required approval signatures on documents
authorizing the seizure of a taxpayer's home, personal belongings, or business
assets.
*
Providing a false statement under oath with respect to a material matter
involving a taxpayer or taxpayer representative.
*
Violating, with respect to a taxpayer, taxpayer representative, or other
employee of the IRS, any right under the Constitution of the United States, or
any civil right established under Title VI or VII of the Civil Rights Act of
1964; Title IX of the Education Amendments of 1972; Age Discrimination in
Employment Act of 1967; Age Discrimination Act of 1975; Section 501 or 504 of
the Rehabilitation Act of 1973; or Title I of the Americans with Disabilities
Act of 1990.
*
Falsifying or destroying documents to conceal mistakes made by any employee
with respect to a matter involving a taxpayer or taxpayer representative.
*
Committing assault or battery on a taxpayer, taxpayer representative, or other
employee of the IRS, but only if there is a criminal conviction, or a final
judgment by a court in a civil case, with respect to the assault or battery.
*
Violating the Internal Revenue Code of 1986, Treasury regulations, or policies
of the IRS (including the Internal Revenue Manual) for the purpose of
retaliating against, or harassing a taxpayer, taxpayer representative, or other
employee of the IRS.
*
Willfully misusing provisions of Section 6103 of the Internal Revenue Code of
1986 for the purpose of concealing information from a Congressional inquiry.
*
Willfully failing to file any return of tax required under the Internal Revenue
Code of 1986 on or before the date prescribed therefore (including any
extensions), unless such failure is due to reasonable cause and not to willful
neglect.
*
Willfully understating Federal tax liability, unless such understatement is due
to reasonable cause and not to willful neglect.
*
Threatening to audit a taxpayer for the purpose of extracting personal gain or
benefit.
In
general, the Commissioner of Internal Revenue may take a personnel action other
than employment termination for the misconduct violations outlined above. The exercise of this authority shall be at
the sole discretion of the Commissioner and may not be delegated to any other
officer. The Commissioner, in his/her
sole discretion, may establish a procedure that will be used to determine
whether an individual should be referred to the Commissioner for a
determination by the Commissioner. Any
determination of the Commissioner in these matters may not be appealed in any
administrative or judicial proceeding.
HOTLINE
INFORMATION
Call
our toll-free hotline to report
fraud,
waste, or abuse:
1-800-366-4484
or
write:
Treasury
Inspector General for
Tax
Administration
P.O.
Box 589
Ben
Franklin Station
Washington,
D.C. 20044-0589
Information
is confidential and
you may remain anonymous