TIGTA’s Highlights
The following table shows the statistical
highlights of the Treasury Inspector General for Tax Administration (TIGTA) for
this semiannual reporting period as well as all of Fiscal Year 2009.
|
|
Number of Audit Reports Completed |
Cost Savings Identified |
Increased/ Protected Revenue |
No. of Investigations Opened |
No. of Investigations Closed |
Regulations/ Legislative Requests Reviewed |
|
April 1, 2009 – Sept. 30, 2009 |
86 |
$159 million |
$3.8 billion |
1,812 |
1,922 |
379 |
|
FY 2009 |
142 |
$9 billion |
$4.9 billion |
3,504 |
3,527 |
581 |
Examples of High-Profile Cases from TIGTA’s Office of
Investigations:
On May 22, 2009,
Ramesh Khilnani was sentenced to two years in prison and three years of supervised
release.[2]
Khilnani had previously pleaded guilty to bribery of a public official.[3]
In February
2008, an Internal Revenue Service (IRS) agent met with Khilnani to discuss the
audit of his 2004 through 2007 tax returns.
After several meetings, the IRS agent contacted her supervisor and
indicated that she believed Khilnani was attempting to offer her a bribe.[4]
On March 26,
2008, in conjunction with TIGTA, the IRS agent called Khilnani. Khilnani did not want to discuss the matter
over the phone and suggested a face-to-face meeting. On April 2, 2008, the IRS agent met with
Khilnani.[5]
At the meeting,
Khilnani wanted the IRS agent to reduce his tax liability from approximately
$49,000 to $500. In exchange for the reduction,
Khilnani would pay the IRS agent $2,500 in cash for her personal use. Khilnani stated that he knew this was illegal
and did not want either his tax preparer or his wife to find out about the
arrangement.[6]
On April 16,
2008, the IRS agent again met with Khilnani.
At this meeting, Khilnani gave the IRS agent $2,000 in cash. The IRS agent presented Khilnani with two
Income Tax Discrepancy Forms: the
original indicating the $49,000 tax liability and a second indicating a $524
tax liability. Khilnani signed the
second form indicating his tax liability and acknowledging the adjusted amount.[7]
On April 21,
2009, Logan Painter was indicted in
IRS
Dallas Lockbox Employee Sentenced for Theft and Embezzlement of Over $485,000
in Taxpayer Remittance Checks
On April 9, 2009,
Emmanuel Ekwuruke was sentenced in
Ekwuruke was
initially stopped by
Ekwuruke was
subsequently indicted by a Federal grand jury and convicted at trial.
Woman Sentenced to 96
Months in Prison for Conspiracy and Interference with the IRS
On June 2, 2009,
Jeanne Herrington was sentenced in
Herrington had
been found guilty of conspiracy and interfering with the IRS. She conspired with others to defraud the
In addition,
Herrington corruptly endeavored to obstruct or impede the due administration of
the Internal Revenue laws by preparing and submitting to the IRS fraudulent
Forms 1099, which falsely reported that individuals associated with the Federal
criminal tax investigation of Herrington had engaged in reportable
transactions. Herrington submitted
fraudulent 1099s for three different people.
Two of the fraudulent 1099s were for $1,000,000 each and one was for $300.[15]
Examples of High-Profile Audits from TIGTA’s Office of Audit:
Inadequate
Data on Paid Preparers Impedes Effective Oversight (Reference No. 2009-40-098)
Every year, more than one-half of all taxpayers pay someone
else to prepare their income tax returns. Currently, there
are no national standards that a preparer is required to satisfy before selling
tax preparation services to the public. Anyone, regardless of training, experience,
skill, or knowledge, is allowed to prepare Federal income tax returns for
others for a fee. Furthermore, the IRS cannot determine the population of preparers or
if the preparers are compliant with their own tax obligations as well as all of
the tax laws and regulations. In order
for the IRS to facilitate tax administration and provide effective oversight of
tax return preparers, TIGTA made recommendations that include assigning a
unique identifying number to each preparer and establishing an effective
management information system. IRS
management agreed to take appropriate corrective actions.
More Progress Is Needed to Reduce the
Millions Paid in Interest on Improperly Frozen Refunds (Reference No. 2009-30-106)
If a taxpayer’s
account has a filed tax return and a credit balance exceeding a certain dollar
threshold, the IRS’s computer system places a freeze on the account to prevent
it from automatically refunding or offsetting to another liability. This freeze is intended to alert the IRS that
a refund, if appropriate, must be issued manually. The IRS computer system does not allow for the
number of digits needed to automatically issue refunds over a certain amount. In September 1999, TIGTA reported problems with
the release of large dollar frozen refunds, for which the IRS incurred
additional interest expense of $17.5 million on forty-four taxpayer
accounts. TIGTA made several
recommendations to improve the resolution of frozen refunds. In March 2002, TIGTA reported that the IRS
had not implemented the recommendations as agreed. Instead, in January 2001, the IRS increased
the threshold for automatically freezing refunds. The threshold increase did not solve the
problem, resulting in approximately $186 million in delayed refunds and about
$15 million in additional interest expense.
TIGTA again made recommendations to improve the resolution of frozen
refunds. The IRS subsequently reported
that it had implemented them. In this
follow-up review, TIGTA found fewer accounts with a large dollar refund freeze. However, the percentage of accounts with
credits that continue to be improperly frozen remains high, and the interest
the IRS will pay on these accounts is substantial because the IRS has yet to
implement the recommendations from prior TIGTA reviews.
Increased Oversight Is Needed to Prevent
Inadvertent Disclosure of Personally Identifiable Information (Reference No.
2009-30-059)
Identity theft
is the number one consumer complaint nationwide, and each year it affects more
than 10 million Americans. More than 130
million taxpayers entrust the IRS with sensitive financial and personal data,
much of it on paper documents. Taxpayers
need to be assured that the IRS is taking every precaution to protect their
private information from inadvertent disclosure. TIGTA found that: responsibilities associated with the IRS’s waste
disposal program need to be clearly defined and delineated and that the IRS
needs greater standardization over contracts for the disposal of sensitive
waste. TIGTA also found that policies
related to the protection and disposal of paper documents containing sensitive
information need to be more widely communicated to IRS employees and
contractors. At every location visited,
documents containing personally identifiable or other sensitive information
were found in regular waste containers and/or dumpsters. TIGTA made several recommendations to improve
controls over sensitive data. IRS
management agreed with all of TIGTA’s recommendations.
Examples of Significant
Legislation Reviewed by the Office of Chief Counsel:
S.139, Data
Breach Notification Act and S.1490, Personal Data Privacy and Security Act of
2009
The
Data Breach Notification Act (S.139) would require Federal agencies and
business entities to disclose security breaches, such as compromises of
computerized data and of sensitive personally identifiable information (PII),
and to notify those affected. It creates
civil penalties for violations. The
Personal Data Privacy and Security Act of 2009 (S.1490) is a bill intended to
prevent and mitigate identity theft. The
bill’s provisions would require notice of security breaches, which are defined
as compromises of computerized data. In
addition, S.1490 would create new criminal penalties for unauthorized access to
sensitive PII.
Both
bills mitigate the notice requirement, in some circumstances, by providing a
law enforcement exemption, but require an agency to go through the U.S. Secret
Service (USSS), which is the final arbiter of their use. TIGTA’s responses to Treasury’s request for
comments identified concerns with various provisions. Among other things, TIGTA’s concerns focused
on the bills’ failure to recognize the Inspectors General’s (IG) role in
security breaches. Under the terms of
the bills, IGs, who are uniquely situated to provide the oversight necessary to
prevent the type of breach, abuse, or misuse that these bills intend to
prevent, have not been included in the notification provisions. In addition, both bills fail to take into
account various Federal confidentiality statutes that may prevent or limit the
information that may be provided to the USSS in connection with the law
enforcement exemption provision. TIGTA
also raised concern with the bills’ definition of "personally identifiable
information," as it appears to be different from the definition propounded by
the Office of Management and Budget for this term.
S.372 and HR.1507,
Whistleblower Protection Enhancement Act of 2009
TIGTA reviewed
several versions of this Act, which strengthens whistleblower protections for
Federal employees who expose government waste, fraud, and abuse of
authority. TIGTA agreed with concerns
raised by the Council of Inspectors General on Integrity and Efficiency and the
Department of Justice. Most of TIGTA’s
concerns were addressed by the latest version of the substitute for S.372,
Whistleblower Protection Enhancement Act of 2009. However, TIGTA commented on the potential
budgetary impact of the unfunded mandate contained in section 120,
Whistleblower Protection Ombudsman, which amends section 3(d) of the IG Act to
require each IG to "designate a Whistleblower Protection Ombudsman who shall
advocate for the interests of agency employees or applicants who make protected
disclosures of information, educate agency personnel about prohibitions on
retaliation for protected disclosures, and advise agency employees, applicants,
or former employees who have made or are contemplating making a protected
disclosure."
LEGISLATIVE RECOMMENDATIONS
Protect
Tax-Related Whistleblowers Against Retaliation and Provide Specific Relief to Informants
Who Are Retaliated Against. The whistleblower provision in the Tax Relief
and Health Care Act of 2006 provides a significant financial
incentive for individuals with knowledge of tax noncompliance. Protection against retaliation for reporting
such noncompliance would increase the likelihood that employees would come
forward. Without such protection for employees, the risk of
retaliation might outweigh the incentive of the reward. IRS management did not take a position on
this recommendation.
Mandate
E-filing for Paid Preparers. Federal law currently prohibits the IRS
from requiring e-filing of individual
income tax returns. A Federal
mandate for paid preparers to e-file individual
income tax returns would result in an increase of 26.9 percent in e-filed tax returns. Most paid preparers who filed paper tax
returns used an electronic tax software preparation package, and 70 percent
also e-filed at least one tax return,
which indicates a familiarity with the electronic preparation and e-filing process. IRS
management agreed with this recommendation.
Mandating e-filing for Paid Preparers would reduce paper tax
return processing costs by $66.6 million annually with potential five-year
cost savings totaling approximately $333 million.
Improve
the Administration of Education Credits By Providing the IRS Math Error Authority
to Disallow Claims for the Hope Credit That Are Taken for More Years Than Allowed
By Law. Despite provisions in the law allowing
the Hope Credit for only two tax years, TIGTA identified approximately 203,000
taxpayers who claimed the Hope Credit for the same student for three consecutive
tax years ending in 2006. IRS management
agreed with this recommendation. Providing
math error authority would help to prevent the payment of $398 million in ineligible
claims for the Hope Credit to an estimated 505,041 taxpayers over a three-year
period.
Change
the Reporting Requirements for Educational Institutions to Produce Forms
1098-T,
Tuition Statement, or Eliminate the Requirement for the Form Altogether.
As currently administered, Form 1098-T is not meeting its intended
purpose. The amount of education credits
claimed by taxpayers often does not correlate to the amount of qualified tuition
and related expenses reported on Form 1098-T because the law allows educational
institutions to report either the amounts billed or the amounts paid to the
educational institution. As a result,
the IRS does not use the form in its compliance programs and does not accept it
as documentation to support claims for education credits. IRS management agreed with this
recommendation. We estimate that
educational institutions expend approximately 25.5 million hours to
complete Forms 1098-T and $19.1 million to mail the forms to students over a
five-year period.
A full list of legislative recommendations and the associated audit reports
are shown in Appendix VI.
TIGTA's Profile
|
T |
IGTA provides independent oversight of Department of the Treasury matters
involving IRS activities, the IRS Oversight Board and the IRS Office of Chief
Counsel. Although TIGTA is placed
organizationally in the Treasury Departmental Offices and reports to the
Secretary of the Treasury and to Congress, TIGTA functions independently from
the Departmental Offices and all other offices and bureaus within the
Department of the Treasury.
TIGTA’s
work is devoted to all aspects of activity related to the Federal tax system
as administered
by the IRS. By identifying and
addressing the IRS’s management challenges, implementing the President’s management agenda and
the priorities of the Department of the Treasury, TIGTA protects the public’s
confidence in the Federal tax system.
TIGTA’s
organizational structure is comprised of five functional offices: the Office of Investigations; the Office of
Audit; the Office of Inspections
and Evaluations;
the Office of
(see chart on
page 10).
TIGTA conducts
audits, investigations,
and inspections
and evaluations designed
to:
·
Promote the economy, efficiency
and effectiveness of tax administration; and
· Protect the integrity of tax administration.
Organizational
Structure
Authorities
TIGTA has all of
the authorities granted under the Inspector General Act of 1978, as amended.[16]
TIGTA has access to tax information in the performance of its tax administration
responsibilities. TIGTA also has the
obligation to report potential criminal violations directly to the Department
of Justice. TIGTA 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)[17] 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 summonses, 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
|
T |
IGTA’s Office of
Audit (OA) strives to promote the economy, efficiency and effectiveness of tax
administration. TIGTA provides
recommendations to improve IRS systems and operations while ensuring fair and
equitable treatment of taxpayers.
TIGTA’s comprehensive and independent performance and financial audits
of IRS programs and operations primarily address mandated reviews and high-risk
challenges facing the IRS.
The IRS’s
implementation of audit recommendations results in:
·
Cost-savings
and increased or protected revenue;
·
Reduction
of taxpayer burden;
·
More
efficient use of resources;
·
Protection
of taxpayer privacy and security;
·
Protection
of resources/reliability of information; and
·
Protection
of taxpayer rights and entitlements.
For Fiscal Year
(FY) 2009, OA realigned its staff to enable it to continue to provide quality
audit products as well as a broader perspective and assessment of IRS
operations and results. This realignment
better mirrors the IRS’s processes and provides improved OA coverage of all of
the major IRS goals and initiatives.
Each year,
TIGTA’s OA identifies and addresses the major management challenges facing the
IRS. The OA places audit emphasis on
statutory coverage required by the RRA 98 and other laws, and areas of concern
to Congress, the Secretary of the Treasury, the Commissioner of the IRS, and
other key stakeholders.
American Recovery and
Reinvestment Act of 2009
During FY 2009,
OA developed an Oversight Program Plan for the American Recovery and
Reinvestment Act (Recovery Act). The Recovery
Act is intended to jumpstart the American economy, create or save millions of
jobs, and address many of the challenges facing our country. Included in the Recovery Act are many tax law
provisions that the IRS is charged with administering. In addition, TIGTA received $7 million in
separate Recovery Act funding through September 30, 2013, to be used in
oversight activities of IRS programs.
OA’s Oversight
Program Plan identifies its planned actions to address the Recovery Act. In determining the scope of the Recovery Act on
tax administration, OA reviewed the Recovery Act legislation, the Office of
Management and Budget (OMB) Implementing Guidance, and summaries of key
IRS-related provisions prepared by the Senate Finance and
The Recovery Act
is a far-reaching effort that includes many tax law changes. The impact of some of these changes will not
be apparent for several years. As part
of its Recovery Act oversight, TIGTA will continue to coordinate its activities
with appropriate external oversight agencies and include the impact of these
provisions in its strategic planning activities. TIGTA and the Treasury Office of Inspector
General (TIG) agreed to coordinate oversight activities in two key Recovery Act
areas: Low-Income Housing Grants and
Specified Energy Property Grants. Both
TIGTA and TIG have oversight responsibility in these two areas. Furthermore, TIGTA has started or has plans
to start audits in several Recovery Act-related areas, such as: reporting standards for Recovery Act contracts;
expansion of the Health Coverage Tax Credit; extension of the Net Operating
Loss carryback period for small businesses; tax-exempt bond provisions; and
implementation of the Making Work Pay Credit.
The following summary highlights the Recovery
Act audit completed during this six-month reporting period.
First-Time Homebuyer Credit
(Reference No. 2009-41-144)
Congress
allocated $13.6 billion for the First-Time Homebuyer Credit (Credit) in the
Housing and Economic Recovery Act of 2008. The Joint Committee on Taxation estimated
that more than $4.3 billion more would be paid to first-time homebuyers in
FYs 2009 and 2010 as a result of the revisions in the Recovery Act.
The
IRS developed controls to identify many questionable claims for the
Credit. However, some key controls to
prevent individuals from erroneously claiming the Credit were missing. Despite recommendations made in a November
25, 2008, memorandum as part of a prior TIGTA audit, the IRS did not require
taxpayers to provide documentation to substantiate the purchase of a home.
Many
taxpayers erroneously claiming the Credit will be identified by recently
implemented IRS filters and subject to pre-refund audits. However, TIGTA identified 70,005 taxpayers
whose tax returns were processed prior to the implementation of these filters. Also, 48,580 taxpayers who may not have been
aware of the changes to the Credit included in the Recovery Act did not claim
the full amount to which they were entitled.
TIGTA
recommended that the IRS develop a plan to address questionable claims for the
Credit that were processed prior to IRS examination filters being
implemented. TIGTA also recommended that
the IRS monitor accounts of taxpayers who purchased homes in calendar year 2009
and claimed Credits of $7,500 to determine if the taxpayers amend their returns
with respect to the Credit. If not, the
IRS should contact these taxpayers to inform them that they may be entitled to
an additional refund if the purchase price of their home was greater than
$75,000.
IRS
management agreed with the recommendations and plans to take corrective
actions.
The following summaries highlight
significant audits completed in each of the areas of emphasis during this
six-month reporting period.
Systems Modernization of
the Internal Revenue Service
The Business Systems Modernization Program
(Modernization Program) is a complex effort to modernize IRS technology and related
business processes. For the IRS, modernizing technology has been an ongoing
challenge. The Modernization
Program accomplishments extend from the development of Program Management
Offices and enterprise architecture to the implementation of systems and
applications that improve the IRS’s ability to administer and enforce
compliance with the Nation’s tax laws, while providing quality customer
service. The Modernization Program has
also continued to develop and deploy modernized applications. New capabilities include enhancements to the
Customer Account Data Engine (CADE) that incorporated new tax law provisions
including the processing of Economic Stimulus Act of 2008 payments, and the
ability of IRS employees to access taxpayer account information through the
Account Management Services system.
The IRS has recognized that it faces
significant challenges in meeting the requirements of the next phase of project
development and systems integration. The
immediate challenge is the future of CADE, the acknowledged centerpiece
throughout the life of the Modernization Program. The IRS is considering using elements from
the Individual Master File and the current CADE to significantly reengineer the
IRS tax account management process. The
continued improvement to managing individual taxpayer accounts will be
curtailed until the use of the reengineered database is implemented and made
available for integration with other systems and applications. Furthermore, the challenge in modernizing the
management of business taxpayer accounts has yet to be considered.
Annual Modernization
Assessment (Reference No. 2009-20-136)
The objective of the Modernization Program is to
address the complex effort to
modernize IRS technology and related business processes, manage the inherent risks of modernization, and deliver the level of
service that American taxpayers expect.
For
the past year, Modernization Program management development activities generally
have met the objectives of the IRS’s Modernization Program. These activities included the development and
implementation of strategic planning and program management efforts in the form
of the Information Technology Modernization Vision and Strategy, Enterprise
Data Access and Data Strategy Implementation Programs, and a tiered program management structure designed to act as an
enterprise governance model.
The
past year’s Modernization Program performance did not continue the trend of
improvement it demonstrated in the prior three years in delivering projects
within estimated ranges for development costs and schedule variance. The IRS also has experienced a turnover of
executives that challenges the Program’s continued long-term success. Furthermore, a control process to manage the
Modernization and Information Technology Services organization’s Highest Priority Initiatives process has
been discontinued. The Enterprise
Services organization is currently developing processes that will be used to
replace the Highest Priority Initiatives
process.
The
IRS recognizes the need to incorporate necessary program management disciplines
and has plans to implement a process-improvement strategy. This strategy will allow the Modernization
Program to continue to improve its management practices by incorporating
industry best practices.
TIGTA
provided this assessment of the Modernization Program status and
accomplishments through FY 2008 but did not offer specific
recommendations. IRS management
responded that they were pleased that the annual assessment recognized the
accomplishments in providing quality customer service. The IRS also appreciated acknowledgment of
the continued development and deployment of modernized applications. In response to TIGTA’s comments on the use of
the Information Technology Modernization Vision and Strategy planning process,
the IRS stated that it expanded the breadth of the business technology included
in this strategy and plans to establish a pre-selection process for investment
planning.
My IRS Account Project
(Reference No. 2009-20-102)
The My IRS Account
project was designed to improve the IRS’s ability to meet taxpayers’ needs by
developing secure online procedures for electronic access to tax return information. The intent of the project was to develop a plan
that would provide taxpayers a means to securely view their tax account and
return information online, as well as provide tools for self-service assistance. It was also
intended to be used as a prototype for future delivery of new Web-based
projects.
Successful
implementation of this effort is essential to support taxpayers’ abilities to
electronically fulfill their tax responsibilities and is critical to the
long-term success of the IRS Modernization Program. However, the IRS’s decision to terminate
deployment of the My IRS Account project puts the goals of the project at risk,
as well as the approximately $10 million spent to develop it.
TIGTA
recommended that the IRS develop a long-term strategy for the My IRS Account
project. If the project is restarted, it
should be quickly deployed. This will
allow the IRS to realize the maximum benefit from its
$10 million investment by reusing the hardware and functionality
developed for My IRS Account Release 1. TIGTA
also recommended that the IRS ensure that a strategy to develop and deploy an
enterprise-wide electronic authentication solution is developed as quickly as
possible to allow online projects that require secure access, such as the My
IRS Account project, to be deployed without experiencing similar costly delays,
and ensure formal project termination procedures are developed for information
technology projects that are shut down prior to deployment.
IRS
management agreed with TIGTA’s recommendations and has taken or plans to take
appropriate corrective actions.
Uncertainties Affecting the
Account Management Services Project (Reference No. 2009-20-071)
The
Account Management Services (AMS) system will provide IRS employees with
immediate access to taxpayer account data and the ability to perform
instantaneous transaction processing and daily account settlement. IRS management needs to decide what future
project development plans will be followed and improve project funding
controls. Addressing these issues will
allow the AMS system to help meet the ongoing need to modernize tax administration
processes, applications, and technologies, and enhance the level of service
provided to the Nation’s taxpayers.
TIGTA
recommended that AMS project management activities follow the appropriate
governance process to redirect remaining AMS funding in order to complete
Releases 1.3 and 2.1. To address the
need to improve controls over project funding, TIGTA recommended that the IRS
direct project management teams and contracting officers to propose
modernization task orders with the ability to readily account for system
development activity funding on a release basis. In addition, actions should be taken to
reinforce existing governance procedures to executives and managers about
release-specific project funding.
Training and desk procedures on the proper use of release-specific
project funding should also be provided, including steps for preparing,
reviewing, and approving requisitions.
IRS management agreed
with the recommendations and has taken or plans to take appropriate corrective
actions.
Efforts to Develop a
Web-based Portal Environment Were Not Successful (Reference No. 2009-20-079)
The
use of the Internet is critically important to the IRS’s tax administration
mission of delivering top-quality service to all taxpayers. Internet portals allow taxpayers and tax
practitioners to submit and retrieve tax-related and general information and
electronically file tax returns. Although the initial
attempt to develop a new portal environment terminated unsuccessfully, the IRS
subsequently hired a contractor to assist in the development of an enterprise
portal business strategy. The success of
this effort is important in order to provide taxpayers with both continuous
access to IRS data and information and the ability to electronically fulfill
their tax responsibilities.
TIGTA recommended that the IRS develop a process to ensure that new projects seeking approval and funding during the information technology governance process, and which are not part of the Modernization Vision and Strategy process, are properly identified and their portal needs are considered. The new process should be similar to existing procedures to ensure that a uniform analysis is conducted for projects that are not part of the Modernization Vision and Strategy process.
IRS management
agreed with TIGTA’s recommendation and plans to take appropriate corrective
action.
Security of the Internal
Revenue Service
Each
year, millions of taxpayers entrust the IRS with their sensitive financial and
personal data that are stored in and processed by IRS computer systems. The risk that taxpayers’ identities could be
stolen by exploiting security weaknesses in the IRS’s computer systems
continues to increase, as does the risk that IRS computer operations could be
disrupted. Both internal factors (such
as the increased connectivity of computer systems and greater use of portable
laptop computers) and external factors (such as the volatile threat environment
related to increased phishing scams and hacker activity) contribute to these
risks.
Progress Is Slower than
What Was Reported for the Weaknesses Identified in the HSPD-12 Program Office
(Reference No. 2009-20-084)
The Homeland Security Presidential Directive 12 (HSPD-12)
established a new standard for issuing and maintaining identification badges
for Federal Government employees. The
HSPD-12 Program Management
Office (PMO)
is making slow progress in issuing the badges to employees and
contractors. In addition, the number of
badges that have been issued is less than what has been reported to the OMB and
Treasury officials. Issuing the badges is critical to improving
the future security over Treasury facilities, computer systems, and critical
processes, such as collecting tax revenues and issuing refunds to taxpayers.
TIGTA recommended
that to ensure progress is accurately reported, the HSPD-12 Executive Steering
Committee should instruct the HSPD-12 program manager to: 1) continue reporting the program as being
behind schedule and report to the OMB a revised estimated date that all
employees and contractors will be issued badges; and 2) define badges issued as
badges that have been activated and given to employees or contractors, report
to the OMB the total cumulative number of badges that have been issued to
employees and contractors, and include all contractors and seasonal employees
in the total Treasury population as long as these individuals are employed by
the Treasury.
IRS
management disagreed with TIGTA’s recommendations
but took some corrective actions.
The IRS reported to the OMB a
revised estimated completion date of March 2010. However, the IRS stated that it would
continue to use its current definition of "issued," continue its current
reporting methods, no longer attempt to issue badges to seasonal employees, and
continue to exclude contractors from the Treasury population until a viable
method of uploading contractors’ personal information into the General Services
Administration database is implemented.
TIGTA continues to believe that the PMO’s definition of
"issued" significantly overstates the progress of the HSPD-12 program. TIGTA also believes the technical challenges
in issuing badges to contractors do not justify excluding them from the
Treasury population.
Improvement Is Needed for
Computer System Access Controls Over Contractors (Reference No. 2009-20-108)
The
IRS uses contractors to perform a variety of information technology functions,
such as developing applications for IRS business operations and maintaining
computer operations.
To perform these functions, contractors are granted access to IRS computer
systems. However, some contractors who
no longer had a business need continued to have access to active user accounts
on IRS systems. When contractors are
allowed to have unnecessary access to computer systems, the IRS increases the
risks of exposing taxpayer data to unauthorized disclosure and to disruption of
system operations.
TIGTA
recommended that the IRS: 1) provide
appropriate communications to all Contracting Officer’s Technical Representatives (COTR) and managers reinforcing the need to ensure that system access is revoked when contractors leave
the IRS and that separation of duties (the practice of dividing the
steps in a system function among different individuals) is followed; 2) enforce
current procedures on all systems by configuring systems to automatically
disable and/or delete user accounts when they are not accessed for the
appropriate number of days; 3) provide appropriate communications to all COTRs
and managers to remind them that they have the
primary responsibility for providing prompt notification to the responsible
organization of any contractor status changes; 4) provide appropriate
communications to COTRs and managers that the Online 5081
system is the primary system used for authorizing and approving requests for
any system access and that system access should not be granted until a
contractor or employee has successfully completed a background investigation;
and 5) improve accountability over employee
and manager adherence with security policies and procedures over contractor
system access.
IRS management
agreed with TIGTA’s recommendations and plans to take appropriate corrective
actions.
Processing Requests for Tax
Returns and Transcripts of Tax Returns (Reference No. 2009-40-140)
Identity theft is
the number one consumer complaint.
Identity theft occurs when someone uses personally identifiable
information, such as an individual’s name or Social Security Number (SSN), to
commit fraud and other crimes. Taxpayers
need to be assured that the IRS is taking every precaution to protect their
private information from inadvertent disclosure.
Taxpayers who
submit Form 4506, Request for Copy of a Tax Return, or Form 4506-T, Request for
Copy of a Tax Return Transcript, are at risk of unauthorized disclosures of
taxpayer information. As a result, TIGTA
recommended that the IRS clarify guidelines to require an accurate name and SSN
before Forms 4506 and 4506-T can be processed.
TIGTA also recommended that internal controls
be developed and training provided to ensure that Return and Income
Verification Services units: 1) use the
Transcript Delivery System (an IRS system used to house taxpayers’ account
information) automated process to mail transcripts; 2) send copies of tax
returns and transcripts only to the address of record; and 3) properly maintain
requests for copies of tax returns and transcripts. Guidelines should also be
developed to process requests for taxpayers who are victims of identity theft,
the user fee for e-filed tax returns should be reduced or eliminated, and the
IRS’s Web site (IRS.gov) and Form 4506-T should be updated to prominently
display the option and benefits of ordering a transcript using the Integrated
Customer Communications Environment, an automated touch-tone telephone system
that permits taxpayers to resolve tax account issues and obtain tax information.
The
IRS agreed with most of TIGTA’s recommendations and plans to take appropriate
corrective actions. The IRS did not
agree with the recommendation to reduce or eliminate the user fee for
requesting copies of e-filed tax returns.
The IRS believes the costs to provide electronic printouts to taxpayers
justify the user fee.
TIGTA
believes that the cost to process requests for a printout of an e-filed tax
return may be significantly lower than the cost to process copies of tax
returns submitted on paper. The cost of
providing printouts of e-filed tax returns is comparable to providing printouts
of transcripts, which are free.
Tax Compliance Initiatives
Tax compliance initiatives include administering tax regulations,
collecting the correct amount of tax for businesses and individuals, and
overseeing tax-exempt and government entities for compliance. Increasing voluntary compliance and reducing the
tax gap[18] are currently
the focus of IRS initiatives. Nevertheless,
the IRS is facing significant challenges in obtaining more-complete and timely
data, as well as developing the methods necessary for interpreting the
data. The IRS must continue to seek
accurate measures for the various components of the tax gap and the
effectiveness of the actions taken to reduce it. In addition, while the IRS regularly
encounters lax governance practices on the part of tax-exempt entities, it must
remain vigilant in ensuring that the privilege of tax-exemption is not abused.
The Treasury and
the IRS developed a multiyear strategy for improving compliance and reducing
the tax gap. However, the strategy is
dependent on overcoming several high-risk challenges. The strategy is significantly more
comprehensive and detailed than previous efforts. The long-term success of the strategy will,
in large part, be dependent on addressing several risk factors, some of which
are beyond the IRS’s control. As a
result, broader strategies and better research may be needed to determine what
actions are most effective in addressing noncompliance.
Additional Steps Are Still
Needed for the Proper Reporting of Farm Income (Reference No. 2009-30-068)
The
IRS annually receives thousands of information returns reporting Commodity
Credit Corporation (CCC) income payments that it is unable to use in
determining whether farmers filed tax returns or reported the income reflected
on the statements. Because the
information returns are unable to be used, opportunities exist for farmers to
avoid the scrutiny of the IRS through underreporting income and not filing tax
returns. This creates unfair burdens on
honest taxpayers and diminishes the public’s respect for the tax system.
TIGTA
recommended that the IRS coordinate with United States Department of
Agriculture officials to minimize the number of information returns submitted
with mismatched names and identification numbers and initiate actions to
develop compliance strategies for ensuring more CCC income payments are
properly reported.
IRS management
agreed with TIGTA’s recommendations and has planned
appropriate corrective actions. However,
IRS management stated that the outcome measures in the report totaling
approximately $94 million over five years may be overstated because of several
factors. After considering the IRS’s
comments, TIGTA maintains that the outcome measures in the report are
reasonable.
A Corporate Approach Is
Needed for a More Effective Tax-Exempt Fraud Program (Reference No.
2009-10-096)
In response to
prior TIGTA reports, each of the IRS’s Tax Exempt and
Government Entities (TE/GE) Division offices implemented changes to
their fraud programs. This resulted in
significantly more fraud development cases, of
which most were from one office. However, a more corporate approach with
centralized oversight is needed to provide for a more-effective TE/GE Division
fraud program. TIGTA believes an
effective fraud program will provide greater assurance that the trust placed in
the tax-exempt sector by taxpayers and the good work done by most tax-exempt
organizations are not tarnished.
TIGTA
recommended that the IRS develop and implement a corporate fraud approach with
centralized oversight for the TE/GE Division and ensure that all TE/GE
Division offices follow IRS procedures and contact the Small
Business/Self-Employed Division Fraud Office to determine whether cases with
affirmative indications of fraud should be pursued as fraud development cases.
IRS management agreed with TIGTA’s recommendations and has planned appropriate
corrective actions.
Deficiencies Exist with
Whistleblower Claims (Reference No. 2009-30-114)
The IRS’s Whistleblower Program provides an opportunity to
recover potentially billions of dollars in taxes and related penalties and
interest based on information provided by claimants. The Tax Relief and Health Care Act of 2006[19] provided increased
awards to individuals for information that leads to the detection and
punishment of persons guilty of violating Internal Revenue laws. This Act created a new type of claim for
referrals of $2 million or more. Since
the Act’s passage, the IRS has seen significant growth in claims. In 2008, the IRS received claims alleging
more than $65 billion in underreported income.
However, without effective control over and timely processing of these
claims, the success of the IRS’s Whistleblower Program could be diminished.
TIGTA
recommended that the IRS ensure that reporting capabilities are included in the
newly implemented single inventory control system (a system for tracking and
controlling whistleblower claims) and perform a physical reconciliation of
claim information to ensure that the information captured from existing systems
and input into the new system is accurate.
In addition, written procedures with timeliness standards should be
established and processes to monitor the timely processing of claims should be
developed.
TIGTA also
recommended that legislation is needed to ensure that informants are protected against
retaliation by their employers and to provide specific relief to informants who
experience retaliatory actions.
IRS
management agreed with TIGTA’s
recommendations and has taken or plans to take appropriate corrective actions. However, the IRS stated that pursuing new
legislation to protect informants against retaliation by their employers is
outside of their jurisdiction.
Mortgage Interest Data
Could Be Used to Pursue Nonfilers and Underreporters (Reference No.
2009-40-112)
Individuals who fail to file required returns and/or
underreport their income can create unfair burdens on honest taxpayers and
diminish the public’s respect for the tax system. TIGTA recognizes that, given the current
state of the economy, many individuals are struggling to meet their mortgages
and other financial obligations.
Nevertheless, a large number of individuals are paying a significant
amount of mortgage interest and are either not filing tax returns or are filing
tax returns reporting income that is not sufficient to cover their mortgage
obligations and basic living expenses.
The considerable difference between income and expenditures on these
returns raises serious questions about whether additional income should have
been reported.
TIGTA
recommended that the IRS explore the feasibility of making greater use of
mortgage interest data to pursue additional nonfilers and underreporters for
audit. IRS
management agreed with TIGTA’s recommendation and plans to take appropriate
corrective action.
Providing Quality Taxpayer
Service
Since the late
1990’s, the IRS has increased its delivery of quality customer service to
taxpayers. In fact, in its current
strategic plan, the IRS’s first goal is to improve taxpayer service. In July 2005, Congress requested that the IRS
develop a five-year plan, including an outline of which services the IRS should
provide and how it will improve service for taxpayers. In response, the IRS developed the Taxpayer
Assistance Blueprint, which focuses on the appropriate types and amounts of
services that support the needs of filers.
The IRS has begun implementing the initiatives of the Blueprint;
however, many of the initiatives are dependent on future funding.
Elderly Taxpayers Would
Benefit if the IRS and Tax Professionals Would Partner to Reduce Unnecessary
Filings (Reference No. 2009-30-076)
Taxpayers age 65
and older will directly benefit by not filing returns when they have no need to
do so. These taxpayers will have less
burden and will save time and financial costs.
To realize these benefits, taxpayers will need to work with tax
professionals and guidance from the IRS to reevaluate their withholding
requirements if they do not anticipate tax liabilities in future years.
TIGTA recommended that the IRS ensure consistency between the
IRS’s public Web site and written products by reviewing, and, if necessary,
revising its most common publications and Forms 1040/1040A instructions. The revisions should advise taxpayers to
discontinue income tax withholding if there is little likelihood that they will
be required to file returns in subsequent years. In addition, TIGTA recommended that the IRS conduct
focus groups to determine why taxpayers are filing unnecessary returns. As part of its existing outreach and
education efforts for tax professionals, the IRS should include discussions on:
1) tax responsibilities of the elderly;
2) discontinuing withholding on Social Security benefits; 3) coordinating
rollovers with financial institutions to avoid the mandatory 20 percent
withholding; and 4) filing requirements.
IRS management
did not agree to revise the IRS’s most common publications and the instructions
to Forms 1040/1040A. The IRS stated that
such a change would risk causing confusion for the vast majority of taxpayers
in order to accommodate a small number of filers. However, IRS management plans to reinforce
the message about unnecessary filings in the Tax Guide for Seniors (Publication 554) and will review other
publications targeting the elderly.
The IRS is working on reviewing prior research for internal and external
entities, such as the AARP. Once this
research is completed, the IRS plans to determine what future action is
necessary, including whether it should conduct focus groups with the elderly,
tax professionals, and/or payers of pensions and annuities.
Although TIGTA
agrees that reinforcing the message regarding unnecessary filings in
publications specifically for the elderly is necessary, an increased awareness
effort may not be successful if it is limited to only those publications. The IRS should refer elderly taxpayers from
the instructions and most common publications to the targeted publication for
more detailed information. In addition,
IRS management stated that they would only consider conducting focus groups if warranted
by their review of prior research.
However, TIGTA believes that focus groups will provide valuable insight
into the root causes of why the elderly continue to file unnecessary returns and/or
have income tax unnecessarily withheld.
Focus groups and outreach efforts to engage the preparer community will
assist the IRS with its effort to reduce taxpayer burden.
In addition, after considering the IRS’s
comments to the outcome measures reported, TIGTA maintains that they are sound
and reasonable.
Quality of Volunteer
Program Site Services During the 2009 Filing Season (Reference No. 2009-40-128)
The
Volunteer Program plays an increasingly important role in achieving the IRS’s
goal of improving taxpayer service and facilitating participation in the tax
system. It provides no-cost Federal tax
return preparation and electronic filing directed toward underserved segments
of individual taxpayers, including low-income to moderate-income, elderly,
disabled, and limited‑English‑proficient taxpayers. However, the quality assurance process needs
some improvements and is still not consistently followed. Incorrectly prepared tax returns can increase
the risk of taxpayers receiving erroneous tax refunds by not receiving credits
to which they are entitled or receiving additional credits for which they do
not qualify.
TIGTA
recommended that the IRS: 1) begin trending accuracy rates (an
analytical means to review the performance of volunteer sites over time) by site
and tax topic to identify patterns and concerns in which to focus education,
training, and accountability; 2) ensure that all new tax law topics and
questions pertaining to filing status are incorporated into the IRS intake
sheet, and augment the process for IRS approval of locally developed intake
sheets to ensure completeness and consistency of information gathered from
taxpayers during the tax return preparation process; 3) ensure that quality reviews completed at the volunteer
sites are selected by the IRS quality reviewer, samples are random, and
complete documentation is obtained; and 4) require that quality review training
be revised based on results of the 2009 filing season to better ensure that tax
returns are randomly selected and all quality reviews are consistently
supported by sufficient documentation.
IRS management
agreed with three recommendations and partially agreed with one other
recommendation. The IRS plans to
incorporate new tax law topics and questions pertaining to filing status into
the IRS intake sheet. In addition, it
plans to augment the process for approving locally developed intake
sheets. To further mitigate the risk of
incomplete or inconsistent information gathering, the IRS plans to require for
the 2010 filing season that all grant recipients use its intake sheet.
The IRS agreed
in part with TIGTA’s first recommendation, noting that it captures an accuracy
rate by tax topic, but did not agree to trend accuracy rates by site because
this would increase the number of reviews conducted at each site. The IRS cited a lack of resources to
accomplish the reviews, particularly considering that it has more than 12,000
volunteer sites. However, TIGTA does not
believe additional reviews would be required.
The IRS should capture the accuracy rate by site for the reviews
required to achieve a statistical sample.
Toll-Free Telephone Access
Reduced During the 2009 Filing Season (Reference No. 2009-40-127)
During the 2009 filing season, the IRS did not achieve
several of its key toll-free telephone assistance performance measurement
goals. Access to the toll-free telephone
assistors was lower than planned because of the high volume of calls regarding
the prior year’s Adjusted Gross Income, the Recovery Rebate Credit, and the Recovery
Act. In addition, the IRS’s main performance
measure for the toll-free telephone lines (the Customer Service Representative
Level of Service (Level of Service)), did not adequately reflect total call
demand and taxpayer experience when calling its toll-free telephone lines.
TIGTA recommended
that the IRS develop a Government Performance and Results Act of 1993[20] (GPRA) quantity outcome measure that
takes into account total taxpayer demand as well as the taxpayer experience
when calling the IRS’s toll-free telephone lines.
IRS
management disagreed with TIGTA’s
recommendations stating that they already have a suite of measures that are
utilized to assess the customer experience.
The IRS believes that any new quantity outcome measure would not
incorporate TIGTA’s characterization of total call demand. However, IRS management has undertaken a
review of their GPRA measures and plans to take into consideration the concerns
outlined in the report.
Although
the IRS has a suite of measures and reports the level of service externally to
taxpayers and other stakeholders, the average speed of answer is not reported. Of most importance to taxpayers and other
stakeholders is whether a taxpayer is able to speak with an assistor when
desired and how quickly a taxpayer speaks with an assistor.
Human Capital
Like many other
Federal Government agencies, the IRS has experienced workforce challenges over
the past few years, including recruiting, training, and retaining employees, as
well as an increasing number of employees who are eligible to retire. In addition, the IRS’s challenge of having
the right people in the right place at the right time is made more difficult by
many complex internal and external factors.
For example, future IRS leaders will need to be more proactive and think
on a larger scale, while the work performed by IRS employees continually
requires greater expertise.
Assessment of Actions to
Address the IRS’s Human Capital Challenge (Reference No. 2009-10-118)
While the IRS has
recently increased its focus on workforce issues, TIGTA believes that the
IRS will have to address several key areas to make progress in addressing its
human capital challenge. If the IRS is
not successful, it may not have the right people in the right place at the
right time to achieve its mission of providing taxpayers with top quality
service and enforcing the law with integrity and fairness to all.
Successfully
addressing the human capital challenge will be a long-term effort. Currently, the IRS faces a loss of leadership
and technical employees that could threaten its ability to provide American
taxpayers with the service they have come to expect. Today, the IRS has approximately 106,000
employees, including 9,100 managers.
However, more than half of the IRS’s employees and managers have
reached age 50, and 39 percent of IRS executives are already eligible for
retirement. To fill projected shortages
in leadership ranks, the IRS has stated that it must recruit one manager a day
for the next ten years. Furthermore, the
rate at which new recruits are leaving the IRS during the first and second year
of employment has increased since FY 2005.
The pending loss of institutional knowledge and expertise at all levels
and the challenge of retaining a highly skilled workforce increase the risk
that the IRS may not be able to achieve its mission.
The IRS is
currently taking significant actions to address workforce issues, such as the
creation of the IRS Commissioner’s Workforce of Tomorrow Task Force and
the incorporation of human capital strategies and high‑level measures in
the IRS’s 2009–2013 Strategic Plan.
However, TIGTA audits show that the IRS will need to address four key
areas to make progress in addressing its human capital challenge. IRS executive management will need to:
1) lead the agency to act as "one IRS" to strategically address its human
capital issues;
2) balance the need for a more strategic focus on human capital issues with the
need to continue addressing day-to-day issues that affect the
IRS workforce; 3) evaluate the success of human capital initiatives and
make adjustments as necessary; and 4) build upon the momentum gained
through the IRS’s recent emphasis on human capital issues.
Specifically, TIGTA’s previous audits found that
the IRS lacked comprehensive agency-wide information on the skills of its
employees in mission-critical occupations and that the IRS had not determined
the overall leadership strength of each operating division. In addition, the IRS did not have an
agency-wide recruitment strategy, and substantial progress had not been made in
developing and implementing an agency-wide process to consistently and
accurately project future human resource needs.
While the IRS is
currently taking significant actions to focus on human capital issues,
including actions to address TIGTA’s prior recommendations, there is much work
ahead.
Due to the importance of human capital management to the accomplishment
of the IRS’s mission, TIGTA will continue to monitor the IRS’s progress in
addressing this challenge.
TIGTA
made no recommendations in this report; however, key IRS management officials reviewed it prior to issuance and
agreed with the facts and conclusions presented.
Erroneous and Improper
Payments
As
defined by the Improper Payments Information Act of 2002,[21] an improper payment is any payment that should not have been made or that was made
in an incorrect amount (including overpayments and underpayments) under
statutory, contractual, administrative, or other legally applicable
requirements. It includes any payment to
an ineligible recipient, any payment for an ineligible service, any duplicate
payment, payments for services not received, and any payment that does not
account for credit for applicable discounts. For the IRS, improper and erroneous payments
generally involve improperly paid refunds, tax return filing fraud, or
overpayments to vendors or contractors.
More Progress Is Needed to
Reduce the Millions Paid in Interest on Improperly Frozen Refunds (Reference
No. 2009-30-106)
The IRS issues millions of refunds worth billions of dollars
to taxpayers each year through its automated and manual systems. The IRS’s inability to promptly resolve some
accounts with a large dollar refund freeze (a freeze of a taxpayer’s account
that has a filed tax return and a credit balance of $10 million or more) can adversely affect
taxpayers who may need the refunds to help meet their financial
obligations. These delayed actions may
also negatively impact the IRS’s mission of providing top-quality customer
service, in addition to costing the Federal Government millions of dollars in
additional interest.
TIGTA
recommended that the IRS coordinate with its appropriate functional areas and
follow through with implementing the prior recommendations to: 1) properly implement computer system modifications
to provide alerts to review large dollar frozen taxpayer accounts for credits
that can be released and to systemically release the freeze on accounts when
credits fall below the large dollar refund freeze threshold; 2) ensure
procedures for processing large dollar frozen refunds adequately address common
issues that arise and delineate responsibilities of the various functions that
are most involved with the processing and monitoring of these taxpayer
accounts; and 3) ensure training materials cover the procedures for processing
large dollar frozen refunds.
IRS management
agreed with TIGTA’s recommendations and has taken or plans to take appropriate
corrective actions.
Increased Automated
Controls Could Further Improve Accountability Over Manual Refunds (Reference
No. 2009-40-131)
During
2007, the IRS issued approximately 184,000 manual refunds totaling over
$1.5 billion to individual taxpayers, and approximately 70,000 manual refunds
totaling almost $32 billion to business taxpayers. Due to inaccurate and incomplete data, and
data that are
not always maintained by the IRS, neither the IRS nor its oversight
organizations are able to perform systemic analyses to identify erroneous
manual refunds. Given the large dollar
amounts involved, this could result in a significant loss of Federal Government
revenues.
TIGTA
recommended that the IRS ensure that the identification number of the manual
refund requestor is not overridden on the electronic data file and that the requestor’s
employee identification number is captured in electronic data files for all
manual refund transactions. TIGTA also
recommended that the IRS should establish a standardized computer record that
includes key information on manual refunds processed through the Secure Payment
System and establish a process to regularly obtain the electronic data file for
use in monitoring the program. To
increase accountability, the IRS should develop a process to provide for
systemic managerial approval. In the
interim, the IRS should capture the identification number of the managerial
Approving Official in the electronic data files.
IRS
management agreed with TIGTA’s recommendations and they plan to take
appropriate corrective actions, contingent on funding availability.
Contracting Officer’s
Technical Representatives Effectiveness Over Contracts (Reference No.
2009-10-139)
The COTR workforce is a key internal control to ensure that
the contractor is meeting the Government’s interest in terms of providing
deliverables that are: of high quality,
complete, timely, and cost effective.
TIGTA determined that the IRS’s contract administration was
ineffective. As a result, the IRS cannot
ensure that payments were made only to contractors who performed in accordance
with contract terms and conditions and that taxpayer dollars are not being
misspent.
TIGTA
recommended that the IRS: 1) identify
all IRS employees performing COTR-related duties and ensure that they are
formally delegated authority by the responsible contracting officer,
appropriately trained, and certified in accordance with Federal acquisition
requirements; 2) ensure supervisors are knowledgeable of the contract oversight
requirements and that they evaluate all aspects of their employees’ COTR
responsibilities; and 3) ensure that consistent ongoing on-the-job support is
provided for newly hired/less experienced COTRs. TIGTA also recommended that the IRS
reevaluate the current approach to expand the reviews of COTR contract files to
ensure that reviews are routinely performed, accurate, and that complete
documentation is received, verified, and retained to support the contractor’s
billed expenses.
IRS management
agreed with most of TIGTA’s recommendations and plans to take appropriate
corrective actions. The IRS did not
agree to revise the yearly performance evaluation process because of
contractual issues in the collective bargaining agreement. TIGTA recognizes the legitimate concerns the
IRS has raised with regard to evaluating the performance of the COTRs; however,
despite these concerns, the IRS could attempt to negotiate different terms in
the next collective bargaining agreement in an effort to address TIGTA’s
concerns.
Taxpayer Protection and
Rights
The IRS
continues to place increased emphasis on tax compliance activities, such as
better-identifying corporations and individuals who fail to report income or do
not pay what they owe. However, all
collection efforts must be balanced against the rights of taxpayers to receive
fair and equitable treatment, both in the assessment of taxes and in all
initiatives undertaken to collect open account balances. In summary, all collection efforts must
ensure that taxpayer rights are protected.
Increased Oversight Is
Needed to Prevent Inadvertent Disclosure of Personally Identifiable Information
(Reference No. 2009-30-059)
In
November 2007, the Federal Trade Commission reported that, for the eighth year
in a row, identity theft was the number one consumer complaint nationwide and
that each year it affects more than 10 million Americans. Consumers have lost more than $45 billion to
identity thieves. Taxpayers need to be assured that the IRS
is taking every precaution to protect their private information from
inadvertent disclosure.
TIGTA
recommended that the IRS establish authority and responsibility at the national
level for the disposal and destruction of sensitive but unclassified (SBU)
waste and personally identifiable information (PII) and establish policies and
procedures to address internal control weaknesses. The IRS should ensure that all SBU waste
contracts include the Federal security requirements for SBU waste/PII disposal
and destruction. Additionally,
improvements to oversight and management of SBU waste disposal contracts should
include standardization of critical elements and the creation of a national
database of all IRS facilities, the contracts covering SBU waste disposal, and
the contractors that serve them. Furthermore,
the IRS should provide complete, updated, and accurate guidance and education
to all IRS management, employees, and contractors involved in any aspect of the
collection, disposal, or destruction of SBU waste and PII.
IRS management agreed with TIGTA’s recommendations
and has taken or plans to take appropriate corrective actions.
Inadequate Management
Information Has Adversely Affected the Acceptance Agent Program (Reference No.
2009-40-087)
The purpose of the Individual Taxpayer Identification Number
(ITIN) is to provide alien individuals, whether or not they reside in the
The primary
means by which the IRS regulates Agents are the application screening process
and the monitoring program. The volume
of ITINs is growing, increasing the risk of fraudulent tax returns using ITINs. Inadequate screening and monitoring increase
the potential for lost revenue resulting from actions of unscrupulous Agents.
TIGTA
recommended that the IRS ensure that the IRS’s management information system is
modified to generate periodic and regular reports, followed by the development
of procedures and internal controls to monitor the Acceptance Agent
Program. Sufficient resources should be
used to make certain all validations are completed and qualification checks
passed before an application is accepted.
Compliance checks should be automated.
In addition, TIGTA recommended that sufficient staffing be provided to
review the documents that support the Forms W-7, Application for IRS Individual
Taxpayer Identification Number, submitted by Agents.
IRS management agreed
with TIGTA’s recommendations and plans to take appropriate corrective actions.
Effectiveness of the
Process to Ensure Accuracy of Combat Zone Indicators (Reference No.
2009-40-138)
In
recognition of the dangers that members of the military face and the sacrifices
they make on behalf of the
TIGTA
recommended that the IRS develop processes to distinguish military taxpayers
from civilian taxpayers, properly identify individuals who are in the military
that file a joint tax return, and
ensure Combat Zone indicators are properly reversed. TIGTA also recommended that the IRS
discontinue providing the option to self-identify by annotating a tax
return. Further, TIGTA recommended that
the IRS review the accounts of nonfilers with inaccurate indicators to
determine if notification or compliance actions are needed, identify and
resolve unpostable records from the Department of Defense, validate Combat Zone
service at the time an individual self-identifies, and develop a secure
fillable form with the required data fields to improve electronic
self-identification.
IRS
management agreed with most of TIGTA’s recommendations; however, it disagreed
with the recommendation to develop a process to distinguish military taxpayers
from civilian taxpayers, indicating that the IRS has the ability to distinguish
between military and civilian taxpayers.
TIGTA acknowledges that the IRS can identify military individuals via
the information received monthly from the Department of Defense. However, as the report stated, the IRS uses
the same indicator for both military and civilian taxpayers. Once this indicator is set on the accounts of
civilian taxpayers, it could allow civilian taxpayers to inappropriately
exclude income without action by the IRS, because the IRS will not review
accounts with unreported income if a Combat Zone indicator is present.
Processing Returns and
Implementing Tax Law Changes During the Tax Filing Season
Each filing
season tests the IRS’s ability to implement tax law changes made by
Congress. It is during the filing season
that most individuals file their income tax returns and call the IRS with
questions about specific tax laws or filing procedures. Correctly implementing tax law changes is a
continuing challenge because the IRS must identify the tax law changes; revise
the various tax forms, instructions, and publications; and reprogram the
computer systems used for processing returns.
Changes to the tax laws have a major effect on how the IRS conducts its
activities, what resources are required, and how much progress can be made on
strategic goals. Congress frequently
changes the tax laws. Thus, some level
of change is a normal part of the IRS environment. However, certain types of changes can
significantly affect the IRS in terms of the quality and effectiveness of its service
and in how taxpayers perceive the IRS.
2009 Filing Season
Implementation (Reference No. 2009-40-142)
Each year, tax
law changes create challenges for both the IRS and individual taxpayers. Moreover, the 2009 filing season presented
additional challenges due to the passage of three significant tax laws in 2008
and 2009 after the filing season had started.
Through May 29, 2009, the IRS had received more than 133.6 million
individual tax returns. Of those, 91.7
million were electronically filed and 41.9 million were filed on paper.
One of the
challenges facing the IRS involved administering revisions to the
First-Time Homebuyer Credit (FTHC). At
the time of TIGTA's review, the IRS had received more than 1.1 million tax
returns on which taxpayers were allowed more than $7.8 billion in FTHCs. Because of different rules regarding the
repayment of the credit, the IRS established special processing code "H" to
assist computer programs in distinguishing FTHC claims for homes purchased in
calendar year 2009, from homes purchased in calendar year 2008. This code should have been recorded only when
FTHC claims show the home is purchased in calendar year 2009.
In limited
testing of returns with the FTHC, TIGTA found that the special processing code
was not always recorded accurately. We
reviewed the purchase dates shown on the 47,276 e-filed returns and found that
93 percent (43,967) did not have their IRS accounts properly coded. Since these taxpayers purchased their homes
in calendar year 2009, they generally should not be required to repay the FTHC
but may eventually be incorrectly identified as being liable for repayment of
the credit. Taxpayers may be burdened by
inaccurate notices and improper collection attempts if the IRS cannot
accurately identify which credits must be repaid.
TIGTA
recommended that the IRS ensure that special processing code "H" is accurately
used on taxpayer accounts by identifying previously processed tax returns that
were not coded accurately and ensuring subsequently processed tax returns are
properly coded.
IRS management
disagreed with this recommendation, stating that they have gone to considerable
lengths to mark accounts with the year of purchase and the dollar value of the
credit issued, and intend to track this information for taxpayers who are
required to pay back the credit. As the
IRS determines what compliance activities will be conducted, it will validate
the information it has in order to ensure that only those taxpayers who have
not met their responsibilities are contacted.
This will include ensuring that the date of purchase was captured
accurately.
Despite IRS
management’s assertion that the IRS went through considerable lengths to mark
accounts with the year of purchase and to track such information in determining
if recapture is required, TIGTA’s review of electronically filed returns found
that 93 percent did not have their accounts properly coded. As a result, TIGTA initiated an audit that
will evaluate the effectiveness of the IRS’s efforts to distinguish between
filers claiming the credit for a purchase in 2008 versus a purchase in 2009.
Assessment of IRS Stimulus
Payment Recovery Payment Efforts (Reference No. 2009-40-129)
The Recovery Rebate Credit is provided to those eligible
individuals who may not have received an economic stimulus payment or who are
entitled to an additional credit.
Overall, the IRS successfully planned for the implementation of the Recovery
Rebate Credit. The IRS issued more than
$96 billion in advanced economic stimulus payments to more than 119 million
individuals in 2008, and approximately $8.5 billion in Recovery Rebate Credits
to almost
21 million taxpayers as of April 17, 2009.
The IRS was able to achieve the intent of Congress by providing billions
of dollars to millions of Americans.
TIGTA recommended
that the IRS issue recovery payments to individuals who did not receive the Recovery
Rebate Credit to which they were entitled as a result of programming and other
errors.
IRS
management agreed with the intent of TIGTA’s recommendations and is currently
reviewing the data provided by TIGTA.
The IRS plans to provide appropriate taxpayer relief, if warranted,
based on the results of the review.
Inadequate Data on Paid
Preparers Impedes Effective Oversight (Reference No. 2009-40-098)
More than half of
all tax returns filed are prepared by paid preparers. However, the
IRS cannot determine the population of preparers or if the preparers are
compliant with their own tax obligations as well as all tax laws and
regulations. Tax return preparers
have a significant effect on taxpayer compliance. A unique identifying number to
control each preparer and an effective management information system are
necessary for the IRS to facilitate tax administration and provide effective
oversight of preparers.
TIGTA recommended
that the IRS: 1) establish a requirement
that paid preparers be compliant with their own Federal tax filing obligations
in order to be allowed to prepare tax returns for others for a fee; 2) revise
the target completion date for its study on requiring preparers to use a single
identification number when filing tax returns; 3) develop a method to enforce I.R.C.
Section 6695(c), which imposes a penalty on preparers who do not
provide an identification number on tax returns they prepare; and 4) develop a
comprehensive data management system that allows the IRS, at a minimum, to
determine the population of preparers by eliminating discrepancies between its
various computer systems.
IRS management agreed in principal with
the first and second recommendations and believes these recommendations will be
addressed by the Commissioner’s Tax Return Preparer Review team as well as a
guidance project being conducted in coordination with the Department of the
Treasury. IRS management agreed with the
third and fourth recommendations and plans to take appropriate corrective
actions.
IRS Plans for Modernizing
Tax Return Processing (Reference No. 2009-40-130)
In 2008, the IRS
received 156.3 million individual income tax returns of which 66.4 million
(42.5 percent) were paper-filed. The IRS
has devoted significant resources to identify ways it could modernize its
method for processing paper tax returns, but has had no success. Mandating electronic filing (e-filing) for
paid preparers and developing processes to convert paper returns into an
electronic format would significantly reduce paper filings, processing costs,
and error rates, with the added benefit of faster tax refunds and more-accurate
tax returns for taxpayers.
TIGTA
recommended that the IRS pursue implementing successful processes followed by
States that use scanning technology to convert paper-filed tax returns prepared
by individuals using a tax preparation software package into an electronic
format. TIGTA also made a legislative
recommendation to consider mandating e-filing for all paid preparers.
IRS management
agreed with the recommendation and plans to take appropriate corrective
action. The IRS also agreed with the
legislative recommendation and stated that it is currently under consideration by
the Treasury, and is included in the President's 2010 budget request.
Procedures to Address
Noncompliance with Reporting Requirements for Contributions of Motor Vehicles
Are Inadequate (Reference No. 2009-30-116)
The legitimacy of the values placed
on donations of motor vehicles has recently been questioned by the IRS and
Congress. As a result, Congress passed
legislation limiting deductions and adding reporting requirements. Individual taxpayers are required to file Form
1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, or a written
acknowledgment from the charity, in addition to Form 8283, Noncash Charitable Contributions, if their charitable deductions claimed for donated motor vehicles
exceed $500. Currently, taxpayers who
may not be entitled to deductions for charitable contributions of motor
vehicles are reducing their tax liabilities, which could result in a loss of
revenue to the Federal Government and inequitable treatment of taxpayers.
TIGTA
recommended that the IRS ensure that: 1)
returns without substantiation for charitable contributions of motor vehicles
are adjusted pursuant to math error authority; 2) procedures are developed to
match the information reported by charities on Forms 1098-C with the
information reported on taxpayers’ returns; and 3) outreach, educational
material, and other methods be used to ensure charitable organizations comply
with the requirement to file Form 1098-C with the IRS for each donated motor
vehicle with a value in excess of $500.
IRS
management agreed with one of the three recommendations. The IRS agreed to process returns without
substantiation for charitable contributions of motor vehicles pursuant to math
error authority. IRS management did not
agree to match the information reported by charities on Forms 1098-C with the
information reported on taxpayers’ returns.
The IRS believes the noncash contribution review is better suited for
the Correspondence Examination Program, a program in which tax returns are
examined. In addition, IRS management believes they have a substantial outreach
program for motor vehicle donations and have completed what is being
recommended.
However,
TIGTA believes matching the information reported by charities with the
information on taxpayers’ returns would more effectively identify potential
underreporting by taxpayers claiming undue deductions for motor vehicle
donations. Matching it could also facilitate
the imposition of penalties on charities that do not provide the required
documentation to donors and the IRS.
TIGTA also believes the IRS has had more than two years to make
charities aware of the change in the law, but the analysis still identified an
approximately 60 percent noncompliance rate.
The deficient cases in the samples were all filed after the IRS outreach
was available. Furthermore, because the
IRS is not identifying noncompliant charities and imposing penalties when the charities fail to
submit the required documentation, compliance by charities may not improve.
Improving Performance
and Financial Data for Program and Budget Decisions
While the IRS
has made some progress in this area, it lacks a comprehensive, integrated
system that provides accurate, relevant, and timely financial and operating
data that describes performance measures, productivity, and associated program costs. In addition, the IRS cannot produce timely,
accurate, and useful information needed for day-to-day decisions, which hinders
its ability to address financial management and operational issues in order to
fulfill its responsibilities. TIGTA has
continued to report that various IRS management information systems are
insufficient to enable IRS management to measure costs, determine if
performance goals have been achieved, or monitor progress in achieving program
goals.
Improved Project Management
Is Needed to Measure the Impact of Research Efforts on Tax Administration
(Reference No. 2009-10-095)
IRS
management relies on research programs to deliver information that is integral
to improving performance on strategic goals and objectives. However, IRS research management has not
developed and implemented effective business measures and project management
processes to provide pertinent data about whether IRS research efforts achieved
established program objectives. This is
especially significant because the IRS spent more than $93.2 million on
research in Fiscal Year 2008, but cannot effectively assess the impact its
research efforts had on tax administration.
TIGTA
recommended that the IRS develop and implement effective business measures to
better-assess whether its research efforts achieve program objectives and to
show the impact on tax administration.
TIGTA also recommended establishing research standards and practices to
ensure basic project information is captured, tracked, and monitored to allow
for consistent and comparable reporting of IRS research performance.
IRS
management agreed in principle with TIGTA’s recommendations, but offered
alternative corrective actions for all three recommendations. The Servicewide Research Council (a high-level
leadership group for sharing information, coordinating cross-cutting activities
and resolving procedural issues that affect research efforts across the entire
IRS) plans to consider developing appropriate business measures and explore
whether standardized measures are desirable.
The Council also plans to look for opportunities to develop consistent
definitions of research projects and establish an appropriate set of
documentation standards and practices.
Some IRS research units were already in the process of developing
workload measures and redesigning tracking systems.
While
recognizing the value of having the Servicewide Research Council discuss the
establishment of business measures, TIGTA is concerned that IRS management has
not made a commitment to establishing business measures. The Servicewide Research Council serves as a
forum for exchanging ideas and coordinating cross-cutting activities, not as a
standards-making body. The Internal
Revenue Manual states the Office of Research, Analysis, and Statistics is
responsible for providing functional leadership, guidance, and support to the
IRS Research Community on research standards and practices to ensure
consistency and comparability of performance between the various research
programs.
In this
environment of increased government accountability and transparency, TIGTA
believes it is critical for IRS management to be able to report the benefits
and impact of IRS research resources ($93.2 million spent in FY 2008)
beyond just internal IRS customer satisfaction.
Additional Efforts in Space
Planning Are Needed to Address Planned Staffing Increases (Reference No.
2009-10-107)
As
a result of its ongoing space reduction efforts, the IRS has reduced its office
space seven percent since 2004. However,
the IRS still faces a number of challenges in its ongoing efforts to
effectively manage its space and associated costs. In February 2009, the IRS actively began
planning for a hiring initiative which could increase the non-campus staffing
by as much as nine percent over the next two years. In addition, long-term space planning needs
to consider the impact of workstation sharing, which could result in $6 million
in future annual rent savings.
TIGTA recommended that the IRS develop an overall estimate of
planned hiring by location and compare this estimate to existing space and
develop a comprehensive national policy regarding workstation sharing for
flexi-place employees. TIGTA also
recommended the IRS reevaluate all significant in-process and planned space
reduction projects based on the additional space needs created by the planned
hiring initiative, perform a reassessment of the projected long-term space
requirements for non-campus facilities, and revise the IRS’s overall space
utilization goal.
TIGTA further recommended that the IRS develop procedures
requiring that future building-level space needs assessments consider the
impact of workstation sharing and be periodically reconciled to agency-wide
projected staffing levels. Finally,
TIGTA recommended that the IRS reinforce the need to perform periodic
validations of space data, expand guidance regarding these evaluations, and
ensure that its project tracking system is updated to include all key
information for significant in-process projects.
IRS
management agreed with TIGTA’s recommendations and has taken or plans to take
appropriate corrective actions.
Taxpayer Advocacy Panels
(Reference No. 2009-10-121)
The Taxpayer
Advocacy Panel (Panel) was established in 2002 to listen to taxpayers, identify
"grass roots" issues, and make recommendations for improving the customer
service provided by the IRS. The Panel
provides a valuable service to the IRS and to taxpayers. However, the Taxpayer Advocate Service (TAS) needs
to ensure better use of its resources by providing a better balance between the
costs of administration and staff used to support the Panel and the Panel’s
ability to help improve service to taxpayers.
Given the current emphasis on accountability for Federal programs, it is
important for the National Taxpayer Advocate (NTA) to ensure that TAS resources
are being efficiently spent and the Panel is at an
optimal size.
TIGTA recommended that the IRS: 1) revise the staff time tracking system to help evaluate whether resources are being used efficiently; 2) reevaluate the Panel’s structure and size to ensure an appropriate balance between TAS staff and budgetary resources used to support the Panel; 3) reevaluate the roles of the TAS staff assigned to the Panel and establish guidance to ensure that the Panel functions independently; 4) revise the charter to accurately reflect the roles of Panel members; 5) establish and implement a process to validate data in the Panel database and correct the erroneous entries TIGTA identified; 6) establish a process to follow-up with the IRS on the recommendations planned for future implementation; 7) establish formal guidance for conducting tax compliance checks of Panel members; and 8) develop procedures to verify that licensed tax practitioners serving on the Panel are in good standing with the IRS.
IRS management
agreed with most of TIGTA’s recommendations.
The IRS did not fully agree to reevaluate the Panel’s size to determine
the optimal structure of the Panel’s membership, indicating there was no
compelling data that the current structure is flawed, and that it would not be
cost-effective to make such changes. In
addition, the IRS noted that any changes to the Panel require approval by the
Secretary of the Treasury and the Commissioner.
In the current
environment of increased accountability in government, TIGTA believes that it
is important for the IRS to evaluate this program and identify any potential
changes that could reduce costs and improve efficiency. Because no new studies have been performed
since the Panel was established in 2002, the recommendation to reevaluate the
structure and size of the Panel and the TAS staff supporting the Panel continues
to be valid.
PROTECT THE INTEGRITY OF
Tax Administration
|
T |
IGTA’s mission
was enhanced on October 14, 2008, when the President signed Public Law 110-409,
the Inspector General Reform Act of 2008, which lifted the statutory
prohibition against TIGTA providing physical security to protect IRS employees
against external threats.
Subsequent to
passage of this important legislation, TIGTA developed the Armed Escort
Program. The Armed Escort Program allows IRS employees to request that
TIGTA special agents escort them when an IRS employee requires personal contact
with a taxpayer who has been designated by the IRS as a Potentially Dangerous
Taxpayer, is the subject of an open assault investigation, an open threat
investigation, or the IRS employee believes such contact with the taxpayer
poses a dangerous situation. TIGTA expects the necessity for armed
escorts to increase over time as the IRS places additional focus on collection
and enforcement activity and shifts away from using private debt collectors to
collect delinquent tax debt and reassigns that function to IRS employees.
By providing armed escorts, TIGTA is able to provide a safe environment for the
IRS employee to conduct tax administration functions. TIGTA initiated its Armed Escort Program on
April 1, 2009.
TIGTA’s Armed
Escort Program is a seamless extension of its assault and threat
investigations. When a taxpayer threatens
or assaults an IRS employee, TIGTA responds and an investigation ensues. As part of the investigation, a TIGTA special
agent will contact the taxpayer and conduct a law enforcement interview. Depending upon the facts and outcome of the
investigation, should an IRS employee again need to contact the taxpayer, TIGTA
will provide an armed escort for the IRS employee when meeting with the
taxpayer.
Prior to
initiating the Armed Escort Program, TIGTA developed a specialized training
program specifically tailored to prepare its special agents to manage volatile
encounters with individuals who may have a violent anti-government or anti-tax
viewpoint and pose a threat to IRS employees who are attempting to conduct
official IRS business. TIGTA was able to
develop and present this essential training to almost 100 percent of its
front-line special agents before the commencement of armed escort actions.
TIGTA expects
the necessity for armed escorts to increase over time, as the IRS places
additional focus on collection and enforcement activity. Should violence ensue, TIGTA special agents
are trained, ready and able to address the situation as Federal law enforcement
officers. The value of securing the safety of IRS personnel during the course
of their official duties is immeasurable.
Since the April
1, 2009, inception of the Armed Escort Program, TIGTA has conducted 23 armed
escort activities.
TIGTA’S INVESTIGATIVE PERFORMANCE MODEL
TIGTA pursues
three mission-critical investigative areas:
employee integrity, employee and infrastructure security, and external
attempts to corrupt tax administration.
These focus areas, each subdivided into three components, define and
guide the Office of Investigations (OI) in its decision-making process
regarding investigative resources and provides a conceptual and visual
depiction of TIGTA’s investigative jurisdiction for its employees and
others.
The
model has shown its durability, usefulness, and stamina. Over time, even through strategic reassessments
and changes in administration, the model has anchored OI and provided the
stability necessary for increased success.
The model has shown field agents and supervisors which investigations
are critical to pursue. The model has
also shown OI senior leadership what areas need evaluation or budgetary
assessment.
For example, the
model identified increasing dangers from procurement fraud and threats against
IRS facilities and personnel. In turn,
OI senior leadership has sought to increase the scale of OI involvement in the
mission-critical investigative areas of employee and infrastructure security,
fraud and other related crimes, external attempts to corrupt tax administration,
and threat and assault investigations.
Procurement Fraud
Contract fraud can be defined as the
corruption of the Federal acquisition process, either by internal or external
parties, in such a way that the Government is harmed through overcharges,
unallowable fees, and/or defective products or services, as it seeks to use
third party vendors to meet organizational needs.
Contract expenditures constitute nearly
20 percent of the IRS’s annual budget of approximately $12 billion. During FY 2008, the IRS spent approximately
$1.9 billion to procure various goods and services. Significantly, the vast majority of IRS
acquisition activities concern the development, implementation and maintenance
of over 450 data systems used to conduct its tax administration
responsibilities.
TIGTA investigates a wide variety of
contract fraud allegations. The most
common ones are:
Ø Product Substitution: This occurs when the contactor substitutes one
product for another (usually of lesser value) and the Government pays for the
higher-valued item.
Ø
Labor Cost Mischarging: This
occurs between cost-reimbursement and fixed-price contracts in which the
contractor "shifts" costs (usually in the form of labor hours) from the
fixed-price contract (usually with another government or private sector entity)
onto the government-held cost-reimbursement contract. Additionally, a contractor can mischarge the Government
by including unallowable costs (such as alcohol or lobbying expenses) within
overhead rates or fictional expenses in order to pass along these costs to the Government.
Ø Defective Pricing: This occurs when the contractor submits inaccurate
cost and pricing data to the Government.
This is often "hidden" from view until an audit or contract closeout
activity identifies the actual costs the contract incurred.
Ø Antitrust Violations: This occurs when contractors agree to enter into
collusive bidding or price fixing in order to limit competition and place the Government
at an unfair disadvantage in obtaining the most competitive price. These activities results in higher costs for
the Government and damage the public’s confidence in the fairness of the
procurement process.
Ø
False
Claims Act Qui Tam Provisions: The False Claims Act (FCA)[22] provides for liability for triple damages
and a penalty from $5,500 to $11,000 per claim for anyone who knowingly submits
or causes the submission of a false or fraudulent claim to the
This law, first
passed during the Civil War, includes an ancient legal device called a "Qui
Tam" provision—from the Latin phrase meaning "he who brings a case on behalf of
the king as well as for himself." This
allows for a private person called a "relator" to bring a lawsuit on behalf of
the
The FCA has a
very detailed process for the filing and pursuit of these claims. The complaint must be filed "under seal,"
which means that all records relating to the case must be kept on a secret
docket by the Clerk of the Court. Copies
of the complaint must be given only to the Department of Justice (DOJ),
including the local Assistant United States Attorney (AUSA) and to the assigned
judge of the District Court. The
complaint and all other filings in the case remain under seal for a period of
at least 60 days. At the conclusion of
the 60 days, DOJ must, if it wants the case to remain under seal, file a motion
with the District judge showing "good cause" as to why the case should remain
under seal. Typically, these motions
request an extension of the seal for six months at a time.
In addition to
the complaint filed with the District Court, the relator must serve upon DOJ a
"disclosure statement" containing substantially all evidence in their
possession about the allegations in the complaint. This disclosure statement is not filed in any
court and is not available to the named defendant.
The DOJ attorney
assigned to a Qui Tam complaint must diligently investigate the allegations of
violations of the FCA. Often this will
involve multiple law enforcement organizations such as TIGTA, the Postal
Inspection Service, and the Federal Bureau of Investigation. In some cases where State agencies are the
victims, the States’ attorneys general will participate in the investigation
with the Federal agencies.
The investigation will often involve
specific investigative techniques, including subpoenas for documents or
electronic records, witness interviews, or compelled oral testimony. Government participation in these lawsuits
generally results in the relator receiving 15 to 25 percent of any financial
settlement. According to DOJ information,
of the $1.4 billion in settlements and judgments received in 2005, $1.1 billion
is associated with suits initiated by whistleblowers under the FCA’s Qui Tam provisions.
The following case study is an example of a
procurement fraud investigation TIGTA conducted:
According to the
evidence presented at trial, in 1995 the IRS entered into a contract with a
company to repair laptop computers used by the IRS throughout the country. The contract called for the company to charge
the IRS a fixed hourly rate plus the actual cost of parts used in the repairs. The contractor subcontracted most of the work
to RGI.
Testimony showed that RGI contracted with a third party to perform certain
repairs to the IRS laptops. Instead of
billing the actual cost of the third party’s work, John Rachel and RGI
artificially inflated these costs by claiming that a shell company, CSM, had
actually performed this work. When
questioned about these transactions, Rachel and RGI provided the IRS with phony
invoices reflecting that the work had been done by CSM at prices much higher
than was actually charged by the true vendor. Trial testimony showed that the IRS paid an
additional $428,532 under the contract as a direct result of the fraudulently
inflated invoices.
On March 16, 2009, a final judgment against RGI, CSM, and John Rachel awarded
the U.S. Government $1,285,597 in treble damages and a civil penalty of
$385,000.
Threats and Assaults
Against Internal Revenue Service Facilities and Personnel
TIGTA works to ensure
that the IRS operates in an environment free from threats, assaults, and
critical infrastructure sabotage. To
accomplish this mission, TIGTA relies on its Criminal Intelligence Program
(CIP) for comprehensive intelligence gathering capabilities to combat the
activities of individuals and groups who pose a potential threat to the
IRS.
The CIP obtains
and analyzes intelligence information by leveraging the resources of the law
enforcement and intelligence communities.
The CIP has access to intelligence information and various databases
through its presence on the national Joint Terrorism Task Force and local Joint
Terrorism Task Forces throughout the county.
The CIP researches, analyzes and disseminates intelligence information
in support of mission requirements.
TIGTA is
uniquely positioned, through its work with potentially dangerous taxpayers and
intelligence gathering, to curtail or prevent criminal activity targeted at the
IRS’s efforts to collect revenue. For
example, special agents of the CIP previously learned that a large war-tax
protest organization was organizing various anti-war/anti-government groups to
participate in a blockade of the IRS headquarters. The CIP special agents worked with their law
enforcement counterparts and IRS staff in an effort to minimize the disruptive
impact of the protest. Thirteen TIGTA
special agents were assigned to the protest to collect intelligence, monitor
the crowds, and to provide emergency response assistance, if necessary. During this event, approximately 300-400
people protested and attempted to block access to the entrances of IRS headquarters. Numerous protestors climbed over the
barricades, refused to adhere to law enforcement warnings, and attempted to
turn away IRS employees. Thirty-two
individuals were arrested as a result of this incident.
Employee Integrity
Investigations
IRS employee
misconduct negatively affects the image and mission of the IRS. TIGTA is charged with addressing IRS employee
misconduct. OI investigates allegations such
as extortion, bribery, theft, abusive treatment of taxpayers, false statements,
financial fraud, and unauthorized access (UNAX) to confidential taxpayer
information, including contractor misconduct and fraud.
UNAX is a persistent
vulnerability for the IRS and the Federal tax system. The IRS is entrusted with properly
maintaining and safeguarding sensitive taxpayer information, including
personally identifiable information—the loss or misuse of which could result in
identity theft and other fraudulent activity.
The Federal tax system is based on voluntary compliance, and public
confidence that the personal and financial information given to the IRS for tax
administration purposes will be kept confidential is essential to that
system. Even when unauthorized access
does not involve unauthorized disclosure of taxpayer information by an IRS
employee, unauthorized accesses undermine taxpayer confidence in the tax
administration system. OI has specific
programs to protect the privacy, integrity, and availability of this sensitive
information.
During this reporting period, OI
completed 959 employee integrity investigations, of which 270 were UNAX
investigations. Also, during the same
period, OI investigations
resulted in 23 criminal prosecutions and 680 administrative disciplinary
actions against IRS employees.
The following cases are
examples of IRS employee and contractor integrity investigations TIGTA
conducted during this period:
Albert Bront Charged with
Threatening to Assault and Murder Federal Law Enforcement Officers
On July 28,
2009, in
During the
execution of a search warrant at Bront’s residence, witnesses reported that
Bront said something to effect of "I’m going to kill you" to the agents. Bront later admitted to making the threats to
kill the agents and to knowing that the agents were the police.[25]
Bront threatened
to assault and murder two TIGTA Special Agents and one IRS Criminal
Investigation Division Special Agent.
Bront’s threat was made with the intent to intimidate the Special Agents
and retaliate against them for the performance of their official duties.[26]
Edith Squillace Charged
with Attempted Extortion
On July 8, 2009,
IRS employee, Edith Squillace, was charged with attempted extortion. Squillace was involved in a private-party
small claims court civil case in the amount of approximately $3,750. Squillace attempted to commit an act of
extortion by demanding that her victim abandon repayment of approximately
$3,750 of personal loans made to Squillace under the threat of an IRS audit. [27]
Frank Auerbach Charged with
Unauthorized Inspection of Tax Return Information
On April 29, 2009,
Frank Auerbach, an IRS employee, was charged in
IRS Employee Charged with
Injuring Government Property
On May 26, 2009,
IRS employee, Michael Hicks, was charged with injuring government
property. After having received a
complaint that someone had urinated in a freight elevator at the
During an
interview with a TIGTA special agent, Hicks admitted to urinating in the
elevator and stated that he did so because he felt he could get away with
it. Due to Hick’s urination, the IRS
incurred a deep cleaning expense of $4,626.25.[30]
Employee and
Infrastructure Security
Threats to and
assaults of IRS employees decrease the morale of IRS employees and affect the Federal
Government’s ability to collect tax revenue.
TIGTA protects revenue collection by investigating threats to IRS
employees, physical infrastructure, and information systems.
During this
reporting period, OI completed 588 employee and infrastructure security
investigations. These investigations
resulted in eight criminal prosecutions. Also, between April 1, 2009 and
September 30, 2009, 23 armed escort activities occurred.
The following case is an example of an employee
and infrastructure security investigation TIGTA conducted during this reporting
period:
John Barker Sentenced for
Mailing a Threatening Communication to the IRS
On August 11,
2009, John Barker was sentenced in
On Sunday, June
22, 2008, an envelope containing a white power and a threatening letter was
opened at the IRS processing center in
The postage used
to mail the threat letter was purchased at an
On July 21,
2008, Barker provided fingerprints and handwriting exemplars pursuant to a
subpoena. In addition, Barker provided a
written statement admitting he mailed the anthrax threat letter and explained
the white substance was baby powder.[35]
An examination
of the handwriting exemplar, threat letter and envelope, and fingerprints
provided by Barker revealed that Barker prepared the envelope and threat letter
and that the print on the envelope was made by Barker.[36]
External Attempts to
Corrupt Tax Administration
External attempts
to corrupt the administration of Internal Revenue laws diminish the IRS’s
ability to collect revenue and accomplish its core mission. TIGTA investigates these external attempts to
corrupt or impede the administration of Internal Revenue laws. Investigations in this area include:
- Taxpayers offering bribes to IRS
employees;
- Use of fraudulent IRS documentation;
- Phishing schemes;
- Impersonation of IRS officials (in
person, telephonically, or via the Internet); and
- Corruption of IRS programs or
operations through procurement or contractor fraud.
During this reporting period, OI
completed 365 external attempts to corrupt tax administration
investigations. These investigations
resulted in 35 criminal prosecutions.
The following cases are examples of investigations
of external attempts to corrupt Federal tax administration that TIGTA conducted
during this period:
Maxim Maltsev Arrested Upon
Arrival at
On April 29,
2009, Maxim Maltsev of
Maltsev is
charged with Conspiracy to Defraud the United States regarding a scheme, in
which he participated with co-conspirators to defraud the IRS and U.S.
taxpayers by fraudulently obtaining Federal income tax returns before they were
filed electronically with the
IRS. Without the permission of the taxpayers,
Maltsev and the co-conspirators fraudulently changed the income tax returns to
re-direct the tax refund payments to bank accounts controlled by him and other
co-conspirators.[39]
The IRS sponsors
a program known as "Free File," which is a free Federal tax preparation and
electronic filing program for eligible taxpayers. The IRS has approved 19 Free File affiliates
who provide online return preparation and e-filing with the IRS.[40] As
part of the conspiracy, Maltsev and his co-conspirators would engage in
phishing; that is, members of the conspiracy would create fake Web sites that
misrepresented themselves as accredited and authorized to electronically file
Federal tax returns. Maltsev and his
co-conspirators would advertise these bogus Web sites on the Internet through
various search engines and through unsolicited electronic mail.[41]
Maltsev and his
co-conspirators would receive Federal income tax returns prepared for
electronic filing by taxpayers who were misled by fraudulent Web sites or
electronic mail. The information was
changed to cause any refunds issued by the IRS to be sent to bank accounts
opened by Maltsev and other co-conspirators.[42]
Approximately 65
Federal income tax refunds, representing approximately $105,000, were illegally
diverted to accounts opened by Maltsev.
Those funds were withdrawn by debit and check cards and by automatic
teller machine[43] and cash withdrawals in the
Tu Ky Huynh,
also known as Tiffany Huynh, was sentenced on June 11, 2009, in
Huynh made a
false and fraudulent representation on Form 2848, Power of Attorney and
Declaration of Representation, that she was qualified to practice as a
Certified Public Accountant when she was not.[46]
Huynh also
prepared Federal tax returns listing various deductions, losses, and credits
that she knew the taxpayers were not entitled to. In doing so, Huynh willfully assisted each of
the taxpayers in the preparation of a false income tax return. The tax loss attributable to Huynh’s actions
was $106,292.[47]
On April 6,
2009, Lourdes Salazar-Velazquez was sentenced, in
Shannon Ford and Michael
Ford Charged in Fraud Scheme
On April 23,
2009, in
The investigation
uncovered information indicating Shannon Ford prepared three false tax returns
for victim Corey D. (Last name withheld
to protect his identity.) Investigators
also determined that Shannon Ford fraudulently negotiated one of the income tax
refund checks (for tax year 2004 in the amount of $5,437 payable to victim
Corey D.). Investigators recovered
photographic evidence of Shannon Ford depositing Corey D.’s falsely endorsed
2004 income tax refund check into her personal account at Members 1st
Credit Union. A review of the 2003, 2004,
and 2005 U.S. Individual Income Tax Returns prepared and filed by Shannon Ford
for victim Corey D. indicate that for each year, Ford, in the name of victim
Corey D., claimed a business expense to reduce or eliminate taxable income in
order to qualify for a refund. Each tax
return claimed a false loss on a Schedule C, Profit and Loss from Business,
which (a) eliminated or significantly reduced victim Corey D.’s income tax
liability and (b) created a fraudulent claim to the Earned Income Tax Credit (a
refundable tax credit) for each tax return.
Corey D. informed investigators that in the tax years 2003, 2004, and
2005, he did not operate any kind of business that could claim a loss on a tax
return. Corey D. further stated that he
did not authorize Shannon Ford to negotiate his income tax refund checks, did
not authorize Shannon Ford to change his address to Ford’s residence address,
and he had not seen nor signed the tax returns submitted for tax years 2003,
2004, and 2005.[50]
The investigation
identified similar fraudulent tax returns (false Schedule C forms) submitted to
the
During an
interview with investigators, Michael Ford admitted to recruiting at least one
co-worker to have his tax return prepared by Shannon Ford. Shannon Ford admitted to knowingly filing
false tax returns claiming refunds.[52]
On April 29,
2009, Nancy Hudak was charged in the United States District Court for the
Eastern District of California with unauthorized access to confidential
taxpayer information on a California Franchise Tax Board (FTB) computer. As a compliance representative for the FTB,
Hudak intentionally exceeded her authorized access, on 45 occasions, to
electronically stored Federal tax information provided to the California
Franchise Tax Board by the IRS.[53]
Man Pleads Guilty to
Conversion of Government Property
On May 20, 2009,
in
Jose Toro-Mendez Pleads
Guilty to Conversion of Funds Belonging to the IRS
On June 25,
2009, in
Vendel Matis Sentenced for
Making False Statements to the IRS
On June 26,
2009, in
Matis was
disbarred from the Virginia State Bar on or about May 24, 2001. Since being disbarred, Matis has never again
become a member of any other bar. On or
about March 31, 2003, Matis was suspended from representing taxpayers before
the IRS by IRS’s Office of Professional Responsibility.[59]
After Matis was
disbarred in 2001 and continuing through May 2004, Matis submitted to the IRS
90 Forms 2848, in which he falsely claimed to be a licensed attorney authorized
to represent taxpayers before the IRS. Matis
pleaded guilty to one count of making a false statement.[60]
Robert Stockton Sentenced
for Theft of Government Property
On July 20,
2009, Robert Stockton was sentenced to 18 months in prison and three years
supervised release for theft of government property.[61]
The Business
Office and Online Business Services promised its clients it would process their
payroll each payroll period, pay all Federal and State payroll taxes accurately
and consistently, prepare and file quarterly payroll tax returns, and prepare
all Internal Revenue Service Forms W-2, W-3 and 1099.[63]
In or about
December 2003,
The total amount
of money improperly withheld from payment to the IRS was $1.8 million.
Advancing the Oversight of
TIGTA’s Office
of Inspections and Evaluations (I&E), established in March 2008, provides
responsive, timely and cost-effective inspections and evaluations of IRS
challenge areas, providing TIGTA additional flexibility and capability to produce
value-added products and services for improving tax administration.
The Office has
two primary product lines: Inspections
and Evaluations.
Inspections:
·
Provide
factual and analytical information;
·
Monitor
compliance;
·
Measure
performance;
·
Assess
the effectiveness and efficiency of programs and operations;
·
Share
best practices; and
·
Inquire
into allegations of fraud, waste, abuse, and mismanagement.
Evaluations:
·
Provide
in-depth reviews of specific management issues, policies, or programs;
·
Address
government-wide or multi-agency issues; and
·
Develop
recommendations to streamline operations, enhance data quality, and minimize
inefficient and ineffective procedures.
The following summaries highlight some of
the significant activities the Office has engaged in during this six-month
reporting period:
American
Recovery and Reinvestment Act of 2009
The American
Recovery and Reinvestment Act (Recovery Act) was signed into law by the President
on February 17, 2009. The Recovery Act
is intended to jumpstart the economy, create or save millions of jobs, and
address many of the challenges facing our country.
Inspectors General are responsible for
reviewing agency performance and use of Recovery Act funds. Recovery Act reports produced by Inspectors
General are required to be forwarded to the Recovery Accountability and
Transparency Board (the Board). The Board
is responsible for coordinating and conducting oversight of Recovery Act funds
in order to prevent fraud, waste and abuse.
The Board is also charged with issuing specific periodic reports and
serving as a central repository for all Recovery Act-related Office of Inspector
General reports.
The Recovery Act
requires each Federal agency that receives Recovery Act funds to designate a
Senior Accountable Official for Recovery Act activities. Within TIGTA, that responsibility has been
assigned to the Deputy Inspector General for Inspections and Evaluations. The Deputy has overseen the development of
TIGTA’s Recovery Act work plan and reports on the completion of planned
activities and the amount of funds spent by TIGTA to complete those
activities. The Deputy Inspector General
also coordinates TIGTA’s activities with the Board.
The I&E
staff is administering the Board’s first coordinated survey of Agency
Contracting and Grants staff qualifications.
The results of this survey are due to be posted on Recovery.gov in November 2009.
Taxpayer Assistance
Centers
The IRS Wage and
Investment Field Assistance Office staffs 401 Taxpayer Assistance Centers
(TACs) in order to provide taxpayers with face-to-face assistance. About 2,100 employees staff the TACs and work
with taxpayers to resolve tax issues, answer tax law questions, make
adjustments to tax accounts, accept completed tax returns and payments,
establish payment agreements for qualified individuals who cannot pay in full,
prepare basic individual income tax returns, and provide various tax forms and
publications. In FY 2008, TAC employees
assisted approximately 6.9 million taxpayers.
Our on-site
inspections of 59 TACs revealed they generally complied with the policies
prescribed by Field Assistance senior staff.
The offices had the required signs listing the services offered,
provided adequate space, and stocked the required forms and publications. During the inspection, we noted the TACs were
clean, well organized, and appeared to run efficiently.
While on-site
and in subsequent discussion with Field Assistance managers, TIGTA learned that
the level of uniformed guard service provided varied from location to
location. At the time of TIGTA’s
inspection, only 181 locations had some type of on-site uniformed guard
service. This ranged from perimeter
security, which requires all visitors be screened upon entering the building,
to having a guard stationed in the actual TAC, or in some cases both. Of the 401 TACs, 220 (55 percent)
have no on-site guard service, unlike the Social Security Administration, which
has a policy of providing on-site guard service at its walk-in sites. Instead, the 220 TACs have a duress alarm
system monitored by local police or the Federal Protective Services.
For FY 2009, the
IRS expects to spend approximately $6 million for guard service in TACs
that are currently provided guard service.
The Physical Security and Emergency Preparedness staff estimates it
would cost $36.2 million to place one guard in each TAC for a full year
and up to $104.1 million to provide full screening at each location. TIGTA recognizes that on-site guard service
does not guarantee there will be no reportable incidents at the TACs; however,
TIGTA believes their presence may provide a significant deterrent effect and
result in a reduction in the number of incidents reported. The report was issued to the IRS on August
21, 2009.
TIGTA
recommended that the IRS reemphasize the need for each TAC manager to
fully understand the security measures in place in each office, and that the
Commissioner determine what security policy should be applied to walk-in
offices, and whether that should include a commitment to provide guard service
at each walk-in location through general building security measures or placing
a guard in the TAC office. IRS
management agreed with TIGTA’s recommendations and they issued a reminder
to reemphasize existing security measures and identified the security policy to
be applied to all TACs. IRS management plans
to assess the feasibility of providing guard service at each TAC by September
2010. TIGTA recognizes that implementing the suggested corrective
action is not a simple process, but is concerned that if not implemented
by January 2010, the IRS will enter a new filing season with largely the same
conditions and risks as in the last filing season.
Reference No. 2009-IE-R003
Awards and Special Achievements
Special Agent
Edward "Bo" Bozak Presented
Certificate of
Meritorious Service
Left to right:
Special Agent Bo Bozak, Acting
On June 30, 2009, the United States
Attorney's Office, District of Columbia, presented TIGTA Special Agent Edward
"Bo" Bozak a certificate of appreciation for meritorious service to the
citizens of the District of Columbia and adherence to the highest standards of
professional law enforcement in the pursuit of justice related to an
investigation of an IRS employee who was involved in a D.C. tax scam.
TIGTA Office of Audit Leadership
Conference
It is also the place where the Office of
Audit leaders gathered for their leadership training conference on August 18-20,
2009. Office of Audit leaders discussed
the various leadership styles of the senior military officers in the Battle of
Gettysburg. The training also covered
other aspects of leadership, including Transparent Leadership, Ethics, Virtual
Workforce, and the 2008 Federal Human Capital Survey and Best Places to Work
ranking.
TIGTA’s Summer
Intern Colleagues
Pictured from left to
right are Lara Reyna, Gurjas Singh, Daniel Genn, Inspector General J. Russell George, Edward Shiang, William Story, III, and Breyana
Kelly.
During the
summer of 2009, TIGTA brought on board a group of talented and energetic
students to work in its various functional areas. The students provided valuable support in the
areas of human capital, personnel security, audit, investigations, information
technology and the Office of the Inspector General.
TIGTA’s interns
included: Lara Reyna, Gurjas Singh,
Daniel Genn, Edward Shiang, William Story, III and Breyana
Kelly.
TIGTA views its
summer intern program as a great way to spread the word about jobs at TIGTA and
as a valuable pipeline for talented and energetic future employees. With this in mind, TIGTA works hard to ensure
that interns have the best summer experience possible.
AUDIT STATISTICAL REPORTS
Reports with Questioned Costs
TIGTA issued two
audit reports with questioned costs during this semiannual reporting period1.
The phrase "questioned cost" means a cost that is questioned because of:
·
An
alleged violation of a provision of a law, regulation, contract, or other
requirement governing the expenditure of funds;
·
A
finding, at the time of the audit, that such cost is not supported by adequate
documentation (an unsupported cost); or
·
A
finding that expenditure of funds for the intended purpose is unnecessary or
unreasonable.
The phrase
"disallowed cost" means a questioned cost that management, in a management decision,
has sustained or agreed should not be charged to the Government.
