**Treasury**

**Inspector General**

**For Tax Administration**

> Annual Audit Plan Fiscal Year 2006
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***Table of Contents***

[Message from the Deputy Inspector General for Audit](#ExeOverview) 1

[The Mission and the Organization](#Mission) 3

[Audit Program for Fiscal Year 2006](#AProgram) 4

[Office of Audit's Program Areas](#ProgramAreas) 6

[Information Systems Programs](#ISP) 6

[Headquarters Operations and Exempt Organizations Programs](#HOP) 8

[Wage and Investment Income Programs](#WIP) 12

[Small Business and Corporate Programs](#SBP) 13

[Appendix I](#App1) -- Organization Chart -- Treasury Inspector General

for Tax Administration Office of Audit 16

[Appendix II](#App2) -- Major Management Challenges Facing the Internal
Revenue Service 17

[Appendix III](#App3) -- The Internal Revenue Service's Strategic Goals
and Objectives 18

[Appendix IV](#App4) -- *The President's Management Agenda* 19

Office of Audit's Fiscal Year 2006 Staff Day Allocation by:

[Appendix V](#App5) -- Major Challenges Facing Internal Revenue Service
Management 21

[Appendix VI](#App6) -- Internal Revenue Service Strategic Plan Goals 22

[Appendix VII](#App7) -- *The President's Management Agenda* Initiatives
23

[Appendix VIII](#App8) -- Strategic Planning Questions 24

[Appendix IX](#App9) -- [Statutory and Discretionary Audits](#Reso) 25

List of Planned Audits for Fiscal Year 2006:

[Appendix X](#appendix-x) -- Information Systems Programs 26

[Appendix XI](#App11) -- Headquarters Operations and Exempt
Organizations Programs 31

[Appendix XII](#App12) -- Wage and Investment Income Programs 38

[Appendix XIII](#App13) --Small Business and Corporate Programs 43

[Appendix XIV](#App14) -- List of Planned Audits for Fiscal Year 2006 by
Management Challenges, Internal Revenue Service Goals and Objectives,
Presidential Initiatives, and Strategic Planning Questions 50

[Appendix XV](#App15) -- Codes Used in the List of Planned Audits for
Fiscal Year 2006 By Management Challenges, Internal Revenue Service
Goals and Objectives, Presidential Initiatives, and Strategic Planning
Questions 58

***Fiscal Year 2006 Annual Audit Plan***

[]{#ExeOverview .anchor}***Message from the Deputy Inspector General for
Audit***

We believe that in Fiscal Year (FY) 2006 the Internal Revenue Service
(IRS) will continue to deal with the same challenges identified
previously, including the modernization of its computer systems,
addressing the tax gap by balancing customer service and enforcement
while protecting taxpayer rights, ensuring the security of its
resources, and complying with its financial stewardship duties. Some of
these issues are also concerns of the President, as cited in *The
President's Management Agenda.*[^1] In addition, the IRS and the
Government Accountability Office (GAO) have listed some of the issues as
material weaknesses in IRS programs.

Modernization of the IRS' computer systems is a major concern as it
affects many other areas. The IRS has made progress during the past year
in updating some of its systems. For example, the IRS implemented the
first release of the Customer Account Data Engine modernization
project,[^2] which processed over a million tax returns during the 2005
filing season.[^3] It also deployed parts of the Modernized e-File
project, which allow for the electronic filing of over 100 different tax
forms, including forms filed by corporations and exempt organizations.
In addition, the IRS and its contractors issued the first release of the
Integrated Financial System, which provides new capabilities for
internal use.

The completion of the initial phases of the National Research Project
(NRP) allowed the IRS to recently release an updated estimate of the tax
gap.[^4] The IRS' updated estimates of the tax gap, which is defined as
the difference between what taxpayers are supposed to pay and what is
actually and timely paid, have risen to between \$312 and \$353 billion
annually. The next phase of the NRP has begun and it focuses on business
taxpayers. It is critical for the IRS to efficiently complete these
studies so its limited enforcement resources can be focused on the most
serious areas of noncompliance.

Staffing in the IRS enforcement areas had decreased significantly over
the past few years until 2004 when the IRS received additional funding
and was able to increase its enforcement staffing slightly over the
prior year. In the Examination function, the number of Revenue Agents
decreased from 13,857 in FY 1995 to 9,787 in FY 2004. In the Collection
function, the number of Revenue Officers decreased from 5,908 in FY 1995
to 3,789 in FY 2004. These decreases in staffing occurred during a
period in which the number of tax returns filed increased over 10
percent.

Last year the Congress authorized the IRS to use private collection
agencies to collect taxes. The use of contractors should allow the IRS
to collect more outstanding taxes. The IRS will have to be vigilant in
overseeing these contractors to ensure that abuses do not occur. Past
experiences with lockbox thefts and insufficient contractor oversight
provide valuable lessons to reduce the likelihood of similar issues
occurring when contracting out collection of tax debt.

The Office of Audit's FY 2006 Annual Audit Plan is designed to assess
areas related to the major challenges facing the IRS, including
modernization, the tax gap and privatization as well as *The President's
Management Agenda* initiatives. In addition, the TIGTA will continue to
perform audits required by statute, as well as address concerns of the
Congress, the IRS Oversight Board and other stakeholders. More
information on specific IRS programs and the Office of Audit's FY 2006
coverage of those programs is included in the section entitled [Office
of Audit's Program Areas.](#ProgramAreas)

> ![](media/image3.png){width="1.5in" height="0.3854166666666667in"}
>
> Pamela J. Gardiner
>
> Deputy Inspector General for Audit

[]{#Mission .anchor}***The Mission and the Organization***

The Internal Revenue Service's (IRS) Restructuring and Reform Act of
1998 (RRA 98)[^5] established the Treasury Inspector General for Tax
Administration (TIGTA) with the powers and authorities given to other
Inspector General organizations under the Inspector General Act.[^6]
With its focus devoted entirely to the IRS, the TIGTA is charged with
conducting independent and objective audits, evaluations, and
investigations of the IRS' programs and activities. The TIGTA is
organizationally placed within the Department of the Treasury, but it is
independent of the Department and all other offices and agencies within
the Department. The TIGTA is committed to providing timely, useful, and
reliable information and advice to IRS officials, including its Chief
Counsel, the IRS Oversight Board, the Department of the Treasury, the
Congress, and the public.

The TIGTA's Office of Audit promotes the sound administration of the
nation's tax laws through comprehensive, independent performance and
financial reviews of the IRS' programs, operations, and activities by
assessing efficiency, economy, effectiveness, and program
accomplishments. Office of Audit reviews also help ensure compliance
with applicable laws and regulations, and detect and deter fraud, waste,
and abuse.

Under the leadership of the Inspector General, the Deputy Inspector
General for Audit (DIGA) is responsible for the Office of Audit. Four
Assistant Inspectors General for Audit (AIGA), who are aligned around
the IRS' core business activities, report to the DIGA. The four AIGAs
cover: 1) Information Systems Programs, 2) Headquarters Operations and
Exempt Organizations Programs, 3) Wage and Investment Income Programs,
and 4) Small Business and Corporate Programs. Please see
[Appendix I](#App1) for the Office of Audit organization chart.

The AIGAs advise the DIGA on the major risks facing the IRS in their
respective program areas, and annually propose a national audit plan
based on perceived risks, stakeholder concerns, and follow-up reviews of
previously audited areas with significant control weaknesses. In
addition, to keep apprised of operating conditions and emerging issues,
the AIGAs maintain liaison and working contact with applicable IRS
executives, Department of the Treasury and Government Accountability
Office officials, and Congressional staffs.

[]{#AProgram .anchor}***Audit Program for Fiscal Year 2006***

The Office of Audit Fiscal Year 2006 Annual Audit Plan communicates the
Treasury Inspector General for Tax Administration's (TIGTA) audit
priorities to the Internal Revenue Service (IRS), the Congress, and
other interested parties. Many of the activities described in the Annual
Audit Plan address the fundamental goals related to the IRS' mission to
administer its programs effectively and efficiently.

The Annual Audit Plan is organized around the IRS' core business
activities. Emphasis is placed on the mandatory coverage imposed by the
IRS Restructuring and Reform Act of 1998 (RRA 98)[^7] and other
statutory authorities and standards involving computer security,
taxpayer rights and privacy issues, and financial audits. The IRS'
modernization efforts will also be closely monitored to identify
problems in implementing important programs and improving customer
service.

The balance of TIGTA's audit work is discretionary and will focus on the
major management issues facing the IRS, the IRS' progress in achieving
its strategic goals and eliminating identified material weaknesses, and
the IRS' response to *The President's Management Agenda* initiatives. In
addition, audits will address areas of concern to the IRS Commissioner,
the IRS Oversight Board, the Secretary of the Treasury, the Congress,
and other stakeholders.

To identify FY 2006 discretionary audit coverage, the TIGTA developed
strategic planning questions to focus the audits on the most important
tax administration issues. The primary questions, tailored to key IRS
issues, have been classified as "Level I," and are designed to give
TIGTA the ability to answer, with a high degree of confidence, the key
questions that IRS management and external stakeholders are asking, and
provide a clear context for the majority of the audits. Some factors
considered when developing the Level I questions include: the IRS'
Strategic Planning framework, the TIGTA's assessment of the IRS' major
management challenges, and the Government Accountability Office's
high-risk areas for the IRS. The six Level I questions are:

1.  Is the IRS effective in maximizing taxpayer compliance?

2.  Is the IRS meeting its goal of improving taxpayer service?

3.  Is the IRS advancing financial and management reforms, including
    *The President's Management Agenda*?

4.  Is the IRS sufficiently modernizing its information technology and
    providing the intended benefits to taxpayers?

5.  Is the IRS adequately supported with timely, economical, and
    effective information and services?

6.  Is the IRS adequately protecting its employees, facilities, data,
    and systems?

The Level I questions are, by design, very broad, and answering them
could require work in various IRS divisions/functions by more than one
Office of Audit business unit. For this reason, each Assistant Inspector
General for Audit (AIGA) is taking the lead in coordinating the work
needed to answer one of the Level I questions. Further, because no audit
organization has the resources to focus on ***every*** issue ***all***
the time, the Office of Audit will initially focus ***primarily*** on
the first four questions.

Second and third layers of questions, called Levels II and III, are more
detailed and will enable the Office of Audit to design specific audit
work to answer the more broad Level I questions. These more detailed
questions were designed to be within the control of the AIGAs.

Identifying audits that will answer Level I, II, and III questions
requires incorporating a risk assessment process that integrates
professional judgment into assessing the probability that adverse
conditions or events may occur and applying risk factors to key
auditable areas in the IRS. Some factors used in evaluating the risks
associated with the IRS' auditable areas are: stakeholder concerns,
impact of new programs and tax legislation, reliability of internal
control systems, and past audit results. Input from TIGTA executives and
top-level IRS management, current workload, and other factors are also
considered before a final decision is made on which audits will be
conducted.

TIGTA's listing of the major management challenges facing the IRS in
FY 2006 is included as [Appendix II](#App2). The IRS' goals and
objectives for the next four fiscal years are highlighted in [Appendix
III](#App3). Key initiatives of *The President's Management Agenda* are
included as [Appendix IV](#App4).

Planned FY 2006 audits have been mapped to the management challenges,
the IRS' goals and objectives, *The President's Management Agenda*
initiatives*,* and the strategic planning questions. The graphs in
[Appendices V](#App6), [VI](#App7), [VII](#App8), and V[III](#App9)
illustrate the FY 2006 resources that will address the audits as they
correlate to each. [Appendix IX](#appendix-x) shows the resources
planned for statutory versus discretionary audits.

[]{#ProgramAreas .anchor}***Office of Audit's Program Areas***

The following narratives briefly describe the state of some of the
Internal Revenue Service's (IRS) major programs and the Office of
Audit's Fiscal Year 2006 Audit Program that will further assess those
programs.

[]{#ISP .anchor}

**Information Systems Programs**

The Modernization and Information Technology Services (MITS)
organization is responsible for the ongoing multibillion dollar,
multiyear Business Systems Modernization effort and for providing
quality, efficient and responsive information services for the IRS. The
Mission Assurance and Security Services (MA&SS) organization provides
direction to the IRS business units for ensuring the security of IRS
computer systems, property and personnel. The MITS and MA&SS
organizations also have disaster recovery responsibilities.

For the IRS, modernizing technology has been an ongoing challenge. The
current Business Systems Modernization (BSM) effort, which began in
1999, was expected to last approximately 15 years at a cost of \$8
billion. In addition to establishing and executing a program to
modernize the IRS' core business systems, the BSM's strategic plan
includes providing an infrastructure that is sufficiently flexible to
adapt to evolving business needs and can be efficiently managed. The
IRS' goal of providing high-quality, efficient, and responsive
information services to its operating divisions is heavily dependent on
this modernization of its core computer business systems while
maintaining the existing systems. It is also reliant on the security of
those systems and the buildings that house those systems, as well as the
safety of the people who operate the computers.

During FY 2005, the TIGTA assessed the progress of the modernization
efforts as well as the security of the IRS. For example, a report[^8] of
the Customer Account Data Engine (CADE), found that improvement plans
were identified for CADE program management, requirements were developed
to meet CADE Release 1.1 objectives, the CADE Release 1.1 contract task
orders adequately reflected the project work performed, and the 2004
Pilot successfully simulated actual processes and procedures. However,
documentation was not always complete, there were manual processes that
could be automated, and disaster recovery requirements were not fully
tested.

The BSM Office (BSMO) and the IRS Office of Procurement have long
recognized the need to improve management of task orders for the BSM
program and have been emphasizing the increased use of performance-based
contracting (PBC).[^9] Use of PBC means structuring all aspects of an
acquisition around the purpose of the work to be performed, with the
contract requirements set forth in clear, specific, and objective terms
with measurable outcomes. Although the IRS has made improvements to
contract management practices, further improvements can be made to
increase the use of firm fixed-price task orders, provide for more
successful contract negotiations, and ensure improved PBC processes are
followed.

The Business Systems Development (BSD) is one of the largest functions
in the Modernization and Information Technology Services (MITS)
organization in terms of both size and resources. Managing and
coordinating computer programming changes is a challenge in an
organization that processes about 1,500 information services requests
annually. Our analysis of the Request for Information Services (RIS)
process determined the RISs are assigned to the BSD organization's
subordinate offices based on their respective responsibilities,
prioritized by RIS category, usually worked on a first-in first-out
basis, and generally timely completed.[^10] In a separate report,[^11]
TIGTA analyzed the 1,183 original RISs submitted to the BSD organization
during FY 2004. Overall, 98 percent of the RISs included appropriate
requirements when the customer submitted them to the BSD organization.
Subsequent to the RIS submission and approval, 13 percent needed further
requirements development through a RIS amendment. These amendments
modified the existing requirements or added additional requirements as
part of the RIS development process. In our opinion, the amendment
activity is relatively low and indicates the RIS process and the
communications between the BSD organization and customers work to
adequately develop the requirements.

Security of the IRS' resources still presents a challenge with some IRS
employees remaining susceptible to social engineering techniques.[^12]
While the IRS has adequate computer security policies and procedures
which require employees to protect passwords on IRS computer systems,
some managers and employees still do not understand the rudimentary
computer security practices of protecting their passwords. While we
reported about a 50 percent improvement over a similar test we conducted
in August 2001, we believe additional security awareness and emphasis
are needed to reinforce security responsibilities of IRS employees.

Also, significant disaster recovery program weaknesses continue to be
unresolved.[^13] Weaknesses which we reported include modernization
systems being placed in production without a disaster recovery
capability, insufficient disaster recovery capacity, roles and
responsibilities not being assigned and employees not being trained; and
annual tests not being conducted or not being effective.

The TIGTA will continue to assess the IRS' efforts at managing security
risks, including reviews of the IRS' computer security detection and
prevention activities. Overall, the FY 2006 work planned in Information
Systems Programs will position the TIGTA to meet the Federal Information
Security Management Act[^14] and the IRS Restructuring and Reform Act of
1998 (RRA 98)[^15] requirements for reporting annually on the adequacy
and security of IRS technology. A complete list of the Program's planned
audits and audit objectives is included in [Appendix X](#appendix-x).

[]{#HOP .anchor}

**Headquarters Operations and Exempt Organizations Programs**

The Headquarters Operations and Exempt Organizations Programs Unit
evaluates several IRS programs, including Financial Management, the
Government Performance and Results Act of 1993 (GPRA)[^16] the Criminal
Investigation (CI) function, the Tax Exempt and Government Entities
(TE/GE) Division, the Taxpayer Bill of Rights, the Agency-Wide Shared
Services (AWSS) function, the Chief Human Capital Officer, the National
Taxpayer Advocate, and a number of other functions. The TIGTA will be
reviewing programs in each of these organizations.

The IRS' financial statements and related activities continue to be of
concern to IRS stakeholders. Because of the significance of IRS
collections to federal receipts and, in turn, to the consolidated
financial statements of the Government and Congress' interest
in financial management at the IRS, the Government Accountability Office
(GAO) audits the IRS' financial statements annually to determine
whether: 1) the financial statements the IRS prepares are reliable, 2)
IRS management maintains effective internal controls, and 3) the IRS
complies with selected provisions of significant laws and regulations
and its financial systems comply with the Federal Financial Management
Improvement Act of 1996.[^17]

In its audit of the IRS' FY 2004 financial statements, the GAO concluded
that the records were fairly presented in all material respects.[^18]
The GAO, however, identified some continuing serious deficiencies in the
IRS' financial systems. The IRS continues to be challenged by control
weaknesses and system deficiencies affecting financial reporting, unpaid
tax assessments, tax revenue and refunds, and computer security. Even
so, the GAO recognized the IRS' progress in some areas. For example, for
the third consecutive year the IRS was able to meet an accelerated
financial reporting date. This was very notable since the IRS was
simultaneously working to implement new financial management systems.
However, the IRS again had to rely extensively on resource-intensive
compensating processes to prepare its financial statements. Without a
financial management system that can produce timely, accurate, and
useful information needed for day-to-day decisions, the IRS' financial
stewardship responsibilities continue to be one of the largest
challenges facing IRS management.

Along with financial accountability, the Federal Government has a
stewardship obligation to prevent fraud, waste, and abuse and to use tax
dollars appropriately. The Office of Procurement, a key partner in
delivering the IRS mission, awards and manages obligations that amount
to nearly 20 percent of the IRS budget. Most mission critical programs
rely on contract support. Competitive sourcing, an initiative in *The
President's Management Agenda*, will increase the Office of
Procurement's workload. Additionally, congressional concerns have been
raised regarding the propriety of payments to Government contractors.
TIGTA audits have also identified some issues in the contract area. For
example, a recent report[^19] on the Integration Support Contract
identified questionable award fees of over \$2 million and questionable
charges which consisted of unsupported, unreasonable, and inaccurately
recorded charges.

The CI function's mission is to serve the American public by
investigating potential criminal Internal Revenue Code violations in
order to foster confidence in the tax system. In 1999, an independent
review of the function*,* headed by Judge William Webster, reported that
the CI function was drifting from its mission. Beginning in FY 2002, the
CI function began to turn around the downward trends from earlier years.
Specifically, the number of subject investigations initiated increased,
more time was spent directly on subject investigations, and fewer days
were expended to discontinue a subject investigation. Many of the CI
function\'s performance indicators continued to show improvement in FY
2003. While the number of subject investigations initiated and direct
time spent on investigations decreased slightly, FY 2004 continued to
show gains in the total numbers of subject investigations completed,
prosecution referrals, pipeline investigations, indictments,
convictions, and sentences imposed.

The CI function initiates investigations from many different sources,
both from within and outside the IRS. During FY 2004, about 58.4 percent
of subject investigations initiated came from the United States Attorney
Offices (USAO) or other government agencies. In contrast, only 30.1
percent of subject investigations initiated came from within the IRS.
Historically, internal IRS programs have been the primary sources of
investigations involving pure tax violations. Between FYs 1999 and 2004,
almost 60 percent of legal source investigations came from within the
IRS. During FY 2004, 65.8 percent of legal source investigations and
47.4 percent of tax-related investigations came from internal IRS
sources. On the other hand, almost two-thirds of the cases initiated
from the USAO and other government agencies were nontax-related
investigations. Further, the total number of tax and tax-related
investigations initiated from FYs 2002 to 2004 declined by 12.3 percent.
Since actions on criminal investigations may span more than 1 year, the
more recent decline in tax and tax-related investigations initiated may
result in a decline in tax and tax-related convictions and sentences in
later years.[^20]

In an October 2003 letter to the TIGTA, the Senate Finance Committee
outlined some concerns about the CI function's productivity. We recently
completed a review to address one of the concerns about the CI
function's efforts to increase legal source income tax investigations
and concluded the CI function has made progress in increasing all
tax-related investigations, but the level of legal source investigations
did not materially change from FYs 1999 through 2004. The other concerns
relating to the length of time to prepare and present a case to the
Department of Justice for prosecution and the small number of
investigations (as few as two) per special agent were taken into
consideration when developing the FY 2006 Annual Audit Plan.

The IRS' TE/GE Division encompasses several organizations, including
Employee Plans (EP); Exempt Organizations (EO); Indian Tribal
Governments; Federal, State and Local Governments; Tax Exempt Bonds; and
Customer Account Services. These organizations face many different types
of issues, ranging from the safety of investments in employee plans to
political activities of churches and gambling excise taxes. The
overriding mission of each organization, however, is to provide
top-quality service by helping each segment understand and comply with
applicable tax laws and to protect the public interest by applying the
tax law with integrity and fairness to all.

FY 2005 audits addressed each of these functional offices. For example,
the TE/GE Division took several actions in 2004 to address potential
political campaign intervention by tax exempt organizations including
education and a special process to respond to referrals of potential
political intervention. Although there were no identified cases of
improperly handled information items, delays in classifying information
items and the late publicity about the new process contributed to the
allegations of improper motivation on the part of the IRS in examining
this type of activity.[^21] Also, each of the TE/GE Division's
functional offices has taken steps to improve their fraud programs and
the TE/GE Division made several potential fraud referrals. However, most
of the improvements and actions taken were recent, or were still in the
process of being implemented.[^22] Finally, EP function specialists
analyze determination letter applications to determine if pension plans
are established in a manner that meets current laws. We determined
sufficient research was conducted to assess the qualified status of
determination applications, but controls were insufficient to manage the
significant increase in application receipts. We also found quality
assurance reviews have surfaced ongoing problems with the accuracy of
determination letters; however, there were potential weaknesses in the
peer review process that was designed to improve the quality of
determination letters.[^23]

Two important support functions within the IRS are the AWSS function and
the Chief Human Capital Officer. The AWSS function covers a broad
spectrum of activities, including facilities and records management,
employee support services, equal employment opportunity and diversity,
procurement, and competitive sourcing. The Chief Human Capital Officer
oversees the workforce strategy of the agency. Human capital issues
include workforce restructuring, workforce relations, recruiting,
hiring, training and personnel policy. The IRS Strategic Plan states the
IRS will realign its workforce to place more employees in "front-line"
service, compliance, and enforcement positions. One strategy the IRS
indicates it will use to achieve the resources needed for this increase
is to reduce staffing and implement process improvements in areas such
as its internal support functions. Both the AWSS and the Human Capital
Office are in the process of streamlining their operations and reducing
human resources support staff by a total of over 600 Full Time
Equivalent employees.

The Human Capital Office is also overseeing the expansion of the IRS'
pay for performance system to front line managers. This plan, scheduled
for implementation in September 2005, will move about 7,000 managers
from the General Schedule pay system into a paybanding system.
Paybanding is a system for grouping positions for pay, job evaluation,
and other purposes by combining one or more grades and related ranges of
pay into a single "band." The Personnel Flexibilities provisions of RRA
98 required the IRS to develop a new Performance Management System (PMS)
and authorized one or more paybanding systems covering all or any
portion of the IRS workforce under the General Schedule.

Within the AWSS function, the Office of Competitive Sourcing oversees
the IRS' efforts to implement competitive sourcing under OMB Circular
A-76. Competitive sourcing is the process for determining whether a
commercial activity will be performed by a public or private source, and
is also one of the five President's Management Agenda initiatives. The
IRS Learning and Education (L&E) functions were nominated for
competitive sourcing in March 2003. The original scope of the L&E study
encompassed approximately 617 positions. However, in February 2005,
after spending nearly 2 years on the competitive sourcing study, the IRS
decided to remove it from the process, and instead redefine and redesign
the L&E activity to achieve up to a 40 percent savings. The design phase
is expected to conclude no later than December 2005 with implementation
of the new design by December 2006. It will revert back to the
competitive sourcing process if these goals cannot be met. Another
activity to undergo competitive sourcing was the distribution of forms
and publications. In August 2004, the IRS awarded the competition for
its Area Distribution to its own in-house team. The IRS estimated that
its own in-house "Most Efficient Organization" will result in a 63
percent reduction in the workforce and a net savings of \$82.7 million
over five years.

The Office of Audit also addresses IRS offices reporting directly to the
IRS Commissioner, including the Taxpayer Advocate Service, Office of
Chief Counsel, Office of Appeals, and Communications and Liaison. The
National Taxpayer Advocate endeavors to identify and respond to taxpayer
concerns, and advocates changes in law or procedures to reduce taxpayer
burden while the Chief Counsel's strategic objective includes providing
expanded guidance and increased legal support to IRS units. The Chief,
Appeals' goal is to improve processes and resource allocation to "get
the right work to the right employee" so that taxpayers receive a timely
hearing. One major initiative to accomplish this is the centralization
of some Appeals work in campus locations. The Governmental Liaison and
Disclosure Division oversees the confidentiality rights of taxpayers
while addressing the public's right to access information. For example,
this office ensures that taxpayer information is not disclosed to third
parties without proper authorization, information requested under the
Freedom of Information Act[^24] is released, and taxpayers' rights are
protected.

The TIGTA will assess operations in many of these offices during
FY 2006. A complete list of the Program's planned audits and audit
objectives is included in [Appendix XI](#App11). Two audits address
statutory requirements related to the IRS' financial statements and
other financial reports. Another three are in response to the RRA 98
statutory reporting requirements.

[]{#WIP .anchor}**Wage and Investment Income Programs**

The IRS' Wage and Investment (W&I) Division serves approximately
122 million customers, accounting for 94 million returns. These
taxpayers file a Form 1040 tax return with no accompanying Schedules C,
E, F, or Form 2106 and have no international activity. Third parties
report most of the income for this group, and the vast majority of taxes
are collected through third-party withholding. Most of these taxpayers
are highly compliant and deal with the IRS only when they file their tax
returns. Compliance issues that do occur are often the result of a
taxpayer's confusion and are usually detected through technology-based
matching programs. Over half of these taxpayers prepare their own tax
returns, presenting a great opportunity for the W&I Division to provide
top quality service to a large number of taxpayers who otherwise would
not receive assistance.

The W&I Division strives to maintain a "customer-first" focus through
routinely soliciting information concerning the needs and
characteristics of its customers and implementing programs based on the
information received. It partners with other Federal agencies, financial
institutions, tax preparers, trade organizations, community groups,
State and local authorities, and others to provide one-stop multi-agency
tax information and education services to its customers. The W&I
Division attempts to increase voluntary compliance through its education
and outreach programs, thus the W&I Division should be positioned to
provide professional and courteous service to customers to help them
understand and meet their tax obligations.

Every year, the IRS helps millions of taxpayers understand their
obligations under the tax code by making information available on its
Web site, answering questions on its toll-free telephone lines or in
person at local offices, and responding to correspondence. Sometimes
legislation is passed late in the calendar year and the IRS has to move
quickly to get forms and publications as well as computer programs
updated with new tax law information. For example, in October 2004, 2
pieces of legislation were enacted that included 11 additional
provisions that affected W&I Division taxpayers for\
Tax Year (TY) 2004. Overall, the IRS successfully updated the tax forms,
instructions, and publications relating to the new tax law provisions
that affect W&I Division taxpayers' TY 2004 individual income tax
returns.[^25]

In addition, the IRS administers the Earned Income Tax Credit (EITC)
Program, a refundable Federal income tax credit for low-income working
individuals and families. In TY 2003, the IRS reported that
approximately 21.7 million taxpayers received EITC totaling \$38.1
billion. The goals of the EITC office are to increase the number of
eligible taxpayers who claim the credit and reduce the overall number of
EITC refunds paid in error. The IRS estimated that between 27 and 32
percent of the \$31 billion in EITC claimed on TY 1999 returns should
not have been paid. The IRS identifies taxpayers that misreport their
income through an annual matching program which compares the information
reported by third parties, such as employers and banks, with what was
reported by taxpayers on their individual income tax returns. A recent
report[^26] stated that a test by the IRS designed to help the IRS
identify ways to ensure taxpayers claiming the EITC properly report
their income, met the IRS' expectations.

The Office of Audit FY 2006 Annual Audit Program will address the W&I
Division's attempts to meet its goals and objectives. In addition to
assessing the W&I Division's prefiling and filing season plus the status
of compliance efforts, five planned audits will satisfy statutory
requirements of the RRA 98. Another audit is in response to planned
legislation.[^27] A complete list of the Program's planned audits and
audit objectives is included in [Appendix XII](#App12).

[]{#SBP .anchor}**Small Business and Corporate Programs**

Like the W&I Division, the IRS' Small Business/Self-Employed (SB/SE) and
the Large and Mid-Size Business (LMSB) Divisions also focus on helping
taxpayers understand the tax laws, processing the tax returns, and
enforcing compliance with the tax laws. Unlike taxpayers served by the
W&I Division, these taxpayers usually have much more frequent contact
with the IRS, and these contacts are usually more unique and
complicated. The IRS, nevertheless, strives to provide top quality
service to each taxpayer in every interaction.

The approximately 33 million self-employed and supplemental income
earners serviced by the SB/SE Division have substantially higher incomes
and file twice the number of forms and schedules than the W&I taxpayers.
Thus, these taxpayers often spend more time working on their taxes or
rely more frequently on paid tax preparers or IRS expertise. The SB/SE
Division also serves about 7 million small businesses, including
corporations and partnerships with assets of \$10 million or less. While
many of these taxpayers face the same tax issues as large corporations,
they often do not have tax professionals on staff. Their tax compliance
issues frequently stem from a lack of understanding of tax law
requirements, inadequate accounting practices, or resource and cash flow
problems. In addition, the SB/SE Division services taxpayers filing
estate and gift returns, fiduciary returns, and international tax
returns. The SB/SE Division's employees focus on its mission of
providing top quality service tailored to this taxpayer segment.

The LMSB Division serves a small group of taxpayers -- less than 200,000
corporations, subchapter S corporations, and partnerships with assets
greater than \$10 million. Many of the taxpayers in this group have a
tax staff, and the issues the IRS faces in its contacts with these
taxpayers are much more complicated than its dealings with the W&I and
SB/SE taxpayers. For example, the IRS must effectively deal with
globalization, abusive tax shelters, offshore tax havens, and industry
specialization. Some of these issues are extremely difficult to address.
Abusive tax shelters, for instance, are estimated to be a \$10 billion
tax issue, and transactions are frequently legally complex and dependent
on exploitation of legal loopholes.

The Divisions are endeavoring to revise their compliance program by
reengineering the collection and examination processes. Some
improvements have been noted. For example, the level of compliance
activities and the results obtained in many Collection function areas in
FY 2004 showed a continued increase and the number of Collection
function field staff increased slightly. However, a significant number
of accounts were removed from collection inventory and may never be
worked. The IRS recently received authority and will begin testing the
use of contract staff to work some Collection cases. It is too early to
tell if the contract resources will be able to resolve a significant
number of cases or whether they will continue to go unresolved.

Examination function staffing increased during FY 2004, as did the
percent of tax returns examined. The increase was mainly due to
increases in correspondence examinations of tax returns for individuals,
which are conducted by mailing notices to the taxpayer and are usually
not as comprehensive as face‑to‑face examinations. While the number of
examinations of individuals increased overall during FY 2004, a larger
increase occurred in the coverage rate of individuals earning \$100,000
or more than for those earning less than \$100,000. The number of
examinations of corporate tax returns continued the decrease that
started in FY 1997, decreasing a total of 75 percent since that time.
The total number of tax returns examined decreased from 1 out of 52
returns filed in FY 1997 to 1 out of 245 returns filed in FY 2004. This
trend did turn around for examinations of larger corporations though.
The number of examinations for corporate tax returns with assets \$10
million and greater increased 34 percent during FY 2004.

During the last few years, the IRS has been implementing reengineering
suggestions aimed at increasing effectiveness of enforcement efforts.
Despite steps the IRS has taken to improve its enforcement efforts, the
GAO continues to regard enforcement of tax laws as 1 of the 25 high-risk
areas in the Federal Government in its January 2005 update. The
President's proposed FY 2006 budget also addresses the issue by
providing additional funds for enforcement resources.[^28]

Like the SB/SE Division, the LMSB Division has made some strides in
reengineering its processes. At the IRS, as in other Federal Government
agencies, implementing a performance management system is a critically
important endeavor. Among other things, agency managers need to
establish processes that promote teamwork and organizational success by
integrating individual performance with agency goals. Since the LMSB
Division's work primarily relates to enhancing enforcement of the tax
law, the primary objective of the Industry Case Program, and the
responsibility of examiners and team managers, is to conduct timely,
quality examinations of selected tax returns. To assist examiners and
team managers in meeting their responsibilities, the LMSB Division
defines and measures quality against four standards and uses cycle time
to monitor the timeliness of examinations. The LMSB Division's
performance management system provides direct links from the IRS mission
and goals down to the appraisal processes for examiners and team
managers in the Industry Case Program. Actions have also been taken to
enhance the performance management system for team managers. However,
there are areas in the appraisal processes of Industry Case examiners
that could be strengthened to reinforce the importance of adhering to
LMSB Quality Management System standards and completing examinations
more timely.[^29]

Both the SB/SE and the LMSB Divisions, however, continue to face
challenges in administering programs that deal with tax gap issues,
especially those resulting from corporate and high-income individual
taxpayer corrosive activities as well as domestic and off-shore tax and
financial criminal activity. During FY 2006, the TIGTA's Small Business
and Corporate Programs Unit will concentrate on assessing the IRS'
efforts to deal with these and other issues. Three audits will address
statutory requirements of the RRA 98. A complete list of the Program's
planned audits and audit objectives is included in
[[Appendix XIII]{.underline}](#App13).

  ---------------- -- ------------------ -- ------- -- -- -- -------------- -- ---------------- ----------- ------- -- -- -- -- ------------- ------------- -- -------------- -- ------- -- -- -- -- -- -- -- ------------- -- -------------- -- ------------ -- -- -- -- -- -- -- --
  []{#App1                                                                                                                                                                                                                                       **Appendix                        
  .anchor}                                                                                                                                                                                                                                       I**                               

  **Organization                                                                                                                                                                                                                                                                   
  Chart\                                                                                                                                                                                                                                                                           
  Treasury                                                                                                                                                                                                                                                                         
  Inspector                                                                                                                                                                                                                                                                        
  General for Tax                                                                                                                                                                                                                                                                  
  Administration                                                                                                                                                                                                                                                                   
  Office of                                                                                                                                                                                                                                                                        
  Audit**                                                                                                                                                                                                                                                                          

                                                                                                **Deputy                                                                                                                                                                           
                                                                                                Inspector                                                                                                                                                                          
                                                                                                General\                                                                                                                                                                           
                                                                                                for Audit**                                                                                                                                                                        

                                                                                                                                                                                                                                                                                   

                                                                                                                                              **Director\                                                                                                                          
                                                                                                                                              Office of                                                                                                                            
                                                                                                                                              Management                                                                                                                           
                                                                                                                                              and Policy**                                                                                                                         

                                                                                                                                                                                                                                                                                   

                                                                                                                                                                                                                                                                                   

                                                                                                                                                                                                                                                                                   

  **Assistant                                                **Assistant                                                        **Assistant                                                                   **Assistant                                                          
  Inspector                                                  Inspector                                                          Inspector                                                                     Inspector                                                            
  General\                                                   General\                                                           General\                                                                      General\                                                             
  for Audit\                                                 for Audit\                                                         for Audit\                                                                    for Audit\                                                           
  (Headquarters                                              (Information                                                       (Small                                                                        (Wage and                                                            
  Operations &                                               Systems                                                            Business and                                                                  Investment\                                                          
  Exempt                                                     Programs)**                                                        Corporate                                                                     Income                                                               
  Organizations                                                                                                                 Programs)**                                                                   Programs)**                                                          
  Programs)**                                                                                                                                                                                                                                                                      

                                                                                                                                                                                                                                                                                   

                      **Director\                                              **Director\                                                                     **Director\                                                     **Director\                                         
                      Financial                                                Systems                                                                         Small Business                                                  Submission                                          
                      Management and\                                          Modernization\                                                                  Compliance**                                                    Processing and                                      
                      Criminal                                                 and Operations**                                                                                                                                Earned Income                                       
                      Investigation**                                                                                                                                                                                          Tax Credit**                                        

                                                                                                                                                                                                                                                                                   

                                                                                                                                                                                                                                                                                   

                      **Director\                                              **Director\                                                                     **Director\                                                     **Director\                                         
                      Taxpayer Bill of                                         Systems                                                                         Corporate and                                                   Compliance**                                        
                      Rights and\                                              Security**                                                                      Customer                                                                                                            
                      Tax Exempt/Gov                                                                                                                           Service**                                                                                                           
                      Entities**                                                                                                                                                                                                                                                   

                                                                                                                                                                                                                                                                                   

                                                                                                                                                                                                                                                                                   

                      **Director\                                                                                                                              **Director\                                                     **Director\                                         
                      Shared Services,\                                                                                                                        Submission                                                      Customer                                            
                      GPRA, and\                                                                                                                               Processing**                                                    Service**                                           
                      Tax                                                                                                                                                                                                                                                          
                      Administration**                                                                                                                                                                                                                                             

                                                                                                                                                                                                                                                                                   

                                                                                                                                                                                                                                                                                   
  ---------------- -- ------------------ -- ------- -- -- -- -------------- -- ---------------- ----------- ------- -- -- -- -- ------------- ------------- -- -------------- -- ------- -- -- -- -- -- -- -- ------------- -- -------------- -- ------------ -- -- -- -- -- -- -- --

[]{#App2 .anchor}**Appendix II**

### Major Management Challenges Facing the Internal Revenue Service

The Treasury Inspector General for Tax Administration (TIGTA) believes
the major management challenges facing the Internal Revenue Service
(IRS) in Fiscal Year 2006 are:

# Modernization of the Internal Revenue Service.

# Tax Compliance Initiatives.

# Security of the Internal Revenue Service.

# Complexity of the Tax Law.

# Using Performance and Financial Information for Program and Budget Decisions. 

# Providing Quality Taxpayer Service Operations.

# Erroneous and Improper Payments.

# Taxpayer Protection and Rights.

# Processing Returns and Implementing Tax Law Changes During the Tax Filing Season.

# Human Capital.

The TIGTA's FY 2005 annual summary of these issues, including comments
on progress the IRS has made toward resolving the challenges or the
vulnerabilities that the IRS continues to face in achieving results, may
be viewed on the Internet at the following address:

> <http://www.treas.gov/tigta/oa_management.shtml> .

[]{#App3 .anchor}Appendix III

+-----------------------------------------------------------------------+
| > **The Internal Revenue Service's\                                   |
| > Strategic Goals and Objectives**[^30]                               |
+-----------------------------------------------------------------------+

### 

+---------------------+------------------------+-----------------------+
| **IRS Strategic     |                        |                       |
| Plan 2005-2009**    |                        |                       |
+---------------------+------------------------+-----------------------+
| **Goal 1 -          | **Goal 2 -- Enhance    | **Goal 3 --Modernize  |
| Improve**           | Enforcement Of The Tax | the IRS Through Its   |
|                     | Law**                  | People, Processes and |
| **Taxpayer          |                        | Technology**          |
| Service**           |                        |                       |
+---------------------+------------------------+-----------------------+
| **Objectives:**     | **Objectives:**        | **Objectives:**       |
|                     |                        |                       |
| -   Improve service | -   Discourage and     | -   Increase          |
|     options for the |     deter              |     organizational    |
|     tax paying      |     noncompliance with |     capacity to       |
|     public          |     emphasis on        |     enable full       |
|                     |     corrosive activity |     engagement and    |
| -   Facilitate      |     by corporations,   |     maximum           |
|     participation   |     high-income        |     productivity of   |
|     in the tax      |     individual         |     employees         |
|     system by all   |     taxpayers and      |                       |
|     sectors of the  |     other contributors | -   Modernize         |
|     public          |     to the tax gap     |     information       |
|                     |                        |     systems to        |
| -   Simplify the    | -   Ensure that        |     improve service   |
|     tax process     |     attorneys,         |     and enforcement   |
|                     |     accountants and    |                       |
|                     |     other tax          | -   Ensure the safety |
|                     |     practitioners      |     and security of   |
|                     |     adhere to          |     people,           |
|                     |     professional       |     facilities and    |
|                     |     standards and      |     information       |
|                     |     follow the law     |     systems           |
|                     |                        |                       |
|                     | -   Detect and deter   | -   Modernize         |
|                     |     domestic and       |     business          |
|                     |     off-shore based    |     processes and     |
|                     |     tax and financial  |     align the         |
|                     |     criminal activity  |     infrastructure    |
|                     |                        |     support to        |
|                     | -   Deter abuse within |     maximize          |
|                     |     tax-exempt and     |     resources devoted |
|                     |     governmental       |     to frontline      |
|                     |     entities and       |     operations        |
|                     |     misuse of such     |                       |
|                     |     entities by third  |                       |
|                     |     parties for tax    |                       |
|                     |     avoidance or other |                       |
|                     |     unintended         |                       |
|                     |     purposes           |                       |
+---------------------+------------------------+-----------------------+

[]{#App4 .anchor}Appendix IV

+-----------------------------------------------------------------------+
| > ***The President's Management Agenda*\                              |
| > Improving Government Performance**                                  |
+-----------------------------------------------------------------------+

President George W. Bush's Administration is dedicated to ensuring that
the resources entrusted to the Federal Government are well managed and
wisely used. The President sent to the Congress a bold strategy for
improving the management and performance of the Federal Government. That
strategy reads, in part:

To reform Government, we must rethink Government.

The need for reform is urgent. The Government Accountability Office
(GAO) "high-risk" list identifies areas throughout the Federal
Government that are most vulnerable to fraud, waste, and abuse. Ten
years ago, the GAO found eight such areas. Today it lists 22. Perhaps as
significant, Government programs too often deliver inadequate service at
excessive cost....

... while the Government needs to reform its operations -- how it goes
about its business and how it treats the people it serves, it also needs
to rethink its purpose -- how it defines what business is and what
services it should provide.

The President's vision for Government reform is guided by three
principles. Government should be:

-   Citizen-centered, not bureaucracy-centered.

-   Results-oriented.

-   Market-based, actively promoting rather than stifling innovation
    through competition.

The President has called for a Government that is active but limited
that focuses on priorities and does them well. That same spirit should
be brought to the work of reform. Rather than pursue an array of
management initiatives, we have elected to identify the Government's
most glaring problems -- and solve them. *The President's Management
Agenda* is a starting point for management reform.

-   The Agenda contains five Government-wide ... goals to improve
    Federal management and deliver results that matter to the American
    people.

-   It reflects the Administration's commitment to achieve immediate,
    concrete, and measurable results in the near term.

-   It focuses on remedies to problems generally agreed to be serious,
    and commits to implement them fully.

-   The goals in this Agenda are being undertaken in advance of, not
    instead of, other needed management improvements.

-   Additional goals will be undertaken, as tangible improvements are
    made in this initial set of initiatives.... [^31]

The five Government-wide goals included in *The President's Management
Agenda for Improving Government Performance* are:

# Strategic Management of Human Capital.

# Competitive Sourcing.

# Improved Financial Performance.

# Expanded Electronic Government.

# Budget and Performance Integration.

[]{#App5 .anchor}**Appendix V**

**Office of Audit's Fiscal Year 2006\
Staff Day Allocation By Major Challenges Facing Internal Revenue Service
Management**

+-----------------------------------------------------------------------+
| ![](media/image4.wmf){width="6.433333333333334in"                     |
| height="4.379166666666666in"}                                         |
|                                                                       |
| > Note: Some audits relate to more than one major challenge area. In  |
| > addition, Fiscal Year (FY) 2006 staff days are included for audits  |
| > that were started in FY 2005 with planned completion dates in       |
| > FY 2006.                                                            |
+-----------------------------------------------------------------------+

[]{#App6 .anchor}**Appendix VI**

**Office of Audit's Fiscal Year 2006 Staff Day Allocation By Internal
Revenue Service Strategic Plan Goals**

+-----------------------------------------------------------------------+
| ![](media/image5.wmf){width="7.059722222222222in" height="5.4in"}     |
|                                                                       |
| > Note: Some audits relate to more than one strategy area. In         |
| > addition, Fiscal Year (FY) 2006 staff days are included for audits  |
| > that were started in FY 2005 with planned completion dates in       |
| > FY 2006.                                                            |
+-----------------------------------------------------------------------+

[]{#App7 .anchor}Appendix VII

**Office of Audit's Fiscal Year 2006 Staff Day Allocation By**

***The President's Management Agenda Initiatives***[^32]

  -----------------------------------------------------------------------
  ![](media/image6.wmf){width="6.79375in" height="5.038888888888889in"}

  -----------------------------------------------------------------------

> Note: Fiscal Year (FY) 2006 staff days are included for audits that
> were started in FY 2005 with planned completion dates in FY 2006.

[]{#App8 .anchor}**Appendix VIII**

**Office of Audit's Fiscal Year 2006 Staff Day Allocation By Strategic
Planning Questions**

+--------------------------------------------------------------------+---+
| ####                                                               |   |
|                                                                    |   |
| ![](media/image7.wmf){width="6.988888888888889in"                  |   |
| height="5.497222222222222in"}                                      |   |
+--------------------------------------------------------------------+---+
| ####                                                               |   |
+--------------------------------------------------------------------+---+

Note: Fiscal Year (FY) 2006 staff days are included for audits that were
started in FY 2005 with planned completion dates in FY 2006.

[]{#App9 .anchor}**Appendix IX**

**Office of Audit's Fiscal Year 2006 Staff Day Allocation By Statutory
and Discretionary Audits**

  -----------------------------------------------------------------------

  -----------------------------------------------------------------------

Note: Fiscal Year (FY) 2006 staff days are included for audits that were
started in FY 2005 with planned completion dates in FY 2006.

#### Appendix X

**List of Planned Audits for Fiscal Year 2006\
Information Systems Programs**

*Within the Information Systems Programs Unit, most reviews are
considered statutory because of the Internal Revenue Service's (IRS)
Restructuring and Reform Act of 1998 (RRA 98)*[^33] *requirement to
report annually on the adequacy and security of the IRS technology.
Audits are selected based on a risk-assessment process.*

+-----------------------------------------------------------------------+
| # *Filing and Payment Compliance Project Review (Statutory Audit)*    |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Determine whether the Business Systems         |
| > Modernization Office (BSMO) and its contractors are developing the  |
| > current releases of the project using sound systems development     |
| > practices.                                                          |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| # *Program Management Transition from the PRIME*[^34] *Contr          |
| actor to the Business Systems Modernization Office (Statutory Audit)* |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Determine whether the BSMO is sufficiently     |
| > planning, identifying, and acquiring the necessary resources for    |
| > its new role as systems integrator and other program management     |
| > activities being moved to the BSMO from the PRIME.                  |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| #                                                                     |
|  *Annual Business Systems Modernization Assessment (Statutory Audit)* |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Review the progress of the Business Systems    |
| > Modernization (BSM) Program as required by the RRA 98.              |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| # *Role and Cost of the Federally Funded Research and Development Ce  |
| nter in the Business Systems Modernization Program (Statutory Audit)* |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Determine the effectiveness of IRS' use of the |
| > Federally Funded Research and Development Center in the BSM         |
| > Program.                                                            |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| # *Est                                                                |
| ablishment of the Enterprise Services Organization (Statutory Audit)* |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Review the establishment and stand-up of the   |
| > Enterprise Services Organization.                                   |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| # *Contracting Processes (Follow-up) (Statutory Audit)*               |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Determine the adequacy of the BSMO contract    |
| > negotiation and development activities.                             |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| # *Customer Account Data Engine Project Review (Statutory Audit)*     |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Determine whether the BSMO and its contractors |
| > are developing the current releases of the project using sound      |
| > systems development practices.                                      |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| # *Modernized E-File Development Project Review (Statutory Audit)*    |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Determine whether the BSMO and its contractors |
| > are developing the current releases of the project using sound      |
| > systems development practices.                                      |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| # *Est                                                                |
| ablishment of the Requirements Management Office* *(Statutory Audit)* |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Review the establishment and stand-up of the   |
| > Requirements Management Office.                                     |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| # *Acc                                                                |
| ounting for Business Systems Modernization Funding (Statutory Audit)* |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Determine whether the IRS is using proper      |
| > accounting methodologies in accounting for BSM funding requests and |
| > expenditures.                                                       |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| # *Business Systems Development Testing Processes*                    |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Review the adequacy and effectiveness of       |
| > Business Systems Development testing processes.                     |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| # *Infrastructure Shared Services Program Review (Statutory Audit)*   |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Review the adequacy of the development and     |
| > maintenance of the modernized infrastructure including disaster     |
| > recovery capabilities and the Modernization Technology Refresh      |
| > activities.                                                         |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| # *Enterprise Operations Use of Contractors*                          |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Review the effectiveness of Enterprise         |
| > Operations management of contractors.                               |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| # *IRS' Use of Telecommunicati                                        |
| ons Services Offered through the Department of the Treasury Contract* |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Determine whether the IRS is making            |
| > appropriate use of the Department of the Treasury Contract for      |
| > procuring needed telecommunications services.                       |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| # *Quality Metrics and Resource Allocation*                           |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Determine whether the Modernization &          |
| > Information Technology Services organization is taking actions to   |
| > set consistent quality metrics that are industry benchmarked for    |
| > quality and satisfaction.                                           |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| # *Status of Legacy Systems and Aging Infrastructure*                 |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Determine the viability of the IRS' Legacy     |
| > Systems, including the cost associated with outages caused by aging |
| > infrastructure applications and the lack of redundancy/business     |
| > resumption capability for critical systems.                         |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| #                                                                     |
|  *Task Order Audit:* *Architecture and Integration (Statutory Audit)* |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Determine whether the IRS is receiving full    |
| > value from the contractor under the terms and conditions of the     |
| > Architecture and Integration Task Order.                            |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| # *Federal Information Security Management Act (Statutory Audit)*     |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Evaluate the IRS' compliance with security     |
| > measures required by the Federal Information Security Management    |
| > Act.                                                                |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| # *Security Over Health and Human Services Data (Statutory Audit)*    |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Determine whether the IRS' Criminal            |
| > Investigation Division is adequately protecting Health and Human    |
| > Services (HHS) data as required by the Memorandum of Understanding  |
| > between the IRS and the HHS.                                        |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| # *Miss                                                               |
| ion Assurance & Security Services Responsibilities (Statutory Audit)* |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Evaluate the effectiveness of Mission          |
| > Assurance & Security Services in achieving its stated mission and   |
| > meeting its goals.                                                  |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| # *Missi                                                              |
| on Assurance & Security Services Office of Privacy (Statutory Audit)* |
+-----------------------------------------------------------------------+
| **Audit Objective:** Determine whether the IRS is adhering to privacy |
| policies and is adequately protecting the identity of taxpayers in    |
| its programs and systems.                                             |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| # *Homeland Security Presidential                                     |
|  Directive-12 Personal Identification Verification (Statutory Audit)* |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Determine whether the IRS has taken adequate   |
| > actions to comply with Homeland Security Presidential Directive-12. |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  ***Background Investigations (Statutory Audit)***

  **Audit Objective:** Determine the timeliness and effectiveness of the
  background investigation program for both employees and contractors.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Sensitive Data Stored on Electronic or Optical Media***
  ***(Statutory Audit)***

  **Audit Objective:** Determine whether the IRS is adequately protecting
  sensitive data on laptop computers and electronic/optical media.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Internet Gateways (Statutory Audit)***

  **Audit Objective:** Determine whether firewalls, routers, and
  intrusion detection system configurations are adequate to prevent and
  detect unauthorized persons from entering the IRS network.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Wireless (Follow-up) (Statutory Audit)***

  **Audit Objective:** Determine whether IRS assets are at risk from the
  use of wireless network devices.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Critical Infrastructure Protection (Statutory Audit)***

  **Audit Objective:** Determine whether the IRS has identified,
  prioritized, and protected critical assets.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Infrastructure Components and Services (Statutory Audit)***

  **Audit Objective:** Determine whether IRS systems allow for the use of
  insecure and prohibited file transfer protocols.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Security over Remote Systems Administration (Statutory Audit)***

  **Audit Objective:** Determine whether controls over remote systems
  administration are adequate to prevent unauthorized accesses.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Modernization Audit Trails (Statutory Audit)***

  **Audit Objective:** Determine whether audit logs for modernization
  systems are being generated, saved, and analyzed.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Database Controls (Statutory Audit)***

  **Audit Objective:** Determine whether the IRS has adequate policies
  and procedures for database security controls and whether those
  policies and procedures have been implemented.
  -----------------------------------------------------------------------

+----------------------------------------------------------------------+
| ***IRS Electronic Mail System (Statutory Audit)***                   |
+----------------------------------------------------------------------+
| **Audit Objective:** Determine whether the IRS' email system is      |
| secure and used properly, and whether messages are archived as       |
| required.                                                            |
+----------------------------------------------------------------------+
|                                                                      |
+----------------------------------------------------------------------+
| > ***Online Integrated Data Retrieval System Violation Reports       |
| > (Statutory Audit)***                                               |
+----------------------------------------------------------------------+
| > **Audit Objective:** Determine whether managers are adequately     |
| > monitoring Integrated Data Retrieval System Violation Reports.     |
+----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| > ***Capital Expenditures (Statutory Audit)***                        |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Determine whether IRS business cases are       |
| > prepared accurately and comply with Office of Management and Budget |
| > (OMB) and Treasury guidance.                                        |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  ***Computer Security Material Weaknesses (Statutory Audit)***

  **Audit Objective:** Determine whether the IRS has taken sufficient
  actions to downgrade its computer security material weakness.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Patch Management Capping Report (Statutory Audit)***

  **Audit Objective:** Provide an assessment of IRS actions to improve
  its patch management.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Internet Protocol Version 6 (Statutory Audit)***

  **Audit Objective:** Determine whether the IRS has made adequate
  preparations to comply with OMB requirements to convert to Internet
  Protocol version 6.
  -----------------------------------------------------------------------

[]{#App11 .anchor}**Appendix XI**

+-----------------------------------------------------------------------+
| > **List of Planned Audits for Fiscal Year 2006\                      |
| > Headquarters Operations and\                                        |
| > Exempt Organizations Programs**                                     |
+-----------------------------------------------------------------------+

*Two of the planned audits for the Headquarters Operations and Exempt
Organizations Programs Unit address statutory requirements related to
the Internal Revenue Service's (IRS) financial statements and other
financial reports. Another three are in response to the IRS
Restructuring and Reform Act of 1998 (RRA 98)*[^35] *statutory reporting
requirements.*

  -----------------------------------------------------------------------
  ***Voucher/Invoice Audits - Various Contractors***

  **Audit Objective:** Determine whether selected vouchers submitted and
  paid under the contract were appropriate and in accordance with the
  contract's terms and conditions.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Assistance to Contract Fraud Investigations***

  **Audit Objective:** Assist the Office of Investigations in evaluating
  financial and operational information relating to allegations of
  criminal or civil misconduct in procurement activities.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Defense Contract Audit Agency Contract Oversight (Statutory
  Review)***

  **Audit Objective:** Review and issue to the IRS reports prepared by
  the Defense Contract Audit Agency on IRS contracts.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Federal Financial Management Improvement Act of 1996 Remediation
  Plan (Statutory Review)***

  **Audit Objective:** Determine if the IRS has met established target
  dates, and provided reasonable explanations when adjusting plan dates.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Working Capital Fund***

  **Audit Objective:** Evaluate the cost allocation process and determine
  the relative value of services received by the IRS.

  ***Automated Trust Fund Recovery Program***

  **Audit Objective:** Determine the effectiveness of IRS processes to
  accurately account for Trust Fund Recovery revenue.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Federal Agency Employment Tax Delinquencies***

  **Audit Objective:** Determine if the IRS properly accounts for and
  resolves tax delinquencies incurred by Federal agencies.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Reimbursement of Administrative Expenses for Processing Federal
  Unemployment Tax Act and Federal Insurance Contribution Act Taxes***

  **Audit Objective:** Determine if corrective actions taken by IRS
  accurately account for reimbursable expenses.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Trends in Criminal Investigation Activities Fiscal Years
  2000-2005***

  **Audit Objective:** Provide statistical and trend information and
  analysis of Criminal Investigation activities.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Fraud Detection Centers - Questionable Refund Program***

  **Audit Objective:** Determine the effectiveness of IRS processes to
  detect and prevent fraudulent refunds.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Fraud Detection Centers - Return Preparer Program***

  **Audit Objective:** Determine the effectiveness of IRS processes to
  identify unscrupulous preparers.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***E-Crimes Program***

  **Audit Objective:** Evaluate controls over electronic data seized by
  the IRS and processes used to ensure timely criminal investigative
  results.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Parallel Investigations***

  **Audit Objective:** Determine if IRS criminal and civil actions
  proceed timely and orderly, and protect taxpayer rights.

  ***Effectiveness of the Office of Research, Analysis and Statistics***

  **Audit Objective:** Evaluate whether the Research, Analysis and
  Statistics function is appropriately structured and provides valid,
  accurate and timely information.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Freedom of Information Act Denials (Statutory Review)***

  **Audit Objective:** Determine whether the IRS improperly withheld
  information requested by taxpayers based on Freedom of Information Act
  provisions and Internal Revenue Code Section 6103 or by replying that
  responsive records did not exist.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Appeals \-- Collection Due Process (Statutory Review)***

  **Audit Objective:** Evaluate the IRS' compliance with legal provisions
  when taxpayers exercised their right to appeal lien or levy actions.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Validation of Cost Savings***

  **Audit Objective:** Evaluate the IRS' process for identifying and
  tracking savings associated with competitive sourcing projects.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Appeals \-- Campus Operations***

  **Audit Objective:** Evaluate the quality and effectiveness of Appeals'
  new centralized campus operations.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Chief Counsel \-- Advance Case Resolution Program***

  **Audit Objective:** Evaluate the administration of the Advance Case
  Resolution Program.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Office of Professional Responsibility \-- Enrolled Agent Program***

  **Audit Objective:** Evaluate the effectiveness of the Office of
  Professional Responsibility's administration of the Enrolled Agent
  Program.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Taxpayer Advocate Service \-- Operations Assistance Requests***

  **Audit Objective:** Evaluate the responsiveness of the IRS Operating
  Divisions in assisting the Taxpayer Advocate Service to resolve
  taxpayer problems.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Taxpayer Complaints (Statutory Review)***

  **Audit Objective:** Determine the IRS' progress in improving the
  process for identifying and reporting taxpayers' complaints for the
  TIGTA semiannual report.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Human Capital Office Resource Optimization Study***

  **Audit Objective:** Evaluate the reorganization which resulted from
  the Resource Optimization Study and the realignment of staff to
  "front-line" service, compliance, and enforcement positions.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Enterprise Learning Management System***

  **Audit Objective:** Evaluate the reliability and usefulness of the
  information in the Enterprise Learning Management System.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Government Performance and Results Act***

  **Audit Objective:** Determine if the IRS' Strategic and Annual Plans
  fully address the priorities of the IRS and meet all of the
  requirements of the Government Performance and Results Act and Office
  of Management and Budget's "Preparation, Submission and Execution of
  the Budget" (OMB Circular No. A-11.)
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Removal of Learning and Education from Competitive Sourcing***

  **Audit Objective:** Evaluate the IRS' decision to remove Learning and
  Education from competitive sourcing.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Implementation of Paybanding***

  **Audit Objective:** Determine how effective the IRS' pay banding
  system has been at linking pay to performance.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Review of IRS' Migration to Electronic Travel Services***

  **Audit Objective:** Evaluate the costs and benefits of converting the
  IRS to the new Electronic Travel Services.
  -----------------------------------------------------------------------

+-----------------------------------------------------------------------+
| > ***Review of the Public Transportation Subsidy Program***           |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Evaluate whether the IRS' Public               |
| > Transportation Subsidy Program is properly monitored, and           |
| > efficiently and economically administered.                          |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| > ***Tax Exempt Determination System Processing of Employee Plans     |
| > Determination Letters***                                            |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Determine whether the Tax Exempt Determination |
| > Systems' functionality has achieved the purpose of improving the    |
| > screening of Employee Plans (EP) Determinations applications in an  |
| > automated environment.                                              |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| > ***Implementation of the Employee Plans Compliance Unit***          |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Determine the adequacy of the EP function's    |
| > efforts to implement the Employee Plans Compliance Unit (EPCU) and  |
| > whether the EP function has controls to effectively manage EPCU     |
| > projects.                                                           |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| > ***Statistical Analysis of the Employee Plans Function's            |
| > Enforcement Activities***                                           |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Review relevant statistical data of the EP     |
| > function's enforcement activities for Fiscal Year (FY) 2002 to 2005 |
| > and analyze the data for trends.                                    |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| > ***Employee Plans Function's Process for Evaluating Referrals of    |
| > Noncompliance***                                                    |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Assess the EP function's process for           |
| > evaluating and prioritizing referrals of noncompliance to ensure    |
| > high risk referrals are worked.                                     |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| > ***Impact of the Employee Plans Function's Focused Examination      |
| > Initiative***                                                       |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Assess the impact of the focused examination   |
| > initiative on examination goals, performance measures, and          |
| > enforcement results, and determine whether the initiative has been  |
| > consistently implemented nationwide.                                |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| > ***Exempt Organizations Function's Efforts to Address Excessive     |
| > Executive Compensation***                                           |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Assess the Exempt Organizations (EO)           |
| > function's efforts to improve compliance with accurately reporting  |
| > excess benefits on the Return of Organization Exempt From Income    |
| > Tax (Form 990) information return.                                  |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| > ***Exempt Organizations Function's Oversight of Tax Exempt          |
| > Organizations Involved With Hurricane Katrina Relief***             |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Assess the adequacy of the EO function's       |
| > efforts to ensure new tax exempt organizations providing assistance |
| > to individuals affected by Hurricane Katrina have been properly     |
| > approved and that referrals of potentially abusive charitable       |
| > organizations are given priority treatment.                         |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| > ***Exempt Organizations Function's Efforts to Address Credit        |
| > Counseling Abuses***                                                |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Assess the EO function's efforts to address    |
| > abusive activities by tax exempt credit counseling agencies.        |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| > ***Statistical Analysis of the Exempt Organizations Function's      |
| > Enforcement Activities***                                           |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Review relevant statistical data of the EO     |
| > function's enforcement activities for Fiscal Year (FY) 2002 to 2005 |
| > and analyze the data for trends.                                    |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| > ***Processing Tax Exempt Bond Payments to the 6400 General Ledger   |
| > Account***                                                          |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Determine if settlement payments from Internal |
| > Revenue Code Section 6700 examinations and the Voluntary Closing    |
| > Agreement Program were appropriately processed to the 6400 General  |
| > Ledger Account at the Ogden Submission Processing Center.           |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| > ***Use of Error Account Closures in the Tax Exempt Bond Office***   |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Determine if actions to close Tax Exempt Bond  |
| > examinations by the use of Disposal Code 33 (Opened in Error) and   |
| > re-establish the cases as new examinations were appropriate and     |
| > complied with IRS guidelines.                                       |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| > ***Statistical Portrayal of the Indian Tribal Governments Office's  |
| > Enforcement Activities***                                           |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Review relevant statistical data of the Indian |
| > Tribal Governments (ITG) Office's enforcement activities for FYs    |
| > 2002 to 2005 and analyze the data for trends.                       |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| > ***Indian Tribal Governments Office's Tip Compliance Program***     |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Determine if the implementation of the ITG     |
| > Office's Tip Compliance Program is consistent with the IRS' Tip     |
| > Compliance Program and if it is administered effectively to         |
| > identify and secure Tip rate agreements for tribal entities.        |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| > ***Federal, State, and Local Governments Office's Efforts to        |
| > Identify Its Customers (Follow-up)***                               |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Assess the effectiveness of Federal, State,    |
| > and Local Governments (FSLG) management's corrective actions to     |
| > accurately identify FSLG customers.                                 |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| > ***Federal, State, and Local Governments Office's Efforts to        |
| > Develop a Workload Selection System***                              |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Assess the FSLG office's progress in           |
| > developing a workload selection system that identifies and          |
| > prioritizes the compliance activity cases with the highest risk of  |
| > noncompliance.                                                      |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| > ***Capping Report: Tax Exempt and Government Entities Division      |
| > Customer Account Services Function's Service to Customers***        |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Assess the Tax Exempt and Government Entities  |
| > (TE/GE) Division Customer Account Services function's service to    |
| > customers in providing timely, accurate, and complete information   |
| > that meets the needs of TE/GE Division customers.                   |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| > ***Effectiveness of the Tax Exempt and Government Entities          |
| > Division's Oversight for User Fee Payment Processing***             |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Determine the effectiveness of the TE/GE       |
| > Division's oversight for ensuring timely processing and             |
| > safeguarding of user fee payment information.                       |
+-----------------------------------------------------------------------+

[]{#App12 .anchor}**Appendix XII**

+-----------------------------------------------------------------------+
| > **List of Planned Audits for Fiscal Year 2006\                      |
| > Wage and Investment Income Programs**                               |
+-----------------------------------------------------------------------+

*Five of the planned audits for the Wage and Investment Income Programs
Unit are in response to the Internal Revenue Service (IRS) Restructuring
and Reform Act of 1998 (RRA 98)*[^36] *statutory reporting requirements.
One other audit is in response to H.R. 3058, part of the Transportation,
Treasury, Housing and Urban Development, the Judiciary, the District of
Columbia, and Independent Agencies Appropriations Act, 2006.*

  -----------------------------------------------------------------------
  ***Internal Controls Over Processing Payments in the Teller Units***

  **Audit Objective:** Determine if internal controls over processing
  payments at teller units are sufficient to prevent loss, theft, or
  embezzlement*.*
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Stakeholder Partnerships, Education and Communications' Effect on
  Voluntary Compliance***

  **Audit Objective:** Determine if Stakeholder Partnership, Education
  and Communications can measure the effect of its outreach and education
  on taxpayer compliance.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Taxpayer Experience with Tax Law Assistance 2006 Filing Season***

  **Audit Objective:** Determine the quality of customer service the IRS
  provides taxpayers that seek assistance with tax law questions*.*
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***End-to-End Publishing***

  **Audit Objective:** Determine if End-To-End Publishing fosters
  standardization, reduces duplication of effort, and minimizes manual
  steps in the development, publishing, and distribution process.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Field Assistance 2006 Filing Season Readiness***

  **Audit Objective:** Determine if the W & I Division Field Assistance
  Office has adequately planned for the 2006 Filing Season.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Toll-Free Access 2006 Filing Season***

  **Audit Objective:** Evaluate toll-free telephone access during the
  2006 Filing Season including the effect of customer service
  consolidations.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Picture Them at Home***

  **Audit Objective:** Identify the best practices of the "Picture Them
  at Home" Program and determine if opportunities exist to expand the
  Program to assist in the recovery of missing children and promote tax
  compliance.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Taxpayer Assistance Center Closure Model* *(Statutory Review)***

  **Audit Objective:** Determine if the Taxpayer Assistance Center (TAC)
  Closure Model effectively achieves the IRS goal of identifying which
  TACs to close.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Volunteer Income Tax Assistance - 2006 Filing Season (Follow‑up)***

  **Audit Objective:** Determine if Volunteer Income Tax Assistance sites
  are accurately preparing tax returns and adequately providing privacy
  and security over taxpayer data.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Wage and Investment Division Electronic Customer Service Strategy***

  **Audit Objective:** Determine if the IRS is maximizing its use of
  electronic methods to increase the efficiency in which it provides tax
  law assistance to taxpayers.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Tax Law Changes Impacting Tax Returns***

  **Audit Objective:** Determine if the W&I Division accurately updated
  tax forms, publications and computer programming related to tax law
  changes that affect\
  Tax Year 2005 individual income tax returns.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***2006 Filing Season Implementation***

  **Audit Objective:** Determine if the W&I Division timely and
  accurately processed individual paper and electronic tax returns during
  the 2006 Filing Season, and if the W&I Division took effective
  corrective actions to conditions reported in previous audits.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Impact of the Elimination of Telefile***

  **Audit Objective:** Determine if the W&I Division has plans to reduce
  both the burden to taxpayers affected by the elimination of Telefile
  and to promote the use of alternative electronic filing sources for the
  2006 Filing Season.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Implementation of Updated Customer Account Data Engine Release***

  **Audit Objective:** Determine if the Customer Account Data Engine
  accurately and timely handles the additional workload of Forms 1040 and
  1040A, along with other changes to the software programs.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Barriers to Increasing Electronic Filing***

  **Audit Objective:** Determine if the IRS' strategy towards making
  electronic submission the preferred means for filing individual income
  tax returns has been affected by less stringent internal controls that
  may be in existence for processing paper tax returns at the IRS
  Submission Processing Centers.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Tax Implications of the Aging Population***

  **Audit Objective:** Determine if the Wage and Investment Division has
  a strategy to address the needs of the aging population and the impact
  of increasing retirement and pension incomes, medical expense
  deductions, and other tax issues related to the aging of the
  population.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Identity Theft of Dependent Social Security Numbers***

  **Audit Objective:** Determine if the IRS has adequate controls in
  place to identify the potential identity theft of dependent Social
  Security Numbers and prevent the claiming of fraudulent tax credits and
  exemptions.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Accuracy of Individual Income Tax Credits***

  **Audit Objective:** Determine if the W&I Division has sufficient
  controls to ensure tax credits claimed on individual income tax returns
  are accurate.

  ***Processing Applications for Tentative Refunds***

  **Audit Objective:** Determine if the IRS timely processes individual
  Applications for Tentative Refund (Form 1045) to avoid payment of
  unnecessary interest.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Assessment of the User Fee Program in the Wage & Investment
  Division***

  **Audit Objective:** Determine if the IRS is fully utilizing user fees
  for special services to W&I taxpayers, and accurately accounting for
  W&I user fees already in place.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Assessment of Alternative Minimum Tax***

  **Audit Objective:** Determine if IRS computer systems accurately
  identify and compute the Alternative Minimum Tax (AMT) for taxpayers
  who may be required to pay AMT, or those who claim AMT but may not be
  required to pay.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Processing of Undelivered Refunds***

  **Audit Objective:** Determine if the IRS takes reasonable actions
  necessary to resolve undeliverable refund conditions, and that the
  actions taken are efficient and effective.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Impact of Customer Account Services Consolidation***

  **Audit Objective:** Determine if the IRS has successfully leveraged
  the consolidation of Customer Account Services functions to produce
  cost and resource savings.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Effectiveness of the Correspondence Imaging System***

  **Audit Objective:** Determine if the Correspondence Imaging System is
  meeting the expected accuracy and production goals and achieving the
  expected cost savings.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Implementation of New Earned Income Tax Credit Programs***

  **Audit Objective:** Determine if the IRS has successfully implemented
  new Earned Income Tax Credit programs based on Proof of Concept tests
  conducted during the past\
  3 years.

  ***Withholding Compliance***

  **Audit Objective:** Evaluate the actions taken to ensure that the
  Withholding Compliance Program is an effective first step in
  establishing voluntary compliance across the taxpayer population.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Taxpayer Awareness of Installment Agreements***

  **Audit Objective:** Evaluate the IRS' process for ensuring that
  taxpayers are aware of their option for paying delinquent taxes through
  installment agreements.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Installment Agreements User Fees***

  **Audit Objective:** Evaluate the effectiveness of controls over
  processing installment agreement user fees and correcting duplicate
  fees.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Implementation of Improper Payment Information Act***

  **Audit Objective:** Evaluate whether the current process is
  effectively identifying and reducing erroneous payments.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Collection Statute Expiration Dates***

  **Audit Objective:** Evaluate the IRS' process for ensuring that
  Collection Statute Expiration Dates are correctly calculated.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Restrictions on the Use of Enforcement Statistics (Statutory
  Review)***

  **Audit Objectives:** Determine whether the IRS is complying with
  restrictions on the use of enforcement statistics to evaluate
  employees.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Taxpayer Designations - Illegal Tax Protester and Non-filer
  Designation (Statutory Review)***

  **Audit Objective:** Determine whether the IRS is in compliance with
  RRA 98 § 3707 and its own guidelines to not designate taxpayers as
  Illegal Tax Protesters or any similar designation.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Assessment Statute Extensions (Statutory Review)***

  **Audit Objective:** Determine whether the IRS is complying with legal
  and internal guidelines when requesting and processing assessment
  statute extensions.
  -----------------------------------------------------------------------

  -------------------------------------------------------------------------------------------------------------------------------------------
  ***Disclosure of Collection Activities With Respect to Joint Returns (Statutory Review)***

  **Audit Objective:** [Determine whether the IRS is complying with the provisions of the Taxpayer Bill of Rights and 26 United States Code
  (U.S.C.)
  § 6103(e)(8).](../../../../../../../../D:%5CMyStuff%5CAnnualPlan%5CFY2005%5CSpreadsheets%5CWIP%5CBaker-8132004.xls#RANGE!K18%23RANGE!K18)
  -------------------------------------------------------------------------------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Restrictions on Directly Contacting Taxpayers (Statutory Review)***

  **Audit Objective:** Determine whether the IRS is in compliance with
  26 U.S.C. § 7521(b)(2) and (c) regarding directly contacting taxpayers.
  -----------------------------------------------------------------------

[]{#App13 .anchor}**Appendix XIII**

+-----------------------------------------------------------------------+
| > **List of Planned Audits for Fiscal Year 2006\                      |
| > Small Business and Corporate Programs**                             |
+-----------------------------------------------------------------------+

*Three of the planned audits for the Small Business and Corporate
Programs Unit are in response to the Internal Revenue Service (IRS)
Restructuring and Reform Act of 1998 (RRA 98)* [^37] *statutory
reporting requirements.*

  -----------------------------------------------------------------------
  ***Seizures (Statutory Review)***

  **Audit Objective:** Determine whether seizures conducted by the IRS
  comply with legal guidelines set forth in the Internal Revenue Code
  (IRC) and with the IRS' own internal guidelines.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Liens (Statutory Review)***

  **Audit Objective:** Determine whether liens issued by the IRS comply
  with legal guidelines set forth in the IRC and related procedures in
  the Federal Tax Lien Handbook.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Levies (Statutory Review)***

  **Audit Objective:** Determine whether levies issued by the IRS comply
  with legal guidelines set forth in IRC.
  -----------------------------------------------------------------------

+-----------------------------------------------------------------------+
| ***Recent Changes to Schedule K-1 Matching Program***                 |
+-----------------------------------------------------------------------+
| **Audit Objective:** Determine whether the IRS' steps to improve the  |
| matching program for Partner's Share of Income, Credits, Deductions,  |
| etc. (Form 1065 Schedule K-1), Shareholder's Share of Income,         |
| Credits, Deductions, etc. (Form 1120S Schedule K-1), and              |
| Beneficiary's Share of Income, Deductions, Credits, etc. (Form 1041   |
| Schedule K-1) were effective to: (1) reduce unnecessary notices; (2)  |
| ensure the accuracy of notices;\                                      |
| (3) increase the rate of assessments made on Automated Underreporter  |
| Program cases related to K-1 income; (4) reduce the percentage of IRS |
| errors when processing paper                                          |
|                                                                       |
| K-1s; and (5) increase the number of K-1s input electronically.       |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  ***Trend Analysis - Taxpayer Notice Code***

  **Audit Objective:** Identify taxpayers that are receiving the same
  notice for 2 to 3 years and determine how the IRS can better educate
  these taxpayers to bring an end to them making the same errors each
  year.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Small Business Filing Form 8453***

  **Audit Objective:** Determine how many taxpayers who did not file a
  Signature and Declaration for Electronic Filing (Forms 8453) were being
  investigated by Criminal Investigation. In addition, assess the
  ramifications of not having a Form 8453 filed with a tax return.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Employee Identification Numbers - Phase II***

  **Audit Objective:** Determine the compliance impact of millions of
  Employee Identification Numbers issued by the IRS in recent years that
  have not been used by taxpayers to file business tax returns.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Management of Joint Committee Case Inventory***

  **Audit Objective:** Determine whether Joint Committee cases are being
  identified, processed timely, and efficiently/effectively reviewed.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***American Jobs Creation Act - Provision 314 - Farmers/Fishermen
  Income Averaging***

  **Audit Objective:** Determine if the IRS effectively implemented
  provisions of the American Jobs Creation Act[^38] (AJCA) to assist
  taxpayers in complying with the law and to ensure that IRS processing
  and compliance programs effectively identify noncompliance.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***IRS Policy for Federal Tax Deposits Sent to Wrong IRS Addresses***

  **Audit Objective:** Determine the reasoning behind, and the effect of,
  the IRS' current policy to reject Federal Tax Deposit payments sent to
  the wrong address.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Amnesty - Phase II***

  **Audit Objective:** Evaluate information from state tax amnesty
  programs and prior studies and present the potential risks and benefits
  of implementing a Federal tax amnesty.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Charitable Contributions - Motor Vehicles, Boats and
  Airplanes-Provision 884***

  **Audit Objective:** Determine if the IRS effectively implemented
  provisions of the AJCA, regarding the substantiation and valuation of
  assets gifted after December 31, 2005, to assist taxpayers in complying
  with the law, and, to ensure that IRS processing and compliance
  programs effectively identify noncompliance.
  -----------------------------------------------------------------------

+-----------------------------------------------------------------------+
| > ***Charitable Contributions - Increased Reporting for Noncash       |
| > Charitable Contributions-Provision 883***                           |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Determine if the IRS effectively implemented   |
| > provisions of the AJCA, regarding the substantiation and valuation  |
| > of assets gifted after December 31, 2005, to assist taxpayers in    |
| > complying with the law, and, to ensure that IRS processing and      |
| > compliance programs effectively identify noncompliance.             |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| > ***Review of the Use of Form 4137 to Collect Federal Insurance      |
| > Contribution Act Tax on Tips and Wages***                           |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Determine if taxpayers are properly using the  |
| > Social Security and Medicare Tax on Unreported Tip Income (Form     |
| > 4137) to report Federal Insurance Contributions Act taxes.          |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  ***Penalty for Failing to Disclose Reportable Transactions-Provision
  811***

  **Audit Objective:** Determine if the IRS effectively implemented
  provisions of the AJCA, regarding the imposition of penalties for
  failing to report certain tax shelter or other specifically identified
  tax avoidance transactions, to assist taxpayers in complying with the
  law, and, to ensure that IRS processing and compliance programs
  effectively identify noncompliance.
  -----------------------------------------------------------------------

+-----------------------------------------------------------------------+
| > ***RRA 98 - Forms and Publications***                               |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Determine if the IRS effectively implemented   |
| > RRA 98 sections 3503 and 3508 to include information in "Your       |
| > Rights as a Taxpayer" (Publication 1) and general tax forms         |
| > instruction booklets to assist taxpayers in understanding their     |
| > rights.                                                             |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| > ***RRA 98 - Release of Wage Levies***                               |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Determine if the IRS effectively implemented   |
| > RRA 98 section 3432 which calls for the release of wage levies once |
| > the IRS determines that the tax owed is uncollectible.              |
+-----------------------------------------------------------------------+

+-----------------------------------------------------------------------+
| > ***RRA 98 - Approval of Jeopardy Assessments and Levies***          |
+-----------------------------------------------------------------------+
| > **Audit Objective:** Determine if the IRS effectively implemented   |
| > RRA 98 section 3434 which calls for Chief Counsel to approve all    |
| > jeopardy assessments and jeopardy levies.                           |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  ***RRA 98 - State Tax Refund Offset Program***

  **Audit Objective:** Determine if the IRS effectively implemented RRA
  98 section 3711 which permits states to participate in the Tax Refund
  Offset Program for specified past due, legally enforceable state income
  tax debts.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***National Research Project - Flow-through***

  **Audit Objective:** Evaluate the effectiveness of the flow-through
  pilot and determine how results will be used to plan for the actual
  National Research Project.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Centralized Offers-In-Compromise -Schedule C***

  **Audit Objective:** Determine whether the Centralized
  Offer-In-Compromise function properly resolves offers for Profit or
  Loss from business (Schedule C) and evaluate the impact that the
  program will have on the Collection Field function (CFf).
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Compliance Trends***

  **Audit Objective:** Provide statistical information and trend analyses
  pertaining to examination and collection activities.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Private Collection Agencies (Phase II)***

  **Audit Objective:** Evaluate the effectiveness of the initial phase of
  the Private Collection Agencies initiative and ensure that adjustments
  are made before full implementation begins.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Centralized Lien Processing***

  **Audit Objective:** Evaluate controls to determine whether liens are
  properly sent to counties for recording and payments to counties are
  properly made.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Campus Delinquency Investigations***

  **Audit Objective:** Determine whether tax examiners are taking
  effective actions and utilizing all of the tools available when they
  are unable to resolve a delinquency investigation.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Fraud Referrals***

  **Audit Objective:** Evaluate the effectiveness of the Fraud Referral
  Specialists program and determine whether cases are referred when
  appropriate.
  -----------------------------------------------------------------------

+-----------------------------------------------------------------------+
| ***Partial Pay Installment Agreements***                              |
+-----------------------------------------------------------------------+
| **Audit Objective:** Determine whether decisions to accept Partial    |
| Pay Installment Agreements are proper and evaluate the effect that    |
| the program has on Centralized                                        |
|                                                                       |
| Offer-In-Compromise and CFf resources.                                |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------
  ***Evaluation of Information Items***

  **Audit Objective:** Determine whether the Examination classification
  function is effectively using and controlling information received from
  other sources.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Review of the Commissioner's Art Advisory Panel***

  **Audit Objective:** Determine whether art items are properly referred
  to the advisory panel and that the panel's appraisals are properly used
  in completing the return examination.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Currently Not Collectible - Hardships***

  **Audit Objective:** Determine whether Revenue Officers follow
  Currently Not Collectible procedures when writing off accounts as not
  collectible and confirm balances due with taxpayers.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Puerto Rico Collection Activities***

  **Audit Objective:** Evaluate controls over high risk collection
  activities in the Puerto Rico office including Remittances,
  Offers-In-Compromise, Currently Not Collectible accounts, closed
  Taxpayer Delinquency Investigations, and open Taxpayer Delinquent
  Accounts.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***The IRS Use of Internal Revenue Code 7623 to Help Fight Tax Fraud***

  **Audit Objective:** Determine the effectiveness of the Whistleblower
  Program to help fight tax fraud through the Use of IRC 7623.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Trends in the Examination of Flow-through Returns***

  **Audit Objective:** Analyze the examination trends in the audits of
  flow-through entities to determine whether Business Results are being
  effectively and efficiently achieved.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***The IRS Use of Penalties to Encourage Compliance with the Filing of
  Forms 5471 and 5472***

  **Audit Objective:** Evaluate whether the IRS sufficiently uses
  penalties to encourage filing compliance for entities with foreign
  reporting requirements.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Evaluation of the Progress of the Large & Mid-Size Business' Human
  Capital Initiatives***

  **Audit Objective:** Determine whether the IRS has implemented
  effective actions and achieved measurable results from its Strategic
  Human Capital initiatives.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Review of Unpaid Taxes Material Weakness***

  **Audit Objective:** Evaluate whether the IRS request to downgrade the
  material weakness to a reportable condition is warranted based on
  evidence that there is no longer a material weakness.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***The IRS' Efforts to Improve/Expand Tip Reporting***

  **Audit Objective:** Evaluate the IRS' efforts to improve or expand tip
  income reporting agreements.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Partner Notification of Designation of Tax Matters Partner***

  **Audit Objective:** Determine whether the Service has adequate and
  effective controls to ensure compliance with I.R.C. § 6231(a)(7).
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Efficacy of National Research Project Revised Formulas in Modeling
  Non-Compliant Work and Alignment with Emerging Areas of the Tax Gap***

  **Audit Objective:** Evaluate the efficacy of National Research Project
  revised formulas in modeling non-compliant work and alignment with
  emerging areas of the tax gap.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Analysis of Unmatched Information Returns File***

  **Audit Objective:** Determine what actions the IRS has taken as a
  result of study results and perform data analysis of what comprises the
  unmatched Information Returns Program file.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***The IRS' Ability to Improve Voluntary Compliance Rate***

  **Audit Objective:** Determine whether the IRS' compliance efforts and
  strategies will enable it to achieve the 90 percent voluntary
  compliance rate goal by 2010.
  -----------------------------------------------------------------------

  -----------------------------------------------------------------------
  ***Review of the IRS' High Income Taxpayer Examination Strategy***

  **Audit Objective:** Determine whether the IRS' examination of
  individual tax returns with Total Positive Income of \$100,000 or more
  meets congressional intent, is efficient, and results in effective
  coverage.
  -----------------------------------------------------------------------

[]{#App14 .anchor}**Appendix XIV**

+-----------------------------------------------------------------------+
| > **List of Planned Audits for Fiscal Year 2006\                      |
| > By Management Challenges, Internal Revenue Service Goals            |
| > and Objectives, Presidential Initiatives, and                       |
| > Strategic Planning Questions**                                      |
+-----------------------------------------------------------------------+

  ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
  **[Planned                **[Statutory /\                **[Management              **[IRS Goals and            **[Presidential             **[Strategic Planning
  Audit]{.smallcaps}**      Discretionary]{.smallcaps}**   Challenge]{.smallcaps}**   Objectives]{.smallcaps}**   Initiative]{.smallcaps}**   Questions]{.smallcaps}**
  ------------------------- ------------------------------ -------------------------- --------------------------- --------------------------- --------------------------
                            See [Appendix XV](#App15) for                                                                                     
                            definitions of the codes.                                                                                         

                                                                                                                                               

  Information Systems                                                                                                                         
  Programs                                                                                                                                    

  ***Filing and Payment     S                              c02                        g3-2                        EG                          i04
  Compliance Project                                                                                                                          
  Review***                                                                                                                                   

  ***Program Management     S                              c02                        g3-2                        EG                          i04
  Transition from the PRIME                                                                                                                   
  Contractor to the                                                                                                                           
  Business Systems                                                                                                                            
  Modernization Office***                                                                                                                     

  ***Annual Business        S                              c02                        g3-2                        EG                          i04
  Systems Modernization                                                                                                                       
  Assessment***                                                                                                                               

  ***Role and Cost of the   S                              c02                        g3-2                        EG                          i04
  Federally Funded Research                                                                                                                   
  and Development Center in                                                                                                                   
  the Business Systems                                                                                                                        
  Modernization Program***                                                                                                                    

  ***Establishment of the   S                              c02                        g3-2                        EG                          i04
  Enterprise Services                                                                                                                         
  Organization***                                                                                                                             

  ***Contracting Processes  S                              c02                        g3-2                        EG                          i05
  (Follow-up)***                                                                                                                              

  ***Customer Account Data  S                              c02                        g3-2                        EG                          i04
  Engine Project Review***                                                                                                                    

  ***Modernized E-File      S                              c02                        g3-2                        EG                          i04
  Development Project                                                                                                                         
  Review***                                                                                                                                   

  ***Establishment of the   S                              c02                        g3-2                        EG                          i04
  Requirements Management                                                                                                                     
  Office***                                                                                                                                   

  ***Accounting for         S                              c02                        g3-2                        EG                          i04
  Business Systems                                                                                                                            
  Modernization Funding***                                                                                                                    

  ***Business Systems       D                              c02                        g3-2                        EG                          i05
  Development Testing                                                                                                                         
  Processes***                                                                                                                                

  ***Infrastructure Shared  S                              c02                        g3-2                        EG                          i04
  Services Program                                                                                                                            
  Review***                                                                                                                                   

  ***Enterprise Operations  D                              c02                        g3-2                        EG                          i05
  Use of Contractors***                                                                                                                       

  ***IRS' Use of            D                              c02                        g3-2                        EG                          i05
  Telecommunications                                                                                                                          
  Services Offered through                                                                                                                    
  the Department of the                                                                                                                       
  Treasury Contract***                                                                                                                        

  ***Quality Metrics and    D                              c02                        g3-2                        EG                          i05
  Resource Allocation***                                                                                                                      

  ***Status of Legacy       D                              c02                        g3-2                        EG                          i05
  Systems and Aging                                                                                                                           
  Infrastructure***                                                                                                                           

  ***Task Order Audit:      S                              c02                        g3-2                        EG                          i04
  Architecture and                                                                                                                            
  Integration***                                                                                                                              

  ***Federal Information    S                              c01                        g3-3                        EG                          i06
  Security Management                                                                                                                         
  Act***                                                                                                                                      

  ***Security Over Health   S                              c01                        g3-3                        EG                          i06
  and Human Services                                                                                                                          
  Data***                                                                                                                                     

  ***Mission Assurance &    S                              c01                        g3-3                        EG                          i06
  Security Services                                                                                                                           
  Responsibilities***                                                                                                                         

  ***Mission Assurance &    S                              c01                        g3-3                        EG                          i06
  Security Services Office                                                                                                                    
  of Privacy***                                                                                                                               

  ***Homeland Security      S                              c01                        g3-3                        EG                          i06
  Presidential Directive-12                                                                                                                   
  Personal Identification                                                                                                                     
  Verification***                                                                                                                             

  ***Background             S                              c01                        g3-3                        EG                          i06
  Investigations***                                                                                                                           

  ***Sensitive Data Stored  S                              c01                        g3-3                        EG                          i06
  on Electronic or Optical                                                                                                                    
  Media***                                                                                                                                    

  ***Internet Gateways***   S                              c01                        g3-3                        EG                          i06

  ***Wireless               S                              c01                        g3-3                        EG                          i06
  (Follow-up)***                                                                                                                              

  ***Critical               S                              c01                        g3-3                        EG                          i06
  Infrastructure                                                                                                                              
  Protection***                                                                                                                               

  ***Infrastructure         S                              c01                        g3-3                        EG                          i06
  Components and                                                                                                                              
  Services***                                                                                                                                 

  ***Security over Remote   S                              c01                        g3-3                        EG                          i06
  Systems Administration***                                                                                                                   

  ***Modernization Audit    S                              c01                        g3-3                        EG                          i06
  Trails***                                                                                                                                   

  ***Database Controls***   S                              c01                        g3-3                        EG                          i06

  ***IRS Electronic Mail    S                              c01                        g3-3                        EG                          i06
  System***                                                                                                                                   

  ***Online Integrated Data S                              c01                        g3-3                        EG                          i06
  Retrieval System                                                                                                                            
  Violation Reports***                                                                                                                        

  ***Capital                S                              c01                        g3-3                        EG                          i06
  Expenditures***                                                                                                                             

  ***Computer Security      S                              c01                        g3-3                        EG                          i06
  Material Weaknesses***                                                                                                                      

  ***Patch Management       S                              c01                        g3-3                        EG                          i06
  Capping Report***                                                                                                                           

  ***Internet Protocol      S                              c01                        g3-3                        EG                          i06
  Version 6***                                                                                                                                

  Headquarters Operations                                                                                                                     
  and Exempt Organizations                                                                                                                    
  Programs                                                                                                                                    

  ***Voucher/Invoice        D                              c08                        g3-2                        IM                          i05
  Audits - Various                                                                                                                            
  Contractors***                                                                                                                              

  ***Assistance to Contract D                              c08                        g3-2                        IM                          i05
  Fraud Investigations***                                                                                                                     

  ***Defense Contract Audit S                              c08                        g3-2                        IM                          i05
  Agency Contract                                                                                                                             
  Oversight***                                                                                                                                

  ***Federal Financial      S                              c03                        g3-2                        IM                          i03
  Management Improvement                                                                                                                      
  Act of 1996 Remediation                                                                                                                     
  Plan***                                                                                                                                     

  ***Working Capital        D                              c03                        g3-4                        IM                          i05
  Fund***                                                                                                                                     

  ***Automated Trust Fund   D                              c03                        g3-2                        IM                          i03
  Recovery Program***                                                                                                                         

  ***Federal Agency         D                              c06                        g2-4                        IM                          i03
  Employment Tax                                                                                                                              
  Delinquencies***                                                                                                                            

  ***Reimbursement of       D                              c03                        g3-4                        IM                          i05
  Administrative Expenses                                                                                                                     
  for Processing Federal                                                                                                                      
  Unemployment Tax Act and                                                                                                                    
  Federal Insurance                                                                                                                           
  Contribution Act Taxes***                                                                                                                   

  ***Trends in Criminal     D                              c06                        g2-3                        NE                          i01
  Investigation Activities                                                                                                                    
  Fiscal Years 2000-2005***                                                                                                                   

  ***Fraud Detection        D                              c08                        g2-3                        NE                          i01
  Centers - Questionable                                                                                                                      
  Refund Program***                                                                                                                           

  ***Fraud Detection        D                              c06                        g2-2                        NE                          i01
  Centers - Return Preparer                                                                                                                   
  Program***                                                                                                                                  

  ***E-Crimes Program***    D                              c06                        g2-3                        NE                          i01

  ***Parallel               D                              c06                        g2-3                        NE                          i01
  Investigations***                                                                                                                           

  ***Effectiveness of the   D                              c00                        g3-1                        NE                          i05
  Office of Research,                                                                                                                         
  Analysis and                                                                                                                                
  Statistics***                                                                                                                               

  ***Freedom of Information S                              c09                        g-0                         NE                          i02
  Act Denials***                                                                                                                              

  ***Appeals \-- Collection S                              c09                        g-0                         NE                          i02
  Due Process***                                                                                                                              

  ***Validation of Cost     D                              c03                        g3-4                        CS                          i03
  Savings***                                                                                                                                  

  ***Appeals \-- Campus     D                              c07                        g3-1                        NE                          i02
  Operations***                                                                                                                               

  ***Chief Counsel \--      D                              c07                        g-0                         NE                          i02
  Advanced Case Resolution                                                                                                                    
  Program***                                                                                                                                  

  ***Office of Professional D                              c07                        g2-2                        NE                          i02
  Responsibility \--                                                                                                                          
  Enrolled Agent Program***                                                                                                                   

  ***Taxpayer Advocate      D                              c07                        g-0                         NE                          i02
  Service \-- Operations                                                                                                                      
  Assistance Requests***                                                                                                                      

  ***Taxpayer Complaints*** S                              c09                        g-0                         NE                          i00

  ***Human Capital Office   D                              c10                        g3-4                        HC                          i05
  Resource Optimization                                                                                                                       
  Study***                                                                                                                                    

  ***Enterprise Learning    D                              c10                        g3-1                        HC                          i05
  Management System***                                                                                                                        

  ***Government Performance D                              c03                        g3-1                        BP                          i03
  and Results Act***                                                                                                                          

  ***Removal of Learning    D                              c10                        g3-4                        CS                          i03
  and Education from                                                                                                                          
  Competitive Sourcing***                                                                                                                     

  ***Implementation of      D                              c10                        g3-1                        BP                          i03
  Paybanding***                                                                                                                               

  ***Review of the IRS'     D                              c00                        g-0                         EG                          i03
  Migration to Electronic                                                                                                                     
  Travel Services***                                                                                                                          

  ***Review of the Public   D                              c00                        g-0                         HC                          i00
  Transportation Subsidy                                                                                                                      
  Program***                                                                                                                                  

  ***Tax Exempt             D                              c02                        g3-2                        EG                          i04
  Determination System                                                                                                                        
  Processing of Employee                                                                                                                      
  Plans Determination                                                                                                                         
  Letters***                                                                                                                                  

  ***Implementation of the  D                              c06                        g2-4                        NE                          i01
  Employee Plans Compliance                                                                                                                   
  Unit***                                                                                                                                     

  ***Statistical Analysis   D                              c06                        g2-4                        NE                          i01
  of the Employee Plans                                                                                                                       
  Function's Enforcement                                                                                                                      
  Activities***                                                                                                                               

  ***Employee Plans         D                              c06                        g2-4                        NE                          i01
  Function's Process for                                                                                                                      
  Evaluating Referrals of                                                                                                                     
  Noncompliance***                                                                                                                            

  ***Impact of the Employee D                              c06                        g2-4                        NE                          i01
  Plans Function's Focused                                                                                                                    
  Examination Initiative***                                                                                                                   

  ***Exempt Organizations   D                              c06                        g2-4                        BP                          i01
  Function's Efforts to                                                                                                                       
  Address Excessive                                                                                                                           
  Executive Compensation***                                                                                                                   

  ***Exempt Organizations   D                              c06                        g2-4                        NE                          i01
  Function's Oversight of                                                                                                                     
  Tax Exempt Organizations                                                                                                                    
  Involved With Hurricane                                                                                                                     
  Katrina Relief***                                                                                                                           

  ***Exempt Organizations   D                              c06                        g2-4                        BP                          i01
  Function's Efforts to                                                                                                                       
  Address Credit Counseling                                                                                                                   
  Abuses***                                                                                                                                   

  ***Statistical Analysis   D                              c06                        g2-4                        NE                          i01
  of the Exempt                                                                                                                               
  Organizations Function's                                                                                                                    
  Enforcement Activities***                                                                                                                   

  ***Processing Tax Exempt  D                              c03                        g-0                         NE                          i05
  Bond Payments to the 6400                                                                                                                   
  General Ledger Account***                                                                                                                   

  ***Use of Error Account   D                              c06                        g2-4                        NE                          i01
  Closures in the Tax                                                                                                                         
  Exempt Bond Office***                                                                                                                       

  ***Statistical Portrayal  D                              c06                        g2-4                        NE                          i01
  of the Indian Tribal                                                                                                                        
  Governments Office's                                                                                                                        
  Enforcement Activities***                                                                                                                   

  ***Indian Tribal          D                              c06                        g2-4                        NE                          i01
  Governments Office's Tip                                                                                                                    
  Compliance Program***                                                                                                                       

  ***Federal, State, and    D                              c06                        g2-4                        NE                          i05
  Local Governments                                                                                                                           
  Office's Efforts to                                                                                                                         
  Identify Its Customers                                                                                                                      
  (Follow-up)***                                                                                                                              

  ***Federal, State, and    D                              c06                        g2-4                        NE                          i01
  Local Governments                                                                                                                           
  Office's Efforts to                                                                                                                         
  Develop a Workload                                                                                                                          
  Selection System***                                                                                                                         

  ***Capping Report: Tax    D                              c07                        g1-2                        BP                          i02
  Exempt and Government                                                                                                                       
  Entities Division                                                                                                                           
  Customer Account Services                                                                                                                   
  Function's Service to                                                                                                                       
  Customers***                                                                                                                                

  ***Effectiveness of the   D                              c03                        g-0                         NE                          i01
  Tax Exempt and Government                                                                                                                   
  Entities Division's                                                                                                                         
  Oversight for User Fee                                                                                                                      
  Payment Processing***                                                                                                                       

  Wage and Investment                                                                                                                         
  Income Programs                                                                                                                             

  ***Internal Controls Over D                              c07                        g1-1                        IM                          i02
  Processing Payments in                                                                                                                      
  the Teller Units***                                                                                                                         

  ***Stakeholder            D                              c07                        g1-1 g1-2                   BP                          i02
  Partnerships, Education                                                                                                                     
  and Communications'                                                                                                                         
  Effect on Voluntary                                                                                                                         
  Compliance***                                                                                                                               

  ***Taxpayer Experience    D                              c07                        g1-1                        NE                          i02
  with Tax Law Assistance                                                                                                                     
  2006 Filing Season***                                                                                                                       

  ***End-to-End             D                              c07                        g1-1 g3-2                   EG                          i02 i04
  Publishing***                                                                                                                               

  ***Field Assistance 2006  D                              c07                        g1-1                        NE                          i02
  Filing Season                                                                                                                               
  Readiness***                                                                                                                                

  ***Toll Free Access 2006  D                              c07 c09                    g1-1                        NE                          i02
  Filing Season***                                                                                                                            

  ***Picture Them at        D                              c07                        g1-1                        NE                          i02
  Home***                                                                                                                                     

  ***Taxpayer Assistance    S                              c07                        g1-1                        NE                          i02
  Center Closure Model***                                                                                                                     

  ***Volunteer Income Tax   D                              c07                        g1-1                        NE                          i02
  Assistance Tax Return                                                                                                                       
  Preparation 2006 Filing                                                                                                                     
  Season (Follow-up)***                                                                                                                       

  ***Wage and Investment    D                              c07                        g1-1 g1-2                   EG                          i02 i04
  Division Electronic                                                                                                                         
  Customer Service                                                                                                                            
  Strategy***                                                                                                                                 

  ***Tax Law Changes        D                              c04 c09                    g1-2 g1-3                   NE                          i02
  Impacting Tax Returns***                                                                                                                    

  ***2006 Filing Season     D                              c04 c09                    g1-2 g1-3                   NE                          i02
  Implementation***                                                                                                                           

  ***Impact of the          D                              c04 c09                    g1-1 g1-2                   NE                          i02 i04
  Elimination of                                                                                                                              
  Telefile***                                                                                                                                 

  ***Implementation of      D                              c04 c09                    g1-2 g1-3, g3-2             NE                          i02
  Updated Customer Account                                                                                                                    
  Data Engine Release***                                                                                                                      

  ***Barriers to Increasing D                              c04 c09                    g1-1 g1-2, g1-3             NE                          i02 i04
  Electronic Filing***                                                                                                                        

  ***Tax Implications of    D                              c04 c09                    g1-2 g1-3                   NE                          i02
  the Aging Population***                                                                                                                     

  ***Identity Theft of      D                              c09                        g1-2 g2-1                   NE                          i01 i02
  Dependent Social Security                                                                                                                   
  Numbers***                                                                                                                                  

  ***Accuracy of Individual D                              c04                        g1-2 g2-1                   NE                          i01 i02
  Income Tax Credits***                                                                                                                       

  ***Processing             D                              c04 c09                    g1-3                        NE                          i02
  Applications for                                                                                                                            
  Tentative Refunds***                                                                                                                        

  ***Assessment of the User D                              c00                        g-0                         NE                          i00
  Fee Program in the Wage &                                                                                                                   
  Investment Division***                                                                                                                      

  ***Assessment of          D                              c04 c09                    g1-2 g1-3                   NE                          i02
  Alternative Minimum                                                                                                                         
  Tax***                                                                                                                                      

  ***Processing of          D                              c04 c09                    g1-3                        NE                          i02
  Undelivered Refunds***                                                                                                                      

  ***Impact of Customer     D                              c00                        g3-4                        NE                          i02
  Account Services                                                                                                                            
  Consolidation***                                                                                                                            

  ***Effectiveness of the   D                              c02 c09                    g3-2                        NE                          i02 i04
  Correspondence Imaging                                                                                                                      
  System***                                                                                                                                   

  ***Implementation of New  D                              c04 c09                    g1-2                        NE                          i02
  Earned Income Tax Credit                                                                                                                    
  Program***                                                                                                                                  

  ***Withholding            D                              c06                        g2-1                        NE                          i01
  Compliance***                                                                                                                               

  ***Taxpayer Awareness of  D                              c06                        g1-2                        NE                          i02
  Installment Agreements***                                                                                                                   

  ***Installment Agreements D                              c06                        g1-3                        NE                          i02
  User Fees***                                                                                                                                

  ***Implementation of      D                              c08                        g-0                         IM                          i03
  Improper Payment                                                                                                                            
  Information Act***                                                                                                                          

  ***Collection Statute     D                              c09                        g1-3                        NE                          i02
  Expiration Dates***                                                                                                                         

  ***Restrictions on the    S                              c09                        g1-3                        NE                          i02
  Use of Enforcement                                                                                                                          
  Statistics***                                                                                                                               

  ***Taxpayer               S                              c09                        g1-3                        NE                          i02
  Designations - Illegal                                                                                                                      
  Tax Protester and                                                                                                                           
  Non-filer Designation***                                                                                                                    

  ***Assessment Statute     S                              c09                        g1-3                        NE                          i02
  Extensions***                                                                                                                               

  ***Disclosure of          S                              c09                        g1-3                        NE                          i02
  Collection Activities                                                                                                                       
  With Respect to Joint                                                                                                                       
  Returns***                                                                                                                                  

  ***Restrictions on        S                              c09                        g1-3                        NE                          i02
  Directly Contacting                                                                                                                         
  Taxpayers***                                                                                                                                

  Small Business and                                                                                                                          
  Corporate Programs                                                                                                                          

  ***Seizures***            S                              c09                        g2-1                        NE                          i01

  ***Liens***               S                              c09                        g2-1                        NE                          i01

  ***Levies***              S                              c09                        g2-1                        NE                          i01

  ***Recent Changes to      D                              c06                        g2-1                        NE                          i02
  Schedule K-1 Matching                                                                                                                       
  Program***                                                                                                                                  

  ***Trend Analysis -       D                              c04                        g1-1                        NE                          i01
  Taxpayer Notice Code***                                                                                                                     

  ***Small Business Filing  D                              c00                        g-0                         NE                          i01
  Form 8453***                                                                                                                                

  ***Employee               D                              c04                        g1-1                        EG                          i01
  Identification Numbers -                                                                                                                    
  Phase II***                                                                                                                                 

  ***Management of Joint    D                              c04                        g-0                         NE                          i02
  Committee Case                                                                                                                              
  Inventory***                                                                                                                                

  ***American Jobs Creation D                              c04                        g1-2                        NE                          i00
  Act - Provision 314 -                                                                                                                       
  Farmers/Fishermen Income                                                                                                                    
  Averaging***                                                                                                                                

  ***IRS Policy for Federal D                              c07                        g1-1                        NE                          i02
  Tax Deposits Sent to                                                                                                                        
  Wrong IRS Addresses***                                                                                                                      

  ***Amnesty - Phase II***  D                              c06                        g2-1                        NE                          i01

  ***Charitable             D                              c04                        g2-1                        NE                          i01
  Contributions - Motor                                                                                                                       
  Vehicles, Boats and                                                                                                                         
  Airplanes-Provision                                                                                                                         
  884***                                                                                                                                      

  ***Charitable             D                              c04                        g2-1                        NE                          i01
  Contributions - Increased                                                                                                                   
  Reporting for Noncash                                                                                                                       
  Charitable                                                                                                                                  
  Contributions-Provision                                                                                                                     
  883***                                                                                                                                      

  ***Review of the Use of   D                              c05                        g2-1                        NE                          i01
  Form 4137 to Collect                                                                                                                        
  Federal Insurance                                                                                                                           
  Contribution Act Tax on                                                                                                                     
  Tips and Wages***                                                                                                                           

  ***Penalty for Failing to D                              c04                        g2-3                        NE                          i00
  Disclose Reportable                                                                                                                         
  Transactions-Provision                                                                                                                      
  811***                                                                                                                                      

  ***RRA 98 - Forms and     D                              c04                        g1-1                        NE                          i02
  Publications***                                                                                                                             

  ***RRA 98 - Release of    D                              c04                        g1-1                        NE                          i02
  Wage Levies***                                                                                                                              

  ***RRA 98 - Approval of   D                              c04                        g1-1                        NE                          i02
  Jeopardy Assessments and                                                                                                                    
  Levies***                                                                                                                                   

  ***RRA 98 - State Tax     D                              c04                        g1-1                        NE                          i02
  Refund Offset Program***                                                                                                                    

  ***National Research      D                              c06                        g2-1                        NE                          i01
  Project - Flow-through***                                                                                                                   

  ***Centralized            D                              c06                        g2-1                        NE                          i01
  Offers-In-Compromise -                                                                                                                      
  Schedule C***                                                                                                                               

  ***Compliance Trends***   D                              c06                        g2-1                        NE                          i01

  ***Private Collection     D                              c09                        g2-1                        CS                          i01
  Agencies (Phase II)***                                                                                                                      

  ***Centralized Lien       D                              c06                        g2-1                        NE                          i01
  Processing***                                                                                                                               

  ***Campus Delinquency     D                              c06                        g2-1                        NE                          i01
  Investigations***                                                                                                                           

  ***Fraud Referrals***     D                              c06                        g2-1                        NE                          i01

  ***Partial Pay            D                              c06                        g2-1                        NE                          i01
  Installment Agreements***                                                                                                                   

  ***Evaluation of          D                              c06                        g2-1                        NE                          i01
  Information Items***                                                                                                                        

  ***Review of the          D                              c06                        g2-1                        NE                          i01
  Commissioner's Art                                                                                                                          
  Advisory Panel***                                                                                                                           

  ***Currently Not          D                              c06                        g2-1                        NE                          i01
  Collectible -                                                                                                                               
  Hardships***                                                                                                                                

  ***Puerto Rico Collection D                              c06                        g2-1                        NE                          i01
  Activities***                                                                                                                               

  ***The IRS Use of         D                              c06                        g2-1                        NE                          i01
  Internal Revenue Code                                                                                                                       
  7623 to Help Fight Tax                                                                                                                      
  Fraud***                                                                                                                                    

  ***Trends in the          D                              c06                        g2-1                        NE                          i01
  Examination of                                                                                                                              
  Flow-through Returns***                                                                                                                     

  ***The IRS Use of         D                              c06                        g2-1                        NE                          i01
  Penalties to Encourage                                                                                                                      
  Compliance with the                                                                                                                         
  Filing of Forms 5471 and                                                                                                                    
  5472***                                                                                                                                     

  ***Evaluation of the      D                              c05                        g3-1                        HC                          i03
  Progress of the Large &                                                                                                                     
  Mid-Size Business' Human                                                                                                                    
  Capital Initiatives***                                                                                                                      

  ***Review of Unpaid Taxes D                              c00                        g-0                         NE                          i01
  Material Weakness***                                                                                                                        

  ***The IRS' Efforts to    D                              c06                        g2-1                        NE                          i01
  Improve/Expand Tip                                                                                                                          
  Reporting***                                                                                                                                

  ***Partner Notification   D                              c06                        g2-1                        NE                          i01
  of Designation of Tax                                                                                                                       
  Matters Partner***                                                                                                                          

  ***Efficacy of National   D                              c06                        g2-1                        NE                          i01
  Research Project Revised                                                                                                                    
  Formulas in Modeling                                                                                                                        
  Non-Compliant Work and                                                                                                                      
  Alignment with Emerging                                                                                                                     
  Areas of the Tax Gap***                                                                                                                     

  ***Analysis of Unmatched  D                              c06                        g2-1                        NE                          i01
  Information Returns                                                                                                                         
  File***                                                                                                                                     

  ***The IRS' Ability to    D                              c00                        g2-1                        NE                          i01
  Improve Voluntary                                                                                                                           
  Compliance Rate***                                                                                                                          

  ***Review of the IRS'     D                              c00                        g2-1                        NE                          i01
  High Income Taxpayer                                                                                                                        
  Examination Strategy***                                                                                                                     
  ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

[]{#App15 .anchor}**Appendix XV**

+-----------------------------------------------------------------------+
| > **Codes Used in the List of Planned Audits for Fiscal Year 2006\    |
| > By Management Challenges, Internal Revenue Service Goals and        |
| > Objectives, Presidential Initiatives, and Strategic Planning        |
| > Questions**                                                         |
+-----------------------------------------------------------------------+

  -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
  **[Management                                       **[IRS Goals and                                            **[Presidential                                           **[Strategic Planning      
  Challenge]{.smallcaps}**                            Objectives]{.smallcaps}**                                   Initiative]{.smallcaps}**                                 Questions]{.smallcaps}**   
  -------------------------- ------------------------ --------------------------- ------ ------------------------ --------------------------- ------------------------ ---- -------------------------- ------------------------
  **[Issue]{.smallcaps}**    **[Code]{.smallcaps}**   **[Issue]{.smallcaps}**            **[Code]{.smallcaps}**   **[Issue]{.smallcaps}**     **[Code]{.smallcaps}**        **[Issue]{.smallcaps}**    **[Code]{.smallcaps}**

                                                                                                                                                                                                       

  Security of the IRS        c01                      **Goal 1: Improve Taxpayer                                  Strategic Management of                              HC   Is the IRS effective in    i01
                                                      Service**                                                   Human Capital                                             maximizing taxpayer        
                                                                                                                                                                            compliance?                

  Modernization of the IRS   c02                      Improve Service Options for g1-1                            Competitive Sourcing                                 CS   Is the IRS meeting its     i02
                                                      the Tax Paying Public                                                                                                 goal of improving taxpayer 
                                                                                                                                                                            service?                   

  Using Performance and      c03                      Facilitate Participation in g1-2                            Improved Financial                                   IM   Is the IRS advancing       i03
  Financial Information for                           the Tax System by All                                       Management                                                financial and management   
  Program and Budget                                  Sectors of the Public                                                                                                 reforms, including *The    
  Decisions                                                                                                                                                                 President's Management     
                                                                                                                                                                            Agenda*?                   

  Processing Returns and     c04                      Simplify the Tax Process    g1-3                            Expanded Electronic                                  EG   Is the IRS sufficiently    i04
  Implementing Tax Law                                                                                            Government                                                modernizing its            
  Changes During the Tax                                                                                                                                                    information technology and 
  Filing Season                                                                                                                                                             providing the intended     
                                                                                                                                                                            benefits to taxpayers?     

  Complexity of the Tax Law  c05                      **Goal 2: Enhance                                           Budget and Performance                               BP   Is the IRS adequately      i05
                                                      Enforcement of the Tax                                      Integration                                               supported with timely,     
                                                      Law**                                                                                                                 economical and effective   
                                                                                                                                                                            information and services?  

  Tax Compliance Initiatives c06                      Discourage and Deter        g2-1                            Other/Issues Unique to IRS                           NE   Is the IRS adequately      i06
                                                      Non-Compliance with                                                                                                   protecting its employees,  
                                                      Emphasis on Corrosive                                                                                                 facilities, data and       
                                                      Activity by Corporations,                                                                                             systems?                   
                                                      High-Income Individual                                                                                                                           
                                                      Taxpayers and Other                                                                                                                              
                                                      Contributors to the Tax Gap                                                                                                                      

  Providing Quality Taxpayer c07                      Ensure that Attorneys,      g2-2                                                                                      Other                      i00
  Service Operations                                  Accountants and Other Tax                                                                                                                        
                                                      Practitioners Adhere to                                                                                                                          
                                                      Professional Standards and                                                                                                                       
                                                      Follow the Law                                                                                                                                   

  Erroneous and Improper     c08                      Detect and Deter Domestic   g2-3                                                                                                                 
  Payments                                            and Off-Shore Based Tax and                                                                                                                      
                                                      Financial Criminal Activity                                                                                                                      

  Taxpayer Protection and    c09                      Deter Abuse within          g2-4                                                                                                                 
  Rights                                              Tax-Exempt and Governmental                                                                                                                      
                                                      Entities and Misuse of such                                                                                                                      
                                                      Entities by Third Parties                                                                                                                        
                                                      for Tax Avoidance or Other                                                                                                                       
                                                      Unintended Purposes                                                                                                                              

  Human Capital              c10                      **Goal 3: Modernize the IRS                                                                                                                      
                                                      through Its People,                                                                                                                              
                                                      Processes and Technology**                                                                                                                       

  Other                      c00                      Increase Organizational     g3-1                                                                                                                 
                                                      Capacity to Enable Full                                                                                                                          
                                                      Engagement and Maximum                                                                                                                           
                                                      Productivity of Employees                                                                                                                        

                                                      Modernize Information       g3-2                                                                                                                 
                                                      Systems to Improve Service                                                                                                                       
                                                      and Enforcement                                                                                                                                  

                                                      Ensure the Safety and       g3-3                                                                                                                 
                                                      Security of People,                                                                                                                              
                                                      Facilities and Information                                                                                                                       
                                                      Systems                                                                                                                                          

                                                      Modernize Business          g3-4                                                                                                                 
                                                      Processes and Align the                                                                                                                          
                                                      Infrastructure Support to                                                                                                                        
                                                      Maximize Resources Devoted                                                                                                                       
                                                      to Front-line Operations                                                                                                                         

                                                      Other                       g-0                                                                                                                  
  -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# 

#  DEPARTMENT OF THE TREASURY

# Office of the Inspector General for Tax Administration

**1125 15^TH^ Street, NW, Room 700A**

**Washington, D.C. 20005**

![](media/image2.png){width="2.6881944444444446in"
height="2.6881944444444446in"}

**For more information, please visit our website at:**

***www.treas.gov/tigta***

[^1]: *The President's Management Agenda, Fiscal Year 2002;
    [<http://www.whitehouse.gov/omb/budintegration/pma_index.html>
    ]{.smallcaps}*.

[^2]: The Customer Account Data Engine project is the foundation for
    managing taxpayer accounts in the IRS modernization plan.

[^3]: The tax return filing season is the period from January through
    mid-April when most individual income tax returns are filed.

[^4]: The IRS has initiated the National Research Program to measure
    taxpayers' voluntary compliance, to better approximate the tax gap,
    and to develop updated formulas to select noncompliant returns for
    examination. The first phase of this program addresses reporting
    compliance for individual taxpayers, and data from this phase were
    used to produce the recently updated estimates of this portion of
    the tax gap.

[^5]: Pub. L. No. 105-206, 112 Stat. 685 (codified as amended in
    scattered sections of 2 U.S.C., 5 U.S.C., 5 U.S.C. app., 16 U.S.C.,
    19 U.S.C., 22 U.S.C., 23 U.S.C., 26 U.S.C., 31 U.S.C., 38 U.S.C.,
    and 49 U.S.C.).

[^6]: 5 U.S.C.A. app. 3 (West Supp. 2003).

[^7]: Pub. L. No. 105-206, 112 Stat. 685 (codified as amended in
    scattered sections of 2 U.S.C., 5 U.S.C., 5 U.S.C. app., 16 U.S.C.,
    19 U.S.C., 22 U.S.C., 23 U.S.C., 26 U.S.C., 31 U.S.C., 38 U.S.C.,
    and 49 U.S.C.).

[^8]: *To Ensure the Customer Account Data Engine's Success, Prescribed
    Management Practices Need to Be Followed* (Reference Number
    2005-20-005, dated November 22, 2004).

[^9]: *While Many Improvements Have Been Made, Continued Focus Is Needed
    to Improve Contract Negotiations and Fully Realize the Potential of
    Performance-Based Contracting* (Reference Number 2005‑20‑083, dated
    May 26, 2005).

[^10]: *The Business Systems Development Organization Can Improve
    Management of Information Services Requests* (Reference Number
    2005-20-004, dated October 28, 2004).

[^11]: *The Business Systems Development Organization's Effective
    Process for Developing Information Systems Requirements Can Be Made
    More Efficient by Tracking and Analyzing Related* Cost (Reference
    Number 2005‑20‑061, dated May 9, 2005).

[^12]: *While Progress Has Been Made, Managers and Employees Are Still
    Susceptible to Social Engineering Techniques* (Reference Number
    2005-20-042, dated March 15, 2005).

[^13]: *The Disaster Recovery Program Has Improved, but It Should Be
    Reported As a Material Weakness Due to Limited Resources and Control
    Weaknesses* (Reference Number 2005-20-024, dated March 1, 2005)

[^14]: E-Government Act of 2002, Pub. L. No. 107-347, Title III, Section
    301, 2002.

[^15]: Pub. L. No. 105-206, 112 Stat. 685 (codified as amended in
    scattered sections of 2 U.S.C., 5 U.S.C., 5 U.S.C. app., 16 U.S.C.,
    19 U.S.C., 22 U.S.C., 23 U.S.C., 26 U.S.C., 31 U.S.C., 38 U.S.C.,
    and 49 U.S.C.).

[^16]: Pub. L. No. 103-62, 107 Stat. 285 (codified as amended in
    scattered sections of 5 U.S.C., 31 U.S.C., and 39 U.S.C.).

[^17]: Pub. L. No. 104-208, 110 Stat. 3009.

[^18]: *Financial Audit: IRS's Fiscal Years 2004 and 2003 Financial
    Statement* (GAO-05-103, dated November 10, 2004*).*

[^19]: *Voucher Audit of the Integration Support Contract --
    TIRNO-92-C-00014* (Reference Number 2005‑10‑162, dated September 27,
    2005).

[^20]: *Statistical Portrayal of the Criminal Investigation Function's
    Enforcement Activities From Fiscal Year 1999 Through Fiscal Year
    2004* (Reference Number 2005-10-081, dated May 16, 2005).

[^21]: *Review of the Exempt Organizations Function Process for
    Reviewing Alleged Political Campaign Intervention by Tax Exempt
    Organizations* (Reference Number 2005-10-35, dated February 17,
    2005).

[^22]: *T**he Tax Exempt and Government Entities Division Is Making
    Progress to Detect and Deter Fraud Within Its Customer Base, but the
    Impact Cannot Be Determined at This Time* (Reference
    Number 2005-10-161, dated September 30, 2005).

[^23]: *Opportunities Exist for the Employee Plans Function to Improve
    the Timeliness and Accuracy of Merit Closure Determination Letters*
    (Reference Number 2005-10-127, dated August 25, 2005).

[^24]: U.S.C.A. § 552 (West Supp. 2003).

[^25]: *Forms, Publications, and Computer Programming Requests Were
    Adequately Addressed and Updated in Most Instances for the 2005
    Filing Season* (Reference Number 2005-40-094, dated June 3, 2005).

[^26]: *The Earned Income Tax Credit Income Verification Test Was
    Properly Conducted* (Reference Number 2005-40-093, dated May 27,
    2005).

[^27]: H.R. 3058, part of the Transportation, Treasury, Housing and
    Urban Development, the Judiciary, the District of Columbia, and
    Independent Agencies Appropriations Act, 2006.

[^28]: *Trends in Compliance Activities Through Fiscal Year 2004*
    (Reference Number 2005-30-055, dated March 30, 2005).

[^29]: *Performance Management in the Large and Mid-Size Business
    Division's Industry Case Program Needs Strengthening* (Reference
    Number 2005-30-084, dated May 27, 2005).

[^30]: Excerpt from the Internal Revenue Service FY 2005 -- 2009
    Strategic Plan, dated June 2004.

[^31]: *The President's Management Agenda[,]{.smallcaps} Fiscal Year
    2002[; <http://www.whitehouse.gov/omb/budintegration/pma_index.html>
    ]{.smallcaps}*.

[^32]: Fiscal Year 2006 audits have been categorized, as appropriate,
    under *The President's Management Agenda* initiatives. The audits
    that do not relate to *The President's Management Agenda* are
    categorized as "Other/Issues Unique to IRS."

[^33]: Pub. L. No. 105-206, 112 Stat. 685 (codified as amended in
    scattered sections of 2 U.S.C., 5 U.S.C., 5 U.S.C. app., 16 U.S.C.,
    19 U.S.C., 22 U.S.C., 23 U.S.C., 26 U.S.C., 31 U.S.C., 38 U.S.C.,
    and 49 U.S.C.).

[^34]: The Prime Systems Integration Services Contractor (PRIME) is the
    contract under which Computer Sciences Corporation is responsible
    for designing new systems to meet IRS business needs, developing
    these systems, integrating them into the IRS, and ultimately
    transferring operation of these systems to the IRS.

[^35]: Pub. L. No. 105-206, 112 Stat. 685 (codified as amended in
    scattered sections of 2 U.S.C., 5 U.S.C., 5 U.S.C. app., 16 U.S.C.,
    19 U.S.C., 22 U.S.C., 23 U.S.C., 26 U.S.C., 31 U.S.C., 38 U.S.C.,
    and 49 U.S.C.).

[^36]: Pub. L. No. 105-206, 112 Stat. 685 (codified as amended in
    scattered sections of 2 U.S.C., 5 U.S.C., 5 U.S.C. app., 16 U.S.C.,
    19 U.S.C., 22 U.S.C., 23 U.S.C., 26 U.S.C., 31 U.S.C., 38 U.S.C.,
    and 49 U.S.C.).

[^37]: Pub. L. No. 105-206, 112 Stat. 685 (codified as amended in
    scattered sections of 2 U.S.C., 5 U.S.C., 5 U.S.C. app., 16 U.S.C.,
    19 U.S.C., 22 U.S.C., 23 U.S.C., 26 U.S.C., 31 U.S.C., 38 U.S.C.,
    and 49 U.S.C.).

[^38]: Pub. L. No. 108-357, 118 Stat. 1418 (2004).