**JOINT HEARING BEFORE THE COMMITTEES OF THE**

# **UNITED STATES SENATE**

**AND**

## UNITED STATES HOUSE OF REPRESENTATIVES

### **MAY 20, 2003**

![](media/image1.png)

**"The Strategic Plans and Budget of the IRS"**

**STATEMENT FOR THE RECORD**

**Pamela J. Gardiner**

**Acting Inspector General**

**Treasury Inspector General for Tax Administration**

####  

#### Mr. Chairman and Members of the Committees, I appreciate the opportunity to appear before you today to discuss the challenges and vulnerabilities the Internal Revenue Service (IRS) continues to face in improving the economy, efficiency, and effectiveness of tax administration. My comments will also address the IRS' compliance with the IRS Restructuring and Reform Act of 1998 (RRA 98). 

Three years ago when the former Treasury Inspector General for Tax
Administration (TIGTA) appeared before you and reported on the IRS'
progress in implementing the RRA 98 provisions, the IRS was in the midst
of a significant business restructuring. The IRS was reorganizing itself
into four operating divisions to have end-to-end responsibility for
defined groups of taxpayers with similar characteristics. Key business
systems modernization initiatives were underway to redesign the IRS'
outdated computer systems, and management was improving the
organization's customer service operations to better serve and
communicate with taxpayers. As of today, while the IRS has revamped some
of its business processes and practices, progress has been slow in
implementing critical improvements to IRS operations to provide
world-class service to taxpayers.

With the appointment of a new IRS Commissioner and the expected
departures of key executives, the IRS is also encountering tremendous
leadership changes. The new Commissioner is challenged with continuing
the IRS' reinvention efforts in modernizing its computer systems,
protecting taxpayer rights and privacy, and ensuring tax law compliance
and enforcement while providing improved customer service. In addition
to turnover in the top IRS management positions, there are also
membership changes on the IRS Oversight Board that could impact the
direction of ongoing IRS initiatives.

In this environment, TIGTA continues to devote its efforts to provide
useful, balanced information to IRS management and other
decision-makers. TIGTA audit coverage focuses on the management and
performance challenges facing the IRS. We are providing critical
information on the IRS' operational and programmatic issues such as
business systems modernization (BSM), tax compliance, computer and
physical security, performance and financial management, customer
service, returns processing, and the filing season. In order to
safeguard the IRS' ability to collect revenue and combat fraud, waste,
and abuse, TIGTA's investigative work is centered on:

-   IRS employee integrity.

-   IRS employee and infrastructure security.

-   External attempts to corrupt federal tax administration.

As a result of our audit and investigative work, I believe the following
issues are the most significant challenges facing the IRS.

[Information Systems Security]{.underline}

After September 11, 2001, the IRS and TIGTA's Office of Investigations
took significant actions to protect IRS employees, facilities, and
computer data infrastructure from the threat of terrorism. The process
that TIGTA established to share information with the IRS about potential
terrorist threats was very positively evaluated in an October 2002
General Accounting Office (GAO) audit report entitled, *IRS and
Terrorist Related Information Sharing* (GAO-03-50R).

The IRS has developed adequate security policies and procedures but has
not implemented them effectively. As a result, sensitive information
remains vulnerable to attack by hackers, terrorists, and disgruntled
employees and contractors. While recognizing that total security can
never be achieved and that there are necessary trade-offs between
security and operational needs, TIGTA continues to identify significant
weaknesses in infrastructure and applications security.

TIGTA attributes many of the IRS' security problems to misplaced
accountability. As we reported last year, the IRS does not hold its
business unit (functional) managers accountable for the security of
their systems. Instead, the Office of Security Services took primary
responsibility for this function. As a result, functional managers did
not annually assess the security of their systems, as required by both
the Office of Management and Budget Circular A-130, *Management of
Federal Information Resources,* and the *Federal Information Security
Management Act.* Significant effort will be required to transfer primary
responsibility for systems security from the Office of Security to
business unit managers. In addition, attention is needed to enhance the
security awareness of IRS managers and employees, and employees with key
security responsibilities must be better trained.

[Business Systems Modernization]{.underline}

The IRS' goal of providing efficient and responsive information services
to its operating divisions is heavily dependent on modernizing its core
computer systems while maintaining the existing systems. Since 2001, the
BSM Program has been deploying projects and learning valuable lessons
that should help improve future projects. Deployed projects have
included an upgraded IRS toll-free telephone system to provide capacity
to route taxpayers' calls to the appropriate IRS employee; an Internet
application that allows taxpayers to check the status of their returns
and refunds; and portions of an IRS-wide secure technology environment
and a system designed to improve the availability and performance of
modernized systems. The IRS also released an update to its Enterprise
Architecture that serves as the roadmap for current and future
modernization projects. However, the most significant and complex
projects have yet to be delivered.

One of these projects, the Customer Account Data Engine or CADE, will
eventually replace the existing Master File of taxpayer accounts. The
Master File is the IRS' database that stores various types of taxpayer
account information and includes individual, business, and employee
plans and exempt organizations data. Therefore, CADE will be the
foundation for managing taxpayer accounts in the IRS' modernization
plan. CADE will consist of databases and related applications that will
include processes for daily posting, settlement, refund processing, and
issue detection for taxpayer account and return data.

The CADE databases and related applications will also enable the
implementation of other modernized systems that will improve customer
service and compliance and allow the on-line posting and updating of
taxpayer account and return data. The portion of the CADE related to
individual tax accounts will be incrementally deployed in five releases,
each related to a specific taxpayer segment, over several years.

+------------+----------+----------+----------+----------+----------+
|            | RELEASE  | RELEASE  | RELEASE  | RELEASE  | RELEASE  |
|            | ONE      | TWO      | THREE    | FOUR     | FIVE     |
+------------+----------+----------+----------+----------+----------+
| Tax Return | 1040EZ   | 1040EZ\  | 1040EZ\  | 1040     | All      |
| Types      |          | 1040A\   | 1040A\   | with     | r        |
|            |          | 1040     | 1040     | Sch.     | emaining |
|            |          | (without | (without | C,E,F,\  | in       |
|            |          | Sch.     | Sch.     | 94X[^1]\ | dividual |
|            |          | C,E,F)   | C,E,F)   | 720[^2]  | tax      |
|            |          |          |          |          | returns  |
+------------+----------+----------+----------+----------+----------+
| Filing     | Single   | All      | All      | All      | All      |
| Status     |          | (Single, |          |          |          |
|            |          | Married, |          |          |          |
|            |          | Head of  |          |          |          |
|            |          | Ho       |          |          |          |
|            |          | usehold) |          |          |          |
+------------+----------+----------+----------+----------+----------+
| Account    | Refund   | Refund   | Full     | Full     | All      |
| Chara      | or even  | or even  | paid,    | paid,    | accounts |
| cteristics | balance  | balance  | refund   | refund   | not      |
|            |          |          | or       | or       | included |
|            | No open  | No open  | balance  | balance  | in       |
|            | account  | account  | due      | due      | previous |
|            | issues   | issues   |          |          | releases |
|            |          |          | No open  | No open  |          |
|            |          |          | account  | account  |          |
|            |          |          | issues   | issues   |          |
+------------+----------+----------+----------+----------+----------+
| Est.       | 6        | 29       | 41       | 34       | 12       |
| R          | Million  | Million  | Million  | Million  | Million  |
| eturns[^3] |          |          |          |          |          |
+------------+----------+----------+----------+----------+----------+
| Est.       | January  | August   | July     | July     | July     |
| Delivery   | 2002     | 2002     | 2003     | 2004     | 2005     |
|            |          |          |          |          |          |
| As of      | January  | January  | January  | January  | January  |
| April 2000 | 2002     | 2003     | 2004     | 2005     | 2006     |
|            |          |          |          |          |          |
| As of      | August   | January  | TBD      | TBD      | TBD      |
| March 2001 | 2003     | 2005     |          |          |          |
|            |          |          |          |          |          |
| As of      |          |          |          |          |          |
| April 2003 |          |          |          |          |          |
+------------+----------+----------+----------+----------+----------+

The IRS and its contractor (PRIME) have made progress in delivering the
CADE project by building a substantial portion of Release I and creating
a comprehensive foundation for all five releases. However, the
contractor's development of the CADE project has experienced significant
delays and increased costs. As shown in the previous table, the Release
1 deployment date is now estimated to be August 2003, which is about 20
months behind its planned delivery date.

The IRS and PRIME contractor initially estimated that Release 1 could be
delivered for approximately \$51.9 million, an estimate that was revised
6 months later to \$64.6 million. The IRS and PRIME contractor have
agreed to cap the Release 1 development costs at \$54.5 million. Project
delays can be attributed to underestimating the complexity of this
effort and difficulties in identifying and managing the project
requirements. Specifically, these difficulties occurred in developing
the balancing, control, and reconciliation process; comprehensive
documentation for the CADE Computer Operations Handbook; computer system
naming standards, and testing activities.

As a result of delays in deploying the CADE, approximately 35 million
taxpayers did not receive the benefits of faster tax return processing,
and thus faster refunds, during the 2002 and 2003 Filing Seasons. In
addition, the modernization projects that will provide improved customer
service and compliance activities will be delayed because they are
dependent upon CADE. Based on current schedules, these customer service
and compliance improvement projects will not be deployed until at least
Fiscal Year (FY) 2006 or later. Delays in these projects will have the
following adverse effects on the IRS and taxpayers:

-   The time it takes the IRS to initiate a compliance contact with a
    taxpayer will not be reduced.

-   The IRS' ability to offer one-stop service to taxpayers by allowing
    Customer Service Representatives to identify all issues a taxpayer
    might have with the IRS when a contact is initiated will be delayed.

-   The IRS' ability to answer taxpayer account-related questions with
    timely and complete data will be limited.

    [Customer Service]{.underline}

RRA 98 mandated that IRS be more responsive to customer needs. To
refocus its emphasis on helping taxpayers understand and meet their tax
responsibilities, the IRS revised its mission statement. The IRS has
made some progress in enhancing its customer service activities. For
example, taxpayers have several options from which to choose when they
need assistance from the IRS in answering tax law questions. These
options include walk-in service at nationwide Taxpayer Assistance
Centers (TAC) and toll-free telephone assistance.

During this calendar year, TIGTA assessed the service provided by
representatives at the TACs and through the Toll-Free Telephone System.
Overall, the IRS has made improvements in providing service to the
taxpaying public. For example, during January through April 2003, IRS
employees correctly answered 25 percent more questions, provided 19
percent fewer incorrect answers, and referred 87 percent fewer taxpayers
to publications than for this same period last year.

During our review of the TACs, TIGTA personnel visited 72 centers and
posed 283 questions to IRS representatives. Results of our review are
synopsized in the following chart:

+------------------------------+----------------------+----------------+
|                              | ####  Number of      | ####           |
|                              |                      |                |
|                              | ####  Responses      | #              |
|                              |                      | ### Percentage |
+------------------------------+----------------------+----------------+
| Correct Answers              | 199                  | 70             |
+------------------------------+----------------------+----------------+
| Incorrect Answers            | 73                   | 26             |
+------------------------------+----------------------+----------------+
| No Answer Provided           | 8                    | 3              |
| --Referred to Publication In |                      |                |
| Lieu of a Response           |                      |                |
+------------------------------+----------------------+----------------+
| Other                        | 3                    | 1              |
+------------------------------+----------------------+----------------+

In January 2003, TIGTA also began assessing whether IRS employees were
adhering to operating guidelines by referring the tax law questions we
asked, which were outside the scope of services they have been trained
to answer. The auditors asked 157 "out of scope" questions and
determined that employees did not follow referral procedures for 105 (67
percent) of these questions.

The IRS' accuracy in responding to taxpayers' questions using the IRS'
Toll-Free Telephone System was somewhat better than that at the TACs.
Between January 27 and March 13, 2003, our reviewers performed on-line
monitoring of 259 taxpayers calls and determined that IRS
representatives correctly answered the taxpayers' questions in 71
percent of the cases.

# Filing Season

The tax return filing season impacts every American taxpayer and is,
therefore, always a highly critical program for the IRS. In addition to
providing customer service to American taxpayers, the IRS must
coordinate tax law changes, programs, activities, and resources to
effectively plan and manage each filing season.

Overall, the 2003 Filing Season has gone well and tax returns are being
processed timely. Based on TIGTA's review, it appears that the IRS
should complete processing of individual returns on schedule with all
tax refunds being timely issued within the required 45 days from the
filing season closing date of April 15. IRS data show that, as of May 9,
2003, over 52 million electronic returns had been received. The official
projection for total electronic returns is 54.3 million. Electronic
returns have increased by 12 percent from this time last year. In
addition, over 69 million paper returns had been received. The official
projection for total paper returns is 78 million. Paper returns have
decreased by 8 percent from this time last year.

Many new and significant tax law provisions affected taxpayers' Tax Year
(TY) 2002 individual income tax returns, including two *Economic Growth
and Tax Relief Reconciliation Act of 2001* provisions involving
education expenses and retirement savings. These provisions included
changes to education savings accounts, qualified tuition programs, and
individual retirement arrangements (IRA). In addition, the Act created a
new tuition and fees deduction and a new retirement savings contribution
credit (also referred to as "saver's credit"). These changes were
considered significant because they could affect an estimated 86.5
million taxpayers by providing tax benefits of up to \$7.6 billion in FY
2003. Properly implementing such changes required the IRS to reprogram
its computer systems to ensure that taxpayers received the tax benefits
allowed by the new provisions.

TIGTA's analysis of IRS computer programming requests to prepare for the
filing season showed that the requests were timely submitted and were
generally accurate; however, some errors and omissions were identified.
For example, computer programming requests to implement the new
retirement savings contribution credit and request changes to the IRA
deduction contained errors that could have denied credits or deductions
to some taxpayers. Also, omissions in computer programming requests may
have resulted in the loss of tax revenue by allowing certain taxpayers
to receive larger credits or deductions than they were eligible to
receive. This possibility exists for the new retirement savings
contribution credit, the IRA deduction, and the student loan interest
deduction.

# 

# The IRS Restructuring and Reform Act of 1998

Due to the comprehensive nature of this reform law, the IRS has
dedicated significant attention and resources toward implementing the
RRA 98 provisions. RRA 98 included fundamental changes to tax law
procedures and 71 provisions that increase or further protect taxpayers'
rights. The IRS has taken several actions to improve compliance with
these provisions. For example, in some instances, the IRS added a higher
level of managerial review, implemented new computer controls to prevent
certain violations from occurring, and provided additional training and
guidance to help employees and managers understand the provisions'
requirements. TIGTA has reported that the IRS has fully implemented
three taxpayer rights provisions - *Mitigation of Failure to Deposit
Penalty, Seizure of Property, and Taxpayer Advocate-Hardships.* The IRS
is generally compliant with two other provisions -- *Illegal Tax
Protestor Designation and Collection Due Process for Liens and Levies.*

RRA 98 required TIGTA to review 10 of the 71 taxpayer rights provisions,
as well as 2 other taxpayer rights provisions in prior legislation.
TIGTA is currently in the fifth review cycle assessing the mandatory RRA
98 provisions. TIGTA's most recent audit results on these taxpayer
rights provisions are as follows:

-   *Notice of Levy* -- Most levies are computer generated and subjected
    to systemic controls that effectively ensure that taxpayers are
    informed of their appeal rights at least 30 days prior to receiving
    a systemically generated levy. In some circumstances, however, IRS
    employees must issue manual levies. Though managers approve and
    review manual levies issued by Automated Collection System
    employees, manual levies issued by revenue officers are not required
    to be reviewed and approved by managers. This significantly
    increases the risk of taxpayers not having their appeal rights
    properly protected.

-   *Restrictions on the use of enforcement statistics to evaluate
    employees* -- A review of 74 judgmentally sampled enforcement
    employees' performance and related supervisory documentation
    prepared between October 1, 2001, and August 31, 2002, revealed no
    instances of the use of tax enforcement results, production quotas,
    or goals to evaluate employee performance. There was also
    improvement over the previous year in documenting the evaluation of
    employees on the fair and equitable treatment of taxpayers. In
    addition, a review of 21 statistically sampled supervisors showed
    the IRS completed the required consolidated office certification
    memoranda on whether tax enforcement results were used in a
    prohibited manner.

-   *Notice of Lien* -- An estimated 14,695 lien notifications, out of a
    population of 367,385 lien notices prepared between August 1, 2001,
    and June 30, 2002, were not mailed to the taxpayer, the taxpayer's
    spouse, or to the taxpayer's business partners; or were not mailed
    to the taxpayer's or spouse's last known address. Taxpayer rights
    could be affected because the taxpayer who failed to receive a
    notice or who received a late notice might not be aware of the right
    to appeal or could have less than the 30-day period allowed by the
    law to request a hearing.

-   *Seizures --* TIGTA determined that in a statistical sample of
    102 seizures from the 218 seizures conducted by the IRS between
    October 2001 and June 2002, the IRS complied with legal provisions
    and internal procedures when seizing taxpayers' property for payment
    of delinquent taxes.

-   *Illegal Tax Protestor (ITP) Designations --* The IRS has not
    reintroduced past ITP codes on the Master File, and formerly coded
    ITP taxpayer accounts have not been reassigned to a similar ITP
    designation. In addition, the IRS does not have any current
    publications with ITP references. However, IRS employees continue to
    make references to taxpayers as ITPs and other similar designations
    in case narratives. TIGTA identified 321 taxpayers that were
    potentially affected due to improper designations. We have not
    reported that these taxpayers have been harmed by the designations.
    Only a thorough review of each taxpayer's case and the treatment
    accorded that taxpayer would determine if these taxpayers have been
    harmed. In our most recent report on this subject, TIGTA recommended
    that the IRS review each case where the reference to ITP or similar
    designation had been identified and make such determinations.

> In its response to the draft report, the IRS disagreed with our
> determination that in order to comply with this provision, IRS
> employees should not designate taxpayers as ITPs or similar
> designations in case histories.

-   *Assessment Statute of Limitations* -- Employees properly advised
    taxpayers of their rights to refuse or restrict the scope of the
    statute extension in 32 of 48 (67 percent) of the tax returns
    sampled. In 16 of\
    48 (33 percent) of the tax returns sampled, TIGTA could not
    determine if employees advised taxpayers of their rights because
    related case files did not contain a record that taxpayers had been
    advised of their rights. In 22 of the 24 (92 percent) jointly filed
    returns sampled, there was no documentation in the related case
    files that each taxpayer listed on the return was separately
    informed of his or her rights (i.e., dual notification).

-   *Denials of Requests for Information Under the Freedom of
    Information Act* -- TIGTA identified an estimated 458 responses to
    Freedom of Information Act or Privacy Act requests where information
    was improperly withheld, out of 4,610 requests for information that
    were denied in whole or part, or where the IRS replied that
    responsive records were not available. There were also an estimated
    1,052 responses to Internal Revenue Code Section 6103 requests where
    information was improperly withheld, out of an estimated population
    of 8,612 requests that were denied or partially denied or where
    requesters were told that records could not be located.

-   *Collection Due Process* -- The IRS substantially complied with the
    requirements of the law and ensured taxpayers' appeal rights were
    protected in 85 of 87 (98 percent) appeal cases reviewed. In the
    remaining 2 cases, TIGTA did not conclude that the noncompliance
    resulted in a legal violation of the taxpayer's Collection Due
    Process (CDP) rights since collection actions were not initiated. In
    addition, approximately 94 percent of the CDP determination letters
    provided to taxpayers (82 of 87 letters) followed the established
    IRS guidelines. This was a noticeable improvement over prior audit
    results when approximately 14 percent of the determination letters
    were determined deficient.

# Neither TIGTA nor the IRS could evaluate the IRS' compliance with the following four provisions since IRS management information systems are not available to track the specific cases: 

# 

-   Restrictions on directly contacting taxpayers instead of authorized
    representatives.

-   Taxpayer complaints.

-   Separated or divorced joint filer requests.

-   Fair Debt Collection Practices Act (FDCPA) Violations -- The IRS
    does track potential FDCPA violations on its computer systems;
    however, we determined that data on one system may not always be
    complete and accurate. Based on information recorded as potential
    FDCPA violations on the IRS' computer system, TIGTA identified two
    violations that occurred after July 22, 1998, that resulted in
    administrative actions being taken against employees. The IRS had no
    closed cases in which the IRS paid any money to taxpayers for civil
    actions resulting from FDCPA violations.

### 

### Tax Compliance Efforts

The IRS' goal of providing world-class service to taxpayers hinges on
the theory that, if the IRS provides the right mix of education,
support, and up-front problem solving to taxpayers, the overall rate of
voluntary compliance with the tax laws will increase. The compliance
program (examining tax returns and collecting tax liabilities) would
then address those taxpayers who purposefully did not comply. The
challenge to IRS management is to establish a tax compliance program
that identifies those citizens who do not meet their tax obligations,
either by not paying the correct amount of tax or not filing proper tax
returns.

Enforcement actions against individuals and businesses that purposefully
conceal tax liabilities or even refuse to submit tax returns have fallen
dramatically, despite concerns that tax cheating remains at high levels.
The following chart exhibits the fact that, since FY 1996, the level of
IRS enforcement activities has significantly declined.

+--------------------------------+-------------------------------------+
| ####### Enforcement Action     | ####### Overall Decline             |
|                                |                                     |
|                                | **FY 1996 -- FY 2002**              |
+--------------------------------+-------------------------------------+
| Face-to-Face Audits            | 70%                                 |
+--------------------------------+-------------------------------------+
| Correspondence Audits          | 56%                                 |
+--------------------------------+-------------------------------------+
| Liens                          | 34%                                 |
+--------------------------------+-------------------------------------+
| Levies                         | 79%                                 |
+--------------------------------+-------------------------------------+
| Seizures                       | 97%                                 |
+--------------------------------+-------------------------------------+

The overall decline in enforcement actions has been primarily attributed
to a long-term reduction in enforcement staffing, to redirection of
resources to customer service functions during the filing season, a
decline in direct

examination time, and to IRS employees' concerns over the mandatory
termination provision in Section 1203 of RRA 98.

IRS management and many stakeholders have been concerned about the
decline in enforcement activities. However, the IRS has not conducted
Taxpayer Compliance Measurement Program audits since 1988. Therefore, it
currently has no reliable method to measure voluntary compliance or the
effect that increased customer service and diversion of compliance
resources are having on voluntary compliance. TIGTA believes that the
ongoing National Research Program is a much-needed first step for
providing the information necessary to gauge compliance levels and
direct IRS compliance resources towards areas where attention is most
needed.

While the decline in enforcement actions since FY 1996 has been
dramatic, there are recent indications that the decline in some
categories of enforcement actions and results has stabilized and, in
some cases, shown improvement. For example, the IRS' FY 2002 compliance
efforts and results were mixed, but showed some continuing positive
changes that started in FY 2001. Specifically, the level of compliance
activities and the results obtained in many, but not all, Collection
areas in FY 2002 showed a continuing increase. The number of
examinations of tax returns increased in FY 2002, but the overall
percentage of tax returns examined stayed about the same due to
increases in the number of tax returns filed. The IRS is taking a number
of steps to enhance its compliance programs, including:

-   Conducting the National Research Program, which is designed to
    measure the level of compliance nationwide.

-   Restructuring many Collection and Examination processes.

-   Focusing on known compliance problems through programs like the
    Offshore Voluntary Compliance Initiative and the use of Private
    Collection Agencies.

# Section 1203 Violations

In addition to our audit responsibilities, RRA 98 charges TIGTA with
investigating Section 1203 violations. Section 1203 identifies standards
of conduct for IRS employees that are intended to address serious and
willful acts of misconduct. Section 1203 requires the Commissioner of
Internal Revenue to terminate the employment of any IRS employee found
guilty of any 1 of 10 specific acts or omissions. TIGTA's role in
investigating these allegations of employee misconduct serves to protect
taxpayer rights and assure integrity in IRS operations.

[]{.mark}

The IRS monitors Section 1203 complaints in its Automated Labor and
Employee Relations Tracking System - known by its acronym, "ALERTS." The
vast majority of Section 1203 complaints recorded in ALERTS have alleged
that an IRS employee violated a provision of the Internal Revenue Manual
or the Internal Revenue Code in order to retaliate against or harass
another person. The second category, as measured by the number of
complaints, involves the employee's understatement of Federal tax
liabilities.

The IRS receives and adjudicates numerous Section 1203 allegations where
no independent TIGTA investigation is needed. When TIGTA involvement is
warranted, our focus is to determine the facts of the situation as well
as the intent of the violating employee. An employee's intent is an
essential element that must be present for Section 1203 disciplinary
action to be taken. As of March 31, 2003, ALERTS indicated that 96
employees have been fired and 202 employees have resigned or retired as
a result of TIGTA and IRS investigations. Since the inception of Section
1203, TIGTA and the IRS have received a combined total of 5,605 Section
1203 complaints.

TIGTA and the IRS are working together to continuously improve the
process of receiving, investigating, and adjudicating alleged violations
of Section 1203. In March 2002, a streamlined process was implemented
which, enabled TIGTA to make an early differentiation between those 1203
allegations that are valid and those that are not. As a result, TIGTA
has been able to devote its resources to the investigation of bona fide
1203 allegations and other employee misconduct.

Mr. Chairman and Members of the Committees, I appreciate the opportunity
to share with you today the more significant challenges that confront
the new Commissioner and IRS senior management. Although the IRS has
accomplished a great deal since the passage of RRA 98, much more remains
to be done. TIGTA will continue its efforts to provide reliable and
objective assessments of the IRS' progress in balancing compliance and
customer service, and to investigate employee misconduct or external
threats that jeopardize the integrity, efficiency, and effectiveness of
the nation's tax administration system.

[^1]: The Form 94X family of returns is used by employers to report
    income and unemployment taxes withheld from employee wages.

[^2]: Form 720 is the Quarterly Federal Excise Tax Return.

[^3]: Estimated tax returns (electronic and paper) based on 1999
    statistics.