IRS 

CORRESPONDENCE 

AUDITS

Better Management 

Could Improve Tax 

Compliance and 

Reduce Taxpayer 

Burden

Report to the Committee on Finance, 

U.S. Senate

June 2014

GAO-14-479

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-14-479, a report to the 

Committee on Finance, U.S. Senate

June 2014

IRS CORRESPONDENCE AUDITS

Better Management Could Improve Tax Compliance 

and Reduce Taxpayer Burden

Why GAO Did This Study

IRS uses correspondence audits (done 

by mail and the majority of IRS audits) 

to resolve disputes over tax return 

reporting of relatively simple issues. 

Tax observers and IRS itself have 

concerns that these audits impose 

unnecessary burden on taxpayers or 

costs on IRS. 

GAO was asked to assess the audit 

program. In this report, GAO assessed 

the extent to which (1) IRS 

correspondence audit notices create 

unnecessary burden or costs; (2) IRS 

can determine if the audits are meeting 

its compliance, burden, and cost goals; 

and (3) IRS’s improvement efforts are 

likely to deliver the expected benefits.

GAO visited two IRS audit sites, 

analyzed IRS audit program objectives, 

measures, and decisions, and 

documented improvement efforts, and 

interviewed program officials and IRS 

tax examiners. GAO compared IRS’s 

practices to internal control guidance 

and criteria for results-oriented 

management.

What GAO Recommends

GAO recommends that IRS (1) collect 

and analyze data on whether IRS is 

responding timely in revised audit 

notices, (2) establish program 

objectives as well as measures that 

reflect the objectives and strategic 

goals, (3) document guidance for 

making decisions with program data, 

(4) track previously unused program 

data to provide more performance 

insights, (5) document the intended 

and actual benefits of audit 

improvement efforts, and (6) develop a 

plan and timeline for implementing the 

contractor’s recommendations. In 

commenting, IRS described planned 

actions on all the recommendations.

What GAO Found

The notices the Internal Revenue Service (IRS) sends during correspondence 

audits have misled taxpayers by providing unrealistic time frames on when IRS 

would respond to their correspondence. For example, notices stated that IRS 

would respond within 30 to 45 days when it has consistently taken several 

months to do so. Further, as of early 2014, IRS data show that it had not 

responded timely to more than 50 percent of the correspondence taxpayers sent. 

In many cases, refunds are held up until the audit is finished. According to IRS 

tax examiners, notices caused taxpayer frustration and generated unnecessary 

taxpayer calls to IRS. Furthermore, examiners who answer such calls said they 

do not know when IRS will respond. IRS recently revised the notices, but the 

revisions were not based on analysis of historical data nor did IRS have a plan to 

analyze data to ensure it is responding timely per revised notices.

The taxpayers cannot understand why IRS would send a letter out with such unrealistic 

time frames and there is no acceptable way we can explain it to them. That is why they 

are so frustrated. It puts us in a very awkward and embarrassing situation.... I try to 

gain control of the situation and tell the taxpayer I understand the frustration so that he 

will calm down so we can make the phone call productive, but this takes time and 

wastes time for both the taxpayer and me.

Source: tax examiner focus group interview. 

IRS does not have information to determine how the correspondence audit 

program affects its compliance, taxpayer burden, and cost strategic goals. IRS 

has not documented objectives for the program. While IRS has many program 

measures such as how many audits are closed annually, they are not linked to 

the compliance, burden, and cost goals. Thus, it is not possible to tell whether 

the program is performing better or worse from one year to the next. Beyond the 

measures, IRS did not have guidance on how IRS managers were to use 

program data to make decisions. In some cases, the program data being used 

are incomplete. For example, IRS did not track data on the number of times a 

taxpayer called IRS or sent documents. Using incomplete information limits 

insights on the additional revenues identified from IRS’s audit investments and 

on how much burden the audits impose on the taxpayers. 

In 2012 IRS began its Correspondence Examination Assessment Project (CEAP) 

to reduce taxpayer burden. With a contractor, IRS identified five problem areas 

involving communications with taxpayers, the audit process, expedited audit 

resolution, resource alignment, and program metrics. CEAP has 19 improvement 

efforts finished or underway. However, IRS has not defined the intended benefits 

and tracked the actual benefits. As a result, it will be difficult to determine 

whether the efforts successfully addressed the problems. The CEAP contractor 

recommended that IRS develop a tool for better balancing resource allocation 

between, for example, telephone calls and reviewing correspondence. IRS 

officials said they would consider the recommendations but did not have a 

specific plan or timeframe. Thus, it will be difficult to hold IRS managers 

accountable for ensuring that the recommendations are completed in a timely 

manner.

View GAO-14-479. For more information, 

contact James R. White at (202) 512-9110 or 

whitej@gao.gov.
Page i GAO-14-479 IRS Correspondence Audits

Letter 1 

Background 3

Audit Notices Contribute to Taxpayer Burden and IRS 

Inefficiencies 12

IRS Does Not Have Performance Information to Determine 

Whether the Correspondence Audit Program Is Achieving Its 

Compliance, Burden, and Cost Goals 21

Benefits of Efforts to Improve the Taxpayer Experience Are Not 

Clearly Defined and Tracked 29

Conclusions 34

Recommendations for Executive Action 35

Agency Comments and Our Evaluation 36

Appendix I Scope and Methodology 39

Appendix II Profile of IRS Correspondence Audits 42

Appendix III IRS Correspondence Audit Program Performance Measures and 

Data 47

Appendix IV Analysis of Audit Recommended Tax Amounts Collected by 

Fiscal Year 49

Appendix V Comments from the Internal Revenue Service 50

Appendix VI GAO Contact and Staff Acknowledgments 55

Tables

Table 1: Percentage of Overage Correspondence Inventory, by 

IRS Division, as of the End of Fiscal Years 2011 through 

2013 and the End of February 2014 13

Contents
Page ii GAO-14-479 IRS Correspondence Audits

Table 2: IRS Collection of Additional Tax Recommended in 

Correspondence Audits Closed During Fiscal Years 2008 

through 2013, as of September 30, 2013 28

Table 3: Status, Actions, and Information on Actual Benefits of 

CEAP Efforts to Improve the Correspondence Audit 

Program 30

Table 4: Number and Percentage of Correspondence Audits 

Compared to All IRS Audits of Individual Tax Returns, 

Fiscal Years 2003-2013 42

Table 5: Amount (Adjusted for Inflation) and Percent of Additional 

Taxes Recommended in Correspondence Audits 

Compared to All IRS Audits of Individual Tax Returns, 

Fiscal Years 2003-2013 42

Table 6: Amounts and Percentage of Tax Examiner Time Spent 

Providing Telephone Assistance, Fiscal Years 2011-2013 44

Table 7: Data Tracked in IRS Disposition Reports for the 10 Most 

Frequently Audited Issues in Correspondence Audits 

Closed by IRS Divisions in Fiscal Year 2013 44

Table 8: Average Cycle Time in Days for Correspondence Audits, 

Fiscal Years 2009-2013 46

Table 9: Audits Closed with No Tax Changes for All Closures and 

Closures with Taxpayer Contact, Fiscal Years 2009-2013 46

Table 10: Correspondence Audit Program Performance Measures 

That Have Targets 47

Table 11: Correspondence Audit Program Data Used for 

Management Information 47

Table 12: Cumulative Percentage of Audit Recommended Tax 

Amounts Collected in Each Fiscal Year for Audits Closed 

in Fiscal Years 2008-2013 49

Figures

Figure 1: Correspondence Audits as Compared to Total IRS 

Individual Audits, Fiscal Years 2003-2012 5

Figure 2: Percentage of Correspondence Audits Closed 

Categorized by Type of Issue Audited, Fiscal Year 2013 6

Figure 3: Simplified Overview of the Correspondence Audit 

Process as of February 2014 8

Figure 4: Percentage of Total Examiner Time Spent Doing Audits 

of Various Broad Types of Issues, Cases Closed in Fiscal 

Year 2013 43
Page iii GAO-14-479 IRS Correspondence Audits

Abbreviations

AUR Automated underrporter

CEAP Correspondence Examination Assessment Project

FTE Full time equivalent

GPRA Government Performance Results Act

GPRAMA Government Performance Results Act Modernization Act

EITC Earned income tax credit

IRM Internal Revenue Manual

IRS Internal Revenue Service

SB/SE Small Business and Self-Employed Division

TDC Taxpayer Digital Communication

W&I Wage and Investment Division

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Page 1 GAO-14-479 IRS Correspondence Audits

441 G St. N.W.

Washington, DC 20548

June 5, 2014

The Honorable Ron Wyden

Chairman

The Honorable Orrin Hatch

Ranking Member

Committee on Finance

United States Senate

Auditing tax returns is a critical part of the Internal Revenue Service’s 

(IRS) strategy to ensure tax compliance and address the tax gap, or the 

difference between taxes owed and those paid on time. IRS most recently 

estimated the tax gap as $450 billion for 2006. IRS eventually recovers 

part of the tax gap through enforcement actions—including audits—and 

late payments. For 2006, it estimated it would recover $65 billion, 

resulting in a net tax gap of $385 billion.

Most audits are correspondence audits, which are done by mail. For 

audits closed in fiscal year 2012 of individual tax returns, correspondence 

audits accounted for:

• Seventy-six percent (1.1 million) of 1.5 million audits, and

• Sixty percent ($9.2 billion) of $15.3 billion in recommended additional 

taxes due and refunds disallowed.1

Compared to in-person audits conducted at taxpayer locations or IRS 

offices, correspondence audits are designed to deal with simpler tax 

issues such as a questionable deduction or credit. Typically the taxpayer 

is asked to provide supporting documentation by mail. Deciding which 

returns to audit and preparing audit notices for taxpayers are handled 

largely through automation. Taxpayer responses to these notices, 

including any supporting documentation, are reviewed by IRS staff who 

then decide on whether to recommend any additional tax.

 

1

Any IRS audit of a tax return can close with the IRS examiner recommending that the 

taxpayer owes additional tax because the examiner found evidence of misreported 

income, deductions, credits, and the like. If the tax return claims a refund that has not yet 

been sent to the taxpayer, IRS may reduce the amount of the refund based on the 

auditing findings. The audits included returns for tax year 2011 and previous years.
 

Page 2 GAO-14-479 IRS Correspondence Audits

IRS-wide goals for programs such as the correspondence audit program 

are to address taxpayer noncompliance while minimizing unnecessary 

burden on the taxpayers being audited and costs. Members of the tax 

community, and IRS itself, have expressed concerns about the 

effectiveness of the program at achieving these goals. Concerns include 

confusing audit notices, delayed IRS responses to taxpayer 

correspondence, duplicative requests for information from taxpayers, 

cases that required multiple contacts between IRS and taxpayers to 

resolve, and telephone help that is not informative. In response, IRS has 

begun a series of improvement efforts.

You asked that we evaluate the correspondence audit program in terms 

of its effects on compliance, taxpayer burden, and IRS costs along with 

potential improvements. Our objectives were to (1) assess the extent to 

which IRS’s correspondence audit notices impose unnecessary burden 

on taxpayers or create inefficiencies for IRS; (2) assess the extent to 

which IRS has performance information suitable for determining whether 

the program is meeting its program objectives as linked to IRS’s strategic 

compliance, taxpayer burden, and cost goals; and (3) describe the status 

and results of IRS’s efforts to improve the correspondence audit program 

and assess how IRS is ensuring that the changes deliver expected 

benefits.

To assess the extent to which IRS’s correspondence audit notices prompt 

unnecessary burden on taxpayers or create inefficiencies for IRS, we 

reviewed program documents, interviewed program officials in the two 

IRS divisions that conduct correspondence audits, visited and interviewed 

program officials at two IRS locations (one for each division) where IRS 

conducts correspondence audits, and conducted six focus group 

interviews (three for each division) with tax examiners who interact with 

the audited taxpayers. We also monitored taxpayer phone calls at the two 

IRS locations and recordings of a nonrepresentative random sample of 

phone calls received nationwide during a week in September, November, 

and December 2013.2 We compared IRS’s processes for contacting 

taxpayers with internal control standards in the federal government for 

 

2

Before telephone calls are routed to an examiner, callers are informed by an IRS 

recording that the call may be monitored or recorded for quality purposes. According to 

IRS officials, IRS retains recorded calls for 45 days.
 

Page 3 GAO-14-479 IRS Correspondence Audits

ensuring efficient use of resources.3 To assess the extent to which IRS 

has performance information for determining how correspondence audits 

affect compliance, IRS costs, and taxpayer burden, we compared 

information on correspondence audit program objectives, performance 

measures, and decision making to guidance on federal program 

management and internal control standards in the federal government. To 

describe the status and results of IRS’s efforts to improve the 

correspondence audit program, we reviewed and summarized 

documentation and interviewed IRS officials on IRS’s Correspondence 

Examination Assessment Project (CEAP), which is an IRS effort to 

improve the program. We compared information available on the 

management and benefits of the CEAP effort to criteria on project 

management on assuring benefits are achieved.4 More details on our 

scope and methodology are in appendix I.

We conducted this performance audit from August 2013 to June 2014 in 

accordance with generally accepted government auditing standards.

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions. We believe that the evidence obtained provides 

a reasonable basis for our findings and conclusions based on our audit 

objectives.

IRS has a range of compliance programs intended to ensure that 

taxpayers are accurately reporting their incomes and tax liabilities on their 

tax returns. Some of the common ones are:

• Math error, which corrects certain obvious errors on tax returns at the 

time they are filed, such as claiming a credit above the allowed 

income threshold.

 

3

GAO, Standards for Internal Control in the Federal Government (GAO/AIMD-00-21.3.1, 

November 1999).

4

Project Management Institute, The Standard for Program Management, 2nd ed. 

(Newtown Square, Pa.; Project Management Institute, Inc., 2008).

Background

IRS Audits Compared to 

Other IRS Enforcement 

Efforts
 

Page 4 GAO-14-479 IRS Correspondence Audits

• Automated underreporter (AUR), which matches income data 

reported on a tax return with third-party information about income and

expenses provided to IRS by employers or financial institutions.

Mismatches can result in IRS asking the taxpayer to explain the 

discrepancy or pay additional tax.

• Non-filer, which uses the third party information to identify people 

who do not file a required tax return. Some non-filer cases may be 

forwarded for audit, according to IRS officials. 

• Audits, which can be done through correspondence or in-person, 

focusing on an examination of a taxpayer’s books and records to 

support a position on a tax return.

Correspondence audits are the majority of IRS audits and, since 2004, 

have accounted for the majority of additional tax recommended, as shown 

in figure 1 below (see appendix II, tables 4 and 5, respectively, for data on 

the number of individual audits and amount of tax recommended in 

individual audits).

Comparative 

Correspondence Audit 

Volume Data
 

Page 5 GAO-14-479 IRS Correspondence Audits

Figure 1: Correspondence Audits as Compared to Total IRS Individual Audits, 

Fiscal Years 2003-2012

Audits have two compliance effects. First, they directly detect and correct 

noncompliance by the audited taxpayers. Second, audits indirectly 

encourage nonaudited taxpayers to comply – often called voluntary 

compliance. In a recent IRS Oversight Board survey on taxpayer 

attitudes, 60 percent of taxpayers surveyed said that “fear of an audit” 

had at least somewhat of an influence on whether they honestly report 

and pay their taxes.5

IRS’s Wage and Investment (W&I) and Small Business and SelfEmployed (SB/SE) divisions both do correspondence audits of individual 

tax returns. These audits cover two broad sets of issues: earned income 

 

5

IRS Oversight Board, 2013 Taxpayer Attitude Survey, February 2014 

(http://www.treasury.gov/IRSOB/reports/Documents/IRSOB_TAS%202013.pdf, 

downloaded February 2014).

Purpose and 

Administration of IRS 

Correspondence Audits
 

Page 6 GAO-14-479 IRS Correspondence Audits

tax credit (EITC) issues and nonEITC issues.6 Each division receives a 

specified budget amount for each of the two categories. Within these 

categories, IRS uses 229 discrete project codes to track specific tax 

issues and related sub issues that can be audited. Each division is 

responsible for determining how many audits, if any, to do for each issue.

Figure 2 shows, for cases closed in fiscal year 2013, the percentage of 

cases that fell within selected broad categories of issues.7

Figure 2: Percentage of Correspondence Audits Closed Categorized by Type of 

Issue Audited, Fiscal Year 2013

Note: “other” includes nearly two dozen discrete issues from tax return line items, each of which is 3 

percent or less. Total does not add to 100 percent due to rounding.

 

6

EITC is a refundable credit used to offset the impact of Social Security taxes on lowincome families and to encourage them to seek employment rather than welfare. The 

amount of the credit individuals receive depends on earned income, the number of 

qualifying children, and filing status.

7

Appendix II, figure 4, provides another view of how IRS invests its correspondence audit 

time on these broad categories of issues for audits closed in fiscal year 2013. 
 

Page 7 GAO-14-479 IRS Correspondence Audits

IRS selects most returns for correspondence audit through an automated 

scoring process. For example, the main determinant for selecting EITC 

returns for audit is the score from the Dependent Database (DdB). DdB 

relies on decision rules applied to tax returns claiming EITC and related 

tax benefits.8 Using filters created from various criteria, the DdB creates 

scores for returns before refunds are disbursed. Returns with the highest 

scores are selected for audit. According to IRS officials, a few returns are 

selected for correspondence audit as a result of a manual review after 

being referred for audit from other parts of IRS, the states, or others.

For any tax issue covered by correspondence audits, IRS can only audit a 

limited number of returns that the various filters select. As a result, IRS 

selects issues and numbers of returns to audit based on considerations 

identified by IRS staff, such as the potential effect on voluntary 

compliance or to address issues at risk for noncompliance.

The correspondence audit process can take a number of different paths 

after audit selection, as shown in figure 3. The paths are largely

determined by how taxpayers respond to IRS.

 

8

These tax benefits include dependency exemptions, filing status, Child and Dependent 

Care Credit, Child Tax Credit, and education benefits, according to IRS officials.
 

Page 8 GAO-14-479 IRS Correspondence Audits

Figure 3: Simplified Overview of the Correspondence Audit Process as of February 2014

a

For simplicity, a “yes” response at this stage means the taxpayer disagreed with IRS and provided 

information to support the taxpayers’ position on the return. At any stage, taxpayers may agree with 

the recommended change and pay any tax due.
 

Page 9 GAO-14-479 IRS Correspondence Audits

b

The notices say that IRS will again contact the taxpayer if IRS needs additional time to review the 

information. Before February 2014, the notices told taxpayers to expect an IRS response on a certain 

date.

c

Taxpayers who offer new information may request an audit reconsideration, during which collection 

action is suspended, according to IRS officials. 

IRS tax examiners do the correspondence audits. Tax examiners are the 

lowest-graded IRS staff who audit returns and are trained to handle 

correspondence audit-type workload. Located in 10 IRS offices 

nationwide called campuses (5 campuses for each division), they are to 

review taxpayer correspondence to make audit determinations.

Examiners also answer telephone calls from taxpayers who call 

designated correspondence audit toll-free numbers.9 In recent years, IRS 

switched to nationwide routing of calls rather than providing taxpayers 

phone numbers for specific examiners. The nationwide system links the 

multiple campuses into a “virtual” call center that is accessed through one 

toll-free number for each division. The system distributes calls to the next 

available examiner. This change was to eliminate the need to leave a 

voice message, and could result in fewer repeat calls.

A key practice in results-oriented management of federal agencies is the 

establishment of agencywide, long-term strategic goals. The Government 

Performance and Results Act of 1993 (GPRA),

10 which was significantly 

enhanced by the GPRA Modernization Act of 2010 (GPRAMA),11 requires 

federal agencies to, among other things, develop strategic plans with 

long-term, outcome-oriented goals, annual goals linked to achieving the 

long-term goals, and annual reports on the results achieved.

IRS’s strategic plan includes goals to achieve compliance results at the 

lowest IRS costs and least taxpayer burden. Under these strategic goals, 

IRS staff are to (1) direct resources toward enforcement activities that 

target existing and emerging high-risk areas and that focus on the highest 

risk of noncompliance, (2) use data and research to make informed 

 

9

The toll-free lines for correspondence audits differ from other IRS toll-free lines for 

taxpayers to call about filing returns, arranging for payment of taxes due, clarifying the 

status of their tax accounts, and the like. 

10Pub. L. No. 103-62, 107 Stat. 285 (Aug. 3, 1993).

11Pub. L. No. 111-352, 124 Stat. 3866 (Jan. 4, 2011).

Performance Management 

Information and Controls 

Help Agencies Assure 

Results and Best Use of 

Federal Resources
 

Page 10 GAO-14-479 IRS Correspondence Audits

resource allocations as well as other decisions related to enforcement 

activities, and (3) minimize the costs and negative effects of tax 

enforcement programs on taxpayers by respecting taxpayer rights and 

minimizing taxpayer burden while enhancing the taxpayer experience 

through improved service to make voluntary compliance easier and 

expedite resolution.

Standards for internal control in the federal government and federal 

guidance on performance management call for agencies to establish 

objectives and performance measures for programs that clearly link to 

agencywide goals.12 As our prior work has shown, performance measures 

are a key tool to help managers assess progress toward the stated 

agencywide strategic goals and program-level objectives.13 Leading 

agencies seek to establish clear hierarchies of results-oriented 

performance measures and targets to ensure that the agency is achieving 

its mission and strategic goals. Such performance measures help 

agencies make resource decisions and foster accountability to 

communicate agency progress to Congress and the public.

Internal control is a major part of managing an organization.14 It 

comprises the plans, methods, and procedures used to meet missions, 

goals, and objectives, which supports performance-based management.

Internal control, which is synonymous with management control, helps 

agency program managers achieve desired results and provide 

reasonable assurance that program objectives are being achieved 

through, among other things, effective and efficient use of agency 

resources. In addition, internal control standards in the federal 

government call for agencies to promptly review, evaluate, and determine 

 

12GAO/AIMD-00-21.3.1. 

13For example, see our findings in GAO, Program Performance Measures: Federal 

Agency Collection and Use of Performance Data, GAO/GGD-92-65 (Washington, D.C.; 

May 4, 1992); Agencies’ Annual Performance Plans Under the Results Act: An 

Assessment Guide to Facilitate Congressional Decisionmaking, GAO/GGD/AIMD-10.1.18

(Washington, D.C.; February 1998); Results-Oriented Cultures: Creating a Clear Linkage 

between Individual Performance and Organizational Success, GAO-03-488 (Washington, 

D.C.; Mar. 14, 2003); and Managing for Results: Enhancing Agency Use of Performance 

Information for Management Decision Making, GAO-05-927 (Washington, D.C.; Sept. 9, 

2005).

14GAO/AIMD-00-21.3.1. 
 

Page 11 GAO-14-479 IRS Correspondence Audits

the proper actions to take in response to findings from audits and other 

reviews including those making recommendations for improvements.

Within a program, projects that use generally recognized good 

management practices can enhance the chances of success and ensure 

the best use of resources. One such practice is benefits management, 

which entails actions and techniques for defining, creating, maximizing, 

and sustaining benefits. Benefits management requires that projects have 

clearly defined expected benefits that align with program objectives and 

strategic goals. This includes having processes to plan, measure, and 

realize project benefits. Benefits management is to be done throughout a 

project and includes reporting planned versus actual benefits at various 

points and forecasting future benefits. As a result, an agency is better 

able to ensure that the value promised by the project is realized and that 

decisions are justified and made rationally so that agency resources are 

used well.15

Taxpayer burden is the direct time and money that taxpayers spend to 

comply with tax laws. In our tax system, taxpayers must spend some time 

and money on tax compliance. A key concept in tax administration is 

reducing unnecessary burden. Time-related measures of taxpayer 

experience or customer satisfaction can be useful in gauging how IRS’s 

administration of the tax law affects taxpayers.

Tax professional groups, congressional stakeholders, and the National 

Taxpayer Advocate have all raised concerns about taxpayers’ burden and 

experience in the correspondence audit program.16 According to IRS 

officials, the comments critical of the program prompted IRS to start a 

comprehensive program review in 2012, the Correspondence 

Examination Assessment Project (CEAP). CEAP focused on five problem 

areas to improve the taxpayer experience and reduce taxpayer burden in 

undergoing a correspondence audit.17 IRS used a contractor to support 

 

15Project Management Institute, The Standard for Program Management, 2nd ed. 

(Newtown Square, Pa.; Project Management Institute, Inc., 2008).

16For example, see National Taxpayer Advocate, 2011 Annual Report to Congress

Volume Two: TAS Research and Related Studies, IRS Publication 2104-B (Washington, 

D.C., Dec. 31, 2011).

17These problems areas are discussed later in this report. 

Taxpayer Burden, 

Experience, and 

Satisfaction
 

Page 12 GAO-14-479 IRS Correspondence Audits

CEAP. Among other things, the contractor developed tools to monitor the 

status and resolution of issues and helped identify broad improvement 

areas to guide development of solutions.

According to IRS data since the end of fiscal year 2011, the program 

regularly has experienced backlogs in responding to taxpayers who 

provide documentation in response to IRS’s audit notices. In fiscal year 

2013, the program experienced dramatic increases in how long it took 

IRS to review taxpayers’ correspondence and related documentation. IRS 

tracks this increase by how much of its correspondence audit inventory 

was “overage” (i.e., exceeded a specified number of days before IRS 

responded to a taxpayer’s correspondence). This overage threshold is 30 

days for SB/SE and 65 days for W&I.18 Table 1 shows a snapshot of the 

overage data as of the end of fiscal years 2011 through 2013 and as of 

February 2014.

 

18These overage data have some limitations in helping understand the taxpayers' audit 

experience. Beyond SB/SE and W&I having these two different thresholds for determining 

when IRS’s response to correspondence is “overage,” SB/SE uses the data as a 

performance measure with targets while W&I does not. This raises questions about why 

the taxpayer's experience in receiving a delayed IRS response is viewed differently by the 

two divisions and, as a result, whether taxpayers across the two divisions receive equal 

treatment. Regardless, the data provide a snapshot of the percentage of correspondence

for which IRS’s response is overage at the end of a specified month and are not a 

cumulative indicator to show IRS’s performance over time. For example, the overage data 

do not indicate how long taxpayers had to wait for IRS to respond, such as the average 

time in days between IRS receiving correspondence from taxpayers and responding to it. 

As a result, the data represent more a point-in-time workload indicator than a meaningful 

gauge of the taxpayer experience. 

Audit Notices 

Contribute to 

Taxpayer Burden and 

IRS Inefficiencies

IRS Has Had Backlogs in 

Responding to Taxpayers 

during Correspondence 

Audits with a Dramatic 

Increase in 2013
 

Page 13 GAO-14-479 IRS Correspondence Audits

Table 1: Percentage of Overage Correspondence Inventory, by IRS Division, as of 

the End of Fiscal Years 2011 through 2013 and the End of February 2014

Date 

Percent of Inventory Overage

W&I SB/SE 

9/30/2011 29.5% 21.9%

9/30/2012 0.4 11.3

9/30/2013 83.4 78.0

2/28/2014 49.7 77.4

Source: IRS data on overage correspondence.

Note: W&I is the Wage and Investment Division and SB/SE is the Small Business and Self-Employed 

Division. The percent of inventory overage is a snapshot as of the end of each month. The data show 

the percentage of the total taxpayer correspondence to which IRS has not yet responded. It is 

calculated by dividing the correspondence older than a specified number of days (65 days for W&I 

and 30 days for SB/SE) by the total taxpayer correspondence in the inventory.

IRS officials had not done a study of the reasons, but said that the 

increase in delayed responses for fiscal year 2013 was caused by several 

factors, including budget reductions due to the sequester that cut 

overtime and IRS staff furlough days that cut the resources for working 

taxpayer correspondence.19 During this time, taxpayers continued to 

correspond with IRS, creating a large backlog of documentation to audit.

Program officials said that they reacted as soon as budget reductions 

were communicated, however by then most of the audit notices had 

already been sent. With IRS’s backlog in reviewing and responding to 

taxpayers’ correspondence, taxpayers have been more likely to 

experience delays in having their audits resolved.

The officials said that since late in fiscal year 2013, IRS has continued to 

take steps to reduce the backlog, including delaying audit starts until later 

in the year and lowering telephone level of service goals to direct 

resources from answering taxpayer calls to reviewing taxpayer 

correspondence. For example, correspondence audit officials reduced the 

level of service for answering calls about SB/SE audits from 72 percent of 

the calls made to 68 percent of the calls made from October 2013 through 

May 2014.

 

19 IRS’s approach to absorbing sequester funding cuts in fiscal year 2013 included staff 

furloughs and reduced overtime pay, among other steps as we recently reported in GAO, 

2013 Sequestration: Agencies Reduced Some Services and Investments, While Taking 

Certain Actions to Mitigate Effects, GAO-14-244 (Washington, D.C.; Mar. 6, 2014). 
 

Page 14 GAO-14-479 IRS Correspondence Audits

Although table 1 shows that IRS had made progress in reducing the 

backlog as of February 2014, the overage inventories were still well 

above the 2011 and 2012 year-end levels. An IRS program official said 

IRS expected to reduce the overage inventories to be at “pre-sequester 

levels” by the end of fiscal year 2014. Given a reduction in staff 

resources, IRS has reduced the number of correspondence audits 

planned for fiscal year 2014, which should help to manage the backlog.

Compared to fiscal year 2013 when IRS closed 1,050,373 

correspondence audits, IRS plans to close 911,407 in fiscal year 2014—a 

13 percent reduction. Even if overage inventories are reduced to 

presequester levels, table 1 shows that those levels included significant 

percentages of overage cases, such as at the end of fiscal year 2011.20

IRS data and our interviews with IRS program officials and tax examiners 

indicate that IRS has been sending audit notices to taxpayers that contain 

unrealistic time frames about when taxpayers who send documentation to 

IRS should expect a response. Until recently, the notices told the 

taxpayer to expect IRS’s response on a specified date which, according 

to IRS officials, was usually between 30 to 45 days from the date of the 

notice. However, in the time period we conducted our review, IRS has 

consistently been taking several months to respond to taxpayer 

correspondence. During the time it takes IRS to respond, its systems 

would periodically send out follow-up notices. As a result, some taxpayers 

received multiple misleading notices. For example, in one telephone call 

we listened to, a taxpayer calling IRS said he had received four notices 

from IRS extending the date to expect an IRS response. In another 

taxpayer call we heard, we learned that the taxpayer had been waiting 

more than 5 months for IRS to respond to the taxpayer’s correspondence 

and that the most recent notice the taxpayer had received said to expect 

an IRS response by November 3, 2013. When the taxpayer called—on 

November 7—the examiner said the documentation had not been 

reviewed and suggested that the taxpayer call again in another month.

In all the tax examiner focus groups, the tax examiners we spoke to 

consistently agreed that the notices caused problems because taxpayers 

who did not get a response from IRS within the expected time frame often 

 

20IRS officials pointed out that table 1 also shows the end of fiscal year 2012 as a presequester level of percentage of overage cases. 

IRS Notices Provided 

Unrealistic Timeframes on 

When IRS Will Respond, 

Causing Taxpayer 

Frustration and 

Generating Unnecessary 

Phone Calls
 

Page 15 GAO-14-479 IRS Correspondence Audits

resorted to calling IRS to find out the status of their audit. Tax examiners 

told us that many taxpayers expressed frustration and have a poor 

perception of IRS professionalism and competence after being told that 

IRS is going to take significantly more time than promised in responding.

They said that taxpayer calls prompted by unrealistic timeframes caused 

examiners to use time unproductively. The examiner’s comments below 

illustrate the effects of such telephone calls.

The taxpayers cannot understand why IRS would send a letter out with 

such unrealistic time frames and there is no acceptable way we can 

explain it to them. That is why they are so frustrated. It puts us in a very 

awkward and embarrassing situation and it takes time to gain control of 

the conversation in these situations. I try to gain control of the situation 

and tell the taxpayer I understand the frustration so that he will calm 

down so we can make the phone call productive, but this takes time and 

wastes time for both the taxpayer and me.

Source: tax examiner focus group interview.

An important reason for taxpayers’ concern about the length of 

correspondence audits is that, in a substantial portion of cases, refunds 

are held up until the audit issues are resolved. For example, for a large 

proportion of EITC audits, the portion of refund being questioned may not 

be released until the audit is resolved. In fiscal year 2013, nearly half of 

all correspondence audits—512,727 of 1,050,373–were these “prerefund” type.

IRS officials acknowledged that taxpayer expectations about audit 

timeframes are an important aspect of service and have taken actions 

intended to address the misleading notices. IRS issued a revised 

publication in January 2014 to better inform taxpayers about the 

correspondence audit process, including adding a statement that the 

audit process “can take several months.” In February 2014, IRS began 

sending revised initial audit notices telling the taxpayers a date by when 

IRS may complete review of the information sent but did not provide a 

specific date to expect the IRS’s response. The revised notices also 
 

Page 16 GAO-14-479 IRS Correspondence Audits

added language informing taxpayers that IRS may require more time to 

complete its review and will contact them again if that is the case.21

It is not clear to what extent these actions will clarify taxpayers’ 

expectations and reduce the number of calls about when IRS will 

respond. Officials said they revised the notices because tax examiners 

had reported that the notices prompted taxpayers to call unnecessarily 

when IRS did not timely respond. However, IRS did not use actual 

response time data to justify the revisions, nor does IRS plan to analyze 

data to ensure it is responding timely per revised notices or track whether 

taxpayers made fewer calls.

IRS officials said they had not considered making regular revisions to the 

notices to make them as realistic as practical based on current workload.

Such revisions would be consistent with IRS’s strategic goals on reducing 

unnecessary taxpayer burden. IRS officials said it took a couple of 

months to make the recent change to the notice. They further noted that 

the actual response times can vary significantly across the various IRS 

locations, depending on the time of the year, type of audit issue, and 

taxpayer response rate. Unless IRS collects and analyzes data on 

whether it is responding timely per revised notices, it will be difficult for 

IRS to make appropriate revisions to the notice so that response times 

are realistic. Thus, taxpayers may continue to receive misleading 

information about audit timeframes.

Based on the telephone calls we listened to and the tax examiners we 

interviewed, tax examiners who take calls from taxpayers about when 

their correspondence will be reviewed usually do not know the answer.

Calls are routed to an available examiner, not the examiner doing the 

audit. According to tax examiners, they usually have to tell the taxpayer to 

wait further—usually for some unknown time.22 In monitoring phone calls, 

we listened to taxpayers tell the IRS examiner that they were calling 

 

21A revision to this second notice said that IRS may not be able to complete its review by 

a specified date and that IRS would send a third notice to inform taxpayers if that situation 

arises. 

22Some tax examiners we spoke to in January 2014 said they had started to be 

forthcoming in telling taxpayers who called that IRS responses to correspondence could 

be delayed for additional weeks or months because of the backlog.

Tax Examiners Waste 

Time Answering 

Unnecessary Calls about

Audit Time Frames Which 

Further Delays Audit Work
 

Page 17 GAO-14-479 IRS Correspondence Audits

because the expected response date on a notice had passed without IRS 

having responded yet.

This cycle of phone calls affects tax examiners’ ability to serve taxpayers 

and close the audits. From talking to groups of IRS tax examiners, we 

consistently heard from them that such calls about the status of the audit 

complicates the work that tax examiners are attempting to do, as 

discussed below. 23 Again, the examiners’ comments below are to 

illustrate the effects of such telephone calls.

• Tax examiners have less time to audit. IRS data for fiscal years 2011 

through 2013 show that the time spent by tax examiners on taxpayer 

calls has been about 7 percent to 9 percent in SB/SE about 12 

percent to 13 percent in W&I.24 Answering the calls reduces their time 

to review correspondence to resolve the audits.25

I try to give them realistic time frames—like 4-6 weeks—and ask that they 

allow us the time to get to their case. I tell them that the more they call 

the more it takes time away from doing the paperwork which will make 

our reply all that much later. I look at the situation and see that it is hard 

for IRS to get caught up. The shutdown made the backlog worse, and 

they need to allow us time to work cases but the phone demand keeps us 

from doing that.

Source: tax examiner focus group interview.

• Tax examiners’ time is used less efficiently. IRS examiners said that 

increased demand to answer taxpayer calls through 2013 had 

resulted in them more frequently being assigned to answer the calls 

 

23The quotes that follow are intended to illustrate the themes we heard from these 

discussions and these calls. 

24See appendix II, table 6. 

25IRS officials said they encourage examiners to self-assign cases so that telephone calls 

can be used to resolve audits whenever possible. 
 

Page 18 GAO-14-479 IRS Correspondence Audits

rather than review correspondence.26 Some tax examiners said that 

this makes them less productive in reviewing the correspondence.

It makes the time you have spent on a case unproductive because when 

you are in the middle of a case and have to go on phone, when you 

come back it is almost like you have to start all over again because you 

lose your train of thought on the case. You have to recollect your 

thoughts all over again.

Source: tax examiner focus group interview.

• Tax examiners we spoke to said that having to explain audit delays to 

taxpayers and the resulting negative taxpayer reactions can cause 

stress. Tax examiners added that they have no realistic time frames to 

give taxpayers about when to expect a response or resolution. Some 

examiners said they tell the taxpayers that it might be more than 

another month or so.

A big part of the problem is that the taxpayer gets this letter that says we 

will get back to you in 30 days. But right now we are working 

correspondence received in [at least 7 months earlier]. Because we 

don’t know how far behind other campuses are we don’t know what to 

tell the taxpayer. Also, sometimes taxpayers don’t get the same 

information from one examiner to another. One examiner will tell them 

one thing, and another examiner will tell them another.

Source: tax examiner focus group interview.

As a result of these complications, correspondence audits have been 

taking longer. From fiscal years 2009 through 2013, the audits’ cycle time 

have increased from 177 days to 195 days (see table 8 in appendix II).

Longer audits tend to prompt more taxpayer phone calls. In W&I fiscal 

year 2012 taxpayer satisfaction survey results, taxpayers with audits that 

 

26As mentioned earlier in discussing IRS’s efforts to reduce the backlog in reviewing 

taxpayers’ correspondence, for the first few months of fiscal year 2014, correspondence 

audit officials decided to reduce the level of service for answering calls about SB/SE 

audits, as well as the need to shift as many tax examiners from reviewing taxpayer 

correspondence to answering taxpayer calls. 
 

Page 19 GAO-14-479 IRS Correspondence Audits

took longer than 6 months were more than three times more likely to call 

for assistance that those with audit lengths less than 4 months.27

Steps to use tax examiner resources more efficiently and provide 

taxpayers accurate information would be in line with IRS’s strategic goals 

to minimize IRS’s costs and unnecessary taxpayer burden. Besides 

revising the notices to better inform taxpayers of any delays, IRS also 

could use its capability to record outgoing messages to inform taxpayers 

calling that IRS is behind on its workload and when to expect a response.

Although IRS has not recently used this capability, such a message could 

divert some calls away from examiners, give the taxpayer more realistic 

response time expectations, and result in a better use of IRS resources.

According to IRS officials, such a message could be recorded quickly and 

without much cost. Officials said that some staff recalled IRS trying such 

an outgoing message that had limited effect, but the effort was more than 

10 years ago and IRS did not have data on the results. With the costs so 

low, even a limited benefit would likely be a net gain.

When taxpayers call about their audit, tax examiners answering the 

phone do not have access to the taxpayers’ documentation. All of the 

documentation sent by the taxpayer is maintained and managed in paper 

rather than electronic form. For example, if a taxpayer sends 

documentation through e-fax, the electronic data are printed for the paper 

audit file. IRS does not keep these data in electronic form because its 

information system lacks capacity, according to IRS officials.

Instead, tax examiners answering the calls from taxpayers do have 

access to any electronic notes created about the audit. Tax examiners 

are to make electronic notes when they review taxpayers’ documentation 

or when they answer taxpayers’ calls. If taxpayers’ documentation has not 

yet been reviewed, electronic notes may not exist. Absent any electronic 

notes, the examiner must rely on the taxpayer’s memory of the 

documentation. When notes exist, examiners said that their quality, 

completeness, and understandability vary. As a result, taxpayers may 

receive conflicting instructions from different examiners on what is 

 

27The survey data did not include non-response bias analysis of survey respondents and 

non-respondents. The survey results may not be generalizable to the entire population. 

We provide these data to provide a general indication of the extent to which taxpayers call 

IRS for assistance. 

Examiners Usually Do Not 

Have Access to Taxpayers’ 

Documents When 

Taxpayers Call
 

Page 20 GAO-14-479 IRS Correspondence Audits

needed to resolve the case. Such conflicts may be less of an issue if 

examiners were able to access taxpayers’ documentation. The following 

comments from tax examiners illustrate their concerns about not having 

access to the taxpayer’s documents.

• An examiner who is working the case next needs to be able to tell 

from case notes the reason decisions were made and specifically 

what information the taxpayer did not provide that is needed. That is 

not happening in all cases.

• With the current system where we only work part of a case and it is 

passed on to where another examiner will work it. Also, we receive 

calls from all over and the case the taxpayer is calling about may be 

assigned to a campus anywhere so that we cannot provide them the 

help they are calling for.

• If the taxpayer calls and says they sent in a response, we do not have any way to find out what they sent in because we handle phone calls 

from all over so the correspondence could have been sent anywhere.

Source: tax examiner focus group interviews.

Every year IRS receives from audited taxpayers millions of pieces of 

correspondence that IRS staff manually process. As a result, weeks can 

pass before taxpayer documentation is reviewed and taxpayers may 

make repeated calls or be asked to resubmit the same documentation.

Given current limitations, IRS has developed information to support a 

proposal for a system to scan taxpayer documents so that any examiner 

can access them electronically. The proposed system is to provide the 

ability to image all incoming correspondence as well as provide an 

electronic repository for all digital communications received. Proposal 

documents state that doing so will better enable IRS to retrieve and 

manage incoming correspondence, assign cases systemically, and allow 

for the update of mail status.28 The system, which has not yet been 

funded, is included in a package of information technology projects for 

which the Administration requested $36.4 million as part of its fiscal year 

2015 budget request.

IRS is aware that its correspondence notice process creates problems for 

taxpayers. For example, three of the five problem areas identified by the 

 

28IRS also believes that this automation will reduce IRS shipping and storage costs, IRS’s 

aged inventory, and accelerate resolution, which will improve taxpayer satisfaction. IRS 

estimates that this investment will “break even” in 5 years.
 

Page 21 GAO-14-479 IRS Correspondence Audits

Correspondence Examination Assessment Project cover notices and 

subsequent communications between taxpayers and IRS:

• Correspondence audit process—viewed as very time consuming and 

frustrating for the taxpayer, including unclear correspondence, long 

wait times for phone assistance, and the need for multiple contacts 

with IRS to resolve an audit issue.

• First-time resolution—resolving taxpayer issues often requires 

multiple touches via correspondence and/or telephone, with a case 

frequently handled by different employees. Doing so delays 

processing/resolution and can provide inconsistent guidance to the 

taxpayer.

• Electronic communications—the majority of communications between 

the taxpayer and IRS is through correspondence and telephone, 

resulting in significant resource consumption, time delays, and 

misunderstanding leading to additional taxpayer burden.

Although called for by federal internal control standards and performance 

management guidance, IRS’s correspondence audit program does not 

have clear, documented objectives that clearly link to IRS strategic goals 

IRS Does Not Have 

Performance 

Information to 

Determine Whether 

the Correspondence 

Audit Program Is 

Achieving Its 

Compliance, Burden, 

and Cost Goals

The Program Does Not 

Document Its Objectives
 

Page 22 GAO-14-479 IRS Correspondence Audits

on compliance, IRS costs, and taxpayer burden.29 Although program 

officials and IRS documents made references to “yield, coverage, and 

risk” as program objectives and discussed how IRS tried to balance them, 

IRS provided no documentation defining or establishing them as the 

program objectives or linking them to the IRS-wide strategic goals.30

Without program objectives linked to IRS’s strategic goals, IRS managers 

will be limited in assessing progress toward the goals and making 

informed resource allocation decisions. Furthermore, it will be difficult for 

IRS to communicate agency progress to Congress and the public and 

thus be held accountable.

IRS officials described a large volume of information that they call 

program measures and program data that they said they use to assess 

performance and make program decisions. Some examples of this 

performance information are provided below (for complete lists see 

appendix III, table 10 for program measures and table 11 for program 

data).

Examples of measures:

• number of audits closed,

• staff full time equivalent (FTE) time applied to the program,

• cycle time in days from the start to closure of the audit,

• customer satisfaction with the audit, and

• level of service in answering telephone calls from taxpayers about the 

audit.

 

29The standards for internal control in the federal government and federal guidance on 

performance management call for agencies to establish objectives and performance 

measures for programs that clearly link to agencywide goals.

30Although IRS did not have documented definitions of these terms, we previously have 

reported on the concept of coverage as the percentage of filed returns that are audited 

and yield as the dollar amounts in additional tax due recommended by audits (for 

example, see GAO, Tax Gap: IRS Could Significantly Increase Revenues by Better 

Targeting Enforcement Resources, GAO-13-151 (Washington, D.C.; Dec. 5, 2012). 

Performance Information 

Is Incomplete in Some 

Cases and Does Not Link 

to IRS-wide Strategic 

Goals
 

Page 23 GAO-14-479 IRS Correspondence Audits

Examples of program data:

• no-change rate (percentage of audits closed without changing the 

amount of taxes owed),

• additional tax dollars recommended overall and average per return 

audit,

• agreement rate (percentage of audits closed in which taxpayers 

agreed with the audit findings),

• average direct examiner time applied per audit, and

• default rate (the percentage of audits closed without a taxpayer 

response on whether they agreed or disagreed with the audit 

findings).

While IRS has a large number of such measures and program data, in 

many cases they are incomplete as indicators of compliance, taxpayer 

burden or IRS cost, as the following examples illustrate.

• Neither the number of audits closed nor any other of IRS’s measures 

show the impact on compliance, particularly if the audit did not 

uncover any tax changes. As will be discussed further in the next 

section, many correspondence audits are closed by “default,” 

meaning the taxpayer did not respond to IRS notices to indicate 

whether the taxpayer agreed or disagreed.

• Additional tax recommended can be abated or otherwise overturned.

As indicated in our past reports, we found that the proportion could be 

significant.31 We also found that recommended taxes may never be 

collected if the taxpayer cannot be found or is bankrupt, or if IRS lacks 

resources to pursue collection vigorously. We found that from fiscal 

years 2002-2007, IRS’s inventory of unpaid tax debts included as 

much as $7.6 billion for which IRS had indefinitely delayed collection 

action because of limited resources, even though IRS had sent 

notices to taxpayers to ask for payment. None of IRS’s measures or 

data track dollars actually collected for each audit case.

 

31For example, in each of fiscal years 2002-2007, between around 20 to 30 percent of the 

total dollars of tax debt removed from IRS’s debt inventory was through abatements, as 

we found in GAO, Tax Debt Collection: IRS Has a Complex Process to Attempt to Collect

Billions of Dollars in Unpaid Tax Debts, GAO-08-728 (Washington, D.C., June 13, 2008). 

The other ways debts are removed are through collection or expiration of the 10-year 

statute of limitation for collection (26 U.S.C. § 6502). The debt inventory includes 

assessments from audits and other compliance programs and from returns filed with tax 

due.

Compliance
 

Page 24 GAO-14-479 IRS Correspondence Audits

Developing measures on the direct impact of correspondence audits on 

compliance is difficult. As discussed in our past report, an alternative 

would be to start using proxy measures to provide more insights on the

compliance impact rather than relying on the number of closed audits.32

For example, research on how a correspondence audit affects the audited 

taxpayers’ later compliance or how correspondence audits affect the 

compliance of taxpayers in general could lead to proxy measures on 

compliance.

• The customer satisfaction rate and telephone level of service are 

measures of important aspects of the taxpayer experience. IRS 

conducts surveys by mail of a sample of taxpayers to find out how 

satisfied they are with IRS’s handling of their audits. While the results 

may not be representative of all taxpayers, the surveys are consistent 

with what we observed and heard from tax examiners. In recent 

years, for the taxpayers who chose to respond, the results show that 

about half are at least somewhat satisfied and about a third are at 

least somewhat dissatisfied.33 Taxpayers who telephone IRS also are 

surveyed on the telephone service they receive. Although the results 

may not be representative, in a fiscal year 2012 survey of callers to 

W&I campuses, telephone callers who chose to respond reported 

relatively high satisfaction, with overall satisfaction of nearly 90 

percent and ratings of examiner courtesy, professionalism, and 

willingness-to-help of higher than 90 percent. However, over a third of 

callers who responded said the information received did not eliminate 

the need for further calls. These callers also reported lower 

satisfaction than the about two thirds that responded saying their calls 

eliminated the need for further calls or saying they were unsure if they 

would need to call again. Telephone level of service is the percentage 

of total telephone calls that are answered or handled, which has 

recently been around 70 percent.

 

32A proxy measure is an attempt to indirectly measure a variable that is difficult to directly 

measure. For more information on difficulties we found in measuring compliance, see 

GAO, Tax Compliance: Better Compliance Data and Long-term Goals Would Support a 

More Strategic IRS Approach to Reducing the Tax Gap, GAO-05-753 (Washington, D.C.; 

July 18, 2005). For more information on what we found on the use of proxy measures to 

measure the effects of a program on compliance see GAO, Corporate Tax Compliance: 

IRS Should Determine Whether Its Streamlined Corporate Audit Process Is Meeting Its 

Goals, GAO-13-662, (Washington, D.C.; Aug. 22, 2013). 

33The remaining taxpayers’ responses indicated that they were neither satisfied nor 

dissatisfied.

Taxpayer burden
 

Page 25 GAO-14-479 IRS Correspondence Audits

• IRS did not have measures or data on other aspects of taxpayer 

burden that tax practitioners or tax examiners told us frustrated 

taxpayers, such as the number of calls a taxpayer makes, the number 

of times a taxpayer has to send documentation, the amount of time 

spent waiting for a call to be answered or talking on the telephone, the 

number of calls to resolve the audit, and the amount of documentation 

sent.34

• IRS had no measures or data on how often taxpayers get resolution of 

their case after the first contact with IRS, one of the problem areas 

identified by CEAP.

• Examiner time per audit data reflect some of IRS’s direct costs but not 

costs of time spent on handling taxpayer calls.

• Neither the staff FTE time measure or examiner time per audit data 

reflect costs generated after the audit such as collection costs.

In addition to the individual measures being incomplete, IRS does not 

document the linkages between its performance measures and its 

strategic goals for compliance, burden, and cost. Nor is it always clear 

from looking at a measure what the linkage is. As noted, for example, 

increased case closures may or may not be an indicator of improved IRS 

effectiveness at ensuring compliance, especially if the closures include 

defaults. Without explicit linkages, assessing progress toward goals is 

much harder. Furthermore, incomplete information may affect decisions.

For example, without an understanding of all of the costs of an audit, IRS 

managers cannot make informed decisions about the benefits and costs 

of starting a given audit. This leaves IRS at risk of creating workload, both 

at the front end of the program where telephone calls are generated, and 

at the back end where closed audit cases move to IRS collection staff, 

that it cannot handle at a reasonable burden on taxpayers and cost to 

itself.

 

34We could not tell from CEAP documents that IRS provided whether IRS had considered 

these events as potential measures of the taxpayer experience. IRS had no measures or 

data on taxpayer burden in terms of time and money spent to deal with the audit. Although 

IRS has surveyed taxpayers and is collecting data that may provide some insights on the 

amount of taxpayer burden for audits, these data are not yet available for use in the audit 

program. According to IRS officials, IRS has data on amount of time spent waiting for a 

call to be answered or talking on the telephone, but officials did not provide these data as 

part of the correspondence audit program data used for management information. 

Cost
 

Page 26 GAO-14-479 IRS Correspondence Audits

As our prior work has shown, performance measures are a key tool to 

help managers make resource decisions and ensure that the agency is 

achieving its mission and strategic goals.35 When linked with program 

objectives and agencywide strategic goals, such measures foster 

accountability and communicate agency progress to Congress and the 

public. Without measures that give a clear and complete sense of 

performance in terms of compliance, burden, and costs, IRS managers 

and outsiders, including Congress, will not have a very clear 

understanding of IRS progress towards these goals. As a result, it is not 

possible to tell from looking at the measures and program data in 

aggregate whether the correspondence audit program is performing 

better or worse than in the past. 

IRS did not document criteria on how its managers were to use the 

performance information—the measures as well as the program data—to 

make program decisions such as the number of audits or tax issues to 

audit. This runs counter to the internal control standards on documenting 

operational decisions on allocating resources and using performance 

information to help ensure accountability for effective and efficient use of 

resources.36 Furthermore, counter to internal controls standards that call 

for agencies to clearly document significant events, IRS did not document 

the reasons for the decisions made.

In using the program data to make decisions, for example, program 

officials talked about how it was preferable to minimize the no-change 

and default rates while maximizing recommended tax amounts with the 

lowest examiner time spent possible and rate at which taxpayers agree 

with the audit findings. However, IRS had not provided guidance on how 

to weigh the data nor did it have documented tolerances on when a rate 

or amount was too high or too low. Without such guidance and 

tolerances, IRS cannot provide reasonable assurance that the program 

data were being used consistently from year to year to make decisions 

about the best use of resources in accordance with management 

intentions about the direction of the program.

 

35For example, see our findings in GAO/GGD-92-65, GAO/GGD/AIMD-10.1.18, 

GAO-03-488, and GAO-05-927. 

36GAO/AIMD-00-21.3.1. 

IRS Did Not Document

How the Performance 

Information Is Used to 

Make Program Decisions 

on Tax Issues to Audit
 

Page 27 GAO-14-479 IRS Correspondence Audits

For example, IRS has not clarified how program managers should view 

default rates given the other program data being considered. IRS closes 

audits as defaults when the taxpayer never responded to any IRS notice 

or responded to some notices but not the last one asking for agreement 

with a recommended additional tax assessment. These default 

assessments produce positive outcomes for some IRS program data 

such as higher recommended tax amounts, more audit closures, and 

lower no change rates. For example, in fiscal years 2009 through 2013, 

the no-change rate ranged from 11 percent to 21 percent for all closed 

correspondence audits. When IRS had contact with the taxpayers 

throughout the audit and did not close the audit through a default, the nochange rate ranged from 28 percent to 45 percent (see table 9, appendix 

II).37 In sum, it is difficult to know how to interpret the apparent positive 

outcomes in program data, such as the no-change rate, given the default 

rates.

IRS had other data that it does not use that would provide a more 

complete picture about the compliance results, IRS costs, and taxpayer 

burden associated with correspondence audits. According to federal 

internal control standards, managers need accurate and complete 

information to help ensure efficient and effective use of resources in 

making decisions.38

For example, as already noted, the amount of additional tax collected as 

a result of audits provides useful information in addition to the amount of 

additional tax that the audits recommend. Program officials do not use 

available data to track these tax collections. We used that data to 

compute the collection rate compared to the recommended tax amounts 

from correspondence audits closed in fiscal years 2008 through 2013 as 

of September 30, 2013 (see table 2).

 

37Taxpayers may default because they lack documentation to refute IRS’s recommended 

tax change or because they are confused or unable to respond. IRS does not track how 

often taxpayers who default later provide information to support their position, resulting in 

IRS abating the additional tax assessments from the correspondence audit.

38GAO/AIMD-00-21.3.1.

IRS Did Not Use Some 

Available Data Potentially 

Useful for Making 

Decisions
 

Page 28 GAO-14-479 IRS Correspondence Audits

Table 2: IRS Collection of Additional Tax Recommended in Correspondence Audits Closed During Fiscal Years 2008 through 

2013, as of September 30, 2013

FY Number of Audits

Amount of recommended tax

(in millions of dollars)

Amount of collected tax

(in millions of dollars) Collection rate

2008 1,081,152 $ 6,518 $ 4,407 67.6%

2009 1,099.639 7,796 4,474 57.4

2010 1,238,632 8,168 4,469 54.7

2011 1,173,069 8,705 4,535 52.1

2012 1,122,216 9,249 5,143 55.6

2013 1,060,779 8,455 4,240 50.1

Sources: IRS Data Book 2008-2013 for recommended tax amounts and GAO analysis of Enforcement Revenue Information System data for tax collected amounts.

Note: Dollar figures are not adjusted for inflation. Amounts from disallowed claims are not included in 

the numbers above to the extent they resulted in a refund.

Further analyses could provide more insights about the collection rate 

and related compliance effects of correspondence audits. Recognizing 

that not all recommended taxes would be collected or collected soon after 

the audit, potential analyses could indicate how many years it takes to 

collect most of these dollars after the correspondence audit was closed. 

Our analysis shows that typically it can take up to two years to collect half 

of the tax amounts recommended (see table 12 in appendix IV).

Additional analyses could show how much of the tax was collected from 

withholding or offsetting tax refund claims rather than from taxpayers 

sending in the money voluntarily or from IRS collection enforcement 

actions. Another example concerns default rates, which generate 

automatic tax assessments when taxpayers do not respond to IRS on 

whether they agree or disagree with the examiner’s recommended 

additional taxes. The analyses could focus on how much or what type of 

default assessments are more likely to be collected.

IRS also has raw data in its information systems that could provide a 

better understanding of correspondence audit costs and burden on 

taxpayers. One example is combining information about direct audit costs 

with the costs to (1) answer taxpayer calls, and (2) collect additional taxes 

assessed as a result of the audit to get a more complete measure of the 

total cost of an audit. Regarding taxpayer burden, IRS has data that could 

be used to calculate how long taxpayers wait for IRS to respond and for 

the audit to close and how many cases end with first time resolution.

As was the case with audit notices, IRS has acknowledged problems with 

its performance measures and how they are used for decision making. 
 

Page 29 GAO-14-479 IRS Correspondence Audits

Two of the five problem areas identified in IRS’s Correspondence 

Examination Assessment Project program review are:

• Audit metrics—existing program measures do not place an 

appropriate emphasis on factors that most impact the taxpayer 

experience.

• Resource alignment and inventory mix—the audit resource mix 

remains relatively constant but the case mix varies based on 

operational goals. This can lead to misaligned resources and skills, 

increased resource consumption, inconsistent treatment of taxpayers, 

and additional taxpayer burden.

In response to various affected and interested parties making comments 

critical of the correspondence audit program, IRS began CEAP to 

improve the experience and reduce the burden of taxpayers being 

audited. With the support of a contractor, IRS team members working on 

CEAP used several information sources—including tax practitioner 

groups, National Taxpayer Advocate reports, and open and closed audit 

files—and identified the five broad potential improvement areas already 

cited.

Table 3 lists the 19 efforts that IRS initiated in the five problem areas. 

Although these efforts are intended to yield concrete benefits and may 

eventually yield them, none of the 11 completed efforts had clearly 

defined intended benefits or tracked actual benefits as envisioned by the 

project management criteria.39 Although IRS officials said it is not possible 

to measure the benefits of some of the efforts, IRS had not yet completed 

the first step of clearly defining the intended benefits. As a result, clear 

linkages to the problem statements and CEAP efforts to address them did 

not exist. For the remaining eight incomplete efforts, their actual benefits 

have not yet been determined, as table 3 shows. Without clearly defined 

and tracked benefits, it will be difficult to determine whether the 

improvement efforts addressed the identified problems and achieved 

benefits.

 

39Project Management Institute, The Standard for Program Management, 2nd ed. 

(Newtown Square, Pa.; Project Management Institute, Inc., 2008). 

Benefits of Efforts to 

Improve the Taxpayer 

Experience Are Not 

Clearly Defined and 

Tracked
 

Page 30 GAO-14-479 IRS Correspondence Audits

Table 3: Status, Actions, and Information on Actual Benefits of CEAP Efforts to Improve the Correspondence Audit Program

Effort Status Actions taken or planned and, if available, results Actual benefits

Correspondence audit process

Strategy: Update processes, letters, and publications so that taxpayers can better understand correspondence audit processes and 

expectations.

Clarify examiner guidance and reinforce 

existing guidance

Complete Updated and posted changes to Internal Revenue 

Manual and conducted training through June 2013.

Not clearly 

defined or tracked

Develop new examiner guidance Complete Implemented training through June 2013 focused on 

telephone assistance.

Not clearly 

defined or tracked

Pilot test a process for initial review of 

taxpayers’ correspondence

Complete Completed a pilot test in September 2013 with 

inconclusive results on whether an initial 

correspondence screening process improved case 

turnaround. 

None achieved

Revise publication to improve clarity and 

direction to the taxpayer

Complete IRS Publication 3498-A revised and published in 

January 2014 (provided to audited taxpayers) for 

greater clarity, including a flowchart of the process and 

general statement on how long audits may take to 

complete.

Not clearly 

defined or tracked

Revise letters to improve clarity and 

direction to the taxpayer

In process Letters 566 and 525 are being revised to add check 

boxes for taxpayers to indicate tax examiners may 

leave a phone message. Revised letters are expected 

to be used beginning in June 2014. 

To be determined

First-time resolution

Strategy: Promote resolution of cases the first time there is interaction with the taxpayer.

Promote self assignment of cases Complete Provided best practices in April 2013 for examiners to 

assign cases to themselves. Benefits were not clearly 

defined as project documentation suggested it was to 

resolve cases faster or in the first contact while IRS 

officials said it was to address the lack of examiner 

“ownership” of cases and reducing cycle time.

Regardless, IRS did not track results in terms of these 

or other potential benefits, but instead tracked data on 

the increase in cases self-assigned and closed in 

selected months after the promotion effort. The data 

showed that self assignments increased from an 

average of 300 a month to 450 a month over the 4 

months tracked in the context of a program that closed 

more than a million cases that year. 

Not clearly 

defined or tracked

Reinforce training and develop job aids Complete Implemented self-assignment and professional decision 

making job aids to support tax examiners and 

completed training examiners by June 2013. 

Not clearly 

defined or tracked

Pilot emphasizing quick resolution of a 

case

In process Began a pilot in January 2014 on quick resolution of a 

case by using professional decision making tools, 

resources, and best practices from across campuses.

An action plan on pilot results is expected in August 

2014.

To be determined
 

Page 31 GAO-14-479 IRS Correspondence Audits

Effort Status Actions taken or planned and, if available, results Actual benefits

Resource alignment and inventory mix

Strategy: Realign resources based on skill sets and case complexity and improve inventory selection methods.

Route practitioner phone calls to tax 

examiners with higher skill level 

Complete Completed work in September 2013 to identify tax 

examiners and make telephone call routing 

modifications. 

Not clearly 

defined or tracked

Leverage knowledge sharing around best 

practices

Complete Reviewed best practices and determined in July 2013 

that no further action was needed as processes and 

tools already existed within each campus including 

examiners’ access to key Internal Revenue Manual 

sections, guidance, and technical subject matter 

experts. 

None achieved

Conduct research to improve inventory 

selection

Complete Completed research in November 2013 with 

inconclusive results on relationships between tax return 

characteristics and desired outcomes (e.g. cycle time, 

no change). 

None achieved

Conduct pilot routing of complex cases to 

higher-graded examiners

Complete Was dropped after receiving the inconclusive results 

from the research completed in November 2013 (see 

above). 

None achieved

Electronic communications

Strategy: Leverage existing technologies and developing new applications to communicate with the taxpayer will improve taxpayer 

service and increase IRS efficiency.

Maximize use of taxpayers faxing 

documents directly to examiners’ 

electronic in-boxes (also called e-fax)

Complete Distributed best practices and guidance in February 

2013. IRS tracked data on average daily usage in the 

following three months, which showed an increase of 

132 percent compared to prior months. Data tracked 

three months later showed the increase was down to 72 

percent. Project documentation referred to problems 

with resource consumption and time delays and 

reducing the need for traditional fax equipment and 

related maintenance costs. These potential benefits 

were not clearly defined and IRS did not track these 

results. 

Not clearly

defined or tracked

Identify potential self-service application 

in consultation with practitioners

In process Developing videos for YouTube, planning to administer 

a survey in May 2014 on taxpayer preferences, and 

continuing consultations at practitioner forums in 

Summer 2014.

To be determined

Survey taxpayers on electronic 

communication preferences

In process To be addressed in survey noted above planned for 

May 2014.

To be determined

Conduct Virtual Service Delivery pilot 

project

In process Pilot began in May 2013 to allow taxpayers under audit 

to go to selected IRS customer service sites to use IRS 

computers to remotely communicate directly with 

examiners and allow examiners to view taxpayers’ 

documents. Initial pilot results are expected in August 

2014 and the pilot is to continue through the 2015 tax 

filing season. 

To be determined 
 

Page 32 GAO-14-479 IRS Correspondence Audits

Effort Status Actions taken or planned and, if available, results Actual benefits

Provide email confirmation that IRS 

received taxpayer documents 

In process Coordinating with IRS-wide Taxpayer Digital 

Communication (TDC) effort to securely e-mail the 

taxpayer in a pilot project to planned for fiscal year 

2015.

To be determined

Identify potential correspondence audit 

applications

In process Coordinating with TDC effort noted above to pilot ability 

for taxpayer to determine the status of their case and 

communicate with IRS through e-mail via a secure 

portal. It was not clear from documentation whether this 

effort is considering storing e-fax data in electronic form 

and making it available to examiners.

To be determined

Audit metrics

Strategy: Enhance current performance metrics to better reflect performance against key activities that affect customer satisfaction.

Conduct analyses and evaluations to 

identify program performance measures 

that will better reflect the taxpayer 

experience 

In process Conducted research completed in September 2013 that 

yielded no useful results. Initiated evaluation project in 

February 2014 to identify program measures. It is not 

clear that the study will address having performance 

measures and targets for answering taxpayer calls as 

well as for responding to correspondence to resolve 

audits. Without balanced measures, IRS may hamper 

the overall taxpayer experience by diverting resources 

from reviewing correspondence to answering calls to 

meet telephone service goals.

To be determined

Source: IRS CEAP information.

IRS’s CEAP contractor recommended that IRS take steps beyond those 

shown in table 3 to improve how it selects cases for audit and allocates 

resources between answering taxpayers’ telephone calls and reviewing 

correspondence.

The contractor found during the CEAP review that IRS’s approach to 

selecting cases used numerous separate analytical efforts that focused 

on different objectives. The contractor said that IRS needs a coordinated, 

service-wide approach to modeling workload selection with uniform 

methodology that is flexible enough to optimize specific objectives.40

In addition, the contractor recommended that IRS develop a resource 

planning and simulation tool to allocate resources across key audit 

functions, citing primarily telephone and correspondence work. The 

 

40The contractor further recommended that, as part of selecting audit workload, IRS 

investigate the feasibility of incorporating a measure of the likelihood of collecting 

additional taxes recommended in the audit.

IRS Had No Plan for 

Evaluating 

Recommendations to 

Develop a Workload 

Selection Model and a 

Resource Allocation Tool
 

Page 33 GAO-14-479 IRS Correspondence Audits

contractor noted that existing resources are allocated to maintain target 

levels of phone service and that remaining resources are allocated to 

doing the audits. The contractor noted that receiving additional calls 

diverts resources from doing the audits. Without tools to help IRS balance 

these two aspects, IRS may be adversely affecting the overall taxpayer 

experience by excessively diverting resources to either telephone or 

correspondence work. The contractor’s recommendation is consistent 

with our finding on how telephone calls IRS received due to delays in 

responding and misleading notices to taxpayers reduced the amount of 

time examiners had to actually review correspondence and resolve 

audits, resulting in even further delays. According to the contractor, such 

a tool would allow for

• testing various scenarios for allocating resources between telephone 

phone and correspondence work to determine the impact on key 

metrics, 

• enhancing decision making by performing impact analyses based on 

the scenarios, and

• assisting in determining the “sweet spot” for allocating resources to 

optimize both case productivity and telephone level of service, while 

achieving customer satisfaction targets.

Although IRS officials said that the recommendations would be 

considered, as of January 2014, they had no plan or specific timeline for 

doing so. Officials said they would evaluate the recommendations after 

most other CEAP-related work had been done. However, according to 

internal control standards, program managers should promptly evaluate 

findings from reviews that identify deficiencies or opportunities for 

improvements.41 Managers should resolve the matters by taking 

corrective action or making improvements within established time frames.

If they disagree with the findings or recommendations, program managers 

should demonstrate that those findings or recommendations are either 

invalid or do not warrant action. Without timely follow up on the 

contractor’s recommendations, it will be difficult to hold IRS managers 

accountable for ensuring that any needed improvements are made.

Furthermore, IRS may delay or miss opportunities to better select 

workload, allocate resources, reduce taxpayer burden, or otherwise 

improve correspondence audit results.

 

41GAO/AIMD-00-21.3.1.
 

Page 34 GAO-14-479 IRS Correspondence Audits

The correspondence audit program has a large role in ensuring tax 

compliance. It directly touches more than 1 million taxpayers annually and 

affects the voluntary compliance of many more. However, concerns have 

been expressed about unnecessary burdens imposed on taxpayers and 

unnecessary costs incurred by IRS. The concerns are magnified by the 

size of the program.

Our visits to IRS sites and our analyses of IRS data found unnecessary 

burden imposed on taxpayers with unclear notices generating phone calls 

that IRS examiners were not prepared to answer while refunds are 

delayed. IRS acknowledged these problems, including cases that take 

more than half a year to close and an inability to close what are intended 

to be fairly simply correspondence audit cases in a single contact with 

taxpayers. This unnecessary burden has obvious implications for IRS 

resources. The question is what to do about the unnecessary burden and 

cost. 

IRS’s management of the program can be improved both at the frontline 

level where it has contact with taxpayers and at strategic levels where 

decisions about the volume of audits and resource allocation are made.

At the frontline level, IRS could provide more realistic audit notices. To 

the extent that IRS can be realistic about audit time frames, IRS tax 

examiners are less likely to receive taxpayer calls about the status of the 

audit leaving them more time to actually audit. Recorded telephone 

messages provide another option to serve the same end.

At a strategic level, IRS could benefit from more information on 

performance that is clearly linked to IRS’s strategic goals of compliance, 

low taxpayer burden and low cost. This would include program objectives 

with document linkages to the high level goals, program measures that 

reflect program objectives, and documented guidance on how the various 

objectives and measures are to be weighed against each other. With 

reduced resources, IRS faces difficult decisions on how many audits to do 

overall and on what specific compliance issues to audit. If IRS does not 

make good decisions, IRS risks missing noncompliance and burdening 

many taxpayers, wasting scarce resources. Because documentation on 

the criteria and data used to make decisions are missing, IRS does not 

have reasonable assurance that it is making these decisions cost 

effectively and taking actions to achieve better results.

To help inform management decisions, IRS could make better use of raw 

data already in its information systems that clearly relate to compliance, 

burden, or costs. This includes data on how much additional tax IRS 

Conclusions
 

Page 35 GAO-14-479 IRS Correspondence Audits

collects as a result of the audit, the total costs associated with audits, and 

burden related data such as the number of cases that are resolved with a 

single contact.

IRS’s 19 CEAP efforts have potential to improve the correspondence 

audit program. However those improvements may not be realized unless 

IRS states the expected benefits and tracks whether the benefits were 

achieved. In addition, IRS has yet to establish plans or time frames to 

evaluate whether to act on its CEAP contractor’s recommendations to 

improve the audit program, such as by balancing the allocation of 

resources between providing taxpayers telephone assistance and 

reviewing their correspondence.

We recommend that the Commissioner of the Internal Revenue Service 

take the following nine actions:

To reduce the need for taxpayer calls, ensure that IRS is providing 

taxpayers with more realistic time frames on when IRS will respond, and 

more efficiently use IRS resources, collect data to analyze whether IRS is 

responding within the time frames cited in the revised audit notices. If IRS 

delays are continuing, further revise the notices to provide more realistic 

response times based on the data and take other appropriate actions to 

ensure efficient use of IRS tax examiner resources. For example, IRS 

could choose to provide taxpayers who call IRS with a recorded message 

notifying them of delays in IRS responding and when to expected an IRS 

response.

To clarify the desired results of the correspondence audit program and its 

linkages to IRS-wide activities:

• Establish formal program objectives.

• Ensure that the program measures reflect those objectives.

• Clearly link those measures with strategic IRS-wide goals on ensuring 

compliance in a cost-effective way while minimizing taxpayer burden.

To better inform decisions being made about the correspondence audit 

program, document how the decisions are to be made using the 

performance information (including criteria and tolerances used). IRS 

should also track and use other program data that have not been used to 

provide more complete performance information. Examples of data that 

could be tracked and used include:

Recommendations for 

Executive Action
 

Page 36 GAO-14-479 IRS Correspondence Audits

• how much of the recommended tax amounts is collected over time;

• other costs beyond the direct audit time, such as the costs to answer 

taxpayer calls per audit, assess the recommended tax, and collect 

those tax assessments; and

• taxpayer burden and experience such as how often audits are 

resolved in one contact, how often taxpayers correspond or call, and 

how long taxpayers wait for IRS to respond to their documents and for 

the audit to close.

To better ensure an effective investment of resources in the CEAP efforts:

• Clearly document the intended benefits of ongoing efforts to address 

identified problems, and the process for measuring and tracking 

actual benefits.

• Develop a plan and timeline for implementing the CEAP contractor’s 

recommendations on possible ways to improve the (a) selection of 

correspondence audit workload and (b) allocation of resources 

between providing telephone assistance and reviewing taxpayer 

correspondence to resolve audits or develop justifications for not 

implementing the recommendations. 

We provided a draft of this report to IRS for review and comment. The 

Deputy Commissioner for Services and Enforcement at IRS provided 

written comments, which are reprinted in appendix V. Those comments 

focused on the challenges that the correspondence audit program has 

faced during a period of reduced funding as well as sequestration and 

furloughs. The comments also pointed to efforts IRS has underway or 

planned to improve the program. IRS plans to take action on all nine of 

our recommendations although its comments were not clear on the 

details of some actions for four of the recommendations as summarized 

below. 

• For our two recommendations on reducing the need for taxpayer calls 

by providing them with more realistic timeframes on when IRS would 

respond, IRS agreed to collect and analyze data on its response times 

and, based on that information, make any needed changes to its 

letters and phone messages to better reflect realistic timeframes. 

Thus, if implemented effectively, IRS’s actions should address the 

intent of these recommendations.

• For our three recommendations on clarifying the audit program’s 

desired results, IRS agreed to ensure that the program objectives and 

Agency Comments 

and Our Evaluation
 

Page 37 GAO-14-479 IRS Correspondence Audits

measures established would be linked with the IRS wide goals. Thus, 

if implemented effectively, IRS’s action should address the intent of 

these three recommendations.

• For our two recommendations on better informing program decisions, 

IRS agreed to take action to document the correspondence audit

original planning process but IRS did not mention whether it would 

document how all audit program significant decisions are to be made 

using performance information, as we recommended. We continue to 

believe that documenting how audit program decisions are made is 

important. As we noted in the report, without documenting operational 

decisions on allocating resources and using performance information, 

IRS lacks assurance of accountability for effective and efficient use of 

resources. IRS also said it would evaluate the feasibility of using other 

data to provide more complete performance information, as we 

recommended. 

• For our two recommendations on better ensuring an effective 

investment in the CEAP effort, IRS agreed to document the expected 

benefits of its ongoing efforts, as we recommended. Although IRS 

said it will continue to pursue efforts to improve workload selection 

and maximize resource usage, IRS did not comment on whether it 

would develop a plan and timeline for implementing the CEAP 

contractor’s recommendations on ways to improve workload selection 

and resource allocation in the correspondence audit program or 

justifications for not implementing the recommendations, as we 

recommended. We continue to believe it is important that IRS 

develop a plan and timeline for implementing these recommendations 

or justifying not doing so. As we noted in the report, without timely 

follow-up on the contractor’s recommendations, it will be difficult to 

hold IRS managers accountable for ensuring that any improvements 

needed are made. Furthermore, IRS may delay or miss opportunities 

to better select workload, allocate resources, reduce taxpayer burden, 

or otherwise improve the correspondence audit results without 

implementing these recommendations. 

As agreed with your offices, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies to the Chairmen and 

Ranking Members of other Senate and House committees and 

subcommittees that have appropriation, authorization, and oversight 

responsibilities for IRS. We will also send copies of the report to the 

Secretary of the Treasury, Commissioner of Internal Revenue, and other 
 

Page 38 GAO-14-479 IRS Correspondence Audits

interested parties. In addition, this report is available at no charge on the 

GAO website at http://www.gao.gov.

If you or your staff have any questions or wish to discuss the material in 

this report further, please contact me at (202) 512-9110 or 

whitej@gao.gov. Contact points for our Offices of Congressional 

Relations and Public Affairs may be found on the last page of this report. 

Key contributors to this report are listed in appendix VI.

James R. White

Director, Tax Issues

Strategic Issues Team
Appendix I: Scope and Methodology

Page 39 GAO-14-479 IRS Correspondence Audits

To assess the extent to which IRS’s correspondence audit notices impose 

unnecessary burden on taxpayers or create inefficiencies for IRS, we 

reviewed program documents and interviewed program officials in the 

Wage and Investment (W&I) and Small Business and Self-Employed 

(SB/SE) divisions. We visited and interviewed program officials at two 

locations (one for each division) where IRS conducts correspondence 

audits: Atlanta (W&I) and Memphis (SB/SE). While visiting these locations 

we viewed IRS work processes for reviewing correspondence to make 

audit determinations and handling taxpayer phone calls. In addition, we 

conducted six focus group interviews by telephone with tax examiners 

selected at random (three for each division) who conduct audits in 

locations across the country. We also monitored taxpayer phone calls at 

the two IRS locations we visited and listened to recordings of a 

nonrepresentative random sample of 100 phone calls received nationwide 

during a week in September, November, and December 2013.1 We 

selected these time frames to ensure the widest possible coverage of 

potential taxpayer experience in the time period for which we reviewed 

the program. The results of the analyses of tax examiner group data and 

of the phone calls are not generalizable to all examiners and calls. 

Instead the results from both data collections are used to identify key 

issues occurring in the current time period in conjunction with the other 

forms of data we collected. We also spoke to members and 

representatives of tax practitioner groups.

2

 We selected the groups 

based on their recognized experience in tax matters and their having 

made public comments on their experiences in dealing with 

correspondence audits. 

To describe taxpayers’ satisfaction with IRS’s handling of correspondence 

audits and related telephone service, we reviewed and summarized 

selected data from IRS’s fiscal year 2012 surveys conducted by mail and 

telephone. To assess the reliability of the survey data, we reviewed 

survey documentation (including descriptions of survey methodologies 

and the survey questions of interest to us for reporting purposes) and the 

sampling approach used in the surveys, including response rates. The 

 

1

Before telephone calls are routed to an examiner, callers are informed by an IRS 

recording that the call may be monitored or recorded for quality purposes. IRS retains 

recorded calls for 45 days.

2

The groups are American Institute of Certified Public Accountants, National Association 

of Enrolled Agents, National Association of Tax Professionals, and the National Society of 

Accountants.

Appendix I: Scope and Methodology
Appendix I: Scope and Methodology

Page 40 GAO-14-479 IRS Correspondence Audits

survey data IRS provided did not include non-response bias analysis of 

survey respondents and non-respondents. The survey the results may not 

generalizable to the entire population of audited taxpayers. Nevertheless, 

we use the high-level survey results along with results from our interviews 

and other data collection to provide a general indication of taxpayers’ 

experiences with IRS’s services. In general, the survey results are 

consistent with the other data we collected in our interviews and 

document reviews. We determined that the data we used from the IRS 

surveys were sufficiently reliable for the purposes of this engagement. We 

compared IRS’s processes for contacting taxpayers with criteria for 

reducing unnecessary burden and efficiently using federal resources, 

including IRS’s strategic goals, Internal Revenue Manual (IRM) guidance, 

and the standards for internal control in the federal government.3

To assess whether IRS knows how correspondence audits affect 

compliance, IRS costs, and taxpayer burden, we compared information 

on correspondence audit program objectives and performance measures 

to guidance on federal program management, including the Standards for 

Internal Control in the Federal Government (GAO/AIMD-00-21.3.1, 

November 1999).4 In addition, we compared IRS’s correspondence 

performance measures to guidance on results-oriented management for 

federal programs, including guidance on implementing GPRA and 

GPRAMA, to assess the extent to which the measures were clearly linked 

to program objectives and IRS strategic goals.5 We compared the 

documentation IRS had on its decision-making process to internal control 

standards related to documentation of internal control. To determine the 

amounts and percentages of audit tax recommended amounts that were 

collected, we analyzed Enforcement Revenue Information System data 

contained in IRS’s Compliance Data Warehouse. To assess the reliability 

of the data, we reviewed IRS data dictionaries describing relevant data 

elements, conducted electronic testing of those data elements, and 

 

3

Internal Revenue Service, IRS Strategic Plan 2009-2013, Publication 3744 (4-2009) 

(http://www.irs.gov/file_source/pub/irs-pdf/p3744.pdf, downloaded July 31, 2013); IRM 

22.24.1 Burden Reduction Activities (http://www.irs.gov/irm/part22/irm_22-024-001.html, 

downloaded Sept. 18, 2013); GAO/AIMD-00-21.3.1. 

4 GAO/AIMD-00-21.3.1. 

5

GPRA, as enhanced by GPRAMA, is the primary legal framework through which 

agencies are required to set strategic goals, measure performance, and report on the 

degree to which goals were met.
Appendix I: Scope and Methodology

Page 41 GAO-14-479 IRS Correspondence Audits

consulted with IRS officials knowledgeable of the data elements. We 

compared the results of our analyses with data in IRS’s Audit Information 

Management System – Computer Information System database, to 

include review of selected cases to assess consistency of results. We 

determined that these data were sufficiently reliable for the purposes for 

which they were used in this engagement. 

To describe the status and results of IRS’s efforts to improve the 

correspondence audit program, we reviewed and summarized 

documentation and interviewed IRS officials on IRS’s Correspondence 

Examination Assessment Project (CEAP) and CEAP efforts to link 

improvements to IRS’s strategic goals and identify, measure, and track 

benefits of the efforts. We compared information on the management of 

CEAP to project management guidance on benefits management and 

project governance in the Project Management Institute’s The Standard 

for Program Management, 2nd ed. (Newtown Square, Pa.; Project 

Management Institute, Inc., 2008). 
Appendix II: Profile of IRS Correspondence 

Audits

Page 42 GAO-14-479 IRS Correspondence Audits

Table 4: Number and Percentage of Correspondence Audits Compared to All IRS Audits of Individual Tax Returns, Fiscal 

Years 2003-2013

Fiscal year

Number of

individual audits

Number of individual 

correspondence audits 

Correspondence audits as

a percent of all individual audits

2003 849,297 642,839 75.7 %

2004 1,007,874 810,486 80.4

2005 1,215,308 968,073 79.7

2006 1,283,950 981,165 76.4

2007 1,384,563 1,073,224 77.5

2008 1,391,581 1,081,152 77.7

2009 1,425,888 1,099,639 77.1

2010 1,581,394 1,238,632 78.3

2011 1,564,690 1,173,069 75.0

2012 1,481,966 1,122,216 75.7

2013 1,404,931 1,060,779 75.5

Source: GAO analysis of IRS audit data.

Table 5: Amount (Adjusted for Inflation) and Percent of Additional Taxes Recommended in Correspondence Audits Compared 

to All IRS Audits of Individual Tax Returns, Fiscal Years 2003-2013 

Fiscal year

Amount of tax

recommended (in billions) Correspondence audits as a 

percentage of the amount of 

individual audit

recommended tax amountsa

Amount of tax recommended

adjusted for inflation (in billions)

Individual

audits

Correspondence

audits

Individual

audits

Correspondence

audits

2003 $ 4.6 $2.1 47.1 % $5.7 $ 2.7

2004 6.2 3.6 58.1 7.6 4.4

2005 13.4 7.3 54.9 15.8 8.7

2006 13.0 7.6 58.4 14.9 8.7

2007 15.7 9.3 59.5 17.5 10.4

2008 12.5 6.5 52.3 13.6 7.1

2009 14.9 7.8 52.2 16.1 8.4

2010 15.1 8.2 54.2 16.1 8.7

2011 14.7 8.7 59.4 15.4 9.1

2012 15.3 9.2 60.4 15.8 9.5

2013 14.0 8.4 60.2 14.3 8.6

Source: GAO analysis of IRS audit data.

a

Percentages are not precise due to rounding.

Appendix II: Profile of IRS Correspondence 

Audits
Appendix II: Profile of IRS Correspondence 

Audits

Page 43 GAO-14-479 IRS Correspondence Audits

Figure 4: Percentage of Total Examiner Time Spent Doing Audits of Various Broad 

Types of Issues, Cases Closed in Fiscal Year 2013

Note: total does not add to 100 percent due to rounding.

LEGEND

CI (Criminal Investigation) Inventory - Examinations of clients of tax return preparers who appear to 

prepare false or fraudulent returns.

Miscellaneous credits - This contains the Adoption Credit, the American Recovery and Reinvestment 

Act Credits, Child Care Credit and the Education Credit.

Other- Includes nearly two dozen issues that each account for less than 5 percent of the audits, such 

as estate and gift tax, and alimony.
Appendix II: Profile of IRS Correspondence 

Audits

Page 44 GAO-14-479 IRS Correspondence Audits

Table 6: Amounts and Percentage of Tax Examiner Time Spent Providing Telephone Assistance, Fiscal Years 2011-2013

Fiscal year and 

division Total Examiner FTEs

Examiner FTEs

providing telephone assistance a Percentage of examiner FTEs

providing telephone assistance

FY 2011

W&I 1606.8 205.1 12.8

SB/SE 1509.9 110.3 7.3

Total 3116.7 315.4 10.1

FY 2012

W&I 1529.2 175.5 11.5

SB/SE 1404.7 111.7 8.0

Total 2933.8 287.2 9.8

FY 2013

W&I 1418.17 174.2 12.3

SB/SE 1302.2 118.0 9.1

Total 2720.3 292.2 10.7

Source: GAO analysis of IRS data.

a

Note: W&I is the Wage and Investment Division and SB/SE is the Small Business and Self-Employed 

Division. Totals may not add due to rounding.

FTE, or full time equivalent, equals one staff year.

Table 7: Data Tracked in IRS Disposition Reports for the 10 Most Frequently Audited Issues in Correspondence Audits Closed 

by IRS Divisions in Fiscal Year 2013

Type of issue

Audits 

closed 

Tax Dollars 

recommended 

(in millions)

Dollars 

per 

Return

Hours

per case

How cases were closed

Cycle time

in days

a

Agreed

Default 

with no 

contact

Default 

with 

contact

No 

change 

Appeal/ 

petition 

W&I

EITC 336,077 $1,551.3 $4,699 1.0 17.3% 52.6% 20.5% 9.4% 0.4% 209

CI Inventory 107,398 $490.0 $4,560 1.1 40.2% 40.4% 18.5% 0.7% 0.2% 200

Misc Credits 35,028 $82.4 $2,476 1.7 30.6% 21.6% 22.5% 24.2% 1.1% 198

Schedule A 27,453 $69.0 $2,514 3.5 24.0% 14.8% 12.0% 48.3% 1.0% 169

Other 

Discretionary

22,453 $50.2 $2,236 1.7 18.3% 23.5% 19.3% 37.1% 1.8% 197

Non-Filer 16,978 $887.1 $52,254 0.5 13.5% 82.5% 2.6% 0.2% 1.1% 170

Misc Referrals 6,984 $121.5 $17,404 1.7 29.2% 35.3% 24.0% 9.8% 1.7% 176

Alimony 6,934 $18.2 $2,620 2.5 28.2% 11.4% 18.6% 39.3% 2.7% 187

Test Cases 6,361 $26.4 $4,160 2.1 24.3% 16.7% 12.1% 45.7% 1.2% 169

ME & UA 4,273 $14.5 $3,420 1.7 26.2% 23.8% 23.1% 26.1% 0.8% 145

Total 583,929 b $3,350.0 $5734 1.2 23.9% 44.4% 19.0% 12.2% 0.6% 203
Appendix II: Profile of IRS Correspondence 

Audits

Page 45 GAO-14-479 IRS Correspondence Audits

Type of issue

Audits 

closed 

Tax Dollars 

recommended 

(in millions)

Dollars 

per 

Return

Hours

per case

How cases were closed

Cycle time

in days

a

Agreed

Default 

with no 

contact

Default 

with 

contact

No 

change 

Appeal/ 

petition 

SB/SE 

EITC 146,391 $556.4 $3,846 1.9 19.5% 52.9% 19.7% 7.6% 0.3% 198

Non-Filer 108,230 $3,301.6 $30,506 0.4 8.8% 87.6% 2.4% 0.6% 0.6% 175

Schedule A 42,823 $145.3 $3,395 2.0 38.3% 21.0% 10.0% 29.3% 1.4% 169

EBE 38,459 $101.9 $2,649 2.0 35.5% 33.8% 15.7% 13.5% 1.6% 196

Schedule C 30,421 $120.4 $3,959 2.0 33.8% 31.9% 14.6% 17.3% 2.4% 202

CI Inventory 24,830 $115.2 $4,640 1.0 42.6% 52.3% 2.9% 1.9% 0.3% 196

BMF Inventory 14,878 $30.3 $2,036 0.4 82.9% 0.01% 0.99% 16.1% 102

FRP 10,113 $259.3 $25,647 1.0 29.4% 60.7% 8.4% 0.5% 1.0% 148

Misc Credits 9,923 $24.,5 $3,126 2.4 36.3% 14.2% 15.7% 32.6% 1.2% 158

Misc Referrals 8,042 $141.1 $17,561 2.9 23.7% 47.9% 19.3% 6.8% 2.3% 194

Total 466,655 c $4,872.3 $3,347.8 1.2 26.0% 50.0% 11.7% 11.5% 0.8% 186

LEGEND

CI (Criminal Investigation) Inventory – Generally consists of examinations of clients of tax return 

preparers who appear to prepare false or fraudulent returns.

ME & UA – The Math Error and Unallowable programs identifies returns during the initial phase of tax 

return processing through predefined rules that are programmed into the IRS filing systems.

Miscellaneous credits – Includes the Adoption Credit, the American Recovery and Reinvestment Act 

Credits, the Child Care Credit, and the Education Credit.

Other discretionary – Includes the recovery of erroneous refunds, and certain high score returns and 

other process code cases. 

Schedule A – Itemized deductions.

Test cases – Primarily used to gather statistical compliance data such as through the National 

Research Project.

BMF inventory – Business Master File Returns - includes Employment Tax Non-Filers and pilot tests 

of document matching for corporate filers.

FRP – Frivolous Return Program identifies returns where the taxpayer is presenting a frivolous 

argument.

Misc. referrals – The bulk of this inventory is duplicate taxpayer identification number cases.

Schedule C – Sole proprietorship deductions.

Source: IRS audit data.

a

Percentages may not add to 100 due to rounding.

b

Total W&I numbers includes 18 issues closed by correspondence audits that are not broken out 

because of the small number of cases, e.g., Schedule E, excise taxes and the 10 percent penalty.

c

Total SB/SE numbers includes 24 issues closed by correspondence audits that are not broken out 

because of the small number of cases, e.g., excise tax, first time home buyer and estate and gift tax 

audits.
Appendix II: Profile of IRS Correspondence 

Audits

Page 46 GAO-14-479 IRS Correspondence Audits

Table 8: Average Cycle Time in Days for Correspondence Audits, Fiscal Years 2009-

2013

Fiscal year Days in W&I Days in SB/SE Total

2009 177 178 177

2010 165 180 171

2011 186 177 182

2012 198 184 191

2013 203 186 195

Source: IRS audit data.

Note: W&I is the Wage and Investment Division and SB/SE is the Small Business and Self-Employed 

Division.

Table 9: Audits Closed with No Tax Changes for All Closures and Closures with Taxpayer Contact, Fiscal Years 2009-2013

Fiscal year

Number

of audits closed

with no change

Number of audits

closed overall

No change closures 

as a percent of 

all audit closures

Number of

audits closed with

taxpayer contact

No change closures 

as a percent of 

contact closures

2009 118,308 1,095,441 10.8 420,828 28.1

2010 166,305 1,241,082 13.4 601,821 27.6

2011 241,158 1,176,382 20.5 542,416 44.5

2012 167,138 1,114,252 15.0 455,853 36.7

2013 124,994 1,050,373 11.9 392,618 31.8

Source: GAO analysis of IRS audit data.

Note: A contact closure is one where the taxpayer responded to the IRS audit notice (i.e., excludes 

default closures when the taxpayer did not respond to IRS’s final audit notice whether or not the 

taxpayer agreed with the recommended tax changes, even if the taxpayer had responded to earlier 

notices).
Appendix III: IRS Correspondence Audit 

Program Performance Measures and Data

Page 47 GAO-14-479 IRS Correspondence Audits

Table 10: Correspondence Audit Program Performance Measures That Have Targets

Measure

1. Full time equivalents (FTEs)

a

2. Audit closures

b

3. Closures per FTE

b

4. Closures more than $200,000 and more than $1 million in recommended tax assessments

b

5. Cycle time to cover the calendar days from the audit start to audit closure

c

6. Customer satisfaction—percent satisfied

7. Phone customer satisfaction—percents satisfied and dissatisfied

8. Embedded quality for paper accuracy, timeliness, and professionalism

9. Embedded quality for telephone accuracy, timeliness, and professionalism

10. Level of service in answering taxpayer telephone calls

11. Employee satisfaction

12. Percentage overage mail (end of month snapshot)

d

Source: IRS.

d

Note: W&I is the Wage and Investment Division and SB/SE is the Small Business and Self-Employed 

Division. FTE equals one staff year. EITC is the Earned Income Tax Credit. TEFRA audits refer to 

audits done under the Tax Equity and Fiscal Responsibility Act.

a

Unless otherwise noted, measures and related targets are established separately for both EITC and 

non-EITC audits by W&I and SB/SE.

b

SB/SE has separate submeasures of this measure for work particular to that division.

c

W&I measure for non-EITC audits only.

d

SB/SE only.

Table 11: Correspondence Audit Program Data Used for Management Information

For EITC and nonEITC audits

1. Dollars recommended

2. Dollars recommended per return (excluding claims)

3. Revenue protected dollars

4. Revenue protected volume

5. New audit starts

6. Audit reconsideration new starts

7. Audit reconsideration current inventory

8. Audit reconsideration closures

9. Audit reconsiderations closed at an IRS campus

10. Total nonfiler closures for individual taxpayers

a

11.Aged closures (>365 days)

a

12. Overage mail

Appendix III: IRS Correspondence Audit 

Program Performance Measures and Data

b
Appendix III: IRS Correspondence Audit 

Program Performance Measures and Data

Page 48 GAO-14-479 IRS Correspondence Audits

For EITC and nonEITC audits

13. Total mail

14. Percentage of aged mail to total mail

15. Percentage of aged mail to started audit inventory

16. Adherence to schedule

For NonEITC audits only

c

17. W&I starts higher than $200,000

Source: IRS.

Note: W&I is the Wage and Investment Division and SB/SE is the Small Business and Self-Employed 

Division. FTE, or full time equivalent, equals one staff year. EITC is the Earned Income Tax Credit.

a

SB/SE only.

b

W&I only.

c

The percentage of time campuses provided the planned number of staff to answer telephone 

assistance calls.
Appendix IV: Analysis of Audit Recommended 

Tax Amounts Collected by Fiscal Year

Page 49 GAO-14-479 IRS Correspondence Audits

Table 12: Cumulative Percentage of Audit Recommended Tax Amounts Collected in 

Each Fiscal Year for Audits Closed in Fiscal Years 2008-2013

Fiscal year 

audit closed

Fiscal year collection rate

2008 2009 2010 2011 2012 2013

2008 53.0% 61.1% 63.9% 65.7% 66.8% 67.6%

2009 __ 43.7 51.0 54.3 56.2 57.4

2010 __ __ 45.2 51.3 53.5 54.7

2011 __ __ __ 43.6 50.0 52.1

2012 __ __ __ __ 50.1 55.6

2013 __ __ __ __ __ 50.1

Sources: IRS Data Book 2008-2013 for recommended tax amounts and GAO analysis of Enforcement Revenue Information System 

data for tax collected amounts.

Appendix IV: Analysis of Audit 

Recommended Tax Amounts Collected by 

Fiscal Year
Appendix V: Comments from the Internal 

Revenue Service

Page 50 GAO-14-479 IRS Correspondence Audits

Appendix V: Comments from the Internal 

Revenue Service
Appendix V: Comments from the Internal 

Revenue Service

Page 51 GAO-14-479 IRS Correspondence Audits
Appendix V: Comments from the Internal 

Revenue Service

Page 52 GAO-14-479 IRS Correspondence Audits
Appendix V: Comments from the Internal 

Revenue Service

Page 53 GAO-14-479 IRS Correspondence Audits
Appendix V: Comments from the Internal 

Revenue Service

Page 54 GAO-14-479 IRS Correspondence Audits
Appendix VI: GAO Contact and Staff 

Acknowledgments

Page 55 GAO-14-479 IRS Correspondence Audits

James R. White, (202) 512-9110 or whitej@gao.gov

In addition to the contact named above, Tom Short, Assistant Director; 

Jehan Chase; David Dornisch; George Guttman: Ted Hu; Ronald W. 

Jones; Jay McTigue; Donna Miller; Edward Nannenhorn; Albert Sim; Jim 

Wozny; and John Zombro made key contributions to this report.

Appendix VI: GAO Contact and Staff 

Acknowledgments

GAO Contact

Acknowledgments

(451051)
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