United States General Accounting Office

GAO Report to the Chairman, Committee on

Finance, U.S. Senate

August 1996 TAX

ADMINISTRATION

IRS Is Improving Its

Controls for Ensuring

That Taxpayers Are

Treated Properly

G O A

years

1921 - 1996

GAO/GGD-96-176

GAO United States

General Accounting Office

Washington, D.C. 20548

General Government Division

B-271975 

August 30, 1996

The Honorable William V. Roth, Jr.

Chairman, Committee on Finance

United States Senate

Dear Mr. Chairman:

In 1988, concerns about the Internal Revenue Service’s (IRS) treatment

of taxpayers and allegations of taxpayer abuse led Congress to enact

Subtitle J of the Miscellaneous Revenue Act of 1988 (P.L. 100-647),

commonly known as the Taxpayer Bill of Rights. In response to continuing

congressional concerns about taxpayer rights, we issued a report1

 in

which we concluded that IRS needed to take various actions to strengthen

its controls to better ensure that taxpayers are treated properly.

This report responds to your request that we determine (1) the adequacy

of IRS’ controls to protect against taxpayer abuse; (2) the extent of

information available concerning abuse allegations received and

investigated by IRS, the Department of the Treasury Office of the Inspector

General (OIG), and the Department of Justice (DOJ); and (3) the role of the

OIG in investigating abuse allegations.

Background IRS is responsible for administering our nation’s voluntary tax system in a

fair and equitable manner. To do so, IRS has roughly 100,000 employees,

many of whom interact directly with taxpayers. In fiscal year 1994, IRS

• processed over 200 million tax returns,

• issued about 86 million tax refunds,

• handled about 39 million calls for tax assistance,

• conducted about 1.4 million tax audits, and

• issued about 19 million collection notices for delinquent taxes.

These activities resulted in millions of telephone and personal contacts

with taxpayers. Many of these interactions have the potential to make

taxpayers feel as if they have been mistreated or abused by IRS employees

with whom they have dealt or by the “tax system” in general.

IRS has several offices that are involved in handling taxpayers’ concerns

about how they have been treated, including those alleging taxpayer

1

Tax Administration: IRS Can Strengthen Its Efforts to See That Taxpayers Are Treated Properly

(GAO/GGD-95-14, Oct. 26, 1994).

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abuse, which are not resolved through normal daily operations. IRS’

Inspection Service (Inspection), which includes the Internal Audit and

Internal Security Divisions, is to investigate taxpayer allegations involving

potential criminal misconduct by IRS employees. Problem Resolution

Offices in IRS’ district offices and service centers are to help taxpayers who

have been unable to resolve their problems through normal IRS channels

with other IRS staff. IRS’ Office of Legislative Affairs is to track responses to

congressional inquiries, often on behalf of constituents, as well as direct

correspondence with the Commissioner or other IRS executives involving

the tax system or IRS’ administration of it.

OIG and DOJ may also get involved with taxpayer abuse allegations. OIG may

investigate allegations involving senior IRS officials, those who serve in

General Schedule (GS) grade-15 positions or higher, as well as IRS

Inspection employees. IRS employees accused of criminal misconduct may

be prosecuted by a DOJ U. S. Attorney. IRS employees who are sued by

taxpayers for actions taken within the employees’ official duties may be

defended by attorneys with the DOJ Tax Division.

In our 1994 report on IRS’ controls to protect against taxpayer abuse, we

were unable to determine the overall adequacy of IRS’ controls and made

several recommendations to improve them. Foremost among our

recommendations was that IRS define taxpayer abuse and collect relevant

management information to systematically track its nature and extent. At

that time, in the absence of an IRS definition, we defined taxpayer abuse to

include instances when (1) an IRS employee violated a law, regulation, or

the IRS Rules of Conduct; (2) an IRS employee was unnecessarily aggressive

in applying discretionary enforcement power; or (3) IRS’ information

systems broke down, e.g. when taxpayers repeatedly received tax

deficiency notices and payment demands despite continual contacts with

IRS to resolve problems with their accounts. Other recommendations in

our 1994 report addressed such concerns as unauthorized access to

computerized taxpayer information, improper use and processing of

taxpayer cash payments, and the need for IRS notification of potential

employee liability for trust fund recovery penalties. IRS did not agree with

the need to define taxpayer abuse—a term it found objectionable—nor to

track its nature and extent; but IRS agreed to take corrective action on

many of our other recommendations.

Results in Brief While IRS has made some improvements to its controls over the treatment

of taxpayers since our 1994 report, we remain unable to reach a

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conclusion on the overall adequacy of IRS’ controls. We cannot determine

the adequacy of these controls because IRS officials have not yet

established a capability to capture management information that is needed

to ensure that abuse is identified and addressed and to prevent its

recurrence. We are, however, encouraged by a recent commitment on the

part of IRS’ Deputy Commissioner to establish a tracking system for

taxpayer complaints. IRS has defined “taxpayer complaints” using a

definition that is comparable to one we used for “taxpayer abuse” in our

1994 report and is currently reviewing its management information

systems to determine the best way to capture the relevant information

needed for a complaints tracking system. If effectively designed and

implemented, we believe such a system could allow IRS to better ensure

that instances of taxpayer abuse can be identified and addressed and that

actions can be taken to prevent them in the future.

Since we last reported on IRS’ controls to prevent taxpayer abuse, IRS has

(1) initiated actions to implement many of the recommendations we made

in our 1994 report (see app. I), (2) initiated other actions in anticipation of

provisions included in the recently enacted Taxpayer Bill of Rights 2,2

 and

(3) started to use data accumulated through its Problem Resolution

Program in an effort to identify possible systemic problems. Examples of

these actions include (1) improving controls over IRS employee access to

computerized taxpayer accounts, (2) establishing an expedited appeals

process for some IRS collection actions, and (3) identifying recurring

taxpayer problems and categorizing them by major issues, such as

penalties imposed on taxpayers. If effectively implemented, these

cumulative actions could improve IRS’ overall treatment of taxpayers and

better protect against taxpayer abuse.

The extent to which taxpayer abuse allegations are received and

investigated by IRS, OIG, and DOJ cannot be determined from readily

available information. Information systems maintained by IRS, OIG, and DOJ

were designed as case tracking and resource management systems

intended to serve the management information needs of particular

functions, such as IRS’ Internal Security Division. (See appendix II.) None

of these systems include specific data elements for “taxpayer abuse;”

however, they contain data elements that encompass broad categories of

misconduct, taxpayer problems, or legal actions. Without reviewing

specific case files, information contained in these systems related to

allegations and investigations of taxpayer abuse is not easily

distinguishable from information on allegations and investigations that do

2

Taxpayer Bill of Rights 2 (P.L. 104-168).

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not involve taxpayers. Consequently, as currently designed, these systems

cannot be used individually or collectively to account for IRS’ handling of

all instances of alleged taxpayer abuse.

OIG is responsible for investigating allegations of waste, fraud, and

abuse—which includes misconduct—involving senior IRS officials, GS-15s

or higher, as well as Inspection employees. OIG officials stated that these

investigations rarely involve taxpayer abuse allegations, because senior IRS

officials and Inspection employees usually do not interact directly with

taxpayers. OIG officials said that they generally handle allegations involving

IRS executives; but after a preliminary review, they often refer allegations

against GS-15s and allegations involving administrative matters or tax

disputes either to Inspection for investigation or to IRS management for

administrative action. Both OIG and IRS officials expressed satisfaction with

this arrangement and said they believe that allegations involving senior IRS

officials and Inspection employees are being properly handled. While we

did not independently test the effectiveness of this OIG/IRS arrangement, we

found no evidence to suggest these allegations are not being properly

handled.

Scope and

Methodology

To determine the adequacy of IRS’ current controls over taxpayer abuse,

we identified and documented actions taken by IRS in response to the

recommendations in our 1994 report. We also identified any additional

actions that IRS has initiated since then, relative to how IRS treats

taxpayers. Finally, we discussed with IRS officials a recent commitment

they made to define and establish a taxpayer complaints tracking system

and the current status of this effort.

To determine the extent of information available concerning the number

and outcomes of abuse allegations received and investigated by IRS, OIG,

and DOJ, we interviewed officials from the respective organizations and

reviewed documentation relative to their information systems. We were

told that the information systems maintained by these organizations do not

include specific data elements for alleged taxpayer abuse. However, these

officials said they believed that examples of alleged taxpayer abuse may

be found within other general data categories in five IRS systems, two DOJ

systems, and an OIG system. For example, IRS officials indicated that

alleged taxpayer abuse might be found in a system used to track

disciplinary actions against employees. This information is captured under

the general data categories of “taxpayer charge or complaint” and “misuse

Page 4 GAO/GGD-96-176 Proper Treatment of Taxpayers
B-271975 

of position or authority.” Similar examples were provided by officials from

each organization as described in appendix II.

We discussed the general objectives and uses of the relevant information

systems with officials from the respective agencies. We also reviewed

examples of the data produced by these systems under the suggested

general data categories to ascertain if it was possible from these examples

to determine whether taxpayer abuse may have occurred. We did not

attempt to verify the accuracy of the data we received, because to do so

would require an extensive, time-consuming review of related case files.

This was beyond the scope and time available for this study.

To determine OIG’s role in investigating allegations of taxpayer abuse, we

obtained and reviewed Treasury orders and directives establishing and

delineating the responsibilities of OIG, as well as a 1994 Memorandum of

Understanding between OIG and IRS outlining specific procedures to be

followed by each staff for reporting and investigating allegations of

misconduct and fraud, waste, and abuse. We also obtained statistics from

OIG staff concerning the number of allegations they received and

investigations they conducted involving IRS employees for fiscal year

1995—the latest year for which data were available. In addition, we

discussed OIG’s role and the relationship between OIG and IRS staffs with

senior officials from both OIG and IRS.

We requested comments on a draft of this report from the Commissioner

of Internal Revenue, the Treasury Inspector General, and the Attorney

General. On August 9, 1996, we received written comments from IRS, which

are summarized on page 15 and are reprinted in appendix III. We also

received written comments, which were technical in nature, from both the

Treasury’s OIG and DOJ. These comments have been incorporated in the

report where appropriate.

We performed our audit work in Washington, D.C., between April and

July 1996 in accordance with generally accepted government auditing

standards.

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Adequacy of IRS

Controls to Protect

Against Taxpayer

Abuse Remains

Uncertain

While IRS has made improvements in its controls over the treatment of

taxpayers since our 1994 report, we are still unable to reach a conclusion

at this time on the overall adequacy of IRS’ controls. We cannot determine

the adequacy of these controls because IRS officials have not yet

established a capability to capture management information, which is

needed to ensure that abuse is identified and addressed and to prevent its

recurrence. We are, however, encouraged by a recent commitment on the

part of IRS’ Deputy Commissioner to establish a tracking system for

taxpayer complaints. Such a system has the potential to greatly improve

IRS’ controls to protect against taxpayer abuse and better ensure that

taxpayers are treated properly.

IRS Officials Have

Expressed Commitment to

Establishing a Complaints

Tracking System

In exploring how IRS could satisfy a mandate included in the recently

enacted Taxpayer Bill of Rights 2 to report annually to Congress on

employee misconduct and taxpayer complaints, IRS recognized and

acknowledged that such a mandate could not be satisfied with its existing

information systems and that a definition for “taxpayer complaints” would

be necessary, along with sufficient related management information to

ensure that complaints are identified, addressed, and analyzed to prevent

their recurrence.

Although IRS said it still believes the term “taxpayer abuse” is misleading,

inaccurate, and inflammatory, IRS decided to use the basic elements that

we used in our 1994 report definition for taxpayer abuse as a starting point

to develop a definition for taxpayer complaints. The basic elements from

our report included when (1) an IRS employee violated a law, regulation, or

the IRS Rules of Conduct; (2) an IRS employee was unnecessarily aggressive

in applying discretionary enforcement power; or (3) IRS’ information

systems broke down, e.g. when taxpayers repeatedly received tax

deficiency notices and payment demands despite continual contacts with

IRS to resolve problems with their accounts.

With input from members of IRS’ Executive Committee, an IRS task group

decided upon the following definition for taxpayer complaints: an

allegation by a taxpayer or taxpayer representative that (1) an IRS

employee violated a law, regulation, or the IRS Rules of Conduct; (2) an IRS

employee used inappropriate behavior in the treatment of taxpayers while

conducting official business, such as rudeness, overzealousness, excessive

aggressiveness, discriminatory treatment, intimidation, and the like; or

(3) an IRS system failed to function properly or within prescribed time

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frames. This definition was endorsed by the IRS Deputy Commissioner in a

June 17, 1996, memorandum.

IRS has decided to use the Problem Resolution Office Management

Information System (PROMIS), with modifications, as a platform for

compiling information about taxpayer complaints involving inappropriate

employee behavior and systemic breakdowns. However, numerous

decisions remain concerning how to track and assess the handling of all

taxpayer complaints. For example, IRS already has two systems that are

designed to capture data relevant to alleged employee misconduct. PROMIS

is currently designed to capture data relevant to possible systemic

breakdowns. The two systems capturing misconduct information,

however, do not capture data in a manner that is comparable to one

another or to PROMIS. IRS officials readily concede that at present, there is

no IRS information system designed to capture data relevant to complaints

of inappropriate employee behavior. They realize that to capture and

compile information relevant to all three elements of the taxpayer

complaints definition in a comparable and uniform manner will be a

considerable challenge, especially for the highly subjective element

involving inappropriate employee behavior. However, the officials assured

us that they are now committed to rising to that challenge.

While we are encouraged by IRS’ commitment, we recognize the formidable

challenge IRS faces to capture complete, consistent, and accurate

information about the IRS definition for taxpayer complaints. Rising to the

challenge, however, is critical for IRS to have adequate controls to protect

against taxpayer abuse as well as being able to satisfy its new requirement

to annually report to Congress on employee misconduct and taxpayer

complaints.

Other IRS Initiatives

Should Improve Related

Controls

Since our 1994 study, IRS has initiated various actions to implement our

recommendations, as described in appendix I. For example, among other

actions, IRS has initiated the following :

• Regarding unauthorized employee access to computerized taxpayer

accounts, IRS (1) issued a 12-point Information Security Policy to all

employees in January 1995, stressing the importance of taxpayer privacy

and the security of tax data and (2) has begun development of an

Information System Target Security Architecture to include management,

operational, and technical controls for incorporation in the Tax System

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Modernization Program—a long-term effort to modernize IRS’ computer

and telecommunications systems.3

• Regarding the improper use and processing of taxpayer cash payments, IRS

(1) included statements in its 1995 forms and instructions encouraging

taxpayers to make payments with either a check or money order rather

than cash and (2) is instructing its managers to conduct periodic

unannounced reconciliations of cash receipts used by the IRS staff who

collect taxes from taxpayers.

• Regarding the need for IRS to notify employers of the potential liability of

their officers and employees for a trust fund recovery penalty when

businesses fail to collect or pay withheld income, employment, or excise

taxes, IRS has included notices of this liability in both Publication 334, “Tax

Guide for Small Businesses” and Circular E, “Employer’s Tax Guide.”

In addition to these actions, IRS has recently undertaken other initiatives in

anticipation of some provisions included in the recently enacted Taxpayer

Bill of Rights 2. In January 1996, IRS announced a series of initiatives

designed to reduce taxpayer burden and make it easier for taxpayers to

understand and exercise their rights. These initiatives included

(1) enhanced powers for the Taxpayer Ombudsman, such as explicit

authority to issue a refund to a taxpayer to relieve a severe financial

hardship; (2) notification of a spouse regarding any collection action taken

against a divorced or separated spouse for a joint tax liability;

(3) increased computerized record storage and electronic filing options for

businesses; (4) expedited appeals procedures for employment tax issues;

and (5) a test of an appeals mediation procedure.

IRS has also started to use information on taxpayer problems captured in

PROMIS. IRS recently used this system to identify the volume of taxpayer

problems categorized by various major issues, such as refund inquiries,

collection actions, penalties, and the earned income tax credit. The

Ombudsman has requested IRS’ top executives to review the major issues

identified for their respective offices or regions in an effort to devise

cost-effective ways to reduce these problems.

While we did not test the implementation of these various initiatives, they

appear to be conceptually sound and thus we believe that, if effectively

implemented, they should help to strengthen IRS’ overall controls and

procedures to identify, address, and prevent the recurrence of taxpayer

abuse.

3

In prior reports and testimonies, we have challenged the completeness and adequacy of IRS’

Architecture to effectively satisfy the modernization needs.

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Extent of Taxpayer

Abuse Not

Distinguishable in

IRS, OIG, and DOJ

Information Systems

It is not possible to readily determine the extent to which allegations of

taxpayer abuse are received and investigated from the information

systems maintained by IRS, OIG, and DOJ. These systems were designed as

case tracking and resource management systems intended to serve the

management information needs of particular functions, such as IRS’

Internal Security Division. None of these systems include specific data

elements for “taxpayer abuse;” however, they contain data elements that

encompass broad categories of misconduct, taxpayer problems, or legal

actions. Without reviewing specific case files, information contained in

these systems related to allegations and investigations of taxpayer abuse is

not easily distinguishable from information on allegations and

investigations that do not involve taxpayers. Consequently, as currently

designed, these systems cannot be used individually or collectively to

account for IRS’ handling of all instances of alleged taxpayer abuse.

Officials of the respective organizations indicated that several information

systems might include information related to taxpayer abuse

allegations—five maintained by IRS, two by DOJ, and one by OIG—as

described in appendix II. For example:

• Two of the IRS systems—the Internal Security Management Information

System (ISMIS) and the Automated Labor and Employee Relations Tracking

System (ALERTS)—capture information on cases involving employee

misconduct, which may in some cases involve taxpayer abuse. ISMIS is used

to determine the status and outcome of Internal Security investigations of

alleged employee misconduct; ALERTS is used to track disciplinary actions

taken against employees. While ISMIS and ALERTS both track aspects of

alleged employee misconduct, these systems do not share common data

elements or otherwise capture information in a consistent manner.

• IRS also has three systems that include information on concerns raised by

taxpayers. These systems include two maintained by the Office of

Legislative Affairs—the Congressional Correspondence Tracking System

and the Commissioner’s Mail Tracking System—as well as PROMIS, which

we described earlier. The two Legislative Affairs systems basically track

taxpayers’ inquiries, including those made through congressional offices,

to ensure that responses are provided by appropriate IRS officials. PROMIS

tracks similar information to ensure that taxpayers’ problems are resolved

and to determine whether the problems are recurring in nature.

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• OIG has an information system known as the OIG Office of Investigations

Management Information System (OIG/OIMIS) that is used to track the status

and outcomes of OIG investigations as well as the status and outcomes of

actions taken by IRS in response to OIG investigations and referrals. As

discussed further in the next section of this report, most OIG investigations

do not involve allegations of taxpayer abuse because those IRS employees

that OIG typically investigates—primarily senior-level officials—usually do

not interact directly with taxpayers.

• DOJ has two information systems that include data that may be related to

taxpayer abuse allegations and investigations. The Executive Office of the

U. S. Attorneys maintains a Centralized Caseload System that is used to

consolidate the status and results of civil and criminal prosecutions

conducted by offices of the U. S. Attorney throughout the country. Cases

involving criminal misconduct by IRS employees would be referred to and

may be prosecuted by the U.S. Attorney in the particular jurisdiction in

which the alleged misconduct occurred. The Tax Division also maintains a

Case Management System that is used for case tracking, time reporting,

and statistical analysis of litigation cases conducted by the Tax Division.

Lawsuits against either IRS or IRS employees are litigated by the Tax

Division, with representation provided to IRS employees if the Tax Division

determines that the actions taken by the employees were within the scope

of employment.

The officials familiar with these systems stated that, while the systems

include data elements in which potential taxpayer abuse may have

occurred, they do not include a specific data element for taxpayer abuse,

which could be used to easily distinguish abuse allegations from others

not involving taxpayers. For example, officials from the Executive Office

for the U. S. Attorneys stated that the public corruption and tort categories

of their Case Management System may include instances of taxpayer

abuse, but the system could not be used to identify such instances without

a review of individual case files.

From our review of data from these systems, we concluded that none of

them, either individually or collectively, have common or comparable data

elements that can be used to identify the number or outcomes of taxpayer

abuse allegations or related investigations and actions. Rather, each

system was developed to provide information for a particular

organizational function, usually for case tracking, inventory, or other

managerial purposes relative to the mission of that particular function.

While each system has data elements that could reflect how taxpayers

have been treated, as described in appendix II, the data elements vary and

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may relate to the same allegation and same IRS employee. Without

common or comparable data elements and unique allegation and employee

identifiers, these systems do not collect information in a consistent

manner that could be used to accurately account for all allegations of

taxpayer abuse.

The Role of the

Treasury OIG in

Investigating

Taxpayer Abuse

Allegations

OIG is responsible for investigating allegations of misconduct and waste,

fraud, and abuse involving senior IRS officials, GS-15s and above, as well as

IRS Inspection employees. OIG also has oversight responsibility for the

overall operations of Inspection. Since November 1994, OIG has had

increased flexibility for referring allegations involving GS-15s to IRS for

investigation or administrative action. This was due to resource

constraints and an increased emphasis by OIG on investigations involving

criminal misconduct and procurement fraud across all Treasury bureaus.

In fiscal year 1995, OIG conducted 44 investigations—14 percent of the 321

allegations it received—for the most part, implicating senior IRS officials.

OIG officials stated that these investigations rarely involved allegations of

taxpayer abuse because senior IRS officials and Inspection employees

usually do not interact directly with taxpayers.

OIG and Inspection have a unique relationship, relative to that of OIG and

other Treasury bureau audit and investigative authorities. The IRS Chief

Inspector, who reports directly to the IRS Commissioner, is responsible for

IRS internal audits and investigations as well as coordinating Inspection

activities with OIG. Inspection is to work closely with OIG in planning and

performing its duties, and is to provide information on its activities and

results to OIG for incorporation into OIG’s semiannual report to Congress.

Disputes the IRS Chief Inspector may have with the Commissioner can be

resolved through OIG and the Secretary of the Treasury, to whom OIG

reports.

The Department of the Treasury established the Office of the Inspector

General (IG) consistent with the authority provided in the “Inspector

General Act of 1978,”4

 although Treasury already had internal audit and

investigation capabilities for the Department as well as its bureaus. The

existing capabilities included Inspection, which was responsible for all

audits and investigations of IRS operations. Among OIG’s express

authorities were the investigation of allegations implicating senior IRS

officials and the oversight of Inspection’s audit and investigative activities.

4

While Treasury had established an OIG consistent with the authority provided in the IG Act of 1978,

the IG Act Amendments of 1988 provided statutory authority for a presidential appointed and Senate

confirmed Treasury IG.

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OIG resources to discharge these responsibilities were augmented in fiscal

year 1990, by the transfer of 21 staff years from IRS’ appropriations to that

of OIG. The IG Act was amended in 1988 with special provisions included to,

among other things, ensure the privacy of tax-related information. These

provisions did not limit OIG’s authority but required an explicit accounting

of OIG’s access to tax-related information in performing audits or

investigations of IRS operations. The OIG’s authorities were also articulated

in Treasury Order 114-01 signed by the Secretary of the Treasury in

May 1989.

Specifically related to OIG investigative authorities, in September 1992, the

Treasury IG issued Treasury Directive 40-01 summarizing the authority

vested in OIG and the reporting responsibilities of various Treasury

bureaus. Among the responsibilities of law enforcement bureaus,

including IRS, are to (1) provide a monthly report to OIG concerning

significant internal investigative and audit activities, (2) notify OIG

immediately upon receiving allegations involving senior officials or

internal affairs or inspection employees, and (3) submit written responses

to OIG detailing actions taken or planned in response to OIG investigative

reports and OIG referrals for agency management action.

Under procedures established in a Memorandum of Understanding

between OIG and IRS in November 1994, the requirement for immediate

referrals to OIG of all misconduct allegations was reiterated and

supplemented. OIG has the discretion to refer any allegation to IRS for

appropriate action, i.e., either investigation by Inspection or administrative

action by IRS management. If IRS officials believe that an allegation referred

by OIG warrants OIG attention, they may refer the case back to OIG

requesting that OIG conduct an investigation.

OIG officials advised us that under the original 1992 directive, they

generally handled most allegations implicating Senior Executive Service

(SES) and Inspection employees, while reserving the right of first refusal on

GS-15 employees. Under the procedures adopted in 1994, which were

driven in part by resource constraints and OIG’s need to do more criminal

misconduct and procurement fraud investigations across all Treasury

bureaus, OIG officials stated they have generally referred allegations

involving GS-15s and below to IRS for investigation or management action.

The same is true for allegations against any employees, including those in

SES, involving administrative matters and allegations dealing primarily with

tax disputes. OIG officials said that a determination is made by OIG after a

preliminary review of the merits of the allegations whether to investigate,

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refer to IRS to either investigate or take administrative action, or to take no

action at all. Table 1 summarizes the number and disposition of allegations

received by OIG involving IRS in fiscal year 1995.

Table 1: Disposition of Allegations

Involving IRS Employees Handled by

Treasury OIG (FY 1995) 

Disposition of allegation Number

Referred to IRSa 201

No action taken 71

OIG investigation 44

Other 5

Total 321

aOIG management information could not be used to distinguish between referrals to Internal

Security or IRS management without reviewing related case files.

Source: OIG Management Information System.

In fiscal year 1995, OIG received 321 allegations, many of which involved

senior IRS officials. After a preliminary review, OIG decided no action was

warranted on 71 of the allegations, referred 201 to IRS—either for

investigation or administrative action—investigated 44, and closed 5

others for various administrative reasons.

OIG officials stated that, based on their investigative experience, most

allegations of wrongdoing by IRS staff that involve taxpayers do not involve

senior level IRS officials or Inspection employees. Rather, these allegations

typically involve those IRS Examination and Collection employees who

most often interact directly with taxpayers.

OIG officials are to assess the adequacy of IRS’ actions in response to OIG

investigations and referrals as follows: (1) IRS is required to make written

responses on actions taken within 90 days and 120 days, respectively, on

OIG investigative reports of completed investigations and OIG referrals for

investigations or management action; (2) OIG investigators are to assess

the adequacy of IRS’ responses before closing the OIG case; and (3) OIG

Office of Oversight is to assess the overall effectiveness of IRS Inspection

capabilities and systems through periodic operational reviews. In addition

to assessing IRS’ responses to OIG investigations and referrals, each quarter

the IG, Deputy IG, and Assistant IG for Investigations meet to brief the IRS

Commissioner, Deputy Commissioner, and Chief Inspector on the status of

allegations involving senior IRS officials, including those being investigated

by OIG and those awaiting IRS action.

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While officials from both agencies agree that the arrangement is working

well to ensure allegations involving senior IRS officials and Inspection

employees are being handled properly, OIG officials expressed some

concern with the amount of time IRS typically takes to respond with

actions on OIG investigations and referrals. IRS officials acknowledged that

responses are not always within OIG time frames because, among other

reasons, determinations about taking disciplinary actions and imposing

such actions may take a considerable amount of time. Also, they said some

cases must be returned for additional development by OIG, which may

prolong the time for completion. The IRS officials, however, also suggested

that actions on OIG referrals are closely monitored as evidenced by their

inclusion in discussions during quarterly IG briefings with the

Commissioner. While we did not independently test the effectiveness of

this OIG/IRS arrangement, we found no evidence to suggest these allegations

are not being properly handled.

Conclusions IRS has taken specific steps in relation to certain recommendations made

in our 1994 report and initiated other actions to strengthen its controls

over taxpayer abuse by its employees. Even so, at this time, we remain

unable to determine the adequacy of IRS’ system of controls to identify,

address, and prevent instances of abuse. However, we are encouraged by

IRS’ recent decision to develop a taxpayer complaint tracking system that

essentially adopts the definition of taxpayer abuse included in our 1994

report as a starting point for defining the elements of taxpayer complaints.

We believe this is a critically important commitment that IRS must sustain.

If effectively designed and implemented, IRS should have an enhanced

ability to identify, address, and protect against the mistreatment of

taxpayers by IRS employees or the tax system in general. While we are

encouraged by IRS’ commitment, we also recognize the formidable

challenge IRS faces in developing an effective complaints tracking system.

IRS needs a more effective complaints tracking system because, while IRS,

OIG, and DOJ information systems contain data about the treatment of

taxpayers, the data relevant to employee misconduct or taxpayer

complaints are not readily or easily distinguishable from other allegations

that do not involve taxpayers. The systems do not have the same employee

identifiers or common data elements. Nor are the data captured in a

consistent manner that allows for consolidation relative to the number or

outcome of taxpayer complaints using the definition IRS is adopting.

Page 14 GAO/GGD-96-176 Proper Treatment of Taxpayers
B-271975 

Given IRS’ recent commitment and related efforts it has under way to

design and implement a taxpayer complaints tracking system and the

recently enacted Taxpayer Bill of Rights 2, we are making no new

recommendations at this time.

Agency Comments

and Our Evaluation

The IRS Chief, Management and Administration commented on a draft of

this report by letter dated August 9, 1996, (see app. III) in which he

reiterated IRS’ commitment to preserving and enhancing taxpayers’ rights.

The Treasury’s OIG and DOJ also provided technical comments, which we

incorporated in this report where appropriate.

As agreed with your staff, unless you announce the contents of this report

earlier, we plan no further distribution of this report until 15 days from the

date of this letter. At that time, we will send copies of this report to the

Ranking Minority Member, Senate Committee on Finance; the Chairman

and the Ranking Minority Member, Senate Committee on Governmental

Affairs; and the Chairman and the Ranking Minority Member, House

Committee on Ways and Means. We will also send copies to other

interested congressional committees, the Commissioner of Internal

Revenue, the Treasury Inspector General, the Attorney General, and other

interested parties. We will also make copies available to others upon

request.

The major contributors to this report are listed in appendix IV. If you have

any questions concerning this report, please contact me at (202) 512-9044.

Sincerely yours,

Natwar M. Gandhi

Associate Director, Tax Policy

 and Administration Issues

Page 15 GAO/GGD-96-176 Proper Treatment of Taxpayers
Contents

Letter 1

Appendix I 

Summary of IRS

Actions in Response

to the 1994 GAO

Report on Taxpayer

Abuse

18

Appendix II 

IRS, Treasury OIG,

and DOJ Information

Systems With Data

Elements on Potential

Taxpayer Abuse

19

Appendix III 

Comments From the

Internal Revenue

Service

20

Appendix IV 

Major Contributors to

This Report

21

Table Table 1: Disposition of Allegations Involving IRS Employees

Handled by Treasury OIG

13

Page 16 GAO/GGD-96-176 Proper Treatment of Taxpayers
Contents

Abbreviations

ALERTS Automated Labor and Employee Relations Tracking

System

DOJ Department of Justice

EOUSA Executive Office of the United States Attorneys

GS General Schedule

IDRS Integrated Data Retrieval System

IG Inspector General

IGP Information Gathering Projects

IRS Internal Revenue Service

ISMIS Internal Security Management Information System

OIG Office of Inspector General

OIG/OIMIS Office of Inspector General Office of Investigations

Management Information System

PROMIS Problem Resolution Office Management Information

System

SES Senior Executive Service

TSM Tax Systems Modernization

Page 17 GAO/GGD-96-176 Proper Treatment of Taxpayers
Appendix I 

Summary of IRS Actions in Response to the

1994 GAO Report on Taxpayer Abuse

GAO recommendation IRS action taken or planned

Establish a servicewide definition of taxpayer abuse or

mistreatment and identify and gather the management information

needed to systematically track its nature and extent.

IRS has recently established a definition for “taxpayer complaints”

and is now committed to establishing a complaints tracking

process.

Ensure that Tax Systems Modernization provides the capability to

minimize unauthorized employees access to taxpayer information in

the computer system that eventually replaces the Integrated Data

Retrieval System.

Issued a 12-point Information Security Policy to all IRS staff;

published “High-Level Security Requirements;” and started

development of an Information System Target Security

Architecture.

Revise the guidelines for information gathering projects to require

that specific criteria be established for selecting taxpayers’ returns

to be examined during each project and to require that there is a

separation of duties between staff who identify returns with potential

for tax changes and staff who select the returns to be examined.

Issued an updated memorandum to field staff regarding the

highly sensitive nature of information gathering projects.

Reconcile all outstanding cash receipts more often than once a

year and stress in forms, notices, and publications that taxpayers

should use checks or money orders whenever possible to pay their

tax bills, rather than cash.

IRS is instructing its managers to conduct random unannounced

reconciliations of cash receipts used by IRS staff who receive

cash payments from taxpayers. Revised Publication 594,

“Understanding the Collection Process,” Publication 17, “Your

Federal Income Tax,” and the 1995 1040 tax package to

encourage taxpayers to pay with checks or money orders, rather

than cash.

Better inform taxpayers about their responsibility and potential

liability for the trust fund recovery penalty by providing taxpayers

with special information packets.

Revised Publication 334, “Tax Guide for Small Business,” and

Circular E, “Employer’s Tax Guide,” to explain the potential liability

for the trust fund recovery penalty if amounts withheld are not

remitted to the government; and started including Notice 784,

“Could You Be Personally Liable for Certain Unpaid Federal

Taxes?” with the first balance due notice for business taxes.

Provide specific guidance for IRS employees on how they should

handle White House contacts other than those involving tax checks

of potential appointees or routine administrative matters.

No actions taken or planned. Because we did not find instances

of improper contacts, IRS is of the opinion that current procedures

covering third-party contacts are adequate.

Seek ways to alleviate taxpayers’ frustration in the short term by

analyzing the most prevalent kinds of information-handling

problems and ensuring that requirements now being developed for

Tax Systems Modernization information systems provide for

long-term solutions to those problems.

Requested top executives to review major issues the Ombudsman

identified via the Problem Resolution Program that have resulted

in repeat taxpayer problems.

Source: 1994 GAO report and IRS responses and subsequent actions.

Page 18 GAO/GGD-96-176 Proper Treatment of Taxpayers
Appendix II 

IRS, Treasury OIG, and DOJ Information

Systems With Data Elements on Potential

Taxpayer Abuse

Name of information system Primary use of information system

Data elements in which potential

taxpayer abuse may be founda

IRS - Internal Security Management

Information System (ISMIS)

Internal Security management use this

system to track the status of investigations

and for operational and workload

management.

—Miscellaneous employee misconduct

—Computer improper access

—Intimidation/harassment

—Disclosure of confidential information

IRS - Automated Labor and Employee

Relations Tracking System (ALERTS)

Labor Relations staff use this system to

track the status and results of possible

disciplinary action relative to IRS employee

behavior.

—Taxpayer charge or complaint

—Misuse of position/authority

IRS - Problem Resolution Office

Management Information System (PROMIS)

Problem Resolution Office staff use this

system to monitor the status of open

taxpayer problems to generate statistics on

the volume of problems received by major

categories.

—Taxpayer treatment

—Collection actions

IRS - Commissioner’s Mail Tracking System Legislative Affairs staff use this system to

track correspondence to the Commissioner

and other IRS office heads/executives.

—Complaints

IRS - Congressional Correspondence

Tracking System

Legislative Affairs staff use this system to

track correspondence from congressional

sources and from referrals by the Treasury

Department and the White House.

—Integrity

—Employee conduct

Treasury OIG - Office of Investigations

Management Information System

(OIG/OIMIS)

OIG management and desk officers use

the system to monitor the status of OIG

investigations and to monitor whether

required responses to OIG investigations

and referrals to the Treasury bureaus, such

as IRS, have been received.

—Tax dispute/inquiry

—Unethical/improper conduct

—Criminal/other

DOJ EOUSAb - Centralized Caseload System EOUSA management use the system to

monitor the status and results of civil and

criminal prosecutions and to oversee field

office caseloads.

—Torts

—Public corruption

DOJ Tax Division - Case Management

System

Tax Division management uses the system

to monitor the status and results of civil and

criminal cases, manage attorney

caseloads, and prepare internal and

external reports, such as for the Office of

Management and Budget and the

Congress.

—Torts

—Suits for unauthorized disclosure of tax

information

—Suits for failure to release a lien or for

unreasonable IRS collection action

aBased on the opinion of agency officials responsible for these information systems, these

systems do not include a specific data element for “taxpayer abuse.”

bEOUSA is Executive Office of the U.S. Attorneys.

Source: IRS, Treasury OIG, and DOJ officials and related information system documents.

Page 19 GAO/GGD-96-176 Proper Treatment of Taxpayers
Appendix III 

Comments From the Internal Revenue

Service

Page 20 GAO/GGD-96-176 Proper Treatment of Taxpayers
Appendix IV 

Major Contributors to This Report

General Government

Division, Washington,

D.C.

Mark Gillen, Assistant Director

Robert McKay, Evaluator-in-Charge

James O’Donnell, Evaluator

Office of General

Counsel, Washington,

D.C.

Rachel DeMarcus, Assistant General Counsel

Shirley A. Jones, Attorney Advisor

(268731) Page 21 GAO/GGD-96-176 Proper Treatment of Taxpayers
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