TAX

ADMINISTRATION

IRS’ Abatement

Process in Selected

Locations

United States General Accounting Office

GAO Report to the Joint Committee on

Taxation

July 1999

GAO/GGD-99-98

United States

General Accounting Office

Washington, D.C. 20548

General Government Division

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Page 1 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

GAO

July 2, 1999

The Honorable Bill Archer

Chairman

The Honorable William V. Roth, Jr.

Vice Chairman

Joint Committee on Taxation

For fiscal years 1995 through 1998, the Internal Revenue Service (IRS)

annually abated about $30 billion in tax, penalty, and interest assessments

in the tax accounts of individual and business taxpayers. Abatements

reduce assessments and can occur for a variety of reasons, such as to

correct errors made by IRS and taxpayers and to provide relief from

penalties when taxpayers have reasonable cause for failing to comply with

tax requirements. The process for making abatements is important for

ensuring the equitable treatment of taxpayers across IRS’ 10 service

centers and 33 district offices.

In a letter dated February 2, 1999, you asked us to describe IRS’ abatement

process in order to help the Committee fulfill a requirement in the IRS

Restructuring and Reform Act of 1998 to report on the administration of

penalty and interest assessments by July 22, 1999.1

 On the basis of

discussions with your office, our objectives were to describe (1) IRS’

process for making abatements from initiation through final review in

selected IRS locations and (2) IRS’ efforts to improve the abatement

process. As agreed with your office, the selected locations were the Kansas

City Service Center, Fresno Service Center, Kansas City District Office,

and Northern California District Office.

An abatement may be initiated by a request from a taxpayer or by IRS.

Once initiated, IRS’ abatement process depends on the type, complexity,

and source of the assessment being abated. According to IRS officials,

these factors determine the IRS work group, such as those that audit tax

returns or answer taxpayer inquiries, that makes the abatement decision.2

The work group, in combination with the type and complexity of the

assessment being abated, influence the type and grade level of staff

making abatement decisions, the criteria and supervisory review used to

guide decisions, and the quality review done after the decisions are made.

 

1

As also requested in this letter, we have reported the number and amount of abatements of tax,

penalty, and interest assessments for individual and business taxpayers. See Tax Administration: IRS’

Abatement of Assessments in Fiscal Years 1995-98 (GAO/GGD-99-77, June 4, 1999).

2

For this report, “work group” is a generic term for branches and other offices.

Results in Brief
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IRS does not have quantitative data on details of the abatement process.

An abatement is just one type of adjustment that IRS can make to taxpayer

accounts. For example, IRS staff also adjust accounts to reflect the dates

and amounts of various types of assessments and payments. Although it

has data on the number and amount of abatements, IRS cannot extract any

quantitative data about the abatement process from data on all types of

adjustments. Determining the costs and benefits of collecting data on just

the abatement process is beyond the scope of this report.

IRS’ recent efforts to improve the abatement process have generally

involved task forces that have been studying various IRS concerns,

including, for example, the administration of penalties and treatment of

taxpayers. Although the studies have not focused on abatements, they

have produced some proposals that would affect the abatement process,

such as the documentation required to support abatements.

During 1993-94, concerns about the inventory of tax debts prompted IRS to

study abatements at its 10 service centers. This study identified 259

problems and referred 158 to various IRS work groups for analysis and

implementation of any needed changes. IRS never formally released a final

study.

According to IRS records from its master files on individual and business

returns, IRS annually abated, on average, about 10 million tax, penalty, and

interest assessments, totaling nearly $30 billion, in fiscal years 1995

through 1998. In fiscal year 1998, IRS abated 11.3 million assessments—3.1

million tax, 4.7 million penalty, and 3.5 million interest assessments. These

abatements totaled about $22.2 billion in tax, $4.8 billion in penalty, and

$2.1 billion in interest assessments.

An assessment is a formal bookkeeping entry that IRS makes to record the

amount of tax, penalty, or interest charged to a taxpayer’s account. An

assessment establishes not only the taxpayer’s liability for amounts due

and unpaid, but also IRS’ right to collect. Taxpayers essentially assess their

taxes owed when they file their tax returns.3

 IRS may assess additional

taxes owed, as well as penalty and interest amounts, through an

enforcement program.4

 Taxpayers also may file an amended return or

 

3

IRS records the assessment as the amount of tax reported on these filed returns.

4

Before assessing a tax deficiency, IRS is required to provide the taxpayer with a notice of the

proposed assessment. Upon receiving the notice, the taxpayer has 90 days (150 days if outside the

United States) to file a petition with the Tax Court for a redetermination of the deficiency. Upon

expiration of the filing period, IRS may assess the proposed deficiency.

Background
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otherwise notify IRS of an error, which may lead to additional

assessments.

Section 6404 of the Internal Revenue Code (as well as various other

sections) authorizes IRS to abate an assessment under certain conditions.

For example, IRS abates an erroneous assessment, which can be caused by

either IRS or the taxpayer.5

 A taxpayer may make an error on the original

tax return, such as not claiming deductions. Or, IRS may assess incorrect

tax amounts as a result of errors made when matching income reported by

taxpayers with income reported by third parties (such as employers) on

payments made to the taxpayers.

IRS abates a tax assessment of the correct amount for various reasons. For

example, as a result of an audit, IRS may correctly assess an additional tax

amount for one tax year, but a taxpayer can carry back net operating

losses incurred in other tax years to reduce the additional tax liability in

that prior tax year. Also, IRS abates an unpaid assessment that involved

the correct amount of tax owed but that was made after the time period

allowed for assessing additional tax liabilities. Further, IRS abates multiple

assessments of the correct amount after that amount is paid. In these

cases, IRS assesses multiple taxpayers (such as partners or officers in a

business) for the amount owed by the business, knowing that the extra

assessments are to be abated after full payment is received.

Whenever IRS abates a tax assessment, any related penalty or interest

assessments are also abated. Further, IRS abates certain penalties when a

taxpayer provides a reasonable cause for failing to meet a responsibility,

such as not paying a tax assessment or not filing a return on time.

Reasonable causes can include illness or other nonfinancial hardships and

reliance on incorrect written advice from IRS on technical issues. IRS also

abates certain interest assessments that accrue, for example, because of

• an unreasonable error or delay by IRS in assigning staff to the case,

sending notices to taxpayers, transferring a case to another IRS office, or

performing other procedural or managerial actions and

• delays in filing income tax returns and paying taxes because of a natural

disaster for those living in a presidentially-declared disaster area.

IRS’ interactions with taxpayers on abatements and other types of

adjustments to taxpayers’ accounts usually occur through IRS’ 10 service

centers or 33 district offices. Major activities at the service centers include

 

5

IRS does not track the amounts abated because of IRS errors or taxpayer errors.
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processing tax returns and related tax schedules from taxpayers and

information returns from third parties that report payments, such as wages

and interest. In addition, service centers provide services to taxpayers,

such as responding to taxpayer inquiries, as well as perform enforcement

functions, such as audits and collection, usually through correspondence

or the telephone. District offices also offer services to taxpayers as well as

perform enforcement functions. IRS staff at the district offices are more

likely to interact with taxpayers through face-to-face meetings because the

issues tend to be more complex or otherwise require more explanation.

To describe IRS’ process for making abatements from initiation through

final review in selected IRS locations, we talked to IRS National Office

work groups that could make abatements and the IRS office that

administers penalties. We reviewed the Internal Revenue Manual sections

and other IRS documents that govern the abatement process. Our visits to

two service centers and two district offices, as discussed below, also

helped us describe the process.

Specifically, we visited an IRS service center and district office in the

Kansas-Missouri area and a service center and district office in California.

We chose these four locations in consultation with your office. We were

able to do more work in some of the four locations, depending on which

ones we visited first, the availability of data, and the responsiveness of IRS

staff within the time frame of our review.

Given time constraints, we did not visit more service centers or district

offices. As a result, we do not know how similar or different the process

was at the other 8 service centers and 31 district offices. Nor did we

attempt to determine whether (1) any differences in the abatement process

at the two service centers and two district offices produced significant

effects, particularly for similarly situated taxpayers; (2) IRS staff followed

the process and related criteria in making abatement decisions; (3) the

process was appropriate and adequately controlled;6

 or (4) IRS should be

collecting more quantitative data on its abatement process.

During each visit, we interviewed officials from IRS work groups that

made abatements. We identified these groups from information provided

by IRS’ National Office and the four locations we visited. To confirm our

understanding of the abatement process, we wrote summaries for each

 6

We did not evaluate IRS’ controls for the abatement process because of time constraints and because

we have another study under way that is addressing IRS’ controls, including those for the abatement

process.

Scope and

Methodology
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Page 5 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

location and received comments on these summaries from officials at each

location as well as IRS’ National Office. The summaries incorporating IRS’

comments can be found in appendixes I-IV.

To describe IRS’ efforts to improve the abatement process, we interviewed

officials in IRS’ National Office as well as selected staff in field offices who

had worked on a task force or study that addressed abatements in some

way. We also collected any available studies. As with our work on the

abatement process, we asked the responsible IRS officials to comment on

our summary of these efforts.

We performed our audit at IRS headquarters offices in Washington, D.C.;

the Kansas City Service Center in Kansas City, MO; the Fresno Service

Center in Fresno, CA; the Kansas-Missouri District Office in St. Louis, MO;

and the Northern California District Office in Oakland, CA. Our work was

done between February and June 1999 in accordance with generally

accepted government auditing standards.

On June 22, 1999, we met with representatives of the IRS Commissioner

from the Customer Service and Examination Divisions as well as the

Taxpayer Advocate and Legislative Affairs Offices to obtain their

comments on a draft of this report, which are discussed near the end of

this letter.

At the two service centers and two district offices we visited, IRS’

abatement process depended on the type, complexity, and source of the

assessment being abated. The process varied in terms of (1) how

abatements are initiated, (2) which IRS work groups make abatement

decisions, (3) what level of staff makes the decisions, (4) what tools guide

the decisions, and (5) how IRS reviews quality. We did not attempt to

evaluate whether any variations in the process affected abatement

decisions. Nor do we know how similar or different the process is at the

other 8 service centers and 31 district offices.

IRS did not have quantitative data on the details of the abatement process,

even though IRS’ master files have data on the overall number and amount

of abatements. An abatement is just one type of adjustment made to

taxpayer accounts. IRS staff also adjust accounts to reflect the dates and

amounts of various types of assessments, payments, and refunds. IRS

cannot extract quantitative data about the abatement process from data on

all types of adjustments. For example, IRS did not have data on the

number of abatements made by type of IRS group and staff or reviewed by

IRS’ Abatement

Process Varied
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IRS supervisors. Determining the costs and benefits of collecting such data

on the abatement process was beyond the scope of this report.

The two service centers and two district offices we visited did not track

how the abatements were initiated. IRS officials, however, identified three

basic ways of initiating abatements.

First, taxpayers can initiate a request (also known as claim) for an

abatement by filing an amended tax return (e.g., Form 1040-X for

individuals and Form 1120-X for corporations); by filing an IRS Form 843,

Claim for Refund and Request for Abatement; by writing a letter; or by

making a phone call. Taxpayers would generally initiate these requests to

correct errors on the original return they filed or to seek relief from

penalties when they have reasonable cause for failing to comply with tax

requirements.

Second, taxpayers can request an abatement of an additional assessment

generated by an IRS enforcement program.7

 In these cases, the taxpayer

would be responding to a notice about the assessment, such as a collection

notice. These taxes might have been assessed because the taxpayer had

not responded adequately to notices about the recommended assessment

of additional tax amounts. For example, an audit may recommend

additional assessments that the taxpayer did not challenge when the audit

closed. The taxpayer might later decide to challenge the assessment and

ask IRS for an abatement.8

 Similarly, after receiving a notice of additional

assessments, taxpayers may claim a reasonable cause for not timely paying

the correct tax amount and ask IRS to abate certain types of penalties.

Third, in some cases, IRS staff can initiate the abatement. For example, an

IRS auditor might find evidence that a taxpayer overstated the tax liability

on the original tax return. This evidence could lead to an abatement,

depending on the results from the rest of the audit.

 

7

Section 6404 (b) of the Internal Revenue Code states that a taxpayer may not file a request for

abatement of income, estate, or gift tax. Rather, a taxpayer should dispute these tax assessments by

paying the tax and filing a request for a refund. IRS does, however, reduce some of these tax

assessments without payment when the taxpayer requests an abatement of an audit assessment and

provides support for the abatement. These requests are known as audit reconsiderations.

8

Before IRS assesses additional taxes that an auditor recommends, a taxpayer can challenge the

recommended assessment in Examination or IRS’ Office of Appeals. Also, upon receiving a notice of a

proposed assessment, a taxpayer has 90 days (150 days if outside the United States) to file a petition

with the Tax Court. Some taxpayers, for whatever reasons, bypass these options, which results in the

recommended taxes being assessed, along with related penalty and interest assessments.

Taxpayers and IRS Staff

May Initiate Abatements
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Various IRS work groups at the two service centers and two district offices

we visited had the authority to abate assessments. According to IRS

officials, the type, complexity, and source of the assessment being abated

determine which IRS work group makes the abatement decision. Using

these factors as well as IRS routing criteria, a work group that initially

receives a requested abatement is to determine whether it should make the

abatement decision. If the determination is to route the abatement to

another work group, the abatement process to be followed is to be guided

by the general IRS criteria for the type of abatement being reviewed and

the specific review process of that group.

Each work group can abate different types of tax, penalty, and interest

issues. Table 1 shows examples of the most common types or sources of

abatements made by work groups at the two service centers, as identified

by IRS officials.9

Examples of abatements at two service centers

Work group Kansas City Fresno

Adjustments Branch Amended returns Amended returns

Collection Branch Substitute for returna Substitute for returna

Customer Service Branch Penalties Penalties

Examination Branch Category A claims,b

audit reconsiderationsc

Audit reconsiderationsc

Joint Compliance Branch Does not existd Category A claimsb

Underreporter Branch Does not existe Apparent overreported income

Automated Collection Branch Penalties, erroneous

substitute for returnf

Does not existg

Document Perfection Branch Simple claims on

amended returns

Not applicableh

a

Returns filed by IRS on the basis of information returns that reported income paid to a taxpayer who

did not file a tax return.

b

Category A claims involve issues that are complex or sensitive, or prone to noncompliance.

c

Audit reconsiderations occur when taxpayers ask IRS to reconsider assessments made in prior

audits.

d

In Kansas City, this work is done through the Examination Branch.

e

Kansas City’s underreporter cases are handled at the Austin or Ogden Service Centers.

f

Erroneous substitute for returns involve those sent to taxpayers who had filed their returns before

receiving the SFR filed by IRS.

g

In Fresno, this work is done as part of the Collection Branch.

h

Although Fresno has a Document Perfection Branch, it usually handles simple requests on amended

returns in its Adjustments Branch.

Source: GAO interviews and documents collected at each service center.

 9

Each service center had other work groups that made abatements, such as groups that deal with

criminal investigations, quality assurance, and account services. We do not discuss these groups here

because IRS officials told us these groups made few abatements.

Various IRS Work Groups

Make Abatement Decisions

Table 1: Examples of Abatements Made

in the Kansas City and Fresno Service

Centers, as of April 1999
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As table 1 shows, each service center organized itself somewhat

differently. As a result, each service center had branches that the other

center did not have. For example, Fresno had a Joint Compliance Branch

that did not exist in Kansas City. This branch dealt with, among other

things, abatement requests (known as category A claims) that were

complex, sensitive, or involved types of taxpayers prone to

noncompliance. Kansas City usually handled category A requests in its

Examination Branch. Also, Kansas City allowed clerical staff in its

Document Perfection Branch to abate simple requests made on amended

returns. Fresno usually handled this type of request in its Adjustments

Branch.

The two district offices generally relied on three divisions to abate

assessments. Table 2 shows examples of the types or sources of

abatements made by the divisions, as identified by officials at the district

offices.

Examples of abatements at two district offices

Division Kansas-Missouri Northern California

Collection Various uncollectibles, such as

bankruptcies; various penalties

Various uncollectibles, such as

bankruptcies; various penalties

Customer Service Federal tax deposit penalty Various types of penalties

Examination Audit reconsiderations,a claims Audit reconsiderations,a claims a

Audit reconsiderations occur when taxpayers ask IRS to reconsider assessments made in prior

audits

Source: GAO interviews and documents collected at each district office.

As table 2 shows, each of the three divisions at both districts made similar

types of abatements. Although none of the divisions tracked the number of

abatements, IRS officials indicated that the Collection and Customer

Service Divisions made the most abatement decisions, many of which

involved penalties. The officials said that in the Examination Division, the

abatements usually involved tax assessments related to a prior audit,

which could also involve penalties, or some form of taxpayer claim.

In addition, at the two service centers and two district offices, the Office of

the Taxpayer Advocate had authority to make certain types of

abatements.10 However, officials at most locations we visited said that the

Advocate’s Office usually referred requests for abatements to other work

groups (such as the Collection Division) and then tracked actions taken to

 10The Office of the Taxpayer Advocate is to represent the interests of taxpayers. For abatements, the

Advocate would get involved if taxpayers had difficulty solving their tax problems through IRS’ regular

channels or if they had major hardships in meeting their tax responsibilities.

Table 2: Examples of Abatements Made

in the Kansas-Missouri and Northern

California District Offices, as of April

1999
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Page 9 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

help ensure the proper and timely resolution of a taxpayer’s problem.

Because these work groups usually made any related abatements, the

Office of the Taxpayer Advocate would make few abatements compared to

the other work groups.

Various types and grades of IRS staff, ranging from clerks to mid-level

staff, can make abatement decisions, depending on the type, complexity,

and source of the assessment being abated. Along with other duties, these

IRS staff handled many types of adjustments to taxpayers’ accounts other

than abatements. None of the work groups tracked how many of these

adjustments involved abatements.

Both service centers had a wide range of graded staff who made

abatement decisions. The staff ranged from federal pay grades GS-3 to GS9 in one service center and GS-4 to GS-12 in the other.11 According to

officials at the two service centers, staff known as customer service

representatives and tax examiner assistants made most abatement

decisions. In one service center, grades of customer service

representatives ranged from GS-5 to GS-8 and tax examiner assistants

ranged from GS-4 to GS-8. In the other service center, the grades were GS6 to GS-9 and GS-6 to GS-7, respectively.

The two district offices also had various staff make abatement decisions in

the three divisions. These staff ranged from federal pay grades GS-5 to GS13.12 According to officials at the two district offices, staff known as

customer service representatives (GS-5 to GS-9) and revenue officers (GS7 to GS-12) made the majority of the abatements. The two districts we

visited did not differ very much in who made abatement decisions.13

According to information provided by officials at both service centers and

both district offices, staff making abatement decisions are to be guided by

such tools as training, information provided by the taxpayer or IRS’

computers, criteria in IRS manuals, and supervisory involvement.

Descriptions of these four tools follow.

 

11The GS, or General Schedule, system ranges from GS-1 to GS-15. Excluding locality or other special

pay adjustments, the 1999 pay for GS-3 to GS-12 ranges from about $16,000 to about $59,000.

12Excluding locality or other special pay adjustments, the 1999 pay for GS-5 to GS-13 ranges from about

$21,000 to about $70,000.

13Even so, when we asked about staff that made abatements, officials at the Kansas-Missouri District

Office were more likely to identify various types of specialists who were to assist such staff.

Both Lower and Higher

Graded Staff Can Make

Abatement Decisions

Various Tools Can Guide

Abatement Decisions
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• IRS is to provide training on the various duties, including abatements,

assigned to staff. The training can include such things as basic tax laws,

IRS forms, adjustments in general, amended returns, and other generic tax

issues. Training also can cover specific types of adjustments, including

abatements to be made to taxpayer accounts. The training is to include

classroom and on-the-job instruction.

• Staff can use various types of information provided by taxpayers or

through IRS computers to help make abatement decisions. For example,

taxpayers can provide additional information that they did not provide

during an audit when they ask IRS to abate assessments made in that

audit. Or, staff can use information in taxpayers’ accounts to confirm

taxpayer actions, such as the date a return was filed or a payment was

made. To the extent that the computerized information is sufficient, IRS

staff could use it to verify oral justifications from taxpayers for making the

abatement. If the information is not sufficient, IRS may need to request

additional support from the taxpayer.

• Criteria for making abatement decisions vary with the type and amount of

the abatement and complexity of the issues. For example, the criteria for

decisions about whether to abate a tax assessment would depend on the

tax laws and regulations governing the specific tax issue (such as a

dependency exemption) and the justification provided by the taxpayer in

requesting the abatement. Also, for each type of penalty, IRS has various

dollar tolerances that dictate the type of justification needed from the

taxpayer to grant the abatement and whether that justification needs to be

documented by the taxpayer rather than be provided orally. Because IRS

labels the criteria and dollar tolerances as “official use only,” which means

the information is sensitive, we cannot disclose the specific criteria or

tolerances.

• Dollar tolerances also can affect whether supervisors are to review

proposed decisions by staff to abate assessments.14 IRS did not have data

on how many of the 11.3 million abatements in fiscal year 1998 had been

reviewed by supervisors before the decision was finalized. However,

supervisors are only required to review a few types of abatement decisions

before they are finalized, such as those on certain types of penalty and

interest abatements as well as on large-dollar abatements. Also, officials at

some of the locations we visited said that few abatement decisions would

be reviewed by supervisors before being finalized because of the large

number of adjustments, including abatements, to be processed.

 

14According to service center officials, supervisors also reviewed a small percentage of all adjustments

after they were made in order to evaluate the performance of the staff. Although these reviews of

closed cases did not influence the original abatement decisions, supervisors are required to tell staff to

correct any errors that these reviews uncover.
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The two service centers and two district offices each have a separate staff

to review the quality of decisions, including those on abatements, after

they are made. None of the locations we visited tracked the number of

abatement decisions reviewed for quality as either a percentage of all

adjustments reviewed or of all abatement decisions made. The officials we

interviewed at all locations could not say what percentage of abatements

might be subjected to such quality reviews.

IRS had multiple review programs because each work group has a

different set of quality standards. Each program is to use the quality

standards established for the types of adjustments made in a specific work

group. For example, standards for a collection work group would differ

from standards for an examination group. As a result, in both service

centers, the Service Center Collection Quality System is to be used to

review the quality of the work in the Collection Branch. Across the two

district offices, IRS also had a review program for each division (such as

the Examination Division).

Officials at both service centers and both district offices also told us that

these programs usually are to select cases for review on the basis of

random sampling, and the results are to be used to identify systemic

quality problems in an IRS work group. Due to our time constraints, we did

not evaluate these IRS quality review programs.

IRS’ efforts to improve the abatement process have involved task force

studies that IRS initiated in response to specific concerns. For example,

since 1997, task forces have studied issues, such as penalty administration

and taxpayer treatment, because of concerns about taxpayer burden and

equity. Although they did not focus on abatements, the studies have

produced some proposals that would affect the abatement process, such

as the documentation required to support abatements.

IRS officials said they initiated these task forces because a 1997 report on

reinventing service at IRS called for IRS to, among other things, promote

fair and consistent treatment of taxpayers in penalty administration. The

report also called for IRS to comprehensively review all penalties and

report to Congress on its findings as well as needed legislative changes.

The report further recommended that the overall process for handling

penalties be streamlined. For example, the report mentioned that one way

to streamline would be for IRS employees to have expanded authority to

abate certain types of penalties on the basis of oral requests from

taxpayers. If done, this action could reduce the burden on taxpayers by

requiring less documentation or supervisory approval.

IRS Review Programs Do

Not Track the Quality of

Abatement Decisions

IRS’ Efforts to Improve

the Abatement Process
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In September 1998, IRS released a study by its penalty task force, as

recommended in the 1997 report. IRS reported that for fiscal year 1996, 34

million penalties totaling $13.2 billion were assessed, of which 12 percent

and 43 percent, respectively, were abated. Several recommendations

focused on the need for (1) consistent treatment of taxpayers; (2) viable

management of information systems; (3) clearer penalty policy; and (4)

improved penalty administration to allow, among other things, IRS

telephone assistors to make abatements for larger amounts on the basis of

oral testimony from taxpayers. IRS officials said that legislative changes

would be necessary to implement some of the recommendations. These

officials also said they are considering the first three recommendations

and are planning to expand authority for abating certain penalties for

reasonable cause on the basis of oral testimony from taxpayers.

Another task force on taxpayer equity has been studying various IRS

programs and issues and had finished several reports as of June 1999.

These programs and issues, for example, address taxpayers that do not file

required tax returns, make estimated tax payments on a quarterly basis, or

make required federal tax deposits. Also included are studies of taxpayers

that ask IRS to reconsider an assessment made in a previous audit.

At least three of this task force’s reports have made proposals that could

affect abatements. These proposals involve (1) easing interest abatement

criteria through legislative change, (2) encouraging oral agreements on

abatements between IRS and taxpayers over the phone to minimize

documentation, and (3) clarifying a penalty abatement policy statement.

As for other efforts, an IRS study of an automated program to create

substitute returns for apparent nonfilers has suggested several steps to

deal with unproductive or erroneous assessments that create additional

work later, including abating these assessments. Further, IRS is testing an

automated system to help make abatement decisions related to reasonable

cause. IRS is also developing ways to help small business taxpayers meet

their federal tax deposit requirements, which could reduce the need for

abatements that are associated with these deposits. Finally, IRS’ Collection

Division officials said they had a team working on redesigning the

collection process, but the team was not focusing on abatements.

Before initiating these task forces and efforts, IRS undertook a major study

during 1993-94 of the causes of abatements. According to the director of

the study, IRS used about 150 employees across its 10 service centers. IRS

did this study because of concerns about the inventory of tax debts—about

25 percent of IRS’ accounts receivable were being abated.
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The study identified problems in various IRS processes that resulted in IRS

and taxpayer errors that had to be corrected through abatements. Some

examples of IRS errors included miscalculated interest, incorrect posting

to accounts, and overlooked support for taxpayers’ reasonable cause

claims. Examples of taxpayer errors included using the wrong form or

coupon, omitting or misstating taxpayer identification numbers, and

making math mistakes.

The study identified 259 potential problems, of which 158 were referred to

the responsible IRS functions for further analysis and implementation of

changes, if necessary, to solve a problem. The study team determined that

the other 101 problems did not merit such a referral because analysts at

the service centers could address the problem or no further changes were

needed. IRS never formally released a final report on the study results.

On June 22, 1999, we met with representatives of the IRS Commissioner

from the Customer Service and Examination Divisions as well as the

Taxpayer Advocate and Legislative Affairs Offices. These representatives

said that our report provided good information and appropriately

described the abatement process at selected organizations in the district

offices and service centers.

We are sending copies of this report to Representative Charles B. Rangel,

Ranking Minority Member, House Committee on Ways and Means, and

Senator Daniel P. Moynihan, Ranking Minority Member, Senate Committee

on Finance. We are also sending copies to the Honorable Robert E. Rubin,

Secretary of the Treasury; the Honorable Charles O. Rossotti,

Commissioner of Internal Revenue; the Honorable Jacob Lew, Director,

Office of Management and Budget; and other interested parties. We will

also send copies to those who request them.

If you or your staff have any questions concerning this report, please

contact me or Tom Short on (202) 512-9110, or Royce Baker on (913) 384-

3222. Other major contributors are acknowledged in appendix V.

Cornelia M. Ashby

Associate Director, Tax Policy and

 Administration Issues

Agency Comments
Page 14 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

Contents

1 Letter

16

Kansas City Groups That Make Abatements 16

Staffing 20

Abatement Training 21

Supervisory and Quality Reviews 22

Appendix I

Abatement Processes

at the Kansas City

Service Center

25

Fresno Groups That Make Abatements 25

Staffing 30

Abatement Training 30

Supervisory Review 31

Quality Review 32

Appendix II

Abatement Processes

at the Fresno Service

Center

33

Kansas-Missouri Groups That Make Abatements 33

Staffing 35

Abatement Training 36

Supervisory Review 37

Quality Review 38

Appendix III

Abatement Processes

at the Kansas-Missouri

District Office

39

Northern California Groups That Make Abatements 39

Staffing 42

Abatement Training 42

Supervisory Review 43

Quality Review 44

Appendix IV

Abatement Processes

at the Northern

California District

Office

Appendix V 45

GAO Contacts and

Staff

Acknowledgments

Tables Table 1: Examples of Abatements Made in the Kansas

City and Fresno Service Centers, as of April 1999

7
Contents

Page 15 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

Table 2: Examples of Abatements Made in the KansasMissouri and Northern California District Offices, as of

April 1999

8

Table I.1: Examples of Abatements at the Kansas City

Service Center

17

Table I.2: Peak Staffing Levels at Kansas City by Branch

and Type and Grade Level of Staff, March 1999

21

Table I.3: KCSC Closed Cases, Cases Reviewed for

Quality, and Requirements for Supervisory Review in

1998

24

Table II.1: Examples of Abatements at Fresno Service

Center

26

Table II.2: Peak Staffing Levels at Fresno by Type of Staff

and Grade Level, April 1999

30

Table III.1: Examples of Abatements at Kansas-Missouri

District Office

33

Table III.2: Staffing Levels at Kansas-Missouri by Type of

Staff and Grade Level, April 1999

36

Table IV.1: Examples of Abatements at Northern

California District Office

39

Table IV.2: Staffing Levels by Type of Staff and Grade

Level, May 1999

42

Abbreviations

EIC Earned income credit

FSC Fresno Service Center

GS General Schedule

IRS Internal Revenue Service

KCSC Kansas City Service Center

KMDO Kansas-Missouri District Office

NCDO Northern California District Office

PRP Problem Resolution Program

SFR Substitute for return
Appendix I

Abatement Processes at the Kansas City

Service Center

Page 16 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

IRS’ Kansas City Service Center (KCSC) processes individual and business

tax returns, payments, and taxpayer inquiries from Illinois, Iowa,

Minnesota, Missouri, and Wisconsin. The service center also responds to

taxpayer inquiries nationwide through toll-free numbers. In addition, KCSC

conducts compliance activities, such as doing audits, securing delinquent

returns, and collecting unpaid taxes.

Different IRS work groups make abatements at the Kansas City Service

Center.1

 According to KCSC officials, three divisions—Compliance,

Customer Service, and Processing—routinely make abatements. Each

division has at least one work group that makes abatement decisions.

Additionally, the Taxpayer Advocate’s Office can make abatements.

According to IRS officials, the Quality Assurance Management Support

Division has abatement authority, but due to the nature of its workload it

rarely makes abatements. As a result, we did not summarize the division’s

processes.

Each of the work groups is responsible for making abatements of different

types. Table I.1 shows these groups as well as examples of the types of

abatements made by each.

 

1

An abatement occurs when IRS reduces the assessment of tax, penalty, or interest against taxpayers

for various reasons (e.g., an incorrect assessment or taxpayer had a reasonable cause for not

complying with filing or payment requirements). An abatement may be initiated by a request from a

taxpayer, by a taxpayer in response to IRS actions, or solely by IRS. For example, a taxpayer may file

an amended return to claim changes to the original return. Factors such as the type, complexity, and

source of the abatement determine which IRS group makes the abatement.

Kansas City Groups

That Make Abatements
Appendix I

Abatement Processes at the Kansas City Service Center

Page 17 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

Division or office Work group Type of abatement

Collection Branch Substitute for return (SFR)a Compliance

Examination Branch Claims, including category A claims,b SFR, and audit

reconsiderationsc

Automated Collection Systems Branch Erroneous SFR cases,d penalties abated for reasonable cause

Adjustments/Correspondence Branch Claims on amended returns, various types of penalties

Customer Service Branch Various types of penalties

Customer Service

Taxpayer Relations Branch Taxpayer inquiries about assessments

Processing Document Perfection Branch Simpler claims made by individuals

Taxpayer Advocate Office Problem Resolution Program (PRP) Selected cases that meet PRP criteria (e.g., not resolved

elsewhere in IRS) a

IRS files a substitute for return when a taxpayer has not filed a tax return but IRS receives third-party

information that shows enough income to file a tax return.

b

Category A claims involve issues that are complex, sensitive, or prone to noncompliance.

c

Audit reconsiderations occur when taxpayers ask IRS to reconsider assessments made in past

audits.

d

Erroneous SFRs involve those sent to taxpayers who had filed their returns before receiving the SFR

filed by IRS.

Source: Information provided by IRS officials.

In the following, we briefly describe the types of abatements made at each

of the work groups. We also identify the workload at each work group for

all types of adjustments to taxpayers’ accounts, including abatements.

None of the groups, however, had data on the portion of their workload

that involved abatements. We did not independently verify the accuracy of

workload data provided by IRS.

According to IRS officials, the Compliance Division has two branches that

routinely make abatements, as summarized below.

The Collection Branch is responsible for collecting taxes from individuals

who have filed but have not paid the total amount due or who have not

filed their tax return. For these nonfilers, according to branch officials, a

common abatement comes from substitute for return (SFR) cases.

Taxpayers receiving an SFR may choose to file a return in order to reduce

their tax liability. When the return is filed and accepted by IRS, the branch

is to abate the difference between the taxes assessed on the SFR and the

taxpayer’s return. If the taxpayer’s return meets certain criteria, such as a

large difference between the taxpayer’s and SFR’s assessments,

classification staff from the Examination Branch are to review the return

and determine whether to audit it. For fiscal year 1998, Collection Branch

officials reported that the branch closed 1.2 million nonfiler and late

payment cases, but it did not track how many of them involved

abatements.

Table I.1: Examples of Abatements at the Kansas City Service Center

Compliance Division

Collection Branch
Appendix I

Abatement Processes at the Kansas City Service Center

Page 18 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

The Classification Section in the Examination Branch is the only section in

the branch that routinely makes abatements in the course of its operations,

according to Examination officials. The Classification Section is

responsible for screening questionable claims, SFR returns, and requests

for audit reconsideration.

The Classification Section is to receive category A claims from the

Adjustments/Correspondence Branch (also referred to as the Adjustments

Branch) for acceptance or selection for audit. Category A claims are more

complex, sensitive, or prone to noncompliance than other claims. For

calendar year 1998, Classification Section officials reported that the

section screened more than 26,000 claims, but it did not track the number

that resulted in abatements.

Further, the Classification Section is to review questionable returns filed

by taxpayers to replace SFRs and requests for audit reconsiderations.

When reviewing SFR cases and audit reconsiderations, Classification is to

accept the data provided by the taxpayer in support of an abatement, or

select the case for audit.2

 If a case is selected, staff in the Examination

Branch or a district office are to decide on any abatements. For calendar

year 1998, Classification Section officials reported that the section

received nearly 11,000 SFR, audit reconsideration, and other cases. These

officials did not track how much of this work resulted in abatements.

The Customer Service Division has the following branches that can make

abatements.

The Automated Collection Systems Branch operates an automated call

system, which is used to collect taxes from taxpayers that have delinquent

accounts and to secure delinquent returns. Abatements can arise when IRS

staff talk over the telephone with taxpayers who have had levies placed on

their assets because of delinquent taxes or have received a notice that IRS

has no record of their return.

In particular, the branch is supposed to make abatements in erroneous

SFR cases—cases in which IRS erroneously believes that a taxpayer failed

to file a required tax return, but the taxpayer had, in fact, filed. The branch

also can abate penalties if the taxpayer has a reasonable cause for not

complying originally. For calendar year 1998, IRS officials said that the

 

2

In reviewing audit reconsiderations, the staff typically review the adequacy of documentation provided

by the taxpayer to counter the additional assessments made after the past audit.

Examination Branch

Customer Service Division

Automated Collection Systems

Branch
Appendix I

Abatement Processes at the Kansas City Service Center

Page 19 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

Automated Collection Systems Branch worked more than 119,000 cases,

but it did not track how many of them involved abatements.

The Adjustments/Correspondence Branch receives inquiries from

taxpayers by phone or correspondence. According to branch officials,

most taxpayer contacts are in response to penalty notices. The officials

stated that the branch often abates failure-to-file penalties for reasonable

cause. The branch is also supposed to process claims that require

additional information from the taxpayer or from IRS databases. For fiscal

year 1998, the branch reported closing over 989,000 cases, but it did not

track how many of them involved abatements.

The Customer Service Branch receives telephone inquiries from taxpayers

about their assessments. According to IRS officials, taxpayers usually call

to resolve issues on their tax accounts after receiving an IRS notice. These

officials stated that late payment and failure-to-file penalties are their most

common abatement cases. For fiscal year 1998, the toll-free telephone site

answered over 1.2 million telephone calls. Branch officials did not track

how many of these calls involved abatements.

Taxpayer Relations is to help taxpayers resolve a wide variety of problem

cases. In addition to the taxpayers, the branch receives referrals from

other IRS offices, congressional offices, and the White House. According to

IRS officials, typical abatements involve penalties and incorrect tax

assessments. For calendar year 1998, IRS officials reported that the branch

worked nearly 100,000 cases, but it did not track how many of these cases

involved abatements.

Within the division, only the Document Perfection Branch made

abatements. The Document Perfection Branch is to screen amended

returns from individual taxpayers and identify those with issues that

require additional information from a taxpayer or IRS computer systems. If

additional information is not required, Document Perfection is to process

the return, along with any resulting abatement. Returns that require

information and amended returns from business taxpayers are forwarded

to the Adjustments/Correspondence Branch. Document Perfection officials

reported that the branch screened about 262,000 amended returns in

calendar year 1998. The officials also reported that Document Perfection

processed about 95,000 of these cases and routed the rest to other

functions for processing. Branch officials did not track how many of these

cases resulted in abatements.

Adjustments/Correspondence

Branch

Customer Service Branch

Taxpayer Relations Branch

Processing Division

Document Perfection Branch
Appendix I

Abatement Processes at the Kansas City Service Center

Page 20 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

The Taxpayer Advocate’s Office was created to help taxpayers who have

been unsuccessful in resolving their problems through normal channels of

assistance. The office ultimately reports to the National Taxpayer

Advocate. Its involvement with abatements can arise from two taxpayer

assistance programs—hardship relief requests and the Problem Resolution

Program (PRP), which assists taxpayers in resolving persistent problems.

Taxpayers may submit Form 911 asking for hardship relief under the

Application for Taxpayer Assistance Order, according to IRS officials. The

Advocate’s staff makes a determination on these requests. PRP exists to

help taxpayers that have been unsuccessful in resolving their tax problems

through regular channels. The Kansas City Taxpayer Advocate has a small

staff; thus, for most PRP cases, it relies on staff in the divisions, such as

those in Customer Service, to try to resolve the problem. The Taxpayer

Advocate monitors the progress of the cases until they are resolved.

Staffing for some of the branches varies with the time of year, according to

IRS officials. During peak periods (usually during the months when

taxpayers are filing returns), staffing levels may temporarily increase, and

the staff may sometimes be temporarily assigned to Customer Service to

answer taxpayer inquiries about tax law or filing requirements. Table I.2

shows the peak staffing level by the type and grade (GS) level of staff who

make abatement decisions for those work groups that make most of the

abatements, according to IRS officials.

Most service center staff making abatements were tax examining

assistants, customer service representatives, or tax examining clerks,

according to IRS officials. Tax examining assistants are responsible for

obtaining returns and other taxpayer information necessary to adjust

taxpayer accounts and examining selected tax issues on income tax

returns. Customer service representatives provide assistance to individuals

and businesses through telephone contact. Tax examining clerks have

duties that are less complex. They review IRS documents and tax returns,

prepare coded entries to amend records, and refer questionable returns

and documents for review.

Taxpayer Advocate’s Office

Staffing
Appendix I

Abatement Processes at the Kansas City Service Center

Page 21 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

Division Branch

Tax examining

assistant

(GS-4 to GS-8)

Tax examining

clerk

(GS-3 to GS-5)

Correspondence

examination technician

(GS-5 to GS-7)

Customer service

representative

(GS-5 to GS-8)

Tax

auditor

(GS-9) Total

Compliance Collection 185 0 0 0 0 185

Examination 49a 13b 96c 0 12 170

Automated Collection

Systems 174 0 0 0 0 174

Adjustments 0 0 0 264d 0 264

Customer Service 0 0 0 108e 0 108

Customer

Service

Taxpayer Relations 58 0 0 0 0 58

Processing Document Perfection 64f 266g 0 00 330

Totalh530 279 96 372 12 1,289

Note 1: Staffing levels do not include managerial and support staff.

Note 2: Branches with a consistent level of staffing will not have a nonpeak staffing level.

a

Nonpeak staff of 45

b

Nonpeak staff of 11.

c

Nonpeak staff of 70.

d

Nonpeak staff of 108.

e

Nonpeak staff of 99.

f

Nonpeak staff of 31.

g

Nonpeak staff of 0.

h

Does not include 5 staff from the Taxpayer Advocate’s Office.

Source: IRS officials.

In general, training to be given in the work groups that made abatements

did not focus on abatements; rather, it focused on the range of duties for

the various types of staff. Through our interviews and reviews of

documents at KCSC, we learned the following about the training that each

work group should provide.

Before working on a program they have not worked before (such as SFR

cases), tax examining assistants are to receive between 3 and 10 days of

classroom training on that program. After completing the training, they are

to be assigned on-the-job instructors to provide additional guidance on

working cases.

Staff doing abatements are to receive training on the basic types of

adjustments associated with the income tax laws. They also are to receive

on-the-job instruction as they do audits.

New customer service representatives are to receive about 3 months of

classroom training. The initial training is to address basic skills, such as

entering data into IRS’ computer system. Afterward, the customer service

representatives are to take classes on each of the programs handled in the

Table I.2: Peak Staffing Levels at Kansas City by Branch and Type and Grade Level of Staff, March 1999

Abatement Training

Collection Branch

Examination Branch

Automated Collection

Systems Branch
Appendix I

Abatement Processes at the Kansas City Service Center

Page 22 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

branch. After a class on a particular program, the customer service

representatives are to work that program for a few weeks to reinforce

what they have learned. Then, they are to take a class on another program.

Training is to cover the abatement of tax and penalties in some form.

Customer service representatives responsible for business returns initially

are to receive a 5-week training class on the Business Master File and

employment tax forms. Later, they are to receive training on IRS forms and

notices. Then, they are to receive several weeks of on-the-job training.

Customer service representatives responsible for individual tax returns are

to receive training on the Individual Master File as well as on amended

returns, penalty abatements, and refunds for individuals. The training for

abating selected types of interest assessments requires on-the-job coaching

for several months.

Before taking phone calls in which the taxpayer is asking for penalty

abatements, a new staff member is to receive courses on determining

penalty abatements. A staff member working on Business Master File

cases is also supposed to attend courses on computing and abating

penalties associated with the deposit of federal taxes.

All staff working abatement cases are to receive training on

comprehending computer transcripts, using IRS’ computer system, and

adjusting accounts on the Individual and Business Master Files, including

making abatements. In addition, staff are to receive specific training on

programs such as Problem Resolution and Penalty Appeals, which can

result in abatements.

New hires are to receive a 10-day class on the Form 1040. Staff that have

prior IRS experience are to receive between 4 and 9 days of training,

depending on their duties. A class on editing amended returns is required

for staff that review such returns and determine abatements and

assessments.

Staff making the abatement decision usually adjust the taxpayer’s account,

according to IRS officials. The exceptions are in the Examination and

Document Perfection Branches. Staff in these branches recommend

abatements and forward the case to other staff who are responsible for

adjusting a taxpayer’s account.

IRS officials described two types of supervisory review of the abatement

decisions made by staff: one occurring before the decision is made, and

Adjustments/

Correspondence Branch

Customer Service Branch

Taxpayer Relations Branch

Document Perfection

Branch

Supervisory and

Quality Reviews
Appendix I

Abatement Processes at the Kansas City Service Center

Page 23 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

one after. The latter supervisory review of closed decisions is done to

evaluate employee performance.

IRS officials also described various types of quality review programs.

Reviewers in these programs were to review cases closed in the work

group to measure adherence to specific quality standards, which varied

with each work group and type of case. According to staff we interviewed,

the closed cases for review were to be selected using random sampling.3

Neither the supervisory nor quality reviews solely addressed abatements;

rather, they covered all types of adjustments, including assessments and

abatements. As a result, KCSC officials did not have data on the

percentage of abatement decisions that were reviewed.

IRS officials said that other than for a few specific types of cases, the first

type of supervisory review, which would occur before the abatement

decision, was usually not required. Exceptions were abatements that

involved certain types of civil penalties over a specific dollar amount,

certain types of Examination assessments, and a selected type of interest

assessment. Specific criteria associated with these types of abatements are

considered to be sensitive information and may not be disclosed.

The work groups we visited had some data on the review of various types

of closed cases by supervisors or quality review staff. Table I.3 shows the

number of cases closed and reviewed for quality and the requirements for

supervisory review for purposes of evaluating staff performance.

As noted in table I.3, the number of closed cases subjected to supervisory

review for performance evaluation purposes differed in each branch. For

example, Customer Service required its supervisors to review eight

telephone calls and four paper cases per month. According to officials in

all the branches, these requirements meant that only a small percentage of

all cases would be reviewed. For example, a supervisor would be likely to

review about 1 percent of the phone calls that customer service

representatives answer in a month. About 10-15 percent of Taxpayer

Relations’ completed cases would be reviewed, according to branch

officials. If supervisors were to find a performance deficiency, they should

tell the staff member to correct any errors, and they might choose to

review all cases closed by that staff member.

 

3

The scope and time frame for our work did not allow us to verify whether these closed cases were

selected through random sampling or to analyze the results of the various types of quality reviews.
Appendix I

Abatement Processes at the Kansas City Service Center

Page 24 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

KCSC branch

Total closed

cases

Fiscal or calendar

year 1998

Number reviewed

for quality

Supervisory review

requirements

Collection 1,225,171 Fiscal 8,403 8 per month per employee

Examination 37,168 Calendar 427 Quarterly review of workload

of each employee.

Adjustments/Correspondence 989,118 Fiscal 461 5 per week per employee

Customer Service Calls: 1,211,273

Paper 20,798

Fiscal Calls: 1,457

Paper: 435

8 calls and 4 paper cases per

month per employee

Automated Collection Systems Calls: 90,597

Paper: 28,456

Calendar Calls: 579

Paper: 1,681

3-5 calls and 5 paper cases

per month per employee

Taxpayer Relations 99,542 Calendar 406 10-15 per employee per week

Document Perfection Screened: 261,664

Adjusted: 94,525

Calendar 440 30-47 per employee per week

Note: All numbers include both abatement and assessment cases because IRS does not track

abatement cases separately.

Source: Developed from interviews with IRS officials.

Separate offices in the service center managed the quality review

programs. For example:

• The Quality Assurance Branch was to do quality reviews of cases closed in

the Adjustments/Correspondence, Customer Service, Taxpayer Relations,

and Document Perfection Branches. This review program is called the

Program Analysis System.

• Collection Branch correspondence cases are to be reviewed under the

Service Center Collection Quality System.

• The Automated Collection Systems Branch has two review systems. Tollfree calls are to be reviewed under the Quality Management Information

System. Correspondence cases are to be reviewed under the Written

Products Data Collection Instrument program.

• Examination Branch closed cases are to be reviewed by Quality Measure

Support staff.

• Taxpayer Advocate cases are to be reviewed at the Brookhaven Service

Center Centralized Quality Location in New York.

Quality review officials told us that they do not correct defective cases.

Instead, they are to report any errors they find to the appropriate official in

the branch where the case originated. The branch official then is to work

with the employee who made the error to correct the mistake.

Table I.3: KCSC Closed Cases, Cases Reviewed for Quality, and Requirements for Supervisory Review in 1998
Appendix II

Abatement Processes at the Fresno Service

Center

Page 25 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

The Fresno Service Center (FSC) processes various types of tax returns,

conducts audits through correspondence, and responds to taxpayer

inquiries from Hawaii and parts of California. FSC also responds to

taxpayer inquiries nationwide through IRS’ toll-free numbers. In addition

to auditing, FSC operates compliance programs that use third-party

information reporting to identify taxpayers who do not file tax returns or

who file returns but understate their tax liability.1

Different IRS work groups make abatements at the Fresno Service Center.2

Three divisions, including Compliance, Customer Service, and Quality

Assurance and Management Support, can make abatements. Each division

also has at least one branch that makes abatement decisions. Additionally,

the Taxpayer Advocate’s Office can make abatements.

These work groups are responsible for making different types of

abatements. Table II.1 shows the work groups as well as examples of the

type of abatements made by each.

 

1

In this Information Reporting Program, IRS computers match information reported by third parties,

such as banks and employers, to information reported on tax returns. If this match indicates that a

taxpayer did not report all income or file a tax return, staff at the service center are to contact the

taxpayer to resolve the discrepancy.

2

An abatement occurs when IRS reduces the assessment of tax, penalty, or interest against taxpayers

for various reasons (e.g., an incorrect assessment or taxpayer had a reasonable cause for not

complying with filing or payment requirements). An abatement may be initiated by a request from a

taxpayer, by a taxpayer in response to IRS actions, or solely by IRS. For example, a taxpayer may file

an amended return to claim changes to the original return. Factors such as the type, complexity, and

source of the abatement determine which IRS group makes the abatement.

Fresno Groups That

Make Abatements
Appendix II

Abatement Processes at the Fresno Service Center

Page 26 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

Division or office Work group Type of abatement

Examination Branch Audit reconsiderationa and audits

Criminal Investigation Branch Overstated income from false W-2s (Statement of Earnings)

Joint Compliance Branch Category A claimsb and interest claims, substitute for return,c

offer-in-compromise, audit reconsideration

Compliance

Underreporter Branch Responses to IRS underreporter notices

Customer Service Branch Taxpayer inquiries about assessments

Adjustments Branch Claims on amended returns filed by taxpayers

Customer Service

Collection Branch Substitute for return

Quality Assurance and Accounting Branch Credits on masterfile accounts

Management Support Quality and Management Support Branch Various types of abatements based on reviews of notices

sent to taxpayers

Taxpayer Advocate Office Problem Resolution Program and Taxpayer

Advocate

Various types of taxpayer claims that meet set criteria (e.g.,

problems not satisfactorily handled by other IRS groups) a

Audit reconsideration occurs when taxpayers ask IRS to reconsider assessments made in past

audits.

b

Category A claims involve issues that are complex, sensitive, or prone to noncompliance.

c

IRS files a substitute for return when a taxpayer has not filed a tax return but IRS receives third-party

information that shows enough income to file a tax return.

Source: Information provided by IRS officials.

In the following, we briefly describe the types of abatements made at each

of the work groups. We also identify the case workload at each group for

all types of adjustments, including abatements, to a taxpayer’s account.

However, none of these groups had data on the portion of the workload

that involved abatements.

The Compliance Division has four branches that can make abatements, as

summarized below.

The Examination Branch is responsible for conducting correspondence

audits at the service center. Abatements can occur when taxpayers ask IRS

to reconsider (or reaudit) assessments made in past audits. According to

IRS officials, in these audits, the taxpayer typically finds documentation

that counters the additional assessments. If IRS accepts the taxpayer’s

documentation, the additional assessments are to be abated.

The Examination Branch may also make various types of abatements in

cases referred by the Criminal Investigation Branch or by the National

Office. The branch also may abate assessments arising from the computer

matching that IRS does to identify math and other errors.

During fiscal year 1998, the branch processed nearly 132,000 cases.

Additionally, it processed about 285,000 amended returns (1040X).

Table II.1: Examples of Abatements at Fresno Service Center

Compliance Division

Examination Branch
Appendix II

Abatement Processes at the Fresno Service Center

Page 27 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

Examination officials did not track which cases had abatements; however,

branch officials said that the branch abates few assessments.

The Criminal Investigation Branch is responsible for investigating all kinds

of criminal activity related to the tax system. A typical abatement case

involves a taxpayer filing a false Form W-2, Statement of Earnings,

claiming excessive income and withheld tax. In these cases, the taxpayer

claims excessive income in order to claim an excessive earned income

credit (EIC). The taxpayer claims but never pays the excessive withheld

tax in order to get a tax refund. Upon identifying these fraudulent

schemes, the branch is to abate the excess tax liability that was claimed

(but not paid) and to stop the erroneous refund or collect the overpaid EIC

and refund.

The Joint Compliance Branch has three sections that process abatement

cases.

Classification and Research. This section processes category A claims

referred from the Adjustments Branch as well as interest abatement cases.

Category A consists of claims and amended returns that are more

complex, sensitive, or prone to noncompliance than other claims. Selected

category A claims are referred to field offices for further examination and

possible abatement decisions. The abatement decisions for nonselected

category A claims are made in Joint Compliance. During fiscal year 1998,

about 18,300 category A claims were processed, and about 2,000 were sent

to field offices. The section also processed about 400 claims for interest

abatement.

Automated Substitute for Return. This section processes abatements for

the amounts overassessed on a substitute for return (SFR). These

abatements are necessary when the taxpayer files a delinquent return that

reports a lower tax liability than that assessed on the substitute return

prepared by IRS. During fiscal year 1998, the section chief estimated that

the branch had made between 500 and 1,000 such abatements at Fresno.

Miscellaneous Balance Due. This section processes offers-in-compromise

for wage earners with income under $10,000,3 and trust fund recovery

 3

By agreeing to an offer-in-compromise with a taxpayer, IRS accepts a lower dollar amount to settle a

balance due. FSC is planning a prototype for making offer-in-compromise abatements for wage earners

and schedule C and F returns of up to $50,000.

Criminal Investigation Branch

Joint Compliance Branch
Appendix II

Abatement Processes at the Fresno Service Center

Page 28 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

cases.4 Branch officials did not track how much of the workload involved

abatements.

The Underreporter Branch is to process cases involving the amount of

income reported on tax returns. These cases are generated in IRS’

Martinsburg Computing Center by comparing income amounts reported on

information returns and on the tax return. Overall, the typical case

involves a taxpayer underreporting income on the tax return. However, in

the typical abatement case, the taxpayer overstates some type of income

on the tax return, thus overstating the tax liability. To get this overstated

tax liability abated, the taxpayer must file an amended return. The

Underreporter Branch at FSC processed about 11,400 cases that

potentially required abatements. Branch officials, however, did not track

how many actual abatements were made.

The Customer Service Division has the following branches that can make

abatements. None of the branches had information on the number of

abatements made.

The Customer Service Branch receives taxpayer inquiries about

assessments by phone or correspondence. These inquiries are usually in

response to notices or correspondence sent by IRS about various types of

possible errors on a tax return. An abatement may occur when a taxpayer

requests that IRS abate a failure-to-file penalty due to reasonable cause.

The Adjustments Branch also may process abatements initiated through

telephone contacts with taxpayers about their assessments. Further, the

branch is responsible for processing claims on amended returns. However,

as noted earlier, category A claims are to be referred to the Joint

Compliance Branch and some non category A claims may be handled by

the Examination Branch.

The Collection Branch is responsible for call sites at which abatements

may arise when taxpayers telephone IRS staff about various types of

assessments. Branch officials said the primary source of abatements is the

SFR program, in which taxpayers have received a substitute return and

IRS has taken action to collect the tax shown on it. If the taxpayer then

files a return showing a lower tax that is accepted by IRS, the branch is to

abate the difference between the tax amounts assessed on the substitute

 4

Trust fund recovery involves the abatement of trust fund penalties assessed against one or more

taxpayers when the balance due to the Social Security Trust Fund is received from one of these

taxpayers (usually an officer of the business that owed trust fund taxes).

Underreporter Branch

Customer Service Division

Customer Service Branch

Adjustments Branch

Collection Branch
Appendix II

Abatement Processes at the Fresno Service Center

Page 29 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

return and taxpayer’s return. During fiscal year 1998, the branch had about

383,000 phone contacts and 2.8 million pieces of correspondence.

However, the branch did not track the number of contacts that involved

abatements.

The following branches in the Quality Assurance and Management Support

Division process abatements.

Accounts Services is the only section that makes abatement decisions in

the Accounting Branch. Its workload is generated by the Martinsburg

Computing Center and consists of tax returns with unsettled credit

balances. These credit balances may have resulted from SFRs, audits, math

errors, and other transactions. During fiscal year 1998, Accounts Services

processed nearly 113,000 adjustment cases, but it did not track how many

involved abatements.

The Quality and Management Support Branch is responsible for measuring

the quality of actions in other branches by reviewing closed cases. Its

Output Review Section is to review notices to be sent to taxpayers and is

to make abatements if errors are found. Errors that are found in other

quality reviews are to be referred to the initiating branch for correction.

During fiscal year 1998, the Output Review Section reviewed about 37,000

individual notices and nearly 24,000 business notices. IRS officials did not

have information on how many of these reviews involved abatements.

The Taxpayer Advocate’s Office reports to the Executive Office of Service

Center Operations that, in turn, reports to the National Taxpayer Advocate.

The office is responsible for the Problem Resolution Program, which is to

help those who meet certain criteria, such as taxpayers that have any

contact

• indicating that IRS’ systems have not resolved the taxpayer’s problems,

• indicating that the taxpayer has not received an IRS response by the date

promised, or

• involving the same issue at least 30 days after an initial inquiry or

complaint, or 60 days for an original or amended return.

During fiscal year 1998, Fresno’s Taxpayer Advocate’s Office closed over

20,000 cases, but it did not track how many of them included abatements.

Quality Assurance and

Management Support

Division

Accounting Branch

Quality and Management

Support Branch

Taxpayer Advocate’s Office
Appendix II

Abatement Processes at the Fresno Service Center

Page 30 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

Staffing for some work groups varies with the time of year and the

function of the group. During peak periods (usually during the months that

taxpayers are filing returns), staffing levels may temporarily increase, and

the staff may sometimes be used for work other than making adjustments,

such as answering taxpayer inquiries about the tax law or filing

requirements. Table II.2 shows the peak staffing level by the type and

grade (GS) level of staff who make abatement decisions for those work

groups that make most of the abatements, according to IRS officials.

Division or office Work group

Tax examiner

assistant

(GS-6 to GS-7)

Revenue agent/

tax auditor

(GS-9 to GS-12)

Account

technicians

(GS-4 to GS-7)

Customer service

representative

(GS-6 to GS-9) Total

Examination 333a 00 0 333

Criminal Investigation 56 0 0 0 56

Joint Compliance 124 20 0 0 144

Compliance

Underreporter 206b 00 0 206

Customer Service 0 0 0 354 354

Adjustments 0 0 0 365 365

Customer Service

Collections 316 0 0 0 316

Accounting 176 0 104c Quality Assurance and 0 280

Management Support Quality and Management Support 175d 00 0 175

Taxpayer Advocate’s

Office

Problem Resolution and Taxpayer

Advocate 73 0 0 0 73

Total 1,459 20 104 719 2,302

Note: Branches with a consistent level of staffing will not have a nonpeak staffing level.

a

Nonpeak staff of 258

b

Nonpeak staff of 136.

c

Nonpeak staff of 265.

d

Nonpeak staff of 135.

Source: IRS officials.

For the most part, those making abatements were tax examiner assistants

and customer service representatives. These staff had varying duties,

including reviewing notices and interest computations, responding to

customer inquiries, processing correspondence, reviewing tax returns to

detect fraud, and resolving taxpayer problems.

In general, training to be given in the work groups that made abatements

did not focus on abatements. Rather, the training focused on the range of

duties for the various types of staff. Based on our discussions at Fresno,

the following briefly describes the training to be provided.

Tax examiners assistants are to receive 40 hours of initial classroom

training, plus 40 hours of on-the-job training; 80 hours of classroom

Staffing

Table II.2: Peak Staffing Levels at Fresno by Type of Staff and Grade Level, April 1999

Abatement Training

Examination Branch
Appendix II

Abatement Processes at the Fresno Service Center

Page 31 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

training on basic income tax; 80 hours of classroom training, plus 120

hours of on-the-job training on amended returns; 40 hours of classroom

training on EIC, plus 40 hours of on-the-job training; and 40 hours of

classroom training as a refresher each year.

Newly hired staff are to receive 2 weeks of training followed by 2-4 months

of on-the-job training. All staff are to attend a 2-week refresher class each

year.

Joint Compliance staff are to receive classroom and on-the-job training

that covers various topics, such as the guidance and instructions in the

Internal Revenue Manual, the processes for making adjustments, and the

tax law.

Branch staff are to receive annual training on phases of the underreporter

programs being worked for a tax year. This training is to include screening

cases, writing responses, reviewing statutes, and learning other core skills.

Staff making interest abatements also are to attend bimonthly meetings.

These staff are to receive roughly the same training, which is to include

120 hours of classroom training, primarily in refund and EIC issues. After

several months of on-the-job training, they are to receive an additional 120

hours of training on more complex issues, such as how to handle balancedue accounts, installment agreements, and return delinquencies.

All Accounting Branch training is to be on-the-job training. New staff are to

have a coach who assists them through each of the steps involved in

adjusting accounts.

Staff in the Output Review Section are to receive 2 weeks of classroom

training on the Notice Review Processing System and on-line notice

review. They also are to receive 4-6 weeks of on-the-job training.

Staff must have 2-3 years of experience dealing with adjustments,

customer service, or collection before being selected for the staff. Once

selected, staff are to receive classroom training for PRP caseworkers,

including PRP quality standards.

The branches at the Fresno Service Center had two types of supervisory

review of abatement decisions made by staff. One is to occur before the

decision is made and one after the decision. Regardless of the type of

review, FSC officials did not collect data on the number of reviews done

Criminal Investigation

Branch

Joint Compliance Branch

Underreporter Branch

Customer Service,

Adjustment, and Collection

Branches

Accounting Branch

Quality and Management

Support Branch

Taxpayer Advocate’s Office

Supervisory Review
Appendix II

Abatement Processes at the Fresno Service Center

Page 32 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

by supervisors or the percentage of abatement decisions that were

reviewed.

According to FSC officials, supervisory review and approval of abatement

decisions before they are finalized is required for a few types of

abatements. For example, abatement decisions involving comparatively

larger dollar amounts or certain types of penalty or interest abatements

generally require supervisory review and approval.5 Also, FSC officials said

that supervisors in each branch are to review a random sample of closed

cases for each employee each month. These reviews are generally to be

conducted to evaluate employee performance. Each branch gave

supervisors the discretion to determine the percentage of abatement

decisions to review. For example, the supervisors we talked to in at least

one branch said they were likely to consider the past experience and

performance of the staff member as well as the complexity and size of

their caseload.

Fresno Service Center has a quality review program that is designed to

ensure that abatement decisions are reviewed for quality by analysts

outside the function making the abatement decision. These analysts at the

service center are to review a sample of cases closed in each of the

branches. The purpose is to measure adherence to specific quality

standards.

For example, each branch is subject to quality reviews for a random

sample of closed cases by the Program Analysis Section. Also, the Output

Review Section in the Quality and Management Support Branch is to

review a random sample of notices in each branch monthly. Finally, a

random sample of cases closed by the Taxpayer Advocate’s Office is to be

reviewed at the Brookhaven (NY) Service Center.6

 5

We are not disclosing the requirements or criteria for making these abatement decisions because of

their sensitivity.

6

We did not analyze the samples to verify whether they were, in fact, randomly drawn.

Quality Review
Appendix III

Abatement Processes at the Kansas-Missouri

District Office

Page 33 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

The Kansas-Missouri District Office (KMDO) is located in St. Louis and has

satellite offices across its two-state area. The district is responsible for

auditing a variety of individual and business tax returns and for responding

to taxpayer inquiries. It is also responsible for compliance programs that

use third-party information to identify taxpayers who do not file tax

returns or who understate their tax liability on filed returns.

Different work groups within the district make abatements.1 Of the five

divisions in KMDO, four make abatement decisions, usually through one or

more branches. The division not making abatements is Criminal

Investigation, whose primary workload involves investigating fraudulent or

illegal activities.

Each division or office responsible for making abatements is shown in

table III.1, which also lists examples of the type of abatements.

Division or office Type of abatement

Collection Division Discharged bankruptcies, offers-in-compromise,a trust fund

recovery penaltiesb

Customer Service Division Federal tax deposits,c taxpayer inquiries about assessments

Examination Division Audit reconsiderations,d claims

Office of Taxpayer

Advocate

Collection hardships and Problem Resolution Program

(PRP)e

a

By agreeing to an offer-in-compromise with a taxpayer, IRS accepts a lower dollar amount to settle a

balance due.

b

IRS makes concurrent assessments against more than one officer or shareholder of a business that

has not paid withheld employment taxes. Once the taxes are paid, the other assessments are abated.

c

IRS is to abate penalties erroneously assessed for failing to properly deposit federal taxes.

d

Audit reconsiderations occur when taxpayers ask IRS to reconsider assessments made in past

audits.

e

Staff from the divisions resolve many PRP cases.

Source: Information provided by IRS officials.

Several factors affect which group makes the abatement decision,

including the following.

• Type of case. Cases can vary by type of taxes (such as gift or excise), type

of taxpayers (such as large corporation), and type of transactions (such as

bankruptcy).

 

1

An abatement occurs when IRS reduces the assessment of tax, penalty, or interest against taxpayers

for various reasons (e.g., an incorrect assessment or taxpayer had a reasonable cause for not

complying with filing or payment requirements). An abatement may be initiated by a request from a

taxpayer, by a taxpayer in response to IRS actions, or solely by IRS. For example, a taxpayer may file

an amended return to claim changes to the original return. Factors such as the type, complexity, and

source of the abatement determine which IRS group makes the abatement.

Kansas-Missouri

Groups That Make

Abatements

Table III.1: Examples of Abatements at

Kansas-Missouri District Office
Appendix III

Abatement Processes at the Kansas-Missouri District Office

Page 34 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

• Division function. The normal workload of the work group affects which

group makes a specific abatement decision. For example, the Collection

Division would make abatements in working cases, such as bankruptcy

cases. Customer Service Division abatements could come from responding

to taxpayer inquiries, such as those involving federal tax deposits.

• Status of taxpayer account. For example, if a taxpayer is being audited by

the district office and files an amended return or claim for refund with the

service center, this return or claim is forwarded to the appropriate

Examination group conducting the audit.

Summarized below are the responsibilities of each division and office, its

workload, and examples of abatements.

The Collection Division is responsible for the collection of taxes from

businesses and individuals who have an outstanding balance due or who

have not filed required tax returns. In fiscal year 1998, the Collection

Division closed about 14,300 cases, but Division officials could not identify

how many cases involved abatements because they were not separately

tracked.

Abatements in the division involve issues such as offers-in-compromise,

trust fund recovery cases, and bankruptcy.2

 According to Collection

officials, the most common abatements come from discharged

bankruptcies, in which IRS makes abatements at the direction of a court.

Offer-in-compromise cases involve an agreement by IRS to accept a

taxpayer’s offer to settle an outstanding assessment for less than the total

due. In trust fund recovery cases, IRS has made assessments against

officers or shareholders of a business that has not properly deposited its

employment taxes and then is to abate the residual assessments after the

tax liability has been paid.

The Customer Service Division takes taxpayers’ calls and correspondence

regarding inquiries about issues such as assessments. Taxpayer

correspondence is forwarded to the IRS district office nearest the taxpayer

for handling. During February 1998 through January 1999, the division

closed nearly 17,000 cases. Customer Service officials said they did not

track how many cases involved abatements.

According to division officials, the most common type of abatement results

from penalty assessments in failure-to-deposit cases. For IRS to abate this

 

2

For these types of cases, IRS abates the aggregated balance due; it does not break out the specific

types of tax, penalty, or interest assessments.

Collection Division

Customer Service Division
Appendix III

Abatement Processes at the Kansas-Missouri District Office

Page 35 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

penalty, the taxpayer must demonstrate a reasonable cause for not making

the required tax deposits by the due date. If IRS agrees that the reason is

valid, the penalty is to be abated.

The Examination Division is responsible for auditing individual and

business tax returns selected by scoring criteria that identify returns with

the greatest potential tax noncompliance. During fiscal year 1998, the

Examination Division closed almost 19,000 cases. An Examination official

said that the division has not tracked the number of cases that involved

abatements, but that the division abates few assessments. This is because

audits tend to focus on returns with potentially higher noncompliance,

which is more likely to lead to additional taxes being assessed rather than

assessed taxes being abated.

According to Examination officials, abatements come largely from claims

involving audit reconsiderations that the service center sends to the

district for review before being accepted. The Special Programs Section in

Examination works the claim and can decide to accept or audit the claim.

Audit reconsideration cases result when taxpayers ask IRS to revisit a

prior audit that assessed additional taxes. The taxpayer believes that the

taxes should not have been assessed. If the taxpayer provides support for

that belief and IRS agrees, any excess tax amount is to be abated.

The Taxpayer Advocate’s Office is to assist taxpayers through the Problem

Resolution Program (PRP) and other activities after other IRS contacts

have not resolved the taxpayer’s concerns or when taxpayers ask for help.

During a recent 6-month period, an Advocate official said that the office

worked about 230 cases but did not know the number involving

abatements because they were not separately tracked.

According to the Advocate official, the office routinely sends cases to a

group in the Customer Service Division staffed with employees from other

divisions. There, the case is to be worked by a division employee and

monitored by the Advocate’s Office to see that it is closed properly and

timely.

District officials said that most abatement decisions are made by

authorized staff in the Collection and Customer Service Divisions. Also, a

few abatements are made by staff in the Examination Division and

Taxpayer Advocate’s Office. Table III.2 summarizes the type and number

of staff that make abatement decisions in the district, according to IRS

officials.

Examination Division

Taxpayer Advocate’s Office

Staffing
Appendix III

Abatement Processes at the Kansas-Missouri District Office

Page 36 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

Staff type and grade Collection Customer ServiceaExaminationbTaxpayer Advocate Total

Revenue officer (GS-7 to GS-12) 149 c 00 0 149

Tax examiner assistant (GS-5 to GS-9) 17 0 24 0 41

Customer/taxpayer service representative (GS-5 to GS-8) 8 480 0 0 488

Customer/taxpayer service specialist (GS-6 to GS-11) 1 33 0 0 34

Revenue agent (GS-9 to GS-13) 0 0 394 0 394

Tax auditor (GS-9) 0 0 42 0 42

PRP analyst (GS-9 to GS-12) 0 0 0 9 d

9

Total 175 513 460 9 1,157 a

Excludes 8 tax law specialists who advise staff that make abatements.

b

Excludes 5 lawyers who advise staff that make abatements.

c

Includes revenue officer aides who do research for revenue officers.

d

Excludes a taxpayer advocate and 2 management assistants.

Source: IRS officials.

These staff have various duties, as discussed below.

Revenue officers work various types of delinquent accounts and

investigations in the office and field. Also, they may work on specific

programs, such as trust fund recovery penalties and lien withdrawals.

Attorneys and district counsel assist with complex issues, such as

bankruptcy. Revenue officer aides assist revenue officers by performing

courthouse research and other duties.

Customer service representatives provide service to taxpayers who have

contacted IRS via correspondence, telephone, or visits. They help prepare

returns and answer questions regarding tax law, IRS procedures, and

individual accounts.

Revenue agents and tax auditors audit various types of tax returns, such as

income tax returns.

Staff monitor cases sent to the divisions to ensure that they are resolved

promptly and appropriately.

In general, training to be given in the divisions and offices that made

abatements did not focus on abatements; rather, it focused on the range of

duties for the various types of staff. The following briefly describes the

training to be provided.

Revenue officers are to receive three phases of classroom training and onthe-job training after each phase. Afterward, they are to be assigned a

Table III.2: Staffing Levels at Kansas-Missouri by Type of Staff and Grade Level, April 1999

Collection Division

Customer Service Division

Examination Division

Taxpayer Advocate’s Office

Abatement Training

Collection Division
Appendix III

Abatement Processes at the Kansas-Missouri District Office

Page 37 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

mentor to provide additional on-the-job training. Revenue officer aides

receive no formal classroom training. All their training is on-the-job.

Employees dealing with bankruptcy cases are to receive training on

bankruptcy issues, including 1 year of on-the-job training. IRS officials said

employees handling the other types of abatements, such as offer-incompromise and trust fund recovery cases, usually come from other IRS

functions at which they have already received training to handle these

issues.

Customer service representatives are to receive three phases of tax law

classroom training and four additional phases of accounts-related

classroom training. These courses include installment agreements; credit

transfers; refund releases; tax adjustments; and penalty abatements. All

classroom training is to be supplemented with on-the-job training.

Staff making abatements in the division are to receive many hours of

classroom and on-the-job training, which varies by the type of staff. This

training mostly addresses tax law and auditing topics, such as claims and

audit reconsiderations. Revenue agents in specialty fields are to receive

special training (e.g., a 3-week excise tax course).

PRP analysts are to receive some specialized training. However, an

Advocate official explained that its office has recruited staff from other

IRS divisions that should already have been trained in collection and audit

issues that the office addresses.

At the district, except for one division, the staff making the abatement

decision is usually the same staff that enters information about the

decision into the taxpayer accounts on the computer. The exception is the

Examination Division, where the staff making the decision do not have

access for computer entry.

Two types of supervisory review can affect abatement decisions made by

staff. One occurs before the decision is made and one occurs after the

decision. Neither of these types of review focus on abatements; rather,

they cover all types of adjustments. As a result, KMDO did not have data

on the percentage of abatement decisions that were reviewed.

First, supervisors may review proposed decisions to approve them before

they are finalized. KMDO did not have similar requirements for these

reviews across the divisions. However, Collection officials told us that

their supervisors are to review all cases. Examination officials said they

Customer Service Division

Examination Division

Taxpayer Advocate’s Office

Supervisory Review
Appendix III

Abatement Processes at the Kansas-Missouri District Office

Page 38 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

have no requirement except that supervisors are responsible for the quality

of the cases closed in their groups.

Second, KMDO officials said that supervisors are supposed to review a

random sample of closed cases for each employee each month. These

reviews are generally conducted for performance evaluation, and the

requirements differ across the divisions. For example, Customer Service

officials told us that their supervisors are to review at least 25 percent of

the cases closed by each employee.

Each division is subject to reviews by a quality measurement system.

Under this system, district office reviewers are to check the quality of

work in closed cases against specific quality standards. These standards

differ for each division. The closed cases selected for review are to be

randomly drawn from all types of cases closed in a division.3

 KMDO did

not have data on how many quality reviews addressed abatement decisions

because abatement cases were not reviewed separately.

In the Collection Division, for example, a sample of nine closed cases per

branch is to be pulled for a nationally centralized review under the

Collection Quality Measurement System. Similarly, in the Customer

Service Division, Quality Assurance reviewers are required to do a closed

case review on paper transactions. The sampling plan for each review

period is developed in the National Office. At the time of our work, for

example, the Quality Assurance Office was slated to review every 107th

closed case. Examination also has closed cases reviewed under a national

quality measurement system. The Taxpayer Advocate Office’s review only

covers those relatively few cases that are not referred to and closed at

another division.

 

3

Our objectives did not include testing whether IRS used random sampling as described.

Quality Review
Appendix IV

Abatement Processes at the Northern

California District Office

Page 39 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

The Northern California District Office is located in Oakland and is

responsible for Northern California from the Oregon border to just south

of San Francisco.

The district office has six operating divisions: Collection, Customer

Service, Criminal Investigation, Research and Analysis, Examination, and

Quality Assurance. Staff in three of the divisions can make abatements

through one or more branches.1 The Taxpayer Advocate’s Office can also

make abatements, but Advocate officials said their office makes few

abatements because most of their cases are referred to the other divisions

or the service center for the actual decision.

Table IV.1 shows the divisions or offices that make abatements as well as

examples of the type of abatements made by each.

Division or office Type of abatement

Collection Division Penalties for reasonable cause for not paying tax

debts or filing required tax returns, trust fund

recovery penalties,a

 discharged bankruptcies

Customer Service Division Various penalties for reasonable cause

Examination Division Audit refunds and audit reconsideration,b category

A claims and interest claimsc

Office of Taxpayer Advocate Issues certain taxpayers have had difficulty getting

resolved, penalties for reasonable cause a

IRS makes concurrent assessments against more than one officer or shareholder of a business that

has not paid withheld employment taxes. Once the taxes are paid, the other assessments are abated.

b

Audit reconsiderations occur when taxpayers ask IRS to reconsider assessments made through past

audits.

c

Category A claims involve issues that are complex, sensitive, or prone to noncompliance.

Source: Information provided by IRS officials.

In the following, we briefly describe the types of abatements made at each

division or office. We also identify the caseload for all types of

adjustments, including abatements, to taxpayers’ accounts. None of the

divisions had data on the portion of the caseload that involved abatements.

The Collection Division is responsible for processing cases involving tax

delinquency accounts and tax delinquency investigations. In the former, a

tax liability has been assessed but not paid; in the latter, IRS is trying to

 

1

An abatement occurs when IRS reduces the assessment of tax, penalty, or interest against taxpayers

for various reasons (e.g., an incorrect assessment or taxpayer had a reasonable cause for not

complying with filing or payment requirements). An abatement may be initiated by a request from a

taxpayer, by a taxpayer in response to IRS actions, or solely by IRS. For example, a taxpayer may file

an amended return to claim changes to the original return. Factors such as the type, complexity, and

source of the abatement determine which IRS group makes the abatement

Northern California

Groups That Make

Abatements

Table IV.1: Examples of Abatements at

Northern California District Office

Collection Division
Appendix IV

Abatement Processes at the Northern California District Office

Page 40 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

obtain an unfiled tax return to determine whether a tax liability exists. The

division may abate penalties for these cases. The division receives these

cases from the service center and has field branches whose staff can make

abatement decisions. During fiscal year 1998, the division processed about

13,600 cases, but it did not track how many of them were abatements.

According to district officials, in a typical Collection Division case, a

revenue officer contacts a taxpayer who has not fully paid a tax liability.

The taxpayer requests that the failure-to-pay penalty be abated and

provides evidence of reasonable cause. The officer is to review the

information provided by the taxpayer and make a decision on whether to

abate the failure-to-pay penalty. The criteria for Collection abatements are

contained in the Internal Revenue Manual, chapter 21.2

 Evidence required

to make the abatement includes statements or documents from the

taxpayer supporting the reasonable cause claim. Information about the

abatement decision is to be maintained in case files at the service center.

Abatements in the Customer Service Division result from requests by

taxpayers to abate certain types of penalties for reasonable cause.

Customer service representatives are to collect evidence from the taxpayer

on the reasonable cause and make the abatement decision. Documentation

on these decisions is to be maintained in the case file at the service center.

Officials from Customer Service could not provide caseload data on these

or other types of case decisions for fiscal year 1998.

According to district officials, these penalty abatement cases typically

involve penalties for failure to file a required tax return on time or failure

to pay assessments on time. The criteria for Customer Service abatements

are also contained in the Internal Revenue Manual, chapter 21.

The Customer Service Division refers some abatement cases to other IRS

functions for processing. Taxpayer contacts concerning claims or

requesting audit reconsideration can be referred to the district’s

Examination Division or to the service center. Requests for abatement of

very large dollar penalties and of assessments to be paid under installment

agreements can be referred to the Collection Division for processing.

Abatements in the Examination Division originate as claim referrals from

the service centers, reconsideration of assessments from prior audits,

requests for interest reduction, and tax reductions identified during audits.

 

2

Because these criteria are considered to be sensitive information, we are not disclosing them in any

detail throughout this appendix.

Customer Service Division

Examination Division
Appendix IV

Abatement Processes at the Northern California District Office

Page 41 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

Examination staff also are to process abatements referred to them from

the district’s taxpayer advocate. The Examination Division might refer

cases to other divisions or IRS offices either because the taxpayer moved

or because the taxpayer has a representative who lives elsewhere. During

fiscal year 1998, the division closed about 44,200 cases, but the percentage

that involved abatements was not tracked.

According to district officials, a typical Examination abatement case is one

in which the taxpayer requests that the findings of a prior audit be

reconsidered. Examination staff are to review the issues and make a

decision on whether to abate the amount being questioned. Abatements

are also considered to be common for category A claims, which are usually

referred from the service center and consist of claims and amended

returns that are sensitive, prone to noncompliance, or more complex than

other claims.

The criteria for Examination abatements are contained in the Internal

Revenue Manual, chapter 21. Evidence required for Examination

abatements typically includes information from audit files, tax returns, or

other documentation provided by the taxpayer that is to be maintained in

the case file.

The Taxpayer Advocate’s Office is responsible for helping taxpayers

resolve tax-related problems. The office should receive cases that meet

certain criteria, such as repetitive IRS contacts over a short time period or

taxpayer problems that have not been resolved through regular channels

for a long period of time.

Advocate officials told us that they refer most cases to divisions, service

centers, and other districts. For example, cases might be referred to the

Examination and Collection Divisions, which have caseworkers to handle

these cases. Primarily for geographic reasons, some cases are referred to

other districts—that is, to move the case closer to where the taxpayer is

located and the actions are being taken.

Generally, the workload does not vary much throughout the year and

consists primarily of processing taxpayer requests for reduction or

elimination of penalties. This workload totaled about 4,000 cases in fiscal

year 1998, but the percentage that involved abatements was not tracked.

Advocate officials said their office makes the final decision on a small

number of abatements.

Taxpayer Advocate’s Office
Appendix IV

Abatement Processes at the Northern California District Office

Page 42 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

According to Advocate officials, a typical case would involve abating a

failure-to-file penalty when a taxpayer had reasonable cause for not filing

by the required due date. A taxpayer may initiate this action by providing

information on why the penalty should be abated (e.g., taxpayer was

hospitalized). The criteria for abatements are in the Internal Revenue

Manual, chapter 21. Evidence required to make the abatement includes

statements from the taxpayer on the reasonable cause claim. This evidence

is to be kept in the case file.

According to IRS officials, district office staffing does not vary much

seasonally because the workload remains fairly constant. Table IV.2

summarizes the type and level of staff that make abatement decisions in

the district, according to IRS officials.

Staff type and gradeaCollection Customer Service Examination Taxpayer Advocate Total

Revenue officer (GS-7 to GS-12) 227 0 0 0 227

Tax examiner assistant (GS-5 to GS-9) 20 8 0 2 30

Customer service representative (G-5 to GS-9) 0 213 0 0 213

Revenue agent (GS-9 to GS-13) 0 0 411 0 411

Tax auditor (GS-9 to GS-12) 0 0 108 0 108

PRP specialist (GS-11) 0 00 5 5

Total 247 221 519 7 994 a

Staff at the highest grade levels usually fill supervisory positions.

Source: IRS officials.

In general, training to be given in the divisions and offices that made

abatements did not focus on abatements. Rather, the training focused on

the range of duties for the various types of staff. The following briefly

describes the training to be provided.

Training targeted at abatements is limited. According to district officials,

the only training directed at abatements was a class on processing Form

3870, Request for Adjustment. Otherwise, the staff making abatement

decisions are to receive training in three phases, consisting of over 300

classroom hours. This training is to cover the collection process, including

abatements, adjustments, forms, and reasonable cause for abatements.

Other training is to be provided on-the-job.

Staff making abatements in the division are to receive the basic training

module, which includes case processing, telephone routing, customer

service core skills, disclosure policies, and telephone training. Other

training modules provide more specialized and advanced courses, such as

computing and adjusting penalties and determining penalty relief.

Staffing

Table IV.2: Staffing Levels by Type of Staff and Grade Level, May 1999

Abatement Training

Collection Division

Customer Service Division
Appendix IV

Abatement Processes at the Northern California District Office

Page 43 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

Staff making abatements are to receive classroom and on-the-job training.

This training mostly addresses the tax law and auditing. None of the

training focused on abatements. As of April 1999, the staff had not yet been

trained on the new process for audit reconsideration in which the requests

for reconsideration are to be submitted directly to the service center and

subsequently referred to Examination for action.

Staff working the cases are to receive classroom training. Initially, they are

to receive 16 hours of PRP caseworker training and on-the-job training for

making adjustments on the computer system. The PRP caseworkertraining course was being updated, and additional classroom training for

PRP specialists and analysts is to be added.

Staff that make abatement decisions usually are not the same staff that

enter information about decisions into taxpayers’ computerized accounts.

According to district officials, this improves internal control. Exceptions

are the Taxpayer Advocate’s Office and Customer Service Division, where

the same individual makes the decision and enters the information.

Two types of supervisory review can affect abatement decisions made by

staff. One occurs before the decision is made and one occurs after the

decision. Regardless of the type of review, district officials did not collect

data on either the number of reviews done by supervisors or the

percentage of abatement decisions that were reviewed.

First, supervisors may review decisions before they are made for purposes

of approval. The requirements for such a review differed according to

various division officials. For example, supervisors in the Taxpayer

Advocate’s Office and Collection Division are to review all requests for

abatement and those in Customer Service are to review large-dollar

abatements. The other divisions did not require supervisors to review and

approve abatement decisions before they became final.

Second, district officials said that supervisors are to review a random

sample of closed cases for each employee each month. These reviews are

generally conducted for performance evaluation, and the requirements

differ across the district. Following is a summary of supervisory review

requirements for each division and office.

According to district officials, supervisors’ reviews are to be conducted

using the Collection Management Information System. Supervisors are to

look for appropriate documentation and data. IRS does not maintain data

on the number or percent of cases reviewed.

Examination Division

Taxpayer Advocate’s Office

Supervisory Review

Collection Division
Appendix IV

Abatement Processes at the Northern California District Office

Page 44 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

District officials said that supervisors are to review five closed cases each

month for each employee to evaluate performance for the critical elements

in the job description. Supervisors also are to make additional random

reviews to ensure quality.

According to district officials, supervisors are to review a sample of closed

cases for employee evaluations. The division has no specific criteria for

the number of cases to be reviewed. Supervisors may choose to review a

higher or lower number of closed cases depending on the auditor’s skill

level and experience and the supervisor’s workload.

District officials told us that supervisors are to review all staff decisions.

Reviews are to be used for both quality control and staff evaluations.

Reviewers at the district office review closed cases in the divisions to

check the quality of the work against specific quality standards. These

standards differed for each division, but in general, the standards focused

on communication, timeliness, and accuracy.

District officials said that the cases selected for review are to be randomly

drawn from all types of cases closed in a division.3

 Because abatement

cases are not reviewed separately, district officials did not have data on

how many quality reviews addressed abatement decisions.

Specifically, district officials provided the following information about the

review of closed cases in each division or office by independent reviewers.

• The Quality Assurance Division reviews a monthly sample of closed cases

from the Taxpayer Advocate’s Office. According to district officials,

Quality Assurance reviews 16 cases plus 100 percent of the cases initiated

from IRS’ periodic problem solving days.

• The Collection Division reviewed between 5 and 10 percent of the closed

cases—about 1,300 reviewed cases in fiscal year 1998—as part of the

Collection Quality Measurement System.

• The Customer Service Division’s Automated Compliance Section reviewed

439 cases during fiscal year 1998.

• Examination Division cases underwent Quality Assurance review against

the Examination Quality Standards. In fiscal year 1998, 506 closed audit

cases were reviewed as part of this Examination Quality Measurement

System.

 

3

Our objectives did not include testing whether IRS used random sampling as described.

Customer Service Division

Examination Division

Taxpayer Advocate’s Office

Quality Review
Appendix V

GAO Contacts and Staff Acknowledgments

Page 45 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations

Tom Short (202) 512-9110

Royce Baker (913) 384-3222

In addition to those named above, Lawrence Dandridge, Rodney Hobbs,

Stephen Pruitt, Louis Roberts, Elizabeth Scullin, and Kathleen Seymour

made key contributions to this report.

GAO Contacts

Acknowledgments
Page 46 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations
Page 47 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations
Page 48 GAO/GGD-99-98 IRS’ Abatement Process in Selected Locations
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