Tax Administration: The Internal Revenue Service Can Improve Its Management of Paper Case Files
Published: 2007-09-28T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Proper paper case file management is a significant issue for the Internal Revenue Service (IRS) because its staff investigate and close millions of case files every year. In addition, IRS employees depend heavily on case files when pursuing enforcement actions. GAO was asked to review IRS's case file storage, tracking, and documentation processes to determine whether IRS has (1) an effective process to ensure that paper case files can be located timely and (2) sufficient data to assess the performance of its paper case file processes. To review these processes, GAO interviewed staff who request case files and case file managers.
section_title: What GAO Found
paragraphs: IRS does not have an effective process to ensure that paper case files can be located within the requesters' time frames. Missing case files can result in lost revenue, create unnecessary taxpayer burden, and make case files unavailable for other units such as quality review groups or advisory groups. IRS has acknowledged its historic difficulties in locating and retrieving case files. When IRS cannot locate paper case files, it may attempt to re-create them by requesting information from taxpayers, which can result in unnecessary taxpayer burden. Difficulties in locating case files can also hinder congressional oversight. When GAO requested case files in two prior audits, IRS could not locate all of the case files requested. IRS does not have sufficient data to assess the performance of its paper case file management processes. Having such data would enable IRS to assess whether its case management processes are in accordance with FRA and internal control standards. IRS does not track whether all of the case files it requests are located or received timely, or the reasons why case files cannot be located. If IRS developed this type of data, officials could use this data to identify problems in existing programs, to try to identify the causes of problems, and/or to develop corrective actions. Records management officials have recently instituted some performance measures, but these measures do not specifically address paper case files. IRS program managers also have not developed performance measures or data to determine how well paper case files are managed to achieve performance targets. Program managers do not know who has overall responsibility for case file management so performance information cannot be developed across IRS's compliance programs. GAO identified some potential improvements that IRS can consider, but IRS will need to determine which improvements are the most cost effective.

section_title: Letter
paragraphs: Under the Federal Records Act (FRA) of 1950, the Internal Revenue  Service (IRS) is required to maintain an active, continuing program for the  economical and efficient management of the records of the agency. The  program should provide for effective controls over the creation,  maintenance, and use of records in the conduct of current business,  including case files. In addition, in accordance with internal control  standards, IRS case files should be readily available for examination and  properly managed and maintained to ensure that management’s directives  are carried out. Proper case file management is a particularly significant  issue for IRS because its staff investigate and close millions of case files  every year. In addition, IRS case files contain sensitive taxpayer  information that, by law, must be properly protected from inadvertent  disclosure. Moreover, according to collection managers, IRS employees  depend heavily on case files when pursuing enforcement actions, such as  litigating court cases. Paper case files are also important for internal IRS  reviews, such as those performed by its research and quality review  groups.
Based on your request, we reviewed IRS’s case file storage, tracking, and  documentation processes to determine whether (1) IRS has an effective  process to ensure that paper case files can be located timely and (2) IRS  has sufficient data to assess the performance of its paper case file  processes. To make determinations in both areas, we interviewed officials  from the following IRS entities or programs: the Office of Agency-Wide  Shared Services (AWSS), the Small Business/Self-Employed Division  (SB/SE), the Wage and Investment Division (W&I), the Office of Appeals,  the Automated Collection System (ACS), and the National Research  Program (NRP). We did not interview officials from the Large and Mid-Size  Business Division (LMSB) or the Tax-Exempt and Government Entities  Division (TE/GE) since only a very small percentage of Appeals’ cases that  are docketed for Tax Court where paper case files are very important  originate from these divisions according to Appeals officials. We also  reviewed IRS’s policies and procedures. To determine whether IRS has an  effective process to ensure that paper case files can be located timely, we  compared IRS’s process to the requirements of the FRA and our standards  for internal control in the federal government. Further, we interviewed  officials from other organizations to identify key practices in managing  case files. These organizations included the Department of Education, the  Department of Veterans Affairs, the Social Security Administration, and  the California Franchise Tax Board. We conducted our work from August  2006 through July 2007 in accordance with generally accepted government  auditing standards. Detailed information on our scope and methodology  appears in appendix I.
subsections: section_title: Background
paragraphs: In keeping with the FRA, IRS established a Records Management Program.  The program provides for the application of management practices in the  creation, maintenance, retrieval, preservation, and disposition of records.  Although the mission of the Records Management Program is to  document, protect, and efficiently manage all IRS records until final  disposition, actual day-to-day management of case files is left to each IRS  program. According to an IRS official, program managers establish  policies and procedures for the management of paper and electronic case  files and have overall responsibility for case file management in their  program. In addition, each program develops its own policies and  procedures, which are documented in IRS’s Internal Revenue Manual  (IRM).
Case files can be paper, automated, or a combination of both. For  example, when IRS examines a tax return, the documents completed by  the examiner can be automated (electronically maintained within their  system) or paper (placed in physical case files). Case files may include  income tax returns, audits, investigations, or claims. According to W&I and  SB/SE officials, in fiscal year 2006 they closed over 13 million and 9 million  cases, respectively. When cases are closed, IRS units perform managerial  and quality reviews to ensure cases were handled correctly and the case  files are complete and meet their quality standards. For example, in fiscal  year 2006, the SB/SE field collection quality review group found that over  96 percent of the case files they reviewed were complete.
Paper case files can be stored in the files area of Submission Processing  Center (SPC) campuses or field offices which are spread throughout the  country. These case files are then transferred to Federal Records Centers  (FRC) by filing coordinators located at the SPC or by information  resource coordinators in the field. Once the specified retention period has  expired at the FRC, the case files are destroyed. The locations of  Submission Processing Centers, Area Records Managers, and Federal  Records Centers are illustrated in figure 1.
According to an IRS official, the agency is in the process of automating  some of its paper case files. IRS is developing scanning capability to  convert documents from paper to electronic. However, this official stated  that IRS is initially developing this scanning capability for its campuses  and not its field offices. Furthermore, the agency does not have a plan or  time frame for when all of its case files will be automated. As a result, IRS  will be relying on paper case files for some years.
section_title: IRS Does Not Have an Effective Process to Ensure That Paper Case Files Can Be Located Timely
paragraphs: Case files should be readily available for examination. However, IRS does  not know whether it locates all of the paper case files it requests. In the  absence of data on IRS’s success in retrieving paper case files, several  sources of anecdotal information give some indication of the potential  extent of problems in locating case files. Missing case files can result in  lost revenue, create unnecessary taxpayer burden, make cases unavailable  for other units such as quality review groups or advisory groups, and  hinder congressional oversight.
subsections: section_title: IRS Has Lost Revenue in Court Proceedings
paragraphs: Paper case files are crucial for cases scheduled for Tax Court or District  Court. Without complete case files, IRS can lose those cases. For example,  advisory staff informed us of several instances where IRS lost revenue in  District Court cases because a case file could not be located. In one case,  IRS obtained approval to file a nominee lien against a taxpayer because  the taxpayer had transferred an asset to another person. IRS pursued  collection action, but the taxpayer challenged IRS in District Court  asserting that IRS needed to prove that the taxpayer had use and control  of the asset that was transferred. IRS was unable to locate the case file for  the trial. As a result, IRS lost about $45,000. In another case, a taxpayer  commingled individual assets with corporate assets. IRS levied the funds  in the bank account of an individual who controlled the corporation to pay  the tax debt owed by the corporation. IRS collected the money owed, but  the taxpayer filed a claim that IRS needed to prove the money in the  individual account belonged to the corporation. IRS had this information  in the case file, but could not locate it. Therefore, IRS had to return the  levied money, which amounted to about $40,000.
IRS has acknowledged its historic difficulties in locating and retrieving  case files. In September 2006, the Tax Court proposed a requirement that  IRS file answers in all small tax cases ($50,000 or less). An answer  includes admissions, qualifications, and denials by IRS of each material  fact alleged in the Tax Court petition filed by the taxpayer. In preparation  of the answer, IRS generally examines and relies on the information in the  case file. When IRS responded to this tax court proposal, IRS stated that  due to difficulties in locating and retrieving case files, the requirement to  answer all small tax case petitions may lead to a number of motions to  extend time in which to answer.
Appeals informed us that they are having difficulty obtaining case files that  are docketed for Tax Court, and they are working with the Business Units  to try and determine the cause. For example, W&I recently made a  commitment to send docketed case files to Appeals within 25 days. To  assess W&I’s performance, W&I requested Appeals to provide them with a  report so they could track their progress. Appeals developed a report  which showed that out of about 900 docketed cases from W&I campuses,  Appeals had been waiting over 25 days for 420, or 46 percent, of the case  files. If Appeals cannot obtain a case file prior to the scheduled court date,  IRS could lose the case and any revenue owed by the taxpayer.
section_title: IRS Incurs Cost and Some Taxpayers May Experience Unnecessary Taxpayer Burden to Re-create Case Files
paragraphs: When IRS staff request paper case files, several attempts may be made to  locate them. For example, if a request is input into the Integrated Data  Retrieval System (IDRS) and the case file is not located, another request  may be input into IDRS. IRS may also perform special searches when  normal searches are unsuccessful. When the paper case files still cannot  be located, IRS may attempt to re-create them. This creates an additional  cost and burden to IRS, which must use its scarce resources to perform  special searches and re-create case files. To re-create case files, IRS  obtains what information it can from its own systems. If IRS needs  additional information from the taxpayer, IRS may contact the taxpayer  and request this information. This process can result in unnecessary  taxpayer burden.
section_title: Case Files May Be Unavailable for Other Units
paragraphs: Some paper case files should be sent from field offices to campus file  areas within a specified number of days after the case is closed. However,  campus staff said they have had difficulty receiving the case files in the  time specified. If case files are not sent to storage areas promptly, these  case files may not be available for other units, such as quality review  groups or advisory groups in performing their tasks.
In Collection Field Offices, some types of case files should be sent to the  Centralized Case Processing (CCP) Unit as soon as they are closed so that  quality review samples can be readily available for selection. CCP has 21  days to obtain the closed case files for review. In a report provided by  quality review staff, for the first quarter of fiscal year 2007, CCP was able  to obtain only 45 percent of the cases requested for review within the 21- day period. Since collection realizes that CCP will not be able to obtain all  of the case files requested, the number of case files requested is double the  number needed to allow for cases that cannot be located.
According to Collection officials in one field office, there are several  reasons case files are not sent to CCP in a timely manner. For example, for  Revenue Officers, sending a case file to CCP is not a top priority,  especially when their other priorities include active aged cases. Aged  cases take priority because the older the case is, the less likely IRS is to  recover the amounts owed. In addition, some Revenue Officers are  reluctant to let their cases leave their office. We were also informed by  these officials that the number of support staff who assist in sending the  case files to CCP has been reduced, and in one instance case files were  found in a secretary’s desk drawer.
section_title: Congressional Oversight May Be Hindered
paragraphs: In two recent GAO audits, we asked IRS to pull random samples of paper  case files, but IRS was unable to locate all of the case files requested. The  portion of case files IRS could not locate ranged from about 10 to 14  percent. For example, in one audit, we requested examination case files  from NRP, but IRS was unable to locate about 10 percent of the case files  requested. NRP staff were notified that 61 of the case files we requested  had been sent to them, but NRP officials said they never received these  case files. In a second audit, we requested Collection Due Process (CDP)  case files where the collection action had been appealed. IRS was unable  to locate about 14 percent of these case files. According to IRS staff that  assisted us with these requests, they had made several requests to obtain  these case files, but IRS was still unable to locate them.
TIGTA has also requested random samples of paper case files in some of  its reviews where IRS was unable to provide all of the case files requested.  In one TIGTA review, TIGTA was to determine whether IRS had an  adequate system to ensure tax records could be located and received  timely. According to TIGTA, these records included the following types of  case files: individual and business examination cases, Earned Income Tax  Credit adjustments, and Trust Fund Recovery Penalty (TFRP) cases. IRS  was unable to provide about 19 percent of the case files requested by  TIGTA. In the review, TIGTA recommended that IRS:    Ensure the quality and timeliness of the IRS Records Management  Program by developing a method to track specific requests for tax  records that will assign accountability, respond to customer problems,  and provide management information for the program. According to  IRS, it is in the process of modifying IDRS by adding a tracking feature,  which will allow IRS to better track requests and provide improved  service to requesters. IRS anticipates these modifications will be  completed by January 2008.
Update procedures to include instructions for requesting workpapers  for TFRP assessments, including guidance for determining to which  local field office a request should be sent. According to IRS, it has  finalized procedures that address the retrieval of workpapers for TFRP  assessments. In addition, IRS has developed online training for  Information Resource Coordinators (IRC) and interactive records  management process guides that are available to all IRS employees.
Ensure the quality and timeliness of the IRS Records Management  Program by developing a method to track specific requests for  workpapers for TFRP assessments that will assign accountability,  respond to customer problems, and provide management information  for the program. According to IRS, it modified the Automated Trust  Fund Recovery System to provide a standardized procedure for  locating, retrieving, and controlling TFRP workpapers.
In another TIGTA review, TIGTA was to determine whether IRS complied  with the legal guidelines and procedures for the filing of a notice of lien or  a notice of intent to levy and the right of the taxpayer to appeal. However,  TIGTA could not determine whether IRS complied with legal guidelines  and required procedures because about 8 percent of the case files  requested could not be located.
section_title: Lacking Data, IRS Cannot Assess Case Management Performance and Develop Plans for Improvement
paragraphs: IRS has not developed the data needed to measure the performance of its  case file processes, such as whether all of the paper case files it requests  are located or received timely. Developing such data can assist IRS in  determining how well it is complying with FRA and internal control  requirements, where the process may be breaking down, and what process  improvements to make.
subsections: section_title: IRS Does Not Track Whether Case Files Are Located or Received Timely
paragraphs: IRS staff request paper case files from IRS campuses and field offices and  from FRCs. According to an IRS official, the manner in which case files are  requested varies in each program. A filing coordinator told us that when a  paper case file such as an examination case file with a Document Locator  Number (DLN) has been closed and sent to the files area of a campus for  storage and is later requested, the requester enters information about the  case file such as the DLN into IDRS. This generates a form which the files  area receives and uses to locate the case file. The coordinator also said  that when the files area receives the form, files staff will either search for  the case file in the files area or request it from the FRC if it has been sent  for long-term storage.
In contrast, we were told by an Area Records Manager (ARM), when a  paper case file such as a collection case file that does not contain a DLN  has been closed and sent directly to the FRC is later requested, a form is  sent to the ARM which includes the FRC accession number, box number,  and location of the case file which is needed by the FRC to locate the  record. According to AWSS and W&I officials, regardless of the method  used to request the case file, IRS does not track data on whether all of the  case files it requests are located or how long it takes to retrieve them.  Furthermore, these officials added that IRS does not track the reasons  case files cannot be located. When case files are requested by IRS staff,  errors can occur in the process of requesting, locating, and sending case  files as suggested by IRS officials in figure 2.
Although campuses use forms that identify some reasons case files cannot  be located, campuses do not track these reasons according to an IRS  official. IRS has hired contractors to take over the responsibility of the  files areas. Contractors are performing files activities at two campuses and  will take over responsibility for the remaining five campuses between  August and October 2007. The contractors are required to adhere to a  Performance Work Statement (PWS) which lists the contractor’s duties, as  well as IRM policies and procedures that are specified in the PWS.  However, neither the PWS nor the IRM require that staff track the reasons  paper case files cannot be located. Therefore, the contractors are not  performing these tasks.
In the three previously mentioned GAO audits, we asked IRS staff who  requested our case files why the case files could not be located. IRS staff  said they requested the case files from many campuses. However, there  was no one in charge of the requests to track the progress of our file  requests and provide specific reasons why the case files could not be  located. For example, the ARMs act as liaisons with the FRCs and IRS  Business Units and can assist staff in tracking and locating case files from  the FRC. However, some staff who requested our case files did not request  assistance from their ARM either because the ARM did not handle the case  files sent to the FRC and left that up to the campus coordinators, or the  staff who requested the case files said they were not aware they had  ARMs. In addition, campus coordinators can assist in tracking and locating  case files. However, one campus coordinator told us that many IRS staff  may not know who their campus coordinators are.
As mentioned previously, IRS staff told us that no one was in charge of our  case file requests to provide information on the reasons the case files  could not be located. This lack of clear responsibility differs from the way  IRS manages document requests during our annual audit of IRS’s financial  statements. According to an IRS official, IRS uses many designated  coordinators and holds meetings to ensure that documents requested for  the financial statement audit are received. If IRS had established clearer  responsibility for coordinating and tracking our case file requests, such as  it did to manage document requests during our financial statement audit, it  might have located more of the case files we requested.
IRS staff told us that when case files cannot be located, either the files  area or FRC should annotate the request form to show the reason the case  could not be located. In our Appeals audit, an Appeals official said the  person who had requested the case files had retired so they could not  provide a reason why the case files could not be located. For the other two  audits, IRS did not always provide the reasons the case files could not be  located. In some of our cases IRS staff said:    No form was provided to identify why the case file could not be  located.
A form was provided but it was not annotated as to why the case file  could not be located.
An IDRS Transaction Record was received which does not include  reasons why files are not found.
According to a files coordinator, when an examination of a tax return is  performed and an assessment is made, an IDRS Transaction Record is  generated, which is a printout of the transaction. The files area should  receive the transaction record, associate it with the case file, and then file  them together in the files area according to their DLN. However, if the  case file is not received, the Transaction Record is placed in the file by  itself with no indication that the case file was not received. Therefore,  when the files area later tries to fill a request for that case file, the files  area does not know why the case file is not there. The case file may not be  there because it was not received or was misfiled. If documentation were  placed with the Transaction Record indicating the case file was not  received, the files area could provide that information to the requester.
TIGTA experienced similar problems during one of its reviews mentioned  previously. TIGTA requested a statistical sample of tax records which  included about 1,000 case files, of which about 190 were not provided. In  64 percent of the cases that were not provided, IRS did not provide a form  to identify why the case file could not be located. In 5 percent of the cases,  IRS provided an incomplete response. In 26 percent of the cases, the case  files were not found because the information in the request did not match  the information in the files area of the campus or at the FRC. In 5 percent  of the cases, IRS provided the wrong case file.
section_title: Performance Information Could Assist IRS in Determining How Well Its Case File Management Process Complies with FRA and Internal Control Requirements
paragraphs: IRS could use performance information to assess whether its agencywide  case file management meets FRA and internal control standards requiring  an economic and efficient management of records and that files be readily  available for examination. Managers can use performance information to  identify problems in existing programs, to try to identify the causes of  problems, and/or to develop corrective actions.
An important part of establishing performance measures is to identify  which programs are to be measured (e.g., determining which IRS  programs create a significant number of paper case files since some  programs primarily create automated case files) and which aspects of  program performance are the most important to measure (e.g., tracking  the reasons paper case files cannot be located). Data collected for  performance measures should be complete, accurate, and consistent  enough to document performance and support decision making.
The offices that have responsibility for making programs work should be  responsible for developing performance measures. A clear connection  between performance measures and program offices helps to both  reinforce accountability and ensure that, in their day-to-day activities,  managers keep in mind the outcomes their organization is striving to  achieve.
According to an AWSS official, AWSS has overall responsibility for the  Records Management Program, but its focus is on record retention and  coordination with FRCs, while case file management is left to the program  managers. AWSS has developed some performance measures which have  been recently instituted, such as cycle time and the number of records that  could not be located at the FRC. However, AWSS is unable to separately  track paper case file results.
According to the same official, program managers have day-to-day  responsibility for case file management within their programs. However,  program managers such as those in W&I have said they have not  developed performance information to measure how well the programs  are managing their case files. When we asked program managers who had  overall responsibility for case file management across IRS’s compliance  programs, the program managers said they did not know. Without overall  responsibility for case file management being clearly defined, IRS may not  be able to develop performance information across all of its programs to  determine how well paper case files are managed to achieve performance  targets and whether its case file management processes are in accordance  with FRA and internal control standards.
section_title: IRS Cannot Determine Whether Actions for Improvement Are Needed
paragraphs: IRS has options available that may improve the management of case files.  However, IRS does not have data to determine which of the improvements  are the most cost effective for IRS. Improving case file management may  result in additional costs to IRS once the agency determines which actions  to take. Improvements may also result in cost savings by reducing the  amount of resources used to locate case files when multiple requests are  made or case files need to be re-created.
Improvements to case file management could include additional training  and guidance. For example, IRS could provide training to IRS staff on  providing the correct DLN when requesting paper case files. In addition,  IRS could provide additional guidance to files coordinators on managing  case files as contractors take over responsibility for the campus file areas.
Another option for IRS could be to expand one of its closed case file  tracking systems to track more case files and more complete information  about their location. IRS managers have said that the agency does not have  one centralized system to track paper case files. Instead, IRS uses many  systems in its enforcement process to track open case files. However,  these systems generally do not contain information on the location of case  files at the FRC once they are sent there. Instead, this information is  maintained manually throughout IRS. This can make it difficult to quickly  locate files. For example, according to an IRS official, when Revenue  Agents need a case file from outside their office, they have to determine  the state and office the case was worked in and the year it was closed.  Once they have identified this information, they have to go through that  office to locate the FRC paperwork including the accession number, box  number, and location. This information is needed to request the case file  from the FRC. IRS does not know whether staff, such as Revenue Agents,  are having difficulty obtaining paper case files when they use this process  to locate them.
To automate the location of paper case files sent to the FRC, SB/SE  Collection officials said they enter FRC information along with other case  information into its Junior system. Junior has been designed as a case  processing, closed files inventory tracking system for cases that are being  sent to the FRC. While IRS officials told us this system has improved IRS’s  ability to locate paper case files, they provided no data to support this  conclusion. In addition, the Junior system is only used by SB/SE Collection  for specific types of cases (taxpayer delinquency investigations, taxpayer  delinquency accounts, and installment agreements). However, an AWSS  official suggested that use of Junior by other programs and operating  divisions could improve locating closed paper case files.
Using other technologies is another option IRS could consider to assist it  in capturing real-time information on the location of paper case files. For  example, field and headquarters officials from the Department of Veterans  Affairs (VA) provided the following description of how it uses barcoding to  track its benefit folders through its Control of Veterans Records System  (COVERS). The Veterans Benefits Administration tracks its benefit folders  by placing a barcode on each folder. Employees in the benefit office use a  barcode scanner and printer. As the folders are moved, they are scanned  and the location is automatically changed in VA’s record tracking system.  VA’s tracking system includes information on the claim number, veteran’s  name, and the current and previous locations of the case. The system not  only tracks the location of benefit folders; it also assists in the  management of these folders throughout the claims processing cycle. For  example, reports can be run, such as aging reports which show how long a  VA staff member has had a case. The VA officials also described the  following benefits realized in barcoding benefit folders although they have  no data to support this conclusion. Benefits of barcoding include the  ability to scan the location of a benefit folder into their tracking system  instead of entering it manually, which saves time and provides improved  folder tracking accuracy. COVERS has also improved the files  management activity in two additional ways: first, folder retirement was  transformed from the previous manual IBM card-based process to the  current automated process; second, the sequence checking of files in  cabinets has been expedited while improving accuracy.
An IRS Appeals official told us that Business Units receive listings of cases  docketed for Tax Court and it is their responsibility to review the listings  and send any docketed cases directly to Appeals. If the Business Units do  not send the case files to Appeals and send them to storage areas instead  (e.g., Files Area), this can result in long delays in receiving case files and  potential Tax Court losses. According to Appeals officials, Appeals and  W&I are tracking the number of days Appeals is waiting for docketed  cases. This is a good first step in tracking whether case files are received  timely. However, an IRS official said that IRS overall does not track the  timeliness of case file receipt. Therefore, IRS lacks information that would  be useful in determining whether implementing a barcoding system to  capture real-time information on the location of case files would be  beneficial.
section_title: Conclusions
paragraphs: IRS does not have an effective process to ensure that paper case files can  be located and made readily available for examination. Further, IRS has  acknowledged its historic difficulties in locating and retrieving case files.  IRS has lost revenue when it could not locate cases for District Court. IRS  also could not provide a significant percentage of the cases requested in  GAO and TIGTA audits. Failure to locate case files can create unnecessary  taxpayer burden and make case files unavailable for other units in  performing their tasks.
IRS has not developed performance measures or the data needed to  measure the performance of its case file processes, such as whether all of  the paper case files it requests are located or received timely. Instituting  and monitoring performance measures across all of IRS’s compliance  programs could assist the agency in (1) determining how well IRS is  complying with FRA and internal control requirements, (2) identifying  problems and the causes in existing programs, and/or (3) developing  corrective actions. To improve IRS’s paper case file processes, the agency  may incur additional costs once the agency determines which  improvements it will make. However, the agency may also realize cost  savings by reducing the amount of resources used to locate case files  when multiple requests are made or case files need to be re-created.  Developing performance measures may take IRS some time. However, IRS  has some opportunities to improve case file management that can be  performed more expeditiously, such as improving the coordination of  large samples of case files, providing information to staff on who to  contact when case files cannot be located, and ensuring case files are sent  to storage areas as soon as they are closed.
section_title: Recommendations for Executive Action
paragraphs: We are making recommendations to the Acting Commissioner of Internal  Revenue to ensure that paper case files are readily available for  examination. Specifically, we recommend that the Acting Commissioner:    Ensure that case files are managed in accordance with FRA and  internal control standards, including:  tracking the number of paper case files that cannot be located or  are received untimely and the reasons why and    developing performance measures to monitor the effectiveness of  the paper case file process to assist in determining which options  for improving paper case file management are the most beneficial  for IRS.
Ensure that case file performance is monitored across IRS’s  compliance programs by clearly defining responsibility for doing so.
Establish clearer responsibility for coordinating large samples of case  files to provide specific reasons why case files cannot be located.
Reiterate to staff who the campus coordinators and Area Records  Managers are for requesting paper case files.
Ensure that paper case files are sent to storage areas as soon as the  cases are closed; include with the IDRS Transaction Record  documentation that indicates whether a case file was sent to storage;  and track the number and location of paper case files that have not  been sent to storage.
section_title: Agency Comments
paragraphs: The Acting Commissioner of Internal Revenue provided written comments  on a draft of this report in a September 18, 2007, letter, which is reprinted  in appendix II. The Acting Commissioner agreed that staff often need  paper case files to fulfill mission-critical requirements and that the failure  to locate specific case files can affect tax administration and customer  service.
The Acting Commissioner agreed that IRS needs to review its Records  Management Program. However, instead of commenting on our specific  recommendations, the Acting Commissioner stated that IRS will form a  cross-functional working group to review the Records Management  Program and develop corrective action, taking into account our  recommendations. The Acting Commissioner also described some  systemic enhancements undertaken by W&I to facilitate requests for tax  returns and associated records.
IRS’s planned review and development of corrective actions is responsive  to our recommendations, and we look forward to its consideration of our  recommendations in this review as well as to the benefits to taxpayers and  IRS of a more effective program.
As agreed with your offices, unless you publicly announce its contents  earlier, we plan no further distribution of this report until 30 days from its  date. At that time, we will send copies of this report to appropriate  congressional committees and the Acting Commissioner of Internal  Revenue. We also will make copies available to others upon request. In  addition, the report will be available at no charge on the GAO Web site at  http://www.gao.gov.
If you or your staff have any questions concerning this report, please  contact me at (202) 512-9110 or at brostekm@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made major contributions to  this report are listed in appendix III.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: The objectives of this assignment were to review the Internal Revenue  Service’s (IRS) case file storage, tracking, and documentation process to  determine whether IRS has (1) an effective process to ensure that paper  case files can be located timely and (2) sufficient data to assess the  performance of its paper case file processes.
To make determinations in both areas, we interviewed over 50 program  executives, managers, and staff from the Office of Agency-Wide Shared  Services, the Small Business/Self-Employed Division, the Wage and  Investment Division, the Office of Appeals, the Automated Collection  System (ACS), and the National Research Program (NRP) to gain an  understanding of the case file storage, tracking, and documentation  process. We also visited one campus and one field office to gain an  understanding of the processes they use to store, track, and document  case files. We observed and inquired into the internal controls used by IRS  in these processes. We did not interview officials from the Large and Mid- Size Business Division or the Tax-Exempt and Government Entities  Division since only a very small percentage of Appeals’ cases that are  docketed for Tax Court where paper case files are very important  originate from these divisions. We also reviewed IRS’s policies and  procedures.
To determine whether IRS has an effective process to ensure that paper  case files can be located timely, we compared IRS’s process to the  requirements of the Federal Records Act and our standards for internal  control in the federal government. We interviewed officials from Appeals,  ACS, and NRP to identify the reasons IRS was unable to locate all of the  case files we requested. We also spoke to Treasury Inspector General for  Tax Administration (TIGTA) officials and reviewed prior TIGTA reports to  determine whether IRS was able to provide all case files requested by  TIGTA. Further, we interviewed officials from other organizations to  identify key practices in managing case files. These organizations included  the Department of Education, the Department of Veterans Affairs, the  Social Security Administration, and the California Franchise Tax Board.
We conducted our work in Washington, D.C., and one campus and field  office from August 2006 through July 2007 in accordance with generally  accepted government auditing standards.
section_title: Appendix II: Comments from the Internal Revenue Service
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: In addition to the contact person named above, Jonda Van Pelt, Assistant  Director; Carl Barden; Wilfred Holloway; Laurie King; Donna Miller; Cheryl  Peterson; and Sam Scrutchins made key contributions to this report.