IRS is responsible for administering our nation’s voluntary tax system in a fair and equitable manner. To do so, IRS has roughly 100,000 employees, many of whom interact directly with taxpayers. In fiscal year 1994, IRS processed over 200 million tax returns, issued about 86 million tax refunds, handled about 39 million calls for tax assistance, conducted about 1.4 million tax audits, and issued about 19 million collection notices for delinquent taxes. These activities resulted in millions of telephone and personal contacts with taxpayers. Many of these interactions have the potential to make taxpayers feel as if they have been mistreated or abused by IRS employees with whom they have dealt or by the “tax system” in general. IRS has several offices that are involved in handling taxpayers’ concerns about how they have been treated, including those alleging taxpayer abuse, which are not resolved through normal daily operations. IRS’ Inspection Service (Inspection), which includes the Internal Audit and Internal Security Divisions, is to investigate taxpayer allegations involving potential criminal misconduct by IRS employees. Problem Resolution Offices in IRS’ district offices and service centers are to help taxpayers who have been unable to resolve their problems through normal IRS channels with other IRS staff. IRS’ Office of Legislative Affairs is to track responses to congressional inquiries, often on behalf of constituents, as well as direct correspondence with the Commissioner or other IRS executives involving the tax system or IRS’ administration of it. OIG and DOJ may also get involved with taxpayer abuse allegations. OIG may investigate allegations involving senior IRS officials, those who serve in General Schedule (GS) grade-15 positions or higher, as well as IRS Inspection employees. IRS employees accused of criminal misconduct may be prosecuted by a DOJ U. S. Attorney. IRS employees who are sued by taxpayers for actions taken within the employees’ official duties may be defended by attorneys with the DOJ Tax Division. In our 1994 report on IRS’ controls to protect against taxpayer abuse, we were unable to determine the overall adequacy of IRS’ controls and made several recommendations to improve them. Foremost among our recommendations was that IRS define taxpayer abuse and collect relevant management information to systematically track its nature and extent. At that time, in the absence of an IRS definition, we defined taxpayer abuse to include instances when (1) an IRS employee violated a law, regulation, or the IRS Rules of Conduct; (2) an IRS employee was unnecessarily aggressive in applying discretionary enforcement power; or (3) IRS’ information systems broke down, e.g. when taxpayers repeatedly received tax deficiency notices and payment demands despite continual contacts with IRS to resolve problems with their accounts. Other recommendations in our 1994 report addressed such concerns as unauthorized access to computerized taxpayer information, improper use and processing of taxpayer cash payments, and the need for IRS notification of potential employee liability for trust fund recovery penalties. IRS did not agree with the need to define taxpayer abuse—a term it found objectionable—nor to track its nature and extent; but IRS agreed to take corrective action on many of our other recommendations. To determine the adequacy of IRS’ current controls over taxpayer abuse, we identified and documented actions taken by IRS in response to the recommendations in our 1994 report. We also identified any additional actions that IRS has initiated since then, relative to how IRS treats taxpayers. Finally, we discussed with IRS officials a recent commitment they made to define and establish a taxpayer complaints tracking system and the current status of this effort. To determine the extent of information available concerning the number and outcomes of abuse allegations received and investigated by IRS, OIG, and DOJ, we interviewed officials from the respective organizations and reviewed documentation relative to their information systems. We were told that the information systems maintained by these organizations do not include specific data elements for alleged taxpayer abuse. However, these officials said they believed that examples of alleged taxpayer abuse may be found within other general data categories in five IRS systems, two DOJ systems, and an OIG system. For example, IRS officials indicated that alleged taxpayer abuse might be found in a system used to track disciplinary actions against employees. This information is captured under the general data categories of “taxpayer charge or complaint” and “misuse of position or authority.” Similar examples were provided by officials from each organization as described in appendix II. We discussed the general objectives and uses of the relevant information systems with officials from the respective agencies. We also reviewed examples of the data produced by these systems under the suggested general data categories to ascertain if it was possible from these examples to determine whether taxpayer abuse may have occurred. We did not attempt to verify the accuracy of the data we received, because to do so would require an extensive, time-consuming review of related case files. This was beyond the scope and time available for this study. To determine OIG’s role in investigating allegations of taxpayer abuse, we obtained and reviewed Treasury orders and directives establishing and delineating the responsibilities of OIG, as well as a 1994 Memorandum of Understanding between OIG and IRS outlining specific procedures to be followed by each staff for reporting and investigating allegations of misconduct and fraud, waste, and abuse. We also obtained statistics from OIG staff concerning the number of allegations they received and investigations they conducted involving IRS employees for fiscal year 1995—the latest year for which data were available. In addition, we discussed OIG’s role and the relationship between OIG and IRS staffs with senior officials from both OIG and IRS. We requested comments on a draft of this report from the Commissioner of Internal Revenue, the Treasury Inspector General, and the Attorney General. On August 9, 1996, we received written comments from IRS, which are summarized on page 15 and are reprinted in appendix III. We also received written comments, which were technical in nature, from both the Treasury’s OIG and DOJ. These comments have been incorporated in the report where appropriate. We performed our audit work in Washington, D.C., between April and July 1996 in accordance with generally accepted government auditing standards. While IRS has made improvements in its controls over the treatment of taxpayers since our 1994 report, we are still unable to reach a conclusion at this time on the overall adequacy of IRS’ controls. We cannot determine the adequacy of these controls because IRS officials have not yet established a capability to capture management information, which is needed to ensure that abuse is identified and addressed and to prevent its recurrence. We are, however, encouraged by a recent commitment on the part of IRS’ Deputy Commissioner to establish a tracking system for taxpayer complaints. Such a system has the potential to greatly improve IRS’ controls to protect against taxpayer abuse and better ensure that taxpayers are treated properly. In exploring how IRS could satisfy a mandate included in the recently enacted Taxpayer Bill of Rights 2 to report annually to Congress on employee misconduct and taxpayer complaints, IRS recognized and acknowledged that such a mandate could not be satisfied with its existing information systems and that a definition for “taxpayer complaints” would be necessary, along with sufficient related management information to ensure that complaints are identified, addressed, and analyzed to prevent their recurrence. Although IRS said it still believes the term “taxpayer abuse” is misleading, inaccurate, and inflammatory, IRS decided to use the basic elements that we used in our 1994 report definition for taxpayer abuse as a starting point to develop a definition for taxpayer complaints. The basic elements from our report included when (1) an IRS employee violated a law, regulation, or the IRS Rules of Conduct; (2) an IRS employee was unnecessarily aggressive in applying discretionary enforcement power; or (3) IRS’ information systems broke down, e.g. when taxpayers repeatedly received tax deficiency notices and payment demands despite continual contacts with IRS to resolve problems with their accounts. With input from members of IRS’ Executive Committee, an IRS task group decided upon the following definition for taxpayer complaints: an allegation by a taxpayer or taxpayer representative that (1) an IRS employee violated a law, regulation, or the IRS Rules of Conduct; (2) an IRS employee used inappropriate behavior in the treatment of taxpayers while conducting official business, such as rudeness, overzealousness, excessive aggressiveness, discriminatory treatment, intimidation, and the like; or (3) an IRS system failed to function properly or within prescribed time frames. This definition was endorsed by the IRS Deputy Commissioner in a June 17, 1996, memorandum. IRS has decided to use the Problem Resolution Office Management Information System (PROMIS), with modifications, as a platform for compiling information about taxpayer complaints involving inappropriate employee behavior and systemic breakdowns. However, numerous decisions remain concerning how to track and assess the handling of all taxpayer complaints. For example, IRS already has two systems that are designed to capture data relevant to alleged employee misconduct. PROMIS is currently designed to capture data relevant to possible systemic breakdowns. The two systems capturing misconduct information, however, do not capture data in a manner that is comparable to one another or to PROMIS. IRS officials readily concede that at present, there is no IRS information system designed to capture data relevant to complaints of inappropriate employee behavior. They realize that to capture and compile information relevant to all three elements of the taxpayer complaints definition in a comparable and uniform manner will be a considerable challenge, especially for the highly subjective element involving inappropriate employee behavior. However, the officials assured us that they are now committed to rising to that challenge. While we are encouraged by IRS’ commitment, we recognize the formidable challenge IRS faces to capture complete, consistent, and accurate information about the IRS definition for taxpayer complaints. Rising to the challenge, however, is critical for IRS to have adequate controls to protect against taxpayer abuse as well as being able to satisfy its new requirement to annually report to Congress on employee misconduct and taxpayer complaints. Since our 1994 study, IRS has initiated various actions to implement our recommendations, as described in appendix I.