While the Internal Revenue Service has taken steps to re-engineer its program for examining tax returns, more needs to be done to reduce the burden on taxpayers, according to a new report.

J. Russell George

The report, from the Treasury Inspector General for Tax Administration, found that the IRS’s Correspondence and Discretionary Examination Program conducts examinations exclusively by mail to reduce IRS operational costs and minimize the burden on taxpayers. However, taxpayers have still expressed concerns about the length of the examination process, the lack of consideration given to the information they send to the IRS, and the treatment they receive from IRS employees.

At the request of the IRS Oversight Board, TIGTA initiated the audit to assess whether recent IRS efforts to identify weaknesses and take actions in its program actually improved results. TIGTA’s overall objective was to determine whether the IRS’s re-engineered program resulted in a more responsive and less burdensome process for taxpayers.

The audit found significant improvements in several attributes used to measure performance, and TIGTA determined that the steps the IRS has taken to re-engineer the CDE Program and improve employee compliance with the program’s guidelines could ultimately reduce the burden on taxpayers and increase taxpayer rights and entitlements.

However, the audit findings also showed that IRS employees did not always adhere to the established procedures and guidelines when processing correspondence that taxpayers submit for examinations of their tax returns.

In a statistical sample of cases where taxpayers agreed to additional tax assessments, 28 of 62 cases contained errors. The majority of these errors related to CDE employees closing cases in an untimely way. Further, TIGTA’s analysis of cases where the taxpayer did not agree with the additional assessment showed that CDE employees did not always consider the taxpayer’s correspondence before closing the case.

“While our report concluded that the IRS has made improvements to the Examination program, it is critical that examiners follow all established procedures, including taking fully into consideration the information that taxpayers provide,” said TIGTA Inspector General J. Russell George in a statement.

TIGTA made three recommendations in its report, including that the IRS ensure all CDE employees follow mail-processing guidelines when working cases and follow the program guidelines for handling, responding to, and considering taxpayer correspondence.

The IRS agreed with TIGTA’s recommendations, but it did not agree with its reported outcome measure. The IRS stated that many of the errors do not have an impact on taxpayer rights and entitlements because the absence of a date stamp on a taxpayer’s correspondence would not constitute a burden to the taxpayer. In addition, the IRS expressed concerns with TIGTA’s use of the word “error” because it could lead readers to believe that an incorrect conclusion was reached during the examination.

TIGTA said its audit findings and recommendations address results that showed IRS employees did not adhere to the established procedures or guidelines when processing the correspondence that taxpayers submit for examinations of their tax returns. For example, when date stamps which are applied to assist employees control of documents received from taxpayers are missing, the IRS cannot ensure a timely response to the taxpayer.

When employees do not adhere to IRS guidelines and procedures, it is simply an error, TIGTA contends. TIGTA said it continues to believe that when these errors occur, taxpayers are at risk of not receiving their rights, entitlements, and protection of due process when they question the accuracy of tax liabilities resulting from IRS examinations.