Improved decision making, however, can benefit  compliance programs, Appeals, and taxpayers. Feedback on Appeals Results Could Be Useful

Based on our case review, for cases closed in fiscal year 2004, we estimate  that Appeals did not sustain about 41 percent of compliance cases (about  42,075 of the 102,623) that year. Identifying more specifically which laws or regulations were applied  differently by the compliance programs would require an investment to  gather and analyze additional data. Because these differing applications span a host of  laws and regulations across IRS’s compliance programs, the corrective  action that might be taken may only affect a relatively small number of  cases. Managers of  programs with high appeal rates told us that they would benefit from  Appeals feedback information in improving decision making. In  addition, the cases that are appealed are generally not fully sustained. Appeals Is Providing Some Feedback Based on Officials’ Initial Judgments of Its Needs

Appeals has taken several steps to launch and expand the feedback project. Appeals plans to implement a revised  Appeals case closing system during 2006. However, gaining consensus may not be easy. Specifically, we recommend that the  Commissioner direct Appeals   in partnership with the compliance programs, to analyze Appeals case- results data, such as the workstream sustention rates, reasons for  nonsustention, or staff hours spent per case, to identify areas in which  improvements are likely to generate the greatest benefits to the  compliance programs, Appeals, and taxpayers;   in partnership with the compliance programs, to further investigate the  most promising areas and assess whether actions, such as additional  guidance or training, are needed to improve the quality of compliance  programs’ case decisions;   in partnership with the compliance programs, to further develop results- oriented objectives and associated performance measures for the  feedback project; and  to build upon its current efforts to improve the quality of Appeals  information for the feedback project by establishing internal controls to  verify, on an ongoing basis, the accuracy of the data entered into  Appeals information systems on case results. Objectives, Scope, and Methodology

Our objectives were to determine whether (1) information on Appeals  results has the potential to provide useful feedback to the Internal Revenue  Service (IRS) operating divisions to benefit compliance programs, Appeals,  and taxpayers through better case resolution and (2) the feedback project  was being effectively managed to maximize its potential to improve IRS’s  performance and thereby reduce disputes with taxpayers. Data were  not published on the proportion of these cases that were closed with  recommended assessments.
Why GAO Did This Study

Taxpayers disagreeing with Internal Revenue Service (IRS) compliance decisions can request an independent review by IRS's Appeals Office (Appeals). In 2004 the Commissioner requested that Appeals establish a feedback program to share the results of Appeals' reviews with the compliance programs. GAO was asked to assess whether (1) information on Appeals results would provide useful feedback to IRS operating divisions to benefit compliance programs, Appeals, and taxpayers through better case resolution and (2) the feedback project is being effectively managed to maximize its potential to improve IRS's performance and thereby reduce disputes with taxpayers.

What GAO Found

Appeals' case result information has the potential to help compliance programs improve taxpayer service, but realizing improvements requires investments in data collection and analysis that must be considered in light of the likely benefits. Based on a review of 153 Appeals cases, GAO estimates that 41 percent of the 102,623 cases closed in fiscal year 2004 were not fully sustained. Of these, about half were not sustained because Appeals applied a law or regulation differently than the programs. Lacking such information, officials could not assess whether actions like additional guidance were needed. However, identifying specific provisions that were interpreted differently would require data gathering and analysis. Because the differences span a host of laws and regulations, corrective action may only affect a small number of cases. Improved decision making, however, can benefit compliance programs, Appeals, and taxpayers. An initial data analysis, such as identifying programs with high nonsustention rates due to differences in applying laws or regulations, would help to target areas most likely to benefit from feedback. Appeals has taken several initial steps to launch the feedback project. During 2005, for example, Appeals and the compliance programs began to identify additional information needs. In addition, Appeals and the compliance programs could refine the feedback project's objectives to target the results-oriented improvements that are logical benefits of information sharing. Obtaining agreement between Appeals and the programs on objectives may not be easy because their perspectives differ on the steps needed to improve operations, but is necessary. Also, Appeals' plans to update its information system to provide additional data on case results will be hindered by inaccurate data. We found that several important data fields had error rates up to 14 percent. Appeals staff cited several reasons for this, including weak data verification procedures.