Objectives, Scope, and Methodology

Focusing on tax disputes between IRS and taxpayers, our objectives were to (1) analyze IRS’ design of its initiatives and taxpayers’ use of them since 1990 in resolving disputes over tax liability, and (2) analyze IRS’ plans for evaluating the impacts of its new initiatives on their goals. In June 1996, IRS provided that information on 276 taxpayers, usually very large corporations, that had used or were using 1 of the 8 initiatives. These initiatives attempt to meet goals related to reducing the time, costs, and burden of dispute resolution. To improve the resolution of tax disputes between IRS and taxpayers, IRS’ Appeals, Chief Counsel, and Examination functions have implemented at least eight initiatives since 1990. One of these initiatives—Appeals’ mediation initiative—uses neutral parties to help resolve disputes. Two initiatives seek to prevent disputes, three seek to resolve disputes before they reach Appeals, and two seek to resolve Appeals cases more quickly. Generally, the goals of these initiatives are to reduce the overall time, costs, and taxpayer burden of resolving disputes without litigation. To Date, Use of Initiatives Is Limited

As of November 30, 1996, IRS records showed that CEP and large corporate taxpayers had used 7 of IRS’ initiatives to resolve at least 209 tax issues in dispute between IRS and taxpayers since 1990. Performance measures that effectively identify whether a program is achieving its stated goals either (1) directly measure change (e.g., amount of time required to resolve disputes with and without the initiative), (2) use a reasonable proxy for the goal (e.g., taxpayer satisfaction with the initiative as an indicator of reduced burden), or (3) provide the data needed to evaluate specific research questions about the program and its effectiveness. However, IRS functions are not yet able to show whether their initiatives are achieving these goals, partly because many of the performance measures selected by the functions do not directly gauge the impacts of the initiatives on these goals. They cited problems in collecting reliable data and isolating the impacts for highly complex tax issues that may involve future tax years. These difficulties, while real, do not prevent IRS from developing indicators that more directly measure the impacts of the initiatives on the time, costs, and burden of dispute resolution. They said they hope to have sufficient measures during the spring of 1998 to more fully evaluate the initiatives’ impacts on the stated goals. Such efforts, if successful, would help IRS to determine whether the initiatives worked as intended and how they might be improved or expanded to other tax issues or groups of taxpayers. Using these measures, the functions should, after sufficient data are available over a period of time, analyze whether each initiative reduces the time, cost, and taxpayer burden of dispute resolution. Second, in discussing the limited usage of the eight initiatives, IRS officials said IRS plans to expand the pool of eligible taxpayers. Other Initiatives to Resolve Tax Liability Disputes and Other Issues

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Why GAO Did This Study

GAO reviewed the Internal Revenue Service's (IRS) initiatives to resolve tax liabilities disputes without litigation, focusing on IRS': (1) design of these initiatives and taxpayers' use of them; and (2) plans for evaluating the impacts of its new initiatives on the stated goals.

What GAO Found

GAO noted that: (1) since 1990, IRS Appeals, Chief Counsel, and Examination have implemented at least eight initiatives to improve dispute resolution between IRS and taxpayers over certain tax issues; (2) each of the initiatives apply to specific groups of taxpayers, generally large corporations; (3) two of these initiatives seek to prevent disputes, three seek to resolve disputes before they reach Appeals, and two seek to resolve disputes in Appeals more quickly; (4) only one initiative uses a neutral third person as a mediator to help resolve disputes in Appeals; (5) generally, the goals of these initiatives are to reduce the overall time, costs, and taxpayer burden of dispute resolution; (6) in June 1996, IRS identified 276 taxpayers that had used or were using 1 of IRS' 8 initiatives to resolve tax disputes since 1990; (7) as of November 30, 1996, IRS data showed that these taxpayers had used IRS' initiatives to resolve 209 disputes over tax issues; (8) this is a small fraction of the relevant disputed tax issues since 1990; (9) various reasons exist for the limited use of the initiatives to date; (10) also, IRS officials said use of the initiatives ultimately depends on the willingness of eligible taxpayers; (11) IRS has established some performance measures intended to evaluate the impacts of its initiatives on reducing the time, costs, and taxpayer burden in dispute resolution; (12) GAO's analysis indicated that many of these measures will not allow IRS to directly gauge the initiatives' impacts on these goals; (13) Appeals has established some measures, such as the level of taxpayer satisfaction, that are more directly related to its initiatives' goals of reducing the time, costs, and burden of dispute resolution; (14) IRS officials said they thought it was too early to assess the impacts of all of their initiatives and was difficult to obtain data that would isolate the impacts, particularly when the issues being resolved are highly technical and can carry over to future tax years; (15) IRS officials described ongoing efforts to develop other measures, in conjunction with a special IRS task force, by the spring of 1998; and (16) measures that more directly gauge the impacts of the initiatives on their goals would help IRS determine, after sufficient data are available over a period of time, whether and the extent to which the initiatives had the intended effects of reducing the time, costs, and burden of resolving tax disputes.