Scope and Methodology

To describe IRS’ process for making abatements from initiation through final review in selected IRS locations, we talked to IRS National Office work groups that could make abatements and the IRS office that administers penalties. IRS did not have quantitative data on the details of the abatement process, even though IRS’ master files have data on the overall number and amount of abatements. An abatement is just one type of adjustment made to taxpayer accounts. IRS staff also adjust accounts to reflect the dates and amounts of various types of assessments, payments, and refunds. IRS cannot extract quantitative data about the abatement process from data on all types of adjustments. Determining the costs and benefits of collecting such data on the abatement process was beyond the scope of this report. According to IRS officials, the type, complexity, and source of the assessment being abated determine which IRS work group makes the abatement decision. Both Lower and Higher Graded Staff Can Make Abatement Decisions

Various types and grades of IRS staff, ranging from clerks to mid-level staff, can make abatement decisions, depending on the type, complexity, and source of the assessment being abated. IRS’ Efforts to Improve the Abatement Process

IRS’ efforts to improve the abatement process have involved task force studies that IRS initiated in response to specific concerns. Although they did not focus on abatements, the studies have produced some proposals that would affect the abatement process, such as the documentation required to support abatements. IRS did this study because of concerns about the inventory of tax debts—about 25 percent of IRS’ accounts receivable were being abated. IRS never formally released a final report on the study results. Separate offices in the service center managed the quality review programs. Type of abatement Audit reconsideration and audits Overstated income from false W-2s (Statement of Earnings) Category A claims and interest claims, substitute for return,offer-in-compromise, audit reconsideration Responses to IRS underreporter notices Taxpayer inquiries about assessments Claims on amended returns filed by taxpayers Substitute for return Credits on masterfile accounts Various types of abatements based on reviews of notices sent to taxpayers Various types of taxpayer claims that meet set criteria (e.g., problems not satisfactorily handled by other IRS groups)
In the following, we briefly describe the types of abatements made at each of the work groups. The criteria for abatements are in the Internal Revenue Manual, chapter 21.
Why GAO Did This Study

Pursuant to a congressional request, GAO described the Internal Revenue Service's (IRS) abatement process, focusing on IRS': (1) process for making abatements from initiation through final review in selected IRS locations; and (2) efforts to improve the abatement process.

What GAO Found

GAO noted that: (1) an abatement may be initiated by a request from a taxpayer or by IRS; (2) once initiated, IRS' abatement process depends on the type, complexity, and source of the assessment being abated; (3) according to IRS officials, these factors determine the IRS work group, such as those that audit tax returns or answer taxpayer inquiries, that makes the abatement decision; (4) the work group, in combination with the type and complexity of the assessment being abated, influence the type and grade level of staff making abatement decisions, the criteria and supervisory review used to guide decisions, and the quality review done after the decisions are made; (5) IRS does not have quantitative data on details of the abatement process; (6) an abatement is just one type of adjustment that IRS can make to taxpayer accounts; (7) for example, IRS staff also adjust accounts to reflect the dates and amounts of various types of assessments and payments; (8) although it has data on the number and amount of abatements, IRS cannot extract any quantitative data about the abatement process from data on all types of adjustments; (9) determining the costs and benefits of collecting data on just the abatement process is beyond the scope of this report; (10) IRS' recent efforts to improve the abatement process have generally involved task forces that have been studying various IRS concerns, including, for example, the administration of penalties and treatment of taxpayers; (11) although the studies have not focused on abatements, they have produced some proposals that would affect the abatement process, such as the documentation required to support abatements; (12) during 1993-1994, concerns about the inventory of tax debts prompted IRS to study abatements at its 10 service centers; (13) this study identified 259 problems and referred 158 to various IRS work groups for analysis and implementation of any needed changes; and (14) IRS never formally released a final study.