	Adequacy of IRS’ Controls to Ensure Fair Treatment of Taxpayers Cannot Be Determined

The new IRS Commissioner and IRS management have expressed a commitment to ensure that taxpayers are treated properly. Even so, problems with current management information systems make it impossible to determine the extent to which allegations of taxpayer abuse and other taxpayer complaints have been reported, or the extent to which actions have been taken to address the complaints and prevent recurrence of systemic problems. That is because, as we reported to you in 1996, information systems currently maintained by IRS, Treasury OIG, and the Department of Justice do not capture the necessary management information. Treasury OIG and IRS Inspection Roles for Investigating Taxpayer Abuse Allegations

The 1988 amendments to the Inspectors General Act, which created the Treasury OIG, did not consolidate IRS Inspection into the Treasury OIG, but authorized the Treasury OIG to perform oversight of IRS Inspection and conduct audits and investigations of the IRS as appropriate. How Treasury OIG Assesses IRS’ Action in Response to Investigations or Referrals

Treasury OIG officials are to assess the adequacy of IRS’ actions in response to Treasury OIG investigations and referrals as follows: (1) IRS is required to make written responses on actions taken within 90 days and 120 days, respectively, on Treasury OIG investigative reports of completed investigations and Treasury OIG referrals for investigations or management action; (2) Treasury OIG investigators are to assess the adequacy of IRS’ responses before closing the Treasury OIG case; and (3) Treasury OIG’s Office of Oversight is to assess the overall effectiveness of IRS Inspection capabilities and systems through periodic operational reviews. Organizational Placement of IRS Inspection Remains Subject of Debate

At the Committee’s September 1997 IRS oversight hearings, some IRS employees raised concerns about the effectiveness of IRS Inspection and its independence from undue pressures and influence from IRS management. The Inspectors General Act provides guidance on the authorities, qualifications, safeguards, resources, and reporting requirements needed to ensure independent investigative and audit capabilities. No matter where IRS Inspection is placed organizationally, certain mechanisms need to be in place to ensure that it is held accountable and can achieve its mission without undue pressures or influence. The position was originally codified in the Taxpayer Bill of Rights 1 as the Taxpayer Ombudsman, although IRS has had the underlying Problem Resolution Program (PRP) in place since 1979. In the Taxpayer Bill of Rights 2, the Taxpayer Advocate and the Office of the Taxpayer Advocate replaced the Taxpayer Ombudsman position and the headquarters PRP staff. The authorities and responsibilities of this new office were expanded, for example, to address taxpayer cases involving IRS enforcement actions and refunds. Even with the enhanced legislative authorities and numerous activities and initiatives, questions about the effectiveness of the Taxpayer Advocate persist. The questions relate to the Advocate’s (1) organizational independence within IRS; (2) resource commitments to achieve its mission; and (3) ability to identify and correct systemic problems adversely affecting taxpayers.
Why GAO Did This Study

GAO discussed the: (1) adequacy of the Internal Revenue Service's (IRS) controls over the treatment of taxpayers; (2) responsibilities of the Offices of the Chief Inspector (IRS Inspection) and the Department of the Treasury Office of the Inspector General (OIG) in investigating allegations of taxpayer abuse and employee misconduct; (3) organizational placement of IRS Inspection; and (4) role of the Taxpayer Advocate in handling taxpayer complaints.

What GAO Found

GAO noted that: (1) in spite of IRS management's heightened awareness of the importance of treating taxpayers properly, GAO remains unable to reach a conclusion as to the adequacy of IRS' controls to ensure fair treatment; (2) this is because IRS and other federal information systems that collect information related to taxpayer cases do not capture the necessary management information to identify instances of abuse that have been reported and actions taken to address them and to prevent recurrence of those problems; (3) Treasury OIG and IRS Inspection have separate and shared responsibilities for investigating allegations of employee misconduct and taxpayer abuse; (4) IRS Inspection has primary responsibility for investigating and auditing IRS employees, programs, and internal controls; (5) Treasury OIG is responsible for the oversight of IRS Inspection investigations and audits and may perform selective investigations and audits at IRS; (6) the two offices share some responsibilities as reflected in a 1994 IRS Commissioner-Treasury OIG Memorandum of Understanding; (7) in the Committee's September 1997 hearings, questions were raised about the independence of IRS Inspection; (8) subsequently, suggestions have been made to remove IRS Inspection from IRS and place it in Treasury OIG; (9) regardless of where IRS Inspection is placed organizationally, within IRS or Treasury OIG, mechanisms need to be in place to ensure its accountability and its ability to focus on its mission independent from undue pressures or influences; (10) the Inspectors General Act as amended in 1988, provides guidance on the authorities, qualifications, safeguards, resources, and reporting requirements needed to ensure independent investigation and audit capabilities; (11) in 1979, the Taxpayer Ombudsman was established administratively within IRS to advocate for taxpayers and assume authority for IRS' Problem Resolution Program; (12) in 1988, this position was codified in the Taxpayer Bill of Rights 1; (13) in 1996, the Taxpayer Bill of Rights 2 replaced the Ombudsman with the Taxpayer Advocate and expanded the responsibilities of the new Office of the Taxpayer Advocate; (14) the Advocate was charged under the legislation with helping taxpayers resolve their problems with the IRS and with identifying and resolving systemic problems; and (15) it is now nearly 20 years after the creation of the first executive-level position in IRS to advocate for taxpayers, and questions about the effectiveness of the advocacy continue to be asked.