IRS has other specialized processes for reporting specific  types of tax noncompliance, such as identity theft and misconduct by a  tax return preparer. In fiscal year 2015, IRS received over 87,000 information referrals, as  shown in figure 1. During fiscal years 2013 and 2014, IRS revised the  information referral instructions for the public to help clarify the other  specific forms to use to report directly to IRS’s specialized referral  programs, which IRS officials said has contributed to the reduced volume  in information referrals. IRS does not have an  organizational structure for the information referral process with clear  leadership responsible for defining objectives in measureable terms to  ensure that the objectives of the information referral process aligns with  IRS’s mission of fair and equitable application of the tax laws and  addressing the tax gap. Without clear leadership and responsibility for defining  program objectives and measuring outcomes resulting from information  referrals about tax noncompliance by individuals and businesses, IRS  does not know the costs of the information referral process or how  effectively that process is contributing to the agency’s mission and  addressing the tax gap. IRS has incomplete documentation of procedures for screening and  routing information referrals to other IRS units for further action. Multiple and uncoordinated forms and  instructions can confuse the public trying to submit information to IRS. Routing between referral programs results in delays and added  costs for re-screening. Although IRS has  guidelines for screening and routing the information referrals, it does not  have an organizational structure for the Form 3949-A information referral  process that identifies responsibility for defining program objectives and  an appropriate line of reporting for measuring results. Without a  coordination mechanism, IRS may be missing opportunities to leverage  resources and address challenges from the multiple referral programs. Ensure that the IRM has internal controls for processing information establishing, documenting, and implementing procedures for  maintaining and communicating the information referral screening  and routing guidelines to ICT and IRS units receiving information  referrals as well as procedures for ICT screening and routing  operations; establishing, documenting, and implementing supervisory review  and segregation of duties for inventory management reporting  procedures; establishing, documenting, and implementing ongoing monitoring  of information referrals retained for destruction, including a  mechanism for tracking the reasons referrals were retained prior  to destruction; and establishing, documenting, and implementing procedures for each  IRS operating unit receiving information referrals to provide  feedback on the number and types of referrals misrouted and on  their disposition, and a mechanism to analyze patterns of misroute  errors. Establish a coordination mechanism to facilitate communication and  information sharing across IRS referral programs on crosscutting tax  issues and ways to improve efficiency in the mechanisms for public  reporting of possible tax violations. Appendix I: Objectives, Scope, and Methodology

You asked us to assess the overall effectiveness of the Internal Revenue  Service’s (IRS) information referral process. This report (1) describes  IRS’s process for screening and routing Form 3949-A information  referrals and for prioritizing information referrals within the IRS audit  workload; (2) assesses the controls for the information referral screening  and routing process; and (3) evaluates the coordination between the  information referral process, the Whistleblower Office, and other IRS  referral programs. For the second objective, we reviewed existing internal controls for the  information referral screening process and assessed whether the  procedures aligned with relevant Standards for Internal Control in the  Federal Government. We reviewed the IRS web page on  reporting tax noncompliance.
Why GAO Did This Study

Reports by the public of suspected underreporting of taxes or other tax violations can help IRS detect millions of dollars in taxes that would otherwise go uncollected. Productive referrals can help address the net $385 billion tax gap—the difference between the amount of taxes paid voluntarily on time and the amount owed. IRS received about 87,000 information referrals in fiscal year 2015.
GAO was asked to assess the overall effectiveness of the information referral process. This report (1) describes IRS's process for screening and routing information referrals; (2) assesses the controls for the information referral screening and routing process; and (3) evaluates the coordination between the information referral process, the Whistleblower Office, and other IRS referral programs. GAO reviewed IRS guidance, processes, and controls for the information referral process, assessed whether IRS's processes followed Standards for Internal Control in the Federal Government , and interviewed IRS officials.

What GAO Found

Information referrals from the public alleging tax noncompliance must be submitted on paper forms by mail to the Internal Revenue Service (IRS). These referrals are manually screened by clerical staff and routed by mail to units across IRS for further action, as shown in the figure.
Ineffective internal controls undercut IRS management of the information referral process. IRS does not have an organizational structure for information referrals with clear leadership for defining objectives and outcomes for measuring cost-effectiveness and results. Without clear leadership, IRS does not know how effectively it is leveraging information referrals to address the tax gap. IRS has incomplete documentation of procedures for the information referral process, increasing the risk of delays and added costs in routing the information for further action. Although one-quarter of the information referrals in fiscal year 2015 were sent for destruction after screening, IRS has not documented procedures for supervisory review of those referrals prior to destruction. Without procedures to address these control deficiencies, IRS is compromised in its ability to know how effectively it is leveraging tax noncompliance information reported by the public.
Fragmentation and overlap across IRS's general information referral process and eight specialized referral programs, such as for reporting identity theft and misconduct by return preparers, can confuse the public trying to report tax noncompliance to IRS. Yet coordination between referral programs is limited, and IRS does not have a mechanism for sharing information on crosscutting issues and collaborating to improve the efficiency of operations across the mix of referral programs. As a result, IRS may be missing opportunities to leverage resources and reduce the burden on the public trying to report possible noncompliance.

What GAO Recommends

GAO recommends, among other things, that IRS establish an organizational structure that identifies responsibility for defining objectives and for measuring results for information referrals; document procedures for the information referral process; and establish a coordination mechanism across IRS referral programs. IRS agreed with GAO's recommendations.