TREASURY
INSPECTOR GENERAL FOR TAX ADMINISTRATION
Oversight and Accuracy of
Tax Returns Continue to Be Problems for the Volunteer Income Tax Assistance
Program
Reference Number: 2006-40-125
This
report has cleared the Treasury Inspector General for Tax Administration
disclosure review process and information determined to be restricted from
public release has been redacted from this document.
Phone Number |
202-927-7037
Email Address | Bonnie.Heald@tigta.treas.gov
Web Site | http://www.tigta.gov
August 31, 2006
MEMORANDUM FOR COMMISSIONER, WAGE AND INVESTMENT DIVISION
FROM: (for) Michael R. Phillips /s/ Michael E. McKenney
Deputy Inspector General for Audit
SUBJECT: Final Audit Report – Oversight and Accuracy of Tax Returns Continue to Be Problems for the Volunteer Income Tax Assistance Program (Audit # 200640013)
This report presents the results of our review to determine whether taxpayers received quality service, including the accurate preparation of their income tax returns, when visiting Volunteer Income Tax Assistance (VITA) sites.[1] We also assessed the ease with which taxpayers can locate VITA sites and obtain information about the specific services offered and assessed the Internal Revenue Service’s (IRS) process for ensuring the overall quality of VITA Program operations. This audit is a follow-up to prior Treasury Inspector General for Tax Administration (TIGTA) reviews.[2]
Synopsis
Prior TIGTA reviews identified that tax returns were not correctly prepared by VITA volunteers because the volunteers did not gather key taxpayer information, did not refer to the Interview and Intake Sheet (Form 13614) or resource guides when preparing tax returns, and did not perform required quality reviews of completed tax returns. In addition, taxpayers could not rely on the IRS’ information for VITA site locations, hours of operation, and scope of services because controls to ensure site information was accurate were not followed consistently. Furthermore, although a comprehensive quality assurance process was proposed, obstacles prevented the implementation of an effective process.
VITA accuracy rates have improved from 0 percent for the 2004 Filing Season to 39 percent for the 2006 Filing Season.
The Stakeholder Partnerships, Education, and Communication (SPEC) function responsible for overseeing the IRS VITA Program continues to remain committed to providing top-quality service to all taxpayers, especially low- to moderate-income, elderly, disabled, and limited-English-proficient taxpayers. However, although a comprehensive quality assurance process was proposed in response to one of the prior TIGTA reviews, significant barriers continue to diminish the SPEC function’s ability to provide quality customer service at VITA sites and to measure the accuracy of prepared tax returns. These barriers include volunteers not adhering consistently to the SPEC function’s processes for ensuring the accuracy of tax returns and the SPEC function’s inability to implement an effective quality assurance process.
Specifically, the local intake sheets did not contain all required questions or were not prepared completely, volunteers did not use the information contained on the Forms 13614 and did not refer to resource guides, and required quality reviews of completed tax returns were not performed. As a result, 22 (61 percent) of the 36 tax returns prepared by VITA volunteers for TIGTA auditors were incorrect. If 4 (18 percent) of these incorrectly prepared tax returns had been filed, the taxpayers would not have received $4,411 in tax refunds to which they were entitled. Alternatively, if the remaining 18 (82 percent) of the 22 incorrectly prepared tax returns had been filed, the IRS would have refunded $31,828 incorrectly.
Volunteers and their partner organizations play a
significant role in the IRS’ tax return preparation program.
The IRS is moving away from providing tax preparation assistance at its Taxpayer Assistance Centers[3] and is relying more on the VITA Program and its partners to provide this service. This presents significant challenges to the IRS and the SPEC function. The strengths of the VITA Program lie in its volunteers and partners. However, relying on volunteers to deliver the Program has inherent risks.
The SPEC function must balance the needs and
desires of the volunteers with the IRS’ mission and goals. As it strives to achieve its mission
and goals and provide accountability for its operations, the SPEC function will
have to continually assess and evaluate its internal control structure to ensure the VITA
Program is providing accurate and reliable measurements, particularly
measurements related to the accuracy of tax returns prepared.
Improvements are needed to ensure the VITA Program quality assurance program provides accurate measurements. The SPEC function has developed procedures and controls as part of its Volunteer Return Preparation Program Quality Improvement Plan, and the Plan is in the early years of implementation. However, certain procedures are not being followed, and not all controls are effective for the Quality Improvement Plan to meet intended goals. Tax returns are not selected randomly for review, Territory managers are not in compliance with the directive to accompany tax specialists on reviews, and documentation supporting VITA Program accuracy measures is not maintained. The decision to not maintain documentation supporting return reviews was based largely out of consideration for maintaining effective partner relations.
Finally, VITA site
information used by IRS toll-free telephone assistors was not always
accurate. The VITA site information
provided by IRS toll-free telephone assistors was inaccurate for 39 (33 percent) of 117 sites
tested. In all 39 instances, the errors
identified resulted from inaccurate manual transfer of information from the SPEC Volunteer Site Information Sheet (Form
13715) into the computerized system that makes the information available to IRS
toll-free telephone assistors.
Recommendations
The Commissioner, Wage and Investment Division, should (1) require
VITA sites to use the Form 13614 and require the Form to be prepared by the
taxpayer to ensure it is prepared accurately; (2) ensure training continues to
emphasize the need to use the various quality assurance tools, including using the
Form 13614, referring to reference guides, and ensuring all tax returns are
subjected to required quality review; (3) establish a process to ensure
accuracy results are verifiable and validated (this process should ensure
source documentation is maintained to support tax return reviews); and (4) develop
a process to verify periodically whether VITA site information is entered accurately
into the system used by toll-free telephone assistors.
Response
IRS management agreed with all of our recommendations but did not agree with one portion of our third recommendation. The SPEC function will continue to require each site to use Form 13614 or the partner’s equivalent to prompt return preparers to ask questions necessary for accurate completion of the tax returns. The SPEC function will revise its tools (forms, training, and guidance documents) for both the return preparation and review processes based on findings from reviews, partner and employee feedback, and TIGTA results.
The SPEC function will establish an independent process to validate the accuracy reported and provide systemic improvements. The SPEC function will also implement shopping reviews that use scenarios representative of its customer base to assess the customer experience. Finally, the SPEC function will strengthen the process for selection of returns for review by SPEC function employees.
However, the IRS did not agree with requiring partners to maintain source documents used by volunteers in preparing tax returns. The IRS believes this likely would erode effective IRS-partner relations by significantly increasing partner operational burden and costs, as well as require considerable new security infrastructure. The IRS also did not agree that reviews should be unannounced because announced visits promote collaborative ownership of quality service. The IRS believes there is no evidence that announced visits skew return selection or accuracy results any more or less than unannounced visits.
Lastly, the SPEC function will continue to use the validation process developed during the 2006 Filing Season[4] and will enhance the process further by including the following:
· SPEC function management will be required to validate input in the SPEC Taxpayer Assistance Reporting System (STARS) site module and certify its accuracy.
· Form 13715 will require the initials of the employee inputting the data in the SPEC Taxpayer Assistance Reporting System and of management’s concurrence with its accuracy.
Management’s complete response to the draft report is included as Appendix VIII.
Office of Audit Comment
In other IRS service areas such as the Taxpayer Assistance
Center Program and the toll-free telephone operation, the IRS has recognized
the importance of maintaining documentation to support quality and ensure the
correct application of the tax law.
Maintaining documentation for quality review purposes is a standard
practice throughout the IRS and private industry. If documentation is not maintained, the IRS
does not have the ability to validate its quality results.
In addition, the physical presence of a reviewer establishes
an artificial situation for the volunteers and inhibits the accurate assessment
of performance. The IRS has acknowledged
that, when using direct observations in its Taxpayer Assistance Center Program
and toll-free telephone operation, the results were skewed. Thus, the IRS has used and is using Contact
Recording instead of direct observations to provide quality review
results. Because Contact Recording is
not currently a viable option for the VITA Program, the IRS should attempt to
alleviate this limitation by not announcing visits, which allows the volunteers an opportunity to prepare and
reinforce their controls and procedures.
Copies of this report are also being sent to the IRS managers affected by the report recommendations. Please contact me at (202) 622-6510 if you have questions or Michael E. McKenney, Assistant Inspector General for Audit (Wage and Investment Income Programs), at (202) 622-5916.
Appendices
Appendix
I – Detailed Objectives, Scope, and Methodology
Appendix
II – Major Contributors to This Report
Appendix
III – Report Distribution List
Appendix IV
– Sites Reviewed and Volume of Tax Returns Prepared During the 2006 Filing
Season
Appendix V – Results
of Tax Returns Incorrectly Prepared at Volunteer Income Tax Assistance Sites
Appendix
VI – Accuracy of Eligibility Determinations
Appendix
VII – Tax Preparation Information Sheet
Appendix VIII
– Management’s Response to the Draft Report
The Internal Revenue Service (IRS) Volunteer Income Tax Assistance (VITA) Program originated in 1969 due to enactment of the Tax Reform Act of 1969[5] and an increased emphasis on taxpayer education programs. Emphasis has focused continually on expanding the VITA Program through increased recruitment of social service, nonprofit, corporate, financial, educational, and government organizations; involvement of the military on a national level; and expansion of assistance provided to the limited-English-proficient community. The locations of VITA sites are often neighborhood centers, libraries, schools, churches, and shopping malls.
The VITA Program
plays an increasingly important role in the IRS goal of improving taxpayer
service and facilitating participation in the tax system. The VITA Program provides no-cost Federal tax
return preparation and electronic filing (e-filing) targeted to
underserved segments of individual taxpayers, including low- to moderate-income,
elderly, disabled, and limited‑English‑proficient taxpayers. These taxpayers frequently are involved in
complex family situations that make it difficult to correctly understand and
apply the tax law.
Oversight of the VITA Program is the responsibility of the IRS Stakeholder Partnerships, Education, and Communication (SPEC) function. The SPEC function is responsible for determining policies and procedures, developing products and training material, and monitoring and managing VITA Program activity. The SPEC function’s business objectives include increasing access to VITA sites for low‑income taxpayers, increasing e‑filing, and enhancing tax return accuracy.
For the 2006 Filing Season, taxpayers visiting community-based VITA sites to prepare and e‑file their tax returns potentially saved a minimum of $41 million (based on the lowest tax return preparation fee charged by leading tax preparation companies).
The VITA Program includes sites operated in partnership with the military, community-based sites operated in partnership with various community-based organizations,[6] and sites operated by the Tax Counseling for the Elderly and the American Association of Retired Persons. Our audit included an assessment of tax returns prepared at community-based VITA sites only, which during the 2006 Filing Season[7] were involved in the preparation of 698,302 tax returns.
Figure 1 provides a breakdown of the Volunteer Return Preparation Program and volumes of tax returns prepared during the 2005 Filing Season.
Figure 1: Tax Year 2004 Tax
Returns Prepared by Volunteer Return Preparation Program
Figure 1 was removed due to its size. To see Figure 1, please go to the Adobe PDF
version of the report on the TIGTA Public Web Page.
Prior audits identified improvements were
needed to ensure tax returns are prepared correctly at VITA sites[8]
Prior Treasury Inspector General for Tax Administration (TIGTA) audits identified that tax returns were not prepared correctly by VITA volunteers because volunteers often did not gather key taxpayer information, did not refer to the Interview and Intake Sheet (Form 13614) or resource guides when preparing tax returns, and generally did not perform a quality review of the completed tax returns. Frontline VITA volunteers did not reliably receive Quality Alerts, which proactively address emerging issues affecting the quality of tax return preparation, due to the absence of an effective distribution process. In addition, taxpayers sometimes received inaccurate information about VITA site locations, hours of operation, and scope of services from the IRS because controls to ensure site information was accurate were not always followed. Lastly, although a comprehensive quality assurance process was proposed, obstacles prevented the implementation of an effective quality assurance process.
In the most recent report, we recommended the IRS revise the Form 13614, develop a process to ensure Quality
Alerts are distributed to all VITA volunteers, ensure
SPEC Volunteer Site Information Sheets (Form 13715) are received from each VITA
site and accurately processed for use by IRS toll‑free telephone
assistors, and pursue methods to achieve the planned objectives for the quality
assurance process. In response, IRS
management committed to revising the Form 13614,
[9] requiring use of the newly designed Form 13715 in an
effort to improve on the accuracy of site information, developing procedures
for continuous site information updates, and conducting calls to VITA
appointment-only sites to test site information accuracy. Additionally, management noted its plan for a
three-tier approach to its Volunteer Return Preparation Program Quality
Improvement Plan would include site reviews, shopping reviews, and tax return
reviews.
Scenarios used
by auditors reflected characteristics of taxpayers that seek assistance from
the VITA Program and included tax law topics that tested volunteers’ use of
tools designed to assist in the accurate preparation of tax returns
To ensure the scenarios
used in this review reflected the characteristics of taxpayers that seek
assistance from the VITA Program, we developed 2 scenarios based on the tax
filing characteristics of the 591,629 individuals that used a community-based
VITA site to have their Tax Year 2004 tax returns prepared.[10] These
taxpayers earned approximately $14,734 annually, on average. Figure 2 provides additional key
characteristics of these individuals.
Figure 2: General
Characteristics of the Tax Year 2004 Tax Returns Prepared by the VITA Program
Figure 2 was removed due to its size.
To see Figure 2, please go to the Adobe PDF version of the report on the
TIGTA Public Web Page.
Further, our
scenarios were designed to include tax law topics that assessed the volunteers’
use of the tools the SPEC function designed to ensure accurate tax returns are
prepared. The two scenarios included tax
topics related to four of the top six credits taxpayers most often claimed on their
Tax Year 2004 VITA‑prepared tax returns (see those marked with an
asterisk (*) in Figure 2). The dollar
amount of these 4 credits represents over 52 percent (in excess of $373
million) of the over $712 million in
refunds shown on the tax returns for these taxpayers. Taxpayers whose tax returns include 1 or more
of the 4 credits in our scenarios accounted for 262,421 (44 percent) of the
591,629 tax returns prepared as based on our analysis of all Tax Year 2004 VITA
prepared tax returns. The two scenarios
developed for this review are as follows:
Scenario 1 – The taxpayer is divorced and lives with his or her 10-year-old child. The taxpayer had the same job working as a clerk throughout 2005. Wages reported on the Wage and Tax Statement (Form W-2) totaled $28,383. The taxpayer was paid bimonthly and contributed to a 401(k) plan. The taxpayer received an Interest Income Statement (Form 1099-INT) totaling $82.12. As part of the taxpayer’s divorce, the taxpayer signed a Release of Claim to Exemption for Child of Divorced or Separated Parents (Form 8332). The taxpayer receives $275 a month for child support. The taxpayer had dependent care expenses totaling $946.
An accurately prepared tax return would result in the taxpayer receiving a refund of $730. The tax return preparer would have correctly determined the taxpayer’s filing status was Head of Household and the dependency exemption could not be claimed because the taxpayer signed a Form 8332 releasing the exemption to the taxpayer’s ex-spouse. Additionally, the taxpayer qualified for the Earned Income Tax Credit of $408 but not the Child Tax Credit because the child could not be claimed as a dependent. The taxpayer would qualify for a Child and Dependent Care Credit of $265 and a Retirement Savings Contribution Credit of $71.
Scenario 2 – The taxpayer is single, has never been married, and lives with his or her sister. The taxpayer has 2 children, ages 9 and 12, that live with the taxpayer in the home of the taxpayer’s sister during school vacations, including the months of June, July, and August. The children live with the other parent during the school year. The taxpayer works a part-time evening job as a cashier and is paid $13,315. The taxpayer’s sister earns $52,000 a year. The taxpayer attends college part time, and the cost is paid for by the taxpayer’s sister.
An accurately
prepared tax return would result in the taxpayer owing $1. The preparer would have correctly determined
the taxpayer’s filing status was Single.
Additionally, because the taxpayer did not provide more than one-half of
the support for the children, they could not be claimed as dependents for Child
Tax Credit purposes. The Earned Income
Tax Credit would not be available to the taxpayer due to earned income
exceeding the maximum allowable amount and because the children did not live
with the taxpayer for more than one-half of the year.
This review was performed at the IRS Customer Assistance, Relationships,
and Education function in the Wage and Investment Division Headquarters in
Inaccurate
Tax Returns Resulted From Inconsistent Quality of Service at Volunteer Income
Tax Assistance Sites
The SPEC function is using established processes that have increased its ability to oversee and monitor
the VITA Program. In addition, it has
established new initiatives to further improve its communications with its
partners. These include:
· Holding SPEC Function and Partner Conference Calls. These calls provide an opportunity for the SPEC function and its VITA Program partners to maintain continuous communications concerning the VITA Program. The calls serve as a forum for participants to share concerns and work together to identify solutions to any problems, discuss development of best practices for program-wide implementation, and identify product improvement opportunities.
· Issuing Quality Alerts. Throughout the 2006 Filing Season, in response to emerging trends relating to the quality of tax returns being prepared, the SPEC function developed and issued eight Volunteer Quality Alerts. These Alerts direct volunteers’ attention to certain tax issues that may adversely affect the accuracy of tax returns. They also provide IRS management with a vehicle to immediately address issues brought to their attention by the TIGTA. Due to the SPEC function’s efforts to heighten partner awareness of the importance of effective Alert distribution, 32 (89 percent) of 36 VITA sites visited were receiving Alerts, a 22 percent increase over the 2005 Filing Season.
· Creating a SPEC Function Partner/Volunteer Public Webpage. This webpage was developed to enhance communication of key messages to the VITA volunteer community. It serves as a comprehensive one-stop resource center for access to partner and volunteer news, training, and tax reference materials.
·
Issuing Return
Reviewer Alerts. To increase ongoing
internal communications, the SPEC function developed Reviewer Alerts. These Alerts are distributed within the SPEC function
and are designed to provide timely feedback to SPEC function employees involved
in the tax return review quality process.
During the 2006 Filing Season, a total of six Reviewer Alerts were
developed and issued.
The SPEC function continues its commitment to providing top-quality service to all taxpayers, especially low- to moderate-income, elderly, disabled, and limited-English-proficient taxpayers. This commitment has resulted in the increased accuracy rate associated with tax returns prepared at VITA sites since the TIGTA performed its first VITA Program review during the 2004 Filing Season (see Figure 3).
Figure 3:
Overall Tax Return Accuracy Rates for the 2004, 2005, and
2006 Filing Seasons
Figure 3 was removed due to its size. To see Figure 3, please go to the Adobe PDF
version of the report on the TIGTA Public Web Page.
However, significant barriers continue to reduce the SPEC function’s ability to provide quality customer service at VITA sites and to measure the accuracy of prepared tax returns. These barriers include volunteers not adhering consistently to the SPEC function’s processes for ensuring the accuracy of tax returns and the SPEC function’s inability to implement an effective quality assurance process. As a result, 22 (61 percent) of the 36 tax returns prepared by VITA volunteers for TIGTA auditors were incorrect. If 4 (18 percent) of these incorrectly prepared tax returns had been filed, the taxpayers would not have received $4,411 in tax refunds to which they were entitled. Alternatively, if the remaining 18 (82 percent) of the 22 incorrectly prepared tax returns had been filed, the IRS would have refunded $31,828 incorrectly. See Appendix V for details.
Both scenarios used in this review involved tax law issues included in the Basic Course curriculum all volunteers are required to complete successfully before they are certified to engage in the tax return preparation process.[11] However, IRS management raised concerns that the Form 8332 used in Scenario 1 related to only a minimum number of taxpayers that have their tax returns prepared by the VITA Program. The IRS stated that its electronic tax data showed only 556 tax returns prepared by VITA volunteers during the 2006 Filing Season included Form 8332. Therefore, they believe using Form 8332 in a scenario created an unrealistic situation and adversely affected the accuracy rate. However, there was no way to determine how many times the Form 8332 applied to the taxpayers’ situations and was not appropriately included, as our scenario results show. Nevertheless, we recomputed the accuracy rate by removing those tax returns on which the Form 8332 was the only error. This increased the accuracy rate from 39 percent to 42 percent.
Figure 4 shows a 3-year trend analysis of tax law accuracy
at VITA sites for the tax law issues included in our 2 scenarios.
Figure 4:
Comparison of Tax Law Accuracy Rates for the 2004, 2005, and
2006 Filing Seasons[12]
Figure 4 was removed due to its size.
To see Figure 4, please go to the Adobe PDF version of the report on the
TIGTA Public Web Page.
See
Appendix VI for 2006 Filing Season results by scenario.
Volunteers did not follow procedures to ensure the accurate preparation
of tax returns
Central to the SPEC function’s strategy for ensuring the accuracy of tax returns completed by VITA volunteers is its Integrated Return Preparation Process Model, which outlines a step‑by‑step method for preparing accurate tax returns at VITA sites. The Model’s premise is that, for VITA volunteers to complete accurate tax returns, they must ask certain questions about the taxpayers and, if relevant, their families. The Model reinforces the importance of completing a Form 13614 and conducting a probing interview using the Volunteer Resource Guide (Publication 4012).
The Model also outlines the need to ensure a quality review of the completed tax return is conducted. To measure the quality of each tax return, the quality review process is designed to ensure calculations and the name(s) and Social Security Number(s) of the taxpayer(s), including a spouse and any dependents, are correct. Additionally, it requires a validation to determine whether sufficient questions were asked to establish the taxpayer’s filing status and whether income from all Forms W-2 and other income documents were reported on the tax return.
The two previous TIGTA reports raised concerns regarding volunteers not consistently using the tools designed to assist in ensuring tax returns are prepared accurately. In this current review, we continued to find that key controls designed by the SPEC function to assist in accurate tax return preparation were not followed at VITA sites consistently. For example:
· The local intake sheets did not include all critical questions. The SPEC function developed the Form 13614, an intake sheet that contains a standardized list of required intake questions, to guide VITA volunteers in asking taxpayers basic questions about themselves. The purpose of the Form 13614 is to open dialogue between the taxpayer and the VITA volunteer, providing the opportunity for the volunteer to get acquainted with the taxpayer’s unique set of facts. Each VITA site is required to use an intake sheet. For the 36 sites visited, all sites used an intake sheet. This represents an improvement over the 2005 Filing Season when 5 (14 percent) of 35 sites did not use an intake sheet.
A VITA
site is permitted to create its own intake sheet. However, intake sheets must include those
questions designated by the SPEC function as required and included on the Form 13614. These required questions are presented in
Appendix VII. For the 36 VITA sites visited, 5 (14
percent) used an intake sheet other than the Form 13614 that did not include
all the required critical questions. Although
this represents a 13 percent decrease compared with the 2005 Filing Season
results, incomplete local intake sheets remain a factor contributing to the
preparation of inaccurate tax returns at VITA sites.
· VITA volunteers did not ensure intake sheets were completely prepared and/or were used during the tax return preparation process. Contributing to each of our inaccurate tax returns was the lack of a completely prepared intake sheet and/or the volunteer not using the information included on the intake sheet. In fact, auditors noted there was no interaction between the auditor and the volunteer during the tax return preparation process or a review of information contained on the intake sheet.
For 11 (31 percent) of 36 sites visited, the intake
sheet was not prepared completely.
Incomplete preparation of the intake sheets occurred at those sites
where a screener or volunteer prepared the intake sheet (7 of the 11 sites) or
where the auditor was not allowed sufficient time or told not to complete the
entire intake sheet (4 of 11 sites).
Information found missing from the screener/volunteer-prepared intake
sheet included answers to whether the taxpayer signed Form 8332 to release the
dependent exemption to another person; whether someone else could claim the
child for Earned Income Tax Credit purposes; and whether the taxpayer made a
contribution to a retirement plan, had interest income, or had daycare expenses.
Additionally, volunteers did not use the information contained on the intake sheet to ensure the accuracy of tax law determinations they were deciding. For example:
· The Dependent Exemption was incorrectly applied in 11 instances even though the intake sheet indicated that a Form 8332 was signed.
· Interest Income was not correctly included on five tax returns despite the intake sheets indicating the taxpayers had received interest income.
As shown in Figure 5, when the intake sheet is prepared completely, it provides a good starting point for volunteers to determine what tax topics might apply to a tax return. Discussions with VITA volunteers found that volunteer understanding of the purpose and use of intake sheets was not consistent. However, the intake sheet does not always provide complete information and should be used with other tools and reference materials, including Publication 4012, to provide reasonable assurance that a tax return will be prepared accurately.
Figure 5: Comparison
of Tax Issues Included in TIGTA Scenarios to Key Information Captured on Form
13614
Figure 5 was removed due to its
size. To see Figure 5, please go to the
Adobe PDF version of the report on the TIGTA Public Web Page.
· VITA volunteers did not use the Publication 4012 when making tax determinations. In 28 (78 percent) of 36 sites visited, the volunteers did not use the Publication 4012 during the tax return preparation process.[13] In all 22 instances where the tax return was incorrectly prepared, the Publication 4012 was not used. Last year we reported the Publication 4012 was not used during the tax return preparation process for 25 (71 percent) of 35 sites.
· VITA volunteers did not ensure completed tax returns were subjected to the required quality review process. For 21 (58 percent) of 36 tax returns prepared at the VITA sites, there was no onsite quality review completed. This is an increase over the 40 percent from last year. When VITA volunteers completed the tax returns, they did not review the tax returns with the taxpayers and/or the tax returns were not reviewed by other volunteers. Additionally, checklists developed to guide and assist VITA volunteers when conducting quality reviews of tax returns were not used despite SPEC function guidelines that require tax returns to be quality reviewed with the aid of the checklists. Volunteers and/or site coordinators explained that quality reviews were not always performed for a number of reasons, including they were confident in their tax return preparation skills, they did not have the time to review because of the large volume of taxpayers waiting to have tax returns prepared, or they relied on the tax preparation software to perform a quality review.
· VITA volunteers did not receive Quality Alerts. Twenty (56 percent) of 36 volunteers interviewed stated they had not received Quality Alerts as of the date of our visit to the site, despite 32 of the 36 sites confirming receipt of these Quality Alerts. As a result, these volunteers were not alerted to tax issues that may have adversely affected the accuracy of tax returns they prepared. We did not track this in prior years and, as a result, we are unable to make a comparison.
Incorrectly prepared
tax returns not only increase the risk of taxpayers receiving erroneous
payments, they also may create additional burden on taxpayers if the IRS later
finds potential errors on the tax returns.
These taxpayers may be required later to face
the demands of an IRS audit of their tax returns due to potential errors
identified on the returns.
Improvements are needed to ensure the Volunteer Return Preparation
Program Quality Improvement Plan provides accurate measures
The SPEC function has developed procedures and controls as
part of its Volunteer Return Preparation Program Quality Improvement Plan. However, certain procedures are not being
followed and not all controls are effective.
This
is understandable because the Quality Improvement Plan is still in the early
stages of implementation.
The picture was
removed due to its size. To see the picture,
please go to the Adobe PDF version of the report on the TIGTA Public Web Page.
In addition, many of our concerns are inherent to a program this large dealing with volunteers and a complex tax system. Volunteers and their partner organizations play a significant role in the IRS’ tax return preparation program. The IRS is moving away from providing tax preparation assistance at its Taxpayer Assistance Centers and is relying more on the VITA Program and its partners to provide this service. This presents significant challenges to the IRS and the SPEC function. The strengths of the VITA Program lie in its volunteers and partners. However, relying on volunteers to deliver the Program has inherent risks.
The SPEC function must balance the needs and desires of the volunteers
with the IRS’ mission and goals. As
it strives to achieve its mission and goals and provide accountability for its
operations, the SPEC function will have to continually assess and evaluate its
internal control structure to ensure the VITA Program is providing accurate and
reliable measurements, particularly measurements related to the accuracy of tax
returns prepared.
In response to
concerns raised during prior TIGTA reviews, for the 2006 Filing Season, the
SPEC function implemented the comprehensive Volunteer Return Preparation
Program Quality Improvement Plan. The Quality
Improvement Plan follows an integrated approach that includes:
· Site Reviews to measure the administrative aspects of a volunteer site. These reviews are used to assess procedures and site readiness using the Volunteer Return Preparation Program Site Review (Form 6729). Employees of the SPEC function visit the VITA sites and assess whether the sites are operating as intended. For example, these documented reviews include checks to determine if the sites have the required reference materials available for the volunteers, if volunteers have completed the required training, and if taxpayer information is safeguarded.
· Shopping Reviews to measure the taxpayer’s qualitative experience. These reviews involve unannounced/anonymous visits to sites by a neutral third-party reviewer playing the role of a taxpayer using made-up scenarios. The SPEC function relied on the TIGTA for this component of the quality assurance process. On a weekly basis, we reported to SPEC function management current results of tax returns prepared during auditors’ visits to VITA sites.
· Tax Return Reviews to measure whether the tax law was applied properly for critical items and resulted in the correct tax determinations. The volume of tax return reviews and the specific sites included in this process were based on