Treasury Inspector General for Tax Administration
MOST COMPLIANCE ACTIONS WERE
PREVENTED; HOWEVER, SOME LETTERS WERE SENT INAPPROPRIATELY TO TAXPAYERS
AFFECTED BY HURRICANES KATRINA AND RITA
Issued on December 15, 2006
Highlights
Highlights of
Report Number: 2007-30-006 to the
Internal Revenue Service Commissioners for Small
Business/Self-Employed and Wage and Investment Divisions.
IMPACT ON TAXPAYERS
In response to six separate
Federal disaster declarations made by the President for Hurricanes Katrina and
Rita, the Internal Revenue Service (IRS) used its administrative authority to
reduce taxpayer burden by granting broad tax relief for affected
taxpayers. The IRS Collection and Examination
functions were instructed to suspend compliance activities for affected
taxpayers; however, some letters were sent inappropriately to taxpayers.
WHY TIGTA DID THE AUDIT
The review focused on determining whether the Examination
and Collection functions were taking compliance actions on cases for taxpayers
that were in designated Hurricane Tax Relief areas. This audit was conducted in conjunction with
the President’s Council on Integrity and Efficiency as part of its examination
of relief efforts provided by the Federal Government in the aftermath of
Hurricanes Katrina and Rita.
Various types of tax relief were granted by the IRS to
affected taxpayers such as extensions of filing and payment deadlines,
abatements of late filing and payment penalties and interest, and other
time-sensitive acts. In addition, the
IRS Collection and Examination functions were instructed to suspend compliance
activities for affected taxpayers through February 28, 2006. The IRS took many actions to provide tax
relief to affected taxpayers immediately after the President declared Federal
disaster areas.
WHAT
TIGTA FOUND
Overall, the IRS prevented most collection and examination
activities from occurring. The IRS
responded quickly by issuing disaster guidelines and instructions to employees
and establishing a Hurricane Katrina/Rita web site for IRS employees with easy
access to up-to-date instruction memos, IRS news releases, and designated
disaster relief zip code lists.
Our audit determined the IRS suspended most compliance
activities on affected taxpayers; however, some letters were sent
inappropriately to taxpayers with accounts in the Automated Collection System
and the Examination function. The number
of actions taken was small in relation to the number of affected taxpayers in
the areas. In the first weeks after the
Hurricanes, the inappropriate actions were due mainly to a delay that occurs
from the date employees initially program disaster indicators on the IRS’ main
computer system until it actually shows on the Collection and Examination functions’
inventory systems. Subsequently, the
primary reason was that employees took inappropriate actions that were contrary
to existing procedures.
While the letters should not have been sent to taxpayers
based on the tax relief guidelines, these actions did not result in an
immediate adverse action to the taxpayers.
Examples include letters to the taxpayers explaining that they had a
balance due or a proposed examination tax adjustment and the taxpayers should
contact the IRS. The IRS also included
another notice to taxpayers with these letters that they could contact the IRS
if they lived in an area affected by the Hurricanes.
WHAT TIGTA RECOMMENDED
The Commissioner, Small Business/Self-Employed Division, and
the Commissioner, Wage and Investment Division, should coordinate to establish
a monitoring process to test the effectiveness of the Automated Collection
System programming change to ensure that inappropriate letters and levies are
not sent during future disasters.
The Commissioner, Small Business/Self-Employed
Division, agreed with our recommendation and has taken
corrective action by programming changes to the Automated Collection System and
testing the programming changes.
READ THE
FULL REPORT
To view the report,
including the scope, methodology, and full IRS response, go to:
http://www.treas.gov/tigta/auditreports/2007reports/200730006fr.html.
Email
Address: Bonnie.Heald@tigta.treas.gov
Phone
Number: 202-927-7037
Web Site: http://www.tigta.gov