Statutory Mandate ........................................................................................................... 3
Organizational Structure .................................................................................................. 4
Authorities ....................................................................................................................... 4
TIGTA Office Locations Throughout The Nation .......................................................... 5
Promote the Economy, Efficiency, and Effectiveness of Tax Administration .......... 7
Systems Modernization .................................................................................................... 7
Tax Compliance Initiatives .............................................................................................. 8
Security of the IRS .......................................................................................................... 11
Providing Quality Customer Service Operations ............................................................. 12
Erroneous Payments ........................................................................................................ 13
Processing Returns and Implementing Tax Law Changes ............................................... 14
Human Capital ................................................................................................................ 16
Employee Integrity .......................................................................................................... 21
Employee and Infrastructure Security ............................................................................. 23
External Attempts to Corrupt Tax Administration .......................................................... 24
Special Achievements ....................................................................... 29
Audit Reports with Questioned Costs ............................................................................. 30
Reports with Recommendations That Funds Be Put to Better Use ................................ 31
Reports with Additional Quantifiable Impact on Tax Administration ............................ 32
Complaints/Allegations Received by TIGTA .................................................................. 35
Status of Complaints/Allegations Received by TIGTA .................................................. 35
Investigations Opened and Closed .................................................................................. 35
Financial Accomplishments ............................................................................................. 35
Status of Closed Criminal Investigations ........................................................................ 36
Criminal Dispositions ....................................................................................................... 36
Administrative Disposition on Closed TIGTA Investigations ........................................ 37
Appendices
Audit Reports with Significant Unimplemented Corrective Actions .............................. 39
Statistical Reports - Other ................................................................................................ 46
October 1, 2004 - March 31, 2005 ................................................................................... 47
Appendix V - Data Tables Provided by the IRS (Employee Misconduct Reports) ....... 57
IRS Memorandum ........................................................................................................... 57
Report of Employee Misconduct for the Period 10/01/04 - 3/31/05
Summary by Disposition Groups ..................................................................................... 58
Report of Employee Misconduct for the Period 10/01/04 - 3/31/05
National Summary ........................................................................................................... 59
Summary of Substantiated §1203 Allegations Recorded in ALERTS
for the Period 10/01/04 - 3/31/05 ..................................................................................... 60
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he operation of our nation’s government depends on the collection of tax revenue. With the fiscal constraints presently facing the entire Federal Government, TIGTA’s role of promoting the efficiency and effectiveness of tax administration, and safeguarding the collection of taxes is as important as ever.
I was confirmed by the Senate as TIGTA’s new Inspector General during the first half of this semiannual reporting period. Since that time, I have identified several priorities for TIGTA:
· Maintain our focus on overseeing Internal Revenue Service (IRS) efforts to modernize its business systems;
· Enhance our ability to protect tax administration from corruption;
· Assist the IRS with improving tax compliance initiatives; and
· Monitor IRS usage of private debt collection agencies.
In addition to these priorities, TIGTA will continue its work in other areas, including issues related to the security of IRS employees, facilities, and information systems; the prevention of erroneous and improper payments by the IRS; the IRS’ processing of tax returns and implementation of tax law changes; customer service; and the integration of performance and financial management at the IRS, to name a few. These are all important oversight activities that will continue to be pursued vigilantly.
I am proud to report that a TIGTA recommendation to require large companies and tax-exempt organizations to file their returns electronically became law during this reporting period. This will take effect in the 2005 Tax Year and will apply to businesses with assets exceeding $50 million and tax-exempt organizations with assets exceeding $100 million. The $50 million and $100 million thresholds will be lowered over time.
Also, between October 1, 2004, and March 31, 2005, we identified more than $28.3 million in cost savings, and more than $12 billion in increased or protected revenue by addressing IRS issues.
TIGTA’s achievements in combating fraud and corruption have enhanced the integrity of tax administration. Several investigations related to IRS usage of contracted lockbox facilities to receive and process tax remittances have resulted in significant prosecutions. In one case, six former employees of Mellon Financial Services were indicted this year in Pennsylvania for initially hiding, and then destroying, approximately 80,000 unprocessed Federal tax returns, vouchers, and checks in an attempt to conceal their inability to fulfill their contractual requirements with the IRS. A second TIGTA investigation revealed that a former lockbox employee stole 30 taxpayer remittance checks that totaled more than $2.7 million from an IRS lockbox facility located in Texas. Both investigations illustrate the importance of monitoring the IRS’ use of private agencies to collect tax remittances or provide debt collection services.
TIGTA will continue working to protect and improve our nation’s tax administration system. We are committed to helping the IRS overcome current and future challenges to ensure that the collection of tax revenue is done with efficiency, effectiveness, and integrity.
Sincerely,
J. Russell George
Inspector General
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he Treasury Inspector General for Tax Administration (TIGTA) provides independent oversight of Treasury Department matters involving IRS activities, the IRS Oversight Board, and the IRS Office of Chief Counsel. Although we are placed organizationally in the Treasury Departmental Offices and report to the Secretary of the Treasury and the Congress, we function independently from the Departmental Offices and all other offices and bureaus within the Department.
Our work is devoted to all aspects of activity related to the Federal tax system as administered by the IRS. We protect the public’s confidence in the tax system by overseeing the IRS as it strives to achieve its strategic goals, by identifying and
addressing the IRS’ management challenges, and by implementing the President’s Management Agenda and the priorities of the Department of the Treasury.
· Promote the economy, efficiency, and effectiveness of tax administration; and
· Protect the integrity of tax administration.
.
TIGTA’s Statutory Mandate
Protect against external attempts to corrupt or threaten IRS employees.
Provide policy direction and conduct, supervise, and coordinate audits and
investigations related to IRS programs and operations.
Review existing and proposed legislation and regulations related to
IRS programs and operations and make recommendations concerning the
impact of such legislation or regulations.
Promote economy and efficiency in the administration of tax laws.
Prevent and detect fraud and abuse in IRS programs and operations.
Inform the Secretary of the Treasury and Congress of problems and
deficiencies identified and of the progress made in resolving them.
Authorities
TIGTA has all the authorities granted under the Inspector General Act of 1978, as amended.[1] TIGTA also has access to tax information in the performance of its tax administration responsibilities and the obligation to report potential criminal violations directly to the Department of Justice. TIGTA and the Commissioner of Internal Revenue have established policies and procedures delineating responsibilities to investigate potential criminal offenses
under the internal revenue laws. In addition, the IRS Restructuring and Reform Act of 1998 (RRA 98)[2] amended the Inspector General Act of 1978 to give TIGTA statutory authority to carry firearms, execute and serve search and arrest warrants, serve subpoenas and summonses, and make arrests as set forth in Section 7608(b)(2) of the Internal Revenue Code (I.R.C.).
TIGTA Office Locations Throughout
The Nation
TIGTA employees include auditors, special agents and information technology support staff
who are located throughout the nation.
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The IRS’ implementation of audit recommendations results in cost savings and increased or protected revenue, reduction of taxpayer burden, and protection of: taxpayer rights and entitlements; taxpayer privacy and security; and IRS resources.
Each year, we identify and address the major management challenges facing the IRS. These challenge areas for Fiscal Year (FY) 2005 are outlined in the chart below:
IRS’ Major Management Challenges
•
Systems Modernization
•
Tax Compliance Initiatives
•
Security of the IRS
•
Integrating Performance and
Financial Management
•
Complexity of the Tax Law
•
Providing Quality Customer
Service Operations
•
Erroneous and Improper Payments
•
Processing Returns and
Implementing Tax Law Changes
•
Taxpayer Protection and Rights
•
Human Capital
Audit emphasis is placed on statutory coverage required by the RRA 98, as well as on areas of concern to the Congress, the Secretary of the Treasury, the Commissioner of Internal Revenue, and other key stakeholders.
The following audit summaries highlight significant audits completed during this
6-month reporting period that fall into the IRS’ Major Management Challenges categories.
Systems Modernization
The IRS is currently engaged in the Business Systems Modernization (BSM) Program to modernize its systems and associated processes. All of the BSM projects initiated to date have experienced cost overages and schedule delays. In
mid-2003, the IRS and the PRIME contractor[3] initiated four studies to help identify the root causes of these problems and make recommendations to remedy them. Key IRS executives and stakeholders reviewed the results of these studies, acknowledged BSM shortcomings, and developed actions to address the studies’ recommendations and resolve longstanding BSM issues. Collectively, these actions became known as the BSM Challenges Plan.
We determined that the majority of recommendations were not fully addressed by the BSM Challenges Plan. Also, the IRS did not create a measurement plan to determine whether actions taken resulted, or will result, in actual improvements in the BSM Program. Many BSM Challenges Plan actions were closed before all significant activities were completed.
The BSM Challenges Plan Did Not Completely Address the 21 BSM-Related Study Recommendations
We recommended the IRS reevaluate those recommendations that were not addressed by the BSM Challenges Plan to determine whether corrective actions should be taken and create an overall measurement plan to determine whether activities are leading to BSM Program improvements. The IRS should also ensure stakeholders understand that additional work is necessary to complete actions in the Plan, and new activities taken in furtherance of the Plan should be tracked. IRS management agreed with our recommendations and acknowledged there was significant work ahead in the BSM Program.
Report Reference No. 2005-20-014
During this reporting period, TIGTA analyzed the Custodial Accounting Project (CAP), which was designed to help correct longstanding weaknesses in IRS financial management systems. Our analysis of the CAP illustrates the continuing need for improvement in the BSM Program. The BSM Office, the contractor, and the end user were making progress to deploy the CAP. However, the IRS and the CAP contractor did not adequately manage system testing of requirements during its first release. For example, system requirements were not tracked and, therefore, could not be tested successfully. In addition, the IRS approved changes without always knowing which system requirements were affected and accepted test results that could not be verified. IRS management agreed with our recommendations and modified its approach to requirements management for future CAP releases.
Report Reference No. 2005-20-019
Tax Compliance Initiatives
The Limited Issue Focused
Examination (LIFE)[4]
process has merit for reducing the
length of examinations. IRS’ Large and Mid-Size Business Division statistics
showed that LIFE cases, on average, were completed in 236 fewer days than
non-LIFE cases. However, efforts to incorporate this process into the
examinations of large businesses have made
little progress. As of September 2004, only about 4.2 percent of
the examinations initiated for large businesses involved the LIFE process.
TIGTA is concerned by the results from the LIFE process. Statistics show LIFE cases were generating significantly less additional recommended taxes than other large business examinations. Our analysis indicated if the IRS allocated 5 percent of the available examinations of large businesses to the LIFE process over the next 5 years, the amount of recommended additional taxes could drop an average of $349 million a year, or $1.7 billion over
5 years.
We recommended the IRS develop and implement a plan for analyzing data on LIFE examinations that is reliable and can help correct problems identified, clarify the integration of the Currency and Cycle Time Improvement Initiative[5] with the LIFE process, and ensure mid-level managerial reviews include evaluating open cases and assessing whether the
LIFE process is being used in examinations. IRS management generally agreed with our recommendations.
Report Reference No. 2005-30-029
For Tax Year (TY) 2001, the IRS estimated the gross tax gap[6] attributable to the underreporting and underpaying of employment taxes was $73.3 billion. However, the IRS has not used the Automated 6020(b) Program[7] to address business taxpayer filing noncompliance throughout most of the past decade due to various organizational changes, programming problems, and funding issues. The number of direct hours the IRS applied to the Automated 6020(b) Program steadily declined from a high of 43,209 in FY 1993 to a low of 1,151 in FY 2001, before increasing to 6,542 in FY 2003 after the IRS centralized administration of the Program. The declining trends in resources applied to the Automated 6020(b) Program adversely affected the results. The amount of taxes assessed by the Program declined from $206.8 million in FY 1998 to $3.6 million in FY 2002, but then increased to $60.6 million in FY 2003.
Taxes Assessed by the Automated 6020(b) Program, FYs 1996-2003
Source: Collection Activity Reports (FYs 1996-2003).
To improve the effectiveness and efficiency of the Automated 6020(b) Program for addressing business filing noncompliance, we recommended the IRS: replace the computer system supporting the Program with one that interfaces with its other systems; modify the dollar criterion to select additional cases that may otherwise remain unworked; modify the Program to add nonfiled excise tax returns; and evaluate the computation used for assessing proposed unemployment tax assessments. IRS management agreed with the recommendations.
Report Reference No. 2005-30-053
To improve IRS tax compliance initiatives, TIGTA reviewed pass-through businesses during this reporting period. Pass-through businesses, such as partnerships and S corporations, are not subject to income taxes, although they have a significant impact on tax administration. For TY 2001, $276.3 billion passed through over 2.1 million partnerships to their individual partners. The incidence of late-filed returns, measured as a percentage of total returns filed, is nearly two times higher among partnerships and nearly four times higher among S corporations, than it is among individual taxpayers, and it is rapidly growing. Between Calendar Years (CY) 2000 and 2003, the number of late-filed partnership returns increased
22 percent (from 167,000 to 203,000). During the same period, the number of late-filed S corporation returns increased 28 percent (from about 450,000 to 577,000).
Late-filed partnership and S corporation returns can have an adverse effect on the filing and reporting compliance of the individual partners and shareholders. Our analysis of TY 2001 tax return data for more than 817,000 individual partners and shareholders indicated late filing of returns by pass-through businesses may have contributed to 49 percent of these taxpayers obtaining an extension of time to file their individual tax returns, 108,587 late-filed individual tax returns, and more than
$1 billion not being reported on individual income tax returns. We estimated more than $354 million in individual income taxes was not paid on this unreported pass-through income.
We recommended the IRS amend the tax regulations and/or develop legislative proposals to address several key issues that would encourage greater voluntary compliance with filing and reporting requirements for pass-through entities. IRS management disagreed with some of the recommendations presented in the report. The decision to implement the remaining recommendations requires input and concurrence from the Department of the Treasury. The IRS will consult with Treasury on these issues.
Report Reference No. 2005-30-048
Also in the area of tax compliance, TIGTA received requests from the IRS in November 2004 to evaluate a new process for reviewing allegations of potential political activity by tax-exempt organizations. There had been several media reports of allegations that the IRS Tax Exempt and Government Entities Division was examining this type of activity for politically motivated reasons just before the 2004 Presidential election. Based on the extent of our audit work, we did not identify any indications that inappropriate actions, such as political influence, may have been taken in handling these referrals. We reviewed samples of information items that were handled under the new process and determined the Exempt Organization (EO) Referral Committee followed a consistent process when it reviewed the items, regardless of the source of the allegation or the potential political activity. We did not identify any case in which the same criteria were used to select one information item for examination and to decline a similar item for examination.
However, the IRS experienced delays in expediting the classification and examination processes. As a result, management did not send contact letters to organizations until September 21, 2004,
6 weeks before the scheduled elections. We believe contacting organizations so close to the election and the late publicity about this project contributed to the allegations of improper motivation on the part of the IRS.
We recommended IRS management formalize guidelines for reviewing allegations of potential noncompliance, establish realistic time standards for classifying information items and forwarding them to an examination group, and initiate any future expedited review process earlier in the election year. Further, we recommended IRS management issue a press release in future election years outlining an expedited process to review allegations of potential political intervention. IRS management agreed with our recommendations and proposed corrective action.
Report Reference No. 2005-10-035
Security of the IRS
During FYs 2002 through 2004, IRS management initiated and/or completed several actions that demonstrated increased emphasis on emergency management and preparedness, including disaster recovery planning. However, significant disaster recovery program weaknesses continue to be unresolved. Our analysis of 11 prior TIGTA audit reports identified such weaknesses, including:
· Modernization systems being placed into production without a disaster recovery capability;
· Insufficient disaster recovery capacity;
· Roles and responsibilities not assigned and employees not trained; and
· Annual tests not conducted or ineffective.
Also, 27 of 44 corrective actions for prior recommendations were not completed and insufficient management oversight hampered the identification and resolution of program weaknesses. However, management’s efforts to correct these problems have also been limited, in part, by shrinking budgets. IRS management agreed with the report recommendations and will declare the Disaster Recovery Program a material weakness.
Report Reference No. 2005-20-024
IRS employees have become more cognizant of security risks inherent in their daily activities. However, a hacker or disgruntled employee may still be able to obtain usernames and passwords to gain unauthorized access to IRS systems. We placed telephone calls to 100 managers and employees posing as Information Technology helpdesk personnel trying to correct a network problem. Under this scenario, we convinced 35 managers and employees to provide their user account names and passwords. While our results represent a 50 percent improvement over a similar test conducted in August 2001, additional security awareness and emphasis are needed to reinforce IRS employees’ security responsibilities. IRS management agreed with our recommendations and proposed corrective actions.
Report Reference No. 2005-20-042
Providing Quality Customer Service Operations
Helping people understand their tax obligations and making it easier for them to participate in the tax system is the first step toward compliance. Taxpayers have several options when they need IRS assistance, including face-to-face assistance at the Taxpayer Assistance Centers (TAC), toll-free telephone numbers, and Internet access through the IRS Web site (IRS.gov). The quality of each of these services influences a taxpayer’s ability and desire to comply voluntarily with tax laws.
Customer Service at TACs
The IRS is
improving customer service for taxpayers that visit the TACs to ask tax law
questions, but more improvement is needed for the IRS to provide top-quality
customer service. Although the accuracy of responses to tax law questions
increased by 24 percent, based on the audit work we completed from January 2002
through April 2004, the IRS did not meet its
80 percent accuracy goals for FYs 2003 and 2004, and it showed nominal
improvement in decreasing the number of incorrect responses. We believe the
IRS will not achieve its accuracy goal if employees continue to answer tax law
questions without using the tools provided by IRS management, and if the IRS
does not implement an effective quality review program. Because we have issued similar recommendations in
previous reports, we did not make recommendations in this report.
Report Reference No. 2005-40-021
As for customer service provided via the Internet, the IRS redesigned its Web site in 2002. The IRS decentralized responsibility for current and future Web content to its various operating divisions and functions. In addition, the IRS developed and issued guidelines in this area on September 30, 2002, and implemented software to allow authorized users to directly manage Internet content.
A large portion of the content on the IRS Web site is relevant to approximately 121 million individual taxpayers whose income is derived from wages and investments yielding interest, dividends, or capital gains. The IRS Wage and Investment (W&I) Division serves these individual taxpayers and is responsible for ensuring all information pertaining to these taxpayers is accurate and current. The W&I Division proactively developed specific procedures for employees to follow in publishing content on IRS.gov. However, improvements are needed to ensure this content is current and accurate. Sufficient management controls are not in place to ensure only authorized individuals have access to IRS.gov content and all content is tracked and reviewed prior to posting. In addition, key quality assurance procedures are not always followed to ensure the IRS responds to taxpayers who notify them of Web site errors, and employees follow procedures for reviewing content changes and documenting annual certifications. We recommended the IRS develop a process to ensure only authorized personnel have access to IRS.gov content and all procedures are followed. IRS management agreed with these recommendations.
Report Reference No. 2005-40-026
Also in the area of customer service via the Internet, the IRS has made significant progress in attracting taxpayers to electronically file their tax returns (e-file).[8] In addition the number of taxpayers participating in e-file has increased from approximately 19 million in 1997 to 60.5 million in 2004.[9] However, opportunities exist to improve tax software packages used to prepare and process
e-filed tax returns.
The IRS uses electronic file specifications to program its computers that prepare and process e‑filed tax returns. The IRS appropriately updated these specifications with TY 2003 tax law provisions. However, inaccurate programming specifications used to program and process TYs 2001 and 2002 tax returns caused systemic errors in some software used to
e-file certain tax returns. The IRS tests all tax return preparation software used to e‑file individual tax returns, but the tests are not created to check for misapplication of the tax law. Four out of the five TY 2003 tax return preparation software packages tested incorrectly prepared tax returns based on facts we presented in the tests. In addition, the tax software packages’ own internal validity checks did not identify the errors.
We recommended the IRS develop procedures to ensure electronic file specifications are reviewed for accuracy and consistency, and conduct additional testing on any selected tax return preparation software before being used by its employees and volunteers to prepare tax returns. The IRS agreed with our recommendation on file specifications. However, the IRS believes it would not be feasible to perform additional software testing without impeding its availability to IRS employees and volunteers and delaying tax return processing. In addition, the IRS cannot contractually require software developers to place their products under the IRS’ process for more stringent testing.
Report Reference No. 2005-40-025
Erroneous Payments
The IRS has historically experienced problems by making erroneous payments involving the Earned Income Tax Credit (EITC). EITC is a refundable credit designed to help move low-income taxpayers above the poverty level. During 2003, over 21 million taxpayers received the EITC, totaling almost $37 billion. The IRS estimated that 27 to 32 percent of the EITC claimed on TY 1999 returns should not have been paid.
The IRS has initiated several programs to attempt to improve compliance with the EITC. We reviewed one initiative, the EITC Recertification Program, to determine if actions taken in response to a prior TIGTA report were effective. The IRS did take some corrective actions, such as solving a programming problem we identified. This corrective action allowed over 21,000 taxpayers to correctly receive more than $4.7 million in EITC. However, many of the actions taken were ineffective, incomplete, or inaccurate. We still identified taxpayers not receiving the EITC, taxpayers not timely receiving refunds, taxpayers subjected to unnecessary examinations, unclear or confusing communications, and loss of Federal Government funds. For instance:
· Approximately 51,000 taxpayers received more than $110 million of EITC without demonstrating entitlement;
· Over 10,000 taxpayers were improperly denied almost $21 million;
·
Over 3,200 taxpayer accounts had refunds totaling approximately
$4 million incorrectly suspended for an average of 1 year; and
· The IRS sent taxpayers approximately 850,000 letters or electronic messages that did not clearly or accurately communicate the EITC recertification requirements.
IRS management generally agreed with our recommendations to help improve the application and administration of the EITC Recertification Program.
Report Reference Nos. 2005-40-015 and 2005-40-039
Processing Returns and Implementing Tax Law Changes During the Tax Filing Season
Overall,
the IRS had a successful 2004 Filing Season. Through May 2004, the IRS had
processed over 117 million returns (including over 60 million processed electronically
– an increase of nearly
16 percent over last year). Most of these returns were processed accurately
and timely. In addition, the IRS reported that the number of free file and on-line
filings from home computers increased by
25 percent (3.5 million) and 22 percent (14.4 million), respectively, compared to last year. The IRS correctly implemented key tax law changes that affected TY 2003 returns, and provided taxpayers serving in a combat zone the benefits and special treatment to which they are entitled. Such benefits include extensions of time to file tax returns or pay taxes and the suspension of any audit or collection activities. The IRS also accurately processed returns claiming the Health Coverage Tax Credit (HCTC), which was established to help certain displaced workers and retirees pay for their health insurance.
However, not all tax law changes have been effectively implemented, and these continuing issues could result in a loss of taxpayer entitlements or erroneous tax reductions. We estimated almost 5,000 taxpayers continued to receive more than $3 million in erroneous deductions for student loan interest while over 286,000 taxpayers had potential unclaimed Additional Child Tax Credits (ACTC) amounting to approximately $152 million.
Almost 17,000 single taxpayers were allowed questionable “dual benefits” of approximately $30 million for the tuition and fees deduction and $11 million for the Education Credit. We also identified some processing improvements needed to aid the administration of Combat Zone and HCTC provisions.
We recommended the IRS ensure computer programs accurately identify and correct errors on returns, ensure a computer change is made to continue to identify taxpayers that appear eligible for, but do not claim, the ACTC, and strengthen controls to identify and prevent erroneous tax reductions during initial tax return processing. We further recommended the IRS add a specific line for the HCTC to the Individual Income Tax Return (Form 1040), transcribe information from the Health Coverage Tax Credit (Form 8885) attachment to Form 1040, and implement pre-refund systemic validity and compliance checks. Lastly, we recommended the IRS ensure Combat Zone indicators on its Master File are accurate, updated timely, and verified annually.
Report Reference Nos. 2005-40-016 and 2005-40-017
In a separate audit report, related to processing returns, we addressed the inconsistent treatment of taxpayers who become subject to the Failure to Pay (FTP) tax penalty. IRS computers are programmed to charge interest on accrued FTP tax penalties only after they are assessed. This shortcoming applies to the automated administration of the FTP tax penalty for taxpayer accounts (the majority of FTP tax penalty cases). By not periodically assessing penalties, the IRS is forgoing interest charges of more than
$4.5 billion for a 5-year period, of which we estimated more than $1.8 billion could be collected.
In contrast, for accounts that are manually administered, some of which belong to taxpayers in disaster areas or military combat zones, interest is assessed on the FTP tax penalty. The FTP tax penalties on these accounts are computed manually because IRS computers are not programmed to handle their complex or varying tax issues. Because FTP tax penalties are periodically assessed on these accounts, interest is charged on the penalties from the time of their assessment. For CYs 2001 and 2002, we estimated over 126,000 of these accounts contained more than $8.7 million in interest charges through December 31, 2003, even though taxpayers with accounts handled by computer never incur these interest charges.
To ensure all taxpayers are treated equitably and all monies owed the Federal Government are correctly assessed, we recommended the IRS make programming changes to assess accrued FTP tax penalties on a periodic basis. We also recommended the IRS work with the Department of the Treasury to request clarifying legislation regarding the need for separate notices to be issued to taxpayers in these cases. IRS management generally agreed with our recommendations and is taking steps to address this issue.
Report Reference No. 2005-30-052
Human Capital
The Department of the Treasury implemented a human resources management system called HR Connect, based on promising capabilities and the belief that it offered a cost-effective solution for the Department and its bureaus’ redundant, expensive, and inefficient human resources systems. However, some of the original program features and cost/benefits were changed or eliminated. The business case analyses submitted to the Office of Management and Budget (OMB) were not consistent and did not include complete information on systems that were to be replaced. The Department and the IRS incurred unexpected costs for maintaining software and systems that were to be replaced, incurred additional costs for modifying the HR Connect system, and scaled back expectations for system capabilities.
The HR Connect Program Office did
not provide adequate oversight of the contractor and major portions of the
system implementation. The costs to implement and operate similar software at
other Federal Government agencies were significantly lower. The Department of
the Treasury paid $173 million to implement HR Connect, while similar human
resource systems at the Coast Guard and the United States Department of
Agriculture cost
$24 million and $15 million, respectively. The project experienced
significant delays, and the Program Office extended the system life cycle from 10 to 15 years to show a higher return on investment. The underlying analysis to support
the
$899 million in projected savings was unsubstantiated, especially savings related to staff reassignments or reductions.
We recommended the Department of the Treasury ensure future business case analyses submitted to the OMB explain revisions and impact on the investment, and reevaluate the duties delegated to the contractor to ensure proper oversight. We also recommended the Department of the Treasury identify and monitor custom modifications made to the software, coordinate with other agencies to achieve a more cost-effective model for operating and maintaining the system, properly account for system costs, and assess the likelihood of projected benefits so future decisions are based on correct information. The Department of the Treasury’s management agreed with our recommendations and proposed corrective actions to address these problems.
Report Reference No. 2005-10-037
In 1999, the IRS and the National Treasury Employees Union agreed to establish the Human Resources Investment Fund (HRIF) to help employees obtain appropriate training to move into IRS critical occupations and improve the skills of the employees currently in these positions. The IRS was required to set aside at least 2 percent of its annual training budget for the HRIF. For
FYs 2002 and 2003, the IRS approved
more than $6.1 million and 11,000 courses for 5,100 employees. However, only
46 percent of the $6.1 million reported as “disbursed” was actually spent.
Additionally, the IRS did not maintain adequate records to track participants, which
prevented it from assessing this program. As a result, the IRS did not know
whether employees passed or failed the courses or whether the IRS should seek
reimbursement from employees for failed or uncompleted courses.
The program’s efficiency is also questionable since its administrative costs exceeded the actual tuition paid. For
FYs 2002 and 2003, the IRS paid approximately $4.4 million to administer the program, but paid only $2.8 million in employee tuition assistance. The IRS could use other existing processes to allocate tuition assistance more effectively and better accomplish the intended objectives of the HRIF. The IRS could use its new automated training system of record, the Enterprise Learning Management System, to track the success of these initiatives.
We recommended the IRS request reimbursement from employees who failed or did not complete approved courses, as appropriate. We also recommended the IRS consider eliminating the HRIF and redesign its approach to providing tuition assistance, which could save more than
$2 million in annual administrative costs. While they disagreed with the estimated annual savings, IRS management agreed with the recommendations and proposed corrective actions to address the problems identified in the report.
IGTA’s Office of Investigations (OI) helps protect the ability of the IRS to collect revenue for the Federal Government. To do this, we investigate allegations of criminal violations and serious[mja1] administrative misconduct by IRS employees, protect the IRS against external attempts to corrupt tax administration, and ensure IRS employee and infrastructure security.
While most Offices of Inspector General focus primarily on fraud, waste and abuse, our mission is more extensive. TIGTA has the statutory responsibility to protect the integrity of tax administration. To achieve this broad mandate, we perform a variety of functions, including:
·
A strong vigorous inspection service will be established and will be made completely independent of the rest of the Bureau. Through a comprehensive system of audits and inspections, this service will keep operations and management of the Bureau under continual scrutiny and appraisal…”
U.S. President Harry S. Truman
January 2, 1952
The White House, Washington, DC
Announcing the reorganization of the Bureau of Internal Revenue, creating an Inspection Service within the Bureau
Investigating
allegations of criminal violations that impact Federal tax administration, and serious[mja2] administrative misconduct by
IRS employees;
· Conducting proactive investigative initiatives to detect criminal and administrative misconduct in the administration of IRS programs;
· Conducting integrity and fraud awareness presentations for IRS employees and others, such as tax practitioners and community groups;
· Investigating assaults and threats made against IRS employees, facilities, and information systems;
· Investigating fraud, waste, and abuse involving IRS procurements;
· Operating a national complaint center, including a hotline and Web site, to process complaints of fraud, waste, abuse and misconduct involving IRS employees and programs;
· Operating a Criminal Intelligence Program to manage and coordinate threat information that could impact the security of IRS employees and functions;
· Conducting forensic examinations of physical and electronic evidence to support investigations; and
· Using technical and investigative support equipment[mja3] , training, and specialized services to enhance investigative operations[mja4] .
TIGTA Investigative Performance Model
TIGTA’s Office of Investigations (OI) bases its performance measures on three functional areas of accomplishment: employee integrity, infrastructure protection, and external crime. Each of these three areas is subdivided into three categories, all designed to support the agency’s law enforcement goals.
Our strategy for ensuring employee integrity, employee and infrastructure protection, and protecting the IRS against external attempts to corrupt tax administration is to focus TIGTA special agents on high impact investigations that protect the ability of the IRS to collect the nation’s tax revenue.
Employee Integrity
The IRS’ ability to deliver taxpayer service, enforce tax laws effectively, and collect the proper amount of taxes owed can be undermined by employee misconduct. We investigate employee misconduct allegations, including extortion, theft, taxpayer abuses, false statements, and financial fraud, as well as contractor misconduct and wrongdoing. During the reporting period, we completed 935 employee integrity investigations.
Protecting Taxpayer Identification Information To protect the sanctity of taxpayer information, TIGTA conducts proactive initiatives to identify IRS employees who improperly access confidential information and records of taxpayers. Through the identification and prosecution of IRS employees responsible for wrongfully accessing confidential taxpayer information, TIGTA helps minimize opportunities for identity theft by IRS personnel. As an integral part of our employee integrity program, we conduct proactive integrity initiatives designed to uncover fraud in IRS operations and to identify internal control weaknesses that may have permitted the fraud to go undetected or unreported. A primary resource used in this effort is our Strategic Enforcement Division (SED). Through SED’s data mining capacity, we proactively detect IRS employees who may have improperly accessed and/or disclosed confidential taxpayer information. During this reporting period, our Unauthorized Access (UNAX) Program led to the initiation of 240 investigations involving apparent unauthorized access of IRS computer systems.
The following cases are examples of IRS employee integrity investigations conducted during this reporting period.
In February 2005, an IRS employee was arrested in New Jersey for knowingly defrauding the United States. The employee allegedly managed and controlled the financial affairs of a real estate development and home construction company. Allegedly, the IRS employee diverted proceeds from the sale of real estate to various bank accounts and individuals. As a result, the company and its owner defrauded the United States of taxes owed on approximately $600,000.
In January 2005, an IRS Tax Examining Assistant pled guilty in Wisconsin to unauthorized disclosure of tax return and return information. In a plea agreement, the IRS employee admitted to willfully disclosing tax information of individuals, including their names, addresses, and social security numbers. The employee disclosed the information to her daughter, who used this information for personal business purposes.
In February 2005, an IRS employee was charged in Michigan with making false statements and witness tampering. Allegedly, the IRS employee improperly accessed 12 individuals’ tax accounts and instructed one individual to lie to
TIGTA’s Technical and Firearms Support Division and Forensic Science Laboratory TIGTA’s investigative efforts are greatly enhanced by its Technical and Firearms Support Division and Forensic Science Laboratory. Each of these programs provides technical expertise throughout our investigations. During the reporting period, the Technical and Firearms Support Division provided electronic or surveillance support in 101 investigative requests, while the Forensic Science Laboratory conducted 60 forensic examinations.
investigators if ever questioned about the
matter. The employee was also charged with falsely stating to investigators that
she did not conduct the accesses and/or contact the individual.
In February 2005, a former IRS contract employee was sentenced in Texas for embezzlement, and aiding and abetting. The former contract employee stole and converted more than $231,000 in tax remittance checks from an IRS lockbox. The individual deposited the remittance checks into bank accounts in assumed names. The individual was sentenced to 71 months in prison, 3 years’ supervised release, and was ordered to pay more than $194,000 in restitution. Upon release from prison, he will be turned over to U.S. Immigration for deportation proceedings.
In January 2005, two individuals were arrested in Maryland for false claims, conspiring to defraud the United States with respect to claims, obstruction of a federal audit, and aiding and abetting. The individuals are alleged to have posed as the president and vice president of a corporation contracted to plan, manage, and coordinate the IRS’ nationwide tax forums. Allegedly, the individuals created fictitious invoices and documents to support underreported income and overreported expenses to the IRS, resulting in the IRS’ payment of more than $1 million in management fees. The individuals are also alleged to have failed to provide records subpoenaed by TIGTA’s Office of Audit.
Employee and Infrastructure Security
The IRS collected $2 trillion in revenue for the Federal Government in Calendar Year 2004. This revenue is used to fund Federal programs related to housing, health care, clean air, national defense, social security, highways, and more. Threats and assaults against IRS employees, facilities, and data infrastructure [mja5] impede the IRS’ efforts to collect tax revenue.
Recognizing the vital nature of the IRS’ responsibility, the Congress directed TIGTA to protect the IRS from external threats. To meet this challenge, we operate a nationwide Criminal Intelligence Program (CIP) designed to identify and neutralize threats, assaults, and violent acts targeted against IRS facilities, employees, and operations. As part of the Program, TIGTA participates in FBI Joint Terrorism Task Forces throughout the country and assists the IRS in developing and enhancing its employee safety and infrastructure security programs. During this reporting period, we completed
162 investigations of threats and assaults directed at IRS employees and facilities, and issued 199 advisories notifying IRS management of potential threats.
The following cases are examples of IRS employee and infrastructure security investigations conducted during this reporting period.
In January 2005, an individual in Idaho was found guilty on three counts of solicitation to commit a crime of violence. The individual solicited another individual to murder an IRS Special Agent, an Assistant United States Attorney, and a Federal Judge who were assigned to the individual’s Federal tax violations.
In December 2004, an individual was arrested in Michigan for corruptly interfering with the due administration of internal revenue laws. The individual allegedly threatened to mail a bomb to an IRS Revenue Officer who was performing his official duties.
In February 2005, a criminal complaint was filed in Maine charging an individual with: knowingly and willfully making a threat to kill the President of the United States; knowingly making threats via electronic mail to injure members of a research institute; and knowingly making threats via electronic mail to injure agents of the IRS. The individual was also charged with knowingly depositing or causing to be deposited in the United States mail a written communication containing threats to injure a person, namely IRS agents; and knowingly making threats via electronic mail to injure an employee of a television station.