Taxpayers Bill of Rights

TREASURY INSPECTOR GENERAL

FOR TAX ADMINISTRATION

ADDITIONAL VALIDATION AND INCREASED OVERSIGHT ARE NEEDED TO EFFECTIVELY IMPLEMENT THE INTERNAL REVENUE SESRVICE RESTRUCTURING AND REFORM ACT OF 1998

May 2000

Reference No. 2000-40-070

Executive Summary

On July 22, 1998, the President signed into law the Internal Revenue Service (IRS) Restructuring and Reform Act of 1998 (RRA 98). The purpose of RRA 98 was to amend the Internal Revenue Code of 1986 and to restructure and reform the IRS. Many of the specific sections (also called provisions) of RRA 98 are complex and affect a broad range of taxpayers in a variety of significant ways. Implementation will result in the most extensive restructuring of the IRS and its governing laws in the last 40 years.

This audit is part of coverage scheduled in the Treasury Inspector General for Tax Administration (TIGTA) Fiscal Year 1999 Audit Plan. Our overall objective was to evaluate the IRS’ planning and implementation of RRA 98. We reviewed the process for identifying, coordinating, and monitoring necessary actions and evaluated the effectiveness of the IRS’ implementation of selected provisions of RRA 98.

Results

The IRS’ implementation team for RRA 98 used an aggressive, proactive approach, giving appropriate consideration to the level of executive involvement needed to implement this complex legislation. The Chief Operations Officer established a network of accountability by assigning executive owners for the individual sections of RRA 98. However, to effectively implement RRA 98, the IRS needs to develop accurate action plans, conduct additional validation of completed action items, and increase oversight by officials responsible for legislative provisions.

An Extensive Accountability Network Was Established to Manage the Implementation Effort

IRS executives were assigned as provision owners with responsibility for implementation of RRA 98 provisions. These executives developed implementation plans and tracked the overall implementation effort on-line with an IRS internal computer system. The National Resource Center was established to provide consistent coordination required by RRA 98. Field coordinators were appointed as local points of contact for IRS employees.

The Provision Report Used to Manage the Conversion Effort Was Not Always Accurate and Complete

Inaccurately recorded or missing action items resulted in misleading or incomplete information on action plans, which were combined into the Provision Report. In response to our concerns, the Deputy Chief Operations Officer required all provision owners to review the Provision Report for accuracy and prepare files of documentation to support the status of each action. Additionally, the RRA 98 implementation team performed a 100 percent review of Request for Information Services (RIS) requirements that resulted in several additional RIS actions being identified as needing submission to Information Systems or addition to the action plan.

Critical Actions Necessary to Implement Failure to Deposit Penalty Provisions Were Not Implemented Timely

Necessary actions were not taken to ensure effective implementation of RRA 98 § 3304, Mitigation of Failure to Deposit Penalty. Penalty notices to taxpayers were not revised, revisions to publications did not provide important information on new taxpayer rights, and the Provision Report used by management to track implementation actions was not accurate. The provision owner did not provide necessary oversight and validation over implementation actions. Consequently, numerous incomplete penalty notices were issued, and business taxpayers may have paid penalties that they are entitled to have abated. We reported these issues to management, and corrective actions have been initiated to partially address them.

Training Efforts Need to Be Strengthened to Ensure All Employees Are Effectively Trained on the Internal Revenue Service Restructuring and Reform Act of 1998 Provisions

Effective employee training is critical to the successful implementation of RRA 98. Provision owners realized that training would be required for many of the provisions. Numerous training methods were used to provide employees with critical information as quickly as possible. However, provision owners did not identify or track the employees who should be or were trained on provisions of RRA 98 and have not adequately evaluated the effectiveness of their training efforts.

Other Audit Reports Have Identified Issues with the Implementation of Various Provisions of the Internal Revenue Service Restructuring and Reform Act of 1998

TIGTA’s Office of Audit has conducted several annual audits that are required by
RRA 98. Separate reports have been issued for each of these audits, and these reports identified additional issues related to implementation of RRA 98. In addition to these reports, audit work is currently being conducted covering various other specific provisions of RRA 98, such as the Innocent Spouse provision.

Summary of Recommendations

We recommend that the Deputy Chief Operations Officer’s staff periodically review documentation that supports the implementation of critical actions to ensure they effectively meet the requirements of the legislation.

In order to ensure that RRA 98 § 3304, Mitigation of Failure to Deposit Penalty, is effectively implemented, we recommend several actions for the Assistant Commissioner (Examination). We recommend he ensure that clear procedures are provided to Service Centers regarding use of the stuffer form, identify taxpayers who still need information on their penalty abatement rights, and provide additional oversight until full implementation of this provision is completed.

In order for RRA 98 training to be effectively provided, we recommend procedures be established to require that provision owners take control over the training effort for their provisions.

Management’s Response: IRS management agreed to the recommendations made in this report and has already begun taking corrective action to address these issues. A five-point plan was developed by the RRA 98 Executive Steering Committee to strengthen the implementation process.

Service Centers were contacted to ensure that they understood the requirements for use of the stuffer form, and taxpayers who required notification of their potential abatement rights were identified and contacted. Periodic coordination meetings are now being held between Masterfile programmers and the Office of Interest and Penalty Administration to ensure that the final phase of implementation for the RRA 98 § 3304 is addressed effectively.

Lastly, all future initiatives of the nature of RRA 98 will have centralized end-to-end accountability for training by provision owners. To ensure that senior management is aware of the tools available to centrally manage this type of training, the Chief Human Resource Officer will communicate the tracking capabilities of the Administrative Corporate Education System to them as part of the transition to the new IRS structure.

Management’s complete response to the draft report is included in Appendix VIII.