RESULTS IN BRIEF IRS has implemented all 21 provisions of the 1988 Taxpayer Bill of Rights, including the provisions on which we focused. We believe that IRS' implementation of the seven provisions has been generally successful. For example, IRS statistics show that it aided about 32,500 taxpayers in fiscal years 1990 and 1991 through the Taxpayer Assistance Order Program. IRS has also put procedures in place to inform taxpayers of their rights and guard against the use of enforcement results to evaluate employees or impose production quotas. Despite IRS' general success, we believe there are some shortcomings in IRS' implementation of the Taxpayer Bill of Rights. Some taxpayers with hardships may be unaware that assistance is available under the Taxpayer Assistance Order Program, although IRS appears to be doing an effective job of helping taxpayers who do apply for assistance. IRS sends taxpayers copies of a taxpayer's rights guide known as Publication 1. However, IRS does not emphasize to taxpayers the importance of reading this publication when contacting them before conducting an audit interview. We IRS reported in March 1991 that denials of taxpayer requests Additionally, we believe the Internal Revenue Code may need to be clarified to facilitate IRS' implementation of the act. - In October 1991, IRS changed its procedures to allow the withdrawal of tax lien notices that were not filed according to IRS guidelines or did not follow good business practices. While IRS stated that the change will benefit taxpayers, it also believed that clarifying legislation is needed to assure creditors that IRS' liens no longer have priority in financial dealings with taxpayers. Section 6332(c) of the Code provides for a 21-day holding period on levied bank deposits so that taxpayers have time to resolve levy errors. IRS interprets the holding period as applying to the amount of time that banks hold levied funds. Therefore, it does not immediately notify taxpayers about a levy. As a result, taxpayers generally have about 14 days to resolve errors. Neither the legislative history nor the act specifically addresses the time to be allotted to taxpayers. OBJECTIVES, SCOPE, AND METHODOLOGY As agreed with the Subcommittee, we focused on 7 of the Taxpayer Bill of Rights' 21 provisions. Our objectives in examining these provisions were to assess IRS' implementation of the seven provisions and to identify opportunities for improvement. Appendix I summarizes the act's 21 provisions. We did our work at IRS' National Office in Washington, D.C., and the regional, district, and service center offices in Atlanta, Georgia, and Cincinnati, Ohio. We selected these sites to provide some perspective on IRS' implementation of the act at the field level. To obtain this perspective, we took several samples to pinpoint issues to discuss with IRS National Office managers. 54-659-92 - 6 These samples are not projectable to IRS as a whole. Our methodology in reviewing the seven provisions is detailed in appendix II. We did our work between July 1990 and September 1991 in accordance with generally accepted government auditing standards. IRS HAS RELIEVED HARDSHIPS UNDER THE TAXPAYER ASSISTANCE ORDER PROGRAM One of the more important provisions of the Taxpayer Bill of Rights is the Taxpayer Assistance Order Program. The act authorizes an Ombudsman to issue Taxpayer Assistance Orders to rescind or change an IRS action if IRS' administration of the tax laws causes or is about to cause a significant hardship for a taxpayer. Taxpayers can apply directly to IRS for assistance orders, or IRS staff can apply on behalf of taxpayers. Acting on behalf of the Ombudsman, Problem Resolution Officers and their staffs in IRS district offices and service centers process the applications and work with other IRS functions to provide assistance. Examples of hardships include situations in which taxpayers need their refunds faster to avert an impending crisis or when the monthly payment on an installment agreement is too high for the taxpayer to afford food or medical care. In implementing the Taxpayer Assistance Order Program, IRS undertook three actions that were not specifically required by the Taxpayer Bill of Rights but that we believe were positive steps in keeping with the spirit of the act. - IRS expanded the definition of "hardship" to relieve not only hardships caused by IRS' administration of the tax laws but all hardships that could be reasonably mitigated by IRS. For example, under the expanded definition, IRS might expedite a tax refund to allow a taxpayer to meet an impending crisis, even though the refund would have otherwise been issued within IRS' normal processing time. IRS decided to provide assistance, when reasonable, to hardship applicants who did not meet IRS' hardship criteria but who could still be helped, either through IRS' Problem Resolution Program or by another IRS function. IRS instructed its employees to initiate hardship applications on behalf of taxpayers when employees encountered situations that might warrant assistance. During fiscal year 1990, IRS reported that it closed 19,722 hardship applications from taxpayers, including those prepared by IRS employees on behalf of taxpayers, and provided some form of assistance to 12,953--or 66 percent--of the applicants. For the remaining 6,769, or 34 percent, IRS determined that taxpayers either did not qualify for assistance or qualified for assistance but IRS was unable to provide assistance because of other reasons, such as legal constraints. During fiscal year 1991, IRS reported that it closed 26,687 hardship applications and provided some form of assistance to about 19,523 people, or 73 percent of the applicants. Figure 1 illustrates the two-step decisionmaking process IRS follows when it processes hardship applications. IRS first decides whether the taxpayer's case meets the hardship criteria. During fiscal year 1990, IRS determined that 9,226, or 47 percent, of the hardship applications met these criteria. Second, IRS decides whether it can provide some form of assistance, regardless of whether the taxpayer meets the hardship criteria. The sum of taxpayers with or without hardships to whom IRS provided assistance is the basis for IRS' claim that it assisted 66 percent of the hardship applicants in fiscal year 1990. Figure 2 shows IRS' disposition of hardship applications during fiscal year 1991. Figure 1: GAO Disposition of Applications for "These figures include 2,049 applications proposed by IRS employees on behalf of taxpayers that were later determined to not meet IRS' hardship criteria or warrant assistance. IRS does not include these figures when it reports hardship dispositions. DTAO denotes Taxpayer Assistance Order. "After review by IRS Directors, two Taxpayer Assistance Orders were rescinded with no assistance provided to the taxpayers. Source: IRS Problem Resolution Office Management Information System (PROMIS) Report 7, fiscal year 1990. Figure 2: GAO Disposition of Applications for Taxpayer Assistance Orders, FY '91 "These figures include 2,075 applications proposed by IRS employees on behalf of taxpayers that were later determined to not meet IRS' hardship criteria or warrant assistance. IRS does not include these figures when it reports hardship dispositions. TAO denotes Taxpayer Assistance Order. "After review by IRS Directors, three Taxpayer Assistance Orders were rescinded with no assistance provided to the taxpayers. Source: IRS PROMIS Report 7, fiscal year 1991. Figures 1 and 2 also show that IRS has provided virtually all of its assistance without the use of formal assistance orders. Out of 24,105 applications that met IRS' hardship criteria, the Ombudsman's representatives issued 8 orders, 5 of which were rescinded by IRS Directors. The procedures IRS follows for resolving hardships require the Ombudsman's representative to request that officials in the appropriate function review the application and related case information, and reconsider IRS' course of action. According to the Ombudsman, the low number of assistance orders indicated that representatives were able to work out solutions with the functions before a stalemate occurred and an order needed to be issued. To determine whether taxpayers in fact received assistance in the absence of a formal Taxpayer Assistance Order, we reviewed 146 randomly selected applications processed in fiscal year 1990 from 4 IRS offices in which IRS said it had provided some form of assistance. Included in the applications were 51 that IRS judged to be hardship situations and 95 that IRS judged were not hardships. We tracked IRS' processing of the applications through the taxpayers' accounts and determined that IRS assisted the taxpayers, as claimed, on all of the applications. In analyzing our sample, we identified the type of assistance taxpayers sought and the amount of time IRS took to provide assistance. The five most frequently requested types of assistance were (1) expediting a refund or locating a lost refund (27 percent of the applications), (2) granting an installment agreement or delaying an installment agreement payment (14 percent), (3) releasing a levy (14 percent), (4) canceling a tax liability or abating a penalty or interest (12 percent), and (5) deferring a tax payment (9 percent). The average time IRS took to assist taxpayers was about 10 days, ranging from the same day of the request to 82 days. Using IRS statistics, we also looked at whether IRS' seven regional offices were consistently administering the Taxpayer Assistance Order Program. We measured consistency by comparing among the regions (1) the percent of hardship applications in which IRS provided assistance and (2) the percent of hardship cases that were closed within 7 days of receipt--the latter being a measure that IRS monitors. We chose these measures because we reasoned that they would be primary taxpayer concerns. On the basis of these two indicators, the regions were generally consistent. During fiscal year 1990, the percent of applications in which the regions provided assistance in hardship cases ranged from a high of 70 percent in IRS' Mid-Atlantic and Southeast Regions to a low of 58 percent in the Central Region. We believe the Central Region's results would have been higher if not for an initial misunderstanding of the reporting system. The regions were also relatively consistent in the percent of hardship case applications they closed within 7 days. On the low end, the Southeast Region closed 57 percent of its applications within 7 days, while on the high end the Western Region closed 69 percent of its applications within 7 days. IRS NEEDS TO ENSURE THAT EMPLOYEES According to IRS procedures, its employees are responsible for recognizing hardship situations and helping taxpayers apply for Taxpayer Assistance Orders. During fiscal year 1990, IRS reported that its employees initiated 5,471, or 27 percent, of the total requests for hardship relief, while taxpayers or their representatives initiated the remaining 14,455, or 73 percent. |