The Government Accountability Office (GAO) says it has some suggestions for the IRS that could make significant improvements in the agency’s operations. In fact, the GAO makes these “Priority Open Recommendations” every year, to every U.S. government agency.
But the GAO’s 15-page report to IRS Commissioner Chuck Rettig outlines the top areas it “believes should be given high priority” by the nation’s tax agency.
“In November 2018, we reported that on a government-wide basis, 77 percent of our recommendations made four years ago were implemented. IRS’s recommendation implementation rate was 77 percent. As of March 2019, IRS had 307 open recommendations. Fully implementing these open recommendations could significantly improve IRS’s operations,” the report states.
“Since our last letter in March 2018, IRS has implemented one of our 16 open priority recommendations. In doing so, IRS used more complete performance information to make decisions that justify the use of resources to audit certain types of tax issues and returns. As a result of this effort, IRS can make more informed decisions about what to audit using limited resources.”
While the GAO cites 23 priority recommendations in this report (15 were left awaiting action from the previous report), they fall into six areas. We’ll hit the high spots for you.
Priority recommendations are those that GAO believes warrant top attention from heads of key departments or agencies. They are highlighted because, upon implementation, they may significantly improve government operation, for example, by realizing large dollar savings; eliminating mismanagement, fraud, and abuse; or making progress toward addressing a high-risk or duplication issue.
Improve Payment Integrity
Three recommendations would improve payment integrity at IRS. In July 2017, the GAO recommended a number of actions on improper payments reporting requirements and procedures related to processing Premium Tax Credit (PTC) information on tax returns.
One recommendation aims for IRS to assess the PTC program in accordance with federal law and Office of Management and Budget (OMB) guidance to determine whether it is susceptible to significant improper payments. The other two recommendations are intended to help IRS more effectively detect and prevent improper payments related to the PTC.
Another action sought by the GAO is for the IRS to identify taxpayers inappropriately receiving the Premium Tax Credit, because of their eligibility for or enrollment in health care programs outside the marketplaces. IRS estimates it should be completing its analysis on this issue sometime this year. Once completed, the analysis and implementation will help ensure the IRS doesn’t provide the Premium Tax Credit to taxpayers who aren’t eligible.
Reduce Tax Fraud
One of the biggest suggestions out of the seven recommendations from the GAO is to improve the authentication of taxpayers’ identities – especially in online products. The GAO report says the IRS has already agreed with four of the seven recommendations.
“To implement these recommendations, IRS needs to estimate resources for and prioritize its taxpayer authentication initiatives and develop a plan to fully implement new National Institute on Standards and Technology guidance for online authentication,” the report states.
Additionally, the GAO recommendations seek to improve the accuracy of the IRS’ Return Review Program (RRP) so that potentially fraudulent returns may be spotted more efficiently. One of the recommendations involves digitize additional information from paper-filed returns.
“Fully implementing these recommendations could improve RRP’s accuracy and prevent IRS from paying invalid refunds. We also made one recommendation in July 2018 for IRS to analyze the costs and benefits of expanding IRS’s use of RRP for other enforcement activities, such as audit selection and underreporting.” The GAO adds the IRS has agreed with its recommendations in this area and is implementing them.
Improve Resource Decision-Making and Oversight
The report estimates that the IRS could see an additional $1 billion in revenues by improving how it manages its resources, such as deciding how best to carry out examinations of tax returns. The GAO says a “hypothetical shift” moving the examination of returns from less productive groups to more productive ones could reap large benefits.
As early as 2012, the GAO made a similar suggestion for the IRS enforcement program. “We recommended that IRS calculate marginal return on investment estimates for each enforcement program and groups of cases within programs. While IRS has taken some steps, more work is needed to address this recommendation,” the GAO reports.
Improve Information Security
The IRS has taken steps to improve its data security, the GAO notes, following up on recommendations made first in 2015. IRS has made progress to address control weaknesses in its financial and taxpayer systems. But more work remains to be done.
GAO says the IRS needs to continue strengthening its testing and evaluation of controls, and to ensure that corrective actions for weaknesses already identified are fully implemented.
Improve Audit Effectiveness
This section features recommendations spotlighted in earlier reports. Two recommendations left over from 2014 could help improve the effectiveness of partnership audits – including those of large partnerships. To carry out the upgrade, the GAO says, IRS needs to improve how it defines large partnerships and how it analyzes the results of it audits. “These actions should help IRS to identify opportunities to better plan and use resources when auditing large partnerships,” the GAO says.
Three other recommendations left over from 2014 direct the IRS to develop clear objectives for the correspondence audit program, to ensure that program measures reflect the objectives, and to link measures with IRS-wide compliance goals.
While the IRS has started the process of documenting objectives, measures, and links to goals, the process must be completed before managers can determine whether the program is performing better or worse from one year to the next.
Improve Taxpayer Services
Finally, four recommendations from the GAO would improve taxpayer service. Two recommendations – from 2011 and 2013 – call for a long-term strategy for providing taxpayers with web-based services. IRS officials say they rely on the 2018-2022 Strategic Plan for that vision; GAO says that plan is still at “high levels” of management and has not been fully implemented.
Another concern in the report was the need for a strategy to improve telephone and correspondence services. This item, says the report, dates back to 2012. “This included establishing a customer service standard and identifying the resources required to achieve that standard. IRS has taken steps toward implementing this recommendation, but has not outlined a strategy that defines appropriate levels of telephone and correspondence service and wait time. IRS also has not listed specific steps to manage service based on an assessment of time frames, demand, capabilities, and resources” the GAO writes.
A recommendation from 2018 seeks to establish time frames and monitoring procedures for the timely transfer of taxpayer appeal requests by examination compliance units to the Office of Appeals.
Delays in these requests can mean increased interest costs for the taxpayer, because interest continues to accrue on the tax liability during the appeal process. In addition, taxpayers unsure of their appeal status may call or write IRS, further tying up other IRS staff to respond about the delayed appeals.
In his accompanying letter to IRS Commissioner Rettig, the Managing Director of the GAO’s Strategic Issues section, J. Christopher Mihm, said the IRS report was part of a government-wide effort to spotlight vulnerabilities.
“As you know, in March we issued our biennial update to our high-risk program, which identifies government operations with greater vulnerabilities to fraud, waste, abuse, and mismanagement or the need for transformation to address economy, efficiency, or effectiveness challenges. Our high-risk program has served to identify and help resolve serious weaknesses in areas that involve substantial resources and provide critical service to the public,” Mihm states.