Special IRS Examination Procedures Are Needed for Certain Returns Containing International Tax Issues

GAO reviewed the Internal Revenue Service's (IRS) Office Audit Program for returns containing international tax issues. Under this program, IRS selects and examines certain tax returns filed by U.S. citizens residing overseas and nonresident aliens.

The responsibility for conducting examinations of returns containing international tax issues has been centralized in the IRS Foreign Operations District Office. At the request of a taxpayer, however, the Foreign Operations District will transfer a return to a domestic district to carry out and complete an examination. GAO found that domestic district office examinations of returns containing international issues are not as effective and efficient as they could be. Although such returns contain special issues, they are generally handled in the same manner as U.S. resident tax returns and are not afforded special treatment. This lack of special treatment can reduce the effectiveness and timeliness of examinations. GAO found that some returns containing international issues are examined by domestic district tax auditors who have not been provided sufficient training or guidance. Moreover, domestic district return assignment practices do not provide tax auditors either the opportunity to become familiar with the issues through experience or the time to research the laws and regulations before scheduled interviews with taxpayers. Finally, GAO found that the Foreign Operations District does not always adequately summarize work performed before transferring returns to domestic districts or specify the name and telephone number of an appropriate person for a domestic tax auditor to call should questions arise concerning prior examination work.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: Johnny C. Finch Team: General Accounting Office: General Government Division Phone: (202) 512-7824