Internal Revenue Service

Each year, thousands of disputes arise between taxpayers and the Internal Revenue Service (IRS) over billions of dollars in additional taxes recommended by IRS auditors. IRS eventually resolves most of these disputes over tax liability without litigation, but negotiations can take years and hundreds of staff hours for disputes involving large amounts. Since 1990, IRS has introduced several initiatives to provide alternatives to litigation for resolving tax disputes. This report (1) analyzes IRS' design of these initiatives and taxpayers' use of them to resolve disputes between IRS and taxpayers over tax liability and (2) analyzes IRS' plans for evaluating the effects of its new initiatives on the stated goals.

GAO noted that: (1) since 1990, IRS Appeals, Chief Counsel, and Examination have implemented at least eight initiatives to improve dispute resolution between IRS and taxpayers over certain tax issues; (2) each of the initiatives apply to specific groups of taxpayers, generally large corporations; (3) two of these initiatives seek to prevent disputes, three seek to resolve disputes before they reach Appeals, and two seek to resolve disputes in Appeals more quickly; (4) only one initiative uses a neutral third person as a mediator to help resolve disputes in Appeals; (5) generally, the goals of these initiatives are to reduce the overall time, costs, and taxpayer burden of dispute resolution; (6) in June 1996, IRS identified 276 taxpayers that had used or were using 1 of IRS' 8 initiatives to resolve tax disputes since 1990; (7) as of November 30, 1996, IRS data showed that these taxpayers had used IRS' initiatives to resolve 209 disputes over tax issues; (8) this is a small fraction of the relevant disputed tax issues since 1990; (9) various reasons exist for the limited use of the initiatives to date; (10) also, IRS officials said use of the initiatives ultimately depends on the willingness of eligible taxpayers; (11) IRS has established some performance measures intended to evaluate the impacts of its initiatives on reducing the time, costs, and taxpayer burden in dispute resolution; (12) GAO's analysis indicated that many of these measures will not allow IRS to directly gauge the initiatives' impacts on these goals; (13) Appeals has established some measures, such as the level of taxpayer satisfaction, that are more directly related to its initiatives' goals of reducing the time, costs, and burden of dispute resolution; (14) IRS officials said they thought it was too early to assess the impacts of all of their initiatives and was difficult to obtain data that would isolate the impacts, particularly when the issues being resolved are highly technical and can carry over to future tax years; (15) IRS officials described ongoing efforts to develop other measures, in conjunction with a special IRS task force, by the spring of 1998; and (16) measures that more directly gauge the impacts of the initiatives on their goals would help IRS determine, after sufficient data are available over a period of time, whether and the extent to which the initiatives had the intended effects of reducing the time, costs, and burden of resolving tax disputes.

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.

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