Tax Administration
The Internal Revenue Service Can Improve Its Management of Paper Case Files
Gao ID: GAO-07-1160 September 28, 2007
Proper paper case file management is a significant issue for the Internal Revenue Service (IRS) because its staff investigate and close millions of case files every year. In addition, IRS employees depend heavily on case files when pursuing enforcement actions. GAO was asked to review IRS's case file storage, tracking, and documentation processes to determine whether IRS has (1) an effective process to ensure that paper case files can be located timely and (2) sufficient data to assess the performance of its paper case file processes. To review these processes, GAO interviewed staff who request case files and case file managers.
IRS does not have an effective process to ensure that paper case files can be located within the requesters' time frames. Missing case files can result in lost revenue, create unnecessary taxpayer burden, and make case files unavailable for other units such as quality review groups or advisory groups. IRS has acknowledged its historic difficulties in locating and retrieving case files. When IRS cannot locate paper case files, it may attempt to re-create them by requesting information from taxpayers, which can result in unnecessary taxpayer burden. Difficulties in locating case files can also hinder congressional oversight. When GAO requested case files in two prior audits, IRS could not locate all of the case files requested. IRS does not have sufficient data to assess the performance of its paper case file management processes. Having such data would enable IRS to assess whether its case management processes are in accordance with FRA and internal control standards. IRS does not track whether all of the case files it requests are located or received timely, or the reasons why case files cannot be located. If IRS developed this type of data, officials could use this data to identify problems in existing programs, to try to identify the causes of problems, and/or to develop corrective actions. Records management officials have recently instituted some performance measures, but these measures do not specifically address paper case files. IRS program managers also have not developed performance measures or data to determine how well paper case files are managed to achieve performance targets. Program managers do not know who has overall responsibility for case file management so performance information cannot be developed across IRS's compliance programs. GAO identified some potential improvements that IRS can consider, but IRS will need to determine which improvements are the most cost effective.
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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GAO-07-1160, Tax Administration: The Internal Revenue Service Can Improve Its Management of Paper Case Files
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Its Management of Paper Case Files' which was released on October 11,
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Report to the Committee on Finance, U.S. Senate:
United States Government Accountability Office:
GAO:
September 2007:
Tax Administration:
The Internal Revenue Service Can Improve Its Management of Paper Case
Files:
Tax Administration:
GAO-07-1160:
GAO Highlights:
Highlights of GAO-07-1160, a report to the Committee on Finance, U.S.
Senate.
Why GAO Did This Study:
Proper paper case file management is a significant issue for the
Internal Revenue Service (IRS) because its staff investigate and close
millions of case files every year. In addition, IRS employees depend
heavily on case files when pursuing enforcement actions.
GAO was asked to review IRS‘s case file storage, tracking, and
documentation processes to determine whether IRS has (1) an effective
process to ensure that paper case files can be located timely and (2)
sufficient data to assess the performance of its paper case file
processes. To review these processes, GAO interviewed staff who request
case files and case file managers.
What GAO Found:
IRS does not have an effective process to ensure that paper case files
can be located within the requesters‘ time frames. Missing case files
can result in lost revenue, create unnecessary taxpayer burden, and
make case files unavailable for other units such as quality review
groups or advisory groups. IRS has acknowledged its historic
difficulties in locating and retrieving case files. When IRS cannot
locate paper case files, it may attempt to re-create them by requesting
information from taxpayers, which can result in unnecessary taxpayer
burden. Difficulties in locating case files can also hinder
congressional oversight. When GAO requested case files in two prior
audits, IRS could not locate all of the case files requested.
IRS does not have sufficient data to assess the performance of its
paper case file management processes. Having such data would enable IRS
to assess whether its case management processes are in accordance with
FRA and internal control standards. IRS does not track whether all of
the case files it requests are located or received timely, or the
reasons why case files cannot be located. If IRS developed this type of
data, officials could use this data to identify problems in existing
programs, to try to identify the causes of problems, and/or to develop
corrective actions. Records management officials have recently
instituted some performance measures, but these measures do not
specifically address paper case files. IRS program managers also have
not developed performance measures or data to determine how well paper
case files are managed to achieve performance targets. Program managers
do not know who has overall responsibility for case file management so
performance information cannot be developed across IRS‘s compliance
programs. GAO identified some potential improvements that IRS can
consider, but IRS will need to determine which improvements are the
most cost effective.
Figure: Errors That Can Occur in the Process of Requesting, Locating,
and Sending Paper Case Files:
[See PDF for image]
Source: GAO analysis of IRS data; Art Explosion (images).
[End of section]
What GAO Recommends:
GAO recommends that IRS (1) ensure that paper case files are managed in
accordance with Federal Records Act (FRA) and internal control
standards, including tracking the number of files that cannot be
located or are received untimely and the reasons why, and developing
performance measures to determine if improvements are needed and (2)
ensure that case file performance is monitored across IRS‘s compliance
programs. GAO also makes other recommendations to improve the case file
management process. IRS agreed it needs to review its program and will
form a cross-functional group to identify improvements and consider
GAO‘s recommendations. This proposed action is responsive to GAO‘s
recommendations.
To view the full product, including the scope and methodology, click on
[hyperlink, http://wwww.GAO-07-1160]. For more information, contact
Michael Brostek at (202) 512-9110 or brostekm@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
IRS Does Not Have an Effective Process to Ensure That Paper Case Files
Can Be Located Timely:
Lacking Data, IRS Cannot Assess Case Management Performance and Develop
Plans for Improvement:
Conclusions:
Recommendations for Executive Action:
Agency Comments:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Comments from the Internal Revenue Service:
Appendix III: GAO Contact and Staff Acknowledgments:
Figures:
Figure 1: Locations of Submission Processing Centers, Area Records
Managers, and Federal Records Centers:
Figure 2: Errors That Can Occur in the Process of Requesting, Locating,
and Sending Paper Case Files:
Abbreviations:
ACS: Automated Collection System:
ARM: Area Records Manager:
AWSS: Agency-Wide Shared Services:
CCP: Centralized Case Processing:
CDP: Collection Due Process:
COVERS: Control of Veterans Records System:
DLN: Document Locator Number:
FRA: Federal Records Act:
FRC: Federal Records Center:
IDRS: Integrated Data Retrieval System:
IRC: Information Resource Coordinator:
IRM: Internal Revenue Manual:
IRS: Internal Revenue Service:
LMSB: Large and Mid-size Business Division:
NRP: National Research Project:
PWS: Performance Work Statement:
SB/SE: Small Business/Self-Employed Division:
SPC: Submission Processing Center:
TE/GE: Tax-Exempt and Government Entities Division:
TFRP: Trust Fund Recovery Penalty:
TIGTA: Treasury Inspector General for Tax Administration:
VA: Department of Veterans Affairs:
W&I: Wage and Investment Division:
United States Government Accountability Office:
Washington, DC 20548:
September 28, 2007:
The Honorable Max Baucus:
Chairman:
The Honorable Charles E. Grassley:
Ranking Member:
Committee on Finance:
United States Senate:
Under the Federal Records Act (FRA) of 1950,[Footnote 1] the Internal
Revenue Service (IRS) is required to maintain an active, continuing
program for the economical and efficient management of the records of
the agency. The program should provide for effective controls over the
creation, maintenance, and use of records in the conduct of current
business, including case files[Footnote 2]. In addition, in accordance
with internal control standards, IRS case files should be readily
available for examination and properly managed and maintained to ensure
that management's directives are carried out.[Footnote 3] Proper case
file management is a particularly significant issue for IRS because its
staff investigate and close millions of case files every year. In
addition, IRS case files contain sensitive taxpayer information that,
by law, must be properly protected from inadvertent disclosure.
Moreover, according to collection managers, IRS employees depend
heavily on case files when pursuing enforcement actions, such as
litigating court cases. Paper case files are also important for
internal IRS reviews, such as those performed by its research and
quality review groups.
Based on your request, we reviewed IRS's case file storage, tracking,
and documentation processes to determine whether (1) IRS has an
effective process to ensure that paper case files can be located timely
and (2) IRS has sufficient data to assess the performance of its paper
case file processes. To make determinations in both areas, we
interviewed officials from the following IRS entities or programs: the
Office of Agency-Wide Shared Services (AWSS),[Footnote 4] the Small
Business/Self-Employed Division (SB/SE), the Wage and Investment
Division (W&I), the Office of Appeals, the Automated Collection System
(ACS), and the National Research Program (NRP). We did not interview
officials from the Large and Mid-Size Business Division (LMSB) or the
Tax-Exempt and Government Entities Division (TE/GE) since only a very
small percentage of Appeals' cases that are docketed for Tax Court
where paper case files are very important originate from these
divisions according to Appeals officials. We also reviewed IRS's
policies and procedures. To determine whether IRS has an effective
process to ensure that paper case files can be located timely, we
compared IRS's process to the requirements of the FRA and our standards
for internal control in the federal government. Further, we interviewed
officials from other organizations to identify key practices in
managing case files. These organizations included the Department of
Education, the Department of Veterans Affairs, the Social Security
Administration, and the California Franchise Tax Board. We conducted
our work from August 2006 through July 2007 in accordance with
generally accepted government auditing standards. Detailed information
on our scope and methodology appears in appendix I.
Results in Brief:
IRS does not have an effective process to ensure that paper case files
can be located within the requesters' time frames. This can hamper
IRS's efforts to pursue taxpayers with delinquent taxes. Missing case
files can result in lost revenue, create unnecessary taxpayer burden,
and make case files unavailable for other units such as quality review
groups or advisory groups.[Footnote 5] For example, according to
advisory group staff, in several District Court cases IRS lost over
$40,000 in revenue in each case because it could not locate the case
file. IRS has acknowledged its historic difficulties in locating and
retrieving case files and has stated that this can result in a number
of motions to extend the time of some Tax Court cases. When IRS cannot
locate paper case files, it may attempt to re-create them by requesting
information from taxpayers, which can result in unnecessary taxpayer
burden. Although IRS performs quality reviews on its case files, for
some collection cases the number of case files requested is double the
number needed to allow for cases that cannot be located. Difficulties
in locating case files can also hinder congressional oversight. When we
requested case files in two prior GAO audits,[Footnote 6] IRS could not
locate 10 to 14 percent of the case files requested.[Footnote 7] IRS
has also had difficulty providing case files to the Treasury Inspector
General for Tax Administration (TIGTA). For example, in one TIGTA
audit,[Footnote 8] TIGTA requested a random sample of tax records, but
IRS could not provide about 19 percent of the case files.
IRS does not have sufficient data to assess the performance of its
paper case file management processes. Having such data would enable IRS
to assess whether its case management processes are in accordance with
FRA and internal control standards. IRS does not track whether all of
the case files it requests are located or received timely, or the
reasons why case files cannot be located. If IRS developed this type of
data, officials could use this data to identify problems in existing
programs, to try to identify the causes of problems, and/or to develop
corrective actions. AWSS has recently instituted some performance
measures, but these measures do not specifically address paper case
files. IRS program managers also have not developed performance
measures or data to determine how well paper case files are managed to
achieve performance targets. Program managers do not know who has
overall responsibility for case file management so performance
information cannot be developed across IRS's compliance programs. We
have identified some potential improvements that IRS can consider, but
IRS will need to determine which improvements are the most cost
effective.
We recommend that IRS (1) ensure that case files are managed in
accordance with FRA and internal control standards, including tracking
the number of paper case files that cannot be located or are received
untimely and the reasons why, and developing performance measures to
monitor the effectiveness of the paper case file process to assist in
determining which options for improving paper case file management are
the most beneficial for IRS; (2) ensure that case file performance is
monitored across IRS's compliance programs by clearly defining
responsibility for doing so; (3) establish clearer responsibility for
coordinating large samples of case files to provide specific reasons
why case files cannot be located; (4) reiterate to staff who the
coordinators are for requesting paper case files; and (5) ensure that
paper case files are sent to storage areas as soon as cases are closed,
document whether case files are sent to storage, and track the number
and location of paper case files that have not been sent to storage.
In commenting on a draft of this report, the Acting Commissioner of
Internal Revenue agreed that IRS needs to review its Records Management
Program. However, instead of commenting on our specific
recommendations, the Acting Commissioner stated that IRS will form a
cross-functional working group to review the Records Management Program
and develop corrective action, taking into account our recommendations.
IRS's planned review and development of corrective actions is
responsive to our recommendations and we look forward to its
consideration of our recommendations in this review as well as to the
benefits to taxpayers and IRS of a more effective program.
Background:
In keeping with the FRA, IRS established a Records Management Program.
The program provides for the application of management practices in the
creation, maintenance, retrieval, preservation, and disposition of
records. Although the mission of the Records Management Program is to
document, protect, and efficiently manage all IRS records until final
disposition, actual day-to-day management of case files is left to each
IRS program. According to an IRS official, program managers establish
policies and procedures for the management of paper and electronic case
files and have overall responsibility for case file management in their
program. In addition, each program develops its own policies and
procedures, which are documented in IRS's Internal Revenue Manual
(IRM).
Case files can be paper, automated, or a combination of both. For
example, when IRS examines a tax return, the documents completed by the
examiner can be automated (electronically maintained within their
system) or paper (placed in physical case files). Case files may
include income tax returns, audits, investigations, or claims.
According to W&I and SB/SE officials, in fiscal year 2006 they closed
over 13 million and 9 million cases, respectively.[Footnote 9] When
cases are closed, IRS units perform managerial and quality reviews to
ensure cases were handled correctly and the case files are complete and
meet their quality standards. For example, in fiscal year 2006, the SB/
SE field collection quality review group found that over 96 percent of
the case files they reviewed were complete.
Paper case files can be stored in the files area of Submission
Processing Center (SPC) campuses or field offices which are spread
throughout the country.[Footnote 10] These case files are then
transferred to Federal Records Centers (FRC)[Footnote 11] by filing
coordinators located at the SPC or by information resource coordinators
in the field. Once the specified retention period has expired at the
FRC, the case files are destroyed. The locations of Submission
Processing Centers, Area Records Managers, and Federal Records Centers
are illustrated in figure 1.
Figure 1: Locations of Submission Processing Centers, Area Records
Managers, and Federal Records Centers:
[See PDF for image]
Source: GAO analysis of IRS data.
[End of figure]
According to an IRS official, the agency is in the process of
automating some of its paper case files. IRS is developing scanning
capability to convert documents from paper to electronic. However, this
official stated that IRS is initially developing this scanning
capability for its campuses and not its field offices. Furthermore, the
agency does not have a plan or time frame for when all of its case
files will be automated. As a result, IRS will be relying on paper case
files for some years.
IRS Does Not Have an Effective Process to Ensure That Paper Case Files
Can Be Located Timely:
Case files should be readily available for examination. However, IRS
does not know whether it locates all of the paper case files it
requests. In the absence of data on IRS's success in retrieving paper
case files, several sources of anecdotal information give some
indication of the potential extent of problems in locating case files.
Missing case files can result in lost revenue, create unnecessary
taxpayer burden, make cases unavailable for other units such as quality
review groups or advisory groups, and hinder congressional oversight.
IRS Has Lost Revenue in Court Proceedings:
Paper case files are crucial for cases scheduled for Tax Court or
District Court. Without complete case files, IRS can lose those cases.
For example, advisory staff informed us of several instances where IRS
lost revenue in District Court cases because a case file could not be
located. In one case, IRS obtained approval to file a nominee lien
against a taxpayer because the taxpayer had transferred an asset to
another person.[Footnote 12] IRS pursued collection action, but the
taxpayer challenged IRS in District Court asserting that IRS needed to
prove that the taxpayer had use and control of the asset that was
transferred. IRS was unable to locate the case file for the trial. As a
result, IRS lost about $45,000. In another case, a taxpayer commingled
individual assets with corporate assets. IRS levied the funds in the
bank account of an individual who controlled the corporation to pay the
tax debt owed by the corporation. IRS collected the money owed, but the
taxpayer filed a claim that IRS needed to prove the money in the
individual account belonged to the corporation. IRS had this
information in the case file, but could not locate it. Therefore, IRS
had to return the levied money, which amounted to about $40,000.
IRS has acknowledged its historic difficulties in locating and
retrieving case files. In September 2006, the Tax Court proposed a
requirement that IRS file answers in all small tax cases ($50,000 or
less). An answer includes admissions, qualifications, and denials by
IRS of each material fact alleged in the Tax Court petition filed by
the taxpayer. In preparation of the answer, IRS generally examines and
relies on the information in the case file. When IRS responded to this
tax court proposal, IRS stated that due to difficulties in locating and
retrieving case files, the requirement to answer all small tax case
petitions may lead to a number of motions to extend time in which to
answer.
Appeals informed us that they are having difficulty obtaining case
files that are docketed for Tax Court, and they are working with the
Business Units to try and determine the cause. For example, W&I
recently made a commitment to send docketed case files to Appeals
within 25 days. To assess W&I's performance, W&I requested Appeals to
provide them with a report so they could track their progress. Appeals
developed a report which showed that out of about 900 docketed cases
from W&I campuses, Appeals had been waiting over 25 days for 420, or 46
percent, of the case files. If Appeals cannot obtain a case file prior
to the scheduled court date, IRS could lose the case and any revenue
owed by the taxpayer.
IRS Incurs Cost and Some Taxpayers May Experience Unnecessary Taxpayer
Burden to Re-create Case Files:
When IRS staff request paper case files, several attempts may be made
to locate them. For example, if a request is input into the Integrated
Data Retrieval System (IDRS)[Footnote 13] and the case file is not
located, another request may be input into IDRS. IRS may also perform
special searches when normal searches are unsuccessful. When the paper
case files still cannot be located, IRS may attempt to re-create them.
This creates an additional cost and burden to IRS, which must use its
scarce resources to perform special searches and re-create case files.
To re-create case files, IRS obtains what information it can from its
own systems. If IRS needs additional information from the taxpayer, IRS
may contact the taxpayer and request this information. This process can
result in unnecessary taxpayer burden.
Case Files May Be Unavailable for Other Units:
Some paper case files should be sent from field offices to campus file
areas within a specified number of days after the case is closed.
However, campus staff said they have had difficulty receiving the case
files in the time specified. If case files are not sent to storage
areas promptly, these case files may not be available for other units,
such as quality review groups or advisory groups in performing their
tasks.
In Collection Field Offices, some types of case files should be sent to
the Centralized Case Processing (CCP) Unit as soon as they are closed
so that quality review samples can be readily available for selection.
CCP has 21 days to obtain the closed case files for review. In a report
provided by quality review staff, for the first quarter of fiscal year
2007, CCP was able to obtain only 45 percent of the cases requested for
review within the 21-day period. Since collection realizes that CCP
will not be able to obtain all of the case files requested, the number
of case files requested is double the number needed to allow for cases
that cannot be located.
According to Collection officials in one field office, there are
several reasons case files are not sent to CCP in a timely manner. For
example, for Revenue Officers, sending a case file to CCP is not a top
priority, especially when their other priorities include active aged
cases.[Footnote 14] Aged cases take priority because the older the case
is, the less likely IRS is to recover the amounts owed. In addition,
some Revenue Officers are reluctant to let their cases leave their
office. We were also informed by these officials that the number of
support staff who assist in sending the case files to CCP has been
reduced, and in one instance case files were found in a secretary's
desk drawer.
Congressional Oversight May Be Hindered:
In two recent GAO audits, we asked IRS to pull random samples of paper
case files, but IRS was unable to locate all of the case files
requested. The portion of case files IRS could not locate ranged from
about 10 to 14 percent. For example, in one audit, we requested
examination case files from NRP, but IRS was unable to locate about 10
percent of the case files requested.[Footnote 15] NRP staff were
notified that 61 of the case files we requested had been sent to them,
but NRP officials said they never received these case files. In a
second audit, we requested Collection Due Process (CDP)[Footnote 16]
case files where the collection action had been appealed. IRS was
unable to locate about 14 percent of these case files.[Footnote 17]
According to IRS staff that assisted us with these requests, they had
made several requests to obtain these case files, but IRS was still
unable to locate them.
TIGTA has also requested random samples of paper case files in some of
its reviews where IRS was unable to provide all of the case files
requested. In one TIGTA review, TIGTA was to determine whether IRS had
an adequate system to ensure tax records could be located and received
timely. According to TIGTA, these records included the following types
of case files: individual and business examination cases, Earned Income
Tax Credit adjustments, and Trust Fund Recovery Penalty (TFRP)
cases.[Footnote 18] IRS was unable to provide about 19 percent of the
case files requested by TIGTA. In the review, TIGTA recommended that
IRS:
* Ensure the quality and timeliness of the IRS Records Management
Program by developing a method to track specific requests for tax
records that will assign accountability, respond to customer problems,
and provide management information for the program. According to IRS,
it is in the process of modifying IDRS by adding a tracking feature,
which will allow IRS to better track requests and provide improved
service to requesters. IRS anticipates these modifications will be
completed by January 2008.
* Update procedures to include instructions for requesting workpapers
for TFRP assessments, including guidance for determining to which local
field office a request should be sent. According to IRS, it has
finalized procedures that address the retrieval of workpapers for TFRP
assessments. In addition, IRS has developed online training for
Information Resource Coordinators (IRC)[Footnote 19] and interactive
records management process guides that are available to all IRS
employees.
* Ensure the quality and timeliness of the IRS Records Management
Program by developing a method to track specific requests for
workpapers for TFRP assessments that will assign accountability,
respond to customer problems, and provide management information for
the program. According to IRS, it modified the Automated Trust Fund
Recovery System to provide a standardized procedure for locating,
retrieving, and controlling TFRP workpapers.
In another TIGTA review,[Footnote 20] TIGTA was to determine whether
IRS complied with the legal guidelines and procedures for the filing of
a notice of lien or a notice of intent to levy and the right of the
taxpayer to appeal. However, TIGTA could not determine whether IRS
complied with legal guidelines and required procedures because about 8
percent of the case files requested could not be located.
Lacking Data, IRS Cannot Assess Case Management Performance and Develop
Plans for Improvement:
IRS has not developed the data needed to measure the performance of its
case file processes, such as whether all of the paper case files it
requests are located or received timely. Developing such data can
assist IRS in determining how well it is complying with FRA and
internal control requirements, where the process may be breaking down,
and what process improvements to make.
IRS Does Not Track Whether Case Files Are Located or Received Timely:
IRS staff request paper case files from IRS campuses and field offices
and from FRCs. According to an IRS official, the manner in which case
files are requested varies in each program. A filing coordinator told
us that when a paper case file such as an examination case file with a
Document Locator Number (DLN)[Footnote 21] has been closed and sent to
the files area of a campus for storage and is later requested, the
requester enters information about the case file such as the DLN into
IDRS. This generates a form which the files area receives and uses to
locate the case file. The coordinator also said that when the files
area receives the form, files staff will either search for the case
file in the files area or request it from the FRC if it has been sent
for long-term storage.
In contrast, we were told by an Area Records Manager (ARM), when a
paper case file such as a collection case file that does not contain a
DLN has been closed and sent directly to the FRC is later requested, a
form is sent to the ARM which includes the FRC accession number, box
number, and location of the case file which is needed by the FRC to
locate the record. According to AWSS and W&I officials, regardless of
the method used to request the case file, IRS does not track data on
whether all of the case files it requests are located or how long it
takes to retrieve them. Furthermore, these officials added that IRS
does not track the reasons case files cannot be located. When case
files are requested by IRS staff, errors can occur in the process of
requesting, locating, and sending case files as suggested by IRS
officials in figure 2.
Figure 2: Errors That Can Occur in the Process of Requesting, Locating,
and Sending Paper Case Files:
[See PDF for image]
Source: GAO analysis of IRS data; Art Explosion (images).
[End of figure]
Although campuses use forms that identify some reasons case files
cannot be located, campuses do not track these reasons according to an
IRS official. IRS has hired contractors to take over the responsibility
of the files areas. Contractors are performing files activities at two
campuses and will take over responsibility for the remaining five
campuses between August and October 2007. The contractors are required
to adhere to a Performance Work Statement (PWS) which lists the
contractor's duties, as well as IRM policies and procedures that are
specified in the PWS. However, neither the PWS nor the IRM require that
staff track the reasons paper case files cannot be located. Therefore,
the contractors are not performing these tasks.
In the three previously mentioned GAO audits, we asked IRS staff who
requested our case files why the case files could not be located. IRS
staff said they requested the case files from many campuses. However,
there was no one in charge of the requests to track the progress of our
file requests and provide specific reasons why the case files could not
be located. For example, the ARMs act as liaisons with the FRCs and IRS
Business Units and can assist staff in tracking and locating case files
from the FRC. However, some staff who requested our case files did not
request assistance from their ARM either because the ARM did not handle
the case files sent to the FRC and left that up to the campus
coordinators, or the staff who requested the case files said they were
not aware they had ARMs. In addition, campus coordinators can assist in
tracking and locating case files. However, one campus coordinator told
us that many IRS staff may not know who their campus coordinators are.
As mentioned previously, IRS staff told us that no one was in charge of
our case file requests to provide information on the reasons the case
files could not be located. This lack of clear responsibility differs
from the way IRS manages document requests during our annual audit of
IRS's financial statements. According to an IRS official, IRS uses many
designated coordinators and holds meetings to ensure that documents
requested for the financial statement audit are received. If IRS had
established clearer responsibility for coordinating and tracking our
case file requests, such as it did to manage document requests during
our financial statement audit, it might have located more of the case
files we requested.
IRS staff told us that when case files cannot be located, either the
files area or FRC should annotate the request form to show the reason
the case could not be located. In our Appeals audit, an Appeals
official said the person who had requested the case files had retired
so they could not provide a reason why the case files could not be
located. For the other two audits, IRS did not always provide the
reasons the case files could not be located. In some of our cases IRS
staff said:
* No form was provided to identify why the case file could not be
located.
* A form was provided but it was not annotated as to why the case file
could not be located.
* An IDRS Transaction Record was received which does not include
reasons why files are not found.
According to a files coordinator, when an examination of a tax return
is performed and an assessment is made, an IDRS Transaction Record is
generated, which is a printout of the transaction. The files area
should receive the transaction record, associate it with the case file,
and then file them together in the files area according to their DLN.
However, if the case file is not received, the Transaction Record is
placed in the file by itself with no indication that the case file was
not received. Therefore, when the files area later tries to fill a
request for that case file, the files area does not know why the case
file is not there. The case file may not be there because it was not
received or was misfiled. If documentation were placed with the
Transaction Record indicating the case file was not received, the files
area could provide that information to the requester.
TIGTA experienced similar problems during one of its reviews mentioned
previously.[Footnote 22] TIGTA requested a statistical sample of tax
records which included about 1,000 case files, of which about 190 were
not provided. In 64 percent of the cases that were not provided, IRS
did not provide a form to identify why the case file could not be
located. In 5 percent of the cases, IRS provided an incomplete
response. In 26 percent of the cases, the case files were not found
because the information in the request did not match the information in
the files area of the campus or at the FRC. In 5 percent of the cases,
IRS provided the wrong case file.
Performance Information Could Assist IRS in Determining How Well Its
Case File Management Process Complies with FRA and Internal Control
Requirements:
IRS could use performance information to assess whether its agencywide
case file management meets FRA and internal control standards requiring
an economic and efficient management of records and that files be
readily available for examination. Managers can use performance
information to identify problems in existing programs, to try to
identify the causes of problems, and/or to develop corrective actions.
An important part of establishing performance measures is to identify
which programs are to be measured (e.g., determining which IRS programs
create a significant number of paper case files since some programs
primarily create automated case files) and which aspects of program
performance are the most important to measure (e.g., tracking the
reasons paper case files cannot be located). Data collected for
performance measures should be complete, accurate, and consistent
enough to document performance and support decision making.[Footnote
23]
The offices that have responsibility for making programs work should be
responsible for developing performance measures. A clear connection
between performance measures and program offices helps to both
reinforce accountability and ensure that, in their day-to-day
activities, managers keep in mind the outcomes their organization is
striving to achieve.
According to an AWSS official, AWSS has overall responsibility for the
Records Management Program, but its focus is on record retention and
coordination with FRCs, while case file management is left to the
program managers. AWSS has developed some performance measures which
have been recently instituted, such as cycle time and the number of
records that could not be located at the FRC. However, AWSS is unable
to separately track paper case file results.
According to the same official, program managers have day-to-day
responsibility for case file management within their programs. However,
program managers such as those in W&I have said they have not developed
performance information to measure how well the programs are managing
their case files. When we asked program managers who had overall
responsibility for case file management across IRS's compliance
programs, the program managers said they did not know. Without overall
responsibility for case file management being clearly defined, IRS may
not be able to develop performance information across all of its
programs to determine how well paper case files are managed to achieve
performance targets and whether its case file management processes are
in accordance with FRA and internal control standards.
IRS Cannot Determine Whether Actions for Improvement Are Needed:
IRS has options available that may improve the management of case
files. However, IRS does not have data to determine which of the
improvements are the most cost effective for IRS. Improving case file
management may result in additional costs to IRS once the agency
determines which actions to take. Improvements may also result in cost
savings by reducing the amount of resources used to locate case files
when multiple requests are made or case files need to be re-created.
Improvements to case file management could include additional training
and guidance. For example, IRS could provide training to IRS staff on
providing the correct DLN when requesting paper case files. In
addition, IRS could provide additional guidance to files coordinators
on managing case files as contractors take over responsibility for the
campus file areas.
Another option for IRS could be to expand one of its closed case file
tracking systems to track more case files and more complete information
about their location. IRS managers have said that the agency does not
have one centralized system to track paper case files. Instead, IRS
uses many systems in its enforcement process to track open case files.
However, these systems generally do not contain information on the
location of case files at the FRC once they are sent there. Instead,
this information is maintained manually throughout IRS. This can make
it difficult to quickly locate files. For example, according to an IRS
official, when Revenue Agents need a case file from outside their
office, they have to determine the state and office the case was worked
in and the year it was closed. Once they have identified this
information, they have to go through that office to locate the FRC
paperwork including the accession number, box number, and location.
This information is needed to request the case file from the FRC. IRS
does not know whether staff, such as Revenue Agents, are having
difficulty obtaining paper case files when they use this process to
locate them.
To automate the location of paper case files sent to the FRC, SB/SE
Collection officials said they enter FRC information along with other
case information into its Junior system. Junior has been designed as a
case processing, closed files inventory tracking system for cases that
are being sent to the FRC. While IRS officials told us this system has
improved IRS's ability to locate paper case files, they provided no
data to support this conclusion. In addition, the Junior system is only
used by SB/SE Collection for specific types of cases (taxpayer
delinquency investigations, taxpayer delinquency accounts, and
installment agreements[Footnote 24]). However, an AWSS official
suggested that use of Junior by other programs and operating divisions
could improve locating closed paper case files.
Using other technologies is another option IRS could consider to assist
it in capturing real-time information on the location of paper case
files. For example, field and headquarters officials from the
Department of Veterans Affairs (VA) provided the following description
of how it uses barcoding to track its benefit folders through its
Control of Veterans Records System (COVERS). The Veterans Benefits
Administration tracks its benefit folders by placing a barcode on each
folder. Employees in the benefit office use a barcode scanner and
printer. As the folders are moved, they are scanned and the location is
automatically changed in VA's record tracking system. VA's tracking
system includes information on the claim number, veteran's name, and
the current and previous locations of the case. The system not only
tracks the location of benefit folders; it also assists in the
management of these folders throughout the claims processing cycle. For
example, reports can be run, such as aging reports which show how long
a VA staff member has had a case. The VA officials also described the
following benefits realized in barcoding benefit folders although they
have no data to support this conclusion. Benefits of barcoding include
the ability to scan the location of a benefit folder into their
tracking system instead of entering it manually, which saves time and
provides improved folder tracking accuracy. COVERS has also improved
the files management activity in two additional ways: first, folder
retirement was transformed from the previous manual IBM card-based
process to the current automated process; second, the sequence checking
of files in cabinets has been expedited while improving accuracy.
An IRS Appeals official told us that Business Units receive listings of
cases docketed for Tax Court and it is their responsibility to review
the listings and send any docketed cases directly to Appeals. If the
Business Units do not send the case files to Appeals and send them to
storage areas instead (e.g., Files Area), this can result in long
delays in receiving case files and potential Tax Court losses.
According to Appeals officials, Appeals and W&I are tracking the number
of days Appeals is waiting for docketed cases. This is a good first
step in tracking whether case files are received timely. However, an
IRS official said that IRS overall does not track the timeliness of
case file receipt. Therefore, IRS lacks information that would be
useful in determining whether implementing a barcoding system to
capture real-time information on the location of case files would be
beneficial.
Conclusions:
IRS does not have an effective process to ensure that paper case files
can be located and made readily available for examination. Further, IRS
has acknowledged its historic difficulties in locating and retrieving
case files. IRS has lost revenue when it could not locate cases for
District Court. IRS also could not provide a significant percentage of
the cases requested in GAO and TIGTA audits. Failure to locate case
files can create unnecessary taxpayer burden and make case files
unavailable for other units in performing their tasks.
IRS has not developed performance measures or the data needed to
measure the performance of its case file processes, such as whether all
of the paper case files it requests are located or received timely.
Instituting and monitoring performance measures across all of IRS's
compliance programs could assist the agency in (1) determining how well
IRS is complying with FRA and internal control requirements, (2)
identifying problems and the causes in existing programs, and/or (3)
developing corrective actions. To improve IRS's paper case file
processes, the agency may incur additional costs once the agency
determines which improvements it will make. However, the agency may
also realize cost savings by reducing the amount of resources used to
locate case files when multiple requests are made or case files need to
be re-created. Developing performance measures may take IRS some time.
However, IRS has some opportunities to improve case file management
that can be performed more expeditiously, such as improving the
coordination of large samples of case files, providing information to
staff on who to contact when case files cannot be located, and ensuring
case files are sent to storage areas as soon as they are closed.
Recommendations for Executive Action:
We are making recommendations to the Acting Commissioner of Internal
Revenue to ensure that paper case files are readily available for
examination. Specifically, we recommend that the Acting Commissioner:
* Ensure that case files are managed in accordance with FRA and
internal control standards, including:
- tracking the number of paper case files that cannot be located or are
received untimely and the reasons why and:
- developing performance measures to monitor the effectiveness of the
paper case file process to assist in determining which options for
improving paper case file management are the most beneficial for IRS.
* Ensure that case file performance is monitored across IRS's
compliance programs by clearly defining responsibility for doing so.
* Establish clearer responsibility for coordinating large samples of
case files to provide specific reasons why case files cannot be
located.
* Reiterate to staff who the campus coordinators and Area Records
Managers are for requesting paper case files.
* Ensure that paper case files are sent to storage areas as soon as the
cases are closed; include with the IDRS Transaction Record
documentation that indicates whether a case file was sent to storage;
and track the number and location of paper case files that have not
been sent to storage.
Agency Comments:
The Acting Commissioner of Internal Revenue provided written comments
on a draft of this report in a September 18, 2007, letter, which is
reprinted in appendix II. The Acting Commissioner agreed that staff
often need paper case files to fulfill mission-critical requirements
and that the failure to locate specific case files can affect tax
administration and customer service.
The Acting Commissioner agreed that IRS needs to review its Records
Management Program. However, instead of commenting on our specific
recommendations, the Acting Commissioner stated that IRS will form a
cross-functional working group to review the Records Management Program
and develop corrective action, taking into account our recommendations.
The Acting Commissioner also described some systemic enhancements
undertaken by W&I to facilitate requests for tax returns and associated
records.
IRS's planned review and development of corrective actions is
responsive to our recommendations, and we look forward to its
consideration of our recommendations in this review as well as to the
benefits to taxpayers and IRS of a more effective program.
As agreed with your offices, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
from its date. At that time, we will send copies of this report to
appropriate congressional committees and the Acting Commissioner of
Internal Revenue. We also will make copies available to others upon
request. In addition, the report will be available at no charge on the
GAO Web site at [hyperlink, http://www.gao.gov].
If you or your staff have any questions concerning this report, please
contact me at (202) 512-9110 or at brostekm@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. GAO staff who made major contributions
to this report are listed in appendix III.
Signed by:
Michael Brostek:
Director, Tax Issues Strategic Issues Team:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
The objectives of this assignment were to review the Internal Revenue
Service's (IRS) case file storage, tracking, and documentation process
to determine whether IRS has (1) an effective process to ensure that
paper case files can be located timely and (2) sufficient data to
assess the performance of its paper case file processes.
To make determinations in both areas, we interviewed over 50 program
executives, managers, and staff from the Office of Agency-Wide Shared
Services, the Small Business/Self-Employed Division, the Wage and
Investment Division, the Office of Appeals, the Automated Collection
System (ACS), and the National Research Program (NRP) to gain an
understanding of the case file storage, tracking, and documentation
process. We also visited one campus and one field office to gain an
understanding of the processes they use to store, track, and document
case files. We observed and inquired into the internal controls used by
IRS in these processes. We did not interview officials from the Large
and Mid-Size Business Division or the Tax-Exempt and Government
Entities Division since only a very small percentage of Appeals' cases
that are docketed for Tax Court where paper case files are very
important originate from these divisions. We also reviewed IRS's
policies and procedures.
To determine whether IRS has an effective process to ensure that paper
case files can be located timely, we compared IRS's process to the
requirements of the Federal Records Act and our standards for internal
control in the federal government. We interviewed officials from
Appeals, ACS, and NRP to identify the reasons IRS was unable to locate
all of the case files we requested. We also spoke to Treasury Inspector
General for Tax Administration (TIGTA) officials and reviewed prior
TIGTA reports to determine whether IRS was able to provide all case
files requested by TIGTA. Further, we interviewed officials from other
organizations to identify key practices in managing case files. These
organizations included the Department of Education, the Department of
Veterans Affairs, the Social Security Administration, and the
California Franchise Tax Board.
We conducted our work in Washington, D.C., and one campus and field
office from August 2006 through July 2007 in accordance with generally
accepted government auditing standards.
[End of section]
Appendix II: Comments from the Internal Revenue Service:
Department of the Treasury:
Internal Revenue Service:
Washington, D.C. 20224:
September 18, 2007:
Mr. Michael Brostek:
Director, Tax Issues:
U.S. Government Accountability Office:
441 G. St. N.W.
Washington DC 20548:
Dear Mr. Brostek:
Thank you for the opportunity to respond to your draft entitled "Tax
Administration: The Internal Revenue Service Can Improve Its Management
of Paper Case Files," (GAO-07-1160).
We appreciate your report that emphasizes the importance of maintaining
an effective process for paper case file management and describes the
difficulties we sometimes experience in locating and retrieving paper
case files.
The Internal Revenue Services (IRS) is committed to responding to
requests for paper case files as efficiently and expeditiously as
possible. We agreed that the type of paper case files referenced in the
report are often needed by staff to fulfill mission critical
requirements, and we recognize the impact on tax administration and
customer service when we fail to locate specific files.
We agree that the IRS needs to review its Records Management Program,
baseline current practices and procedures, and identify changes and
improvements. We will form a cross-functional working group to
implement this review and develop corrective actions. In doing that, we
will take into account all of GAO's recommendations.
As we move forward to improve the Records Management Program, I am
pleased to report some systematic enhancements by the Wage and
Investment Division that we can already build on to facilitate the
requests for tax returns and associated records.
* Changes to the application/program on the IRS computer system IDRS
that requires the input of the requester's mailing address has speeded
the routing and delivery of tax returns and associated records to the
requester.
* With the opening and subsequent operation of the Consolidated Alpha
Site in Independence, MO, campuses are able to hold List Year Records
in-house for much longer periods of time so that requests for tax
returns are filled quicker and can be serviced locally.
* Tax records for the Ogden and Atlanta campuses were consolidated into
one National Archives and Records Administration (NARA) facility,
eliminating requests to multiple Federal Record Centers for two of the
two of the larger Submission Processing Campuses.
* New procedures were implemented to streamline the routing process for
tax records requested by the Examination function, which allowed for
more timely receipt of records.
These enhancements, along with future identified changes and
improvements, including the expected consolidation of submission
processing centers and continued increase in electronic filing, will
improve the IRS' ability to locate retrieve, and control case files in
a more efficient manner.
If you have any questions, pleas contact Floyd Williams, Director,
Legislative Affairs, at (202) 622-3720.
Sincerely,
Linda E. Stiff:
Acting Commissioner of Internal Revenue:
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
Michael Brostek, (202) 512-9110 or brostekm@gao.gov:
Acknowledgments:
In addition to the contact person named above, Jonda Van Pelt,
Assistant Director; Carl Barden; Wilfred Holloway; Laurie King; Donna
Miller; Cheryl Peterson; and Sam Scrutchins made key contributions to
this report.
[End of section]
Footnotes:
[1] 44 U.S.C. § 3102.
[2] Records are evidence of the agency's organization, functions,
policies, decisions, procedures, operations, or other activities. Case
files are records kept as a unit documenting a specific action, event,
person, or project; they present a complete history of a specific
transaction. Internal Revenue Manual section 1.15.7.1.3.
[3] GAO, Standards for Internal Control in the Federal Government, GAO/
AIMD-00-21.3.1 (Washington, D.C.: November 1999).
[4] A WSS plans, develops, promotes, and establishes agencywide policy,
standards and procedures, and guidelines on records management.
[5] According to IRS officials, quality review groups review case files
to assess whether cases are properly developed, processed, and
documented. Advisory groups analyze and develop field collection cases
for IRS's Chief Counsel for cases that may be litigated in District
Court.
[6] GAO, Capital Gains Tax Gap: Requiring Brokers to Report Securities
Cost Basis Would Improve Compliance if Related Challenges Are
Addressed, GAO-06-603 (Washington, D.C.: June 13, 2006), and Tax
Administration: Little Evidence of Procedural Errors in Collection Due
Process Appeal Cases but Opportunities Exist to Improve the Program,
GAO-07-112 (Washington, D.C.: Oct. 6, 2006).
[7] Under GAO's financial audit methodology, we generally use a 3
percent materiality threshold to test internal controls for mission-
critical activities. We consider the storage and retrieval of paper
case files to be mission-critical to IRS. In another GAO audit, GAO,
Tax Administration: Opportunities to Improve Compliance Decisions and
Service to Taxpayers through Enhancements to Appeals' Feedback Project,
GAO-06-396 (Washington, D.C.: Mar. 24, 2006), IRS was unable to locate
all case files requested but the percentage did not exceed our
materiality threshold.
[8] Treasury Inspector General for Tax Administration, Better
Procedures Are Needed to Locate, Retrieve, and Control Tax Records,
TIGTA 2004-10- 186 (Washington, D.C.: September 2004).
[9] We were unable to determine how many cases were paper or automated
since W&I and SB/SE do not track this information.
[10] The campuses are the data processing arm of IRS. They process
paper and electronic submissions, correct errors, and forward data to
the Computing Centers for analysis and posting to taxpayer accounts.
Field offices perform tasks such as examining taxpayer records and
collecting delinquent taxpayer accounts.
[11] FRCs are located throughout the nation and provide long-term
storage for the IRS and other Federal Government agencies.
[12] In a nominee situation, the transfer is not intended to divest the
transferor of any rights to the property. An example of a nominee
situation is a conveyance of property to a party with the understanding
that the property will be returned to the transferor after the
transferor's creditors lose interest in collecting their claims.
[13] IDRS is a computer system capable of retrieving or updating stored
information; it works in conjunction with a taxpayer's account records.
[14] IRS tracks the amount of time a case is in its inventory using
aging reports. For example, IRS tracks taxpayer delinquency
investigation cases that have been in its inventory less than 6 months
as well as those that have been in its inventory for 16 months or more.
[15] We are 95 percent confident that the actual proportion is between
6.2 percent and 16.2 percent.
[16] CDP cases are cases where Appeals performs an independent review
of a proposed levy (seizure of a taxpayer's assets to satisfy a tax
delinquency) or lien (legal claim filed in accordance with state
property law that attaches to property to secure payment of a debt).
[17] We are 95 percent confident that the actual proportion is between
10.9 percent and 18.5 percent.
[18] A TFRP is a penalty assessed against any person determined
responsible in a business operation for nonpayment of employment taxes
that were withheld from employees' wages or salaries.
[19] IRCs monitor filing operations in their local offices.
[20] Treasury Inspector General for Tax Administration, The Office of
Appeals Should Continue to Strengthen and Reinforce Procedures for
Collection Due Process Cases, TIGTA 2006-10-123 (Washington, D.C.:
September 2006).
[21] A DLN is a number assigned to a document which is used to identify
and locate it.
[22] TIGTA 2004-10-186.
[23] GAO, Executive Guide: Effectively Implementing the Government
Performance and Results Act, GAO/GGD-96-118 (Washington, D.C.: June
1996).
[24] Installment agreements allow taxpayers to pay their tax
liabilities over a period of time.
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