B-271975 abuse, which are not resolved through normal daily operations. IRS' Inspection Service (Inspection), which includes the Internal Audit and Internal Security Divisions, is to investigate taxpayer allegations involving potential criminal misconduct by IRS employees. Problem Resolution Offices in IRS' district offices and service centers are to help taxpayers who have been unable to resolve their problems through normal IRS channels with other IRS staff. IRS' Office of Legislative Affairs is to track responses to congressional inquiries, often on behalf of constituents, as well as direct correspondence with the Commissioner or other IRS executives involving the tax system or IRS' administration of it. OIG and DOJ may also get involved with taxpayer abuse allegations. OIG may investigate allegations involving senior IRS officials, those who serve in General Schedule (GS) grade-15 positions or higher, as well as IRS Inspection employees. IRS employees accused of criminal misconduct may be prosecuted by a DOJ U. S. Attorney. IRS employees who are sued by taxpayers for actions taken within the employees' official duties may be defended by attorneys with the DOJ Tax Division. In our 1994 report on IRS' controls to protect against taxpayer abuse, we were unable to determine the overall adequacy of IRS' controls and made several recommendations to improve them. Foremost among our recommendations was that IRS define taxpayer abuse and collect relevant management information to systematically track its nature and extent. At that time, in the absence of an IRS definition, we defined taxpayer abuse to include instances when (1) an IRS employee violated a law, regulation, or the IRS Rules of Conduct; (2) an IRS employee was unnecessarily aggressive in applying discretionary enforcement power, or (3) IRS' information systems broke down, e.g. when taxpayers repeatedly received tax deficiency notices and payment demands despite continual contacts with IRS to resolve problems with their accounts. Other recommendations in our 1994 report addressed such concerns as unauthorized access to computerized taxpayer information, improper use and processing of taxpayer cash payments, and the need for IRS notification of potential employee liability for trust fund recovery penalties. IRS did not agree with the need to define taxpayer abuse-a term it found objectionable-nor to track its nature and extent; but IRS agreed to take corrective action on many of our other recommendations. Results in Brief While IRS has made some improvements to its controls over the treatment of taxpayers since our 1994 report, we remain unable to reach a B-271975 conclusion on the overall adequacy of IRS' controls. We cannot determine the adequacy of these controls because IRS officials have not yet established a capability to capture management information that is needed to ensure that abuse is identified and addressed and to prevent its recurrence. We are, however, encouraged by a recent commitment on the part of IRS' Deputy Commissioner to establish a tracking system for taxpayer complaints. IRS has defined "taxpayer complaints" using a definition that is comparable to one we used for "taxpayer abuse" in our 1994 report and is currently reviewing its management information systems to determine the best way to capture the relevant information needed for a complaints tracking system. If effectively designed and implemented, we believe such a system could allow IRS to better ensure that instances of taxpayer abuse can be identified and addressed and that actions can be taken to prevent them in the future. Since we last reported on IRS' controls to prevent taxpayer abuse, IRS has (1) initiated actions to implement many of the recommendations we made in our 1994 report (see app. I), (2) initiated other actions in anticipation of provisions included in the recently enacted Taxpayer Bill of Rights 2,2 and (3) started to use data accumulated through its Problem Resolution Program in an effort to identify possible systemic problems. Examples of these actions include (1) improving controls over IRS employee access to computerized taxpayer accounts, (2) establishing an expedited appeals process for some IRS collection actions, and (3) identifying recurring taxpayer problems and categorizing them by major issues, such as penalties imposed on taxpayers. If effectively implemented, these cumulative actions could improve IRS' Overall treatment of taxpayers and better protect against taxpayer abuse. The extent to which taxpayer abuse allegations are received and investigated by IRS, OIG, and DOJ cannot be determined from readily available information. Information systems maintained by IRS, OIG, and DOJ were designed as case tracking and resource management systems intended to serve the management information needs of particular functions, such as IRS' Internal Security Division. (See appendix II.) None of these systems include specific data elements for "taxpayer abuse;" however, they contain data elements that encompass broad categories of misconduct, taxpayer problems, or legal actions. Without reviewing specific case files, information contained in these systems related to allegations and investigations of taxpayer abuse is not easily distinguishable from information on allegations and investigations that do Taxpayer Bill of Rights 2 (P.L. 104-168). B-271975 not involve taxpayers. Consequently, as currently designed, these systems cannot be used individually or collectively to account for IRS' handling of all instances of alleged taxpayer abuse. OIG is responsible for investigating allegations of waste, fraud, and Scope and To determine the adequacy of IRS' current controls over taxpayer abuse, we identified and documented actions taken by IRS in response to the recommendations in our 1994 report. We also identified any additional actions that IRS has initiated since then, relative to how IRS treats taxpayers. Finally, we discussed with IRS officials a recent commitment they made to define and establish a taxpayer complaints tracking system and the current status of this effort. To determine the extent of information available concerning the number B-271975 of position or authority." Similar examples were provided by officials from each organization as described in appendix II. We discussed the general objectives and uses of the relevant information systems with officials from the respective agencies. We also reviewed examples of the data produced by these systems under the suggested general data categories to ascertain if it was possible from these examples to determine whether taxpayer abuse may have occurred. We did not attempt to verify the accuracy of the data we received, because to do so would require an extensive, time-consuming review of related case files. This was beyond the scope and time available for this study. To determine OIG's role in investigating allegations of taxpayer abuse, we obtained and reviewed Treasury orders and directives establishing and delineating the responsibilities of OIG, as well as a 1994 Memorandum of Understanding between OIG and IRS outlining specific procedures to be followed by each staff for reporting and investigating allegations of misconduct and fraud, waste, and abuse. We also obtained statistics from OIG staff concerning the number of allegations they received and investigations they conducted involving IRS employees for fiscal year 1995-the latest year for which data were available. In addition, we discussed oIG's role and the relationship between OIG and IRS staffs with senior officials from both OIG and IRS. We requested comments on a draft of this report from the Commissioner of Internal Revenue, the Treasury Inspector General, and the Attorney General. On August 9, 1996, we received written comments from IRS, which are summarized on page 15 and are reprinted in appendix III. We also received written comments, which were technical in nature, from both the Treasury's OIG and DOJ. These comments have been incorporated in the report where appropriate. We performed our audit work in Washington, D.C., between April and July 1996 in accordance with generally accepted government auditing standards. B-271975 Adequacy of IRS IRS Officials Have While IRS has made improvements in its controls over the treatment of taxpayers since our 1994 report, we are still unable to reach a conclusion at this time on the overall adequacy of IRS' Controls. We cannot determine the adequacy of these controls because IRS officials have not yet established a capability to capture management information, which is needed to ensure that abuse is identified and addressed and to prevent its recurrence. We are, however, encouraged by a recent commitment on the part of IRS' Deputy Commissioner to establish a tracking system for taxpayer complaints. Such a system has the potential to greatly improve IRS' controls to protect against taxpayer abuse and better ensure that taxpayers are treated properly. In exploring how IRS could satisfy a mandate included in the recently enacted Taxpayer Bill of Rights 2 to report annually to Congress on employee misconduct and taxpayer complaints, IRS recognized and acknowledged that such a mandate could not be satisfied with its existing information systems and that a definition for "taxpayer complaints" would be necessary, along with sufficient related management information to ensure that complaints are identified, addressed, and analyzed to prevent their recurrence. Although IRS said it still believes the term "taxpayer abuse" is misleading, inaccurate, and inflammatory, IRS decided to use the basic elements that we used in our 1994 report definition for taxpayer abuse as a starting point to develop a definition for taxpayer complaints. The basic elements from our report included when (1) an IRS employee violated a law, regulation, or the IRS Rules of Conduct; (2) an IRS employee was unnecessarily aggressive in applying discretionary enforcement power; or (3) IRS' information systems broke down, e.g. when taxpayers repeatedly received tax deficiency notices and payment demands despite continual contacts with IRS to resolve problems with their accounts. With input from members of IRS' Executive Committee, an IRS task group |