oversight

Extending the Tax Assessment Period: Why, How Often, and What Improvements Can Be Made

Published by the Government Accountability Office on 1977-03-28.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                         DOCUMENT RESUHF
00293 - L 1051903)

Extending the Tax Assessment Period: Why, How Often, and What
Improvemontsq Can He Made. GGD-76-108, 0-137762. March 28, 1977.
35 pp. + ajpendices (it pp.).
Report to Rep. Al Ullman, Chairman, Joint Committee on Taxation;
Sen. Russell B. Long, Vice Chairman; by Elmer B. Staats,
Comptrcller Genere'.
Issue Area: Tax Administration (2700).
Contact: General Government Div.
Budget Function: General Govern-ent: Other General Government
     (806).
Organization Concerned: Department of the Treasury; Internal
    Revenue Service.
Congressional Rele-ance: House Committee on Ways and Means;
    Senate Committee on Finance; Joint ommaittee on Taxation.
Authority: Revenue Act of 1934. Internal Revenue Code of 19154.

         A statute of limitations restricts the Internal Revenue
Service's (IRS) audit and assessment authority to 3 years after
a tax return is due or filed, whichever comes later. If more
time is needed to resolve a tax examination satisfactorily, the
statute period can be extended by written agreement (waiver)
between IRS and the taxpayer. Findings/C nclusicns: Waivers
were requested in about two percent of tk.e many audits conducted
by the Atlanta, San Francisco, and Seattle IRS district offices
during 9 mcnths selected between Octrber 1974 and October 1975.
The reasons given for requestir] a waiver do not alwayr explain
the underlying cause ior not resolving the examination in time.
The taxpayer has three options on a waiver--agree to waiver,
propose conditions to waiver, or refuse waiver--but he quite
often is not informed of alternatives. About 20 percent of
interviewed taxpayers who agreed to a waiver indicated that they
would have made other decisions had they known the choices;
about 24 percent felt pressured into agreeing. The number of
waivers could be reduced by amending IRS policies and
procedures. IRS could enhance its public image by requesting
fewer waivers and providing more complete and consistent
information when requests are made. Recommendations: Taxpayers
should be provided with complete and consistent explanations of
their rights and options concerning ~aivers. Taxpayers should be
permitted greater leeway in proposing waiver conditions and
their conditions should be more readily accepted. Prioriyv
handling techniques should be applied for cases nearing
expiration of the statutory period. A waiver request should >e
made oLly after priority processing results indicate the need
for more time. The use of open-ended waivers should be expanded.
A statement should be added to IRS request tore for fixed-period
waivers noting that the period will end on the agreed upon date
or after assessment, whichever comes first. (Author/SS)
         REPORT              'O THE
                            TJO)INTi"                      C(O_,IMMITTT!,EE
         ON TAXATION
         CONGRESS OF THE UNITED STATES
         BY THIE COM[PTROLLER GENE RAL
. ,:.O
  u               THE UNITED STATrE'S



         Extending The Tax Assessment
         Period: Why, How Often, And
         What Improvements Can Be Made
         Internal Revenue Service
         Department of the Treasury

         IRS' authority to audit a tax return and assess
         the taxpayer for any related tax change is
         limited by law to a 3-year period. This statu-
         tc ry period can be extended--waived--through
         written agreement between IRS and the tax-
         payer.
         The requirement that both the taxpayer and
         IRS must agree provides the waiver process
         built-in protection against abuse, However,
         taxpayers, when asked to agree to a waiver,
         are not usuaily informed of alternative ac-
         tions.
          In practice, waivers are infrequent. Neverthe-
         less, IRS can enhance its taxpayer relation
         ships by reducing the number of waivers ob
         tained and providing taxpayers more ccm
         plete and consistent information when it re
         quests waivers.




         GGD-76-108                                                    . 7
                COMPTROLLER GENERAL OF THE UNITED STATE
                           WASHINGTON, D.C.   20141




B-137762




To the Chairman and Vice Chairman
Joint Committee on Taxation
Congress of the United StaLes

     This report, one of a series in response to your
Committee's request, addresses the frequency and reasons
for extending the 3-year statutory period for assessing
taxes and what the Internal Revenue Service can do to
improve the extension process.

     Upon release of this report by the Joint Committee,
copies will be sent to the Director, Office of Management
and Budget; the Secretary of the Treasury; and the Acting
Commissioner of Internal Revenue.




                                 Comptroller General
                                 of the United States
 COMPTROLLER GENERAL'S REPORT            EXTENDING T:HE TAX ASSESSMENT
 TO THE JOINT COMMITTEE ON               PERIDD:  WHY, HOW OFTEN, AND
 TAXATION                                WHAT IMPROVEMENTS CAN BE MADE
                                         Internal Revenue Service
                                         Department of the Tr.Lsurv
             DIGEST
             A statute of limitations restricts the
             Internal Revenue Service'd audit and assess-
             ment authority to 3 years after a tax return
             is due or filed, whichever comes later. If
             more time is needed to resolve satisfactorily
             a tax examination, the statute period can be
             extended through written agreement between
             IRS and the taxpayer. Such extensions are
             commonly called waivers.

            How often do waivers occur? Are taxpayers
            provided sufficient information on which to
            base their waiver decisions? Do taxpayers
            perceive pressure in IRS' waiver request?
            Can the waiver process be imnproved? GAO's
            review answered these questions.

            IRS does not often request a waiver. Waivers
            occurred in only about 2 percent of the al-
            most 50,000 audits closed by the Atlanta, San
            Francisco, and Seattle IRS district offices
            during 9 selected months within the period
            October 1974 through October 1975.  (See p.
            16.)
            IRS requests and the taxpayer agrees to waiv-
            ers for different reasons because they view
            the waiver from different perspectives.   (See
            pp. 19 and 27.) These reasons do not always
            explain why waivers are needed--the underlying
            cause for not resolving the tax examination
            during the original statute period.   (See p.
            19.)

            When confronted with a waiver request, the
            taxpayer has three basic choices, the rights
            and options varying with each--(l) agree to
            the waiver as requested by IRS, (2) propose
            waiver terms and conditions, or (3) refuse
            waiver agreement thereby forcing IRS to con-
            clude the tax examination within the original
            statute period.
CTary'    Upon removal. the report   i                    GGD-76-108
    dotshould be noted hereon.
cover~
Interviews with IRS personnel, taxpayers, and
taxpayer representatives disclosed that the
taxpayer's decision is not always an informed
one because IRS often provides insufficient
information about waiver alternatives. Seven-
teen interviewees (about 20 percent) told GAO
that knowledge of alternatives would have af-
fected their decision to agree to the IRS
waiver request.  (See p. 29.)

Twenty interviewees (about 24 percent) were
influenced by the manner in which IRS made the
waiver request.  They felt pressured into ex-
tending the statute period. Examples of this
pressure included alleged or perceived threats
of IRS retaliatory action should the waiver be
refused. The general lack of information re-
garding taxpayer rights and waiver alternatives
probably accounts for part of this feeling of
ill will.  (See p. 32.)
The interviews, supplemented by a review of
case files, also showed that the number of
waivers requested can be reduced by amending
IRS policies and procedures. IRS can reduce
the number of waivers requested by

-- using priority handling techniques, espe-
   cially for agreed cases (see p. 22), and
-- expanding the use of open-ended waivers to
   cases for which the time required for reso-
   lution is difficult or impossible to predict.
   (See p. 24.)
In addition to reducing waiver frequency, IRS
can exercise more care in determining waiver
length.  (See p. 24.)
Part of IRS' mission is to enhance public con-
fidence in its integrity, the efficiency of
its operations, and the equity of the tax
system. IRS can further this mission and en-
hance its relationship with taxpayers by re-
questing fewer waivers and providing more com-
plete and consistent information when requests
are made.
Accordingly, GAO recommends that the Commis-
sioner of Internal Revenue, through appro-
priate policy and procedural revisions:

                     ii
          -- Provide taxpayers with complete and co,1-
             sistent explanations, c-ally and in writ-
             ing, of their rights and options when faced
             with a waiver decision.

          -- Permit the taxpayer greater leeway in pro-
             posing waiver conditions and accept those
             conditions proposed that are reasonable in
             light of other alternatives available to
             IRS.

          -- Require that priority handling techniques
             bc applied for cases nearing expiration of
             the statutory period.

          -- Require that a waiver request be made only
             after priority processing results demon-
             strate that more time is needed.

          -- Expand the use of open-ended waivers, par-
             ticularly for tax examinations that cannot
             be closed within the foreseeable future.

          -- Add to the iRS forms used to secure fixed-
             period waivers a statement that the waiver
             period will end on the agreed date or after
             assessment, whichever comes first.

          The Commissioner of Internal Revenue said that
          while the 2-percent waiver incidence GAO found
          reflects favorably on existing IRS policies and
          procedures, IRS will revise them in line with
          GAO's recommendations.  (See app. I.)

          Specifically, IRS will, when making waiver
          requests, provide taxpayers with complete and
          consistent explanations, orally and in writing,
          of their rights and options. IRS will also
          encourage greater use of conditional waivers
          and explore the feasibility of developing
          additional guidelines for t:heir preparation.

          To reduce waiver incidence, IRS will establish
          a requirement directed toward eliminating those
          waivers being obtained prematurely and expand
          the use of "pen-ended waivers. IRS will also
          terminate fixed-period waivers on the earlier
          of either the assessment date or agreed date.



                                iii
TImr St
                        Contents

                                                          Pagq

DIGEST                                                      i
CHAPTER

   1      INTRODUCTION                                      1
              Statute of limitations on tax assessments     1
              Review objectives and scope                   2
   2      THE SELECTION, AUDIT, AND APPEAL PROCESSES:
            HOW THEY WORK                                  3
              The selection process                        3
              The audit process                            4
              Appeal processes                             4
   3      PROCEDURES FOR MONITORING TIME REMAINING
            IN THE STATUTE PERIOD AND FOR SOLICTTING
            WAIVERS                                        6
              Procedures for monitoring expiration of
                the statute period                         6
              Actions available as statute period
                approaches expiration                      7
              Waiver policy                                8
              Types of waivers                             9
              Waiver notification procedures              10
   4      FREQUENCY OF WAIVERS AND WHY IRS REQUESTS
            THEM                                          16
              Waiver frequency                            16
              Why IRS requests waivers                    19
              Number of waivers can be reduced            22
              Conclusions                                 25
              Recommendations to the Commissioner
                 of Internal Revenue                      25
              IRS comments                                26
   5      WHY TAXPAYERS AGREE TO WAIVER REQUESTS          27
              Taxpayer reasons                            27
              Taxpayers are not provided complete
                and consistent infcrmation                29
              The way IRS request    'aivers influenced
                some taxpayers' c    ,ions                32
              Conclusions                                 34
             Recommendations to teie Commissioner of
                Internal Revenue                          35
              IRS comments
                                                          35
                                                         Page
APPENDIX

      I    Letter dated January 18, 1977, from the
             Commissioner of Internal Revenue             36
  II       Certain exceptions to the 3-year statute of
             limitation!                                  47

 III       Principal officials responsible for
             administering activities discussed in
             th s report                                 49
                          ABBREVIATIONS
GAO        General Accounting Office
IRS        Internal Revenue Service
                           CHAPTER 1

                         INTRODUCTION
      In English common law there is a maxim, "The lapse of
time does not bar the right of the Crown." Strictly inter-
preted, this maxim would allow the Government to initiate
claims, assessments, or other legal actions without regard
to time constraints. This open-ended doctrine has been
limited over the years through laws--statutes of limita-
tions--establishing specific time frames for certain types
actions. One such statute applies to the assessment of       of
                                                          Fed-
era'. taxes and affects both the Internal Revenue Service
(IRS) and the taxpayer.
STATUTE OF LIMITATIONS ON TAX ASSESSMENTS

     To protect taxpayers from untimely tax examinations,
the Congress established a statute of limitations on tax
assessments. Without such a statute, the Federal Government,
through IRS, could examine any filed tax return, regardless
of age, and make tax assessments as appropriate.

      Immediately prior to the Revenue Act of 1934, IRS' au-
thority to assess taxes was limited to 2 years after a tax
return was filed. Because experience demonstrated that
2 years was insufficient for IRS to adequately perform
thorough tax audits and prepare accurate tax statements,
the 1934 act increased the limitation period
The Internal Revenue Code of 1954, the currentto tax
                                                  3 years.
                                                     law,
tained tile 3-year period beginning on the due or filing re-
date of a tax return, whichever is later.

     The 3-year limitation on tax
rule that does not apply to false, assessment is a g neral
                                    fraudulent, or unfiled
tax returns. In addition, specific conditions, such as a
25-percent omission of incovme, cause the statute period to
be automatically eytended beyond 3 years.   (See app. II.)
Agreement to extend the
statute of itmiartlons
                   -    eriod
     Since all activities leading to and including tax
assessment may not be completed before the 3-year statutory
period expires, the Internal Revenue Code includes a provi-
sion to extend the original period of limitation. Such ex-
tensions are permitted by the Code when both the taxpayer
and IRS agree in writing before the existing statutory
period expires. The Code, however, specifies neither the
length of the extension period nor the number of extension
agreements that can !e made. Except for estate taxes
                                                       the
extension provision applies to all tax types (for example,
income, gift, and excise).

     These extension agreements are commonly called waivers
or consents.

REVIEW OBJECTIVES AND SCOPE

     The Joirt Committee on Taxation requested that we review
the procedures for waiving the statute of limitations period
and determine the basis for extensions on the part of both IRS
and the taxpayer, including cases involving more than one
waiver. We also looked into:

     -- How frequently waivers are obtained.

     --What information is provided to taxpayers on which to
       base their waiver decisions.
     -- What opportunities are available to improve the waiver
        process.

     Our review focused on the waiver process as conducted
within IRS' Audit Division. 1/ We reviewed sections of the
Internal Revenue Code as well as IRS regulations, policy
statements, and procedural guidelines. Our review was per-
formed at the IRS national office in Washington, D.C.; IRS
regional offices in Atlanta and San Francisco; and IRS
district offices in Atlanta, San Francisco, and Seattle.

      Using statistical sampling techniques (see pp. 16 and
27), we examined 434 tax returns involving 300 taxpayers and
697 waiver agreements. We interviewed IRS personnel knowl-
edgeable with 245 of the taxpayer cases in our sample. We
also interviewed 83 of the sampled taxpayers or their repre-
sent;itives. We are 95 percent confident that our sample re-
sults are representative of the total waivers obtained for
audi+n closed by the three districts during the sampled
perioG.




1/Waivers to the assessment period can also be obtained by
  other IRS offices and divisions such as the Office of In-
  ternational Operations and the Appellate Division. We
  concentrated on the Audit Division, however, because it
  affects the greatest number of taxpayers, including those
  who pay individual and corporate income tax.
                          CHAPTER 2
         THE SELECTION, AUDITLAND APPEAL PROCESSES:

                        HOW THEY WORK
     The Internal Revenue Service selects and audits tax
returns 1/ to encourage the highest possible degree of volun-
tary compliance with the tax laws. In fiscal year 1975, IRS
audited about 3.6 million 2/or the 110 million tax returns
(all types of taxes) filed in calendar yea: 1974.
THE SELECTION PROCESS

     IRS determines how many returns will be audited each
year through an annual planning process. The plan is de-
veloped by return type--individual, corporate, etc.--and
class--income or asset level. Returns are then selected
in several ways to accomplish the plan.

     The primary selection method is based on a computer
program which screens and numerically scores tax returns
according to a mathematically determined probability of
error. The highest scored returns are then reviewed man-
ually to confirm audit potential.

     Other selection techniques employed by IRS include a
manual review of returns showing adjusted gross incomes
above a certain lev 1 and returns for which refund or credit
claims have been filed. In other instances, errors found
during the audit of a return may lead the examiner to select




1/We have issued to the Joint Conlmittee on Taxation three
  reports on IRS' selection and audit of tax returns: "How
  The Internal Revenue Service Selects Individual Income Tax
  Returns For Audit," GGD-76-55, Nov. 5, 1976; "Audit Of
  Individual Income Tax Returns By The Internal Revenue
  Service," GGD-76-54, Dec. 2, 1976; and "Audit Of Fiduciary
  Income Tax Returns By The Internal Revenue Service,"
  GGD-76-33, Apr. 16, 1976.
2/The 3.6 million includes 2.3 million district and 1.3 mil-
  lion service center audits. We considered any instance
  of taxpayer contact by the service center audit division
  as a service center audit. !RS, however, considers few of
  these contacts to be audits. Our differing positions are
  presented on pages 56 through 58 .n the above listed report
  on the selection of individual income tax returns.


                             3
and audit additional returns filed by that taxpayer or the
returns of related taxpayers, such as business partners.
Still other returns may be selected because of information
gathered during criminal investigations.
THE AUDIT PROCESS

     The audit of a return may be accomplished through
correspondence, or can take place in an IRS office, the tax-
payer's home or place of business, or in the office of the
taxpayer's accountant or attorney. Audit location is gov-
erned by such factors as return complexity and the best
interest of the Government and taxpayer.

     Upon completion, IRS informs the taxpayer whether the
audit disclosed a tax deficiency, an overpayment, or no
change in tax liability. The audit findings are subject to
possible review by the examiner's supervisor and a separate
staff. These reviews are to assure both the taxpayer and
IRS that the findings are correct. The IRS examining offi-
cer may recontact the taxpayer if questions related to the
audit findings are raised during the review process.
     Once IRS is satisfied that the audit findings are cor-
rect, the tax return and examination documentation are proc-
essed through various procedural steps and sent to a focal
point in a service center. There, processing is continued
to record the assessment and ultimately update the taxpayer's
account.

APPEAL PROCESSES

     Once informed of the audit findings, a taxpayer who dis-
agrees may either appeal within IRS' administrative system
or take the case directly to a judicial court. Most taxpay-
ers choose IRS' administrative appeals system, which is de-
signed to minimize inconvenience, expense, and delay in set-
tling contested tax cases. Additionally, use of the adminis-
trative system does not preclude the taxpayer from seeking
subsequent judicial review of issues remaining unresolved.
In the past 10 years, 97 percent of all disputed tax cases
lave been closed without judicial review.

Administrative appeal
     IRS' administrative appeals sysvem gives both the tax-
payer and IRS opportunities to resolve disputed tax issues
without incurring litigation costs. The system is founded
on procedural rules established by the Internal Revenue
Commissioner and the statute period for assessment continues
to run during the appeal process.


                              4
     The system provides two levels fot appeal--district
and regional. Each level is independent of the other, and
a taxpayer may initiate an appeal at either level, If an
appeal is initiated at the district (lower) level, any
unresolved issues may be later appealed to the regional
level. If agreement cannot be reached at either level, the
taxpayer can continue the appeal within the judicial system.

     Since the administrative appeal system is authorized by
procedural rules rather than by law,'access is not guaranteed
to every taxpayer. If the time remaining in the statute pe-
riod is not considered sufficient to accommodate the appeals
process, IRS can deny the taxpayer the opportunity to ad-
ministratively appeal the proposed tax adjustment if a waiver
is not obtained. This does not abridge the taxpayer's con-
stitutional right to due process because access to the ju-
dicial process is still available.

Judicial appeal

     The taxpayer may either (1) appeal to the United States
Tax Court before paying any additional tax IRS says is due
or (2) pay the tax and then appeal to either the U.S. Court
of Claims or a U.S. district court. These courts are inde-
pendent of each other, and the decision of each may be
appealed to a higher level in the Federal judicial system.
Entry of a case on the U.S. Tax Court docket suspends the
statute of limitations period.




                             5
                           CHAPTER 3
       PROCEDURES FOR MONITORING TIME REMAINING IN THE

          STATUTE PERIOD AND FOR SOLICITING WAIVERS
     The Internal Revenue Service cannot make a tax
assessment after time has expired under the  statute of limi-
tations, even if the tax adjustment was determined before
expiration. Taxpayers cannot admiinistratively appeal a tax
adjustment unless sufficient time remains under the statute.
In view of these restrictions, IRS devised procedures to
identify and monitor tax returns for which the statute period
is nearing expiration. Once such returns are identified,
will usually act to prevent possible revenue loss, provide IRS
sufficient time for processing, and/or permit taxpayer
access to the administrative appeals system.

     The usual action taken by IRS to accomplish these objec-
tives is to solicit a waiver extending the statute period.
To provide consistency to the waiver process, IRS has devel-
oped standard forms for documenting waiver agreements and
issued guidelines governing the solicitation and acceptabil-
ity of waivers.

PROCEDURES FOR MONITORING
EXPIRATION OF T-iE STATUTE PERIOD

     The Internal Revenue Manual sets forth procedures for
monitoring time remaining in the stattrce period. According
to national office officials, these procedures are viewed
as minimums which may be supplemented by field offices as
deemed necessary. Rach district we visited had implemented
supplementary procedures.

National procedures

     National procedures for the audit function place overall
responsibility for statute period monitoring on IRS super-
visors. The procedures provide that:

     -- The supervisor will establish a control file for tax
        returns having at least 120 remaining statute days.
    -- At least 90 days before the statuLe period expires,
       the supervisor will notify the IRS employee respon-
       sible for the return that expiration is approaching.
    -- When 30 days remain in the statute period, the super-
      visor is required to "* * * take immediate action to
      protect the Government's interest."


                               6
District office   rocedures
     The three districts reviewed had implemented local
procedures to supplement those in the manual. Local proce-
dures were basically the same but varied somewhat in terms
of when certain monitoring activities were to be undertaken.
Each district, for instance, used a different date for audit
supervisors to begin monitoring activities. These dates
ranged from 6 to 12 months before statute period expiration.

     Each district had also established requirements for
certain numbers of days to remain in the statute period af-
ter the taxpayer's response to the audit findings. If less
than the specified days remained, the procedures required
examiners to solicit waivers.

      If the taxpayer agreed to the audit findings, all three
districts required that waivers be solicited if less than
120 days remained in the statute period.   This time was to
allow review of the audit findings, including possible re-
contact with the taxpayer; completion of administrative
steps for transmitting the return to a regional processinig
center; and assessment processing within the center.

     If the taxpayer disagreed, however, and wished to appeal
the audit findings, Seattle required that waivers be solicited
if less than 180 days remained in the statute period and the
Atlanta and San Francisco districts required that waivers
be solicited if less than 270 days remained. This variance
apparently resulted from different estimates among the dis-
tricts regarding the time needed for internal review, pos-
sible appeal extensions, assessment processing, and poten-
tial slippage.

ACTIONS AVAILABLE AS STATUTE
PERIOD APPROACHES EXPIRATION

     As the statute of limitations period approaches expira-
tion, IRS must choose a course of action that will be in the
Government's best interest. The alternatives include:

     -- Soliciting a waiver to extend the statute of limita-
        tions period.




                                7
     --Issuing a statutory notice of deficiency l/euspend-
       ing the statute of limitations.

     --Making a jeopardy assessment if the case circum-
       stances include the requisite conditions. 2/

     --Accelerating the audit and return processing.

     -- Foregoing examination of the return,
IRS procedures, however, suggest that the f.rst alternative--
soliciting a waiver--should be used and that, if a timely
waiver cannot be obtained, a statutory notice of deficiency
should be issued.
WAIVER POLICY

     IRS generally attempts to complete all audit activity
within the original statute period. Even though IRS proce-
dures require employees to secure waivers to prevent the
statute period from expiring, IRS policy indicates manage-
ment's desire to limit waiver use.

     IRS' stated policy is to obtain waivers only in cases
involving unusual circumstances and to keep to an absolute
minimum the number of waivers obtained. The policy further
states that once a waiver is obtained every effort should be
made to close the case at the earliest possible date to
avoid renewal waivers. Among the circumstances that the
policy recognizes as justifying initial or renewal waivers
are:

     -- Tax returns held in a suspense status awaiting a
        court decision on a similar tax case.

     -- The resolution of complex or intricate questions of
        fact or doubtful issues of law.



1/The notice gives taxpayers 90 days (150 days if the tax-
  payer resides outside the United States) to either agree
  to the proposed increase in tax or petition the Tax Court
  for a hearing. The statute of limitations period is sus-
  pended during the notice period, and assessments are made
  after the notice period expires unless the taxpayer agrees
  to the proposed adjustment or petitions the Tax Court.

2/We issued a report to the Joint Committee on Taxation on
  IRS' use of jeopardy assessments: "Use Of Jeopardy And
  Termination Assessments By The Internal Revenue Service,"
  GGD-76-14, July 16, 1976.

                                8
     -- Other conditions ordinarily beyond the control of IRS.
        (The policy does not specify such conditions, but we
        identified instances obviously fitting this category,
        such as reconstruction of lost or destroyed tax rec-
        ords and taxpayer-caused delay.)
TYPES OF WAIVERS
     The Code addresses neither the length of the extension
period nor the activities which may be conducted during the
period. Rather, it leaves these determinations to IRS and
the taxpayer. It does, however, stipulate that both parties
must reach written agreement before the extension becomes
effective. Usually, waiver agreements do not include restric-
tive statements. Without restrictions, IRS has the same audit
authority and the taxpayer the same appeal opportunities
during the extension as under the original statute period.

     To provide consistency to the waiver process, IRS
developed specific forms to document written agreement and
established procedural guidelines regarding acceptability of
restrictive conditions. Two basic types of forms exist--one
sets a specific expiration date for the extension, the other
does not. Therefore, once IRS decides to request a waiver,
it must also decide what type of waiver to request and
whether restrictive conditions are appropriate.

Lenth of extension
     IRS policy stipulates that the extension period
requested should be "* * * no longer than is necessary to
complete the examination and administrative action incident
to the closing of the case." Waivers are either for a fixed
duration or open-ended.

     Fixed-period waivers set a specific expiration date
for the extension period. IRS requires this type waiver
for district audit and appeal activities. The form used
to document these extensions varies according to tax type,
such as individual and corporate income tax, excise tax,
and employment tax.

     IRS allows both fixed-period and open-ended waivers for
tax cases scheduled for regional appellate conferencing.
Under open-ended waivers, the extension period remains open
until 90 days after either IRS or the taxpayer decides to
conclude further appellate conferencing.

                              9
Restrictive conditions

     In addition to conditions afftcting the length of the
extension, IRS will occasionally grant waiver agreements
that limit further audit or appeal activity to specific tax
issues. The primary IRS policy statement on such agreements,
which are called restricted waivers, suggests that they be
accepted "* * * in light of reasonable tax administration
* * *." The policy and related procedures, however, pl-c-
several limitations on the acceptability of these waivers
and district officials said their use is rare or generally
discouraged. Of the 697 waivers in our review, only 12 were
restricted.

WAIVER NOTIFICATION PROCEDURES

     Although either IRS or the taxpayer may request that
the statute period be extended, IRS usually takes the ini-
tiative. Taxpayers are informed of waiver need through per-
sonal contact by IRS personnel and/or form letter.

     The Internal Revenue Manual provides two form letters
to be used by IRS field otffices in requesting waivers. The
first letter (see p. 11) is used for an initial request;
the second (see p. 12) for followup if no response to the
first is received. The three IRS districts we reviewed used
these letters.
     Another form letter provided by the manual is used to
inform taxpayers of proposed audit adjustments and adminis-
trative appeal opportunities. The Atlanta and San Francisco
districts also used this letter (as shown on pp. 13 to 15)
to simultaneously advise the taxpayer of the need for a
waiver if administrative appeal opportunities were to be
exercised.




                                 10
    Information Copy Only


      Social Security or Empoyor Idntafion Number:
                                         Kind of Tax:
                                    Tax Period Ended:
                                Conent Form Numbern



     While considering your Federal tax return for the period shown
above, we found that the limitation period prescribed by law for
assessing additional tax may expire soon. Unfortunately, more time is
needed for us to consider all pertinent questions.

     We would appreciate your extending the limitation 3eriod by signing
all copies of the enclosed form and returning them wi .Ln 10 days from
the date of this letter. A self-addressed envelope is enclosed for your
convenience. Upon acceptance of the consents, we will return a copy for
your records.

     By extending the limitation period, you will have time, if you
chonse, to present your views at conferences at District and Regional
levels if we propose adjustments you do not agree to.

     Thank you for your cooperation.

                                                        Sincerely yours,.




                                                        District Director

Enclosures:
Copies of consent form
Envelope




                                                                            Form L-64 (Rev. 2-73)




                                                 11
Date:                                                    Conent Form Number:

                                                         Taxable Yar:
Information Copy Onlyn                                         to CPntt.
                                                         Conttad Telephone Number




     We recently wrote you that the period during which the law would permit
assessment of any tax duo for the above year will soon end. We asked that you extend
this period by signing and returning both copies of a consent form we enclosed.

     Since we have no record of a reply, we now ask that you either sign and return
the forms, or let us know that you do not intend to do so. If we do not hear from
you within a few days, we will have to act on your return before the statute of
limitations expires.

     If you have any questions, please contact the person whose name and telephone
number are shown above.

                                               Sincerely yours,




                                              District Director




                                                                        Fonn L-119 (Rev. 11-74)




                                         12
Date:                                                    Pereon to Contact:


 Information Copy Only                                   Contact Telephone




     We have enclosed a copy of our examination report explaining why we believe an
adjustment of your tax liability is necessary.

     If you accept our findings, please sign and return the enclosed agreement or
waiver form. If additional tax is due, you may want to pay it now. If so, please
follow the enclosed instructions.

     If you do not accept our findings, we recommend that you request a conference
with a member of our conference staff to discuss the proposed adjustments. Most
cases considered at conference are disposed of satisfactorily. You may want to send
us, with your conference request, a written statement outlining your position. The
enclosed instructions concerning unagreed cases explain your appeal rights.

     If we don't hear from you within 30 days, we will have to process your case on
the basis of the adjustments shown in the examination report. If you have any
questions, please contact the person named above. A self-addressed envelope is
enclosed for your convenience.

        Thank you for your cooperation.

                                               Sincerely yours,




                                               E__Lrict Director



        GAO note:    The following two pages contain the waiver
                     request which is stamped or attached to the
                     letter.



                                                                        Form L-191(Rev. 4-74)




                                          13
    The San Francisco district stamps the above letter with

the following waiver request.


      "IF YOU INTEND TO REQUEST A DISTRICT CONFERENCE
      OR PROTEST TO THE APPELLATE DIVISION, IT WILL
      BE NECESSARY THAT THE ATTACHED FORMS 872 FOR
      YEARS INDICATED BE EXECUTED AND RETURNED WITHIN
      10 DAYS FROM THE DATE OF THIS LETTER."




                                14
                     The Atlanta district attaches to the above letter the

            following waiver request.




                                                    IMPORTANT NOTICE



             In order for a District Conference to be arranged, or for referral of your case to the Appellate Divi-
             sion of the Regional Commissioner's office, an adequate time period mut: remain within the stat-
             utory period for assessment of a deficiency.

             If you intend to request a District conference or consideration of your case by the Appellate Divi-
             sion, it sill be necessary for you to sign all copies of the enclosed consent(s), Form 872, in
             accordance with the instructions shown on the bottom of the form. Both copies should then be
             returned to this office within fifteen (15) days from the date of the enclorsed letter. Upon accept-
             ance of the properly signed consent(s), one completed copy will be returned to you for your files.


Deportment of the Treasury
Internal Revenue Service                                                                             RC SE Pub. 82 (Re,. 7-7S)




                                                            15
                          CHAPTER 4
       FREQUENCY OF WAIVERS AND WHY IRS REQUESTS THEM

WAIVER FREQUENCY

     Internal Revenue Service policy is to hold waivers
minimum number and avoid renewal whenever possible. IRS,to a
however, does not keep statistics to show how well its pol-
icy is being implemented.

     To calculate waiver frequency, we used as a universe
Atlanta, San Francisco, and Seattle district office control
records for audits completed during 3 selected months within
the period October 1974 through October 1975. The 3 specific
months for each district were selected either at random or
on the basis of control record availability.

     From the universe, we identified audits (tax returns)
that possibly involved waivers. We randomly selected 730
of these returns to review. Our results showed that one or
more waivers were obtained for 434 tax returns filed by 300
taxpayers.
Frequency for sample period

     During the months reviewed, the districts had closed
49,665 tax return audits. Based on our review of 434 tax
returns for which waivers were obtained, we estimate that
876 of those audits, or about 1.8 percent, included one or
more waivers to the statute of limitations period.

     The Atlanta, San Francisco, and Seattle districts ob-
tained more than one waiver for ]31 or 30.2 percent of the
434 returns. The majority of these are justified under IRS
policy.

     The number of taxpayers, returns, and waivers in our
sample is shown in table I. The number of waivers per re-
turn is presented in table II.




                              16
                           Table I

              Sample Composition by Tax Type
                         Taxpayers       Tax returns    Waivers
                         Num- Per-       Num-   Per-   Num-   Per-
 Type of tax payment     ber   cent      ber    cent   ber    cent
Individual income tax
  (Form 1040)            136    45.3     183    42.2   334    47.9
Corporate income tax
  (Form 1120)             90    30.0     117    26.9   196    28.1
Fiduciary income tax
  (Form 1041)             27     9.0      32     7.4    50     7.2
Federal excise tax
  (Form 720)              22     7.3      49    11.3    52     7.5
Highway motor vehicle
  and civil aircraft
  tax (Form 2290/4638)    11     3.7      16     3.7    20     2.9
Employment tax (Form
  940/941)                11     3.7      34     7.8    41     5.9
Exempt organization
  (Form 990)               2        .7     2      .5     3      .4
Gift tax (Form 709)        1        .3     1      .2     1      .1
    Total                300   100.0     434   100.0   697   100.0




                               17
                                Table II
            Number of Wa vers     er        Saamied Tax Returns

                                           Number of waivers
                                           ___  r return           Total
Number of returns                                    4 or more    waivers
   by tax type                     1          2    3   (note a)   (note b)
Individual income tax
  (Form 1040)                    123        23    17      20        334
Corporate income tax
  (Form 1120)                      79       19     9     10         196
Fiduciary income tax
  (Form 1041)                      14       18     0      0          50
Federal excise tax
  (For.m 720)                     46         3     0      0          52
Highway motor vehicle
  and civil aircraft
  tax (Form 2290/4638)            12         4     0      0         20
Employment tax
  (Form 940/941)                  27         7     0      0         41
Exempt organization
  (Form 990)                           1     1     0      0          3
Gift tax (Form 709)                    1     0     0      0          1
    Total                        303        75    26     30        697

a/The most waivers for any return was eight.              Four sampled
  returns had eight waivers each.

b/Represents the sum of the number of returns in each column
  times the number of waivers per return shown in column
  heading.




                                 18
WHY IRS REQUESTS WAIVERS

     A waiver is based on mutual agreement between IRS and
the taxpayer. Even so, the parties agree to waivers for
different reasons because they view the waiver from differ-
ent perspectives. IRS usually views its reasons for waiver
requests in terms of an immediate need for additional time.
As a result, the underlying cause for not resolving the tax
examination during the original statute period is not always
identified.

     Identification and analysis of the underlying causes
for our sampled waivers disclosed opportunities for IRS to
enhance its relationships with taxpayers by requesting fewer
waivers and exercising more care in establishing length of
waiver periods.  (Taxpayers' reasons for agreeing to waiver
requests are discussed in ch. 5.)
Immediate reasons for waiver reauests

     IRS' main reason for requesting waivers is to avoid
potential revenue loss. While this is the central concern,
IRS generally views the specific reasons for waiver requests
in terms of its immediate needs--more time to complete what-
ever activity is necessary to resolve the case. For example:

     --For uncompleted audits, IRS requests waivers to per-
       mit satisfactory completion.

     -- For completed audits resulting in unagreed tax ad-
        justments, IRS requests waivers to permit adminis-
        trative appeal in hopes of resolving the disagreement
        at the lowest possible level.

     -- For completed audits resulting in agreed tax adjust-
        ments, IRS solicits waivers to permit assessment
        through normal routines.

Underlying causes for waiver requests

     By reviewing sampled tax files and talking to IRS per-
sonnel, we identified the underlying causes for not resolving
the tax examinations during the original statute nPriod--the
reasons behind the need for the waivers. These reasons and
the frequency with which they occurred in our sample are sum-
marized in table III.




                              19
                             Table III

               Underlying Causes for Sampled Waivers

                                         Initial   Renewal     Total
                                         waiver    waivers    waivers
Tax return manually selected for
  audit late in the statute
  period based on the receipt or
  development of related infor-
  mation                                   173            0     173
Coordination of simultaneous
  audits involving multiple
  taxpayers and/or returns                  50       45          95
Tax return held in a suspense
  status awaiting some external
  information (e.g., appellate or
  court decision on a related
  case)                                    51       107         158
Indication of fraud                        21        23          44
IRS- or    'payeL-caused delays:
    IRS   vt  ., change of exam-
        ining officers, review proc-
       ess disclosed need for addi-
       tional information)                 18        14          32
     Taxpayer                              18         7          25
     Combination                           11         7          18
Tax case transferred to appellate
  division                                  2        19          21
Large or complex tax case                  28        16          44
Reconstruction of lost or de-
  stroyed tax information                   3         7          10
Postponed determination of activ-
   ity as business or hobby                 7         0           ?
Time for continued processing of
  tax refund cases to be reviewed
  by Joint Committee on Taxation            2         0           2
Waivers obtained for returns sub-
  sequently closed during the
  original statute period:
     Waivers to permit routine
       processing of agreed cases          11         0          11
     Waivers to permit audit com-
       pletion and/or administra-
       tive appeal                         36         0          36
Unable to determine                         3        18          21
          Total                           434       263         697


                               20
     The major underlying cause for initial waivers was
receipt or development of information which led IRS to begin
auditing tax returns near the end of the statutory period.
The later in the statutory period an audit is begun, the
less time available for completing all necessary activity
and the greater the possibility that a waiver will be
needed. Late initiation of audit activity accounted for 173
or 39.9 percent of the initial waivers in our sample.

      IRS had begun the late activity on the sampled returns
primarily as a result of information developed during audits
of other returns or referrals from sources either inside or
outside IRS. The sampled returns had been manually selected
subsequent to development or receipt of this information.
For example, of the 173 waivers in the late selection cate-
gory:

     --48.6 percent (84 waivers) were caused by multiple
       year pickups. In these instances, errors found dur-
       ing the audit of an initially selected return led the
       examiner to select and audit additional returns of
       that taxpayer. The statutory period for these addi-
       tional r turns was about to expire thereby necessitat-
       ing a waiver to provide time to complete necessary
       activities.
     -- 31.2 percent (54 waivers) were caused by related
        pickups. Such audits occurred when the audit of one
        taxpayer caused the audit of a related taxpayer's re-
        turn. For example, the audit of one business partner
        disclosed the need to audit the returns of the other
        partners.

     -- 11.6 percent (20 waivers) were caused by referrals.
        Such returns were audited on the basis of a referral
        from inside IRS (for example, the Intelligence Divi-
        sion, the Collection Division, or the Appellate Di-
        vision) or outside IRS (for example, the Justice De-
        partment or a State tax agency).
     Suspense cases represented the major cause of renewal
waivers in our sample--107 (40.7 percent) of 263 waivers.
In these instances, t ax returns were held in a pending or
suspense status while external information necessary for an
accurate tax determination was being developed.   Examples
of such cases included postponement of audit completion

    -- pending the outcome of a related case being appealed
       through the administrative or judicial systems and



                             21
     -- until technical advice was rendered from IRS'
        national office on a complex tax issue.

     We did not evaluate the validity of waiver need in
terms of tax results. Such an evaluation would logically
encompass a determination of the results that would have
been achieved had the statute period not been extended.
This determination was not possible from a practical stand-
point at the time of our review. We did, however, address
other aspects of the waiver process.
      Analysis of the underlying causes shows that opportu-
nities exist to reduce waiver frequency and, thereby, the
number of taxpayers confronted with waiver requests. Oppor-
t!,nities also exist to better assure taxpayers that the
waiver length requested is reasonable. These opportunities
are discussed below. Other opportunities to improve the
waiver process from the taxpayer's point of view are dis-
cussed in chaoter 5.

NUMBER OF WAIVERS CAN BE REDUCED
     While waiver extent for the period reviewed was less
than 2 percent of total tax returns audited, this volume can
be further reduced without detriment to the Government's best
interest. Closer review of waiver need, priority handling
of cases nearing statute expiration, and increasing use of
open-ended waivers can reduce waiver frequency.
Better review of waiver need

     More closely reviewing the need for waivers in light of
existing mechanisms to speed case processing would reduce
the number of waivers. Our sample included 47 waivers ob-
tained for returns which were subsequently closed by the
districts during the original statute period or within an
average of 8.6 days after it would have expired. Thirty-two
were closed within the original statute period.
     Each district reviewed required that 120 days remain in
the statute period after the taxpayer agreed to the audit
findings. This time was considered necessary to move the
case through the processes of internal review, administra-
tive steps necessary before forwarding the case to a service
center, and assessment processing within the center. If it
appears that remaining statute time will not routinely accom-
modate this processing, district procedures direct examiners
to solicit a waiver.
     Eleven of the 47 waivers were obtained solely to comply
with this 120 day requirement   Each was the only waiver for

                               22
the respective tax return; however, each return was subse-
quently closed within the original statute period or an
average of 9.6 days thereafter.

     The other 36 waivers were obtained for cases which
were unagreed or incomplete at the time. These waivers were
obtained from 1 to 14 montns before expiration of the origi-
nal statute period. More than half were obtained with 4 or
more months remaining in the original period. Nevertheless,
all 36 cases were subsequently agreed to and closed during
the original statute period or within an average of 8.1 days
after it would have expired.

     When less than the min-mum number of days established
by district procedures remain in the statute period for
agreed and unagreed cases, processing can be accelerated by
according these cases priority, hand-carrying between proc-
essing steps, and making the assessment by telephone. For
example, the San Francisco district's procedures for two or-
ganizational elements within the audit division--the review
staff, which provides a separate review of the audit find-
ings to insure correctness, and the service branch, which
prepares the cases for forwarding to the regional service
center--provide that:

     1. The review staff:

        -- Will accord statute cases the highest priority
           when assigning cases for computation review.
        -- Will see that all statute cases are expedited when
           assigned for technical review.

        --Will hard-carry approved, agreed cases to the
          chief of the staff when less than 25 days remain in
          the statute period. The chief will see that an
          assessment is made by telephone.
     2. The service branch:

        --Will ensure that statute cases are accorded the
          highest priority in processing cases received from
          other branches. Approved, agreed cases will be
          hand-carried to the chief of the review staff for
          telephone assessment when less than 25 days remain
          in the statute period.
     While these mechanisms are available, they are not
always used to provide accelerated processing of cases,
especially those that are agreed. If a taxpayer refuses
to grant a waiver, however, IRS is faced with making an

                              23
assessment before the statute period expires or losing the
revenue involved. In such instances, IRS is forced to accel-
erate case processing through existing mechanisms as dis-
cussed above.

     We believe that IRS can avoid many waivers by more
closely reviewing waiver need and by postpoi ing the request
decision until the case has been afforded the same acceler-
ated processing that would have been employed had the waiver
been refused.

Increased use of o en-ended waivers
      The number of waivers can be further reduced by permit-
ting use of open-ended waivers at the district office level.
IRS currently permits such waivers to be used only for re-
gional appellate division activity. IRS rationale for using
open--ended waivers at this level is based on the difficulty
in forecasting the time required for appellate review.
     A similar forecasting problem exists for tax cases held
in suspense at the district office level. The single great-
est reason for the multiple waivers in our sample was to
hold tax returns in suspense while awaiting results from a
similar tax case being appealed through the administrative
or judicial system. Four of the sampled returns had eight
separate waivers, holding the statute periods open for as
long as 8 years beyond the original expiration dates.
     Use of open-ended waivers for cases being held in sus-
pense at the district office level could substantially reduce
the paperwork, effort, end taxpayer contacts necessary to
monitor waiver expiration dates and periodically secure re-
newal waivers. Although this would not eliminate the need
for an initial waiver, it would reduce the number of renewal
waivers obtained.

Loger-than-necessary waiver   periods

     Statute extensions were often for much longer periods
than necessary to bring a case to resolution. This is con-
trary Go IRS policy that "* * * the period of extension
vill be no longer than is necessary to complete the examina-
tion and administrative action incident to closing the case."
     For example, for 35 tax returns randomly selected from
our total sample, the extension period exceeded district
closing dates by an average of about 8.6 months. The ex-
piration dates for six other waivers were 20 or more months
past the district closing date for the returns.

                              24
     IRS c n legally reopen a case at any time before the
waiver pe od expires. We found no evidence of such re-
openings; however, should this situation occur it could,
in our opinion, impact adversely on IRS-taxpayer relation-
ships.
     One solution to predicting a no-longer-than-necessary
waiver period is embodied in a characteristic of the open-
ended waivers used by the IRS appellate activity. Open-
ended waivers, unlike fixed-period waivers, terminate after
the assessment is made, thereby providing the taxpayer some
assurance that the waiver period is for no longer than nec-
essary. The same provision should be included in a fixed-
period waiver.

CONCLUSIONS

     The number of waivers obtained by IRS is small when
compared to total audits closed. Nevertheless, IRS can re-
duce the number of waivers solicited--thereby reducing tine
number of taxpayers contacted--by more closely reviewing
waiver need and by amending existing policies and procedures.
IRS can also better assure taxpayers that waiver periods re-
quested are reasonable in length. These actions would en-
hance IRS-taxpayer relationships by reducing potential
sources of taxpayer ill will.
RECOMMENDATION' TO THE
COMM.:SSIONER OF INTERNAL REVENUE

     Accordingly, we recommend that IRS:

     -- Require that priority handling techniques be afforded
        cases nearing expiration of their statutory period.
     -- Require that a waiver request be made only after
        priority processing results demonstrate that more time
        is needed.

     --Expand the use of open-ended waivers, particularly
       for tax examinations that cannot be closed within the
       foreseeable future.
     -- Add to the iRS forms used to secure fixed-period waiv-
        ers a statement that the waiver period will end on the
        agreed date or after assessment, whichever comes first.




                              25
IRS COMMENTS
     The Commissioner of Internal Revenue said (see app. I)
that the 2-percent waiver incidence shown by our report
reflects favorably on IRS policies and procedures which are
designed to keep requests for extensions of the statutory
period to a minimum. Nevertheless, he said IRS recognizes
that some offices are obtaining waivers prematurely and will
revise current guidelines to provide a general rule as to
when waivers should be requested.
     The rule proposed by the Commissioner, as we understand
it, will set a point near the statutory expiration date and
direct that waivers should generally not be requested before
this point is reached. The rule should require priority
handling when appropriate.
     The Commissioner recognized the merit of open-ended
waivers for certain situations. In particular, he agreed
with us that their use for audit cases which are suspended
pending the outcome of related litigation will reduce the
need for renewal waivers. Accordingly, IRS will expand the
use of open-ended waivers to such cases as well as to other
mutually advantageous situations.
     The Commissioner said that barring any unforeseen legal
problems, IRS will adopt the recommendation to terminate
fixed-period waivers on the earlier of either the assessment
date or the agreed date.




                              26
                               CHAPTER 5

            WHY TAXPAYERS AGREE TO WAIVER REQUESTS
     Interviews with taxpayers and taxpayer representatives
disclosed that they generally agreed to waive the statute
period to avoid something, to obtain something, or to coop-
erate with the Internal Revenue Service.

     Taxpayers confronted with a waiver request must make a
decision. Our review disclosed that this decision is not
always an informed one because often IRS provides insufficient
information.

TAXPAYER REASONS

     We randomly selected 103 of the taxpayers in our sample
for interview to obtain their reasons for waiver agreement.
Of these we interviewed 83; the other 20 either could not be
contacted or preferred not to participate. Our initial con-
tact was with the taxpayer. If the taxpayer preferred, we
interviewed the taxpayer's representative instead.

      As shown in table IV, taxpayers have agreed to waivers
to:

      --Avoid something perceived as detrimental.

      -- Obtain additional time to permit resolution of the
         audit.
      -- Cooperate with IRS.

     Each category is not necessarily independent of the
other because the responses may be rooted in the taxpayer's
emotional attitude toward IRS. For example, two taxpayers,
each agreeing to a waiver in order to pursue administrative
appeal, may have couched their respective responses in either
a negative or positive vein; that is, to avoid a statutory
notice of deficiency (avoid a perceived detriment) or to
provide time for appeal (permit resolution of the audit).




                                  27
                             Table IV

                Reason s Taxpayers_A_ireed to Waivers

                                                 Number     Percent
                                                   of          of
                 Reas n                       respondents    total
Avoid something perceived as det-
  rimental                                         27        32.5
    A potential jeopardy or quick
      assessment                         10
    A statutory notice of defi-
      ciency                              6
    "Trouble" with IRS                    6
    An arbitrary assessment               4
    A delinquent penalty                  1
Obtain additional time to permit
  resolution of the audit                          20        24.1
    To develop or reconstruct tax
      records                             7
    To negotiate or appeal tax
      issues                              7
    To await related appeal or
      technical advice                    4
    To obtain money to pay the tax        2
Cooperate with IRS or because it
  is mutually beneficial                          19         23.0
Comply with advice from non-IRS
  source                                           8          9.6
Other                                              9         10.8
        Total                                     83        100.0




                                28
TAXPAYERS ARE NOT PROVIDED COMPLETE
AND CONSISTENT INFORMATION

     The information IRS provides when waivers are requested
is often incomplete and inconsistent.   Taxpayers, therefore,
may not be aware of their full range of rights and available
options when confronted with a waiver decision. Since the
statute period cannot be waived without mutual agreement
between IRS and the taxpayer, such agreements should be
predicated on each part, b eing fully informed of agreement
consequences and available alternatives.

Otions available to taxpayers

     When asked to waive the statute period, a taxpayer has
three basic choices, with the rights and alternatives vary-
ing under each.  Specifically, the taxpayer can:

     -- Refuse to sign the waiver.    When this happens,   IRS
       normally Issues a statutory notice of deficiency.
       This notice neither forces the taxpayer to make an
       immediate payment nor seek immediate judicial review.
       The notice gives the taxpayer 90 days (150 days if
       the taxpayer resides outside the United States) to
       either agree to the proposed tax increase or peti-
       tion the Tax Court for a hearing.  During this pe-
       riod, IRS can permit taxpayer access to the adminis-
       trative appeals system.  If agreement is not admin-
       istratively reached, the taxpayer can petition the
       Tax Court for jud cial resolution.  Once the court
       has been petitioned, the taxpayer is afforded the
       opportunity to settle the case with IRS before trial.
       If the disagreement is still not resolved, the case
       is heard by the court.

       Alternatively, the taxpayer can pay the disputed
       amount and file a claim for refund.   The statute of
       limitations period for the tax return will end on the
       original expiration date, but the claim can undergo
       subsequent audit, review, and appeal.

       Through yet a third alternative, the taxpayer can
       bypass all administrative opportunities for se':tle-
       ment and seek judicial resolution by the Tax Caurt
       or, after paying the disputed amount, the district
       court or Court of Claims.

     -- Sisn an unconditional waiver.    This permits   IRS the
       same audit authority andthe taxpayer the same appeal
       opportunities as under the original statute period.


                              29
    -- Propose a conditional or restricted waiver. The
       Internal Revenue eCoa addresses neither the length of
       the extension period nor the activities that may be
       conducted during the period. Rather, it leaves these
       determinations to IRS and the taxpayer. The deter-
       minations may include the length of the extension
       period and/or the specific tax issues. Any conditions,
       however, r st be agreed to by both parties before the
       waiver becomes effective.

Information provided by IRS

     Taxpayers are informed of the need for a waiver through
a form letter and/or personal contact by IRS personnel.
     The form letters neither explain the taxpayer's alter-
natives to agreement with the waiver nor what specifically
will happen if waiver agreement is refused.  (See pp. 10 to
15.) With the letter used after the tax adjustment has been
determined, IRS usually encloses its publication on appeal
rights. This publication explains the general mechanics of
the appeals system but does not inform the taxpayer of rights
or options regarding the statute of limitations and waivers.

     Even when IRS employees request waivers through personal
contact, the information provided is seldom sufficient to per-
mit the taxpayer to make a fully informed decision. We inter-
viewed IRS personnel who had dealt with 245 of the 300 tax-
payer cases in our sample. The personnel who dealt with the
other 55 taxpayer cases had either left IRS or were other-
wise unavailable. The following table summarizes the inter-
view responses.




                              30
                                            Number of
             Extent of information          taxpayers   Percent
Taxpayer was not provided any Informa-
   tion about alternatives                         30     12.2
No information provided; IRS examining
  officer assumed taxpayer's representa-
   tive was aware of possible alterna-
  tives                                            89     36.3
Form letter was only source of informa-
  tion                                             38     15.5
Taxpayer was told that :.RS would make an
  immediate assessment (that is, issue a
  statutory notice of deficiency)                  40     16.3
Taxpayer was informed of one or more
  specific alternatives                            19      7.9
Taxpayer provided with publication on
  "appeal systems                                  15      6.1
Could not remember what taxpayer was
  told                                             14      5.7
    Total                                      245       100.0
Taxpayer awareness of
alternative actions
     We informed the 83 taxpayers and representatives
viewed of the various alternatives to an unconditional inter-
                                                        waiver
and asked them to what extent this information had been made
available by IRS when waivers were requested. The following
table summarizes their responses

                                          Number of
            Extent of information        respondents    Percent
Was not informed of any alternatives
  to the waiver as presented                  47          56.6
Was told that the only option was to
  pay the proposed tax assessment              9         10.9
Had been informed of only one alter-
  native course of action                     3           3.6
Had been informed of only two alterna-
  native courses of action                   13          15.7
Had been informed of three or more
  alternative courses of action               4
Question not answered
                                                          4.8
                                              7           8.4
    Total                                    83         100.0
     Thirty-seven (about 45 percent) of the interviewees con-
sidered one or more of the alternatives to be appealing.


                               31
Seventeen of them specifically stated that knowledge of the
alternatives would have affected their decision to sign the
unconditional waiver requested by IRS. The favored alterna-
tives were to:

    -- Obtain a waiver restricting the number of tax issues
       to be pursued or limiting further activity to admin-
       istrative appeal. Thirty-two interviewees consid-
       ered this alternative appealing with 12 specifically
       stating that it would have affected their waiver de-
       cision.

     -- Allow IRS to issue a statutory notice of deficiency
        and attend an administrative review conference during
        the 90-day notification period. Three interviewees
        considered this alternative appealing and said it
        would have affected their waiver decision.
     -- Pay the tax as proposed by IRS and subsequently sub-
        mit a claim for refund. Two respondents considered
        this alternative appealing and said it would have
        affected their waiver decision.

     Some ta.'payers interviewed had been represented in
their dealings with IRS, others had not. We recognize that
when dealing with taxpayer representatives, IRS has little
control over what is communicated between the representative
and the client. However, IRS examining officers told us they
generally do not inform taxpayer representatives of the al-
ternatives to waiver agreement. This rationale is predicated
on the assumption that tax practitioners are as knowledgeable
about tax law as is IRS. Our interviews with representa-
tives, however, disclosed that they are not always aware of
all options.

THE WAY IRS REQUESTED WAIVERS
INFLUENCED SOME TAXPAYERSr-DECISIONS

     The manner in which IRS requests waivers can influence
taxpayer attitudes. As shown in table IV, 27 (about 33 per-
cent) of the taxpayers or representatives we interviewed
said they agreed to the waiver to avoid something they per-
ceived as more detrimental.  "Something more detrimental"
included alleged or perceived threats of IRS retaliatory
action should the waiver be refused.

     Twenty (about 74 percentl of these interviewees said
that they either believed or were told by an IRS represen-
tative that, should they refuse waiver agreement, IRS would
issue a statutory notice of deficiency, make a jeopardy or
quick assessment, or make an arbitrary assessment. These

                             32
actions were perceived as detrimental by the taxpayers who
said they agreed to waive the statute solely to avoid such
occurrences.
Statutory notice of deficiency
     Should a taxpayer refuse waiver agreement, IRS must take
some action to protect the Government's interest, and the
usual action taken is to issue a statutory notice. This
notice neither forces immediate payment of the proposed
amount nor immediately forces the taxpayer into court.

     Nevertheless, about 7.2 percent of the interviewees
perceived this notice as more detrimental than the waiver.
One taxpayer, for example, who said the only options IRS ex-
plained were to sign the waiver or receive a statutory notice
of deficiency, expressed a feeling of "hopelessness" because
there were no viable alternatives from which to choose.

Jeopardy or quick assessment
     About 12 percent of the interviewees said they agreed,
or advised their client to agree, to a waiver to avoid a po-
tential jeopardy or quick assessment. Eight of the inter
viewees perceived this action only as a potential IRS re-
taliatory action. Two others said they were specifically
told this by the IRS representative requesting the waiver.

     For example, one representative who instructed his
client to sign the waiver said he did so because he was "co-
erced and intimidated" by IRS statements that, in the event
of waiver refusal, a jeopardy assessment would be made re-
sulting in an "unbearable" court fight. In another instance,
a representative strongly believed IPS would make a jeoDardy
assessment if the waiver was refused, although he was not
told this by IRS.

     The American Institute of Certified Public Accountants
has brought similar occurrences to IPS' attention. During
a September 3, 1975, meeting with IRS officials, members of
the Institute's tax division said that, while IRS rules are
clear as to limitations for issuing jeopardy assessments, it
is not uncommon for revenue agents to threaten assertion of
a jeopardy assessment in order to persuade taxpayers to
extend the statute of limitations period. The Institute
members expressed the opinion that this problem warranted
repetitive instructions to IRS agents as well as better
practitioner (taxpayer representative; knowledge about tax-
payer rights. The IRS officials agreed to continue to
emphasize, through training materials and future instruc-
tions, that threat of jeopardy assessment should not be


                               33
used to intimidate taxpayers or their representatives into
signing a waiver. The IRS officials also requested practi--
tioners to inform the examiner's supervisor of any attempt
to use the jeopardy assessment procedure improperly.

     We agree with the Institute that IRS should reemphasize
its instructions that examiners are not to use threats of
jeopardy assessment when soliciting waivers. We also agree
that a need exists for better public knowledge of taxpayer
rights and alternatives. Whether or not taxpayers are
threatened with jeopardy assessments, the general knowledge
that such action is within IRS' authority and the possibly
unfounded fear that IRS may take such an action can cause
the taxpayer consternation.

Arbitrar- assessment

     Four of the 83 taxpayers and taxpayer representatives
interviewed said that the examining officer had threatened
to propose an arbitary tax adjustment if the taxpayer re-
fused to sign the waiver.
     According to IRS policy, tax adjustments for "* * *
punitive, bargaining, or similar purposes' should not be
made. It does, however, allow the amount of tax to be esti-
mated when it is impossible to establish the exact amount.
Such cases, like all others, are subject to possible review
within IRS, and appeal opportunities are available should the
taxpayer disagree with the proposed tax adjustment.
CONCLUSIONS

     When requesting waivers to the statute of limitations
period, IRS does not usually provide taxpayers with the data
necessary for making an informed decision. Because they
lack knowledge about waiver rights and alternatives, tax-
payers may perceive pressure and/or personal detriment in
the IRS request.
     The laws relating to duress and undue influence main-
tain that a threat to do that which can be legally done is
not duress. Whether legal or not, the manner with which IRS
requested waivers adversely affected its relationship with
taxpayers in our sample.

     Part of IRS' mission is to enhance public confidence
in its integrity, the efficiency of its operations, and
the equity of the tax system. IRS can further this mission
by reducing taxpayers' perceptions of personal detriment
when confronted with a waiver request by providing more com-
plete and consistent information regarding waiver agreement


                             34
consequences and alternatives. The full range of options
and the consequences of each should be made known to the
taxpayer. Only then will taxpayers be able to make informed
decisions, and only then can the waiver agreement be con-
strued as a mutual contract between equally informed par-
ties.

RECOMMENDATIONS TO THE
COMMISSIONER OF INTERNAL REVENUE

     We recommend that IRS, through appropriate policy and
procedural revision:

     -- Provide taxpayers with complete and consistent ex-
        planations, orally and in writing, of their rights
        and opt ons when faced with a waiver decision.
     -- Permit the taxpayer greater leeway in proposing
        waiver conditions and accept those conditions pro-
        posed that are reasonable in light of other alterna-
        tives available to IRS.
IRS COMMENTS

     The Commissioner of Internal Revenue said that written
information explaining taxpayers' rights and options will be
developed to accompany all IRS waiver requests. IRS personnel
will also be instructed to orally explain the rights and
options when they request a waiver.

     The Commissioner agreed to permit, where possible, a
greater degree of taxpayer participation in establishing
waiver agreement content. He said the waiver agreement is a
legal document which must be carefully worded, and in many
situations it is not possible or practical to specify agree-
ment conditions. However, IRS will encourage greater use of
conditional waivers and explore the feasibility of developing
additional guidelines for their preparation.




                             35
APPENDIX I                                                         APPENDIX I


 Dptnnt of the Treasury / Internal Revenues 8vlc   / Washington, D.C. 20224


 Commissioner                               JAN 18 1977


       Kr., Victor Lowe
       Director
       General Government Division
       U. S. General Accounting Office
       Washington, D. C. 20548
       Dear Mr. Lowe:

            Thank you for the opportunity to review your draft
       report to the Joint Committee on Internal Revenue
       Taxation entitled, "Opportunities for Improvement in
       Requesting Extensions to the Tax Assessment Period."
       As you suggested, representatives of your office and
       our Audit Division met on November 22 to discuss and
       resolve technical problems in the draft report.
            We hope the readers of your report will recognize,
       as we are sure you do, the serious consequences that
       would result if the Service failed to take necessary
       steps to protect the valid interest of the Government.
       When the statutory period for assessment is expiring,
       the Service really has only two choices--secure a
       consent extending the statutory period or issue a
       statutory notice of deficiency. We prefer the former
       choice because it allows time for full and careful
       consideration of the issues.
            We believe the recommendations in the report will
       provide the taxpayers with a greater understanding of
       the purpose of extensions and what options are available
       to them. We also believe the report reflects favorably
       on Service policies and procedures which ere designed to
       keep requestJ for extension of the stat.-rory period to a
       minimum.
            In general, we agree with the recommendations.
       Attached are our comments regarding specific recommen-
       dations and other statements in the report. The comments
       are referenced to the applicable page number in the report.
             With kind regards,
                                         Sincerely,




                                         Commissioner
        Attachment

       GAO note:     Page references in IRS' comments may not corresoond
                     to pages in the final report.



                                       36
APPENDIX   I                                                              APPENDIX I



       CWO Reportt "Opportumitie     for DIprovent in     "qusating Ixtesiom
       the Tax Aosesmet Period"                                                   to

       Pae 4. fawrofreh 1 god Footote
            IRS seloctso ad udits tax returns / to encourage the
       possible dgree of woluntary compliance wIh the tax lem.    higheb t
                                                                  In fiscal
       year 197S, IRS audited about 3.6 million - returns of
                                                             the 110 million
       returns (all type of tetxo) filed in calenda year 1974.
            / The 3.6 million includes 2.3 million district
       service center audito. We considered any instanc of and 1.3 million
                                                               taopayer contact
       by the Service Centr Audit Division as
       the above listed report on the selection ofooervice center audit. See
                                                    individt: innome tax

       Coa et

           We do not concur wi,:h GAOr' aasumption that any intancoe
                                                                     of tax-
      payer contact by the Service COter Audit Division be considoered

      an audit for the following reasons.

           The I1S classifies the service center corrnepondence progrm_
                                                                         into
      two distinct categories: district-typoe xaminations and
                                                               limited contacts.
      Dietrict-type examinations constitute an s-mmination of
                                                              books and records
      as defined by Section 7602 of the Iuternal Revnue Code;
                                                               i.e., tropayers
      are required to produce a part of their records (receipts,
                                                                 caroelled
      checks, etc.) to provide documentation or substantiation
                                                               to ,upport the
      InOaOe,   deductions and credits claimed on their tax return.   Theoe
      exeminations include the DIP correspondence type returns,
                                                                Federal-State
      Cooperative progrs, Social Security Administration examinations

      (OAI-7000) and claim.   In FT 1975, IRLS examined 12,550 returns in
      the service centers, about'      of the 110 million returns filed in
                                   lO.10
     Calendar Year 1974.

          The other category, limited contacts, involves lsolated,
                                                                    special
     issues which 4o not require examination of books and records,
                                                                    i.e.,
     tapayers pro not requested to provide part of their records
                                                                   to docmerot




                                         37
APPENDIX I                                                              APPENDIX I


                                      -2-


     or substantiate the item being corrected.   Thus, these contacts are not

     considered examination within the definiti n of Section 7602.    This

     category includes the Unallowable Item% ,Program, Infotmation Returns

     Program;. Siad of Household Program and similar programs.   These limited

     contacts accounted for 1.2 of the 1.3 million returns in the Service

     Center Program for FY 1975.   We doubt t..at *hese limited contacts in

     total (recognizing a few may have a significant impact on compliance)

     have the same overall affect on compliance as do regular audits.

          Consistent with our recommendation in GAO report GGD-76-55,   we

     recommend.   ll reference to the 1.2 million limited contacts as being

     "audits" be changed.




     GAO note:      We still considered any insta ce of taxpayer
                    contact by the service center audit division
                    as an audit. Our position on this matter is
                    presented on pages 56 through 59 in GAO's report
                    "How the Internal Revenue Service Selects
                    individual Income Tax Returnii for Audit,"
                    GGD-76-55, Nov. 5, 1976.




                                            38
APPENDIX I
                                                                          APPENDIX I




    GAO leort Title:
        Opportuaities for Iprovemnt in Requesting
    Tax Assesumnt Period.                         hxtensions to the

    Page 28j Parpra·ph 1
       Wb did not evalut·e the validity
                                          of waiver ned in terms of tax result.
   Such an evaluction would logic1ally
   that would hae\ been achieved had ncop·ass a deteriLnation of the results
                                       the statute period not been emtended.
   Coment
       We feel that an evaluStio   of waiver need in terms of tax results
                                                                              would
    necessarily involve the use of hindsight.
                                                  fEny time shen we request a waiver,
    we have not been able to deterine
                                        enough facts at that point to approximate
    the final results. That is the
                                    reason we found it necessary to rquest
                                                                               the
   additional time. Whn we determine
                                         the facts, there may or may not
                                                                           be sub-
   stantial additional tax. In other
                                        situatioas, we know the exact amount
                                                                               cf
   tdx involved but are awaiting a
                                   court decision on the issue. Rather
                                                                            than
   fimallsing our adjustment, we rquest
                                            an extension of the statutory period
  and place the cse In suspene.
                                     If the court's deeieoL is adverse
                                                                          to the
  Service's position, the need for
                                    the waiver in term of tax results
                                                                          is nil.
  However, in both situations, we have
                                          taken an action which protects the
  Government's interest with the taxpayer's
                                               agre·ent.




                                       39
APPENDIX I                                                                APPENDIX I




  GAo Report Title:

      Opportunities for Improvement in Requesting Extensions to the Tax
  Assessment Period.

  Page 33, Pararaph 1

      Statute extentions were often for much longer periods than uecessary to
  bring a case to resolution. This is contrary to IRS policy that "*** the
  period of extension will be no longer than is necessary to complete the
  examination and adminstrative action incident to closing the case."

  Puae 340 Recomendation:
       It is recosmended that IRS add to the IRS forms used to Aecure fixed
  peric4 wiwvers a statement that the waiver period willterminate on the agreed
  date or -iter asseosment, whichever comes first.
  Coments
       We do not fully share GAO's view that the additional time on an extension
  beyond the assesment date is a detriment to the taxpayer.    ihile legally we
  could take further action, generally we do not.   The additioal   time in mutually
  beneficial since it   increases the period for which a taxpayer nay file a claim
  for .'efundand also provides IRS time to effect further action, if necessary.

  Neverthelees, we recognize that the GAO and perhaps taxpayers, have perceived
  the additional time as a detriment.   Therefore, barring any unforeseen legal
  problems, we will adopt the recommendation that "fixed date" consents will

  terminate on the earlier of the agreed-upon date or the assesasent date.




                                          40
APPENDIX I                                                               APPENDIX I




   GAO Report Title:

       Opportunities for Improvement in Requesting Extensions to the Tax
   Assessment Period.

   Page 34, Recommendation:

       Accordingly, we recommend that IRS:
       --Require that priority handling be afforded all cases nearing expiration
         of their statutory period
       --Require that a waiver request be made only after priority processing
         results demonstrate a need for additional time

   Comments:

       We concur with the objectives of the recommendations.     Current IRS policy
   contemplates that examination and dispostion of income tax returns will be

   completed witha26 months in the case of individuals and 27 months in the

   case of corporations after the beginning of the period of limitations on

   assessment.

       Service policy is supplemented by published objectives which state that

   the inventory of prior year returns at the end of our fiscal year should

   not exceed 35% of planned revenue agent examinations and 52 of planned tax

   auditor examinations.   Also, we specifically require group manager approval

   before tax auditors are allowed to extend an examination to a prior year

   and we similarly control the extension of examinations by revenue agents

   by requiring group manager approval of the request for returns.

        The GAO report states:   "Waivers occurred in only about 2 percent of

   the almost 50,000 audits closed by the Atlanta, San Francisco, and Seattle

   IRS district offices during nine selected months within the period October

   1974 through October 1975."   We believe this statement demonstrates that

   we are accomplishing the objectives of the recommendations.    Nevertheless,

   we recognize that some offices are securing consents prematurely and will




                                          41
APPENDIX I                                                              APPENDIX I




                                        -2-



revise the current guidelines to provide a general rule as to when consents

should be requested.




                                        42
APPENDIX I                                                              APPENDIX I




    GAO Report Title:

        Opportunities for Improvement in Requesting 'xt,-sions to the Tax
   Assessment Period

   Page 34, Recommendations:

        It is recommended that the IRS expand the use of open-ended waivers,
   particularly for tax returns that cannot be closed within the foreseeable
   future.

   Comments:

        We concur with the general concept of this reconmendation.   In particular,
   the use of open-ended waivers in audit cases suspensed by district offices

   pending the outcome of related cases in litigation will reduce the need

   for additional taxpayer contacts to secure renewal waivers.   Accordingly,
   we will expand the use of open-ended waivers to include the district office

   level for cases formally placed in suspense status under current Manual

   procedures and other situations where the use of an open-ended waiver would

   be advantageous to both the taxpayer and IRS.   However, we believe many
   tax practitioners will be reluctant to recommend the use of open-ended

   waivers to their clients except for suspense cases and then only if the

   waiver is restricted to the suspense ifaue.




                                         43
APPENDIX I                                                             APPENDIX I




      GAO Report Title:

           Opportunities for Improvement in Requesting Extensions to the
      Tax Assessment Period.

      Page 46     Recomendation:

           It is recommended that IRS through appropriate policy and procedural
      revision provide taxpayers with complete and consistent explanations,
      orally and in writing, of their rights and options when faced ,-ith a
      waiver decision.

      Comments:

           We concur with this recommendetion.    Appropriate revisions will be

      made to the Manual instructing authorized Service personnel to orally

      inform taxpayers of their rights and options when soliciting waiv&ea

      In addition, we will develop written information explaining taxpayers'

      rights and options.    This information will accompany all requests for

     waivers solicited by the Service.




                                         44
APPENDIX I                                                                i.PPENDIX I



   GAO 1eport Title:

        Opportunities for Improvement in Requesting Extensions to the Tax
   Assessment Period.

   Page 46, Recommendation:

        It is recomme;4ed that IRS through appropriate policy and procedural
   revision permit the taxpayer greater leeway in negotiating waiver conditions
   and accep(- those conditions proposed which are reasonable in light of other
   alternatives available to IRS.

   Comments:

        We concur with this recommendation to permit a greater degree of

   negotiation with the taxpayer regarding the length of the extensior    period

   and whether a general or restricted consent will be secured.

        A consent to extend the statutory period is a legal document.     Any

   additional statements made on the printed forms to restrict assessment to

   certain issues must be legally sufficient to cover the "area of consideration"

   on the return.   The restriction must be carefully written so that both the

   IRS and the taxpayer mutually understand the scope of the restriction as

   to issues.   Otherwise, it is quite probable that legal disputes between IRS

   and the taxpayer might develop on the question of whether the statutory

   period was open for assessment on the issue as finally proposed.

        There are many situations where it is not possible or practical to secure

   a restricted consent.   Where an examination has not progressed to a point where

   all the issues are known, a restricted consent is not feasible.     In other

   situations, the issues, while known, are so numerous that it is not practical

   to write a restricted consent.   In still other situations, the issues, while

   known and few, are so complex that the use of a restricted consent would be

   unacceptable to the Service due to anticipated litigation.     The Service would




                                          45
APPENDIX I                                                             APPENDIX I



                                        -2-



   run the risk that the restri~ 'ns   would be too narrowly construed by the courts

   to permit the use of alternative positions.

       We will, however, encourage greater use of such consents in appropriate

   cases and will explore the feasibility of developing additional guidelines for

   the preparation of restricted consents.




                                          46
  APPENDIX II
                                                      APPENDIX II
                      CERTAIN EXCEPTIONS TO THE

                    3-YEAR STATUTE OF LIMITATIONS
          Excet ions                      Statuto y_er iod
 1. False or fraudulent returns     No limitation
 2. Failure to file a return        No limitation
 3. Substantial omission from
    tax return                      6 years
    a. 25 percent of gross in-
       come (income tax)
    b. 25 percent of gross
       amount of estate (es-
       tate tax)
    c. 25 percent of total
       amount of gifts (gift
       tax)
    d. 25 percent of excise
       taxes
 4. The failure of a personal
    holding company to report
    certain items of gross in-
    come and all individuals
    who owned more than 50
    percent of the value of
    outstanding capital stock
    at any time during the
    last half of the taxable
    year                           6 years
5. Carrybacks                      Statute periods for prior
   a. Net operating loss           years remain open until the
   b. Investment credit            expiration of the base year
   c. Capital loss                 statute period
   d. Foreign tax                  Statute periods for prior
                                   years remain open until
                                   1 year after expiration of
                                   the base year statute period
6. Extension by agreement          Statute period extended to
   (waiver of statute of           date agreed upon
   limitations period)
7. Request for a prompt            18 months after receipt of
   assessment                      written request


                              47
APPENDIX II                                       APPENDIX II
         Exceptions                   Statutory period
8. Statutory notice of de-        Suspends the running of the
   ficiency                       statutory period for 150 or
                                  210 days




                             48
APPENDIX III                                         APPENDIX III
                       PRINCIPAL OFFICIALS

                  RESPONSIBLE FOR ADMINISTERING

               ACTIVITIES DISCUSSED IN THIS REPORT


                                          Tenure of office
                                         From           To
SECRETARY OF THE TREASURY:
    W. Michael Blumenthal             Jan.   1977     Present
    William E. Simon                  Apr.   1974     Jan. 1977
    George P. Shultz                  June   1972     Apr. 1974
COMMISSIONER OF INTERNAL REVENUE:
    William E. Williams (acting)     Feb.    1977     Present
    Donald C. Alexander              May     1973     Feb. 1977
    Raymond F. Harless (acting)      May     1973     May   1973
    Johnnie M. Walters               Aug.    1971     Apr. 1973
ASSISTANT COMMISSIONER (COMPLI-
  ANCE):
    Singleton B. Wolfe               Mar.    1975     Present
    Harold A. McGuffin (acting)      Feb.    1975     Mar. 1975
    John F. Hanlon                   Jan.    1972     Jan. 1975
DIRECTOR, AUDIT DIVISION:
    John L. Wedick, Jr.              June    1975     Present
    Peter J. Medina (acting)         Mar.    1975     June 1975
    Singleton B. Wolfe               July    1965     Mar.  1975




                               49