Tax System Modernization: IRS' Efforts to Improve Taxpayer Correspondence

Published by the Government Accountability Office on 1990-03-22.

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

  ..I           -. -I..-. .. _.. .-___-___..._____
M;Ilr-c*llI !I!)0
                                              TAX SYSTEM -
                                              IRS’ Efforts to
                                              Improve Taxpayer

                  United States
                  General Accounting  Office                    ” ,
                  Washington, D.C. 20548

                  Information      Management        and
                  Technology      Division

                  March 22,199O

                  The Honorable J.J. Pickle
                  Chairman, Subcommittee on Oversight
                  Committee on Ways and Means
                  Houseof Representatives
                  Dear Mr. Chairman:

                  This report responds to your September 29,1989, request for informa-
                  tion on how the Internal RevenueService’s(IRS) Tax System Moderniza-
                  tion program will improve IRS’handling of its large taxpayer
                  correspondenceinventory. Specifically, you wanted to know the extent
                  to which the Tax System Modernization will provide quicker and more
                  accurate responsesto taxpayer correspondence.You also wanted infor-
                  mation on the modernization time frames for delivering automated
                  improvements to better handle correspondenceat the service centers’
                  adjustment/correspondence branches.1We have included other actions
                  taken by IRSto provide you a more complete description of IRS’ attention
                  to its large correspondenceinventory.

                   IRS’ 1989 monthly inventories of unanswered correspondenceranged
Rehlts in Brief   between 323,000 and 740,000 piecesof correspondence.The ability of
                   IRS’ alljustment/correspondence branches to provide timely, accurate,
                  and responsive answers to taxpayer correspondencehas been the sub-
                  ject of much discussion
                                    .,      in recent years2
                  The Automated Inventory Control System has been identified by IRS as a
                  planned part of its Tax System Modernization program. This system is
                  intended to improve IRS’ ability to provide more timely and accurate
                  responsesto taxpayer inquiries. However, the system has not yet been
                  designed and the master plan for the modernization identifying this and
                  other specific systems and their functions has not been completed. Until
                  the plan’s completion this September,definitive answers about the mod-
                  ernization’s role in improving correspondenceare not available. There-
                  fore, it does not appear likely that any significant improvement will

                  lAdjustment/correspondence branches ln each of IRS 10 service centers are responsible for respond-
                  ing to taxpayer correspondence. For example, the branches explain an action taken by IRS, respond
                  to questions about a taxpayer’s account balance, decide whether a penalty should be abated, or adjust
                  a taxpayer’s account by revlslng the amount of tax, penalty, or interest due.
                  2Tax Administration: IRS’ Service Centers Need to Improve Handling of Taxpayer Correspondence
                  (GAO/~88-101,        July 13,lQM).

                  Page 1                     GAO/IMTECXO-26      IRS’ Efforta   to Improve   Taxpayer   Cmreepondence
   I          \.      I

             occur as a result of the modernization program until after 1992 when
             IRS’Automated Inventory Control System is expected to be in operation.
             In the meantime, a number of activities not part of the modernization
             effort, such as using facsimile equipment and expanding telephone
             usageby examiners, are underway or planned to help the timeliness and
             accuracy of responsesto taxpayer correspondence.We did not deter-
             mine the impact of these activities on handling taxpayer

             Correspondencefrom taxpayers arrives at IRS service centers and is
Background   routed to appropriate units within the centers, including the adjust-
             ment/correspondencebranches. Figure 1 shows the increase and gradual
             reduction of the inventory handled by all branches during 1989. The
             inventory is divided according to the length of time each piece of corre-
             spondencehas been in the inventory. IRSusesthese aged inventories to
             help manageits responsesto the correspondence.For example, IRS con-
             siders correspondencein the inventory for more than 45 days to be
             “overage,” and has a goal of maintaining no more than 20 percent of its
             inventory in this category.

             Page 2             GAO/IMTJ%XO-20 IRS’ Efforts to Improve Taxpayer Correspondence

Figur    Monthly Adjustment/Correspondence             inventory Levels, 1989
800     llJstmonvcormp~~o~-)

             ltm   in lnventoy 45 days or more
             Item8 In inventory 15 to 44 daya
             ftems In inventory 14 days or fewer

                                                   According to IRS, the size of the inventory at the branches causesprob-
                                                   lems in making timely and accurate responsesto taxpayers. As exam-
                                                   ples, IRS stated that taxpayer correspondenceis sometimeslost or
                                                   misrouted, responsesto taxpayers are late and/or inaccurate, and inap-
                                                   propriate computer-generatednotices from IRS units are sent to taxpay-
                                                   ers while their accountsare active in the branches3These problems
                                                   exacerbate the inventory problem by stimulating further correspon-
                                                   dencefrom taxpayers.
                                                   In our July 1988 report, we found that 31 percent of the casesclosed by
                                                   branches in three service centers had critical problems involving incor-
                                                   rect adjustments and incorrect or unresponsive letters to taxpayers’

                                                   “Taxpayer accounts are active when examiners in the agjustment/correspondence branch are work-
                                                   ing to resolve a problem with the account, either in response to a letter of inquiry from a taxpayer or
                                                   aa a r&ult of an IRS-generated problem for which the account was referred to the branch for

                                                   Page 3                      GAO/IMTEG!hS20 IRS Efforts to Improve Taxpayer Correspondence
    ,                                                                                                                          ‘I

    I                    0227083

                         inquiries. An additional 16 percent had noncritical problems involving
                         unclear or incomplete letters to taxpayers and incomplete actions by the

                         The Automated Inventory Control System is a planned Tax System Mod-
                         ernization project to help IRS manageand track incoming correspon-
                         dence.It is scheduled for introduction in late 1992. Its purpose is to
                         automate the tracking and control of all incoming mail to IRS service cen-
                         ters, including taxpayer correspondenceand tax returns. IRS expects the
                         system to reduce its inventory of unanswered correspondencethrough
                         timely and accurate acknowledgment of taxpayer inquiries which, in
                         turn, is expected to reduce subsequentletters from the sametaxpayers.
                         IRSalso expects the system to help eliminate erroneous computer-gener-
                         ated notices sent to taxpayers by providing better control of active
                         The system, while part of IRS’ tax modernization effort, has not yet been
                         designed.As discussedin our February 1990 report4 IRS’ master plan for
                         the modernization is scheduledto be completed in September 1990. At
                         that time, specific systems are to be identified and their functions
                         described, Consequently, until the master plan is completed, definitive
                         answers about how Tax System Modernization will improve responses
                         to taxpayer correspondenceare not available.

                         According to IRS, it has taken a number of actions to correct problems
IRS Has Other            and improve responsivenessto taxpayer correspondence.These actions
Activities in Place or   were described by IRS in its March 1989 testimony before another sub-’
Plqnned to Help          committee.” The actions taken by IRS include (1) developing and using
                         statistics to measure IRS’ effectiveness in responding to taxpayer con-
Htidle the               terns, (2) using custom software developed within IRSto support exam-
Cotrespondence           iners in composing appropriate and accurate responsesto taxpayers, (3)
Inventory                using facsimile equipment to transmit documentsto and from taxpayers
                         and other IRS offices for quicker information exchanges,and (4) increas-
                         ing the number of telephones available to examiners to handle taxpayer
                         concernsimmediately, thereby reducing the need for written

                         4Ta.x System Modernization: IRS’ Challenge for the 21st Century (GAO/IMTEC-90-13, Feb. 8, 1990).
                         “Treasury, Postal Service, and General Government Appropriations for Fiscal Year 1990: Hearings
                         Before a Subcommittee of the Committee on Appropriations, House of Representatives.

                         Page 4                    GAO/IMTEG!+O-20     IRS’ Efforts   to Improve   Taxpayer   Correspondence
IRS is also planning to reevaluate how it measuresthe volume of unan-
swered correspondence.According to a June 1989 document sent to
regions and service centers, IRS is considering changesto its inventory-
reporting criteria to distinguish between internal (m&generated) and
external (taxpayer-generated) correspondenceto help accurately assess
the timeliness of IRS’ responsesto taxpayer correspondence.As of
November 1989, the changesto its inventory-reporting criteria were still
under consideration by IRS.
We did not assessthe impact of the above activities on IRS’ handling of
its correspondenceinventory.

Our review was performed during October and November 1989 at IRS’
national office in Washington, DC., and its service center in Andover,
Massachusetts,in accordancewith generally acceptedgovernment
auditing standards. We interviewed officials at these locations, reviewed
available documentation concerning taxpayer correspondence,and gath-
ered information on the Tax System Modernization programs to identify
any activities related to taxpayer correspondence.
We discussedthe contents of this report with IRS’ Assistant Commis-
sioner for Returns Processing,and have included his comments where

As agreed with your office, unless you publicly announcethe contents
of this report sooner, we plan no further distribution until 30 days from
the date of this letter. At that time, we will send copiesto the Secretary
of the Treasury, the Commissionerof Internal Revenue,and the Director
of the Office of Managementand Budget. Copies will also be made

Page 6             GAO/IMTECXO-26   IRS Efforts   to Improve   Taxpayer   Chrespondence

available to other interested parties upon request. This report was pre-
pared under the direction of Howard G. Rhile, Director, General Govern-
ment Information Systems.He can be reached at (202) 275-3465.Other
major contributors are listed in the appendix.
Sincerely yours,

Ralph V. Carlone
Assistant Comptroller General

Page 6             GAO/IMTEG!W26   IRS’ Efforts   to Improve   Taxpayer   Correspondence

    Page 7   GAO/IMTJSGBO-26   IRS’ Efforts   to Improve   Taxpayer   timspondence
Aphndix I

Nfajor Contributors to This Report

                                 Hazel E. Edwards, Assistant Director
Iniformation                     Alan J. Hoffman, Evaluator-in-Charge
M’ agement and
Tr chnology Division,
qashington, DC.

      ston   Regional   Office   Teresa D. Dee,Evaluator

(610492)                         Page 8           GAO/IMTJCGBO-M   IRS’ Efforts   to Improve   Taxpayer   Correspondence
, I
 / !