Wednesday, January 6, 2021
The Treasury Inspector General for Tax Administration (TIGTA) has released a report entitled Consolidation of Examination Case Selection and Assignment in the Tax Exempt and Government Entities Division Created Benefits, but Additional Improvements Are Needed (Report Number 2021-10-005). Here are the highlights:
What TIGTA Found
The creation of the CP&C [Compliance Planning and Classification] function centralized how noncompliance issues are identified, developed, approved, classified, and monitored for all five TE/GE [Tax Exempt and Government Entities] Division functions. This reorganization changed how the TE/GE Division identifies examination projects, processes referrals, and tracks examinations results. However, because management did not develop performance metrics to measure progress towards achieving reorganization goals, TE/GE Division leadership cannot determine if the CP&C function improved the effectiveness and efficiency of identifying, planning, classifying, and monitoring examination workload.
Further, TE/GE Division management did not establish reorganization goals and outcomes, have a dedicated implementation team in place for the duration of the reorganization, involve all key stakeholders, effectively communicate with affected employees, or provide adequate project management oversight to ensure timely implementation of all necessary actions. This resulted in employee confusion and compromised the initial success of the reorganization. Finally, TIGTA’s analysis showed that the CP&C function has had mixed results reducing the number of unnecessary contacts with compliant taxpayers and identifying more productive examinations. Specifically, between Fiscal Years 2016 and 2019, the number of examinations closed without any changes favorably decreased for two of the five TE/GE functions, but increased by 36, 40, and 31 percent for the other three functions. Further, the overall number of cases closed without full examination (surveyed) favorably decreased by 5 percent, but increased by 468 percent for the Indian Tribal Government function.
The reorganization helped create additional benefits, such as reducing the potential for bias in case selection. In addition, the CP&C function implemented processing changes that decreased processing time for Exempt Organization function referrals by 37 percent, and began implementing a tracking system for all assigned inventory in September 2020.
What TIGTA Recommended
TIGTA made six recommendations, including the Director, CP&C, should develop performance metrics and explore process improvements for validating identified cases to ensure that they include the identified issues prior to assignment. In addition, the Commissioner, TE/GE Division, should determine the feasibility of reassigning resources from compliance functions to improve the efficiency of identifying, classifying, and monitoring productive examination workloads. Management agreed or partially agreed with five of the recommendations, but disagreed to explore process improvements to ensure that selected cases include identified issues prior to issuance. TIGTA believes this action could help reduce the number of assigned cases that employees close without examination.