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TIGTA Report 2021-36-060 — People First Initiative Actions Helped Taxpayers During COVID-19; However, Many Received Inaccurate Collection…
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| Court | Treasury Inspector General for Tax Administration (TIGTA) |
|---|---|
| Filed | 2021-09-16 |
Summary
A final audit report issued September 16, 2021 by the Treasury Inspector General for Tax Administration, Report Number 2021-36-060, transmitted by memorandum from Michael E. McKenney, Deputy Inspector General for Audit, to the Commissioner of Internal Revenue. The audit evaluates actions the IRS took under its People First Initiative, which adjusted and suspended compliance programs for the period April 1, 2020 through July 15, 2020. The report finds that the IRS generated 89,338 premature Notices and Demand for 87,542 individual taxpayers who filed Tax Year 2019 returns before the extended filing date, with a stuffer explaining the correct dates included in 99.6 percent of them. It also reports 23 levies affecting 14 taxpayers without indication of required approvals and 40 of 49 lien filings made in error. One recommendation is made; IRS management partially agreed.
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Full text
1
People First Initiative Actions Helped Taxpayers
During the Pandemic; However, Many Taxpayers
Received Inaccurate Collection Notices
September 16, 2021
Report Number: 2021-36-060
This report has cleared the Treasury Inspector General for Tax Administration disclosure review process and
information determined to be restricted from public release has been redacted from this document..
TIGTACommunications@tigta.treas.gov | www.treasury.gov/tigta
TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION
HIGHLIGHTS: People First Initiative Actions Helped Taxpayers During the Pandemic;
However, Many Taxpayers Received Inaccurate Collection Notices
Final Audit Report issued on September 16, 2021
Report Number 2021-36-060
Why TIGTA Did This Audit
In response to the nationwide
state of emergency due to the
Coronavirus Disease 2019
(COVID-19) pandemic, the IRS
announced its People First
Initiative that included steps to
assist taxpayers by providing
relief on a variety of issues
ranging from easing payment
guidelines to postponing
compliance actions during the
period April 1, 2020, through
July 15, 2020.
This audit was initiated to
evaluate actions taken by the
Small Business/Self-Employed
Division to assist taxpayers in
response to COVID-19.
Impact on Taxpayers
The IRS issued the People First
Initiative to reduce the tax
compliance burden on
taxpayers by temporarily
adjusting and suspending key
compliance programs in order
to help people facing the
challenges of COVID-19.
What TIGTA Found
During the start of COVID-19, the IRS was impacted in many ways. IRS
sites closed for months, thus postponing everyday operations such as
mailing notices and receiving and processing correspondence from
taxpayers. During this time, the IRS had to act and make decisions as to
how to proceed, and some of the decisions potentially caused confusion
and undue burden to numerous taxpayers who received erroneous
Collection notices. Upon reopening its print sites, the IRS decided to
issue millions of notices to taxpayers that had generated during the
shutdown, many with erroneous notice dates and payment due dates.
TIGTA’s review of these notices identified that the IRS issued
89,338 premature Notices and Demand for tax that were generated for
87,542 individual taxpayers who filed Tax Year 2019 tax returns before
the COVID-19 filing date extension of July 15, 2020. The notices showed
that balances were owed even though the taxes were not actually due
because of the filing extension. Although the majority of these Notices
and Demand included stuffers to explain the correct notice and payment
due dates, taxpayers could be confused as to how to proceed, whether
they received a stuffer of explanation with their notice or not, simply
due to the original notices including incorrect information. The IRS had
the opportunity to prevent undue burden to taxpayers by purging the
outdated and incorrect notices and sending them at a later date.
However, the IRS was effective in providing relief to taxpayers as
outlined in its People First Initiative, including properly suspending
defaults on Installment Agreements, passport certifications to the State
Department, new account transfers to private collection agencies,
systemic filings of Notices of Federal Tax Lien, systemic and automated
levies, and seizures. TIGTA did identify that, for 23 levies (14 taxpayers)
issued by revenue officers, there was no indication of the required levy
approvals during the People First Initiative time frame. The IRS took
corrective action by contacting these taxpayers and issuing refunds or
credit transfers on the levied funds. Additionally, TIGTA identified that
40 of 49 Notice of Federal Tax Lien filings by revenue officers were made
in error, but the IRS took corrective action to withdraw them.
What TIGTA Recommended
TIGTA recommended that the IRS implement changes to its processes to
avoid sending erroneous notices causing taxpayer burden. IRS
management partially agreed with the recommendation. While they
acknowledge that this is not an action management would take under
ideal conditions, they believe their solution (to send the incorrect
notices) was appropriate given the extraordinary situation. However,
management further stated that, should future circumstances cause the
IRS to be faced with a similar decision, they will take this report’s
recommendation into consideration.
U.S. DEPARTMENT OF THE TREASURY
WASHINGTON, D.C. 20220
TREASURY INSPECTOR GENERAL
FOR TAX ADMINISTRATION
September 16, 2021
MEMORANDUM FOR: COMMISSIONER OF INTERNAL REVENUE
FROM:
Michael E. McKenney
Deputy Inspector General for Audit
SUBJECT:
Final Audit Report – People First Initiative Actions Helped Taxpayers
During the Pandemic; However, Many Taxpayers Received Inaccurate
Collection Notices (Audit # 202030628)
This report presents the results of our review to evaluate actions taken by the Small Business/
Self-Employed Division to assist taxpayers in response to the Coronavirus Disease 2019
(COVID-19) pandemic. This review is part of our Fiscal Year 2021 Annual Audit Plan and
addresses the major management and performance challenge of Responding to the COVID-19
Pandemic.
Management’s complete response to the draft report is included as Appendix III.
Copies of this report are also being sent to the Internal Revenue Service managers affected by
the report recommendation. If you have any questions, please contact me or Matthew A. Weir,
Assistant Inspector General for Audit (Compliance and Enforcement Operations).
People First Initiative Actions Helped Taxpayers During the Pandemic;
However, Many Taxpayers Received Inaccurate Collection Notices
Table of Contents
Background .....................................................................................................................................Page 1
Results of Review .......................................................................................................................Page 2
Thousands of Taxpayers Were Sent Premature Notices
and Demand ..........................................................................................................................Page 3
Recommendation 1: ...................................................................Page 7
The People First Initiative Was Effective in Providing
Relief to Taxpayers ...............................................................................................................Page 8
Appendices
Appendix I – Detailed Objective, Scope, and Methodology ................................Page 15
Appendix II – Outcome Measures .................................................................................Page. 17
Appendix III – Management’s Response to the Draft Report .............................Page. 19
Appendix IV – Glossary of Terms ...................................................................................Page. 22
Appendix V – Abbreviations.............................................................................................Page. 24
Page 1
People First Initiative Actions Helped Taxpayers During the Pandemic;
However, Many Taxpayers Received Inaccurate Collection Notices
Background
On March 13, 2020, the President announced a nationwide state of emergency due to the
Coronavirus Disease 2019 (COVID-19) pandemic. To help people facing the challenges of
COVID-19 issues, the Internal Revenue Service (IRS) announced steps to assist taxpayers by
providing relief on a variety of issues ranging from easing payment guidelines to postponing
compliance actions. The IRS Commissioner’s announcement of this relief stated, “in addition to
extending tax deadlines and working on new legislation, the IRS is pursuing unprecedented
actions to ease the burden on people facing tax issues." On March 25, 2020, the IRS announced
the People First Initiative with the issuance of IRS News Release IR-2020-59.1 The goal of the
People First Initiative was to temporarily adjust and suspend key compliance programs in order
to help people facing the challenges of COVID-19. The series of steps taken to assist taxpayers
was effective for the period starting April 1, 2020, through July 15, 2020, and addressed taxpayer
relief from compliance actions pertaining to the following:
•
Installment Agreements.
•
Offers in Compromise.
•
Liens.
•
Levies.
•
Seizures.
•
Passport Certifications to the State Department.
•
Private Debt Collection.
•
Field, Office, and Correspondence Audits.
On March 31, 2020, in response to COVID-19 and for the protection of its employees, the IRS
took unprecedented actions, including closing Tax Processing Centers, Taxpayer Assistance
Centers, and other IRS offices nationwide. Additionally, on March 30, 2020, the IRS directed all
employees who were not currently teleworking but whose work was portable or could be
adapted to work off-site to work from home (or an alternate location). As a result, the IRS had
to make decisions about how it would timely send required notices to taxpayers and process
growing backlogs of incoming taxpayer correspondence. In June 2020, the House Ways and
Means Committee expressed concerns to the IRS about the confusion and burden that
taxpayers likely experienced after the IRS made the decision to send notices to taxpayers
containing erroneous notice dates and due dates.2 These notices were not produced in time to
take into consideration the extended filing time frames the IRS provided for the 2020 Filing
Season. The decision to send erroneous notices to taxpayers first occurred because of the
closure of the Correspondence Production Services print site locations beginning March 31,
2020. These print sites create and print the numerous IRS correspondence notices that are
1 IRS, News Release IR 2020-59, IRS unveils new People First Initiative; COVID 19 effort temporarily adjusts, suspends
key compliance program (March 25, 2020).
2 Letter dated June 11, 2020, to IRS Commissioner Charles Rettig from Chairman Richard Neal of the U.S. House of
Representatives Committee on Ways and Means.
Page 2
People First Initiative Actions Helped Taxpayers During the Pandemic;
However, Many Taxpayers Received Inaccurate Collection Notices
mailed to taxpayers. On June 1, 2020, these print sites began to reopen and partially restarted
operations. Prior to these print sites reopening, the IRS had to make decisions about whether to
mail taxpayer notices that had been created and were waiting in the print queue. The IRS also
had to decide how it would prioritize the mailings.
While IRS locations were closed, the pause also caused a backlog of over 12 million pieces of
incoming taxpayer correspondence to accumulate. In a letter dated August 19, 2020, the House
Ways and Means Committee addressed concerns to the IRS regarding the backlog of unopened
correspondence, including the possibility of undue burden for taxpayers who may have made
payments during the shutdown but who would then receive erroneous balance due notices
since the payments were not yet processed.3 This committee requested that the IRS temporarily
pause sending any balance due reminder notices to taxpayers who might be impacted by the
correspondence backlog.4 Knowing that this backlog could include a time frame for taxpayers
to make payments to their accounts, the IRS had already decided to pause sending out balance
due reminder notices to taxpayers until the backlog of mail was cleared. A programming
change to temporarily pause balance due notices was implemented as of May 9, 2020. This
decision was intended to ensure that taxpayers who made payments would not continue to
receive balance due notices until those payments were posted to their accounts. In
December 2020, the U.S. House Ways and Means Committee expressed concerns to the
Treasury Inspector General for Tax Administration (TIGTA) regarding the issuance of erroneous
notices when the IRS announced that it could not timely send out millions of Computer
Paragraph (CP) notices due to capacity issues.5 The notices were scheduled to be sent out in
early November 2020 but were instead sent between late November 2020 and January 2021
with erroneous notice date and payment due date information.
Results of Review
During the start of the COVID-19 pandemic, the IRS was impacted in many ways. IRS sites
closed for months, thus postponing everyday operations such as mailing correspondence and
receiving and processing correspondence from taxpayers. As a result, the IRS began to prioritize
correspondence and prepare additional notices to provide information to taxpayers.
Additionally, to provide relief for taxpayers, the IRS announced the People First Initiative, which
suspended or reduced many compliance activities from April 1 through July 15, 2020. During
this time, the IRS had to act and make decisions as to how to proceed, and some of the
decisions potentially caused confusion and undue burden to numerous taxpayers who received
erroneous Collection notices. However, the IRS’s People First Initiative actions also provided
needed relief to numerous taxpayers who were in potentially difficult economic situations due to
COVID-19.
3 Letter dated August 19, 2020, to IRS Commissioner Charles Rettig from U.S. House of Representatives Committee on
Ways and Means, signed by Chairman Richard Neal.
4 Subsequent balance due notices are reminder notices sent to taxpayers with a balance due after the initial notice
and demand.
5 Letter dated December 22, 2020, to TIGTA Inspector General J. Russell George from U.S. House of Representatives
Committee on Ways and Means, signed by Chairman Bill Pascrell Jr. and Ranking Member Mike Kelly; CP notices are
generated from criteria on the original return.
Page 3
People First Initiative Actions Helped Taxpayers During the Pandemic;
However, Many Taxpayers Received Inaccurate Collection Notices
Thousands of Taxpayers Were Sent Premature Notices and Demand
Our review of the Notice Delivery System for the period June 1 through July 15, 2020, identified
89,338 Notices and Demand (specifically CP 14, Balance Due, No Math Error) that were
generated for 87,542 individual taxpayers who filed
Tax Year 2019 tax returns before the COVID-19 filing
date extension of July 15, 2020. These notices
showed balances owed even though the taxes were
not actually due because of the filing date extension.
For these taxpayers, the IRS sent out Notices and
Demand for the delinquent taxes with incorrect
notice dates and payment due dates.6 For the
majority (99.6 percent) of the 89,338 Notices and Demand, the IRS also prepared and provided a
stuffer (Notice 1052-A, Important! You Have More Time to Make Your Payment) which was
inserted into the erroneous notice mailing to provide an explanation to taxpayers that some
information on their Notices and Demand was incorrect. Specifically, taxpayers were informed
that the dates on their notices were incorrect, that the payment date was extended to July 15,
2020, and that if not paid, penalties and interest would begin to accrue after that date. In other
words, the IRS sent taxpayers notices that the amounts they owed were past due and were
delinquent when in fact the IRS knew that the amounts were not delinquent.
In a meeting with IRS officials, we were informed as to how the decision to issue the erroneous
notices was determined. As the shutdown of IRS print sites loomed, the IRS needed to make a
decision as to whether to print and mail incorrect notices or to restart and reprogram the
notices to be printed and mailed. The IRS decided that the timetable for restarting,
reprogramming, and mailing the notices after the return due date would interfere with the IRS’s
preparation for the 2021 Filing Season in September 2020. Accordingly, the IRS decided to print
and mail the incorrect notices to taxpayers and to include a notice stuffer that would provide an
explanation that the due dates on the notice were incorrect and explain that there was
additional time to pay the balance due.
The IRS’s position on its decision to print and mail incorrect notices also involved the
interpretation of the requirement to send the initial Notice and Demand letters to the taxpayer
within 60 days after making a tax assessment. In the case of individual tax filings in a typical
year, if a taxpayer files a tax return prior to April 15 for which a balance due is owed, the actual
tax assessment date is the April 15 filing due date whether the taxpayer files the tax return on or
before the due date of the return. The IRS sends a required Notice and Demand letter within a
few weeks after April 15. IRS management explained that, even though the Tax Year 2019 filing
due date was extended to July 15, the assessment date remained April 15, 2020.
Internal Revenue Code (I.R.C.) § 6303(a) states that, as soon as practicable but within 60 days of
making an assessment, the IRS shall send notice and demand for payment. I.R.C. § 6303(b)
states that, if any tax is assessed prior to the last date prescribed for payment of such tax,
payment of such tax shall not be demanded under subsection (a) until after such date. IRS
management reasoned that, since the legal assessment date for Tax Year 2019 returns was still
April 15, they had to abide by I.R.C. § 6303(a), which prescribes that Notice and Demand is given
6 CP 14 is required, by I.R.C. § 6303(a), to be sent to taxpayers when tax is assessed and a balance is due.
Premature Notices and Demand were
sent to 87,542 taxpayers who filed
Tax Year 2019 returns prior to the
revised July 15, 2020, due date.
Page 4
People First Initiative Actions Helped Taxpayers During the Pandemic;
However, Many Taxpayers Received Inaccurate Collection Notices
to the taxpayer within 60 days after making an assessment of a tax due. IRS management
explained that, while its Notice 2020-23, Additional Relief for Taxpayers Affected by Ongoing
Coronavirus Disease 2019 Pandemic, postponed the filing and payment date to July 15, Treasury
Regulation § 301.7508A-1(b)(4) provides that “the postponement of the deadline of a tax-related
act does not extend the due date for the act, but merely allows the IRS to disregard a time
period of up to one year for performance of the act.” In the case of these taxpayers, the IRS
determined to assess the tax owed reflected on the tax returns even though the tax return due
date had been moved to July 15 and decided to send these past-due notices to taxpayers even
though the tax payments were not yet due.
IRS Counsel’s memorandum proposed two options for IRS management to consider when
deciding whether to send the outdated and incorrect notices to taxpayers (i.e., either cancel the
notices or issue incorrect notices). Counsel advised that, with reference to the 60-day time
frame to send a Notice and Demand, an untimely notice would not invalidate the tax
assessment. The advice addressed the possibility of litigation risk that could bar the IRS from
collecting the assessed tax administratively if the Notice and Demand was not sent within the
60-day time frame. However, the advice further proposed how the litigation hazard could be
avoided and cited Treasury Regulation § 301.7508A, under which the IRS could issue a notice
that would postpone the 60-day period of issuing the Notice and Demand. Because there is
evidence to support that the IRS could have postponed the period to send Notices and Demand
to taxpayers, and would have remained within the law in doing so, the IRS had the opportunity
to prevent undue burden to taxpayers by not sending outdated and incorrect notices. Instead,
the IRS had the opportunity to delay the process, correct the notices, and eliminate the need to
send additional notices of explanation in the way of stuffers.
Thousands of erroneous Collection Due Process (CDP) notices sent to taxpayers did not
include a stuffer of explanation
In addition to the 89,338 premature Notices and Demand for Tax Year 2019 taxpayers, we
identified a total of 1,366,765 CP notices (impacting 1,002,012 taxpayers) related to a balance
due that were printed and mailed with stuffers. These were notices sent to taxpayers that
contained incorrect information about the due dates of payments. The IRS developed three
different stuffers to include with the erroneous notices that detail the revised payment due
dates, including:7
•
Notice 1052-A, Important! You Have More Time to Make Your Payment, for Notices and
Demand; the IRS mailed 1,315,560 Notices 1052-A.8
•
Notice 1052-B, Important! You Have More Time to Make Your Payment, for Notices and
Demand with math errors; the IRS mailed 23,803 Notices 1052-B.9
7 The IRS also provided notice counts that slightly differed from what we identified due to its inability to query the
Notice Delivery System using one of the data fields we were able to use.
8 I.R.C. § 6303, which addresses the IRS’s obligation to send a Notice and Demand after assessment, includes notices
such as balance due notices without a math error, Federal Tax Deposit discrepancies with a balance due, penalty
notices, Shared Responsibility Payment notices, etc.
9 Math Error notices inform taxpayers of a change to their return.
Page 5
People First Initiative Actions Helped Taxpayers During the Pandemic;
However, Many Taxpayers Received Inaccurate Collection Notices
•
Notice 1052-C, Important! You Have Additional Time to Appeal, for CDP notices; the IRS
mailed 27,402 Notices 1052-C.10
While a majority of taxpayers received a stuffer detailing revised payment due dates, IRS
management informed us that approximately 28,125 Notice 1052-C stuffers were missing from
CDP notices informing taxpayers of the intent to levy if no action is taken. These stuffers were
intended to be sent with the CDP notices to inform taxpayers of the adjusted date to request a
timely CDP hearing. However, due to a communication error, approximately 28,125 notices
were sent without the proper stuffer, impacting 16,892 individual taxpayers who were potentially
burdened.
To attempt to rectify this issue, the IRS subsequently sent Letter 544C, Apology for IRS Error, to
taxpayers who did not receive the stuffer. Letter 544C provided these taxpayers with
information about having additional time to request a hearing.
Balance due reminder notices were paused due to mail backlogs, but some were not
restarted as planned
In a letter dated August 19, 2020, a congressional committee explained that the IRS also
accumulated a large backlog of unopened taxpayer mail (during the COVID-19 shutdown;
approximately 12 million pieces), and some of the unprocessed mail contained payments. If the
IRS continued to send balance due reminder notices, this could cause undue burden for
taxpayers whose payments were sitting unprocessed in the backlogged mail.
In April 2020, the IRS made the decision to temporarily suspend sending balance due reminder
notices effective May 9, 2020. The IRS announced the suspension publicly on August 21, 2020.
These notices are generally mailed to taxpayers if the balance due is not resolved after the initial
Notice and Demand (CP 14) is sent. Specifically, CP 501, Individual (IMF) Balance Due – First
Notice (first notice); CP 503, Individual (IMF) Balance Due – Second Notice (second notice); and
CP 504, Final Balance Due Notice – 3rd Notice, Intent to Levy (third notice), were suspended and
none were mailed out after the IRS print sites resumed operations on June 1, 2020.11
On November 9, 2020, the IRS had intended to begin a phased approach to restart printing and
issuing balance due reminder notices even though there were still some mail correspondence
backlogs. IRS management explained that their decision to restart mailing the balance due
reminder notices was to:
•
Keep taxpayers informed about their balance due amounts because a continued delay in
sending the notices and no communication from the IRS would result in higher balances
due based on the continuation of accrual of penalties and interest.
•
Help the IRS protect the Government’s interest by allowing it to restart the paused
collection and enforcement activities and attempt to recover the tax revenue sooner.
•
Prevent complications if the IRS delayed the programming changes needed to restart the
notices until Calendar Year 2021 because additional programming was needed to
incorporate the tax law changes for the upcoming 2021 Filing Season.
10 CDP notices inform the taxpayer of the IRS’s intent to levy and give 30 days for the taxpayer to appeal by
requesting a levy hearing.
11 IMF = Individual Master File.
Page 6
People First Initiative Actions Helped Taxpayers During the Pandemic;
However, Many Taxpayers Received Inaccurate Collection Notices
Management also explained that the likelihood of remittances or correspondence in the
remaining mail backlog related to these notices greatly decreased once the backlogged mail
was caught up after the July 15 extended deadline and that the four Submission Processing sites
had already been processing mail that came in after July 15.
However, our review of the Notice Delivery System for notices mailed in November 2020
showed that the first and second balance due reminder notices were not sent out in early
November as planned. This occurred due to the large number of overall notices (23.3 million)
that were received by the print sites and were scheduled to be sent out in November. As a
result, the IRS was unable to mail out over 11 million notices due to capacity problems. The IRS
attempted to use its established print vendors to mitigate this backlog, but the vendors had
their own capacity issues and could not accept approximately 5 million of the notices. In
addition, some vendors had issues with downloading some of the large notice files and needed
programming fixes. As a result, IRS management made a decision to purge approximately
6.2 million of the 11 million notices. IRS management made this decision after IRS counsel
analyzed the 11 million notices and determined which of them were statutorily required versus
which were procedurally required. Because first and second balance due reminder notices are
not statutorily required, they were purged.
The IRS explained that it would move forward with issuing the first and second balance due
reminder notices for those taxpayers who would receive the next notice in the collection notice
status progression if their balances remained unresolved. Our review of the Notice Delivery
System showed that the IRS resumed issuing these notices as of November 23, 2020.
The IRS was faced with a difficult dilemma in attempting to restart its notice operations in the
wake of the shutdown due to COVID-19 in that many of the notices that were ready to be issued
and required by law were inaccurate due to the delay in mailing the notices. Taxpayers have a
right to be informed with correct information. While purging notices is problematic because
there is a delay in taxpayers receiving vital information about their accounts, we believe that the
IRS’s decision to purge these notices was reasonable under the circumstances.
Millions of erroneous notices were again sent to taxpayers by January 2021
Although the IRS purged 6.2 million notices, the remaining approximately 4.8 million notices,
some statutorily required, were sent to taxpayers by January 2021. Due to the delay in sending
these notices, they had incorrect notice dates and payment due dates. The IRS developed a
stuffer to include with the erroneous notices (Notice 1052-D, Important! You Have More Time to
Respond to the Enclosed Notice) to explain to the taxpayer that the payment due date was
extended.
The IRS provided the following information to show the estimated number and types of
statutorily required notices with which the stuffer was supposed to be included.
•
2,108,737 notices – I.R.C. § 6303 notice and demand for tax that informs taxpayers of tax
due and demands payment.
•
1,384,959 notices – I.R.C. § 7524 annual reminder notices that remind the taxpayer of an
existing balance due.
•
150,658 notices – I.R.C. § 6213(b) math error notices that inform taxpayers of a change to
their return.
Page 7
People First Initiative Actions Helped Taxpayers During the Pandemic;
However, Many Taxpayers Received Inaccurate Collection Notices
There were also an estimated 1,177,384 notices of other types with which the stuffer was not to
be included. The majority (93 percent) of these were notices of address change or notices that a
refund would be sent by mail due to a failed direct deposit.
We are concerned with the IRS’s decisions to send notices to taxpayers with erroneous due
dates during the COVID-19 pandemic because taxpayers receiving these notices could be
confused as to how to proceed, whether they received a stuffer of explanation with their notice
or not, simply due to the original notices including incorrect information. In addition, because
the Tax Year 2019 due date of July 15, 2020, coincides with the extended deadline for filing Tax
Year 2019 income tax returns, the premature Notices and Demand likely caused confusion and,
in some cases, economic hardship for taxpayers trying to plan expenses and payments during
the economic downturn. Also, it likely impacted the IRS’s ability to offer satisfactory taxpayer
service based on the decision to mail erroneous notices related to balances due at the same
time many other taxpayers were seeking assistance with their Economic Impact Payments, their
Tax Year 2019 refunds, and individual and business Federal tax questions regarding their Tax
Year 2019 filing requirements.
Recommendation 1: The Commissioner, Small Business/Self-Employed, should implement
changes to its processes to avoid sending erroneous notices causing taxpayer burden.
Management’s Response: The IRS partially agreed with this recommendation. In their
response, management stated that IRS senior leadership considered several options,
balancing the needs to comply with statutory obligations, to provide accurate
information to taxpayers, and to operate within the constraints imposed by the
pandemic. Based on this analysis and advice from Counsel, management concluded that
their approach (to send incorrect notices) was the best use of the IRS’s limited resources
that would minimize the risk of confusion on the part of taxpayers. While
acknowledging that this is not an action they would take under ideal conditions, IRS
management believes their solution was appropriate given the extraordinary situation.
The IRS states that if such a circumstance occurs in the future, it will consider our
recommendation.
Office of Audit Comment: It is very problematic to send notices to taxpayers that
demand payment on a balance due which is not yet actually due and which contains
interest and penalty information that is incorrect. Incorrect notices should not be
intentionally sent to taxpayers under any circumstances. During this audit, IRS
management communicated to us that they decided that the timetable for restarting,
reprogramming, and mailing the notices after the revised Tax Year 2019 return due date
would interfere with the IRS’s preparation for the 2021 Filing Season in September 2020.
As identified in our report, the IRS had the option to delay the process, correct the
notices, and eliminate the need to send additional notices of explanation in the way of
stuffers. Based on advice from IRS Counsel, the IRS had the option to postpone the 60-
day period of issuing the Notice and Demand that would avoid any litigation hazard and
would remain within the law in doing so. The IRS had the opportunity to prevent undue
burden to taxpayers by not sending the erroneous notices but chose not to do so to
ease its own administrative burden.
Page 8
People First Initiative Actions Helped Taxpayers During the Pandemic;
However, Many Taxpayers Received Inaccurate Collection Notices
The People First Initiative Was Effective in Providing Relief to Taxpayers
On March 25, 2020, the IRS issued IR-2020-59 to temporarily adjust and suspend key
compliance programs in order to help people facing the challenges of COVID-19 issues. The
series of steps taken to assist taxpayers, from April 1 through July 15, 2020, were meant to
provide relief on a variety of issues ranging from easing payment guidelines to postponing
compliance actions. While our review of compliance actions during this time frame showed that
the IRS was effective in providing relief to taxpayers, we did identify some errors.
No existing Installment Agreements were defaulted
The People First Initiative provided relief to taxpayers who were under existing Installment
Agreements by allowing taxpayers to suspend payments due from April 1 through July 15, 2020.
Taxpayers who were currently unable to comply with the terms of an Installment Agreement,
including a Direct Debit Installment Agreement, were able to suspend payments during this
period if they preferred, although interest would continue to accrue on any unpaid balances.
In addition, the IRS stated it would not default any Installment Agreements during this period.
In order to default an Installment Agreement, the IRS would need to issue a CP 523, Default on
Your Installment Agreement (IA) Notice – Intent to Terminate Your IA, to the taxpayer. Our
review of the Notice Delivery System for CP 523 default notices determined that the IRS did not
issue defaults on any Installment Agreements during the People First Initiative time frame.
Passport certifications to the Department of State were properly suspended
The IRS also stated that it would suspend new certifications to the Department of State for
taxpayers who are “seriously delinquent” during this period. Seriously delinquent taxpayers are
defined as those with a balance due of greater than $54,000. Passport certification prevents
these taxpayers from receiving new passports or renewing old passports until the tax debt is
addressed with the IRS.12
Our review of the Master File transaction codes for passport certifications found that the IRS
properly prevented any new passport certifications from being sent to the State Department
during the People First Initiative time frame.
No new taxpayer delinquent accounts were sent to private collection agencies
The IRS stated that any new delinquent taxpayer accounts would not be forwarded by the IRS to
private collection agencies to work during the People First Initiative time frame. Our review of
Master File transaction codes identified 29,033 delinquent tax modules for 23,021 taxpayers that
were sent to private collection agencies during the People First Initiative time frame. However,
further analysis determined that these tax modules were not new delinquent accounts but
instead belonged to taxpayers who were already assigned to the private collection agencies;
therefore, no new taxpayers accounts were assigned during this period.
12 Pub. L. No. 114–94, § 32101, 129 Stat. 1312m 1729–1733 (2015).
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People First Initiative Actions Helped Taxpayers During the Pandemic;
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Some offers in compromise were erroneously closed
As part of the People First Initiative, the IRS also took several steps to assist taxpayers with
current and pending offers in compromise (offers), such as extending payment due dates to
July 15, 2020. In addition, the IRS stated it would allow taxpayers until July 15, 2020, to provide
requested additional information to support any pending offers and would not close any
pending offer requests before July 15, 2020, without the taxpayer’s consent.
We reviewed the IRS Master File transaction codes for offers that posted to Master File between
April 1 and July 15, 2020, along with specific offer details in the IRS’s Automated Offer in
Compromise system. As a result of this analysis, we identified 199 offers affecting 199 taxpayers
during this period. The offer determinations for these taxpayers were all completed prior to
April 1, 2020, and all of these taxpayers received either a return letter or a rejection letter
detailing their right to appeal within 30 days. Our review of a random sample of 56 of these
offers identified eight rejected offers that were erroneously closed during the People First
Initiative time frame. However, further review of these eight rejected offers showed that none of
the eight taxpayers exercised their appeal rights or otherwise communicated with the IRS on the
rejected offer prior to the July 15 cutoff period for the People First Initiative; therefore, there is
no indication that closure of the eight rejected offer cases during the period harmed or
burdened the taxpayers.13
Most levies were suspended, with a few exceptions
The IRS stated that new automatic (systemic) levies and levies initiated by revenue officers (field
levies) would be suspended during the People First Initiative time frame. However, field revenue
officers continued to pursue high-income nonfilers and perform certain collection activities if
warranted, such as when there is a risk of permanent loss to the Government due to the
expiration of a statute of limitations or other exigent circumstance or when the taxpayer has
agreed to an action. Our review of levies issued by the Collection function from April 1 through
July 15, 2020, showed that the majority of levies were effectively suspended during that period.
Automated Collection System levies were suspended
Levies are issued systemically or manually by employees through the Automated Collection
System (ACS). Our review of the ACS for transactions specific to levies determined that no levies
were issued during the period April 1 through July 15, 2020.
Automated Levy Program levies were suspended
Levies are also issued through the Automated Levy Programs. The IRS receives any proceeds
from these levies electronically. The four types of Automated Levy Programs are the:
•
Federal Payment Levy Program – levy attaches to Federal disbursements due an
individual or business, such as Federal wages, retirement, vendor/contractor payments,
and Social Security.
•
State Income Tax Levy Program – levy attaches to participating State income tax refunds.
13 We did not project the error cases to the population because we believe these taxpayers had sufficient time to
appeal the rejected offers and were not harmed or burdened by the closure of their offers during the People First
Initiative time frame.
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People First Initiative Actions Helped Taxpayers During the Pandemic;
However, Many Taxpayers Received Inaccurate Collection Notices
•
Municipal Tax Levy Program – levy attaches to participating local municipal income tax
refunds.
•
Alaska Permanent Fund Dividend Levy Program – levy attaches to the Permanent Fund
Dividend distributed by Alaska.
The IRS has agreements established with the Bureau of the Fiscal Service for the Federal
Payment Levy Program, participating States for the State Income Tax Levy Program, participating
municipalities for the Municipal Tax Levy Program, and the State of Alaska for the Alaska
Permanent Fund Dividend Levy Program. Under normal conditions, the IRS sends files to these
participants on a regular basis, which contain lists of taxpayers that are eligible for the IRS to
levy against. Automated Levy Program participants use these files to match against their own
taxpayer data to identify taxpayers with refunds or credits available that can attach to the IRS
levies.
Our review of the Automated Levy Programs showed that the IRS took appropriate steps to
prevent the issuance of levies during the People First Initiative time frame. For example, the IRS:
•
Stopped sending any new levy files to be matched to Federal, State, or municipal
payments by the Automated Levy Program participants after March 20, 2020. The IRS
had not sent any new levy files for matching against the Alaska Permanent Fund
Dividend Levy program since Fiscal Year 2019.
•
Issued memorandums on March 23, 2020, to the Automated Levy Program participants
to suspend automated levies.
•
Requested, on March 23, 2020, that the Bureau of the Fiscal Service set up an IRS agency
bypass indicator on its system to prevent all Social Security and Federal payments from
being levied.
•
Instructed participating States and municipalities to stop their levy processing after
completing their payment file matching for the last levy file sent to them on
March 20, 2020.
Because of these actions, the Bureau of the Fiscal Service did not process any new Federal
Payment Levy Program levies after March 23, 2020. While the IRS did receive some payments
from Automated Levy Program participants from April 1 through July 15, 2020, the payments
were for the levy files sent to and processed by these participants prior to the People First
Initiative time frame, when it was operating under normal conditions.
Some revenue officer levies were issued in error
On March 30, 2020, the Director, Headquarters Collection, issued a memorandum that outlines
suspension of certain collection activities during the COVID-19 pandemic absent exigent
circumstances and executive approval. Thus, levies issued by revenue officers during this period
on a case-by-case basis were allowed and considered appropriate if they were properly
approved.
Revenue officers use the Integrated Collection System (ICS) to issue levies. Our review of levies
issued from the ICS identified 349 levies, impacting 93 taxpayers, issued during the People First
Initiative time frame. The IRS provided supporting evidence for 326 of the 349 levies, affecting
79 taxpayers. Based on our analysis of the ICS histories provided, we were able to attest that, for
68 of the 79 taxpayers, there was proper evidence of levy approval or an immediate levy release.
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People First Initiative Actions Helped Taxpayers During the Pandemic;
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For the 11 taxpayers for which no approval was documented in the ICS history, Collection Policy
management notated the name of the person who granted the levy approval and the approval
date or confirmed with Field Collection staff that approval of the levy was received.
However, for the remaining 23 levies affecting 14 taxpayers, there was no indication of levy
approval to issue the levy during the People First Initiative time frame. The IRS collected a total
of $7,486.75 in proceeds from three of these 14 taxpayers. IRS management informed us that
they contacted taxpayers to determine corrective action and issued manual refunds or credit
transfers to these three taxpayers. These actions were confirmed through tax account research.
While the People First Initiative ended July 15, 2020, many IRS collection activities, including
levies, did not restart immediately. Field levies by revenue officers were resumed on July 16,
2020, but employees were asked to apply good judgment in determining when enforcement
action was appropriate. The ACS did not resume issuing manual levies until January 7, 2021;
those levies can be issued now on a case-by-case basis by ACS collection representatives. ACS
systemic levies and the Automated Levy Program levies had not started back up as of May 4,
2021. The IRS is evaluating a restart time frame for both programs; however, due to the
ongoing COVID-19 pandemic, it did not have an estimated restart date.
Seizures were appropriately conducted
The IRS also stated that levies (including any seizures of a personal residence) initiated by field
revenue officers will be suspended during the People First Initiative. However, field revenue
officers will continue to pursue high-income nonfilers and perform certain collection activities
when warranted, such as when there is a risk of permanent loss to the Government due to the
expiration of statute or other exigent circumstance or when the taxpayer has agreed to an
action. Also, a March 30, 2020, memo from the Director, Headquarters Collection, required that
executive approval was also required for seizures during this period.
Our review showed that three seizures occurred from April 1 to July 15, 2020. TIGTA determined
that the three seizures were, in all cases, appropriate to protect the Government’s interest in
collection of significant delinquent amounts due.14 These situations reflected a risk of
permanent loss to the Government due to the expiration of a statute of limitations or other
exigent circumstances. Additionally, higher levels of approval were given for these seizures.
Most Notice of Federal Tax Lien (NFTL) filings were suspended, with some exceptions
The IRS attempts to collect Federal taxes due from taxpayers by sending letters, making
telephone calls, and meeting face-to-face with taxpayers. As a matter of law, a lien arises upon
the occurrence of a tax delinquency and encumbers the property of the delinquent taxpayer.15
To protect the Government’s claim, the IRS has the authority to file an NFTL in the appropriate
State and local offices of record, which notifies interested parties that a lien exists.16
The People First Initiative stated that new automatic, systemic NFTL requests and NFTLs initiated
by revenue officers would be suspended during the period. However, field revenue officers
14 TIGTA, Report No. 2020-30-058, Fiscal Year 2020 Review of Compliance With Legal Guidelines When Conducting
Seizures of Taxpayers’ Property (Sept. 2020).
15 I.R.C. §§ 6321 and 6323.
16 I.R.C. § 6323.
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People First Initiative Actions Helped Taxpayers During the Pandemic;
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would continue to pursue high-income nonfilers and perform certain collection activities when
warranted, such as when there is a risk of permanent loss to the Government due to the
expiration of statute or other exigent circumstance or when the taxpayer has agreed to an
action. Our review of the ACS and revenue officer–initiated NFTL filings showed that no
systemic NFTL requests were filed during the period, but some NFTLs were filed in error by
revenue officers.
Systemic NFTL requests were suspended
The IRS files NFTLs systemically requested through the ACS when certain case criteria are met.
Our review of the ACS for transactions specific to NFTL filings showed that no systemic NFTLs
were filed during the period April 1 through July 15, 2020.
Some NFTL filings initiated by revenue officers were made in error but later withdrawn
As previously discussed for levies, a memorandum from the Director, Headquarters Collection,
dated March 30, 2020, outlined the suspension of certain collection activities during the
COVID-19 pandemic absent exigent circumstances and executive approval. NFTL filings were
allowed by revenue officers on a case-by-case basis with proper approval during the People First
Initiative time frame. Also, NFTLs that were previously filed were allowed to be refiled during
the period.
Our review of Master File transaction codes specific to NFTL filings found 1,445 lien transactions
affecting 465 individual taxpayers and 808 lien transactions affecting 164 business taxpayers.
Further research showed that the majority of these transactions applied to NFTLs that were
refiled, which were acceptable under People First Initiative. Additionally, we conducted a review
of ICS histories to determine if proper approvals were granted for the NFTL filings. Of the
remaining population, we identified:
•
20 NFTL filings affecting 18 individual taxpayers. Of these:
o *********************************1**********************************************
**************1*****************
o 12 NFTL filings for 10 taxpayers were issued without proper approval, but the IRS
identified these NFTLs prior to this audit and took corrective action to withdraw
them. A review of Automated Lien System confirmed the NFTLs were withdrawn.
o *****************************************1********************************************
*****************************************1********************************************
*****************************************1********************************************
******1******
•
29 NFTL filings affecting 29 business taxpayers. Of these:
o *****************************************1*******************************************
***************1***************
o 26 NFTL filings for 26 taxpayers were issued without proper approval, but the IRS
identified these prior to this audit and took corrective action to withdraw them.
A review of Automated Lien System confirmed the NFTLs were withdrawn.
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People First Initiative Actions Helped Taxpayers During the Pandemic;
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o ****************************************1****************************************
****************************************1*********************************************
****************************************1*********************************************
*************1***************.
IRS management informed us that, after the People First Initiative suspension period expired on
July 15, 2020, they asked Field Collection to continue to initiate NFTLs only in exigent
circumstances with elevated approval due to mail backlogs and limited capacity. On
October 1, 2020, the IRS issued guidance to Field Collection, Specialty Collection–Offer in
Compromise, and Specialty Collection–Insolvency employees to resume normal procedures to
initiate new NFTLs. On October 19, 2020, the IRS issued guidance to ACS, Automated Collection
System Support, and Compliance Services Collection Operation employees to resume manually
requesting NFTLs. However, systemic NFTLs remain inactive as of February 25, 2021.
Nearly all examinations we identified were appropriately delayed
The People First Initiative provided for any new field, office, and correspondence examinations
to be delayed and generally not start during the April 1 through July 15 period. However, the
IRS stated it may start new examinations if deemed necessary to protect the Government’s
interest in preserving the applicable statute of limitations. Also, the IRS stated it would continue
to work refund claims without in-person contact, continue open examinations, and encourage
taxpayers to respond to any requests for information they already received or may receive
during the period if they are able to do so.
Our review of examinations in the Audit Information Management System and Centralized
Information System determined that 10,618 exams were placed into status code 12, meaning
they were started, during the period of April 1 through July 15, 2020. Figure 1 shows the
number of started examinations by the examination group during this period:
Figure 1: Exams Started During the People First Initiative
Exams Started April 1 – July 15, 2020
Revenue Agent
8,289
Tax Compliance Officer
2,242
Tax Examiner
84
Revenue Officer
3
Totals
10,618
Source: TIGTA analysis of the Audit Information
Management System and Centralized Information System.
The majority (78 percent) of the started exam cases were assigned to revenue agents, while
21 percent were assigned to tax compliance officers. The remaining 1 percent were assigned to
tax examiners and revenue officers. Additionally, when we reviewed counts by business unit, we
identified that the majority (9,763, or 92 percent) of the exams were started by the
Small Business/Self-Employed Division, while the Large Business and International Division
started the remaining 855 (8 percent).
The IRS explained that exams were appropriately started during the People First Initiative if
deemed necessary to protect the Government’s interest. The Small Business/Self-Employed
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People First Initiative Actions Helped Taxpayers During the Pandemic;
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Division issued a memorandum to its Field and Specialty Examination employees on April 8,
2020, which details the criteria to use for those compliance activities that were allowed to
continue during the People First Initiative time frame. The IRS stated that these cases likely met
one or more of the criteria, including cases with a short statute of limitations, taxpayer-initiated
requests, requests for Appeals, or continuing in-process case work after soft contact is made
with the taxpayer. The IRS later informed us that, if the examination had taxpayer contact and
did not have any of the memorandum criteria, it would be inappropriate to start during People
First Initiative time frame.
We reviewed a statistical sample of 117 of the 10,618 exams that were started during the period
of April 1 through July 15, 2020, to determine if the exams were appropriate. Our review of the
examiner activity records for these cases showed that 52 of the exams had no initial contact with
the taxpayer during the People First Initiative time frame. However, for 35 exams, we did
identify that initial contact was made to the taxpayer.17 After further research on the 35 exams,
we determined that *1***************************************1************************************
*****************************************1*********************************************************
******************************************1********************************************************
******************************************1**********************************************************
******************************************1**********************************************************
******************************************1**********************************************************
*****************1********************.18
17 During our review of Correspondence Examination Automation Support application, we identified 30 exams without
electronic case files, and we did not have access to the complete paper files to make a determination.
18 *******************************************************1*************************************************************
*********************************************************1******************************************************************
****************************1****************************
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Appendix I
Detailed Objective, Scope, and Methodology
Our overall objective was to evaluate actions taken by the Small Business/Self-Employed
Division to assist taxpayers in response to COVID-19. To accomplish our objective, we:
•
Reviewed the IRS’s People First Initiative and other guidance related to COVID-19. We
reviewed congressional concerns about taxpayer notice actions taken by the IRS during
the COVID-19 pandemic.
•
Interviewed Small Business/Self-Employed and Wage and Investment Division personnel
to obtain an understanding of the collection and examination processes suspended
during the People First Initiative time frame (April 1 through July 15, 2020), and
interviewed various personnel responsible for making decisions and sending notices to
taxpayers.
•
Evaluated the actions taken as outlined in the People First Initiative by analyzing
transaction code and notice data from the IRS Master File, examiner activity records, and
Notice Delivery System.
•
Determined whether the IRS suspended, if appropriate, the following compliance actions
during the People First Initiative time frame: Installment Agreement defaults,
certifications of passports to the Department of State, transfers of new accounts to
private collection agencies, returns or rejections of offers in compromise, seizures, levies,
NFTLs, and examinations.
•
Identified a population of 199 offers in compromise that were closed as returned or
rejected during the People First Initiative time frame. We selected and reviewed a
statistical sample of 56 of the 199 returned or rejected offers to determine whether
offers returned or rejected during the People First Initiative time frame were
appropriate.1
•
Identified a population of 10,618 examination cases that were started during the
People First Initiative time frame. We selected a statistical sample of 117 of the
10,618 examination cases to determine whether examinations started during People
First Initiative were appropriate.2
•
Used the assistance of TIGTA’s contract statistician to develop all sampling plans.
•
Determined the number of Collection notices mailed to taxpayers with incorrect notice
or payment due dates using the Notice Delivery System. We determined the number
sent with and without a stuffer of explanation.
•
Evaluated the legality of CP 14 notices sent to taxpayers prematurely for Tax Year 2019
by reviewing the IRS Counsel memorandum provided by the IRS.
1 We selected our statistical sample of 56 from the population of 199 returned or rejected offers. This sample was
based on a 90 percent confidence level, ± 10 percent precision, and 5 percent expected error rate.
2 We selected our statistical sample of 117 from the population of 10,618 examination cases. This sample was based
on a 90 percent confidence level, ± 10 percent precision, and 10 percent expected error rate.
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People First Initiative Actions Helped Taxpayers During the Pandemic;
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•
Evaluated the actions taken by the IRS to suspend and restart the CP 501, CP 503, and
CP 504 balance due reminder notices during the COVID-19 pandemic. We interviewed
IRS management to discuss actions taken to hold, purge, and issue these notices.
Performance of This Review
This review was performed with information obtained from Small Business/Self-Employed
Division and the Wage and Investment Division during the period of November 2020 through
June 2021. We were limited during this audit to conducting conference calls and requesting
information via electronic mail because the COVID-19 pandemic curtailed our plans to make
visitations to audit sites. We believe we were still able to conduct this performance audit in
accordance with generally accepted government auditing standards. Those standards require
that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a
reasonable basis for our findings and conclusions based on our audit objective. We believe that
the evidence obtained provides a reasonable basis for our findings and conclusions based on
our audit objective.
Major contributors to the report were Matthew A. Weir, Assistant Inspector General for Audit
(Compliance and Enforcement Operations); Phyllis Heald London, Director; Richard Viscusi, Audit
Manager; Meaghan Tocco, Lead Auditor; and Anna Yip, Auditor.
Validity and Reliability of Data From Computer-Based Systems
During this review, we relied on information obtained from the IRS Notice Delivery System
related to CP notices issued to taxpayers. Notice data were compared to Integrated Data
Retrieval System data for a judgmental sample of 15 cases, and we determined that the data
were reliable for purposes of this audit. We also used IRS Master File data obtained from the
TIGTA Data Center Warehouse Individual Master File and Business Master File tables. We
compared the transaction code found on the Individual and Business Master Files to the
transaction code posted on Integrated Data Retrieval System for a judgmental sample of
32 cases and determined the information was sufficiently reliable for purposes of this audit.
Internal Controls Methodology
Internal controls relate to management’s plans, methods, and procedures used to meet their
mission, goals, and objectives. Internal controls include the processes and procedures for
planning, organizing, directing, and controlling program operations. They include the systems
for measuring, reporting, and monitoring program performance. We determined that the
following internal controls were relevant to our audit objective: controls related to Installment
Agreement default notices; rejections or returns of offers in compromise; certifications of
passports to the Department of State; transfers of cases to private collection agencies; issuance
of NFTLs, levies, and seizures; and determinations made to issue CP notices and conduct
examinations during the People First Initiative time frame. We evaluated these controls by
interviewing and corresponding with key personnel; analyzing applicable guidance; and
analyzing ICS histories, examiner activity records, Automated Offer in Compromise system
records, and Master File data.
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People First Initiative Actions Helped Taxpayers During the Pandemic;
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Appendix II
Outcome Measures
This appendix presents detailed information on the measurable impact that our recommended
corrective actions will have on tax administration. These benefits will be incorporated into our
Semiannual Report to Congress.
Type and Value of Outcome Measure:
•
Taxpayer Burden – Potential; 87,542 taxpayers who received a CP 14 notice generated for
individual taxpayers who filed Tax Year 2019 tax returns showing balances due by
April 15, 2020, even though the taxes were not actually due until July 15, 2020, because
of the extended filing due date (see Recommendation 1).
Methodology Used to Measure the Reported Benefit:
Our review of the Notice Delivery System for the period June 1 through July 15, 2020, resulted in
the identification of 89,338 CP 14 notices (affecting 87,542 taxpayers) that were generated for
individual taxpayers who filed Tax Year 2019 tax returns before the extended filing date of
July 15, 2020. These notices showed balances being owed even though the taxes were not
actually due because of the filing extension. For these taxpayers, the IRS sent out Notices and
Demand for the delinquent taxes with incorrect notice dates and erroneous due dates that
included a stuffer with an explanation of the revised due date of July 15, 2020. IRS Counsel’s
memorandum proposed two options for IRS management to consider when deciding whether
to send the outdated and incorrect notices to taxpayers (i.e., either cancel the notices or issue
incorrect notices). The IRS’s position on its decision to print and mail incorrect notices also
involved the interpretation of the requirement to send the initial Notice and Demand to the
taxpayer within 60 days after making a tax assessment. The IRS included a notice stuffer that
would provide an explanation that the due dates on the notice were incorrect and explain that
there was additional time to pay the balance due. Although the majority of these Notices and
Demand included the explanatory stuffers to correct the notice and payment due dates,
taxpayers could be confused as to how to proceed, whether they received a stuffer of
explanation with their notice or not, simply due to the original notices including incorrect
information. The IRS had the opportunity to prevent undue burden to taxpayers by purging the
outdated and incorrect notices and sending correct notices at a later date.
Management’s Response: The IRS agreed with this outcome measure, assuming that
none of the affected 87,542 taxpayers read the explanatory stuffer that accompanied the
notice. The IRS’s decision to send the notices with the explanatory stuffer was designed
to mitigate the risk of possible taxpayer confusion and fully apprise them of their rights
and obligations.
Office of Audit Comment: We believe that the methodology used to quantify the
outcome was appropriate and provided a reasonable estimate of potential taxpayer
burden. TIGTA acknowledges that some taxpayers may have read their stuffer; however,
the IRS had the opportunity to prevent undue burden to taxpayers by not sending the
erroneous notices.
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People First Initiative Actions Helped Taxpayers During the Pandemic;
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Type and Value of Outcome Measure:
•
Taxpayer Rights and Entitlements – Actual; 14 taxpayers with levies issued during the
People First Initiative time frame that did not have the proper approvals, by which the
IRS collected $7,486.75 in proceeds (see p. 10).
Methodology Used to Measure the Reported Benefit:
Our review of the Integrated Collection System for the period April 1 through July 15, 2020,
resulted in the identification of 23 levies affecting 14 taxpayers for which there was no indication
of approval to issue the levy during the People First Initiative time frame. The IRS collected a
total of $7,486.75 in proceeds from three of the 14 taxpayers. IRS management informed us
that they contacted taxpayers, took corrective action, and issued manual refunds or credit
transfers to these three taxpayers.
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People First Initiative Actions Helped Taxpayers During the Pandemic;
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Appendix III
Management’s Response to the Draft Report
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People First Initiative Actions Helped Taxpayers During the Pandemic;
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Appendix IV
Glossary of Terms
Term
Definition
Audit Information
Management System
A computer system used by IRS Examination functions to control
returns, input assessments/adjustments to the Master File, and
provide management reports.
Automated Collection
System
A telephone contact system through which telephone assistors
collect unpaid taxes and secure tax returns from delinquent
taxpayers who have not complied with previous notices.
Automated Lien System
A comprehensive database that generates and prints lien notices
(Notices of Federal Tax Lien), stores taxpayer information, and
documents all lien activity. Lien activities on both Automated
Collection System and Integrated Collection System cases are
controlled on the Automated Lien System by the Centralized Lien
Operation functions at the Cincinnati, Ohio, Campus. Employees at
the Cincinnati Campus process the lien notices and respond to
taxpayer inquiries using the Automated Lien System.
Automated Offer in
Compromise
The application that tracks and controls offers in compromise.
Area Offices and campuses share a common database that contains
relevant offer information. The application allows the user to
process, view, and track the status of each offer. The Automated
Offer in Compromise system also generates forms, letters, and
managerial reports. It is maintained by the Austin Development
Center.
Business Master File
The IRS database that consists of Federal tax-related transactions
and accounts for businesses. These include employment taxes,
income taxes on businesses, and excise taxes.
Centralized Information
System
A monitoring and reporting tool used to perform detailed analyses
of tax cases within examination and case inventory levels, to monitor
the examination process, and to effectively plan for ongoing
examination operations.
Collection Due Process
I.R.C. § 6330 gives the taxpayer the right to appeal before a proposed
levy action and after a jeopardy levy, a disqualified employment tax
levy, a levy on a Federal contractor, and a levy on State tax refunds.
The IRS notifies taxpayers of their Collection Due Process rights by
issuing a notice explaining their right to request a hearing.
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People First Initiative Actions Helped Taxpayers During the Pandemic;
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Term
Definition
Correspondence
Examination
Automation Support
A suite of web-based applications developed to enhance the
examination process. The application also enables case assignment
and transfer between examination groups and batch groups. It
facilitates universal view of the campus exam case inventory records
and also allows the display of client-generated tax reports and letters
associated with the exam case.
Data Center
Warehouse
A TIGTA repository of IRS data.
Filing Season
The period from January 1 through mid-April when most individual
income tax returns are filed.
Fiscal Year
Any yearly accounting period, regardless of its relationship to a
calendar year. The Federal Government’s fiscal year begins on
October 1 and ends on September 30.
Individual Master File
The IRS database that maintains transactions or records of individual
tax accounts.
Integrated Collection
System
A system used by Field Collection function employees (revenue
officers) to report taxpayer case time and activity.
Integrated Data
Retrieval System
IRS computer system capable of retrieving or updating stored
information. It works in conjunction with a taxpayer’s account
records.
Math Error
A program whereby the IRS contacts taxpayers through the mail or
by telephone when it identifies mathematical errors or mismatches
of taxpayer information that would result in tax changes.
Notice Delivery System
A server-based system to process taxpayer notices files. Files are
loaded to a database, sorted, processed, and printed. Database
records are then passed to servers located on mail inserters to
control the insertion process. U.S. Postal Service mail manifest data
are printed from the Notice Delivery System servers for postal
acceptance and processing.
Shared Responsibility
Payment Notices
Beginning with the 2015 Filing Season, if a taxpayer or anyone in the
taxpayer’s tax household does not have minimum essential coverage
and does not qualify for a coverage exemption, the taxpayer will
receive a notice informing the taxpayer to make a shared
responsibility payment when filing their Federal income tax return.
Tax Year
A 12-month accounting period for keeping records on income and
expenses used as the basis for calculating the annual taxes due. For
most individual taxpayers, the tax year is synonymous with the
calendar year.
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Appendix V
Abbreviations
ACS
Automated Collection System
CDP
Collection Due Process
COVID-19
Coronavirus Disease 2019
CP
Computer Paragraph
ICS
Integrated Collection System
I.R.C.
Internal Revenue Code
IRS
Internal Revenue Service
NFTL
Notice of Federal Tax Lien
TIGTA
Treasury Inspector General for Tax Administration
To report fraud, waste, or abuse,
call our toll-free hotline at:
(800) 366-4484
By Web:
www.treasury.gov/tigta/
Or Write:
Treasury Inspector General for Tax Administration
P.O. Box 589
Ben Franklin Station
Washington, D.C. 20044-0589
Information you provide is confidential, and you may remain anonymous.File and source
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