GAO-18-659, TAX ADMINISTRATION: Opportunities Exist to Improve Monitoring and Transparency of Appeal Resolution Timeliness

TAX

ADMINISTRATION

Opportunities Exist to

Improve Monitoring

and Transparency of

Appeal Resolution

Timeliness

Report to Congressional Committees

September 2018

GAO-18-659

United States Government Accountability Office

Highlights of GAO-18-659, a report to

congressional

committees

September 2018

TAX ADMINISTRATION

Opportunities

Exist to Improve Monitoring and

Transparency of Appeal

Resolution Timeliness

What GAO Found

The Internal Revenue Service (IRS) has a standard process to resolve a diverse

array of taxpayer requests to appeal IRS proposed actions to assess additional

taxes and penalties or collect taxes owed. The process begins with a taxpayer

filing an appeal with the IRS examination or collection unit proposing the

compliance action and ends with a decision from the Office of Appeals (Appeals).

Appeals must have staff with expertise in all areas of tax law to review taxpayer

appeals. However, its staffing levels declined by nearly 40 percent from 2,172 in

fiscal year 2010 to 1,345 in fiscal year 2017. Appeals anticipates a continued risk

of losing subject matter expertise given that about one-third of its workforce was

eligible for retirement at the end of last fiscal year.

Appeals monitors the number of days to resolve taxpayer appeals of

examination, collection, and other tax disputes. However, IRS does not monitor

the timeliness of transfers of all incoming appeal requests. GAO analysis showed

that the time to transfer appeal requests from compliance units varied depending

on the type of case (see table below).

Collections workstreams—taxpayer appeals where IRS (1) filed a notice of

federal tax lien or proposed a levy (collection due process) or (2) rejected an

offer to settle a tax liability for less than owed (offer in compromise).

• The Internal Revenue Manual (IRM), IRS’s primary source of instructions to

staff, requires transfer to Appeals within 45 days for the largest collection

workstream. With manager approval, collection staff may have an additional

45 days to work with the taxpayer. Nearly 90 percent of collection appeals

closed in fiscal years 2014 to 2017 were transferred to Appeals within

90 days.

Examination workstreams—taxpayer appeals of additional tax and penalty

assessments IRS proposed based on its auditing of tax returns over a wide

range of examination issues.

View GAO-18-659. For more information,

contact

Jessica Lucas-Judy at (202) 512-

9110 or

[email protected]

Why GAO Did This Study

The Taxpayer Bill of Rights entitles

taxpayers with the right to appeal a

decision of the Internal Revenue

Service (IRS) in an independent

forum. GAO was asked to review this

administrative appeal process within

IRS.

Among other things, this report (1)

describes the IRS appeal process and

staffing; (2) assesses how IRS

monitors and manages the time to

receive and resolve taxpayer appeals

cases; and (3) evaluates the extent to

which Appeals communicates

customer service standards and

assesses taxpayer satisfaction with

the appeal process.

GAO reviewed IRS guidance,

publications, and documentation on

the appeal process. GAO analyzed

IRS data for administrative appeal

cases closed in fiscal years 2014

through 2017 to compare appeal case

resolution time for different types of

cases. GAO interviewed IRS officials

and a non-generalizable sample of

external stakeholders, including

attorneys and accountants,

knowledgeable about the appeal

process. Among other things, GAO

compared IRS actions to federal

standards for internal control and

customer service.

What GAO Recommends

GAO makes seven recommendations

to help enhance controls over and

transparency of the IRS appeals

process (several of the

recommendations are detailed on the

following page).

•

IRS does not have an IRM requirement with guidelines and procedures for

timely transfer for examination appeals. Accordingly, more than 20 percent of

examination appeals closed in fiscal years 2014 to 2017 took more than

120 days to be transferred to Appeals. Delays in transferring appeals can

result in increased interest costs for taxpayers.

Average Days for Compliance Review by Workstream, Fiscal Years 2014-2017

Appeal workstream

Average number of days

Compliance share

of total appeal

resolution time

Compliance transfer

to Appeals

Total appeal

resolution time

Collection workstreams

• Collection due process

252

23%

•

Offer in compromise

240

26%

Examination workstreams

• Large case examination

108

637

17%

• Examination

105

337

31%

•

Innocent spouse

249

12%

• Penalty appeals

100

220

45%

Other workstream

101

38%

Source: GAO analysis of Appeals Centralized Database System I GAO-18-659

Although Appeals maintains data on total appeal resolution time—from IRS

receipt to Appeals’ decision—such information is not readily transparent to IRS

compliance units or the public. GAO analysis of IRS data found that, for fiscal

years 2014 to 2017, about 15 percent of all appeal cases closed within 90 days

(see figure below). About 85 percent of all cases were resolved within one year

of when the taxpayer requested an appeal. Total resolution times differed by

case type. However, without easily accessible information on resolution times,

taxpayers are not well informed on what to expect when requesting an appeal.

Total Appeal Resolution Time by Workstream, Fiscal Years 2014-2017

Although Appeals has customer a service standard and conducts a customer

satisfaction survey, its standard and related performance results are not readily

available to the public. Under the GPRA Modernization Act of 2010 (GPRAMA)

and Executive Orders, the Department of the Treasury is responsible for

customer service performance. Appeals conducts outreach to the tax practitioner

community but does not regularly solicit input before policy changes.

Without a

mechanism, such as leveraging existing IRS advisory groups or alternatively

developing its own advisory body, Appeals is missing an opportunity to obtain

public input on policy changes affecting the taxpayer’s experience in the appeal

process.

GAO recommends, among other

things, that the Commissioner of

Internal Revenue

• Establish timeframes and

monitoring procedures for timely

transfer of taxpayer appeals

requests by examination

compliance units to the Office of

Appeals.

• Direct the Office of Appeals to

regularly report and share with

each compliance unit the data on

the time elapsed between when a

taxpayer requests an appeal to

when it is received in the Office of

Appeals.

• Provide more transparency to

taxpayers on historical average

total appeal resolution times.

GAO recommends, among other

things, that the Secretary of the

Treasury, consistent with its

responsibilities under GPRAMA and

Executive Orders for customer service,

ensure that the Commissioner of

Internal Revenue develops a

mechanism to solicit and consider

customer feedback on a regular basis

on current and proposed IRS appeal

policies and procedures.

Treasury and IRS agreed with GAO’s

recommendations, and IRS said it will

provide detailed corrective action

plans.

Page i GAO-18-659 IRS Appeal Process

Letter 1

Background 5

Appeals Has a Standard Process to Resolve Diverse Taxpayer

Cases but Has Not Assessed Critical Skills Gaps in Its

Declining Workforce 13

IRS Does Not Monitor Timeliness of Transfers of All Incoming

Appeal Requests and Appeals Does Not Communicate Total

Resolution Times to Taxpayers 26

Appeals Does Not Make Customer Service Standard Clear to

Taxpayers, and It Does Not Have a Mechanism to Consider

External Customer Input on Policy Changes 40

Conclusions 49

Recommendations for Executive Action 50

Agency Comments and Our Evaluation 51

Appendix I Comments from the Internal Revenue Service 53

Appendix II GAO Contact and Staff Acknowledgements 57

Tables

Table 1: Overview of IRS Business Operating Divisions 6

Table 2: Average Days for Compliance Review and Share of Total

Appeal Resolution Time for Appeal Cases Closed, Fiscal

Years 2014-2017 28

Table 3: Attributes and Internal Measures for Appeals Customer

Service and Taxpayer Rights Standard 41

Figures

Figure 1: Overview of IRS Appeal Workstreams 10

Figure 2: IRS Office of Appeals Funding, Fiscal Years 2010-2018 11

Figure 3: Office of Appeals Inventory, Cases Received and

Pending, Fiscal Years 2010-2017 12

Figure 4: Overview of the IRS Appeal Process 14

Figure 5: Overview of Compliance Review and Transfer 16

Figure 6: Overview of Appeals Case Receipt and Assignment

Process 18

Figure 7: Overview of Appeals Case Review Process 19

Contents

Page ii GAO-18-659 IRS Appeal Process

Figure 8: Appeals Staffing Levels, Fiscal Years 2010-2017 23

Figure 9: Average IRS Collection Case Transfer Time to Office of

Appeals for Appeal Cases Closed, Fiscal Years 2014-

2017 29

Figure 10: Average IRS Examination Case Transfer Time to Office

of Appeals for Appeals Cases Closed, Fiscal Years 2014-

2017 32

Figure 11: Average Examination Case Transfer Time from IRS

Business Operating Divisions to Office of Appeals, Fiscal

Year 2017 33

Figure 12: Average Days for Appeals Review by Workstream for

Cases Closed, Fiscal Years 2014-2017 36

Figure 13: Percentage of Cases Closed by Total Appeal

Resolution Time by Appeals Workstream, Fiscal Years

2014-2017 38

Abbreviations

Appeals Office of Appeals

ACDS Appeals Centralized Database System

AQMS Appeals Quality Measurement System

FTE Full-Time Equivalent

GPRA Government Performance and Results Act

GPRAMA GPRA Modernization Act of 2010

IRM Internal Revenue Manual

IRS Internal Revenue Service

IRSAC Internal Revenue Service Advisory Council

LB&I Large Business and International

OMB Office of Management and Budget

Restructuring Act IRS Restructuring and Reform Act of 1998

SB/SE Small Business/Self-Employed

TE/GE Tax Exempt and Government Entities

Treasury Department of the Treasury

W&I Wage & Investment

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Page 1 GAO-18-659 IRS Appeal Process

441 G St. N.W.

Washington, DC 20548

September 21, 2018

The Honorable Orrin Hatch

Chairman

The Honorable Ron Wyden

Ranking Member

Committee on Finance

United States Senate

The Honorable Kevin Brady

Chairman

The Honorable Richard E. Neal

Ranking Member

Committee on Ways and Means

House of Representatives

The Taxpayer Bill of Rights gives taxpayers the right to appeal a decision

of the Internal Revenue Service (IRS) in an independent forum. IRS

expounded further on this right, stating that “taxpayers are entitled to a

fair and impartial administrative appeal of most IRS decisions, including

many penalties, and have the right to receive a written response

regarding the Office of Appeals (Appeals’) decision.”

If taxpayers

disagree with IRS decisions to assess additional tax or take collection

action, they can generally bring their disputes before Appeals.

Appeals’ mission is to resolve taxpayer disputes, without litigation, on a

basis which is fair and impartial to both the government and the taxpayer

in a manner that will enhance voluntary compliance and public confidence

in the integrity and efficiency of the IRS.

Appeals’ policy is to provide a

prompt conference and decision in each case.

Timely appeal decisions

are important for (1) the taxpayer and IRS to know the amount of taxes

owed or outcome of other tax matters in dispute, and (2) the Department

26 U.S.C. § 7803(a)(3)(E), and see also, Department of the Treasury, Internal Revenue

Service, Taxpayer Bill of Rights, Pub. 5170, (July 2014), and Department of the Treasury,

Internal Revenue Service, Your Rights as a Taxpayer, Publication 1 (September 2017).

This publication further explains 10 rights for taxpayers and the processes for

examination, appeal, collection, and refunds.

Internal Revenue Manual (IRM) Part 8, Chapter 1, Section 1.1.

IRM Part 8, Chapter 1, Section 1.1.2.b.

Letter

Page 2 GAO-18-659 IRS Appeal Process

of the Treasury (Treasury) to receive any additional revenue involved at

the earliest practicable date.

You asked us to review the IRS administrative appeal process, the time to

resolve taxpayer appeals, and taxpayer satisfaction with the process. This

report (1) describes the steps and staffing levels for the IRS appeal

process and assesses the extent to which Appeals conducts workforce

planning in a time of declining resources; (2) assesses how IRS monitors

and manages the time to receive and resolve taxpayer appeals cases;

and (3) evaluates the extent to which Appeals communicates customer

service standards and assesses taxpayer satisfaction with the appeal

process.

To describe the IRS administrative appeal process, we reviewed Internal

Revenue Manual (IRM) sections that detail how IRS employees are to

process appeal cases. We also reviewed the IRS website and IRS

documents and publications that describe the appeal process and

indicate how taxpayers are to file an appeal. We interviewed senior

Appeals managers to understand how Appeals operates and how cases

are processed when Appeals receives them. To understand the initial IRS

receipt of taxpayer appeals, we interviewed IRS examination and

collection officials in the Small Business/Self-Employed (SB/SE) and

Wage and Investment (W&I) business operating divisions. These two IRS

divisions accounted for 97 percent of appeal cases closed in fiscal year

2017. We interviewed Appeals administrative processing staff who

receive and route cases in Appeals as well as customer service staff who

handle taxpayer inquiries about the status of their appeals. We also

analyzed data from the Appeals Centralized Database System (ACDS)

for 346,038 appeals cases closed in fiscal year 2014 (the oldest complete

year available) through fiscal year 2017 (the last complete fiscal year

available at the time of our analysis).

We used the data to calculate the

percentage of taxpayers who had a representative with them through the

process and to determine the percentage of cases that had a conference

with appeals, including those with an in-person conference. We also

conducted observational visits to Appeals locations in Philadelphia,

Pennsylvania and Atlanta, Georgia to interview a non-generalizable group

IRM Part 8, Chapter 1, Section 1.1.2.b.

ACDS combines various database systems into one centralized web-based system used

to track and document appeals case review, including time and progress of the workload,

within the Office of Appeals. Our analysis excluded 439 cases to suppress small case

counts and avoid disclosure of taxpayer information.

Page 3 GAO-18-659 IRS Appeal Process

of Appeals frontline supervisors and staff who handle a diversity of

appeals cases to better understand how appeals cases are assigned to

staff, as well as the case review process. We selected these locations

because they allowed us to interview Appeals frontline staff who work a

wide variety of taxpayer appeals across all seven Appeals work

categories.

To describe the staffing levels and assess the extent to which Appeals

conducts workforce planning in a time of declining resources, we obtained

and analyzed staffing information and reviewed the IRM section that

explains the Appeals human capital programs and the IRS Strategic

Workforce Planning Team. We interviewed Appeals and IRS human

capital staff to better understand how they conduct workforce planning

and reviewed documentation about the IRS Strategic Workforce Planning

team’s activities and timeframes. We then compared Appeals workforce

planning activities to our key principles of effective workforce planning.

We also reviewed a hiring tool Appeals uses to project case inventory

based on historical case data and current staffing levels to determine

workforce needs and interviewed Appeals managers about strategies and

policies for maintaining staff skills.

To assess how IRS monitors and manages the time to receive and

resolve taxpayer appeals cases, we reviewed IRS documents, including

IRM sections, IRS procedures, and quarterly Appeals performance

reports and monthly reports to the Commissioner of Internal Revenue.

We compared the controls identified to federal standards for internal

control.

We interviewed IRS officials responsible for managing Appeals’

review process as well as SB/SE and W&I officials managing initial

appeals receipt for those compliance units. We reviewed the measures

IRS uses to describe timeframes to resolve appeals, which quantify case

review time in average days. Overall averages can be a broad measure

and may be affected by outliers. Finally, we analyzed data from the ACDS

for 346,038 appeals cases closed in fiscal year 2014 through fiscal year

GAO, Human Capital: Key Principles for Effective Strategic Workforce Planning,

GAO-04-39 (Washington, D.C.: Dec. 11, 2003). Based on GAO reports and testimonies,

review of studies by leading workforce planning organizations, and interviews with officials

from the Office of Personnel Management and other federal agencies, this report

describes the key principles of strategic workforce planning agencies should address

irrespective of the context in which planning is done.

GAO, Standards for Internal Control in the Federal Government, GAO-14-704G

(Washington, D.C.: September 2014.

Page 4 GAO-18-659 IRS Appeal Process

2017. We calculated and compared average appeal case resolution time

for different types of cases. For purposes of this review, we determined

that the ACDS data used in our analysis were reliable. Our data reliability

assessment included reviewing relevant documentation, interviewing

knowledgeable IRS officials, and reviewing the data to identify obvious

errors or outliers.

To evaluate the extent to which Appeals has and communicates customer

service standards and assesses taxpayer satisfaction with the appeal

process, we identified federal standards for customer service under the

GPRA Modernization Act of 2010 (GPRAMA), as well as customer

service-related Executive Orders, Office of Management and Budget

(OMB) guidance, and internal control standards and compared IRS

Appeals actions to those standards.

We reviewed IRM documentation of

the Appeals customer service standard and related measures from the

Appeals Quality Measurement System (AQMS), as well as AQMS annual

reports for fiscal years 2014 through 2017.

To understand how Appeals obtains customer feedback, we reviewed the

methodology for the annual Appeals customer satisfaction survey and

analyzed survey reports for fiscal years 2016 through 2017 as well as

focus group reports from fiscal years 2012 through 2014 (the last year

IRS held these focus groups). We drew on results from the surveys and

focus groups to describe factors that affect Appeals customer satisfaction.

We interviewed Appeals managers and staff who handle cases to

understand their views on factors that affect taxpayer satisfaction and

understand how Appeals communicates service standards and measures

customer satisfaction. We also conducted semi-structured interviews with

13 external stakeholders from law and accounting organizations who

have represented a mix of higher- and lower-income individuals as well

as corporations and other businesses to understand their experiences

with the appeal process. To select interviewees with prior experience with

IRS and its appeal process, we used a snowball sampling technique

based on our review of IRS partner and stakeholder organizations, public

comments about the appeals process, and referrals from initial

Pub. L. No. 111-352, 124 Stat. 3866 (Jan. 4, 2011). GPRAMA significantly enhanced the

Government Performance and Results Act of 1993 (GPRA), Pub. L. No. 103-62, 107 Stat.

285 (Aug. 3, 1993). GAO-14-704G.

AQMS is a system that uses key output measures from the appeals review process to

assess organizational performance and serves as an internal tool for managers to use in

determining strengths and weaknesses in the appeal process.

Page 5 GAO-18-659 IRS Appeal Process

interviewees. Information from this sample of stakeholders is not

generalizable.

We conducted this performance audit from February 2017 to September

2018 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 objectives. We believe

that the evidence obtained provides a reasonable basis for our findings

and conclusions based on our audit objectives.

Enforcing tax laws helps IRS collect revenue from noncompliant

taxpayers and, perhaps more importantly, promotes voluntary compliance

by giving taxpayers confidence that others are paying their fair share.

However, every year, taxpayers fail to pay hundreds of billions of dollars

in taxes. This tax gap—the difference between tax amounts that

taxpayers should pay and what they actually pay voluntarily and on

time—has been a persistent problem for decades.

In our 2017

High-Risk Report we continued to include Enforcement of Tax Laws as a

high-risk area.

Key components of this high-risk area include both

addressing the tax gap and improving tax compliance.

IRS has four business operating divisions responsible for enforcing tax

law and providing taxpayer service to ensure taxpayer compliance, as

shown in table 1. For this report, we refer to these divisions as

compliance units and their staff as compliance staff.

In 2016, IRS estimated that taxpayers voluntarily and timely paid about 81.7 percent of

the taxes they should have for tax years 2008 to 2010, resulting in an average annual

gross tax gap of $458 billion for those years. IRS estimated that through late payments

and enforcement actions, it will collect an additional $52 billion annually for tax years 2008

to 2010. The average net tax gap—$406 billion per year for those years—may never be

collected.

Every 2 years, we report on agencies and program areas that are high risk due to their

vulnerabilities to fraud, waste, abuse, and mismanagement or are most in need of

transformation. Enforcement of tax laws was designated as a high-risk area in 1990, the

first year we published a High-Risk List. See GAO, High-Risk Series: Progress on Many

High-Risk Areas, While Substantial Efforts Needed on Others, GAO-17-317 (Washington,

D.C.: Feb. 15, 2017).

Background

Page 6 GAO-18-659 IRS Appeal Process

Table 1: Overview of IRS Business Operating Divisions

Business operating

division

Enforcement responsibilities

Taxpayers served

Small Business/Self-

Employed (SB/SE)

Audits individual and business tax returns to detect

misreporting of income, employment, excise, estate,

or gift taxes. SB/SE audits include field examinations

(conducted from field offices) and correspondence

audits conducted through the mail from campus

locations.

Small businesses, self-employed, and

corporations and partnerships with less than

$10 million in assets

Collects delinquent taxes and secures delinquent tax

returns. Automated collection is largely a call center

operation from campus locations that uses

automated calls and letters to remind taxpayers of

their tax delinquency. Field collection contacts

noncompliant individuals and business taxpayers

face-to-face.

Individuals and businesses

Wage and Investment

(W&I)

Audits individual tax returns to detect misreporting of

income tax, primarily for refundable tax credits. All

W&I audits are correspondence audits conducted

through the mail from campus locations.

Individual taxpayers

Large Business and

International (LB&I)

Audits business tax returns to detect misreporting of

income, employment, and excise taxes. These are

field examinations of taxpayer books and records.

Audits income tax returns for individuals with assets

or earnings of tens of millions of dollars or with

international tax issues. These audits include field

examinations and correspondence audits conducted

through the mail.

Large corporations and partnerships with

$10 million or more in assets

Individuals with high wealth or international tax

issues

Tax Exempt and

Government Entities

(TE/GE)

Audits exempt organizations and government

entities to detect misreporting of income,

employment, or excise taxes and to ensure exempt

organizations are operating in accordance with their

exempt purposes. These audits include field

examinations and correspondence audits conducted

through the mail.

Retirement plans and trusts

Tax-exempt organizations, such as charities, civic

organizations, and business leagues

Federal, state, and local governments; Indian

tribal governments; and tax-exempt bond issuers

Source: GAO analysis of Internal Review Service information. I GAO-18-659

Formed in 1927, Appeals is the only administrative function of IRS with

authority to consider settlements of tax controversies and has the primary

responsibility to resolve these disputes without litigation to the maximum

extent possible.

IRS states that the appeal process is both less formal

IRM Part 8, Chapter 6, Section 2.1.1. This report focuses on the IRS administrative

appeal process. Appeals also offers alternative dispute resolution programs in which an

Appeals staff member trained in mediation techniques serves as an impartial third party

facilitating negotiations between taxpayers and IRS during examination or collection.

Role of the Office of

Appeals

Page 7 GAO-18-659 IRS Appeal Process

and costly than court proceedings and is not subject to judicial rules of

evidence or procedure.

The IRS Restructuring and Reform Act of 1998 (Restructuring Act)

specified that IRS must provide an independent appeals function.

Appeals carries out this function. Appeals is a separate unit within IRS,

and its chief reports directly to the Commissioner of Internal Revenue.

The Restructuring Act also prohibits communications between Appeals

staff and other IRS functions without the taxpayer or representative being

given an opportunity to participate. In 2016, IRS clarified that Appeals is

separate from the IRS compliance functions, including examination and

collection units, that initially review a taxpayer’s case and that Appeals

may return cases to compliance units when taxpayers provide new

information for consideration.

Taxpayers may appeal many IRS decisions, including tax collection

actions and proposed tax assessments, with some exceptions.

Taxpayers cannot appeal solely due to moral, religious, political,

constitutional, conscientious, or other similar grounds.

Taxpayers

requesting appeals can range from individuals to large multinational

corporations. IRS provides publications that explain taxpayer’s rights for

Internal Revenue Service, Appeals – An Independent Organization, accessed Sept. 11,

2018, https://www.irs.gov/compliance/appeals/appeals-an-independent-organization.

Pub. L. No. 105-206, title I, § 1001(a)(4), 112 Stat. 685 (July 22, 1998), codified at

26 U.S.C. § 7801 note.

Department of the Treasury, Internal Revenue Service, Fact Sheet: IRS Clarifies Office

of Appeals Policies, (Updated October 1, 2016).

26 C.F.R. §§ 601.105-106.

26 C.F.R. § 601.106(b).

Appeal Eligibility

Page 8 GAO-18-659 IRS Appeal Process

both examination and collection appeals.

IRS also developed online

self-help tools to help taxpayers understand what can be appealed.

For collection actions, the Restructuring Act created a statutory right for

collection due process appeals and provides an impartial review for

taxpayers facing possible levies for collecting delinquent taxes or who

have had a notice of federal tax lien filed against them.

IRS also offers a

collection appeals program for a broader range of collection issues, such

as when IRS rejects or terminates an installment agreement to pay taxes

owed.

In contrast, for examination decisions, the tax code does not

provide statutory rights to administrative appeals. In certain

circumstances, IRS will designate an examination issue for litigation and

not offer access to the administrative appeal process.

In other

circumstances, IRS may decide not to refer cases docketed in the U.S.

Tax Court to Appeals for settlement if it determines doing so will be in the

best interest of sound tax administration.

For example, IRS may decide

not to refer a docketed case to Appeals in cases (1) involving a significant

issue common to other cases in litigation for which it is important that the

IRS maintain a consistent position or (2) related to a case over which the

Department of Justice has jurisdiction.

Appeals rights for examinations are explained in Department of the Treasury, Internal

Revenue Service, Your Appeal Rights and How To Prepare a Protest If You Don’t Agree,

Publication 5, (Jan. 1999) and Department of the Treasury, Internal Revenue Service,

Examination of Returns, Appeal Rights, and Claims for Refund, Publication 556, (Sept.

2013). Appeals rights for collections are explained in Department of the Treasury, Internal

Revenue Service, Collection Appeal Rights, Publication 1660, (Feb. 2014).

The tools can be found on the IRS website at

https://www.irs.gov/compliance/appeals/appeals-online-self-help-tools, accessed Sept. 11,

2018.

Pub. L. No. 105-206, § 3401, codified at, 26 U.S.C. §§ 6320 and 6330.

IRM Part 8, Chapter 24, Section 1. IRS Publication 1660 explains collection issues that

can be appealed under the collection appeals program.

IRM Part 33, Chapter 3, Section 6 lays out the designation procedure. IRS officials told

us that from March 2007 to August 2018, the agency had designated fewer than 10 cases

for litigation.

26 C.F.R. §601.106, and IRS Rev. Proc. 2016-22, Sec. 3.03.

IRS Rev. Proc. 2016-22, Sec. 3.03.

Page 9 GAO-18-659 IRS Appeal Process

Appeals’ workload is organized into seven workstreams based on

similarities in case characteristics. Two workstreams involve collection

appeals where IRS is pursuing taxpayers who failed to fully pay taxes and

penalties owed. Four workstreams include a wide range of examination

appeals where IRS is proposing additional tax and penalty assessments

based on auditing tax returns. The last workstream covers other cases

that do not fit into the collection and examination workstreams. Figure 1

below provides an overview of the appeal workstreams, including which

IRS business operating divisions transfer the cases to Appeals.

Appeal Workstreams

Page 10 GAO-18-659 IRS Appeal Process

Figure 1: Overview of IRS Appeal Workstreams

Other IRS units include the Office of Professional Responsibility and disclosure offices.

This workstream excludes collection due process timeliness determination and collection appeals

program cases, which are included in the other workstream.

Page 11 GAO-18-659 IRS Appeal Process

This workstream excludes collection appeals program cases, which are included in the other

workstream.

For this report, we combined the Appeals industry case and coordinated industry case workstreams

into a large case examination workstream.

This workstream contains cases for penalties that have already been assessed.

While Appeals is separate from IRS’s examination and collection

compliance functions, its budget is part of the IRS enforcement budget

appropriation. From fiscal year 2010 to fiscal year 2018, Appeals

represented about 4 percent of the IRS enforcement budget

appropriation. Appeals’ funding has decreased by 29 percent since 2010

to $175 million in 2018 (see fig. 2). Adjusting for inflation, Appeals funding

has decreased 38 percent since 2010.

Figure 2: IRS Office of Appeals Funding, Fiscal Years 2010-2018

Note: Inflation adjustments were made using Bureau of Economic Analysis data for 2010-2017 and

Congressional Budget Office projections for 2018 of the fiscal year chain weighted gross domestic

product price index.

Over this same time period, Appeals received fewer cases as IRS

enforcement activities declined. For example, the individual examination

(or audit) coverage rate declined by about 50 percent from fiscal years

Appeals Funding and

Workload

Page 12 GAO-18-659 IRS Appeal Process

2010 to 2017. Also, the number of notices of federal tax liens filed

declined by nearly 60 percent over the period. Faced with declining

budgetary resources, IRS compliance units can prioritize and select fewer

taxpayers to examine or pursue collection action. Appeals officials said

their office generally must work every case received. Appeals aims to

close approximately the same number of cases each year as it

anticipates receiving during the year. Appeals closure rate—or the

number of cases it resolved divided by the number it received in a

year—improved from 98 percent for fiscal year 2010 to 103 percent for

fiscal year 2017. Annual closure rates for 2017 varied by workstream,

ranging from 72 percent for the innocent spouse workstream to nearly

109 percent for the examination workstream.

Figure 3 shows the total

number of cases received and pending at year end since fiscal year 2010.

Figure 3: Office of Appeals Inventory, Cases Received and Pending, Fiscal Years

2010-2017

A closure rate greater than 100 percent reflects that Appeals closed more cases in a

year than it received from compliance units and reduced the year end count of cases

pending.

Page 13 GAO-18-659 IRS Appeal Process

Note: Numbers reflect both cases in the IRS administrative appeal process as well as court cases

with Appeals for settlement prior to trial. Data for each fiscal year reflect the number of cases

received during the year and the count of cases pending at year end.

The diverse array of appeal requests across IRS compliance units that

flow into Appeals workstreams follows the same standard process. As

illustrated in figure 4, the appeal process involves multiple steps,

beginning with a taxpayer filing an appeal of a proposed IRS compliance

action and ending with a decision from Appeals. If the taxpayer and IRS

cannot reach agreement through the appeal process, the taxpayer may

have the case reviewed in federal court if eligible. While certain types of

cases must go through the appeal process before review by a court,

others may bypass it and taxpayers may directly petition IRS’s proposed

actions in federal court.

Collection due process issues under 26 U.S.C. §§ 6320(b) and 6330(d) must be

considered by Appeals before review by a court. 26 C.F.R. §§ 301.6320-1(f)(2) Q&A-F3

and 301.6330-1(f)(2) Q&A-F3.

Appeals Has a

Standard Process to

Resolve Diverse

Taxpayer Cases but

Has Not Assessed

Critical Skills Gaps in

Its Declining

Workforce

IRS Uses a Standard

Process to Resolve

Taxpayer Appeals

Page 14 GAO-18-659 IRS Appeal Process

Figure 4: Overview of the IRS Appeal Process

A court case that has not gone through the administrative appeal process generally will go to the

Office of Appeals for possible resolution.

Compliance action. For proposed examination actions to assess

additional taxes and penalties or collection actions, such as filing a notice

of federal tax lien or proposing a levy to collect delinquent taxes, IRS

notifies the taxpayer in writing about the proposed compliance action and

explains their appeal rights. The notification states that the taxpayer has

30 days to file an appeal and includes a list of IRS publications and other

information on how to file an appeal.

Taxpayer action. Within 30 days from the compliance notification,

taxpayers who disagree with the IRS proposed action must send a formal

written request to appeal. The appeal request must include:

• the taxpayer’s name and address, and a daytime telephone number;

• a statement that the taxpayer wants to appeal the IRS findings to the

Appeals Office;

• a copy of the letter showing the proposed changes and findings that

the taxpayer does not agree with;

• the tax periods or years involved;

Page 15 GAO-18-659 IRS Appeal Process

• a list of the changes that the taxpayer does not agree with, and why

the taxpayer does not agree;

• the facts supporting the taxpayer’s position on any issue that the

taxpayer does not agree with;

• the law or authority, if any, on which the taxpayer is relying; and

• a signature on the written protest, stating that it is true, under the

penalties of perjury.

Taxpayers may choose to represent themselves or have professional

representation before Appeals. A representative must be a federally

authorized practitioner, who can be an attorney, certified public

accountant, or enrolled agent authorized to practice before the IRS.

Low-income taxpayers or those who speak English as a second language

may be eligible for free or low cost representation from a Low Income

Taxpayer Clinic.

Based on our analysis of ACDS data for appeal cases

closed from fiscal year 2014 through 2017, 57 percent of taxpayers had a

representative and 43 percent were taxpayers representing themselves.

The share of appeal cases with taxpayers representing themselves varied

significantly across the workstreams, ranging from 18 percent for large

case examination appeals to 95 percent for innocent spouse appeals.

Taxpayers are instructed to send their appeal and supporting material to

the examination or collection compliance unit that proposed the action.

IRS states sending the appeal request directly to the Office of Appeals

will result in delays and may result in the appeal not being considered a

timely request.

Compliance review. Compliance staff work directly with the taxpayer to

try to resolve the issue once they determine a taxpayer is requesting an

appeal. This may involve multiple interactions by telephone or

26 C.F.R. § 601.105(d)(1)-(2); Department of the Treasury, Internal Revenue Service,

Your Appeal Rights and How to Prepare a Protest If You Don’t Agree, Publication 5,

(January 1999).

An enrolled agent is an individual who has, either through past service and technical

experience at IRS or by demonstrating special competence through a written examination,

earned the ability to represent taxpayers before IRS. An unenrolled preparer may be a

witness at an appeals conference, but not a representative.

Low income taxpayer clinics are operated by nonprofit organizations or academic

institutions. Although these clinics receive partial funding from the IRS, clinics, their

employees, and their volunteers are completely independent of the IRS.

Page 16 GAO-18-659 IRS Appeal Process

correspondence. Compliance staff will review any new information

submitted by the taxpayer as they attempt to resolve open collection or

examination matters. Figure 5 illustrates the steps compliance staff are to

follow when they receive an appeal.

Figure 5: Overview of Compliance Review and Transfer

Not applicable for collection due process appeal request. If the taxpayer does not request a

collection due process hearing within the 30-day period, the taxpayer may still be entitled to an

equivalent hearing with Appeals but will not have any appeal rights allowing the taxpayer to file for

judicial review of the equivalency hearing determination. 26 C.F.R. § 301.6330-1(i).

A taxpayer requesting an offer in compromise appeal does not need to submit additional information.

A statute of limitations extension can be for a fixed date or open-ended.

If compliance staff cannot reach agreement with the taxpayer, the

compliance unit forwards the appeal request and documentation from the

taxpayer along with the proposed compliance action documentation to

Appeals. Appeals provides a case routing tool on the IRS intranet with

instructions and addresses for compliance staff transferring appeal

documentation to an Appeals location. In general, taxpayer appeals

Page 17 GAO-18-659 IRS Appeal Process

related to examination and collection campus cases are transferred to an

Appeals campus location.

Appeals for field examination and collection

cases are transferred to an Appeals office near the taxpayer’s location.

Compliance staff may not forward an appeal request to Appeals if the

taxpayer did not file the request in time or refuses to sign the appeal

under penalty of perjury, among other reasons.

Appeals receipt and review. Figure 6 provides an overview of how

Appeals receives and assigns cases. Upon receipt of an appeal, Appeals

processing staff log each appeal case into the ACDS used to control and

track cases in Appeals inventory. Most appeal cases arrive from

compliance as paper files, and Appeals is working to receive certain

collection cases electronically.

For examination cases, Appeals

processing staff also check that sufficient time remains for Appeals to

complete its review. Generally, examination cases must have at least

365 days remaining on the assessment statute expiration date when the

case is received in Appeals.

Campuses, formerly called service centers, are facilities where IRS performs various

operations, such as processing tax returns, handling taxpayer calls, and conducting

correspondence audits. Appeals also has staff in those IRS locations.

Appeals has coordinated with SB/SE to electronically receive collection appeals

program cases in the other workstream. Since fiscal year 2015, Appeals has had a pilot to

receive a limited number of collection due process cases electronically. In October 2017,

Appeals expanded the pilot to receive an increased number of these collection appeals

electronically.

IRM Part 8, Chapter 21, Section 3.1.1. Estate tax appeal cases and certain excise tax

claim appeals must have at least 270 days remaining on the assessment statute

expiration date, and these expiration dates cannot be extended. See, 26 U.S.C. § 6206;

IRM Part 8, Chapter 21, Section 3.1.3.2, IRM Part 8, Chapter 21, Section 3.1.3.22, and

IRM Part 4, Chapter 24, Section 8.1.2.

Page 18 GAO-18-659 IRS Appeal Process

Figure 6: Overview of Appeals Case Receipt and Assignment Process

An Appeals manager is to assess a case’s complexity and difficulty to

determine how to assign the case.

The manager is to consider the

factual and legal complexity of the case issues and the level of

conference negotiation skills needed to handle the case. The manager

also is to consider whether the case has industry-wide implications or the

decision would potentially affect other taxpayers and overall voluntary

compliance. Generally, Appeals employees with higher skill levels and

expertise are expected to be assigned more complex cases.

The manager is then to assign the case to an Appeals staff person based

on the employee’s grade level, ability, and case load. The Appeals

employee leading the case may also draw on support from Appeals

technical specialists, such as engineers and economists. For the large

case examination workstream, an Appeals team case leader may

oversee multiple Appeals employees working a large appeal case with

highly complex issues and disputed amounts of $10 million or more.

Figure 7 provides an overview of the Appeals case review process once a

case is assigned to an Appeals employee. First, the Appeals employee

sends a letter to the taxpayer with information about the appeal process

and schedules a meeting. The letter details what additional material is

needed, if any, and explains that a determination will be made on the

information provided if there is no further contact from the taxpayer. The

letter states that Appeals is independent from IRS compliance offices and

refers to Publication 4227—Overview of the Appeals Process. Finally, the

IRM Part 1, Chapter 4, Section 28.

Page 19 GAO-18-659 IRS Appeal Process

letter mentions that the taxpayer may be asked to participate in an

Appeals customer satisfaction survey after they have completed the

appeal process.

Figure 7: Overview of Appeals Case Review Process

Appeals offers conferences to provide taxpayers with an opportunity to

present their position (see fig. 7). Based on our analysis of ACDS data for

appeal cases closed, about 87 percent of appeal cases that were closed

in fiscal year 2014 through 2017 had a conference.

Most conferences

are held by telephone which can be a quick and efficient means for

taxpayers to resolve their issues. Appeals campus locations conduct

telephone conferences because these locations currently are not

configured to accommodate in-person conferences. Appeals may be able

to resolve some taxpayer appeals with mail correspondence only. For

An appeal case may not have a conference if the taxpayer does not respond to

schedule a conference or fails to appear for a scheduled conference, or if IRS determines

that a conference is not necessary. Based on our analysis of ACDS data for appeal cases

closed, the other workstream accounted for about 40 percent of all appeal cases that were

closed without a conference in fiscal years 2014 to 2017.

Page 20 GAO-18-659 IRS Appeal Process

perspective, about 10 percent of appeal cases that were closed and also

had a conference from fiscal year 2014 through 2017 did so only by

correspondence, and the penalty workstream accounted for nearly

two-thirds of those appeal cases.

Appeals also holds in-person conferences, usually at an Appeals office.

Alternatively, under its conference policy as of August 2018, Appeals staff

can meet taxpayers in a mutually convenient location when the taxpayer,

representative, or business is beyond a certain distance from an Appeals

office.

In-person conferences may be used, among other things, for

reviews involving substantial books and records, judging the credibility of

witnesses, or accommodating with a taxpayer with a special need, such

as disability or hearing impairment. Based on our analysis of ACDS data

for appeal cases closed, about 6 percent of appeal cases that were

closed from fiscal year 2014 through 2017 had an in-person conference,

although this varied significantly by workstream. About half of the large

case examination appeals closed over the period had in-person

conferences, whereas about 3 percent of appeal cases closed in the

collection due process, innocent spouse, and penalty workstreams had

in-person conferences.

As of August 2018, Appeals had revised its policy on in-person

conferences twice since October 2016. Prior to that, campus appeal

cases were transferred to a field office when taxpayers requested a face-

to-face conference. For fiscal year 2017, Appeals limited in-person

conferences to appeal cases meeting specific criteria, such as involving

those with substantial books and records to review or where the taxpayer

has special needs that can only be accommodated with an in-person

conference. Appeals managers had final approval on granting taxpayer

requests for in-person conferences. In October 2017, Appeals further

revised its policy stating it would attempt to schedule in-person

conferences requested by taxpayers for field appeal cases at a time and

location reasonably convenient for both the taxpayer and Appeals.

Appeals stated it was intending to strike the right balance between

making in-person conferences available to taxpayers and ensuring the

process is efficient and workable for Appeals.

As of June 2018, Appeals officials said they had no staff presence in nine states:

Delaware, Idaho, Kansas, Montana, North Dakota, Rhode Island, South Dakota, Vermont,

and Wyoming. They also said Appeals had a small staff presence with three or fewer

employees in eight states: Alaska, Arkansas, Hawaii, Iowa, Maine, Mississippi, Nebraska,

and West Virginia.

Page 21 GAO-18-659 IRS Appeal Process

Appeals also offers virtual technology interaction to potentially allow more

taxpayers, especially those in remote locations, to have an option other

than a phone conference. Using IRS virtual service delivery capacity,

Appeals staff at campus locations can conduct virtual conferences with

taxpayers who schedule to use video terminals at some taxpayer

assistance centers. In August 2017, Appeals began piloting web-based

virtual conferences.

If taxpayers provide Appeals with new information or evidence, or raise a

new issue that requires additional investigation or analysis, Appeals will

return the case to the originating compliance unit for further review. After

a compliance unit transfers a case to Appeals, communication between

compliance staff and Appeals staff is generally restricted without the

taxpayer or representative being given an opportunity to participate.

In line with its mission to resolve cases prior to litigation, Appeals is

authorized to review the facts of the case considering the hazards that

would exist if the case were litigated.

Appeals is the only IRS unit

authorized to consider hazards of litigation when deciding whether to

allow taxes and penalties. This means that Appeals may recommend a

fair and impartial resolution somewhere between fully sustaining and fully

conceding the compliance unit’s proposal that reflects the probable result

in the event of litigation.

Appeals decision. Appeals makes a decision on a taxpayer’s case after

weighing evidence from the compliance unit and the taxpayer. Appeals

determines whether IRS compliance decisions correctly reflect the facts,

as well as applicable law, regulations, and IRS procedures. To resolve an

examination appeal case, Appeals may (1) agree with the IRS

examination compliance unit and fully sustain its recommended

assessment, (2) disagree and reduce the recommended assessment to

partially sustain the assessment, or (3) fully concede to the taxpayer’s

position and not sustain the assessment. To resolve a collection appeal

case, Appeals may (1) agree with and sustain the proposed enforcement

action, (2) disagree and modify the proposed action (e.g., propose an

installment agreement rather than a levy) or defer collection, or (3) fully

concede to the taxpayer’s position and not sustain the collection action.

26 C.F.R. § 601.106(f)(2). Hazards of litigation are a substantial uncertainty (1) as to

how the courts would interpret and apply the law, (2) about the court’s likely factual

findings, or (3) about the admissibility or weight that would be given to a specific item of

evidence. Hazards of litigation are not considered for collection cases.

Page 22 GAO-18-659 IRS Appeal Process

This is the final decision by Appeals. Once Appeals makes its decision, it

informs the taxpayer in writing and also IRS. Taxpayers dissatisfied with

Appeals’ decision may file a petition in tax court if they are eligible.

To handle the diverse array of taxpayer appeals across all workstreams,

IRS relies on an Appeals workforce that must have sufficient numbers of

staff with expertise in all areas of tax law. However, Appeals experienced

nearly a 9 percent annual attrition rate from fiscal year 2015 to fiscal year

2017 and projects a similar attrition rate for fiscal years 2018 and 2019.

As shown in figure 8, Appeals staffing levels have declined from 2,172 in

fiscal year 2010 to 1,345 in fiscal year 2017, nearly a 40 percent

decrease.

As previously noted, Appeals workload also decreased over

this period of time as IRS examination and collection enforcement activity

declined.

Certain appeal cases are not eligible to petition in tax court. For example, when IRS has

accepted a taxpayer’s offer in compromise, taxpayers waive their right to challenge the tax

debt in court.

Appeals reports the total number of Appeals employees in its Business Performance

Review, which is a quarterly review conducted by the IRS for each business unit that

reviews organizational performance, key initiatives, risks, budget, staffing and other

considerations. The number of employees can differ from a full-time equivalent (FTE)

measure. FTEs represent the total number of hours worked based on IRS payroll data

divided by the number of compensable hours applicable to each fiscal year.

Appeals Has Not

Conducted a Skills Gap

Analysis

Page 23 GAO-18-659 IRS Appeal Process

Figure 8: Appeals Staffing Levels, Fiscal Years 2010-2017

Appeals anticipates a continued risk of losing subject matter expertise

given that a large share of its workforce is eligible for retirement.

According to an Appeals report, at the end of fiscal year 2017, about

one-third of the Appeals workforce was eligible for retirement. Moreover,

Appeals officials reported that close to half of the staff who are critical to

Appeals’ mission—including those who handle the most complex

cases—were eligible for retirement. Based on our analysis of ACDS data

for appeal cases closed, these types of cases accounted for about

one-third of appeal cases closed in fiscal years 2014 through 2017.

Gaps in available staff with critical skills and training can result in delays

resolving appeal cases. For example, in fiscal year 2017 Appeals

received an increased number of innocent spouse appeals, and officials

told us they initially lacked sufficient numbers of trained staff ready to

review those cases. As of April 2018, the time from receipt by Appeals to

case closing for the innocent spouse workstream had increased by

39 percent over the same time period in 2017—from 205 days to

285 days. In response, Appeals was training additional staff and is

working to resolve the increased volume of cases.

Page 24 GAO-18-659 IRS Appeal Process

Appeals has taken action to mitigate the risk of having a sufficient number

of staff needed to handle its workload. Appeals has a tool that draws on

historical ACDS case data to project the number of Appeals staff needed

to review the numbers and types of case receipts expected from IRS

compliance units. From fiscal year 2014 through fiscal year 2017,

Appeals requested and received approval to hire 292 employees. In

November 2017, IRS changed its policy to allow business units funded

from IRS’s enforcement budget, including Appeals, to manage their own

staff levels in certain instances provided they do not exceed their fiscal

year staff limits. Under this policy, Appeals will be able to hire staff as its

workforce declines due to attrition. While the steps Appeals has taken can

be useful stopgap measures, they are not substitutes for nor do they

replace the longer-term benefits of strategic workforce planning and

conducting critical skills gap analysis.

We have identified that key principles of effective workforce planning

include that an agency must define the critical skills that it will need to

meet its strategic goals and achieve its mission in the future. An agency

must then develop strategies tailored to address staffing and skills gaps in

its workforce, including how to acquire, develop, and retain staff to meet

its goals.

We have previously reported that mission-critical skills gaps

within the federal workforce pose a high risk to the nation and that

individual agencies must take steps to address skills gaps.

We have

also reported on the need to close government-wide mission critical skills

gaps and to develop strategies to help agencies meet their missions in an

era of highly constrained resources.

Agencies that do not conduct a critical skills gap analysis risk significant

negative effects. We have previously reported that in a time of declining

resources, it is important for top management to take actions that ensure

the agency maintains capacity—including its workforce—in order to

GAO-04-39.

GAO-17-317.

Federal Workforce: OPM and Agencies need to Strengthen Efforts to Identify and Close

Mission-Critical Skills Gaps, GAO-15-223 (Washington, D.C.: Jan. 30, 2015), and Human

Capital: Strategies to Help Agencies Meet Their Missions in an Era of Highly Constrained

Resources, GAO-14-168 (Washington, D.C.: May 7, 2014).

Page 25 GAO-18-659 IRS Appeal Process

achieve its mission.

Once skill gaps are identified, strategies should be

tailored to address the gaps.

Appeals has identified knowledge loss and maintaining expertise during a

time of declining staff levels as one of its top risks in its Business

Performance Reviews. Although it has not conducted a skills gap

analysis, Appeals has identified that maintaining expertise in all areas of

tax law is essential because it must have staff trained to work a diverse

array of appeal cases across all workstreams. Many Appeals staff who

review appeal cases, including those who conduct in-person conferences,

are in the appeals officer job series critical to Appeals’ mission. As of July

2018, about 60 percent of the Appeals workforce was in this job series.

As of September 2018, Appeals is participating in a larger IRS effort to

address workforce planning. IRS states that its workforce planning is to

involve an integrated and systematic process for identifying current and

future human capital needs, the competencies that align with future

organizational goals, and the strategies to be implemented to reduce the

gaps.

Created in 2017, the IRS Workforce Planning Council is

comprised of representatives from all business units, including Appeals.

The council is to share workforce planning activities and best practices

across IRS and assist in developing the IRS strategic workforce plan. The

council is working to develop an agency-wide workforce plan, which will

include identifying gaps between current and projected workforce needs

and developing strategies to close the gaps.

According to IRS human capital officials responsible for workforce

planning, a service-wide strategic workforce planning effort will include

identifying skills and competency gaps in mission critical occupations.

Initially planned for the middle of fiscal year 2018, the initiative was

delayed as of September 2018, according to IRS human capital officials.

IRS units redirected resources to implementation of Public Law 115-97—

commonly referred to by the President and many administrative

documents as the Tax Cuts and Jobs Act—and requested an extension.

GAO, Declining Resources: Selected Agencies Took Steps to Minimize Effects on

Mission but Opportunities Exist for Additional Action, GAO-17-79 (Washington, D.C.: Dec.

20, 2016).

IRM Part 6, Chapter 250, Section 2.1.

To provide for reconciliation pursuant to titles II and V of the concurrent resolution on the

budget for fiscal year 2018, Pub. L. No. 115-97, 131 Stat. 2054 (Dec. 22, 2017).

Page 26 GAO-18-659 IRS Appeal Process

IRS human capital officials also told us the workforce planning team lost

resources due to attrition and anticipated the initiative would be complete

in the third quarter of fiscal year 2019. Appeals officials told us that they

expected to begin their activities once the IRS planning tools are in place.

While the broader Treasury and IRS initiatives will benefit Appeals with

longer-term strategic workforce planning, Appeals faces ongoing

challenges in achieving its goal and may be unable to mitigate the risk of

maintaining staff expertise. Gaps in the Appeals workforce could delay

the timely review of Appeals cases. The large share of its staff who are

critical to the mission who are eligible for retirement underscores the

importance of conducting critical skills gap analysis for Appeals. Given

Appeals’ unique role in ensuring taxpayers’ administrative option to

dispute most IRS decisions, it is important for Appeals to have the tax

expertise necessary to review appeals cases across multiple

workstreams. These factors underscore the importance of Appeals

conducting a skills gap analysis in coordination with Treasury and IRS

human capital efforts to ensure Appeals immediate skill needs are

reflected in broader agency planning.

Within the standard process that all appeal cases follow, Appeals has

developed a series of process measures that use ACDS data to monitor

the amount of time for a case to move through an Appeals workstream.

These measures track the number of days from Appeals receipt through

the appeal review process to when a case is closed in ACDS. Appeals

also measures the amount of time for compliance units to transfer

appeals cases. For the purpose of this report, total appeal resolution time

IRS Does Not Monitor

Timeliness of

Transfers of All

Incoming Appeal

Requests and

Appeals Does Not

Communicate Total

Resolution Times to

Taxpayers

Appeals Has a Data-

Driven Process and

Measures to Track and

Manage Case

Workstreams

Page 27 GAO-18-659 IRS Appeal Process

is the length of time from when a taxpayer submitted the appeal request

to IRS to when the case is closed in ACDS.

Appeals managers use ACDS to monitor progress staff have made

reviewing each case assigned to them, including holding a conference

with the taxpayer and reaching a decision to resolve the appeal. ACDS

inventory reports allow managers to monitor total employee time per case

and determine if a case has not had any activity recorded for 60 days.

Appeals officials explained that the process measures are indicators that

assist in making management decisions and identifying data driven

process efficiencies to control workflow within each workstream. For

example, an Appeals manager may use the ACDS data to address case

review backlogs and offer assistance to help expedite case review.

Appeals reports its review time measure by workstream in its monthly

performance report to the Commissioner of Internal Revenue.

The IRS website states that if a taxpayer has not heard from Appeals and

it has been more than 120 days since the request was submitted, the

taxpayer should contact the IRS office to which they sent their appeal

request. According to IRS examination and collection officials we

interviewed, compliance unit staff attempt to resolve all taxpayer requests

and work with taxpayers to obtain additional information if needed and

answer questions about pending compliance actions. According to

Appeals officials, there are different levels of case complexity across the

workstreams.

For appeal cases closed from fiscal years 2014 through 2017, table 2

shows the average number of days from when IRS received a taxpayer

appeal to when the compliance unit completed its review and transferred

the case file to Appeals. Across the appeals workstreams, the compliance

review time varied from 30 days for innocent spouse appeals to 108 days

for large case examination appeals. Any delay during compliance review

adds to the total time to resolve an appeal. As shown in table 2,

compliance review accounted for about a quarter of the total resolution

time for collection appeals. Among the examination workstreams, the

compliance review share of total resolution time ranged from 12 percent

for innocent spouse appeals to about 45 percent for penalty appeals.

IRS Does Not Always

Transfer Collection

Appeals on a Timely Basis

and Does Not Monitor

Incoming Examination

Appeals or Time to

Transfer to Appeals

Page 28 GAO-18-659 IRS Appeal Process

Table 2: Average Days for Compliance Review and Share of Total Appeal Resolution Time for Appeal Cases Closed, Fiscal

Years 2014-2017

Workstream

Number of appeal

cases

Average number of days

Compliance share of

total appeal resolution

time

Compliance review and

transfer to Appeals

Total appeal

resolution time

Collection workstreams

•

Collection due process

158,057

252

23%

•

Offer in compromise

36,837

240

26%

Examination workstreams

•

Large case examination

3,802

108

637

17%

•

Examination

48,460

105

337

31%

•

Penalty appeals

39,711

100

220

45%

•

Innocent spouse

10,747

249

12%

Other

48,424

101

38%

Source: GAO analysis of Appeals Centralized Data System data. I GAO-18-659

Note: The average number of days varied from the median number of days, suggesting that outliers

increased the average review time.

A collection case where a taxpayer appeals an IRS filing of notice of federal tax lien or proposed levy

of wages or assets.

A collection case where a taxpayer appeals IRS rejection of the taxpayer’s offer to settle a tax liability

for less than the full amount owed.

According to the IRM, IRS requires SB/SE collection units to review

collection due process appeals within a 45 day period of receipt of the

taxpayer requests.

The 45 calendar days after receipt of an appeal

request includes time to ensure completeness of the request, obtain

additional information if necessary, and transfer the request to Appeals.

Collection unit staff reviewing appeal requests may experience delays

with taxpayers submitting additional material to support their requests.

With management approval, collection units may have an additional

45 days to continue working with the taxpayer to resolve the collection

issue in dispute. The IRM time requirement does not specifically apply to

offer in compromise collection appeals.

According to our analysis of ACDS data for appeals closed in fiscal years

2014 to 2017, the majority of collection due process appeals were

transferred within the IRM time requirements. In fiscal year 2017,

approximately 57 percent of collections due process appeals were

IRM Part 5, Chapter 1, Section 9.

Collection Appeals

Page 29 GAO-18-659 IRS Appeal Process

transferred in less than 45 days and approximately 93 percent of these

cases were transferred within 90 days. However, IRS did not always

transfer collection due process appeals in a timely manner. For collection

due process appeal cases closed in fiscal year 2017, approximately

4 percent (1,559) of these collection appeals took more than 120 days to

be transferred to Appeals (see fig. 9).

Figure 9: Average IRS Collection Case Transfer Time to Office of Appeals for Appeal Cases Closed, Fiscal Years 2014-2017

Note: Appeal cases closed by Appeals in a fiscal year may have been transferred from compliance

units in prior fiscal years. The average number of days varied from the median number of days,

suggesting that outliers increased the average review time. Percentages may not total to 100 due to

rounding.

Page 30 GAO-18-659 IRS Appeal Process

As shown in figure 9, the majority of offer in compromise collection

appeals were also transferred within 90 days, even though the IRM time

requirement applies specifically for collection due process appeals.

Approximately 11 percent (995) of these collection appeals took more

than 120 days to be transferred to Appeals in fiscal year 2017.

Delays in transferring collection due process appeals, in turn, affect

prompt resolution for the taxpayer and IRS. Each tax assessment has a

collection statute expiration date of 10 years after the assessment. When

a taxpayer appeals a collection action within 30 days of receiving the

notice, IRS suspends further collection activity until Appeals decides the

case. When the IRS suspends the collection statute for a period longer

than its policy allows, this means that the taxpayer can face a longer

period where IRS can collect the balance owed.

Standards for Internal Control in the Federal Government states that

management should establish and operate monitoring activities to monitor

internal controls. Management should evaluate the results and remediate

any identified deficiencies.

SB/SE collection tracks the number of collection due process appeals that

are not transferred to Appeals within 45 days of receipt from the taxpayer.

SB/SE collection officials told us that they do not have reports or tools to

systematically track transfer times for other types of collection appeals.

Although SB/SE has the capacity to identify how long collection due

process appeals have been waiting, collection officials we interviewed

acknowledged that they do not always monitor whether they are meeting

the transfer time requirement. For non-docketed cases closed in fiscal

year 2017, the deficiency in transferring nearly 1,600 collection due

process appeals more than 120 days after receipt points to the lack of

monitoring. Evaluating the existing tracking reports for collection due

process appeals and remediating deficiencies in collection staff following

procedures would be a key step to achieve timely transfer of these

collection appeals.

Unlike the requirements for collection due process cases, the IRM does

not establish timeframes for compliance review and transfer of taxpayer

appeals of examination disputes. According to Appeals officials,

examination cases can have many issues, and the level of review to try to

GAO-14-704G.

Examination Appeals

Page 31 GAO-18-659 IRS Appeal Process

resolve examination issues can be significant prior to the taxpayer appeal

request being transferred to Appeals. Review procedures differ across the

business operating divisions.

In its examination quality standards, SB/SE field examination has national

standard timeframes, which include 20 days from the receipt of a

taxpayer appeal request to close the examination case and then 10 days

for SB/SE technical services to transfer the file to Appeals. IRS officials

acknowledged that SB/SE field does not always meet its 30-day

timeframe standard for appeal transfers, in part, because examiners must

review any new information submitted with a taxpayer’s appeal request.

Our analysis of ACDS data showed that about two-thirds of all

examination appeals closed in fiscal years 2014 through 2017 had been

transferred from IRS examination compliance units within 90 days.

However, nearly a quarter of examination appeals took more than

120 days to be transferred to Appeals (see fig. 10).

Page 32 GAO-18-659 IRS Appeal Process

Figure 10: Average IRS Examination Case Transfer Time to Office of Appeals for

Appeals Cases Closed, Fiscal Years 2014-2017

Note: Appeal cases closed by Appeals in a fiscal year may have been transferred from compliance

units in prior fiscal years. The average number of days varied from the median number of days,

suggesting that outliers increased the average review time. Percentages may not total to 100 due to

rounding.

As shown in figure 11, transfer times for examination appeals varied

across IRS examination compliance units. For appeal cases closed in

fiscal year 2017, more than two-thirds of examination appeals originating

in SB/SE and LB&I were transferred by those units within 90 days. For

examination appeals originating in W&I, less than half were transferred

within 90 days, and 37 percent took more than 120 days to transfer.

TE/GE transferred fewer appeals than the other units, but nearly half of

TE/GE appeals took more than 120 days to be transferred to Appeals.

IRM Part 4, Chapter 75, Section 17 requires mandatory review of all exempt

organization cases before transfer to Appeals.

Page 33 GAO-18-659 IRS Appeal Process

Figure 11: Average Examination Case Transfer Time from IRS Business Operating

Divisions to Office of Appeals, Fiscal Year 2017

Note: Appeal cases closed in a fiscal year by Appeals may have been transferred from compliance

units in prior fiscal years. The average number of days varied from the median number of days,

suggesting that outliers increased the average review time. Percentages may not total to 100 due to

rounding. Small Business/Self-Employed (SB/SE) transfers included appeal cases in the examination,

penalty appeal, and innocent spouse workstreams. Wage and Investment (W&I) transfers included

appeal cases in the examination and penalty appeal workstreams. Large Business and International

(LB&I) transfers included appeal cases in the large case examination and penalty appeal

workstreams. Tax Exempt and Government Entities (TE/GE) transfers included appeal cases in the

examination workstream. TE/GE had fewer than 10 cases in the <45 Days category and therefore

these data are suppressed from the analysis.

Delays in transferring examination appeal requests can result in

increased costs for taxpayers because interest continues to accumulate

on the tax liability during the appeal process. Further, taxpayers unsure of

the status of their appeals, particularly those over 120 days, may

generate additional calls and correspondence with IRS—further tying up

other IRS staff to respond to inquiries on appeals experiencing delayed

transfer.

Page 34 GAO-18-659 IRS Appeal Process

IRS examination officials in SB/SE and W&I, which accounted for

97 percent of all examination appeals closed in fiscal year 2017, said that

their compliance units do not specifically track incoming appeal requests

and the time spent on initial appeal review within compliance. In effect,

appeal requests resolved during compliance review would be reflected as

compliance cases closed in the examination information systems. As a

result, IRS does not maintain readily available data on the total number of

examination appeal requests received and how many are resolved during

initial review by compliance.

IRS campus examination officials we interviewed said that taxpayer

correspondence delays contribute to increased time to identify and

transfer correspondence examination appeals for SB/SE and W&I. A

taxpayer request for an appeal arrives like any other taxpayer

correspondence related to ongoing correspondence examinations.

However, according to W&I campus examination officials, taxpayer

requests may sit for months before they are identified as an appeal. Once

compliance unit staff determine an examination dispute cannot be

resolved in their unit, the appeal request will be transferred to Appeals.

SB/SE and W&I examination officials we spoke with said the steps to

transfer the files to Appeals take about 5 to 10 days.

IRS examination officials we interviewed explained that they cannot

readily track information on the number of days between the taxpayer’s

request for an appeal to when the case was transferred to Appeals. They

explained that it could require looking case by case in the examination

systems. SB/SE and W&I officials we interviewed were not aware of any

feedback from Appeals about the timeliness of the appeals requests

transferred from their units.

Although Appeals has this information, it does not include compliance

transfer time information in its own monthly performance reports to the

Commissioner of Internal Revenue. Also, Appeals officials said that they

historically have not provided ACDS compliance transfer time data to IRS

compliance units. Appeals has quarterly coordination meetings with the

various IRS compliance units to discuss how compliance plans may affect

projected appeal case volumes as well as technical training opportunities.

Appeals officials said that information about transfer times has been

shared at prior meetings but is not a standing agenda item. As a result,

Appeals and compliance units do not consistently review performance

data on the amount of time for compliance units to transfer taxpayer

cases to Appeals.

Page 35 GAO-18-659 IRS Appeal Process

Critical information about the time it takes to transfer cases from

compliance units is collected by Appeals as part its process measures but

has not been shared within IRS, including with other units involved in the

appeal process. The ongoing coordination meetings between Appeals

and IRS compliance units could present a valuable opportunity to share

data about the length of time it takes for cases to be transferred to

Appeals. Sharing this information could be a low-cost first step to help

IRS examination units understand their current performance and how

compliance review factors into total appeal resolution time.

Standards for Internal Control in the Federal Government also states that

management should define objectives in specific terms so they are

understood at all levels of the entity. This involves clearly defining what is

to be achieved, who is to achieve it, how it will be achieved, and the time

frames for achievement. Internal control standards require that controls

be documented, and an agency’s documentation of them should be

properly managed and maintained.

IRS requires primary sources of guidance with an IRS-wide or

organizational impact—such as policy documents, procedures, and

guidelines—to be included in the IRM.

This requirement is intended to

ensure that IRS employees have the approved policy and guidance they

need to carry out their responsibilities in administering the tax laws. The

absence of defined timeframes for the initial compliance review and

documented controls over incoming examination appeals make it difficult

to hold IRS units accountable for ensuring timely transfer to Appeals.

The IRM specifies that Appeals should complete a conference with a

taxpayer in a timely manner and make a prompt decision to resolve the

dispute.

This enables the taxpayer to know with the least amount of

delay the final IRS decision about the amount of tax liability or other issue

in dispute. It also results in Treasury receiving any additional revenue

involved at the earliest practicable date.

Within Appeals, the time from Appeals receipt to a decision closing the

case varies across the Appeals workstreams, as shown in figure 12. For

fiscal years 2014 to 2017, collection due process—the workstream with

IRM Part 1, Chapter 11, Section 2.2.

IRM Part 8, Chapter 6, Section 1.4 and IRM Part 8, Chapter 1, Section 1.1.

Appeals Case Review

Times Vary Across

Workstreams

Page 36 GAO-18-659 IRS Appeal Process

the highest volume of closed cases—averaged 193 days to resolve a

case within Appeals. Average appeals review time for large case

examination appeals, the smallest volume, averaged 529 days.

Figure 12: Average Days for Appeals Review by Workstream for Cases Closed, Fiscal Years 2014-2017

Note: The average number of days varied from the median number of days, suggesting that outliers

increased the average review time.

Although IRS states on its website that it takes anywhere from 90 days to

1 year for Appeals to resolve a case, this generic timeframe does not

reflect the total resolution time counting from when a taxpayer requests

an appeal to when a final decision is made. Further, this timeframe does

Transparency for Taxpayer

Total Resolution Time Is

Limited

Page 37 GAO-18-659 IRS Appeal Process

not provide perspective on the range of resolution times across different

types of appeals. According to our analysis of ACDS data of appeal cases

closed from fiscal year 2014 through 2017, about 15 percent of all appeal

cases closed within 90 days. Approximately 85 percent of all cases were

resolved within 1 year of when the taxpayer requested an appeal.

However, over that same period, approximately 15 percent of all appeal

cases took more than one year in total to resolve, and of these,

approximately 2 percent of all closed cases took more than 2 years to

resolve.

Total resolution times varied considerably across the Appeals

workstreams, as shown in figure 13. The share of cases closed within

90 days ranged from approximately 3 percent for the collection due

process workstream to 71 percent for the other workstream. The share of

appeals cases closed within a year ranged from approximately 30 percent

for the large case examination workstream to approximately 90 percent

for the other workstream.

Page 38 GAO-18-659 IRS Appeal Process

Figure 13: Percentage of Cases Closed by Total Appeal Resolution Time by Appeals

Workstream, Fiscal Years 2014-2017

Note: The average number of days varied from the median number of days, suggesting that outliers

increased the average review time.

Information about actual total appeal resolution times is not shared with

taxpayers. Office of Appeals welcome letters include Appeals staff

contact information and a conference date, if applicable, but do not

provide total average appeal resolution time. According to the external

stakeholders we interviewed, no formal communication of total appeal

resolution time is shared with the taxpayer or their representative.

Responses to a focus group of taxpayer representatives who went

through the appeal process conducted by Appeals in 2014 shared a

similar perspective. Focus group participants indicated that the

Page 39 GAO-18-659 IRS Appeal Process

acknowledgement letters did not contain enough or accurate information

to set expectations. Additionally, these focus group participants noted that

Appeals staff did not inform them how long the appeal process was

expected to take.

Critical information about total appeal resolution time is not shared with

taxpayers. Without easily accessible information, taxpayers are not well

informed on what to expect when choosing to request an appeal.

Taxpayers may not understand how few appeals are likely to be resolved

within 90 days. Faced with the general timeframe that Appeals will

resolve cases in about a year, other taxpayers may choose to forgo their

opportunity to appeal rather than risk interest accumulating during the

appeal process.

Standards for Internal Control in the Federal Government states that

management should externally communicate necessary quality

information to achieve the entity’s objectives. Government entities should

report this information to government leaders and regulators, as well as

the general public.

Feeling uninformed about appeal case wait times has been a consistent

theme with taxpayers and their representatives both in IRS’s customer

satisfaction surveys and our interviews with external stakeholders.

Total

resolution time information, such as historical averages, may be

especially valuable to taxpayers when considering that interest continues

to accrue on tax amounts in dispute while appeals are being reviewed. In

January 2017, we recommended that IRS develop and maintain an online

dashboard to display customer service standards and performance

information such that it is easily accessible and improves the

transparency of its taxpayer service.

Similarly, more detailed information

on total average resolution times specific to different workstreams could

IRS Publication 556 explains that a taxpayer may stop interest from accruing by sending

IRS money to cover all or part of the tax amount involved. A taxpayer may send either a

deposit in the nature of a cash bond or a payment of tax.

Factors affecting appeal customer satisfaction and dissatisfaction are discussed further

below.

GAO, 2016 Filing Season: IRS Improved Telephone Service but Needs to Better Assist

Identity Theft Victims and Prevent Release of Fraudulent Refunds, GAO-17-186

(Washington, D.C.: Jan. 31, 2017). IRS agreed with our recommendation, and as of

September 2018, we continue to monitor IRS implementation.

Page 40 GAO-18-659 IRS Appeal Process

provide a more transparent view of the amount of time a taxpayer can

expect to receive a decision on their case from Appeals.

GPRAMA requires that agencies, in this case the Treasury, establish a

balanced set of performance indicators to be used in measuring progress

toward performance goals, including goals for customer service.

Executive Order 13571 stated that agencies set clear customer service

standards and expectations, including, where appropriate, performance

goals for customer service required by GPRAMA.

Customer service

standards should inform customers what they have a right to expect when

they request services.

The President’s Management Agenda highlights

Pub. L. No. 111-352, § 3, 124 Stat. 3866, 3868 (Jan. 4, 2011) codified at 31 U.S.C.

§ 1115(b)(6).

Exec. Ord. No. 13571, § 2(c) (Apr. 27, 2011), Streamlining Service Delivery and

Improving Customer Service, 76 Fed. Reg. 24,339, 24,339-40 (May 2, 2011).

Memorandum on Customer Service, 31 Weekly Comp. Pres. Doc. 456 (Mar. 22, 1995)

(released by Office of the Press Secretary on Mar. 23, 1995).

Appeals Does Not

Make Customer

Service Standard

Clear to Taxpayers,

and It Does Not Have

a Mechanism to

Consider External

Customer Input on

Policy Changes

Appeals Measures Its

Customer Service

Standard Internally, but

Does Not Make

Performance Results

Available to Taxpayers

Page 41 GAO-18-659 IRS Appeal Process

the importance of customer service through its cross-agency priority goal

of Improving Customer Experience with Federal Services.

In response to GPRAMA, Executive Orders, and other policies, Treasury

and IRS have taken steps to define customer service targets and align

them to Treasury’s and IRS’s strategic and performance plans.

As part

of the Appeals Quality Measurement System (AQMS) review process

outlined in the IRM, Appeals defines its standard for customer service as

whether Appeals has: (1) timely communications with the taxpayers in an

appropriate, professional manner; (2) addressed the taxpayers’ needs;

and (3) respected the taxpayers’ rights.

AQMS lays out the internal

attributes and internal measures which track progress towards Appeals

customer service standard (see table 3).

Table 3: Attributes and Internal Measures for Appeals Customer Service and Taxpayer Rights Standard

Customer service attributes

Examples of internal measures

Taxpayer or representative kept

appropriately informed of the status of the

case

• Ensure there is evidence that initial contact letter or substantive initial phone contact

was made

• Ensure initial letter or substantive initial phone contact made within 45 dates of the

Appeals employee receiving the case

• Ensure status of case communicated from date of assignment until Appeals

completed the case

Advise taxpayer of rights and provide

customer service

•

Ensure publications and notices, including Publication 4227—An Overview of the

Appeals Process, are provided to the taxpayer

• Ensure taxpayers understand that interest accrues while their case is in Appeals

Written communication is appropriate

• Ensure the taxpayer receives all written correspondence

Taxpayer is given adequate time to present

their case

•

Ensure the taxpayer is given at least 10 business days to respond to information

requests

According to the Presidential Management Agenda released in March 2018,

cross-agency priority goals are a tool used by leadership to accelerate progress on a

limited number of presidential priority areas where implementation requires active

collaboration among multiple agencies. Long-term in nature, cross-agency priority goals

drive cross-government collaboration to tackle government-wide management challenges

affecting most agencies. As a subset of presidential priorities, cross-agency priority goals

are used to implement the President’s Management Agenda and are complemented by

other cross-agency coordination and goal-setting efforts. Cross-agency priority goals are

updated or revised every 4 years with each presidential administration’s term.

GAO, 2015 Tax Filing Season: Deteriorating Taxpayer Service Underscores Need for a

Comprehensive Strategy and Process Efficiencies, GAO-16-151 (Washington, D.C.: Dec.

16, 2015).

IRM Part 8, Chapter 1, Section 7.3.1.

Page 42 GAO-18-659 IRS Appeal Process

Customer service attributes

Examples of internal measures

Ensure taxpayer privacy and

communication guidelines are followed

•

Ensure guidelines are followed prohibiting communication between Appeals staff

and other IRS functions without the taxpayer or representative present

Source: GAO analysis of Appeals Quality Measurement System information. I GAO-18-659

The performance results for the customer standard are shared as part of

the annual AQMS report with Appeals executives and employees. For

fiscal years 2014 through 2017, Appeals internal measures reflect that its

customer service performance exceeded 86 percent annually.

Appeals also makes a written commitment to taxpayers about what they

can expect during the appeal process. IRS Publication 4227—An

Overview of the Appeals Process—explains that taxpayers should expect

the Office of Appeals to: (1) be fair and impartial; (2) be courteous and

professional; (3) listen to their concerns; (4) explain their appeal rights

and the appeal process; (5) be responsive; and (6) allow the taxpayer

reasonable time to respond to any requests for information. Appeals

officials explained that this publication, last updated in 2013, is included in

the acknowledgement letter taxpayers receive from the Office of

Appeals.

However, most Appeals customers who participated in a focus group

conducted by the Office of Appeals in 2014 said that they did not

thoroughly review the Appeals acknowledgement letter and its

enclosures, which includes Publication 4227.

Therefore, relying on

sharing this publication enclosed in the first letter the taxpayer receives

may not be an effective mechanism to make this commitment known to

taxpayers.

Further, the official customer service standard and the related attributes

and measures are not transparent to the public, and the performance

results are not publicly reported. Taxpayer representatives with whom we

spoke were not aware of the Appeals customer service standards

Department of the Treasury, Internal Revenue Service, Overview of the Appeals

Process Brochure, Publication 4227 (October 2013) and

https://www.irs.gov/compliance/appeals/what-can-you-expect-from-appeals, accessed

Sept. 11, 2018.

In 2014, as part of its annual customer service survey, Appeals contracted to have a

series of focus groups with taxpayers who participated in the appeals review process. As

a result of input from focus groups, Appeals has made the initial taxpayer

acknowledgement letter more substantive.

Page 43 GAO-18-659 IRS Appeal Process

outlined in the IRM and explained that publications included with letters

from Appeals, such as Publication 4227, are often not read by taxpayers.

Taxpayer representatives we interviewed also said that customer service

standards are not discussed in conferences with taxpayers.

Standards for Internal Control in the Federal Government outlines that

management should externally communicate necessary quality

information to achieve an entity’s objectives.

Key elements of effective

customer service standards say that making customer service standards

publicly available is a key element to improve those standards and the

related services.

While Appeals articulates its customer service standard in the IRM and

uses AQMS to internally measure customer service delivery, the standard

and related results are not available on the Appeals website and not

shared during interactions with taxpayers. According to Appeals officials,

Appeals, like the rest of IRS, does not publish its customer service

standard or explain how performance against the standard is measured.

However, as a separate entity within IRS, Appeals has an opportunity to

make customer service standards and related outcomes available to the

public. Without standards clearly and explicitly communicated, taxpayers

may not know what to expect, when to expect, and from whom to expect

interactions surrounding the appeal process.

Likewise, Appeals does not make its customer service performance

results public, and Appeals officials said this is consistent with IRS

practice. However, in 2017, we recommended that IRS take similar

actions to make customer service standards and performance information

easily accessible and improve the transparency of its taxpayer service.

GAO-14-704G.

GAO, Managing for Results: Selected Agencies Need to Take Additional Efforts to

Improve Customer Service, GAO-15-84 (Washington, D.C.: Oct. 24, 2014). This report

identifies key elements of effective customer service standards that would allow agencies

to better serve the needs of their customers. The key elements were based on reviewing

the purposes and requirements of the GPRA Modernization Act of 2010 and Executive

Orders: to set performance targets or goals, measure performance against the set targets

or goals, and communicate such information to customers.

See GAO-17-186. We recommended that IRS develop and maintain an online

dashboard to display customer service standards and performance information such that it

is easily accessible and improves the transparency of its taxpayer service. IRS agreed

with our recommendation, and as of September 2018, we continue to monitor IRS

implementation.

Page 44 GAO-18-659 IRS Appeal Process

Measuring performance allows organizations to track their progress and

gives managers crucial information on which to base their organizational

and management decisions. The absence of publicly reported standards

and related performance information does not allow customers to

understand what to expect for the services they seek.

Appeals conducts an annual survey to assess customer satisfaction with

the appeal process over time and to identify areas where Appeals can do

more to improve customer service. According to Appeals officials,

Appeals has conducted a customer satisfaction survey for over a decade.

The annual survey yields an overall customer satisfaction score as well

as qualitative written comments on the appeal process. Appeals contracts

with a vendor to manage the survey sample selection based on Appeals

ACDS closed case data; pre-survey notification; management of the

online survey; telephone follow-up with non-respondents; and analysis of

the survey data.

The survey vendor sends potential respondents pre-notification invitations

to complete the survey and follow-up attempts to connect with potential

respondents. In fiscal years 2015 and 2016, the response rate was

36 percent and 33 percent, respectively. In fiscal year 2017, Appeals

surveyed 1,447 out of approximately 107,000 possible customers with a

response rate of 37 percent. According to OMB Standards and Guidelines

for Statistical Surveys, agencies are to design surveys to achieve the

highest practical rates of response and conduct a statistical test for

potential bias if the expected response rate is below 80 percent.

The

Agencies must appropriately measure, adjust for, report, and analyze unit and item

nonresponse to assess their effects on data quality and to inform users. Response rates

must be computed using standard formulas to measure the proportion of the eligible

sample that is represented by the responding units in each study, as an indicator of

potential nonresponse bias. OMB, Standards and Guidelines for Statistical Surveys,

(Washington, D.C.: Sept. 2006).

Appeals Annual Customer

Satisfaction Survey

Identifies Factors That

Affect Taxpayer

Satisfaction

Annual Customer Satisfaction

Survey Process

Page 45 GAO-18-659 IRS Appeal Process

vendor provides a comparison of frequencies to understand any

overrepresentation in survey responses of certain taxpayer types or for

different workstreams within Appeals. For example, according to the

vendor’s comparison of frequencies for the fiscal year 2017 survey (the

most recent available at the time of our work), fewer survey responses

were received from taxpayers who went through the collection due

process workstream—the workstream with the highest volume of

cases—than were in the population of potential respondents.

The customer satisfaction survey annual report details the analysis of the

survey results and summarizes significant changes in satisfaction over

time, as well as customer satisfaction by categories such as taxpayer

type and the length of the appeal process. Appeals reports overall

customer satisfaction in its performance reports to the Commissioner of

Internal Revenue. For appeal cases closed in fiscal years 2014 through

2017, about two thirds of taxpayers who responded to the survey were

satisfied overall with the appeals process.

According to the fiscal year 2017 annual survey report, customers who

have higher rates of satisfaction: (1) have professional representation;

(2) agree with the outcome of their case; and (3) have shorter case cycle

time.

The 2017 report also states that customers were most satisfied

with the degree of respect shown and the professionalism of the Appeals

staff. Customers were least satisfied with the consideration of information

presented and the length of the appeal process.

The annual survey also identifies the drivers of satisfaction with the

appeal process which, Appeals officials said, helps Appeals determine

which specific attributes of the appeal process have the most impact on

overall customer satisfaction. The 2017 survey identified the drivers of

overall satisfaction including: (1) how well Appeals listened to information

taxpayers presented related to their case and (2) how well Appeals

considered information taxpayers presented.

Taxpayer representatives we interviewed identified similar factors that

affect how satisfied their clients are with the appeal process. Their

responses generally corroborated the drivers of satisfaction identified in

the annual customer satisfaction survey analysis. For example, taxpayer

The survey results refer to Appeals time from appeal request to case closed per ACDS

data.

Information about Customer

Satisfaction

Page 46 GAO-18-659 IRS Appeal Process

representatives explained that their clients are more satisfied when they

feel their perspectives have been heard and the Appeals staff had an

open mind about the case. The representatives we interviewed also

stated that the amount of time, as well as transparency about the amount

of time, it takes Appeals to respond to a taxpayer’s case is significant to

satisfaction with the appeal process.

According to Appeals officials, the customer satisfaction survey is one

tool to assess customer satisfaction, and the survey information is part of

the overall information that Appeals uses in management decisions. The

national survey report is shared with the executive level staff each year

and survey results may be shared with staff. Appeals reports annual

overall customer satisfaction survey scores, along with other data on

business results, employee engagement, and staffing, in its performance

reports to the Commissioner of Internal Revenue. According to Appeals

officials, information from the customer satisfaction survey has been used

to improve Appeals procedures and interactions with taxpayers, including

changes to correspondence templates to improve comprehension and

readability, and how Appeals schedules taxpayer conferences.

Each year, Appeals conducts outreach presentations at tax practitioner

conferences to share information about its policy and procedures,

including recent changes or new initiatives that affect taxpayers and the

tax practitioner community.

Appeals officials told us that Appeals, in

recent years, has also used these outreach presentations as an

opportunity to solicit input from the attendees about the appeal process

and implementation of operational or policy changes. According to

Appeals officials, they obtain feedback at outreach sessions and place an

emphasis on listening to commentary from the tax practitioner community.

Taxpayer representatives we interviewed generally corroborated this and

said that they saw improvement in their ability to communicate with

Appeals and offer feedback on recent policies.

Outreach presentations at tax practitioner conferences present an

opportunity to obtain feedback and input on prospective policy changes

as well. According to taxpayer representatives that we interviewed, while

Appeals executives have more openly solicited feedback on policy

Tax practitioner communities include accounting and legal professionals who represent

taxpayers and their interests.

Appeals’ Use of Customer

Satisfaction Survey Information

Appeals Conducts

Outreach but Does Not

Have a Mechanism to

Solicit Customer Input to

Inform Prospective Policy

Changes

Page 47 GAO-18-659 IRS Appeal Process

changes, the outreach requests for feedback usually took place after the

policy decision was made and implemented. For example, in October

2016 Appeals changed its policy to limit the availability of in-person

appeal conferences. Appeals officials explained that this policy change

was based on its data showing that for many appeal cases transferred to

field staff to accommodate taxpayer requests for in-person conferences,

the taxpayers ultimately chose to have phone conferences. Appeals

officials acknowledged that they had not solicited public input beforehand

and had received negative feedback that this was an unpopular change.

As a result of feedback from the tax practitioner community at outreach

events as well as written comments, in October 2017, Appeals revised its

policy and will now attempt scheduling in-person conferences requested

by taxpayers for field appeal cases.

In its efforts to obtain feedback from the tax practitioner community at

conferences, Appeals has attempted to be inclusive of tax practitioners

representing a range of taxpayer types and income levels. According to

Appeals officials, Appeals obtained feedback from the Low Income

Taxpayer Clinics and conducted outreach sessions at their 2017 annual

conference. However, soliciting feedback at professional association

meetings for accountants and attorneys means that the opportunity to

provide comments to Appeals is limited to those in attendance at the

conferences. One taxpayer representative we interviewed said that he

was not sure how he could submit suggestions or input to Appeals other

than by attending a conference where Appeals executives were present

and solicited feedback from attendees. Further, several taxpayer

representatives we interviewed explained that taxpayers representing

themselves without professional representation face greater challenges in

the appeal process. Outreach relying on professional conferences may

not be inclusive of all taxpayer experiences and may miss opportunities to

understand the perspectives of individual and small business taxpayers

navigating without professional assistance.

IRS has formal advisory committees that provide forums to discuss issues

with tax administration or taxpayer issues.

Among these, the Internal

Revenue Service Advisory Council (IRSAC) provides an opportunity for

A federal advisory committee must comply with the Federal Advisory Committee Act.

Among other things, the Federal Advisory Committee Act requires that each agency

establish uniform administrative guidelines and management controls for its advisory

committees. Pub. L. No. 92-463, § 8, 86 Stat. 770, 773 (Oct. 6, 1972), codified, as

amended, at 5 U.S.C. app. 2, §8.

Page 48 GAO-18-659 IRS Appeal Process

members to provide public perspective on IRS policies and procedures

and recommends policies with respect to emerging tax administration

issues.

Conveying the public’s perception of IRS activities to the

Commissioner, the IRSAC charter states that it is to be comprised of

individuals who bring substantial, disparate experience and diverse

backgrounds to the Council’s activities. IRSAC reports that its

membership is balanced to represent the taxpaying public, the tax

professional community, small and large businesses, state tax

administration, and the payroll community.

Although its role is to focus on broad policy matters, IRSAC recently took

action to comment specifically on recent changes to Appeals policy and

operations. In its 2017 public report, IRSAC commented on attendance of

IRS compliance and counsel personnel at Appeals conferences with

taxpayers. IRSAC stated that ensuring the independence of Appeals from

the operating divisions is indispensable to Appeals’ achieving its mission.

Executive Order 13571, building on GPRAMA requirements, stated that

agencies, in this case Treasury, should establish “mechanisms to solicit

customer feedback on Government services” and that agencies use “such

feedback regularly to make service improvements.”

In its strategic plan,

IRS outlines a strategic goal to collaborate with external partners

proactively to improve tax administration.

Appeals has identified engaging with stakeholders to improve the

taxpayer experience in Appeals as a fiscal year 2018 organizational goal.

Appeals officials we interviewed said that Appeals’ approach is to test and

learn, and that they anticipate issues and complaints will continue to

happen as future policy changes are implemented.

While outreach is one way to get practitioner reaction as new policies are

rolled out, other mechanisms could serve as a way to receive regular

customer feedback and to hear the public’s perspective and observations

Other IRS advisory councils that convene external stakeholders for feedback on IRS

operations and tax policy issues include: Advisory Committee on Tax Exempt and

Government Entities; Art Advisory Panel; Electronic Tax Administration Committee;

Information Reporting Program Advisory Committee; and Taxpayer Advocacy Panel.

Exec. Ord. No. 13571, § 2(c) (Apr. 27, 2011), Streamlining Service Delivery and

Improving Customer Service, 76 Fed. Reg. 24,339, 24,339-40 (May 2, 2011).

Internal Revenue Service Strategic Plan, Fiscal Year 2018-2022.

Page 49 GAO-18-659 IRS Appeal Process

about both current operations as well as proposed IRS policies,

programs, and procedures. For example, IRS already uses advisory

groups as another way to engage with external partners via open, two-

way, external reporting lines for assistance with receiving and analyzing

customer feedback as well as offering a mechanism to solicit public input

before policies are finalized and implemented.

Without an effective mechanism to regularly consider and review

customer feedback and policy changes before implementation, Appeals is

missing an opportunity to obtain public input on policy changes that can

substantially affect the taxpayer’s experience in the appeal process.

Possible mechanisms could include leveraging existing IRS advisory

resources, exploring development of an Appeals advisory body, or

offering a public comment capacity, such as an email address. Engaging

with external stakeholders could offer opportunities for Appeals to gain

insight on how to bring transparency to its customer service standards

and measures along with providing ongoing assistance with considering

results from the annual customer satisfaction survey. This would enhance

Appeals’ ongoing efforts to improve customer satisfaction with planned

service improvements or policy changes and make modifications where

appropriate.

Each year, Appeals resolves a diverse array of taxpayer appeals of IRS

enforcement actions and decisions. Faced with a declining workforce,

Appeals has identified that maintaining skills and expertise necessary to

review its case load is a top risk to achieving its mission. High retirement

eligibility rates underscore the importance for Appeals to be positioned to

identify any gaps in the skills of its workforce. Conducting a skills gap

analysis specific to Appeals mission needs is a key step towards

developing a strategy to help ensure Appeals will retain the necessary tax

expertise to review appeals cases across multiple workstreams.

Time spent by IRS compliance units on initial review of taxpayer appeals

of IRS collection and examination actions can represent a significant

portion of the total appeal resolution time. For appeal cases closed in

fiscal year 2017, approximately 4 percent of collection appeals cases and

nearly one quarter of examination appeal requests took more than

120 days to be transferred from IRS to Appeals. Delays in transferring

requests to Appeals affect prompt resolution for the taxpayer and IRS.

Additional monitoring of collection transfer time requirements together

with establishing transfer time guidelines and procedures for examination

Conclusions

Page 50 GAO-18-659 IRS Appeal Process

appeal review could improve appeal review timeliness and overall

taxpayer experience.

Appeals maintains data on the time taken to transfer appeals and

monitors the progress and time to resolve appeals within its diverse

workstreams. Sharing these performance data within IRS could shed light

on actual transfer times and aid compliance units in improving and

establishing related controls to ensure more timely transfer. Increasing

the transparency of total case resolution time with more detailed

information by Appeals workstream would improve taxpayers’

understanding about what to expect when choosing to request an appeal.

Improving the taxpayer experience with the appeals process also

depends on clarity on customer service standards and related

performance results. Under GPRAMA and Executive Orders, Treasury is

responsible for customer service performance. Publicly stating what

service taxpayers should expect and from whom sets the stage for a

customer-focused appeals process where taxpayers can feel their story is

heard. This also helps fulfill Treasury’s customer service responsibility.

Appeals has demonstrated its willingness to analyze customer

satisfaction feedback. IRS and Appeals share goals to work with

stakeholders, and Appeals has acted to address practitioner reactions to

operational changes underway. Developing a mechanism to leverage

public input on future policy and procedure proposals would better

position Appeals to bolster customer service and effectively implement

changes to improve the taxpayer experience.

We are making the following five recommendations to IRS and two

recommendations to the Department of the Treasury.

The Commissioner of Internal Revenue should direct the Chief of

Appeals, in coordination with the IRS Human Capital Office, to conduct a

skills gap analysis specific to Appeals mission needs and develop a

strategy for mitigating any identified gaps. (Recommendation 1)

The Commissioner of Internal Revenue should evaluate the existing

monitoring for collection due process appeal requests and address

deficiencies in collection staff meeting the requirement for timely transfer

to the Office of Appeals. (Recommendation 2)

The Commissioner of Internal Revenue should establish timeframes and

monitoring procedures for timely transfer of taxpayer appeals requests by

Recommendations for

Executive Action

Page 51 GAO-18-659 IRS Appeal Process

examination compliance units to the Office of Appeals. (Recommendation

The Commissioner of Internal Revenue should direct the Chief of Appeals

to regularly report and share with each compliance unit the data on the

time elapsed between when a taxpayer requests an appeal to when it is

received in the Office of Appeals. (Recommendation 4)

The Commissioner of Internal Revenue should provide more

transparency to taxpayers on historical average total appeal resolution

times. This could include publishing average total resolution times by

workstream on an Office of Appeals web page as well as including total

expected times in the Appeals welcome letter. (Recommendation 5)

The Secretary of the Treasury, consistent with its responsibilities under

GPRAMA and Executive Orders for customer service, should ensure that

the Commissioner of Internal Revenue takes action to make Appeals

customer service standards and performance results more transparent to

the public. This could include publishing customer service standards and

related performance measure results on the Office of Appeals web page

on IRS.gov. (Recommendation 6)

The Secretary of the Treasury, consistent with its responsibilities under

GPRAMA and Executive Orders for customer service, should ensure that

the Commissioner of Internal Revenue takes action to develop a

mechanism to solicit and consider public input and customer feedback on

a regular basis on current and proposed IRS appeal policies and

procedures. This could include leveraging existing IRS advisory bodies or

establishing an Office of Appeals advisory body representing the

taxpaying public, the tax practitioner community, and businesses to solicit

customer perspectives. (Recommendation 7)

We provided a draft of this report to the Commissioner of Internal

Revenue and the Secretary of the Treasury for review and comment. In

its written comments, reprinted in appendix I, IRS agreed with our five

recommendations directed to it and plans to provide detailed corrective

action plans in its 60-day letter response to Congress. IRS also provided

technical comments, which we incorporated where appropriate.

In an email from the audit coordinator in the Office of the Deputy Chief

Financial Officer, Treasury agreed with our two recommendations

directed to it. During the agency comment period, we modified language

Agency Comments

and Our Evaluation

Page 52 GAO-18-659 IRS Appeal Process

in recommendations 6 and 7 to clarify Treasury’s role and responsibilities

for customer service. Treasury agreed to monitor IRS’s actions to make

Appeals customer service standards and performance more transparent

as part of its coordination of the President’s Management Agenda

cross-agency priority goal for customer experience. Treasury plans to

monitor IRS’s actions to develop a mechanism to solicit public input on

appeal policies and procedures as part of the audit management process.

As agreed with your office, unless you publicly announce the contents of

this report earlier, we plan no further distribution until 30 days from the

report date. At that time, we will send copies to the Secretary of the

Treasury, the Commissioner of Internal Revenue, and other interested

parties. In addition, the report will be available at no charge on the GAO

website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact

me at (202) 512-9110 or [email protected]. Contact points for our

Office of Congressional Relations and Public Affairs may be found on the

last page of this report. GAO staff making key contributions to this report

are listed in appendix II.

Jessica K. Lucas-Judy

Director, Tax Issues

Strategic Issues