The Treasury Inspector General for Tax Administration has issued a new report citing problems the IRS experienced with electronic tax return providers this past tax season.
According to the report, on October 30, 2006, the IRS suspended 12,588 e-file Providers for not submitting the required Forms 8453, U.S. Individual Income Tax Declaration for an IRS e-file Return. The suspensions created a significant backlog of providers who needed IRS assistance to be reinstated before January 12, 2007 (the date the IRS began accepting electronic tax returns for the 2006 filing season). This backlog resulted when Warning Letters (Letter 2750) and Suspension Letters (Letter 2752) were issued late and the IRS was not adequately prepared to assist Providers with reinstatement.
TIGTA claims that the IRS had not successfully issued Suspension Letters or suspended e-file Providers that had not submitted Forms 8453 since Calendar Year 2002. Once the Letters were issued and Providers were suspended, IRS assistors were often unable to access the primary computer system (the Employee User Portal) needed to reinstate suspended Providers because the system was unavailable.
E-file Providers that contacted the IRS for assistance with reinstatement experienced longer calls and longer hold times than during the same period last year. The total impact of the unavailability of the Employee User Portal during October 2006 through February 2007 was a loss of more than 18,000 hours of productivity.
In addition, the report notes that IRS assistors noted that a number of e-file Providers stated they had not received Warning and/or Suspension Letters, and procedures for working undelivered Warning and Suspension Letters were not consistent. The e-file Units in the Andover, Massachusetts, and Austin, Texas, Campuses4 did not follow the same process when Letters were returned as undeliverable, and guidelines for working undeliverable correspondence from Providers were not consistent with guidelines for handling undelivered Warning and Suspension Letters.
Although the Andover Campus e-file Unit attempted to contact Providers to obtain updated addresses, the Austin Campus Unit did not. Further, the Austin Campus was closed for two business days because of weather at the beginning of the 2007 Filing Season when it was answering inquiries and working appeals from the suspended e-file Providers. As of February 20, 2007, the majority of the over 9,900 appeals for reinstatement had been worked by the Andover and Austin Campus e-file Units. The Austin Campus Unit continued to receive appeals after February 20, 2007, and worked these as received.
Issues relating to Form 8453 filing requirements (including processing the Forms, generating Warning letters to e-file Providers, suspending Providers, and processing appeals) would be addressed if, as TIGTA had recommended in a September 2006 report,5 the IRS mandated the use of a Personal Identification Number. Implementation of this recommendation would have eliminated the required use of the Form 8453. TIGTA had previously calculated the IRS could save $1.83 million in processing costs (cost savings calculation did not include mailouts, assistance with answering questions, and/or working appeals) if Form 8453 was eliminated.
TIGTA has recommended that the Commissioner, Wage and Investment Division, reconsider eliminating the use of Form 8453 as a signature document and mandate the use of a Personal Identification Number. At a minimum, this should be required for returns prepared at Volunteer Income Tax Assistance sites.6 If the Commissioner, Wage and Investment Division, disagreed with eliminating the Form 8453, TIGTA recommended the Commissioner:
- Ensure Warning and Suspension Letters are issued timely.
- Continue to monitor the availability of the Employee User Portal and continue raising concerns about system availability to representatives from the Modernization and Information Technology Services organization.
- Revise guidelines for handling undeliverable Warning and Suspension Letters to require assistors to attempt to contact e-file Providers by telephone to obtain new addresses.
The Treasury Inspector General for Tax Administration (TIGTA) organization was established in January 1999, in accordance with the Internal Revenue Service Restructuring and Reform Act of 1998 to provide independent oversight of IRS activities.