The IRS's Tax-Exempt Compliance Unit (TECU)'s examiners have spent almost three times as many hours closing compliance checks since 2020, the Treasury Inspector General for Tax Administration (TIGTA) found.

TECU, whose mission is to leverage its resources to increase voluntary compliance contacts with tax-exempt and government entities, expanded its scope in fiscal year 2021 to include full compliance checks. A compliance check is not an examination, and the taxpayer may legally choose not to participate, noted TIGTA. It is instead a tool intended to help educate taxpayers as well as encourage their voluntary compliance. Compliance checks allow the IRS to reach more taxpayers at a lower cost than traditional audits.

While this expansion was intended to improve TECU operations by reducing taxpayer burden and administrative costs by promoting a single contact with the taxpayer, it resulted in TECU employees’ searching manually for delinquent returns that could have been identified systemically but were not because they were not part of the examiners’ assigned workstream.

“The TECU does not have a workstream for taxpayers with multiple delinquencies,” the TIGTA audit found. “Further, these taxpayers could still be contacted multiple times if they are assigned to more than one workstream.”

As a result, examiners spent 6.1 hours on average per TECU case in 2023, up by 281 percent from 2020 when the average was 1.6 hours. The number of taxpayers reached through compliance checks also decreased by more than half, and some cases included mistakes. Of 68 cases, TIGTA identified 17 in which the TECU did not identify all delinquent returns. 

TIGTA recommended that the commissioner of the IRS’s Tax-Exempt and Government Entities Division develop a workstream for taxpayers with potentially multiple delinquencies; eliminate the requirement for TECU examiners to conduct additional research; issue clear and consistent compliance check procedural guidance; revise the contact letter to allow taxpayers to submit tax returns electronically; better align TECU examination referral guidance with criteria for assigning cases to the Examination functions; and establish performance goals.

In its response, the IRS agreed with four recommendations but disagreed with eliminating the additional research requirement and establishing performance goals.