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TIGTA: IRS Should Better Coordinate its Tax Examination Functions

S.J. Steinhardt
Published Date:
Feb 14, 2023

The IRS would benefit from having a more coordinated approach to its tax examination function, a report by the Treasury Inspector General for Tax Administration found.

Currently, the IRS “does not have a multiyear Examination Strategic Plan for allocating resources” across its entire examination function. Instead, it has “a general five-year strategic plan with broad goals for the agency,” the report states. “Creating a multiyear, comprehensive Examination Strategic Plan would provide IRS management with clear direction on how to allocate Examination resources.”

The IRS has four business operating divisions—Wage and Investment, Small Business/ Self-Employed, Large Business and International, and Tax Exempt and Government Entities—each of which covers different segments of taxpayers and conducts different types of examinations, including full tax audits. 

The TIGTA report states that the IRS “does not have a coordinated approach for developing an annual enterprise-wide Examination workplan that considers the various strategic and operational risks of all the Examination functions," noting that "[e]xamination management from the four business operating divisions independently develop their annual workplans to determine how to allocate resources in their own work areas.  As an alternative, TIGTA suggests that the IRS would “benefit from having an annual enterprise-wide Examination workplan. This would help to ensure a consistent, strategic approach and transparency for allocating resources in the Examination areas with the most significant needs." 

The report further notes that IRS does not use tax gap estimates to determine where the examination function should allocate resources in its work planning.

TIGTA recommended that the IRS should:

● Consider adopting a multiyear, comprehensive examination strategic plan; 
● Establish a documented annual enterprise-wide examination planning process;
● Set up a process to use tax gap data annually to identify opportunities to better align resources that more effectively narrow the net gap; and,
● Develop a tool to consider risk and other relevant variables to inform examination resource allocation decisions, then expand its use to include examination workstreams from all divisions. 

IRS officials agreed with all four of the report's recommendations. 

"Establishing a multiyear strategic plan may provide the IRS with a more coordinated and cohesive approach to resource allocation and examination efforts," responded Melanie Krause, acting deputy commissioner for services and enforcement at the IRS, according to Accounting Today. “However, such a plan will need to be informed by corresponding considerations such as recruiting, hiring, training and staffing needs in areas of competing priority. Further, a multiyear strategic plan will require agility to address new and emerging issues, legislative changes, shifts in priorities and resources."

Krause noted that recent discussions of audits of high-income taxpayers and syndicated conservation easement transactions are two examples of areas where the IRS's ability to flexibly respond to areas of interest is critical to meeting its strategic priorities, Accounting Today reported. 

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