Treasury Inspector General for Tax Administration ...

[Pages:138]Treasur y Inspector General for Tax Administration

Semiannual Report to Congress

April 1, 2017 ? September 30, 2017

Treasury Inspector General for Tax Administration

(TIGTA)

TIGTA's Vision

Maintain a highly skilled, proactive, and diverse Inspector General organization dedicated to working in a collaborative environment with key stakeholders to foster and promote fair tax administration.

TIGTA's Mission

Provide quality professional audit, investigative, and inspection and evaluation services that promote integrity, economy, and efficiency in the administration of the Nation's tax system.

TIGTA's Core Values

Integrity ? Maintain the highest professional standards of integrity, personal responsibility, independence, objectivity, and operational excellence

in pursuit of TIGTA's mission.

Organizational Innovation ? Model innovative practices in organizational structure, operational programs and processes, audit, investigative, and inspection and evaluation

methodologies, and the application of advanced information technology.

Communication ? Achieve effective organizational approaches and solutions by encouraging open, honest, and respectful communication among TIGTA's executives, employees, offices, and functions, as well as between TIGTA and its external stakeholders.

Value Employees ? Respect the dignity, contributions, and work-life balance of our employees, and recognize diversity as fundamental to the strength of our organization.

Commitment to Collaboration ? Establish and maintain collaborative and professional relationships with other Government and non-Government stakeholders.

Treasur y Inspector General for Tax Administration

Semiannual Report to Congress

April 1, 2017 ? September 30, 2017

Inspector General's Message to Congress

It is my privilege to submit the Treasury Inspector General for Tax Administration's (TIGTA) Semiannual Report to Congress for the reporting period April 1, 2017 to September 30, 2017. Some of TIGTA's more notable achievements in the pursuit of its mission to provide oversight of the Internal Revenue Service (IRS) and protect the integrity of Federal tax administration are highlighted in the various audits, investigations, and inspections and evaluations summarized in this report.

During this reporting period, TIGTA's combined audit and investigative efforts have resulted in the recovery, protection, and identification of monetary benefits totaling more than $19 million. During this same period, TIGTA's Office of Audit has completed 61 audits, and its Office of Investigations has completed 1,483 investigations.

Once again, schemes involving tax fraud and identity theft are among the most significant challenges confronting the Federal system of tax administration. TIGTA's investigation of the IRS impersonation scam, the largest and most pervasive scam in our agency's history, has logged more than 2.1 million contacts from taxpayers reporting that they had received telephone calls from individuals claiming to be IRS employees. Typically, the impersonators tell the victims that they owe additional tax and that if they do not immediately pay they will be arrested, lose their driver's license, or face other adverse consequences. As of September 30, 2017, approximately 12,027 victims of this scam had reported more than $60.7 million in total monetary losses.

TIGTA has used every possible approach to protect innocent people from becoming the victims of this scam. While many of the arrests have been made in the United States, the IRS impersonation scam involves multiple people and groups, including some from outside of the United States, so it is not entirely possible to "arrest" our way out of this problem. Educating people so they do not become victims in the first place is nearly as important as catching the criminals. To this end, TIGTA went above and beyond the classic law enforcement approach of devoting all of our resources into just the investigation and prosecution of those responsible. To date, we have arrested or charged over 90 individuals and five call centers that are located in India.

April 1, 2017 ? September 30, 2017 | TIGTA Semiannual Report to Congress | 1

In addition, we continue to engage in media and public awareness outreach to warn people of the scam, and we have worked with private industry and major vendors such as Walmart, Target, and Apple, whose products or services were being used by the scammers to obtain and move the money into accounts that they controlled. Working collaboratively with our Federal, State, and local law enforcement partners, we have developed different procedures and technologies to help protect people from becoming victims. We cannot say exactly how many people we have protected, but we can say that, as a result of all of these efforts, the number of victims has been reduced by 90 percent when compared to the height of the scam last fall. TIGTA's Office of Audit has completed many important audits during this reporting period, including one that evaluated the IRS's processes for identifying and assisting victims of employment identity theft. The audit found that IRS processes are not sufficient to identify all employment identity-theft victims. Another audit found that a reduced Automated Substitute for Return Program negatively affected collection and filing compliance. Further, our compliance trends report found that IRS enforcement actions are continuing to decline significantly. Among the significant evaluations completed by TIGTA's Office of Inspections and Evaluations was a review of safety standard compliance at three IRS facilities. Consistent with TIGTA's mission, we will continue working tirelessly with Congress, the Administration, the IRS, and all of our stakeholders on behalf of taxpayers to ensure that our Nation's tax administration system is efficient, effective, and fair.

Sincerely,

J. Russell George Inspector General

2 | TIGTA Semiannual Report to Congress | April 1, 2017 ? September 30, 2017

Table of Contents

Inspector General's Message to Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

TIGTA's Profile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Statutory Mandate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Organizational Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

TIGTA's Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Examples of High-Profile Cases by the Office of Investigations . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Examples of High-Profile Reports by the Office of Audit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Promote the Economy, Efficiency, and Effectiveness of Tax Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Security Over Taxpayer Data and IRS Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Improving Tax Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Reducing Fraudulent Claims and Improper Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Improving Tax Systems and Expanding Online Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Providing Quality Taxpayer Service Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Impact of Global Economy on Tax Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Protecting Taxpayer Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Achieving Program Efficiencies and Cost Savings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Protect the Integrity of Tax Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 The Performance Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Performance Area: Employee Integrity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Identity Theft and the Insider Threat . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Employee Integrity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Performance Area: Employee and Infrastructure Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Performance Area: External Attempts to Corrupt Tax Administration . . . . . . . . . . . . . . . . . . . . . . 53 Scams and Schemes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Impersonation Scams . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Corrupt Interference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Tax Preparer Outreach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Forensic and Digital Science Lab . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79

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Advancing Oversight of America's Tax System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

Congressional Testimony . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

Audit Statistical Reports: Reports With Questioned Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

Reports With Recommendations That Funds Be Put to Better Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

Reports With Additional Quantifiable Impact on Tax Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

Investigations Statistical Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Significant Investigative Achievements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 Status of Closed Criminal Investigations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 Criminal Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 Administrative Dispositions on Closed Investigations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 Summary of Investigative Reports and Criminal Referrals . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 Interference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 Instances of Whistleblower Retaliation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 Closed Investigations Involving Internal Revenue Service Senior Government Employees . . . . . . 102

Appendix I: Statistical Reports - Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 Reports With Unimplemented Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 Other Statistical Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113

Appendix II: Audit Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114

Appendix III: TIGTA's Statutory Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117

Appendix IV: Section 1203 Standards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122

Appendix V: Implementing Section 989C of the Dodd-Frank Wall Street Reform and Consumer Protection Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124

Appendix VI: Data Tables Provided by the Internal Revenue Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 Internal Revenue Service Memorandum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125 Report of Employee Misconduct by Disposition Groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126 Report of Employee Misconduct National Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127 Summary of Substantiated I.R.C. Section 1203 Inquiries Recorded in ALERTS . . . . . . . . . . . . . 128

Glossary of Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129

4 | TIGTA Semiannual Report to Congress | April 1, 2017 ? September 30, 2017

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