Taxpayers Should Be Informed of the Benefits of the Fast
Track Mediation Program
March 2002
Reference
Number: 2002-10-070
This report has cleared the Treasury
Inspector General for Tax Administration disclosure review process and
information determined to be restricted from public release has been redacted
from this document.
March
29, 2002
MEMORANDUM FOR
COMMISSIONER, SMALL BUSINESS/SELF-EMPLOYED DIVISION
CHIEF, APPEALS
FROM: Pamela J. Gardiner /s/ Pamela J. Gardiner
Deputy Inspector General for
Audit
SUBJECT: Final Audit Report – Taxpayers Should Be
Informed of the Benefits of the Fast Track Mediation Program (Audit #200110030)
This
report presents the results of our review to assess the effectiveness of the
process used to implement the Fast Track Mediation (FTM) pilot program. The Internal Revenue Service (IRS) piloted
FTM to provide taxpayers with a quick resolution of tax disputes through
mediation. The program offers taxpayers
an alternative to an administrative review through the Office of the Chief,
Appeals, in which Appeals Officers independently review the merits of proposed
compliance actions.
In
summary, the IRS’ process to implement the FTM pilot program was effective, but
some improvements could be made. The
FTM National Program Manager and FTM Team ensured that appropriate Appeals
Officers mediation training was developed and delivered. In addition, they effectively evaluated
whether the FTM pilot program had met intended goals. The IRS did not achieve its goal for Compliance employees to
inform all qualified taxpayers about the FTM pilot program. As a result, taxpayers were denied the
opportunity to resolve their tax disputes more expeditiously than they would
have otherwise. Finally, the IRS
effectively evaluated the results of the FTM pilot program. However, using additional cost-benefit
measures for future evaluations of alternative dispute resolution programs
could provide the IRS with information that would help weigh the relative
contributions of these programs in meeting the IRS’ strategic goals.
Management’s
Response: The Commissioner, Small
Business/Self-Employed Division (SB/SE), agreed that additional improvements
are needed and has initiated corrective actions. The SB/SE Division is revising two publications that explain
appeal rights to include FTM information.
Existing procedures require Compliance employees to document in case
files that these publications were issued and explained to taxpayers. Managers are required to review case files
for documentation that taxpayers were given the publications and that their
appeal rights were explained.
The
Chief, Appeals, and the Commissioner, SB/SE Division, agreed to use
cost-benefit analysis in future evaluations of alternative dispute resolution
programs.
Management’s
complete response to the draft report is included as Appendix V. The complete response also includes
additional initiatives to educate Compliance employees and taxpayers about the
FTM program that were not specifically identified as corrective actions.
Copies
of this report are also being sent to the IRS managers who are affected by the
report recommendations. Please contact
me at (202) 622-6510 if you have questions, or Daniel R. Devlin, Assistant
Inspector General for Audit (Headquarters Operations and Exempt Organizations
Programs), at (202) 622-8500.
Appeals Officers Received the
Necessary Training to Mediate Cases
Appendix I – Detailed Objective, Scope, and Methodology
Appendix II – Major Contributors to This Report
Appendix III – Report Distribution List
Appendix IV – Outcome Measures
Appendix V – Management’s Response to the Draft Report
If taxpayers disagree with a tax liability or certain
collection actions proposed by an Internal Revenue Service (IRS) Compliance
employee, they have the right to ask for an administrative review by the office
of the Chief, Appeals. The case will
then be forwarded to an Appeals Officer who will conduct an independent review
of the merits of the proposed compliance actions.
Appeals also makes available alternative dispute resolution
(ADR) programs other than the administrative review. The purpose of offering ADR programs is to enhance customer
service by efficiently preventing or resolving tax disputes. The Congress encourages the IRS to use ADR
programs. The Senate Committee Report
from the IRS Restructuring and Reform Act of 1998 stated, “The Committee also
believes that mediation, binding arbitration, early referral to Appeals, and
other procedures would foster more timely resolution of taxpayers’ problems
with the IRS. In addition, the
Committee believes that the ADR process is valuable to the IRS and taxpayers
and should be extended to all taxpayers.”
The IRS offered Fast Track Mediation (FTM) as an ADR program
to quickly resolve tax disputes related to examinations, offers in compromise,
and trust fund recovery penalties at select pilot sites. Although the FTM pilot program excludes
cases where the tax liability is over $100,000, offers in compromise $50,000
and over, more complicated cases, or cases which have other expedited processes
available, most of the remaining cases would qualify for the FTM pilot
program. The IRS estimated that about
27 percent of all Appeals cases could be eligible to participate in FTM.
Compliance employees at the pilot sites were to inform all
qualified taxpayers about FTM. If the
taxpayer requested FTM, an Appeals Officer acted as a mediator encouraging the
taxpayer and the Compliance employee to reach a mutually satisfactory
resolution that was consistent with the law.
The Appeals Officer (mediator) could conduct joint and separate
conferences with the taxpayers and the Compliance employees to obtain
information and to resolve the tax dispute.
If the issues remained unresolved, the taxpayer could ask for an
administrative review of the tax dispute.
The IRS has highlighted the FTM process as an opportunity
for taxpayers to settle tax disputes more timely by avoiding the administrative
review. In 2000, the IRS’ Organization Blueprint cited FTM as a
process to reduce the 293 day average of the administrative appeal
process. The Appeals Fiscal Year 2001 Strategic Business Plan also cited the FTM
process as a new business practice designed to reduce the length of the
administrative review.
The FTM National Program Manager and the FTM Team, which included
Appeals and Compliance employees, were responsible for designing, implementing,
and evaluating the FTM pilot program.
The IRS conducted the pilot for 1 year ending June 30, 2001, at four
geographic pilot sites: Denver,
Colorado; Hartford, Connecticut; Houston, Texas; and Jacksonville,
Florida. The IRS plans to begin
expanding FTM nationwide in June 2002.
We performed this audit at the Headquarters Offices of the
Chief, Appeals, and the Commissioner, Small Business/Self-Employed Division
(SB/SE), in Washington, DC, and two geographic pilot sites in Denver and
Hartford. The audit was performed
between June and October 2001 in accordance with Government Auditing Standards. Detailed information on our audit objective,
scope, and methodology is presented in Appendix I. Major contributors to the report are listed in Appendix II.
The FTM National Program Manager and the FTM Team ensured
that Appeals Officer mediation training was developed and delivered. The FTM Team worked with the Federal
Mediation and Conciliation Service (FMCS) to design and deliver training. The FMCS is an industry leader in mediation
services for the federal government. We
found the training to be consistent with industry guidelines on mediation
training. The week long course covered
mediation industry techniques and guidelines, and it also provided exercises in
potential tax issue mediation situations.
The FMCS instructors held timely training sessions at the four pilot
sites between April and June 2000.
The IRS ensured a sufficient number of Appeals Officers were
trained to mediate FTM cases processed during the pilot period. The FMCS instructors trained 43 Appeals
Officers from the 4 pilot sites as mediators prior to the pilot
initiation. The Appeals Officers who
acted as mediators during the FTM pilot had all received the training.
Survey feedback from Compliance employees, taxpayers, and
their tax representatives was very complimentary of the mediators’ performance
and qualifications. The surveys
indicated a high level of satisfaction with the mediators. The taxpayers and the tax representatives
indicated that the mediators were impartial.
Compliance employees indicated that mediators were well prepared, and
understood and clarified the issues.
The IRS did not achieve its goal for Compliance employees to
inform all qualifying taxpayers about the FTM pilot program. Although the IRS conducted an extensive
marketing campaign to educate Compliance employees, fewer than half of the
Compliance employees we interviewed offered FTM to qualified taxpayers. As a result, taxpayers were prevented from
participating in the pilot, thus denying them the opportunity to expeditiously
resolve their tax disputes.
The IRS marketed FTM to Compliance employees at the four
pilot sites by distributing memoranda and procedures to all Compliance
employees and conducting presentations to all first level managers, as well as
to many of the Compliance employees who interacted directly with
taxpayers. The IRS relied primarily on
its Compliance employees to inform taxpayers about FTM. The FTM procedures required Compliance
employees to explain FTM to qualified taxpayers and provide taxpayers with
Publication 3506, Fast Track Mediation. In addition, on October 24, 2000, the
Commissioner, SB/SE Division, and the Chief, Appeals, jointly issued a
memorandum to re-emphasize that Compliance employees were required to offer the
FTM process to qualified taxpayers.
Despite the IRS’ efforts to educate Compliance employees
about FTM, Compliance employees did not always inform qualified taxpayers. Only 16 of 40 Compliance employees we
interviewed, who had cases with qualifying taxpayers, informed the taxpayers of
FTM. The 24 Compliance employees, who
did not inform taxpayers, provided a variety of reasons for not doing so. These reasons included Compliance employees
forgetting to offer FTM; misinterpreting the FTM pilot program criteria; not
offering FTM to taxpayers who were uncooperative; or being unaware of the
program. Some Compliance employees stated
that they thought management was not placing much emphasis on the program. Also, Compliance executives, managers and
employees cited other higher priority programs that limited the attention given
to the FTM pilot program.
We estimate that nationwide 26,000 taxpayer cases annually
may be qualified for FTM under the expanded criteria recommended by the FTM
Team. This estimate is based on IRS
data on the number of cases nationwide that fit the expanded criteria and that
underwent an Appeals administrative review during a recent 1-year period. We also estimate that while only 56
taxpayers participated in the FTM pilot, approximately 1,300 additional
taxpayer cases at the pilot sites may have qualified for FTM. We cannot determine how many of these
taxpayers were informed about FTM.
Taxpayers who were not offered FTM were denied the
opportunity to expeditiously resolve their tax disputes. As shown in the following chart, survey
feedback from taxpayers and tax representatives indicated that FTM was effective
and that they were satisfied with the process.
They indicated that FTM created realistic options. In addition, almost 70 percent of the
taxpayers or tax representatives using FTM were able to resolve their tax
disputes. Taxpayers using FTM resolved
their tax disputes in approximately 49 days.
This time frame was significantly less than the average administrative
review processing time of 293 days.
These benefits were not available to taxpayers who were not offered FTM.
The chart was removed
due to its size. To see the chart, please
go to the Adobe PDF version of the report on the TIGTA Public Web Page.
Although the IRS made an effort to
inform Compliance employees about the FTM pilot, we believe Compliance
management should increase oversight of the program. Also, to provide an additional route for learning about FTM, the
IRS should update publications that inform taxpayers about their appeal rights
with FTM information. These
publications could supplement the efforts made by Compliance employees. While updating publications may not have
been viable during the pilot, once FTM is implemented nationwide updated
publications would strengthen the IRS’ efforts to keep taxpayers informed of
their options to resolve tax disputes.
Increased oversight and providing information directly to taxpayers
would demonstrate the commitment of the IRS management to FTM.
Prior to expanding the FTM program, the Commissioner, SB/SE
Division, can enhance taxpayers’ opportunities to be offered the benefits of
FTM by:
1.
Revising the Internal Revenue Manual (IRM) to require that
Compliance employees document in case files that qualifying taxpayers were
informed about FTM.
2.
Revising the IRM to require that managers conduct reviews to
ensure that Compliance employees informed qualified taxpayers about FTM.
The Chief, Appeals, in conjunction with the Commissioner,
SB/SE Division, can enhance taxpayers’ opportunities to be offered the benefits
of FTM by:
3.
Updating publications that inform taxpayers about their appeal
rights to include FTM information, after nationwide implementation.
Management’s Response: The Commissioner, SB/SE Division, agreed to initiate corrective
actions. The SB/SE Division is revising
two publications that explain appeal rights to also include FTM information. Existing IRM procedures require Compliance
employees to document in the case file that these publications were issued and
explained to taxpayers, and require managers to review case files to ensure
that these publications were issued and explained.
The
FTM National Program Manager and FTM Team effectively evaluated the FTM pilot
program results. However, in future
evaluations of ADR programs, the IRS should consider using a cost-benefit
analysis.
The
FTM National Program Manager and the FTM Team evaluated the FTM pilot program
results in comparison to the following goals:
·
Benefits to the taxpayer and the IRS.
·
Effectiveness of marketing and training programs.
·
Process efficiency.
·
Case eligibility criteria.
In
July 2001, the FTM National Program Manager and the FTM Team evaluated the FTM
pilot program using case data from four geographic pilot sites and survey
results from taxpayers, tax representatives, Compliance employees, and
mediators. Appeals management evaluated
staffing and organizational program issues to determine resources required to
expand the FTM program to taxpayers nationwide.
The
FTM National Program Manager and FTM Team made recommendations to enhance the
FTM program, including expanding the FTM program to allow more taxpayers the
opportunity to participate.
The
IRS did not consider the need for cost-benefit analysis when it designed
efficiency measures for the program.
The IRS management told us that effectiveness measures were more useful
than efficiency measures, since FTM was still in the pilot phase. The Federal
ADR Program Manager’s Resource Manual, published by the Interagency
Alternative Dispute Resolution Working Group, advises using efficiency measures
(comparative cost and time factors) to determine a program’s impact. While other factors such as customer service
must be considered, agencies are encouraged to evaluate cost-benefit results to
the extent practicable.
While the IRS effectively evaluated the FTM pilot program’s
success in meeting the pilot program goals, we believe that using additional
measures in future evaluations would allow management to better gauge how
program results are helping achieve strategic results. As the IRS considers additional ADR programs
and refines existing programs, it could benefit from a more extensive analysis
to help assess the relative contributions of each ADR program.
4. The
Chief, Appeals, in conjunction with the Commissioner, SB/SE Division, should
consider including evaluation measures of costs and benefits when performing
future evaluations of ADR programs.
Management’s
Response: The Chief, Appeals, and
the Commissioner, SB/SE Division, agreed to use cost-benefit analysis in future
evaluations of alternative dispute resolution programs to provide key
information to help weigh the relative contributions of these programs in
meeting strategic goals.
Appendix I
Detailed Objective, Scope, and Methodology
The overall objective of our review was to assess the
effectiveness of the process used to implement the Fast Track Mediation (FTM)
pilot program. We assessed the
marketing of the FTM pilot program to Internal Revenue Service employees and
taxpayers, the training of mediators, and the evaluation of the FTM pilot
program results.
This
review was included in the Treasury Inspector General for Tax Administration’s
Fiscal Year 2001 Strategic Plan. To
meet our overall objective, we established the following sub-objectives and
related audit tests:
I.
To determine if the process
ensured that impacted Compliance employees and taxpayers were informed about
FTM, we interviewed national officials from the Office of the Chief,
Appeals and the Commissioner, Small Business/Self-Employed Division (SB/SE),
Compliance Headquarters Offices in Washington,
DC. We also interviewed a judgmental
interval sample of 100 Compliance employees assigned to 2 of the 4 FTM
geographic pilot sites (Denver and Hartford).
During the interviews, we determined what FTM guidance Compliance
employees were given and what information they provided taxpayers.
II.
To determine if the process
ensured that mediators received the necessary training, we interviewed the FTM
National Program Manager and obtained supporting documentation on actions taken
to develop and deliver mediator training.
We reviewed training records to determine if Appeals Officers who
mediated cases attended mediator training.
We also reviewed participant surveys and compared the mediator training
course material with industry standards to determine if appropriate principles
and techniques were presented.
III.
To determine if the process
effectively evaluated the FTM pilot program results, we interviewed national
officials in SB/SE Compliance and Appeals and the FTM National Program Manager
and obtained supporting documentation to determine pilot program goals and
evaluation results. We also identified
industry standards for evaluating alternative dispute resolution programs to
determine if appropriate measures were included.
Appendix II
Major Contributors to This Report
Daniel R. Devlin, Assistant Inspector General for Audit
(Headquarters Operations and Exempt Organizations Programs)
Mary V. Baker, Director
Mary L. Jankowski, Audit Manager
Alan R. Beber, Senior Auditor
Abraham B. Millado, Senior Auditor
Midori T. Ohno, Auditor
Appendix III
Commissioner N:C
Deputy Commissioner N:DC
Director, Reporting Compliance S:C
Director, General Appeals Operating Unit AP
Chief Counsel CC
National Taxpayer Advocate
TA
Director, Legislative Affairs CL:LA
Director, Office of Program Evaluation and Risk
Analysis N:ADC:R:O
Office of Management Controls N:CFO:F:M
Audit Liaison: Commissioner, Small Business/Self-Employed
Division S
Chief, Appeals AP
Appendix IV
This appendix presents detailed information on the
measurable impact that our recommended corrective actions will have on tax
administration. These benefits will be
incorporated into our Semiannual Report to the Congress.
Type and Value of Outcome Measure:
·
Taxpayer burden – Potential; 26,000 taxpayer cases
impacted; (see page 3).
Methodology Used to Measure the Reported Benefit:
The Internal
Revenue Service provided us with information from the Appeals Centralized Data
System on how many taxpayers, requesting an administrative review, could
potentially qualify to participate in Fast Track Mediation (FTM). We requested taxpayers cases that met the
expanded criteria recommended by the FTM Team.
For the period July 1, 2000, through June 30, 2001, the IRS reported
that about 26,000 taxpayer cases would have qualified under the expanded
criteria.
Based on
this information, we estimate that annually, 26,000 taxpayer cases nationwide
undergoing administrative reviews from the Office of the Chief, Appeals, may be
qualified for FTM under the expanded criteria recommended by the FTM Team. Taxpayers who used the FTM pilot program
process could more expeditiously resolve their tax dispute cases. The average administrative appeal process
took 293 days, while the average FTM pilot program process took about 49
days.
Appendix V
Management’s Response to the Draft Report
The response was
removed due to its size. To see the complete
response, please go to the Adobe PDF version of the report on the TIGTA Public Web
Page.