IRS Examination function employees do not always appropriately inspect and examine prior and/or subsequent year tax returns when warranted, the Treasury Inspector General for Tax Administration (TIGTA) said in a new audit.
Auditors reviewed 68 statistical sample cases and found that 13 (or 21%) of the cases warranted scrutiny of additional returns but none were selected for examination. In 26 (or 38%) of the 68 cases, “there was no evidence that examiners inspected either the prior or subsequent year return to identify similar issues to the years under examination or if large, unusual, or questionable items existed that would warrant examination,” the audit said. Factors that might be considered include the comparative size of an expense, if the nature of the item is significant, the beneficial effect of the manner in which an item is reported, and missing items on the return.
“When examiners do not make the proper decision to select returns for examination, taxpayers are not provided equitable treatment, and the examination is not as effective for improving taxpayer compliance on future tax returns,” TIGTA said.
The audit also found that Compliance function tax examiners are currently unable to assess subsequent year tax returns and select them for audit. As a result, IRS “could be missing an opportunity to conduct examinations more efficiently and consistently from year to year,” TIGTA said. This assessment was based on a review of 68 additional cases which revealed that in 31 (or 46%) of those cases the same issues adjusted on the tax year return under examination were present on the subsequent year return.
The audit is available at https://treas.gov/tigta/auditreports/2009reports/200930034fr.pdf.
For IRS tax audit and tax examination expert help, contact Mike Habib, EA at 877-788-2937 or online at www.myirstaxrelief.com