Tax Administration: Opportunities Exist to Improve Monitoring and Transparency of Appeal Resolution Timeliness

The Taxpayer Bill of Rights entitles taxpayers with the right to appeal a decision of the Internal Revenue Service (IRS) in an independent forum. GAO was asked to review this administrative appeal process within IRS.

Among other things, this report (1) describes the IRS appeal process and staffing; (2) assesses how IRS monitors and manages the time to receive and resolve taxpayer appeals cases; and (3) evaluates the extent to which Appeals communicates customer service standards and assesses taxpayer satisfaction with the appeal process.

GAO reviewed IRS guidance, publications, and documentation on the appeal process. GAO analyzed IRS data for administrative appeal cases closed in fiscal years 2014 through 2017 to compare appeal case resolution time for different types of cases. GAO interviewed IRS officials and a non-generalizable sample of external stakeholders, including attorneys and accountants, knowledgeable about the appeal process. Among other things, GAO compared IRS actions to federal standards for internal control and customer service.

The Internal Revenue Service (IRS) has a standard process to resolve a diverse array of taxpayer requests to appeal IRS proposed actions to assess additional taxes and penalties or collect taxes owed. The process begins with a taxpayer filing an appeal with the IRS examination or collection unit proposing the compliance action and ends with a decision from the Office of Appeals (Appeals).

Appeals must have staff with expertise in all areas of tax law to review taxpayer appeals. However, its staffing levels declined by nearly 40 percent from 2,172 in fiscal year 2010 to 1,345 in fiscal year 2017. Appeals anticipates a continued risk of losing subject matter expertise given that about one-third of its workforce was eligible for retirement at the end of last fiscal year.

Appeals monitors the number of days to resolve taxpayer appeals of examination, collection, and other tax disputes. However, IRS does not monitor the timeliness of transfers of all incoming appeal requests. GAO analysis showed that the time to transfer appeal requests from compliance units varied depending on the type of case (see table below).

Collections workstreams —taxpayer appeals where IRS (1) filed a notice of federal tax lien or proposed a levy (collection due process) or (2) rejected an offer to settle a tax liability for less than owed (offer in compromise).

The Internal Revenue Manual (IRM), IRS's primary source of instructions to staff, requires transfer to Appeals within 45 days for the largest collection workstream. With manager approval, collection staff may have an additional 45 days to work with the taxpayer. Nearly 90 percent of collection appeals closed in fiscal years 2014 to 2017 were transferred to Appeals within 90 days.

Examination workstreams —taxpayer appeals of additional tax and penalty assessments IRS proposed based on its auditing of tax returns over a wide range of examination issues.

IRS does not have an IRM requirement with guidelines and procedures for timely transfer for examination appeals. Accordingly, more than 20 percent of examination appeals closed in fiscal years 2014 to 2017 took more than 120 days to be transferred to Appeals. Delays in transferring appeals can result in increased interest costs for taxpayers.

Although Appeals maintains data on total appeal resolution time—from IRS receipt to Appeals' decision—such information is not readily transparent to IRS compliance units or the public. GAO analysis of IRS data found that, for fiscal years 2014 to 2017, about 15 percent of all appeal cases closed within 90 days (see figure below). About 85 percent of all cases were resolved within one year of when the taxpayer requested an appeal. Total resolution times differed by case type. However, without easily accessible information on resolution times, taxpayers are not well informed on what to expect when requesting an appeal.

Although Appeals has customer a service standard and conducts a customer satisfaction survey, its standard and related performance results are not readily available to the public. Under the GPRA Modernization Act of 2010 (GPRAMA) and Executive Orders, the Department of the Treasury is responsible for customer service performance. Appeals conducts outreach to the tax practitioner community but does not regularly solicit input before policy changes. Without a mechanism, such as leveraging existing IRS advisory groups or alternatively developing its own advisory body, Appeals is missing an opportunity to obtain public input on policy changes affecting the taxpayer's experience in the appeal process.

GAO makes seven recommendations to help enhance controls over and transparency of the IRS appeals process (several of the recommendations are detailed on the following page).

GAO recommends, among other things, that the Commissioner of Internal Revenue

Establish timeframes and monitoring procedures for timely transfer of taxpayer appeals requests by examination compliance units to the Office of Appeals.

Direct the Office of Appeals to regularly report and share with each compliance unit the data on the time elapsed between when a taxpayer requests an appeal to when it is received in the Office of Appeals.

Provide more transparency to taxpayers on historical average total appeal resolution times.

GAO recommends, among other things, that the Secretary of the Treasury, consistent with its responsibilities under GPRAMA and Executive Orders for customer service, ensure that the Commissioner of Internal Revenue develops a mechanism to solicit and consider customer feedback on a regular basis on current and proposed IRS appeal policies and procedures.

Treasury and IRS agreed with GAO's recommendations, and IRS said it will provide detailed corrective action plans.

The Taxpayer Bill of Rights gives taxpayers the right to appeal a decision  of the Internal Revenue Service (IRS) in an independent forum. IRS  expounded further on this right, stating that “taxpayers are entitled to a  fair and impartial administrative appeal of most IRS decisions, including  many penalties, and have the right to receive a written response  regarding the Office of Appeals (Appeals’) decision.” If taxpayers  disagree with IRS decisions to assess additional tax or take collection  action, they can generally bring their disputes before Appeals.

Appeals’ mission is to resolve taxpayer disputes, without litigation, on a  basis which is fair and impartial to both the government and the taxpayer  in a manner that will enhance voluntary compliance and public confidence  in the integrity and efficiency of the IRS. Appeals’ policy is to provide a  prompt conference and decision in each case. Timely appeal decisions  are important for (1) the taxpayer and IRS to know the amount of taxes  owed or outcome of other tax matters in dispute, and (2) the Department  of the Treasury (Treasury) to receive any additional revenue involved at  the earliest practicable date.

You asked us to review the IRS administrative appeal process, the time to  resolve taxpayer appeals, and taxpayer satisfaction with the process. This  report (1) describes the steps and staffing levels for the IRS appeal  process and assesses the extent to which Appeals conducts workforce  planning in a time of declining resources; (2) assesses how IRS monitors  and manages the time to receive and resolve taxpayer appeals cases;  and (3) evaluates the extent to which Appeals communicates customer  service standards and assesses taxpayer satisfaction with the appeal  process.

To describe the IRS administrative appeal process, we reviewed Internal  Revenue Manual (IRM) sections that detail how IRS employees are to  process appeal cases. We also reviewed the IRS website and IRS  documents and publications that describe the appeal process and  indicate how taxpayers are to file an appeal. We interviewed senior  Appeals managers to understand how Appeals operates and how cases  are processed when Appeals receives them. To understand the initial IRS  receipt of taxpayer appeals, we interviewed IRS examination and  collection officials in the Small Business/Self-Employed (SB/SE) and  Wage and Investment (W&I) business operating divisions. These two IRS  divisions accounted for 97 percent of appeal cases closed in fiscal year  2017. We interviewed Appeals administrative processing staff who  receive and route cases in Appeals as well as customer service staff who  handle taxpayer inquiries about the status of their appeals. We also  analyzed data from the Appeals Centralized Database System (ACDS)  for 346,038 appeals cases closed in fiscal year 2014 (the oldest complete  year available) through fiscal year 2017 (the last complete fiscal year  available at the time of our analysis). We used the data to calculate the  percentage of taxpayers who had a representative with them through the  process and to determine the percentage of cases that had a conference  with appeals, including those with an in-person conference. We also  conducted observational visits to Appeals locations in Philadelphia,  Pennsylvania and Atlanta, Georgia to interview a non-generalizable group of Appeals frontline supervisors and staff who handle a diversity of  appeals cases to better understand how appeals cases are assigned to  staff, as well as the case review process. We selected these locations  because they allowed us to interview Appeals frontline staff who work a  wide variety of taxpayer appeals across all seven Appeals work  categories.

To describe the staffing levels and assess the extent to which Appeals  conducts workforce planning in a time of declining resources, we obtained  and analyzed staffing information and reviewed the IRM section that  explains the Appeals human capital programs and the IRS Strategic  Workforce Planning Team. We interviewed Appeals and IRS human  capital staff to better understand how they conduct workforce planning  and reviewed documentation about the IRS Strategic Workforce Planning  team’s activities and timeframes. We then compared Appeals workforce  planning activities to our key principles of effective workforce planning.  We also reviewed a hiring tool Appeals uses to project case inventory  based on historical case data and current staffing levels to determine  workforce needs and interviewed Appeals managers about strategies and  policies for maintaining staff skills.

To assess how IRS monitors and manages the time to receive and  resolve taxpayer appeals cases, we reviewed IRS documents, including  IRM sections, IRS procedures, and quarterly Appeals performance  reports and monthly reports to the Commissioner of Internal Revenue.  We compared the controls identified to federal standards for internal  control. We interviewed IRS officials responsible for managing Appeals’  review process as well as SB/SE and W&I officials managing initial  appeals receipt for those compliance units. We reviewed the measures  IRS uses to describe timeframes to resolve appeals, which quantify case  review time in average days. Overall averages can be a broad measure  and may be affected by outliers. Finally, we analyzed data from the ACDS  for 346,038 appeals cases closed in fiscal year 2014 through fiscal year  2017. We calculated and compared average appeal case resolution time  for different types of cases. For purposes of this review, we determined  that the ACDS data used in our analysis were reliable. Our data reliability  assessment included reviewing relevant documentation, interviewing  knowledgeable IRS officials, and reviewing the data to identify obvious  errors or outliers.

To evaluate the extent to which Appeals has and communicates customer  service standards and assesses taxpayer satisfaction with the appeal  process, we identified federal standards for customer service under the  GPRA Modernization Act of 2010 (GPRAMA), as well as customer  service-related Executive Orders, Office of Management and Budget  (OMB) guidance, and internal control standards and compared IRS  Appeals actions to those standards. We reviewed IRM documentation of  the Appeals customer service standard and related measures from the  Appeals Quality Measurement System (AQMS), as well as AQMS annual  reports for fiscal years 2014 through 2017.

To understand how Appeals obtains customer feedback, we reviewed the  methodology for the annual Appeals customer satisfaction survey and  analyzed survey reports for fiscal years 2016 through 2017 as well as  focus group reports from fiscal years 2012 through 2014 (the last year  IRS held these focus groups). We drew on results from the surveys and  focus groups to describe factors that affect Appeals customer satisfaction.  We interviewed Appeals managers and staff who handle cases to  understand their views on factors that affect taxpayer satisfaction and  understand how Appeals communicates service standards and measures  customer satisfaction. We also conducted semi-structured interviews with  13 external stakeholders from law and accounting organizations who  have represented a mix of higher- and lower-income individuals as well  as corporations and other businesses to understand their experiences  with the appeal process. To select interviewees with prior experience with  IRS and its appeal process, we used a snowball sampling technique  based on our review of IRS partner and stakeholder organizations, public  comments about the appeals process, and referrals from initial interviewees. Information from this sample of stakeholders is not  generalizable.

We conducted this performance audit from February 2017 to September  2018 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.

Enforcing tax laws helps IRS collect revenue from noncompliant  taxpayers and, perhaps more importantly, promotes voluntary compliance  by giving taxpayers confidence that others are paying their fair share.  However, every year, taxpayers fail to pay hundreds of billions of dollars  in taxes. This tax gap—the difference between tax amounts that  taxpayers should pay and what they actually pay voluntarily and on  time—has been a persistent problem for decades. In our 2017   High-Risk Report we continued to include Enforcement of Tax Laws as a  high-risk area. Key components of this high-risk area include both  addressing the tax gap and improving tax compliance.

IRS has four business operating divisions responsible for enforcing tax  law and providing taxpayer service to ensure taxpayer compliance, as  shown in table 1. For this report, we refer to these divisions as  compliance units and their staff as compliance staff.

Formed in 1927, Appeals is the only administrative function of IRS with  authority to consider settlements of tax controversies and has the primary  responsibility to resolve these disputes without litigation to the maximum  extent possible. IRS states that the appeal process is both less formal  and costly than court proceedings and is not subject to judicial rules of  evidence or procedure.

The IRS Restructuring and Reform Act of 1998 (Restructuring Act)  specified that IRS must provide an independent appeals function.  Appeals carries out this function. Appeals is a separate unit within IRS,  and its chief reports directly to the Commissioner of Internal Revenue.  The Restructuring Act also prohibits communications between Appeals  staff and other IRS functions without the taxpayer or representative being  given an opportunity to participate. In 2016, IRS clarified that Appeals is  separate from the IRS compliance functions, including examination and  collection units, that initially review a taxpayer’s case and that Appeals  may return cases to compliance units when taxpayers provide new  information for consideration.

Taxpayers may appeal many IRS decisions, including tax collection  actions and proposed tax assessments, with some exceptions.  Taxpayers cannot appeal solely due to moral, religious, political,  constitutional, conscientious, or other similar grounds. Taxpayers  requesting appeals can range from individuals to large multinational  corporations. IRS provides publications that explain taxpayer’s rights for  both examination and collection appeals. IRS also developed online  self-help tools to help taxpayers understand what can be appealed.

For collection actions, the Restructuring Act created a statutory right for  collection due process appeals and provides an impartial review for  taxpayers facing possible levies for collecting delinquent taxes or who  have had a notice of federal tax lien filed against them. IRS also offers a  collection appeals program for a broader range of collection issues, such  as when IRS rejects or terminates an installment agreement to pay taxes  owed. In contrast, for examination decisions, the tax code does not  provide statutory rights to administrative appeals. In certain  circumstances, IRS will designate an examination issue for litigation and  not offer access to the administrative appeal process. In other  circumstances, IRS may decide not to refer cases docketed in the U.S.  Tax Court to Appeals for settlement if it determines doing so will be in the  best interest of sound tax administration. For example, IRS may decide  not to refer a docketed case to Appeals in cases (1) involving a significant  issue common to other cases in litigation for which it is important that the  IRS maintain a consistent position or (2) related to a case over which the  Department of Justice has jurisdiction.

Appeals’ workload is organized into seven workstreams based on  similarities in case characteristics. Two workstreams involve collection  appeals where IRS is pursuing taxpayers who failed to fully pay taxes and  penalties owed. Four workstreams include a wide range of examination  appeals where IRS is proposing additional tax and penalty assessments  based on auditing tax returns. The last workstream covers other cases  that do not fit into the collection and examination workstreams. Figure 1  below provides an overview of the appeal workstreams, including which  IRS business operating divisions transfer the cases to Appeals.

While Appeals is separate from IRS’s examination and collection  compliance functions, its budget is part of the IRS enforcement budget  appropriation. From fiscal year 2010 to fiscal year 2018, Appeals  represented about 4 percent of the IRS enforcement budget  appropriation. Appeals’ funding has decreased by 29 percent since 2010  to $175 million in 2018 (see fig. 2). Adjusting for inflation, Appeals funding  has decreased 38 percent since 2010.

Over this same time period, Appeals received fewer cases as IRS  enforcement activities declined. For example, the individual examination  (or audit) coverage rate declined by about 50 percent from fiscal years  2010 to 2017. Also, the number of notices of federal tax liens filed  declined by nearly 60 percent over the period. Faced with declining  budgetary resources, IRS compliance units can prioritize and select fewer  taxpayers to examine or pursue collection action. Appeals officials said  their office generally must work every case received. Appeals aims to  close approximately the same number of cases each year as it  anticipates receiving during the year. Appeals closure rate—or the  number of cases it resolved divided by the number it received in a   year—improved from 98 percent for fiscal year 2010 to 103 percent for  fiscal year 2017. Annual closure rates for 2017 varied by workstream,  ranging from 72 percent for the innocent spouse workstream to nearly   109 percent for the examination workstream. Figure 3 shows the total  number of cases received and pending at year end since fiscal year 2010.

Appeals Has a Standard Process to Resolve Diverse Taxpayer Cases but Has Not Assessed Critical Skills Gaps in Its Declining Workforce

IRS Uses a Standard Process to Resolve Taxpayer Appeals

The diverse array of appeal requests across IRS compliance units that  flow into Appeals workstreams follows the same standard process. As  illustrated in figure 4, the appeal process involves multiple steps,  beginning with a taxpayer filing an appeal of a proposed IRS compliance  action and ending with a decision from Appeals. If the taxpayer and IRS  cannot reach agreement through the appeal process, the taxpayer may  have the case reviewed in federal court if eligible. While certain types of  cases must go through the appeal process before review by a court,  others may bypass it and taxpayers may directly petition IRS’s proposed  actions in federal court.

Compliance action. For proposed examination actions to assess  additional taxes and penalties or collection actions, such as filing a notice  of federal tax lien or proposing a levy to collect delinquent taxes, IRS  notifies the taxpayer in writing about the proposed compliance action and  explains their appeal rights. The notification states that the taxpayer has  30 days to file an appeal and includes a list of IRS publications and other  information on how to file an appeal.

Taxpayer action. Within 30 days from the compliance notification,  taxpayers who disagree with the IRS proposed action must send a formal  written request to appeal. The appeal request must include:  the taxpayer’s name and address, and a daytime telephone number; a statement that the taxpayer wants to appeal the IRS findings to the a copy of the letter showing the proposed changes and findings that  the taxpayer does not agree with;  the tax periods or years involved; a list of the changes that the taxpayer does not agree with, and why  the taxpayer does not agree;  the facts supporting the taxpayer’s position on any issue that the  taxpayer does not agree with;   the law or authority, if any, on which the taxpayer is relying; and a signature on the written protest, stating that it is true, under the  penalties of perjury.

Taxpayers may choose to represent themselves or have professional  representation before Appeals. A representative must be a federally  authorized practitioner, who can be an attorney, certified public  accountant, or enrolled agent authorized to practice before the IRS.  Low-income taxpayers or those who speak English as a second language  may be eligible for free or low cost representation from a Low Income  Taxpayer Clinic. Based on our analysis of ACDS data for appeal cases  closed from fiscal year 2014 through 2017, 57 percent of taxpayers had a  representative and 43 percent were taxpayers representing themselves.  The share of appeal cases with taxpayers representing themselves varied  significantly across the workstreams, ranging from 18 percent for large  case examination appeals to 95 percent for innocent spouse appeals.

Taxpayers are instructed to send their appeal and supporting material to  the examination or collection compliance unit that proposed the action.  IRS states sending the appeal request directly to the Office of Appeals  will result in delays and may result in the appeal not being considered a  timely request.

Compliance review. Compliance staff work directly with the taxpayer to  try to resolve the issue once they determine a taxpayer is requesting an  appeal. This may involve multiple interactions by telephone or  correspondence. Compliance staff will review any new information  submitted by the taxpayer as they attempt to resolve open collection or  examination matters. Figure 5 illustrates the steps compliance staff are to  follow when they receive an appeal.

If compliance staff cannot reach agreement with the taxpayer, the  compliance unit forwards the appeal request and documentation from the  taxpayer along with the proposed compliance action documentation to  Appeals. Appeals provides a case routing tool on the IRS intranet with  instructions and addresses for compliance staff transferring appeal  documentation to an Appeals location. In general, taxpayer appeals  related to examination and collection campus cases are transferred to an  Appeals campus location. Appeals for field examination and collection  cases are transferred to an Appeals office near the taxpayer’s location.  Compliance staff may not forward an appeal request to Appeals if the  taxpayer did not file the request in time or refuses to sign the appeal  under penalty of perjury, among other reasons.

Appeals receipt and review. Figure 6 provides an overview of how  Appeals receives and assigns cases. Upon receipt of an appeal, Appeals  processing staff log each appeal case into the ACDS used to control and  track cases in Appeals inventory. Most appeal cases arrive from  compliance as paper files, and Appeals is working to receive certain  collection cases electronically. For examination cases, Appeals  processing staff also check that sufficient time remains for Appeals to  complete its review. Generally, examination cases must have at least   365 days remaining on the assessment statute expiration date when the  case is received in Appeals.

An Appeals manager is to assess a case’s complexity and difficulty to  determine how to assign the case. The manager is to consider the  factual and legal complexity of the case issues and the level of  conference negotiation skills needed to handle the case. The manager  also is to consider whether the case has industry-wide implications or the  decision would potentially affect other taxpayers and overall voluntary  compliance. Generally, Appeals employees with higher skill levels and  expertise are expected to be assigned more complex cases.

The manager is then to assign the case to an Appeals staff person based  on the employee’s grade level, ability, and case load. The Appeals  employee leading the case may also draw on support from Appeals  technical specialists, such as engineers and economists. For the large  case examination workstream, an Appeals team case leader may  oversee multiple Appeals employees working a large appeal case with  highly complex issues and disputed amounts of $10 million or more.

Figure 7 provides an overview of the Appeals case review process once a  case is assigned to an Appeals employee. First, the Appeals employee  sends a letter to the taxpayer with information about the appeal process  and schedules a meeting. The letter details what additional material is  needed, if any, and explains that a determination will be made on the  information provided if there is no further contact from the taxpayer. The  letter states that Appeals is independent from IRS compliance offices and  refers to Publication 4227—Overview of the Appeals Process. Finally, the  letter mentions that the taxpayer may be asked to participate in an  Appeals customer satisfaction survey after they have completed the  appeal process.

Appeals offers conferences to provide taxpayers with an opportunity to  present their position (see fig. 7). Based on our analysis of ACDS data for  appeal cases closed, about 87 percent of appeal cases that were closed  in fiscal year 2014 through 2017 had a conference. Most conferences  are held by telephone which can be a quick and efficient means for  taxpayers to resolve their issues. Appeals campus locations conduct  telephone conferences because these locations currently are not  configured to accommodate in-person conferences. Appeals may be able  to resolve some taxpayer appeals with mail correspondence only. For  perspective, about 10 percent of appeal cases that were closed and also  had a conference from fiscal year 2014 through 2017 did so only by  correspondence, and the penalty workstream accounted for nearly   two-thirds of those appeal cases.

Appeals also holds in-person conferences, usually at an Appeals office.  Alternatively, under its conference policy as of August 2018, Appeals staff  can meet taxpayers in a mutually convenient location when the taxpayer,  representative, or business is beyond a certain distance from an Appeals  office. In-person conferences may be used, among other things, for  reviews involving substantial books and records, judging the credibility of  witnesses, or accommodating with a taxpayer with a special need, such  as disability or hearing impairment. Based on our analysis of ACDS data  for appeal cases closed, about 6 percent of appeal cases that were  closed from fiscal year 2014 through 2017 had an in-person conference,  although this varied significantly by workstream. About half of the large  case examination appeals closed over the period had in-person  conferences, whereas about 3 percent of appeal cases closed in the  collection due process, innocent spouse, and penalty workstreams had  in-person conferences.

As of August 2018, Appeals had revised its policy on in-person  conferences twice since October 2016. Prior to that, campus appeal  cases were transferred to a field office when taxpayers requested a face- to-face conference. For fiscal year 2017, Appeals limited in-person  conferences to appeal cases meeting specific criteria, such as involving  those with substantial books and records to review or where the taxpayer  has special needs that can only be accommodated with an in-person  conference. Appeals managers had final approval on granting taxpayer  requests for in-person conferences. In October 2017, Appeals further  revised its policy stating it would attempt to schedule in-person  conferences requested by taxpayers for field appeal cases at a time and  location reasonably convenient for both the taxpayer and Appeals.  Appeals stated it was intending to strike the right balance between  making in-person conferences available to taxpayers and ensuring the  process is efficient and workable for Appeals.

Appeals also offers virtual technology interaction to potentially allow more  taxpayers, especially those in remote locations, to have an option other  than a phone conference. Using IRS virtual service delivery capacity,  Appeals staff at campus locations can conduct virtual conferences with  taxpayers who schedule to use video terminals at some taxpayer  assistance centers. In August 2017, Appeals began piloting web-based  virtual conferences.

If taxpayers provide Appeals with new information or evidence, or raise a  new issue that requires additional investigation or analysis, Appeals will  return the case to the originating compliance unit for further review. After  a compliance unit transfers a case to Appeals, communication between  compliance staff and Appeals staff is generally restricted without the  taxpayer or representative being given an opportunity to participate.

In line with its mission to resolve cases prior to litigation, Appeals is  authorized to review the facts of the case considering the hazards that  would exist if the case were litigated. Appeals is the only IRS unit  authorized to consider hazards of litigation when deciding whether to  allow taxes and penalties. This means that Appeals may recommend a  fair and impartial resolution somewhere between fully sustaining and fully  conceding the compliance unit’s proposal that reflects the probable result  in the event of litigation.

Appeals decision. Appeals makes a decision on a taxpayer’s case after  weighing evidence from the compliance unit and the taxpayer. Appeals  determines whether IRS compliance decisions correctly reflect the facts,  as well as applicable law, regulations, and IRS procedures. To resolve an  examination appeal case, Appeals may (1) agree with the IRS  examination compliance unit and fully sustain its recommended  assessment, (2) disagree and reduce the recommended assessment to  partially sustain the assessment, or (3) fully concede to the taxpayer’s  position and not sustain the assessment. To resolve a collection appeal  case, Appeals may (1) agree with and sustain the proposed enforcement  action, (2) disagree and modify the proposed action (e.g., propose an  installment agreement rather than a levy) or defer collection, or (3) fully  concede to the taxpayer’s position and not sustain the collection action.

This is the final decision by Appeals. Once Appeals makes its decision, it  informs the taxpayer in writing and also IRS. Taxpayers dissatisfied with  Appeals’ decision may file a petition in tax court if they are eligible.

Appeals Has Not Conducted a Skills Gap Analysis

To handle the diverse array of taxpayer appeals across all workstreams,  IRS relies on an Appeals workforce that must have sufficient numbers of  staff with expertise in all areas of tax law. However, Appeals experienced  nearly a 9 percent annual attrition rate from fiscal year 2015 to fiscal year  2017 and projects a similar attrition rate for fiscal years 2018 and 2019.  As shown in figure 8, Appeals staffing levels have declined from 2,172 in  fiscal year 2010 to 1,345 in fiscal year 2017, nearly a 40 percent  decrease. As previously noted, Appeals workload also decreased over  this period of time as IRS examination and collection enforcement activity  declined.

Appeals anticipates a continued risk of losing subject matter expertise  given that a large share of its workforce is eligible for retirement.  According to an Appeals report, at the end of fiscal year 2017, about   one-third of the Appeals workforce was eligible for retirement. Moreover,  Appeals officials reported that close to half of the staff who are critical to  Appeals’ mission—including those who handle the most complex   cases—were eligible for retirement. Based on our analysis of ACDS data  for appeal cases closed, these types of cases accounted for about   one-third of appeal cases closed in fiscal years 2014 through 2017.

Gaps in available staff with critical skills and training can result in delays  resolving appeal cases. For example, in fiscal year 2017 Appeals  received an increased number of innocent spouse appeals, and officials  told us they initially lacked sufficient numbers of trained staff ready to  review those cases. As of April 2018, the time from receipt by Appeals to  case closing for the innocent spouse workstream had increased by   39 percent over the same time period in 2017—from 205 days to   285 days. In response, Appeals was training additional staff and is  working to resolve the increased volume of cases.

Appeals has taken action to mitigate the risk of having a sufficient number  of staff needed to handle its workload. Appeals has a tool that draws on  historical ACDS case data to project the number of Appeals staff needed  to review the numbers and types of case receipts expected from IRS  compliance units. From fiscal year 2014 through fiscal year 2017,  Appeals requested and received approval to hire 292 employees. In  November 2017, IRS changed its policy to allow business units funded  from IRS’s enforcement budget, including Appeals, to manage their own  staff levels in certain instances provided they do not exceed their fiscal  year staff limits. Under this policy, Appeals will be able to hire staff as its  workforce declines due to attrition. While the steps Appeals has taken can  be useful stopgap measures, they are not substitutes for nor do they  replace the longer-term benefits of strategic workforce planning and  conducting critical skills gap analysis.

We have identified that key principles of effective workforce planning  include that an agency must define the critical skills that it will need to  meet its strategic goals and achieve its mission in the future. An agency  must then develop strategies tailored to address staffing and skills gaps in  its workforce, including how to acquire, develop, and retain staff to meet  its goals. We have previously reported that mission-critical skills gaps  within the federal workforce pose a high risk to the nation and that  individual agencies must take steps to address skills gaps. We have  also reported on the need to close government-wide mission critical skills  gaps and to develop strategies to help agencies meet their missions in an  era of highly constrained resources.

Agencies that do not conduct a critical skills gap analysis risk significant  negative effects. We have previously reported that in a time of declining  resources, it is important for top management to take actions that ensure  the agency maintains capacity—including its workforce—in order to  achieve its mission. Once skill gaps are identified, strategies should be  tailored to address the gaps.

Appeals has identified knowledge loss and maintaining expertise during a  time of declining staff levels as one of its top risks in its Business  Performance Reviews. Although it has not conducted a skills gap  analysis, Appeals has identified that maintaining expertise in all areas of  tax law is essential because it must have staff trained to work a diverse  array of appeal cases across all workstreams. Many Appeals staff who  review appeal cases, including those who conduct in-person conferences,  are in the appeals officer job series critical to Appeals’ mission. As of July  2018, about 60 percent of the Appeals workforce was in this job series.

As of September 2018, Appeals is participating in a larger IRS effort to  address workforce planning. IRS states that its workforce planning is to  involve an integrated and systematic process for identifying current and  future human capital needs, the competencies that align with future  organizational goals, and the strategies to be implemented to reduce the  gaps. Created in 2017, the IRS Workforce Planning Council is  comprised of representatives from all business units, including Appeals.  The council is to share workforce planning activities and best practices  across IRS and assist in developing the IRS strategic workforce plan. The  council is working to develop an agency-wide workforce plan, which will  include identifying gaps between current and projected workforce needs  and developing strategies to close the gaps.

According to IRS human capital officials responsible for workforce  planning, a service-wide strategic workforce planning effort will include  identifying skills and competency gaps in mission critical occupations.  Initially planned for the middle of fiscal year 2018, the initiative was  delayed as of September 2018, according to IRS human capital officials.  IRS units redirected resources to implementation of Public Law 115-97— commonly referred to by the President and many administrative  documents as the Tax Cuts and Jobs Act—and requested an extension.

IRS human capital officials also told us the workforce planning team lost  resources due to attrition and anticipated the initiative would be complete  in the third quarter of fiscal year 2019. Appeals officials told us that they  expected to begin their activities once the IRS planning tools are in place.

While the broader Treasury and IRS initiatives will benefit Appeals with  longer-term strategic workforce planning, Appeals faces ongoing  challenges in achieving its goal and may be unable to mitigate the risk of  maintaining staff expertise. Gaps in the Appeals workforce could delay  the timely review of Appeals cases. The large share of its staff who are  critical to the mission who are eligible for retirement underscores the  importance of conducting critical skills gap analysis for Appeals. Given  Appeals’ unique role in ensuring taxpayers’ administrative option to  dispute most IRS decisions, it is important for Appeals to have the tax  expertise necessary to review appeals cases across multiple  workstreams. These factors underscore the importance of Appeals  conducting a skills gap analysis in coordination with Treasury and IRS  human capital efforts to ensure Appeals immediate skill needs are  reflected in broader agency planning.

IRS Does Not Monitor Timeliness of Transfers of All Incoming Appeal Requests and Appeals Does Not Communicate Total Resolution Times to Taxpayers

Appeals Has a Data- Driven Process and Measures to Track and Manage Case Workstreams

Within the standard process that all appeal cases follow, Appeals has  developed a series of process measures that use ACDS data to monitor  the amount of time for a case to move through an Appeals workstream.  These measures track the number of days from Appeals receipt through  the appeal review process to when a case is closed in ACDS. Appeals  also measures the amount of time for compliance units to transfer  appeals cases. For the purpose of this report, total appeal resolution time  is the length of time from when a taxpayer submitted the appeal request  to IRS to when the case is closed in ACDS.

Appeals managers use ACDS to monitor progress staff have made  reviewing each case assigned to them, including holding a conference  with the taxpayer and reaching a decision to resolve the appeal. ACDS  inventory reports allow managers to monitor total employee time per case  and determine if a case has not had any activity recorded for 60 days.  Appeals officials explained that the process measures are indicators that  assist in making management decisions and identifying data driven  process efficiencies to control workflow within each workstream. For  example, an Appeals manager may use the ACDS data to address case  review backlogs and offer assistance to help expedite case review.  Appeals reports its review time measure by workstream in its monthly  performance report to the Commissioner of Internal Revenue.

IRS Does Not Always Transfer Collection Appeals on a Timely Basis and Does Not Monitor Incoming Examination Appeals or Time to Transfer to Appeals

The IRS website states that if a taxpayer has not heard from Appeals and  it has been more than 120 days since the request was submitted, the  taxpayer should contact the IRS office to which they sent their appeal  request. According to IRS examination and collection officials we  interviewed, compliance unit staff attempt to resolve all taxpayer requests  and work with taxpayers to obtain additional information if needed and  answer questions about pending compliance actions. According to  Appeals officials, there are different levels of case complexity across the  workstreams.

For appeal cases closed from fiscal years 2014 through 2017, table 2  shows the average number of days from when IRS received a taxpayer  appeal to when the compliance unit completed its review and transferred  the case file to Appeals. Across the appeals workstreams, the compliance  review time varied from 30 days for innocent spouse appeals to 108 days  for large case examination appeals. Any delay during compliance review  adds to the total time to resolve an appeal. As shown in table 2,  compliance review accounted for about a quarter of the total resolution  time for collection appeals. Among the examination workstreams, the  compliance review share of total resolution time ranged from 12 percent  for innocent spouse appeals to about 45 percent for penalty appeals.

According to the IRM, IRS requires SB/SE collection units to review  collection due process appeals within a 45 day period of receipt of the  taxpayer requests. The 45 calendar days after receipt of an appeal  request includes time to ensure completeness of the request, obtain  additional information if necessary, and transfer the request to Appeals.  Collection unit staff reviewing appeal requests may experience delays  with taxpayers submitting additional material to support their requests.  With management approval, collection units may have an additional   45 days to continue working with the taxpayer to resolve the collection  issue in dispute. The IRM time requirement does not specifically apply to  offer in compromise collection appeals.

According to our analysis of ACDS data for appeals closed in fiscal years  2014 to 2017, the majority of collection due process appeals were  transferred within the IRM time requirements. In fiscal year 2017,  approximately 57 percent of collections due process appeals were  transferred in less than 45 days and approximately 93 percent of these  cases were transferred within 90 days. However, IRS did not always  transfer collection due process appeals in a timely manner. For collection  due process appeal cases closed in fiscal year 2017, approximately   4 percent (1,559) of these collection appeals took more than 120 days to  be transferred to Appeals (see fig. 9).

As shown in figure 9, the majority of offer in compromise collection  appeals were also transferred within 90 days, even though the IRM time  requirement applies specifically for collection due process appeals.  Approximately 11 percent (995) of these collection appeals took more  than 120 days to be transferred to Appeals in fiscal year 2017.

Delays in transferring collection due process appeals, in turn, affect  prompt resolution for the taxpayer and IRS. Each tax assessment has a  collection statute expiration date of 10 years after the assessment. When  a taxpayer appeals a collection action within 30 days of receiving the  notice, IRS suspends further collection activity until Appeals decides the  case. When the IRS suspends the collection statute for a period longer  than its policy allows, this means that the taxpayer can face a longer  period where IRS can collect the balance owed.

Standards for Internal Control in the Federal Government states that  management should establish and operate monitoring activities to monitor  internal controls. Management should evaluate the results and remediate  any identified deficiencies.

SB/SE collection tracks the number of collection due process appeals that  are not transferred to Appeals within 45 days of receipt from the taxpayer.  SB/SE collection officials told us that they do not have reports or tools to  systematically track transfer times for other types of collection appeals.  Although SB/SE has the capacity to identify how long collection due  process appeals have been waiting, collection officials we interviewed  acknowledged that they do not always monitor whether they are meeting  the transfer time requirement. For non-docketed cases closed in fiscal  year 2017, the deficiency in transferring nearly 1,600 collection due  process appeals more than 120 days after receipt points to the lack of  monitoring. Evaluating the existing tracking reports for collection due  process appeals and remediating deficiencies in collection staff following  procedures would be a key step to achieve timely transfer of these  collection appeals.

Unlike the requirements for collection due process cases, the IRM does  not establish timeframes for compliance review and transfer of taxpayer  appeals of examination disputes. According to Appeals officials,  examination cases can have many issues, and the level of review to try to  resolve examination issues can be significant prior to the taxpayer appeal  request being transferred to Appeals. Review procedures differ across the  business operating divisions.

In its examination quality standards, SB/SE field examination has national  standard timeframes, which include 20 days from the receipt of a  taxpayer appeal request to close the examination case and then 10 days  for SB/SE technical services to transfer the file to Appeals. IRS officials  acknowledged that SB/SE field does not always meet its 30-day  timeframe standard for appeal transfers, in part, because examiners must  review any new information submitted with a taxpayer’s appeal request.

Our analysis of ACDS data showed that about two-thirds of all  examination appeals closed in fiscal years 2014 through 2017 had been  transferred from IRS examination compliance units within 90 days.  However, nearly a quarter of examination appeals took more than   120 days to be transferred to Appeals (see fig. 10).

As shown in figure 11, transfer times for examination appeals varied  across IRS examination compliance units. For appeal cases closed in  fiscal year 2017, more than two-thirds of examination appeals originating  in SB/SE and LB&I were transferred by those units within 90 days. For  examination appeals originating in W&I, less than half were transferred  within 90 days, and 37 percent took more than 120 days to transfer.  TE/GE transferred fewer appeals than the other units, but nearly half of  TE/GE appeals took more than 120 days to be transferred to Appeals.

Delays in transferring examination appeal requests can result in  increased costs for taxpayers because interest continues to accumulate  on the tax liability during the appeal process. Further, taxpayers unsure of  the status of their appeals, particularly those over 120 days, may  generate additional calls and correspondence with IRS—further tying up  other IRS staff to respond to inquiries on appeals experiencing delayed  transfer.

IRS examination officials in SB/SE and W&I, which accounted for   97 percent of all examination appeals closed in fiscal year 2017, said that  their compliance units do not specifically track incoming appeal requests  and the time spent on initial appeal review within compliance. In effect,  appeal requests resolved during compliance review would be reflected as  compliance cases closed in the examination information systems. As a  result, IRS does not maintain readily available data on the total number of  examination appeal requests received and how many are resolved during  initial review by compliance.

IRS campus examination officials we interviewed said that taxpayer  correspondence delays contribute to increased time to identify and  transfer correspondence examination appeals for SB/SE and W&I. A  taxpayer request for an appeal arrives like any other taxpayer  correspondence related to ongoing correspondence examinations.  However, according to W&I campus examination officials, taxpayer  requests may sit for months before they are identified as an appeal. Once  compliance unit staff determine an examination dispute cannot be  resolved in their unit, the appeal request will be transferred to Appeals.  SB/SE and W&I examination officials we spoke with said the steps to  transfer the files to Appeals take about 5 to 10 days.

IRS examination officials we interviewed explained that they cannot  readily track information on the number of days between the taxpayer’s  request for an appeal to when the case was transferred to Appeals. They  explained that it could require looking case by case in the examination  systems. SB/SE and W&I officials we interviewed were not aware of any  feedback from Appeals about the timeliness of the appeals requests  transferred from their units.

Although Appeals has this information, it does not include compliance  transfer time information in its own monthly performance reports to the  Commissioner of Internal Revenue. Also, Appeals officials said that they  historically have not provided ACDS compliance transfer time data to IRS  compliance units. Appeals has quarterly coordination meetings with the  various IRS compliance units to discuss how compliance plans may affect  projected appeal case volumes as well as technical training opportunities.  Appeals officials said that information about transfer times has been  shared at prior meetings but is not a standing agenda item. As a result,  Appeals and compliance units do not consistently review performance  data on the amount of time for compliance units to transfer taxpayer  cases to Appeals.

Critical information about the time it takes to transfer cases from  compliance units is collected by Appeals as part its process measures but  has not been shared within IRS, including with other units involved in the  appeal process. The ongoing coordination meetings between Appeals  and IRS compliance units could present a valuable opportunity to share  data about the length of time it takes for cases to be transferred to  Appeals. Sharing this information could be a low-cost first step to help  IRS examination units understand their current performance and how  compliance review factors into total appeal resolution time.

Standards for Internal Control in the Federal Government also states that  management should define objectives in specific terms so they are  understood at all levels of the entity. This involves clearly defining what is  to be achieved, who is to achieve it, how it will be achieved, and the time  frames for achievement. Internal control standards require that controls  be documented, and an agency’s documentation of them should be  properly managed and maintained.

IRS requires primary sources of guidance with an IRS-wide or  organizational impact—such as policy documents, procedures, and  guidelines—to be included in the IRM. This requirement is intended to  ensure that IRS employees have the approved policy and guidance they  need to carry out their responsibilities in administering the tax laws. The  absence of defined timeframes for the initial compliance review and  documented controls over incoming examination appeals make it difficult  to hold IRS units accountable for ensuring timely transfer to Appeals.

Appeals Case Review Times Vary Across Workstreams

The IRM specifies that Appeals should complete a conference with a  taxpayer in a timely manner and make a prompt decision to resolve the  dispute. This enables the taxpayer to know with the least amount of  delay the final IRS decision about the amount of tax liability or other issue  in dispute. It also results in Treasury receiving any additional revenue  involved at the earliest practicable date.

Within Appeals, the time from Appeals receipt to a decision closing the  case varies across the Appeals workstreams, as shown in figure 12. For  fiscal years 2014 to 2017, collection due process—the workstream with the highest volume of closed cases—averaged 193 days to resolve a  case within Appeals. Average appeals review time for large case  examination appeals, the smallest volume, averaged 529 days.

Transparency for Taxpayer Total Resolution Time Is Limited

Although IRS states on its website that it takes anywhere from 90 days to  1 year for Appeals to resolve a case, this generic timeframe does not  reflect the total resolution time counting from when a taxpayer requests  an appeal to when a final decision is made. Further, this timeframe does  not provide perspective on the range of resolution times across different  types of appeals. According to our analysis of ACDS data of appeal cases  closed from fiscal year 2014 through 2017, about 15 percent of all appeal  cases closed within 90 days. Approximately 85 percent of all cases were  resolved within 1 year of when the taxpayer requested an appeal.  However, over that same period, approximately 15 percent of all appeal  cases took more than one year in total to resolve, and of these,  approximately 2 percent of all closed cases took more than 2 years to  resolve.

Total resolution times varied considerably across the Appeals  workstreams, as shown in figure 13. The share of cases closed within   90 days ranged from approximately 3 percent for the collection due  process workstream to 71 percent for the other workstream. The share of  appeals cases closed within a year ranged from approximately 30 percent  for the large case examination workstream to approximately 90 percent  for the other workstream.

Information about actual total appeal resolution times is not shared with  taxpayers. Office of Appeals welcome letters include Appeals staff  contact information and a conference date, if applicable, but do not  provide total average appeal resolution time. According to the external  stakeholders we interviewed, no formal communication of total appeal  resolution time is shared with the taxpayer or their representative.  Responses to a focus group of taxpayer representatives who went  through the appeal process conducted by Appeals in 2014 shared a  similar perspective. Focus group participants indicated that the  acknowledgement letters did not contain enough or accurate information  to set expectations. Additionally, these focus group participants noted that  Appeals staff did not inform them how long the appeal process was  expected to take.

Critical information about total appeal resolution time is not shared with  taxpayers. Without easily accessible information, taxpayers are not well  informed on what to expect when choosing to request an appeal.  Taxpayers may not understand how few appeals are likely to be resolved  within 90 days. Faced with the general timeframe that Appeals will  resolve cases in about a year, other taxpayers may choose to forgo their  opportunity to appeal rather than risk interest accumulating during the  appeal process.

Standards for Internal Control in the Federal Government states that  management should externally communicate necessary quality  information to achieve the entity’s objectives. Government entities should  report this information to government leaders and regulators, as well as  the general public.

Feeling uninformed about appeal case wait times has been a consistent  theme with taxpayers and their representatives both in IRS’s customer  satisfaction surveys and our interviews with external stakeholders. Total  resolution time information, such as historical averages, may be  especially valuable to taxpayers when considering that interest continues  to accrue on tax amounts in dispute while appeals are being reviewed. In  January 2017, we recommended that IRS develop and maintain an online  dashboard to display customer service standards and performance  information such that it is easily accessible and improves the  transparency of its taxpayer service. Similarly, more detailed information  on total average resolution times specific to different workstreams could  provide a more transparent view of the amount of time a taxpayer can  expect to receive a decision on their case from Appeals.

Appeals Does Not Make Customer Service Standard Clear to Taxpayers, and It Does Not Have a Mechanism to Consider External Customer Input on Policy Changes

Appeals Measures Its Customer Service Standard Internally, but Does Not Make Performance Results Available to Taxpayers

GPRAMA requires that agencies, in this case the Treasury, establish a  balanced set of performance indicators to be used in measuring progress  toward performance goals, including goals for customer service.  Executive Order 13571 stated that agencies set clear customer service  standards and expectations, including, where appropriate, performance  goals for customer service required by GPRAMA. Customer service  standards should inform customers what they have a right to expect when  they request services. The President’s Management Agenda highlights  the importance of customer service through its cross-agency priority goal  of Improving Customer Experience with Federal Services.

In response to GPRAMA, Executive Orders, and other policies, Treasury  and IRS have taken steps to define customer service targets and align  them to Treasury’s and IRS’s strategic and performance plans. As part  of the Appeals Quality Measurement System (AQMS) review process  outlined in the IRM, Appeals defines its standard for customer service as  whether Appeals has: (1) timely communications with the taxpayers in an  appropriate, professional manner; (2) addressed the taxpayers’ needs;  and (3) respected the taxpayers’ rights. AQMS lays out the internal  attributes and internal measures which track progress towards Appeals  customer service standard (see table 3).

The performance results for the customer standard are shared as part of  the annual AQMS report with Appeals executives and employees. For  fiscal years 2014 through 2017, Appeals internal measures reflect that its  customer service performance exceeded 86 percent annually.

Appeals also makes a written commitment to taxpayers about what they  can expect during the appeal process. IRS Publication 4227—An  Overview of the Appeals Process—explains that taxpayers should expect  the Office of Appeals to: (1) be fair and impartial; (2) be courteous and  professional; (3) listen to their concerns; (4) explain their appeal rights  and the appeal process; (5) be responsive; and (6) allow the taxpayer  reasonable time to respond to any requests for information. Appeals  officials explained that this publication, last updated in 2013, is included in  the acknowledgement letter taxpayers receive from the Office of  Appeals.

However, most Appeals customers who participated in a focus group  conducted by the Office of Appeals in 2014 said that they did not  thoroughly review the Appeals acknowledgement letter and its  enclosures, which includes Publication 4227. Therefore, relying on  sharing this publication enclosed in the first letter the taxpayer receives  may not be an effective mechanism to make this commitment known to  taxpayers.

Further, the official customer service standard and the related attributes  and measures are not transparent to the public, and the performance  results are not publicly reported. Taxpayer representatives with whom we  spoke were not aware of the Appeals customer service standards  outlined in the IRM and explained that publications included with letters  from Appeals, such as Publication 4227, are often not read by taxpayers.  Taxpayer representatives we interviewed also said that customer service  standards are not discussed in conferences with taxpayers.

Standards for Internal Control in the Federal Government outlines that  management should externally communicate necessary quality  information to achieve an entity’s objectives. Key elements of effective  customer service standards say that making customer service standards  publicly available is a key element to improve those standards and the  related services.

While Appeals articulates its customer service standard in the IRM and  uses AQMS to internally measure customer service delivery, the standard  and related results are not available on the Appeals website and not  shared during interactions with taxpayers. According to Appeals officials,  Appeals, like the rest of IRS, does not publish its customer service  standard or explain how performance against the standard is measured.  However, as a separate entity within IRS, Appeals has an opportunity to  make customer service standards and related outcomes available to the  public. Without standards clearly and explicitly communicated, taxpayers  may not know what to expect, when to expect, and from whom to expect  interactions surrounding the appeal process.

Likewise, Appeals does not make its customer service performance  results public, and Appeals officials said this is consistent with IRS  practice. However, in 2017, we recommended that IRS take similar  actions to make customer service standards and performance information  easily accessible and improve the transparency of its taxpayer service.

Measuring performance allows organizations to track their progress and  gives managers crucial information on which to base their organizational  and management decisions. The absence of publicly reported standards  and related performance information does not allow customers to  understand what to expect for the services they seek.

Appeals Annual Customer Satisfaction Survey Identifies Factors That Affect Taxpayer Satisfaction

Annual Customer Satisfaction Survey Process

Appeals conducts an annual survey to assess customer satisfaction with  the appeal process over time and to identify areas where Appeals can do  more to improve customer service. According to Appeals officials,  Appeals has conducted a customer satisfaction survey for over a decade.  The annual survey yields an overall customer satisfaction score as well  as qualitative written comments on the appeal process. Appeals contracts  with a vendor to manage the survey sample selection based on Appeals  ACDS closed case data; pre-survey notification; management of the  online survey; telephone follow-up with non-respondents; and analysis of  the survey data.

The survey vendor sends potential respondents pre-notification invitations  to complete the survey and follow-up attempts to connect with potential  respondents. In fiscal years 2015 and 2016, the response rate was   36 percent and 33 percent, respectively. In fiscal year 2017, Appeals  surveyed 1,447 out of approximately 107,000 possible customers with a  response rate of 37 percent. According to OMB Standards and Guidelines  for Statistical Surveys, agencies are to design surveys to achieve the  highest practical rates of response and conduct a statistical test for  potential bias if the expected response rate is below 80 percent. The  vendor provides a comparison of frequencies to understand any  overrepresentation in survey responses of certain taxpayer types or for  different workstreams within Appeals. For example, according to the  vendor’s comparison of frequencies for the fiscal year 2017 survey (the  most recent available at the time of our work), fewer survey responses  were received from taxpayers who went through the collection due  process workstream—the workstream with the highest volume of   cases—than were in the population of potential respondents.

The customer satisfaction survey annual report details the analysis of the  survey results and summarizes significant changes in satisfaction over  time, as well as customer satisfaction by categories such as taxpayer  type and the length of the appeal process. Appeals reports overall  customer satisfaction in its performance reports to the Commissioner of  Internal Revenue. For appeal cases closed in fiscal years 2014 through  2017, about two thirds of taxpayers who responded to the survey were  satisfied overall with the appeals process.

According to the fiscal year 2017 annual survey report, customers who  have higher rates of satisfaction: (1) have professional representation;   (2) agree with the outcome of their case; and (3) have shorter case cycle  time. The 2017 report also states that customers were most satisfied  with the degree of respect shown and the professionalism of the Appeals  staff. Customers were least satisfied with the consideration of information  presented and the length of the appeal process.

The annual survey also identifies the drivers of satisfaction with the  appeal process which, Appeals officials said, helps Appeals determine  which specific attributes of the appeal process have the most impact on  overall customer satisfaction. The 2017 survey identified the drivers of  overall satisfaction including: (1) how well Appeals listened to information  taxpayers presented related to their case and (2) how well Appeals  considered information taxpayers presented.

Taxpayer representatives we interviewed identified similar factors that  affect how satisfied their clients are with the appeal process. Their  responses generally corroborated the drivers of satisfaction identified in  the annual customer satisfaction survey analysis. For example, taxpayer  representatives explained that their clients are more satisfied when they  feel their perspectives have been heard and the Appeals staff had an  open mind about the case. The representatives we interviewed also  stated that the amount of time, as well as transparency about the amount  of time, it takes Appeals to respond to a taxpayer’s case is significant to  satisfaction with the appeal process.

Appeals’ Use of Customer Satisfaction Survey Information

According to Appeals officials, the customer satisfaction survey is one  tool to assess customer satisfaction, and the survey information is part of  the overall information that Appeals uses in management decisions. The  national survey report is shared with the executive level staff each year  and survey results may be shared with staff. Appeals reports annual  overall customer satisfaction survey scores, along with other data on  business results, employee engagement, and staffing, in its performance  reports to the Commissioner of Internal Revenue. According to Appeals  officials, information from the customer satisfaction survey has been used  to improve Appeals procedures and interactions with taxpayers, including  changes to correspondence templates to improve comprehension and  readability, and how Appeals schedules taxpayer conferences.

Appeals Conducts Outreach but Does Not Have a Mechanism to Solicit Customer Input to Inform Prospective Policy Changes

Each year, Appeals conducts outreach presentations at tax practitioner  conferences to share information about its policy and procedures,  including recent changes or new initiatives that affect taxpayers and the  tax practitioner community. Appeals officials told us that Appeals, in  recent years, has also used these outreach presentations as an  opportunity to solicit input from the attendees about the appeal process  and implementation of operational or policy changes. According to  Appeals officials, they obtain feedback at outreach sessions and place an  emphasis on listening to commentary from the tax practitioner community.  Taxpayer representatives we interviewed generally corroborated this and  said that they saw improvement in their ability to communicate with  Appeals and offer feedback on recent policies.

Outreach presentations at tax practitioner conferences present an  opportunity to obtain feedback and input on prospective policy changes  as well. According to taxpayer representatives that we interviewed, while  Appeals executives have more openly solicited feedback on policy  changes, the outreach requests for feedback usually took place after the  policy decision was made and implemented. For example, in October  2016 Appeals changed its policy to limit the availability of in-person  appeal conferences. Appeals officials explained that this policy change  was based on its data showing that for many appeal cases transferred to  field staff to accommodate taxpayer requests for in-person conferences,  the taxpayers ultimately chose to have phone conferences. Appeals  officials acknowledged that they had not solicited public input beforehand  and had received negative feedback that this was an unpopular change.  As a result of feedback from the tax practitioner community at outreach  events as well as written comments, in October 2017, Appeals revised its  policy and will now attempt scheduling in-person conferences requested  by taxpayers for field appeal cases.

In its efforts to obtain feedback from the tax practitioner community at  conferences, Appeals has attempted to be inclusive of tax practitioners  representing a range of taxpayer types and income levels. According to  Appeals officials, Appeals obtained feedback from the Low Income  Taxpayer Clinics and conducted outreach sessions at their 2017 annual  conference. However, soliciting feedback at professional association  meetings for accountants and attorneys means that the opportunity to  provide comments to Appeals is limited to those in attendance at the  conferences. One taxpayer representative we interviewed said that he  was not sure how he could submit suggestions or input to Appeals other  than by attending a conference where Appeals executives were present  and solicited feedback from attendees. Further, several taxpayer  representatives we interviewed explained that taxpayers representing  themselves without professional representation face greater challenges in  the appeal process. Outreach relying on professional conferences may  not be inclusive of all taxpayer experiences and may miss opportunities to  understand the perspectives of individual and small business taxpayers  navigating without professional assistance.

IRS has formal advisory committees that provide forums to discuss issues  with tax administration or taxpayer issues. Among these, the Internal  Revenue Service Advisory Council (IRSAC) provides an opportunity for  members to provide public perspective on IRS policies and procedures  and recommends policies with respect to emerging tax administration  issues. Conveying the public’s perception of IRS activities to the  Commissioner, the IRSAC charter states that it is to be comprised of  individuals who bring substantial, disparate experience and diverse  backgrounds to the Council’s activities. IRSAC reports that its  membership is balanced to represent the taxpaying public, the tax  professional community, small and large businesses, state tax  administration, and the payroll community.

Although its role is to focus on broad policy matters, IRSAC recently took  action to comment specifically on recent changes to Appeals policy and  operations. In its 2017 public report, IRSAC commented on attendance of  IRS compliance and counsel personnel at Appeals conferences with  taxpayers. IRSAC stated that ensuring the independence of Appeals from  the operating divisions is indispensable to Appeals’ achieving its mission.

Executive Order 13571, building on GPRAMA requirements, stated that  agencies, in this case Treasury, should establish “mechanisms to solicit  customer feedback on Government services” and that agencies use “such  feedback regularly to make service improvements.” In its strategic plan,  IRS outlines a strategic goal to collaborate with external partners  proactively to improve tax administration.

Appeals has identified engaging with stakeholders to improve the  taxpayer experience in Appeals as a fiscal year 2018 organizational goal.  Appeals officials we interviewed said that Appeals’ approach is to test and  learn, and that they anticipate issues and complaints will continue to  happen as future policy changes are implemented.

While outreach is one way to get practitioner reaction as new policies are  rolled out, other mechanisms could serve as a way to receive regular  customer feedback and to hear the public’s perspective and observations  about both current operations as well as proposed IRS policies,  programs, and procedures. For example, IRS already uses advisory  groups as another way to engage with external partners via open, two- way, external reporting lines for assistance with receiving and analyzing  customer feedback as well as offering a mechanism to solicit public input  before policies are finalized and implemented.

Without an effective mechanism to regularly consider and review  customer feedback and policy changes before implementation, Appeals is  missing an opportunity to obtain public input on policy changes that can  substantially affect the taxpayer’s experience in the appeal process.  Possible mechanisms could include leveraging existing IRS advisory  resources, exploring development of an Appeals advisory body, or  offering a public comment capacity, such as an email address. Engaging  with external stakeholders could offer opportunities for Appeals to gain  insight on how to bring transparency to its customer service standards  and measures along with providing ongoing assistance with considering  results from the annual customer satisfaction survey. This would enhance  Appeals’ ongoing efforts to improve customer satisfaction with planned  service improvements or policy changes and make modifications where  appropriate.

Each year, Appeals resolves a diverse array of taxpayer appeals of IRS  enforcement actions and decisions. Faced with a declining workforce,  Appeals has identified that maintaining skills and expertise necessary to  review its case load is a top risk to achieving its mission. High retirement  eligibility rates underscore the importance for Appeals to be positioned to  identify any gaps in the skills of its workforce. Conducting a skills gap  analysis specific to Appeals mission needs is a key step towards  developing a strategy to help ensure Appeals will retain the necessary tax  expertise to review appeals cases across multiple workstreams.

Time spent by IRS compliance units on initial review of taxpayer appeals  of IRS collection and examination actions can represent a significant  portion of the total appeal resolution time. For appeal cases closed in  fiscal year 2017, approximately 4 percent of collection appeals cases and  nearly one quarter of examination appeal requests took more than   120 days to be transferred from IRS to Appeals. Delays in transferring  requests to Appeals affect prompt resolution for the taxpayer and IRS.  Additional monitoring of collection transfer time requirements together  with establishing transfer time guidelines and procedures for examination  appeal review could improve appeal review timeliness and overall  taxpayer experience.

Appeals maintains data on the time taken to transfer appeals and  monitors the progress and time to resolve appeals within its diverse  workstreams. Sharing these performance data within IRS could shed light  on actual transfer times and aid compliance units in improving and  establishing related controls to ensure more timely transfer. Increasing  the transparency of total case resolution time with more detailed  information by Appeals workstream would improve taxpayers’  understanding about what to expect when choosing to request an appeal.

Improving the taxpayer experience with the appeals process also  depends on clarity on customer service standards and related  performance results. Under GPRAMA and Executive Orders, Treasury is  responsible for customer service performance. Publicly stating what  service taxpayers should expect and from whom sets the stage for a  customer-focused appeals process where taxpayers can feel their story is  heard. This also helps fulfill Treasury’s customer service responsibility.  Appeals has demonstrated its willingness to analyze customer  satisfaction feedback. IRS and Appeals share goals to work with  stakeholders, and Appeals has acted to address practitioner reactions to  operational changes underway. Developing a mechanism to leverage  public input on future policy and procedure proposals would better  position Appeals to bolster customer service and effectively implement  changes to improve the taxpayer experience.

We are making the following five recommendations to IRS and two  recommendations to the Department of the Treasury.

The Commissioner of Internal Revenue should direct the Chief of  Appeals, in coordination with the IRS Human Capital Office, to conduct a  skills gap analysis specific to Appeals mission needs and develop a  strategy for mitigating any identified gaps. (Recommendation 1)

The Commissioner of Internal Revenue should evaluate the existing  monitoring for collection due process appeal requests and address  deficiencies in collection staff meeting the requirement for timely transfer  to the Office of Appeals. (Recommendation 2)

The Commissioner of Internal Revenue should establish timeframes and  monitoring procedures for timely transfer of taxpayer appeals requests by  examination compliance units to the Office of Appeals. (Recommendation  3)

The Commissioner of Internal Revenue should direct the Chief of Appeals  to regularly report and share with each compliance unit the data on the  time elapsed between when a taxpayer requests an appeal to when it is  received in the Office of Appeals. (Recommendation 4)

The Commissioner of Internal Revenue should provide more  transparency to taxpayers on historical average total appeal resolution  times. This could include publishing average total resolution times by  workstream on an Office of Appeals web page as well as including total  expected times in the Appeals welcome letter. (Recommendation 5)

The Secretary of the Treasury, consistent with its responsibilities under  GPRAMA and Executive Orders for customer service, should ensure that  the Commissioner of Internal Revenue takes action to make Appeals  customer service standards and performance results more transparent to  the public. This could include publishing customer service standards and  related performance measure results on the Office of Appeals web page  on IRS.gov. (Recommendation 6)

The Secretary of the Treasury, consistent with its responsibilities under  GPRAMA and Executive Orders for customer service, should ensure that  the Commissioner of Internal Revenue takes action to develop a  mechanism to solicit and consider public input and customer feedback on  a regular basis on current and proposed IRS appeal policies and  procedures. This could include leveraging existing IRS advisory bodies or  establishing an Office of Appeals advisory body representing the  taxpaying public, the tax practitioner community, and businesses to solicit  customer perspectives. (Recommendation 7)

We provided a draft of this report to the Commissioner of Internal  Revenue and the Secretary of the Treasury for review and comment. In  its written comments, reprinted in appendix I, IRS agreed with our five  recommendations directed to it and plans to provide detailed corrective  action plans in its 60-day letter response to Congress. IRS also provided  technical comments, which we incorporated where appropriate.

In an email from the audit coordinator in the Office of the Deputy Chief  Financial Officer, Treasury agreed with our two recommendations  directed to it. During the agency comment period, we modified language  in recommendations 6 and 7 to clarify Treasury’s role and responsibilities  for customer service. Treasury agreed to monitor IRS’s actions to make  Appeals customer service standards and performance more transparent  as part of its coordination of the President’s Management Agenda   cross-agency priority goal for customer experience. Treasury plans to  monitor IRS’s actions to develop a mechanism to solicit public input on  appeal policies and procedures as part of the audit management process.

As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the Secretary of the  Treasury, the Commissioner of Internal Revenue, and other interested  parties. In addition, the report will be available at no charge on the GAO  website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact  me at (202) 512-9110 or LucasJudyJ@gao.gov. Contact points for our  Office of Congressional Relations and Public Affairs may be found on the  last page of this report. GAO staff making key contributions to this report  are listed in appendix II.

Appendix I: Comments from the Internal Revenue Service

Appendix II: GAO Contact and Staff Acknowledgements

In addition to the contact named above, MaryLynn Sergent (Assistant  Director), Keith O’Brien, (Analyst-in-Charge), James Cook, and Steven  Flint, made key contributions to this report. Shea Bader, Jehan Chase,  Lisa Pearson, Robert Robinson, Cynthia Saunders, and Tatiana Winger  also provided support.

Taxpayers don’t have to go to court to appeal IRS decisions such as tax bills. They have the option of bringing their cases to IRS’s Office of Appeals. Its mission is to resolve disputes in a timely manner that is fair to the government and taxpayer. Among other things, we found:

information on the length of the appeals process was not readily available, making it hard for taxpayers to know what to expect

the office solicits customer feedback but does not get input before changing the process

We recommended more transparency about the time it takes to resolve appeals and a way for IRS to solicit input on the process, among other things.