Tax Enforcement: IRS Could Better Manage Alternative Dispute Resolution Programs to Maximize Benefits [Reissued with revisions on Jun. 7, 2023]
Fast Facts
This Fast Facts has been updated to correct a reference to the percentage of decline in program use.
The IRS's alternative dispute resolution programs—which use an IRS mediator to resolve tax disputes between taxpayers and the agency—may be faster and less costly than its traditional appeals process.
But the use of these programs fell by 65% between FYs 2013-2022, and the IRS doesn't have enough data to understand why. For instance, the IRS doesn't collect data on how often it rejects taxpayers' requests to use these programs. It also doesn't collect data on the results of using some of these programs—such as the actual time and costs involved.
We recommended that the IRS improve data collection and monitoring for these programs.
Revised June 7, 2023 to correct page 10. The corrected section should read: ‘From fiscal years 2013 through 2022, data from the Appeals Centralized Database System (ACDS) show that use of ADR programs fell by 65 percent.’
Highlights
What GAO Found
The Internal Revenue Service (IRS) offers six alternative dispute resolution (ADR) programs providing mediation to expedite resolution and avoid lengthy traditional appeals and litigation processes. ADR can potentially benefit both IRS and taxpayers by reducing the time and costs to resolve disputes while increasing certainty for taxpayers in meeting their tax obligations.
From fiscal year 2013 to 2022, IRS used ADR programs to resolve disputes in less than half of one percent of all cases reviewed by its Independent Office of Appeals, which is responsible for tracking and implementing all IRS ADR programs. During that period, use of ADR fell by 65 percent. Beyond these data on ADR usage, IRS does not have the data necessary to manage the ADR programs, such as data on taxpayer requests to use ADR; IRS' acceptance or rejection of those requests; and the results from using ADR, including rate of resolution, time, and costs. Although IRS does not know definitively why ADR usage has declined, potential reasons include that taxpayers do not perceive the benefits of using ADR, according to IRS officials.
Alternative Dispute Resolution (ADR) Cases Closed Annually, Fiscal Years 2013 to 2022
IRS is missing opportunities to use several management practices for its ADR programs to help increase taxpayers' willingness to use ADR as well as maximize the programs' benefits. IRS does not have clear and measurable objectives for its ADR programs that contribute to achieving IRS's strategic goals and objectives, such as its ability to resolve disputes over specific tax issues and reduce the investment of time and money to do so. IRS does not analyze data to assess whether ADR is achieving benefits such as resolving disputes over specific tax issues and reducing the investment of time and money to do so. IRS has not regularly monitored the taxpayer experience with ADR to address problems in real-time. Absent this information, IRS cannot assess how to improve taxpayers' willingness to use ADR as well as their experience in resolving tax disputes. In addition, IRS cannot take action on these missed opportunities to maximize ADR benefits because IRS has not established specific responsibilities and related tasks for consistently managing all elements of the ADR programs.
Why GAO Did This Study
IRS's ADR programs are intended to resolve disputes over taxes owed and to be paid between IRS enforcement staff and taxpayers more quickly and at lower cost than using the IRS appeals process or litigation. The National Taxpayer Advocate has reported that the use of ADR programs has steadily declined, while resolving disputes through the IRS appeals process is taking longer.
GAO was asked to review how IRS manages its ADR programs. This report describes IRS's ADR programs and evaluates ADR data as well as IRS's management of its ADR programs. GAO reviewed IRS ADR procedures, guidance and data; interviewed IRS and other government agency officials; and held focus groups with taxpayer representatives.
Reissued with revisions on Jun. 7, 2023
Revised June 7, 2023 to correct page 10. The corrected section should read: ‘From fiscal years 2013 through 2022, data from the Appeals Centralized Database System (ACDS) show that use of ADR programs fell by 65 percent.’Recommendations
GAO is making eight recommendations to improve how IRS manages its ADR programs, including that IRS should improve its ADR data collection, establish clear program objectives, analyze data to better achieve ADR's benefits, monitor taxpayers' experience to assess ways to improve it, and establish responsibilities and tasks for managing ADR programs. IRS generally agreed with the recommendations.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Internal Revenue Service | The Commissioner of Internal Revenue should collect consistent, reliable data on what happens to taxpayer requests to use ADR as well as the results of each ADR program, such as resolutions achieved for the time and costs invested. (Recommendation 1) |
IRS generally agreed with the recommendation but tied its agreement to developing a data collection system known as Enterprise Case Management System (ECM). IRS said that as it progresses in implementing ECM, the IRS Independent Office of Appeals, in coordination with IRS business operating divisions (BOD), will consider what data should be collected to track taxpayer requests for ADR and the resolution of such requests. However, our recommendation also calls for IRS to collect data on the results of each ADR program, such as resolutions achieved for the time and costs invested. In a GAO meeting with IRS officials in February 2024, officials described IRS's ongoing efforts to invest resources to reinvigorate ADR usage after years of decline. To encourage usage, IRS officials said that IRS may be taking steps to track data on the denials of taxpayers' requests to use ADR. Officials said IRS is also developing a plan to require more approvals and written justifications for any request denials. Even so, IRS documentation shows that IRS plans to implement the recommendation by June 2026. In the interim, it is not clear whether IRS plans to collect consistent, reliable data on what happens to taxpayer requests to use ADR as well as the ADR results. If managed effectively, ADR programs can help taxpayers and IRS avoid or shorten the appeals process to resolve disputes without time-consuming, costly litigation. We will continue to monitor progress and periodically update this status as IRS provides documentation on interim actions planned and taken to implement the recommendation, as we requested in March 2024.
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| Internal Revenue Service | The Commissioner of Internal Revenue should establish objectives for ADR programs in clear, measurable terms. (Recommendation 2) |
IRS generally agreed with the recommendation but, in commenting on our report, focused on the existing limited, general statements about ADR programs' objectives that we found often lacked measurable terms and did not cover all the ADR programs. IRS later provided documentation that it agreed to consider necessary action and plans to do so by June 2025. In a GAO meeting with IRS officials in February 2024, officials said IRS is drafting objectives for ADR programs as well as the related measures to track progress. As we reported, management should define objectives clearly in specific and measurable terms. GAO believes that the foundation of IRS's ongoing efforts to reinvigorate and improve management of ADR should be based on clear program objectives that are stated in measurable terms to help IRS identify, analyze, and respond to risks to ADR programs and assess program performance. If managed effectively, ADR programs can help taxpayers and IRS avoid or shorten the appeals process to resolve disputes without time-consuming, costly litigation. We will update this status after we receive documentation of any revised timeline for specific actions planned or taken to implement the recommendation, as we requested IRS provide in March 2024.
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| Internal Revenue Service | The Commissioner of Internal Revenue should link the ADR program objectives to the IRS strategic goals and objectives that the programs support. (Recommendation 3) |
IRS generally agreed with the recommendation and referred to IRS's Inflation Reduction Act Strategic Operating Plan, which was published in April 2023. IRS said the IRS Independent Office of Appeals, in coordination with the IRS business operating divisions and the IRS Transformation and Strategy Office, will consider how the objectives of the ADR program align with the IRS's strategic objective in the Plan. In a GAO meeting with IRS officials in February 2024, officials described IRS's ongoing efforts to link revised ADR program objectives (as developed in recommendation 2) to the Plan's strategic objective to quickly resolve taxpayer issues when they arise and the Plan's specific initiative to expand tax certainty and issue resolution programs. IRS documentation indicated that IRS agreed to consider necessary changes by June 2025. GAO believes that the foundation of ongoing efforts to reinvigorate and improve management of ADR should be based on ADR program objectives clearly linked to strategic objectives as described in the Plan. If managed effectively, ADR programs can help taxpayers and IRS avoid or shorten the appeals process to resolve disputes without time-consuming, costly litigation. We will update this status after we receive documentation of any revised timeline for specific actions planned or taken to implement the recommendation, as we requested IRS provide in March 2024.
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| Internal Revenue Service | The Commissioner of Internal Revenue should regularly analyze data on the use and results of ADR to make real-time decisions to improve performance, as appropriate. (Recommendation 4) |
IRS generally agreed with the recommendation but tied its agreement to developing a data collection system known as Enterprise Case Management System (ECM). IRS also referred to IRS's Inflation Reduction Act Strategic Operating Plan, which was published in April 2023. IRS said that the IRS Independent Office of Appeals, in coordination with the IRS business operating divisions, will consider how data can be collected in ECM and how data analytics can be used to draw conclusions about the use and results of ADR. In a GAO meeting with IRS officials in February 2024, officials said that implementing this recommendation partially depends on progress in implementing recommendation 1. According to IRS documentation, IRS plans to complete action to implement the recommendation by June 2026. In the interim, it is not clear whether IRS plans to regularly analyze existing data on the use and results of ADR to make real-time decisions to improve performance. GAO believes that IRS's ongoing efforts to reinvigorate and improve management of ADR could benefit early on from regular analysis of data on the use and results of ADR. We will continue to monitor progress and periodically update this status as IRS provides documentation on interim actions planned and taken to implement the recommendation as we requested IRS provide in March 2024.
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| Internal Revenue Service | The Commissioner of Internal Revenue should regularly monitor ADR program operations with a focus on soliciting and using taxpayer feedback on the quality of their experiences with ADR. (Recommendation 5) |
IRS generally agreed with the recommendation and referred to existing Independent Office of Appeals efforts to survey taxpayers on their ADR experience. IRS said the IRS Independent Office of Appeals, in coordination with the IRS business operating divisions, will consider what further efforts can be implemented to solicit taxpayer feedback on ADR programs. In a GAO meeting with IRS officials in February 2024, officials said they were developing a feedback mechanism to get taxpayers' views. IRS provided no documentation on specifics or a timeline for plans to complete action. According to IRS documentation, IRS plans to implement this recommendation by June 2026. GAO believes that IRS's ongoing efforts to reinvigorate and improve management of ADR could benefit from taxpayer feedback on their ADR experiences. If managed effectively, ADR programs can help taxpayers and IRS avoid or shorten the appeals process to resolve disputes without time-consuming, costly litigation. We will update this status after we receive documentation of a timeline for actions planned or taken to implement the recommendation, as we requested IRS provide in March 2024.
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| Internal Revenue Service | The Commissioner of Internal Revenue should establish a neutral IRS resource to communicate with taxpayers to answer questions about IRS's Fast Track programs. (Recommendation 6) |
IRS agreed to consider establishing a separate neutral mechanism to address taxpayer questions about the ADR programs, noting that IRS's website and publications describe the programs and that independent Appeals staff are available to answer taxpayers' questions. Our report acknowledged that taxpayers used the IRS resources as well as asked IRS enforcement staff about how ADR worked but pointed out that some taxpayers still had questions. As a result, a neutral source to answer questions that were not sufficiently answered would help taxpayers make informed decisions about whether to use ADR. According to IRS documentation, IRS plans to implement this recommendation by June 2025. In a GAO meeting with IRS officials in February 2024, officials described development of an ADR program management office that may be staffed to provide a neutral resource for taxpayers. The officials said that they may have a draft charter on this new office, including discussion of this neutral resource by the Summer 2024. If managed effectively, ADR programs can help taxpayers and IRS avoid or shorten the appeals process to resolve disputes without time-consuming, costly litigation. We will update this status after we receive documentation of any revised timeline for actions planned or taken to implement the recommendation, as we requested IRS provide in March 2024.
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| Internal Revenue Service | The Commissioner of Internal Revenue should conduct periodic evaluations of the ADR programs to identify actions needed to improve their performance in achieving objectives. (Recommendation 7) |
IRS agreed with the recommendation and said the Chief, IRS Independent Office of Appeals, in coordination with the IRS business operating divisions, will establish and implement a process for conducting periodic reviews of ADR programs. In a GAO meeting with IRS officials in February 2024, officials described development of an ADR program management office that may be responsible for conducting periodic evaluations of ADR programs to identify actions needed to improve their performance in achieving objectives. Officials said that actions on this recommendation are partially dependent on progress with implementing a data collection system known as Enterprise Case Management System (ECM), as discussed in recommendation 1. Actions on this recommendation also depend on IRS establishing objectives for ADR programs in clear, measurable terms as per recommendation 2. According to IRS documentation provided, IRS plans to complete action to implement this recommendation by June 2025. IRS has provided no documentation on specifics or a timeline for plans to conduct periodic evaluations of the ADR programs in the interim. GAO believes that IRS's ongoing efforts to reinvigorate and improve management of ADR could benefit early on from periodic evaluations of the ADR programs to identify actions needed to improve their performance. If managed effectively, ADR programs can help taxpayers and IRS avoid or shorten the appeals process to resolve disputes without time-consuming, costly litigation. We will update this status after we receive documentation of any revised timeline for actions planned or taken to implement the recommendation, as we requested IRS provide in March 2024.
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| Internal Revenue Service | The Commissioner of Internal Revenue should establish clear responsibility and related tasks for managing ADR programs, including the practices in the above recommendations, to help ensure that the programs maximize the benefits of using ADR. (Recommendation 8) |
IRS agreed with the recommendation and said it would clarify roles and responsibilities for managing ADR programs, noting that jurisdiction over the ADR programs is shared among Appeals and the IRS business operating divisions. IRS said the IRS Independent Office of Appeals, in coordination with the IRS business operating divisions, will ensure that within the context of this shared jurisdiction, responsibilities are clearly established. IRS documentation indicates that IRS plans to implement this recommendation by June 2026. In a GAO meeting with IRS officials in February 2024, officials described development of an ADR program management office that may be staffed with a manager given clear responsibility for tasks related to managing ADR programs. Officials said a charter for the program management office was being drafted and may be available for review by Summer 2024. GAO believes that IRS's ongoing efforts to reinvigorate and improve management of ADR could benefit early on by establishing clear responsibility and related tasks for managing ADR programs as we recommended. If managed effectively, ADR programs can help taxpayers and IRS avoid or shorten the appeals process to resolve disputes without time-consuming, costly litigation. We will update this status after we receive documentation of any revised timeline for specific actions planned or taken to implement the recommendation, as we requested IRS provide in March 2024.
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