The IRS internal rules require every inquiry letter sent to them by a taxpayer to be responded to within 30 days of its receipt. The rules also provide that should the department handling an inquiry be unable to provide a response within the set timelines, they should send an interim letter to the inquirer within the 30 day period to inform him or her that the inquiry is still being handled and to give the inquirer an update of the progress on the case. The intentions of this internal rule are noble. However, as was noted in an audit carried out by the Treasury Inspector General for Tax Administration (TIGTA), a group that reviews IRS problems, many of the interim letters are confusing to taxpayers and may not fulfill the intentions of this IRS internal rule.
The IRS has Many Formats of Interim Letters
The TIGTA undertook an audit in July 2011 to investigate the effectiveness of the IRS in handling inquiries received. According to the audit report, the IRS has over 70 different interim letter formats for different tax issues. The formats are for initial interim letters, second interim letters, follow up letters, acknowledgments, transfer of inquiry, apologies, closing letters, and many more interim correspondences. Depending on the matter being inquired and the delay by the IRS in handling the inquiry, a taxpayer can receive many of these interim letters in different combinations. Furthermore, since the interim letters are not resolution letters, they do not have information about the taxpayer’s tax account or direct answers to the inquiry. To the ordinary taxpayer, the content of the interim letters is confusing and unclear. Many taxpayers will not know whether they need to take action in response to the letter or what to do with the interim letters in general. In this case, many taxpayers either call the toll-free number to get clarification about the letter or send out another letter to seek clarification. This only results in the increase of inquiries sent to the IRS.
Interim Letters Not Sent as Per IRS Internal Rules
Another problem highlighted by the TIGTA audit was that the interim letters were automatically generated in a systematic cycle, which led to unnecessary interim letters sent out. From the samples that were used in the audit, 12% of the interim letters sent out from the Automated Underreporter Program department (one of the major departments that deal with client responses) arrived to the taxpayer after the issue had already been resolved and 29% were received 10 days prior to the issue being resolved. 29% of the first interim letters were sent out after 30 days of initial inquiry to the taxpayer, conflicting with the IRS internal rules. In the Accounts Management Function, another department that majorly deals with taxpayer correspondences, 19% of interim letters were sent within 10 days of the issue being resolved and 12% of the first interim letters were sent after the 30 day deadline. Furthermore, 20% of the inquiry letters received by the Accounts Management Function department were resolved after the 30 day time line did not have any interim letters sent as required.
Survey by the IRS Confirms the Interim Letter Issue
According to the TIGTA report, a survey carried out in 2010 by the IRS on the effectiveness of interim letters also revealed that most taxpayers did not understand interim letters and indeed, found them confusing. The IRS also noted that the interim letters were not being used to meet the objectives of the IRS of providing timely and accurate responses to taxpayer inquiries. Instead, the interim letters had become a way of buying time for the departments handling the inquiries. However, the IRS has yet to take action on the findings of this survey.
Recommendations by the TIGTA
Following the audit, TIGTA recommended that the IRS review its interim-letter procedures to ensure that the interim letters are sent in a timely manner and as per the internal rules. The interim letters should also be clear so the average taxpayer can easily understand its contents and should provide the taxpayer with specific information as to the progress of the inquiry and the expected time of resolution. The IRS agreed with the audit and also undertook to look into implementing these recommendations.