TSCPA News

Report Shows Decrease in Quality of IRS Employee Benefit Plan Exams

February 7, 2022

The Treasury Inspector General for Tax Administration (TIGTA) recently released a report stating that the IRS unit that checks employee benefit plans for compliance with IRS qualification, reporting and disclosure requirements, and with excise and income tax matters, scored 23 percent lower overall on its quality reviews in fiscal years 2018 through 2020.

Between fiscal years 2018 and 2020, the Employee Plans Examination unit examined more than 17,000 employee benefit plans to determine if the plans complied with IRS information return and other qualification requirements. The examinations are subject to a quality review process by the IRS to see whether the examiners are performing the correct procedures and to identify areas of improvement.

The TIGTA report found that scores declined on all three quality measures — proper identification, development and resolution of issues; timeliness; and communications — as well as on 19 of the 20 quality elements. Further analysis by TIGTA indicated low quality scores in key areas such as planning the engagement, developing material issues, documenting actions taken and protecting taxpayer rights.

The report recognized that the IRS is taking steps to improve examination quality, including consolidating and centralizing improvement strategies that had previously been at the discretion of each area. However, the Employee Plans Examination unit hasn’t yet set up performance measures for determining the effectiveness of the corrective actions.

In the report, the TIGTA outlined several recommendations for the IRS. It was recommended that the IRS require reviewers to record and report all reasons why a quality element failed; periodically analyze cases that failed elements due to “Other” reasons; and consider providing feedback related to quality scores to group managers. The report also recommended that the unit seek out feedback and training for low-scoring elements; make sure the proposed corrective actions are implemented in a timely way; and develop performance metrics and data collection methods to measure the effectiveness of the corrective actions.