Report: IRS plan to close service centers based on faulty data

The Internal Revenue Service based a May 2005 decision to shut down 68 taxpayer assistance centers that employ 430 people on unreliable data, according to an investigative report released this week.

The IRS placed the downsizing on hold at the request of lawmakers, pending the results of the report from the Treasury Department's Inspector General for Tax Administration.

Accurate statistics could have changed the fate of particular centers targeted for closure and altered the total the IRS needed to shut down to achieve a desired $45 million to $55 million in savings, the report said.

The IG recommended that the agency verify its data before making any decisions about assistance center closures and incorporate feedback from center visitors in the decision-making process. This would help predict how a downsizing might affect service and compliance with tax laws, the IG noted.

In a March 13 letter responding to the inspectors' findings, Richard Morgante, commissioner of the IRS' Wage and Investment Division, agreed that "data reliability is an issue that must be addressed." Steps already taken to improve accuracy include automated processes for capturing information on the number of taxpayers served at the centers, he said.

Morgante also said the IRS is working on a five-year plan, called the Taxpayer Assistance Blueprint, to address what services the agency should provide and how current services could be improved. In the first phase, the agency will conduct a comprehensive review of current services, and in the second, it will gather information about taxpayers and their needs.

But Morgante also noted that no data on taxpayer assistance centers would be "accurate for more than a short period of time in view of the changes that constantly occur" in the 400 centers.

To arrive at the list of 68 centers, the IRS analyzed statistics in five categories: geography, employee costs, facilities costs, workload and demographics. Scores were assigned based on those statistics: The higher the score, the more suited the center was for closure.

But the inspectors' review of statistics from 60 randomly selected centers uncovered a variety of problems. In addition to outdated information, some scores relied on estimates and projections as opposed to actual data, and others were simply inaccurate, the report said. These problems arose, in part, because of tight deadlines and time frames for reporting data, according to the IG.

Correcting the errors would have changed the score of 10 of the 60 centers significantly enough to raise the possibility that they had been "incorrectly identified to be closed or to remain open," the IG report stated.

The inaccuracies also affected estimates for how much would be saved by closing the assistance facilities, the report stated. In the case of one center, the inspectors' savings estimate was $431,019 lower than that reported by the IRS. In other cases, the agency understated savings, though the underestimates were generally not as large.

Morgante emphasized that the agency's final decision on which centers to close was based not only on the data found unreliable by the IG, but also on "a number of subjective business rules."

Those other rules kicked in after the 400 centers were ranked according to their scores, and ensured that no centers in Hawaii or Alaska would close, no state would lose more than half its offices, and a significant presence would remain in 35 major metropolitan areas.

Morgante noted that the IG report acknowledged that without a review of data from the remaining 340 sites, it was impossible to know how much the overall rankings would have changed, or whether different centers would have made the closure list.

Nevertheless, the shutdowns will remain on hold. All taxpayer assistance centers will stay open through October and there are no widespread changes expected for fiscal 2007, said Nancy Mathis, an IRS spokeswoman.

Colleen Kelley, president of the National Treasury Employees Union, said the IG report supports claims her union made when the closures were announced.

"I find it amazing and disappointing that the IRS would base what in essence are life-changing decisions for employees and critical compliance assistance for taxpayers on guesses and estimates," Kelley said.