House Post Audit and Oversight Bureau preliminary review : DOR audit practices PDF
Preview House Post Audit and Oversight Bureau preliminary review : DOR audit practices
HOUSE POST AUDIT AND OVERSIGHT BUREAU ROOM 146, STATE HOUSE BOSTON, MA 02 33- 053 1 1 UMASS/AMHERST JAMES H. FAGAN t THOMAS W. HAMMOND, Jr. CHAIRMAN DIRECTOR COMMITTEE ON (617) 722-2417 POST AUDIT AND OVERSIGHT HOUSE POST AUDIT AND OVERSIGHT BUREAU PRELIMINARY REVIEW DOR AUDIT PRACTICES Introduction The House Post Audit and Oversight Bureau (HPAB) has conducted a preliminary review ofcertain operations ofthe Massachusetts Department of Revenue (DOR). The Bureau has reviewed budgets, records, files, reports, business plans, and memoranda ofDOR, examined operations ofother revenue departments and the Internal Revenue Service (IRS) and has spoken with numerous tax practitioners about current DOR administrative practices and procedures. The Bureau offers this report as an initial assessment ofthe problems ofoversight and control over the most powerful state agency. The Bureau commenced this inquiry after several representatives had made written requests for the Bureau to investigate claims ofheavy-handed audit practices, inconsistent treatment ofsimilarly situated taxpayers, audit assessments made without regard to DOR's statutory authority, and an internal inspections unit that was failing to carry out its stated mission and objectives. The nature ofthe claims about disparate and heavy-handed treatment were serious. As a threshold matter, however, the Bureau was confronted by a substantial problem reviewing DOR. Because ofthe confidentiality statutes, HPAB has been unable to examine specific cases or a series of similar cases at DOR. The statutory scheme designed to protect taxpayers from unwarranted intrusions into their private affairs and to DOR protect the system ofvoluntary compliance, also acts to shield from scrutiny. HPAB finds that the current provisions of Massachusetts General Laws (MGL) DOR DOR chapter 62C, section 21 can be used to shield from outside review. has, in effect, the ability to operate apart from and above any level of outside independent oversight. HPAB Given the seriousness ofthe claims ofdisparate treatment, believes that the existing statutory scheme needs to be amended to provide for limited, but independent oversight ofthe agency either by the legislature, the Inspector General, or the State Auditor. Scope HPAB's past reviews ofDOR have focused on closing district offices, management practices, the tax gap and audit productivity. This review focuses on (1) the DOR audit division, its adherence to policies and procedures, and its dealings with taxpayers and (2) the internal audit and internal affairs units, their independence from DOR DOR administrative units, and their capacity for overseeing and monitoring functions and operations. Background A strong, efficient and fair revenue department is critical to the operation of Massachusetts state government. Because taxes are the principal source ofalmost all of DOR the funding for the Massachusetts state budget, has been granted extraordinary powers to carry out its revenue assessment and collection functions. . DOR has the power to assess and collect taxes even before a taxpayer has had an opportunity to contest a disputed assessment. DOR can use administrative summons to compel the production ofprivate citizens' books and records. It can impose severe financial penalties and double assess taxes for certain reporting and non-payment violations. In addition, it can bring civil contract actions to recover unpaid taxes, place liens upon private property, levy bank accounts, garnish wages, and seize private property. Given the DOR's extraordinary collection and enforcement powers, it is critical that the agency operate consistently, fairly, and equitably in its treatment ofall Massachusetts citizens. Findings 1 HPAB's multi-year review ofDOR produced substantial anecdotal evidence ofdisparate treatment oftaxpayers and inconsistent enforcement. HPAB was able to verify many ofthe complaints made by private citizens. However, it was unable under the existing confidentiality laws to determine whether the cases of abuse were HPAB widespread, intentional or inadvertent. found that some taxpayers were afraid to comment or make public the details oftheir specific cases for fear ofretribution. 2. HPAB found that despite DOR's claims that it did not have quotas, the targeted production goals identified in DOR's business plans, in effect, resulted in quotas. HPAB DOR 3. found cases where continued to pursue audit and collection activities and calculate interest and penalties in contravention ofcase law developments. Digitized by the Internet Archive 2013 in http://archive.org/details/housepostauditoverOOmass 4. HPAB found substantial evidence that DOR's audit and enforcement personnel contributed significantly to the business tax compliance burden in HPAB Massachusetts. Specifically, found inconsistent treatment oftaxpayers in the same industry, inconsistent treatment ofthe same taxpayer by different auditors, and extensive and irrelevant document production required oftaxpayers on unrelated audit issues. 5. Frequent tax law and administrative position changes make compliance more difficult. HPAB's survey found DOR's failure to provide clear direction to taxpayers increased the compliance burden for both individuals and businesses. 6. Administrative position changes make enforcement difficult and inconsistent. HPAB found some anecdotal evidence that showed that certain taxpayer DOR representatives were able to gain access to high level officials while individuals and small businesses were relegated to the DOR's complex administrative appeals process. This discrepancy has a tendency to create substantial inequities in DOR's tax administration. 7. HPAB found anecdotal evidence that taxpayer frustration with DOR's inconsistent and complex policies, procedures and appeals process resulted in significant compliance and enforcement issues, attempts to relocate transactions and businesses to otherjurisdictions, and decisions to make investments out-of-state. Business' frustration DOR with was a significant factor in several cases. HPAB 8. found evidence that long-standing defects and inefficiencies in the MASSTAX computer system contribute to DOR's inconsistent treatment oftaxpayers.
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