About the Data
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The Internal Revenue Service maintains an internal management databases to track tax audits called the Audit Management Information Reporting System or AIMS. This database is the primary source used to generate performance statistics for use by IRS officials for managing the Service’s examination programs on the conduct and results from IRS audits. It is also the source used to prepare reports for Congress and Administration offices for budget and legislative purposes. Finally, it is the source used to produce figures for publication and distribution to the public on IRS audits. The key numerical data historically tracked by AIMS consists of: (a) the number of audits, (b) the hours spent by IRS auditors, (c) the additional taxes recommended after audit, (d) the number of audits where no change was recommended, and (e) the number of hours spent by IRS auditors on these no change examinations. The AIMS system has existed for many decades. (For the description of the characteristics of earlier versions of AIMS see history.) But with the recent re-organization of the IRS following the Restructuring and Reform Act of 1998, a number of significant changes have taken place in what information is collected and how it is organized. Driving this change has been the underlying change in IRS from a structure which reflects geographically-based districts into customer-based divisions with areas and territories. Currently the IRS has not honored TRAC’s request to obtain copies of records describing the structure and fields of information in the current AIMS database. Such information about the pre-reorganization state of AIMS has been provided to TRAC. IRS officials have described in general terms what information is and is not available under the newly redesigned AIMS, and have provided one portion of documentation describing the AIMS “Assignee Code.” This twelve-digit code -- among other things -- replaces the former district office and organizational codes. Historically, the AIMS management information system was designed to focus inward – upon the IRS organizational unit and its characteristics so that workload could be monitored and statistics generated about the “outputs” produced by each office and class of employee. This differs from modern customer-based management information systems used in the commercial world that are designed to track how customers are being treated by the organization. It also differs from IRS’s Individual Master File and Business Master File systems which are used to track taxpayer filing of returns, and the taxes, interest, and penalties assessed and paid. This inward looking characteristic of AIMS has not changed, despite the announced purpose of IRS’s reorganization to be “customer-based.” When, as was done in the past, the basic IRS organizational units were handling all the taxpayers within their geographic borders, differences between customer-based and organizational-based systems were less obvious. But with the increasing centralization of many enforcement functions into fewer and fewer compliance and call centers, as well as the reorganization of the IRS along customer -- rather than geographic -- lines, these differences are pronounced. Here are several examples to illustrate these similarities and differences: Geographic Location In a customer-based system the database will record the location of the customer. It also tracks the organizational unit which was the point of contact with the customer so the relationship between the two can be examined. (This latter may have a specific location such as the particular store branch at which the sales was made, but may not -- as, for example, in the sales thru catalog sales, 800-numbers, and the internet.) In AIMS, the database records only the location of the office to which the IRS staff member was assigned handling the activity, or sometimes merely the location of the IRS office containing the computer which processes the forms. The location of the taxpayer who is audited is not apparently separately tracked within AIMS. If, the activity is centralized -- such as at a Service or compliance center, or the computer processing moved around to balance available capacity -- then no meaningful geographic information about the activity may be recorded in AIMS. For example, since June of 2000 all audits conducted by IRS’s Large and Mid-Size Business Division have been recorded with Brooklyn as the geographic location – not because these were audits of Brooklyn businesses, but because the computer system there was deemed to have the capacity to process these forms. Under the reorganization, while IRS district offices have been abolished, the concept of geography has been maintained since IRS divisions are now broken down by “area” and within area, “territories.” However, each division’s area and territory boundaries differ markedly. And even with the same division, some activities may be handled by specialized offices which have their own unique geographic boundaries. The end result is that AIMS will not be able to generate any consistent geographic distribution of the location of taxpayer audits. Thus, determining how the “odds of audit” may differ from one part of the country to another is no longer possible. Examination Class AIMS historically also tracked taxpayers by examination class. This characterization was used by the IRS to group returns by the nature and level of expertise required by the auditor. It was also used in the selection process. For example, separate discriminant function (DIF) formulas were developed for each examination class. For returns filed by individuals this reflected the primary source of income (wages/investments versus business-Schedule C or F) and the amount (total positive income or total gross receipts). For corporate returns, the asset size was used to group returns. This categorization has thus far been retained in AIMS. While designed for IRS administrative convenience, the code does reflect characteristics of the taxpayer and is the one “customer-based” information field that appears to exist. This field is the source of information used when audit statistics compare odds of audit and outcomes for low versus high income taxpayers, or among individual, business, and corporate returns. Unfortunately, because the categories were designed to serve organizational needs, they have been rigid categories, and are not regularly adjusted to reflect changes in inflation. For example, the “high income” category defined as anything of $100,000 or more has not been adjusted to reflect the amount in constant dollars. The largest corporations are defined to have assets of $250 million or more – regardless of changes in our economy. Thus, the meaning of “high income” individual or the “largest corporations” while having a constant nominal definition are simply not equivalent to the practical realities of what these terms connoted a decade or more ago. Industry Sector In the commercial world, the value of a customer-based system is enhanced to the extent it contains more information about customer characteristics. Under the AIMS system, however, the audit of a corporation is always categorized under the industry unit where the IRS employee conducting the audit is assigned when the case is closed. If the IRS industry unit only audited returns from that industry then there would be no problem but this is unfortunately not the case. The profound shortcomings of the agency’s current information management system were dramatically illustrated recently when the IRS was forced to retract basic data the agency had provided TRAC that it initially had argued would offer the American people a new kind of accountability. The data withdrawn by the agency allegedly were simple counts of the number of audits it had made of the largest companies involved in five major segments of the economy -- communications, retailing, heavy manufacturing, natural resources, and financial and health care services. When TRAC raised questions about the resulting audit rates for each of the five business areas, the IRS acknowledged that the data were not correct and that under the new reorganization such counts could not now be determined. This was because what the statistics reflected were the audits closed by each of these IRS industry divisions, not the audits of corporations in these industries. This occurs because AIMS coding reflects the industry coding of the IRS division -- not the characteristics of the corporation. For example, IRS noted that any auditor transferring divisions takes their on-going examinations with them and the audit would be recorded not under the industry designation of the originating IRS division but that of the different closing division. The AIMS database structure -- because it is not customer-based -- did not allow any way for these differences to be sorted out. Many audits also occur because of a “related pickup.” That is, a taxpayer is audited not because their return is originally selected for examination, but because there was some financial transactions with a taxpayer whose return is being audited. The IRS auditor or team conducting the original audit will then broaden their focus to examine these “related” returns. Such “related pickups” need not be restricted to the same industry sector, or even to the same class of returns. Thus, an audit which began with a corporation in the heavy manufacturing industry may extend to companies in the financial and natural resource sector, to the returns of partnerships, and to returns filed by key officers or directors. AIMS would classify all of these audits however as “heavy manufacturing industry” audits based upon the IRS unit conducting the examination.
Transactional Records Access Clearinghouse, Syracuse University Copyright 2002 |