TIGTA Advises IRS to Improve Opportunity Fund Compliance

Additional Actions Are Needed to Address Qualified Opportunity Zone Fund and Investor Noncompliance

February 7, 2022

Final Audit Report issued on February 7, 2022

HIGHLIGHTS

What TIGTA Found

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In addition, the IRS processes and procedures did not fully identify and address annual QOF compliance reporting requirements. For example, TIGTA identified 555 (37 percent) of the 1,491 e-filed and paper-filed TY 2018 returns for which the tax return showed the IRS's receipt of a Form 8996 and the taxpayer did not file a Form 8996 in the subsequent tax year, i.e., TY 2019, as required.

Finally, the IRS does not transcribe all key data fields from paper-filed Forms 8996 and 8997. The identification of reporting inaccuracies TIGTA detailed throughout the report was primarily based on our analysis of e-filed Forms 8996 and 8997.

What TIGTA Recommended

TIGTA made eight recommendations for the IRS to improve its processes and procedures for ensuring compliance with Opportunity Zone program and reporting requirements. This includes ensuring that all key data fields from Forms 8996 and 8997 are transcribed and developing guidance to involuntarily decertify as needed.

The IRS agreed with six of the eight recommendations. The IRS could not commit to developing processes and procedures to decertify until guidance to address QOFs that intentionally do not comply with program requirements have been issued. IRS management is currently working with the IRS Office of Chief Counsel on recommendations to support the development of this guidance.

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February 7, 2022

MEMORANDUM FOR:
COMMISSIONER OF INTERNAL REVENUE

FROM:
Michael E. McKenney
Deputy Inspector General for Audit

SUBJECT:
Final Audit Report — Additional Actions Are Needed to Address Qualified Opportunity Zone Fund and Investor Noncompliance (Audit # 202040029)

This report presents the results of our review to assess the Internal Revenue Service's (IRS) implementation of the Opportunity Zone provision of the Tax Cuts and Jobs Act.¹ Specifically, our review evaluated the IRS's processes to ensure taxpayers that establish Qualified Opportunity Funds (QOF) meet program/reporting requirements and investors in QOFs meet annual reporting requirements. This review is part of our Fiscal Year 2022 Annual Audit Plan and addresses the major management and performance challenge of Implementing Tax Law Changes.

Management's complete response to the draft report is included as Appendix III.

Copies of this report are also being sent to the IRS managers affected by the report recommendations. If you have any questions, please contact me or Russell P. Martin, Assistant Inspector General for Audit (Returns Processing and Account Services).

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Table of Contents

Background

Results of Review

Appendices

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Background

Section 13823 of the Tax Cuts and Jobs Act,¹ signed into law on December 22, 2017, added the Opportunity Zone provisions to the Internal Revenue Code (I.R.C.). A qualified opportunity zone (QOZ) is defined as any population census tract that is either a low-income community² or a contiguous tract that has been designated as a QOZ by the Department of the Treasury.³ Congress included this provision to spur economic development and job creation in distressed communities throughout the United States, including U.S. territories, by providing tax benefits to investors who invest eligible gains⁴ into a Qualified Opportunity Fund (QOF).⁵ The provision also authorized the Chief Executive Officer of each State,⁶ i.e., the Governor, to nominate a limited number of population census tracts for designation as QOZs.

As an incentive to invest in QOZs, investors can receive substantial tax benefits that include:

• Deferral of eligible gains to the earlier of disposition or December 31, 2026. To qualify, the taxpayer must invest their deferred capital gain by investing their gain into a QOF within 180 calendar days beginning on the date of the sale or exchange giving rise to the gain.⁷ The taxpayer must report their deferred gain as taxable income when their QOF investment is sold or exchanged, or December 31, 2026 (whichever comes first).

• A step-up in QOF investment basis for the deferred gains invested in a QOF. This increases the basis in the investment and reduces the taxable amount of deferred gain, i.e., the taxpayer does not have to pay tax on the entire gain invested in the QOF. The basis of QOF investment increases by 10 percent of the deferred gain if the taxpayer holds the investment in the QOF for at least five years. If held for at least seven years, the basis of QOF investments increases to a total of 15 percent of the deferred gain. For example, if the taxpayer has a stock that was originally purchased for $100,000 and sold for $190,000, the gain at the time of sale is $90,000. If the taxpayer invests the realized gain in a QOF for at least seven years, the taxpayer's basis in the qualifying QOF investment increases by $13,500 (15 percent of $90,000) and thereby reduces the taxable amount of the deferred gain.

• Exclusion from gross income of gains on the taxpayer's investment in the QOF when the taxpayer holds the investment for at least 10 years. Investors can exclude gains from gross income through December 31, 2047. For example, if the taxpayer holds the $90,000 investment in the QOF for over 10 years, any increase in the value of the investment can be excluded from tax.

Designating tracts as a QOZ

As stated previously, each State nominated tracts for designation as a QOZ. Nominations were required to be made by March 21, 2018.⁸ Once nominations were received, the Department of the Treasury was responsible for reviewing and selecting those tracts to be designated as a QOZ. The Internal Revenue Service (IRS) contracted with the Department of the Treasury's Community Development Financial Institutions (CDFI) Fund ⁹ to complete the review process of the Opportunity Zone applications. To assist States in identifying specific tracts for nomination, the CDFI Fund compiled eligible tracts into a nomination tool that the States could use to conduct their own analysis and determine which tracts they would nominate. The States made their nominations via the CDFI portal. Once nominations were submitted, the CDFI reviewed the submitted nominations to ensure that they met program requirements. Through this process, the Secretary of the Treasury approved and designated 8,764 census tracts as a QOZ from the over 42,000 census tracts that were potentially eligible for designation as a QOZ.

Process to become a QOF

The IRS developed Form 8996, Qualified Opportunity Fund, to be used by a corporation or partnership to self-certify their election as a QOF by attaching the Form 8996 to their Federal income tax return, e.g., Form 1120, U.S. Corporation Income Tax Return, or Form 1065, U.S. Return of Partnership Income. In addition to preparing and submitting the Form 8996, the QOF must also:

• File a Federal income tax return as a corporation or partnership.

• Be organized for the purpose of investing in QOZ property, other than through investing in another QOF.

• Hold at least 90 percent of its assets in QOZ property.¹⁰

Figure 1 shows the certification section on Form 8996.

Beginning in Tax Year (TY) 2019, Form 8996 is also used to provide an accounting of the QOF's investments for the tax year, i.e., the filer includes QOZ property owned by the entity, including stock or partnership interests in QOZ businesses and any QOZ business property. When the IRS processes the corporate or partnership tax return with an attached Form 8996, it places an indicator on the associated taxpayer's account to identify that the taxpayer filed a Form 8996 with their return. Finally, in addition to filing the initial Form 8996, the QOF is required to file Form 8996 annually to certify that the QOF continues to meet the investment standard or to calculate and report a penalty if it fails to meet the 90 percent investment standard.

Process for tracking investments in a QOF

The IRS developed Form 8997, Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments, to be used by investors. Beginning with TY 2019, investors used Form 8997 to report their investments into a QOF. Form 8997 is attached to the investor's income tax return, e.g., Form 1040, U.S. Individual Income Tax Return, for individual investors¹¹ and provides for an accounting of the taxpayer investments in QOFs for the tax year, i.e., beginning investments, investments made during the tax year, investment sales, and ending investments. When reporting investments, taxpayers are required to include the Employer Identification Number (EIN)¹² of the QOF, dates of their investment, and their deferred capital gain amounts. When the IRS processes the investor tax returns with an attached Form 8997, similar to the processing of Form 8996, it places an indicator on the taxpayer's account to identify that the taxpayer filed a Form 8997 with their return.

Finally, in addition to filing the initial Form 8997, the investor is required to file Form 8997 annually to report any qualified QOF investments held during the tax year. Figure 2 provides a summary of investor filing requirements relative to QOF investments.

As of December 31, 2020, our analysis of IRS tax records identified:

• 6,198 taxpayers filing Forms 8996 for TY 2019, self-certifying as a QOF, and reporting total QOZ assets (property) of almost $24.5 billion and total assets of almost $26.9 billion.¹³

• 16,509 individual and business taxpayers filing Forms 8997 reporting the deferral of capital gains totaling almost $22.4 billion in assets for investments into QOFs for TY 2019.¹⁴

Results of Review

The IRS took a number of actions to implement QOZ tax provisions. These include:

• Contracting with the Department of the Treasury's CDFI Fund to assist in reviewing Opportunity Zone applications.

• Developing Forms 8996 and 8997 to obtain an accounting of the QOF's investments as well as taxpayer investments in QOFs.

• Developing codes for Form 8949 used to identify and track deferred gains invested into a QOF as well as sales or dispositions of QOF investments.

• Developing tax account codes used to identify tax returns of QOFs and investors at the time tax returns are processed.

• Continuing to develop a compliance plan that outlines the IRS's anticipated efforts to ensure that taxpayers adhere to Opportunity Zone requirements. This plan has yet to be finalized and approved.

However, our review identified that the IRS has not established processes and procedures to identify all inaccuracies and inconsistencies in the information reported by QOFs and investors or to identify and address QOFs and investors that do not comply with annual reporting requirements.

Finally, we identified that not all key data needed to identify potential noncompliance with program and reporting requirements is not transcribed from paper-filed Forms 8996 and 8997. Without this information, the IRS cannot * * * 2 * * *. For TY 2019, 860 (13.9 percent) of the 6,198 Forms 8996 processed as of December 31, 2020, were paper filed, while 616 (3.6 percent) of 17,125 Forms 8997 for the same time frame were paper filed.

Additional Actions Are Needed to Address Qualified Opportunity Fund Noncompliance With Program Requirements

The IRS did not have processes or procedures to fully identify and address QOFs that do not meet key program requirements or that report potentially false information. For example, our review of 5,319 TY 2019 electronically filed (e-filed) returns with a Form 8996 filed January 1 through December 31, 2020, identified:

• * * * 2 * * *.

  Instructions for Form 8996 (Rev. January 2020) require the QOF to provide * * * 2 * * *.

• QOFs reporting investments into other QOFs. Our review identified 341 (6.4 percent) tax returns for which the taxpayers reported investments totaling more than $1.3 billion in another QOF. This includes 108 QOFs that reported investments totaling almost $585 million to itself.

I.R.C. § 1400Z–2(d)(1) states that the term QOF "means any investment vehicle which is organized as a corporation or a partnership for the purpose of investing in qualified opportunity zone property (other than another qualified opportunity fund) . . . ”.

Management stated that a QOF may invest in another QOF but that investment is not considered QOZ property and counts against the QOF in the 90 percent investment standard.

• QOFs reporting potentially inaccurate investment information. Our review identified 1,530 tax returns (28.8 percent) with an error in the * * * 2 * * *.

Figure 3: * * * 2 * * *

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This type of reporting error affects the IRS's ability to accurately ensure that * * * 2 * * *.¹⁵ Outside of the period of relief, i.e., prior to the relief period or after, when the QOF fails the 90 percent test during the tax year, it is required to pay a penalty for each month in which it fails to meet the requirement equal to the amount of its investment shortfall multiplied by the underpayment rate.¹⁶ The penalty is equal to the excess of 1) the amount equal to 90 percent of its aggregate assets, over 2) the aggregate amount of QOZ property held by the fund, multiplied by 3) the underpayment rate for the month.

When we discussed these concerns with IRS management, they noted that, as part of their post-compliance examination efforts, they planned to identify and address Forms 8996 for which the filer either did not provide a * * * 2 * * *. However, management noted they are limited in their authority * * * 2 * * *.

As it relates to QOFs that report investing in other QOFs, IRS management stated that the investments in other QOFs would not be included as QOZ property. However, due to tax relief in response to the Coronavirus Disease 2019 pandemic, this penalty is not applicable for TYs 2020 and 2021.¹⁷

IRS management provided us with a proposal for a compliance initiative project to review TY 2019 Forms 8996 and ensure that taxpayers that properly self-certified as a QOF are meeting the statutory requirements. The project would use the tax returns that we identified during our audit as being potentially noncompliant. The authorization was submitted to IRS management for review and approval on or around June 30, 2021. However, as of September 21, 2021, it has yet to be approved.

Additional Actions Are Needed to Identify and Address the Inaccurate and Incomplete Investor Reporting

Processes and procedures had not been established to identify all significant investor reporting inaccuracies. Our analysis identified investors that either did not file or accurately file Form 8997. For example, our review identified:

•  * * * 2 * * * totaling almost $2.1 billion. Regulations require annual reporting of QOF investments of deferred gains held during the taxable year. The IRS developed Form 8997 for QOF investors to report this information. As described in Regulation § 1.1400Z2 (a)-1:

  An eligible taxpayer must report whether the gains that have been deferred remain deferred at the end of each taxable year, including the year of deferral . . . A failure to make this report for any given taxable year will result in a rebuttable presumption that the taxpayer has had an inclusion event . . . during that year. The presumption . . . may be rebutted by the taxpayer making the report . . . or by the taxpayer establishing to the satisfaction of the Commissioner that an inclusion event . . . did not occur during that taxable year.

• * * * 2 * * *. 

The types of obvious and blatant inaccuracies in reporting we identified will affect the IRS's ability to accurately * * * 2 * * *. As detailed earlier in the report, investors that hold investments in the QOF for at least 10 years are eligible to elect an increase in basis of the QOF investment equal to its fair market value on the date they sell or exchange the QOF investment, i.e., any increase in the value of the investment can be excluded from tax. In addition, the basis of the QOF investment increases to 15 percent of the deferred gain when the taxpayer holds the QOF investment for at least seven years. However, investors can only defer gains to the tax year that includes the earlier of the date on which such investment is sold or exchanged or December 31, 2026.

To assist the IRS in ensuring annual compliance with investments in QOFs and tracking these investments for 10 years or until sold, the IRS developed:

• Form 8997 that is intended to account for taxpayer deferred gains invested in QOFs during the tax year, i.e., beginning investments, investments made during the tax year, investments disposed, and ending investments, beginning in TY 2019. When reporting these investments, taxpayers include the EIN of the QOF, dates of investment, acquisition and/or disposition, and deferral amounts. When the IRS processes investor tax returns with an attached Form 8997, it will place an indicator on the taxpayer's account to identify that the taxpayer filed a Form 8997 with their return. * * * 2 * * *. In addition, previously deferred gains become taxable when investors do not file annually to report remaining deferred gains.

• Specific codes for its existing Form 8949 to show deferred gains invested into a QOF as well as the recognition of previously deferred gains on sales or dispositions of QOF investments. For example, when the taxpayer reports a deferred gain, they will include a Z code on Form 8949 and report the deferral on Form 8997. This results in a specific transaction code being added to the taxpayer's tax account. When taxpayers sells a QOF investment of deferred gains, they self-report the taxable event with a Y code on Form 8949.

To ensure compliance with the deferral provisions, the IRS needs to identify and track capital gains that have been deferred and carried over from year to year, any sale of QOF investments to ensure that the gain is recognized as income, or deferred gains remaining as of December 31, 2026, for inclusion in income for each investor.

When we brought our concerns to IRS management's attention, they noted that, in the year a return claims a deferred gain, there is an associated return processing code on the taxpayer's account. The IRS can use this code to review subsequent year filings and verify that the annual filing requirement was met. However, this is currently not an automated process. IRS management indicated that they planned to update the compliance plan to compare Form 8997 * * * 2 * * *.

Finally, management noted that a systemic cross match of * * * 2 * * *. However, such a match would identify a population of potential noncompliance for which the IRS could focus the use of its limited resources for compliance action. However, subsequent to meeting with IRS management to discuss this deficiency, management provided a proposal to open a compliance initiative project to determine if taxpayers that claimed * * * 2 * * *.

The Taxpayer Identification Number (TIN) was not required to be provided by QOFs related to investor dispositions

QOFs were not required to provide the TIN of investors that dispose of their equity interests in a QOF. QOFs are required to include with their filing of Forms 8996 a statement that details the investor's name, date of disposition, and the interest that they transferred during that QOF's tax year when an investor of a QOF disposes of their equity interest. This statement is then to be used to ensure that the investor reported their disposition on their tax return, i.e., Form 8949. However, the IRS did not require the single most important piece of information to perform a crosscheck to ensure reporting compliance, namely the investor's TIN.

When we asked management why they requested the name of the investor be provided but not the TIN, management stated that requiring the TIN would be a duplication, because the Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, already contains the TIN. However, most of the information requested to be provided on the disposition statement is also provided on the Form 1099-B, with the exception of the most important information, the TIN.

In addition, management noted that the taxpayer's name is sufficient to verify the taxpayer reported their investments on their return properly in almost all cases. We analyzed TY 2019 Forms 1099-B to identify how many investors shared a similar name. Our review found 2,475 names were shared by 100 or more individuals who received a Form 1099-B. Further review of the 50 most common names found third-party payers issued 810,674 Forms 1099-B to 30,563 individuals with one of the 50 names.

Additional Actions Are Needed to Ensure Qualified Opportunity Fund Compliance With Reporting Requirements

Processes and procedures had not been developed to fully identify and address QOF compliance with reporting requirements. For example, our review identified 555 (37 percent) of the 1,491 e-filed and paper-filed TY 2018 returns for which the tax return showed the IRS's * * * 2 * * *. Regulations require a QOF to self-certify on an annual basis that it satisfies the investment standard.¹⁸ Form 8996 is used to self-certify as a QOF and annually report that the QOF meets the investment standard or to calculate a penalty if it fails to meet the investment standard.

* * * 2 * * *.

A process is needed to identify and track erroneous QOF tax account indicators

Our review identified that the IRS is erroneously adding indicators on some tax accounts, although the business did not self-certify as a QOF. For example, our review of TY 2019 paper tax return filings from January 1 through December 31, 2020, identified 849 (98.7 percent) of 860 paper-filed returns for which the IRS erroneously set a QOF indicator on the filers' tax accounts. Our review of a statistically valid sample of 49¹⁹ returns identified:

• * * * 1 * * * that included a Form 8996 for which the taxpayer either marked “No” or did not mark either “Yes” or “No” on Line 2. See Figure 1 which shows where Line 2 asks the filer, “Is the taxpayer organized for the purpose of investing in qualified opportunity zone property (other than another qualified opportunity fund)?”

• * * * 1 * * * for which no Form 8996 was attached, but the taxpayer erroneously received the indicator.

• * * * 1 * * * that included a completed Form 8996; however, the IRS did not transcribe information from the Form 8996 to the taxpayer's account.

Our identification of this error is similar to what the IRS identified as part of its own compliance review. The IRS reported reviewing 1,364 Forms 8996 filed during TY 2018 and, as of June 29, 2021, it identified 391 taxpayers that submitted Forms 8996 that were incomplete or the information included was inconsistent. For example, the taxpayer attached a blank or an incomplete Form 8996 or did not complete the Investment Standard Calculation. The IRS sent Letter 6250, No Certification as Qualified Opportunity Fund (QOF), to these taxpayers instructing them to file an amended return or an administrative adjustment request to meet the annual requirement to self-certify as a QOF. Based on the results of the review, the IRS determined that in some cases technical issues with tax preparation software led to missing EINs and blank investment dates.

The IRS added indicators to the tax accounts we identified because IRS Code and Edit function²⁰ guidelines state to edit the indicator if the Form 8996 is attached. The instructions do not state that the Code and Edit employee should only add this code if Line 2 of the Form 8996 is marked “Yes” (see Figure 1 for an example of Line 2 on Form 8996). IRS management indicated that they cannot capture taxpayer intention, e.g., why the taxpayer submits the Form 8996 indicating that they are not a QOF, and as such, they want the guidance to be more inclusive for situations in which the taxpayer's intent is not clear. We believe the taxpayer's intention is clear as Form 8996, Line 2, states “No. STOP. Do not file this form with your tax return.”

Additional Key Data Fields to Identify Qualified Opportunity Fund and Investor Noncompliance Are Needed

Our review identified that additional key data fields are needed to be transcribed from paper-filed Forms 8996 and 8997 to enable the IRS to ensure QOF and investor compliance with QOF participation requirements. As discussed previously, 860 (13.9 percent) of the 6,198 Forms 8996 for TY 2019 were paper-filed, and 616 (3.6 percent) of the 17,125 Forms 8997 for TY 2019 were paper-filed as of December 31, 2020. The identification of reporting inaccuracies we detailed * * * 2 * * * 

• * * * 2 * * *.

• * * * 2 * * * .

Employees responsible for transcribing data at the IRS's Tax Processing Centers manually type the applicable information from lines selected for transcription into IRS computer systems. However, only certain lines, i.e., transcription or computed transcription lines, identified by the IRS for compliance are electronically recorded.

* * * 2 * * * 

• * * * 2 * * * 

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• * * * 2 * * * the highest priority. The information that would be obtained through transcription would not be used for TY 2021 due to Coronavirus Disease 2019 relief provided. Figure 4 provides a summary of the transcription requests for Forms 8996 and 8997 for TYs 2018 through 2021.

Figure 4: Transcription Requests for Forms 8996 and 8997 for TYs 2018 Through 2021

TY	Description of Transcription Requests
	Form 8996	Form 8997
2018	No data fields transcribed.	No data obtained from Form 8997 as the form was not developed for TY 2018.
2019	Obtained fields related from * * * 2 * * *. * * 2 * * * were not in extensible markup language (XML) format until January 12, 2020. As a result, the SB/SE Division did not include * * 2 * * * as part of the transcription request for TY 2020.	* * 2 * * *. The IRS stated that the final regulations, which contain the requirement for annual reporting by QOF investors on Form 8997, were not published in the Federal Register until January 13, 2020, which had an effective date of March 13, 2020. While Form 8997 was available in XML (e.g., available for e-filing) for TY 2019, the SB/SE Division did not expect the Form 8997 to be in XML until TY 2020/PY 2021.
2020	* * 2 * * *. * * 2 * * * as part of the transcription request for TY 2020.	The SB/SE Division requested * * 2 * * *; however, the request was denied on February 6, 2020, because the requirements were due to the Information Technology organization for transcription on October 31, 2019, for inclusion in the TY 2020/PY 2021 programing.
2021	IRS SB/SE Division requested * * 2 * * *. The SB/SE Division rated the request priority as High, knowing that it took a rating of “highest of the high” to be considered for implementation. * * 2 * * * Requested.	The SB/SE Division requested * * 2 * * *.
Source: TIGTA analysis of IRS transcription requests.

MEMORANDUM FOR
MICHAEL E. McKENNEY
DEPUTY INSPECTOR GENERAL FOR AUDIT

FROM:
De Lon Harris
Commissioner, Small Business/Self-Employed Examination Division

SUBJECT:
Draft Audit Report — Additional Actions Are Needed to Address Qualified Opportunity Zone Fund and Investor Noncompliance

Thank you for the opportunity to review and provide comments on the draft report, Additional Actions Are Needed to Address Qualified Opportunity Zone Fund and Investor Noncompliance (TIGTA 202040029).

The Tax Cuts and Jobs Act of 2017 (TCJA) included a provision that created Opportunity Zones (OZ), which is an economic development tool that allows people to Invest In economically distressed areas in the United States. The purpose is to encourage economic growth and job creation in low-income communities while providing tax benefits to investors.

Low-income communities and certain neighboring areas, defined by population census tracts, can qualify as Qualified Opportunity Zones (QOZs). State governors nominate communities for the QOZ designation, and the U.S. Department of the Treasury certifies the nomination. Thousands of low-income communities in all 50 states, the District of Columbia and five U.S. territories have received a QOZ designation.

The OZ tax incentive allows taxpayers to temporarily defer taxes on Invested gains, and in certain circumstances pay reduced taxes, by investing in communities designated as QOZs through Qualified Opportunity Funds (QOFs).

As briefly touched upon in your report, the IRS immediately took several significant actions to implement the OZ provision. The Service's efforts included engaging the Community Development Financial Institutions Fund to assist in reviewing QOZ nominations, developing new tax forms and instructions, developing guidance, adding codes to identify tax returns of QOFs and QOF investors at the time the returns are filed, and developing a compliance plan. The audit focused primarily on tax year (TY) 2019 returns filed In 2020, leaving the IRS no opportunity to institute an independent review of filing season results or take actions in response prior to TIGTA's intervention.

In addition to what is included in the report the IRS took several other important actions to help ensure compliance with the OZ provision, such as a 100% review of all TY2018 OZ related tax filings, OZ soft letter and compliance projects, the development and delivery of training to examiners, and the development of technical resources for use by examiners. We also completed extensive outreach and education activities, including participating In 246 local and regional events. The IRS initiated 2,360 OZ program information contacts with various organizations, delivered multiple presentations attended by thousands of practitioners and other external stakeholders, some of which are available for on demand replay, and established an OZ resource page on irs.gov with an extensive library of information for investors and fund managers, as well as links to other related government resources.

We appreciate the feedback provided relative to data limitations. Although the IRS agrees that certain data limitations currently exist, it is important to note that we are continuing to work to eliminate and/or mitigate these limitations through additional data related requests, actions taken, and implementation of our compliance plan.

Responses to your specific recommendations are enclosed. If you have any questions, please contact me or Scott Irick, Director, Examination, Small Business/Self-Employed Division.

Attachment

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