Tax Administration

GAO provided information on how the Internal Revenue Service's (IRS) computation of interest on taxpayers' refunds was often used as an indicator of its timeliness in processing refunds.

GAO found that: (1) the Internal Revenue Code required that IRS pay interest on any taxpayer refund it did not process within 45 days of the deadline or the date IRS received the return, whichever was later; (2) IRS paid about $12.6 million in interest as of October 1988, an increase of 53 percent over 1987; (3) about $1.4 million in interest was due to increased interest rates; (4) there was an increase in the number of nonrefund returns that IRS later found to contain errors that resulted in refunds; (5) IRS generally processed refund returns first and did not begin processing remittance returns until after the 45-day interest-free period expired; (6) IRS processed 2 million more remittance returns and issued about 280,000 more taxpayer error notices in 1988 than in 1987, which caused IRS interest payments to increase by about $2.8 million; and (7) IRS planned to monitor interest payments during the 1989 tax filing season and expected fewer errors as taxpayers became more familiar with tax law changes.