Tax Administration

The Internal Revenue Service (IRS) is testing the filing of the simplest individual income tax return, Form 1040EZ, by using a touch tone telephone. This alternative to paper filing, known as Telefile, was first tested in Ohio in 1992 and is being retested there, along with the use of voice signatures, in 1993. The 1992 study results suggest that telephone filing is a viable alternative. Taxpayers express a willingness to file by telephone, and most seem pleased with the experience. Taxpayers can get their refunds faster, and they have fewer computations to make. Telephone filing also means more accurate returns and less costly processing for IRS. The biggest obstacle to further expanding telephone filing involves security. Taxpayer identification, either a social security number or a personal identification number, placed on the outside label of the tax package mailed to eligible taxpayers can be easily compromised. IRS is aware of this drawback and is considering alternatives.

GAO found that: (1) the IRS Telefile Program could be a viable alternative to paper return filing; (2) approximately 16.8 million taxpayers filed 1040EZ individual income tax return forms in 1992; (3) of the approximately 126,000 taxpayers who participated in the 1992 test, most viewed the program favorably, 88 percent believed Telefile took less time than paper filing, and 98 percent reported they would use Telefile again; (4) the benefits of the Telefile Program to taxpayers and IRS include faster taxpayer refunds, less taxpayer burden due to reduced computations, greater return accuracy, and less costly return processing; (5) the Telefile processing error rate was 0.16 percent and significantly lower than the error rate for paper filing; and (6) the main barrier to Telefile implementation involved security, since taxpayers' social security and personal identification numbers are displayed on the outside of the tax package and easily accessible to others.