2007 Tax Filing Season
Interim Results and Updates of Previous Assessments of Paid Preparers and IRS's Modernization and Compliance Research Efforts Gao ID: GAO-07-720T April 12, 2007The Internal Revenue Service's (IRS) tax filing season performance is a key indicator of how well IRS serves taxpayers. This year's filing season was expected to be risky because of tax system changes, including the telephone excise tax refund (TETR) which can be requested by all individuals and entities that paid the excise tax. GAO was asked to describe IRS's service to taxpayers so far this filing season (including the impact of this year's tax systems changes). GAO was also asked to provide updates of previous assessments of the performance of paid tax preparers, IRS's efforts to modernize its information systems, and what IRS is doing to better measure taxpayer compliance. GAO compared IRS's filing season performance to prior years' and goals and based analyses of paid preparers, information systems, and compliance research efforts on recent reports.
IRS's interim filing season performance is improved in some areas. The number of individual income tax returns processed to date is comparable to last year, and the number filed electronically is almost 6 percent greater. Taxpayers' ability to reach an IRS telephone assistor was somewhat less than last year, but the accuracy of answers to taxpayers' questions was about the same. Use of IRS's Web site increased, important because it is available 24 hours a day and is less costly than some other types of assistance. However, there have been challenges. Taxpayers' use of the Free File program, which provides free tax preparation and electronic filing through IRS's Web site--is 5.2 percent below last year at this time. Also, the Customer Account Data Engine (CADE), a modern tax return processing system, became operational 2 months behind schedule. IRS still expects to post 17 -19 million taxpayer accounts to CADE, which is about two and a half times more than last year. Tax systems changes have not had a significant effect on filing season performance. For example, IRS has received a fraction of the TETR-related telephone calls it expected to date. Because paid preparers prepared over 62 percent of all individual income tax returns last year, they are a critical quality control for tax administration by helping to prevent noncompliance. Last year, GAO reported to this Committee about errors made by paid preparers. Some of the most serious errors involved not reporting business income and failing to itemize deductions. GAO's limited work last year did not permit observations about the quality of the work of paid tax preparers in general and undoubtedly, many preparers do their best to prepare tax returns that are compliant with tax laws. In response to GAO's report, IRS has scheduled compliance reviews of some preparers. In addition, recent Justice Department suits to stop fraudulent return preparation at more than 125 outlets of one preparation chain for allegedly taking part in tax preparation scams highlight the importance and obligations of paid preparers. Despite progress made in implementing Business Systems Modernization projects, including CADE, and improving modernization management controls and capabilities, significant challenges and serious risks remain. Delays in the latest release of CADE resulted in continued contention for key resources and will likely impact future releases. Also, IRS has more to do to fully address GAO's prior recommendations such as developing a long-term strategy that would include timeframes for retiring legacy computer systems. GAO has long supported IRS's research to better understand taxpayers' compliance. IRS's fiscal year 2008 budget request includes a proposal for annual research instead of larger but intermittent efforts. GAO considers this to be a good approach because it will allow compliance data to be continually refreshed and should reduce costs by eliminating the need to plan new studies every few years.
GAO-07-720T, 2007 Tax Filing Season: Interim Results and Updates of Previous Assessments of Paid Preparers and IRS's Modernization and Compliance Research Efforts
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Testimony:
Before the Committee on Finance, U.S. Senate:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 10:00 a.m. EST:
Thursday, April 12, 2007:
2007 Tax Filing Season:
Interim Results and Updates of Previous Assessments of Paid Preparers
and IRS's Modernization and Compliance Research Efforts:
Statement of James R. White:
Director:
Strategic Issues:
Statement of David A. Powner:
Director:
Information Technology Management Issues:
GAO-07-720T:
GAO Highlights:
Highlights of GAO-07-720T, testimony before the Committee on Finance,
U.S. Senate
Why GAO Did This Study:
The Internal Revenue Service‘s (IRS) tax filing season performance is a
key indicator of how well IRS serves taxpayers. This year‘s filing
season was expected to be risky because of tax system changes,
including the telephone excise tax refund (TETR) which can be requested
by all individuals and entities that paid the excise tax. GAO was asked
to describe IRS‘s service to taxpayers so far this filing season
(including the impact of this year‘s tax systems changes). GAO was also
asked to provide updates of previous assessments of the performance of
paid tax preparers, IRS‘s efforts to modernize its information systems,
and what IRS is doing to better measure taxpayer compliance. GAO
compared IRS‘s filing season performance to prior years‘ and goals and
based analyses of paid preparers, information systems, and compliance
research efforts on recent reports.
What GAO Found:
IRS‘s interim filing season performance is improved in some areas. The
number of individual income tax returns processed to date is comparable
to last year, and the number filed electronically is almost 6 percent
greater. Taxpayers‘ ability to reach an IRS telephone assistor was
somewhat less than last year, but the accuracy of answers to taxpayers‘
questions was about the same. Use of IRS‘s Web site increased,
important because it is available 24 hours a day and is less costly
than some other types of assistance. However, there have been
challenges. Taxpayers‘ use of the Free File program, which provides
free tax preparation and electronic filing through IRS‘s Web site”is
5.2 percent below last year at this time. Also, the Customer Account
Data Engine (CADE), a modern tax return processing system, became
operational 2 months behind schedule. IRS still expects to post 17 -19
million taxpayer accounts to CADE, which is about two and a half times
more than last year. Tax systems changes have not had a significant
effect on filing season performance. For example, IRS has received a
fraction of the TETR-related telephone calls it expected to date.
Because paid preparers prepared over 62 percent of all individual
income tax returns last year, they are a critical quality control for
tax administration by helping to prevent noncompliance. Last year, GAO
reported to this Committee about errors made by paid preparers. Some of
the most serious errors involved not reporting business income and
failing to itemize deductions. GAO‘s limited work last year did not
permit observations about the quality of the work of paid tax preparers
in general and undoubtedly, many preparers do their best to prepare tax
returns that are compliant with tax laws. In response to GAO‘s report,
IRS has scheduled compliance reviews of some preparers. In addition,
recent Justice Department suits to stop fraudulent return preparation
at more than 125 outlets of one preparation chain for allegedly taking
part in tax preparation scams highlight the importance and obligations
of paid preparers.
Despite progress made in implementing Business Systems Modernization
projects, including CADE, and improving modernization management
controls and capabilities, significant challenges and serious risks
remain. Delays in the latest release of CADE resulted in continued
contention for key resources and will likely impact future releases.
Also, IRS has more to do to fully address GAO‘s prior recommendations
such as developing a long-term strategy that would include timeframes
for retiring legacy computer systems.
GAO has long supported IRS‘s research to better understand taxpayers‘
compliance. IRS‘s fiscal year 2008 budget request includes a proposal
for annual research instead of larger but intermittent efforts. GAO
considers this to be a good approach because it will allow compliance
data to be continually refreshed and should reduce costs by eliminating
the need to plan new studies every few years.
What GAO Recommends:
GAO is not making any new recommendations, but notes relevant past
recommendations and their implementation status.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-720T].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact James R. White at (202)
512-9110 or whitej@gao.gov.
[End of section]
Mr. Chairman and Members of the Committee:
We appreciate this opportunity to support your oversight of the
Internal Revenue Service (IRS) and the broader tax administration
system.
The annual tax return filing season is when IRS provides much of its
service to taxpayers. From January through April, IRS will process well
over 100 million individual tax returns and issue refunds, handle tens
of millions of phone queries from taxpayers, and provide forms and
answers to questions for tens of millions of taxpayers on its Web site.
Smaller numbers of taxpayers will be assisted at IRS's walk-in sites or
at sites operated by other organizations and staffed by volunteers.
While it is always a massive undertaking, the IRS Commissioner stated
that this year's filing season is high risk for several reasons,
including challenges in implementing the new telephone excise tax
refund (TETR), split refund option (refunds can now be directly
deposited to up to three separate accounts), and several tax law
extensions that were enacted in December of 2006.[Footnote 1]
We have reported that IRS has made significant progress improving
taxpayer service since the passage of the IRS Restructuring and Reform
Act of 1998 (RRA 98),[Footnote 2] including increased electronic
filing, better access to IRS's telephone assistors, and more accurate
answers to taxpayers' questions. The progress has been due, in part, to
IRS bringing modern information systems on line. However, we have also
described taxpayer service challenges including the quality of
assistance at walk-in and volunteer sites, delays in some new
information systems, and fully implementing our prior recommendations
on the management of systems acquisition and development.
In addition to the IRS, tax administration in the U.S. relies heavily
on the private sector including the paid preparer industry, the tax
preparation software industry, and third parties who withhold taxes or
submit information returns. Last filing season, over 60 percent of
returns were prepared by paid preparers, and another one-fourth use
commercial tax preparation software.
IRS's Business Systems Modernization (BSM) program, a multibillion-
dollar, high-risk, highly complex effort for delivering modern
information systems, is critical to supporting IRS's taxpayer service
and enforcement goals and reducing the tax gap.[Footnote 3]
The ultimate goal of taxpayer service is to help taxpayers understand
and comply with their tax obligations. However, we have reported that
IRS lacks quantitative estimates of the impact of taxpayer service on
voluntary compliance by taxpayers as well as on the impact of
enforcement on compliance. As a necessary first step to gaining more
understanding of the impact of service on compliance, we have strongly
supported IRS's ongoing National Research Program (NRP) to measure
compliance and estimate the tax gap.
As agreed, our statement will describe IRS's service to taxpayers so
far this filing season (including the impact of this year's tax system
changes) and provide updates of previous assessments of the performance
of paid tax preparers in our tax administration system, IRS's ongoing
efforts to modernize its information systems, and what IRS is doing to
better measure taxpayer compliance with the tax laws including the
impact of service on compliance.
To assess IRS's filing season performance for processing, telephones,
face-to-face assistance and its Internet Web site, we obtained and
analyzed IRS's performance and production data and compared it to
annual goals and prior years' performance. Our work also included
direct observations of key filing season operations, and interviews
with IRS officials and external stakeholders.
Our work was done primarily at IRS's National Office operating
divisions, the Joint Operations Center in Atlanta, Ga. and processing
centers and call sites in Atlanta, Ga. and Andover, Ma. We reviewed
relevant external documentation, our reports, and reports of the
Treasury Inspector General for Tax Administration (TIGTA). Our analyses
of Internet return preparation and electronic filing options, TETR
compliance, BSM, and NRP is based upon the results of our recent
reports.[Footnote 4] We reviewed IRS's efforts to address our prior
year recommendations related to our annual filing season, paid
preparer, and BSM work.
In past work, we assessed IRS's filing season performance data. We
considered filing season performance measures and data to be objective
and reliable based on our prior work. Since sources and procedures for
producing this year's data have not significantly changed from prior
years, we determined that the data were sufficiently reliable for the
purposes of this report. Data limitations are discussed where
appropriate. We performed our work from December 2006 through March
2007 in accordance with generally accepted government auditing
standards.
In summary, we make the following major points:
² IRS's interim filing season performance is improved in some areas,
although there have been challenges. As of March 30, 2007, IRS had
processed 76.8 million individual income tax returns and issued over 68
million refunds, about the same number as last year. The number of
returns filed electronically was almost 6 percent greater than this
time last year. However, taxpayers' use of the Free File program,
accessible through IRS's Web site and which allows for free on line tax
preparation and electronic filing, is 5.2 percent below last year at
this time. IRS's latest release of the Customer Account Data Engine
(CADE), a modern tax return processing system that issues faster
refunds, was delayed--it became operational 2 months behind schedule.
IRS expects to post approximately 17 - 19 million taxpayer returns to
CADE in 2007. Although this is less than the 33 million planned, it is
almost two and a half times the approximately 7.4 million taxpayer
accounts posted last year on CADE. With respect to taxpayer service,
call volume continued to decline, taxpayers' ability to reach an IRS
assistor was somewhat less than last year, but the accuracy of answers
to taxpayers' questions was about the same as last year. Use of IRS's
Web site continues to increase, important because it is available
around the clock and is lower cost than most other types of assistance.
About 69 percent of individual income tax returns filed to date
included TETR requests. The impact of TETR on taxpayer services has
been much less than IRS anticipated. For example, IRS has received a
fraction of the TETR-related telephone calls it expected to date.
² Because they help the majority of taxpayers prepare their returns,
paid preparers are a critical quality control checkpoint for the tax
system. Last year, over 62 percent of all individual income tax returns
were prepared by paid preparers. However, we reported to this Committee
last year about errors made by paid preparers.[Footnote 5] In visits to
19 outlets of several commercial chain preparers, we found that paid
preparers made mistakes in every one of our visits, with tax
consequences that were sometimes significant. Some of the most serious
problems involved preparers not reporting business income and failing
to itemize deductions at all or failing to claim all available
deductions. The limited data did not permit observations about the
quality of the work of paid tax preparers in general. Undoubtedly, many
paid preparers do their best to provide their clients with tax returns
that are compliant with the tax law. IRS has initiated some enforcement
actions in response to our findings with audits of some preparers'
returns scheduled to begin in April 2007. Recent Justice Department
suits to stop fraudulent return preparation at more than 125 outlets of
one preparation chain for allegedly taking part in preparation scams
highlight the obligations of paid preparers. Their due diligence has
the potential to prevent noncompliance and reduce IRS's cost and
intrusiveness.
² IRS continues to make progress in implementing BSM projects and
meeting cost and schedule commitments, but two key projects--CADE
(discussed above) and Modernized e-File (a new electronic filing
system)--experienced significant cost overruns during 2006. Future BSM
project releases face serious risks, which IRS is working to mitigate.
For example, delays in deploying the latest release of CADE have
resulted in contention for key resources and will likely impact the
design and development of the next two important releases, which are
scheduled to be deployed later this year. IRS has made significant
progress in implementing our prior recommendations and improving its
modernization management controls and capabilities. However, critical
controls and capabilities related to requirements development and
management and post-implementation reviews of deployed BSM projects
have not yet been fully implemented. In addition, more work remains to
be done by the agency to fully develop a long-term vision and strategy
for completing the BSM program, including establishing time frames for
consolidating and retiring legacy systems.
² Continued compliance research is essential to IRS's ability to
effectively focus its service and compliance efforts, and we have long
been a supporter of such research. Well-designed compliance research
gives IRS and Congress an important measure of taxpayer compliance and
it allows IRS to better target enforcement resources towards
noncompliant taxpayers. IRS's fiscal year 2008 budget request includes
a proposal for a rolling sample of individual returns (small annual
samples that would replace larger but intermittent efforts) and a
dedicated cadre of examiners to review the returns. We consider this to
be a good approach to refreshing research compliance data because doing
compliance studies once every few years does not provide information in
the intervening years. A rolling sample should also reduce costs by
eliminating the need to plan new studies every few years.
IRS's Filing Season Performance Is Improved in Some Areas with
Challenges in Others, and the Effect of Tax System Changes Has Been
Minimal:
IRS's key filing season efforts are processing electronic and paper
individual income tax returns and issuing refunds, as well as providing
assistance or services to taxpayers. As already noted, processing and
assistance were complicated this year by three tax system changes:
TETR, the split refund option, and enactment in December 2006 of tax
law changes.
Returns Processing Is Comparable to Last Year, Despite Delays with CADE
and Implementation of Tax System Changes:
From January 1 through March 30, 2007, IRS processed 76.8 million
returns, about the same number as last year, and issued 68.3 million
refunds for $163.4 billion compared to 66.7 million refunds for $154.4
billion at the same time last year. Over 69.3 percent of all refunds
were directly deposited into taxpayers' accounts, up 6.2 percent over
the same time last year. Direct deposits are faster and more convenient
for taxpayers than mailing paper checks.
According to IRS data and officials, performance is comparable to last
year. IRS is meeting most of its performance goals, including deposit
error rate, which is the percentage of deposits applied in error, such
as being posted to the wrong tax year. Groups and organizations we
spoke with, including the National Association of Enrolled Agents, the
American Institute of Certified Public Accountants, and a large tax
preparation company, corroborated IRS's view that filing season
performance is comparable to last year.
CADE Will Expedite Refunds for Millions of Taxpayers, but Delays in
Implementation Caused Millions More Not to Benefit:
IRS uses two systems for storing taxpayer account information--the
antiquated Master File legacy system and CADE. The latest release of
CADE became operational in early March, 2 months behind schedule
because of problems identified during testing. IRS had originally
planned to post 33 million taxpayer returns to CADE and the remaining
100 million individual returns on the legacy system. However, as a
result of the delay, officials expect to post approximately 17 -19
million taxpayer returns to CADE. Although this is significantly less
than planned, it is almost two and a half times the approximate 7.4
million taxpayer accounts posted last year on CADE. Taxpayers eligible
for a refund this year whose returns are posted to CADE will benefit
from CADE's faster processing, receiving their refunds 1-5 days faster
for direct deposit and 4-8 days faster for paper checks than if their
return had been processed on the legacy system. The remaining 14 - 16
million returns that were to have been processed on CADE were instead
processed by the legacy system and thus did not receive the benefit of
faster refunds. The CADE setback may impact IRS's ability to deliver
the expanded functionality of future versions of CADE, thus delaying
the transition to the new processing system (discussed further in the
BSM section of this testimony).
Electronic Filing is Higher than Last Year, Despite a Decline in the
Free File Program:
The growth rate for electronic filing is up from the same period last
year. As of March 30, over 56.9 million (74.1 percent) of all
individual income tax returns were filed electronically. This is up 5.8
percent over the same time last year, and an increase over the previous
years' growth of 3.3 percent.
We previously reported that state mandates for electronic filing of
state tax returns also encourage electronic filing of both state and
federal tax returns and last year, we suggested that Congress consider
mandating electronic filing by paid tax preparers meeting criteria such
as a threshold for number of returns filed.[Footnote 6] Last year,
electronic filing of federal returns increased 27 percent for the three
states (New York, Connecticut, and Utah) with new 2006 mandates. This
year, state mandates are likely to continue to show a positive effect
on federal electronic filing because, with the addition of West
Virginia, 13 states now have state mandates.
Compared to processing paper returns, electronic filing reduces IRS's
costs by reducing staff devoted to processing. In 2006, IRS used almost
1,700 (36 percent) fewer staff years for processing paper tax returns
than in 1999, shown in figure 1. IRS estimates this saved the agency
$78 million in salary, benefits, and overtime in 2006. Electronic
filing also improves service to taxpayers. Returns are more accurate
because of built-in computer checks and reduced transcription errors
(paper returns must be transcribed in IRS's computers--a process that
inevitably introduces errors). Electronic filing also provides faster
refunds.
Figure 1: Number of Individual Returns and IRS Staff Years for
Individual Paper and Electronic Processing, Fiscal Years 1999 - 2008:
[See PDF for image]
Source: GAO analysis of IRS data.
Notes: Staff years and full-time equivalents are units of measurement
that are often used interchangeably. According to IRS, a full-time
equivalent is the equivalent of one person working full-time for one
year with no overtime. A staff year includes overtime. Therefore, the
cost of one staff year is equal to the cost of one full-time equivalent
plus overtime. Projections for 2007 do not include Form 1040 EZ-Ts.
[End of figure]
Although electronic filing continues to grow, taxpayers' use of the
Free File program continues to decline.[Footnote 7] The Free File
program, accessible through IRS's Web site, is an alliance of companies
that have an agreement with IRS to provide free on-line tax preparation
and electronic filing on their Web sites for taxpayers below an
adjusted gross income ceiling of $52,000 in 2007. About 95 million (70
percent) of all taxpayers are eligible for free file. Under the
agreement, companies are not allowed to offer refund anticipation loans
and checks, or other ancillary products, to free file participants.
Although IRS has increased its marketing efforts, the agency has not
been successful in increasing free file use. As of March 17, 2007, IRS
processed about 2.6 million free file returns, which is a decrease of
5.2 percent from the same period last year. While all 19 companies
participating in the Free File program allow for TETR requests, only 3
of the 19 companies offer Form 1040 EZ-T requests.[Footnote 8]
States' Internet Return Preparation and Electronic Filing Benefits and
Costs Were Modest:
We recently reported to this Committee on states' experience with
return preparation and electronic filing on their Web sites.[Footnote
9] These systems, called I-file, provide taxpayers with another option
for preparing and electronically filing their tax returns. To the
extent that the I-file systems convert taxpayers from paper to
electronic filing, the costs of processing returns are reduced.
For the eight states we profiled, I-file benefits and costs were
relatively modest. While state I-file systems generated benefits, such
as increased electronic filing, the overall benefits were limited by
low usage, which ranged from about 1 percent to just over 5 percent of
eligible taxpayers. Restrictions on taxpayer eligibility and system
features helped keep costs modest. States varied in whether they used
contractors to develop and operate the I-file system. For the states we
profiled, it is unclear whether benefits were greater than costs, in
part, because of the low number of taxpayers who converted from paper
to electronic filing.
IRS's potential to realize net cost savings from an I-file system
depends on the costs of developing the system and the number of
taxpayers converted from paper. IRS's costs to provide a new I-file
service could be higher than states' for several reasons: (1) the
federal tax system is more complex, (2) unlike some states that already
had transactional Web sites, IRS would need to develop the capability
to receive tax returns on its Web site, and (3) developing an I-file
system could further stretch IRS's capability to manage systems
development, an area we have designated high risk since 1995. The key
to IRS achieving a net cost savings depends on the number of
individuals converted from paper to electronic filing and the savings
per return estimated to be $2.36 by IRS.[Footnote 10] It is uncertain
how many of the 58 million taxpayers who filed on paper would convert.
The over 13 million taxpayers who self-prepare their returns on a
computer but print them out and mail them to IRS are an attractive
target for I-file because they already have access to a computer and
may be more willing to try I-file. However, IRS's Free File program,
designed to attract similar taxpayers, had low use in 2006, with only 4
million users (about 3 percent of total taxpayers and 4 percent of
eligible taxpayers).
Tax System Changes Have Had Less Impact on Returns Processing Than
Projected:
TETR and split refund volume have been less than IRS projected. Almost
69 percent of individuals who filed individual income tax returns by
the end of March have requested TETR, although all who paid the excise
tax were eligible for the refund. IRS projected that 10 to 30 million
individuals who did not have a tax filing obligation could claim TETR.
Approximately 410,000 individuals from this group have asked for a TETR
refund (2.8 percent of the 14.5 million IRS expected by this
time).[Footnote 11]
As of March 24, fewer than 61,000 individual taxpayers chose to split
their refunds into different accounts out of the 44.8 million taxpayers
who had their refunds directly deposited. This volume compares to the
3.8 million IRS projected for the filing season.
IRS delayed processing a small number of returns claiming tax extender
provisions until February 3 to complete changes to its tax processing
systems.
Call Volume Continues to Decline, but Performance Is Mixed:
The number of calls to IRS's toll-free telephone lines has been less
than last year and is significantly less than in 2002 for both
automated and live assistance (see table 1). Similar to last year, IRS
assistors answered about 40 percent of the total calls, while the rest
of the calls were answered by an automated menu of recordings.
Table 1: IRS Telephone Volume in the Filing Seasons, 2002 through 2007:
Telephone assistance [A].
Volume in thousands: Total calls;
2002: 34,489;
2003: 27,905;
2004: 29,085;
2005: 23,340;
2006: 21,616;
2007: 20,732.
Volume in thousands: Answered by assistors;
2002: 9,208;
2003: 9,434;
2004: 10,143;
2005: 9,421;
2006: 8,653;
2007: 8,434.
Volume in thousands: Answered by automated menu of recordings;
2002: 25,281;
2003: 18,471;
2004: 18,942;
2005: 13,919;
2006: 12,963;
2007: 12,298.
Source: IRS.
[A] Telephone assistance data are based on actual counts from January 1
to March 16, 2002; March 15, 2003; March 13, 2004; March 12, 2005;
March 11, 2006; and March 10, 2007.
[End of table]
Taxpayers' ability to access IRS's telephone assistors is somewhat less
than last year, but IRS is meeting its goals. As shown in table 2, the
percentage of taxpayers who attempted to reach an assistor and actually
got through and received services--referred to as the level of service-
-was one percentage point less than the same time period last year.
This level of performance is slightly greater than IRS's fiscal year
goal of 82 percent which is the same as last year's goal. Average speed
of answer, which is the length of time taxpayers wait to get their
calls answered, is just over 4 minutes, almost 40 percent longer than
last year, but is better than IRS's annual goal of 4.3 minutes.
Taxpayer disconnects, which is the rate at which taxpayers waiting to
speak with an assistor abandoned their calls to IRS, increased to 12.3
percent to about 1.4 million calls compared to the same time period
last year. While IRS disconnects are a smaller percentage of all calls
it receives, those disconnects were down from approximately 491,000 at
this time last year to 148,000 (a 70 percent decline).
Using a statistical sampling process, IRS estimates that the accuracy
of telephone assistors' responses to tax law and account questions to
be comparable to the same time period last year. IRS officials noted
that there was unprecedented hiring for fiscal year 2007, and while
every employee working tax law applications completes a requisite
certification process, new employees will be less productive than
seasoned employees. IRS has implemented several initiatives, such as
targeted monitoring of staff and mini-training sessions, to assist the
new hires.
Table 2: IRS Telephone Performance in the Filing Season, 2002 through
2007:
Telephone performance-access[A].
Assistors level of service[B];
2002: 69%;
2003: 82%;
2004: 84%;
2005: 83%;
2006: 84%;
2007: 83%.
Average speed of answer (in minutes)[C];
2002: 3.8;
2003: 3.1;
2004: 3.3;
2005: 3.9;
2006: 3.0;
2007: 4.2.
Telephone performance-accuracy[D].
Accounts customer accuracy rate estimates;
2002: 88.3% +/-0.9%;
2003: 87.9% +/-0.7%;
2004: 89.1% +/-0.8%;
2005: 91.7% +/-0.7%;
2006: 92.7% +/-0.7%;
2007: 92.9% +/-0.9%.
Tax law customer accuracy rate estimates;
2002: 83.5% +/-0.7%;
2003: 81.2% +/-1.0%;
2004: 75.8% +/-1.3%;
2005: 87.5% +/-1.0%;
2006: 90.2% +/-1.0%;
2007: 88.7% +/-1.5%.
Source: IRS.
[A] Telephone performance access data are based on actual counts from
January 1 to March 16, 2002; March 15, 2003; March 13, 2004; March 12,
2005; March 11, 2006; and March 10, 2007.
[B] Assistor level of service is the percentage of taxpayers who wanted
to talk with an assistor and actually got through and received
services.
[C] The number of minutes a taxpayer waits in queue to speak with an
assistor.
[D] Based on a representative sample estimate at the 90 percent
confidence interval for January and February 2006 and 2007. The
percentage of calls in which telephone assistors provided accurate
answers for the call type and took the appropriate action.
[End of table]
IRS officials reported that tax system changes have had minimal impact
on telephone operations so far this filing season. TETR-related calls
are a small fraction of what IRS projected. Between January 1 and March
10, 2007, IRS expected 7.5 million TETR-related calls, but received
about 370,000. This represented 1.8 percent of total calls received by
IRS.
IRS hired 650 full-time equivalents in fiscal year 2007, with the
expectation that those hires would be used to cover anticipated
attrition in 2008. Their first assignment was answering TETR telephone
calls. They were also trained to handle other accounts calls and paper
inventory should the demand for TETR assistance not
materialize.[Footnote 12]
IRS anticipated little impact on telephone service from the split
refund option and tax provision extenders. For split refunds, IRS
anticipated it would receive about 7,000 calls compared to the 70
million total calls it receives each year. IRS did not have projections
for tax provision extenders.
Use of Some Web Site Applications Continues to Increase, and
Performance Remains High:
Use of IRS's Web site has increased so far this filing season compared
to prior years except for downloads of forms and publications and tax
law questions. From January 1 through February 28, IRS's Web site was
visited more often and the number of searches increased. The number of
downloaded forms and publications has decreased 14 percent over the
same period compared to last year. According to IRS officials, it is
too early in the filing season to determine why downloads have
decreased. In terms of new features, IRS added a state deduction
calculator this filing season, which IRS wants to use as a new standard
for developing other on line calculators. Web site assistance is
important because it is available to taxpayers 24 hours a day and it is
less costly to provide than telephone and walk-in assistance.
Table 3: IRS Web Site Use, 2006 and 2007 (data are in thousands):
Uses: Visits[A];
2006: 66,571;
2007: 72,979;
Percentage change: 9.6.
Uses: Downloads[A];
2006: 56,405;
2007: 48,449;
Percentage change: - 14.1.
Uses: Searches[A];
2006: 35,917;
2007: 41,435;
Percentage change: 15.4.
Uses: Where's My Refund[B];
2006: 19,776;
2007: 24,724;
Percentage change: 25.0.
Uses: Number of TETR-related visits[C];
2006: N/A;
2007: 3,283;
Percentage change: N/A.
Source: GAO analysis of IRS data.
Note: N/A means not applicable.
[A] Web site visits and searches and downloads from January and
February 2006 and 2007. A visit begins when a visitor views their first
page on IRS.gov, and ends when the visitor leaves the site. A visit is
not a count of the number of unique individuals who have accessed the
site.
[B] For January 1 through March 20, 2006, and 2007.
[C] Visits to a Web page specific to TETR, which was not operational in
2006. For October 1, 2006, through March 10, 2007.
[End of table]
In addition to the Free File program, IRS's Web site offers several
important features, such as Where's My Refund, which allows taxpayers
to check on the status of their refunds. This year, the feature allows
taxpayers to check on the status of split refunds, and tells the
taxpayer if one or more of the deposits were returned from the bank
because of an incorrect routing or account number. However, for certain
requests, the feature is not useful. For example, IRS stopped some
refunds related to TETR requests, but Where's My Refund informed
taxpayers that their refunds had been issued. Further, if taxpayers
make a mistake calculating the amount of their refund the feature would
indicate that IRS corrected the refund amount, but will not show the
new amount. IRS is considering providing more information about
taxpayer accounts on its Web site is part of IRS's strategy to improve
taxpayer services at reduce costs.
There is further evidence that IRS's Web site is performing well as
these examples show.
² According to the American Customer Satisfaction Index,[Footnote 13]
IRS's Web site is scoring above other government agencies, nonprofits,
and private sector firms for customer satisfaction (74 for IRS versus
72 for all government agencies surveyed and 71 for all Web sites
surveyed).
² An independent weekly study by Keynote, a company that evaluates Web
sites, reported that IRS's Web site has repeatedly ranked in the top 6
out of 40 government agency Web sites evaluated in terms of average
download time. Last year, IRS consistently ranked second for the same
time period. Average download time remained about the same for IRS
compared to last year, indicating that IRS is not performing worse but
that other government agencies are performing better.
² On the basis of our own searches, we found IRS's Web site to be
readily accessible, easy to navigate, and easy to search.
Limited Data on the Quality of Face-to-Face Assistance Show
Improvement, but Concerns Remain:
As of March 17, 2007, approximately 2 million taxpayers used IRS's 401
walk-in sites, which is comparable to the same period last year. Figure
2 shows the trend in walk-in site use for the entire filing season
including a slight projected decline in 2007. At walk-in sites, staff
provide taxpayers with information about their tax accounts, answer a
limited scope of tax law questions about, for example, to income and
filing status, and provide limited tax return preparation
assistance.[Footnote 14] As of March 10, 6,700 taxpayers have requested
TETR on Form 1040EZ-T at walk-in sites, which is 5.3 percent of the
126,000 individuals IRS expected.
Figure 2: Assistance Provided at IRS Walk-in Sites and Volunteer Sites,
2001--2008 (contacts in millions):
[See PDF for image]
Source: GAO analysis of IRS data.
Notes: "Other walk-in contacts" includes assistance for account
notices, tax law inquiries, forms, and compliance work, but not return
preparation. For the walk-in sites, the time periods covered are
December 31, 2000, through April 28, 2001; December 30, 2001, through
April 27, 2002; December 29, 2002, through April 26, 2003; December 28,
2003, through April 24, 2004; and December 26, 2004, through April 23,
2005. For volunteer sites, the time period covered for 2001 is January
1, through April 21, 2001; December 30, 2001, through April 27, 2002;
December 29, 2002, through April 26, 2003; December 28, 2003, through
April 24, 2004; December 26, 2004, through April 23, 2005; and January
1, through April 23, 2006.
[A] Fiscal years 2007 and 2008 are IRS projections. For walk-in sites,
projections cover the time periods of December 31, 2006, through April
28, 2006, and January 1, through April 30, 2008. For volunteer sites,
projections cover the time periods from January 1 through April 30,
2007 and 2008. For volunteer sites, projections cover the time periods
from October 1 through September 30 for 2007 and 2008. According to
IRS, most taxpayers having their returns prepared at volunteer sites do
so during the filing season, which is from January 1 through April 30.
[End of figure]
IRS officials attribute this year's projected decline in walk-in use to
taxpayers' increased use of tax preparation software and IRS.gov. This
decline has allowed IRS to devote 4 percent fewer full-time equivalents
compared to last year for walk-in assistance (down from 187 to 179 full-
time equivalents).
Volunteer sites, often run by community-based organizations and staffed
by volunteers who are trained and certified by IRS, do not offer the
range of services provided at walk-in sites. Instead, volunteer sites
focus on preparing tax returns primarily for low-income and elderly
taxpayers and operate chiefly during the filing season. The number of
taxpayers getting return preparation assistance at over 11,000
volunteer sites has increased to approximately 1.3 million, up 8
percent from last year and continuing a trend since 2001. Although no
projections have been made for TETR claims, over 33,000 taxpayers have
claimed this credit at these locations. We have reported that the shift
of taxpayers from walk-in to volunteer sites is important because it
has allowed IRS to transfer time-consuming services, such as return
preparation, from IRS to other less costly alternatives that can be
more convenient for taxpayers.
While IRS is collecting better data on the quality of service at walk-
in sites, concerns about quality of the data and service remain.
According to IRS, it is measuring the accuracy of tax law and accounts
assistance. IRS has reported a goal for tax law accuracy, and plans to
use data collected for 2007 to set an annual goal for accounts
accuracy.[Footnote 15] While IRS provides return assistance for 125,000
taxpayers, it lacks information on the accuracy of that assistance. For
volunteer sites, as of March 2, for a small non-statistical sample, IRS
reported a 69 percent accuracy rate for return preparation, compared to
its goal of 55 percent. Independent from IRS, but using similar
methods, TIGTA showed a 60 percent accuracy rate.
IRS Is Addressing TETR Compliance Issues During the Filing Season:
TETR is the only one of the three tax changes that created new
compliance concerns for IRS (filers could request greater TETR amounts
than they are entitled to). The split refund option does not create
compliance concerns for IRS since it relates to the accounts into which
taxpayers want their refunds deposited rather than to complying with
tax provisions.[Footnote 16] Since the provisions extending the tax
laws already existed, IRS anticipates that any compliance concerns for
2006 returns will be the same as for previous years'.
IRS developed a plan before the filing season began, to audit suspected
TETR overclaims before issuing refunds. IRS's plan for TETR was
consistent with good management practices identified in previous GAO
reports. IRS's plan included appointing an executive, developing an
implementation plan for TETR that included standard amounts that
individuals could request, developing a compliance plan to select TETR
requests for audit, and monitoring and evaluating compliance by using
real-time data to adjust TETR compliance efforts. For example, each
week, IRS reviews the requests for TETR and selects some for audit and
revises the criteria for audit selection as necessary.
As of March 24, about 211,000 individuals had requested the actual
amount of telephone excise tax paid for a total of $98.8 million. IRS
selected about 5 percent of these requests for audit, involving about
$29 million.[Footnote 17] IRS has closed four of the individual audits
with the taxpayer agreeing to accept the standard amount, and has not
completed the remaining individual audits or any of the business
audits.[Footnote 18] About 189,000 businesses had requested TETR for a
total of about $74.7 million. IRS selected about 560 for audit,
involving about $5.6 million. IRS reassigned about 77 full-time
equivalent staff from discretionary audits and earned income tax credit
audits to conduct TETR audits. Additionally, Criminal Investigation has
spent 13 full-time equivalent staff on TETR activities in 2007.
Paid Preparers Play a Major Role in Tax Administration but They Make
Errors:
Many taxpayers choose to pay others to prepare their tax returns rather
than prepare their own returns. Sixty-two percent of all the individual
tax returns filed for the 2006 filing season used a paid preparer.
In most states, anyone can be a paid preparer regardless of education,
training, or licensure. However, there are different types of
preparers. Paid preparers who hold professional certificates include
CPAs and attorneys. Other preparers vary in their backgrounds. Some
have extensive training and experience and others do not.
In 2003 we reported to this Committee that while many taxpayers who
used paid preparers believed they benefited from doing so, some were
poorly served.[Footnote 19] Last year we reported to this Committee on
errors made by commercial chain preparers, including the results of
undercover visits to 19 locations.[Footnote 20]
In our visits to 19 outlets of several commercial chain preparers, we
found that paid preparers made mistakes in every one of our visits,
with tax consequences that were sometimes significant. The errors
resulted in unwarranted extra refunds of up to almost $2,000 in five
instances, while in two cases they cost the taxpayer over $1,500. Some
of the most serious problems involved preparers:
² not reporting business income in 10 of 19 cases;
² not asking about where a child lived or ignoring our answer to the
question and, therefore, claiming an ineligible child for the earned
income tax credit in 5 out of the 10 applicable cases;
² failing to take the most advantageous postsecondary education tax
benefit in 3 out of the 9 applicable cases; and:
² failing to itemize deductions at all or failing to claim all
available deductions in 7 out of the 9 applicable cases.
At the time, IRS officials responded that, had our undercover
investigators been real taxpayers filing tax returns, many of the
preparers would have been subject to penalties for such things as
negligence and willful or reckless disregard of tax rules and some may
have risen to the level of criminal prosecution for willful preparation
of a false or fraudulent return. The taxpayers in these cases would
also have been potentially exposed to IRS enforcement action.
The limited data did not permit observations about the quality of the
work of paid tax preparers in general. Undoubtedly, many paid preparers
do their best to provide their clients with tax returns that are both
fully compliant with the tax law and cause them to neither overpay nor
underpay their federal income taxes.
IRS and the paid preparer community have taken some actions as a result
of our work. After we provided the results of our 19 visits to IRS, IRS
determined that 4 of these cases warranted a Program Action Case. In a
Program Action Case, IRS selects 30 tax returns from a preparer and
audits them to look for a pattern of compliance problems. IRS officials
told us that these audits would begin in April 2007. Other cases were
referred to the office responsible for monitoring earned income tax
credit compliance, and we have been told that 10 preparers that we
visited will receive visits to check for compliance with the due
diligence requirements of that program. IRS also referred the cases to
the office that monitors electronic filing compliance.
We also presented our findings at all six of its nationwide tax forums
last year, large educational conferences for the paid preparer
community. In addition, we have been told that some tax preparation
chains and preparer organizations have incorporated the results of our
work into their educational materials. Finally, we recommended that IRS
conduct research to determine the extent to which paid preparers live
up to their responsibilities to file accurate and complete tax returns
based on information they obtain from their customers. IRS officials
have described plans to develop data to use to research paid preparer
compliance issues, including whether tax preparers who are noncompliant
themselves are more likely to prepare client returns that are
noncompliant. To date, this research has not been completed. While this
may be useful research, we do not believe such research would determine
the extent to which paid preparers live up to their responsibilities.
Recent suits filed by the Justice Department highlight the obligations
of paid preparers. The Justice Department filed suits to stop
fraudulent return preparation at more than 125 outlets in four states
of one preparation chain for allegedly taking part in preparation scams
that led to fraudulent returns.
Because they help the majority of taxpayers prepare their returns, paid
preparers are a critical quality control checkpoint for the tax system.
Due diligence by paid preparers has potential to prevent non-compliance
and reduce IRS's cost and intrusiveness.
Progress Made in BSM Implementation, but Challenges and Risks Remain:
BSM is critical to supporting IRS's taxpayer service and enforcement
goals and reducing the tax gap. For example, BSM includes projects to
allow taxpayers to file and retrieve information electronically and to
provide technology solutions to help reduce the backlog of collections
cases. Despite progress made in implementing BSM projects and improving
modernization management controls and capabilities, significant
challenges and serious risks remain, and further program improvements
are needed, which IRS is working to address.
Over the past year, IRS has made further progress in implementing BSM
projects and in meeting cost and schedule commitments, but two key
projects experienced significant cost overruns during 2006--CADE and
Modernized e-File. During 2006 and the beginning of 2007, IRS deployed
additional releases of the following modernized systems that have
delivered benefits to taxpayers and the agency: CADE, Modernized e-
File, and Filing and Payment Compliance (a tax collection case analysis
support system). Each of the five associated project segments that were
delivered during 2006 were completed on time or within the targeted 10
percent schedule variance threshold, and two of them were also
completed within the targeted 10 percent variance threshold for cost.
However, one segment of the Modernized e-File project as well as a
segment of the CADE project experienced cost increases of 36 percent
and 15 percent, respectively. According to IRS, the cost overrun for
Modernized e-File was due in part to upgrading infrastructure to
support the electronic filing mandate for large corporations and tax-
exempt organizations, which was not in the original projections or
scope.
IRS has also made significant progress in implementing our prior
recommendations and improving its modernization management controls and
capabilities, including efforts to institutionalize configuration
management procedures and develop an updated modernization vision and
strategy and associated 5-year plan to guide information technology
investment decisions during fiscal years 2007 through 2011. However,
critical controls and capabilities related to requirements development
and management and post implementation reviews of deployed BSM projects
have not yet been fully implemented. In addition, more work remains to
be done by the agency to fully address our prior recommendation of
developing a long-term vision and strategy for completing the BSM
program, including establishing time frames for consolidating and
retiring legacy systems. IRS recognizes this and intends to conduct
further analyses and update its vision and strategy to address the full
scope of tax administration functions and provide additional details
and refinements on the agency's plans for legacy system dispositions.
Future BSM project releases continue to face significant risks and
issues, which IRS is taking steps to address. IRS has reported that
significant challenges and risks confront its future planned system
deliveries. For example, delays in deploying the latest release of CADE
to support the current filing season have resulted in continued
contention for key resources and will likely impact the design and
development of the next two important releases, which are planned to be
deployed later this year. The potential for schedule delays, coupled
with the reported resource constraints and the expanding complexity of
the CADE project, increase the risk of scope problems and the deferral
of planned functionality to later releases. Maintaining alignment
between the planned releases of CADE and the new Accounts Management
Services project is also a key area of concern because of the
functional interdependencies.[Footnote 21] The agency recognizes the
potential impact of these project risks and issues on its ability to
deliver planned functionality within cost and schedule estimates and,
to its credit, has developed mitigation strategies to address them. We
will, however, continue to monitor the various risks IRS identifies and
the agency's strategies to address them and will report any concerns.
IRS has also made further progress in addressing high-priority BSM
program improvement initiatives during the past year, including efforts
related to institutionalizing the Modernization Vision and Strategy
approach and integrating it with IRS's capital planning and investment
control process, hiring and training 25 entry-level programmers to
support development of CADE, developing an electronic filing strategy
through 2010, establishing requirements development/management
processes and guidance (in response to our prior recommendation), and
defining governance structures and processes across all projects. IRS's
high-priority improvement initiatives continue to be an effective means
of assessing, prioritizing, and incrementally addressing BSM issues and
challenges. However, more work remains for the agency to fully address
these issues and challenges.
In addition, we recently reported that IRS could improve its reporting
of progress in meeting BSM project scope (i.e., functionality)
expectations by including a quantitative measure in future expenditure
plans.[Footnote 22] This would help to provide Congress with more
complete information on the agency's performance in implementing BSM
project releases. IRS recognizes the value of having such a measure
and, in response to our recommendation, is in the process of developing
it.
Continued Research Is Essential to Estimating the Impact of IRS's
Service and Enforcement on Compliance and the Tax Gap:
Figure 5: Continued compliance research is essential to IRS's ability
to effectively focus its service and compliance efforts, and we have
long been a supporter of such research. Well designed compliance
research gives IRS and Congress an important measure of taxpayer
compliance and it allows IRS to better target enforcement resources
towards noncompliant taxpayers. Taxpayers benefit as well, because
properly targeted audits mean fewer audits of compliant taxpayers and
more confidence by all taxpayers that others are paying their fair
share.
IRS develops its tax gap estimates by measuring the rate of taxpayer
compliance--the degree to which taxpayers complied with their tax
obligations fully and on time. That rate is then used, along with other
data and assumptions, to estimate the dollar amount of taxes not timely
and accurately paid. For instance, IRS most recently estimated a gross
tax gap of $345 billion for tax year 2001 and that underreporting of
income represented over 80 percent of the gap.[Footnote 23] IRS
developed these estimates using compliance data collected through its
2001 NRP study, which took several years to plan and execute.
In that study, IRS reviewed the compliance of a random sample of about
46,000 individual taxpayers and used those results to estimate
compliance for the population of all individual taxpayers and identify
sources of noncompliance. IRS also used the 2001 NRP results to update
its computer models for selecting likely noncompliant tax returns and
used that model to select cases beginning with returns filed in 2006.
IRS's fiscal year 2008 budget request states that this improved
targeting of audits has increased dollar-per-case yield and reduced "no
change" audits of compliant taxpayers. IRS now has a second NRP study
underway, this one looking at 5,000 S corporation tax returns filed in
2003 and 2004.[Footnote 24]
IRS's fiscal year 2008 budget request includes a proposal for a rolling
NRP sample of individual taxpayers and a dedicated cadre of examiners
to conduct these research audits. Using a rolling sample, IRS plans to
replicate the 2001 NRP study by conducting audits of a smaller sample
size. At the end of 5 years, IRS would have a comparable set of results
to the 2001 study and continue to update the study annually by sampling
the same number of taxpayers, dropping off the oldest year in the
sample, and adding the new years' results every year. We support this
approach. In previous GAO products, we have observed that doing
compliance studies once every few years does not give IRS or others
information about what is happening in the intervening years, and that
a rolling sample should reduce costs by eliminating the need to plan
entirely new studies every few years or more and train examiners to
carry them out.[Footnote 25] Compliance research in this way will also
give Congress, IRS, and other stakeholders more frequent and more
current information about IRS's progress towards its long term
compliance goals.
Mr. Chairman, this concludes my prepared statement. We would be happy
to respond to questions you or other members of the Committee may have
at this time.
Contacts and Acknowledgments:
For further information regarding this testimony, please contact James
R. White, Director, Strategic Issues, at 202-512-9910 or whitej@gao.gov
or David A. Powner, Director, Information Technology Management Issues
at 202-512-9296 or powenrd@gao.gov. Contacts for our Offices of
Congressional Relations and Public Affairs may be found on the last
page of this statement. Individuals making key contributions to this
testimony include Joanna Stamatiades, Assistant Director; Amy Dingler;
Timothy D. Hopkins; Robyn Howard; Matthew Kalmuk; David L. Lewis;
Frederick Lyles; Jennifer McDonald; Signora May; Veronica Mayhand; Paul
B. Middleton; Sabine R. Paul; Cheryl Peterson; Neil Pinney; Shellee
Soliday; and Tina L. Younger.
(450583):
FOOTNOTES
[1] The Tax Relief and Health Care Act of 2006 signed into law in
December 2006 extended some provisions that expired at the end of
calendar year 2005. These changes include extensions of three tax
deductions: (1) state and local sales tax, (2) higher education tuition
and fees, and (3) educator expenses. Pub. L. No. 109-432, Dec. 20,
2006.
[2] See, for example, GAO, Tax Administration: IRS Improved Some Filing
Season Services, but Long-term Goals Would Help Manage Strategic Trade-
offs, GAO-06-51 (Washington, D.C.: Nov. 14, 2005), Internal Revenue
Service: Assessment of the Interim Results of the 2006 Filing Season
and Fiscal Year 2007 Budget Request, GAO-06-615T (Washington, D.C.:
Apr. 6, 2006), and Tax Administration: Most Filing Season Services
Continue to Improve, but Opportunities Exist for Additional Savings,
GAO-07-27 (Washington, D.C.: Nov. 15, 2006).
[3] The tax gap is an estimate of the difference between what taxpayers
pay in taxes voluntarily and on time and what they should pay under the
law. IRS estimated the gross tax gap to be $345 billion for tax year
2001. After late payments by taxpayers and revenue brought in by IRS's
enforcement efforts, the resulting net tax gap is estimated to be $290
billion.
[4] See, for example, GAO, Taxpayer Service: State Experiences Indicate
IRS Would Face Challenges Developing an Internet Filing System with Net
Benefits, GAO-07-570 (Washington, D.C.: Apr. 5, 2007), GAO, Tax
Administration: Telephone Excise Tax Refund Requests Are Fewer Than
Projected and Have Had Minimal Impact on IRS Services, GAO-07-695
(Washington, D.C.: Apr. 11, 2007), GAO, Business Systems Modernization:
Internal Revenue Service's Fiscal Year 2007 Expenditure Plan, GAO-07-
247 (Washington, D.C.: Feb. 15, 2007) and GAO, Tax Compliance: Multiple
Approaches Are Needed to Reduce the Tax Gap, GAO-07-488T (Washington,
D.C.: Feb. 16, 2007).
[5] GAO, Paid Tax Return Preparers: In a Limited Study, Chain Preparers
Made Serious Errors, GAO-06-563T (Washington, D.C.: Apr. 4, 2006).
[6] GAO-07-27.
[7] IRS does not have the capability to receive electronic returns
directly from taxpayers. Taxpayers can electronically file their
returns by using a paid tax preparer, commercial tax preparation
software, or the Free File program. Paid preparers and tax preparation
software companies may charge for the service.
[8] Individuals who do not normally file tax returns but paid the tax
can request the refund on Form 1040EZ-T (Request for Refund of Federal
Telephone Excise Tax).
[9] GAO-07-570.
[10] We have previously reported that we cannot independently verify
this estimate and its basis is unclear because IRS's cost accounting
system is not yet able to support preparation of such cost estimates.
See GAO, Tax Administration: IRS Improved Performance in the 2004
Filing Season, but Better Data on the Quality of Some Services are
Needed, GAO-05-67 (Washington, D.C.: Nov.15, 2006).
[11] We are in the process of obtaining additional information to
evaluate IRS projections on TETR and split refund volumes.
[12] In addition to answering telephones, IRS's telephone assistors
also work on paper correspondence, such as amended returns. According
to IRS officials, staff is working more paper correspondence than
anticipated. From October 1, 2006 through March 24 2007, receipts of
paper inventory were up about 6 percent and IRS had closed 10 percent
more paper inventory than at the same time period last year.
[13] The American Customer Satisfaction Index tracks trends in customer
satisfaction and is considered to be an industry leader.
[14] IRS provides limited return preparation assistance to those who
meet an IRS-specified income requirement that approximates the amount
for claiming the Earned Income Tax Credit or less than $39,000.
[15] As of March 10, IRS reported tax law and accounts assistance
accuracy rates of 74 and 85 percent respectively. However, because IRS
could not provide confidence intervals for these estimates, we do not
know how precise these estimates are and, whether the tax law accuracy
rate of 74 percent would achieve the goal if a confidence interval were
considered.
[16] While there are no compliance concerns, there is a potential for
errors due to taxpayers entering incorrect account numbers on Form 8888
(Direct Deposit of Refund to More Than One Account) or IRS incorrectly
transcribing the account numbers or the dollar amounts to be deposited
into each account.
[17] According to IRS officials, as of March 17, 2007, only individuals
claiming the actual amount of telephone excise tax paid have been
selected for audit. None claiming the standard amount were selected for
audit.
[18] Individuals can claim a standard amount ranging from $30 to $60,
depending on the number of exemptions they claim or they can use Form
8913 (Credit for Federal Telephone Excise Tax Paid) to claim the actual
amount paid.
[19] GAO, Tax Administration: Most Taxpayers Believe They Benefit from
Paid Tax Preparers, but Oversight for IRS is a Challenge, GAO-04-70,
(Washington, D.C.: Oct. 31, 2003).
[20] GAO-06-563T.
[21] Accounts Management Services (AMS) is a strategic project intended
to deliver improved customer support and functionality by leveraging
existing IRS applications and new technologies to bridge the gap
between modernization initiatives, such as CADE, and legacy systems.
AMS is to enhance CADE by providing applications for IRS employees and
taxpayers to access, validate, and update accounts on demand. The
development and implementation of the AMS project is also essential to
enabling CADE to accept more complicated tax returns and to deal with
taxpayer issues. AMS project releases are to provide functional
components synchronized with the CADE development schedule as well as
other components delivered independent of the CADE schedule.
[22] GAO-07-247.
[23] IRS has concerns with the certainty of the overall tax gap
estimate in part because some areas of the estimate rely on old data
and IRS has no estimates for other areas of the tax gap. For example,
IRS used data from the 1970s and 1980s to estimate underreporting of
corporate income taxes and employer-withheld employment taxes.
[24] IRS has no estimates for other areas of the tax gap, and it is
inherently difficult to measure some types of noncompliance. The tax
gap estimate for areas such as corporate income tax and employer-
withheld employment tax underreporting rely on decades-old data.
[25] GAO, Internal Revenue Service: Assessment of the Interim Results
of the 2006 Filing Season and Fiscal Year 2007 Budget Request, GAO-06-
499T (Washington, D.C.: Apr. 27, 2006); Tax Compliance: Better
Compliance Data and Long-term Goals Would Support a More Strategic IRS
Approach to Reducing the Tax Gap, GAO-05-753 (Washington, D.C.: July
18, 2005); and Tax Compliance: Reducing the Tax Gap Can Contribute to
Fiscal Sustainability but Will Require a Variety of Strategies, GAO-05-
527T Washington, D.C. Apr. 14, 2005).
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Web site: www.gao.gov/fraudnet/fraudnet.htm E-mail: fraudnet@gao.gov
Automated answering system: (800) 424-5454 or (202) 512-7470:
Congressional Relations:
Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400 U.S.
Government Accountability Office, 441 G Street NW, Room 7125
Washington, D.C. 20548:
Public Affairs:
Paul Anderson, Managing Director, AndersonP1@gao.gov (202) 512-4800
U.S. Government Accountability Office, 441 G Street NW, Room 7149
Washington, D.C. 20548:
