Tax Administration
Telephone Excise Tax Refund Requests Are Fewer Than Projected and Have Had Minimal Impact on IRS Services Gao ID: GAO-07-695 April 11, 2007The Internal Revenue Service (IRS) is implementing three tax system changes during the 2007 filing season that potentially could impact compliance by taxpayers as well as IRS's service to taxpayers. These changes are (1) the telephone excise tax refund (TETR), which can be requested by all individuals and entities that paid the excise tax regardless of whether they have an obligation to file a tax return, (2) the option to deposit refunds into up to three accounts, hereafter referred to as the split refund option, and (3) the extension of some tax provisions that had expired, hereafter referred to as the extender provisions. Because the 2007 filing season may be complicated by these changes, the Senate Committee on Finance asked GAO to determine the effects of these changes on compliance and taxpayer service including (1) the number of individuals or entities affected by these changes, (2) how the changes were expected to affect compliance and the results of compliance activities to date, and (3) the impact of the changes on returns processing and taxpayer service. GAO analyzed IRS documents and data from IRS databases and interviewed IRS officials.
IRS has received fewer TETR requests and fewer taxpayers have used the split refund option than expected. IRS projected up to 181 million individuals and entities would request TETR and about 3.8 million individuals would use the split refund option. As of March 24, 2007, about two-thirds of the individual taxpayers who had filed their tax returns requested TETR and IRS had received 2 percent of the projected 10 to 30 million TETR requests from individuals without a tax filing obligation. As of March 3, 2007, about 48,000 individuals had used the split refund option. Currently, there are no data on the number of taxpayers using the extender provisions; however, IRS expects about the same number of claims as last year. Of the three tax system changes, only TETR creates new compliance concerns for IRS and through March 25, 2007, IRS has selected over 9,900 individual and over 550 business TETR requests for audit. Four of the individual audits are completed and the individuals agreed to accept the standard amount ($30-$60) instead of the amount they originally requested. The split refund option does not create compliance concerns since it relates to where refunds are deposited rather than to compliance with tax provisions. The extender provisions could be used by taxpayers to prepare previous years' tax returns and IRS does not anticipate new compliance issues related to 2006 returns. Early data show that the impact of the tax system changes on returns processing and taxpayer service has been minimal. IRS projected significant increases in returns processing, telephone assistance, and walk-in sites' workloads from TETR, but they have not materialized. For example, as of March 3, 2007, IRS had only received about 4.8 percent of the 6.8 million TETR calls expected. IRS's planned returns processing volume from the split refund option has not materialized and IRS did not anticipate significant workload from the extender provisions.
GAO-07-695, Tax Administration: Telephone Excise Tax Refund Requests Are Fewer Than Projected and Have Had Minimal Impact on IRS Services
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Report to the Committee on Finance, U.S. Senate:
United States Government Accountability Office:
GAO:
April 2007:
Tax Administration:
Telephone Excise Tax Refund Requests Are Fewer Than Projected and Have
Had Minimal Impact on IRS Services:
GAO-07-695:
GAO Highlights:
Highlights of GAO-07-695, a report to the Committee on Finance, U.S.
Senate
Why GAO Did This Study:
The Internal Revenue Service (IRS) is implementing three tax system
changes during the 2007 filing season that potentially could impact
compliance by taxpayers as well as IRS‘s service to taxpayers. These
changes are (1) the telephone excise tax refund (TETR), which can be
requested by all individuals and entities that paid the excise tax
regardless of whether they have an obligation to file a tax return, (2)
the option to deposit refunds into up to three accounts, hereafter
referred to as the split refund option, and (3) the extension of some
tax provisions that had expired, hereafter referred to as the extender
provisions. Because the 2007 filing season may be complicated by these
changes, the Committee asked GAO to determine the effects of these
changes on compliance and taxpayer service including (1) the number of
individuals or entities affected by these changes, (2) how the changes
were expected to affect compliance and the results of compliance
activities to date, and (3) the impact of the changes on returns
processing and taxpayer service. GAO analyzed IRS documents and data
from IRS databases and interviewed IRS officials.
What GAO Found:
IRS has received fewer TETR requests and fewer taxpayers have used the
split refund option than expected. IRS projected up to 181 million
individuals and entities would request TETR and about 3.8 million
individuals would use the split refund option. As of March 24, 2007,
about two-thirds of the individual taxpayers who had filed their tax
returns requested TETR and IRS had received 2 percent of the projected
10 to 30 million TETR requests from individuals without a tax filing
obligation. As of March 3, 2007, about 48,000 individuals had used the
split refund option. Currently, there are no data on the number of
taxpayers using the extender provisions; however, IRS expects about the
same number of claims as last year.
Of the three tax system changes, only TETR creates new compliance
concerns for IRS and through March 25, 2007, IRS has selected over
9,900 individual and over 550 business TETR requests for audit. Four of
the individual audits are completed and the individuals agreed to
accept the standard amount ($30-$60) instead of the amount they
originally requested. The split refund option does not create
compliance concerns since it relates to where refunds are deposited
rather than to compliance with tax provisions. The extender provisions
could be used by taxpayers to prepare previous years‘ tax returns and
IRS does not anticipate new compliance issues related to 2006 returns.
Early data show that the impact of the tax system changes on returns
processing and taxpayer service has been minimal. IRS projected
significant increases in returns processing, telephone assistance, and
walk-in sites‘ workloads from TETR, but they have not materialized. For
example, as of March 3, 2007, IRS had only received about 4.8 percent
of the 6.8 million TETR calls expected. IRS‘s planned returns
processing volume from the split refund option has not materialized and
IRS did not anticipate significant workload from the extender
provisions.
Figure: Telephone Excise Tax Refund Data for Individual Returns:
[See PDF for Image]
Source: GAO analysis of IRS data.
[A] Week ending January 20, 2007, through week ending March 24, 2007.
[B] Based on 20 million projected filers-midpoint of estimated range.
[End of figure]
What GAO Recommends:
GAO is making no recommendations in this report. IRS provided technical
comments and we incorporated them as appropriate.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-695].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact James White at (202) 512-
9110 or whitej@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Agency Comments and Our Evaluation:
Appendix I: Briefing Slides:
United States Government Accountability Office:
Washington, DC 20548:
April 11, 2007:
The Honorable Max Baucus:
Chairman:
The Honorable Charles E. Grassley:
Ranking Member:
Committee on Finance:
United States Senate:
IRS is implementing three tax system changes during the 2007 filing
season that potentially could impact compliance by taxpayers as well as
IRS's service to taxpayers, such as telephone assistance. The first
change is the telephone excise tax refund (TETR), which can be
requested by all individuals and entities that paid the telephone
excise tax, regardless of whether they have an obligation to file a tax
return, making it possibly the most far-reaching refund in IRS history.
The second change is giving taxpayers the option to deposit their
refunds into up to three accounts, hereafter referred to as the split
refund option. The third change is the December 2006 extension of some
tax provisions that had expired, hereafter referred to as extender
provisions.[Footnote 1] The Commissioner of Internal Revenue said that
these three tax system changes make the Internal Revenue Service's
(IRS) 2007 filing season a "high" risk filing season.
Because the 2007 filing season may be complicated by these three tax
system changes, you asked us to determine the effects of these changes
on compliance and taxpayer service. Our objectives were to:
* determine, based on available data, the number of individuals and
entities affected by the tax system changes related to the TETR, split
refund option, and extender provisions;
* determine how the tax system changes were expected to affect
compliance;
* assess IRS's plans for ensuring compliance with those tax system
changes that created new compliance concerns for IRS;
* summarize the results of compliance activities to date for those tax
system changes that created new compliance concerns for IRS; and:
* summarize the impact of the TETR, split refund option, and extender
provisions on returns processing and taxpayer service.
To determine (1) the number of taxpayers affected by the tax system
changes related to the TETR, split refund option, and extender
provisions, (2) how the tax system changes were expected to affect
compliance, (3) the results of compliance activities for the tax system
changes that created new compliance concerns for IRS, and (4) the
impact of the tax system changes on returns processing and taxpayer
service, we analyzed IRS documents and data from IRS databases and
interviewed IRS officials. In past work, we assessed IRS's filing
season performance data. We considered filing season performance data
on the number of individual and business returns processed and related
compliance activities to be objective and reliable based on our prior
work. Since the data sources and procedures for producing this year's
filing season data have not significantly changed from prior years, we
determined that the data were sufficiently reliable for the purposes of
this report. Officials interviewed included, among others, the
Commissioner of the Wage and Investment Division, the Executive-in-
Charge of TETR, and the Director of Submission Processing. To assess
IRS's plans for ensuring compliance with TETR, the only one of the
three tax system changes that created new compliance concerns for IRS,
we compared good management practices identified in our previous
reports to IRS's plans for ensuring compliance with TETR.[Footnote 2]
We conducted our work from January 2007 through April 2007 in
accordance with generally accepted government auditing standards. On
March 14, 2007, we briefed your staff on the results of our work. This
report conveys the information provided during that briefing. A copy of
the briefing document is included in appendix I with information
updated through March 24, 2007.
Results in Brief:
IRS has received fewer TETR requests and fewer taxpayers have used the
split refund option than expected. IRS projected that up to 181 million
individuals and entities would request TETR and about 3.8 million
individual taxpayers would use the split refund option. As of March 24,
2007, two-thirds of the individual taxpayers who had filed their tax
returns requested TETR and IRS had received 2 percent of the projected
requests for TETR from individuals who did not have a tax filing
obligation. Also, as of March 3, 2007, about 48,000 taxpayers of the
approximately 36 million taxpayers that had their refunds direct
deposited had taken advantage of the split refund option. According to
IRS officials, the late passage of the extender provisions delayed the
processing of tax returns from individuals claiming the extender
provisions until February 3, 2007. There are no data currently
available on the number of taxpayers affected by the extender
provisions, but IRS expects the volume to be similar to the number of
claims made last year.
TETR is the only one of the three tax system changes expected to create
new compliance concerns for IRS. TETR is new in 2007 and filers may
request refunds greater than that to which they are entitled. 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 3] The
extender provisions could be used by taxpayers when preparing previous
years' returns and IRS anticipates that any compliance concerns for
2006 returns will be the same as for previous years' returns.
IRS compliance plans for TETR were consistent with good management
practices identified in our previous reports. Examples of good
management practices we identified include identifying leader(s),
developing a compliance plan, and monitoring compliance efforts. IRS's
compliance plans for TETR included, among other things, appointing an
executive to coordinate TETR plans IRS-wide, developing a compliance
plan to select TETR requests for audit based on the probability that
the amounts of the requests were statistically unlikely based on an
analysis of telephone industry data, and monitoring compliance efforts
weekly by comparing the number of TETR requests identified as
potentially erroneous to the available audit resources in order to
maximize the number of TETR audits.
As of March 25, 2007, IRS had selected for audit over 9,900 individual
returns and over 550 business returns that requested TETR and froze the
TETR refunds. So far, IRS has closed four of the individual audits with
taxpayers agreeing to accept the standard amount, and has not completed
the remaining individual audits or any of the business audits. IRS
reassigned about 77 full-time equivalent (FTE) staff from discretionary
and earned income tax credit audits to conduct the TETR audits.
Early data show that the impact of TETR, the split refund option, and
extender provisions on returns processing and taxpayer service
operations has been minimal. Although IRS projected increases in
workload for returns processing, telephone assistance, and walk-in site
contacts from TETR, the workload IRS planned to receive has not
materialized. For example, as of March 3, 2007, IRS had only received
4.8 percent of the 6.8 million TETR calls expected. Similarly, IRS's
planned workload from the split refund option for returns processing
has not materialized. IRS did not anticipate and has not experienced
significant workload from extender provisions.
Agency Comments and Our Evaluation:
We provided a draft of this report to the Commissioner of Internal
Revenue for his review and comment. The IRS provided informal technical
comments, and we incorporated them as appropriate.
As agreed with your offices, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
from its issue date. At that time, we will send copies to the Chairman
and Ranking Minority Member, House Committee on Ways and Means; the
Secretary of the Treasury; the Commissioner of Internal Revenue; and
other interested parties. We will also make copies available to others
upon request. In addition, this report will be available at no charge
on the GAO Web site at http://www.gao.gov.
If you or your staffs have any questions, please contact me at (202)
512-9110 or at whitej@gao.gov. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last
page of this report. Key contributors to this report were Amy Dingler,
Evan Gilman, Shirley Jones, Matt Kalmuk, Frederick Lyles, Signora May,
Jennifer McDonald, Neil Pinney, Lerone Reid, Shellee Soliday, and
Joanna Stamatiades.
Signed by:
James R. White:
Director, Tax Issues Strategic Issues:
[End of section]
Appendix I: Briefing Slides:
2007 Filing Season Compliance:
Update of March 14, 2007 Briefing to the Senate Committee on Finance:
Briefing Contents:
Objectives:
Scope and Methodology:
Background:
Results:
Objectives:
GAO was asked to:
1. determine, based on available data, the number of individuals and
entities affected by the tax system changes related to the telephone
excise tax refund (TETR), split refund option, and extender provisions,
2. determine how the tax system changes were expected to affect
compliance,
3. assess IRS's plans for ensuring compliance for those tax system
changes that created new compliance concerns for IRS,
4. summarize the results of compliance activities to date for those tax
system changes that created new compliance concerns for IRS, and:
5. summarize the impact of the TETR, split refund option, and extender
provisions on returns processing and taxpayer service.
Scope and Methodology:
Analyzed IRS documents and data from various IRS databases related to
compliance, returns processing, and taxpayer services for the three tax
system changes.
Compared good management practices identified in previous GAO reports
to IRS's plans for ensuring compliance with TETR.[Footnote 4]
Interviewed IRS officials with responsibilities for compliance, returns
processing, and taxpayer services related to the TETR, split refund
option, and extender provisions.
Data Reliability:
We considered filing season performance data on the number of
individual and business returns processed and related compliance
activities to be objective and reliable based on our prior work. Since
the data sources and procedures for producing this year's filing season
data have not significantly changed from prior years, we determined
that the data were sufficiently reliable for the purposes of this
report.
Background:
TETR:
The federal telephone excise tax was first imposed in 1898 to fund the
Spanish-American War. According to the tax code, the tax is to be paid
on telephone charges that are based on distance and elapsed time. Some
individuals and corporations challenged the collection of the tax on
long-distance services since these charges are based only on elapsed
time. After five circuit court losses, on May 25, 2006, the Department
of the Treasury conceded the legal dispute over the federal excise tax
on long-distance telephone service. As a result, IRS will issue refunds
of excise tax paid (including interest) on long-distance service after
February 28, 2003 and before August 1, 2006.
Anyone who paid the excise tax during this period may request TETR when
filing their income tax returns including individuals, businesses, tax-
exempt organizations, and government entities. 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).
Individuals can request a standard amount when filing their income tax
return, ranging from $30 to $60 depending on the number of exemptions
they are eligible to claim, or they can use Form 8913 (Credit for
Federal Telephone Excise Tax Paid) to request the actual amount paid.
Businesses, tax-exempt organizations, and government entities can
request the actual amount paid or use a formula developed by IRS to
estimate their actual costs. They must file Form 8913 for either
method.
Taxpayers have 3 years to file an amended return to request TETR.
Individuals who have no tax filing obligation have 3 years to file a
1040 EZ-T without filing an extension.
Split Refund Option and Extender Provisions:
Prior to 2007, taxpayers could have their tax refund directly deposited
into one account. Beginning in 2007, to promote savings, taxpayers are
allowed to deposit their refunds into up to three accounts with U.S.
financial institutions.
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 primarily involve three tax deductions:
(1) state and local sales tax,
(2) higher education tuition and fees, and:
(3) educator expenses.
Number of Individuals and Entities Affected by Tax System Changes:
As of March 24, 2007:
About two-thirds of individual tax filers requested TETR.
For individuals without a tax filing obligation, IRS has received about
2 percent of the projected number of TETR requests.
TETR could be the most far-reaching refund in IRS history-a projected
159 to 181 million (M) individuals and entities may request the refund:
Individuals[B];
Eligible TETR filers: Tax return filers[A];
Projected number of filers: 135 M;
Total number of filers to date: 69.1 M;
Number of TETR requests: 47.3 M;
Percentage: 68.5 percent of actual filers.
Individuals[B];
Eligible TETR filers: Individuals without a tax filing obligations;
Projected number of filers: 10-30 M;
Total number of filers to date: 334,054;
Number of TETR requests: 332,963[C];
Percentage: 1.7 percent[D] of projected filers.
Entities[E];
Eligible TETR filers: Businesses (C-Corporations, S-Corporations, and
partnerships);
Projected number of filers: 11 M;
Total number of filers to date: Not available;
Number of TETR requests: 189,510;
Percentage: 1.7 percent of projected filers.
Entities[E];
Eligible TETR filers: Tax-exempt filers;
Projected number of filers: 1.3 M;
Total number of filers to date: Not available;
Number of TETR requests: 280;
Percentage: 0.0 percent of projected filers.
Entities[E];
Eligible TETR filers: State, local government, and other non-filers;
Projected number of filers: 2-4 M;
Total number of filers to date: Not available;
Number of TETR requests: Not available;
Percentage: Not available.
Total;
Projected number of filers: 159-181 M;
Total number of filers to date: Not available;
Number of TETR requests: Not available;
Percentage: Not available.
Source: GAO analysis of IRS data.
[A] Includes 1040 series forms: 1040, 1040A, 1040EZ, and 1040NR.
[B] Data for the week ending January 20, 2007 through the week ending
March 24, 2007.
[C] About 500 individual filers submitted a form 1040EZ-T but did not
request TETR and 591 did not request the actual or standard amount on
the respective form.
[D] For the actual as a percentage of estimated calculation, we used
the midpoint of the estimated range: 20 M-- estimated number of filers.
[E] Data for the week ending January 13, 2007 through the week ending
March 24, 2007.
[End of table]
Individual tax returns requesting TETR averaged 4.7 million per week.
Individual tax returns not requesting TETR averaged 2.2 million:
[See PDF for Image]
Source: GAO analysis of IRS data.
[End of figure]
About 48,000 taxpayers have used the split refund option-through early
March 2007:
Split refund option:
IRS issued 57 million direct deposit refunds (from 136 million tax
returns) as of December 15, 2006. The direct deposit refunds totaled
$149 billion.
As of March 2, 2007, taxpayers chose to have about 36 million 2007
refunds totaling $101.5 billion directly deposited, which is an 8.7
percent increase over the same period last year. While most taxpayers
are electing to use just one account, as of March 3, 2007, about 48,000
taxpayers (.13 percent) have taken advantage of the new split refund
option which allows them to use up to 3 accounts.
Data not available for extender provisions:
Extender provisions:
In 2006, about 11.2 million taxpayers claimed state and local sales
taxes, about 4.7 million claimed higher education tuition and fees, and
about 3.5 million claimed educator expenses.
IRS expects a similar number of claims for each of the three deductions
in 2007.
The act including the extender provisions was signed into law in
December 2006. This delayed the processing of returns claiming the
provisions until February 3, 2007. No data are currently available on
the number of taxpayers affected.
How Tax Changes Expected to Affect Compliance:
TETR is the only tax change expected to create new compliance concerns
for IRS:
TETR creates new compliance concerns for IRS. It is a new provision in
2007 and those filers requesting the actual amount may request a refund
greater than the amount of TETR they actually paid. Individuals who
request the standard amount will generally not be selected for audit
while individuals and entities who request the actual amount of
telephone excise tax paid may be selected for audit.
The split refund option does not create compliance concerns for IRS. It
relates to the accounts into which taxpayers want their refunds
deposited rather than to complying with tax provisions. 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.
The extender provisions do not create new compliance concerns for IRS.
Taxpayers could use these provisions to prepare previous years' tax
returns and IRS does not anticipate new compliance issues related to
2006 returns. Also, the late passage of these provisions did not create
compliance concerns that did not previously exist.
IRS Plans for Ensuring Compliance for Tax Changes That Created New
Compliance Concerns:
IRS's TETR compliance plans consistent with good management practices
identified by GAO:
IRS's plans included:
appointing an executive to coordinate TETR plans IRS-wide,
collaborating across operating divisions and offices on designing TETR
processes, and:
developing a TETR implementation plan that included:
1. standard amounts that individuals could request based on a model
that assessed the risks of how different standard amounts would affect
the number of filers that would request the actual amount of telephone
excise tax paid rather than the standard amounts and the related effect
this would have on the overall cost of TETR to the government.
2. a methodology that businesses and tax exempt and government entities
could use to estimate their TETR.
IRS's TETR compliance plans consistent with good management practices
identified by GAO:
IRS's plans included (continued):
developing a compliance plan to select TETR requests for audit based on
the probability that the amounts of the requests were statistically
unlikely based on an analysis of telephone industry data, and:
monitoring compliance efforts weekly by comparing the number of TETR
requests identified as potentially erroneous to the available audit
resources in order to maximize the number of TETR audits.
Results of Compliance Activities for Tax Changes That Created New
Compliance Concerns for IRS:
IRS developed plan for TETR audits:
Operating divisions:
IRS reassigned about 77 full-time equivalent (FTE) staff from
discretionary and earned income tax credit audits to conduct the TETR
audits.
Only the TETR portion of a refund is frozen. The TETR refund will stay
frozen until the audit is completed. The amount of time this takes
depends in part on how long it takes the person or entity requesting
the refund to respond to IRS requests for documentation.
IRS officials are confident, based on meetings held to discuss
resources, that they will be able to complete audits of all the TETR
requests selected for audit.
Criminal Investigations:
Criminal Investigation has spent 13 FTEs on TETR activities in fiscal
year 2007.
TETR audit data for individual returns[A]:
Data summary: Total dollar amount requested;
Telephone excise tax refund requests[B]: Standard amount: $2 billion;
Telephone excise tax refund requests[B]: Requested actual: $98.8
million;
Telephone excise tax refund requests[B]: Total: $2.01 billion.
Data summary: Total number of returns;
Telephone excise tax refund requests[B]: Standard amount: $47.4
million;
Telephone excise tax refund requests[B]: Requested actual: $211,247;
Telephone excise tax refund requests[B]: Total: $47.6 million.
Data summary: Total dollar amount: selected for audit and refunds
frozen;
Telephone excise tax refund requests[B]: Standard amount: None;
Telephone excise tax refund requests[B]: Requested actual: $29.6
million;
Telephone excise tax refund requests[B]: Total: $29.6 million.
Data summary: Total number of returns selected for audit and refunds
frozen[C];
Telephone excise tax refund requests[B]: Standard amount: None;
Telephone excise tax refund requests[B]: Requested actual: 9,914;
Telephone excise tax refund requests[B]: Total: 9,914.
Data summary: Audit disposition;
Telephone excise tax refund requests[B]: Standard amount: None;
Telephone excise tax refund requests[B]: Requested actual: Four (4)
audits closed. All agreed to accept the standard amount;
Telephone excise tax refund requests[B]: Total: Four (4) audits closed.
All agreed to accept the standard amount.
Source: GAO analysis of IRS data.
[A] Data for the week ending January 20, 2007 through the week ending
March 24, 2007.
[B] Includes all 1040 Series and 1040 EZ-Ts.
[C] Data for the week ending January 20, 2007 through the week ending
March 25, 2007.
[End of table]
Individual Returns That Requested Standard Amount Represent About 95
Percent ($2 Billion) of the Total Requested TETR Amount[A]:
[See PDF for image]
[A] Data for the week ending January 20, 2007 through the week ending
March 24, 2007.
Source: GAO analysis of IRS data.
[End of figure]
Results of Compliance Activities for Tax Changes That Created New
Compliance Concerns for IRS:
TETR audit data for businesses and tax exempt and government
entities[A]:
Data summary.
Total dollar amount requested: $74.7 million.
Total number of returns: 189,790.
Total dollar amount: selected for audit and frozen[B]: $5.6 million.
Total number of returns selected for audit and refunds frozen: 561.
Audit disposition: No audits closed.
Source: GAO analysis of IRS data.
[A] Data for the week ending January 13, 2007 through the week ending
March 25, 2007.
[B] Includes the telephone excise tax refund plus interest.
[End of table]
TIGTA Ongoing TETR Audit:
TIGTA began reviewing the TETR program in late 2006. The review is
being conducted in two phases. TIGTA plans to send a draft report
covering both phases to IRS for comment in July 2007.
Phase I:
(1) Assess IRS's preparation for handling TETR including the
development of forms and instructions and interaction with taxpayers,
including outreach efforts.
(2) Assess how IRS developed the standard amount and the reasonableness
of the amount.
(3) Assess the controls IRS plans to use to ensure taxpayer compliance.
TIGTA will also identify the requests for information and strategies
implemented.
Phase II: Determine whether IRS is following its TETR plans and monitor
returns being filed for potential processing problems or trends
regarding questionable TETR requests.
Impact of TETR and the Split Refund Option on Returns Processing and
Taxpayer Service Has Been Minimal:
IRS anticipated increases in the returns processing workload due to
TETR and the split refund option, but the expected volume has not
materialized.
* IRS expected to receive 10-30 million Forms 1040EZ-T, but as of March
24, 2007, had only received about 335,000.
* IRS anticipated processing 3.8 million split refund requests; however
as of March 24, 2007, only 61,000 taxpayers have used the split refund
option.
Both IRS's new tax returns processing system and its legacy system are
able to process TETR requests made on 1040 forms and 1040EZ-T forms.
However the new system, the Customer Account Data Engine (CADE) system,
just became operational March-2 months behind schedule because of
problems identified during testing.
* IRS had originally planned to post 33 million taxpayer accounts to
CADE, but as a result of the delay, now will post about 17-19 million
accounts to that system. Thus, returns processing has been slowed for
millions of taxpayers who would have been eligible for their accounts
to be posted on CADE, because of the longer posting times for the
legacy system versus CADE. Refunds for millions of those CADE-eligible
taxpayers were delayed by 1-5 days for direct deposit and 4-8 days for
paper checks.
* IRS did not plan to process split refund returns on CADE this year
because of IRS's concerns about including it in the programming for the
current release of CADE given the timing of the legislation.
While all 19 companies participating in the Free File program-which
offers free return preparation to taxpayers with an average gross
income of $52,000 or less, equating to 95 million taxpayers (70 percent
of all taxpayers)-allow for TETR requests, 3 offer TETR requests via
Form 1040EZ-T. As of February 22, 2007, about 2 million returns (7.9
percent down from last year) were filed via free file, with just under
half requesting TETR.
IRS anticipated increases in its taxpayer service operations (face-to-
face and telephone assistance) due to TETR. However, TETR has had
minimal impact on those operations because the volume of TETR requests
IRS planned to receive has not materialized.
For face-to-face taxpayer assistance:
Walk-in: As of March 10, of the approximately 1.8 million taxpayer
contacts, IRS has prepared about 6,700 1040EZ-T forms, 5.3 percent of
the approximate 126,000 forms it projected it would prepare in TETR
requests.
Volunteer sites: As of March 11, IRS reported that over 1.3 million
returns had been prepared at volunteer sites including over 33,000
1040EZ-T forms. IRS did not develop TETR projections for volunteer
sites.
For telephone assistance:
TETR-related calls are a fraction of what IRS projected.
By March 3, 2007, IRS had planned to receive over 20.5 million
telephone calls for live and automated assistance. Of the almost 18.5
million calls received through that date, IRS received over 326,000
calls for assistance with TETR. This represents 1.8 percent of all
calls for assistance and 4.8 percent of the 6.8 million TETR calls IRS
expected to receive during the filing season.
IRS hired 650 FTEs 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 should the demand for TETR assistance
not materialize.
Because TETR call volume has not materialized, staff assigned to work
TETR cases are being used to work other account calls so that more
experienced staff can process paper correspondence, such as amended
returns, at call sites.
IRS anticipated handling 7,000 split refund telephone calls (compared
to the 70 million total calls it receives each year).
IRS did not expect filing season service to be impacted by the extender
provisions.
Selected GAO Reports on Management Practices:
Results-Oriented Government: Practices That Can Help Enhance and
Sustain Collaboration among Federal Agencies. GAO-06-15. Washington,
D.C.: October 21, 2005. (Practices identified: identify a leader,
collaborate across operational lines, develop implementation and
compliance plans, and monitor and evaluate results in real time in
order to make timely changes.)
Managing For Results: Enhancing Agency Use of Performance Information
for Management Decision Making. GAO-05-927. Washington, D.C.: September
9, 2005. (Practice identified: monitor and evaluate results in real
time in order to make timely changes.)
Homeland Security. Better Management Practices Could Enhance DHS's
Ability to Allocate Investigative Resources. GAO-06-462T. Washington,
D.C.: March 28, 2006. (Practice identified: assess risks.)
[End of section]
(450567)
FOOTNOTES
[1] The extender provisions were included in the Tax Relief and Health
Care Act of 2006 which was signed into law in December 2006 (Pub. L.
No. 109-432, Dec. 20, 2006). The provisions primarily involve three tax
deductions related to state and local sales taxes, higher education
tuition and fees, and educator expenses.
[2] The GAO reports included a wide range of management practices. We
compared those practices that related to the development of IRS's plans
for ensuring compliance with TETR. See GAO, Results-Oriented
Government: Practices That Can Help Enhance and Sustain Collaboration
among Federal Agencies, GAO-06-15 (Washington, D.C.: Oct. 21, 2005),
Managing For Results: Enhancing Agency Use of Performance Information
for Management Decision Making, GAO-05-927 (Washington, D.C.: Sept. 9,
2005), and Homeland Security: Better Management Practices Could Enhance
DHS's Ability to Allocate Investigative Resources, GAO-06-462T
(Washington, D.C.: Mar. 28, 2006).
[3] 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.
[4] The GAO reports included a wide range of management practices. We
compared those practices that related to the development of IRS's plans
for ensuring compliance with TETR. For additional Information, see the
GAO reports listed on page 28.
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