Tax Administration
IRS's 2008 Filing Season Generally Successful Despite Challenges, although IRS Could Expand Enforcement during Returns Processing Gao ID: GAO-09-146 December 12, 2008The tax filing season is when the Internal Revenue Service (IRS) has most of its contacts with taxpayers, answering questions and processing returns and refunds. The 2008 filing season was particularly challenging due to the unanticipated mandate to make economic stimulus payments. The filing season is also the start of IRS's efforts to ensure the newly filed returns are compliant with the tax laws. GAO was asked to assess IRS's performance, describe the costs and foregone revenue of administering the economic stimulus payments, and identify any opportunities for improving filing season compliance checks. GAO analyzed IRS performance data, reviewed IRS operations, and interviewed IRS officials.
IRS successfully processed150 million returns and issued 105million refundsfor $246 billion as of September 12, 2008. In addition, IRS issued 116 million stimulus payments totaling $94 billion. However, taxpayers' access to IRS's telephone assistors was substantially lower than last year because of an unanticipated increase in telephone call volume. Calls to IRS more than doubled to 118 million as many taxpayers had questions about the amount of their stimulus payment or its timing. IRS acted to answer the calls including shifting hundreds of staff from collection cases to telephone assistance. IRS took other actions such as adding features to its Web site that answered stimulus-related questions and likely diverted some calls. Regardless, taxpayers' ability to get through to IRS telephone assistors declined from about 81 percent of waiting callers getting through last year to about 57 percent from January through June 30 of this year. IRS expects the costs and foregone revenue associated with issuing the economic stimulus package (ESP) payments to reach about $960 million, of which $655 million is revenue foregone due to the shift of collections staff to telephone service. There are two areas where IRS does not use its current legal authority to automatically correct errors when processing tax returns. One involves eligibility for the child and dependent care credit by taxpayers who are "Married Filing Separately." Taxpayers in this filing status are not eligible for the credit, but IRS allows the credit to be claimed, issues refunds, and then audits taxpayers to try to recover the money. The second is that IRS does not use its existing legislative authority to verify earned income tax credit claims by noncustodial parents--in 2006, $91 million of claims were unverified. IRS has plans to study one option for verifying these claims, but is not planning to study another option, combining federal data on noncustodial parents and other taxpayer characteristics to automatically determine eligibility. Finally, there are two areas where IRS lacks legal authority, but has the technical ability to use automated error checks. IRS could prevent (1) individuals from deducting contributions to individual retirement accounts above the allowable limit and (2) individuals from violating the age requirements for such contributions.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-09-146, Tax Administration: IRS's 2008 Filing Season Generally Successful Despite Challenges, although IRS Could Expand Enforcement during Returns Processing
This is the accessible text file for GAO report number GAO-09-146
entitled 'Tax Administration: IRS's 2008 Filing Season Generally
Successful Despite Challenges, although IRS Could Expand Enforcement
during Returns Processing' which was released on January 12, 2009.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as part
of a longer term project to improve GAO products' accessibility. Every
attempt has been made to maintain the structural and data integrity of
the original printed product. Accessibility features, such as text
descriptions of tables, consecutively numbered footnotes placed at the
end of the file, and the text of agency comment letters, are provided
but may not exactly duplicate the presentation or format of the printed
version. The portable document format (PDF) file is an exact electronic
replica of the printed version. We welcome your feedback. Please E-mail
your comments regarding the contents or accessibility features of this
document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
Report to Congressional Requesters:
United States Government Accountability Office:
GAO:
December 2008:
Tax Administration:
IRS's 2008 Filing Season Generally Successful Despite Challenges,
although IRS Could Expand Enforcement during Returns Processing:
IRS's 2008 Filing Season:
GAO-09-146:
GAO Highlights:
Highlights of GAO-09-146, a report to congressional requesters.
Why GAO Did This Study:
The tax filing season is when the Internal Revenue Service (IRS) has
most of its contacts with taxpayers, answering questions and processing
returns and refunds. The 2008 filing season was particularly
challenging due to the unanticipated mandate to make economic stimulus
payments. The filing season is also the start of IRS‘s efforts to
ensure the newly filed returns are compliant with the tax laws. GAO was
asked to assess IRS's performance, describe the costs and foregone
revenue of administering the economic stimulus payments, and identify
any opportunities for improving filing season compliance checks. GAO
analyzed IRS performance data, reviewed IRS operations, and interviewed
IRS officials.
What GAO Found:
IRS successfully processed 150 million returns and issued 105 million
refunds for $246 billion as of September 12, 2008. In addition, IRS
issued 116 million stimulus payments totaling $94 billion. However,
taxpayers‘ access to IRS‘s telephone assistors was substantially lower
than last year because of an unanticipated increase in telephone call
volume. Calls to IRS more than doubled to 118 million as many taxpayers
had questions about the amount of their stimulus payment or its timing.
IRS acted to answer the calls including shifting hundreds of staff from
collection cases to telephone assistance. IRS took other actions such
as adding features to its Web site that answered stimulus-related
questions and likely diverted some calls. Regardless, taxpayers‘
ability to get through to IRS telephone assistors declined from about
81 percent of waiting callers getting through last year to about 57
percent from January through June 30 of this year.
IRS expects the costs and foregone revenue associated with issuing the
economic stimulus package (ESP) payments to reach about $960 million,
of which $655 million is revenue foregone due to the shift of
collections staff to telephone service.
There are two areas where IRS does not use its current legal authority
to automatically correct errors when processing tax returns. One
involves eligibility for the child and dependent care credit by
taxpayers who are ’Married Filing Separately.“ Taxpayers in this filing
status are not eligible for the credit, but IRS allows the credit to be
claimed, issues refunds, and then audits taxpayers to try to recover
the money. The second is that IRS does not use its existing legislative
authority to verify earned income tax credit claims by noncustodial
parents”in 2006, $91 million of claims were unverified. IRS has plans
to study one option for verifying these claims, but is not planning to
study another option, combining federal data on noncustodial parents
and other taxpayer characteristics to automatically determine
eligibility. Finally, there are two areas where IRS lacks legal
authority, but has the technical ability to use automated error checks.
IRS could prevent (1) individuals from deducting contributions to
individual retirement accounts above the allowable limit and (2)
individuals from violating the age requirements for such contributions.
Table: Individual Income Tax Returns Processed, 2006–2008 Filing
Seasons:
Jan. 1--Sept. 12, 2008;
Total returns (including almost 9 million ESP returns);
Electronic returns: Number in millions: 88;
Electronic returns: Percentage of total returns: 59;
Total returns in millions: 150.
Jan. 1--Sept. 11, 2007;
[Empty];
Electronic returns: Number in millions: 79;
Electronic returns: Percentage of total returns: 59;
Total returns in millions: 135.
Jan. 1--Sept. 10, 2006;
[Empty];
Electronic returns: Number in millions: 72;
Electronic returns: Percentage of total returns: 55;
Total returns in millions: 131.
Source: GAO analysis of IRS data.
[End of table]
What GAO Recommends:
GAO recommendations include that IRS use its existing legal authority
to correct child and dependent care credit claims on returns filed
using ’Married Filing Separately,“ and study the effectiveness of
combining data on noncustodial parents and other taxpayer
characteristics to verify earned income tax credit claims.
In response, the IRS Deputy Commissioner agreed with our
recommendations and outlined the actions that IRS would take.
GAO suggests that the Congress provide IRS with legal authority to
automatically correct returns for individual retirement account
contributions that violate the dollar or age limits. IRS supported our
suggestion.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-09-146.] For more
information, contact James White at (202) 512-9110 or WhiteJ@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Scope and Methodology:
Background:
Despite the Increased Volume of Tax Returns Due to the Economic
Stimulus, IRS's Filing Season was Successful Compared to Previous
Years' with the Exception of Access to Telephone Assistance:
The Costs and Foregone Revenue Associated with Implementing ESP Are
Expected to Reach over $900 Million and IRS Plans to Document Lessons
Learned:
IRS Does Not Fully Use Its Existing MEA and Congressional Expansion of
MEA in Two New Areas Could Enhance Enforcement at Low Cost:
Conclusion:
Recommendations for Executive Action:
Matters for Congressional Consideration:
Agency Comments and Our Evaluation:
Appendix I: Comments from the Internal Revenue Service:
Appendix II: Key Dates and Activities of the 2008 Filing Season:
Appendix III: Using IRS's Math Error Authority to Process and Correct
Returns with Math Errors:
Appendix IV: IRS's Processing Performance Relative to 2004-2008
Performance and 2008 Goals:
Tables:
Table 1: Individual Income Tax Returns Processed, 2006-2008 Filing
Seasons:
Table 2: Call Volume by Call Type (in millions):
Table 3: IRS Telephone Performance, 2005-2008 Filing Seasons:
Table 4: IRS Telephone Assistor Accuracy Performance, 2004-2008 Filing
Seasons:
Table 5: IRS Web Site Use, 2006-2008 through July (in thousands):
Table 6: IRS Estimated Costs and Foregone Revenue Associated with
Implementing ESP (dollars in millions):
Table 7: Math Error Provisions:
Table 8: IRS Processing Performance, Fiscal Years 2004-2008:
Figures:
Figure 1: IRS Toll-free Calls and Percentage of Callers Seeking and
Receiving Live Assistance (January 1, 2008-August 30, 2008):
Figure 2: Timeline for the 2008 Filing Season:
Figure 3: Processing and Correcting Returns with Math Errors:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
December 12, 2008:
The Honorable Max Baucus:
Chairman:
The Honorable Charles E. Grassley:
Ranking Member:
Committee on Finance:
United States Senate:
The Honorable John Lewis:
Chairman:
The Honorable Jim Ramstad:
Ranking Member:
Subcommittee on Oversight:
Committee on Ways and Means:
House of Representatives:
Effective and timely taxpayer service and enforcement programs, working
together, can provide faster refunds, reduce the burden on taxpayers of
complying with tax laws, help identify and correct errors before
interest is owed by the taxpayer, and help to ensure that taxpayers
receive tax benefits for which they are eligible. The filing season is
when most taxpayers interact with the agency and perhaps is the
Internal Revenue Service's (IRS) best opportunity to combine service
and enforcement.[Footnote 1]
Filing season services include processing individual income tax returns
and refunds and providing taxpayer services through telephone, Web
site, and face-to-face assistance. In previous reports and testimonies,
we said that IRS has made significant progress improving taxpayer
service since the passage of the IRS Restructuring and Reform Act of
1998.[Footnote 2] A significant challenge for IRS during the 2008
filing season was the passage of the Economic Stimulus Act of 2008,
which mandated that IRS send stimulus payments to over 100 million
households.[Footnote 3]
During the filing season, enforcement begins with IRS's math error
program, where IRS uses its computers to identify errors such as
calculation mistakes or omitted or inconsistent entries. Where
possible, IRS uses its math error authority (MEA) to correct certain
errors before interest is owed by the taxpayer, to provide faster
refunds and to help ensure that taxpayers receive tax credits for which
they are eligible.[Footnote 4]
In light of the importance of IRS's performance during the tax filing
season, you asked us to (1) assess IRS's performance relative to goals
and prior years' performance, including identifying factors that affect
performance such as the economic stimulus package (ESP); (2) describe
IRS's time frames and planned versus actual costs, including foregone
revenue, associated with the passage and implementation of ESP
legislation; and (3) identify opportunities, if any, for improving
compliance by expanding MEA. We provided testimony on IRS's 2008
interim performance before the Subcommittee on Financial Services and
General Government, Committee on Appropriations, U.S. Senate, on April
16, 2008, and the Subcommittee on Oversight, Committee on Ways and
Means, House of Representatives, on June 19, 2008; we also issued a
report to the Subcommittee on Oversight, Committee on Ways and Means,
House of Representatives, on March 13, 2008.[Footnote 5]
We based our assessment on the results and analyses of IRS data and
reports, workload and performance information, observations of IRS's
operations, interviews with IRS officials, information from
representatives of some of the larger tax preparation companies and
professional associations that represent preparers providing tax
assistance, and reports by the Treasury Inspector General for Tax
Administration (TIGTA). We conducted this performance audit from
January through October 2008, in accordance with generally accepted
government auditing standards. Those standards require that we plan and
perform the audit to obtain sufficient, appropriate evidence to provide
a reasonable basis for our findings and conclusions based on our audit
objectives. We assessed the reliability of data used in this report by
(1) performing electronic testing of required data elements, (2)
reviewing existing information about the data and the system that
produced them, and (3) interviewing agency officials knowledgeable
about the data. We determined that the data were sufficiently reliable
for the purpose of this report. More detail on our scope and
methodology can be found in the scope and methodology section.
Results in Brief:
Even with the significant new workload associated with ESP, IRS
delivered a generally successful filing season--with one key exception-
-access to telephone assistors. As of September 12, 2008, IRS had
processed 150 million individual income tax returns, including almost 9
million ESP-only tax returns from people who would not otherwise have
to file a return. In addition, IRS processed 105 million tax refunds
totaling $246 billion, plus 116 million stimulus payments totaling $94
billion. However, taxpayers' access to IRS's telephone assistors was
substantially lower than last year. As of June 30, 2008, call volume
more than doubled to over 118 million calls largely due to taxpayers
with ESP-related questions. According to IRS officials, the call volume
strained telephone resources and contributed to a significant decline
in access to live telephone assistance, especially beginning in early
May. As a result, many people waited longer, were disconnected, or
abandoned their calls before reaching an IRS assistor. On a positive
note, the accuracy of the telephone assistors' responses to tax law and
account questions continued to be above 90 percent. Further, IRS
provided ESP information and tools on its Web site that significantly
increased its use and likely diverted some taxpayer questions from the
telephones to the Web site.
IRS expects the costs and foregone revenue associated with
implementation of ESP to reach up to $960 million--$305 million in
costs plus $655 million in foregone revenue. Foregone revenue results
from IRS's decision to shift hundreds of staff from collection cases to
telephone assistance. Because of the timing of ESP, IRS did not have
time to hire, conduct background checks, and train additional staff to
handle the increased telephone volume. According to officials, IRS
mitigated the cost of implementing ESP by working with national
organizations such as AARP to help with the outreach to the population
of retirees, disabled veterans, and low-wage workers who usually are
exempt from filing a tax return, but were eligible for stimulus
payments. IRS estimates that 82 percent of this population participated
in ESP, which is better than participation rates for some other benefit
programs, such as the Earned Income Tax Credit (EITC). IRS plans to
issue a report on ESP to document lessons learned in December, 2008.
We identified two areas where IRS could expand the use of its existing
MEA and two other areas where authority would be useful if granted. In
one area, by not using its existing MEA to verify a taxpayer's "Married
Filing Separately" filing status for eligibility for the child and
dependent care credit, IRS may create financial difficulties for up to
several thousand taxpayers who, as a result of an audit, may find that
they have to repay the credit, plus penalties and interest. Although
taxpayers in this filing status are not eligible for the credit, IRS
allows the credit to be claimed, issues refunds, and then audits
taxpayers to try to recover the money. Further, IRS could use its
authority to notify taxpayers of a possible change in their filing
status that would make them eligible for the credit. The second area
that IRS does not use its existing MEA is to verify EITC claims by
noncustodial parents--in 2006, $91 million of such claims were
unverified. IRS has plans to study one option for verifying these
claims, but is not planning to study another option, combining data
from the Federal Registry of Child Support Orders (FCR) database on non-
custodial parents and other taxpayer characteristics to automatically
determine eligibility. In addition, there are two areas where IRS lacks
legal authority, but has the technical ability to use automated error
checks during returns processing. The first would be to prevent
individuals from deducting contributions to individual retirement
accounts above the allowable limit. These taxpayers incorrectly claim
the amount intended for people over 50 making IRA "catch-up"
contributions.[Footnote 6] The second would prevent individuals from
violating the 70 ½ age limitation for making these contributions.
We are making recommendations that the Commissioner of Internal Revenue
to direct the appropriate officials to:
1. use IRS's existing MEA to identify and correct child and dependent
care credit claims on "Married Filing Separately" returns;
2. include information on math error notices to inform taxpayers that
they may be eligible for the child and dependent care credit if they
file under a different status, such as "Single," "Married Filing
Jointly," "Head of Household," or "Qualifying Widow(er) with a
dependent child;" and:
3. assess the effectiveness of combining FCR and other data on taxpayer
characteristics to verify the eligibility of EITC claims from
noncustodial parents.
This report includes two matters for congressional consideration--to
provide IRS with the authority to use math error checks to identify and
correct ineligible (1) individual retirement account (IRA) "catch-up"
contributions, and (2) contributions to IRAs from taxpayers over age 70-
1/2.
In commenting on a draft of this report, the IRS Deputy Commissioner
agreed with our recommendations and outlined IRS's actions to address
those recommendations (see app. I). With respect to the matters for
congressional consideration, she supported both suggestions and stated
that they could further increase compliance and improve taxpayer
service.
Scope and Methodology:
To assess IRS's 2008 filing season performance in the key filing season
activities compared to goals and past performance, report on the effect
of ESP, and highlight areas where IRS could expand use of MEA, we:
* reviewed and analyzed IRS reports, testimonies, budget submissions,
and other documents and data, including workload data, data related to
IRS's performance measures and goals, and data on taxpayer usage of
services and other statistics such as the number of paid preparers;
* observed operations at IRS's Atlanta, Georgia, paper submission
processing center, the Atlanta call site, the Joint Operations Center
(which manages IRS's telephone services) in Atlanta, and IRS's walk-in
locations in Atlanta and Baltimore, Maryland, and selected these
offices for a variety of reasons, including the location of key IRS
managers, such as those responsible for telephone and walk-in site
services;
* tested for statistically significant differences between annual
performance measures based on IRS sample data;
* analyzed staffing data for paper and electronic filing, and telephone
assistance;
* reviewed information from organizations, such as Keynote Systems,
which evaluate Internet performance;
* interviewed representatives of some of the larger private and
nonprofit organizations that prepare tax returns, such as H&R Block,
and trade organizations that represent both individual paid preparers,
tax preparation companies, and professional associations, including the
American Institute of Certified Public Accountants;
* reviewed TIGTA reports and interviewed TIGTA officials about IRS's
performance and initiatives;
* interviewed IRS officials about current operations, performance
relative to 2008 performance goals and prior filing season performance,
trends, significant factors, and initiatives that affected or were
intended to improve performance, monitoring, and oversight of paid tax
preparers;
* reviewed IRS data on math errors, information on IRS's process for
identifying and correcting math errors, legislation providing IRS with
math error authority;
* interviewed IRS officials, including those from the EITC office,
about MEA;
* reviewed reports on MEA from the National Taxpayer Advocate (NTA) and
TIGTA; and:
* reviewed our prior reports and followed up on our recommendations
made in those reports.
This report discusses numerous filing season performance measures and
data that cover the quality, accessibility, and timeliness of IRS's
services. We assessed the reliability of data used in this report by
(1) performing electronic testing of required data elements, (2)
reviewing existing information about the data and the system that
produced them, and (3) interviewing agency officials knowledgeable
about the data. We determined that the data were sufficiently reliable
for the purpose of this report. To the extent possible, we corroborated
information from interviews with documentation and data and where not
possible, we attribute the information to IRS officials. We reviewed
IRS documentation, interviewed IRS officials about computer systems and
data limitations, and compared those results to our standards of data
reliability.[Footnote 7] Data limitations are discussed where
appropriate. We conducted our work primarily at IRS headquarters in
Washington, D.C., walk-in sites offices at Baltimore, Maryland, the
Wage and Investment Division headquarters and walk-in sites in Atlanta,
Georgia.
Background:
IRS's filing season is an enormous and critical undertaking and
consists of two primary activities, processing well over 100 million
individual income tax returns and refunds and providing millions of
taxpayers with telephone, Web site, and face-to-face assistance. The
following describes the processing of tax returns.
* Most taxpayers file their individual income tax returns
electronically, although millions still mail paper returns. Electronic
filing is faster, which allows taxpayers to receive refunds faster, and
is less prone to transcription and other errors, and provides IRS with
significant cost savings.
* Taxpayers below an income ceiling can access the Free File program
offered through IRS's Web site by a consortium of 19 tax preparation
companies that offer free on-line tax preparation and filing services
for qualifying taxpayers.
* IRS continues to develop and deliver a number of Business Systems
Modernization programs, including releases of the Customer Account Data
Engine (CADE). CADE is intended to eventually replace IRS's antiquated
Master File legacy processing system and facilitates faster refund
processing and provides IRS with more up-to-date account information.
IRS provides a variety of taxpayer services, including the following.
* IRS has toll-free assistance telephone lines which taxpayers can call
with questions about tax law or their refunds. Depending on how
taxpayers respond to menu choices, questions are answered by automated
messages or calls are routed to telephone assistors located at 24 call
sites around the country.
* IRS offers assistance through its Web site, including "Where's My
Refund?", which enables taxpayers to use the Web site to determine
whether the agency received their tax returns and processed their
refunds. Taxpayers can also download forms, instructions, and
publications, research their own tax law issues through Frequently
Asked Questions or Tax Topics, and receive help with specific tax law
questions and procedural questions via e-mail.
* IRS offers assistance at nearly 12,000 volunteer sites, which helps
IRS serve traditionally underserved taxpayer segments, including
elderly, low-income, and disabled taxpayers, and taxpayers with limited-
English proficiency. Additionally, IRS has 401 walk-in sites where
taxpayers can receive basic tax law and account assistance from IRS
staff and have returns prepared if their annual income is $40,000 or
less.[Footnote 8]
In addition to depending on IRS, taxpayers depend heavily on paid tax
return preparers or commercial tax preparation software during the
filing season. Paid preparers are a critical part of the nation's tax
administration system because of the wide variety of assistance they
offer taxpayers, including help understanding tax obligations, return
preparation and electronic filing, and providing forms and
publications. In 2007, 59 percent of individual taxpayers had their
return prepared and filed by paid preparers and about 16 percent
prepared their return using commercial tax preparation software.
Late tax law changes create filing season challenges for IRS. This can
be particularly true if, like ESP, the changes are complex and
significantly increase filing season workload (for a detailed
description of IRS's implementation of ESP, see app. II). ESP contained
complex rules about eligibility, amount of the rebate, and filing
requirements.
Over the years, the Congress granted IRS legal authority to cover 11
areas so that the agency could correct return errors during processing,
including calculation errors and entries that are inconsistent or
exceed statutory limits, without having to issue the taxpayer a
statutory notice of deficiency (see app. III for further details on the
MEA process and authorities). We have reported that prompt compliance
checks such as these are important because as unpaid taxes age, the
likelihood of collecting all or part of the amount owed decreases, due
in part to continued accrual of interest and penalties on the
outstanding federal taxes.[Footnote 9] MEA also provides a taxpayer
service as it allows taxpayers to receive their refunds faster,
corrects return errors before interest is accrued, and can avoid time
consuming interaction with IRS while the error is being resolved.
MEA can also help ensure taxpayers receive the tax benefits for which
they are eligible. For example, between tax years 2003 and 2006, using
its MEA, IRS identified over 500,000 occurrences of taxpayers under-
claiming the EITC with the result that an additional $130 million was
provided to those claimants. Without MEA, most of these errors would
not likely have been identified and thousands of low income taxpayers
would likely have received less than they were entitled.
Because math error checks are automated and require little contact with
taxpayers, they provide IRS with an enforcement tool that is low cost
and less intrusive and burdensome to taxpayers than audits. By using
its MEA, IRS reported preventing $460 million from reaching ineligible
taxpayers in fiscal year 2006.
The NTA--who heads the program that helps resolve taxpayers' tax
problems with IRS and recommends changes to mitigate taxpayer problems-
-noted some concerns about IRS's use of MEA in its 2006 report to
Congress.[Footnote 10] NTA reported that, because MEA allows IRS to
summarily assess the tax before a taxpayer has the opportunity to
challenge the assessment, it should be used in specific and narrow
circumstances. Because taxpayer rights are different under MEA, NTA
expressed concern that math error notices did not provide enough detail
for the recipient to understand what had occurred, their rights, and
how they could request abatement. NTA also reported that IRS was using
math error checks in some limited areas where it was not clear that IRS
had the authority. In its response to the NTA's 2006 report, IRS
reported that it resolved the issues raised by NTA. While the NTA
acknowledges that the IRS has made significant improvements to the math
error notice process, it still notes that IRS could improve how it is
administering MEA.
Despite the Increased Volume of Tax Returns Due to the Economic
Stimulus, IRS's Filing Season was Successful Compared to Previous
Years' with the Exception of Access to Telephone Assistance:
As of September 12, 2008, IRS processed 150 million individual income
tax returns, including almost 9 million ESP-only returns, and processed
105 million tax refunds totaling $246 billion. IRS processed 16 million
Form 1040As on paper, a 92 percent increase from last filing season,
largely due to ESP. According to IRS officials, this increase was
especially burdensome not only because paper processing is more labor-
intensive and expensive then electronic processing, but also because
claimants made many errors on ESP-only returns, which IRS had to
manually correct. As of September 12, IRS had processed 116 million
stimulus payments totaling almost $94 billion.
As shown in table 1, the percentage of electronically filed returns is
similar to last year's when ESP-only returns are included. Excluding
the almost 9 million ESP-only returns, most of which were filed on
paper, the number of taxpayers who filed electronically increased from
59 percent to 62 percent of total returns.
Table 1: Individual Income Tax Returns Processed, 2006-2008 Filing
Seasons:
2008 (Jan. 1--Sept. 12, 2008);
Total returns (ESP returns included);
ESP returns excluded;
Electronic returns: Number in millions: 88;
87;
Electronic returns: Percentage of total returns: 59;
62;
Total returns in millions: 150;
141.
2007 (Jan. 1--Sept. 11, 2007);
Electronic returns: Number in millions: 79;
Electronic returns: Percentage of total returns: 59;
Total returns in millions: 135.
2006 (Jan. 1--Sept. 10, 2006);
Electronic returns: Number in millions: 72;
Electronic returns: Percentage of total returns: 55;
Total returns in millions: 131.
Source: GAO analysis of IRS data.
[End of table]
The increase in electronic filing is due, in part, to the Free File
program. The number of taxpayers who filed electronically through Free
File increased 24 percent, after a 2 percent decline in participation
last year, to 3.8 million. According to IRS officials, this increase is
due to greater taxpayer awareness and enhanced marketing.
As of August 8, CADE posted 30.5 million returns, slightly exceeding
IRS's goal of 30 million and significantly up from the 11 million
returns CADE posted as of last year. As we have previously reported, a
major benefit of CADE is that direct deposit refunds are issued by CADE
1 to 5 business days faster than the current legacy system, and paper
check refunds are issued 4 to 8 business days faster because CADE posts
information daily.[Footnote 11] CADE also was successful in processing
24 million stimulus payments and contributed to IRS's early
distribution of some stimulus payments. ESP-only payments processed
through CADE, rather than the legacy Master file, were issued up to 4
days earlier than the first scheduled disbursement date.
Despite the additional volume, IRS met or exceeded goals for seven out
of eight of the processing measures (see app. IV for details). The one
measure where performance was significantly below IRS's goal and last
year's level was the refund error rate, i.e., the percentage of refunds
with IRS-cause errors issued to taxpayers by IRS. According to IRS
officials, this performance was due to a programming change and did not
delay the processing of returns or refunds.
We have previously reported that IRS's ability to maintain or improve
taxpayer service will likely depend on its continued ability to find
efficiencies, particularly through increased electronic
filing.[Footnote 12] Consistent with this approach, IRS released the
"Advancing E-File Study" in November 2008, which is the foundation for
the agency's strategy and planned actions to reach the congressionally-
set goal of 80 percent of individual returns filed
electronically.[Footnote 13]
In recent reports, we suggested two options for increasing electronic
filing or reducing paper processing. One would be for Congress to
mandate electronic filing by large paid tax return preparers.[Footnote
14] Currently, many returns prepared by preparers on computers are
printed and mailed to IRS, which then have to be transcribed. Our other
option is to require bar coding on paper returns that were prepared by
taxpayers using commercial tax preparation software. Bar coding would
eliminate IRS's transcription costs and errors.[Footnote 15] IRS agreed
to study this recommendation.
Paid preparers prepared over 81 million returns, which was 59 percent
of all individual tax returns in the 2007 filing season. Because IRS
has limited ability to identify paid preparers and match them with the
returns they prepared, we recently reported that IRS has limited
information about the accuracy of these returns and recommended that
IRS develop a plan to require a single identification number for paid
preparers, which could facilitate research on paid preparers' influence
on taxpayer compliance.[Footnote 16] IRS agreed to explore the use of a
single identification number to enhance IRS's ability to identify paid
preparers.
Telephone Performance Was Substantially Lower Compared to Last Year's
Due to the High Volume of Stimulus-Related Calls, with the Greatest
Downturn Beginning in Early May:
Taxpayers' access to IRS's telephone assistors was substantially lower
than last year's because, according to IRS, it received an
unprecedented number of calls primarily due to ESP-related questions.
As table 2 shows, through June 30 of this year, IRS received over 118
million calls, more than double the total number of calls from last
year. However, compared to last year, more than twice as many callers
abandoned their calls and nearly 10 times as many were disconnected by
IRS.
Table 2: Call Volume by Call Type (in millions):
Assistor calls answered[A];
2007: 21.5;
2008: 27.0;
Percentage Change: 26.
Automated calls completed;
2007: 20.8;
2008: 43.0;
Percentage Change: 107.
Calls abandoned by caller;
2007: 13.3;
2008: 34.4;
Percentage Change: 159.
IRS courtesy disconnects and busy signals;
2007: 1.3;
2008: 13.6;
Percentage Change: 946.
Total;
2007: 56.9;
2008: 118.0;
Percentage Change: 107.
Source: GAO analysis of IRS data.
[A] Telephone data cover the date range of January 1 through June 30.
[End of table]
On the basis of its experience with the stimulus rebates in 2001 and
2003, IRS took steps to facilitate telephone service, including
establishing a dedicated toll-free Rebate Hotline for callers with ESP-
related questions in February. As of June 30, IRS answered 37 million
calls made to its Rebate Hotline. However, the unprecedented call
volume strained IRS telephone resources and contributed to a
significant decline in the telephone level of service. Calls to IRS
spiked in the first three weeks of May around the same time that the
first rounds of stimulus checks were issued (see fig. 1). According to
IRS officials, taxpayers' confusion over when they would receive their
payment, or how much they received contributed to the high call volume.
During these weeks, the percentage of callers waiting for an assistor
and getting through fell below 50 percent and subsequently did not
surpass that mark.
Figure 1: IRS Toll-free Calls and Percentage of Callers Seeking and
Receiving Live Assistance (January 1, 2008-August 30, 2008):
This figure is a combination bar and line graph showing IRS toll-free
calls and percentage of callers seeking and receiving live assistance
(January 1, 2008-August 30, 2008) showing the following data.
Line:
Month: January 5;
Percentage of callers seeking and receiving live assistance: 77.
Month: January 12;
Percentage of callers seeking and receiving live assistance: 85.
Month: January 19;
Percentage of callers seeking and receiving live assistance: 86.
Month: January 26;
Percentage of callers seeking and receiving live assistance: 84.
Month: Feb 2;
Percentage of callers seeking and receiving live assistance: 82.
Month: Feb. 9;
Percentage of callers seeking and receiving live assistance: 80.
Month: Feb. 16;
Percentage of callers seeking and receiving live assistance: 82.
Month: Feb. 23;
Percentage of callers seeking and receiving live assistance: 60.
Month: Mar. 1;
Percentage of callers seeking and receiving live assistance: 81.
Month: Mar. 8;
Percentage of callers seeking and receiving live assistance: 83.
Month: Mar. 15;
Percentage of callers seeking and receiving live assistance: 84.
Month: Mar. 22;
Percentage of callers seeking and receiving live assistance: 84.
Month: Mar. 29;
Percentage of callers seeking and receiving live assistance: 77.
Month: Apr. 5;
Percentage of callers seeking and receiving live assistance: 78.
Month: Apr. 12;
Percentage of callers seeking and receiving live assistance: 80.
Month: Apr. 19;
Percentage of callers seeking and receiving live assistance: 56.
Month: Apr. 26;
Percentage of callers seeking and receiving live assistance: 78.
Month: May 3;
Percentage of callers seeking and receiving live assistance: 56.
Month: May 10;
Percentage of callers seeking and receiving live assistance: 32.
Month: May 17;
Percentage of callers seeking and receiving live assistance: 32.
Month: May 24;
Percentage of callers seeking and receiving live assistance: 39.
Month: May 31;
Percentage of callers seeking and receiving live assistance: 41.
Month: June 7;
Percentage of callers seeking and receiving live assistance: 40.
Month: June 14;
Percentage of callers seeking and receiving live assistance: 43.
Month: June 21;
Percentage of callers seeking and receiving live assistance: 39.
Month: July 28;
Percentage of callers seeking and receiving live assistance: 39.
Month: July 5;
Percentage of callers seeking and receiving live assistance: 45.
Month: July 12;
Percentage of callers seeking and receiving live assistance: 31.
Month: July 19;
Percentage of callers seeking and receiving live assistance: 38.
Month: July 26;
Percentage of callers seeking and receiving live assistance: 32.
Month: Aug. 2;
Percentage of callers seeking and receiving live assistance: 33.
Month: Aug. 9;
Percentage of callers seeking and receiving live assistance: 34.
Month: Aug. 16;
Percentage of callers seeking and receiving live assistance: 28.
Month: Aug. 23;
Percentage of callers seeking and receiving live assistance: 26.
Month: Aug. 30;
Percentage of callers seeking and receiving live assistance: 39.
Bars:
Month: Jan. 5;
Caller abandons: 0.17;
IRS disconnects or busy: 0.03;
Automated calls unanswered: 0.05;
Assistor calls answered: 0.33.
Month: Jan. 12;
Caller abandons: 0.26;
IRS disconnects or busy: 0.01;
Automated calls unanswered: 0.12;
Assistor calls answered: 0.57.
Month: Jan. 19;
Caller abandons: 0.37;
IRS disconnects or busy: 0.02;
Automated calls unanswered: 0.45;
Assistor calls answered: 0.7.
Month: Jan. 26;
Caller abandons: 0.45;
IRS disconnects or busy: 0.02;
Automated calls unanswered: 0.95;
Assistor calls answered: 0.7.
Month: Feb. 2;
Caller abandons: 0.72;
IRS disconnects or busy: 0.05;
Automated calls unanswered: 1.38;
Assistor calls answered: 1.01.
Month: Feb. 9;
Caller abandons: 0.87;
IRS disconnects or busy: 0.05;
Automated calls unanswered: 1.95;
Assistor calls answered: 1.06.
Month: Feb. 16;
Caller abandons: 0.79;
IRS disconnects or busy: 0.05;
Automated calls unanswered: 2.08;
Assistor calls answered: 1.07.
Month: Feb. 23;
Caller abandons: 1.1;
IRS disconnects or busy: 0.17;
Automated calls unanswered: 2.11;
Assistor calls answered: 0.85.
Month: Mar. 1;
Caller abandons: 0.78;
IRS disconnects or busy: 0.06;
Automated calls unanswered: 1.79;
Assistor calls answered: 1.13.
Month: Mar. 8;
Caller abandons: 0.65;
IRS disconnects or busy: 0.03;
Automated calls unanswered: 1.49;
Assistor calls answered: 1.02.
Month: Mar. 15;
Caller abandons: 0.65;
IRS disconnects or busy: 0.03;
Automated calls unanswered: 1.36;
Assistor calls answered: 1.08.
Month: Mar. 22;
Caller abandons: 0.7;
IRS disconnects or busy: 0.03;
Automated calls unanswered: 1.13;
Assistor calls answered: 1.15.
Month: Mar. 29;
Caller abandons: 1.04;
IRS disconnects or busy: 0.04;
Automated calls unanswered: 1.24;
Assistor calls answered: 1.43.
Month: Apr. 5;
Caller abandons: 0.91;
IRS disconnects or busy: 0.04;
Automated calls unanswered: 0.98;
Assistor calls answered: 1.32.
Month: Apr. 12;
Caller abandons: 0.88;
IRS disconnects or busy: 0.06;
Automated calls unanswered: 0.94;
Assistor calls answered: 1.4.
Month: Apr. 19;
Caller abandons: 1.3;
IRS disconnects or busy: 0.49;
Automated calls unanswered: 1.09;
Assistor calls answered: 1.26.
Month: Apr. 26;
Caller abandons: 0.7;
IRS disconnects or busy: 0.04;
Automated calls unanswered: 0.95;
Assistor calls answered: 0.98.
Month: May 3;
Caller abandons: 1.83;
IRS disconnects or busy: 0.34;
Automated calls unanswered: 2.11;
Assistor calls answered: 1.29.
Month: May 10;
Caller abandons: 2.9;
IRS disconnects or busy: 2.49;
Automated calls unanswered: 3.41;
Assistor calls answered: 1.19.
Month: May 17;
Caller abandons: 3.6;
IRS disconnects or busy: 3;
Automated calls unanswered: 3.67;
Assistor calls answered: 1.23.
Month: May 24;
Caller abandons: 2.47;
IRS disconnects or busy: 1.61;
Automated calls unanswered: 2.84;
Assistor calls answered: 1.13.
Month: May 31;
Caller abandons: 1.83;
IRS disconnects or busy: 0.9;
Automated calls unanswered: 2.11;
Assistor calls answered: 0.9.
Month: June 7;
Caller abandons: 2.17;
IRS disconnects or busy: 0.96;
Automated calls unanswered: 2.24;
Assistor calls answered: 1.01.
Month: June 14;
Caller abandons: 2.35;
IRS disconnects or busy: 0.71;
Automated calls unanswered: 2.18;
Assistor calls answered: 1.02.
Month: June 21;
Caller abandons: 2.19;
IRS disconnects or busy: 0.96;
Automated calls unanswered: 2.02;
Assistor calls answered: 0.97.
Month: June 28;
Caller abandons: 2.15;
IRS disconnects or busy: 0.97;
Automated calls unanswered: 1.86;
Assistor calls answered: 0.99.
Month: July 5;
Caller abandons: 1.01;
IRS disconnects or busy: 0.29;
Automated calls unanswered: 0.82;
Assistor calls answered: 0.5.
Month: July 12;
Caller abandons: 2.08;
IRS disconnects or busy: 1.46;
Automated calls unanswered: 1.49;
Assistor calls answered: 0.88.
Month: July 19;
Caller abandons: 1.62;
IRS disconnects or busy: 0.9;
Automated calls unanswered: 1.11;
Assistor calls answered: 0.86.
Month: July 26;
Caller abandons: 1.2;
IRS disconnects or busy: 1.29;
Automated calls unanswered: 0.97;
Assistor calls answered: 0.81.
Month: Aug. 2;
Caller abandons: 1.15;
IRS disconnects or busy: 1.06;
Automated calls unanswered: 0.78;
Assistor calls answered: 0.73.
Month: Aug. 9;
Caller abandons: 1.1;
IRS disconnects or busy: 0.88;
Automated calls unanswered: 0.61;
Assistor calls answered: 0.69.
Month: Aug. 16;
Caller abandons: 1.08;
IRS disconnects or busy: 0.96;
Automated calls unanswered: 0.38;
Assistor calls answered: 0.56.
Month: Aug. 23;
Caller abandons: 0.86;
IRS disconnects or busy: 0.96;
Automated calls unanswered: 0.35;
Assistor calls answered: 0.49.
Month: Aug. 30;
Caller abandons: 0.73;
IRS disconnects or busy: 0.44;
Automated calls unanswered: 0.28;
Assistor calls answered: 0.5.
[Refer to PDF for image]
Source: GAO analysis of IRS data.
Note: Weekly calls are those seeking tax law and account information
assistance and do not include calls to IRS's compliance division.
[End of figure]
The increased call volume also contributed to a decline in related
performance indicators and measures. As previously noted, the number of
callers who received busy signals or were disconnected from IRS
increased as did the caller abandon rate. Further, as shown in table 3,
the average speed of answer--the length of time taxpayers wait to get
their calls answered--nearly doubled from last year.
Table 3: IRS Telephone Performance, 2005-2008 Filing Seasons:
Percentage of callers seeking and receiving live assistance;
2005: 82.2;
2006: 81.0;
2007: 80.9;
2008: 56.7.
Average speed of answer (minutes);
2005: 4.3;
2006: 3.9;
2007: 4.6;
2008: 8.6.
Source: GAO analysis of IRS data.
Note: Telephone performance data are based on the date range of January
1 through June 30.
[End of table]
In addition to the Rebate Hotline, service on other toll-free lines,
such as tax law and account assistance, was affected as well. For
example, IRS estimated that from early May, when IRS began issuing ESP
payments, through the end of June about 30 percent of callers to other
toll-free lines asked ESP-related questions in addition to their
primary question. When the caller asked an ESP-related question, the
assistor was instructed not to transfer the caller to the rebate
hotline, but instead to answer the question. As a result, the level of
service on some other telephone applications not related to the Rebate
Hotline also declined this year, according to IRS officials.
Even with the increased volume of calls, the accuracy of the telephone
assistors' responses to tax law and account questions was comparable to
the same time period last year and met IRS's goals (see table 4). Since
2005, IRS has maintained a level of accuracy of about 90 percent.
Table 4: IRS Telephone Assistor Accuracy Performance, 2004-2008 Filing
Seasons:
Accuracy measures [A];
2005 Actual: [Empty];
2006 Actual: [Empty];
2007 Actual: [Empty;
2008 Actual: [Empty].
Tax law accuracy rate (in percentages)[B];
2005 Actual: 89.5 +/-0.6;
2006 Actual: 90.6 +/-0.6;
2007 Actual: 90.7 +/-0.9;
2008 Actual: 90.3 +/-0.9;
Fiscal Year 2008 goals: 91.0.
Accounts accuracy rate (in percentages)[B];
2005 Actual: 91.3 +/-0.4;
2006 Actual: 93.3 +/-0.3;
2007 Actual: 93.2 +/-0.5;
2008 Actual: 93.5 +/-0.4;
Fiscal Year 2008 goals: 93.5.
Source: GAO analysis of IRS data.
[A] Based on representative samples and from January through June for
2004, 2005, 2006, 2007 and 2008.
[B] The percentage of calls in which telephone assistors provided
accurate answers for the call type and took the appropriate action,
with a 90 percent confidence interval.
[End of table]
During the course of our filing season work, we identified some
opportunities to reduce ESP-related calls. On May 21, 2008, we sent a
letter to the IRS Commissioner that suggested four options for his
consideration. IRS implemented three of the four options. IRS re-
ordered the Frequently Asked Questions page on IRS's Web site to put
the most common questions addressed by assistors first. IRS added text
to the payment schedule page on its Web site and a message for
telephone assistors that provided more detail as to when various types
of taxpayers should expect to receive their refunds. IRS modified the
Rebate Hotline script to include an automated "Most Frequently Asked
Questions" (FAQs) option by adding the FAQs to the automated messaging
in the call waiting queue. The option IRS did not implement was to
expand outreach efforts in the press about the timing and calculation
of stimulus payments. IRS officials concluded that this information
might unintentionally create more calls. Although we believe that
additional and more accurate outreach would have been useful for
reducing public confusion, we acknowledge IRS's position that many of
the calls have required specific explanations that could not have been
handled in mass public outreach.
IRS Provided Tools through its Web Site That Significantly Increased
Use and Potentially Diverted Calls:
IRS provided tools and information through its Web site on ESP and
adjusted the information quickly. For example, on the day the
legislation was passed, IRS posted information on [hyperlink,
http://www.IRS.gov] with details about ESP. Within a month, IRS
launched the Stimulus Payment Calculator. IRS also provided a "Where's
My Stimulus Payment?" feature, launched May 1, 2008 (see app. II for
more details on ESP timeline).
These ESP-related features resulted in a dramatic increase in the
volume of taxpayer visits, as shown in table 5; visits to IRS's Web
site increased 74 percent; however, if taxpayer visits to ESP-related
features were excluded, visits were slightly down from last year.
Table 5: IRS Web Site Use, 2006-2008 through July (in thousands):
Uses: Total visits;
2006: 152,345;
2007: 168,332;
2008: 292,331;
Percentage change--2007 to 2008: 74.
Uses: Where's My Refund?;
2006: 30,663;
2007: 30,746;
2008: 37,871;
Percentage change--2007 to 2008: 23.
Uses: Economic Stimulus--related visits;
2006: n/a;
2007: n/a;
2008: 65,982;
Percentage change--2007 to 2008: n/a.
Uses: Where's My Economic Stimulus Payment?;
2006: n/a;
2007: n/a;
2008: 36,994;
Percentage change--2007 to 2008: n/a.
Uses: Economic Stimulus Calculator;
2006: n/a;
2007: n/a;
2008: 27,062;
Percentage change--2007 to 2008: n/a.
Uses: Other visits (including ESP features);
2006: 121,681;
2007: 137,586;
2008: 124,422;
Percentage change--2007 to 2008: -10.
Uses: Downloads;
2006: 160,477;
2007: 120,596;
2008: 126,945;
Percentage change--2007 to 2008: 5.
Uses: Searches;
2006: 88,250;
2007: 101,072;
2008: 120,263;
Percentage change--2007 to 2008: 19.
Source: GAO analysis of IRS data.
[End of table]
Although difficult to quantify, considering the large number of visits
to ESP-related features on IRS's Web site, it is likely that ESP
information and features on [hyperlink, http://www.IRS.gov] provided
sufficient information to divert taxpayers' questions from IRS's Rebate
Hotline.
One measure of the quality of IRS's Web site is its ranking in the
Keynote Systems top 40 government Web sites. During the 2008 filing
season, [hyperlink, http://www.IRS.gov] ranked first or second in
response time out of the top 40 government Web sites in the Keynote
Government Index weekly ratings, compared to ranging between third and
sixth place last filing season.[Footnote 17]
Taxpayer Usage Increased at Volunteer Sites, and although IRS is Making
Limited Progress Assessing Quality, Tax Law Quality Declined at Walk-in
Sites:
Volunteer partners prepared 3.2 million returns, which is a 31 percent
increase compared to last year, with virtually the same number of
sites. IRS officials attribute this growth mainly to increased word-of-
mouth promotion of sites and ESP outreach efforts of volunteer
partners. In contrast, the total number of taxpayer contacts at IRS's
401 walk-in sites declined slightly in the 2008 filing season compared
to previous years.
In order to assess the quality of the assistance at volunteer sites,
IRS conducts mystery shopping, site, and tax return reviews.[Footnote
18] This filing season, IRS officials conducted 85 mystery shopping
reviews for which the accuracy rate for return preparation averaged 75
percent at volunteer sites. While this is an improvement from last
year, we are still concerned that, because of the low number of mystery
shopping reviews conducted, the quality of volunteer-prepared returns
remains largely unknown and information as a whole is unavailable.
IRS is in the process of improving how it measures the efficacy of its
outreach efforts. In response to our recommendation, IRS has hired a
contractor to conduct surveys and focus groups to assess the IRS
partners', such as the AARP, ability to reach their target populations,
e.g., the elderly and limited English proficiency and rural
populations, and measure the effectiveness and quality of that
outreach.[Footnote 19]
In response to another one of our recommendations, to further improve
its quality assessment at walk-in sites, IRS has expanded contact
recording--a system IRS uses to record and assess the quality of other
interactions between its employees and taxpayers--at walk-in sessions
to include return preparation.[Footnote 20] According to IRS officials,
the agency hired adequate staff to review the recorded sessions, which
are considerably longer for return preparation assistance than for tax
law or account assistance. Further, IRS officials report that by the
start of the 2009 filing season, contact recording of return
preparation will be operational at 306 sites.
The accuracy of account assistance at IRS walk-in sites was 85 percent,
similar to last year. However, the accuracy of tax law assistance
declined significantly to 68 percent, down from 80 percent last year.
According to IRS officials, this decline was, in part, due to the
timing for hiring and training hundreds of new staff, which was
dependent on when IRS received funding. Further, those staff had to be
trained on a new IRS's interactive tax law assistance guide at the
beginning of the filing season. IRS officials expect tax law accuracy
to improve for the 2009 filing season as walk-in site staff gain
experience with the new guide.
The Costs and Foregone Revenue Associated with Implementing ESP Are
Expected to Reach over $900 Million and IRS Plans to Document Lessons
Learned:
Based on IRS data, the estimated costs and foregone revenue of
implementing ESP will reach up to $960 million. This includes $202
million IRS received in a supplemental appropriation in fiscal year
2008, plus funding transferred from the Financial Management Service
and IRS's user fee accounts (see table 6).[Footnote 21] Because IRS
anticipates the need for continued funding associated with the
implementation of ESP, it requested an amendment to its fiscal year
2009 budget to receive an additional $68 million, $29 million of which
it has already received under a continuing resolution. This funding
would be used, in part, to cover telephone demand, which IRS expects to
remain well above normal in 2009 due in part to ESP.
Table 6: IRS Estimated Costs and Foregone Revenue Associated with
Implementing ESP (dollars in millions):
Source of funding: Supplemental appropriations: operations support
(e.g., postage, IT support, printing);
$202.
Source of funding: Additional requested funding in fiscal year 2009;
$39.
Source of funding: Funding received under fiscal year 2009 continuing
resolution;
$29.
Source of funding: Funding transferred from the Financial Management
Service;
$23.
Source of funding: IRS user fees transferred;
$12.
Total funding;
$305.
IRS estimates of foregone revenue from shifting Automated Collection
System staff to answer ESP-related calls;
$655; (As of August 9, 2008).
Taxpayers' costs;
Reduced access to IRS's telephone assistors.
Source: GAO analysis of IRS data.
[End of table]
Because of the timing of ESP, IRS officials said that they did not have
time to hire, conduct background checks on, and train additional staff
to handle the increased telephone volume. Instead, IRS shifted hundreds
of Automated Collection System (ACS) staff to answer calls to the
Rebate Hotline from March through August 2008.
As of August, IRS reported $655 million in foregone revenue because of
ACS staff being taken off their collections work to answer the
unprecedented volume of calls related to ESP. As we previously
reported, IRS considered alternatives to shifting ACS staff, including
contracting out, using other staff, or using Social Security
Administration (SSA) staff, but decided the alternatives were not
feasible.[Footnote 22] According to IRS officials, while IRS expected
some foregone revenue and paper backlog associated with the use of
collections and other staff, it determined that delivering and
supporting ESP was its highest priority, after the filing season.
According to IRS officials, volunteer partners helped IRS mitigate the
costs of delivering ESP to the targeted population of benefits
recipients. These partners played a key role in funding and carrying
out outreach to inform targeted groups, e.g., elderly, limited English
proficiency, disabled, about their eligibility for the economic
stimulus. For example, AARP supplied economic stimulus information on
its Web site and in its monthly bulletin, and IRS officials reported
that AARP paid for one of the mailings to people over 65 who may have
been eligible for a stimulus payment, but had not yet filed a tax
return. According to IRS officials, partly because of the efforts of
the volunteer partners, 82 percent of the targeted individuals eligible
for the economic stimulus participated in the program. This level of
participation is relatively high compared to some other programs. For
example, we have previously reported that participation rates in
entitlement programs generally range from about 47 percent for the Food
Stamp Program, to 75 percent for the EITC program.[Footnote 23]
Consistent with best practices for government organizations, IRS is
compiling a report on ESP that will summarize the costs to implement
ESP and the effects on filing season operations. IRS is working to
verify the cost information associated with ESP. As part of its report,
IRS hired a contractor to conduct a lessons-learned study, which is due
to be issued in December 2008.
IRS Does Not Fully Use Its Existing MEA and Congressional Expansion of
MEA in Two New Areas Could Enhance Enforcement at Low Cost:
IRS has authority to disallow child and dependent credit claims on
returns with the filing status of "Married Filing Separately;" however,
if taxpayers use this filing status, they would not be eligible for the
credit. Under IRS's procedures, it processes all returns with child and
dependent care claims and issues refunds as appropriate. IRS then
audits the taxpayer who made the claims using "Married Filing
Separately" as appropriate. IRS audited about 6,000 of these cases in
2005. After verifying the claim is ineligible, IRS would be left trying
to collect the money from taxpayers, who may have spent the money and
now owe back taxes, plus penalties and interest. For lower-income
taxpayers, this may represent a substantial financial burden.
Some taxpayers claiming child and dependent care credits may file as
"Married Filing Separately" by mistake. They could be eligible for the
credit if they file using a different status, such as "Single,"
"Married Filing Jointly," "Head of Household," or "Qualifying Widow(er)
with a Dependent Child. Using audits to correct such mistakes is labor
intensive for IRS. IRS officials confirmed that, if IRS used its MEA in
these cases, then it could inform the taxpayer of their potential
eligibility in the associated math error notices.
A second area where IRS has MEA but does not use it is to disallow EITC
clams is when taxpayers are listed as the noncustodial parent in the
FCR. Noncustodial parents are generally ineligible for EITC, because in
most but not all cases, the child[ren] have not lived with the
noncustodial parent for more than the required 6 months of the tax year
to meet EITC eligibility.[Footnote 24] According to EITC officials, IRS
does not use its MEA in these cases because the child may have lived
with the non-custodial parent for more than 6 months, meeting the
residency requirements for eligibility; however, the FCR may not
reflect this living arrangement. Instead of using its MEA, IRS audits
less than 2 percent of these cases; however, it does not audit more
cases because audits are labor intensive. As a consequence, most of the
more than 41,000 claims for $91 million in 2006 by noncustodial parents
were allowed without verification. IRS does not know how many of these
claims were incorrect, but for the claims it audited, the error rate
was about 91 percent of claims for 2006.[Footnote 25]
IRS officials reported that, as part of their 2009 EITC Research Plan,
they plan to review the reliability and applicability of linking the
custodial information in the FCR to EITC eligibility. They stated that
if the FCR is found to be sufficiently reliable, IRS could use its MEA
to automatically identify and correct ineligible EITC claims.
By focusing on FCR data alone, IRS's review may be missing another way
to use MEA to verify EITC claims by noncustodial parents and minimize
the chance of disallowing eligible claims. IRS could combine FCR data
with factors it currently uses to select returns for audits, factors
such as taxpayer characteristics like filing status. In a limited
sample of returns from tax year 2006, audit data show that the FCR
combined with audit selection factors such as filing status allowed IRS
to accurately identify ineligible EITC claims by noncustodial parents
in 98 percent of cases. Without including a more thorough assessment of
this approach in its FCR review, IRS will not know the extent to which
more accurate eligibility decisions could be made. Because the agency
has MEA to use the FCR, the agency does not need additional authority
to use FCR together with the audit selection factors.
Two Areas Where IRS Could Use Math Error Checks, but Would Need
Legislative Authority:
We identified two areas related to IRA contributions where IRS
officials reported that they have the technical ability to accurately
identify and correct math errors and did so as recently as 2006.
However, at that time, IRS Chief Counsel determined that the Congress
would need to grant IRS additional MEA to use age-based information to
automatically disallow certain ineligible IRA contributions and thus
IRS discontinued the use of math error checks in these areas.
First, some taxpayers under the age of 50 claim IRA contribution
amounts that are more than allowed. These taxpayers incorrectly claim
the amount intended for people over 50 making IRA "catch-up"
contributions. In 2004, IRS identified 24,000 incidences of these IRA
contribution overclaims resulting in $23.2 million in underreported
taxes. IRS used age data from the SSA database to check for age
eligibility of these contributions. IRS counsel determined that the
agency does not have MEA to use age-based data in this manner, although
IRS has and does use age data from the SSA database for other math
error types, such as EITC eligibility.
Second, some taxpayers over the age of 70-½ claim contributions to a
traditional IRA, which they are not entitled to make. By law, taxpayers
over the age of 70-½ cannot make contributions to traditional IRAs.
TIGTA found that in 2006, 1,826 taxpayers over the age of 70-½
improperly claimed $4 million in IRA deductions for an estimated loss
of revenue of $601,000. IRS used age data from the SSA database to
check for age eligibility of these contributions. IRS officials believe
that this problem is likely to become significantly larger as the
population ages. However, IRS currently lacks MEA to identify and
correct ineligible claims.
Conclusion:
Despite the challenges of the economic stimulus program, IRS was
generally successful providing service to taxpayers during the 2008
filing season. The major exception was telephone service, where the
large, unanticipated increase in call volume caused by ESP
significantly affected performance.
Although IRS focuses on taxpayer service during the filing season, it
also uses MEA to conduct important compliance checks while processing
tax returns. There are two areas where IRS could use its existing
authority more fully and where the agency could improve service through
notices informing taxpayers of potential eligibility for child and
dependent care credits. With additional MEA, IRS could further increase
compliance, improve taxpayer service, and gain additional efficiencies.
Recommendations for Executive Action:
We recommend that the Commissioner of Internal Revenue direct the
appropriate officials to:
(1) use IRS's existing MEA to identify and correct child and dependent
care credit claims on "Married Filing Separately" returns;
(2) include information on math error notices to inform taxpayers that
they may be eligible for the child and dependent care credit if they
file under a different status, such as "Single," "Married Filing
Jointly," "Head of Household," or "Qualifying Widow(er) with a
dependent child"; and:
(3) assess the effectiveness of combining FCR and other data on
taxpayer characteristics to verify the eligibility of EITC claims from
noncustodial parents.
Matters for Congressional Consideration:
Given the potential for improving compliance now and in the future, the
Congress should provide IRS with the authority to use math error checks
to identify and correct returns with ineligible (1) IRA "catch-up"
contributions, and (2) contributions to traditional IRAs from taxpayers
over age 70-½.
Agency Comments and Our Evaluation:
The Deputy Commissioner of Internal Revenue provided written comments
in a December 4, 2008 letter in which she agreed with all our
recommendations and outlined IRS's actions to address those
recommendations. With respect to child and dependent care credit claims
on "Married Filing Separately" returns, IRS plans to make programming
changes that will allow the agency to use math error checks to identify
and correct claims, and create notices to inform taxpayers of their
possible eligibility for the child and dependent care credit if they
file under a different status. For the recommendation to assess the
effectiveness of combining FCR with other data on taxpayer
characteristics, IRS plans to do so as part of its study on the
reliability and applicability of non-custodial information in the FCR.
The Deputy Commissioner also supported our suggestions for
congressional consideration to provide IRS with legal authority to
automatically correct returns for individual retirement account
contributions that violate the dollar or age limits. She further stated
that they could increase compliance and improve taxpayer service.
As agreed with your offices, unless you publicly announce its contents
earlier, we plan no further distribution of the report until 30 days
after its date. At that time, we will send copies of this report to the
Secretary of the Treasury, the Commissioner of Internal Revenue; the
Director, Office of Management and Budget; relevant congressional
committees; and other interested parties. This report is available at
no charge on GAO's web site at [hyperlink, http://www.gao.gov].
For further information regarding this report, please contact James R.
White, Director, Strategic Issues, on 202-512-9110 or whitej@gao.gov.
Contacts for our Offices of Congressional Relations and Public Affairs
may be found on the last page of this report. Individuals making key
contributions to this report include Joanna Stamatiades, Assistant
Director; Shea Bader; Julia Jebo; Karen O'Conor; Cheryl Peterson; and
Neil Pinney.
Signed by:
James R. White:
Director, Tax Issues Strategic Issues Team:
[End of section]
Appendix I: Comments from the Internal Revenue Service:
Department Of The Treasury:
Internal Revenue Service:
Washington, D.C. 20224:
Deputy Commissioner:
December 4, 2008:
Mr. James R. White:
Director, Tax Issues:
U.S. Government Accountability Office:
441 G Street, N.W.:
Washington, DC 20548:
Dear Mr. White:
I have reviewed your draft report entitled Tax Administration: IRS's
2008 Filing Season Generally Successful Despite Challenges, Although
IRS Could Expand Enforcement During Returns Processing. I appreciate
your recognition of our significant achievements in successfully
delivering the 2008 filing season which you note was particularly
challenging due to the impact of the Economic Stimulus Payment (ESP)
legislation.
Processing – We again had an outstanding filing season, successfully
implementing significant and sometimes extremely late tax law changes.
These included the ESP legislation, Mortgage Forgiveness Debt Relief
Act, and extension of several expiring provisions, such as the
Alternative Minimum Tax (AMT) patch, deduction for state and local
sales taxes, educator expense deduction, and the tuition and fees
deduction. Through November 7, 2008, we processed over 155 million
individual income tax returns and issued over 107 million refunds,
totaling nearly $259 billion, which includes 8.5 million returns filed
solely for purposes of claiming an Economic Stimulus Payment.
Electronic filing grew again this year with 89.9 million, or 58
percent, of individual taxpayers filing electronically. The remaining
65.1 million were filed on paper. The number of returns filed
electronically increased 12.4 percent over last year, which exceeds the
9.2 percent increase we achieved in the prior year. This 12.4 percent
increase is markedly higher than the 7.3 percent increase for 2008
projected in the fall of 2007.
The most significant increase in e-file occurred in the number of
taxpayers who filed from their home computer. Over 26.9 million returns
were filed from home computers, nearly a 19.4 percent increase from the
prior year. Over 4.7 million taxpayers took advantage of the free
online filing services offered by the Free File Alliance. Also notable
is the fact that over 82.5 million taxpayers electronically signed
their electronic returns, further increasing the efficiency of e-file.
Successful implementation of the Customer Account Data Engine (CADE)
continued during 2008 with several releases successfully deployed
during 2008. In addition to the main functionality, CADE handled
economic stimulus payments for CADE taxpayers. The CADE Release 4.1 was
deployed in July 2008, and introduced new functionality, including the
ability to verify last marital status, and to process Surviving Spouse,
Deceased, and Prior Year returns. This release also accepted Treasury
overpayment offsets and issued Computer Paragraphs 08, to inform the
taxpayer they may qualify for a refund from the Additional Child Tax
Credit and Computer Paragraph 53, explaining that the refund will be
issued as a paper check. This has resulted in the ability to maintain
accounts within CADE that otherwise would have returned to the
Individual Master File, thereby retaining for these taxpayers CADE's
benefits of faster refunds and much more up-to-date account
information. As of November 14, 2008, CADE posted over 30.5 million
returns and disbursed over 29 million refunds for more than $44.1
billion. In addition, CADE processed 23.7 million stimulus payments
totalling $18.2 billion.
Telephone Performance - We appreciate your recognition that the
unprecedented increase in taxpayer demand generated by the ESP
legislation had a significant impact on telephone access. The Stimulus
legislation surfaced in the media in January and was passed in
February, 2008. We reacted quickly by adopting a multi-phase approach
to provide timely and meaningful information to ESP customers as the
details of these payments unfolded. We did this while at the same time
ensuring that our traditional filing season customers had access to
timely tax information, which is critical in promoting voluntary tax
compliance.
The ESP legislation had a dramatic impact on our telephone program,
resulting in more than twice the number of toll-free calls in the
January - June period of 2008 than in 2007 (118 million versus 57
million). Automated Calls and Web Services more than doubled from last
year's volumes while Assistor Calls Answered increased by 26 percent.
The [hyperlink, http://www.IRS.gov] website proved to be a valuable
resource to taxpayers, reflecting a 24 percent increase in "Where's my
Refund" inquiries, while our new "Where's my Rebate" tool experienced
37 million completed inquiries.
Prior to the passage of the ESP, Accounts Management was on target to
meet or exceed all toll-free performance goals. Despite careful
planning and aggressive mitigation strategies, the extraordinarily high
call demand experienced did have an impact on our ability to deliver
volume driven measures such as Customer Service Representative Level of
Service (CSR LOS) and Average Speed of Answer (ASA). The CSR LOS
achieved through the April 15 filing deadline was 77 percent but began
to decline to a January - June cumulative rate of 57 percent as
taxpayers called in historically high numbers (12M calls in one week).
The majority of whom wanted to know when they would receive their
rebate. We did, however, exceed our goals in our other strategic
performance measures including Calls Answered, Services Provided,
Automated Services Provided, Customer Contacts Resolved and Self
Assistance Participation Rate. Also noteworthy is that despite the
challenges we faced this year, we have continued our high performance
in the accuracy of our responses to our toll- free customers. We
exceeded our goals and achieved tax law and account call accuracy rates
of 90.3 percent and 93.5 percent, respectively.
Walk-In Assistance - During the Fiscal Year (FY) 2008 filing season,
the IRS continued to provide services at all 401 Taxpayer Assistance
Centers (TACs). We continued to implement Contact Recording at 188 of
the 401 TACs to better measure the accuracy of tax law and account
assistance. Contact Recording is targeted to be operational at 306
sites by the end of FY 2009. For the FY 2008 filing season, IRS
implemented a new tax law decision support tool called the Interactive
Tax Law Assistant (ITLA). This new tool builds the probes and responses
in a logical fashion so that the same tax law information would be
provided to taxpayers regardless of delivery method and thus enhances
the accuracy of the answers. This year, TACs achieved an 85 percent tax
law accuracy rate. We expect tax law accuracy to improve for the FY
2009 filing season as walk-in staff gain experience with using ITLA. In
addition, the TACs' provided assistance with ESP, which contributed to
an increase in the volume of contacts at the TACs from February 15,
2008, through May 31, 2008 compared to the same period in 2007. The
Stimulus contacts through May 31, 2008 totaled 289,000.
Volunteer Assistance - During the FY 2008 filing season, approximately
78,843 IRS- supported volunteers in 11,840 locations provided
assistance to traditionally underserved populations. These include
individuals with low income, the elderly, the disabled, and those with
limited-English proficiency. The Volunteer Income Tax Assistance (VITA)
and Tax Counseling for the Elderly (TCE) volunteers prepared over 3.5
million returns, an increase of 33.2 percent over the prior year. We
equate this large increase to the ESP legislation, as many taxpayers
who normally did not have a filing requirement filed returns to receive
their payment. Excluding ESP returns, we estimate the increase to be
14.2 percent.
We continue to see steady improvement in the accuracy of returns
prepared by our volunteers. While results obtained from specialized IRS
and Treasury Inspector General for Tax Administration (TIGTA) reviews
provided an indication of the IRS volunteer sites' performance, the IRS
also conducted approximately 963 return reviews at 337 volunteer sites
nationwide. The results of these reviews provide key information to
base-line improvement goals and strategies for the filing season ahead.
In order to assist with the determination of volunteer accuracy,
Stakeholder Partnerships, Education and Communication (SPEC) has
established an FY 2009 Centralized Volunteer Return Reviewer Cadre.
Centralized management of a dedicated group of reviewers will provide
SPEC with consistent, reliable measures of accuracy. This information
will be analyzed by way of quality improvement principles. It will be
used to formulate improvement opportunities during FY 2010.
In addition to return preparation, IRS volunteer partners provided a
significant service in educating taxpayers of their tax obligations and
available benefits, such as the Earned Income Tax Credit (EITC) and
ESP. More than 650 million outreach contacts were made during 2008.
These contacts included 219 million messages about the ESP through both
media and non-media channels. These strategic partnerships with
volunteer organizations leverage IRS resources and allow the IRS to
reach far more taxpayers through trusted local community sources.
Website - The IRS website, [hyperlink, http://www.IRS.gov], is
consistently one of the most heavily used government web sites. As of
November 8, 2008, the website has been visited more than 332 million
times, a 65.9 percent increase over 2007. These visits resulted in more
than 2 billion page views, an almost 67.3 percent increase over 2007.
Visits are the measurement of actions beginning when a visitor views
their first web page on [hyperlink, http://www.IRS.gov] and ends when
the visitor leaves the website. Taxpayers and practitioners also
downloaded more than 154 million forms, publications, instructions, and
other documents.
We agree the two Matters for Congressional Consideration noted in your
report have merit and could further increase compliance and improve
taxpayer service.
Responses to your specific recommendations are enclosed. I appreciate
your observations on the successful filing season for 2008, and if you
have any questions, please contact Floyd Williams, Director,
Legislative Affairs, at (202) 622-3720.
Sincerely,
Signed by:
Linda E. Stiff:
Enclosure:
Recommendation:
Use IRS's existing MEA to identify and correct child and dependent care
credit claims on "Married Filing Separately" returns.
Comment:
We agree with this recommendation and will submit a Universal Work
Request (UWR) by December 31, 2008, to implement programming by January
2010; however, implementation of the programming is contingent on
Modernization & Information Technology Services (MITS) UWR priorities
and funding.
Recommendation:
Include information on math error notices to inform taxpayers that they
may be eligible for the child and dependent care credit if they file
under a different status, such as "Single", "Married Filing Jointly",
"Head of Household", or "Qualifying Widow(er) with a dependent child".
Comment:
We agree with this recommendation and will submit a UWR by December 31,
2008, to implement programming by January 2010; however, implementation
of the programming is contingent on MITS UWR priorities and funding.
Recommendation:
Assess the effectiveness of combining FCR and other data on taxpayer
characteristics to verify the eligibility of EITC claims from non-
custodial parents.
Comment:
We agree with this recommendation. The IRS already plans to study the
reliability of non-custodial information in the Federal Case Registry
(FCR). We will add a review of the possibility of developing methods to
further refine the selection process before applying math error
authority based on the FCR. Our goal will be to ensure that, if the IRS
implements this Math Error Authority (MEA), it will apply only to those
taxpayers who are not eligible for the Earned Income Tax Credit.
[End of section]
Appendix II: Key Dates and Activities of the 2008 Filing Season:
Figure 2: Timeline for the 2008 Filing Season:
This figure is a timeline for the 2008 filing season showing the
following information.
Dec 2007:
12/20: The Congress passes Alternative Minimum Tax (AMT) patch.
Jan. 2008:
1/1: Filing season begins for most individual filers.
Feb. 2008:
2/11: IRS begins accepting returns affected by the AMT patch on
schedule.
2/13: The President signs the Economic Stimulus Act of 2008, which
authorizes $202 million in supplemental appropriations for Internal
Revenue Service (IRS). IRS expands content on its Web site to include
stimulus features and information.
2/18: IRS changes the recorded message on the toll-free phone line to
include economic stimulus information.
March 2008:
3/1: Automated Collection System (ACS) employees are trained to answer
stimulus calls.
3/3: ACS staff starts answering Economic Stimulus Package (ESP) related
calls.
3/4: IRS sends the first ESP notice to the 132.9 million taxpayers who
filed a tax return in 2006 at a cost of an estimated $45 million.
3/14: IRS activates the Rebate Hotline, opens electronic-file and Free-
file for stimulus returns, and adds an economic stimulus calculator to
the Web site. IRS does a second mailing to the 20 million recipients of
social security and veterans benefits not required to file a 2007 tax
return.
3/29: IRS hosts partner-assisted Super Saturday activities to inform
eligible taxpayers about the stimulus at nearly 700 sites in all 50
states and the District of Columbia.4/15: Filing deadline for
individual returns.
April 2008:
4/26: The level of service on IRS‘s toll-free calls starts to decline,
bottoming at 31 percent of callers actually reaching an assistor.
4/28: IRS begins transmitting direct deposit economic stimulus payments
a week ahead of the posted schedule.
4/28 - 7/11: IRS mails a notice in conjunction with the payments to all
confirmed recipients of the stimulus explaining the calculation,
amount, and delivery date of their payment.
May 2008:
5/9: IRS receives 1.69 million calls to the Rebate Hotline, the highest
call volume for a single day.
5/17: IRS receives 12 million calls to its telephone lines. This is the
highest weekly volume IRS has ever experienced.
July 2008:
7/11: Last batch of ESP paper checks sent out to those who filed by
April 15.
7/14: IRS awards contract to conduct a lessons learned study.
7/18-31: IRS sends a third notice”at a cost of around $2 million” to
target the estimated 5 million Social Security Administration and
Veterans‘ Administration recipients who have yet to file for their
stimulus payment.
[Refer to PDF for image]
Source: GAO analysis of IRS data.
[End of figure]
[End of section]
Appendix II: Using IRS's Math Error Authority to Process and Correct
Returns with Math Errors:
In the math error program, IRS uses computer programmed comparisons and
calculations to systemically identify math errors during tax return
processing (see fig. 3) for correction. These corrections involve
mathematical calculation errors, incorrect taxpayer identification
numbers, filing status and dependents, and missing schedules or forms.
Once the computer programming detects an error, it forwards the tax
return account to the Error Resolution System, where an IRS employee
takes the appropriate action to resolve the error condition and provide
the information needed to generate a notice to the taxpayer.
Figure 3: Processing and Correcting Returns with Math Errors:
This figure is a flow chart showing processing and correcting returns
with math errors.
[Refer to PDF for image]
Source: GAO analysis of IRS information.
[End of figure]
As early as the first codification of the Internal Revenue law in 1926,
the Congress granted IRS math error authority (MEA) so that IRS does
not have to provide the taxpayer with a statutory notice of deficiency
for math errors. In general, these are errors that must be corrected in
order for IRS to process the tax return. A 1976 statutory revision
defined the authority to include not only mathematical errors, but
other obvious errors such as omissions of data needed to substantiate
an item on a return, and provided a statutory right to file a request
for abatement of the assessment within 60 days after the notice is
sent. In the 1990s, the Congress extended the authority five times to
help determine eligibility for certain tax exemptions and credits.
Table 7 summarizes the legislative authority on math error provisions
for individual tax returns.
Table 7: Math Error Provisions:
(1);
An error in addition, subtraction, multiplication, or division shown on
any return.
(2);
An incorrect use of any table provided by IRS with respect to any
return if other information in the return makes the incorrect use
apparent.
(3);
An entry on a return of an item that is inconsistent with another entry
of the same or different item on that return.
(4);
An omission of information that is required to be supplied on the
return to substantiate an entry on that return.
(5);
An entry on a return of a deduction or credit in an amount that exceeds
the statutory limit for that deduction or credit, if that limit is
expressed as a specific monetary amount or as a percentage, ratio, or
fraction, and if the component items of that limit appear on the
return.
(6);
A correct Taxpayer Identification Number (TIN) not provided on the
return as required for the;
* Earned Income Tax Credit (EITC),;
* child and dependent care credit,;
* personal or dependent exemption,;
* child tax credit, or;
* Hope and Lifetime Learning credits.
(7);
A return claiming an EITC for net earnings from self-employment, where
the self employment tax imposed by IRC § 1401 on those net earnings has
not been paid.
(8);
An omission of information required for recertification of eligibility
for the EITC.
(9);
An entry on the return of a TIN required for the EITC, the child
credit, and the child and dependent care credit, when information
associated with that TIN indicates the child does not meet the age
eligibility requirements for those credits.
(10);
An entry on the return of a claim for the EITC where the Federal Case
Registry of Child Support Orders indicates that the taxpayer is the
noncustodial parent of that child.
(11);
A failure to reduce ESP credit on a return related to the Economic
Stimulus Act of 2008 by amounts previously advanced.
Source: GAO analysis.
[End of table]
[End of section]
Appendix III: IRS's Processing Performance Relative to 2004-2008
Performance and 2008 Goals:
Despite the added individual return volume due to the Economic Stimulus
legislation, as of June 30, 2008, IRS met or exceeded seven out of the
eight processing performance goals. As shown in table 8, IRS met or
exceeded its goals for the percentage of errors included in deposits
and correspondence (which was separated into letter and notice errors
in previous years); deposit and refund timeliness (i.e., interest
foregone by untimely deposits); and productivity and Individual Master
File efficiency.
The one measure where performance was below IRS's goal and last year's
level was the refund error rate, i.e., the percentage of refunds with
IRS-cause errors issued to taxpayers by IRS. According to IRS
officials, the increase in the refund error rate is attributed to a
programming change that resulted in IRS catching, for example, changes
of address or name changes, as it began transcribing data from paper
returns. According to IRS officials, because the changes did not result
in significant additional transcription, the increased error rate did
not result in a delay of refunds or a delay in processing of returns.
Table 8: IRS Processing Performance, Fiscal Years 2004-2008:
Measure name: Deposit error rate;
Definition: Percentage of payments applied in error by, for example,
reimbursing a taxpayer who overpaid when the taxpayer wanted the
overpayment credited to next year's tax bill;
Fiscal year 2004 actual: 3.5%;
(+/-.31%);
Fiscal year 2005 actual: 2.2%;
(+/-.26%);
Fiscal year 2006 actual: 1.6%;
(+/-.24%);
Fiscal year 2007 actual: 1.3%;
(+/-.22%);
Fiscal year 2008 actual (through June): 1.1%;
(+/-.27%);
Fiscal year 2008 goal: 1.3%.
Measure name: Deposit timeliness-paper-Individual Masterfile;
Definition: Interest foregone by not depositing monies the business day
after receipt, per $1 million in deposits. Measure assumes an 8 percent
interest rate;
Fiscal year 2004 actual: $407;
Fiscal year 2005 actual: $390;
Fiscal year 2006 actual: $354;
Fiscal year 2007 actual: $331;
Fiscal year 2008 actual (through June): $306;
Fiscal year 2008 goal: $320.
Measure name: Correspondence error rate[A] (includes systemic errors)b;
Definition: The percentage of incorrect processing Masterfile notices
and letters issued to taxpayers by the processing SP sites;
Fiscal year 2004 actual: n/a;
Fiscal year 2005 actual: n/a;
Fiscal year 2006 actual: n/a;
Fiscal year 2007 actual: 4.3;
Fiscal year 2008 actual (through June): 3.9%;
(+/-.36%);
Fiscal year 2008 goal: 4.3%.
Measure name: Refund error rate-individual (paper) (includes systemic
errors);
Definition: Percentage of refunds with IRS-caused errors in the entity
information (e.g., incorrect name, Social Security number, or refund
amount); includes systemic errors;
Fiscal year 2004 actual: 4.9%;
(+/-.44%);
Fiscal year 2005 actual: 5.0%;
(+/-.48%);
Fiscal year 2006 actual: 4.5%;
(+/-.46%);
Fiscal year 2007 actual: 2.8%;
(+/-.36%);
Fiscal year 2008 actual (through June): 3.6%;
(+/-.52%);
Fiscal year 2008 goal: 2.7%.
Measure name: Refund interest paid;
Definition: Amount of refund interest IRS paid per $1 million of
refunds issued;
Fiscal year 2004 actual: $20.55;
Fiscal year 2005 actual: $29.21;
Fiscal year 2006 actual: $30.12;
Fiscal year 2007 actual: $39.60;
Fiscal year 2008 actual (through June): $27.29;
Fiscal year 2008 goal: $38.00.
Measure name: Refund timeliness-individual (paper);
Definition: Percentage of refunds issued within 40 days or less;
Fiscal year 2004 actual: 98.3%;
(+/-.17%);
Fiscal year 2005 actual: 99.2%;
(+/-.18%);
Fiscal year 2006 actual: 99.3%;
(+/-.13%);
Fiscal year 2007 actual: 98.9%;
(+/-.19%);
Fiscal year 2008 actual (through June): 99.2%;
(+/- .19%);
Fiscal year 2008 goal: 98.4%.
Measure name: Productivity;
Definition: Weighted volume of documents processed per staff year
expended at the processing centers;
Fiscal year 2004 actual: 30,405;
Fiscal year 2005 actual: 31,444;
Fiscal year 2006 actual: 32,237;
Fiscal year 2007 actual: 34,313;
Fiscal year 2008 actual (through June): 37,764;
Fiscal year 2008 goal: 36,083.
Measure name: Individual Master File efficiency;
Definition: Measure of Individual Master File returns processed per
staff year expended;
Fiscal year 2004 actual: n/a;
Fiscal year 2005 actual: 14,965;
Fiscal year 2006 actual: 19,526;
Fiscal year 2007 actual: 22,031;
Fiscal year 2008 actual (through June): 25,327;
Fiscal year 2008 goal: 23,370.
Source: GAO analysis of IRS data.
[A] The Correspondence Error Rate is a weighted combination of the
results of the previously used Letter and Notice Error Rate Measures.
The weights are based on the actual volumes of letters and notices (as
reported in Letter and Notice weighted reports).
[B] Systemic errors are computer-generated errors over which a
particular processing center would have no control.
[End of table]
Footnotes:
[1] Most taxpayers file their tax returns between January 1 and April
15, which is the deadline for filing individual income tax returns.
However, millions of taxpayers receive extensions from IRS, which
allows them to delay filing until as late as October 15.
[2] Pub. L. No. 105-206 (1998). See, for example, GAO, 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] Pub. L. No. 110-185 (2008). GAO, Internal Revenue Service: Fiscal
Year 2009 Budget Request and Interim Performance Results of IRS's 2008
Tax Filing Season, GAO-08-567 (Washington, D.C.: Mar. 13, 2008.
[4] IRS is granted MEA in 26 U.S.C. § 6213(b). It can only be used for
certain purposes specified by the Congress in 26 U.S.C. § 6213(g)(2).
If it is not specified in the statute, IRS cannot pursue assessment and
collection activities without issuing a statutory notice of deficiency.
[5] GAO, Internal Revenue Service: Assessment of the Fiscal Year 2009
Budget Request, [hyperlink, http://www.gao.gov/products/GAO-08-620T]
(Washington, D.C.: Apr. 16, 2008), and Tax Administration: Data on the
Effects of the Economic Stimulus Program on the Internal Revenue
Service's Telephone Service and Costs, GAO-08-916T (Washington, D.C.:
June 19, 2008); and GAO-08-567.
[6] A "catch up" contribution allows taxpayers who will be at least 50
by the end of the tax year to contribute an additional amount to a
traditional or Roth IRA. In 2008, taxpayers under age 50 could
contribute $5,000 to a traditional IRA, while those over age 50 could
contribute $6,000.
[7] GAO, Assessing the Reliability of Computer-Processed Data,
[hyperlink, http://www.gao.gov/products/GAO-02-15G] (Washington, D.C.:
Sept.1, 2002).
[8] This limitation approximates the amount set in the Internal Revenue
Code for claiming the EITC. IRS has required appointments for taxpayers
seeking this assistance since 2003.
[9] See, for example, GAO, Tax Compliance: Businesses Owe Billions in
Federal Payroll Taxes, [hyperlink, http://www.gao.gov/products/GAO-08-
617] (Washington, D.C.: July 25, 2008).
[10] The National Taxpayer Advocate, National Taxpayer Advocate--2006
Annual Report to Congress (Washington, D.C.: Dec. 31, 2006).
[11] [hyperlink, http://www.gao.gov/products/GAO-08-38].
[12] [hyperlink, http://www.gao.gov/products/GAO-07-27].
[13] The Congress set this long-term electronic filing goal in the IRS
Restructuring and Reform Act of 1998, which was to have 80 percent of
all individual income tax returns filed electronically by 2007. While
we previously reported that IRS was not on track to achieve this goal
(see 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]), the IRS Oversight Board recommended
extending the goal to 2012 (see IRS Oversight Board [2008] Electronic
Filing 2007: Annual Report to Congress, (Washington, D.C., 2007).
[14] [hyperlink, http://www.gao.gov/products/GAO-07-27].
[15] [hyperlink, http://www.gao.gov/products/GAO-08-38]. Additionally,
IRS is considering a major modernization program that would include
replacing the two legacy systems with contracts expiring in 2012.
According to IRS officials, IRS's proposed modernization program would
need to receive funding in the fiscal year 2010 budget in order to
allow 2 years between the launch and testing of the new system and the
retirement of the existing ones. However, IRS officials reported
developing options in case they did not receive funding in fiscal year
2010.
[16] [hyperlink, http://www.gao.gov/products/GAO-08-567].
[17] The Keynote Government Index measures and benchmarks the
performance of the home pages of 40 major U.S. federal government Web
sites from the 10 largest U.S. metropolitan areas.
[18] Mystery shopping involves IRS officials visiting volunteer sites
posing as taxpayers to assess the experience of the taxpayers. Site
reviews assess whether volunteer preparers were adhering to minimum
quality standards required by all sites. Return reviews determine
whether the tax law was applied properly for critical items and
resulted in an accurate return based on the taxpayer interview and
supporting documentation.
[19] [hyperlink, http://www.gao.gov/products/GAO-08-38].
[20] [hyperlink, http://www.gao.gov/products/GAO-08-38].
[21] The Social Security Administration and Financial Management
Service also received $31 million and $64 million respectively to
administer ESP.
[22] GAO, Internal Revenue Service: Assessment of the Fiscal Year 2009
Budget Request, [hyperlink, http://www.gao.gov/products/GAO-08-620T]
(Washington, D.C.: Apr. 16, 2008).
[23] [hyperlink, http://www.gao.gov/products/GAO-05-221].
[24] Some taxpayers may be eligible for a lower EITC credit amount even
if they do not have children.
[25] As in all cases, a taxpayer receiving a math error notice has 60
days from the date of the notice to request that IRS abate the tax. If
the taxpayer requests that the tax be abated, IRS must then use the
general deficiency procedures under 26 U.S.C. § 6212 if it believes
that the additional tax is in fact due. Unless a taxpayer requests
abatement of a math error assessment, however, he or she cannot
challenge the assessment through IRS deficiency procedures or petition
the Tax Court.
GAO's Mission:
The Government Accountability Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in meeting
its constitutional responsibilities and to help improve the performance
and accountability of the federal government for the American people.
GAO examines the use of public funds; evaluates federal programs and
policies; and provides analyses, recommendations, and other assistance
to help Congress make informed oversight, policy, and funding
decisions. GAO's commitment to good government is reflected in its core
values of accountability, integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony:
The fastest and easiest way to obtain copies of GAO documents at no
cost is through GAO's Web site [hyperlink, http://www.gao.gov]. Each
weekday, GAO posts newly released reports, testimony, and
correspondence on its Web site. To have GAO e-mail you a list of newly
posted products every afternoon, go to [hyperlink, http://www.gao.gov]
and select "E-mail Updates."
Order by Phone:
The price of each GAO publication reflects GAO‘s actual cost of
production and distribution and depends on the number of pages in the
publication and whether the publication is printed in color or black and
white. Pricing and ordering information is posted on GAO‘s Web site,
[hyperlink, http://www.gao.gov/ordering.htm].
Place orders by calling (202) 512-6000, toll free (866) 801-7077, or
TDD (202) 512-2537.
Orders may be paid for using American Express, Discover Card,
MasterCard, Visa, check, or money order. Call for additional
information.
To Report Fraud, Waste, and Abuse in Federal Programs:
Contact:
Web site: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]:
E-mail: fraudnet@gao.gov:
Automated answering system: (800) 424-5454 or (202) 512-7470:
Congressional Relations:
Ralph Dawn, Managing Director, dawnr@gao.gov:
(202) 512-4400:
U.S. Government Accountability Office:
441 G Street NW, Room 7125:
Washington, D.C. 20548:
Public Affairs:
Chuck Young, Managing Director, youngc1@gao.gov:
(202) 512-4800:
U.S. Government Accountability Office:
441 G Street NW, Room 7149:
Washington, D.C. 20548:
