2009 Tax Filing Season
IRS Met Many 2009 Goals, but Telephone Access Remained Low, and Taxpayer Service and Enforcement Could Be Improved Gao ID: GAO-10-225 December 10, 2009The Internal Revenue Service's (IRS) filing season is an enormous undertaking that includes processing tax returns, issuing refunds, and responding to taxpayer questions. IRS's efforts to ensure compliance begin during the filing season. GAO was asked to assess IRS's 2009 filing season performance, identify ways to reduce taxpayers' use of short-term, high-interest refund anticipation loans (RAL) offered by paid preparers or banks, and identify ways to enhance compliance during processing. GAO analyzed IRS performance data, reviewed IRS operations, interviewed IRS officials, and reviewed its compliance programs and relevant statutes.
IRS processed 139 million returns and issued $298 billion in refunds as of October 2, 2009. Electronic filing, which provides IRS with significant cost savings and taxpayers with faster refunds, increased to 68 percent of all returns filed. While taxpayers' access to telephone assistors was better than last year, it remained lower than in 2007 in part because of calls about tax law changes. Compared to 2005 through 2007, IRS reduced its goal for assistor answered calls in 2009 and set its 2010 goal at 71 percent. Despite heavy call volume, the accuracy of IRS responses to taxpayers' questions remained above 90 percent. IRS started a major data collection effort on why taxpayers call, but lacks a plan to analyze the data and improve telephone service. According to IRS, issuing refunds faster reduces taxpayers' use of RALs, high-interest loans made by paid tax preparers or banks in anticipation of a refund. Issuing refunds is a joint effort by IRS, Treasury's Financial Management Service, which checks for non-tax debt owed to the federal government, and the Automated Clearing House, which distributes funds. However, IRS has not coordinated extensively with them to expedite refunds. Further, IRS has not studied the use of debit cards for unbanked taxpayers, which could also reduce taxpayers' use of RALs by providing faster and more secure refunds. IRS automatically identifies and corrects select types of errors while processing tax returns. It could also correct tax returns that claim the Hope credit, a tax credit to help offset qualified education expenses, for longer than the number of years allowed. However, IRS lacks the authority to use prior years' tax return information for this purpose. Also, information reported by education institutions to taxpayers and IRS about qualifying educational expenses on the Form 1098-T is confusing for taxpayers and not useful for IRS. Many institutions report the total amount billed to students, but not what is actually paid after taking into account scholarships and grants. This results in some taxpayers under-claiming benefits, while others over-claim. Finally, because Form 1098-T can show the amount billed, which may not be the amount paid, IRS is unable to use the information to automatically verify taxpayers' claims for the credit through its computerized matching program.
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.
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Report to Congressional Requesters:
United States Government Accountability Office:
GAO:
December 2009:
2009 Tax Filing Season:
IRS Met Many 2009 Goals, but Telephone Access Remained Low, and
Taxpayer Service and Enforcement Could Be Improved:
GAO-10-225:
GAO Highlights:
Highlights of GAO-10-225, a report to congressional requesters.
Why GAO Did This Study:
The Internal Revenue Service‘s (IRS) filing season is an enormous
undertaking that includes processing tax returns, issuing refunds, and
responding to taxpayer questions. IRS‘s efforts to ensure compliance
begin during the filing season. GAO was asked to assess IRS‘s 2009
filing season performance, identify ways to reduce taxpayers‘ use of
short-term, high-interest refund anticipation loans (RAL) offered by
paid preparers or banks, and identify ways to enhance compliance
during processing. GAO analyzed IRS performance data, reviewed IRS
operations, interviewed IRS officials, and reviewed its compliance
programs and relevant statutes.
What GAO Found:
IRS processed 139 million returns and issued $298 billion in refunds
as of October 2, 2009. Electronic filing, which provides IRS with
significant cost savings and taxpayers with faster refunds, increased
to 68 percent of all returns filed. While taxpayers‘ access to
telephone assistors was better than last year, it remained lower than
in 2007 in part because of calls about tax law changes. Compared to
2005 through 2007, IRS reduced its goal for assistor answered calls in
2009 and set its 2010 goal at 71 percent. Despite heavy call volume,
the accuracy of IRS responses to taxpayers‘ questions remained above
90 percent. IRS started a major data collection effort on why
taxpayers call, but lacks a plan to analyze the data and improve
telephone service.
Table: Filing Season Workload and Performance Indicators, 2007 to 2009:
Individual tax returns processed: Electronic returns;
2007: 79 million;
2008[A]: 88 million;
2009: 94 million.
Individual tax returns processed: Paper returns;
2007: 56 million;
2008[A]: 54 million;
2009: 45 million.
Individual tax returns processed: Total;
2007: 135 million;
2008[A]: 142 million;
2009: 139 million.
Refunds: Total refunds;
2007: 104 million;
2008[A]: 105 million;
2009: 109 million.
Refunds: Dollar amount of refunds (in billions);
2007: $234 billion;
2008[A]: $247 billion;
2009: $298 billion.
Refunds: Refund anticipation loans;
2007: 10 million;
2008[A]: 10 million;
2009: 8 million.
Source: GAO analysis of IRS data.
[A] Excludes 9 million stimulus-only returns.
[End of table]
According to IRS, issuing refunds faster reduces taxpayers‘ use of
RALs, high-interest loans made by paid tax preparers or banks in
anticipation of a refund. Issuing refunds is a joint effort by IRS,
Treasury‘s Financial Management Service, which checks for non-tax debt
owed to the federal government, and the Automated Clearing House,
which distributes funds. However, IRS has not coordinated extensively
with them to expedite refunds. Further, IRS has not studied the use of
debit cards for unbanked taxpayers, which could also reduce taxpayers‘
use of RALs by providing faster and more secure refunds.
IRS automatically identifies and corrects select types of errors while
processing tax returns. It could also correct tax returns that claim
the Hope credit, a tax credit to help offset qualified education
expenses, for longer than the number of years allowed. However, IRS
lacks the authority to use prior years‘ tax return information for
this purpose. Also, information reported by education institutions to
taxpayers and IRS about qualifying educational expenses on the Form
1098-T is confusing for taxpayers and not useful for IRS. Many
institutions report the total amount billed to students, but not what
is actually paid after taking into account scholarships and grants.
This results in some taxpayers under-claiming benefits, while others
over-claim. Finally, because Form 1098-T can show the amount billed,
which may not be the amount paid, IRS is unable to use the information
to automatically verify taxpayers‘ claims for the credit through its
computerized matching program.
What GAO Recommends:
GAO suggests that Congress provide IRS authority to automatically
verify the number of years the Hope education tax credit is claimed.
GAO makes 7 recommendations including that IRS develop a plan to
analyze its telephone data, work with the other entities involved in
issuing refunds to improve timeliness, determine the feasibility of
offering debit cards for refunds, and revise the Form 1098-T to
improve its usefulness to taxpayers and IRS.
In response, the IRS Deputy Commissioner agreed with five
recommendations and described some steps the agency is taking on the
other two.
View [hyperlink, http://www.gao.gov/products/GAO-10-225] or key
components. For more information, contact James White at (202) 512-
9110 or whitej@gao.gov.
[End of section]
Contents:
Letter:
Scope and Methodology:
Background:
Access to Telephone Assistors Remained Low, and IRS Has a Limited
Understanding of Why Taxpayers Call and Has Not Clearly Integrated TAB
into Its Planning Documents:
RAL Usage Declined in 2009 and IRS Could Further Reduce Usage by
Issuing Faster Refunds:
During Returns Processing IRS Could Reduce Taxpayer Confusion and
Better Ensure Compliance with Higher Education Tax Benefits:
Conclusions:
Matters for Congressional Consideration:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Comments from the Internal Revenue Service:
Appendix II: IRS's Existing and Suggested Math Error Authority for
Enhancing Compliance:
Appendix III: IRS's Processing Performance Relative to 2004 Through
2008 and 2009 Goals:
Appendix IV: IRS Toll-Free Calls and Percentage of Callers Seeking and
Receiving Live Assistance for 2009 and 2008:
Appendix V: Key Facts on Selected Tax Benefits for Higher Education:
Appendix VI: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Individual Income Tax Returns and Refunds Processed, 2005
through 2009:
Table 2: Individual Income Tax Returns and Refunds Processed on CADE,
2006 through 2009:
Table 3: IRS Telephone Service Goals and Performance, 2005 through
2010 Filing Seasons:
Table 4: Calls to IRS by Call Type, 2005 through 2009:
Table 5: IRS Telephone Assistor Accuracy Performance, 2005 through
2009:
Table 6: IRS Web Site Use, 2005 through 2009:
Table 7: RALs and RACs Requested by Taxpayers, 2007 through 2009:
Table 8: IRS's Existing and Suggested MEA:
Table 9: IRS Processing Performance, Fiscal Years 2005 through 2009:
Table 10: Select Tax Benefits for Higher Education--Tax Year 2008:
Figures:
Figure 1: Income Tax Refund Processing Time line for Electronically
Filed Returns with Direct Deposit by Processing Component:
Figure 2: Weekly Toll-free Calls and Percentage of Callers Seeking and
Receiving Live Assistance from January 1 to June 28, 2009, and June
30, 2009:
Abbreviations:
ACH: Automated Clearing House:
AGI: adjusted gross income:
BSM: Business System Modernization:
EITC: Earned Income Tax Credit:
FDIC: Federal Deposit Insurance Corporation:
FMS: Financial Management Service:
IMF: individual master file:
IRA: Individual Retirement Accounts:
ITLA: Interactive Tax Law Assistant:
IRS: Internal Revenue Service:
MEA: math error authority:
PIN: personal identification number:
QSS: Quality Statistical Sample:
RAC: refund anticipation check:
RAL: refund anticipation loan:
TAB: Taxpayer Assistance Blueprint:
TIGTA: Treasury Inspector General for Tax Administration:
TIN: taxpayer identification number:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
December 10, 2009:
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 Charles W. Boustany, Jr.
Ranking Member:
Subcommittee on Oversight:
Committee on Ways and Means:
House of Representatives:
The Internal Revenue Service's (IRS) 2009 filing season is an enormous
and critical undertaking.[Footnote 1] Last filing season, IRS
processed over 140 million individual income tax returns and issued
over 100 million refunds. IRS also answered tens of millions of
taxpayer questions through telephone, Web site, and face-to-face
assistance. During each of the last two filing seasons, IRS has been
called upon to quickly implement complex tax law changes, including
economic stimulus policies that have resulted in unexpected increases
in call volume and created new taxpayer compliance challenges and
workload.[Footnote 2]
IRS's filing season performance also has indirect effects on
taxpayers. For example, timely issuance of refunds can reduce taxpayer
demand for refund anticipation loans (RAL), which are short-term,
often high-interest loans offered by tax preparers or banks that allow
taxpayers to receive their refund cash quickly, sometimes within the
same day.[Footnote 3] The filing season is also the time IRS begins
its enforcement efforts with its math error program, in which IRS uses
its computers to identify errors during processing, such as
calculation mistakes or omitted or inconsistent entries. Where IRS has
the statutory authority, also known as math error authority (MEA), it
corrects certain errors before interest is owed by taxpayers, and
helps taxpayers and IRS avoid burdensome audits.[Footnote 4]
Earlier this year, we provided an interim assessment of IRS's 2009
filing season performance, made recommendations to improve IRS's 2010
filing season performance, and made suggestions to Congress to better
ensure compliance, when tax returns are being processed, with the
first-time homebuyer tax credit.[Footnote 5] In light of its
importance, the Chair and Ranking Member of Subcommittee on Oversight,
Committee on Ways and Means, House of Representatives, and the Chair
and Ranking Members of the Senate Finance Committee asked us to
provide an overall assessment of IRS's 2009 filing season performance.
For this report, our objectives were to:
1. assess IRS's filing season performance compared to 2009 goals and
prior years' performance;
2. identify opportunities for IRS to reduce taxpayers' reliance on
RALs and Refund Anticipation Checks (RAC); and:
3. identify opportunities, based on prior GAO reports such as those on
higher education tax benefits, for IRS to enhance taxpayer compliance
during returns processing.
Scope and Methodology:
To meet our three objectives, we took the following steps.
* Reviewed and analyzed IRS reports, testimonies, budget submissions,
and other documents and data, including performance and workload data,
and compared these to IRS's goals and past performance to identify
trends and anomalies in performance. We also tested for statistically
significant differences between annual performance rates based on IRS
sample data.
* Observed operations at the Joint Operations Center (which manages
IRS's telephone services) and IRS's walk-in sites in Atlanta, Ga. and
Baltimore, Md. and a volunteer site in Washington, D.C. We selected
these particular offices for a variety of reasons, including the
location of key IRS managers;
* Analyzed staffing data for paper and electronic filing, telephone
assistance, and walk-in assistance.
* Reviewed information from other organizations who compile
information pertinent to our objective, such as Keynote Systems, which
evaluates Internet performance.
* Reviewed IRS reports and analyzed IRS data on RALs and RACs to
identify trends and opportunities to reduce taxpayers' reliance on
them.
* Reviewed IRS data and analyzed methods IRS currently employs to
identify taxpayer compliance with eligibility requirement for higher
education tax benefits.
* Reviewed MEA-related statutes to determine IRS's existing and
possible new authorities.
* Interviewed IRS officials about current operations, trends, and
significant factors and initiatives that affected performance; efforts
to reduce reliance on RALs and RACs; and monitoring and oversight of
compliance issues, including higher education credit claims.
* Interviewed representatives of some of the larger private and
nonprofit organizations that prepare tax returns, including 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 Treasury Inspector General for Tax Administration (TIGTA)
reports and interviewed a TIGTA official about IRS's performance and
initiatives.
* Reviewed prior GAO reports and followed up on our recommendations
made in filing season and related reports.
This report discusses numerous filing season performance measures and
data covering the quality, accessibility, and timeliness of IRS's
services that, based on our prior work, we consider sufficiently
objective and reliable for purposes 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 in our report. We reviewed IRS
documentation, interviewed IRS officials about computer systems and
data limitations, and compared those results to our standards of data
reliability.[Footnote 6] Data limitations are discussed where
appropriate. Finally, we conducted our work primarily at IRS
headquarters including at the Small Business/Self-Employed Division in
Washington, D.C., and the Wage and Investment Division headquarters in
Atlanta, Ga. as well as the other sites mentioned earlier. We
conducted this performance audit from January 2009 through December
2009 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 believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
We received technical and written comments on a draft of this report,
which we addressed. A letter from the IRS Deputy Commissioner for
Services and Enforcement providing those comments is reprinted in
appendix I. In that letter, the Deputy Commissioner explicitly agreed
with five of our recommendations and described the steps IRS is taking
with respect to our two other recommendations.
Background:
Most taxpayers file their individual income tax returns
electronically, although millions still mail paper returns. Compared
to paper, electronic filing allows taxpayers to receive refunds
faster, is less prone to transcription and other errors, and provides
IRS with significant cost savings. Last year we reported that IRS
estimated it used 39 percent fewer staff years for processing tax
returns in 2007 than in 1999 for a savings of $85 million.[Footnote 7]
* The Free File program provides taxpayers below an income ceiling
with access to a consortium of tax preparation companies that offer
free on-line tax preparation and filing services for qualifying
taxpayers.[Footnote 8]
* CADE, part of IRS's high-risk Business System Modernization program
(BSM), is intended to eventually replace IRS's antiquated Master File
legacy processing system and facilitate faster refund processing and
provide IRS with more up-to-date account information.[Footnote 9]
Primarily through its telephone, Web site, and, to a much lesser
extent, through its face-to-face assistance, IRS also provides tax law
and account assistance, limited return preparation, tax forms and
publications, and outreach and education.
* IRS staff provides assistance at 401 walk-in sites where taxpayers
can receive basic tax law assistance, receive assistance with their
accounts, and have returns prepared by IRS if their annual income is
$42,000 or less.
* IRS also has volunteer partners that staff over 12,000 sites, which
help serve traditionally underserved taxpayer segments, including
elderly, low-income, and disabled taxpayers, and taxpayers with
limited English proficiency.
IRS developed the Taxpayer Assistance Blueprint (TAB), a 5-year plan
designed to assist the agency in providing, evaluating, and improving
taxpayer services at lower cost. TAB also provided estimates of the
cost-per-service contact for different types of taxpayer services and
conducted preliminary research about the effect of taxpayer service on
compliance. IRS delivered an update of TAB to Congress in October 2009.
Millions of taxpayers who do not want to wait for their tax refunds
from IRS choose to obtain RALs, which are offered by paid preparers or
banks to taxpayers in connection with federal and/or state tax refunds.
* RALs are short-term, high interest rate bank loans. We found that
the annual percentage rate on RALs can be over 500 percent, RALs offer
taxpayers the benefit of receiving cash quickly based on an expected
refund.[Footnote 10] Combined with tax preparation fees, RALs may
considerably reduce a taxpayer's refund. However, RALs remain popular,
especially among low-income taxpayers.
* RAL providers might also offer RACs, which are not loans, but
instead are a refund delivery option where IRS direct deposits a
refund into a temporary account set up by a financial institution,
which withdraws the tax return preparation fee, and then makes the
remaining funds available to the taxpayer. RALs and RACs allow
taxpayers to pay return preparation and fees out of their refunds.
IRS uses its many tools to identify and correct noncompliance, whether
intentional or unintentional.
* Over the years, Congress granted IRS statutory authority to cover
specific areas so that the agency could correct tax 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. II for details).
Math error checks are automated and low-cost relative to audits.
Prompt compliance checks, such as math error checks, increase the
likelihood of IRS collecting all or part of the amount owed.[Footnote
11] However, IRS must be granted MEA from Congress by statute for
specific purposes, and as noted above, we recently suggested areas
where IRS could benefit from new authorities.
* IRS gets most of the information returns during the filing season.
These returns are provided by third parties, such as employers, banks,
or educational institutions, file returns with IRS and taxpayers that
provide information on a variety of taxpayer transactions. IRS tries
to match information from the information returns filed by third
parties against taxpayers' income tax returns to see if taxpayers have
filed returns and reported their income and expenses. This approach
tends to lead to high levels of taxpayer compliance.
Access to Telephone Assistors Remained Low, and IRS Has a Limited
Understanding of Why Taxpayers Call and Has Not Clearly Integrated TAB
into Its Planning Documents:
As of October 2, 2009, IRS processed 139 million individual income tax
returns. As shown in table 1, 94 million taxpayers (68 percent)
electronically filed their returns compared to 88 million (62 percent)
last year, excluding the 9 million stimulus-only returns.[Footnote 12]
Electronic filing provides IRS with significant cost savings--IRS
estimates the cost savings of electronic filing to be $2.71 per return
over the costs in 2008. It helps taxpayers to receive their refunds
faster and aids IRS in achieving the electronic filing goal of having
80 percent of all federal tax and information returns filed
electronically by 2012.[Footnote 13] IRS issued approximately 109
million refunds, up 4 million from last year, for $298 billion.
Approximately 66 percent of all refunds were directly deposited, 9
percent more than last year. This increase is important, because
direct deposit is faster, more convenient for taxpayers, and less
expensive for IRS than mailing paper checks.
Table 1: Individual Income Tax Returns and Refunds Processed, 2005
through 2009:
Individual tax returns processed: Electronic returns;
2005: 65 million;
2006: 72 million;
2007: 79 million;
2008[A]: 88 million;
2009: 94 million;
Percentage change from 2008 to 2009: 6%.
Individual tax returns processed: Paper returns;
2005: 62 million;
2006: 59 million;
2007: 56 million;
2008[A]: 54 million;
2009: 45 million;
Percentage change from 2008 to 2009: -16%.
Individual tax returns processed: Total;
2005: 127 million;
2006: 131 million;
2007: 135 million;
2008[A]: 142 million;
2009: 139 million;
Percentage change from 2008 to 2009: -2%.
Refunds: Total refunds;
2005: 99 million;
2006: 99 million;
2007: 104 million;
2008[A]: 105 million;
2009: 109 million;
Percentage change from 2008 to 2009: 4%.
Refunds: Dollar amount of refunds;
2005: $210 billion;
2006: $219 billion;
2007: $234 billion;
2008[A]: $247 billion;
2009: $298 billion;
Percentage change from 2008 to 2009: 20%.
Refunds: Average refund amount;
2005: $2,126;
2006: $2,206;
2007: $2,259;
2008[A]: $2,347;
2009: $2,735;
Percentage change from 2008 to 2009: 16%.
Refunds: Number of direct deposits;
2005: 53 million;
2006: 56 million;
2007: 61 million;
2008[A]: 66 million;
2009: 72 million;
Percentage change from 2008 to 2009: 9%.
Source: GAO analysis of IRS data.
Note: Data from January 1 through September 30, 2005, September 29,
2006, September 28, 2007, September 26, 2008, and October 2, 2009.
[A] Excludes the 9 million stimulus-only returns processed by IRS as
of September 26, 2008.
[End of table]
IRS attributes the increase in electronic filing, in part, to a 19
percent increase in people filing from home computers, which may be
related to the elimination of separate fees for electronic filing.
[Footnote 14] According to IRS, the elimination of fees by some paid
preparers also contributed to the decline in the Free File program--as
of September 20, 2009, the number of taxpayers who filed through Free
File decreased to 3 million, down 37 percent from last year. IRS also
attributed part of the decrease to the migration of taxpayers to other
free offers in the marketplace. The Free File program offered a new
option this year, fillable forms, that allow taxpayers to download
forms from IRS and fill them in on a home computer without using tax
preparation software. About 270,000 taxpayers used this option.
Finally, IRS met or exceeded its goals for six out of eight of the
processing measures (see app. II for details). For example, IRS
exceeded its goals for refund timeliness, and deposit timeliness and
accuracy. The one measure where performance was significantly below
IRS's goal and last year's level was the correspondence error rate,
which is the percentage of incorrect notices and letters issued to
taxpayers. According to IRS officials, this resulted from a high
number of erroneous notices sent to taxpayers during the filing season
related to the recovery rebate credit.[Footnote 15] In our interim
report, we noted that millions of tax returns had these types of
errors, which resulted in a delay in refund timeliness from 1 day to a
week. IRS took actions to address the errors, including developing an
automated tool to correct the errors more quickly.[Footnote 16]
Work to Increase CADE Functionality Has Been Suspended While IRS
Develops a New Strategy for Modernizing Taxpayer Accounts:
IRS's CADE processed 40 million tax returns and 35 million refunds
worth $59 billion. This accounts for about 29 percent of all returns
processed. CADE processes returns and refunds between 1 and 8 days
faster than legacy systems. Additionally, for the first time this
year, CADE processed returns with payments to IRS--7 million returns
with payments of $9 billion.
Table 2: Individual Income Tax Returns and Refunds Processed on CADE,
2006 through 2009:
Returns processed;
2006: 7 million;
2007: 13 million;
2008: 31 million;
2009: 40 million;
Percentage change from 2008 to 2009: 31%.
Refunds issued;
2006: 7 million;
2007: 11 million;
2008: 29 million;
2009: 35 million;
Percentage change from 2008 to 2009: 21%.
Dollar amount of refunds issued;
2006: $3 billion;
2007: $12 billion;
2008: $44 billion;
2009: $59 billion;
Percentage change from 2008 to 2009: 33%.
Payments received[A];
2006: NA;
2007: NA;
2008: NA;
2009: 7 million;
Percentage change from 2008 to 2009: NA.
Source: GAO analysis of IRS data.
Note: Data from January 1 through mid-September. NA means not
applicable.
[A] Beginning in 2009, CADE has the capability of processing certain
returns with payments.
[End of table]
After over 5 years and $400 million, CADE is only processing about 15
percent of the functionality originally planned for completion by
2012.[Footnote 17] In addition, each successive release of the system
was expected to process more complex returns and several technical
challenges had not been addressed. Given this, IRS estimated that full
implementation of CADE would not be achieved until at least 2018 or
possibly as late as 2028. As a consequence, IRS decided to stop
development of new CADE functionality and rethink its strategy for
modernizing individual taxpayer accounts to determine whether an
alternative approach could deliver improvements sooner. IRS also
stopped its plans for adding new functionality to a CADE-related
system that allows its telephone assistors to access and work with
taxpayer accounts. According to IRS officials, the need to enhance
computer security and the availability of new technologies also
influenced the decision to rethink the CADE strategy.
Stopping CADE development has trade-offs in that IRS will not be able
to materially increase the number of returns processed on CADE during
the 2010 filing season, which, in turn, means that the number of
taxpayers benefiting from faster refund processing will not increase.
[Footnote 18]
On the other hand, IRS's new strategy for modernizing individual
taxpayer accounts is intended to address the risks and challenges of
the initial approach. Importantly, IRS officials responsible for
implementing this new strategy told us that they expect to provide all
taxpayers with faster refund processing by the 2012 filing season. IRS
plans to do this by continuing daily processing of the roughly 40
million taxpayer accounts currently on CADE while converting the
legacy Individual Master File system from weekly to daily processing
for the roughly 100 million remaining accounts. IRS also plans to
develop a new database that would be the single authoritative source
of taxpayer account information and use the new database for daily
processing by 2014.
IRS established a program management office to guide the
implementation of the new strategy and developed a preliminary road
map and high-level cost estimates for the effort. It also defined the
overall business benefits the strategy is expected to provide. IRS
officials also stated that they are working on a more detailed plan
for the strategy, including milestones, deliverables, and detailed
costs for the first phase of the strategy and expect to have them
completed in December. These documents as well as plans for fully
implementing the new strategy are critical to justifying IRS's change
in direction and we plan to evaluate them as part of the review of
IRS's fiscal year 2010 Business Systems Modernization expenditure
plan, which we recently initiated.[Footnote 19]
Access to Telephone Assistors Remained Low for the Second Year in a
Row and IRS Decreased Its 2010 Access Goal:
As shown in table 3, taxpayers' access to IRS's telephone assistors
was better than last year, but was below IRS's original goal for 2009
and remains well below 2005 through 2007 performance.
Table 3: IRS Telephone Service Goals and Performance, 2005 through
2010 Filing Seasons:
Percentage of callers seeking live assistance who received it: Actual;
2005: 82;
2006: 81;
2007: 81;
2008: 57;
2009: 68;
Fiscal year 2010: NA.
Percentage of callers seeking live assistance who received it: Goal;
2005: 82;
2006: 82;
2007: 82;
2008: 82[A];
2009: 77[B];
Fiscal year 2010: 71.
Average wait time goal (minutes);
2005: 2.8;
2006: 5;
2007: 4.3;
2008: 4.4;
2009: 10;
Fiscal year 2010: NA.
Actual average wait time (minutes);
2005: 4.3;
2006: 3.9;
2007: 4.6;
2008: 8.6;
2009: 8.4;
Fiscal year 2010: NA.
Source: GAO analysis of IRS data.
Note: Data from January 1 through June 30. NA means not applicable.
[A] IRS revised its original goal of 82 percent down to 74 percent
because of high call volume due to stimulus-related questions.
[B] IRS revised its original filing season goal of 77 percent down to
67.8 percent because of high call volume from taxpayers requesting
electronic filing authentication information and asking stimulus-
related questions.
[End of table]
IRS reduced its 2009 goal for providing assistor services from the
goals for 2005 through 2008, as shown in table 3. IRS initially set
the fiscal year 2009 goal for the percentage of taxpayers seeking
assistor service who actually received it at 77 percent.[Footnote 20]
Perhaps more importantly, IRS reduced the goal for 2010 to 71 percent.
According to IRS officials, the goals were reduced because of resource
trade-offs related to call volume increases starting in 2008.
As shown in table 4, IRS's call volume in 2008 and 2009 was
substantially higher than in prior years. Although IRS received 40
million fewer calls in 2009 than in 2008, the volume was still well
above earlier years.[Footnote 21] While IRS's automated call systems
answered an increasing number of calls, the number of calls abandoned
by taxpayers, busy signals, and calls disconnected by IRS also went up
substantially. This may have limited many taxpayers from reaching IRS
assistors with questions.
Table 4: Calls to IRS by Call Type, 2005 through 2009:
Assistor calls answered;
2005: 22 million;
2006: 21 million;
2007: 22 million;
2008: 27 million;
2009: 26 million;
Percentage change from 2008 to 2009: -4%.
Abandoned calls;
2005: 11 million;
2006: 12 million;
2007: 13 million;
2008: 34 million;
2009: 21 million;
Percentage change from 2008 to 2009: -38%.
Busies and IRS disconnects;
2005: 1 million;
2006: 2 million;
2007: 1 million;
2008: 14 million;
2009: 5 million;
Percentage change from 2008 to 2009: -64%.
Automated calls answered;
2005: 23 million;
2006: 22 million;
2007: 21 million;
2008: 43 million;
2009: 25 million;
Percentage change from 2008 to 2009: -42%.
Total calls received;
2005: 58 million;
2006: 57 million;
2007: 57 million;
2008: 118 million;
2009: 78 million;
Percentage change from 2008 to 2009: -34%.
Source: GAO analysis of IRS data.
Note: Data from January 1 through June 30.
[End of table]
IRS attributed the heavier-than-anticipated call volume in part due to
stimulus-related questions and taxpayers needing authentication
information. Taxpayers had to provide their last year's adjusted gross
income (AGI) or personal identification number (PIN) to authenticate
their identity in order to electronically file. Taxpayers who did not
know their AGI or PIN and tried to get it from IRS had to call an
assistor or visit an IRS walk-in site. While IRS took actions to
minimize the effect of these calls, heavy volume continued through the
filing season. According to IRS, its assistors answered 3 million
calls from taxpayers needing their AGI, nearly 10 percent of all
assistor calls, at a cost of $36 million through June 2009.
We recently reported that IRS is developing an automated Web and phone
application to provide taxpayers with authentication information for
electronic filing in the 2010 filing season.[Footnote 22] In that
report, we also made recommendations to improve telephone service by
reducing the volume of telephone calls, which could improve taxpayer
access to IRS assistors. For example, in addition to recommending ways
to reduce the number of rejected returns, which often lead to
taxpayers calling IRS, we recommended that IRS develop a low-cost
automated method to respond to taxpayer questions about volunteer site
locations and hours of operation. IRS is in the process of addressing
those recommendations.
Despite the heavy call volume, the accuracy of the telephone
assistors' responses to tax law and account questions was higher by a
statistically significant amount compared to the same period last year
and exceeded IRS's fiscal year 2009 goals (see table 5). Since 2005,
IRS has maintained a level of accuracy of about 90 percent or more.
According to IRS officials, the high accuracy is due to training and
the introduction of new tools, particularly the Interactive Tax Law
Assistant (ITLA), which is a Web-based probe and response guide to
help assistors provide more accurate and consistent responses to
specific tax law questions.
Table 5: IRS Telephone Assistor Accuracy Performance, 2005 through
2009:
Accuracy measures[A]:
Tax law accuracy rate (in percent)[B];
2005 actual: 89.5; +/-0.6;
2006 actual: 90.6; +/-0.6;
2007 actual: 90.7; +/-.9;
2008 actual: 90.3; +/-.9;
2009 actual: 92.5; +/-0.8;
Fiscal year 2009 goals: 91.0.
Accounts accuracy rate (in percent)[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;
2009 actual: 95.1; +/-0.4;
Fiscal year 2009 goals: 93.5.
Source: GAO analysis of IRS data.
[A] Based on representative samples from January through June.
[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]
IRS Has a Limited Understanding of Why Taxpayers Call:
IRS has limited information on why taxpayers call to speak IRS
assistors. To help obtain better information on why taxpayers call,
IRS recently implemented a major data collection effort called Contact
Analytics at all its 26 call sites. According to IRS, Contact
Analytics is a significant investment that will allow IRS to search
recorded telephone interactions between taxpayers and IRS assistors
for key words or phrases. It is intended to improve service by
providing IRS with a research tool to better understand why taxpayers
are calling and take corrective action if necessary as well as
identify areas to reduce costs, such as identifying calls that can be
moved to self-service.[Footnote 23]
However, the agency does not have a comprehensive and detailed
analysis plan for effectively using Contact Analytics data to
determine how to improve taxpayer service or reduce costs. According
to IRS officials, because Contact Analytics is a new program and data
is only beginning to be collected, IRS has not yet considered a plan
to analyze the data produced by the program. IRS officials recently
indicated that now that Contact Analytics has been implemented, they
intend to eventually develop an analysis plan. However, a standard
approach for major data collection efforts is to develop a research
plan before data collection begins. Such a plan helps ensure that
necessary data is collected and that resources are not wasted
collecting information that will not be needed.[Footnote 24] Now that
IRS is actually collecting the data, the lack of a research plan
delays the time when improvements to taxpayer service, based on the
results of the research, could be implemented. Having a comprehensive
and detailed analysis plan that includes, for example, a research
design, dissemination of results, and involvement of relevant
stakeholders, provides a number of benefits, perhaps most importantly,
increasing the likelihood that the analysis will yield
methodologically sound results, thereby supporting effective policy
decisions.[Footnote 25]
While many taxpayers require service from live assistors, diverting
calls to automated services is also important because of the costs
involved--IRS assistors answered about 26 million calls between
January 1, 2009 and June 30, 2009 at a cost of $25.75 per call, for a
total of $670 million. Also, taxpayers would benefit from reduced wait
times and having the capability to obtain information immediately and
without having to speak to an assistor.
IRS Added Features to Its Web Site that Potentially Diverted Calls:
IRS continues to launch new features on its Web site to provide better
access to information and reduce taxpayer burden, including:
* the "How Much Was My 2008 Stimulus Payment" application and the
recovery rebate check calculator that used the economic stimulus
payment amount from 2008 along with several other factors to determine
eligibility for recovery rebate credit and the appropriate amount to
claim;
* the Online Payment Agreement application that provides taxpayers
with an online, interactive payment agreement process that reduces the
need for contact with an assistor and eliminates paper processing.
* a "What if" page on IRS.gov that describes different scenarios for
taxpayers on the possible impact of, for example, loss of job or
house, on the taxpayers ability to pay taxes; and:
* information on the new tax credits provided in the Recovery Act with
details on, for example, claiming the first-time homebuyer credit and
tax breaks for vehicle purchases.
As table 6 shows, compared to before 2008, visits to IRS's Web site
are substantially higher than in the last 4 years with the exception
of 2008. The year 2008 was anomalous, in part, because of the high
number of visits to stimulus-related features on IRS's Web site in
2008.
Table 6: IRS Web Site Use, 2005 through 2009:
Total visits;
2005: 148 million;
2006: 161 million;
2007: 178 million;
2008[A]: 304 million;
2009: 246 million;
Percentage change from 2008 to 2009: -19%.
Downloads;
2005: 125 million;
2006: 170 million;
2007: 128 million;
2008[A]: 145 million;
2009: 150 million;
Percentage change from 2008 to 2009: 3%.
Searches[B];
2005: 166 million;
2006: 128 million;
2007: 146 million;
2008[A]: 175 million;
2009: 184 million;
Percentage change from 2008 to 2009: 5%.
Where's My Refund?;
2005: 22 million;
2006: 25 million;
2007: 32 million;
2008[A]: 39 million;
2009: 53 million;
Percentage change from 2008 to 2009: 36%.
Recovery Rebate Check Calculator[B];
2005: NA;
2006: NA;
2007: NA;
2008[A]: NA;
2009: 7 million;
Percentage change from 2008 to 2009: NA.
How Much Was My 2008 Stimulus Payment?[C];
2005: NA;
2006: NA;
2007: NA;
2008[A]: NA;
2009: 55 million;
Percentage change from 2008 to 2009: NA.
Online Payment Agreement;
(in thousands)[D];
2005: NA;
2006: NA;
2007: NA;
2008[A]: 4,763 million;
2009: 49,233 million;
Percentage change from 2008 to 2009: NA.
Source: GAO analysis of IRS data.
Note: NA means not applicable.
[A] Data from October through December 2008.
[B] Includes visits and page views.
[C] Data from January 1 through June.
[D] IRS launched the Online Payment Agreement application in 2008.
[End of table]
One measure of the quality of IRS's Web site is its ranking in the
Keynote Systems top 40 government Web sites. During each week of the
2009 filing season, IRS ranked fourth and fifth in response time out
of the top 40 government Web sites in the Keynote Government Index
weekly ratings, compared to ranging between first or second last
filing season.[Footnote 26]
Finally, IRS is working on a Web portal strategy to expand taxpayers'
access to self-assistance tools for account and tax law issues. Both
the TAB and IRS's 2009-2013 strategic plan focus on enhancing features
on IRS's Web site.
IRS Improved Its Ability to Assess the Quality of Assistance at
Volunteer Sites and Accuracy Improved at IRS's Walk-in Sites:
As of June 28, 2009, IRS's volunteer partners prepared 3 million tax
returns, a slight increase of 1 percent over last year. IRS provides
training and certification for volunteer staff to help ensure quality.
However, assessing the quality of assistance at volunteer sites is a
challenge for IRS because of the large number of volunteer sites and
staff providing return assistance. IRS officials stated that the
agency partnered with community-based organizations to run 12,160
sites in 2009, 320 sites more than last year, staffed with nearly
83,000 volunteers.[Footnote 27]
Despite these challenges, IRS conducted several types of quality
reviews, including site and tax return reviews as well as mystery
shopping reviews in both 2008 and 2009.[Footnote 28] For 2009, IRS
combined site and return reviews into its Quality Statistical Sample
(QSS) reviews. According to IRS officials, QSS reviews were based on a
statistically valid sample of sites.[Footnote 29] IRS reported that it
collected data from 240 site reviews and 679 return reviews, generally
reviewing 3 tax returns per site visit. As of mid-April, return
preparation accuracy was 78 percent. In contrast, IRS's mystery
shopping reviews resulted in a 68 percent accuracy rate. However, IRS
officials stated that the QSS reviews are statistically valid and,
therefore, provide a better overall assessment of return accuracy than
mystery shopping. Consequently, IRS officials reported they will not
conduct mystery shopping in 2010.
While we acknowledge that the QSS reviews represent an important
advancement in IRS's assessment of the accuracy of return assistance
at volunteer sites, it is important to consider how the data are
collected and how the results will be used. The results of the QSS
return reviews could be biased because of volunteers' awareness of the
presence of IRS officials. According to IRS officials, since site
visits were unannounced, volunteer staff may have been unaware of
IRS's presence while observing the first return, but were likely to
have noticed IRS's presence by the second and third return. As a
result, volunteers could be more quality conscious while preparing the
later returns, adhering to the quality process encouraged by IRS more
than they might have been otherwise. IRS officials stated that they
understand the limitations of how the results were obtained.
In contrast to a slight increase at volunteer sites, as of April 30,
2009, the total number of taxpayers' contacts at IRS's 401 walk-in
sites was 2.7 million, down 12 percent compared to previous year.
[Footnote 30] Further, as of June 30, 2009,
* the accuracy of account assistance improved to 88 percent compared
to 83 percent last year, and:
* the accuracy of tax law assistance also improved to 76 percent from
67 percent last year. According to IRS officials, this increase is due
in large part to management's focus on the consistent use of IRS tools
available to assistors. They identified IRS's ITLA in particular, for
the increase in accuracy in tax law and return assistance, which is
used by both IRS's telephone and walk-in site assistors to provide
more accurate and consistent answers to taxpayers' questions. While
IRS officials acknowledged that using ITLA may take longer to get the
answer, assistors properly using the tool will provide the right
answer(s) to customer specific tax law questions more often than when
ITLA is not used.
The Relationship between TAB and IRS's Budget and Strategic Plan Is
Not Clear:
TAB is IRS's 5-year strategic plan for improving service to taxpayers
and helping guide the agency's budget and resource allocation
decisions. However, the linkage between TAB and the 2010 budget
request for IRS or IRS's agency wide 2009-2013 strategic plan is not
clear. TAB is mentioned once in the budget document and not at all in
IRS's strategic plan. This lack of transparency obscures the link
between TAB and IRS's overall strategic plan and budget. IRS officials
acknowledged that while TAB is not specifically included and
integrated in IRS's budget and other planning documents, IRS considers
TAB to be a guiding principle.
According to the Office of Management and Budget and our own work, it
is important to link general goals communicated in strategic plans
with cross-cutting initiatives, such as those listed in TAB because
they work together to form a budget and implementation framework.
[Footnote 31] Without more explicit connections between TAB and IRS's
planning documents, Congress and other stakeholders may not be able to
understand the priority that IRS places on improving taxpayer service.
RAL Usage Declined in 2009 and IRS Could Further Reduce Usage by
Issuing Faster Refunds:
According to IRS, depending on the tax refund amount, RAL and RAC fees
may range from $39 to over $600, which includes the account set-up
fee, tax preparation, and interest. In a recent report, we noted that
these charges may amount to an annual percentage interest rate of over
500 percent.[Footnote 32] IRS officials told us that IRS's continued
efforts to reduce RALs and RACs focus on increasing electronic filing
with direct deposit, and improving refund timeliness.
Table 7 shows that 8 million taxpayers applied for RALs from banks or
other financial institutions, a decline of 20 percent compared to last
year. One reason for this decline may have been reluctance by some
lenders to offer RALs early in the filing season due to taxpayer
errors related to recovery rebate credit claims.[Footnote 33] Because
taxpayer's anticipated refund is the collateral for a RAL, lenders
could not be certain the collateral existed when many refund claims
were in error. In contrast, the number of RAC requests increased by 10
percent to 11 million. RACs are less risky for the return preparer
because the taxpayer receives no money until the preparer receives the
refund and deducts associated fees.
Table 7: RALs and RACs Requested by Taxpayers, 2007 through 2009:
RALs:
2007: 10 million;
2008: 10 million;
2009: 8 million;
Percentage change from 2008 to 2009: -20%.
RACs:
2007: 9 million;
2008: 10 million;
2009: 11 million;
Percentage change from 2008 to 2009: 10%.
Source: GAO analysis of IRS data.
Note: Data from January 1 through April 15.
[End of table]
IRS's 2006 RAL report to Congress provides valuable information on:
* taxpayer use of RALs and RACs,
* benefits of improving refund timeliness on reducing taxpayers'
reliance on RALs and RACs,
* the cost associated with RALs and RACs, and:
* information on RAL alternatives offered by both IRS and tax
preparers.[Footnote 34]
However, IRS has not released this report to the public nor has IRS
updated it. Further, according to IRS officials, there is no
requirement to do so. By not public releasing and updating the report,
IRS is missing an opportunity to provide Congress and taxpayers with
important information on how tax law changes, such as the economic
stimulus package, might have affected taxpayers' reliance on RALs and
RACs and potentially reduce taxpayers' reliance on them.
IRS and Other Entities Share Responsibility for Issuing Refunds, and
More Could Be Done to Improve Refund Timeliness:
Most refunds are claimed on electronically filed returns and then
electronically deposited because taxpayers and preparers know that
electronic filing and depositing speeds up refund processing. Refunds
take 5 to 15 days, as shown in figure 1. Figure 1 also shows that:
* refund processing time varies by day of the week and is shorter for
refunds processed on CADE than on IRS's legacy individual master file,
* three entities--IRS, Treasury's Financial Management Service (FMS)
and Automated Clearing House (ACH)--share responsibility for issuing
refunds (see table 8 below).[Footnote 35] IRS runs pre-refund tax law
compliance checks, FMS checks for non tax debt owed to the federal
government, and ACH distributes the funds.
* IRS accounts for a varying proportion of the total processing time.
In a number of cases, IRS accounts for less than half the time it
takes to process and issue a refund.
Figure 1: Income Tax Refund Processing Time Line for Electronically
Filed Returns with Direct Deposit by Processing Component:
[Refer to PDF for image: vertical bar graph]
Number of days to process a refund:
Day of submission for electronically filed returns received by 11:00
a.m.: Monday;
Processing system: CADE;
IRS processing time: 1.5 days;
FMS processing time: 0.5 days;
ACH processing time: 2 days;
Direct deposit: 0.5 days;
Total: 5 days;
Processing system: IMF:
IRS processing time: 8.5 days;
FMS processing time: 0.5 days;
ACH processing time: 2 days;
Direct deposit: 0.5 days;
Total: 12 days.
Day of submission for electronically filed returns received by 11:00
a.m.: Tuesday;
Processing system: CADE;
IRS processing time: 1.5 days;
FMS processing time: 0.5 days;
ACH processing time: 4 days;
Direct deposit: 0.5 days;
Total: 7 days;
Processing system: IMF:
IRS processing time: 7.5 days;
FMS processing time: 0.5 days;
ACH processing time: 2 days;
Direct deposit: 0.5 days;
Total: 11 days.
Day of submission for electronically filed returns received by 11:00
a.m.: Wednesday;
Processing system: CADE;
IRS processing time: 1.5 days;
FMS processing time: 0.5 days;
ACH processing time: 4 days;
Direct deposit: 0.5 days;
Total: 7 days;
Processing system: IMF:
IRS processing time: 6.5 days;
FMS processing time: 0.5 days;
ACH processing time: 2 days;
Direct deposit: 0.5 days;
Total: 10 days.
Day of submission for electronically filed returns received by 11:00
a.m.: Thursday;
Processing system: CADE;
IRS processing time: 1.5 days;
FMS processing time: 0.5 days;
ACH processing time: 4 days;
Direct deposit: 0.5 days;
Total: 7 days;
Processing system: IMF:
IRS processing time: 5.5 days;
FMS processing time: 0.5 days;
ACH processing time: 2 days;
Direct deposit: 0.5 days;
Total: 9 days.
Day of submission for electronically filed returns received by 11:00
a.m.: Friday;
Processing system: CADE;
IRS processing time: 3.5 days;
FMS processing time: 0.5 days;
ACH processing time: 2 days;
Direct deposit: 0.5 days;
Total: 7 days;
Processing system: IMF:
IRS processing time: 11.5 days;
FMS processing time: 0.5 days;
ACH processing time: 2 days;
Direct deposit: 0.5 days;
Total: 15 days.
Day of submission for electronically filed returns received by 11:00
a.m.: Saturday;
Processing system: CADE;
IRS processing time: 3.5 days;
FMS processing time: 0.5 days;
ACH processing time: 2 days;
Direct deposit: 0.5 days;
Total: 7 days;
Processing system: IMF:
IRS processing time: 10.5 days;
FMS processing time: 0.5 days;
ACH processing time: 2 days;
Direct deposit: 0.5 days;
Total: 14 days.
Day of submission for electronically filed returns received by 11:00
a.m.: Sunday;
Processing system: CADE;
IRS processing time: 1.5 days;
FMS processing time: 0.5 days;
ACH processing time: 2 days;
Direct deposit: 0.5 days;
Total: 6 days;
Processing system: IMF:
IRS processing time: 9.5 days;
FMS processing time: 0.5 days;
ACH processing time: 2 days;
Direct deposit: 0.5 days;
Total: 13 days.
Source: GAO analysis of IRS data.
[End of figure]
Improving refund timeliness is a goal of IRS, with the effort focused
on shifting tax return processing to CADE. Figure 1 suggests that
another approach would be to try to reduce the time taken by the other
two entities involved in issuing refunds, particularly ACH. While IRS
officials reported that they meet at least annually with FMS officials
to discuss issues related to refunds and communicate intermittently to
address issues as needed, they also said that they have not
aggressively explored with the other two entities whether
opportunities exist to shorten refund processing time.[Footnote 36]
This is a timely issue because as IRS has shifted 40 million of tax
returns to CADE, the IRS proportion of overall refund processing time
has decreased.
IRS Has Not Studied the Use of Debit Cards for Unbanked Taxpayers:
While IRS offers paper check and direct deposit options for delivering
refunds to taxpayers, it has not studied the feasibility of
distributing refunds electronically through debit cards.[Footnote 37]
Further, IRS has not determined the costs of issuing debit cards nor
the benefit for taxpayers. Although tens of millions of taxpayers
receive paper checks, they are less secure than electronic
distribution of benefits. Further, many unbanked taxpayers may not
have the benefit of faster refunds associated with direct deposit and,
instead, receive their tax refund by checks, often incurring
transaction costs, such as check cashing fees.[Footnote 38]
Debit card programs are well established in a variety of state and
federal government programs. For example, FMS's Direct Express debit
cards allow beneficiaries to receive their benefits as quickly as
direct deposit while avoiding transaction fees associated with
receiving check payments. Similarly, debit cards could provide
taxpayers with a low-or no-cost refund option for receiving refunds
quickly. According to a recent survey conducted by TIGTA, 63 percent
of RAL applicants indicated a preference for receiving a debit card
from IRS instead of purchasing a RAL. Finally, in its RAL report to
Congress, IRS noted that transitioning unbanked taxpayers to debit
cards would allow them to receive their refund in the same amount of
time as taxpayers that have direct deposit.[Footnote 39]
Without researching the benefits and costs of debit cards, IRS does
not know whether direct distribution of cards is a viable option to
distribute refunds, improve refund timeliness and reduce taxpayer
reliance on RALs, and provide electronic payment options for unbanked
taxpayers.
We have previously reported that Treasury's role as the federal
government's leader for payments and its experience with electronic
payment methods suggests that it could provide valuable information
and assistance to IRS, particularly when working with other entities
to improve service.[Footnote 40] However, without aggressively
collaborating with FMS and ACH to improve refund timeliness and
explore other refund options, IRS may be missing an opportunity to
further reduce the time taxpayers wait for refunds and taxpayers'
reliance on RALs.
During Returns Processing IRS Could Reduce Taxpayer Confusion and
Better Ensure Compliance with Higher Education Tax Benefits:
We identified higher education tax benefits as one area where an
expansion of MEA and revisions to information returns might reduce
taxpayer confusion and increase compliance (see app. V). Millions of
taxpayers claim the Hope and Lifetime Learning tax credits to offset
qualified education expenses. However, these tax provisions are
complicated and may lead taxpayers to under claim benefits or
unknowingly claim more benefits than they are entitled to claim.
[Footnote 41]
IRS faces challenges ensuring compliance with the eligibility
requirements of the higher education credits. IRS relies on audits and
limited MEA to ensure compliance. However, audits may not be an
efficient method for enforcement in this case. Audits are labor
intensive, and therefore costly, for IRS. According to IRS officials,
the maximum amount most taxpayers can claim per student each year--
$1,800 per student for the Hope credit and $2,000 per return for the
Lifetime learning credit for tax year 2008--may not yield sufficient
revenue to justify expanded enforcement.[Footnote 42] Because of the
relatively high costs and small revenue gain, IRS does relatively few
audits of the millions of education credit claims.
IRS has MEA to verify compliance with some of the higher education
credit eligibility requirements. However, IRS lacks the statutory
authority to use MEA to verify compliance with the limit on the number
of years that taxpayers can claim the Hope credit.[Footnote 43] If IRS
had authority to use information from prior years' returns to check
taxpayers' eligibility, it could correct claims during processing,
before refunds are issued, and enhance compliance.
Eligible educational institutions are required to report information
on qualified expenses for higher education to both taxpayers and IRS
so that taxpayers can determine the amount of educational tax benefits
that can be claimed (see app. V).[Footnote 44] However, the
information currently reported by educational institutions on tuition
statements sent to IRS and taxpayers (on Form 1098-T) may be confusing
for taxpayers who use the form to prepare their tax returns and not
very useful to IRS.[Footnote 45]
IRS requires institutions to report on Form 1098-T either the (1)
amount of payments received, or (2) amount billed for qualified
expenses. IRS officials stated that most institutions report the
amount billed and do not report payments. However, the amount billed
may not equal the amount that can be claimed as a credit.[Footnote 46]
For example, the amount billed may not account for all scholarships or
grants the student received. In such cases, the Form 1098-T may
overstate the amount that can be claimed as a credit, confusing
taxpayers. Conversely, if institutions are not providing information
on other eligible items, such as books or equipment, taxpayers might
be understating their claims.[Footnote 47]
In addition to confusing taxpayers, the existing Form 1098-T is not
very useful to IRS in its enforcement efforts. According to IRS
officials, because the amount billed may not be the amount taxpayers
are eligible to claim as a credit, IRS does not compare tuition
statement information to the information reported on a tax return. IRS
officials stated that a change in legislation, which TIGTA recommended
in a recent report, would be needed to require institutions to report
only the amount paid. However, IRS does not currently use some of the
more basic information from the tuition statement to verify
eligibility for the credit.[Footnote 48] For example, a tuition
statement includes the student's SSN that could be matched to tax
return information. Additionally, IRS does not use the location of the
institution to determine whether it is located in a federal disaster
area, which substantially increases the amount of the eligible credit.
Using IRS's compliance computer matching systems to automatically
compare information on statements to taxpayers' claims could be a low-
cost enforcement tool for IRS to verify certain aspects taxpayers'
eligibility for of the credit.
While changing the requirements for how higher education institutions
report qualified expenses on tuition statements would likely impose
some burden on those institutions, the additional burden could be low
because the institutions are already required to fill out Form 1098-T.
Further, this form could be revised to more clearly provide additional
information about qualified expenses, such as for books, supplies, and
equipment--information institutions might already collect--and
potentially reduce taxpayer confusion and noncompliance.
Conclusions:
IRS met many of its 2009 filing season goals. The major exception was
telephone service, where, for a second year in a row, unanticipated
increases in call volume significantly reduced performance, in part,
because of inquires related to tax law changes. However, IRS does not
have a research plan for conducting analyses of its telephone contacts
that could identify areas for more automated services. The declines in
telephone performance also highlight the importance of TAB, which is
intended to provide the strategy for improving service to taxpayers,
and how TAB is integral to IRS's overall strategic plan.
Millions of taxpayers continue to use expensive RALs and RACs. By not
coordinating more closely with FMS and ACH, IRS may be missing
opportunities to improve refund timeliness and expand options for
refund delivery, both of which might reduce taxpayers' demand for RALs
and RACs. Further, by not updating its RAL report and studying the
feasibility of debit card options, IRS may be missing other
opportunities to reduce the transaction costs imposed on taxpayers,
particularly low income taxpayers, when they receive tax refund
payments.
Finally, steps could be taken by Congress to provide IRS with the
statutory authority to automatically verify some aspects of higher
education credits claims and by IRS to improve and better utilize
information reported by higher education institutions. Without such
steps, taxpayers may remain confused by the information reported to
them, and IRS will not make use of some low-cost, less intrusive tools
for helping ensure compliance.
Matters for Congressional Consideration:
Congress should consider providing IRS with MEA to use prior years'
tax return information to automatically verify taxpayers' compliance
with the limit on the number of years the Hope credit can be claimed.
Recommendations for Executive Action:
Related to improving IRS's performance during the filing season, the
Commissioner of Internal Revenue should:
* Develop as soon as possible an analysis plan for using the data IRS
captures through Contact Analytics; and:
* Explicitly integrate the TAB in strategic planning documents.
To further improve refund timeliness and reduce reliance on RALs and
RACs, IRS should:
* Update and publicly release a report on RAL and RAC use;
* Work more proactively with FMS and ACH to help improve refund
timeliness; and:
* Determine the feasibility of offering debit cards for refunds.
To reduce taxpayer confusion and enhance compliance with the
eligibility requirements for higher education benefits, IRS should:
* Determine the feasibility of using current information reported on
Form 1098-T, such as school location and taxpayer identification
number or SSN, in IRS's compliance programs; and:
* Revise Form 1098-T to improve the usefulness of information on
qualifying education expenses.
Agency Comments and Our Evaluation:
In written comments on a draft of this report (which are reprinted in
appendix I), the IRS Deputy Commissioner for Services and Enforcement
explicitly agreed with five of our recommendations and described the
steps IRS is taking with respect to our two other recommendations. IRS
officials also provided technical comments which we incorporated as
appropriate.
IRS agreed to develop a comprehensive and detailed evaluation plan for
Contact Analytics, work to define the scope and objectives for
potentially updating and releasing a RAL/RAC report, and work with FMS
and ACH to improve refund timeliness. IRS also agreed to consider the
feasibility of using current information on Form 1098T in its
compliance programs, and develop a plan to address possible changes to
that form.
With respect to our recommendation to explicitly integrate TAB in
strategic planning documents, the Deputy Commissioner said that
although they are not repeated verbatim in IRS's Strategic Plan, TAB's
guiding principles resonate throughout the document. We acknowledged
IRS's position in making our finding and recommendation. However, TAB
is not mentioned once by name in IRS's strategic plan. Without an
explicit and transparent connection between TAB and IRS's other
planning documents, Congress and other stakeholders may not be able to
understand the priority that IRS is giving to improving taxpayer
service.
Concerning our recommendation to determine the feasibility of offering
a debit card option for refunds, the Deputy Commissioner said that the
agency is exploring options for debit card use including an option to
provide debit cards directly. Because the Deputy Commissioner's letter
does not provide any detail on what exploring options means, we want
to reiterate the basis for our recommendation. A small debit card
pilot program was conducted at several volunteer sites around the
country, but that pilot did not provide information on the benefits or
costs of IRS issuing debit cards directly. Given the large number of
unbanked taxpayers, we believe IRS should determine the feasibility of
directly issuing debit cards.
As agreed with your offices, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. At that time, we will send copies to the
Chairmen and Ranking Members of other Senate and House committees and
subcommittees that have appropriation, authorization, and oversight
responsibilities for IRS. We will also send copies to the Commissioner
of Internal Revenue, the Secretary of the Treasury, the Chairman of
the IRS Oversight Board, and the Director of the Office of Management
and Budget. The report also will be available at no charge on the GAO
Web site at [hyperlink, http://www.gao.gov]. If you or your staff have
any questions or wish to discuss the material in this report further,
please contact me at (202) 512-9110 or at whitej@gao.gov. Contact
points for our Offices of Congressional Relations and Public Affairs
may be found on the last page of this report. GAO staff who made
contributions are listed in appendix VI.
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:
Deputy Commissioner:
Washington, D.C. 20224:
Mr. James R. White:
Director, Tax Issues:
U.S. Government Accountability Office:
441 G Street, N.W.
Washington, DC 20548:
Dear Mr. White:
I reviewed your draft report entitled 2009 Tax Filing Season: IRS Met
Many 2009 Goals, but Telephone Access Remained Low, and Taxpayer
Service and Enforcement Could be Improved. I appreciate your
recognition of our significant achievements in successfully delivering
the 2009 filing season, which you note was particularly challenging
due to the impact of implementing complex tax law changes, including
economic stimulus policies that resulted in unexpected increases in
call volumes and created new taxpayer compliance challenges and
workload.
Processing - We again had an outstanding filing season, successfully
implementing significant and sometimes extremely late tax law changes.
These included the late change to the First-Time Homebuyer Credit in
the American Recovery and Reinvestment Act (ARRA), the Recovery Rebate
Credit (RRC), and the provisions of the Emergency Economic and
Stabilization Act, which included the additional standard deduction
for state and local sales taxes or disaster losses. For the Calendar
Year, through October 2, 2009, we processed over 139 million
individual income tax returns and issued over 109 million refunds,
totaling approximately $298 billion.
Electronic filing grew again this year with 93.9 million, or 67
percent, of individual taxpayers filing electronically. The remaining
45.4 million were filed on paper. The number of returns filed
electronically increased 6 percent over last year, which exceeds the
5.1 percent increase we projected in the fall of 2008 for all of 2009.
The most significant increase in e-file occurred again in the number
of taxpayers who filed from their home computer. Nearly 32 million
returns were filed from home computers, a 19.5 percent increase from
the prior year. Three million taxpayers took advantage of the free
online filing services offered by the Free File Alliance. Also notable
is the fact that all 93.9 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 2009, with Release 4.2 being successfully deployed in
January 2009. Release 4.2 increased functionality, including the
ability to accept last name changes, and the ability to accept and
post incoming tax returns with full payment. In addition, the CADE
processed estimated tax payments and extensions of time to file, both
with and without remittances. As of September 30, 2009, CADE posted
over 40 million returns and disbursed over 34.9 million refunds
totaling more than $58.6 billion. In addition, CADE processed and
posted 7.1 million payments totaling $9.3 billion.
Telephone Performance - We delivered a successful filing season
despite challenges of higher than expected call demand for Adjusted
Gross Income (AGI) generated by the elimination of the Form 8453-0L,
U.S. Individual Income Tax Declaration for an IRS e-file Online
Return, the RRC, and the ARRA of 2009. The IRS took aggressive and
timely actions to address this additional call demand. These actions
included:
* Identification of, and special processing for, RRC math error calls.
* Diversion of staff from other programs during peak demand periods to
handle calls requesting the prior year AGI, needed for identity
verification purposes when obtaining a Personal Identification Number
(PIN) for e-file.
* Redesign of the Economic Stimulus Payment Hotline to include
information on both new ARRA legislation and the 2008 RRC.
As a result, more than 41.8 million taxpayers were assisted in the
three and one half months that represent the core filing season,
including 21.3 million taxpayers that received automated services. The
IRS provided 20.5 million services by live assistors, surpassing the
2008 filing season by 1.9 million assistor services, and exceeding the
2009 plan by more than 1 million services. Customer Accuracy and
Customer Satisfaction also remained high during the filing season.
Customer Accuracy for Toll-Free services, including Tax Law and
Accounts, was 94.1 percent, while Customer Satisfaction for the filing
season was 94 percent for customers using the Toll-Free service.
The Customer Service Representative Level of Service for the Fiscal
Year (FY) was 70 percent compared to 52.8 percent for the same period
in the prior year. Also this FY, Assistor Calls Answered of 39.0
million exceeded the goal of 36.2 million; Assistor Services Provided
of 45.1 million exceeded the goal of 42.4 million; and Automated Calls
Answered of 29.0 million exceeded the goal of 27.6 million. Caller
Wait Time was less than planned by 98 seconds (526 seconds vs. 624
seconds). Considering all channels (telephones, paper correspondence,
and web), Customer Contacts Resolved per Staff Year (12,154) was 124
percent of plan, and the Self Service Participation rate (69.3) was
107 percent of plan.
Walk-In Assistance - During the FY 2009 filing season, IRS continued
to provide services at all 401 Taxpayer Assistance Centers (TACs).
Contact Recording (CR), an automated system that records the audio
portion of the assistor/taxpayer interaction and synchronizes it with
computer screen activity, was utilized to better measure the accuracy
of Tax Law and Account Assistance. During the filing season, CR was
operational at 327 of the 401 TACs and, by the end of FY 2009, it was
operational at 341 TACs.
Quality data obtained from the CR system was used to identify areas
for improvement and training. This filing season, the TACs achieved an
86 percent Accounts Accuracy rate, exceeding the goal of 84 percent,
and a Tax Law Accuracy Rate of 75 percent, exceeding the goal of 70
percent. We expect continued improvement in the accuracy of responses
provided by TAC employees in FY 2010, by focusing on a successful
initial planning period (October through December 2009), targeting
improvement efforts on high volume topics, enhancing managerial review
skills, and aligning resources with the questions generating the most
errors.
For the FY 2009 filing season, the IRS also expanded the number of tax
law topics covered by the Interactive Tax Law Assistant (ITLA), a tax
law decision support tool. Emphasis on front-line engagement,
improving communication skills (targeting, listening, and
paraphrasing), and correct use of ITLA will continue to play a primary
role in our ability to reach 2010 goals.
Volunteer Assistance - During the FY 2009 filing season, 82,653 IRS
supported volunteers prepared nearly 3.1 million Federal tax returns
and more than 2.1 million State tax returns at Volunteer Income Tax
Assistance (VITA) and Tax Counseling for the Elderly (TCE) sites.
These returns were primarily prepared for low income, elderly,
disabled, and limited English-proficient taxpayers. While this
represents a slight decrease from FY 2008, it is primarily due to the
large volume of economic stimulus payment-only returns prepared in
2008, for taxpayers who normally did not have a filing requirement.
In December 2007, Congress appropriated $8 million in a matching funds
grant in support of the VITA Program. More than 350 applicants from 49
states, Puerto Rico, and the District of Columbia, applied to receive
these grant funds for 2009 filing season operations. The VITA grants,
in the amount of $7.44 million, were awarded to 111 applicants, with
sites in all 50 states and the District of Columbia. More than 750,000
returns were prepared at more than 2,500 sites, supported through
these grant funds. We recently announced VITA grant recipients for the
FY 2010 filing season and expect even greater results as this program
continues to grow.
Enclosure:
Related to improving IRS's performance during the filing season, IRS
should:
Recommendation:
Develop as soon as possible an analysis plan for using the data IRS
captures through Contact Analytics;
Comment:
Though the technology had not yet been fully deployed at the time of
this audit, we agree with this recommendation. The Center of
Excellence has been established as the new organization charged with
managing this technology and is developing a formalized process for
requesting data through Contact Analytics as part of its stand-up
activities, as well as determining an appropriate methodology for
fulfilling requests for data. As the processes evolve, we will develop
a comprehensive and detailed evaluation plan based on experience and
input from internal stakeholders.
Recommendation:
Explicitly integrate the TAB in strategic planning documents.
Comment:
Though not repeated verbatim in the IRS Strategic Plan, the Taxpayer
Assistance Blueprint (TAB) guiding principles resonate throughout the
document. Rather than specifically repeating the findings and
objectives outlined in the TAB, the Strategic Plan complements and
often expands upon the work accomplished in the TAB. For example,
Strategic Goal Number One indicates that the IRS will "Improve service
to make voluntary compliance easier." The first TAB guiding principle
describes how, "The primary goal of service for individual taxpayers
is to facilitate compliance with federal tax obligations." Clearly
these two statements mirror the common objective of facilitating
compliance by providing exemplary taxpayer service. Similarly, the
Strategic Plan reflects the strong influence of the TAB guiding
principles relative to tax practitioners and preparers. Where the TAB
suggests that the IRS will, "look for opportunities to assist these
third parties in helping taxpayers understand and meet their tax
obligations",[Footnote 49] per the IRS Strategic Plan, the IRS will
"Strengthen partnerships with tax practitioners, tax preparers, and
other third parties in order to ensure effective tax administration."
[Footnote 50] Other objectives within the Strategic Plan dealing with
outreach and issue resolution are also clearly, if not explicitly,
related to the guiding principles of the TAB.
Beyond the overarching IRS Strategic Plan, the IRS maintains linkages
to the precepts of improving taxpayer service from the taxpayer
perspective. Internal planning documents and budget proposals are
linked to the IRS Strategic Plan. Insofar as the Strategic Plan
embodies the goals and objectives of the TAB, these documents maintain
reference to taxpayer-centric understanding and administration of
taxpayer service first explored by the TAB and adopted in the IRS
Strategic Plan.
To further improve refund timeliness and reduce reliance on RALS and
RACs, IRS should:
Recommendation:
Update and publicly release a report on RAL and RAC use;
Comment:
We agree in principle with the recommendation. As the 2006 report was
driven by different factors, all affected areas within IRS will need
to meet with the Government Accountability Office to define the scope,
objectives, and intended audience of the report prior to beginning
development.
Recommendation:
Work more proactively with FMS and ACH to help improve refund
timeliness; and;
Comment:
We agree with this recommendation. The IRS and Financial Management
Service already maintain a constant dialogue on issues, including
refund timeliness.
Recommendation:
Determine the feasibility of offering debit card options for refunds.
Comment:
We are exploring a range of alternatives to deliver refunds to
unbanked taxpayers. Included among those options are debit cards
provided directly or through third parties, including participating
partners and current industry participants.
To reduce taxpayer confusion and enhance compliance with the
eligibility requirements for higher education benefits, IRS should:
Recommendation:
Determine the feasibility of using current information reported on
Form 1098-T, such as school location and taxpayer identification
number or SSN, in IRS's compliance programs.
Comment:
The IRS agrees to consider the feasibility of using Form 1098-T
information in Correspondence Examination. If we determine in Wage and
Investment Compliance that it might be feasible, we will coordinate
with Small Business/Self-Employed Division on actual use.
Recommendation:
Revise Form 1098-T to improve the usefulness of information on
qualifying education expenses.
Comment:
Our Wage and Investment Compliance organization, in partnership with
the Tax Exempt and Government Entities Division, will develop a plan
to address possible changes to the Form 1098-T. As part of that plan,
we will obtain feedback from educational institutions on changes that
provide clarity and improve the usefulness of the form, including
location of the educational institution.
Finally, we continued to build on our Quality Review process. Since
2004, the Treasury Inspector General for Tax Administration determined
the accuracy of returns prepared by our volunteers based on a
judgmental sampling of a small number of VITA/TCE sites and less than
50 returns. In 2009, we worked closely with the IRS Statistics of
Income Office to select a statistically valid number of VITA/TCE sites
to perform return reviews. A centralized review cadre, known as the
Quality Statistical Sample (QSS) reviewers, visited a statistically
valid sample of VITA/TCE sites to review a sample of tax returns for
accuracy. The data collected from these reviews was used to indicate
an accuracy rate for all tax returns produced by the Volunteer
Program. During the 2009 filing season, 679 returns were reviewed
through this process, resulting in a 78.5 percent accuracy rate, with
a 90 percent confidence level. We established a Quality Assurance
Office for the FY 2010 filing season and will continue the QSS reviews.
Website ” The IRS website, IRS.gov, is consistently one of the most
heavily used government websites. As of November 8, 2009, the website
had been visited more than 275 million times. These visits resulted in
more than 1.5 billion page views. Website visits and page views
declined during 2009 most likely due to the passage of legislation
which resulted in a spike in activity during 2008. Visits are the
measurements of actions beginning when a visitor views their first web
page on IRS.gov and ends when the visitor leaves the website.
Taxpayers and Practitioners also downloaded more than 176 million
forms, publications, instructions, and other documents.
We agree the Matter for Congressional Consideration noted in your
report has 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 2009. If you
have any questions, please contact Robin L. Canady, Director, Strategy
and Finance, Wage and Investment Division, at (404) 338-8801.
Sincerely,
Signed by:
Steven T. Miller:
Enclosure:
[End of section]
Appendix II: IRS's Existing and Suggested Math Error Authority for
Enhancing Compliance:
Table 8 below summarizes the Internal Revenue Service's (IRS) existing
math error authority (MEA) as well as authorities we recently
suggested that Congress provide to enhance compliance, including for
certain tax credits. In addition, last year we recommended that the
IRS Commissioner use existing MEA to identify and correct child and
dependent care credit claims on "Married Filing Separately" returns
and assess the effectiveness of combining the Federal Case Registry
and other data on taxpayer characteristics to verify the eligibility
of Earned Income Tax Credit claims from noncustodial parents.[Footnote
51]
Table 8: IRS's Existing and Suggested MEA:
IRS's Existing Statutory Authorities for Math Error Checks:
* An error in addition, subtraction, multiplication, or division shown
on any return.
* An incorrect use of any table provided by the IRS with respect to
any return if other information in the return makes the incorrect use
apparent.
* An entry on a return of an item which is inconsistent with another
entry of the same or different item on that return.
* An omission of information which is required to be supplied on the
return to substantiate an entry on that return.
* An entry on a return of a deduction or credit in an amount which
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.
* A correct Taxpayer Identification Number (TIN) not provided on the
return as required for the: (1) Earned Income Tax Credit (EITC); (2)
child and dependent care credit; (3) personal or dependent exemption;
(4) child tax credit; (5) Hope and Lifetime Learning credits.
* A return claiming an EITC for net earnings from self-employment,
where the self employment tax imposed by 26 IRC § 1401 on those net
earnings has not been paid.
* An omission of information required for recertification of
eligibility for the EITC.
* 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.
* 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 non-custodial parent of that child.
* A failure to reduce Economic Stimulus Package credit on a return
related to the Economic Stimulus Act of 2008 by amounts previously
advanced.
GAO's Suggested Statutory Authorities:
* Verify taxpayers' compliance with the 2008 first-time homebuyer
credit payback provision.[A].
* Claims for the first-time homebuyer credit in multiple years.[A].
* "Catch-up" contributions to Individual Retirement Accounts (IRA)
from taxpayers who are not eligible because of their age.[B].
* Contributions to traditional IRAs from taxpayers who are ineligible
because they are over the age of 70-½.[B].
* Taxpayers' compliance with the number of years the Hope credit can
be claimed.[C].
Source: GAO analysis and reports.
[A] GAO-09-1026.
[B] GAO-09-146.
[C] Suggested in this report.
[End of table]
[End of section]
Appendix III: IRS's Processing Performance Relative to 2004 Through
2008 and 2009 Goals:
As shown in table 9, the Internal Revenue Service (IRS) met or
exceeded goals for six out of eight of 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 previous years); productivity;
and individual master file (IMF) efficiency.
One measure where performance was significantly below IRS's goal and
below last year's level was the correspondence error rate, the
percentage of incorrect notices and letters issued to taxpayers.
According to IRS officials, this resulted from a high number of
erroneous notices sent to taxpayers claiming the recovery rebate
credit early in the filing season.[Footnote 50]
Table 9: IRS Processing Performance, Fiscal Years 2005 through 2009:
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 2005 actual: 2.2%; (+/-0.26%);
Fiscal year 2006 actual: 1.6%; (+/-0.24%);
Fiscal year 2007 actual: 1.3%; (+/-0.22%);
Fiscal year 2008 actual: 1.1%; (+/-0.27%);
Fiscal year 2009 actual (through August): .7%; (+/-0.20%);
Fiscal year 2009 goal: 1.0%.
Measure Name: Deposit timeliness - paper - individual master file
(IMF);
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 2005 actual: $390;
Fiscal year 2006 actual: $354;
Fiscal year 2007 actual: $331;
Fiscal year 2008 actual: $290;
Fiscal year 2009 actual (through August): $204;
Fiscal year 2009 goal: $290.
Measure Name: Correspondence error rate[A] (includes systemic errors)b
IMF;
Definition: The percentage of incorrect Submission Processing
Masterfile notices and letters issued to taxpayers by the processing
sites;
Fiscal year 2005 actual: NA;
Fiscal year 2006 actual: NA;
Fiscal year 2007 actual: 4.3; (+/-0.38%);
Fiscal year 2008 actual: 3.8%; (+/-0.36%);
Fiscal year 2009 actual (through August): 5.41%; (+/-0.54%);
Fiscal year 2009 goal: 3.67%.
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[B];
Fiscal year 2005 actual: 5.0%; (+/-0.48%);
Fiscal year 2006 actual: 4.5%; (+/-0.46%);
Fiscal year 2007 actual: 2.8%; (+/-0.36%);
Fiscal year 2008 actual: 3.4%; (+/-0.52%);
Fiscal year 2009 actual (through August): 1.95%; (+/-0.35%);
Fiscal year 2009 goal: 3.3%.
Measure Name: Refund interest paid;
Definition: Amount of refund interest IRS paid per $1 million of
refunds issued;
Fiscal year 2005 actual: $29.21;
Fiscal year 2006 actual: $30.12;
Fiscal year 2007 actual: $39.60;
Fiscal year 2008 actual: $24.16;
Fiscal year 2009 actual (through August): $16.01;
Fiscal year 2009 goal: $21.00.
Measure Name: Refund timeliness - individual (paper);
Definition: Percentage of refunds issued within 40 days or less;
Fiscal year 2005 actual: 99.2%; (+/-0.18);
Fiscal year 2006 actual: 99.3%; (+/-0.13);
Fiscal year 2007 actual: 98.9%; (+/-0.19);
Fiscal year 2008 actual: 99.1%; (+/-0.19%);
Fiscal year 2009 actual (through August): 99.2%; (+/-0.18%);
Fiscal year 2009 goal: 98.4%.
Measure Name: Productivity 3;
Definition: Weighted volume of documents processed per staff year
expended at the processing centers;
Fiscal year 2005 actual: 31,444;
Fiscal year 2006 actual: 32,237;
Fiscal year 2007 actual: 34,313;
Fiscal year 2008 actual: 37,624;
Fiscal year 2009 actual (through August): 47,040;
Fiscal year 2009 goal: 45,663.
Measure Name: IMF efficiency;
Definition: Measure of Individual Master File returns processed per
staff year expended;
Fiscal year 2005 actual: 14,965;
Fiscal year 2006 actual: 16,124;
Fiscal year 2007 actual: 22,031;
Fiscal year 2008 actual: 23,834;
Fiscal year 2009 actual (through August): 23,596;
Fiscal year 2009 goal: 23,692.
Source: GAO analysis of IRS data.
[A] The reported Correspondence Error Rate result is a weighted
combination of the results of the 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]
[End of section]
Appendix IV: IRS Toll-Free Calls and Percentage of Callers Seeking and
Receiving Live Assistance for 2009 and 2008:
During the 2009 filing season, the Internal Revenue Service (IRS)
received most of the calls early on, with the heaviest call volume
during February (see fig. 2 below). Most of the calls were related to
taxpayers' need for authentication information and tax law changes. In
contrast, during the 2008 filing season IRS received most of the calls
after the filing season, between April and June and were primarily
stimulus-related questions.
Figure 2: Weekly Toll-free Calls and Percentage of Callers Seeking and
Receiving Live Assistance from January 1 to June 28, 2009, and June
30, 2009:
[Refer to PDF for image: 2 combined vertical bar and line graphs]
January 1 through June 28, 2008: Weekly calls on IRS's tax law and
account assistance lines (in millions):
Week ending January 5:
Caller abandons: 0.17;
IRS disconnects or busy: 0.03;
Automated calls answered: 0.05;
Assistor calls answered: 0.33;
Percentage of callers seeking and receiving live assistance: 77.
Week ending January 12:
Caller abandons: 0.26;
IRS disconnects or busy: 0.01;
Automated calls answered: 0.12;
Assistor calls answered: 0.57;
Percentage of callers seeking and receiving live assistance: 85.
Week ending January 19:
Caller abandons: 0.37;
IRS disconnects or busy: 0.02;
Automated calls answered: 0.45;
Assistor calls answered: 0.7;
Percentage of callers seeking and receiving live assistance: 86.
Week ending January 26:
Caller abandons: 0.45;
IRS disconnects or busy: 0.02;
Automated calls answered: 0.95;
Assistor calls answered: 0.7;
Percentage of callers seeking and receiving live assistance: 84.
Week ending February 2:
Caller abandons: 0.72;
IRS disconnects or busy: 0.05;
Automated calls answered: 1.38;
Assistor calls answered: 1.01;
Percentage of callers seeking and receiving live assistance: 82.
Week ending February 9:
Caller abandons: 0.87;
IRS disconnects or busy: 0.05;
Automated calls answered: 1.95;
Assistor calls answered: 1.06;
Percentage of callers seeking and receiving live assistance: 80.
Week ending February 16:
Caller abandons: 0.79;
IRS disconnects or busy: 0.05;
Automated calls answered: 2.08;
Assistor calls answered: 1.07;
Percentage of callers seeking and receiving live assistance: 82.
Week ending February 23:
Caller abandons: 1.1;
IRS disconnects or busy: 0.17;
Automated calls answered: 2.11;
Assistor calls answered: 0.85;
Percentage of callers seeking and receiving live assistance: 60.
Week ending March 1:
Caller abandons: 0.78;
IRS disconnects or busy: 0.06;
Automated calls answered: 1.79;
Assistor calls answered: 1.13;
Percentage of callers seeking and receiving live assistance: 81.
Week ending March 8:
Caller abandons: 0.65;
IRS disconnects or busy: 0.03;
Automated calls answered: 1.49;
Assistor calls answered: 1.02;
Percentage of callers seeking and receiving live assistance: 83.
Week ending March 15:
Caller abandons: 0.65;
IRS disconnects or busy: 0.03;
Automated calls answered: 1.36;
Assistor calls answered: 1.08;
Percentage of callers seeking and receiving live assistance: 84.
Week ending March 22:
Caller abandons: 0.7;
IRS disconnects or busy: 0.03;
Automated calls answered: 1.13;
Assistor calls answered: 1.15;
Percentage of callers seeking and receiving live assistance: 84.
Week ending March 29:
Caller abandons: 1.04;
IRS disconnects or busy: 0.04;
Automated calls answered: 1.24;
Assistor calls answered: 1.43;
Percentage of callers seeking and receiving live assistance: 77.
Week ending April 5:
Caller abandons: 0.91;
IRS disconnects or busy: 0.04;
Automated calls answered: 0.98;
Assistor calls answered: 1.32;
Percentage of callers seeking and receiving live assistance: 78.
Week ending April 12:
Caller abandons: 0.88;
IRS disconnects or busy: 0.06;
Automated calls answered: 0.94;
Assistor calls answered: 1.4;
Percentage of callers seeking and receiving live assistance: 80.
Week ending April 19:
Caller abandons: 1.3;
IRS disconnects or busy: 0.49;
Automated calls answered: 1.09;
Assistor calls answered: 1.26;
Percentage of callers seeking and receiving live assistance: 56.
Week ending April 26:
Caller abandons: 0.7;
IRS disconnects or busy: 0.04;
Automated calls answered: 0.95;
Assistor calls answered: 0.98;
Percentage of callers seeking and receiving live assistance: 78.
Week ending May 3:
Caller abandons: 1.83;
IRS disconnects or busy: 0.34;
Automated calls answered: 2.11;
Assistor calls answered: 1.29;
Percentage of callers seeking and receiving live assistance: 56.
Week ending May 10:
Caller abandons: 2.9;
IRS disconnects or busy: 2.49;
Automated calls answered: 3.41;
Assistor calls answered: 1.19;
Percentage of callers seeking and receiving live assistance: 32.
Week ending May 17:
Caller abandons: 3.6;
IRS disconnects or busy: 3;
Automated calls answered: 3.67;
Assistor calls answered: 1.23;
Percentage of callers seeking and receiving live assistance: 32.
Week ending May 24:
Caller abandons: 2.47;
IRS disconnects or busy: 1.61;
Automated calls answered: 2.84;
Assistor calls answered: 1.13;
Percentage of callers seeking and receiving live assistance: 39.
Week ending May 31:
Caller abandons: 1.83;
IRS disconnects or busy: 0.9;
Automated calls answered: 2.11;
Assistor calls answered: 0.9.
Percentage of callers seeking and receiving live assistance: 41.
Week ending June 7:
Caller abandons: 2.17;
IRS disconnects or busy: 0.96;
Automated calls answered: 2.24;
Assistor calls answered: 1.01;
Percentage of callers seeking and receiving live assistance: 40.
Week ending June 14:
Caller abandons: 2.35;
IRS disconnects or busy: 0.71;
Automated calls answered: 2.18;
Assistor calls answered: 1.02;
Percentage of callers seeking and receiving live assistance: 43.
Week ending June 21:
Caller abandons: 2.19;
IRS disconnects or busy: 0.96;
Automated calls answered: 2.02;
Assistor calls answered: 0.97;
Percentage of callers seeking and receiving live assistance: 39.
Week ending June 28:
Caller abandons: 2.15;
IRS disconnects or busy: 0.97;
Automated calls answered: 1.86;
Assistor calls answered: 0.99;
Percentage of callers seeking and receiving live assistance: 39.
January 1 through June 30, 2009: Weekly calls on IRS's tax law and
account assistance lines (in millions):
Week ending January 3:
Caller abandons: 0.03;
IRS disconnects or busy: 0;
Automated calls answered: 0.01;
Assistor calls answered: 0.1;
Percentage of callers seeking and receiving live assistance: 91.
Week ending January 10:
Caller abandons: 0.41;
IRS disconnects or busy: 0.03;
Automated calls answered: 0.1;
Assistor calls answered: 0.65;
Percentage of callers seeking and receiving live assistance: 75.
Week ending January 17:
Caller abandons: 0.29;
IRS disconnects or busy: 0.02;
Automated calls answered: 0.21;
Assistor calls answered: 0.71;
Percentage of callers seeking and receiving live assistance: 91.
Week ending January 24:
Caller abandons: 0.61;
IRS disconnects or busy: 0.13;
Automated calls answered: 0.86;
Assistor calls answered: 0.75;
Percentage of callers seeking and receiving live assistance: 68.
Week ending January 31:
Caller abandons: 1.51;
IRS disconnects or busy: 0.19;
Automated calls answered: 1.97;
Assistor calls answered: 1.25;
Percentage of callers seeking and receiving live assistance: 66.
Week ending February 7:
Caller abandons: 1.87;
IRS disconnects or busy: 0.81;
Automated calls answered: 2.71;
Assistor calls answered: 1.43;
Percentage of callers seeking and receiving live assistance: 52.
Week ending February 14:
Caller abandons: 1.59;
IRS disconnects or busy: 0.43;
Automated calls answered: 2.81;
Assistor calls answered: 1.43;
Percentage of callers seeking and receiving live assistance: 61.
Week ending February 21:
Caller abandons: 1.41;
IRS disconnects or busy: 1.39;
Automated calls answered: 2.71;
Assistor calls answered: 1.09;
Percentage of callers seeking and receiving live assistance: 39.
Week ending February 28:
Caller abandons: 1.53;
IRS disconnects or busy: 0.48;
Automated calls answered: 2.03;
Assistor calls answered: 1.39;
Percentage of callers seeking and receiving live assistance: 58.
Week ending March 7:
Caller abandons: 1.14;
IRS disconnects or busy: 0.44;
Automated calls answered: 1.65;
Assistor calls answered: 1.3;
Percentage of callers seeking and receiving live assistance: 62.
Week ending March 14:
Caller abandons: 0.84;
IRS disconnects or busy: 0.04;
Automated calls answered: 1.31;
Assistor calls answered: 1.27;
Percentage of callers seeking and receiving live assistance: 84.
Week ending March 21:
Caller abandons: 0.83;
IRS disconnects or busy: 0.04;
Automated calls answered: 1.16;
Assistor calls answered: 1.21;
Percentage of callers seeking and receiving live assistance: 83.
Week ending March 28:
Caller abandons: 0.9;
IRS disconnects or busy: 0.03;
Automated calls answered: 1.08;
Assistor calls answered: 1.11;
Percentage of callers seeking and receiving live assistance: 75.
Week ending April 4:
Caller abandons: 0.88;
IRS disconnects or busy: 0.04;
Automated calls answered: 0.95;
Assistor calls answered: 1.18;
Percentage of callers seeking and receiving live assistance: 78.
Week ending April 11:
Caller abandons: 0.81;
IRS disconnects or busy: 0.04;
Automated calls answered: 0.81;
Assistor calls answered: 1.27;
Percentage of callers seeking and receiving live assistance: 81.
Week ending April 18:
Caller abandons: 1.38;
IRS disconnects or busy: 0.92;
Automated calls answered: 0.95;
Assistor calls answered: 1.56;
Percentage of callers seeking and receiving live assistance: 53.
Week ending April 25:
Caller abandons: 0.65;
IRS disconnects or busy: 0.02;
Automated calls answered: 0.66;
Assistor calls answered: 0.9;
Percentage of callers seeking and receiving live assistance: 78.
Week ending May 2:
Caller abandons: 0.58;
IRS disconnects or busy: 0.03;
Automated calls answered: 0.59;
Assistor calls answered: 0.85;
Percentage of callers seeking and receiving live assistance: 80.
Week ending May 9:
Caller abandons: 0.54;
IRS disconnects or busy: 0.02;
Automated calls answered: 0.5;
Assistor calls answered: 0.78;
Percentage of callers seeking and receiving live assistance: 79.
Week ending May 16:
Caller abandons: 0.54;
IRS disconnects or busy: 0.03;
Automated calls answered: 0.45;
Assistor calls answered: 0.78;
Percentage of callers seeking and receiving live assistance: 79.
Week ending May 23:
Caller abandons: 0.51;
IRS disconnects or busy: 0.04;
Automated calls answered: 0.37;
Assistor calls answered: 0.74;
Percentage of callers seeking and receiving live assistance: 77.
Week ending May 30:
Caller abandons: 0.45;
IRS disconnects or busy: 0.02;
Automated calls answered: 0.31;
Assistor calls answered: 0.66;
Percentage of callers seeking and receiving live assistance: 78.
Week ending June 6:
Caller abandons: 0.5;
IRS disconnects or busy: 0.02;
Automated calls answered: 0.28;
Assistor calls answered: 0.74;
Percentage of callers seeking and receiving live assistance: 79.
Week ending June 13:
Caller abandons: 0.51;
IRS disconnects or busy: 0.02;
Automated calls answered: 0.25;
Assistor calls answered: 0.68;
Percentage of callers seeking and receiving live assistance: 74.
Week ending June 27:
Caller abandons: 0.46;
IRS disconnects or busy: 0.02;
Automated calls answered: 0.23;
Assistor calls answered: 0.77;
Percentage of callers seeking and receiving live assistance: 80.
Week ending June 30:
Caller abandons: 0.18;
IRS disconnects or busy: 0.01;
Automated calls answered: 0.09;
Assistor calls answered: 0.34;
Percentage of callers seeking and receiving live assistance: 83.
Note: Weekly calls are those seeking tax law and account information
assistance and do not include calls to IRS's compliance division.
Source: GAO analysis of IRS data.
[End of figure]
[End of section]
Appendix V: Key Facts on Selected Tax Benefits for Higher Education:
Taxpayers can generally claim tax benefits to help offset qualified
higher education expenses for an eligible student if the eligible
student is the filing taxpayer, their spouse, or a dependent for whom
they claim an exemption on a tax return.[Footnote 51] Tax benefits
include credits, deductions, as well as a number of other programs to
help taxpayers offset qualified education expenses. Unlike other
student aid programs such as federal grants that offer assistance to
the taxpayer in determining their entitlements, tax benefits require
the taxpayer to understand the pertinent rules and, ultimately, choose
the option that provides the most benefit.[Footnote 52]
Information reported by educational institutions on the tuition
statement (Form 1098-T) assists taxpayers in determining the amount of
benefits to which they are entitled. Consequently, inaccurate
information on the tuition statement may contribute to taxpayer
confusion and result in taxpayers making less-than-optimal claims or
being unintentionally noncompliant.
Table 10 below provides information on tax benefits for education that
are available to qualifying taxpayers for the 2008 and 2009 tax years.
Table 10: Select Tax Benefits for Higher Education--Tax Year 2008:
Tax benefit for education: Hope credit[A];
Relevant IRS form: 8863;
Maximum amount of benefit: $1,800[B];
How long can benefit be claimed?: 2 years[C].
Tax benefit for education: Lifetime learning credit;
Relevant IRS form: 8863;
Maximum amount of benefit: $2,000[D];
How long can benefit be claimed?: no limit.
Tax benefit for education: Tuition and fees deduction[E];
Relevant IRS form: 8917;
Maximum amount of benefit: $4,000;
How long can benefit be claimed?: no limit.
Source: GAO analysis of IRS data.
[A] Taxpayers cannot claim the Hope and Lifetime learning credit for
the same student in the same year. The Hope credit has been changed
for tax years 2009 and 2010, and referred to as the American
opportunity tax credit. For example, for tax-years 2009 and 2010,
generally 40 percent of the Hope credit is a refundable credit, which
means that a person may be eligible to receive up to $1,000 even if
they owe no taxes. Additionally, the term "qualified tuition and
related expenses" is expanded to include expenditures for "course
materials," which means books, supplies, and equipment needed for a
course whether or not the materials are purchased from the educational
institution as a condition of enrollment or attendance.
[B] The maximum amount of the Hope credit increases to $3,600 per
student attending an eligible education institution in the Midwestern
disaster areas in the states of Arkansas, Illinois, Indiana, Iowa,
Missouri, Nebraska, and Wisconsin. Under the American opportunity tax
credit, the maximum amount increases to $2,500 and increases to $3,600
per student attending an eligible education institution in the
Midwestern disaster areas.
[C] Under the American opportunity tax credit, for tax years 2009 and
2010, the credit was expanded from a 2-year to a 4-year limit.
[D] The maximum amount of the Lifetime Learning credit increases to
$4,000 per return for students attending an eligible education
institution in the Midwestern disaster areas.
[E] Taxpayers cannot take both an education credit and tuition and
fees deduction for the same student for the same year.
[End of table]
[End of section]
Appendix VI: GAO Contact and Staff Acknowledgments:
GAO Contact:
James R. White, (202) 512-9110 or w [Hyperlink, whitej@gao.gov]
hitej@gao.gov.
Acknowledgments:
In addition to the contact named above, Joanna M. Stamatiades,
Assistant Director; Vida Awumey; John P. Dell'Osso; Kara Eusebio;
Melanie D. Helser; Lina Khan; Kirsten B. Lauber; Angela Leventis;
Natalie Maddox; Paul B. Middleton; Karen V. O'Conor; Sabine R. Paul;
Neil Pinney; Sabrina C. Streagle; and Jessica Thomsen made key
contributions to this report.
[End of section]
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] Millions of taxpayers qualified for the recovery rebate credit
contained in the Economic Stimulus Act of 2008, Pub. L. No. 110-185,
122 Stat. 613 (2008). Taxpayers who did not receive the full economic
stimulus payment in 2007 can claim some or all of the unpaid credit on
their 2008 return. The Housing and Economic Recovery Act of 2008
included a first-time homebuyer credit of up to $7,500 for homes
purchased in 2008 that must be paid back over 15 years, Pub. L. No.
110-289, 122 Stat. 2654 (2008). The American Recovery and Reinvestment
Act of 2009 increased the maximum credit to $8,000 and eliminated the
payback provision for homes purchased before December 1, 2009, Pub. L.
No. 111-5, 123 Stat. 115 (2009).
[3] GAO, Refund Anticipation Loans, [hyperlink,
http://www.gao.gov/products/GAO-08-800R] (Washington, D.C.: June 5,
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] See GAO, Tax Administration: Interim Results of IRS's 2009 Filing
Season, [hyperlink, http://www.gao.gov/products/GAO-09-640]
(Washington, D.C.: June 3, 2009); GAO, Tax Administration:
Opportunities Exist for IRS to Enhance Taxpayer Service and
Enforcement for the 2010 Filing Season, [hyperlink,
http://www.gao.gov/products/GAO-09-1026] (Washington, D.C.: Sept. 23,
2009); and GAO, First-time Homebuyer Tax Credit: Taxpayers' Use of the
Credit and Implementation and Compliance Challenges, [hyperlink,
http://www.gao.gov/products/GAO-10-166T] (Washington, D.C.: Oct. 22,
2009).
[6] GAO, Assessing the Reliability of Computer-Processed Data,
[hyperlink, http://www.gao.gov/products/GAO-02-15G] (Washington, D.C.:
Sept.1, 2002).
[7] See GAO, Internal Revenue Service: Fiscal Year 2009 Budget Request
and Interim Performance Results of IRS's 2008 Tax Filing Season,
[hyperlink, http://www.gao.gov/products/GAO-08-567] (Washington, D.C.:
Mar. 13, 2008).
[8] Taxpayers with an adjusted gross income of $56,000 or less in 2008
can access the Free File program offered through IRS's Web site.
[9] IRS's highly complex, multibillion-dollar Business System
Modernization (BSM) program is critical to (1) transforming the
agency's manual paper-intensive business operations, (2) fulfilling
its obligations under the IRS Restructuring and Reform Act, and (3)
providing more reliable and timely financial management to allow IRS
to better justify resource allocation decisions and budgetary
requests. Despite progress in improving modernization management
controls and capabilities and addressing long-standing financial
management weaknesses, significant challenges and serious risks
remain. (See GAO, High-Risk Series: An Update, [hyperlink,
http://www.gao.gov/products/GAO-09-271] (Washington, D.C.: January
2009).
[10] [hyperlink, http://www.gao.gov/products/GAO-08-800R].
[11] GAO, Tax Administration: IRS's 2008 Filing Season Generally
Successful Despite Challenges, although IRS Could Expand Enforcement
during Returns Processing, [hyperlink,
http://www.gao.gov/products/GAO-09-146] (Washington, D.C.: Dec. 12,
2008).
[12] The Economic Stimulus Act of 2008 mandated that IRS send stimulus
payments to millions of households. Many taxpayers that were exempt
from filing a tax return did file in 2008 to receive the stimulus
payment. See [hyperlink, http://www.gao.gov/products/GAO-09-146].
[13] The original goal was 80 percent by 2007, but Congress revised
the time frame to 2012. 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, [hyperlink,
http://www.gao.gov/products/GAO-07-27] (Washington, D.C.: Nov. 15,
2006).
[14] GAO, Tax Administration: Many Taxpayers Rely on Tax Software and
IRS Needs to Assess Associated Risks, [hyperlink,
http://www.gao.gov/products/GAO-09-297] (Washington, D.C.: Feb. 25,
2009).
[15] During the 2009 filing season, the recovery rebate credit was
available to taxpayers who did not receive the economic stimulus
payment or who were entitled to an additional payment based on
information on their tax year 2008 tax return. Millions of taxpayers
made errors calculating credit amounts and received math error notices
notifying them of the change(s) made to the return.
[16] [hyperlink, http://www.gao.gov/products/GAO-09-640].
[17] This is based on the percentage of functions, forms, and
transactions IRS reports having delivered to date.
[18] The changes to CADE for the 2010 filing season will primarily be
legislative changes and improvements to existing functions.
[19] Business Systems Modernization funds (except labor costs) are
unavailable until IRS submits a modernization expenditure plan to the
congressional appropriations committees and obtains their approval.
The appropriation that funds IRS requires GAO to review this plan. We
have also initiated a more detailed review of the new strategy at the
request of the House Appropriations Subcommittee on Financial Services
and General Government and plan to report on the results of this
review within the next year.
[20] IRS subsequently reduced this goal to 68 percent in April 2009
due largely to increased call volume related to electronic filing
authentication and stimulus-related questions. IRS also increased its
wait time goal, and the average time a taxpayer waits to speak with an
assistor remains over 8 minutes, nearly twice the average wait times
between 2005 and 2007.
[21] Unlike last year, when so many calls came in after the filing
season, between April and June, this year call volume was heaviest
during February (see appendix IV for graphic illustrations of weekly
call volume).
[22] [hyperlink, http://www.gao.gov/products/GAO-09-1026].
[23] Contact Analytics is one of the 55 initiatives outlined in the
Taxpayer Assistance Blueprint (TAB), and is directly linked to the
Improving Taxpayer Services goal as well as the Electronic Interaction
Enablement and Telephone Service Enhancements objectives.
[24] See GAO, Quantitative Data Analysis: An Introduction, [hyperlink,
http://www.gao.gov/products/GAO-10.1.11] (Washington D.C.: May 1992).
[25] GAO, Earned Income Tax Credit: Implementation of Three New Tests
Proceeded Smoothly, but Tests and Evaluation Plans Were not Fully
Documented, [hyperlink, http://www.gao.gov/products/GAO-05-92]
(Washington, D.C.: Dec. 2004).
[26] 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.
[27] Volunteer sites are located in a variety of locations, such as
community and neighborhood centers, schools, and other locations, some
of which may be fairly remote. Further, many sites operate only for a
few days and limited hours.
[28] Mystery shopping involves IRS officials visiting volunteer sites
posing as taxpayers to assess the experience of the preparers. 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. However, because IRS's site and return
reviews were based on a non statistical selection of returns prepared
during visits to volunteer sites prior to the 2009 filing season, the
results were not statistically valid or reliable.
[29] According to IRS officials, IRS used a group of 22 specially
trained tax specialists to visit a statistically valid sample of
volunteer sites and generally perform three return reviews at each
site in order to determine the overall accuracy of tax returns
prepared at the volunteer sites.
[30] In fiscal year 2008, IRS reverted back to its old methodology in
an effort to capture the number of taxpayers assisted rather than, as
in prior years, capturing services provided.
[31] GAO, Agencies' Strategic Plans Under GPRA: Key Questions to
Facilitate Congressional Review, [hyperlink,
http://www.gao.gov/products/GAO/GGD-10.1.16] (Washington, D.C.: May
1997).
[32] [hyperlink, http://www.gao.gov/products/GAO-08-800R].
[33] GAO, Tax Administration: Interim Results of IRS's 2009 Filing
Season, [hyperlink, http://www.gao.gov/products/GAO-09-640]
(Washington, D.C.: June 3, 2009).
[34] Report to Congress (2006). The report was submitted in response
to a directive from Congress in the fiscal year 2006 Treasury
Appropriation Act conference report.
[35] Treasury's Financial Management Service is the primary disburser
of payments to individuals and businesses on behalf of federal
agencies. The Automated Clearing House network is a funds transfer
system governed by a specific set of rules that provides for the
interbank clearing of electronic entries for participating
institutions.
[36] FMS provides a variety of options to federal agencies for
collecting and issuing payments. While IRS uses ACH to deliver most
individual tax refunds, which takes 2 to 4 days, it uses FedWire to
deliver refunds of more than $1 million, which are processed and
delivered within the same day. While issuing refunds through FedWire
costs slightly more per refund than ACH, the often high interest rates
for RALs and RACs may make the increased cost of using FedWire a
viable option for taxpayers. In addition to FedWire and ACH, FMS
provides debit cards and other electronic methods that agencies use to
process payments. However, IRS officials stated that because of the
high costs involved, FMS discourages issuing FedWire payments less
than $1 million. These costs occur because IRS must manually key enter
the information to arrange FedWire payments and there is no large
volume processing capability for payments. However, IRS officials
reported that there is potential to automate and work with FMS to
enhance the manual refund process for Fedwire.
[37] In 2009, IRS partnered with JP Morgan Chase and other partners to
pilot a refund debit card program at a limited number of volunteer
sites. IRS did not cosponsor the Chase debit card program, nor did it
advocate for any specific financial institution or debit card, but did
share information with Chase to target cities with high RAL and RAC
use. Further, individual volunteer sites had the option of not
participating in the program. According to IRS officials, while the
pilot program was characterized as a success--with 6 partners
participating and 958 debit cards issued at 19 volunteer sites--no
additional data about the program's success were collected. Further,
the program will not be expanded. Instead, IRS reported that it will
provide outreach and education, but it will be the responsibility of
the partnering sites to establish and maintain relationships with
financial institutions and IRS will not facilitate any kind of program
nor advocate for any particular product.
[38] Currently, individuals without an account at a bank, savings and
loan, credit union or other financial institutions, sometimes referred
to as the "unbanked," receive their tax refunds by checks mailed to
their homes. While IRS has no plans to develop or deploy a debit card
system, it has reported that payments made to debit cards could be
sent over the same electronic network and direct deposits and thus
would move at the same speed. However, to be as fast as direct
deposit, debit cards would need to be in the possession of and
activated by taxpayers at the time their refunds are made. Further,
debit cards could offer unbanked taxpayers some of the same benefits
of having a bank account. The balance of the taxpayer's refund after
fees could be accessed by using the debit card at ATM machines and
points of sale. Just before our report was issued, the Federal Deposit
Insurance Corporation (FDIC) published an estimate of the number of
unbanked households. FDIC estimated that 9 million households were
unbanked (see FDIC, National Survey of Unbanked and Underbanked
Households (Washington, D.C.: December 2009).
[39] Report to Congress (2006).
[40] GAO, Electronic Payments: Many Programs Electronically Disburse
Federal Benefits, and More Outreach Could Increase Use, [hyperlink,
http://www.gao.gov/products/GAO-08-645] (Washington, D.C.: June 23,
2008).
[41] On taxpayers under claiming tax benefits, see, for example, GAO,
Student Aid and Postsecondary Tax Preferences: Limited Research Exists
on Effectiveness of Tools to Assist Students and Families through
Title IV Student Aid and Tax Preferences, [hyperlink,
http://www.gao.gov/products/GAO-05-684] (Washington, D.C.: July 29,
2005).
[42] Special rules apply to students attending qualified education
institutions in a Midwestern disaster area. Also, under the Recovery
Act of 2009, for tax years 2009 and 2010, the Hope credit the maximum
allowable amount most taxpayers can claim is increased from $1,800 to
$2,500.
[43] Under the Recovery Act of 2009, for tax years 2009 and 2010, the
Hope credit was expanded from a 2-year to a 4-year limit (see app. V
for details).
[44] Qualified expenses are tuition and fees a student must pay to be
enrolled at or attend an eligible educational institution, and other
course-related fees and expenses only if the fees and expenses must be
paid to the institution as a condition of enrollment or attendance.
[45] 26 U.S.C. § 6050S requires educational institutions to provide
information to taxpayers and IRS to assist both in determining the
amount of qualified tuition and related expenses for which an
education tax benefit is allowable.
[46] Currently, educational institutions are required to report
information on the form 1098-T for qualified tuition expenses as well
as information on the institution itself and the student. These
requirements include, for example, reporting name, address, and
taxpayer identification number (TIN) of the institution; name,
address, and TIN of the student; and amount of payments received or
the amount billed for qualified expenses during the calendar year.
[47] Under the Recovery Act of 2009, for tax years 2009 and 2010, the
Hope credit was expanded to include as qualified tuition and related
expenses any expenditures for course materials. These expenditures
include books, supplies, and equipment needed for a course of study
whether or not the materials are purchased from the educational
institution as a condition of enrollment or attendance.
[48] In a recent report, TIGTA recommended that IRS be provided with
math error authority to disallow claims for the Hope Credit that are
taken for more years than allowed by law. See TIGTA, Improvements Are
Needed in the Administration of Education Credits and Reporting
Requirements for Educational Institutions, Reference No. 2009-30-141
(Washington, D.C.: Sept. 30, 2009).
[49] Fifth TAB Guiding Principle.
[50] IRS Strategic Plan, Goal 1, Objective 4.
[51] The Federal Registry of Child Support Orders database includes
information on non-custodial parents and other taxpayer
characteristics for determining program eligibility. Also see GAO-09-
146.
[52] During the 2009 filing season, the recovery rebate credit was
available to taxpayers who did not receive the economic stimulus
payment or who were entitled to an additional payment based on
information on their Tax Year 2008 tax return. Millions of taxpayers
made errors calculating credit amounts and received math error notices
notifying them of the change(s) made to the return.
[53] Limitations on whether a taxpayer can claim tax benefits include
the taxpayer's income level, whether the taxpayer is listed as a
dependent on another return, and residency status. Further, there are
limitations on the number of tax benefits that can be claimed in 1
year. For example, taxpayers cannot claim both the Hope credit and the
Lifetime learning credit in 1 year.
[54] [hyperlink, http://www.gao.gov/products/GAO-05-684] explains how
the complex rules for determining benefits may lead taxpayers to make
less-than-optimal benefit claims.
[End of section]
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(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:
