Applying Agreed-Upon Procedures
Airport and Airway Trust Fund Excise Taxes Gao ID: GAO-05-29R November 5, 2004We have performed the procedures contained in this report, which we agreed to perform and with which the Inspector General (IG) of the Department of Transportation concurred, solely to assist that office in ascertaining whether the net excise tax revenue distributed to the Airport and Airway Trust Fund (AATF) for the fiscal year ended September 30, 2004, is supported by the underlying records. We evaluated fiscal year 2004 activity affecting distributions to the AATF. The adequacy of the procedures to meet the IG's objectives is the IG's responsibility, and we make no representation in that respect. The procedures we agreed to perform were (1) detailed tests of transactions that represent the underlying basis of amounts distributed to the AATF, (2) review of the Internal Revenue Service's (IRS) quarterly AATF certifications, (3) review of the Department of the Treasury's Financial Management Service adjustments to the AATF for fiscal year 2004, (4) review of IRS's precertification1 of receipts for the second and third quarters of fiscal year 2004, (5) review of certain procedures of the Department of the Treasury's Office of Tax Analysis' (OTA) estimation procedures affecting excise tax distributions to the AATF for the fourth quarter of fiscal year 2004, and other procedures including (6) compiling and reporting the net amount of fiscal year 2004 excise taxes distributed to the AATF, (7) detailed tests of transactions that represent total IRS tax revenue receipts and refunds, and (8) review of key reconciliations of IRS records to Treasury records.
GAO-05-29R, Applying Agreed-Upon Procedures: Airport and Airway Trust Fund Excise Taxes
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November 5, 2004:
The Honorable Kenneth M. Mead:
Inspector General:
Department of Transportation:
Subject: Applying Agreed-Upon Procedures: Airport and Airway Trust
Fund Excise Taxes:
Dear Mr. Mead:
We have performed the procedures contained in the enclosure to this
report, which we agreed to perform and with which you concurred, solely
to assist your office in ascertaining whether the net excise tax
revenue distributed to the Airport and Airway Trust Fund (AATF) for the
fiscal year ended September 30, 2004, is supported by the underlying
records. As agreed with your office, we evaluated fiscal year 2004
activity affecting distributions to the AATF.
In performing the agreed-upon procedures, we conducted our work in
accordance with U.S. generally accepted government auditing standards,
which incorporate financial audit and attestation standards established
by the American Institute of Certified Public Accountants. These
standards also provide guidance for performing and reporting the
results of agreed-upon procedures.
The adequacy of the procedures to meet your objectives is your
responsibility, and we make no representation in that respect. The
procedures we agreed to perform were (1) detailed tests of transactions
that represent the underlying basis of amounts distributed to the AATF,
(2) review of the Internal Revenue Service's (IRS) quarterly AATF
certifications, (3) review of the Department of the Treasury's
Financial Management Service adjustments to the AATF for fiscal year
2004, (4) review of IRS's precertification[Footnote 1] of receipts for
the second and third quarters of fiscal year 2004, (5) review of
certain procedures of the Department of the Treasury's Office of Tax
Analysis' (OTA) estimation procedures affecting excise tax
distributions to the AATF for the fourth quarter of fiscal year 2004,
and other procedures including (6) compiling and reporting the net
amount of fiscal year 2004 excise taxes distributed to the AATF, (7)
detailed tests of transactions that represent total IRS tax revenue
receipts and refunds, and (8) review of key reconciliations of IRS
records to Treasury records. The enclosure contains the agreed-upon
procedures and our findings from performing each of the procedures.
We were not engaged to perform, and did not perform, an audit, the
objective of which would have been the expression of an opinion on the
amount of net excise taxes distributed to the AATF. Accordingly, we do
not express such an opinion. Had we performed additional procedures,
other matters might have come to our attention that would have been
reported to you.[Footnote 2] We completed the agreed-upon procedures on
October 27, 2004.
We provided a draft of this report to IRS and OTA officials for review
and comment. IRS agreed with the results and findings presented in this
report. OTA's review of the report only covered the procedures related
to the estimation process for the quarter ended September 30, 2004. OTA
agreed with the results and findings presented in this report relating
to procedures performed on the estimation process for the quarter ended
September 30, 2004.
This report is intended solely for the use of the Office of Inspector
General of the Department of Transportation and should not be used by
those who have not agreed to the procedures and have not taken
responsibility for the sufficiency of the procedures for their
purposes. However, this report is a matter of public record, and its
distribution is not limited. Copies are available to others upon
request. This report is also available at no charge on GAO's Web site
at http://www.gao.gov. If you have any questions, please call me at
(202) 512-3406.
Sincerely yours,
Signed by:
Steven J. Sebastian:
Director:
Financial Management and Assurance:
Enclosure:
[End of section]
Airport and Airway Trust Fund Excise Tax Procedures and Results:
Detailed tests of transactions that represent the underlying basis of
amounts distributed to the Airport and Airway Trust Fund (AATF) in
fiscal year 2004:
Nonrepresentative selection of tax returns from the quarters ended
June 30, 2003, and September 30, 2003[Footnote 3]
For each of the quarters ending June 30, 2003, and September 30, 2003,
select the 30 largest excise tax returns containing excise taxes
related primarily to the AATF and the Highway Trust Fund (HTF) on the
basis of total tax liability amount[Footnote 4] from the Internal
Revenue Service's (IRS) master file.[Footnote 5]
Description of findings and results:
We selected the 30 largest excise tax returns related primarily to the
AATF and the HTF from each of the two quarters for testing. The
selection was based on the total tax liability amount and type of taxes
owed for each return from the master file.
The total tax liability amount related to the 30 returns from the
quarter ended June 30, 2003, was approximately $8.8 billion, or 68
percent of the total excise tax liability amount of $13 billion for all
excise tax types for the quarter. Of these 30 returns, 9 contained
primarily AATF-related taxes and 21 contained primarily HTF taxes.
The total tax liability amount related to the 30 returns from the
quarter ended September 30, 2003, was approximately $8.9 billion, or 67
percent of the total excise tax liability amount of $13.3 billion for
all excise tax types for the quarter. Of these 30 returns, 9 contained
primarily AATF-related taxes and 21 contained primarily HTF taxes.
For each of the 18 returns related primarily to the AATF from the
quarters ended June 30, 2003, and September 30, 2003, we performed the
following procedures, which resulted in our testing approximately $3.2
billion in prorated collections[Footnote 6] affecting fiscal year 2004
distributions to the AATF:
Trace the liability amount for abstracts[Footnote 7] 26, 27, and 28
from the tax return to the master file.
Description of findings and results:
The liability amount for abstracts 26, 27, and 28 on the tax return
agreed with the master file for all 18 returns.
Check the mathematical accuracy of taxpayers' calculations on the tax
return for the selected abstracts.
Description of findings and results:
The taxpayers' calculations on all 18 returns were mathematically
correct.
Recompute the prorated collection amount for the selected abstracts
based on information from the master file and compare this amount to
the amount from the Collection Certification System audit
files.[Footnote 8]
Description of findings and results:
The recomputed prorated collection amounts for the three selected
abstracts agreed with amounts in IRS's Collection Certification System
for all 18 returns.
Dollar unit sample (DUS) of transactions from the quarters ended
December 31, 2003, and March 31, 2004:
1. Sampling:
(a) Obtain excise tax collection data from the master file for the
first two quarters of fiscal year 2004. Determine if excise tax
collection data from the master file agree with data from IRS's general
ledger. Reconcile total excise tax collections from the master file to
total excise tax collections from the Collection Certification System
audit files to determine if they materially[Footnote 9] agree.
Description of findings and results:
Excise tax collections for the first two quarters of fiscal year 2004
from the master file materially agreed with IRS's general ledger and
with excise tax collections from the Collection Certification System.
(b) Select a random attribute sample of 78 excise tax assessments from
the master file.[Footnote 10] Compare assessment and receipt
information for each sample item from the master file to the assessment
and receipt information in the Collection Certification System to
determine if assessments and receipts from the master file are
contained in the Collection Certification System.
Description of findings and results:
For each sample item, assessments and receipts from the master file
were contained in the Collection Certification System.
(c) To determine if the Collection Certification System properly
summarized the prorated collections, total the prorated collections for
selected abstracts[Footnote 11] from the audit files and compare these
amounts to amounts in the Report of Excise Tax Collection.[Footnote 12]
Description of findings and results:
The Collection Certification System properly summarized the prorated
collections for all of the selected abstracts. Prorated collections
from the audit files for the selected abstracts agreed with the
corresponding amounts in the Report of Excise Tax Collection.
(d) Separate the total population of prorated collections from the
audit files into the following distinct populations: (1) AATF, (2) HTF,
and (3) other excise tax abstracts. Use DUS to select a sample of
prorated excise tax collections from the AATF population.
Description of findings and results:
Use of DUS with a confidence level of 80 percent, a test materiality of
$88 million, and an expected aggregate error amount of $26.4 million
resulted in a sample of 73[Footnote 13] prorated collections for the
AATF for the first two quarters of fiscal year 2004.
(d) Select samples of prorated excise tax collections from the two non-
AATF populations.
Description of findings and results:
Use of DUS with a confidence level of 80 percent, a test materiality of
$341 million, and an expected aggregate error amount of $102.3 million
resulted in a sample of 102[Footnote 14] prorated collections for the
HTF for the first two quarters of fiscal year 2004.
A random attribute sample of 45 items from the population of prorated
tax collections, related to all excise taxes other than the AATF and
the HTF, was selected for testing.[Footnote 15]
Detailed tests of transactions:
(a) For each prorated excise tax collection sampled from the AATF
population:
Check to determine whether the assessment amount on the tax return, for
the sampled abstract, agrees with the amount recorded in the master
file.
Description of findings and results:
The assessment amount on the tax return agreed with the amount recorded
in the master file for all of the sampled items.
Check the mathematical accuracy of the taxpayers' calculations on the
tax return for the related abstract.
Description of findings and results:
The taxpayers' calculations were mathematically correct on the tax
return for all of the sampled items.
Recompute the prorated collection amount based on information from the
master file and compare this amount to the sample items selected from
the Collection Certification System audit files.[Footnote 16]
Description of findings and results:
The recomputed prorated collection, based on information from the
master file, agreed with the amounts for all of the sampled items.
(b) Perform detailed testing on the two samples of prorated collections
from the non-AATF populations to determine if they contain any AATF
excise tax collections.
Description of findings and results:
The two samples of prorated collections from the non-AATF populations
did not contain any AATF excise tax collections.
(c) Evaluate the results of conducting steps (a) and (b).
Description of findings and results:
As noted in the results from steps (a) and (b), we found no errors.
II. Review of IRS's quarterly AATF certifications:
A. Receipt certifications:
Perform the following steps on IRS's AATF receipt certifications for
the quarters ended September 30, 2003, December 31, 2003, and March 31,
2004:
1. Inspect the certification letters for authorizing signatures.
Description of findings and results:
The certification letters for all three quarters had authorizing
signatures.
2. Determine if evidence exists that the supervisor or another analyst
checked the certification letters and supporting worksheets.
Description of findings and results:
There was evidence that the supervisor or another analyst checked the
certification letters and supporting worksheets for all three quarters.
3. Recalculate the totals on the certification letters to determine if
they are mathematically correct.
Description of findings and results:
The totals on the certification letters for all three quarters were
mathematically correct.
4. Trace the certified amounts for tax on transportation of persons by
air (abstract 26), tax on the use of international air facilities
(abstract 27), tax on transportation of property by air (abstract 28),
and tax on aviation fuel for commercial use (abstract 77)[Footnote 17]
from the certification letters back to the Report of Excise Tax
Collection[Footnote 18] and the Treasury 90 Report.[Footnote 19]
Description of findings and results:
The certified amounts for tax on transportation of persons by air
(abstract 26), tax on the use of international air facilities (abstract
27), tax on transportation of property by air (abstract 28), and tax on
aviation fuel for commercial use (abstract 77) from the certification
letters agreed with the related Report of Excise Tax Collection and the
Treasury 90 Report for all three quarters.
5. Review the distribution rates used by IRS to determine if the
distribution rates for tax on transportation of persons by air
(abstract 26), tax on the use of international air facilities (abstract
27), tax on transportation of property by air (abstract 28), and tax on
aviation fuel for commercial use (abstract 77) agree with the
applicable laws.
Description of findings and results:
The distribution rates used by IRS for tax on transportation of persons
by air (abstract 26), tax on the use of international air facilities
(abstract 27), tax on transportation of property by air (abstract 28),
and tax on aviation fuel for commercial use (abstract 77) agreed with
the applicable laws in effect during all three quarters.
6. Review the Report of Excise Tax Collection used in the certification
to determine if it contains significant[Footnote 20] collections from
prior quarters.
Description of findings and results:
The Report of Excise Tax Collection used in the certification for all
three quarters did not contain significant collections from prior
quarters.
III. Review of Financial Management Service adjustments:
Perform the following steps on Financial Management Service (FMS)
adjustments to AATF excise tax distributions for the quarters ended
September 30, 2003, December 31, 2003, and March 31, 2004:
A. Compare the FMS adjustments made to the AATF for fiscal year 2004
with original Office of Tax Analysis (OTA) estimates and IRS-certified
amounts to determine if they agree with the supporting
schedules.[Footnote 21]
Description of findings and results:
For the FMS adjustments made to the AATF, the original OTA estimates
and IRS-certified amounts agreed with the supporting schedules for all
three quarters.
B. Recompute the difference between the OTA estimates and final IRS-
certified amounts to determine if the amounts agree with the
differences computed by FMS.
Description of findings and results:
The independently recalculated differences between the OTA estimates
and the final IRS-certified amounts for the AATF agreed with the
differences computed by FMS for all three quarters. These amounts
were[Footnote 22]
* ($41,806,000) for the quarter ended September 30, 2003,
* ($39,881,000) for the quarter ended December 31, 2003, and:
* $54,196,000 for the quarter ended March 31, 2004.
IV. Review of IRS precertification for the quarters ended March 31,
2004, and June 30, 2004[Footnote 23]
A. Determine if evidence exists that the supervisor or another analyst
checked the results and supporting worksheets.
Description of findings and results:
There was evidence that the supervisor or another analyst checked the
results and supporting worksheets for both quarters.
B. Recalculate the totals on the precertification to determine if they
are mathematically correct.
Description of findings and results:
The totals on the precertification were mathematically correct for both
quarters.
C. Trace the amounts for tax on transportation of persons by air
(abstract 26), tax on the use of international air facilities (abstract
27), tax on transportation of property by air (abstract 28), and tax on
aviation fuel for commercial use (abstract 77)[Footnote 24] from the
precertification back to the Report of Excise Tax Collection and the
Treasury 90 Report.
Description of findings and results:
The amounts for tax on transportation of persons by air (abstract 26),
tax on the use of international air facilities (abstract 27), tax on
transportation of property by air (abstract 28), and tax on aviation
fuel for commercial use (abstract 77) from the precertification agreed
with the related Report of Excise Tax Collection and the Treasury 90
Report for the quarter ended June 30, 2004.
In the precertification for the quarter ended March 31, 2004, IRS
erroneously omitted returns related to the quarter that posted during
the month of March. The total amount of prorated collections related to
the AATF for these returns was approximately $300. Because IRS's
precertification is not an actual certification that results in any
redistributions of excise taxes among the trust funds, this error did
not have an effect on fiscal year 2004 distributions to the AATF.
D. Review the distribution rates used by IRS to determine if the rates
for tax on transportation of persons by air (abstract 26), tax on the
use of international air facilities (abstract 27), tax on
transportation of property by air (abstract 28), and tax on aviation
fuel for commercial use (abstract 77) agree with the applicable laws.
Description of findings and results:
The distribution rates used by IRS for tax on transportation of persons
by air (abstract 26), tax on the use of international air facilities
(abstract 27), tax on transportation of property by air (abstract 28),
and tax on aviation fuel for commercial use (abstract 77) agreed with
the applicable laws in effect during both quarters.
E. Review the Report of Excise Tax Collection used in the
precertification to determine if it contains significant[Footnote 25]
collections from prior quarters.
Description of findings and results:
The Report of Excise Tax Collection supporting IRS's precertification
for both quarters did not contain significant collections from prior
quarters.
F. Review the Collection Certification System information to determine
whether IRS omitted any significant[Footnote 26] returns from the
precertification. If so, report: (1) the average amount of AATF-related
excise taxes from these taxpayers' returns that were included in IRS's
certification from the four previous quarters and (2) the amount of
AATF-related excise taxes from these taxpayers' returns that were
included in IRS's certification for the quarters ended March 31, 2003,
and June 30, 2003.
Description of findings and results:
IRS did not omit any significant returns from the precertifications for
both quarters.
V. Procedures performed on excise tax distributions to the AATF for the
quarter ended September 30, 2004:
A. Determine if OTA's process for identifying and incorporating the
effect of new legislation on excise tax receipts into its trust fund
estimates[Footnote 27] was in place during the quarter ended September
30, 2004.
Description of findings and results:
OTA's process for identifying and incorporating into its trust fund
estimates the effect of new legislation on excise tax receipts was in
place during the quarter ended September 30, 2004. OTA prepares a tax
rate table[Footnote 28] to capture information relating to legislation
that affects tax rates, tax basis, accounts, and deposit rules in
effect during the quarter.
B. Determine if there is evidence of review of the transfer forms and
supporting schedules.
Description of findings and results:
There was evidence that another OTA economist reviewed the transfer
forms and supporting schedules for the semimonthly transfers affecting
distributions to the AATF for the quarter ended September 30, 2004.
C. Recalculate the totals on the transfer forms to determine if they
are mathematically correct.
Description of findings and results:
The totals on the transfer forms affecting distributions to the AATF
for the quarter ended September 30, 2004, were mathematically correct.
D. Trace the transfer amounts for tax on transportation of persons by
air (abstract 26), tax on the use of international air facilities
(abstract 27), tax on transportation of property by air (abstract 28),
and tax on aviation fuel for commercial use (abstract 77)[Footnote 29]
from the transfer letter through the supporting schedules and back to
the related source documents.[Footnote 30]
Description of findings and results:
The transfer amounts for tax on transportation of persons by air
(abstract 26), tax on the use of international air facilities (abstract
27), tax on transportation of property by air (abstract 28), and tax on
aviation fuel for commercial use (abstract 77) from the transfer letter
agreed with the supporting schedules and source documents for the
semimonthly transfers affecting distributions to the AATF for the
quarter ended September 30, 2004.
VI. Other procedures:
A. Compile and report the net amount of fiscal year 2004 excise taxes
distributed to the AATF.
Description of findings and results:
Based on a compilation of IRS's certifications, OTA's estimations, and
adjustments, the net amount of fiscal year 2004 excise taxes
distributed to the AATF was $9,174,242,800.
B. Procedures performed as part of the fiscal year 2004 IRS financial
statement audit:
1. From IRS's master files for the first 8 months of fiscal year 2004,
use DUS to select statistical samples of (1) total tax revenue receipts
and (2) refunds. For each sample item, test that the collection or
refund amount, tax period, and tax class[Footnote 31] from source
documentation agree with those recorded in the master files.
Description of findings and results:
Detailed testing of 135 revenue receipts and 48 refund sample
transactions showed that the collection or refund amount, tax period,
and tax class from source documents agreed with amounts recorded in the
master files.
2. Review selected IRS service center campuses' monthly Treasury SF-224
reconciliations to determine if IRS-reported revenue receipts were
properly classified and reconciled to Treasury FMS records. For
refunds, review selected IRS service center campuses' monthly Treasury
SF-224 reconciliations to determine if IRS-reported total refunds (all
tax classes) materially[Footnote 32] reconciled to Treasury FMS
records.[Footnote 33]
Description of findings and results:
Tax revenue receipts reported by selected IRS service center campuses
through the monthly Treasury SF-224 reconciliation process were
properly classified and materially agreed with Treasury FMS records.
Total refunds reported by selected IRS service center campuses through
the monthly Treasury SF-224 reconciliation process materially agreed
with Treasury FMS records.
3. Perform procedures to determine whether tax revenue receipt balances
by tax class, including excise taxes, recorded in IRS's general ledger
materially agree with the master files and Treasury records. For
refunds, perform a comparison of total refund balances between the
master files, the general ledger, and Treasury records.
Description of findings and results:
Tax receipt balances for all tax classes, including excise taxes,
recorded in IRS's general ledger materially agreed with the master
files and Treasury records. Refund balances recorded in IRS's general
ledger materially agreed with the master files and with Treasury
records.
(196010):
FOOTNOTES
[1] To accommodate the Department of Transportation's accelerated
reporting date for fiscal year 2004, IRS performed precertifications of
excise tax collections. The data are for information purposes only, and
the precertification does not constitute an official certification.
[2] In our report on the results of our audit of IRS's fiscal year 2003
financial statements, we noted a material weakness in IRS's financial
reporting process (GAO, Financial Audit: IRS's Fiscal Years 2003 and
2002 Financial Statements, GAO-04-126, Nov. 13, 2003). A component of
this process includes IRS's ability to allocate excise tax collections
to the appropriate trust funds at the time deposits are made. This
condition affects the adequacy of the distributions of federal excise
tax revenue to recipient trust funds and is a continuation of an issue
that we have reported on in prior years.
[3] Since certifications are not completed until 6 months after the end
of the quarter, the certification and corresponding adjustment by the
Department of the Treasury's Financial Management Service for the
quarters ended June 30, 2003, and September 30, 2003, were completed in
December 2003 and March 2004, respectively, and thus affected fiscal
year 2004 distributions to the AATF.
[4] Although the certifications are based on amounts collected, we used
the tax liability amounts to identify the taxpayers paying the largest
amounts of excise taxes. Our review shows that these taxpayers
generally pay their excise taxes in full each quarter.
[5] The master file is a detailed database containing taxpayer
information.
[6] IRS certifies to trust funds the amount of excise taxes collected.
Because taxpayers have sometimes not fully paid their tax liability,
IRS must allocate the amount of payments actually received among the
different excise taxes reported on the taxpayer's return. IRS's
Collection Certification System prorates a taxpayer's payments
proportionately among all taxes reported as owed on the tax return. For
example, if a corporation reports that it owes $4 million for gasoline
tax, $2 million for diesel fuel tax, and $1 million for gasohol tax on
its Form 720, Quarterly Federal Excise Tax Return, but has paid IRS
only $3.5 million at the time IRS performs its certification, the
program prorates the $3.5 million in the following manner:
$2 million to gasoline tax, $1 million to diesel fuel tax, and $500,000
to gasohol tax.
[7] The abstract numbers identify the tax type (e.g., gasoline and
ticket tax) and are used as the basis for determining the distribution
of the excise taxes to the various trust funds. Abstract numbers are
preprinted on Form 720, Quarterly Federal Excise Tax Return, and are
used by the taxpayer to report excise tax assessments. If the return
was related to the AATF, we selected (1) tax on transportation of
persons by air (abstract 26), (2) tax on the use of international air
facilities (abstract 27), and (3) tax on transportation of property by
air (abstract 28). If the return was related to the HTF, we selected
(1) tax on 10 percent gasohol (abstract 59), (2) diesel fuel tax
(abstract 60), and (3) gasoline tax (abstract 62). The tax amounts
related to the selected abstracts for each trust fund are the largest
tax amounts reported on the taxpayer's excise tax return and made up
over 89 percent of the total amount certified to the AATF and over 82
percent of the total amount certified to the HTF each quarter.
[8] The Collection Certification System produces what IRS refers to as
audit files. These audit files contain the individual prorated
collections, by abstract and taxpayer identification number, that make
up the certified total amounts for each abstract.
[9] For the purpose of this reconciliation, "material" is defined as 1
percent of the Form 720-related excise tax collections for the quarters
ended December 31, 2003, and March 31, 2004. For fiscal year 2004, the
materiality amount was $226 million for the two quarters combined.
[10] For this sample, if one or no errors were found in testing the 78
items, we would be 90 percent confident that the error rate in the
population would not exceed 5 percent.
[11] The selected abstracts are (1) tax on transportation of persons by
air (abstract 26), (2) tax on the use of international air facilities
(abstract 27), (3) tax on transportation of property by air (abstract
28), (4) tax on aviation fuel for commercial use (abstract 77), (5) tax
on 10 percent gasohol (abstract 59), (6) diesel fuel tax (abstract 60),
and (7) gasoline tax (abstract 62). The tax amounts for the four AATF-
related abstracts made up over 95 percent of the total amount certified
to the AATF, and the tax amounts for the three HTF-related abstracts
made up over 82 percent of the total amounts certified to the HTF each
quarter.
[12] The Report of Excise Tax Collection contains prorated collections,
classified by abstracts, that serve as the basis for IRS's quarterly
trust fund certifications.
[13] The planned sample size using DUS was 143 items. DUS selects
dollars instead of specific transaction items by dividing the
population by dollar intervals. The dollar interval for the AATF was
$32 million. Accordingly, any item with a dollar value matching or
exceeding the sampling interval would be selected, whereas items with
dollar values below the sampling interval might not be selected. For
example, an item of $64 million would cover 2 dollar-intervals, but
represent one sample item. Due to large dollar items covering more than
one interval, the 73 unique sampled transactions selected represent 143
dollar-intervals.
[14] The planned sample size using DUS was 139 items. As explained in
footnote 13, DUS selects dollars instead of specific transaction items
by dividing the population by dollar intervals. The dollar interval for
the HTF was $125 million. Because large dollar items cover more than
one interval, the 102 unique sampled transactions selected represent
139 dollar-intervals.
[15] For this sample, if no errors are found in testing the 45 items,
we would be 90 percent confident that the error rate in the population
would not exceed 5 percent.
[16] The purpose of this test is to determine whether the Collection
Certification System prorates correctly. This test is not intended to
determine whether amounts provided to the system are correct.
[17] The certified amounts for tax on transportation of persons by air
(abstract 26), tax on the use of international air facilities (abstract
27), tax on transportation of property by air (abstract 28), and tax on
aviation fuel for commercial use (abstract 77) made up over 95 percent
of the total amount certified to the AATF each quarter.
[18] IRS uses data from two of these reports, covering sequential
processing intervals, for each quarterly certification. Collections are
classified by abstract on the report when the related Form 720 tax
return has been recorded in IRS's master file during the processing
interval covered by the report. The second of the two reports used may
contain collections related to previous quarters not classified by
abstract until the current quarter because the related return was not
recorded on the master file until the current quarter.
[19] The Treasury 90 Report summarizes excise tax credit information
and is produced quarterly by IRS submission processing campus systems.
IRS has nine submission processing campuses that receive and process
tax returns and payments.
[20] For this test, "significant" is defined as $45 million, which
represents approximately 2 percent of the quarterly total certified to
the AATF.
[21] An FMS accountant compiles this schedule, called the "Subsidiary
Quarterly Account of Estimates and Actual Related Taxes Appropriated to
Airport and Airway Trust Fund." This schedule computes the difference
between IRS-certified amounts and the OTA estimate for excise taxes,
individually and in total, that relate to the AATF. The schedule, along
with OTA transfer forms and IRS certifications, supports the FMS
adjustment.
[22] A positive amount indicates that the FMS adjustment increased
excise taxes distributed to the trust fund. A negative amount, shown in
parentheses, indicates that the FMS adjustment decreased excise taxes
distributed to the trust fund. Since the adjustment amount is the
difference between OTA's estimate and IRS's certified amount, it may be
significantly affected by IRS's ability to certify receipts in the
appropriate quarter.
[23] In order to accommodate the Department of Transportation's
November 15 reporting date for fiscal year 2004, IRS performed
precertifications. The data in the precertification are for information
purposes only and do not represent an official certification.
[24] The certified amounts for tax on transportation of persons by air
(abstract 26), tax on the use of international air facilities (abstract
27), tax on transportation of property by air (abstract 28), and tax on
aviation fuel for commercial use (abstract 77) made up over 95 percent
of the precertified total to the AATF.
[25] For this test, "significant" is defined as $45 million. This
represents approximately 2 percent of the precertified total to the
AATF.
[26] For this test, "significant" is defined as tax returns with a
total quarterly excise tax liability equal to or greater than $10
million during each of the prior four quarters. Tax returns related
specifically to the AATF with liabilities equal to or greater than $10
million have, in the aggregate, historically accounted for over 85
percent of distributions certified to the AATF.
[27] OTA makes semimonthly estimates of excise tax collections for
transfer to trust funds. There are five semimonthly estimates for the
quarter ended September 30, 2004, which affect fiscal year 2004
distributions to the AATF.
[28] OTA communicates this information to interested parties at
Treasury, the Federal Highway Administration, the Federal Transit
Administration, and the Department of Transportation. IRS uses the tax
and distribution rates from this table in its subsequent certification
of collections to trust funds.
[29] The transfer amounts for tax on transportation of persons by air
(abstract 26), tax on the use of international air facilities (abstract
27), tax on transportation of property by air (abstract 28), and tax on
aviation fuel for commercial use (abstract 77) made up 96 percent of
the total amount transferred to the AATF for the fourth quarter of
fiscal year 2004.
[30] The source documents include the IRS report of excise taxes used
to derive the percentages applied to reported receipts, the Daily
Treasury Statement, the Monthly Treasury Statement, and the excise tax
rate tables.
[31] IRS assigns a tax class number to specific types of taxes. Excise
taxes are tax class 4.
[32] For the purpose of this procedure and procedure VI.B.3, we define
"material" as $20 billion. This represents 1 percent of the estimated
total tax revenue receipts collected by IRS in fiscal year 2004.
[33] IRS maintains records of refund balances by tax class in its
master file and reports this information monthly to Treasury on the SF-
224. Treasury provides IRS with a Statement of Differences (TFS-6652),
which reports differences between total refunds reported by IRS on the
SF-224 and the total refunds in Treasury records.
