Applying Agreed-Upon Procedures
Highway Trust Fund Excise Taxes Gao ID: GAO-07-131R November 3, 2006We have performed procedures, which we agreed to perform and with which the Department of Transportation (DOT) concurred, solely to assist the office of the Inspector General in ascertaining whether the net excise tax revenue distributed to the Highway Trust Fund (HTF) for the fiscal year ended September 30, 2006, is supported by the underlying records. As agreed with DOT, we evaluated fiscal year 2006 activity affecting distributions to the HTF. 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 DOT objectives is DOT's responsibility, and we make no representation in that respect. The procedures we agreed to perform were related to (1) detailed tests of transactions that represent the underlying basis of amounts distributed to the HTF, (2) Internal Revenue Service's (IRS) quarterly HTF certifications, (3) Department of the Treasury's Financial Management Service adjustments to the HTF during fiscal year 2006, (4) IRS's precertification of receipts for each quarter completed in fiscal year 2006, (5) certain procedures of the Department of the Treasury's Office of Tax Analysis' (OTA) process for estimating amounts to be distributed to the HTF for the fourth quarter of fiscal year 2006, and other procedures related to (6) the net amount of fiscal year 2006 excise taxes distributed to the HTF, (7) transactions that represent total IRS tax revenue receipts and refunds, and (8) key reconciliations of IRS records to Treasury records. The enclosure contains the agreed-upon procedures and our findings from performing each of the procedures.
GAO-07-131R, Applying Agreed-Upon Procedures: Highway Trust Fund Excise Taxes
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November 3, 2006:
The Honorable Todd J. Zinser:
Acting Inspector General:
Department of Transportation:
Subject:Applying Agreed-Upon Procedures: Highway Trust Fund Excise
Taxes:
Dear Mr. Zinser:
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 Highway Trust Fund (HTF) for the fiscal year
ended September 30, 2006, is supported by the underlying records. As
agreed with your office, we evaluated fiscal year 2006 activity
affecting distributions to the HTF.
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 related to (1) detailed tests of
transactions that represent the underlying basis of amounts distributed
to the HTF, (2) Internal Revenue Service's (IRS) quarterly HTF
certifications, (3) Department of the Treasury's Financial Management
Service adjustments to the HTF during fiscal year 2006, (4) IRS's
precertification[Footnote 1] of receipts for each quarter completed in
fiscal year 2006, (5) certain procedures of the Department of the
Treasury's Office of Tax Analysis' (OTA) process for estimating amounts
to be distributed to the HTF for the fourth quarter of fiscal year
2006, and other procedures related to (6) the net amount of fiscal year
2006 excise taxes distributed to the HTF, (7) transactions that
represent total IRS tax revenue receipts and refunds, and (8) 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 HTF. 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 25, 2006.
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, 2006. 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, 2006.
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 purpose.
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. Contact points for our Offices of Congressional Relations
and Public Affairs may be found on the last page of this report.
Sincerely yours,
Signed by:
Steven J. Sebastian:
Director:
Financial Management and Assurance:
Enclosure:
Highway Trust Fund Excise Tax Procedures and Results:
I. Procedures on detailed transactions that represent the underlying
basis of amounts distributed to the Highway Trust Fund (HTF) in fiscal
year 2006:
A. Nonstatistical selection of tax returns from the quarters ended June
30, 2005, and September 30, 2005[Footnote 3]
1. For each of the quarters ending June 30, 2005, and September 30,
2005, select the 30 largest excise tax returns containing excise taxes
related primarily to the HTF and the Airport and Airway Trust Fund
(AATF) 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
HTF and the AATF from each of the two quarters for testing. The
selection was based on the total tax liability amount owed for each
return from IRS's master file.
The total tax liability amount related to the 30 returns from the
quarter ended June 30, 2005, was approximately $9.7 billion, or 65
percent of the total excise tax liability amount of $15 billion for all
excise tax types for the quarter. Of these 30 returns, 21 contained
primarily HTF-related taxes and 9 contained primarily AATF taxes.
The total tax liability amount related to the 30 returns from the
quarter ended September 30, 2005, was approximately $9.8 billion, or 65
percent of the total excise tax liability amount of $15 billion for all
excise tax types for the quarter. Of these 30 returns, 21 contained
primarily HTF-related taxes and 9 contained primarily AATF taxes.
2. For each of the 42 returns related primarily to the HTF from the
quarters ended June 30, 2005, and September 30, 2005, we performed the
following procedures, which encompassed approximately $15 billion in
prorated collections[Footnote 6] affecting fiscal year 2006
distributions to the HTF:
(a) Trace the liability amount for abstracts[Footnote 7] 60 and 62 from
the tax return to IRS's master file.
Description of findings and results:
The liability amount for abstracts 60 and 62 on the tax return agreed
with the master file for 41 of the 42 returns. For one tax return for
the quarter ended September 30, 2005, the taxpayer reported a credit
for abstract 62, but the IRS did not have the supporting documentation
to substantiate the credit. As a result, the prorated collection amount
in the Collection Certification System may be overstated by $363,000
for abstract 62 and $107,000 for abstract 60.
(b) Inspect the taxpayers' calculations on the tax return for the
selected abstracts to determine whether they are mathematically
correct.
Description of findings and results:
The taxpayers' calculations on all 42 returns were mathematically
correct.
(c) Calculate 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 independently calculated prorated collection amounts for the two
selected abstracts agreed with the amounts in IRS's Collection
Certification System for all 42 returns.
B. Dollar unit sample (DUS) of transactions from the quarters ended
December 31, 2005, and March 31, 2006:
1. Sampling:
(a) Obtain excise tax collection data from the master file for the
first two quarters of fiscal year 2006. Compare excise tax collection
data from the master file with data from IRS's general ledger to
determine if they materially agree.[Footnote 9] Compare total excise
tax collections from the master file with total excise tax collections
from the Collection Certification System audit files to determine if
they materially agree.
Description of findings and results:
Excise tax collections for the first two quarters of fiscal year 2006
from the master file materially agreed with IRS's general ledger and
with total 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 77 of the 78 sample items, assessments and receipts from the master
file were contained in the Collection Certification System. For one
sample item, the tax liability associated with the tax return was
abated,[Footnote 11] however, the assessment amount of $18,000 for
abstract 71 was not abated and, therefore, was incorrectly included in
the Collection Certification System.
(c) Sum the prorated collections for selected abstracts[Footnote 12]
from the audit files and compare these amounts to amounts in the Report
of Excise Tax Collection[Footnote 13] to determine if the Collection
Certification System properly summarized the prorated collections.
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) HTF, (2) AATF,
and (3) other excise tax abstracts. Use DUS to select a sample of
prorated excise tax collections from the HTF population using a
confidence level of 80 percent, a test materiality of $379 million, and
an expected aggregate error amount of $114 million.
Description of findings and results:
Use of DUS with a confidence level of 80 percent, a test materiality of
$379 million, and an expected aggregate error amount of $114 million
resulted in a sample of 94[Footnote 14] prorated collections for the
HTF for the first two quarters of fiscal year 2006.
(e) Select samples of prorated excise tax collections from the two non-
HTF populations. Use DUS to select a sample of prorated excise tax
collections from the AATF population using a confidence level of 80
percent, a test materiality of $103 million, and an expected aggregate
error amount of $31 million. Select a random attribute sample of 45
items from the population of prorated tax collections related to all
excise taxes other than the HTF and the AATF.
Description of findings and results:
Use of DUS with a confidence level of 80 percent, a test materiality of
$103 million, and an expected aggregate error amount of $31 million
resulted in a sample of 66[Footnote 15] prorated collections for the
AATF for the first two quarters of fiscal year 2006.
A random attribute sample of 45 items was selected from the population
of prorated tax collections related to all excise taxes other than the
HTF and the AATF.[Footnote 16]
Detailed transactions:
(a) For each prorated excise tax collection sampled from the HTF
population:
* Compare the assessment amount on the tax return for the sampled
abstract with the amount recorded in IRS's 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.
* Inspect the taxpayers' calculations on the tax returns for the
related abstract to determine whether they are mathematically correct.
Description of findings and results:
The taxpayers' calculations were mathematically correct on the tax
return for all of the sampled items.
* Calculate 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 17]
Description of findings and results:
The independently calculated prorated collection, based on information
from the master file, agreed with the amounts for all of the sampled
items selected from the Collection Certification System audit files.
(b) Inspect the tax returns and master file information for the two
samples of prorated collections from the non-HTF populations to
determine if they contain any HTF excise tax collections.
Description of findings and results:
The two samples of prorated collections from the non-HTF populations
did not contain any HTF excise tax collections.
(c) Evaluate the results of conducting steps (a) and (b).
Description of findings and results:
For the first 6 months of fiscal year 2006, the net most likely error
is $0 with an upper error limit of $228 million at the 80-percent
confidence level.
II. Procedures on IRS's quarterly HTF receipt certifications:
Perform the following procedures on IRS's HTF receipt certification for
the quarters ended September 30, 2005, December 31, 2005, and March 31,
2006:
A. Inspect the certification letters[Footnote 18] for authorizing
signatures.
Description of findings and results:
The certification letters for all three quarters had authorizing
signatures.
B. Inspect the certification letters and supporting worksheets to
determine if evidence exists that they were reviewed by the supervisor
or another analyst.
Description of findings and results:
There was evidence that the supervisor or another analyst reviewed the
certification letters and supporting worksheets for all three quarters.
C. Calculate 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.
D. Trace the certified amounts for diesel fuel tax (abstract 60) and
gasoline tax (abstract 62)[Footnote 19] from the certification letters
back to the Report of Excise Tax Collection[Footnote 20] and the
Treasury 90 Report.[Footnote 21]
Description of findings and results:
The certified amounts for diesel fuel tax (abstract 60) and gasoline
tax (abstract 62) from the certification letters agreed with the
related Report of Excise Tax Collection and the Treasury 90 Report for
the quarters ended September 30, 2005, and December 31, 2005. For the
quarter ended March 31, 2006, the certified amounts for abstracts 60
and 62 from the certification letters agreed with the Report of Excise
Tax Collection but not with the Treasury 90 Report. In deriving the
certified amounts for abstracts 60 and 62 for that quarter, IRS
deducted the incorrect amount of credits from the Treasury 90 Report.
This resulted in a $15,398,992 understatement of the amount certified
to the HTF for the quarter ended March 31, 2006.
E. Compare the distribution rates used by IRS for diesel fuel tax
(abstract 60) and gasoline tax (abstract 62) with the applicable
laws.[Footnote 22]
Description of findings and results:
The distribution rates used by IRS for diesel fuel tax (abstract 60)
and gasoline tax (abstract 62) agreed with the applicable laws in
effect during all three quarters.
F. Inspect the Report of Excise Tax Collection used in the
certification to determine if it contains significant[Footnote 23]
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.
G. Trace heavy vehicle use tax amounts from the Highway Account
certification letters to the master file.[Footnote 24]
Description of findings and results:
The heavy vehicle use tax amounts from the Highway Account
certification letter agreed with the master file for all three
quarters.
III. Procedures on Financial Management Service adjustments:
Perform the following steps on Financial Management Service (FMS)
adjustments to HTF excise tax distributions for the quarters ended June
30, 2005, September 30, 2005, December 31, 2005, and March 31, 2006:
A. Compare the FMS adjustments made to the HTF with original Office of
Tax Analysis (OTA) estimates and IRS-certified amounts, and with the
supporting schedules.[Footnote 25]
Description of findings and results:
The FMS adjustments made to the HTF accounts (Highway and Mass Transit)
agreed with the original OTA estimates and IRS-certified amounts, and
with the supporting schedules, for all four quarters.
B. Calculate the differences between the OTA estimates and IRS-
certified amounts to determine if the amounts agree with the
differences computed by FMS.
Description of findings and results:
The independently calculated differences between the OTA estimates and
the IRS-certified amounts for the Highway Account agreed with the
differences computed by FMS for all four quarters. These amounts
were[Footnote 26]
* ($162,439,000) for the quarter ended June 30, 2005;
* $388,440,000 for the quarter ended September 30, 2005;
* ($321,139,000) for the quarter ended December 31, 2005; and:
* $2,248,000 for the quarter ended March 31, 2006.
The independently calculated differences between the OTA estimates and
the IRS-certified amounts for the Mass Transit Account agreed with the
differences computed by FMS for all four quarters. These amounts were:
* ($64,407,000) for the quarter ended June 30, 2005;
* ($20,809,000) for the quarter ended September 30, 2005;
* ($74,917,000) for the quarter ended December 31, 2005; and:
* ($10,322,000) for the quarter ended March 31, 2006.
IV. Procedures on IRS's HTF precertification for the quarters ended
September 30, 2005, December 31, 2005, March 31, 2006, and June 30,
2006[Footnote 27]
A. Compare the precertified amount to the actual amount certified to
the HTF for the quarters ended September 30, 2005, December 31, 2005,
and March 31, 2006. If there is a significant variance,[Footnote 28]
request from the IRS data on any large returns omitted from the
precertification.
Description of findings and results:
There were no significant variances between the precertified amounts
and the actual certified amounts for the quarters ended December 31,
2005, and March 31, 2006. For the quarter ended September 30, 2005,
there was a significant variance of $755 million. $702 million of this
was attributable to an error IRS made on the precertification related
to the heavy vehicle use tax, which resulted in an understatement of
the total HTF precertified amount. 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 2006 distributions to the HTF.
B. Perform the following procedures on IRS's HTF precertification for
the quarter ended June 30, 2006:
1. Inspect the precertification letters and supporting worksheets to
determine if evidence exists that they were reviewed by the supervisor
or another analyst.
Description of findings and results:
There was evidence that the supervisor or another analyst reviewed the
precertification letters and supporting worksheets.
2. Calculate the totals on the precertification letters to determine if
they are mathematically correct.
Description of findings and results:
The totals on the precertification letters were mathematically correct.
3. Trace the amounts for diesel fuel tax (abstract 60) and gasoline tax
(abstract 62)[Footnote 29] from the precertification letters back to
the Report of Excise Tax Collection and the Treasury 90 Report.
Description of findings and results:
The precertified amounts for gasoline tax (abstract 62) from the
precertification letters agreed with the related Report of Excise Tax
Collection and Treasury 90 Report. The precertified amounts for diesel
fuel tax (abstract 60) from the precertification letters agreed with
the related Report of Excise Tax Collection but not with the Treasury
90 Report. In deriving the precertified amounts for abstract 60, the
IRS deducted the incorrect amount of credits from the Treasury 90
Report. This resulted in an understatement of the precertified amount
to the HTF for the quarter ended June 30, 2006, of $88,363,365. 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 2006 distributions to the HTF.
4. Compare the distribution rates used by IRS for diesel fuel tax
(abstract 60) and gasoline tax (abstract 62) with the applicable laws.
Description of findings and results:
The distribution rates used by IRS for diesel fuel tax (abstract 60)
and gasoline tax (abstract 62) agreed with the applicable laws in
effect during the quarter.
5. Inspect the Report of Excise Tax Collection used in the
precertification to determine if it contains significant[Footnote 30]
collections from prior quarters.
Description of findings and results:
The Report of Excise Tax Collection supporting the precertification did
not contain significant collections from prior quarters.
6. Inspect the Collection Certification System information to determine
whether IRS omitted any significant[Footnote 31] returns from the
precertification. If so, report for the Highway Account and the Mass
Transit Account (1) the average amount of HTF-related excise taxes from
these taxpayers' returns that were included in IRS's certification from
the four previous quarters and (2) the amount of HTF-related excise
taxes from these taxpayers' returns that were included in IRS's
certification for the quarter ended June 30, 2005.
Description of findings and results:
Our procedures did not identify any missing significant returns from
the precertification.
7. Trace the heavy vehicle use tax amount from the Highway Account
precertification letter to the master file.
Description of findings and results:
The heavy vehicle use tax amount from the Highway Account
precertification letter agreed with the master file.
V. Procedures performed on excise tax distributions to the HTF for the
quarter ended September 30, 2006:
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 32] was in place during the quarter ended September
30, 2006.
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, 2006. OTA prepares a tax
rate table[Footnote 33] to capture information relating to legislation
that affects tax rates, tax basis, accounts, and deposit rules in
effect during the quarter.
B. Inspect the transfer forms and supporting schedules to determine if
there is evidence of review.
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 HTF for the quarter ended September 30, 2006.
C. Calculate 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 HTF for
the quarter ended September 30, 2006, were mathematically correct.
D. Trace the transfer amounts for diesel fuel tax (abstract 60),
gasoline tax (abstract 62), and heavy vehicle use tax[Footnote 34] from
the transfer forms through the supporting schedules and back to the
related source documents.[Footnote 35]
Description of findings and results:
The transfer amounts for diesel fuel tax (abstract 60), gasoline tax
(abstract 62), and heavy vehicle use tax from the transfer forms agreed
with the supporting schedules and source documents for the semimonthly
transfers affecting distributions to the HTF for the quarter ended
September 30, 2006.
VI. Other procedures:
A. Using IRS's quarterly certifications, OTA's estimated distributions,
and any adjustments, report excise taxes distributed to the HTF in
fiscal year 2006.
Description of findings and results:
Based on a compilation of IRS's quarterly certifications, OTA's
estimated distributions, and adjustments, the net amount of excise
taxes distributed to the HTF in fiscal year 2006 was $38,754,503,680.
B. Procedures performed as part of the fiscal year 2006 IRS financial
statement audit:
1. From IRS's master files for the first 8 months of fiscal year 2006,
use DUS to select statistical samples of (1) total tax revenue receipts
and (2) refunds. For each sample item, compare the collection or refund
amount, tax period, and tax class[Footnote 36] from source
documentation with those recorded in IRS's master files.
Description of findings and results:
The receipt or refund amount, tax period, and tax class from source
documents for 156 revenue receipts and 53 refund sample transactions
were consistent with amounts recorded in IRS's master files.
2. Obtain selected IRS service center campuses' monthly Department of
the Treasury (Treasury) FMS 224 reconciliations[Footnote 37] and
determine whether IRS-reported revenue receipts and refunds were
materially reconciled[Footnote 38] to Treasury FMS records.
Description of findings and results:
Tax revenue receipts and refunds reported by selected IRS service
center campuses through the monthly Treasury FMS 224 reconciliation
process materially reconcile to Treasury FMS records.
3. Compare tax revenue receipt balances by tax class, including excise
taxes, and total refund balances recorded in IRS's general ledger with
the master files and Treasury records to determine if they agree in all
material respects.
Description of findings and results:
Tax receipt balances for all tax classes, including excise taxes, and
total refund balances per IRS's general ledger materially agreed with
IRS's master files and Treasury records.
(196090):
FOOTNOTES
[1] To accommodate the Department of Transportation's accelerated
reporting date for fiscal year 2006, 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 2005
financial statements, we noted a material weakness in IRS's financial
reporting process (GAO, Financial Audit: IRS's Fiscal Years 2005 and
2004 Financial Statements, GAO-06-137, [Washington, D.C.: Nov. 10,
2005]). A component of this weakness includes IRS's inability 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 (Treasury) Financial Management Service
for the quarters ended June 30, 2005, and September 30, 2005, were
completed in December 2005 and March 2006, respectively, and thus
affected distributions to the HTF during fiscal year 2006.
[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 work 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 kerosene 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
kerosene 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 HTF, we selected (1) diesel fuel tax (abstract 60)
and (2) gasoline tax (abstract 62). 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 travel facilities
(abstract 27), and (3) tax on transportation of property by air
(abstract 28). 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 83 percent of the total amount
certified to the HTF and over 90 percent of the total amount certified
to the AATF for the quarters ended June 30, 2005, and September 30,
2005.
[8] The Collection Certification System produces what IRS refers to as
audit files. These audit files contain individual prorated collections
by abstract and taxpayer identification number. The certified amounts
to the trust funds are calculated by subtracting credits from prorated
collections and then multiplying the difference by the applicable trust
fund distribution rates.
[9] For the purpose of this procedure, "material" is defined as 1
percent of the Form 720-related excise tax collections for the quarters
ended December 31, 2005, and March 31, 2006. For fiscal year 2006, the
materiality amount was $236 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] Abatements are reductions in the amount of taxes owed and can
occur for a variety of reasons, such as to correct errors made by IRS
or taxpayers or to provide relief from interest and penalties. 26
U.S.C. § 6404.
[12] The selected abstracts are (1) diesel fuel tax (abstract 60), (2)
gasoline tax (abstract 62), (3) tax on transportation of persons by air
(abstract 26), (4) tax on the use of international air travel
facilities (abstract 27), (5) tax on transportation of property by air
(abstract 28), and (6) tax on kerosene for use in commercial aviation
(abstract 77). The tax amounts for the two HTF-related abstracts made
up over 86 percent of the total amount certified to the HTF and the tax
amounts for the four AATF-related abstracts made up over 99 percent of
the total amount certified to the AATF for the quarters ended December
31, 2005, and March 31, 2006.
[13] The Report of Excise Tax Collection contains prorated collections,
classified by abstracts, that serve as the basis for IRS's quarterly
trust fund certifications.
[14] The planned sample size using DUS was 145 items. DUS selects
dollars instead of specific transaction items by dividing the
population by dollar intervals. The dollar interval for the HTF was
$137 million. Accordingly, any item with a dollar value equal to 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 $274 million would cover two dollar intervals, but
represent one sample item. Due to large-dollar items covering more than
one interval, the 94 unique sampled transactions selected represent 145
dollar intervals.
[15] The planned sample size using DUS was 136 items. As explained in
footnote 14, DUS selects dollars instead of specific transaction items
by dividing the population by dollar intervals. The dollar interval for
the AATF was $37 million. Because large-dollar items cover more than
one interval, the 66 unique sampled transactions represent 136 dollar
intervals.
[16] For this sample, if no errors are found in the 45 items, we would
be 90 percent confident that the error rate in the population would not
exceed 5 percent.
[17] The purpose of this procedure is to determine whether the
Collection Certification System prorates correctly. This procedure is
not intended to determine whether amounts provided to the system are
correct.
[18] IRS prepares two certification letters for the HTF each quarter:
one for the Highway Account and the other for the Mass Transit Account.
[19] The certified amounts for diesel fuel tax (abstract 60) and
gasoline tax (abstract 62), along with the heavy vehicle use tax
(traced separately), made up over 87 percent of the total amount
certified to the HTF for the quarters ended September 30, 2005,
December 31, 2005, and March 31, 2006.
[20] 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 posted to IRS's master file during the processing
interval covered by the report. The second of the two reports used may
contain collections related to prior quarters that IRS certifies as
part of the current quarter's collections because the related return
was not posted to the master file until the processing interval covered
by this report.
[21] The Treasury 90 Report summarizes excise tax credit information
and is produced quarterly by IRS submission processing campus systems.
IRS has eight submission processing campuses that receive and process
tax returns and payments.
[22] IRS calculates certified collections to the Highway Account and
the Mass Transit Account using the total prorated collection amount,
tax rate, and distribution rates applicable to each account.
[23] For this procedure, "significant" is defined as $175 million,
which represents approximately 2 percent of the total amount certified
to the HTF for the quarters ended September 30, 2005, December 31,
2005, and March 31, 2006.
[24] These taxes, which go to HTF, are reported on Form 2290 and are
not included in the Collection Certification System.
[25] An FMS accountant compiles this schedule, called the "Subsidiary
Quarterly Account of Estimates and Actual Related Excise Taxes
Appropriated to Highway 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 Highway
Account. A similar schedule is prepared for the Mass Transit Account.
The schedules, along with OTA transfer forms and IRS certifications,
support the FMS adjustment.
[26] 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.
[27] In order to accommodate the Department of Transportation's
November 15 reporting date for fiscal year 2006, IRS performed
precertifications of excise tax receipts. The data in the
precertification are for information purposes only and do not represent
an official certification for use in adjusting the excise tax
distributions to the HTF.
[28] Significant is defined as 5 percent of the actual certified amount
for the quarter.
[29] The certified amounts for diesel fuel tax (abstract 60) and
gasoline tax (abstract 62) made up over 86 percent of the precertified
amount to the HTF for the quarter ended June 30, 2006.
[30] For this procedure, "significant" is defined as $175 million. This
represents approximately 2 percent of the precertified total to the
HTF.
[31] For this procedure, "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 HTF with liabilities equal to or greater than $10
million have, in the aggregate, historically accounted for over 91
percent of distributions certified to HTF.
[32] OTA makes semimonthly estimates of excise tax collections for
transfer to trust funds. There are five semimonthly estimates for the
quarter ended September 30, 2006, which affect fiscal year 2006
distributions to the HTF.
[33] OTA communicates this information to interested parties at
Treasury and the Department of Transportation. IRS used the tax and
distribution rates from this table in its subsequent certification of
collections to trust funds.
[34] The transfer amounts for diesel fuel tax (abstract 60), gasoline
tax (abstract 62), and heavy vehicle use tax made up over 91 percent of
the total amount transferred to the HTF for the fourth quarter of
fiscal year 2006.
[35] 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.
[36] IRS assigns a tax class number to specific types of taxes. Excise
taxes are tax class 4.
[37] At the end of each month, each IRS campus provides Treasury its
FMS 224 (Statement of Transactions) generated from IRS's general
ledger, reporting receipts and refunds journalized during the month.
Treasury reconciles the amounts on the FMS 224 with its records and
provides IRS a Statement of Differences for any differences identified.
[38] For the purpose of this procedure and procedure VI.B.3, we define
"material" as $23 billion. This represents 1 percent of the estimated
gross tax revenue receipts to be collected by IRS in fiscal year 2006.
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