December 2000

GAO-01-158

TAX

ADMINISTRATION

Assessment of IRS’

2000 Tax Filing

Season

Report to the Chairman,

Subcommittee on Oversight,

Committee on Ways and Means,

House of Representatives

United States General Accounting Office

GAO

Page i GAO-01-158 IRS' 2000 Filing Season

Letter 1

Results in Brief 2

Scope and Methodology 4

Processing Operations Went Well 4

Improvements Made in Assisting Taxpayers and Measuring

Performance, but More Can Be Done 10

IRS Expanded Its Efforts to Reduce EIC Noncompliance; the

Overall Impact of Those Efforts Is Unclear 25

Conclusions 28

Recommendations for Executive Action 29

Agency Comments and Our Evaluation 29

Appendix I Description of Processing and Customer Service

 Performance Indicators 34

Appendix II Several Factors Contributed to the Increase in

 Electronic Filing 36

Appendix III Changes Made by IRS to Reduce Taxpayer Errors

 and Enhance Processing 40

Appendix IV The EIC Preparer Outreach Program 43

Appendix V Comments From the Internal Revenue Service 45

Appendix VI GAO Contacts and Staff Acknowledgments 51

Tables

Table 1: IRS’ Processing Performance Goals and Related

Accomplishments for the 1999 and 2000 Filing Seasons 6

Table 2: Number of Individual Income Tax Returns Received, by

Filing Type 8

Contents
Page ii GAO-01-158 IRS' 2000 Filing Season

Table 3: IRS’ Customer Service Performance Goals and Related

Accomplishments for the 1999 and 2000 Filing Seasons 11

Table 4: Accessibility of IRS’ Telephone Assistance 13

Table 5: IRS Forms and Publications Distribution Channels 23

Table 6: EIC Recipients and Math Errors During 1999 and 2000 26

Abbreviations

BPOL Bank, Post Office, and Library

ECN E-File Customer Number

EIC Earned Income Credit

ERO electronic return originator

IRS Internal Revenue Service

PIN Personal Identification Number

SSN Social Security number

TCE Tax Counseling for the Elderly

TIGTA Treasury Inspector General for Tax Administration

VITA Volunteer Income Tax Assistance
Page 1 GAO-01-158 IRS' 2000 Filing Season

December 22, 2000

The Honorable Amo Houghton

Chairman, Subcommittee on Oversight

Committee on Ways and Means

House of Representatives

Dear Mr. Chairman:

In response to your request, this report assesses IRS’ performance during

the 2000 tax filing season. For most taxpayers, their only contacts with the

Internal Revenue Service (IRS) are associated with the filing of their

individual income tax returns.1

 In addition to the filing itself, those

contacts generally involve (1) telephone calls to IRS or visits to an IRS

walk-in site2

 to obtain tax forms or publications or to seek return

preparation help and/or (2) correspondence from IRS regarding problems,

such as computational errors or missing Social Security numbers (SSN),

that can affect processing of a return and/or issuance of a refund.

Although every filing season contains challenges for IRS, the 2000 filing

season was expected to be especially challenging because of the potential

for system-related problems associated with the Year 2000.

This report discusses (1) the processing of returns and refunds, including

efforts to increase electronic filing; (2) assistance to taxpayers provided

through various sources, including toll-free telephone lines, walk-in sites,

and the World Wide Web site on the Internet; and (3) efforts to reduce

improper Earned Income Credit (EIC) claims and payments. Included in

our discussion of the processing of returns and refunds is a summary of

our separate report on the performance of computer systems that IRS

used to process tax returns during the 2000 filing season. We issued that

 1

Most taxpayers file their returns between January 1 and April 15, which is the deadline for

filing individual income tax returns. However, millions of taxpayers get extensions from

IRS that allow them to delay filing until as late as October 15.

2

As used in this report, the term “walk-in sites” includes both IRS’ walk-in offices that are

generally open all year and temporary locations that IRS sets up during the filing season. It

does not include alternative taxpayer assistance sites, such as mobile vans or sites at

shopping malls and grocery stores.

United States General Accounting Office

Washington, DC 20548
Page 2 GAO-01-158 IRS' 2000 Filing Season

report in June 2000.3 We also did a separate review of IRS’ toll-free

telephone operations during the filing season, and we expect to issue a

report on our results early in 2001. We testified before this Subcommittee

on the interim results of all of our work in March 2000.4

Regarding IRS’ processing of returns and refunds, we noted the following:

• IRS indicators showed that IRS’ performance in processing returns and

refunds during the 2000 filing season was generally as good or better than

in 1999. Most importantly,

• refunds were generally issued within the time frames set by IRS and

• electronic filing increased by about 21 percent compared to 1999, as

more taxpayers used the signature and payment alternatives offered by

IRS.

• As we reported in June, despite the added risks associated with the Year

2000, the computer systems IRS used to process tax returns performed

slightly better during the 2000 filing season than during the 1999 filing

season.

• Changes that IRS made in an attempt to reduce taxpayer errors and

enhance the processing of returns and payments seemed to have had a

positive effect. For example, steps IRS took to simplify the child tax credit

worksheet and to revise the criteria for reporting capital gains contributed

to fewer errors by taxpayers and tax return preparers in those areas.

Regarding the various means through which IRS helps taxpayers during

the filing season, we noted the following:

• The ability of taxpayers to reach IRS over the telephone improved

compared to 1999 but was still well below the performance level achieved

in 1998.

 3

IRS’ 2000 Tax Filing Season: IRS Measures Show Tax Processing Systems Performed

Slightly Better Than in 1999 (GAO/GGD-00-146, June 16, 2000).

4

Tax Administration: IRS’ 2000 Tax Filing Season and Fiscal Year 2001 Budget Request

(GAO/T-GGD/AIMD-00-133, Mar. 28, 2000).

Results in Brief
Page 3 GAO-01-158 IRS' 2000 Filing Season

• IRS implemented measures for assessing the performance of its walk-in

sites but still lacked some critical information, such as reliable data on

customer satisfaction.

• IRS procedures provided for assessing the quality of returns prepared by

volunteer sites. However, IRS had no measures for assessing the

timeliness of service provided by the sites or taxpayer satisfaction with

those services. Also, (1) IRS district office representatives were required

to make monitoring visits to volunteer assistance sites but were not given

specific guidance as to what to review during those visits and (2) the late

delivery of computer equipment and training materials hampered the

ability of volunteer sites to effectively serve taxpayers.

• Data on IRS’ Web site showed increased use and improved performance in

2000 compared to 1999, but some information on the site was obsolete or

inconsistent.

• IRS’ performance measures did not adequately reflect the timeliness with

which IRS’ area distribution centers responded to taxpayers’ orders of

forms and publications.

Over the past several filing seasons, IRS implemented efforts aimed at

reducing the number of improper EIC claims and payments, including the

denial of EIC claims that were not accompanied by valid SSNs.5

 In 2000,

IRS continued these earlier efforts and initiated an EIC education and

compliance strategy that was directed at tax return preparers. Although

these efforts have enabled IRS to identify and stop hundreds of millions of

dollars in erroneous EIC claims, a recent IRS study indicated that IRS

might still be allowing billions of dollars in erroneous EIC claims.

We are making recommendations to the Commissioner of Internal

Revenue on walk-in service, volunteer assistance, forms distribution, and

IRS’ Web site. In commenting on a draft of this report, the Commissioner

of Internal Revenue said that IRS would make every effort to resolve the

issues noted in our report. While agreeing generally with our

recommendations, the Commissioner disagreed with parts of two

recommendations (although, in one case, IRS’ plans are consistent with

our recommendation) and provided additional perspective that led to a

rewording of one recommendation.

 5

According to law, an EIC is not to be allowed unless the tax return contains the EICqualifying child’s SSN as well as the SSNs of the taxpayer and the taxpayer’s spouse, if any

(26 U.S.C. 32 (c) (1) (F) and (c) (3) (D)).
Page 4 GAO-01-158 IRS' 2000 Filing Season

To assess IRS’ performance during the 2000 filing season, we interviewed

IRS officials about ongoing efforts and future plans; analyzed IRS data on

numerous activities, such as the extent to which taxpayers used various

alternative signature and payment alternatives offered by IRS and the

results of IRS efforts to identify and deny improper EIC claims; reviewed

various IRS documents, including operating procedures and reports on

program results and internal research efforts; reviewed data posted to IRS’

Web site and a private study of the site; reviewed reports that an IRS

contractor prepared on customer satisfaction surveys; contacted private

organizations that prepare tax returns and sponsor free tax return filing

assistance; reviewed relevant congressional testimony; and reviewed the

results of relevant audit work done by the Treasury Inspector General for

Tax Administration (TIGTA).

We did our work at IRS’ National Office; submission processing centers in

Atlanta, GA, and Kansas City, MO; Customer Service Field Operations and

Customer Service Operations Center in Atlanta; call sites in Atlanta,

Dallas, TX, Jacksonville, FL, Kansas City, KS, and Nashville, TN; and

district office in Georgia. We selected those offices for a variety of

reasons—we selected some because they had management responsibility

for the programs being reviewed, some because of the nature of their

workload, and some because of their proximity to our audit staff.

We did our work from January through October, 2000, in accordance with

generally accepted government auditing standards.

Representatives of several practitioner groups said, either to us or in

congressional testimony, that the 2000 filing season went smoothly. The

results of our review of IRS’ return and refund processing operations were

consistent with that assessment. More specifically, our audit work showed

the following:

• According to various indicators that IRS and we have traditionally used to

assess IRS’ processing of returns and refunds during the filing season, IRS

generally met or exceeded its processing performance levels in 1999.

Among other things,

• refunds were generally issued within the time frames set by IRS and

• the number of returns filed electronically increased by about 21

percent compared to 1999.

Scope and

Methodology

Processing

Operations Went Well
Page 5 GAO-01-158 IRS' 2000 Filing Season

• Despite the added risks associated with the Year 2000, IRS’ tax processing

systems performed slightly better during the 2000 filing season than during

the 1999 filing season.

• Changes that IRS made in an attempt to reduce taxpayer errors and

enhance the processing of returns and payments seemed to have had a

positive effect by, among other things, reducing the number of errors

made by taxpayers and tax return preparers in claiming the Child Tax

Credit.

As shown in table 1, IRS, in 2000, generally met or exceeded its processing

performance levels in 1999 for five of seven performance indicators.6

 For a

sixth indicator, IRS did not have data for the 2000 filing season, as

explained in note “d” of the table. Although the seventh indicator (notice

accuracy) seemed to show a decline between 1999 and 2000, data for the 2

years cannot be compared because they were generated by different

methodologies. (See app. I for a description of the seven indicators listed

in table 1.)

 6

IRS set the goals shown in table 1 generally on the basis of previous experience and

projected workload. We did not assess the appropriateness of IRS’ goals nor independently

verify the accomplishment data reported by IRS. However, as part of our reviews of past

filing seasons, we assessed IRS’ methodologies for computing several indicators, such as

the accuracy and timeliness of refunds.

IRS Indicators Show That

IRS’ Performance in

Processing Returns and

Refunds During the 2000

Filing Season Was

Generally as Good or

Better Than in 1999
Page 6 GAO-01-158 IRS' 2000 Filing Season

Table 1: IRS’ Processing Performance Goals and Related Accomplishments for the 1999 and 2000 Filing Seasons

1999a 2000a

Indicator Goal Accomplishment Goal Accomplishment

Accuracy of individual income

tax returns processed by Code

and Edit staffb

Process 96%

accurately

96.6% were processed

accurately

Process 96.8%

accurately

96.6% were processed

accurately

Accuracy of individual income

tax returns processed by data

transcribers

Process 94.6%

accurately

94% were processed

accurately

Process 93.9%

accurately

93.9% were processed

accurately

Notice accuracyc Provide accurate notices

to taxpayers 98.5% of

the time

Provided accurate

notices to taxpayers

97.7% of the time

Provide accurate

notices to taxpayers

97.4% of the time

Provided accurate

notices to taxpayers

96.2% of the time

Accuracy of individual income

tax refunds on paper returns

Process 99.3%

accurately

99.6% were processed

accurately

Process 99.3%

accurately

Data not availabled

Timeliness of refunds for

individual income tax returns

filed on paper

Baseline yeare Processed 84.7% of the

refunds in 40 days or

less

Process 85% of the

refunds in 40 days

or less

Processed 92.1% of

the refunds in 40 days

or less

Timeliness of refunds for

individual income tax returns

filed electronically

Process 98% of the

refunds in 21 days or

less

Processed 99.6% of the

refunds in 21 days or

less

Process 99% of the

refunds in 21 days

or less

Processed 100% of

the refunds in 21 days

or less

Percentage of individual income

tax returns filed electronically

Receive 23% of returns

electronically

Received 23.4% of

returns electronically as

of 10/29/99

Receive 26.5% of

returns electronically

Received 27.7% of

returns electronically

as of 10/27/00

a

Data are as of April 1999 and April 2000, unless otherwise noted.

b

Code and Edit staff are to prepare paper returns for computer entry by, among other things, ensuring

that all data are present on the return and legible.

c

In 1999 and previous filing seasons, the methodology used to calculate the notice accuracy indicator

excluded systemic errors caused by computer hardware or software and errors not under the control

of the service center because IRS wanted to measure how well staff were performing. For the 2000

filing season, IRS changed the methodology to include systemic errors because IRS believes that

their inclusion provides a better measure of the quality of notices sent to taxpayers. According to IRS,

a change in the computer systems used to track and calculate the indicator prevented IRS from

recalculating the 2 years of data to provide comparable information. Therefore, results for 1999 and

2000 should not be compared for trend analysis.

d

According to IRS, it had no information on the percentage of individual income tax returns filed on

paper that were processed accurately during the 2000 filing season because a contractor did not

provide the computer programming needed to capture the data.

e

According to IRS, fiscal year 1999 was a baseline year; therefore, no performance goal was

established.

Source: GAO summary of IRS data.

We focused our attention on two areas covered by IRS’ indicators—refund

timeliness and the use of electronic filing.

A major part of IRS’ processing effort is directed at issuing refunds. In that

regard, about 70 percent of the individual income tax returns processed by

IRS in 2000 involved refund claims.

Refunds Generally Issued

Within Established Time

Frames
Page 7 GAO-01-158 IRS' 2000 Filing Season

IRS’ goals for the 2000 filing season were to process (1) 85 percent of the

refunds on paper returns within 40 days and (2) 99 percent of the refunds

on electronic returns within 21 days. IRS exceeded both of those goals

and, in doing so, exceeded its accomplishments in 1999. The improvement

over 1999 was especially significant for paper returns, where IRS’

performance increased from 84.7 percent to 92.1 percent.

According to cognizant IRS staff, a new methodology for computing the

timeliness of refunds on paper returns has been proposed that would

change the date from which IRS starts counting. IRS had been using the

signature date on the return as the starting point. However, because IRS

felt that the signature date did not always reflect when the return was

mailed, the proposed methodology calls for using the date IRS receives the

return as the starting point. We do not know how many of the refunds that

exceeded the 40-day goal during the 2000 filing season would have met the

goal if IRS had been using the proposed methodology. As of September 20,

2000, that proposal was still under consideration.

IRS first began receiving individual income tax returns electronically in

1986. Electronic filing enables taxpayers to file more accurate returns and

get their refunds faster and provides taxpayers with evidence that IRS has

received their returns. Electronic filing also reduces the number of errors

IRS has to correct because (1) checks are built into the electronic filing

system that are designed to catch certain taxpayer errors, such as

computational mistakes, in advance so that they can be corrected by the

taxpayer before IRS takes possession of the return and (2) returns filed

electronically bypass the more error-prone manual procedures that IRS

uses to process paper returns.

The number of individual income tax returns filed electronically has been

on an upward trend since 1995, during which time the number of

electronic returns increased by 200 percent (from 11.8 million in 1995 to

35.4 million in 2000). The 35.4 million electronic returns filed in 2000

represent an increase of about 21 percent compared to the number filed in

1999.

There are currently three types of electronic filing: (1) traditional, whereby

taxpayers transmit returns to IRS through a third party (such as a tax

return preparer); (2) TeleFile, whereby taxpayers send returns directly to

IRS over telephone lines using a Touch-Tone telephone; and (3) on-line,

whereby taxpayers send returns to IRS through an on-line intermediary

using a personal computer and commercial software. As shown in table 2,

Use of Electronic Filing

Continued to Grow
Page 8 GAO-01-158 IRS' 2000 Filing Season

the use of traditional and on-line filing increased in 2000, while the use of

TeleFile decreased for the second year in a row.

Table 2: Number of Individual Income Tax Returns Received, by Filing Type

Number of returns in thousands

Filing type

1/1/98 to

 10/30/98

1/1/99 to

 10/29/99

Percentage change:

1998 to 1999

1/1/00 to

10/27/00

Percentage change:

1999 to 2000

Paper 98,453 96,178 -2.31 92,322 -4.01

Electronic

Traditional 17,697 21,227 19.95 25,211 18.77

TeleFilea 5,963 5,665 -5.00 5,161 -8.90

On-line 942 2,457 160.83 5,022 104.40

Subtotal 24,602 29,349 19.30 35,394 20.60

Total 123,055 125,527 2.01 127,716 1.74

Percentage of total electronically

filed

20.1 23.4 - 27.7 -

a

An IRS research report attributed at least some of the decrease in TeleFile use between 1998 and

1999 to tax law changes that enabled certain taxpayers to take a student loan interest deduction or

an education credit. Persons claiming such a deduction or credit were no long eligible to use TeleFile.

Research data on the decrease in TeleFile use between 1999 and 2000 were not available at the

time we completed our audit work.

Source: IRS’ Management Information System for Top Level Executives.

Besides the belief that taxpayers are becoming more familiar and

comfortable with computer technology and electronic filing, IRS officials

cited several factors that contributed to the increase in electronic filing in

2000, including IRS’ expansion of initiatives to make electronic filing

paperless, and thus more appealing to taxpayers and tax return preparers.

Those factors, with an emphasis on the paperless initiatives, are discussed

in appendix II.

The performance of systems that IRS uses for processing tax returns was

of particular interest in 2000 because of the massive changes that IRS

made to help ensure that its systems were Year 2000 compliant.

Completing these changes involved correcting millions of lines of

application software and upgrading or replacing thousands of computer

hardware and software products. Although it extensively tested these

changes, IRS anticipated that unexpected system-related problems might

occur during the 2000 filing season that could affect service to taxpayers.

As we reported in June 2000, although there were some relatively minor

problems, IRS performance data and comments from IRS officials and

Tax Processing Systems

Performed Slightly Better

Than in 1999
Page 9 GAO-01-158 IRS' 2000 Filing Season

representatives of large tax practitioners indicated that IRS’ tax processing

systems performed slightly better during the 2000 filing season than in

1999.7

 At the time that we prepared our June report, IRS had identified

four system-related problems that affected relatively few individual

taxpayers. IRS officials said that they had (1) corrected the four problems,

(2) taken or were taking action to mitigate the effects on taxpayers, and

(3) notified individuals affected by two of the four problems. One reason

IRS officials cited for not always notifying affected individuals was that

IRS could not quickly generate correspondence to address the problem. In

preparing this report, we followed up with IRS officials about the potential

impact of systems modernization on IRS’ ability to more quickly notify

taxpayers. They told us that systems modernization may enable IRS to

more quickly develop customized taxpayer correspondence to address

specific problems but may not reduce the time involved in identifying

taxpayers affected by the problems because IRS still would need to

develop unique software programs for that purpose.

After we completed our audit work for the June 2000 report, IRS officials

told us of a fifth system-related problem. That problem involved the

freezing of 27,493 refunds because they were mistakenly identified as

involving an injured spouse.8

 According to IRS, it identified the problem on

February 12, corrected it on February 20, and generated the refunds within

a week.

IRS made several changes for the 2000 filing season in an attempt to

reduce the number of taxpayer errors and enhance its processing efforts.

Of particular note, IRS

• simplified the Child Tax Credit worksheet for 2000, which contributed to a

decrease of 37 percent in the number of Child Tax Credit errors made by

taxpayers and tax return preparers;

• revised the criteria for filing Schedule D (Capital Gains and Losses), which

likely contributed to a reduction in the number of Schedule Ds that IRS

had to process in 2000;

 7

GAO/GGD-00-146.

8

IRS defines an injured spouse as the person whose portion of the overpayment on a joint

return was, or will be, applied against a tax or non-tax debt (e.g., a student loan) for which

he or she is not liable.

IRS Made Several Changes

to Reduce Taxpayer Errors

and Enhance Processing
Page 10 GAO-01-158 IRS' 2000 Filing Season

• had taxpayers who were getting refunds mail their returns to a different

address than taxpayers who were making payments so that IRS could

better identify returns with remittances; and

• began checking the validity of secondary taxpayers’ SSNs,9

 which resulted

in about 36,000 notices to taxpayers about invalid SSNs.10

These changes are discussed more fully in appendix III.

IRS has various ways to help taxpayers meet their filing requirements.

These ways include (1) call sites that assist taxpayers who telephone IRS

with questions about the tax law, their accounts, or their refunds; (2) walkin sites where, among other things, taxpayers can get answers to questions

and help in preparing their returns; (3) IRS-sponsored volunteer

organizations that provide return preparation assistance and other help to

eligible taxpayers; (4) IRS’ Web site on the Internet, which, among other

things, enables taxpayers to get answers to tax law questions via

electronic mail (E-mail); and (5) various outlets through which taxpayers

can receive tax forms and publications.

Table 3 shows 1999 and 2000 performance data for various customer

service-related indicators that IRS and we have used in the past to assess

the filing season.11 IRS also has a new indicator for the quality of service

provided by its walk-in sites. However, as discussed later in this report,

IRS did not have data on that measure for the 2000 filing season at the time

we completed our audit work. (See app. I for a description of the five

indicators listed in table 3.)

 9

SSNs are assigned by the Social Security Administration and used by IRS to identify

individual taxpayers. In the case of a joint return, the person whose name appears first on

the return is considered the primary taxpayer. The other person is considered the

secondary taxpayer.

10IRS considers an SSN invalid if it is missing from the return or if the SSN and associated

name on the return do not match data in the Social Security Administration’s records.

11IRS set the goals shown in table 3 generally on the basis of previous experience and

projected workload. We did not assess the appropriateness of IRS’ goals nor independently

verify the accomplishment data reported by IRS. However, as part of our reviews of past

filing seasons, we assessed IRS’ methodologies for computing several indicators, such as

toll-free telephone service and tax law accuracy.

Improvements Made

in Assisting Taxpayers

and Measuring

Performance, but

More Can Be Done
Page 11 GAO-01-158 IRS' 2000 Filing Season

Table 3: IRS’ Customer Service Performance Goals and Related Accomplishments for the 1999 and 2000 Filing Seasons

1999a 2000a

Indicator Goal Accomplishment Goal Accomplishment

Level of service provided by

toll-free taxpayer service

telephone system

Baseline yearb Provided 54% level of

service

Provide 58% level of

service

Provided 63% level of

service

Tax law accuracy rate for

taxpayer inquiries (toll-free)c

Answer 85% of

taxpayers’ questions

accurately

Answered 73.8%

accurately

Answer 80% of

taxpayers’ questions

accurately

Answered 71.9%

accurately

Accuracy with which forms

distribution centers process

taxpayer orders

Process 96.5%

accurately

Processed 97%

accurately

Process 96.5%

accurately

Processed 98%

accurately

Customer satisfaction with

toll-free telephone servicee

Baseline yearb Average overall

satisfaction of 3.55 on a

4-point scale (as of 3/99)

Not applicabled Average overall

satisfaction of 3.50 on a

4-point scale (as of 3/00)

Customer satisfaction with

walk-in servicef

Baseline yearb Average overall

satisfaction of 6.44 on a

7-point scale (as of 3/99)

Average overall

satisfaction of 6.5 on

a 7-point scale

Average overall

satisfaction of 6.48 on a

7-point scale (as of 3/00)

Note: Similar tables in our reports on past filing seasons included an indicator that is not included in

this year’s table. In this table, we dropped “level of access to taxpayer service telephone system”

because IRS has adopted level of service as its key performance measure and has discontinued use

of the level of access indicator.

a

Data on accomplishments are as of April 1999 and April 2000, unless otherwise noted.

b

According to IRS, it used fiscal year 1999 as a baseline; therefore, no performance goal was

established.

c

Data for the tax law accuracy indicator are compiled on a fiscal year basis. Data for 1999 are from

October 1, 1998, to April 30, 1999, and data for 2000 are from October 1, 1999, to April 30, 2000.

d

IRS originally set its goal for 2000 as an average overall satisfaction score of 6.3 on a 7-point scale.

However, the survey was subsequently automated, and the rating scale was changed to a 4-point

scale. Because we could not convert IRS’ original goal to the 4-point scale, we did not include a goal

in the table. The contractor responsible for the survey recomputed the rating data for 1999 to reflect

the new scale.

e

In a September 2000 report, TIGTA concluded that these data, which were generated by surveying a

sample of callers, were not statistically valid. TIGTA said that management controls were insufficient

and, among other things, raised questions about the sampling methodology. IRS management

disagreed with TIGTA’s conclusions.

f

As discussed later in this report, TIGTA raised concerns about the statistical validity of these reported

accomplishments.

Source: GAO summary of IRS data.

Concerning IRS’ various modes of assistance, we noted the following:

• Although taxpayers were better able to reach IRS over the telephone in

2000 compared to 1999, IRS’ performance in providing telephone service

was still below the level achieved in 1998.
Page 12 GAO-01-158 IRS' 2000 Filing Season

• IRS implemented measures for assessing the performance of its walk-in

sites but still lacked some critical information, such as reliable data on

customer satisfaction.

• IRS procedures provided for assessing the quality of returns prepared by

volunteer sites. However, IRS had no measures for assessing the

timeliness of service provided by the sites or taxpayer satisfaction with

those services. Also, (1) IRS district offices were required to visit each

volunteer assistance site but were not given specific guidance as to what

to review during those visits and (2) late delivery of computer equipment

and training materials hampered the ability of volunteer sites to effectively

serve taxpayers.

• Data on IRS’ Web site showed increased use and improved performance in

2000 compared to 1999, but some information on the site was obsolete or

inconsistent.

• IRS’ performance measures did not adequately reflect the timeliness with

which IRS’ area distribution centers responded to taxpayers’ orders of

forms and publications.

One of the most important services IRS provides all year, but especially

during the filing season, is toll-free telephone assistance. For 24 hours a

day, 7 days a week during the filing season, taxpayers can call IRS with

questions about the tax law, their accounts, or their refunds. A key

indicator of IRS’ performance in providing telephone service is the ability

of taxpayers to reach IRS so that they can get their questions answered.

IRS refers to that indicator as “level of service.”

12

We reported last year that although IRS made several changes in an effort

to improve its telephone service,13 its level of service in 1999 declined

compared to 1998.14 Some of the decline was attributed to (1) IRS’

unrealistic assumptions about the implementation and impact of its

changes and (2) other problems it had in managing staff training and

 12Level of service is calculated by dividing the number of calls answered by the total call

attempts. Answered calls include calls to a voice messaging system that were subsequently

returned by IRS. Total call attempts is the sum of calls answered, calls abandoned by the

caller before receiving assistance, and calls that receive a busy signal.

13Among other things, IRS extended its hours of operation from 16 hours a day, 6 days a

week, to 24 hours a day, 7 days a week, and implemented new call routing technology.

14Tax Administration: IRS’ 1999 Tax Filing Season (GAO/GGD-00-37, Dec. 15, 1999).

Although Taxpayers’

Ability to Reach IRS Over

the Telephone Improved in

2000, IRS’ Performance in

Providing Telephone

Service Was Still Below

Levels Achieved in 1998
Page 13 GAO-01-158 IRS' 2000 Filing Season

scheduling and implementing new technology. As shown in table 4, IRS

improved its level of service in 2000 by answering 28.2 million of the 45.7

million call attempts that taxpayers made from January 1 to April 29,

2000—a 62-percent level of service.15 However, that level of service was

still considerably below the 72-percent level provided in 1998. Although

the volume of incoming calls was similar for both 1998 and 2000, IRS

answered about 4.7 million fewer calls in 2000 than in 1998.

Table 4: Accessibility of IRS’ Telephone Assistance

Filing season Call attempts Calls answered Busy signals Calls abandoneda Level of service

1998 45,613,506 32,952,838 4,050,632 8,610,036 72%

1999 62,674,009 31,992,784 21,588,292 9,092,933 51

2000 45,696,667 28,236,278 9,218,261 8,242,128 62

Change from 1999 to 2000 (16,977,342) (3,756,506) (12,370,031) (850,805) 11

Note: Data cover periods from January 1 to May 2, 1998; May 1, 1999; and April 29, 2000,

respectively.

a

These are calls in which the taxpayer hung up before getting assistance.

Source: IRS’ Weekly Customer Service Report.

The ability of taxpayers to reach IRS so they can get their questions

answered is one important measure of telephone service. Another

important measure is the accuracy of those answers. IRS measures the

accuracy of information provided by its telephone assistors by monitoring

a sample of taxpayer calls and determining, for each of the monitored

calls, whether the assistor responded accurately and followed correct

procedures.16 The monitoring results for calls involving tax law questions

showed an accuracy rate of 71.9 percent for the 2000 filing season—below

IRS’ goal of 80 percent and, considering the confidence intervals

 15The level-of-service figures in table 4 differ from the level-of-service figures in table 3

because IRS’ official level-of-service indicator, which is shown in table 3, covers more

telephone lines than we used in compiling table 4 data. We limited table 4 data and the

accompanying discussion to the three main customer service-related telephone lines. These

are the lines that taxpayers can call to ask a question about the tax law or IRS procedures

(1-800-829-1040), resolve issues relating to their accounts (1-800-829-8815), or inquire about

their refunds (1-800-829-4262).

16Because a response can be counted as inaccurate if an assistor failed to follow required

procedures (such as not asking all of the required probing questions), an answer can be

correct even if it is considered incorrect for monitoring purposes. If an assistor fails to ask

all of the required probing questions, for example, there is no certainty that the taxpayer

provided all of the necessary information on which to base an answer.
Page 14 GAO-01-158 IRS' 2000 Filing Season

surrounding the results of IRS’ sample, not statistically different from the

73.8-percent performance level achieved in 1999.

We conducted a separate review of the key factors that affected IRS’

performance in providing toll-free telephone service during the 2000 filing

season and expect to issue a separate report to the Subcommittee early in

2001. We are also preparing a report for the Subcommittee on various

human capital issues associated with IRS’ toll-free telephone service,

which we also expect to issue early in 2001.

IRS’ walk-in sites answer tax law questions, distribute tax forms and

publications, and help taxpayers prepare tax returns and resolve account

issues. IRS data show that its walk-in sites served about 5.8 million

taxpayers between January 1 and April 22, 2000—a 5-percent decrease

from the about 6.1 million taxpayers served during the same time period in

1999.

In our report on the 1999 filing season, we pointed out that IRS had not

made much progress in measuring the performance of walk-in sites.17 We

recommended that IRS implement a performance measurement program

and, as part of that program, require that quality reviews be done and data

on the results of quality reviews and wait-time monitoring be reported to a

central location for analysis. For the 2000 filing season, IRS (1) instituted a

quality review program for assessing the accuracy of services provided by

walk-in staff, the results of which are reported to a central location, and

(2) began requiring centralized reporting of wait-time data, although

certain factors affected the data’s usefulness. IRS also conducted a walk-in

customer satisfaction survey during the 2000 filing season but, according

to TIGTA, IRS had not established an adequate management process to

ensure that the survey was conducted appropriately.

For 2000, IRS’ National Office instituted quality reviews of its walk-in sites.

A team of 32 reviewers, posing as taxpayers, were to visit walk-in sites and

act out various scenarios that would require assitors to help the

“taxpayers” prepare their return or resolve an account problem. The

reviewers were to complete a checksheet covering issues such as

 17GAO/GGD-00-37.

IRS Implemented Walk-In

Service Performance

Measures but Still Lacked

Some Critical Information

IRS Instituted a Quality Review

Program for Walk-In Sites
Page 15 GAO-01-158 IRS' 2000 Filing Season

• did the assistor indicate a willingness to help by using an appropriate

phrase such as “May I help you?” and

• did the assistor provide a complete and accurate response, explaining any

procedures and ordering the necessary forms and publications?

The reviewers made 272 visits between late-October 1999 and mid-January

2000 and another group of visits during the 2000 filing season. As

described by IRS, results from the first group of visits “indicated

significant opportunity to improve our quality results.” Specifically, the

results showed an error rate (incorrect answers) of 50 percent and

indicated that reviewers were denied service in 21 percent of the visits

(e.g., reviewers were told to take a form or publication and figure out the

answer themselves). Several recommendations for improving performance

were set forth, including an intensive back-to-basics training program and

increased managerial oversight. Results from the second group of visits

were not available at the time we completed our audit work.

The National Office established taxpayer wait-time goals of 30 minutes for

return preparation and 15 minutes for all other services during the 1998,

1999, and 2000 filing seasons. In our reports on IRS’ 1998 and 1999 filing

seasons, we reported that although IRS monitored walk-in sites’

timeliness, it did not require that monitoring results be reported to the

National Office.18 During the 2000 filing season, IRS did require that its four

regional offices submit monthly reports on timeliness to the National

Office. However, three factors adversely affected the usefulness of the

timeliness data.

First, even though IRS required that timeliness data be reported to the

National Office, it did not specify what percentage of the time sites were to

meet the 15- and 30-minute wait-time goals. The Southeast Region

established its own goal, which called for districts in that region to meet

the wait-time goals 90 percent of the time. According to Southeast regional

analysts we talked with during the filing season, most of the nine districts

in that region were meeting or exceeding the 90-percent goal. The analysts

said that some districts were experiencing problems meeting the wait-time

goals because of an unanticipated increase in the number of taxpayers

visiting the walk-in sites for return preparation.

 18Tax Administration: IRS’ 1998 Tax Filing Season (GAO/GGD-99-21, Dec. 31, 1998) and

GAO/GGD-00-37.

IRS Monitored Wait Times at

Walk-In Sites, but Various

Factors Adversely Affected the

Usefulness of Monitoring

Results
Page 16 GAO-01-158 IRS' 2000 Filing Season

Second, wait times at most walk-in sites were computed manually, which

made the results more prone to error. To enable more accurate tracking of

wait times, IRS has installed an automated wait-time tracking system

known as Q-Matic at some walk-in sites. During the 2000 filing season, 76

(or 18 percent) of IRS’ 417 walk-in sites had that system. As customers

arrive at walk-in sites with the Q-Matic system, they are to obtain a

numbered ticket from the Q-Matic ticket printer. The ticket reflects the

estimated wait time for the service, and the system automatically “calls”

the customer when it is his or her turn. The system records the time that a

customer received a ticket and the time that an assistor started helping the

customer. Non-Q-Matic sites used manual systems to record wait times. At

some of those sites, a greeter or receptionist was to record on a taxpayer

contact card the time that the taxpayer arrived, and an assistor was to

record on the same card the time that he or she started to fill out a sign-in

sheet. Other non-Q-Matic sites relied on greeters or taxpayers to fill out a

sign-in sheet.

A third factor that affected the usefulness of wait-time data reported by

the regional offices, according to a cognizant IRS official, was the use of

different reporting formats by the regions.

IRS conducted a customer satisfaction survey at all walk-in sites in

January 2000 and every fifth week thereafter, which amounted to 1 week

during each month of the filing season. Results of the walk-in surveys

completed in January, February, and March, 2000, as summarized by IRS’

contractor responsible for analyzing survey results, showed that 91

percent of the respondents rated their overall satisfaction with the

handling of their case at 6 or 7 on a 7-point scale and that the average

overall satisfaction rating was 6.48. The survey results also showed that

• the three primary reasons why respondents visited a walk-in site were to

get help preparing their returns (28 percent), ask a tax question (22

percent), and pick up a form or publication (21 percent);

IRS Did Not Adequately

Measure Customer

Satisfaction at Walk-In

Sites
Page 17 GAO-01-158 IRS' 2000 Filing Season

• 72 percent of the respondents waited less than 15 minutes to be served, 21

percent waited between 15 and 30 minutes, and 7 percent waited more

than 30 minutes;19 and

• taxpayers whose wait time was less than 15 minutes gave higher

satisfaction ratings than did customers who waited longer.

Although the survey results showed that respondents were generally

satisfied with IRS’ assistance, only about 3 percent of the taxpayers who

visited walk-in sites between January and March, 2000, responded to the

survey. In that regard, TIGTA, in a May 2000 report, concluded that “while

the Walk-In Customer Satisfaction Survey may be an effective marketing

tool to gauge taxpayers’ satisfaction with the services provided by the IRS

Walk-In offices, the Survey results are not statistically valid.”

20 Specifically,

TIGTA found the following:

• Survey forms were not offered to all taxpayers during the survey weeks, as

was required. During visits to selected walk-in offices, TIGTA officials

posing as taxpayers were offered a survey form only 8 percent of the time.

• There were no controls to prevent tampering with the survey responses,

and IRS had not established controls to ensure that all walk-in offices

participated in the survey.

• Three different IRS functions provided oversight for the survey, but none

of them appeared to be accountable for the survey results.

TIGTA recommended that IRS improve the process for overseeing the

walk-in customer satisfaction survey to ensure that the survey is properly

administered and that the results are accurate, valid, and reliable. In a May

22, 2000, memorandum to TIGTA, the Commissioner of Internal Revenue

said that IRS would (1) stress the importance of providing the survey to all

taxpayers who are helped; (2) determine the level of employee

understanding of the survey process and provide additional training that

reinforces the importance of surveying all customers and the need to

adhere to instructions in the Internal Revenue Manual for survey

 19The contractor’s summary did not indicate whether the 28 percent who waited for 15

minutes or more were at the site for return preparation assistance. However, perhaps

coincidentally, the summary did show that 28 percent of the respondents visited the walkin site for help in preparing their returns. As previously noted, IRS’ wait-time goals are 30

minutes for return preparation and 15 minutes for all other services.

20Walk-in Customer Satisfaction Survey Results Should be Qualified if Used for the GPRA,

TIGTA, Reference No. 2000-10-079, May 17, 2000.
Page 18 GAO-01-158 IRS' 2000 Filing Season

procedures; and (3) issue program guidance to field offices that provides

direction to management on establishing controls to protect survey forms,

the integrity of the data, and the survey results.

In addition to the help that is available to taxpayers over the telephone and

at walk-in sites, taxpayers can receive assistance from various IRSsponsored volunteer sites. Two major volunteer assistance efforts are the

Volunteer Income Tax Assistance (VITA) and the Tax Counseling for the

Elderly (TCE) programs—both of which provide free tax return

preparation assistance. VITA offers free tax help to persons with low to

limited income, persons who are non-English-speaking, elderly taxpayers,

and persons with disabilities. TCE offers free tax help to elderly taxpayers.

According to IRS data as of June 30, 2000, about 3.3 million taxpayers

were assisted at about 17,600 VITA and TCE sites.

Considering the significant role played by the VITA and TCE programs in

helping taxpayers meet their filing responsibilities, it is important that IRS

take reasonable steps to ensure that the assistance provided by those

programs is timely and accurate. According to the Internal Revenue

Manual, “ . . . critical to management of volunteers are: proper training;

communication of expectations; review, evaluation and feedback of work

performed; and recognition of performance.”

In that regard, we noted the following:

• IRS procedures provided for assessing the quality of returns prepared by

volunteer sites. In commenting on a draft of this report, IRS said that the

accuracy rate for VITA sites was 97.8 percent and the rate for TCE sites

was 95.4 percent.

• IRS did not have measures for assessing the timeliness of service provided

by the volunteer sites or taxpayer satisfaction with those services.

• Although district office representatives were to make monitoring visits to

volunteer sites within their jurisdiction during the filing season, they were

not given specific guidance as to what to examine during these visits.

• Much of the computer hardware and software and training materials was

not delivered in a timely fashion to the VITA and TCE sites. According to

IRS officials, these problems affected the sites’ ability to serve taxpayers

effectively. For example, three of IRS’ four regions reported that the

untimely receipt of equipment hampered their sites’ electronic filing

activities. One region stated that the “equipment did not arrive timely, and

in many cases, so late that it was useless to field for this past filing season.

Volunteer Assistance

Programs Might Benefit

From Increased IRS

Attention
Page 19 GAO-01-158 IRS' 2000 Filing Season

A majority of the equipment did not arrive in working condition as some

were completely missing operating systems, or had the wrong adapters for

keyboard plug-in.” At the time we completed our audit work, IRS had not

responded to our questions about the reasons for these problems and what

was being done to prevent their recurrence in 2001.

Among other things, IRS’ Web site offers taxpayers hundreds of tax forms

and publications for downloading, current information on tax issues,

details about electronic filing, and the opportunity to submit tax law and

procedural questions via E-mail. Various data generated by IRS and others

indicate that IRS’ Web site was used more and performed better in 2000

than in 1999. Our review of information on the Web site indicated that the

site’s usefulness was somewhat impaired by the presence of obsolete or

inconsistent data.

Taxpayers used IRS’ Web site significantly more in fiscal year 2000 than in

fiscal year 1999. As of June, (1) the number of “hits” had increased 31

percent—1.3 billion in 2000 compared to about 983 million in 199921—and

(2) the number of downloaded files had increased 62 percent—about 115

million in 2000 compared to about 71 million in 1999. Also, the number of

E-mail questions received during the 2000 filing season increased by 41

percent—218,405 compared to 155,421 for the 1999 filing season.

Keynote—an independent Web site rater and recognized authority on

Internet performance—reviewed IRS’ Web site during the week of March

27, 2000, and reported that the site was coping well with demands of the

filing season and performing well overall. The independent rater found

that the home page was delivered in 2.7 seconds on average, and the site

had an availability rate of 96.8 percent from March 27 through March 31

(Monday through Friday). The average delivery time for April 1 and April 2

(Saturday and Sunday) was 2.62 seconds, with an availability rate of 98.9

percent. A similar review done in 1999 for Monday, April 12, through

Friday, April 16, showed delivery times that ranged from 5.39 seconds to

14.45 seconds and availability rates that ranged from 93.6 percent to 97.4

percent.22 Although these results indicate improved performance in 2000, it

is unclear how much, if any, of the apparent improvement is due to

 2131 percent does not compute due to rounding.

22Weekend performance was not rated in 1999.

Data on IRS’ Web Site

Showed More Use and

Improved Performance

Compared to 1999, but

Some Information on the

Site Was Obsolete or

Inconsistent

Use of IRS’ Web Site Increased,

Performance Improved
Page 20 GAO-01-158 IRS' 2000 Filing Season

different measurement periods. Unlike in 2000, the site’s performance in

1999 was measured during the last week of the filing season when

demands on the Web site might be heavier.

One important feature of IRS’ Web site is the ability of taxpayers to ask tax

law and procedural questions of IRS via E-mail. At a March 2000 Oversight

Subcommittee hearing, witnesses representing two practitioner

organizations spoke positively about this feature.

IRS data indicate that IRS was more timely in responding to taxpayers’

questions during the 2000 filing season than it was in 1999. For the 2000

filing season, IRS took an average of 1.3 business days to respond to

taxpayers E-mail questions compared to an average of 2.7 business days

during the 1999 filing season. During the 2000 filing season, IRS responded

90.5 percent of the time within its goal of 2 business days compared to 69.2

percent of the time during the 1999 filing season. Although IRS improved

its overall timeliness, there were certain types of questions (generally

those involving more complex topics) for which IRS did not meet the 2

business day goal. For example, questions dealing with trusts averaged 5.8

business days, questions about aliens and U.S. citizens living abroad

averaged 4.6 business days, and estate and gift tax questions averaged 3.2

business days.

Accuracy is another important measure of IRS’ performance in responding

to E-mail questions. IRS data on the results of its quality reviews of

responses to E-mail questions during the 2000 filing season showed that 76

percent of the 1,321 responses reviewed between January and April were

correct (IRS’ accuracy goal for all of fiscal year 2000 was 79 percent). In

September 2000, TIGTA reported on the results of a test it conducted

between March and June, 2000.23 For that test, TIGTA E-mailed to IRS and

to 3 commercial Internet Web sites that offer free tax advice, 50 questions

relating to issues affecting small businesses and/or self-employed

individuals. According to TIGTA, IRS responded correctly to 54 percent of

 23Management Advisory Report: Comparison of Responses to Small Business/SelfEmployed Taxpayer Questions from the Electronic Tax Law Assistance Program and other

Internet Tax Law Services, TIGTA, Reference No. 2000-30-126, Sept. 21, 2000.
Page 21 GAO-01-158 IRS' 2000 Filing Season

the questions while the commercial Web sites provided correct answers 47

percent of the time.24

In another report, TIGTA noted that although IRS had statistically valid

nationwide data on the accuracy of responses to E-mail questions, its

sampling plan was insufficient to produce statistically valid data for

assessing the performance of each of the 10 sites that respond to E-mail

questions.25 TIGTA recommended that IRS design a sampling plan to

provide accuracy rates at the call-site level as well as the national level.

All E-mail customers are to be given the opportunity to respond to a

customer satisfaction survey. According to IRS data, of the about 4,300

taxpayers who responded to the survey between January 1 and April 17,

2000, (1) 94 percent said that they were satisfied with the time it took to

get a response; (2) 78 percent said that the response they received

answered their question; and (3) 93 percent said that they would use the Email system in the future.

We found several instances of data on IRS’ Web site that were either

obsolete or inconsistent. For example:

• In the “IRS Newsstand” part of the site, there is a section entitled “Tax

Calendar for Small Businesses.” When we looked at that section in June

2000, we found a calendar for 1999 but no calendar for 2000.

• In the “Around the Nation” section of the site, there are one or more pages

for all but one state. When we checked in June 2000, we found that the

pages for four states still had data posted showing events that took place

in 1999. There were also some inconsistencies between the dates of

Problem Solving Days posted on the Problem Solving Days part of the Web

site and the dates posted on some individual state pages. For example, as

of June 22, 2000, one state’s page showed no Problem Solving Days in that

state after March 2000, but the Problem Solving Days page showed that

 24The lower IRS accuracy rate in TIGTA’s study (54 percent) compared to the rate resulting

from IRS’ quality reviews (76 percent) could be due to different methodologies. IRS’ quality

review results are based on a statistical sample of all questions received. TIGTA’s study

involved test questions specifically related to small businesses and/or self-employed

individuals, which, according to TIGTA, may be more complex than normal individual

income tax questions.

25Management Advisory Report: Enhancing the Electronic Tax Law Assistance Program,

TIGTA, Reference No. 2000-30-164, Sept. 28, 2000.

Some Data on IRS’ Web Site

Were Obsolete or Inconsistent
Page 22 GAO-01-158 IRS' 2000 Filing Season

days were scheduled in that state for June and July. Such inconsistencies

could cause users of the Web site to get incorrect information depending

on which page they accessed.

• Some state pages included more information than others. Although this

kind of inconsistency is not a problem in and of itself, some of the

inconsistency involved basic information that we thought should be a part

of every state page. For example, of 56 state pages (1 state had no page, 4

states had more than 1 page, and the District of Columbia had 1 page), 40

had information on walk-in site locations, while 16 had no such

information. As a result, taxpayers in some states were able to get

information on IRS walk-in locations from the Web site while taxpayers in

other states were not.

An official from IRS’ Electronic Information Services Office told us that

there was no one person responsible for ensuring that data on the Web site

were current and consistent. Each office that placed data on the site was

responsible for ensuring that the data were accurate and up-to-date. Thus,

for example, there was no one responsible for ensuring that information

entered on a particular state page by one of IRS’ district offices was

consistent with information on the Problem Solving Day part of the Web

site that had been entered by another office.

IRS provides various means through which taxpayers can obtain copies of

forms and publications to help them prepare their tax returns. We have

already discussed two of those means—IRS’ walk-in sites and Web site.

Table 5 identifies other channels through which IRS distributes forms and

publications and, for each of those channels, shows comparative data for

the 1999 and 2000 filing seasons.

Performance Measures Did

Not Adequately Reflect the

Timeliness With Which IRS

Responded to Taxpayers’

Orders of Forms and

Publications
Page 23 GAO-01-158 IRS' 2000 Filing Season

Table 5: IRS Forms and Publications Distribution Channels

Distribution channel and unit of measure 1999 filing season 2000 filing season

Percentage change:

1999 to 2000

Area distribution centers—orders filleda 7,345,000 5,042,000 -31.4

Bank, Post Office, and Library (BPOL) Program—outletsb 42,529 41,971 -1.3

Community Based Outlet Program—outletsc 3,490 10,193 192

TaxFax Program—successful faxesd 970,379 1,089,603 12

Corporate Partnership Programe

Corporations 2,153 2,386 11

Employees 14,428,232 15,443,729 7

a

IRS’ three area distribution centers send forms and publications to taxpayers in response to their

mail and telephone orders.

b

Through the BPOL Program, IRS partners primarily with post offices and libraries to distribute forms.

Although still called the BPOL Program, IRS no longer recruits banks to participate. According to a

cognizant IRS official, IRS has significantly improved its relationship with libraries and post offices

over the last few years, so the decline in participating BPOL outlets between 1999 and 2000 should

not be viewed as a trend.

c

Through the Community Based Outlet Program, IRS partners with newspapers, copy centers, credit

unions, and grocery stores to distribute forms.

d

The TaxFax Program enables taxpayers to order and receive forms and instructions from IRS via a

fax machine.

e

The Corporate Partnership Program enables employees of participating corporations to obtain copies

of IRS forms and publications at their work sites.

Source: IRS.

Of the various distribution channels listed in table 5, we focused most of

our audit work on the performance of the area distribution centers in

filling taxpayers’ orders. Taxpayers can order forms and publications from

the distribution centers either by mail or by calling a toll-free telephone

number. In the tax packages mailed to taxpayers before the filing season,

IRS tells taxpayers how to order forms and publications from the area

distribution centers and that they should expect to receive the documents

within 10 days after IRS receives their order.

According to IRS data for January 1 through April 30, 2000, the three area

distribution centers filled about 5 million orders for forms and

publications, filled 98 percent of the orders accurately, and took no longer

than 2.6 days on average to fill those orders.26 However, the latter measure

 26According to IRS data, the average order-filling time varied from week to week and

ranged from less than a day to about 2.6 days.
Page 24 GAO-01-158 IRS' 2000 Filing Season

does not provide a reliable basis for judging how well IRS met its 10-day

goal because the measure (1) does not track order-filling time from when

IRS received the order, only from when an order was assigned a “picking”

number for processing, and (2) reflects turnaround time only for inventory

on hand and not for forms or publications that were out of stock and, thus,

had to be backordered. Regarding backorders, there were several

significant stockouts during the 2000 filing season, involving such

documents as Form W-2 (Wage and Tax Statement) and Publication 596

(Earned Income Credit).

IRS data for January through April, 2000, also indicated that taxpayers had

an easier time accessing the toll-free forms-ordering telephone line than

they did accessing the three customer service-related telephone lines

previously discussed. The data show that of 5.3 million call attempts to the

forms-ordering line, 4.0 million were answered—a 75-percent level of

service.27 The 5.3 million call attempts represented a significant decrease

from the 7.0 million call attempts during the same 4 months in 1999. The

decrease in call attempts, like the decrease in orders filled shown in table

5, could indicate that more taxpayers are using other sources, such as IRS’

Web site, to obtain needed forms and publications.

On a related matter, a recent IRS study found that when taxpayers called

the toll-free forms-ordering telephone number, they were not told how

long it could take to receive the form or publication until after the order

was placed. The study concluded that this procedure could cause wasted

IRS effort and increased taxpayer burden if taxpayers, after placing their

order on the telephone and being told the delivery time, decided to go to a

walk-in site to get the material rather than wait for the material to be sent

by mail. The study recommended that IRS rearrange its forms telephone

menu and advise its assistors to tell taxpayers at the beginning of the call

how long it generally takes to receive IRS forms ordered over the

telephone. Doing so would allow taxpayers to terminate the call

immediately if the wait time is unacceptable to meet their needs. When we

asked whether they had implemented this recommendation, cognizant IRS

officials said that they had not. They explained that providing the

information at the beginning of the call could be very awkward because

assistors do not know (1) what the call is about and (2) what the taxpayer

 27This level of service was slightly below the 78-percent level of service IRS reported for

January through April, 1999.
Page 25 GAO-01-158 IRS' 2000 Filing Season

is ordering. The officials stated that, depending on the product and time of

the year, the order time may change (e.g., due to products not being

available or being on backorder).

However, between April 1 and 15, IRS officials did institute two automated

messages on the forms-ordering line that were to come on when a caller

was put on hold because all of the assistors were occupied. The messages

stated that it could take up to 10 days for the caller to receive his or her

order, and that the caller may want to ask the assistor for alternate ways

of obtaining forms. However, these messages were operational only when

the forms operators were on duty, which was 7 days a week, 12 hours a

day. If a taxpayer called the forms line during the other 12 hours, the call

rolled over to another telephone line, which did not have these messages.

During the past several filing seasons, IRS has undertaken several efforts

aimed at reducing noncompliance with the EIC eligibility requirements.28

Generally speaking, those efforts involved (1) using IRS’ math error

authority to deny EIC claims that were not accompanied by valid SSNs

and (2) conducting in-depth reviews of EIC claims that met certain

criteria. In 2000, IRS continued these efforts and began a new effort

directed at tax return preparers. Although IRS identified and stopped

hundreds of millions of dollars in erroneous EIC claims in 2000, a recent

IRS study indicated that IRS might still be paying out billions of dollars in

erroneous EIC claims. However, because that study involved returns filed

in 1998, it predated many of IRS’ more recent EIC compliance efforts. IRS

has studies under way and planned that should help determine the impact

of those more recent efforts on noncompliance.

As IRS processes individual tax returns, it looks for computational errors

made by taxpayers or their representatives in preparing the returns. When

IRS finds such errors, it can automatically adjust the return through the

use of math error authority. In 1996, Congress first authorized IRS to treat

invalid SSNs as math errors, similar to the way that it had historically

 28The term “noncompliance” includes erroneous EIC claims caused by mistakes,

negligence, or fraud.

IRS Expanded Its

Efforts to Reduce EIC

Noncompliance; the

Overall Impact of

Those Efforts Is

Unclear

IRS Continued to Deny

Some Improper EIC

Claims Through Math

Error Authority
Page 26 GAO-01-158 IRS' 2000 Filing Season

handled computational mistakes.29 IRS now has the authority to (1)

automatically disallow, through its math error program, any deductions

and credits, such as the EIC, associated with an invalid SSN and (2) make

appropriate adjustments to any refund that the taxpayer might be

claiming.

According to IRS data as of June 30, 2000, IRS had denied about $321

million in erroneous EIC claims through its math error authority. Although

significant, this amount represents a decrease from the $410 million

stopped as of the same point in time in 1999. In that regard, as shown in

table 6, although the number of EIC recipients in 2000 was about the same

as in 1999, the number of EIC-related math errors involving SSNs and the

number of other EIC-related math errors both declined by more than 20

percent. These declines would seem to indicate that IRS’ efforts have

caused taxpayers and practitioners to be more careful in preparing EIC

claims.

Table 6: EIC Recipients and Math Errors During 1999 and 2000

EIC recipients and math errors January through August 1999 January through August 2000

Percentage

change

Number of EIC recipients 19,016,474 18,896,854 -0.6

EIC math errors involving an invalid SSN 435,991 334,177 -23.4

Other EIC math errorsa 1,444,824 1,058,469 -26.7

a

Other EIC math errors include errors in computing earned income and figuring the EIC. To be

comparable with data for 1999, the number for 2000 excludes 37,331 errors in 2 categories that were

not considered math errors in 1999.

Source: IRS report entitled Monthly Operational Review of Earned Income Credit.

Other types of EIC noncompliance are not as easy to identify as math

errors. These types can be detected only through an audit. In 2000, IRS

continued to target for in-depth review certain types of EIC claims, such as

those involving the use of a child’s SSN on multiple returns for the same

year, that IRS had identified as the main sources of EIC noncompliance.

Taxpayers whose returns were identified for inclusion in one of these

 29In 1998, Congress further provided that a taxpayer would be considered to have omitted a

correct SSN if information provided by the taxpayer on the return with respect to the

individual whose SSN was provided differed from information that the Secretary of the

Treasury obtained from the Social Security Administration.

IRS Targeted Certain Types

of EIC Claims for In-Depth

Review
Page 27 GAO-01-158 IRS' 2000 Filing Season

programs were to be audited to determine if their EIC claims were valid.

During the first 11 months of fiscal year 2000, according to IRS, it closed

about 218,000 of those audits and identified about $336 million in

erroneous claims.

For the 2000 filing season, IRS implemented an integrated EIC education

and compliance effort directed at tax return preparers. IRS decided to

implement this effort, known as the EIC Preparer Outreach Program,

because IRS data indicated that 62 percent of the returns with EIC claims

were prepared by paid preparers. This program focused on preparers who

generated at least 100 tax returns claiming the EIC because, according to

IRS, that universe of preparers accounted for 75 percent of the EIC tax

returns done by paid preparers. Preparers were divided into five groups,

with each group getting a different type of visit from IRS, ranging from

education to criminal investigation. At the time we completed our audit

work, not enough information was available on the results of the program

to assess its overall effectiveness. Additional information on the EIC

Preparer Outreach Program is presented in appendix IV.

The previously discussed EIC-related efforts are part of a 5-year initiative

for which Congress has appropriated about $140 million a year since fiscal

1998. That initiative was begun after IRS, in April 1997, reported the results

of its tax year 1994 EIC compliance study.30 The study showed that of the

$17.2 billion in EIC claimed during the study period, 26 percent, or about

$4.4 billion, was overclaimed.

In September 2000, IRS published the results of another EIC compliance

study involving tax year 1997 returns.31 That study showed that of the

estimated $30.3 billion in EIC claims made by taxpayers who filed returns

in 1998 for tax year 1997, an estimated $9.3 billion (30.6 percent) was

overclaimed.32 After deducting about $1.5 billion in overclaims that IRS

estimated it would recover as a result of its enforcement programs, such

as audits of tax returns and corrections of math errors, IRS estimated that

 30Study of [EIC] Filers for Tax Year 1994, IRS, April 1997.

31Compliance Estimates for Earned Income Tax Credit Claimed on 1997 Returns, IRS, Sept.

2000.

32Percentage does not compute due to rounding.

IRS Initiated an EIC

Education and Compliance

Effort Directed at

Preparers

Recent IRS Study Indicates

That IRS Might Be

Allowing Billions of

Dollars in Erroneous EIC

Claims
Page 28 GAO-01-158 IRS' 2000 Filing Season

it paid out about $7.8 billion in overclaims (25.6 percent of the total

amount of EIC claimed).33 According to IRS, these results are not

comparable to the results of the tax year 1994 study because of (1) various

legislative changes since 1994 that affected eligibility for the credit, the

credit amounts, and IRS’ administration of the credit and (2)

methodological changes to the study design.

Because IRS had not yet fully implemented many of the efforts that it

undertook as part of the EIC compliance initiative, the results of the tax

year 1997 study do not reflect the full impact of those efforts. In that

regard, IRS is doing a study of tax year 1999 returns and plans to study tax

year 2001 returns.

Going into the 2000 filing season, we had two predominant questions: how

would IRS’ tax processing systems function given the challenges

associated with the Year 2000, and would IRS be able to improve its tollfree telephone service in light of the performance problems experienced in

1999. Except for a few relatively minor glitches, which were not

unexpected given the enormity of IRS’ processing task, the processing

systems worked well. On the other hand, although taxpayers were better

able to reach IRS over the telephone compared to 1999, IRS’ performance

was still well below the level achieved in 1998. Our forthcoming reports on

IRS’ toll-free telephone service will contain recommendations directed at

helping IRS improve its performance.

In addition to telephone service, IRS provides other forms of assistance

that are used by tens of millions of taxpayers. While our review identified

several positive aspects with respect to IRS’ monitoring of those

assistance efforts (such as development of a quality review program for

walk-in sites and various positive performance indicators related to IRS’

Web site), we also identified several opportunities for improvement. In

some respects, such as with the volunteer assistance programs and the

assistance provided by IRS’ walk-in sites and area distribution centers, the

opportunities centered around performance measures. In those areas,

unlike the situation with respect to IRS’ telephone service, it was not easy

to assess IRS’ performance because either IRS did not have good measures

 33According to IRS, the range of sampling uncertainty around the 25.6-percent estimate is

plus or minus 2.3 percentage points.

Conclusions
Page 29 GAO-01-158 IRS' 2000 Filing Season

or there were problems with the data behind the measures. Management

needs good measures backed by reliable data if it is to draw meaningful

conclusions about its performance and make sound decisions about any

need for change. Other improvement opportunities we identified centered

around management oversight—the kind of oversight that would enhance

the level of service provided by better ensuring that (1) training materials

and computer equipment were delivered to the volunteer assistance sites

on time and in working condition and (2) data being entered on the Web

site by various offices within IRS are current and consistent.

We recommend that the Commissioner of Internal Revenue direct the

appropriate officials to do the following:

• Enhance the usefulness of walk-in site wait-time data by providing a

standard format for field offices to use in reporting that information to the

National Office and specifying the percentage of time that walk-in sites are

to meet established wait-time goals.

• In collaboration with IRS’ partners in providing volunteer assistance,

develop performance measures for volunteer assistance sites that can be

used to ensure that taxpayers are receiving an adequate level of service.

• Identify the underlying causes for (1) untimely delivery of an adequate

supply of materials to volunteer assistance sites and (2) inadequate district

review of site operations, and take action to address those underlying

causes.

• To better ensure that area distribution centers provide timely service in

filling orders for forms and publications, revise the order-filling timeliness

measure so that (1) time is tracked from the day the order is received and

(2) tracking does not end until the entire order is filled, even if backorders

are involved.

• To better ensure that IRS’ Web site contains accurate and useful

information, (1) assign clear responsibility in a central location for

identifying and correcting outdated and inconsistent data and (2) develop

minimum requirements for information to be included on the state pages

in the “Around the Nation” section of the site. Regarding the latter,

consider including information on the location of walk-in sites and their

hours of operation.

We requested comments on a draft of this report from IRS. We obtained

written comments in a December 8, 2000, letter from the Commissioner of

Internal Revenue (see app. V). In his letter, the Commissioner said that (1)

Recommendations for

Executive Action

Agency Comments

and Our Evaluation
Page 30 GAO-01-158 IRS' 2000 Filing Season

our report provided a fair and balanced assessment of IRS’ efforts to

deliver a filing season that was relatively error-free while providing

taxpayers with top quality service and (2) IRS would make every effort to

resolve the issues noted in our report. While agreeing generally with our

recommendations, the Commissioner disagreed with parts of two

recommendations (although, in one case, IRS’ plans are consistent with

our recommendation) and provided additional perspective that led to a

rewording of one recommendation. The Commissioner also expressed

some concern about one aspect of our assessment of IRS’ telephone

service.

The Commissioner agreed that IRS should provide a standard format for

field offices to use in reporting wait-time data for walk-in sites. However,

he did not agree that IRS should specify the percentage of time that walkin sites are to meet established wait-time goals because doing so might

pressure IRS staff to serve taxpayers too quickly and, thus, negatively

affect service quality. We believe that just measuring average wait time can

mask a circumstance in which many taxpayers are waiting more than the

length of time specified in IRS’ goal (i.e., 30 minutes for return preparation

and 15 minutes for all other services) even though the average wait time is

below IRS’ goal. Concern about staff working too fast and thus providing

poor quality service should be offset by the influence of other measures

(i.e., quality and customer satisfaction) on employee behavior.

The Commissioner agreed that goals and measures are needed for

volunteer sites and noted that one aspect of their performance—quality—

is being measured. We revised this report to make that clear. The

Commissioner said that IRS will discuss with its largest partner in

providing volunteer assistance the possibility of developing a timeliness

measure. We believe that any such discussion should also include a

measure of customer satisfaction. The Commissioner cautioned that IRS

cannot require that its partner adopt any measure. We recognize that

collaboration is required and revised our recommendation accordingly.

The Commissioner agreed with the need to improve the process of

ordering and delivering supplies and materials to volunteer assistance

sites and said that actions have been taken to address that issue. The

Commissioner did not comment on our recommendation that IRS identify

the underlying causes of inadequate district review of site operations and

take necessary corrective action.
Page 31 GAO-01-158 IRS' 2000 Filing Season

The Commissioner agreed that area distribution centers should track

orders for forms and publications from the day an order is received, but he

did not agree that tracking should continue until all backorders associated

with an order have been shipped. However, the tracking plans described

by the Commissioner include plans to measure overall elapsed time to fill

an order, including associated backorders. That is fully consistent with our

recommendation.

The Commissioner agreed with our recommendation regarding IRS’ Web

site and said that steps have already been taken to assign clear

responsibility for ensuring accurate, useful, and timely information.

The Commissioner also commented on our discussion of IRS’ performance

in providing telephone service. While agreeing that IRS can improve its

delivery of telephone service, the Commissioner did not believe that we

should compare IRS’ performance to 1998 because IRS had significantly

changed its telephone service operating environment after 1998. We agree,

and have acknowledged in this report, that there were major changes after

1998, but we do not agree that those changes make it inappropriate to

compare IRS’ performance in 1998 to its performance in 1999 and 2000. To

the contrary, we believe that such a comparison is essential. The changes

made after 1998 were intended to improve IRS’ telephone service. The

only way to tell if service improved is to compare performance levels after

the change (1999 and 2000) with levels before the change (1998).

We are sending copies of this report to Senator William V. Roth, Jr.,

Chairman, and Senator Daniel P. Moynihan, Ranking Minority Member,

Senate Committee on Finance; Representative Bill Archer, Chairman, and

Representative Charles B. Rangel, Ranking Minority Member, House

Committee on Ways and Means; and Representative William J. Coyne,

Ranking Minority Member of this Subcommittee. We are also sending

copies to the Honorable Lawrence H. Summers, Secretary of the Treasury;

the Honorable Charles O. Rossotti, Commissioner of Internal Revenue; the

Honorable Jacob J. Lew, Director, Office of Management and Budget; and

other interested parties. We will make copies available to others on

request.
Page 32 GAO-01-158 IRS' 2000 Filing Season

This report was prepared under the direction of David J. Attianese,

Assistant Director. Other major contributors are acknowledged in

appendix VI. If you have any questions about this report, contact me or Mr.

Attianese on (202) 512-9110.

Sincerely yours,

James R. White

Director, Tax Issues
Page 33 GAO-01-158 IRS' 2000 Filing Season
Appendix I: Description of Processing and

Customer Service Performance Indicators

Page 34 GAO-01-158 IRS' 2000 Filing Season

This appendix contains descriptions of the various performance indicators

listed in tables 1 and 3.

The percentage of individual income tax refunds that are free of any

Internal Revenue Service (IRS)-caused errors in the name and address

field or in the refund amount. The percentage is based on a sample of

individual income tax returns filed on paper.

The percentage of other-than-full-paid, individual paper returns that Code

and Edit staff process accurately. Other-than-full-paid returns involve

either a refund or an unpaid liability and account for most of the paper

returns processed.

The percentage of other-than-full-paid, individual paper returns that are

processed without transcription errors.

The percentage of orders that are processed accurately determined by

randomly checking selected taxpayer orders, monitoring telephone calls

from taxpayers, and reviewing the transcription of written requests from

taxpayers.

Determined through surveys of a random sample of taxpayers who call

IRS’ toll-free telephone numbers and choose to participate.

Determined through surveys of a sample of taxpayers who visit IRS’ walkin sites and choose to participate.

Calculated by dividing the number of calls answered by the total call

attempts. Answered calls include calls to a voice messaging system that

were subsequently returned by IRS. Total call attempts is the sum of calls

answered, calls abandoned by the caller before receiving assistance, and

calls that receive a busy signal.

Appendix I: Description of Processing and

Customer Service Performance Indicators

Accuracy of Individual

Income Tax Refunds on

Paper Returns

Accuracy of Individual

Income Tax Returns

Processed by Code and

Edit Staff

Accuracy of Individual

Income Tax Returns

Processed by Data

Transcribers

Accuracy With Which

Forms Distribution

Centers Process Taxpayer

Orders

Customer Satisfaction

With Toll-Free Telephone

Service

Customer Satisfaction

With Walk-In Service

Level of Service Provided

by Toll-Free Taxpayer

Service Telephone System
Appendix I: Description of Processing and

Customer Service Performance Indicators

Page 35 GAO-01-158 IRS' 2000 Filing Season

The percentage of notices reviewed that are correct. The notice accuracy

indicator is based on a sample of returns processing notices to be sent to

individual and business taxpayers. Among other things, IRS uses returns

processing notices to advise taxpayers of missing schedules or forms,

missing Social Security numbers (SSN), or refunds being delayed. IRS

reviewers compare the printed notice to various data, including

information in the taxpayer’s account and on the taxpayer’s tax return. IRS

told us that the results for individual and business taxpayers could not be

separated.

The number of electronically filed individual income tax returns as a

percentage of all individual income tax returns filed.

The percentage of calls answered accurately determined by monitoring a

sample of telephone calls.

The percentage of refunds on electronically filed returns that are

processed within 21 days. The percentage is based on a sample of

electronically filed returns, and the days are counted from the date the

return was received to the date the refund was issued.

The percentage of refunds on paper individual income tax returns that are

processed within 40 days. The percentage is based on a sample of paper

returns, and the days are counted from the signature date on the return to

1 day after the issuance of the refund.

Notice Accuracy

Percentage of Individual

Income Tax Returns Filed

Electronically

Tax Law Accuracy Rate for

Taxpayer Inquiries (TollFree)

Timeliness of Refunds for

Individual Income Tax

Returns Filed

Electronically

Timeliness of Refunds for

Individual Income Tax

Returns Filed on Paper
Appendix II: Several Factors Contributed to

the Increase in Electronic Filing

Page 36 GAO-01-158 IRS' 2000 Filing Season

In discussing the increase in electronic filing in 2000 compared to 1999,

IRS officials cited several contributing factors, in addition to the belief that

taxpayers are becoming more familiar and comfortable with computer

technology and electronic filing.

• The number of electronic return originators (ERO) increased from about

90,000 in 1999 to about 108,000 in 2000.1

 Also, some EROs offered free

electronic filing to any taxpayer, while others offered free electronic filing

to taxpayers who met certain criteria.

• IRS expanded its electronic filing marketing efforts by allocating $9

million in 2000 compared to $7.8 million in 1999. As part of this expansion,

IRS launched an effort to strengthen the “E-file” brand name by expending

over $5 million on promotions, such as television and radio commercials;

magazine ads; Internet banners; video productions; and billboards.

• IRS continued to enter into new partnerships with private sector

companies to broaden the electronic services accessible through IRS’ Web

site. As part of these arrangements, IRS placed hyper-links from its Web

site to the partners’ Web sites, and partners offered services such as free

electronic filing and free tax preparation software.

• IRS added five forms and schedules to the list of documents that can be

filed electronically. The five forms and schedules included Schedule J

(Farm Income Averaging) and Form 8586 (Low Income Housing Credit).2

• IRS expanded the alternative signature and payment initiatives that it had

begun in 1999. Further discussion of these initiatives follows.

One frequently cited barrier to the greater use of electronic filing is that it

has not been a paperless process. In that regard, electronic filers, other

than those who used TeleFile, have had to submit a paper signature

document (Form 8453) along with copies of their Wage and Tax

Statements (Form W-2).3

 Also, taxpayers who filed electronically

 1

As defined by IRS, EROs “originate the electronic submission of income tax returns to the

IRS.” Generally, EROs are tax return preparers.

2

IRS plans to add 23 forms and schedules to the list for 2001 and add another 5 forms and

schedules for 2002. According to an IRS official, with the addition of those 28 forms and

schedules, 99 percent of all taxpayers should be able to file electronically in 2002.

3

Instead of submitting their W-2s, TeleFile users must enter certain information from each

of their W-2s via the telephone. In lieu of a signature document, TeleFile users must make

the following declaration over the telephone: “Under penalties of perjury, I declare that to

the best of my knowledge and belief, the return information I provided is true and correct

and includes all amounts and sources of income I received during the tax year.”

Appendix II: Several Factors Contributed to

the Increase in Electronic Filing

Alternative Signature

and Payment

Initiatives
Appendix II: Several Factors Contributed to

the Increase in Electronic Filing

Page 37 GAO-01-158 IRS' 2000 Filing Season

(including those who used TeleFile) and had a balance due had to mail a

check and payment voucher to IRS. In 1999, IRS began various alternative

signature and payment initiatives that were aimed at making electronic

filing paperless and, therefore, more attractive to taxpayers and tax return

preparers. IRS expanded those initiatives in 2000.

Two initiatives—the Personal Identification Number (PIN) and E-File

Customer Number (ECN) programs—enabled participating taxpayers to

use electronic signatures and waived the need for them to submit Forms

8453 and W-2.

The PIN Program allows taxpayers who file returns through a participating

ERO to use a self-selected PIN instead of completing a Form 8453. IRS, in

2000, expanded the program by increasing the number of EROs selected to

participate from about 8,100 in 1999 to 18,000 in 2000.4

 As of October 4,

2000, about 5.4 million taxpayers had used this option in comparison to

about 500,000 in 1999. According to IRS, starting in 2001, all EROs will be

able to file electronic returns using a self-selected PIN. Also starting in

2001, both spouses will not have to be present when filing an electronic

joint return through a preparer using a PIN because IRS has developed an

unavailable spouse signature authorization worksheet. As noted in our

report on the 1999 tax filing season,5 a representative of the largest

national tax return preparation company had mentioned this as one of the

changes he would like to see made to the PIN Program.6

The ECN Program offered taxpayers who used a computer to prepare their

tax returns the opportunity to file on-line and use an ECN instead of

completing a Form 8453. In 2000, IRS expanded the ECN Program by

increasing the number of ECNs mailed to taxpayers from about 8 million

in 1999 to about 12 million in 2000. As of October 4, 2000, about 1.4 million

taxpayers had used this option in comparison to about 660,000 in 1999.

 4

Although about 8,100 EROs were selected to participate in the PIN Program in 1999, only

about 2,500 submitted returns with a PIN. According to IRS, of the about 18,000 EROs

selected to participate in 2000, about 8,900 submitted returns with a PIN.

5

GAO/GGD-00-37.

6

Another change that the representative wanted to see made to the PIN Program was

elimination of the authentication worksheet, which IRS was requiring preparers to keep on

file in case there was any dispute about the return’s authenticity. According to IRS, that

worksheet will no longer be required.

Alternative Signature

Initiatives
Appendix II: Several Factors Contributed to

the Increase in Electronic Filing

Page 38 GAO-01-158 IRS' 2000 Filing Season

IRS’ District Office of Research and Analysis surveyed taxpayers who used

the ECN in 1999. Of the respondents, 54 percent said that the ECN made

them more likely to file on-line and 60 percent said that the ECN would

make them more likely to file electronically in future years. According to

IRS, the ECN Program is being terminated. Instead, starting in 2001, online filers will be able to use a self-selected PIN just like EROs.

An Electronic Tax Administration official told us that IRS believes that

more taxpayers took advantage of the PIN and ECN programs during the

2000 filing season because (1) practitioners and software companies did a

better job of marketing the programs; (2) software companies involved in

the PIN Program increased from 3 to 10; (3) 25 new software packages

were available, and 23 supported the ECN Program; and (4) the postcard

alerting taxpayers about the ECN Program was redesigned.

In 1999, for the first time, many taxpayers who electronically filed balance

due returns could pay their balance due either by credit card or by direct

debit from a checking or saving account. On-line filers who used certain

software packages were able to indicate on-line when filing their returns

that they wanted to pay any balance due by credit card. Taxpayers who

used traditional electronic filing or TeleFile could charge their balance due

by credit card with a toll-free telephone call to private companies that

processed the credit card payments. IRS expanded the credit card

payment option for the 2000 filing season by (1) promoting its use to paper

filers and (2) expanding its use to the payment of estimated taxes and the

payment of taxes accompanying applications for extensions to file.

Taxpayers filing electronic balance due returns could also pay their

balance due by direct debit to a checking or saving account through an

automated clearinghouse. IRS expanded the direct debit option for the

2000 filing season by making it available to all electronic filers. This option

previously had not been available to TeleFile users. The direct debit is only

paperless for on-line filers who participated in the ECN Program. Those

filers used the ECN as their signature and were to indicate via an on-line

prompt that they wanted to use the direct debit option. Other on-line filers

and other electronic filers who chose the direct debit option had to submit

a Form 8453, which contains a disclosure statement that requires the

taxpayer’s signature authorizing the direct debit.

Alternative Payment

Initiatives
Appendix II: Several Factors Contributed to

the Increase in Electronic Filing

Page 39 GAO-01-158 IRS' 2000 Filing Season

According to IRS data, as of September 30, 2000:

• The number of credit card payments had increased to about 218,000

compared to about 53,000 in 1999. At least 63,000 of the 218,000 payments

were associated with individual income tax returns that were filed

electronically.

• The number of direct debit payments had increased to about 237,000

compared to about 76,000 in 1999. Of the 237,000, about 36,000 were

TeleFile users.

IRS informed us that virtually no problems were encountered in

processing credit card and direct debit payments in 2000.

Although we saw no data with which to determine a direct cause/effect

relationship, it appears that the availability of electronic payment options

led to the electronic filing of more balance due income tax returns in 2000.

In that regard, the Electronic Tax Administration Advisory Committee

reported that about 2.3 million balance due returns were filed

electronically in 2000—about 51 percent more than in 1999.7

 7

Annual Report to Congress, Electronic Tax Administration Advisory Committee, June 30,

2000.
Appendix III: Changes Made by IRS to Reduce

Taxpayer Errors and Enhance Processing

Page 40 GAO-01-158 IRS' 2000 Filing Season

IRS made several changes for the 2000 filing season in an attempt to

reduce the number of taxpayer errors and enhance its processing efforts.

Of particular note, IRS simplified the Child Tax Credit worksheet, revised

the criteria for filing Schedule D (Capital Gains and Losses), began using

dual mailing addresses for taxpayers to use in sending their returns to IRS,

and began verifying secondary SSN.

As we reported last year, the Child Tax Credit caused processing problems

for IRS during the 1999 filing season because many taxpayers did not

claim the credit even though they checked a box on the return indicating

that one or more of their dependents was eligible for the credit.1

 IRS data

indicate that taxpayers and tax return preparers had fewer problems with

the Child Tax Credit in 2000. As of June 2, 2000, according to IRS, the

number of Child Tax Credit errors by taxpayers and preparers was 37

percent lower than at the same time in 1999. This decrease is even more

significant considering that, according to IRS’ Statistics of Income

Division, more taxpayers claimed the Child Tax Credit in 2000 than in

1999.

The fewer errors in 2000 can be attributed, at least in part, to changes IRS

made to the Child Tax Credit worksheet, which, in our opinion, reduced

the chance for error. Before the revision, taxpayers were required to

complete an 11-line worksheet that incorporated the criteria for eligibility

along with the calculations for the credit. IRS simplified the worksheet by

presenting the criteria in the form of questions to which the taxpayer was

to answer “yes” or “no.” If taxpayers plainly met the criteria, they were

directed to complete a simple five-line worksheet to calculate the credit.

Taxpayers who did not plainly meet the criteria were directed to use a

separate publication to determine if they were entitled to any part of the

credit. Our review of the revision and the conditions that require use of the

separate publication indicated that most taxpayers would have been able

to use the simple five-line worksheet and avoid the publication.

 1

GAO/GGD-00-37.

Appendix III: Changes Made by IRS to

Reduce Taxpayer Errors and Enhance

Processing

Child Tax Credit

Worksheet Simplified
Appendix III: Changes Made by IRS to Reduce

Taxpayer Errors and Enhance Processing

Page 41 GAO-01-158 IRS' 2000 Filing Season

As we discussed in our report on the 1998 filing season, IRS’

implementation of a legislative change relating to capital gains led to

additional burdens for IRS and taxpayers.2

 In 1998, if Schedule D, which is

used to report capital gains, was missing from a return, IRS would stop

processing the return and write the taxpayer asking for a Schedule D. For

the 1999 filing season, IRS changed that procedure to correspond with the

taxpayer only if the capital gain reported on the return was over a certain

amount. For the 2000 filing season, IRS raised that amount and dropped

the requirement for a Schedule D if the only capital gain was from a

mutual fund distribution. Consistent with those changes, IRS data indicate

that (1) about 17 percent of the individual income tax returns that were

received as of May 5, 2000, included a Schedule D compared to about 21

percent at the same point in time in 1999 and (2) as of June 2, 2000, the

number of error notices related to problems with Schedule D had

decreased 7.7 percent compared to 1999.

When tax returns come into a service center, it is important that IRS be

able to quickly distinguish those that include remittances from those that

do not. IRS gives priority processing attention to returns with remittances

so that the money can be quickly deposited to the U.S. Treasury. The mailsorting equipment IRS uses to identify and segregate mail containing

remittances relies on a magnetic ink detection system to determine if there

is a check in the envelope. However, because laser computer printers use

magnetic ink, the equipment often misreads that print as indicating the

presence of a check. According to a report prepared by IRS’ Statistics of

Income Division, this problem caused many returns to be misidentified as

containing remittances. This misidentification causes an excessive amount

of nonremittance work to receive priority processing attention, which,

according to IRS, ultimately delays monetary deposits to the Treasury.

For the 2000 filing season, in an effort to better identify returns with

remittances, IRS tested the use of dual mailing addresses for taxpayers to

use in sending their Form 1040 return to IRS (persons using Forms 1040A

and 1040EZ still used only one address). IRS’ test involved the use of one

address for returns claiming a refund and another address for returns not

claiming a refund. An IRS sample of returns at 2 of its 10 service centers

 2

GAO/GGD-99-21.

Criteria for Filing

Schedule D Revised

Dual Mailing

Addresses Used to

Better Identify

Remittances
Appendix III: Changes Made by IRS to Reduce

Taxpayer Errors and Enhance Processing

Page 42 GAO-01-158 IRS' 2000 Filing Season

showed that taxpayers used the correct address (thus correctly identifying

their return as a refund or no refund return) 82 percent of the time.

Another IRS effort to enhance its processing efforts for the 2000 filing

season involved the systematic verification of secondary SSNs. As part of

that effort, IRS sent notices to taxpayers whose secondary SSNs were

invalid and who met other criteria.3

 Before the 2000 filing season, IRS had

focused its SSN verification efforts on primary SSNs and the SSNs of

dependents and EIC-qualifying children.

As of June 2, 2000, IRS had issued about 36,000 notices related to invalid

secondary SSNs. By contrast, about 1.6 million notices were generated

relating to invalid dependent SSNs, and about 152,000 notices were

generated relating to invalid primary SSNs.

 3

IRS considers an SSN invalid if it is missing from the return or if the SSN and associated

name on the return do not match data in the Social Security Administration’s records.

Secondary SSNs

Verified
Appendix IV: The EIC Preparer Outreach

Program

Page 43 GAO-01-158 IRS' 2000 Filing Season

For the 2000 filing season, IRS implemented the Earned Income Credit

(EIC) Preparer Outreach Program—an integrated education and

enforcement effort whose goals are to (1) educate EIC preparers, (2)

reduce EIC errors, and (3) lower EIC overclaims.

IRS divided preparers into five groups, with each group getting a different

type of visit from IRS, ranging from education to criminal investigation.

The type of visit that each preparer received was based on the preparer’s

filing history.

• The first group consisted of about 9,000 preparers. Visits to those

preparers were to have an education and outreach focus. During these

visits, IRS employees were to, among other things, give preparers the EIC

Practitioner’s Kit.

• The second group consisted of about 880 preparers who were to receive a

limited due diligence review. In conducting these reviews, revenue agents

were to look at 10 returns and associated documents done by each

preparer to determine if the preparer complied with the due diligence

requirements specified in section 6695(g) of the Internal Revenue Code.1

The revenue agents could recommend a $100 penalty for each failure to

comply with the due diligence requirements.

• The third group consisted of about 325 preparers who were to receive a

more comprehensive due diligence review. Revenue agents were to review

up to 100 returns and associated documents in increments of 25 returns.

According to IRS guidelines, an agent’s decision regarding whether to

review each succeeding increment was to be based on the results of the

agent’s review of the previous increment. Once again, the agents could

recommend a $100 penalty for each failure to comply with the due

diligence requirements.

• The fourth group consisted of 118 preparers who were treated as program

action cases. A program action case consists of an examination of returns

done by the preparer when information indicates a pattern of

noncompliance with preparer provisions of the Internal Revenue Code.

According to IRS, a program action case can result in a variety of penalties

being asserted against both the preparers and their clients.

 1

To demonstrate due diligence, preparers, among other things, must complete an EIC

worksheet or the equivalent and “must not know or have reason to know that any

information used by the preparer in determining the taxpayer’s eligibility for the [EIC] is

incorrect.”

Appendix IV: The EIC Preparer Outreach

Program
Appendix IV: The EIC Preparer Outreach

Program

Page 44 GAO-01-158 IRS' 2000 Filing Season

• The fifth group consisted of 75 preparers who were to be criminally

investigated by IRS’ Criminal Investigation Division.

IRS completed 7,152 education and outreach visits, 751 limited due

diligence visits, and 264 comprehensive due diligence visits. The number

of completed visits was less than the number planned for several reasons.

For example, some preparers in the first group opted out of their

education and outreach visits, and other preparers had either gone out of

business or could not be located.2

 As of June 27, 2000, IRS had started 118

program action cases and had not begun any criminal investigations.

In late January and early February 2000, The Gallup Organization

conducted a telephone survey of 401 preparers who had received

education and outreach visits. The survey showed that 83 percent of the

respondents were quite satisfied with the visits. According to the survey,

preparers most liked (1) the thorough explanations of the EIC

requirements, (2) the friendly and courteous IRS representatives, and (3)

the ability to discuss concerns with IRS representatives.

According to IRS, revenue agents proposed penalties totaling about

$435,000 for 143 of the 1,015 preparers who received either a limited or

comprehensive due diligence visit. As of June 27, 2000, most of the

proposed penalties had been assessed, but about $92,000 was still under

appeal

 2

The education and outreach visits to preparers in the first group were optional on the part

of the preparers. IRS visits or actions for the other four groups were mandatory.
Appendix V: Comments From the Internal

Revenue Service

Page 45 GAO-01-158 IRS' 2000 Filing Season

Appendix V: Comments From the Internal

Revenue Service
Appendix V: Comments From the Internal

Revenue Service

Page 46 GAO-01-158 IRS' 2000 Filing Season
Appendix V: Comments From the Internal

Revenue Service

Page 47 GAO-01-158 IRS' 2000 Filing Season
Appendix V: Comments From the Internal

Revenue Service

Page 48 GAO-01-158 IRS' 2000 Filing Season
Appendix V: Comments From the Internal

Revenue Service

Page 49 GAO-01-158 IRS' 2000 Filing Season
Appendix V: Comments From the Internal

Revenue Service

Page 50 GAO-01-158 IRS' 2000 Filing Season
Appendix VI: GAO Contacts and Staff

Acknowledgments

Page 51 GAO-01-158 IRS' 2000 Filing Season

James White (202) 512-9110

David Attianese (202) 512-9110

In addition to those named above, Jyoti Gupta, Doris Hynes, Ron Jones,

John Lesser, Joanna Stamatiades, and Bradley Terry made key

contributions to this report.

Appendix VI: GAO Contacts and Staff

Acknowledgments

GAO Contacts

Acknowledgments

(268907)

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