United States Government Accountability Office

GAO 

November 2006 

Report to the Chairman, Subcommittee 

on Oversight, Committee on Ways and 

Means, House of Representatives 

TAX 

ADMINISTRATION 

Most Filing Season 

Services Continue to 

Improve, but 

Opportunities Exist 

for Additional Savings 

GAO-07-27 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

November 2006

TAX ADMINISTRATION

Most Filing Season Services Continue to 

Improve, but Opportunities Exist for 

Additional Savings 

Highlights of GAO-07-27, a report to the 

Chairman, Subcommittee on Oversight, 

Committee on Ways and Means, House of 

Representatives 

In 2006, the Internal Revenue

Service (IRS) spent about 38

percent of its $10.8 billion budget 

on processing returns and 

providing taxpayer assistance. 

GAO was asked to (1) assess IRS’s 

2006 filing season performance 

processing paper and electronically 

filed tax returns and providing 

telephone, Web site, and face-toface assistance relative to 2006

goals and prior years’ performance;

(2) identify potential cost savings 

or other improvements; and 

(3) report on the status of IRS’s 

Taxpayer Assistance Blueprint

(TAB). To address these issues,

GAO collected relevant information 

from IRS and other sources,

reviewed performance measures

and past filing season assessments, 

and interviewed officials. 

What GAO Recommends

GAO suggests the Congress should

mandate electronic filing by paid 

tax preparers meeting criteria such 

as filing a certain number of tax 

returns. In comments, the IRS 

Commissioner said he appreciated

our acknowledging the effect of the

statutory limitation. 

GAO recommends that IRS timely 

develop, validate, and implement a 

plan to consolidate call sites and 

report to the Congress refund 

timeliness for its modernized

processing system compared to its 

legacy system. In comments, the 

Commissioner said he agreed with

the recommendations and outlined 

actions IRS plans to take. 

IRS improved most filing season services in 2006, continuing improvements 

since 2001. IRS also generated efficiencies from increased electronic filing 

and benefits for taxpayers through systems modernization. IRS’s processing

of individual tax returns and refunds improved by most measures, but the 

growth rate of electronic filing continued to slow in part because of changes

to the Free File Program, which reduced the number of taxpayers eligible to 

use it and the elimination of a program that allowed taxpayers to file via the 

telephone. Access to IRS’s telephone assistors was comparable to last year. 

The accuracy of responses to telephone inquiries was 90 percent or over in 

2006. Use of IRS’s Web site increased substantially and IRS reconfigured the 

site to improve service. Continuing past trends, fewer taxpayers used IRS 

walk-in sites and more used less-costly volunteer sites. Also, IRS completed 

Phase I of the TAB, which identified strategic themes for improving taxpayer 

service; TAB Phase II is expected to be completed by early 2007. 

With the slowing growth rate in electronic filing, IRS is missing an 

opportunity to generate additional savings. Federal and state mandates for 

electronic filing have demonstrated success in increasing electronic filing; 

however, IRS currently lacks the authority to mandate electronic filing for 

certain income tax returns such as individual returns filed by paid tax 

preparers. Using IRS estimates, savings from such a mandate could be on 

the order of $60 million per year. IRS has another opportunity to generate 

savings because of excess space at its call sites. However, IRS lacks a

strategy for eliminating that space by consolidating call sites. 

To replace its aging legacy computer system, IRS continues to implement a 

modernized system for processing tax returns and refunds. However, IRS 

does not report information on the chief benefit realized to date, faster 

refund issuance. Such information could be useful for the Congress when 

making decisions about funding the completion of the individual tax return 

processing part of the system, estimated by IRS to require at least another 

$500 million. 

IRS’s 2006 Filing Season Activities 

www.gao.gov/cgi-bin/getrpt?GAO-07-27.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact James R. White 

at (202) 512-9110 or whitej@gao.gov. 
Page i GAO-07-27 Tax Administration 

Letter 1

Results in Brief 2 

Scope and Methodology 5 

Background 6 

Opportunities Exist to Generate Savings by Encouraging 

Electronic Filing; Processing Performance Continued to 

Improve 10 

Access to IRS’s Telephone Assistors Was Comparable to Last Year 

and Accuracy Improved, but IRS Has Excess Space at Its Call 

Sites 20 

IRS’s Web Site Use Grew Substantially and Is Now a Major 

Component of Taxpayer Service 26 

Continuing Past Trends, Fewer Taxpayers Used IRS Walk-in Sites 

and More Used Volunteer Sites, but Data on Services Provided 

Remains Incomplete for Both 28 

IRS Has Completed the First Phase of the TAB and Has Begun 

Assessing Taxpayers’ Service Needs 33 

Conclusions 34 

Matter for Congressional Consideration 35 

Recommendations for Executive Action 35 

Agency Comments and Our Evaluation 35 

Appendix I Differences between the 2002 and 2005 Free File 

Agreements 37

Appendix II Status of CADE Implementation and Future Releases 40 

Appendix III State Mandates for Electronic Processing 44 

Appendix IV IRS’s Processing Performance Relative to 2001–2005 

Performance and 2006 Goals 48 

Appendix V Telephone Access Varies Depending on the Time of Year 

and Type of Call 51 

Appendix VI Comments from the Internal Revenue Service 52 

Contents 
Page ii GAO-07-27 Tax Administration 

Tables 

Table 1: IRS Processing Performance Measures 17 

Table 2: IRS Telephone CSRs Accessibility Performance, 

 2001–2006 Filing Seasons 21 

Table 3: IRS Telephone CSRs Accuracy Performance, 2001–2006 

Filing Seasons 22 

Table 4: Schedule of CADE Releases and Related Functionality 40 

Table 5: Electronic Filing Rates of Growth in Federal Returns for 

States with Mandates Compared to National Averages 45 

Table 6: IRS’s Processing Performance, Fiscal Years 2001–2006 49 

Figures 

Figure 1: IRS’s 2006 Filing Season Activities 9 

Figure 2: Number of Individual Returns and IRS Staff Years for 

Individual Paper and Electronic Processing, Fiscal Years 

1999–2007 11 

Figure 3: How IRS Handled Calls during 2006 24 

Figure 4: Assistance Provided by IRS Walk-in Sites, 2001–2006 

Filing Seasons 29 

Figure 5: Direct FTEs Used for Assistance Provided at IRS Walk-in 

Sites, 2001–2006 Filing Seasons 30 

Figure 6: States with Electronic Filing Mandates for Paid Tax 

Preparers 44 

Abbreviations 

BSM Business Systems Modernization 

CADE Customer Account Data Engine 

CSR Customer Service Representative 

EIN Employer Identification Number 

ETAAC Electronic Tax Administration Advisory Council 

ETLA Electronic Tax Law Assistance 

FTE Full-time Equivalent 

IRS Internal Revenue Service 

NTA National Taxpayer Advocate 

RAL Refund Anticipation Loan 

RRA 98 IRS Restructuring and Reform Act of 1998 

TAB Taxpayer Assistance Blueprint 

TIGTA Treasury Inspector General for Tax Administration 
Page iii GAO-07-27 Tax Administration 

This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately. 
Page 1 GAO-07-27 Tax Administration 

November 15, 2006 

The Honorable Jim Ramstad 

Chairman 

Subcommittee on Oversight 

Committee on Ways and Means 

House of Representatives 

Dear Mr. Chairman, 

In fiscal year 2006, the Internal Revenue Service (IRS) spent 

approximately $4.1 billion or 38 percent of its $10.8 billion budget on 

processing income tax returns and providing taxpayer assistance, with 

most of this occurring during the annual tax filing season.1

 During the 2006 

filing season, taxpayers filed an estimated 131 million individual income 

tax returns and received almost $218 billion in refunds. IRS’s filing season 

performance is a key indicator of how well IRS is serving taxpayers and 

helping them fulfill their tax responsibilities. 

In past reports and testimonies2

 we said that IRS has made significant 

progress improving taxpayer service since passage of the IRS 

Restructuring and Reform Act of 1998 (RRA 98).3

 However, we also 

described challenges to continued progress. For example, the President’s 

proposed fiscal year 2007 budget for IRS would cut staffing by over 2 

percent. At the same time, IRS has ambitious goals of maintaining or 

improving filing season services, while also maintaining or increasing 

enforcement activities in order to improve voluntary compliance by 2009. 

Another challenge is continuing progress on the Business Systems 

 1

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

for filing individual income tax returns. However, millions of taxpayers receive extensions 

from IRS, which allows them to delay filing until as late as October 15. 

2

See, for example, GAO, Tax Administration: IRS Improved Some Filing Season Services, 

but Long-term Goals Would Help Manage Strategic Trade-offs, GAO-06-51 (Washington, 

D.C.: Nov. 14, 2005), Internal Revenue Service: Assessment of Fiscal Year 2006 Budget 

Request and Interim Results of the 2005 Filing Season, GAO-05-416T (Washington, D.C.: 

Apr. 14, 2005), and Internal Revenue Service: Assessment of the Interim Results of the 

2006 Filing Season and Fiscal Year 2007 Budget Request, GAO-06-615T (Washington, 

D.C.: Apr. 6, 2006). 

3

Pub. L. No. 105-206 (1998). 

United States Government Accountability Office

Washington, DC 20548 
Page 2 GAO-07-27 Tax Administration 

Modernization (BSM) program, IRS’s ongoing effort to replace its aged 

computer systems. Earlier this year we testified that proposed reduced 

funding levels could affect the pace of modernization and ultimately of 

improving service and enforcement.4

In light of these challenges and the tax filing season’s cost and importance 

to taxpayers, you asked us to assess IRS’s 2006 filing season performance. 

Our objectives were to (1) assess IRS’s 2006 filing season performance in 

processing paper and electronically filed tax returns and providing 

telephone, Web site, and face-to-face assistance relative to 2006 goals and 

prior years’ performance; (2) identify potential cost savings or other 

improvements; and (3) report on the status of IRS’s Taxpayer Assistance 

Blueprint (TAB), which is intended to be the long-term strategy for cost 

effectively delivering services that meet taxpayer needs. We testified on 

IRS’s interim 2006 performance in a hearing held by your Subcommittee 

on Oversight, House Committee on Ways and Means, on April 6, 2006.5

Our assessment is based on the reported results and analysis of key IRS 

performance measures, observations of IRS’s operations, interviews with 

IRS officials, information from representatives of the paid tax preparer 

community, and analyses by the Treasury Inspector General for Tax 

Administration (TIGTA).6

 For the purpose of this report, we found IRS’s 

data to be sufficiently reliable for assessing IRS’s 2006 filing season 

performance and comparing to prior filing seasons. Further details on our 

scope and methodology are provided later in this report. We performed 

our work from January through October 2006 in accordance with generally 

accepted government auditing standards. 

IRS improved most of its primary filing season services, including returns 

processing, telephone, Web site, and face-to-face operations. This 

continues a trend of recent improvements. Opportunities exist to generate 

 4

GAO-06-615T. 

5

GAO-06-615T. 

6

We refer to paid tax preparers for both tax practitioners and commercial preparers. 

According to IRS, tax practitioners complete tax returns for money, are governed by the 

requirements outlined in U.S. Department of the Treasury Circular 230, are authorized to 

represent taxpayers legally before IRS, and include attorneys, certified public accountants 

and enrolled agents. Commercial Preparers include corporations, self-employed 

individuals, and electronic return originators; they are not regulated by IRS or governed by 

Circular 230. 

Results in Brief 
Page 3 GAO-07-27 Tax Administration 

additional savings by increasing electronic filing of tax returns and 

consolidating some operations. 

Processing: Electronic filing continued to grow, which has resulted in 

significant cost savings. Since 1999 IRS has eliminated approximately 

1,600 staff years that were devoted to processing returns and closed two 

paper processing centers, with a third center scheduled to close in 2007. 

However, the growth rate of electronic filing in 2006 slowed to about 6 

percent, lower than any of the previous 3 years. Two factors contributed 

to the slower growth rate: fewer taxpayers being eligible for and using the 

Free File Program, which allows some taxpayers to file for free through 

IRS’s Web site, and the elimination of a program that allowed some 

taxpayers to file electronically via telephone. Slower growth limits 

opportunities to generate additional savings from electronic processing. 

Federal mandates requiring large corporations to electronically file and 

state mandates requiring certain paid tax preparers to electronically file 

individual returns have demonstrated success in increasing electronic 

filing. State mandates imposed on paid tax preparers have also increased 

electronic filing, including of federal returns. In eight of the nine states 

with mandates in place by 2005, the growth rate of electronically filed 

federal returns increased in the year the mandate was implemented. In 

four of the states, the growth rate more than doubled. This experience 

demonstrates that mandated electronic filing can generate savings. Using 

IRS’s estimates, if 90 percent of returns submitted by paid preparers that 

are filed on paper were filed electronically, IRS would save about $68 

million per year. However, IRS lacks the statutory authority to mandate 

electronic filing of individual income tax returns by paid tax preparers. 

With respect to processing performance, most measures show 

improvement. However, IRS does not report the information to the 

Congress that would clearly highlight the benefits of its new processing 

system, such as gains in refund timeliness. As we previously reported, 

having estimates of the benefits of large investment programs could be 

useful for the Congress when making decisions about funding. IRS 

estimates the completion of the individual tax return processing part of 

the new system will require at least another $500 million. 

Telephone service: The percentage of taxpayers who got through to IRS 

customer service representatives (CSR) was slightly lower than last year, 

but there were improvements both in wait times and in the rate at which 

taxpayers abandoned their calls while waiting for an assistor. The 

accuracy of responses to telephone tax law and accounts questions is 90 

percent or over, an improvement since last year and more so since 2001. 

However, IRS could reduce costs. IRS officials told us that during peak 
Page 4 GAO-07-27 Tax Administration 

staffing the agency had about 850 unused CSR workstations spread across 

IRS’s 25 call sites. Because IRS directs incoming calls through a 

centralized routing system, the location of call sites does not affect the 

level of service provided. As a result, IRS has the potential to generate 

savings by closing some sites without negatively affecting customer 

service even at peak times. 

Web site: Taxpayer use increased, as indicated by a 36 percent growth in 

the number of downloads for tax forms and publications. IRS reconfigured 

its Web site and the site is performing well, according to independent 

rating services. One indicator of success is that taxpayers searched less to 

find the information they needed. The increased usage of IRS’s Web site is 

consistent with IRS’s strategy to improve service by providing taxpayers 

with an option for automated interaction at the convenience of taxpayers. 

Walk-in assistance: Continuing a trend since 2001, fewer taxpayers 

received assistance at IRS’s walk-in sites and more received return 

preparation assistance at sites staffed by volunteers. In response to past 

concerns raised by us and the TIGTA, IRS has initiatives underway 

intended to provide detailed management data on the services offered at 

walk-in sites, and reliable methods for assessing the quality of services 

offered at walk-in and volunteer sites. 

Taxpayer Assistance Blueprint (TAB): IRS has completed the first of 

two phases of the TAB, its initiative to measure taxpayer services against 

the needs and preferences of taxpayers and develop a 5-year plan for 

improving services. Phase I provides information on taxpayer preferences 

and identifies themes for improving service. IRS anticipates Phase II of its 

TAB report will be released early 2007, and will include its research plan 

designed to build on these strategic improvement themes and enhance 

understanding of the effect of taxpayer service on compliance. 

This report includes a matter that the Congress may want to consider to 

reduce the costs of processing tax returns. Specifically, Congress should 

mandate electronic filing by paid tax preparers meeting criteria such as a 

threshold number of returns filed. We are also making recommendations 

that the Commissioner of Internal Revenue direct the appropriate officials 

to timely develop, validate, and implement a plan to consolidate call sites 

and report to the Congress refund timeliness for its new system for 

processing individual income tax returns compared to the Master File 

legacy system. 
Page 5 GAO-07-27 Tax Administration 

In commenting on a draft of this report (see app. VI), the IRS 

Commissioner said that, with respect to the matter for congressional 

consideration, he appreciated our acknowledging the current statutory 

limitation that is impeding electronic filing growth. The Commissioner 

said he agreed with our recommendations and he generally outlined the 

actions IRS plans to take to address those recommendations. 

To assess IRS’s 2006 filing season performance in the key filing season 

activities—paper and electronic processing, plus telephone, Web site, and 

face-to-face assistance—compared to goals and past performance, and 

report on the status of the TAB, we 

• reviewed and analyzed IRS reports, testimonies, budget submissions, 

and other documents and data, including workload data and data 

related to IRS’s current suite of balanced performance measures and 

annual goals; 

• analyzed staffing data for paper and electronic processing, telephone 

assistance, and walk-in assistance; 

• tested for statistically significant differences between annual 

performance measures based on sample data; 

• observed operations at IRS’s Atlanta and Cincinnati paper processing 

centers, the Atlanta Call Site and Joint Operations Center, and 4 of 

IRS’s 400 walk-in locations;7

• reviewed legislation, policies, and procedures; 

• reviewed information from organizations that evaluate Internet 

performance; 

• reviewed related TIGTA reports and interviewed TIGTA officials about 

IRS’s performance and initiatives; 

 7

Our review focuses on IRS’s Wage and Investment Division, which serves taxpayers whose 

income is from wages and investments, processes individual income tax returns, and 

provides assistance to taxpayers who call on the telephone or walk into an IRS office. 

During our audit work, we became aware of problems with IRS’s primary information 

system used to detect and stop fraudulent claims for refunds on income tax returns. 

However, because this system is largely an enforcement function and TIGTA had initiated 

an audit on the system, we determined this work to be beyond the scope of our audit. 

Scope and 

Methodology 
Page 6 GAO-07-27 Tax Administration 

• reviewed prior GAO reports and followed up on our recommendations 

made in prior filing season and related reports; 

• interviewed IRS officials about current operations, performance 

relative to 2006 performance goals and prior filing season performance, 

trends, and significant factors and initiatives that affected or were 

intended to improve performance; and 

• interviewed representatives of the few larger private and nonprofit 

organizations that prepare tax returns including H&R Block and trade 

organizations that represent both individual paid tax preparers and tax 

preparation companies including the American Institute of Certified 

Public Accountants. 

This report discusses numerous filing season performance measures and 

data that cover the quality, accessibility, and timeliness of IRS’s services. 

We report on IRS’s filing season measures that, based our prior work, we 

consider to objective and reliable. To the extent possible, we corroborated 

information from interviews with documentation and data and where not 

possible, we report the information as attributable to IRS officials. We 

reviewed IRS documentation, interviewed IRS officials about computer 

systems and data limitations, and compared those results to GAO 

standards of data reliability.8

 As a result, we determined that the IRS data 

we are reporting are sufficiently reliable for assessing IRS’s filing season 

performance. Data limitations are discussed where appropriate. 

We conducted our work at IRS headquarters in Washington, D.C., and New 

Carrollton, Maryland; the Wage and Investment Division headquarters and 

Joint Operations Center (which manages telephone service) in Atlanta, 

processing centers in Atlanta and Cincinnati, and a telephone call site in 

Atlanta; and walk-in locations in Georgia and Ohio. We selected these 

offices for a variety of reasons, including the location of key IRS managers, 

such as those responsible for telephone and walk-in site services. 

The majority of taxpayers have their tax returns prepared by professional 

preparers. In fiscal year 2005, about 59 percent of individual tax returns 

were prepared by paid tax preparers. We have noted in previous testimony 

 8

GAO, Assessing the Reliability of Computer-Processed Data, GAO-02-15G (Washington, 

D.C.: Sept. 1, 2002). 

Background 
Page 7 GAO-07-27 Tax Administration 

that the rate of preparer usage is higher among taxpayers with more 

complicated returns.9

Once returns are prepared, taxpayers can file their returns by mailing 

paper returns to one of IRS’s submission processing centers or submitting 

the returns electronically. Both taxpayers and paid tax preparers can 

submit paper returns directly to IRS. However, taxpayers cannot submit 

electronic returns directly to IRS. Instead, only paid tax preparers and tax 

preparation software companies that IRS has designated as electronic 

return originators can transmit tax returns electronically to IRS which may 

involve a fee to the taxpayer. In addition, the Free File program is offered 

by 20 companies that make up the Free File Alliance, a consortium of tax 

preparation companies that agreed to offer free return preparation and 

electronic filing for taxpayers that meet certain criteria. Taxpayers can 

access the Free File program via IRS’s Web site (see app. I for further 

detail on the Free File program). 

For 7 years, IRS has been modernizing its aging tax processing and 

business systems. The BSM program is a high-risk, highly complex effort 

critical to supporting IRS’s taxpayer service goals. For example, the 

program includes projects to allow taxpayers to file and retrieve 

information electronically. To date, IRS has deployed releases of 

modernized systems that have delivered benefits to taxpayers and the 

agency, including e-Services (a new Web portal and electronic services for 

paid tax preparers), Modernized e-File (a new electronic filing system), 

and the Customer Account Data Engine (CADE), which is the new 

taxpayer information database. CADE is intended to eventually replace 

IRS’s antiquated Master File legacy processing system that contains the 

agency’s repository of taxpayer account information and, therefore, is the 

BSM program’s cornerstone and highest priority project. CADE facilitates 

faster refund processing and more timely response to taxpayer inquiries 

(see app. II for more details on CADE). 

In addition to processing tax returns, IRS provides a variety of taxpayer 

services, including providing tax law assistance, account resolution, 

limited return preparation, tax forms and publications distribution, 

outreach, and education. IRS provides these services mainly via telephone, 

its Web site, and face-to-face assistance. IRS automatically routes 

 9

GAO, Paid Tax Return Preparers: In a Limited Study, Chain Preparers Made Serious 

Errors, GAO-06-563T (Washington, D.C.: Apr. 4, 2006). 
Page 8 GAO-07-27 Tax Administration 

taxpayers’ calls from one of three toll-free lines—tax law, accounts, or 

refunds. Depending on how taxpayers respond to menu choices, questions 

are answered by a recorded message or taxpayers are directed to CSRs 

located at 25 call sites around the country. Calls are centrally routed to the 

site with the shortest wait times among CSRs assigned to answer 

particular tax law, account, or refund status questions. 

For face-to-face assistance, IRS has 400 walk-in sites where taxpayers can 

ask basic tax law questions, get account information, receive assistance 

with their accounts, and have returns prepared if annual income is $38,000 

or less.10 Also, low-income, elderly, and qualifying military taxpayers can 

get returns prepared at over 12,000 volunteer sites run by communitybased coalitions that partner with IRS. In addition, IRS identifies and 

selects community partners, such as AARP, that meet taxpayer needs, 

such as assistance for the elderly, and helps train, provides resource 

materials, and oversees operations at these partners’ facilities. In some 

cases, IRS awards grants, trains and certifies volunteers, and provides 

reference materials, computer software, and computers. 

IRS provides many Web services that have become popular, such as 

“Where’s My Refund” which enables taxpayers to use IRS’s Web site to 

determine whether the agency received their tax returns and processed 

their refunds. Taxpayers can also download forms, instructions, and 

publications; research their own tax law issues through Frequently Asked 

Questions or Tax Topics; and receive help with specific tax law questions 

and procedural questions via e-mail using Electronic Tax Law Assistance 

(ETLA). One benefit of the Web site is that it reduces the number of phone 

calls received. 

IRS’s 2006 filing season activities and associated workload volumes are 

depicted in figure 1. 

 10According to IRS, this limitation approximates the amount set in the Internal Revenue 

Code for claiming the Earned Income Tax Credit. IRS has required appointments for most 

taxpayers seeking this assistance since 2003. 
Page 9 GAO-07-27 Tax Administration 

Figure 1: IRS’s 2006 Filing Season Activities 

Note: The number of paper and electronic returns and refunds are estimated for the time period 

January 1, 2006, to September 15, 2006; toll-free calls for the time period January 1, 2006, to July 15, 

2006; walk-in contacts, which includes returns prepared at volunteer sites, for the time period 

December 25, 2005, to April 22, 2006; and Internet downloads for the time period January 1, 2006, to 

August 31, 2006. We sed different dates for the various areas that best reflect IRS’s filing season 

workload in that area. 

IRS evaluates taxpayer service against performance measures such as 

timeliness and quality of telephone responses. IRS’s definitions for some 

of those measures vary. For example, IRS measures accuracy for 

telephone and face-to-face assistance, but because of differences in the 

methodologies used to collect the data, comparisons between the two 

types of assistance are not possible. IRS also considers volume important 

when assessing service delivery and recognizes that volume does not 

necessarily reflect actual demand for services, but can reflect changes in 

taxpayer behavior, such as more willingness to use IRS’s Web site to 

receive services. Finally, IRS uses other means to collect information, such 

as surveys on taxpayer satisfaction. 

@

@

@

@

@

6 paper 

processing centers

5 electronic 

processing centers

Electronic returns

72 million

Toll-free calls

71 million

400 walk-in and 

more than 12,000 

volunteer sites

IRS Web site

25 call sites and 

automation

Walk-in contacts

5 million

Internet downloads

170 million

Paper returns

59 million Returns

processing

Taxpayer

assistance

Source: GAO analysis of IRS data, IRS (images).
Page 10 GAO-07-27 Tax Administration 

The growth rate of electronic filing is important because electronic filing 

eliminates costs associated with processing paper returns. IRS’s 

performance processing the paper and electronic returns it received in 

2006 improved compared to earlier years. 

As of September 15, 2006, IRS processed 131 million individual income tax 

returns. Of those returns, 72 million or 55.1 percent were filed 

electronically and the remaining 59 million returns were filed on paper. 

The number of returns filed electronically increased by 6.3 percent over 

the last year, which was less than the 9 percent increase forecasted by IRS 

and less than last year’s 11 percent increase, the 12 percent increase in 

2004, and the nearly 17 percent increase in 2003. 

The growth rate has slowed and, according to IRS officials, it is getting 

harder to convert additional taxpayers to electronic filing because those 

who might convert most readily have already done so. Slower growth 

limits IRS’s progress toward achieving the goal set by the Congress in RRA 

98, which was for IRS to have 80 percent of all federal tax and information 

returns filed electronically by 2007. We and IRS have previously reported 

that IRS likely will not meet the 80 percent goal, but that the agency did 

not want to abandon it because it serves as a symbol of IRS’s 

determination to increase electronic filing.11

Growth of electronic filing is important because it generates savings from 

reductions in staff needed for labor-intensive paper processing and 

associated space. As shown in figure 2, as electronic filing increased 

between fiscal years 1999 and 2006, IRS has greatly reduced the number of 

staff years devoted to paper and electronic processing by 1,586, or 34 

percent. 

 11GAO-06-51. 

Opportunities Exist to 

Generate Savings by 

Encouraging 

Electronic Filing; 

Processing 

Performance 

Continued to Improve 

Electronic Filing 

Continues to Grow, but at 

a Slower Rate, Which 

Limits Opportunity to 

Achieve Additional Savings 
Page 11 GAO-07-27 Tax Administration 

Figure 2: Number of Individual Returns and IRS Staff Years for Individual Paper and 

Electronic Processing, Fiscal Years 1999–2007 

Notes: Staff years and FTE are units of measurement that are often used interchangeably. As noted 

in the figure, staff years for paper filing are for selected major activities only. 

a

Fiscal years 2006 and 2007 are IRS projections. 

In addition to generating savings by reducing FTEs, IRS can and has 

achieved ancillary space cost savings from the closing of submission 

processing centers.12 IRS estimates that the elimination of the Brookhaven 

Submission Processing Center in 2003 resulted in savings of $5.5 million in 

annualized rent and related savings. In addition, IRS closed the Memphis 

Submission Processing Center in 2005, and IRS is projecting annualized 

rent and related savings equal to $1.3 million beginning in fiscal year 2007. 

IRS plans to close the Philadelphia Submission Processing Center in 2007, 

 12According to IRS, an FTE is the equivalent of one person working full-time for 1 year with 

no overtime. 
Page 12 GAO-07-27 Tax Administration 

although IRS will not realize space savings until late 2011 because the 

Service cannot close the entire facility or move other operations into the 

space vacated by paper processing operations.13

Two other factors that contributed to this year’s slower growth in 

electronic filing were (1) changes in the Free File program, which reduced 

the number of taxpayers eligible to file electronically for free this year, and 

(2) termination of the TeleFile program, which had allowed taxpayers to 

file their returns electronically via telephone. Through August, IRS 

processed about 4 million returns filed through the Free File program, 

which is a decrease of about 23 percent from the same period last year. 

This decline is inconsistent with IRS’s projection that it would receive 6 

million tax returns filed through the Free File program, or almost a million 

more than received last year, when some members of the Free File 

program provided free electronic filing to all taxpayers. In 2005, IRS 

renegotiated and amended the agreement with the tax preparation 

companies participating in the Free File program. Among the important 

changes was a new income limitation of $50,000 or less that resulted in 30 

percent of the nation’s taxpayers not being eligible for the Free File 

Program. This change left 92 million taxpayers eligible for the program 

and 39 million taxpayers ineligible.14

IRS also terminated the TeleFile program. IRS expected that eliminating 

TeleFile would reduce electronic filing, but justified the decision because 

of declining usage and relatively high costs. The number of taxpayers 

using the TeleFile program had been decreasing—from approximately 5.7 

million in 1999 to 3.3 million in 2005. IRS estimated the cost per tax return 

submitted through TeleFile, typically Form 1040EZ, to be about 74 percent 

more than it costs IRS to process a return filed on paper, largely due to 

telecommunications and other costs. IRS officials stated that the reason 

for this year’s increase in the number of 1040EZ returns filed on paper is, 

in part, the elimination of TeleFile. According to IRS officials, 

approximately 1.3 million or 40 percent of taxpayers who formerly used 

Telefile in 2005 filed on paper in 2006. 

 13Without being able to move the remaining offices or functions to a new location, IRS will 

have to pay for unused space from the closure of the Philadelphia processing center 

amounting to $3.8 million per year. 

14These calculations are based on IRS data on the number of filed returns. A return may 

represent more than one taxpayer. 
Page 13 GAO-07-27 Tax Administration 

Over the years, IRS has taken numerous actions to encourage electronic 

filing by taxpayers and tax practitioners. In addition, IRS has responded to 

many of our recommendations to increase the use of electronic filing.15

Despite these actions, and as we have already noted, growth in electronic 

filing has slowed as IRS’s recent efforts have not resulted in converting a 

large portion of tax filers from paper to electronic filing. 

Nevertheless, IRS continues to look at options for increasing electronic 

filing. A recent proposal is aimed at converting taxpayers and paid tax 

preparers who prepare individual income returns on computer, print them 

out, and then send them to IRS—a process known as V-coding—to 

electronic filing. According to IRS officials, converting these taxpayers 

could be an important step to reduce the number of paper returns filed. 

Between January and May 2006, IRS estimates that nearly 39 million, or 72 

percent of all paper returns filed were V-coded returns. To help convert 

V-coders, IRS officials stated that the agency is considering creating a 

secured electronic mailbox where tax preparers could send in a return, the 

taxpayer could review and sign it, then submit it to IRS electronically, or 

return it to the preparer for additional work and subsequent electronic 

filing to IRS. According to IRS officials, this initiative would be part of 

e-Services.16 Further, this and other proposals to expand electronic filing 

and capitalize on new technologies will be contained in an update to its 

E-Strategy for Growth, which is a long-term vision for providing ways for 

taxpayers to interact electronically with IRS. While the proposal may be an 

important tool for paid tax preparers and taxpayers, participation remains 

on a voluntary basis as part of e-Services, IRS officials did not have 

estimates as to its effect on reducing V-coding, and it covers only 

practitioners and not taxpayers. 

 15See for example, GAO, Tax Administration: Opportunities to Increase the Use of 

Electronic Filing, GAO/GGD-93-40 (Washington, D.C.: Jan. 22, 1993). 

16The e-Services system, offered to paid tax preparers who have filed at least 100 electronic 

returns, gives them the ability to conduct business, such as electronic account resolution 

and transcription delivery, with IRS electronically 24 hours a day 7 days a week. 
Page 14 GAO-07-27 Tax Administration 

For the first time, in the 2006 filing season IRS mandated that corporations 

with assets over $50 million file their corporate tax returns electronically. 

As of September 15, 2006, over 12,000 large corporations electronically 

filed their returns, up from 131 in 2005. Next year, corporations with over 

$10 million in assets will be required to file their returns electronically. 

Perhaps in anticipation of the mandate, over 16,000 of those corporations 

filed electronically, compared to just over 1,100 in 2005. According to the 

IRS Commissioner, electronic filing by large corporations will cut many 

months off the audit process and will allow IRS to develop analytical tools 

to better select areas of audit inquiry. Consequently, those corporations 

will benefit by having uncertainties on their tax returns resolved sooner, 

and the government will benefit by more promptly identifying and 

responding to areas of noncompliance. 

Last year we reported that state mandates for electronic filing of state tax 

returns also encourage electronic filing of both state and federal tax 

returns.17 Of the 50 states, 12 had electronic filing mandates for paid tax 

preparers in effect for the 2006 filing season. These mandates require 

preparers who meet certain criteria, such as filing 100 individual state tax 

returns or more, to file individual state returns electronically (see app. III 

for more information on state mandates).18

State mandates have increased the electronic filing of federal individual 

income tax returns. According to IRS officials, this increased growth is 

because paid tax preparers converted their entire practice to electronic 

filing. Nine states had electronic filing mandates in effect in 2005 or earlier. 

In eight of these nine states, the growth rate of electronically filed federal 

returns increased the year the mandate was implemented. For one state, 

Virginia, the growth rate declined by 11 percent.19 Four states had 

increases of between 7 and 48 percent in their growth rates. Four other 

states had their growth rates more than double including California, which 

nearly tripled. 

 17GAO-06-51. 

18The mandates differ in their implementation dates and schedules, thresholds for filing, 

and penalties. These differences between mandates may affect the magnitude of electronic 

filing increases in each state. 

19The decrease in the percent change in Virginia’s electronic filing rate of growth may be 

due in part to 2-D barcodes, which are attached to the paper tax return. IRS does not 

consider paper returns filed with 2-D barcodes as being electronically filed. 

Mandates Have 

Demonstrated Success in 

Increasing Electronic 

Filing, but IRS Lacks the 

Authority to Impose 

Mandates for Individual 

Taxpayers 
Page 15 GAO-07-27 Tax Administration 

An alternative comparison of state growth rates to the nationwide growth 

rate also shows the benefits of state mandates. For eight of the nine states 

that have imposed a mandate, the growth rate of federal returns 

electronically filed from that state was greater than the national growth 

rate for the year the mandate took effect. 

In the past, some tax preparers have voiced concern regarding the costs 

and burdens associated with converting their businesses to electronic 

filing. As a result, last year we recommended to IRS that it develop better 

information about the costs to preparers and taxpayers of mandatory 

electronic filing of tax returns for certain categories of preparers.20

According to an IRS survey, cost was not the primary factor cited by 

preparers for not converting their businesses to electronic filing; instead, 

the major factor was that their clients did not ask for or want electronic 

filing. However, once over the initial barrier of having converted to 

electronic filing, several state tax officials we consulted with, including 

New York and Minnesota, reported receiving very little negative feedback 

from preparers. In fact, one state official noted that a substantial number 

paid tax preparers have reported how easy electronic filing is compared to 

filing returns on paper. Given the current rate of growth in electronic filing 

of federal returns, mandates represent an important option for realizing 

further growth. 

Because mandates drive significant electronic filing increases, the 

Electronic Tax Administration Advisory Council (ETAAC) recently 

recommended a federal mandate for paid tax preparers that prepare 

individual tax returns.21 ETAAC estimated that if preparers filed all 

individual returns electronically, IRS would be only 5 percentage points 

below the 80 percent goal set by the Congress, instead of being 25 

percentage points below the goal as it is currently. 

IRS, however, is prohibited by law from requiring electronic filing of 

income tax returns for individuals, estates, and trusts.22 Because IRS lacks 

the statutory authority to mandate electronic filing of individual tax 

 20GAO-06-51. 

21ETAAC provides input and a forum for discussion of electronic tax administration issues. 

ETAAC provides an annual report to the Congress on IRS’s progress meeting the goals for 

electronic filing of tax returns set forth in the IRS Restructuring and Reform Act of 1998. 

ETAAC, Annual Report to Congress (Washington, D.C.: June 2006). 

2226 U.S.C. § 6011(e). 
Page 16 GAO-07-27 Tax Administration 

returns, it has not developed any plans or proposals for doing so. Any 

proposal would likely have to consider such factors as to whom the 

mandate should apply, thresholds for such mandates, if penalties should 

be assessed for noncompliance, and the length of time needed to develop 

the capacity to receive additional electronically filed returns. 

State and federal experiences with mandates demonstrate that mandated 

electronic filing can generate savings. By not requiring electronic filing by 

paid preparers, IRS is missing an opportunity for generating savings and 

efficiencies. IRS estimates that it saves $2.38 on every return that is 

processed electronically.23 Using IRS’s estimates, if 90 percent of returns 

submitted by preparers that are currently filed on paper were filed 

electronically, IRS would have saved an estimated $68.5 million per year.24

Senate bill S. 1321 shows Congressional interest in increasing use of 

electronic filing for preparers.25 This bill provides IRS with the authority to 

require tax preparers to file individual income tax returns electronically. 

In addition to processing 131 million tax returns, IRS has issued almost 99 

million refunds, totaling over $218 billion. Over 56.4 million or more than 

half of the refunds were directly deposited, up nearly 8 percent over the 

same period last year. This increase is important, because direct deposit is 

faster, more convenient for taxpayers, and less expensive for IRS than 

mailing paper checks. 

Of the nine processing performance measures listed in table 1 used by IRS 

to assess performance, the agency met or exceeded eight out of its nine of 

its 2006 goals, and equaled or exceeded its 2005 performance for seven of 

the nine measures (see app. IV for further details). For one measure, the 

letter error rate, IRS’s performance declined and the 2006 goal was not 

 23We could not independently verify this estimate using data from IRS’s cost accounting 

system because, in the past, IRS did not have such a system—see GAO, Financial Audit: 

IRS’s Fiscal Year 2005 and 2004 Financial Statements, GAO-06-137 (Washington, D.C.: 

Nov. 10, 2005). 

24IRS is able to process virtually all returns filed electronically with its current processing 

system, exceptions being amended and prior year returns, which the current system cannot 

process. With Modernized E-File, IRS will be able to handle the amended and prior year 

1040 returns, and also have the ability to accept returns with attachments. IRS estimates 

that it will begin implementing Modernized E-File for 1040s in 2009. 

25S. 1321, 109th Cong., § 309 (2006). 

Processing of Paper and 

Electronic Returns 

Continued to Improve, 

Although IRS Lacks a 

Refund Timeliness 

Measure for Its New 

Processing System 
Page 17 GAO-07-27 Tax Administration 

met. IRS officials said that computer system errors were partially to blame 

for the higher letter error rate, along with some errors as a result of the 

lack of training of new employees at one submission processing center. 

More importantly, however, IRS’s processing performance has 

significantly improved for all nine measures compared to 2001 or for 

measures not in existence in 2001, compared to their first year in 

existence. 

Table 1: IRS Processing Performance Measures 

 Source: GAO analysis of IRS data. 

In addition to the processing measures results, representatives of the tax 

preparer industry reported that returns processing went well. Groups and 

organizations that we talked to included the National Association of 

Enrolled Agents and the American Institute of Certified Public 

Accountants. In addition, TIGTA testified and later reported no significant 

Measure name Definition 

Deposit error rate Percentage of payments applied in error by, for example, 

reimbursing a taxpayer who overpaid when the taxpayer wanted 

any overpayment credited to next year’s tax bill. 

Deposit timeliness—

paper 

Interest foregone by not depositing monies the business day after 

receipt, per $1 million in deposits. Measure assumes an 8 percent 

interest rate. 

Letter error rate Percentage of letters issued to taxpayers with errors (includes 

systemic errors). 

Notice error rate Percentage of incorrect notices issued to taxpayers (includes 

systemic errors). 

Refund error rate—

individual (paper) 

The percentage of refunds with IRS-caused errors in the entity 

information (e.g., incorrect name, Social Security number, or 

refund amount); includes systemic errors. 

Refund interest paid Amount of refund interest IRS paid per $1 million of refunds 

issued. 

Refund timeliness—

individual (paper) 

Percentage of refunds issued within 40 days or less for returns 

filed on paper. 

Productivity Weighted volume of documents processed per staff year 

expended at the processing centers. 

Individual 

Master File efficiency 

Measure of individual Master File returns processed per staff year 

expended. 
Page 18 GAO-07-27 Tax Administration 

problems during the filing season.26 IRS officials corroborated the view 

that returns processing went smoothly. 

CADE, the cornerstone of IRS’s investment in systems modernization, also 

performed well. For the 2006 filing season, CADE processed about 7.4 

million, or 5.6 percent, of the 131 million income tax returns filed 

electronically or on paper, and disbursed about 6.6 million refunds totaling 

over $3.4 billion.27 While the percentage of returns CADE processed is 

modest, CADE is important because it is ultimately expected to replace 

IRS’s antiquated Master File legacy system, which contains the agency’s 

repository of taxpayer account information. 

A major benefit of CADE is that it is much faster compared to the Master 

File legacy system, partly due to CADE’s daily processing cycle, compared 

to the Master File’s weekly processing cycle. For example, according to 

IRS officials, direct deposit refunds are issued by CADE 1–5 business days 

faster than the current system, and paper check refunds are issued 4–8 

business days faster. The benefits of CADE, in terms of faster processing, 

are likely to expand to more taxpayers because the next release of CADE 

is expected to process an estimated 33 million returns in 2007, over four 

times more than the number processed through CADE in 2006. Because 

CADE processes returns and refunds more quickly, it can help minimize 

the need for Refund Anticipation Loans (RAL).28 Reducing the need for 

RALs matters because of the high interest rates that taxpayers are often 

charged for these short-term loans, making them controversial. 

 26See written statement of Treasury Inspector General for Tax Administration, J. Russell 

George, before the Committee on Appropriations, Subcommittee on Transportation, 

Treasury, and Housing and Urban Development, the Judiciary, District of Columbia, and 

Independent Agencies, U.S. House of Representatives, Hearing on the Internal Revenue 

Service’s Fiscal Year 2007 Budget, Washington, D.C., Mar. 29, 2006, and Treasury Inspector 

General for Tax Administration, Individual Tax Returns Were Timely Processed in 2006, 

but Opportunities Exist to Improve Verification of Certain Tax Deductions, Reference 

No. 2006-40-164 (Washington, D.C.: Sept. 20, 2006). 

27CADE had the ability to process 13.5 million returns this year. However, approximately 42 

percent of those returns were returned to the Master File legacy system for processing. IRS 

officials stated this was not unexpected because certain returns that CADE should have 

been able to process had changes, such as in filing status, had schedules, or had balances 

due, which CADE cannot process without additional functionality. 

28Refund Anticipation Loans are very short-term loans offered by some paid tax preparers 

while taxpayers wait for their refunds. 
Page 19 GAO-07-27 Tax Administration 

Systems modernization has been a key part of IRS’s efforts to improve 

taxpayer services. CADE is a major investment, with almost $200 million 

spent on development and implementation through fiscal year 2006, and 

the cornerstone of IRS’s systems modernization program. CADE is only 

partially completed, and IRS estimates that over $500 million more is 

required to fully implement the individual tax return processing part of the 

system. 

In its proposed fiscal year 2007 budget request to the Congress, IRS did not 

report the benefits from CADE to date in terms of faster refund timeliness. 

IRS had not established separate processing performance measures for 

CADE that report the total time it takes CADE to process a return and 

issue a refund. According to IRS officials, this was due to the newness of 

CADE’s implementation, the difficulty in separating CADE and Master File 

processing information, and IRS’s desire to keep performance measures to 

a vital few. The refund timeliness measure included in table 1 covers only 

returns filed on paper, not electronically, and combines refund timeliness 

information for all paper returns together. 

Because of the substantial costs associated with fully implementing CADE, 

the Congress could find information about the benefits useful. We have 

previously reported the value in knowing estimates of benefits when 

making decisions about whether to fund large investment programs.29 The 

actual benefits received from CADE may be useful as an indication of both 

the magnitude and likelihood of the future benefits from full 

implementation. As discussed above, IRS officials are aware of benefits 

from CADE. Reporting such benefits in future budget requests could be 

done without necessarily making changes to IRS’s current refund 

timeliness measure.30

 29GAO-05-416T. 

30We have previously noted that IRS lacks a refund timeliness measure for electronically 

filed returns, and recommended it adopt such a measure (see GAO-06-51). At that time, IRS 

stated that a measure would not enhance performance and, in fact, might be 

counterproductive if disappointed taxpayers who had to wait longer than expected to 

receive their refunds were to call or seek face-to-face assistance. Our position remains that 

such a measure could help IRS better monitor and evaluate electronic filing performance 

and determine the effect of initiatives intended to increase electronic filing. 
Page 20 GAO-07-27 Tax Administration 

Taxpayers’ access to IRS’s telephone assistors and the accuracy of 

answers are both key indicators of IRS’s filing season performance 

because of the volume of calls and labor costs associated with answering 

them. 

Taxpayers’ access to IRS’s telephone assistors, as indicated by three IRS 

performance measures, was more or less comparable to last year’s, lower 

than in 2004, but better than in 2002, as shown in table 2. The percentage 

of taxpayers who wanted to talk with a CSR and actually got through and 

received service—referred to as the CSR level of service or telephone 

access—was 81 percent through mid-July as compared to 82 percent over 

the same period last year—and slightly less than its 2006 goal of 82 

percent. This translated into 22.3 million calls being answered by CSRs. 

Taxpayers gain access to a CSR depending on their responses to telephone 

prompts. Some go through an automated system to determine if a CSR is 

needed, while other taxpayers, such as those seeking tax law assistance, 

are screened and transferred to a CSR who is trained to respond to their 

questions. 

Other access measures showed improvement, such as the average speed 

of answer and the abandon rate, also shown in table 2. IRS reported that, 

through mid-July, the average speed of answer, the time taxpayers wait to 

get their calls answered, was nearly 4 minutes, which is an 11.4 percent 

decrease from last year. The abandon rate, or the percentage of callers 

who hang-up after reaching the queue to wait for an assistor, was 10.5 

percent, down from 12.2 percent from last year. The table below indicates 

that as the average speed of answer decreases from 2005 to 2006, so does 

the number of taxpayers who abandon their calls to IRS. However, this 

relationship may be influenced by other factors as well, such as call 

volume, staffing, or efficiencies, as well as an increased number of what 

IRS refers to as courtesy disconnects. According to IRS, the Agency 

disconnects some callers when wait times become excessive for particular 

types of questions in order to improve taxpayers’ experiences overall. IRS 

disconnected 1.7 million calls through mid-July. While this is a 93 percent 

increase for the same period over last year, courtesy disconnects 

Access to IRS’s 

Telephone Assistors 

Was Comparable to 

Last Year and 

Accuracy Improved, 

but IRS Has Excess 

Space at Its Call Sites 

Telephone Access, as 

Indicated by Three 

Performance Measures, 

Was About the Same as 

Last Year 
Page 21 GAO-07-27 Tax Administration 

represent only about 2 percent of the total call attempts, although IRS has 

not estimated the impact of disconnects on call volume overall. 

Table 2: IRS Telephone CSRs Accessibility Performance, 2001–2006 Filing Seasons 

Accessibility measuresa

2001

Actual

 2002

Actual

2003

Actual

2004 

Actual 

2005 

Actual 

2006

Actual

Fiscal year

2006 goals

CSR level of service (in percent)b 66 69 87 86 82 81 82

Average speed of answer (in minutes)c 5.7 4.5 2.8 2.8 4.4 3.9 5.0

Abandon rate (in percent)d 16.1 14.3 8.3 8.4 12.2 10.5 n.a.

Source: GAO analysis of IRS data. 

Notes: n.a. = not applicable. 

a

Based on actual counts from January through mid-July for 2001, 2002, 2003, 2004, 2005 and 2006. 

The composition of Customer Accounts Services has changed, but prior year data represented here 

are comparable. 

b

The percentage of callers wanting to speak to a CSR who get through and receive service. 

c

Average number of minutes a taxpayer waits in queue for a CSR. 

d

The percentage of callers who hang up while waiting in queue for a CSR. 

The level of service, average speed of answer, and other dimensions of 

access experienced by individual taxpayers are likely to vary depending on 

the time of year, type of call, and other factors. Consequently, aggregated 

or annualized results may mask fluctuations in performance and taxpayer 

experiences may vary (see app. V for further discussion) 

IRS officials had planned to reduce toll-free telephone service from 15 to 

12 hours a day this year because 93 percent of calls come in between 8 

a.m. and 8 p.m. IRS created work plans under the assumption of a 

reduction in telephone assistance hours.31 Because of a congressional 

directive,32 IRS had to adjust its work plans for a 15-hour day close to the 

start of the filing season. According to a recent TIGTA report, after being 

unable to implement the service hour reduction, IRS had insufficient time 

to train new seasonal CSRs, resulting in a decline in the number of 

 31The TIGTA recently issued a report on this matter. See Treasury Inspector General for 

Tax Administration, The Savings Used to Recommend Reducing Toll-Free Telephone 

Hours of Operation Are Not as Significant as Projected, Reference No. 2006-40-169 

(Washington, D.C.: Sept. 21, 2006). 

32Pub. L. No. 109-115 (2005) and Pub. L. No. 109-148 (2005). 
Page 22 GAO-07-27 Tax Administration 

assistors able to answer calls.33 Nevertheless, according to IRS officials, 

lower call volume during the filing season mitigated the potentially 

negative effect on service they had expected from maintaining a 15-hour 

day. 

The accuracy of telephone CSR responses to tax law and account 

questions either met or exceeded IRS’s goals and past performance, as 

shown in table 3. Most notably, accounts accuracy and tax law accuracy 

have improved since 2001 and now both are 90 percent or over, which is a 

statistical improvement over last year. IRS officials said accuracy 

improved because of their focus on identifying and informing the call sites 

of the top defects made by CSRs, directing accounts inquiries away from 

calls sites with a focus on tax law applications, and limited forms and tax 

law changes. 

Table 3: IRS Telephone CSRs Accuracy Performance, 2001–2006 Filing Seasons 

Accuracy measuresa

2001

Actual

 2002

Actual

2003

Actual

2004

Actual

2005 

Actual 

2006

Actual

Fiscal year

2006 goals

Tax law accuracy rate (in percent)b 79.1

+/- 0.6

84.9

+/- 0.5

81.3

+/- 0.7

79.5

+/- 0.8

89.5 

+/- 0.6 

90.6

+/- 0.6

90.0

Accounts accuracy rate (in percent)b 88.1

+/- 0.6

90.5

+/- 0.4

88.6

+/- 0.4

89.0

+/- 0.5

91.3 

+/- 0.4 

93.3

+/- 0.3

92.0

Source: GAO analysis of IRS data. 

a

Based on representative samples and from January through June for 2001, 2002, 2003, 2004, 2005, 

and 2006. 

b

The percentage of calls in which telephone CSRs provided accurate answers for the call type and 

took the appropriate action, with a 90 percent confidence interval. 

IRS received almost 71 million calls on its toll-free telephone lines through 

mid-July 2006 compared to 72 million in 2005. Of those calls, about 

• 30.9 million were from callers trying to obtain information on the status 

of their tax refunds, 

 33Treasury Inspector General for Tax Administration, Appropriate Actions Were Taken to 

Maintain Taxpayers’ Level of Service, but Access is Lower than in Prior Years, Reference 

No. 2006-40-162 (Washington, D.C.: Sept. 14, 2006). 

Accuracy of Responses to 

Telephone Inquiries 

Improved since Last Year 

and More So since 2001 

While IRS Expects 

Telephone Demand to 

Continue Declining, 

Telephone Service 

Remains Important 
Page 23 GAO-07-27 Tax Administration 

• 20.5 million were from callers seeking information about their 

accounts, 

• 14.4 million were about tax law questions, and 

• 4.9 million were miscellaneous inquiries to extensions, such as the 

National Taxpayer Advocate (NTA) and Tax Fraud Hotline. 

IRS officials stated that this year’s slight decline in call volume may be due 

in part to more taxpayers getting through to a CSR the first time they call, 

thus reducing the need for taxpayers to call again. According to IRS 

officials, call demand will continue to decline, continuing a pattern since 

2002. Call volume is important because once staffing levels are determined 

prior to the filing season, unexpected changes in call volume affect IRS’s 

ability to meet goals. 

Figure 3 shows how IRS handled the 70.8 million calls. Toll-free telephone 

calls from taxpayers typically are routed through IRS’s telephone system 

based on taxpayers’ response to prompts and are then answered by CSRs 

or automated recordings. Both the number of calls answered by IRS’s 

automated service and calls answered by CSRs were fairly consistent with 

IRS’s projections and slightly less than in 2005. 
Page 24 GAO-07-27 Tax Administration 

Figure 3: How IRS Handled Calls during 2006 

Note: Data cover the period January 1, 2006, through July 15, 2006. Due to rounding, percentages 

may not add to 100. 

A recent study indicates that the telephone is still the most preferred 

communication channel for all age groups—-especially if the inquiry is 

complex or urgent.34 Additionally, the NTA’s 2007 Report to Congress 

states that the NTA is concerned with IRS’s continued movement toward 

self-service, rather than individualized assistance from an IRS employee, 

unless taxpayers can get assistance elsewhere.35 To meet the demand for 

 34Citizen Service Levels Interagency Committee Report: Proposed Performance Measures, 

Practices and Approaches For Government-wide Citizen Contact Activities, General 

Services Administration’s USA Services e-Gov, 2006. 

35National Taxpayer Advocate Service, National Taxpayer Advocate’s 2007 Objectives 

Report to Congress (Washington, D.C.: June 30, 2006). 

Total calls to IRS

70.8 million 

12.5%

4.9%

19.4%

31.5%

31.6%

Source: GAO analysis of IRS data and Art Explosion (images).

Reached a CSR

22.3 million

Received automated service

22.4 million

Hung up or disconnected without 

receiving service

13.8 million

Called after business

hours

8.8 million

?

Transferred out to another IRS operation, such 

as Examination

3.5 million
Page 25 GAO-07-27 Tax Administration 

telephone service, IRS devotes significant resources to providing 

telephone assistance. In fiscal year 2006, IRS planned to use almost 8,000 

FTEs to handle telephone calls, which were similar to 2005, but 7 percent 

less than in 2004. 

In a recent testimony we noted that IRS might have the potential to close 

several more of its remaining 25 call sites.36 This is because IRS officials 

had determined that during peak staffing they had 850 unused CSR 

workstations spread across IRS’s 25 call sites. Moreover, we have noted 

that call volume declined slightly this year and IRS officials forecast that 

the decline will continue. This excess capacity represents substantial costs 

without providing any benefits to IRS or taxpayers. 

IRS could achieve savings through eliminating the excess workstations 

without negatively affecting taxpayer service even at peak times. IRS 

distributes all incoming calls through one central routing system and, 

therefore, the actual location of call sites does not affect the service 

received by taxpayers, particularly when other factors, such as the overall 

number of CSRs and call volume, remain equal. 

According to IRS officials, the agency is undertaking a workload analysis 

designed to reevaluate telephone staffing levels, associated call site 

locations and capacity. According to the Wage and Investment 

Commissioner, the study has been expanded to include call site 

consolidation, although IRS has not determined which factors should be 

considered or when the study will be completed. 

IRS could eliminate underutilized space by consolidating or closing call 

sites. For example, a small IRS call site can have as few as 200 CSRs. With 

850 empty workstations, this means that IRS could consolidate or close as 

many as four sites without eroding taxpayer service. 

 36GAO-06-499T. 

IRS Has Excess Space at 

Its Call Sites, but Lacks a 

Strategy for Consolidation 
Page 26 GAO-07-27 Tax Administration 

Use of IRS’s Web site (IRS.gov) increased substantially this filing season 

compared to last year based on the number of visits and downloads. From 

January 1 through August 31, 2006, IRS’s Web site was visited 161 million 

times by visitors (a nearly 9 percent increase), who downloaded 170 

million forms and publications (a nearly 36 percent increase).37 Where’s My 

Refund, which allows taxpayers to check the status of their refunds online, 

was accessed by 31.3 million taxpayers as of September 10, 2006, an 11.9 

percent increase over the same period last year. As we have reported, the 

increased usage of IRS’s Web site is consistent with IRS’s strategy to 

improve taxpayer service by providing taxpayers options for automated 

interaction with IRS.38 The Web site can be used at taxpayers’ convenience 

and can be used 24 hours a day. 

IRS reconfigured its Web site for the 2006 filing season in order to improve 

customer service through easier navigation and a more effective search 

function. The Web site is performing well based on various data including 

the following: 

• A Brown University Study that ranks federal agency’s Web sites shows 

that IRS has improved its ranking from 25th in 2005 to 6th in 2006, 

based on such factors as the number of publications and online 

services provided.39

• An independent weekly study by Keynote, a company that evaluates 

Web sites, reported that IRS’s Web site repeatedly ranked second out of 

40 government agencies evaluated in terms of average download time 

through mid-April 2006, and first out of the most commonly accessed 

government-related Web sites for response time and success rate 

through May 2006.40

• The American Consumer Satisfaction Index, which tracks trends in 

customer satisfaction, noted an increase in IRS’s Web site consumer 

 37We cannot make comparisons before 2005 because in October 2004, IRS changed the way 

that it collects and analyzes Web site data in order to provide a more accurate count of 

visits and downloads. 

38GAO-06-51. 

39Darrell M. West, State and Federal E-Government in the United States, 2006, Taubman 

Center for Public Policy, Brown University (Providence, Rhode Island: August 2006). 

40Keynote Systems, Keynote Government 40 Internet Performance Index and Keynote EGovernment Web Transaction Performance Index. 

IRS’s Web Site Use 

Grew Substantially 

and Is Now a Major 

Component of 

Taxpayer Service 
Page 27 GAO-07-27 Tax Administration 

satisfaction score from 68 percent to 72 percent after IRS reconfigured 

the site.41

• As of August 31, 2006, the number of Web site searches has decreased 

by almost half, from 181 million to 95 million this year. Typically, 

search functions are used when users fail to find information through 

links. According to IRS officials, the decrease in the number of 

searches indicates that users are finding the information that they need 

faster. 

IRS added features to its Web site this year including the following: 

• Electronic IRS: IRS reconfigured the IRS’s Web site and made it easier 

to locate items, as evidenced by the decline in searches. 

• Help for Hurricane Victims: This is a special link that provides victims 

of the recent hurricanes with information on special tax relief, 

assistance and how to get help with tax matters. 

In addition to the Free File and Where’s My Refund programs, discussed 

earlier, IRS’s Web site has other important features including the 

following: 

• ETLA, where taxpayers can ask IRS general tax law questions through 

its Web site. From October 1, 2005, through August 31, 2006, IRS 

received 17,511 emails requesting ETLA (down over 41 percent 

compared to last year) and estimated the accuracy rate of its responses 

to be 85.5 percent, comparable to 2005. We have previously reported 

that the ability of one taxpayer to forward an IRS e-mail response to 

many other taxpayers makes the accuracy of responding to inquiries 

submitted via e-mail important.42 The average number of days that it 

took IRS to respond to tax law questions submitted via the Web site 

was 2.2 days, compared to 1.5 days in 2005 and IRS’s goal of 3 business 

days. 

• E-Services, which is a suite of Internet services that enable paid tax 

preparers to conduct business, such as electronic account resolution 

 41American Consumer Satisfaction Index, Special Report on e-Government Satisfaction, 

National Quality Research Center, University of Michigan (Ann Arbor, Michigan: Mar. 21, 

2006). 

42GAO-05-67. 
Page 28 GAO-07-27 Tax Administration 

and transcript delivery, with IRS electronically 24 hours a day, 7 days a 

week. IRS is promoting e-Services to increase electronic filing among 

preparers. 

Shifting taxpayers from IRS walk-in sites to community sites staffed by 

volunteers is part of IRS’s strategy for reducing the costs of providing 

taxpayers with face-to-face assistance, while providing taxpayers with 

additional, and perhaps more convenient, options. 

Fewer taxpayers used IRS’s 400 walk-in sites than last year. As reflected in 

figure 4, the total number of contacts at IRS walk-in sites declined 12 

percent from the previous year, continuing a decline of approximately 40 

percent since 2001. The largest decrease since last year was in tax law 

assistance, which declined by approximately 39 percent. Return 

preparation assistance declined by more than 8 percent since last year and 

more than 70 percent since 2001. In the past 2 years, IRS has not reduced 

the types of assistance offered at its walk-in sites, so the decline in usage 

is due to other factors. For example, IRS officials attribute the decrease to 

taxpayers’ receiving alternative assistance from tax preparation software 

and IRS’s telephone service. 

Continuing Past 

Trends, Fewer 

Taxpayers Used IRS 

Walk-in Sites and 

More Used Volunteer 

Sites, but Data on 

Services Provided 

Remains Incomplete 

for Both 

Fewer Taxpayers Received 

Assistance at Walk-in Sites, 

and IRS Continues to Lack 

Comprehensive 

Management Data and a 

Reliable Method for 

Assessing Quality 
Page 29 GAO-07-27 Tax Administration 

Figure 4: Assistance Provided by IRS Walk-in Sites, 2001–2006 Filing Seasons 

Note: For walk-in sites, “Other walk-in contacts” includes assistance for account notices, tax law 

inquiries, forms, and other in-person contacts, but not return preparation. The time periods covered 

are December 31, 2000, through April 28, 2001; December 30, 2001, through April 27, 2002; 

December 29, 2002, through April 26, 2003; December 28, 2003, through April 24, 2004; December 

26, 2004, through April 23, 2005; and December 25, 2005, through April 22, 2006. 

Accounts assistance was the only area of service that increased since last 

year, up 66,000 contacts, or 7 percent, continuing an upward trend since 

2004. IRS officials attribute the increase in accounts assistance to IRS’s 

increased enforcement efforts in recent years. 

This year, IRS used walk-in and volunteer sites to provide relief efforts for 

federally-designated disaster zones such as in hurricane-affected areas. 

IRS developed a Disaster Referral Services Guide and new training 

materials for employees to better equip them to address disaster-related 

issues. In addition to the expanded services for disaster victims at IRS 

walk-in sites, volunteer sites performed outreach and agreed to accept 

referrals from IRS of disaster victims needing tax return preparation 

assistance. 
Page 30 GAO-07-27 Tax Administration 

The decline and shift of taxpayers from walk-in sites to other service 

options is important because it has allowed IRS to transfer timeconsuming services, such as return preparation, from IRS to other less 

costly alternatives that can be more convenient for taxpayers. This has 

allowed IRS to devote fewer FTEs to providing return preparation 

services. As figure 5 shows, direct FTEs decreased approximately 45 

percent between 2001 and 2006, roughly proportional to the decreases in 

usage shown in figure 4. 

Figure 5: Direct FTEs Used for Assistance Provided at IRS Walk-in Sites, 2001–2006 

Filing Seasons 

Note: The time periods covered are December 31, 2000, through April 28, 2001; December 30, 2001, 

through April 27, 2002; December 29, 2002, through April 26, 2003; December 28, 2003, through 

April 24, 2004; December 26, 2004, through April 23, 2005; and December 25, 2005, through April 

22, 2006. 
Page 31 GAO-07-27 Tax Administration 

In the past, we43 and TIGTA44 reported that IRS lacked (1) detailed 

management data on the services offered its walk-in sites and (2) a reliable 

method for assessing the quality of services offered at the sites. With such 

information, IRS managers could make more informed decisions about 

staffing and business operations including which services to offer and 

where improvements are needed. TIGTA has recently reported some 

improvement in service quality at walk-in sites.45 And, to its credit, IRS is in 

the process of taking steps intended to provide better data on the services 

provided at walk-in sites and the quality of those services. The steps 

include the following: 

• Q-Matic: IRS installed one of three versions of Q-Matic, its automated 

customer tracking system, at all 400 walk-in sites in time for the 2006 

filing season. According to IRS officials, in addition to helping control 

customer traffic, once this data is fully integrated with IRS’s other 

management information systems IRS managers will have detailed data 

on the number, type, and duration of taxpayers’ contacts. 

• Contact Recording: As we have previously reported, contact 

recording is a method for assessing quality at all walk-in sites.46 For the 

2007 filing season, IRS plans to deploy contact recording at 

approximately 126 walk-in sites, which would cover approximately 45 

percent of IRS’s total walk-in contacts. According to IRS, when fully 

implemented, contact recording should enable IRS to standardize its 

employee evaluation and quality assessment processes, establish 

performance baselines, and reliably assess the accuracy of the services 

it provides at its walk-in sites. 

 43See, for example, GAO-05-67 and GAO-06-51. 

44See, for example, Treasury Inspector General for Tax Administration (TIGTA), Customer 

Service at the Taxpayer Assistance Centers Is Improving but is Still not Meeting 

Expectations, Reference No. 2005-40-021 (Washington, D.C.: Dec. 28, 2004) and Taxpayer 

Service Is Improving, but Challenges Continue in Meeting Expectations, Reference No. 

2006-40-052 (Washington, D.C.: Feb. 17, 2006). 

45See, for example, TIGTA Customer Service at Taxpayer Assistance Centers Showed 

Improvement During the 2006 Filing Season, Reference No. 2006-40-122, (Washington, 

D.C.: Aug. 30, 2006). 

46GAO-06-51. 
Page 32 GAO-07-27 Tax Administration 

In contrast to walk-in sites, the number of returns prepared at over 12,000 

volunteer sites grew to 1.8 million returns. Although IRS has changed the 

methodology it uses to count returns electronically filed from volunteers 

sites, this still represents an overall increase over last year.47

As with its walk-in sites, IRS continues to lack complete data on the 

quality of return preparation at its volunteer sites. We and TIGTA have 

reported concerns about the quality of return preparation assistance 

provided at volunteer sites and have made recommendations to remedy 

the concerns.48 At the same time, we have noted that IRS has had several 

initiatives to improve the quality of services provided at volunteer sites.49

However, these initiatives have changed in purpose and scope as IRS’s 

efforts to centralize its partnerships with volunteers have evolved. 

Furthermore, IRS has not always fully implemented these initiatives. For 

example, in 2005, IRS intended to use observation reviews to assess tax 

return preparation accuracy by watching volunteers prepare taxpayers’ 

returns. However, IRS cancelled observation reviews due to concerns 

raised by some of its partners and the NTA, noting that observation 

reviews violated taxpayer privacy and unfairly targeted low-income 

taxpayers. 

The Volunteer Return Preparation Program Quality Improvement Process 

is IRS’s newest initiative to promote return preparation quality at its 

volunteer sites. As part of this initiative, IRS conducted two types of 

reviews—site and return reviews—to monitor and evaluate quality of 

return preparation at volunteer sites. IRS used site reviews to measure 

volunteer sites’ adherence to IRS’s quality standards, but the results could 

not be generalized across volunteer sites because IRS did not use a 

statistically valid sample. Return reviews, which are limited in scope, 

compared the information taxpayers provided on the intake sheet to the 

filing status, exemptions, and credits claimed on the completed return. 

However, according to IRS officials, the results from the return reviews 

 47According to IRS officials, IRS previously relied on volunteer sites to manually enter their 

Site Identification Number on returns they filed electronically or by paper which was then 

extracted from the Master File. However, in May 2005, IRS changed its methodology to use 

an automated data-based system to identify returns filed electronically at volunteer sites. 

For paper returns, IRS retains this information in the Master File data base. 

48See GAO-06-51 and Treasury Inspector General for Tax Administration, Oversight and 

Accuracy of Tax Returns Continue to be Problems for the Volunteer Income Tax 

Assistance Program, Reference No. 2006-40-125 (Washington, D.C.: Aug. 31, 2006). 

49GAO-06-51. 

More Taxpayers Continued 

to Receive Return 

Preparation Assistance at 

Volunteer Sites, yet Quality 

of Service Remains 

Unknown 
Page 33 GAO-07-27 Tax Administration 

were too high to help identify specific improvements that may be needed. 

In 2007, IRS plans to include additional testing of the accuracy of return 

preparation. 

A November 2005 law prohibited IRS from reducing taxpayer services 

until TIGTA could complete a study on the impact of those proposed 

reductions, and required IRS to consult with stakeholder organizations 

including NTA, the IRS Oversight Board, and TIGTA, before terminating or 

significantly reducing any taxpayer service activity.50 An additional 

congressional directive required IRS to work with the Oversight Board and 

NTA to develop a 5-year plan for taxpayer service activities, which is to 

include long-term goals that are quantitative and balance enforcement and 

service.51 In response IRS is developing the TAB to provide the agency with 

information on taxpayers’ needs and preferences to improve taxpayer 

service at lower cost as part of a 5-year plan. IRS divided its TAB work 

into two phases: The Phase I report outlines the results of preliminary 

research on taxpayer expectations and establishes five strategic priorities 

for improving service. Phase II research and review is in progress and is 

expected to be released by early 2007. 

In April 2006 IRS issued Phase I of the TAB, which includes an overview of 

services provided and volume information for the different service 

delivery channels. It also contains demographic information on the 

population of individual taxpayers. Phase I included IRS’s research on and 

analysis of customer needs and preferences for service delivery and 

outlined the results of IRS work to gather best practices for customer 

service from other government agencies, nonprofit organizations, and 

private sector firms. Finally, IRS developed the following five strategic 

themes for improving taxpayer service: 

1. Improve and expand education and awareness activities. 

2. Optimize the use of services from community-based partners, paid tax 

preparers commercial preparers, and software vendors. 

3. Elevate self-service options to meet taxpayer expectations. 

 50Pub. L. No. 109-115, § 205 (2005). 

51H. Rep. No. 109-307, 109th Cong. (2005). 

IRS Has Completed 

the First Phase of the 

TAB and Has Begun 

Assessing Taxpayers’ 

Service Needs 

Phase I Targets Five 

Themes for Improving 

Service 
Page 34 GAO-07-27 Tax Administration 

4. Improve and expand training and support tools to enhance assisted 

services. 

5. Develop short-term performance and long-term outcome goals and 

metrics. 

The theme of elevating self-service options is consistent with IRS’s new 

long-term goal for increasing taxpayer self-assistance, introduced in 2006, 

as well as its strategy of matching services with taxpayer technological 

proficiency. As previously noted, IRS’s efforts to increase taxpayer selfassistance is of concern to the NTA. 

Phase II of the TAB includes additional research to build on the strategic 

improvement themes. IRS officials reported that to address the 

congressional directive that the plan balance service and compliance, 

Phase II includes a research agenda on the effect of taxpayer service on 

compliance. The studies also include an analysis addressing respondents’ 

preferences among service delivery channels when other attributes 

change, such as convenience or cost of service to the taxpayer. 

IRS officials anticipate that the TAB Phase II report will be released to the 

Congress by early 2007. They also confirm that it will include a multiyear 

plan for taxpayer service activities and improvement initiatives; the TAB 

team has identified over 70 projects for improving taxpayer services, 

although none will be implemented in time for the 2007 filing season. 

IRS anticipates that key outcomes of its Phase II work will be a process for 

assessing customer preferences and subsequent research on those 

preferences, because demographics are constantly changing. Furthermore, 

taxpayer expectations are likely to shift with the advent of new 

technology, as exemplified by the exponential availability and use of 

Internet-provided services in recent years. 

IRS continues to make significant improvements in its filing season 

performance. In an environment of tight budgets and demands to improve 

service while maintaining or increasing enforcement activities, generating 

savings by operating more efficiently is crucial. We have identified two 

such savings opportunities. 

First, despite numerous IRS initiatives to increase electronic filing, there 

remains considerable room for further growth. Some states, federal tax 

IRS Reports Phase II in 

Progress with Expected 

Report Release by Early 

2007 

Conclusions 
Page 35 GAO-07-27 Tax Administration 

experts, and even IRS have recognized that mandatory electronic filing can 

generate savings by reducing paper filing. However, IRS lacks the statutory 

authority to expand its use of mandates. Requiring certain paid tax 

preparers to file individual returns electronically could increase electronic 

filing and generate savings for IRS. 

Second, IRS could achieve efficiencies by reducing unnecessary spending 

on the excess capacity at its telephone operations—without negatively 

affecting taxpayer service—by consolidating its call sites. 

In addition, IRS continues to implement CADE. As more taxpayer 

accounts are put on CADE, the benefits to taxpayers will grow and more 

facts regarding those benefits, such as information on refund timeliness 

and improved taxpayer service, are likely to sustain congressional support. 

However, IRS is not reporting on one of the chief benefits already realized 

from CADE, issuing refunds faster. The Congress could benefit from 

knowing this information as it makes decisions about funding the 

completion of CADE. 

Given the efficiencies to be gained, the Congress should mandate 

electronic filing by paid tax preparers meeting criteria such as a threshold 

number of returns filed. 

We recommend that the Commissioner of Internal Revenue direct the 

appropriate officials to 

• timely develop, validate, and implement a plan to consolidate call sites, 

and 

• report to the Congress refund timeliness for CADE compared to the 

Master File legacy system. 

The Commissioner of Internal Revenue provided written comments in a 

November 3, 2006, letter. With respect to the matter for congressional 

consideration, the Commissioner said he appreciated our acknowledging 

that the current statutory limitation impedes electronic filing growth. The 

Commissioner agreed with both of the report’s recommendations to IRS. 

In responding to our first recommendation, the Commissioner stated that 

Matter for 

Congressional 

Consideration 

Recommendations for 

Executive Action 

Agency Comments 

and Our Evaluation 
Page 36 GAO-07-27 Tax Administration 

IRS would take steps to develop plans, including updating data and 

projections, conduct a full cost analysis to determine projected savings, 

and formulating a consolidation timeline and workload redistribution plan. 

The Commissioner responded to the second recommendation stating that 

IRS would develop a measure to show refund timeliness for CADE based 

on its current sampling methodology. However, because the current 

methodology includes only paper returns, the new measure would 

necessarily show CADE’s benefits for only paper returns, not all returns. 

As agreed with your office, unless you publicly announce the contents of 

this report earlier, we will not distribute it until 30 days from the date of 

the report. At that time, we will send copies of this report to the Chairmen 

and Ranking Minority Members of the Senate Committee on Finance, the 

House Committee on Ways and Means, and the Ranking Minority Member, 

Subcommittee on Oversight, House Committee on Ways and Means. We 

are also sending copies to the Secretary of the Treasury; the Commissioner 

of Internal Revenue; the Director, Office of Management and Budget; and 

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

request. In addition, the report will be available at no charge on the GAO 

Web site at http://www.gao.gov. 

If you have any questions regarding this report, please contact me at (202) 

512-9110 or at whitej@gao.gov. Contact points for our Offices of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. Key contributors to this report include Amanda Arhontas, 

Paula Braun, Amy Dingler, Evan Gilman, Tim Hopkins, Kathryn Horan, 

Hillary Loeffler, Paul Middleton, Karen O’Conor, Cheryl Peterson, Neil 

Pinney, Stephen Sallan, and Joanna Stamatiades. 

Sincerely yours, 

James R. White 

Director, Tax Issues 

Strategic Issues 
Appendix I: Differences between the 2002 and 

2005 Free File Agreements 

Page 37 GAO-07-27 Tax Administration 

In 2002, the Internal Revenue Service (IRS) entered into a 3-year 

agreement with the Free File Alliance, a consortium of 20 tax preparation 

companies to provide free electronic filing to taxpayers who access any of 

the companies via a link on IRS’s Web site. The 2002 Free File Agreement 

stated that, as part of the agreement, IRS would not compete with the 

Alliance members in providing free, online tax return preparation and 

filing services to taxpayers. 

IRS stated that the original purpose of the Free File Alliance was to 

increase electronic filing, and at the same time, assist low-income 

taxpayers with filing their taxes electronically. One of the benefits for 

Alliance members of belonging to the Free File Alliance is the ability to 

advertise their software programs and products through IRS’s Web site, 

which receives heavy traffic each year. 

In 2005, IRS renegotiated and amended the agreement. Key differences 

between the agreements are 

• a new income limitation of $50,000; 

• new language that states the Alliance members must disclose early-on 

if state tax return services are available, and if so, whether a fee will be 

charged for such services; and 

• Alliance members must provide the necessary support to accomplish a 

customer satisfaction survey. 

Another change is that new language pertaining to the marketing and 

offering of Refund Anticipation Loans (RAL) stated that no offer of free 

return preparation and filing of an electronic return in the Free File 

program shall be conditioned on the purchase of a RAL.1

 Also, RALs are to 

be offered with clear language indicating, for example, that they 

• are loans, not a faster way of receiving an IRS refund; 

• must be repaid even if the IRS does not issue a full refund; 

• are short-term loans with high interest rates and, therefore, customers 

may wish to consider using other forms of credit; and 

 1

Refund Anticipation Loans are very short-term loans issued while taxpayers wait for their 

refunds. 

Appendix I: Differences between the 2002 

and 2005 Free File Agreements 
Appendix I: Differences between the 2002 and 

2005 Free File Agreements 

Page 38 GAO-07-27 Tax Administration 

• may be offered but not promoted. 

IRS tests each Alliance member’s software to ensure it is in accordance 

with the Free File provisions before allowing a link to IRS’s Web site. In 

addition, IRS officials monitor complaints about the Free File program 

received via IRS.gov, including allegations regarding false, deceptive, or 

misleading information or advertising. While IRS does not track the 

number of complaints it receives, according to IRS officials, most of the 

complaints received thus far were a result of the taxpayer either not 

carefully reading or not following instructions, or incorrectly entering 

information. GAO conducted limited testing of the Free File program and 

found that Alliance members were complying with the terms outlined in 

the amended Free File agreement pertaining to RALs.2

 In addition, 

according to IRS, 9 of 20 Free File companies offer RALs. 

The amended Free File agreement contains provisions that enable IRS to 

monitor taxpayer participation beginning in the 2006 filing season, unlike 

prior years where Alliance members self-reported filing figures. IRS also 

tracks the number of Free File users who are accepting any financial 

products, such as RALs. As of April 17, 2006, IRS reported that 207,814 free 

file returns accepted financial products. This represents about 5 percent of 

all returns filed through the Free File program. 

The number of taxpayers using Free File to electronically file their 

individual income tax returns has increased steadily from 2.8 million in 

2003 to 5.1 million in 2005. The substantial growth between 2003 and 2005 

was due to, in part, several Alliance members offering free filing to all 

taxpayers through the Free File program regardless of their income in 

2005. However, according to IRS officials, the lack of income limitation 

created conflict as it put pressure on all Alliance members to offer free 

service, which may not have been economically feasible for some. 

Competition would be reduced if Alliance members were to drop out of 

the Alliance. 

 2

We conducted limited testing on 13 out of 20 companies participating in the Free File 

program using a scenario we constructed that represented a low-income worker. Purposes 

of the testing included examining some potential experiences of taxpayers, such as the 

length of time to complete a return and whether any financial services, such as RALs, were 

marketed during the filing of the return, examining what happened if we declined the 

services, and evaluating our experience compared to the Free File agreement. 
Appendix I: Differences between the 2002 and 

2005 Free File Agreements 

Page 39 GAO-07-27 Tax Administration 

IRS projected that over 6 million taxpayers would use Free File in 2006. 

However, this projection was overstated, because through August, IRS 

processed about 4 million returns filed through the Free File program, 

which is a decrease of about 23 percent from the same period last year. 

According to IRS officials, the new income limitation contributed, in large 

part, to this decline despite the fact that the income limitation provides 

coverage to 70 percent of the nation’s taxpayers, or more than 92 million 

people, and includes taxpayers with an adjusted gross income of $50,000 

or less. Moreover, IRS officials stated that it was this income limitation 

that contributed to the overall lower rate of growth in electronic filing this 

year. 
Appendix II: Status of CADE Implementation 

and Future Releases 

Page 40 GAO-07-27 Tax Administration 

The IRS is developing and deploying its Customer Account Data Engine 

(CADE) incrementally in multiple releases over several years, as shown in 

table 4. IRS is planning for semiannual subrelease deployments in July and 

January prior to each filing season. The July subreleases (x.1) focus on 

new CADE functionality with some tax law changes, while the January 

subreleases (x.2) contain primarily filing season and tax law changes with 

minimal new functionality. Each incremental release builds upon and 

expands the functionality contained in the prior releases. For example, 

during the 2006 filing season, CADE Release 1 processed Form 1040EZ, 

1040, and 1040A tax returns with no schedules for single taxpayers with no 

dependents. Release 2 is planned to add the capability to process Form 

1040 and 1040A tax returns with various schedules and supporting forms 

for taxpayers filing as single, married, or head of household in 2007. With 

the deployment of Release 7 in 2012, CADE is expected to fully replace the 

Individual Master File and process all individual tax returns. 

Table 4: Schedule of CADE Releases and Related Functionality 

Release Sub-release Release date Tax return types Filing status 

Account 

characteristics 

Estimated 

number of 

returns

(millions)

1.1 July 2004 n.a.

1.2 January 2005 

Refund or evenbalance returns 

No account issues 

(open or closed) 

1.3.1 September 2005 

Form 1040EZ Single 

(never married, no 

dependents) 

Address changes 

1.4 (actual)

1 

1.3.2 January 2006 Forms 1040 and 1040A

No schedules 

 Refund or evenbalance returns 

Closed prior account 

issues 

Extensions without 

payments 

7.4 (actual)

2 2.1 September 2006 Form 1040 

Schedules A, B, and 

R and supporting 

forms 

Form 1040A 

Schedules 1 and 3 

Single 

Head of 

Household 

(no dependents) 

Extensions with 

payments full-paid 

Name change (first 

name) 

33

Appendix II: Status of CADE Implementation 

and Future Releases 
Appendix II: Status of CADE Implementation 

and Future Releases 

Page 41 GAO-07-27 Tax Administration 

Release Sub-release Release date Tax return types Filing status 

Account 

characteristics 

Estimated 

number of 

returns

(millions)

 2.2 January 2007 Form 1040 

Schedules C, E, F, 

and SE (without 

Employer 

Identification Number 

[EIN]) and supporting 

forms 

Schedule D and 

supporting forms 

Single 

Head of 

Household 

Married (joint) 

Married (separate)

(no dependents or 

clean dependents)

Married only once 

3 3.1 July 2007 

3.2 January 2008 

Form 1040 

Schedule EIC and 

supporting forms 

Decedent returns 

Full-paid with 

remittance 

Credit election 

Additional schedules 

and forms (TBD) 

Form 1040A 

Schedule 2 

Form 1040-ES 

Form 1040-V 

Form 1040X 

Form 4868 with or 

without remittance 

Single 

Head of 

Household 

Married (joint) 

Married (separate)

Surviving Spouse 

Name change (last 

name) 

Split Refunds 

Dependents expanded 

50

4 4.1 July 2008 

4.2 January 2009 

Form 6251 

Additional Form 1040 

schedules and forms 

(TBD) 

Single 

Head of 

Household 

Married (joint) 

Married (separate)

Surviving Spouse 

Power of Attorney 

Centralized 

Authorization File 

Balance due returns 

Math error returns 

70

 
Appendix II: Status of CADE Implementation 

and Future Releases 

Page 42 GAO-07-27 Tax Administration 

Release Sub-release Release date Tax return types Filing status 

Account 

characteristics 

Estimated 

number of 

returns

(millions)

5 5.1 July 2009 

5.2 January 2010 

Form 1040 

Schedules C, E, F, 

and SE (with EIN) 

and supporting forms 

Additional schedules 

and forms (TBD) 

Forms 940 and 720 

payroll, unemployment, 

and excise tax returns 

for Form 1040 selfemployed filers 

Single 

Head of 

Household 

Married (joint) 

Married (separate)

Surviving Spouse 

Delinquent returns 90

6 6.1 July 2010 

6.2 January 2011 

Form 1040NR 

Form 1040-PR 

Form 1040-SS 

Additional Form 1040 

schedules and forms 

(TBD) 

Single 

Head of 

Household 

Married (joint) 

Married (separate)

Surviving Spouse 

First-time filers 110

7 7.1 July 2011 

7.2 January 2012 

All additional individual 

returns 

Single 

Head of 

Household 

Married (joint) 

Married (separate)

Surviving Spouse 

Foreign Address 

Open account issues 

Taxpayers with history 

of multiple marriages 

135

Source: GAO analysis of IRS data. 

Notes: n.a. = not applicable. TBD = to be determined. 

List of forms included above: 

Form 720—Quarterly Federal Excise Tax Return 

Form 940—Employers Annual Federal Unemployment Tax Return 

Form 1040—U.S. Individual Income Tax Return 

Schedule A—Itemized Deductions 

Schedule B—Interest and Ordinary Dividends 

Schedule C—Profit or Loss from Business 

Schedule D—Capital Gains and Losses 

Schedule E—Supplemental Income and Loss 

Schedule EIC—Earned Income Credit 

Schedule F—Profit or Loss from Farming 

Schedule R—Credit for the Elderly or the Disabled 

Schedule SE—Self-Employment Tax 

Form 1040A—U.S. Individual Income Tax Return 

Schedule 1—Interest and Ordinary Dividends for Form 1040A Filers 
Appendix II: Status of CADE Implementation 

and Future Releases 

Page 43 GAO-07-27 Tax Administration 

Schedule 2—Child and Dependent Care Expenses for Form 1040A Filers 

Schedule 3—Credit for the Elderly or the Disabled for Form 1040A Filers 

Form 1040-ES—Estimated Tax for Individuals 

Form 1040EZ—Income Tax Return for Single and Joint Filers with No Dependents 

Form 1040NR—U.S. Nonresident Alien Income Tax Return 

Form 1040-PR—Puerto Rico Resident Income Tax Return 

Form 1040-SS—U.S. Se Payment lf-Employment Tax Return 

Form 1040-V—Voucher 

Form 1040X—Amended U.S. Individual Income Tax Return 

Form 4868—Application for Automatic Extension of Time to File U.S. Individual Income Tax 

 Return 

Form 6251—Alternative Minimum Tax—Individuals
Appendix III: State Mandates for Electronic 

Processing 

Page 44 GAO-07-27 Tax Administration 

Twelve states had electronic filing mandates for paid tax preparers in 

effect for the 2006 filing season (see fig. 6). State mandates differ but 

require preparers who meet specified requirements, such as filing 100 

individual income tax returns per year, to file individual income tax 

returns electronically. 

Figure 6: States with Electronic Filing Mandates for Paid Tax Preparers 

Nine states had electronic filing mandates in effect in 2005 or earlier. In 

eight of these nine states, the mandates increased the growth rate of 

electronically filed federal returns (see table 5). 

Appendix III: State Mandates for Electronic 

Processing 
Appendix III: State Mandates for Electronic 

Processing 

Page 45 GAO-07-27 Tax Administration 

Table 5: Electronic Filing Rates of Growth in Federal Returns for States with Mandates Compared to National Averages 

Percent 

Tax year when state 

mandates were 

implemented 

State 

Electronic filing rate 

of growth prior to the 

tax year the mandate 

was implementeda

Electronic filing rate 

of growth in the tax 

year the mandate was 

implementedb 

Percent change 

in electronic 

filing rate of 

growthc

 

Nationwide 

electronic rate of 

growth the year the 

mandate was 

implemented

Alabama 9.9 14.6 48.0 11.2

Massachusetts 11.2 28.1 150.9 11.2

New Jersey 12.7 35.0 176.5 11.2

2004 

Virginia 12.4 11.0 -10.6d

 11.2

California 14.8 55.7 276.7 12.3

Michigan 14.2 40.3 184.1 12.3

2003 

Oklahoma 8.9 12.6 42.0 12.3

2002 Wisconsin 23.4 29.6 26.6 16.6

2000 Minnesota 32.6 34.9 7.2 13.6

Source: GAO analysis of IRS data. 

a

The rate of growth compares the 2 years prior to the year the mandate was implemented. 

b

The rate of growth compares the year prior to the mandate’s implementation to the year the mandate 

was implemented. 

c

The percent change in electronic filing rate is based on the change from the year the mandate was 

implemented to year prior to implementation. 

d

The decrease in the percent change in Virginia’s electronic filing rate of growth may be due in part to 

2-D barcodes, which are attached to the paper tax return. IRS does consider paper returns filed with 

2-D barcodes as being electronically filed. 

According to a June 2005 study by the Federation of Tax Administrators,1

many state tax administrators view electronic filing as a means to improve 

tax return and refund processing, improve customer service, and reduce 

the number of seasonal workers in part by making better use of staffing 

resources. According to New York, California, and Minnesota officials, 

given tight budget constraints, the opportunity to generate savings was the 

main reason behind their decisions to implement mandates. For example, 

in 2001 Minnesota estimated it saved $2.45 per return by mandating 

 1

Federation of Tax Administrators, Electronic Filing Mandates: Lessons Learned 

(Washington, D.C.: June 2005). 
Appendix III: State Mandates for Electronic 

Processing 

Page 46 GAO-07-27 Tax Administration 

electronic filing for paid tax preparers.2 Other states also reported savings 

from electronic filing mandates. 

While Minnesota was the first state to implement a mandate for individual 

income tax returns, more states have adopted mandates and some have 

used different methods to encourage electronic filing of state returns. 

Some notable examples include the following: 

• Filing thresholds: States with mandates often differ in the minimum 

number of returns a paid tax preparer must file before having to 

comply with an electronic filing mandate. In most states, the threshold 

is often lowered gradually over time, increasing the base of preparers 

that fall under the mandate. For example, in New Jersey in 2005, 

preparers who prepared more than 200 individual state income returns 

in the prior year had to electronically file all returns they prepared in 

the current year. The threshold will drop to 100 returns in 2007 and 50 

returns in 2008. 

• Penalties: Some states do not impose penalties on noncompliant paid 

tax preparers; however, those states that do levy penalties for 

noncompliance often differ in amount and level of enforcement. For 

example, some states waive the penalty if a taxpayer chooses to optout of having their return electronically filed. In fact, most states 

include “opt-out” clauses in the legislation that allows a preparer to file 

a customer’s return on paper at the customer’s request. In contrast, if a 

preparer files a return on paper, absent of the customer’s request, they 

could be subject to upwards of a $100 fine. Alternatively, the state of 

Minnesota charges a $5.00 fee for returns filed on paper returns 

prepared by mandated preparers regardless of the circumstances. 

• Including 2-D Barcodes as Electronic Filing: State mandates also 

vary in what they consider an electronically filed return. Utah, 

Alabama, and Virginia consider a paper return with a 2-D barcode 

produced by tax preparation software as an electronically filed return. 

New York also considered paper returns with 2-D barcodes as 

electronically filed returns for the 2006 filing season. 

In its June 2005 report, the Federation of Tax Administrators noted that 

many states reviewed existing state mandate legislation for guidance and 

ideas, or best practices, prior to implementing their own mandates. For 

 2

We did not verify this estimate. 
Appendix III: State Mandates for Electronic 

Processing 

Page 47 GAO-07-27 Tax Administration 

example, New York officials said they used the experiences reported by 

California when deciding what provisions their mandate should or should 

not include. The Federation of Tax Administrators reported several 

lessons learned about implementing mandates, including, 

• having a phased-in approach over a period of several years, 

• providing the ability for a taxpayer to opt out of electronic filing if he or 

she chooses instead to file a paper return, and 

• having penalties for failure to file electronically. 

Finally, the states’ experience with mandates has shown the following 

• Communication and taxpayer education are vital. For example, 

California scheduled presentations and panels on mandatory electronic 

filing for tax professional organizations in order to achieve buy-in from 

the paid tax preparer community. 

• Lead time for implementation and the definition for the scope of the 

mandate are important. Most states currently use the federal Employer 

Identification Number (EIN) to define “paid tax preparer” and treat any 

office or branch of an entity operating under a single EIN as a “paid tax 

preparer” subject to the mandate. 

• Coordination between IRS and Electronic Return Originators is 

essential.3

 3

Electronic Return Originators originate the electronic submission of income tax returns to 

the IRS and may originate the electronic submission of income tax returns that are either 

prepared by the originator or collected from the taxpayer. 
Appendix IV: IRS’s Processing Performance 

Relative to 2001–2005 Performance and 2006 

Goals 

Page 48 GAO-07-27 Tax Administration 

IRS met or exceeded eight of the nine processing performance goals for 

2006 as table 5 shows. For seven measures (i.e., deposit error rate, deposit 

timeliness, notice error rate, refund interest paid, refund timeliness, 

productivity, and efficiency), IRS exceeded its goal. For one measure 

(refund error rate), IRS met its goal. 

For one measure, the letter error rate, IRS’s performance declined and the 

2006 goal was not met. The letter error rate is calculated as the percentage 

of letters issued to taxpayers with errors. IRS officials said that computer 

system errors were partially to blame for the higher letter error rate this 

filing season; however, most of those errors were caused by one 

programming error that was corrected in the beginning of March. In 

addition, according to IRS officials, most errors caused by employees were 

attributed to one submission processing center, which had many new 

employees. 

Comparing actual 2006 performance to 2005 shows that IRS’s performance 

improved or remained about the same for eight of the nine measures in 

effect in 2005. Table 6 also shows that IRS processing performance in 2006 

has significantly improved compared to prior years. 

Appendix IV: IRS’s Processing Performance 

Relative to 2001–2005 Performance and 2006 

Goals 
Appendix IV: IRS’s Processing Performance 

Relative to 2001–2005 Performance and 2006 

Goals 

Page 49 GAO-07-27 Tax Administration 

Table 6: IRS’s Processing Performance, Fiscal Years 2001–2006 

Measure name Definition 

Fiscal year

2001

actuala

Fiscal year

2002

actual

Fiscal year

2003

actual

Fiscal year 

2004 

actual 

Fiscal 

year 

2005 

actual 

Fiscal 

year

2006 

actual

(through 

July) 

Fiscal 

year

2006 

goal

Deposit error 

rateb

Percentage of 

payments applied 

in error by, for 

example, 

reimbursing a 

taxpayer who 

overpaid when 

the taxpayer 

wanted any 

overpayment 

credited to next 

year’s tax bill. 

5.0% 4.8%

+/-0.3% 

4.2%

+/-0.3%

3.5% 

+/-0.31% 

2.2% 

+/-0.26% 

1.7%

+/-0.28% 

2.0%

Deposit 

timeliness—

paper 

Interest foregone 

by not depositing 

monies the 

business day 

after receipt, per 

$1 million in 

deposits. 

Measure 

assumes an 8 

percent interest 

rate. 

Not 

comparable 

because of 

revisions to the 

measure.

Not 

comparable 

because of 

revisions to the 

measure.

Not 

comparable 

because of 

revisions to the 

measure.

$407 $390 $365 $390

Letter error 

rateb

Percentage of 

letters issued to 

taxpayers with 

errors (includes 

systemic errors).c

Not 

comparable 

because of 

revisions to the 

measure.

7.4%

+/-0.6%

7.1%

+/-0.5%

6.6% 

+/-0.38% 

3.1% 

+/-0.30 

3.6%

+/-0.36%

3.0%

Notice error 

rateb

Percentage of 

incorrect notices 

issued to 

taxpayers 

(includes 

systemic errors).c

Not 

comparable 

because of 

revisions to the 

measure.

18.7%

+/-2.4%

9.4%

+/-1.2%

9.5% 

+/-1.31% 

9.2% 

+/-1.6% 

5.6%

+/-1.08% 

8.6%
Appendix IV: IRS’s Processing Performance 

Relative to 2001–2005 Performance and 2006 

Goals 

Page 50 GAO-07-27 Tax Administration 

Measure name Definition 

Fiscal year

2001

actuala

Fiscal year

2002

actual

Fiscal year

2003

actual

Fiscal year 

2004 

actual 

Fiscal 

year 

2005 

actual 

Fiscal 

year

2006 

actual

(through 

July) 

Fiscal 

year

2006 

goal

Refund error 

rate—individual 

(paper)b

The percentage 

of refunds with 

IRS-caused 

errors in the entity 

information (e.g., 

incorrect name, 

Social Security 

number, or refund 

amount); includes 

systemic errors.c

9.8% 8.0%

+/-0.46%

5.3%

+/-0.41%

4.9% 

+/-0.44% 

5.0% 

+/-0.48% 

4.5%

+/-0.51% 

4.8%

Refund interest 

paid 

Amount of refund 

interest IRS paid 

per $1 million of 

refunds issued. 

Not 

comparable 

because of 

revisions to the 

measure.

Not 

comparable 

because of 

revisions to the 

measure.

$36.29 $20.55 $29.21 $29.88 $32.00

Refund 

timeliness—

individual 

(paper)b

Percentage of 

refunds issued 

within 40 days or 

less. 

95.2% 98.2%

+/-0.32%

98.8%

+/-0.26%

98.3% 

+/-0.17% 

99.2% 

+/-0.18% 

99.4%

+/-0.13%

99.2%

Productivity Weighted volume 

of documents 

processed per 

staff year 

expended at the 

processing 

centers. 

30,133 28,389 30,179 30,405 31,444 33,011 32,000

Individual 

Master File 

efficiency 

Measure of 

individual Master 

File returns 

processed per 

staff year 

expended. 

Measure not in 

existence. 

Measure not in 

existence.

Measure not in 

existence.

Measure not 

in existence. 

14,965 17,538 15,622

Source: GAO analysis of IRS data. 

Notes: The measures for fiscal year 2006 are through July 30, which were the latest data available at 

the time we ended our audit work. According to IRS officials, the 2006 results through July 30 are 

reflective of IRS’s performance during the filing season. In addition, IRS officials told us that the 

results for the measures should not change significantly through September 30. 

a

According to IRS officials, they did not compute a margin of error for these measures in 2001. 

b

IRS estimates these measures to have a 90 percent confidence interval. 

c

Systemic errors are computer-generated errors over which a particular processing center would have 

no control. 
Appendix V: Telephone Access Varies 

Depending on the Time of Year and Type of 

Call 

Page 51 GAO-07-27 Tax Administration 

Level of service can vary during different periods of the year. For example, 

from January 1 through April 22 the level of service was 82 percent, but 

was 75 percent from April 23 through June 10. Fewer taxpayers called 

after the filing season deadline and those taxpayers who did received a 

lower level of service compared to those who called during the filing 

season. According to IRS officials, their work plans are built to maximize 

IRS’s telephone performance during the filing season when most taxpayers 

call. 

The average speed of answer varies between questions. IRS groups each 

type of call into different applications, so that they can be answered by a 

properly trained customer service representative (CSR). Taxpayers’ 

experiences may differ depending upon the availability of CSRs and the 

number of calls received in the category. For example, according to IRS 

data as of April 22, taxpayers wanting answers about capital gains and 

losses on average waited 4 minutes longer than those wanting answers 

about tax credits. 

According to IRS, however, there may be opportunities to address these 

variances with the implementation of a new workforce management 

system and full deployment of a single queue for telephone service. The 

new system should allow IRS to make staffing decisions at the corporate 

level, rather than relying on the individual sites, and in turn, create 

benefits from better staffing decisions and more flexible work plans. IRS 

expects to have the new workforce management system fully implemented 

in fiscal year 2008. According to IRS officials, implementing a single queue 

for each application across all call sites, rather than separate queues at 

each site, will create a consistent average answer time within an 

application. Currently, two taxpayers with the same question may have 

different wait times because one waited for a CSR in the Jacksonville call 

site, for example, while another waited for a CSR in Austin. With a single 

queue, those taxpayers would wait the same amount of time irrespective 

of their location. However, the single queue will not improve the variations 

in wait time between the different applications. IRS officials said that there 

will still be fluctuations but the new workforce management solution and 

a single queue should help to better manage variances. 

Appendix V: Telephone Access Varies 

Depending on the Time of Year and Type of 

Call 
Appendix VI: Comments from the Internal 

Revenue Service 

Page 52 GAO-07-27 Tax Administration 

Appendix VI: Comments from the Internal 

Revenue Service 
Appendix VI: Comments from the Internal 

Revenue Service 

Page 53 GAO-07-27 Tax Administration 
Appendix VI: Comments from the Internal 

Revenue Service 

Page 54 GAO-07-27 Tax Administration 
Appendix VI: Comments from the Internal 

Revenue Service 

Page 55 GAO-07-27 Tax Administration 
Appendix VI: Comments from the Internal 

Revenue Service 

Page 56 GAO-07-27 Tax Administration (450466) 
The Government Accountability Office, the audit, evaluation and 

investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and policies; 

and provides analyses, recommendations, and other assistance to help 

Congress make informed oversight, policy, and funding decisions. GAO’s 

commitment to good government is reflected in its core values of 

accountability, integrity, and reliability. 

The fastest and easiest way to obtain copies of GAO documents at no cost 

is through GAO’s Web site (www.gao.gov). Each weekday, GAO posts 

newly released reports, testimony, and correspondence on its Web site. To 

have GAO e-mail you a list of newly posted products every afternoon, go 

to www.gao.gov and select “Subscribe to Updates.” 

The first copy of each printed report is free. Additional copies are $2 each. 

A check or money order should be made out to the Superintendent of 

Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 

more copies mailed to a single address are discounted 25 percent. Orders 

should be sent to: 

U.S. Government Accountability Office 

441 G Street NW, Room LM 

Washington, D.C. 20548 

To order by Phone: Voice: (202) 512-6000 

TDD: (202) 512-2537 

Fax: (202) 512-6061 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm 

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470 

Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400 

U.S. Government Accountability Office, 441 G Street NW, Room 7125 

Washington, D.C. 20548 

Paul Anderson, Managing Director, AndersonP1@gao.gov (202) 512-4800 

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, D.C. 20548 

GAO’s Mission 

Obtaining Copies of 

GAO Reports and 

Testimony 

Order by Mail or Phone 

To Report Fraud, 

Waste, and Abuse in 

Federal Programs 

Congressional 

Relations 

Public Affairs 

PRINTED ON RECYCLED PAPER