GAO-07-131R Highway Trust Fund Excise Tax Procedure

United States Government Accountability Office

Washington, DC 20548 

November 3, 2006 

The Honorable Todd J. Zinser 

Acting Inspector General 

Department of Transportation 

Subject: Applying Agreed-Upon Procedures: Highway Trust Fund Excise Taxes

Dear Mr. Zinser: 

We have performed the procedures contained in the enclosure to this report, which 

we agreed to perform and with which you concurred, solely to assist your office in 

ascertaining whether the net excise tax revenue distributed to the Highway Trust 

Fund (HTF) for the fiscal year ended September 30, 2006, is supported by the 

underlying records. As agreed with your office, we evaluated fiscal year 2006 activity 

affecting distributions to the HTF. 

In performing the agreed-upon procedures, we conducted our work in accordance 

with U.S. generally accepted government auditing standards, which incorporate 

financial audit and attestation standards established by the American Institute of 

Certified Public Accountants. These standards also provide guidance for performing 

and reporting the results of agreed-upon procedures. 

The adequacy of the procedures to meet your objectives is your responsibility, and 

we make no representation in that respect. The procedures we agreed to perform 

were related to (1) detailed tests of transactions that represent the underlying basis 

of amounts distributed to the HTF, (2) Internal Revenue Service’s (IRS) quarterly 

HTF certifications, (3) Department of the Treasury’s Financial Management Service 

adjustments to the HTF during fiscal year 2006, (4) IRS’s precertification1

 of receipts 

for each quarter completed in fiscal year 2006, (5) certain procedures of the 

Department of the Treasury’s Office of Tax Analysis’ (OTA) process for estimating 

amounts to be distributed to the HTF for the fourth quarter of fiscal year 2006, and 

other procedures related to (6) the net amount of fiscal year 2006 excise taxes 

distributed to the HTF, (7) transactions that represent total IRS tax revenue receipts 

and refunds, and (8) key reconciliations of IRS records to Treasury records. The 

enclosure contains the agreed-upon procedures and our findings from performing 

each of the procedures. 

 1

 To accommodate the Department of Transportation’s accelerated reporting date for fiscal year 2006,

IRS performed precertifications of excise tax collections. The data are for information purposes only 

and the precertification does not constitute an official certification. 

s 
We were not engaged to perform, and did not perform, an audit, the objective of 

which would have been the expression of an opinion on the amount of net excise 

taxes distributed to the HTF. Accordingly, we do not express such an opinion. Had 

we performed additional procedures, other matters might have come to our attention 

that would have been reported to you.2

We completed the agreed-upon procedures 

on October 25, 2006. 

We provided a draft of this report to IRS and OTA officials for review and comment. 

IRS agreed with the results and findings presented in this report. OTA’s review of the 

report only covered the procedures related to the estimation process for the quarter 

ended September 30, 2006. OTA agreed with the results and findings presented in this 

report relating to procedures performed on the estimation process for the quarter 

ended September 30, 2006. 

This report is intended solely for the use of the Office of Inspector General of the 

Department of Transportation and should not be used by those who have not agreed 

to the procedures and have not taken responsibility for the sufficiency of the 

procedures for their purpose. However, this report is a matter of public record, and 

its distribution is not limited. Copies are available to others upon request. This report 

is also available at no charge on GAO’s Web site at http://www.gao.gov. If you have 

any questions, please call me at (202) 512-3406. Contact points for our Offices of

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

report. 

Sincerely yours, 

Steven J. Sebastian 

Director 

Financial Management and Assurance 

Enclosure 

 2

 In our report on the results of our audit of IRS’s fiscal year 2005 financial statements, we noted a 

material weakness in IRS’s financial reporting process (GAO, Financial Audit: IRS’s Fiscal Years 

2005 and 2004 Financial Statements, GAO-06-137, [Washington, D.C.: Nov. 10, 2005]). A component 

of this weakness includes IRS’s inability to allocate excise tax collections to the appropriate trust 

funds at the time deposits are made. This condition affects the adequacy of the distributions of federal 

excise tax revenue to recipient trust funds and is a continuation of an issue that we have reported on

in prior years. 

 Page 2 GAO-07-131R Highway Trust Fund Excise Tax Procedures 
Enclosure I 

Highway Trust Fund Excise Tax Procedures and Results 

I. Procedures on detailed transactions that represent the underlying basis of 

amounts distributed to the Highway Trust Fund (HTF) in fiscal year 2006 

A. Nonstatistical selection of tax returns from the quarters ended 

June 30, 2005, and September 30, 20053

1. For each of the quarters ending June 30, 2005, and September 30, 2005, 

select the 30 largest excise tax returns containing excise taxes related 

primarily to the HTF and the Airport and Airway Trust Fund (AATF) on the 

basis of total tax liability amount4

 from the Internal Revenue Service’s 

(IRS) master file.5

Description of findings and results

We selected the 30 largest excise tax returns related primarily to the HTF 

and the AATF from each of the two quarters for testing. The selection was 

based on the total tax liability amount owed for each return from IRS’s 

master file.

The total tax liability amount related to the 30 returns from the quarter 

ended June 30, 2005, was approximately $9.7 billion, or 65 percent of the 

total excise tax liability amount of $15 billion for all excise tax types for the 

quarter. Of these 30 returns, 21 contained primarily HTF-related taxes and 

9 contained primarily AATF taxes. 

The total tax liability amount related to the 30 returns from the quarter 

ended September 30, 2005, was approximately $9.8 billion, or 65 percent of 

the total excise tax liability amount of $15 billion for all excise tax types for 

the quarter. Of these 30 returns, 21 contained primarily HTF-related taxes 

and 9 contained primarily AATF taxes. 

2. For each of the 42 returns related primarily to the HTF from the quarters 

ended June 30, 2005, and September 30, 2005, we performed the following 

 3

 Since certifications are not completed until 6 months after the end of the quarter, the certification and 

corresponding adjustment by the Department of the Treasury’s (Treasury) Financial Management Service 

for the quarters ended June 30, 2005, and September 30, 2005, were completed in December 2005 and 

March 2006, respectively, and thus affected distributions to the HTF during fiscal year 2006. 

4

 Although the certifications are based on amounts collected, we used the tax liability amounts to identify

the taxpayers paying the largest amounts of excise taxes. Our work shows that these taxpayers generally 

pay their excise taxes in full each quarter. 

5

 The master file is a detailed database containing taxpayer information. 

Page 3 GAO-07-131R Highway Trust Fund Excise Tax Procedures 
Enclosure I 

procedures, which encompassed approximately $15 billion in prorated 

collections6

 affecting fiscal year 2006 distributions to the HTF: 

(a) Trace the liability amount for abstracts7

 60 and 62 from the tax return to 

IRS’s master file. 

Description of findings and results

The liability amount for abstracts 60 and 62 on the tax return agreed 

with the master file for 41 of the 42 returns. For one tax return for the 

quarter ended September 30, 2005, the taxpayer reported a credit for 

abstract 62, but the IRS did not have the supporting documentation to 

substantiate the credit. As a result, the prorated collection amount in 

the Collection Certification System may be overstated by $363,000 for 

abstract 62 and $107,000 for abstract 60. 

(b)Inspect the taxpayers’ calculations on the tax return for the selected

abstracts to determine whether they are mathematically correct. 

Description of findings and results

The taxpayers’ calculations on all 42 returns were mathematically 

correct. 

 6 IRS certifies to trust funds the amount of excise taxes collected. Because taxpayers have sometimes not

fully paid their tax liability, IRS must allocate the amount of payments actually received among the

different excise taxes reported on the taxpayer’s return. IRS’s Collection Certification System prorates a

taxpayer’s payments proportionately among all taxes reported as owed on the tax return. For example, if a 

corporation reports that it owes $4 million for gasoline tax, $2 million for diesel fuel tax, and $1 million for 

kerosene tax on its Form 720, Quarterly Federal Excise Tax Return, but has paid IRS only $3.5 million at

the time IRS performs its certification, the program prorates the $3.5 million in the following manner: $2

million to gasoline tax, $1 million to diesel fuel tax, and $500,000 to kerosene tax. 

7

 The abstract numbers identify the tax type (e.g., gasoline and ticket tax) and are used as the basis for 

determining the distribution of the excise taxes to the various trust funds. Abstract numbers are preprinted 

on Form 720, Quarterly Federal Excise Tax Return, and are used by the taxpayer to report excise tax 

assessments. If the return was related to the HTF, we selected (1) diesel fuel tax (abstract 60) and (2) 

gasoline tax (abstract 62). If the return was related to the AATF, we selected (1) tax on transportation of 

persons by air (abstract 26), (2) tax on the use of international air travel facilities (abstract 27), and (3) tax 

on transportation of property by air (abstract 28). The tax amounts related to the selected abstracts for 

each trust fund are the largest tax amounts reported on the taxpayer’s excise tax return and made up over

83 percent of the total amount certified to the HTF and over 90 percent of the total amount certified to the 

AATF for the quarters ended June 30, 2005, and September 30, 2005. 

Page 4 GAO-07-131R Highway Trust Fund Excise Tax Procedures 
Enclosure I 

(c) Calculate the prorated collection amount for the selected abstracts 

based on information from the master file and compare this amount to 

the amount from the Collection Certification System audit files.8

Description of findings and results

The independently calculated prorated collection amounts for the two 

selected abstracts agreed with the amounts in IRS’s Collection 

Certification System for all 42 returns. 

B. Dollar unit sample (DUS) of transactions from the quarters ended 

December 31, 2005, and March 31, 2006 

1. Sampling 

(a) Obtain excise tax collection data from the master file for the first two 

quarters of fiscal year 2006. Compare excise tax collection data from 

the master file with data from IRS’s general ledger to determine if they 

materially agree.9

 Compare total excise tax collections from the master 

file with total excise tax collections from the Collection Certification 

System audit files to determine if they materially agree. 

Description of findings and results

Excise tax collections for the first two quarters of fiscal year 2006 from 

the master file materially agreed with IRS’s general ledger and with 

total excise tax collections from the Collection Certification System.

(b) Select a random attribute sample of 78 excise tax assessments from the 

master file.10 Compare assessment and receipt information for each 

sample item from the master file to the assessment and receipt 

information in the Collection Certification System to determine if 

assessments and receipts from the master file are contained in the 

Collection Certification System. 

 8

 The Collection Certification System produces what IRS refers to as audit files. These audit files contain 

individual prorated collections by abstract and taxpayer identification number. The certified amounts to 

the trust funds are calculated by subtracting credits from prorated collections and then multiplying the 

difference by the applicable trust fund distribution rates. 

9 For the purpose of this procedure, “material” is defined as 1 percent of the Form 720-related excise tax

collections for the quarters ended December 31, 2005, and March 31, 2006. For fiscal year 2006, the

materiality amount was $236 million for the two quarters combined. 

10 For this sample, if one or no errors were found in testing the 78 items, we would be 90 percent confident 

that the error rate in the population would not exceed 5 percent. 

Page 5 GAO-07-131R Highway Trust Fund Excise Tax Procedures 
Enclosure I 

Description of findings and results

For 77 of the 78 sample items, assessments and receipts from the 

master file were contained in the Collection Certification System. For 

one sample item, the tax liability associated with the tax return was 

abated,11 however, the assessment amount of $18,000 for abstract 71 

was not abated and, therefore, was incorrectly included in the 

Collection Certification System. 

(c) Sum the prorated collections for selected abstracts12 from the audit files 

and compare these amounts to amounts in the Report of Excise Tax 

Collection13 to determine if the Collection Certification System properly 

summarized the prorated collections. 

Description of findings and results

The Collection Certification System properly summarized the prorated 

collections for all of the selected abstracts. Prorated collections from

the audit files for the selected abstracts agreed with the corresponding 

amounts in the Report of Excise Tax Collection. 

(d) Separate the total population of prorated collections from the audit files 

into the following distinct populations: (1) HTF, (2) AATF, and (3) other 

excise tax abstracts. Use DUS to select a sample of prorated excise tax 

collections from the HTF population using a confidence level of 80 

percent, a test materiality of $379 million, and an expected aggregate 

error amount of $114 million. 

 11 Abatements are reductions in the amount of taxes owed and can occur for a variety of reasons, such as

to correct errors made by IRS or taxpayers or to provide relief from interest and penalties. 26 U.S.C. §

6404. 

12 The selected abstracts are (1) diesel fuel tax (abstract 60), (2) gasoline tax (abstract 62), (3) tax on 

transportation of persons by air (abstract 26), (4) tax on the use of international air travel facilities

(abstract 27), (5) tax on transportation of property by air (abstract 28), and (6) tax on kerosene for use in 

commercial aviation (abstract 77). The tax amounts for the two HTF-related abstracts made up over 86

percent of the total amount certified to the HTF and the tax amounts for the four AATF-related abstracts 

made up over 99 percent of the total amount certified to the AATF for the quarters ended December 31, 

2005, and March 31, 2006. 

13 The Report of Excise Tax Collection contains prorated collections, classified by abstracts, that serve as

the basis for IRS’s quarterly trust fund certifications. 

Page 6 GAO-07-131R Highway Trust Fund Excise Tax Procedures 
Enclosure I 

Description of findings and results

Use of DUS with a confidence level of 80 percent, a test materiality of 

$379 million, and an expected aggregate error amount of $114 million 

resulted in a sample of 9414 prorated collections for the HTF for the first 

two quarters of fiscal year 2006. 

(e) Select samples of prorated excise tax collections from the two non-HTF 

populations. Use DUS to select a sample of prorated excise tax 

collections from the AATF population using a confidence level of 80 

percent, a test materiality of $103 million, and an expected aggregate 

error amount of $31 million. Select a random attribute sample of 45 

items from the population of prorated tax collections related to all 

excise taxes other than the HTF and the AATF. 

Description of findings and results

Use of DUS with a confidence level of 80 percent, a test materiality of 

$103 million, and an expected aggregate error amount of $31 million 

resulted in a sample of 6615 prorated collections for the AATF for the 

first two quarters of fiscal year 2006. 

A random attribute sample of 45 items was selected from the 

population of prorated tax collections related to all excise taxes other 

than the HTF and the AATF.16

2. Detailed transactions 

(a) For each prorated excise tax collection sampled from the HTF 

population: 

• Compare the assessment amount on the tax return for the sampled 

abstract with the amount recorded in IRS’s master file.

 14 The planned sample size using DUS was 145 items. DUS selects dollars instead of specific transaction 

items by dividing the population by dollar intervals. The dollar interval for the HTF was $137 million. 

Accordingly, any item with a dollar value equal to or exceeding the sampling interval would be selected, 

whereas items with dollar values below the sampling interval might not be selected. For example, an item 

of $274 million would cover two dollar intervals, but represent one sample item. Due to large-dollar items 

covering more than one interval, the 94 unique sampled transactions selected represent 145 dollar 

intervals. 

15 The planned sample size using DUS was 136 items. As explained in footnote 14, DUS selects dollars 

instead of specific transaction items by dividing the population by dollar intervals. The dollar interval for 

the AATF was $37 million. Because large-dollar items cover more than one interval, the 66 unique sampled 

transactions represent 136 dollar intervals. 

16 For this sample, if no errors are found in the 45 items, we would be 90 percent confident that the error 

rate in the population would not exceed 5 percent. 

Page 7 GAO-07-131R Highway Trust Fund Excise Tax Procedures 
Enclosure I 

Description of findings and results

The assessment amount on the tax return agreed with the amount 

recorded in the master file for all of the sampled items. 

• Inspect the taxpayers’ calculations on the tax returns for the related

abstract to determine whether they are mathematically correct. 

Description of findings and results

The taxpayers’ calculations were mathematically correct on the tax 

return for all of the sampled items. 

• Calculate the prorated collection amount based on information from

the master file and compare this amount to the sample items 

selected from the Collection Certification System audit files.17

 

 Description of findings and results

The independently calculated prorated collection, based on 

information from the master file, agreed with the amounts for all of 

the sampled items selected from the Collection Certification System

audit files.

(b) Inspect the tax returns and master file information for the two samples 

of prorated collections from the non-HTF populations to determine if 

they contain any HTF excise tax collections.

 Description of findings and results

The two samples of prorated collections from the non-HTF 

populations did not contain any HTF excise tax collections. 

(c) Evaluate the results of conducting steps (a) and (b). 

Description of findings and results

For the first 6 months of fiscal year 2006, the net most likely error is $0 

with an upper error limit of $228 million at the 80-percent confidence 

level. 

 17 The purpose of this procedure is to determine whether the Collection Certification System prorates

correctly. This procedure is not intended to determine whether amounts provided to the system are

correct.

Page 8 GAO-07-131R Highway Trust Fund Excise Tax Procedures 
Enclosure I 

II. Procedures on IRS’s quarterly HTF receipt certifications 

Perform the following procedures on IRS’s HTF receipt certification for the quarters 

ended September 30, 2005, December 31, 2005, and March 31, 2006: 

A. Inspect the certification letters18 for authorizing signatures. 

Description of findings and results

The certification letters for all three quarters had authorizing signatures. 

B. Inspect the certification letters and supporting worksheets to determine if 

evidence exists that they were reviewed by the supervisor or another analyst. 

Description of findings and results

There was evidence that the supervisor or another analyst reviewed the 

certification letters and supporting worksheets for all three quarters. 

C. Calculate the totals on the certification letters to determine if they are 

mathematically correct. 

Description of findings and results

The totals on the certification letters for all three quarters were 

mathematically correct. 

D. Trace the certified amounts for diesel fuel tax (abstract 60) and gasoline tax 

(abstract 62)19 from the certification letters back to the Report of Excise Tax 

Collection20 and the Treasury 90 Report.

21

 18 IRS prepares two certification letters for the HTF each quarter: one for the Highway Account and the 

other for the Mass Transit Account. 

19 The certified amounts for diesel fuel tax (abstract 60) and gasoline tax (abstract 62), along with the 

heavy vehicle use tax (traced separately), made up over 87 percent of the total amount certified to the HTF 

for the quarters ended September 30, 2005, December 31, 2005, and March 31, 2006. 

20 IRS uses data from two of these reports, covering sequential processing intervals, for each quarterly

certification. Collections are classified by abstract on the report when the related Form 720 tax return has 

been posted to IRS’s master file during the processing interval covered by the report. The second of the

two reports used may contain collections related to prior quarters that IRS certifies as part of the current

quarter’s collections because the related return was not posted to the master file until the processing 

interval covered by this report. 

21 The Treasury 90 Report summarizes excise tax credit information and is produced quarterly by IRS 

submission processing campus systems. IRS has eight submission processing campuses that receive and 

process tax returns and payments. 

Page 9 GAO-07-131R Highway Trust Fund Excise Tax Procedures 
Enclosure I 

Description of findings and results

The certified amounts for diesel fuel tax (abstract 60) and gasoline tax 

(abstract 62) from the certification letters agreed with the related Report of 

Excise Tax Collection and the Treasury 90 Report for the quarters ended 

September 30, 2005, and December 31, 2005. For the quarter ended March 31, 

2006, the certified amounts for abstracts 60 and 62 from the certification 

letters agreed with the Report of Excise Tax Collection but not with the 

Treasury 90 Report. In deriving the certified amounts for abstracts 60 and 62 

for that quarter, IRS deducted the incorrect amount of credits from the 

Treasury 90 Report. This resulted in a $15,398,992 understatement of the 

amount certified to the HTF for the quarter ended March 31, 2006. 

E. Compare the distribution rates used by IRS for diesel fuel tax (abstract 60) and 

gasoline tax (abstract 62) with the applicable laws.22

Description of findings and results

The distribution rates used by IRS for diesel fuel tax (abstract 60) and gasoline 

tax (abstract 62) agreed with the applicable laws in effect during all three 

quarters. 

F. Inspect the Report of Excise Tax Collection used in the certification to 

determine if it contains significant

23 collections from prior quarters. 

Description of findings and results

The Report of Excise Tax Collection used in the certification for all three 

quarters did not contain significant collections from prior quarters.

G. Trace heavy vehicle use tax amounts from the Highway Account certification 

letters to the master file.

24

 

Description of findings and results

The heavy vehicle use tax amounts from the Highway Account certification 

letter agreed with the master file for all three quarters. 

 22 IRS calculates certified collections to the Highway Account and the Mass Transit Account using the total 

prorated collection amount, tax rate, and distribution rates applicable to each account. 

23 For this procedure, “significant” is defined as $175 million, which represents approximately 2 percent of 

the total amount certified to the HTF for the quarters ended September 30, 2005, December 31, 2005, and 

March 31, 2006. 

24 These taxes, which go to HTF, are reported on Form 2290 and are not included in the Collection 

Certification System. 

Page 10 GAO-07-131R Highway Trust Fund Excise Tax Procedures 
Enclosure I 

III. Procedures on Financial Management Service adjustments 

Perform the following steps on Financial Management Service (FMS) adjustments 

to HTF excise tax distributions for the quarters ended June 30, 2005, September 

30, 2005, December 31, 2005, and March 31, 2006: 

A. Compare the FMS adjustments made to the HTF with original Office of Tax 

Analysis (OTA) estimates and IRS-certified amounts, and with the supporting 

schedules.25

 

Description of findings and results

The FMS adjustments made to the HTF accounts (Highway and Mass Transit) 

agreed with the original OTA estimates and IRS-certified amounts, and with 

the supporting schedules, for all four quarters. 

B. Calculate the differences between the OTA estimates and IRS-certified 

amounts to determine if the amounts agree with the differences computed by 

FMS. 

Description of findings and results

The independently calculated differences between the OTA estimates and the 

IRS-certified amounts for the Highway Account agreed with the differences 

computed by FMS for all four quarters. These amounts were26

• ($162,439,000) for the quarter ended June 30, 2005; 

• $388,440,000 for the quarter ended September 30, 2005; 

• ($321,139,000) for the quarter ended December 31, 2005; and 

• $2,248,000 for the quarter ended March 31, 2006. 

 25An FMS accountant compiles this schedule, called the “Subsidiary Quarterly Account of Estimates and 

Actual Related Excise Taxes Appropriated to Highway Trust Fund.” This schedule computes the difference

between IRS-certified amounts and the OTA estimate for excise taxes, individually and in total, that relate

to the Highway Account. A similar schedule is prepared for the Mass Transit Account. The schedules, 

along with OTA transfer forms and IRS certifications, support the FMS adjustment. 

26 A positive amount indicates that the FMS adjustment increased excise taxes distributed to the trust fund. 

A negative amount, shown in parentheses, indicates that the FMS adjustment decreased excise taxes

distributed to the trust fund. 

Page 11 GAO-07-131R Highway Trust Fund Excise Tax Procedures 
Enclosure I 

The independently calculated differences between the OTA estimates and the 

IRS-certified amounts for the Mass Transit Account agreed with the 

differences computed by FMS for all four quarters. These amounts were 

• ($64,407,000) for the quarter ended June 30, 2005; 

• ($20,809,000) for the quarter ended September 30, 2005; 

• ($74,917,000) for the quarter ended December 31, 2005; and 

• ($10,322,000) for the quarter ended March 31, 2006. 

IV. Procedures on IRS’s HTF precertification for the quarters ended 

September 30, 2005, December 31, 2005, March 31, 2006, and June 30, 

200627

 

A. Compare the precertified amount to the actual amount certified to the HTF for 

the quarters ended September 30, 2005, December 31, 2005, and March 31, 

2006. If there is a significant variance,28 request from the IRS data on any large 

returns omitted from the precertification. 

Description of findings and results

There were no significant variances between the precertified amounts and the 

actual certified amounts for the quarters ended December 31, 2005, and March 

31, 2006. For the quarter ended September 30, 2005, there was a significant 

variance of $755 million. $702 million of this was attributable to an error IRS 

made on the precertification related to the heavy vehicle use tax, which 

resulted in an understatement of the total HTF precertified amount. Because 

IRS’s precertification is not an actual certification that results in any 

redistributions of excise taxes among the trust funds, this error did not have 

an effect on fiscal year 2006 distributions to the HTF. 

B. Perform the following procedures on IRS’s HTF precertification for the quarter 

ended June 30, 2006: 

1. Inspect the precertification letters and supporting worksheets to determine 

if evidence exists that they were reviewed by the supervisor or another 

analyst. 

 27 In order to accommodate the Department of Transportation’s November 15 reporting date for fiscal year

2006, IRS performed precertifications of excise tax receipts. The data in the precertification are for 

information purposes only and do not represent an official certification for use in adjusting the excise tax 

distributions to the HTF. 

28 Significant is defined as 5 percent of the actual certified amount for the quarter. 

Page 12 GAO-07-131R Highway Trust Fund Excise Tax Procedures 
Enclosure I 

Description of findings and results

There was evidence that the supervisor or another analyst reviewed the 

precertification letters and supporting worksheets. 

2. Calculate the totals on the precertification letters to determine if they are 

mathematically correct. 

Description of findings and results

The totals on the precertification letters were mathematically correct. 

3. Trace the amounts for diesel fuel tax (abstract 60) and gasoline tax 

(abstract 62)29 from the precertification letters back to the Report of Excise 

Tax Collection and the Treasury 90 Report. 

Description of findings and results

The precertified amounts for gasoline tax (abstract 62) from the 

precertification letters agreed with the related Report of Excise Tax 

Collection and Treasury 90 Report. The precertified amounts for diesel 

fuel tax (abstract 60) from the precertification letters agreed with the 

related Report of Excise Tax Collection but not with the Treasury 90 

Report. In deriving the precertified amounts for abstract 60, the IRS 

deducted the incorrect amount of credits from the Treasury 90 Report. 

This resulted in an understatement of the precertified amount to the HTF 

for the quarter ended June 30, 2006, of $88,363,365. Because IRS’s 

precertification is not an actual certification that results in any 

redistributions of excise taxes among the trust funds, this error did not 

have an effect on fiscal year 2006 distributions to the HTF. 

4. Compare the distribution rates used by IRS for diesel fuel tax (abstract 60) 

and gasoline tax (abstract 62) with the applicable laws. 

Description of findings and results

The distribution rates used by IRS for diesel fuel tax (abstract 60) and 

gasoline tax (abstract 62) agreed with the applicable laws in effect during 

the quarter.

5. Inspect the Report of Excise Tax Collection used in the precertification to 

determine if it contains significant

30 collections from prior quarters. 

 29 The certified amounts for diesel fuel tax (abstract 60) and gasoline tax (abstract 62) made up over 86

percent of the precertified amount to the HTF for the quarter ended June 30, 2006.

30 For this procedure, “significant” is defined as $175 million. This represents approximately 2 percent of 

the precertified total to the HTF.

Page 13 GAO-07-131R Highway Trust Fund Excise Tax Procedures 
Enclosure I 

Description of findings and results

The Report of Excise Tax Collection supporting the precertification did not 

contain significant collections from prior quarters. 

6. Inspect the Collection Certification System information to determine 

whether IRS omitted any significant31 returns from the precertification. If 

so, report for the Highway Account and the Mass Transit Account (1) the 

average amount of HTF-related excise taxes from these taxpayers’ returns 

that were included in IRS’s certification from the four previous quarters 

and (2) the amount of HTF-related excise taxes from these taxpayers’ 

returns that were included in IRS’s certification for the quarter ended June 

30, 2005. 

Description of findings and results

Our procedures did not identify any missing significant returns from the 

precertification. 

7. Trace the heavy vehicle use tax amount from the Highway Account 

precertification letter to the master file. 

Description of findings and results

The heavy vehicle use tax amount from the Highway Account 

precertification letter agreed with the master file. 

V. Procedures performed on excise tax distributions to the HTF for the 

quarter ended September 30, 2006 

A. Determine if OTA’s process for identifying and incorporating the effect of new 

legislation on excise tax receipts into its trust fund estimates32 was in place 

during the quarter ended September 30, 2006. 

 

31 For this procedure, “significant” is defined as tax returns with a total quarterly excise tax liability equal 

to or greater than $10 million during each of the prior four quarters. Tax returns related specifically to the 

HTF with liabilities equal to or greater than $10 million have, in the aggregate, historically accounted for 

over 91 percent of distributions certified to HTF.

 

32 OTA makes semimonthly estimates of excise tax collections for transfer to trust funds. There are five

semimonthly estimates for the quarter ended September 30, 2006, which affect fiscal year 2006

distributions to the HTF. 

Page 14 GAO-07-131R Highway Trust Fund Excise Tax Procedures 
Enclosure I 

Description of findings and results

OTA’s process for identifying and incorporating into its trust fund estimates 

the effect of new legislation on excise tax receipts was in place during the 

quarter ended September 30, 2006. OTA prepares a tax rate table33 to capture 

information relating to legislation that affects tax rates, tax basis, accounts, 

and deposit rules in effect during the quarter. 

B. Inspect the transfer forms and supporting schedules to determine if there is 

evidence of review. 

Description of findings and results

There was evidence that another OTA economist reviewed the transfer forms 

and supporting schedules for the semimonthly transfers affecting distributions 

to the HTF for the quarter ended September 30, 2006. 

C. Calculate the totals on the transfer forms to determine if they are 

mathematically correct. 

Description of findings and results

The totals on the transfer forms affecting distributions to the HTF for the 

quarter ended September 30, 2006, were mathematically correct. 

D. Trace the transfer amounts for diesel fuel tax (abstract 60), gasoline tax 

(abstract 62), and heavy vehicle use tax34 from the transfer forms through the 

supporting schedules and back to the related source documents.35

Description of findings and results

The transfer amounts for diesel fuel tax (abstract 60), gasoline tax (abstract 

62), and heavy vehicle use tax from the transfer forms agreed with the 

supporting schedules and source documents for the semimonthly transfers 

affecting distributions to the HTF for the quarter ended September 30, 2006. 

 33 OTA communicates this information to interested parties at Treasury and the Department of 

Transportation. IRS used the tax and distribution rates from this table in its subsequent certification of

collections to trust funds. 

34 The transfer amounts for diesel fuel tax (abstract 60), gasoline tax (abstract 62), and heavy vehicle use

tax made up over 91 percent of the total amount transferred to the HTF for the fourth quarter of fiscal year

2006. 

35 The source documents include the IRS report of excise taxes used to derive the percentages applied to 

reported receipts, the Daily Treasury Statement, the Monthly Treasury Statement, and the excise tax rate

tables. 

Page 15 GAO-07-131R Highway Trust Fund Excise Tax Procedures 
Enclosure I 

VI. Other procedures 

A. Using IRS’s quarterly certifications, OTA’s estimated distributions, and any 

adjustments, report excise taxes distributed to the HTF in fiscal year 2006. 

Description of findings and results

Based on a compilation of IRS’s quarterly certifications, OTA’s estimated 

distributions, and adjustments, the net amount of excise taxes distributed to 

the HTF in fiscal year 2006 was $38,754,503,680. 

B. Procedures performed as part of the fiscal year 2006 IRS financial statement 

audit: 

1. From IRS’s master files for the first 8 months of fiscal year 2006, use DUS 

to select statistical samples of (1) total tax revenue receipts and (2) 

refunds. For each sample item, compare the collection or refund amount, 

tax period, and tax class36 from source documentation with those recorded 

in IRS’s master files. 

Description of findings and results

The receipt or refund amount, tax period, and tax class from source 

documents for 156 revenue receipts and 53 refund sample transactions 

were consistent with amounts recorded in IRS’s master files. 

2. Obtain selected IRS service center campuses’ monthly Department of the 

Treasury (Treasury) FMS 224 reconciliations37 and determine whether IRSreported revenue receipts and refunds were materially reconciled38 to 

Treasury FMS records.

Description of findings and results

Tax revenue receipts and refunds reported by selected IRS service center 

campuses through the monthly Treasury FMS 224 reconciliation process 

materially reconcile to Treasury FMS records. 

 36 IRS assigns a tax class number to specific types of taxes. Excise taxes are tax class 4. 

37 At the end of each month, each IRS campus provides Treasury its FMS 224 (Statement of Transactions) 

generated from IRS’s general ledger, reporting receipts and refunds journalized during the month. Treasury 

reconciles the amounts on the FMS 224 with its records and provides IRS a Statement of Differences for 

any differences identified.

38 For the purpose of this procedure and procedure VI.B.3, we define “material” as $23 billion. This 

represents 1 percent of the estimated gross tax revenue receipts to be collected by IRS in fiscal year 2006. 

Page 16 GAO-07-131R Highway Trust Fund Excise Tax Procedures 
Enclosure I 

3. Compare tax revenue receipt balances by tax class, including excise taxes, 

and total refund balances recorded in IRS’s general ledger with the master 

files and Treasury records to determine if they agree in all material 

respects. 

Description of findings and results

Tax receipt balances for all tax classes, including excise taxes, and total 

refund balances per IRS’s general ledger materially agreed with IRS’s 

master files and Treasury records. 

(196090) 

Page 17 GAO-07-131R Highway Trust Fund Excise Tax Procedures 
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