INTERNAL REVENUE 

SERVICE

Opportunities to Improve 

the Taxpayer Experience 

and Voluntary Compliance 

Statement of James R. White, Director

Strategic Issues

Testimony 

Before the Committee on Finance, 

U.S. Senate

For Release on Delivery 

Expected at 10:00 a.m. EDT

Thursday, April 26, 2012

GAO-12-652T

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-12-652T, a testimony 

before the Committee on Finance, U.S. 

Senate 

April 26, 2012 

INTERNAL REVENUE SERVICE 

Opportunities to Improve the Taxpayer Experience 

and Voluntary Compliance

Why GAO Did This Study

The U.S. tax system depends on 

taxpayers calculating their tax liability, 

filing their tax return, and paying what 

they owe on time—what is often 

referred to as voluntary compliance. 

Voluntary compliance depends on a 

number of factors, including the quality 

of IRS’s assistance to taxpayers, 

knowledge that its enforcement 

programs are effective, and a belief 

that the tax system is fair and other 

people are paying their share of taxes. 

Voluntary compliance is also 

influenced by other parties, including

paid tax return preparers, tax software 

companies, and information return 

filers (employers, financial institutions, 

and others who report income or 

expense information about taxpayers 

to IRS). For this testimony, GAO was 

asked to (1) evaluate the current state 

of IRS’s performance and its effect on 

the taxpayer experience, and (2)

identify opportunities to improve the 

taxpayer experience and voluntary 

compliance. This testimony is based 

on prior GAO reports and 

recommendations. Additionally, GAO 

analyzed IRS data in delivering

selected taxpayer services in recent 

years. 

What GAO Recommends

GAO has made numerous prior 

recommendations that could help

improve the taxpayer experience. 

Congress and IRS have acted on 

some recommendations, while others 

are reflected in the strategies 

presented in this testimony. 

What GAO Found

The Internal Revenue Service (IRS) has made improvements in processing tax 

returns, and electronic filing (e-filing), which provides benefits to taxpayers

including faster refunds, continues to increase. However, as the following table 

shows, IRS’s performance in providing service over the phone and responding to 

paper correspondence has declined in recent years. For 2012, as with previous 

years, IRS officials attribute the lower performance to other funding priorities.

IRS’s Performance for Telephone Service and Paper Correspondence, Fiscal Years 2007 

through 2013

2007 2008 2009 2010 2011

2012 

planned

2013 

planned

Percentage of callers 

seeking and receiving live 

assistance 82.1 52.8 70 74 70.1 61.0 63.0 

Average wait time for 

callers (in minutes) 4.4 10.4 8.8 10.8 13.0 18.8 18.8

Percentage of paper 

correspondence not 

resolved within 45 days 17 23 25 27 35 n/a n/a 

Legend: n/a = not applicable. 

Sources: IRS Oversight Board, IRS’s Congressional Budget Justification, and GAO Reports.

Following are among the opportunities to improve the taxpayer experience and 

increase voluntary compliance that GAO identifies in this testimony:

• IRS can provide more self-service tools to give taxpayers better access 

to information. IRS can create an automated telephone line for amended 

returns (a source of high call volume) and complete an online services 

strategy that provides justification for adding new self-service tools online. 

• Better leveraging of third parties could provide taxpayers with other 

avenues to receive service. Paid preparers and tax software providers 

combine to prepare about 90 percent of tax returns. IRS is making progress 

implementing new regulation of paid preparers. As it develops better data, 

IRS should be able to test strategies for improving the quality of tax return 

preparation by paid preparers. Similarly, IRS may also be able to leverage 

tax software companies.

• Expanded information reporting could reduce taxpayer burden and 

improve accuracy. Expanded information reporting, such as the recent

requirements for banks and others to report businesses’ credit card receipts 

to IRS, can reduce taxpayers’ record keeping and give IRS another tool. 

• Implementing modernized systems should provide faster refunds and 

account updates. Modernized systems should allow IRS to conduct more 

accurate and faster compliance checks, which benefits taxpayers by 

detecting errors before interest and penalties accrue.

• Expanding pre-refund compliance checks could result in more efficient 

error correction. Expanding such checks could reduce the burden of audits

on taxpayers and their costs to IRS.

• Reducing tax complexity could ease taxpayer burden and make it 

easier to comply. Simplifying the tax code could reduce unintentional errors 

and make intentional tax evasion easier to detect.

View GAO-12-652T. For more information, 

contact James R. White at (202) 512-9110 or 

whitej@gao.gov. 
 

Page 1 GAO-12-652T 

Chairman Baucus, Ranking Member Hatch, and Members of the 

Committee:

Thank you for the invitation to be here today to discuss how to improve 

the taxpayer experience.

The U.S. tax system depends on taxpayers calculating their tax liability, 

filing their tax return, and paying what they owe on time. The taxpayer 

experience is at its best when taxpayers are able to fulfill these 

responsibilities independently without intervention from the Internal 

Revenue Service (IRS). This is often referred to as voluntary compliance. 

Some of the obvious influences on taxpayers’ willingness and ability to 

voluntarily comply include the quality of IRS’s service to taxpayers, 

knowledge that IRS’s compliance checks and collection programs are 

effective, and the belief that the tax system is fair and that others are 

paying their share of taxes. Perhaps less obvious is the role of third 

parties, including paid tax return preparers, tax software companies, and 

information return filers (employers, financial institutions, and others who 

report income or expense information about taxpayers to IRS) in 

influencing voluntary compliance.

The taxpayer experience also depends on how IRS deals with taxpayers 

who fail to voluntarily comply by helping taxpayers correct unintentional 

errors, and identifying and pursuing taxpayers who intentionally try to 

evade taxes.

Maximizing voluntary compliance is especially important today given the 

nation’s large structural budget deficits and the size of the tax gap. Earlier 

this year, IRS estimated the gross tax gap—the difference between taxes 

owed and taxes paid on time—at $450 billion for tax year 2006. IRS 

estimated that it would eventually collect $65 billion of this through 

enforcement actions and late payments, leaving a net tax gap of $385 

billion.

My statement today focuses on two areas: (1) evaluating the current state 

of IRS’s performance and its effect on the taxpayer experience, and (2) 

identifying opportunities to improve the taxpayer experience and voluntary 

compliance. To address these objectives, we reviewed and summarized 

prior GAO reports and recommendations. Additionally, we obtained and 

analyzed IRS data in delivering selected taxpayer services in recent 

years. We discussed newly reported information in this statement with 

IRS officials. Additional information on the scope and methodology of 

underlying work is available in published products, referenced throughout 

 
 

Page 2 GAO-12-652T 

this statement. We conducted our work in April 2012 in accordance with 

generally accepted government auditing standards. Those standards 

require that we plan and perform the audit to obtain sufficient, appropriate 

evidence to provide a reasonable basis for our findings and conclusions 

based on our audit objectives. We believe that the evidence obtained 

provides a reasonable basis for our findings and conclusions based on 

our audit objectives.

Taxpayers’ experience depends heavily on IRS’s performance during the 

tax filing season, roughly mid-January through mid-April.1 During this 

period, millions of taxpayers who are trying to fulfill their tax obligations 

contact IRS over the phone, face-to-face, and via the Internet to obtain 

answers to tax law questions and information about their tax accounts. 

This period is also when IRS processes the bulk of the approximate 140

million returns it will receive, runs initial compliance screens, and issues 

over 100 million refunds. In recent years, IRS has improved its returns 

processing but has seen its taxpayer service performance deteriorate.

For years we have reported that electronic filing (e-filing) has many 

benefits for taxpayers, such as higher accuracy rates and faster refunds 

compared to filing on paper. So far in 2012, the percentage of e-filed 

returns has increased by 1.9 percentage points to 88.8 percent since 

about the same time last year (a 2.2 percent increase), as table 1 shows. 

Since the same time in 2007, the percentage of e-filed returns has 

increased from 72.3 percent to 88.8 percent. This year, IRS may meet its 

long-held goal of having 80 percent of individual tax returns e-filed. 

However, the overall e-file percentage is likely to decline as the tax filing 

season ends since IRS typically receives more returns filed on paper later 

in the filing season. In addition, IRS is in the midst of a multi-phase 

modernization project, known to as the Customer Account Data Engine 

(CADE) 2, which will fundamentally change how it processes returns. 

With CADE 2, IRS also expects to be able to issue refunds in 4 business 

days for direct deposit and 6 business days for paper checks after IRS 

processes the return and posts the return data to the taxpayer’s account.

 

1

The filing season year is the year in which the taxpayer files the tax return, usually the 

year after a taxpayer has earned income on which tax is due (which is referred to as the 

tax year).

Taxpayers Have 

Benefitted from 

Improved Processing, 

but IRS’s Service to 

Taxpayers Has 

Declined

Increased Electronic Filing 

Contributes to Greater 

Return Accuracy and 

Faster Processing
 

Page 3 GAO-12-652T 

Table 1: Processing Data for January 1 through Mid-April, 2007 through 2012 

2007 2008 2009 2010 2011 2012 

Percentage 

change from

2011 to 2012 

Number of individual tax returns processed 

(in thousands)

105,159 114,737 112,612 107,158 107,401 105,668 -1.6

 Electronic (in thousands) 76,034 84,935 89,268 88,330 93,306 93,846 0.6

Paper (in thousands) 29,125 29,801 23,344 18,828 14,094 11,822 -16.1

Percentage electronically fileda 72.3 74.0 79.3 82.4 86.9 88.8 2.2 

Number of refunds issued (in thousands) 88,168 89,898 93,438 88,676 88,157 86,078 -2.4

Amount of refunds (dollars in millions) $203,022 $214,264 $250,635 $257,324 $252,596 $237,750 -5.9

Average refund amount $2,303 $2,383 $2,682 $2,902 $2,865 $2,762 -3.6

Legend: n/a = not applicable. 

Source: GAO analysis of IRS return processing data.

Notes: Data are from January 1 of each year through April 20, 2007; April 18, 2008; April 17, 2009; 

April 16, 2010; April 15, 2011; and April 13, 2012. Some figures and totals may vary slightly due to 

rounding. 

a

The percentage of returns filed electronically early in the filing season is likely to decline before the 

filing season is over. Taxpayers filed about 78 percent of all individual returns electronically in 2011. 

Early in the 2012 filing season, IRS experienced two processing problems 

that delayed refunds to millions of taxpayers, and reported the problems 

had been resolved by mid-February. We summarized these problems in 

an interim report on the 2012 filing season.2

Providing good taxpayer service is important because, without it, 

taxpayers may not be able to obtain necessary and accurate information 

they need to comply with tax laws. In addition, more and more, taxpayers 

are relying on IRS’s website to obtain information and execute 

transactions, making it important that IRS have a modern website. 

However, as we have reported, IRS has experienced declines in 

performance in selected taxpayer service areas, most notably with 

respect to providing live telephone assistance and timely responses to 

 

2

GAO, Internal Revenue Service: Interim Results of 2012 Tax Filing Season and Summary 

of the Fiscal Year 2013 Budget Request, GAO-12-566 (Washington, D.C.: Mar. 20 2012).

Taxpayer Service Has

Declined
 

Page 4 GAO-12-652T 

taxpayers’ correspondence.3

Table 2: IRS’s Performance for Telephone Service and Overage Paper Correspondence, Fiscal Years 2007 through 2013

When taxpayers do not get timely responses 

from IRS to paper correspondence or have access to information online, 

they call IRS, correspond again, or seek face-to-face assistance—all of 

which are costly to IRS and burdensome to the taxpayer. Table 2 shows 

the declines in telephone service and paper correspondence and the 

goals for 2012 and 2013. Additional performance data is shown in 

appendix I.

Performance measure (in percent) 2007 2008 2009 2010 2011 2012 planned 2013 planned

Assistor calls 

Percentage of callers seeking live assistance 

who receive it

82.1 52.8 70 74 70.1 61.0 63.0 

Average wait time (in minutes) 4.4 10.4 8.8 10.8 13.0 18.8 18.8

Overage paper correspondence (in percent) 17 a 23 25 27 35 n/a n/a

Legend: n/a = not applicable. 

Sources: 2009 and 2010 IRS Oversight Board Annual Reports to Congress, the fiscal year 2013 Congressional Justification for IRS and 

GAO reports.

a

IRS generally considers paper correspondence that is not resolved within 45 days to be overage. 

IRS does not have a performance measure for taxpayer correspondence that includes providing 

timely service to taxpayers, which we recommended in 2010. See, GAO, 2010 Tax Filing: IRS’s 

Performance Improved in Some Key Areas, but Efficiency Gains Are Possible in Others, GAO-11-111

(Washington, D.C.: Dec. 16, 2010). 

So far in the 2012 filing season, as the following examples illustrate, 

declines in taxpayer service have continued (further information on 

telephone service trends is in appendix II). 

• The level of telephone service (taxpayers seeking and receiving live 

telephone assistance) is about 68 percent so far during the 2012 tax 

filing season, down about 7 percentage points from 2011. This 

represents a significant decline from fiscal year 2007 level, when the 

level of service was 82 percent.

• The average wait time to talk with an assistor increased to about 16 

minutes (from 9.5 minutes in 2011). In fiscal year 2007, the average 

wait time was just under 5 minutes.

 

3

See GAO-12-566; and 2011 Tax Filing: Processing Gains, but Taxpayer Assistance 

Could Be Enhanced by More Self-Service Tools, GAO-12-176 (Washington, D.C.: Dec. 

15, 2011). 
 

Page 5 GAO-12-652T 

IRS has also lowered its telephone service and average wait time goals 

(meaning it expects wait times to be longer) for fiscal year 2012. IRS’s 

goal for the

• level of telephone service is 61 percent, down from 71 percent in 

fiscal year 2011 and 82 percent in fiscal year 2007; and

• average wait time to speak to an assistor is 18.8 minutes, an increase 

from 11.6 minutes in fiscal year 2011 and 4.3 minutes in fiscal year 

2007.

For 2012, as with previous filing seasons, IRS attributes the lower 

performance and goals to other funding priorities. For information on how 

IRS sets goals, see our recent report.4

 

To improve the taxpayer experience and voluntary compliance, IRS has a 

range of options. Some of its options could provide taxpayers with better 

information to accurately fulfill their tax obligations. Other options would 

allow IRS to take enforcement actions sooner and with less burden on 

taxpayers. Simplifying the tax code could reduce unintentional errors and 

make intentional tax evasion harder.

The recent declines in telephone service and increases in overage paper 

correspondence highlight the need to offer more self-service tools to 

taxpayers, particularly through IRS’s automated telephone lines and 

website. Better self-service has the potential to reduce the demand to 

speak to live assistors, a relatively high-cost service, and reduce wait time 

for taxpayers. To improve the taxpayer experience and help taxpayers 

meet their obligations voluntarily, we recently recommended and IRS 

agreed to:

• create an automated telephone line for taxpayers seeking information 

on the status of an amended return, a source of high call volume;5

 

4

GAO-12-176. 

5

GAO-12-176. 

Opportunities Exist to 

Improve the Taxpayer 

Experience and 

Voluntary Compliance

IRS Can Provide More SelfService Tools to Give 

Taxpayers Better Access to 

Information
 

Page 6 GAO-12-652T 

• develop an online locator tool listing volunteer tax preparation sites—

IRS introduced an enhanced volunteer site locator tool in 2012;6

• complete an Internet strategy that provides a justification for online 

self-service tools as IRS expands its capacity to introduce such tools.

and

7

In addition to actions we recommended, IRS is also studying ways to 

better communicate with taxpayers and determine which self-service tools 

would be the most beneficial to taxpayers. According to IRS officials, the 

study should be completed later this year. Identifying more efficient ways 

to provide service also benefits IRS because it is able to make better use 

of scarce resources.

As intermediaries between taxpayers and IRS, paid preparers prepare 

about 60 percent of all tax returns filed and they play a critical role in 

answering taxpayers’ questions and filing tax returns. Based in part on 

our reports and recommendations, IRS is implementing new regulations 

for paid preparers, such as registration, competency testing and 

continuing education requirements.8 IRS’s goals for the preparer 

regulation program include leveraging relationships with paid preparers 

and improving the accuracy of the returns they prepare. We recently 

reported that IRS plans to develop a comprehensive database containing 

information on paid preparers and the tax returns they prepare.9

 

6

GAO, Tax Administration: Opportunities Exist for IRS to Enhance Taxpayer Service and 

Enforcement for the 2010 Filing Season, 

IRS 

plans to use information from this database to test which strategies are 

GAO-09-1026 (Washington, D.C.: 

Sept. 23, 2009).

7

GAO-12-176. 

8

GAO, Tax Preparer Regulation: IRS Needs a Documented Framework to Achieve Goal of 

Improving Taxpayer Compliance, GAO-11-336 (Washington, D.C.: Mar. 31, 2011).

9

GAO-11-336. 

Better Leveraging of Third 

Parties Could Provide 

Taxpayers With Other 

Avenues to Receive 

Service

Paid Preparer Regulations
 

Page 7 GAO-12-652T 

most effective for improving the quality of tax returns prepared by different 

types of paid preparers. Likewise, IRS has discussed how to measure the 

effect of the requirements such as requiring continuing education and 

testing on tax return accuracy. It will take years to implement the 

approach as it will likely evolve over time and become more detailed.

Tax preparation software is another critical part of tax administration. 

Almost 30 percent of taxpayers use such software to prepare their returns 

and, in the process, understand their tax obligations, learn about tax law 

changes, and get questions answered. Many also electronically file 

through their software provider. Consequently, tax software companies 

are another important intermediary between taxpayers and IRS. We have 

reported that IRS has made considerable progress in working with tax 

software companies to provide, for example, clearer information about 

why an e-filed return was not accepted, require additional information on 

returns to allow for IRS to better identify the software used, and enhance 

security requirements for e-filing.10 To illustrate the potential for 

leveraging tax software companies to improve taxpayer compliance, 4 

years ago we recommended and IRS agreed to expand outreach efforts 

to external stakeholders and include software companies as part of an 

effort to reduce common types of misreporting related to rental real 

estate.11 In another report, we discussed the value of research to better 

understand how tax software influences compliance.12

IRS has volunteer partners, often nonprofit organizations or universities, 

that staff over 12,000 volunteer sites. Volunteers at these sites prepare 

several million tax returns for traditionally underserved taxpayers, 

including the elderly, low-income, disabled, and those with limited English 

proficiency. In recent reports we have made recommendations about 

estimating of the effectiveness of targeting underserved populations at 

such sites and making it easier for taxpayers to find the locations of 

 

10See GAO-12-176; GAO-11-111; GAO, Tax Administration: Many Taxpayers Rely on Tax 

Software and IRS Needs to Assess Associated Risks, GAO-09-297 (Washington, D.C.: 

Feb. 25, 2009). 

11GAO, Tax Gap: Actions That Could Improve Rental Real Estate Reporting Compliance, 

GAO-08-956 (Washington, D.C.: Aug. 28, 2008). 

12GAO-09-297. 

Tax Preparation Software

Volunteer Sites
 

Page 8 GAO-12-652T 

nearby sites.13 As is the case with paid preparers, IRS has an opportunity 

to work with these volunteer partners to help improve assistance to 

taxpayers with the goal of improving compliance.

Information reporting is a proven tool that reduces tax evasion, reduces 

taxpayer burden, and helps taxpayers voluntarily comply. This is, in part, 

because taxpayers have more accurate information to complete their 

returns and do not have to keep records themselves. In addition, IRS 

research shows that when taxpayers know that IRS is receiving data from 

third parties, they are more likely to correctly report the income or 

expenses to IRS. As part of its recent update of its tax gap estimates, IRS 

estimated that income subject to substantial information reporting, such 

as pension, dividend, interest, unemployment, and Social Security 

income, was misreported at an 8 percent rate compared to a 56 percent 

misreporting rate for income with little or no information reporting, such as 

sole proprietor, rent, and royalty income.

Several major new information requirements have recently taken effect, 

based at least, in part, on our work and recommendations.

• Brokers are required to report their clients’ basis for securities sales, 

starting in 2012.14

• Banks and other third parties are required to report businesses’ credit 

card and similar receipts, starting in 2011.15

• Under the Foreign Account Tax Compliance Act, starting in 2014, U.S. 

financial institutions and other entities are required to withhold a 

portion of certain payments made to foreign financial institutions that 

 

13See GAO-12-176; and GAO, Tax Administration: 2007 Filing Season Continues Trend of 

Improvement, but Opportunities to Reduce Costs and Increase Compliance Should Be 

Evaluated, GAO-08-38 (Washington, D.C.: Nov. 15, 2007). 

14GAO, Capital Gains Tax Gap: Requiring Brokers to Report Securities Cost Basis Would 

Improve Compliance if Related Challenges Are Addressed, GAO-06-603 (Washington, 

D.C.: June 13, 2006). 

15GAO, Tax Administration: Costs and Uses of Third-Party Information Returns, 

GAO-08-266 (Washington, D.C.: Nov. 20, 2007). 

Expanded Information 

Reporting Could Reduce 

Taxpayer Burden and 

Improve Accuracy
 

Page 9 GAO-12-652T 

have not entered into an agreement with IRS to report details on U.S. 

account holders to IRS.16

As these three sets of information reporting requirements have only 

recently taken effect, it is too soon to tell the impact they are having on 

taxpayer compliance.

We have made recommendations or suggested possible legislative 

changes in several other areas in which IRS could benefit from additional 

information reporting. They include the following:

• Service payments made by landlords. Taxpayers who rent out real 

estate are required to report to IRS expense payments for certain 

services, such as payments for property repairs, only if their rental 

activity is considered a trade or business. However, the law does not 

clearly spell out how to determine when rental real estate activity is 

considered a trade or business.17

• Service payments to corporations. Currently, businesses must report 

to IRS payments for services they make to unincorporated persons or 

businesses, but payments to corporations generally do not have to be 

reported.18

Broader requirements for these two forms of information reporting, 

covering goods in addition to services, were enacted into law in 2010, but 

later repealed. We believe the more narrow extensions of information 

reporting to include services, but not goods, remain important options for 

improving compliance.

Additionally, we have identified existing information reporting 

requirements that could be enhanced. Examples include the following:

 

16GAO, Reporting Foreign Accounts to IRS: Extent of Duplication Not Currently Known, 

but Requirements Can Be Clarified, GAO-12-403 (Washington, D.C.: Feb 28, 2012). 

17GAO-08-956. 

18GAO, Tax Gap: IRS Could Do More to Promote Compliance by Third Parties with 

Miscellaneous Income Reporting Requirements, GAO-09-238 (Washington, D.C.: 

Jan. 28, 2009). 
 

Page 10 GAO-12-652T 

• Mortgage interest and rental real estate. We recommended requiring 

information return providers to report the address of a property

securing a mortgage, mortgage balances, and an indicator of whether 

the mortgage is for a current year refinancing when filing mortgage 

interest statements (Form 1098) could help taxpayers comply with 

and IRS enforce rules associated with the mortgage interest 

deduction.19 We have reported that collecting the address of the 

secured property on Form 1098 would help taxpayers better 

understand and IRS better enforce requirements for reporting income 

from rental real estate.20

• Higher education expenses. Eligible educational institutions are 

currently required to report information on qualified tuition and related 

expenses for higher education so that taxpayers can determine the 

amount of educational tax benefits they can claim.21 However, the 

reporting does not always separate eligible from ineligible expenses. 

We recommended revising the information reporting form could 

improve the usefulness of reported information.22

Identifying additional third-party reporting opportunities is challenging. 

Considerations include whether third parties exist that have accurate 

information available in a timely manner, the burden of reporting, and 

whether IRS can enforce the reporting requirement. We have noted, for 

example, that the reason there is little third-party reporting on sole 

proprietor expenses is because of the difficulty of identifying third parties 

that could report on expense like the business use of cars.

Modernized systems should better position IRS to conduct more accurate 

and faster compliance checks, which benefits taxpayers by detecting 

errors before interest and penalties accrue. In addition, modernized 

systems should result in more up-to-date account information, faster 

refunds, and other benefits, such as clearer notices so that taxpayers can 

 

19GAO, Home Mortgage Interest Deduction: Despite Challenges Presented by Complex 

Tax Rules, IRS Could Enhance Enforcement and Guidance, GAO-09-769 (Washington, 

D.C.: July, 29, 2009).

20GAO-08-956. 

2126 U.S.C. § 6050S. 

22GAO-10-225. 

Implementing Modernized 

Systems Should Provide 

for Faster Refunds and 

Account Updates
 

Page 11 GAO-12-652T 

better understand why a return was not accepted by IRS. Two new, 

modernized systems IRS is implementing include the following:

• Customer Account Data Engine (CADE) 2. For the 2012 filing 

season, IRS implemented the first of three phases to introduce 

modernized tax return processing systems. Specifically, IRS 

introduced a modernized taxpayer account database, called CADE 2, 

and moved the processing of individual taxpayer accounts from a 

weekly to a daily processing cycle. IRS expects that completing this 

first phase will provide taxpayers with benefits such as faster refunds 

and notices and updated account information. IRS initially expected to 

implement phase two of CADE 2 implementation by 2014. However, 

IRS reported that it did not receive funding in fiscal year 2011 that 

would have allowed it to meet the 2014 time frame.

• Modernized e-File (MeF). IRS is in the final stages of retiring its 

legacy e-file system, which preparers and others use to transmit efiled returns to IRS, and replacing it with MeF. Early in the 2012 filing 

season, IRS experienced problems transferring data from MeF to 

other IRS systems. IRS officials said that they solved the problem in 

early February. IRS officials recently reiterated their intention to turn 

off the legacy e-file in October 2012 as planned. However, more 

recently, IRS processing officials told us they would reevaluate the 

situation after the 2012 filing season.23 MeF’s benefits include 

allowing taxpayers to provide additional documentation via portable 

document files (PDF), as opposed to filing on paper. In addition, MeF 

should generate clearer notices to taxpayers when a return is rejected 

by IRS compared to the legacy e-file system.

The Commissioner of Internal Revenue has talked about a long-term 

vision to increase pre-refund compliance checks before refunds are sent 

to taxpayers.24

 

23

As previously noted, early error correction can benefit 

taxpayers by preventing interest and penalties from accumulating. In one 

example, IRS is exploring a process where third parties would send 

information returns to IRS earlier so they could be matched against 

taxpayers’ returns when the taxpayer files the return as opposed to the 

GAO-12-566. 

24GAO-12-176. 

Expanding Pre-Refund 

Compliance Checks Could 

Result in More Efficient 

Error Correction
 

Page 12 GAO-12-652T 

current requirement that some information returns go to taxpayers before 

being sent to IRS. The intent is to allow IRS to match those information 

returns to tax returns during the filing season rather than after refunds 

have been issued.

Another option for expanding pre-refund compliance checks is additional 

math error authority (MEA) that Congress would need to grant IRS 

through statute. MEA allows IRS to correct calculation errors and check 

for obvious noncompliance, such as claims above income and credit 

limits. Despite its name, MEA encompasses much more than simple 

arithmetic errors. It also includes, for instance, identifying incorrect Social 

Security numbers or missing forms. The errors being corrected can either 

be in the taxpayers’ favor or result in additional tax being owed.

MEA is less intrusive and burdensome to taxpayers than audits and 

reduces costs to IRS. It also generally allows taxpayers who make errors 

on their returns to receive refunds faster than if they are audited. This is 

due, in part, to the fact that IRS does not have to follow its standard 

deficiency procedures when using MEA—it must only notify the taxpayer 

that the assessment has been made and provide an explanation of the 

error. Taxpayers have 60 days after the notice is sent to request an 

abatement.

Although IRS has MEA to correct certain errors on a case-by-case basis, 

it does not have broad authority to do so. In 2010, we suggested that 

Congress consider broadening IRS’s MEA with appropriate safeguards 

against the misuse of that authority.25

• use prior years’ tax return information to ensure that taxpayers do not 

improperly claim credits or deductions in excess of applicable lifetime 

limits,

In the absence of broader MEA, we 

have identified specific cases where IRS could benefit from additional 

MEA that have yet to be enacted. These include authority to:

26

 

25GAO, Recovery Act: IRS Quickly Implemented Tax Provisions, but Reporting and 

Enforcement Improvements Are Needed, GAO-10-349 (Washington, D.C.: Feb. 10, 2010). 

26GAO, 2011 Tax Filing: IRS Dealt with Challenges to Date but Needs Additional Authority 

to Verify Compliance, GAO-11-481 (Washington, D.C.: Mar. 28, 2011).
 

Page 13 GAO-12-652T 

• use prior years’ tax return information to automatically verify 

taxpayers’ compliance with the number of years the Hope credit can 

be claimed,27

• identify and correct returns with ineligible (1) individual retirement 

account (IRA) “catch-up” contributions and (2) contributions to 

traditional IRAs from taxpayers over age 701⁄2.

and

28

In 2009, Congress enacted our suggestion that IRS use MEA to ensure 

that taxpayers do not improperly claim the First-Time Homebuyer Credit in 

multiple years, which we estimate resulted in savings of about $95 

million.29

Tax code complexity can make it difficult for taxpayers to voluntarily 

comply. Efforts to simplify or reform the tax code may help reduce 

burdensome record keeping requirements for taxpayers and make it 

easier for individuals and businesses to understand and voluntarily 

comply with their tax obligations. For example, eliminating or combining 

tax expenditures, such as exemptions, deductions, and credits, could help 

taxpayers reduce unintentional errors and limit opportunities for tax 

evasion.

Frequent changes in the tax code also reduce its stability, making tax 

planning more difficult and increasing uncertainty about future tax liabilities. 

Limiting the frequency of changes to the tax code could also help reduce 

calls to IRS with questions about the changes. We have reported that IRS 

annually receives millions of calls about tax law changes.30

Reducing complexity in the tax code could take a variety of forms, ranging 

from comprehensive tax reform to a more incremental approach focusing 

on specific tax provisions. Policymakers may find it useful to compare any 

 

27GAO-10-225. The American Opportunity Tax Credit modified the Hope Tax Credit from 

tax year 2009 through 2012.The Hope Tax Credit is scheduled to be reinstated in 2013.

28GAO, Tax Administration: IRS’s 2008 Filing Season Generally Successful Despite 

Challenges, although IRS Could Expand Enforcement during Returns Processing, 

GAO-09-146 (Washington, D.C.: Dec. 12, 2009).

29GAO-11-481 and GAO-09-1026. 

30GAO-11-111. 

Reducing Tax Code 

Complexity Could Ease 

Taxpayer Burden and 

Make It Easier to Comply
 

Page 14 GAO-12-652T 

proposed changes to the tax code based on a set of widely accepted 

criteria for assessing alternative tax proposals. These criteria include the 

equity, or fairness, of the tax system; the economic efficiency, or 

neutrality, of the system; and the simplicity, transparency, and 

administrability of the system. These criteria can sometimes conflict, and 

the weight one places on each criterion will vary among individuals. Our 

publication Understanding the Tax Reform Debate: Background, Criteria, 

& Questions may be useful in guiding policymakers as they consider tax 

reform proposals.31

In closing, improving the taxpayer experience and increasing voluntary 

compliance will not be achieved through a single solution. Because 

voluntary compliance is influenced by so many factors, multiple 

approaches, such as those listed here, will be needed.

Chairman Baucus, Ranking Member Hatch, and Members of the 

Committee, this completes my prepared statement. I would be happy to 

respond to any questions you and Members of the Committee may have 

at this time.

For further information regarding this testimony, please contact James R. 

White, Director, Strategic Issues, at (202) 512-9110 or whitej@gao.gov. 

Contact points for our Offices of Congressional Relations and Public 

Affairs may be found on the last page of this statement. Individuals 

making key contributions to this statement include Joanna Stamatiades, 

Assistant Director; LaKeshia Allen; David Fox; Tom Gilbert; Kirsten 

Lauber; Sabrina Streagle, and Weifei Zheng.

 

31GAO, Understanding the Tax Reform Debate: Background, Criteria, & Questions, 

GAO-05-1009SP (Washington, D.C.: September 2005). 

Contacts and 

Acknowledgments
Appendix I: Selected Internal Revenue Service 

(IRS) Taxpayer Service Performance Data, 

Fiscal Years 2007 through 2013 

Page 15 GAO-12-652T 

As shown in table 3, in recent years, the level of access to telephone 

assistors has declined and average wait time has increased. In addition, 

the volume of overage correspondence has steadily increased. On a 

positive note, tax law and account accuracy remains high.

Table 3: Selected IRS Taxpayer Service Performance Data, Fiscal Years 2007 Through 2013

Performance measure (in percent) 2007 2008 2009 2010 2011 

2012 

planned 

2013 

planned 

Assistor calls 

Percentage of callers seeking and receiving live 

assistance 

82.1 52.8 70 74 70.1 61.0 63.0 

Average wait time (in minutes) 4.4 10.4 8.8 10.8 13.0 18.8 18.8

Tax law accuracya 91.2 91.2 92.9 92.7 93.4 92.7 92.7

Account accuracya 93.4 93.7 94.9 95.7 96.0 95.0 95.0 

Overage paper Correspondenceb (in percent) 17 23 25 27 35 n/a n/a 

Legend: n/a = not applicable. 

Sources: 2009 and 2010 IRS Oversight Board Annual Reports to Congress and the fiscal year 2013 Congressional Justification for IRS, 

and previous GAO reports.

a

Customer accuracy measures how often customers receive correct answers or solutions to their 

inquiry from a live IRS assistor. Tax law accuracy refers to callers asking questions about specific tax 

laws while account accuracy refers to callers asking questions about their individual accounts. 

b

IRS generally considers paper correspondence that is not resolved within 45 days to be overage. 

IRS does not have a performance measure for taxpayer correspondence that includes providing 

timely service to taxpayers, which we recommended in 2010. See, GAO, 2010 Tax Filing: IRS’s 

Performance Improved in Some Key Areas, but Efficiency Gains Are Possible in Others, GAO-11-111

(Washington, D.C.: Dec. 16, 2010). 

Appendix I: Selected Internal Revenue 

Service (IRS) Taxpayer Service Performance 

Data, Fiscal Years 2007 through 2013
Appendix II: Internal Revenue Service (IRS) 

Telephone Performance Data, January 1 

through Early April, 2008 through 2012 

Page 16 GAO-12-652T 

As shown in table 4, access to IRS assistors has declined over the last 

few years. IRS officials attribute the higher-than-planned level of service 

so far this year to a slight decline in the demand for live assistance. At the 

same time, the number of automated calls has significantly increased 

which IRS officials attributed in part to taxpayers calling about refunds, 

and requesting transcripts (i.e., a copy of their tax return information).

Table 4: IRS Telephone Performance Data, January 1 through Early April, 2008 through 2012 

Source: GAO analysis of IRS data.

Note: Data are cumulative for IRS from January 1 of each year to April 7, 2007, April 5, 2008; April 4, 

2009; April 10, 2010; April 9, 2011; and April 7, 2012. 

a

The goal listed is for the entire fiscal year, not just the period from January 1 through early April. 

b

IRS revised its original fiscal year goal of 82.0 percent down to 74.0 percent because of high call 

volume caused by economic stimulus-related calls. 

c

IRS revised its original fiscal year goal of 77.0 percent down to 70.0 percent because of high call 

volume from taxpayers requesting electronic filing authentication information and asking stimulusrelated questions. 

d

The difference is 10 percentage points between fiscal year 2011 and 2012 for the goal and 7.0 

percentage points for actual performance between 2011 and 2012. 

Appendix II: Internal Revenue Service (IRS) 

Telephone Performance Data, January 1 

through Early April, 2008 through 2012

Call volume (in millions) 2007 2008 2009 2010 2011 2012

Percentage 

change from 

2011 to 2012

Total calls to IRS 36.5 40.6 52.4 51.9 56.8 68.2 20.1

Automated calls answered 16.0 17.1 19.6 24.3 28.3 37.7 33.2

Assistor answered calls 12.3 13.4 14.9 13.8 13.9 11.4 -18.0

Abandoned, busies, and 

disconnects

8.2 10.1 17.9 13.8 14.6 19.0 30.1

Performance

Level of service—

percentage of callers 

seeking live assistance 

who receive it

Fiscal year 

goal

82.0 a 82.0 77.0 b 71.0 c 71.0 61.0 —d

Actual to 

date

84.1 79.9 64.3 75.7 75.1 68.1 —

Average wait time 

(in minutes)

d

Fiscal year 

goal

4.3 a 4.5 10.4 11.6 11.6 18.8 62.1

Actual to 

date

3.9 5.7 8.8 9.5 9.5 15.8 66.3

(450974)
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