GAO-04-213R Highway Trust Fund Excise Tax Procedures 

United States General Accounting Office

Washington, DC 20548 

November 20, 2003 

The Honorable Kenneth M. Mead 

Inspector General 

Department of Transportation 

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

Dear Mr. Mead: 

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, 2003, is supported by the 

underlying records. As agreed with your office, we evaluated fiscal year 2003 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 

include (1) detailed tests of transactions that represent the underlying basis of 

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

quarterly HTF certifications, (3) review of the Department of the Treasury Financial 

Management Service (FMS) adjustments to the HTF for fiscal year 2003, (4) review of 

IRS’s precertification1

 of receipts for the third quarter of fiscal year 2003, (5) review 

of certain procedures of the Department of the Treasury Office of Tax Analysis’ 

(OTA) process for estimating amounts to be distributed to the HTF for the fourth 

quarter of fiscal year 2003, and other procedures including (6) comparison of net 

excise tax distributions to the HTF during fiscal year 2003 and amounts reported in 

the draft financial statements prepared by the Bureau of the Public Debt (BPD) for 

 

1

To accommodate the Department of Transportation’s accelerated reporting date for fiscal year 2003, 

IRS performed a precertification of excise tax collections for the quarter ended June 30, 2003. The 

data are for information purposes only and the precertification does not constitute an official 

certification. 
Page 2 GAO-04-213R Highway Trust Fund Excise Tax Procedures 

the HTF and the HTF’s draft financial statements, (7) detailed tests of transactions 

that represent total IRS tax revenue receipts and refunds, and (8) review of key 

reconciliations of IRS records to Treasury records. The enclosure contains the 

agreed-upon procedures and our findings from performing each of the procedures. 

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

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

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

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

that would have been reported to you.2 We completed the agreed-upon procedures 

on November 7, 2003. 

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

They agreed with the results and findings presented in this report. In response to our 

findings concerning errors in its estimates, OTA stated that it has instituted additional 

internal control procedures to promptly detect and correct any future errors. 

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 Internet Web site at

http://www.gao.gov. If you have any questions, please call me at (202) 512-3406. 

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 2003 financial statements, we noted a 

material weakness in IRS’s financial reporting process (U.S. General Accounting Office, Financial 

Audit: IRS’s Fiscal Years 2003 and 2002 Financial Statements, GAO-04-126, November 13, 2003). A 

component of this process includes IRS’s ability 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. 
Enclosure 

Page 3 GAO-04-213R Highway Trust Fund Excise Tax Procedures 

Highway Trust Fund Excise Tax Procedures and Results

I. Detailed tests of transactions that represent the underlying basis of 

amounts distributed to the HTF in fiscal year 2003 

A. Nonrepresentative selection of tax returns from the quarter ended September 30, 

20023

1. For the quarter ending September 30, 2002, 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 liability4

amount, from IRS’s 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 the quarter ended September 30, 2002, for testing. The 

selection was based on the total tax liability amount and type of taxes 

owed, for each return, from IRS’s master file. 

The total tax liability amount related to these 30 returns was approximately 

$8.6 billion, or 66 percent of the total excise tax liability amount−$13 

billion−for all excise tax types for the quarter ended September 30, 2002. 

Of these 30 returns, 22 contained primarily HTF-related taxes and 8 

contained primarily AATF taxes. 

2. For each of the 22 returns related primarily to the HTF we performed the 

following procedures, which resulted in our testing approximately $6.4 

 

3

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

corresponding FMS adjustment for the quarter ended September 30, 2002, were completed in March 2003, 

and thus affected fiscal year 2003 distributions to the HTF. 

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 review shows that these taxpayers generally 

pay their excise taxes in full each quarter. 

5

The master file is a detailed database containing taxpayer information. 
Enclosure 

Page 4 GAO-04-213R Highway Trust Fund Excise Tax Procedures 

billion in prorated collections6 affecting fiscal year 2003 distributions to 

the HTF: 

(a) Trace the liability amount for abstracts7

 59, 60, and 62 from the tax 

return to IRS's master file. 

Description of findings and results

The liability amount for abstracts 59, 60, and 62 on the tax return 

agreed with IRS’s master file for 22 of the 22 returns. 

(b) Check the mathematical accuracy of the taxpayer’s calculations on the 

tax return for the selected abstracts. 

Description of findings and results

The taxpayer’s calculations on all 22 returns were mathematically 

correct. 

(c) Recompute 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 file.8

 

6

IRS certifies to trust funds the amount of excise taxes collected. Because there are occasions in which 

taxpayers have 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 gasohol 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 gasohol 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 the 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) tax on 10 percent gasohol 

(abstract 59), (2) diesel fuel tax (abstract 60), and (3) 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 use of

international air 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 make up over 86 percent of the total amount certified to the HTF and 

over 89 percent of the total amount certified to the AATF each quarter. 

8

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

the individual prorated collections, by abstract and taxpayer identification number, that make up the 

certified total amounts for each abstract. 
Enclosure 

Page 5 GAO-04-213R Highway Trust Fund Excise Tax Procedures 

Description of findings and results

The recomputed prorated collection amounts for the three selected 

abstracts agreed with amounts in IRS’s Collection Certification System 

audit file for all 22 of the returns. 

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

31, 2002, and March 31, 2003 

1. Sampling 

(a) Obtain excise tax assessments and collection data from IRS's master 

file for the first 6 months of fiscal year 2003. Determine if excise tax 

collections per the master file agree with IRS's general ledger. 

Reconcile total excise tax collections from the master file to total 

excise tax collections from the Collection Certification System audit 

files to determine if they materially9

 agree. 

Description of findings and results

Excise tax collections for the first 6 months of fiscal year 2003 per 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 

IRS’s 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. 

Description of findings and results

For each sample item, assessments and receipts from the master file 

were contained in the Collection Certification System. 

(c) To determine if the Collection Certification System properly 

summarized the prorated collections, total the prorated collections for 

 

9

For the purpose of this reconciliation, material is defined as 1 percent of the total Form 720-related excise 

tax collections, related to the quarters ended December 31, 2002, and March 31, 2003. For fiscal year 2003, 

the materiality amount was $203 million for the two quarters combined. 

10For 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. 
Enclosure 

Page 6 GAO-04-213R Highway Trust Fund Excise Tax Procedures 

selected abstracts11 from the audit files and compare these amounts to 

amounts in the Reports of Excise Tax Collection.

12

Description of findings and results

The Collection Certification System properly summarized the prorated 

collections for all of the selected abstracts related to the HTF and the 

AATF. Prorated collections for the above-mentioned trust funds from 

the audit files agreed with the corresponding amounts in the Reports 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. 

Description of findings and results

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

$322 million, and an expected aggregate error amount of $96.6 million 

resulted in a sample of 9613 prorated collections for HTF for the first 6 

months of fiscal year 2003. 

(e) Select samples of prorated excise tax collections from the two nonHTF populations. 

Description of findings and results

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

$89 million, and an expected aggregate error amount of $26.7 million 

 

11The selected abstracts include the following: (1) tax on 10 percent gasohol (abstract 59), 

(2) diesel fuel tax (abstract 60), (3) gasoline tax (abstract 62), (4) tax on transportation of persons by air 

(abstract 26), (5) tax on use of international air facilities (abstract 27), (6) tax on transportation of 

property by air (abstract 28), and (7) tax on aviation fuel for commercial use (abstract 77). The tax 

amounts for the three HTF-related abstracts make up over 86 percent of the total amount certified to the 

HTF and the tax amounts for the four AATF-related abstracts make up over 95 percent of the total 

amounts certified to the AATF each quarter. 

12The Report of Excise Tax Collection contains prorated collections, classified by abstracts that serve as 

the basis for IRS’s quarterly trust fund certifications. 

13The planned sample size using DUS was 143 items. DUS selects dollars versus specific transaction items 

by dividing the population by dollar intervals. The dollar interval for the HTF was $118 million. 

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

whereas items less than the sampling interval might not be selected. For example, an item of $236 million 

would cover two dollar-intervals, but represent one sample item. Due to large dollar items covering more 

than one interval, the 96 unique sampled transactions selected represent 143 dollar-intervals. 
Enclosure 

Page 7 GAO-04-213R Highway Trust Fund Excise Tax Procedures 

resulted in a sample of 6714 prorated collections for the first 6 months 

of fiscal year 2003 for the AATF. 

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, was selected for testing.15

2. Detailed tests of transactions 

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

population: 

• Check to see that the assessment amount on the tax return, for the 

sampled abstract, agrees with the amount recorded in IRS's master 

file. 

Description of findings and results

The assessment amounts on the tax returns agreed with the 

amounts recorded in IRS’s master file for all of the sampled 

abstracts. 

• Check the mathematical accuracy of the taxpayers' calculations on 

the tax returns for the related abstract. 

Description of findings and results

The taxpayers’ calculations on the tax returns for the related 

abstracts were mathematically correct for all of the sampled 

abstracts. 

• Recompute 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 file.16

 

 

14The planned sample size using DUS was 132 items. As explained in footnote 13, DUS selects dollars 

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

AATF was $33 million. Due to large dollar items covering more than one interval, the 67 unique sampled 

transactions selected represent 132 dollar-intervals. 

15For this sample, if no errors are found in testing the 45 items, we would be 90 percent confident that the 

error rate in the population would not exceed 5 percent.

16The purpose of this test is to determine whether the Collection Certification System prorates correctly. 

This test is not intended to determine whether amounts provided to the system are correct. 
Enclosure 

Page 8 GAO-04-213R Highway Trust Fund Excise Tax Procedures 

Description of findings and results

The recomputed prorated collection, based on information from the 

master file, agreed with the amounts for all of the sampled items. 

(b) Perform detailed testing on 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

As noted in the results from steps (a) and (b), we found no errors. 

II. Review of IRS’s quarterly HTF certifications 

A. Receipt certifications 

Perform the following steps on IRS’s HTF receipt certifications for the quarters 

ended September 30, 2002, December 31, 2002, and March 31, 2003: 

1. Inspect the certification letters17 for authorizing signatures. 

Description of findings and results

The HTF certification letters for all three quarters had authorizing 

signatures. 

2. Determine if evidence exists that the supervisor or another analyst 

checked the certification letters and supporting worksheets. 

Description of findings and results

There was evidence that another analyst and a supervisor checked the 

certification letters and supporting worksheets for all three quarters. 

 

17IRS prepares two certification letters for HTF each quarter: one for the Highway Account and the other 

for the Mass Transit Account. 
Enclosure 

Page 9 GAO-04-213R Highway Trust Fund Excise Tax Procedures 

3. Recalculate 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. 

4. Trace the certified amounts for diesel fuel tax (abstract 60), gasoline tax 

(abstract 62), and tax on 10 percent gasohol (abstract 59)18 from the 

certification letters back to the Reports of Excise Tax Collection19 and 

Treasury 90 Report.

 20

Description of findings and results

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

(abstract 62), and tax on 10 percent gasohol (abstract 59) per the 

certification letters agreed with the related Reports of Excise Tax 

Collection for all three quarters. 

However, on IRS’s receipt certification for the quarter ended December 31, 

2002, the IRS analyst used excise tax credit information from the Treasury 

90 Report for the quarter ended September 30, 2002, rather than the 

Treasury 90 Report for the quarter ended December 31, 2002. As a result, 

IRS understated certified receipts to the Highway Account by 

approximately $12.4 million and understated certified receipts to the Mass 

Transit Account by approximately $1.7 million. IRS discovered the error 

after it had sent the certification letter to the FMS, and FMS had already 

recorded the true-up adjustment for using the certification letters. IRS 

corrected this error on the receipt certification for the following quarter 

ended March 31, 2003. Therefore, this error had no net effect on fiscal year 

2003 distributions to the HTF. 

 

18The certified amounts for diesel fuel tax (abstract 60), gasoline tax (abstract 62), and tax on 10 percent 

gasohol (abstract 59), along with the heavy vehicle use tax (traced separately), make up over 89 percent of 

the total amount certified to the HTF each quarter. 

19IRS 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 recorded in IRS’s master file during the processing interval covered by the report. The second of the 

two reports used may contain collections related to previous quarters not classified by abstract until the 

current quarter because the related return was not recorded on the master file until the current quarter. 

20During fiscal year 2002, IRS changed its process of recording and summarizing excise tax credits related 

to taxpayers’ Form 720 tax returns. As a result, IRS now obtains this excise tax credit information from 

the applicable Treasury 90 Report. The Treasury 90 Report summarizes excise tax credit information and 

is produced quarterly by IRS submission processing campus systems. IRS has 10 submission processing 

campuses that receive and process tax returns and payments. 

 
Enclosure 

Page 10 GAO-04-213R Highway Trust Fund Excise Tax Procedures 

5. Review the distribution rates used by IRS to determine whether the 

distribution rates for diesel fuel tax (abstract 60), gasoline tax (abstract 

62), and tax on 10 percent gasohol (abstract 59) agree with the applicable 

laws.21

Description of findings and results

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

tax (abstract 62), and tax on 10 percent gasohol (abstract 59) agreed with 

the applicable laws in effect during all three quarters. 

6. Review the Reports of Excise Tax Collection used in the certification to 

determine if they contain significant22 collections from prior quarters. 

Description of findings and results

The Reports of Excise Tax Collection supporting IRS’s certification to HTF 

for the quarter ended September 30, 2002, contained approximately $261 

million in net HTF excise tax collections related to prior quarters. This 

consisted of approximately $262 million from the quarter ended June 30, 

2002 and ($1 million)23 from prior quarters. IRS attributed the delay in 

classifying the June quarter amounts to two taxpayers who did not file 

timely and five tax returns with processing delays due to taxpayer or IRS 

errors. 

The Reports of Excise Tax Collection supporting IRS’s certification to HTF 

for the quarter ended December 31, 2002, contained approximately $330 

million in net HTF excise tax collections related to prior quarters. Of this 

amount, approximately $253 million was from the quarter ended 

September 30, 2002. IRS attributed this delay to three taxpayers who did 

not file timely and two tax returns with processing delays due to taxpayer 

or IRS errors. 

The Reports of Excise Tax Collections supporting IRS’s certification to the 

HTF for the quarter ended March 31, 2003, did not contain significant prior 

quarter collections. 

 

21IRS 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. 

22For this test, “significant” is defined as $170 million. This represents approximately 2 percent of the 

quarterly total certified to the HTF. 

23Negative amounts occur due to taxpayer amendments or IRS corrections. 
Enclosure 

Page 11 GAO-04-213R Highway Trust Fund Excise Tax Procedures 

7. Heavy vehicle use taxes, which go to the HTF, are reported on Form 2290 

and are not included in the Collection Certification System. Trace the 

heavy vehicle use tax amounts from the Highway Account certification 

letters to the master file. 

Description of findings and results

Heavy vehicle use tax per the Highway Account certification letters agreed 

with the master file for all three quarters. 

B. Refund/credit reclassification24

Perform the following steps on IRS’s HTF refund/credit certifications for the 

quarters ended December 31, 2002, March 31, 2003, June 30, 2003, and September 

30, 2003:25

1. Inspect the certification letters for authorizing signatures. 

Description of findings and results

The certification letters for all four quarters had authorizing signatures. 

2. Determine if evidence exists that a supervisor or another analyst checked 

the certification letters and accompanying schedules.26

 

Description of findings and results

There was evidence that another analyst and a supervisor checked the 

certification letters and accompanying schedules for all four quarters. 

3. Recalculate the totals on the certification letters and accompanying 

schedules to determine if they are mathematically correct. 

 

24IRS performs a quarterly reclassification of excise tax refunds and credits originally entered into its 

master file as a personal or corporate refund/credit. IRS refers to these reclassifications as "refund/credit 

certifications." These amounts do not represent the total excise tax refund/credit activity to the trust 

funds. Other routine excise tax refunds and credits (e.g., overpayments), which are claimed on taxpayers’ 

Form 720 excise tax returns, are included in IRS’s excise tax receipt certification to trust funds. 

25In order to meet certain reporting deadlines, IRS certified refunds and credits for the fourth quarter of

fiscal year 2003 as of September 5, 2003. 

26IRS attaches a separate schedule to the HTF refund/credit certification letter that includes the detailed 

excise tax amounts that support the total amount shown on the letter. IRS compiles the amounts on these 

schedules from submission processing campus systems and its Interim Revenue Accounting Control 

System. IRS has 10 submission processing campuses that process tax returns and taxpayer receipts. 
Enclosure 

Page 12 GAO-04-213R Highway Trust Fund Excise Tax Procedures 

Description of findings and results

The totals on the certification letters and accompanying schedules were 

mathematically correct for all four quarters. 

4. Trace the refund and credit amounts for gasoline tax and diesel tax27 from 

the schedules accompanying the certification letters to other summary 

refund/credit schedules. These other refund/credit summary schedules 

summarize refund and credit data obtained from submission processing 

campuses’ records. 

Description of findings and results

The refund and credit amounts for gasoline tax and diesel tax on the 

schedules accompanying the certification letters agreed with the amounts 

on the summary schedules for all four quarters. 

III. Review of FMS adjustments 

Perform the following steps on FMS adjustments to the HTF excise tax 

distributions for the quarters ended September 30, 2002, December 31, 2002, and 

March 31, 2003. 

A. Compare the FMS adjustments made to the HTF for fiscal year 2003 with 

original OTA estimates and IRS-certified amounts to see if they agree with the 

supporting schedules.28

Description of findings and results

For the FMS adjustments made to the HTF accounts (Highway and Mass 

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

supporting schedules for all three quarters. 

B. Recompute the difference between the OTA estimates and final IRS-certified 

amounts to see if the amounts agree with the differences computed by FMS. 

 

27The certified refund/credit amounts for gasoline and diesel make up at least 91 percent of the total 

certified refund/credit amount for the HTF. 

28An FMS accountant compiles this schedule, called “Subsidiary Quarterly Account of Estimates and Actual 

Related Taxes Appropriated to the Highway Account.” The schedule computes the difference between IRScertified 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. 
Enclosure 

Page 13 GAO-04-213R Highway Trust Fund Excise Tax Procedures 

Description of findings and results

The independently recalculated differences between the OTA estimates and 

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

differences computed by FMS for all three quarters. 

These amounts were29

• for the quarter ended September 30, 2002, $636,666,000; 

• for the quarter ended December 31, 2002, ($319,825,000); and 

• for the quarter ended March 31, 2003, $205,901,000. 

The independently recalculated differences between the OTA estimates and 

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

differences computed by FMS for all three quarters. 

These amounts were 

• for the quarter ended September 30, 2002, $16,750,000; 

• for the quarter ended December 31, 2002, ($17,123,000); and 

• for the quarter ended March 31, 2003, $48,083,000. 

IV. Review of IRS precertification for the quarter ended June 30, 200330

A. Determine if evidence exists that the supervisor or another analyst checked 

the results and supporting worksheets. 

Description of findings and results

There was evidence that another analyst and a supervisor checked the results 

and supporting worksheets. 

B. Recalculate the totals on the precertification to determine if they are 

mathematically correct. 

 

29A 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. Since the adjustment amount is the difference between OTA’s estimate and 

IRS’s certified amount, it may be significantly affected by IRS’s ability to certify receipts in the appropriate 

quarter. 

30To accommodate the Department of Transportation’s accelerated reporting date for fiscal year 2003, IRS 

performed a precertification of excise tax collections for the quarter ended June 30, 2003. The data are for 

information purposes only and the precertification does not constitute an official certification. 
Enclosure 

Page 14 GAO-04-213R Highway Trust Fund Excise Tax Procedures 

Description of findings and results

The totals on the precertification were mathematically correct. 

C. Trace the amounts for diesel fuel tax (abstract 60), gasoline tax (abstract 62), 

and tax on 10 percent gasohol (abstract 59) 31 from the precertification back to 

the Reports of Excise Tax Collection and Treasury 90 Report. 

Description of findings and results

The amounts for diesel fuel tax (abstract 60), gasoline tax (abstract 62), and 

tax on 10 percent gasohol (abstract 59) per the precertification agreed with the 

related Reports of Excise Tax Collection and Treasury 90 Report. 

D. Review the distribution rates used by IRS to determine whether the 

distribution rates for diesel fuel tax (abstract 60), gasoline tax (abstract 62), 

and tax on 10 percent gasohol (abstract 59) agree with the applicable laws. 

Description of findings and results

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

(abstract 62), and tax on 10 percent gasohol (abstract 59) agreed with the 

applicable laws in effect during the quarter ended June 30, 2003. 

E. Review the Reports of Excise Tax Collection used in the precertification to 

determine if they contain significant32 collections from prior quarters. 

Description of findings and results

The Reports of Excise Tax Collection supporting IRS’s precertification for the 

quarter ended June 30, 2003, did not contain significant prior quarter 

collections. 

F. Review the Collection Certification System information to determine whether 

IRS omitted any significant returns33 from the precertification. If so, report for 

the Highway Account and the Mass Transit Account: (1) the average amount of 

 

31The amounts for diesel fuel tax (abstract 60), gasoline tax (abstract 62), and tax on 10 percent gasohol 

(abstract 59), along with the heavy vehicle use tax (traced separately), make up over 89 percent of the 

precertified total to the HTF. 

32For this test, “significant” is defined as $170 million, which represents approximately 2 percent of the 

precertified total to the HTF. 

33For this test, “significant returns” are defined as those from taxpayers 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 HTF from taxpayers with liabilities equal to or greater than $10 million have, in the 

aggregate, historically accounted for over 91 percent of distributions certified to HTF. 

 
Enclosure 

Page 15 GAO-04-213R Highway Trust Fund Excise Tax Procedures 

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 HTFrelated excise taxes from these taxpayers’ returns that were included in IRS’s 

certification for the quarter ended June 30, 2002. 

Description of findings and results

IRS did not omit any returns of historically significant excise tax taxpayers 

from its precertification to the HTF. 

G. Heavy vehicle use taxes, which go to the HTF, are reported on Form 2290 and 

are not included in the Collection Certification System. Trace these amounts 

from the Highway Account precertification letter to the master file. 

Description of findings and results

Heavy vehicle use tax per the Highway Account precertification agreed with 

the master file. 

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

quarter ended September 30, 2003 

A. Determine if OTA’s process for identifying and incorporating into its trust fund 

estimates34 the effect of new legislation on excise tax receipts was in place 

during fiscal year 2003. 

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 fiscal 

year 2003. OTA prepares a tax rate table35 to capture information relating to 

legislation that affects tax rates, tax basis, accounts, and deposit rules in effect 

during the tax period. 

B. Determine if there is evidence of review of the transfer forms and supporting 

schedules. 

 

34OTA makes semimonthly estimates of excise tax collections for transfer to trust funds. There are five 

semimonthly estimates for the quarter ended September 30, 2003, which affect fiscal year 2003 

distributions to the HTF. 

35OTA communicates this information to interested parties at Treasury, the Federal Highway 

Administration, the Federal Transit Administration, and the Department of Transportation. IRS uses the 

tax and distribution rates from this table in its subsequent certification of collections to trust funds. 
Enclosure 

Page 16 GAO-04-213R Highway Trust Fund Excise Tax Procedures 

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, 2003. 

C. Recalculate 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, 2003, were mathematically correct. 

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

(abstract 62), tax on 10 percent gasohol (abstract 59), and heavy vehicle use 

tax,36 from the transfer forms, through the supporting schedules and back to 

the related source documents.37

Description of findings and results

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

62), tax on 10 percent gasohol (abstract 59), and heavy vehicle use tax from 

the transfer forms did not agree with the supporting schedules and source 

documents on the first two semimonthly estimates affecting distributions to 

the HTF for the quarter ended September 30, 2003. An error on one of OTA’s 

electronic spreadsheets resulted in the collection percentages for all tax types 

being miscalculated. After we brought this to its attention, OTA corrected the 

spreadsheet error so it did not affect the remaining estimates for the quarter. 

However, since the effect of this error on the total quarterly estimate would be 

only a fraction of a percent, OTA did not correct for the effects of this error on 

the two affected semimonthly estimates. Consequently, OTA understated its 

estimate for these four taxes to the HTF by approximately $4.2 million. 

In addition, there was another error affecting distributions to the HTF that was 

not directly related to the tax types selected for review. An error on OTA’s 

 

36The transfer amounts for diesel fuel tax (abstract 60), gasoline tax (abstract 62), tax on 10 percent 

gasohol (abstract 59), and heavy vehicle use tax make up over 92 percent of the total amount transferred 

quarterly to the HTF. 

37The 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. 
Enclosure 

Page 17 GAO-04-213R Highway Trust Fund Excise Tax Procedures 

electronic spreadsheets resulted in the omission of the estimated amounts for 

retail tax on trucks (abstract 33) from its estimates to the Highway Account 

for the first four semimonthly periods of the quarter. As a result, OTA 

understated its estimates to the HTF by approximately $305 million. OTA 

corrected for the effects of this error through its final semimonthly estimate 

affecting fiscal year 2003 distributions to the HTF. Consequently, this error 

had no net effect on fiscal year 2003 distributions to the HTF. 

VI. Other procedures 

A. Compare total fiscal year 2003 excise taxes distributed to the HTF with drafts 

of (1) HTF’s fiscal year 2003 financial statements and (2) BPD’s fiscal year 

2003 financial statements for the HTF to determine if they agree. 

Description of findings and results

The $34.1 billion of fiscal year 2003 excise taxes distributed to the HTF agreed 

with the amount reported on the draft HTF financial statements but did not 

agree with the amount reported on the draft BPD fiscal year 2003 financial 

statements for the HTF. The BPD fiscal year 2003 financial statements for the 

HTF reported excise tax distributions to the HTF of $33.7 billion. The 

difference is due to FMS’s $388.6 million downward adjustment for the quarter 

ended June 30, 2002—a $378.9 million adjustment to the Highway Account and 

a $9.7 million adjustment to the Mass Transit Account—which FMS recorded 

in December 2002. The trust fund’s administrator included this transaction as 

part of the fiscal year 2002 distributions to the HTF because the HTF had time 

to record the adjustment on its fiscal year 2002 financial statements, which 

were issued in January 2003. However, BPD included this transaction as part 

of the fiscal year 2003 distributions because it was recorded after the 

November 1, 2002, issuance date of BPD’s fiscal year 2002 financial statements 

for the HTF. 

B. Procedures performed as part of the fiscal year 2003 IRS financial statement 

audit: 

1. From IRS’s master files for the first 8 months of fiscal year 2003, use DUS 

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

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

tax period, and tax class38 from source documentation agree with those 

recorded in IRS’s master files. 

 

38IRS assigns a tax class number to specific types of taxes. Excise taxes are tax class 4. 
Enclosure 

Page 18 GAO-04-213R Highway Trust Fund Excise Tax Procedures 

Description of findings and results

Detailed testing of 169 revenue receipts and 50 refund sample transactions 

showed that the collection or refund amount, tax period, and tax class 

from source documents agreed with those recorded in IRS’s master files. 

2. Review selected IRS submission processing campuses’ monthly Treasury 

SF-224 reconciliations to determine if IRS-reported revenue receipts were 

properly classified and reconciled to Treasury FMS records. For refunds, 

review selected IRS submission processing campuses’ monthly Treasury 

SF-224 reconciliations to determine if IRS-reported total refunds (all tax 

classes) materially39 reconciled to Treasury FMS records.40

Description of findings and results

Tax revenue receipts reported by selected IRS submission processing 

campuses through the monthly Treasury SF-224 reconciliation process 

were properly classified and materially agreed with Treasury FMS records. 

Total refunds reported by the selected IRS submission processing 

campuses through the monthly Treasury SF-224 reconciliation process 

materially agreed with Treasury FMS records. 

3. Perform procedures to determine whether tax revenue receipt balances by 

tax class, including excise taxes, per IRS's general ledger, materially agree 

with IRS’s master files and Treasury records. For refunds, perform a 

comparison of total refund balances between the master file, the general 

ledger, and Treasury records. 

Description of findings and results

Tax receipt balances for all tax classes, including excise taxes, per IRS’s 

general ledger, materially agreed with IRS’s master files and with Treasury 

records. 

 

39For the purpose of this procedure and procedure VI.B.3, we define material as $20 billion. This 

represents approximately 1 percent of the total tax revenue receipts collected by IRS in fiscal year 2003.

40IRS maintains records of refund balances by tax class in its master file and reports this information 

monthly to Treasury on the SF-224. Treasury provides IRS with a Statement of Differences (TFS-6652), 

which reports differences between total refunds reported by IRS on the SF-224 and the total refunds per 

Treasury records. 
Enclosure 

Page 19 GAO-04-213R Highway Trust Fund Excise Tax Procedures 

Refund balances per IRS’s general ledger materially agreed with the master 

file and with Treasury records. 

(196003) 
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