a

GAO

United States Government Accountability Office

Report to the Chairman, Subcommittee 

on Oversight, Committee on Ways and 

Means, House of Representatives

November 2005 TAX 

ADMINISTRATION

IRS Improved Some 

Filing Season Services, 

but Long-term Goals 

Would Help Manage 

Strategic Trade-offs

GAO-06-51
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

November 2005

TAX ADMINISTRATION

IRS Improved Some Filing Season 

Services, but Long-term Goals Would 

Help Manage Strategic Trade-offs 

Highlights of GAO-06-51, a report to the 

Chairman, Subcommittee on Oversight, 

Committee on Ways and Means, House 

of Representatives 

During the filing season, the

Internal Revenue Service (IRS)

processes about 130 million 

individual tax returns, issues 

refunds, and responds to millions 

of inquiries. Budget cuts combined

with IRS’s strategy of shifting 

resources from taxpayer service to

enforcement make providing

quality service a challenge. GAO 

was asked to assess IRS’s 2005

filing season performance

compared to past years and 2005

goals in the processing of paper

and electronic tax returns,

telephone service, face-to-face

assistance, and Web site service. 

GAO also examined whether IRS 

has long-term goals to help assess

progress and guide in making 

decisions. Finally, GAO 

summarized IRS’s response to

Hurricanes Katrina and Rita, and 

their possible effects on IRS’s 

performance.

What GAO Recommends

GAO recommends that IRS develop

better information about the costs 

of mandatory electronic filing of 

tax returns for certain categories of

tax practitioners and establish a 

schedule for developing its longterm goals. 

In comments, IRS agreed with the

recommendations. 

IRS improved some filing season services. According to officials, IRS made a 

strategic decision to reduce others to accommodate budget cuts. IRS’s 

processing of returns and refunds went smoothly. Accuracy of responses to 

telephone inquiries about tax law and about taxpayers’ accounts 

significantly improved. And, IRS’s Web site performed well. On the other 

hand, in response to budget cuts, IRS reduced access to telephone assistors, 

resulting in longer wait-times and more callers hanging up. IRS officials 

viewed telephone access as a more flexible area for absorbing budget cuts 

than, for example, processing. The number of taxpayers visiting IRS walk-in 

sites continued to decline, while the number of tax returns prepared at 

volunteer sites increased. This is consistent with IRS’s strategy of reducing 

the number of its employees providing expensive face-to-face assistance. IRS

continues to lack reliable data on the accuracy of walk-in and volunteer site

assistance but has plans in place to improve quality measurement. 

For the first time, more than half of individual tax returns were filed 

electronically, which is important because electronic filing has allowed IRS 

to reduce resources devoted to processing paper returns. However, despite 

IRS’s actions to promote electronic filing, it is not on track to achieve its 

long-term goal of having 80 percent of such returns filed electronically by 

2007. State mandated electronic filing has proven effective at encouraging 

electronic filing at the federal level and one IRS advisory group has 

recommended a federal mandate. However, little is known about the costs 

and burdens of such mandates. 

IRS has been developing long-term goals to help assess agency progress and 

understand the impact of budget decisions. Because of the difficulty in 

developing goals, IRS has experienced delays and lacks a schedule for 

finalizing those goals. 

IRS is taking numerous actions to assist taxpayers affected by Hurricanes

Katrina and Rita. Most of the impact on IRS, such as more questions from 

taxpayers, will be felt during the 2006 filing season and beyond. 

IRS’s 2005 Filing Season Activities 

www.gao.gov/cgi-bin/getrpt?GAO-06-51. 

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact James R. White 

at (202) 512-9110 or whitej@gao.gov. 
Page i GAO-06-51 Tax Administration

Contents

Letter 1

Results in Brief 2

Scope and Methodology 4

Background 6

IRS’s Processing Performance Continued to Improve, and, for the 

First Time, More Returns Were Filed Electronically 

Than by Paper 9

IRS Reduced Access to Telephone Assistors, but Accuracy of Tax 

Law and Account Responses Significantly Improved 17

Fewer Taxpayers Used IRS Walk-in Sites and More Used Volunteer 

Sites, but IRS Lacks Reliable Quality and Other Data 22

Web Site Performed Well, Was Highly Rated, and

Used Extensively 31

IRS Is Developing Long-term Goals for Taxpayer Service, but 

Completion Date Is Unknown 33

IRS Has Taken Numerous Actions to Deal with the Aftermath of 

Hurricanes Katrina and Rita, but Implications for the 2006 Filing 

Season Are Not Yet Known 36

Conclusions 38

Recommendations for Executive Action 39

Agency Comments and Our Evaluation 39

Appendixes

Appendix I: Data on Processing Performance Relative to Fiscal Years 

2001 through 2004 Performance and Fiscal Year 2005 

Goals 41

Appendix II: Budget Reduction Had Some Impact on Service to 

Taxpayers 43

Appendix III: Comments from the Internal Revenue Service 46

Tables Table 1: IRS Telephone Assistors Accessibility Performance, 

2001-2005 Filing Seasons 19

Table 2: IRS Telephone Assistors Accuracy Performance, 2001-2005 

Filing Seasons 21

Table 3: IRS’s Processing Performance, Fiscal Years 2001 through 

2005 41

Table 4: Overall Taxpayer Service Budget Reduction, Fiscal Years 

2004 and 2005 43
Contents

Page ii GAO-06-51 Tax Administration

Figures Figure 1: Full-time Equivalents Budgeted for IRS Activities, Fiscal 

Year 2005 7

Figure 2: IRS’s 2005 Filing Season Activities 8

Figure 3: Number of Individual Returns and IRS Staff Years for 

Individual Paper and Electronic Processing, Fiscal Years 

1999 through 2006 13

Figure 4: How IRS Handled Calls for Telephone Assistance during 

the 2005 Filing Season 18

Figure 5: Assistance Provided by IRS Walk-in Sites, 2001-2005 

Filing Seasons 23

Figure 6: Direct FTEs Used for Assistance Provided by IRS Walk-in 

Sites, 2001-2005 Filing Seasons 25

Figure 7: Assistance Provided by Volunteer Sites, 2001-2005 Filing 

Seasons 29

Abbreviations

CADE Customer Account Data Engine 

CSR Customer Service Representatives 

ETAAC Electronic Tax Administration Advisory Committee 

ETLA Electronic Tax Law Assistance 

FEMA Federal Emergency Management Agency 

FTE Full-time Equivalent 

GAO Government Accountability Office

GPRA Government Performance and Results Act of 1993

IRS Internal Revenue Service

P&R Probe & Response Guide

PART Program Assessment Rating Tool 

RAL Refund Anticipation Loan

RRA IRS Restructuring and Reform Act of 1998 

SPEC Stakeholder Partnership, Education, and Communication

TIGTA Treasury Inspector General for Tax Administration 

W&I Wage and Investment Division 
Page iii GAO-06-51 Tax Administration

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

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

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

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

reproduce this material separately.
Page 1 GAO-06-51 Tax Administration

United States Government Accountability Office

Washington, D.C. 20548

A

November 14, 2005 Letr

The Honorable Jim Ramstad 

Chairman 

Subcommittee on Oversight

Committee on Ways and Means

House of Representatives

Dear Mr. Chairman,

During the filing season most taxpayers have their only contact with the 

Internal Revenue Service (IRS) by filing their individual income tax returns, 

receiving refunds, and, if needed, seeking assistance. Consequently, the 

agency’s performance during this period is a key indicator of how well IRS 

is serving taxpayers and helping them fulfill their tax responsibilities.1

In past reports and testimonies we said that IRS has made significant 

progress improving taxpayer service since passage of the IRS Restructuring 

and Reform Act of 1998 (RRA). 2 However, we also described challenges to 

continued progress. In fiscal year 2005, IRS’s budget for taxpayer service 

was 2.8 percent less than in 2004 and IRS has an ambitious strategy of 

providing filing season services with fewer resources. This strategy is 

intended to allow IRS to shift resources to enforcement. 

Because of IRS’s importance to taxpayers and Congress, you asked us to 

assess IRS’s 2005 filing season performance. With respect to processing 

paper and electronically filed individual income tax returns, telephone 

assistance, face-to-face assistance, and the Web site, our objectives were to 

assess IRS’s performance compared to annual goals and past performance 

and describe any factors or initiatives that significantly affected 

performance. Additionally, we examined whether IRS has long-term goals 

to help assess progress and guide in resource and other decision making. In 

light of Hurricanes Katrina and Rita, we summarized IRS’s actions and 

plans to assist affected taxpayers and the possible implications for the 2005 

and 2006 filing seasons. We testified on IRS’s interim 2005 performance in a 

1

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

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

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

2

Pub. L. No. 105-206 (1998). 
Page 2 GAO-06-51 Tax Administration

hearing held by your Subcommittee on Oversight, House Committee on 

Ways and Means, on April 14, 2005.3

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

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

IRS officials, information from representatives of the tax practitioner 

community, and analyses by the Treasury Inspector General for Tax 

Administration (TIGTA). For the purpose of this report, we found IRS’s 

data to be sufficiently reliable for assessing IRS’s 2005 filing season 

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

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

work from January through October 2005 in accordance with generally 

accepted government auditing standards.

Results in Brief During the 2005 filing season, IRS improved some services, but to 

accommodate budget cuts, officials made a strategic decision to reduce 

others. With one notable exception, IRS currently lacks, but is developing, 

long-term goals that would be useful for managing budgetary trade-offs 

between improving taxpayer service and enhancing enforcement. 

Processing: IRS nearly met or exceeded most of its 2005 processing 

performance goals. For the first time, more than half of all individual 

income tax returns were filed electronically. Despite numerous actions IRS 

has taken over the years, it is not on track to meet its one long-term goal of 

having 80 percent of all returns filed electronically by 2007. Electronic 

filing mandates in several states for certain categories of tax practitioners 

have increased electronic filing of federal tax returns. The growing use of 

mandates by states for electronic filing could lead to more discussion about 

mandates at the federal level. In fact, one IRS advisory group 

recommended that IRS should support mandated electronic filing. 

However, decision makers lack information on the costs that tax 

practitioners and taxpayers would incur to file electronically. 

Telephone service: IRS made a strategic decision to reduce access to its 

telephone service to accommodate a budget reduction, because IRS 

officials viewed it as flexible area for absorbing budget reductions without 

significantly affecting taxpayer service. As a result, taxpayers waited longer 

3

GAO, Internal Revenue Service: Assessment of Fiscal Year 2006 Budget Request and 

Interim Results of the 2005 Filing Season, GAO-05-416T (Washington, D.C.: Apr. 14, 2005). 
Page 3 GAO-06-51 Tax Administration

to speak with telephone assistors and more taxpayers hung up than last 

year. In contrast, the accuracy of customer service representatives’ (CSR) 

responses to tax law and account questions significantly improved 

compared to past performance. 

Walk-in assistance: Fewer taxpayers used IRS walk-in sites during the 

2005 filing season, continuing a trend since 2001. In contrast to walk-in 

sites, the numbers of taxpayers seeking return preparation assistance at 

volunteer sites increased since 2001. These trends are consistent with IRS’s 

strategy of reducing face-to-face assistance in favor of less costly options 

for receiving service, such as IRS’s telephone and Internet services, and 

volunteer sites. Moreover, IRS lacked reliable data on the quality of 

services provided at both walk-in and volunteer sites, making it impossible 

to accurately characterize IRS’s performance in providing face-to-face 

assistance. In an effort to obtain reliable data, IRS has initiated quality 

improvement programs at both sites.

Internet Web site: IRS’s Web site performed well, was user friendly, and 

was used extensively this filing season based on the number of visits to the 

site, pages viewed, and forms and publications downloaded. This is 

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

options for automated interaction with the IRS, such as “Where’s My 

Refund.” 

Long-term goals that are focused on results or outcomes are critical for 

holding agencies accountable and helping agencies and Congress make 

strategic trade-offs. IRS has been working to establish long-term goals for 

all aspects of its operations for well over a year. Because of the difficulty in 

developing goals, IRS has experienced delays and lacks a schedule for 

finalizing those goals. Although we recognize the difficulty in establishing 

such goals, until they are developed, taxpayers, Congress, and IRS 

management will have difficulty assessing long-term progress. In addition, 

budget decisions that affect the filing season will be made with limited 

context about the potential impact on long-term performance. 

IRS had taken numerous actions to address the aftermath of Hurricanes 

Katrina and Rita, working closely with, and in support of, other the federal 

agencies. IRS officials report that any effect on the 2005 filing season 

performance would be slight, because the hurricanes occurred so late in 

the filing season. Actions taken to date include finding IRS employees who 

had been affected by Katrina and Rita, helping answer telephone calls for 

emergency assistance, reviewing tax provisions, and putting extensive 
Page 4 GAO-06-51 Tax Administration

information about taxpayer assistance and relief for individuals and 

businesses on its Web site; other actions are planned. According to IRS 

officials, IRS is also assessing the longer term implications of the 

hurricanes for the 2006 filing season, such as the potential impact on the 

number of telephone inquiries.

We are making recommendations to the Commissioner of Internal Revenue 

that IRS should 

• develop better information about the costs to tax practitioners and 

taxpayers of mandatory electronic filing of tax returns for certain 

categories of tax practitioners and 

• establish a schedule for developing its long-term goals. 

In a letter commenting on a draft of this report (see app. III), the 

Commissioner of IRS agreed with our recommendations and generally 

outlined the actions IRS plans to take to address those recommendations. 

Scope and 

Methodology

To assess IRS’s 2005 filing season performance in the four key filing season 

activities—processing, telephone assistance, face-to-face assistance, and 

Web site—compared to goals, past performance, as well as initiatives 

intended to improve performance, we

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

and other documents and data, including workload data and data from 

IRS’s current suite of balanced performance measures and annual goals;

• reviewed legislation, policies, and procedures; 

• reviewed related TIGTA reports and interviewed TIGTA officials about 

IRS’s performance and initiatives;

• followed up on our recommendations made in prior filing season and 

related reports; 

• tested for statistical differences between yearly changes for various 

performance measures; 

• observed operations at IRS’s Atlanta paper processing center, and 

Atlanta and Pittsburgh call centers, all of which are managed by IRS’s 
Page 5 GAO-06-51 Tax Administration

Wage and Investment operating division (W&I); 3 of IRS’s approximately 

400 walk-in locations;4

 and 3 of over 14,000 volunteer sites.

• analyzed information posted to IRS’s Web site based on our knowledge 

of the type of information taxpayers look for, and assessed the ease of 

finding information, as well as the accuracy and currency of the data on 

the site;

• reviewed information from companies that evaluate Internet 

performance; 

• reviewed staffing data for paper and electronic processing, telephone 

assistance, and walk-in assistance; 

• interviewed IRS officials about current operations, performance relative 

to 2005 performance goals, and prior filing season performance, trends, 

and significant factors and initiatives that affected or were intended to 

improve performance; and

• interviewed representatives of large private and nonprofit organizations 

that prepare tax returns and trade organizations that represent both 

individual practitioners and tax preparation companies. 

This report discusses numerous filing season performance measures and 

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

which we have used to evaluate IRS’s performance in key areas for years. 

Although some measures could be further refined, the majority of IRS’s 

filing season measures have the attributes of successful measures, 

including objectivity and reliability. We reviewed IRS documentation, 

interviewed IRS officials about computer systems and data limitations, and 

compared those results to GAO standards of data reliability.5

 As a result, we 

determined that the IRS data we are reporting are sufficiently reliable for 

assessing IRS’s filing season performance. Data limitations are discussed 

where appropriate.

4

Our review focuses on IRS’s W&I Division, which serves taxpayers whose income is from 

wages and investments, processes individual income tax returns, and provides assistance to 

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

5

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

D.C.: Sept. 1, 2002).
Page 6 GAO-06-51 Tax Administration

We conducted our work at IRS headquarters in Washington, D.C.; the Small 

Business/Self-Employed Division headquarters in New Carrollton, 

Maryland; the W&I Division headquarters, the Joint Operations Center 

(which manages telephone service), and a telephone call site in Atlanta, 

Georgia; a telephone call site in Pittsburgh, Pennsylvania; and walk-in and 

volunteer locations in Georgia and Maryland. We selected these offices for 

a variety of reasons, including the location of key IRS managers, such as 

those responsible for telephone, walk-in, and volunteer services. 

Hurricanes Katrina and Rita struck just as we were completing our 2005 

filing season review.6

 Because Katrina and Rita occurred when we were 

finishing our work, we did not assess the effectiveness of IRS’s actions. We 

performed our work from January through October 2005 in accordance 

with generally accepted government auditing standards. 

Background IRS received over $10 billion in fiscal year 2005 to fund over 96,000 full-time 

equivalents (FTE).7

 Of the total, processing and taxpayer services account 

for 41 percent, almost 40,000 FTEs, as shown in figure 1. Of the roughly 

40,000 FTEs, almost 16,000, just less than 40 percent, were budgeted just 

for processing, most of which occurs during the filing season. 

6

Hurricane Katrina struck Alabama, Florida, Louisiana, and Mississippi, between August 25 

and 29, 2005, and Hurricane Rita struck Louisiana and Texas on September 24, 2005, causing 

widespread displacement of over a million people. 

7

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

without overtime. 
Page 7 GAO-06-51 Tax Administration

Figure 1: Full-time Equivalents Budgeted for IRS Activities, Fiscal Year 2005 

IRS provides a variety of taxpayer services. Tens of millions of taxpayers 

receive telephone assistance. Taxpayers call IRS to inquire about their 

refunds, the tax laws, or their accounts. The calls are answered by CSRs or 

automated services. 

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

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

assistance with their accounts, and have returns prepared (if annual gross 

income is $36,000 or less).8

 Also, low-income and elderly taxpayers get 

returns prepared at over 14,000 volunteer sites run by community-based 

coalitions that partner with IRS. IRS’s Stakeholder Partnership, Education, 

and Communication (SPEC) organization fosters relationships between 

8

According to IRS officials, need-based return preparation at IRS walk-in sites is limited to 

taxpayers meeting certain requirements. These requirements provide return preparation 

assistance to taxpayers with a total income limit of $36,000 or less, because they 

approximate the amount set in the tax code for claiming the Earned Income Tax Credit.

0

10,000

20,000

3,0000

40,000

50,000

60 000

Source: GAO analysis of IRS data.

FTEs

39,901

7,385

49,132

17

Health Insurance 

 Tax Credit 

Administration

Information 

Systems

Tax Law 

Enforcement

Processing, 

Assistance and 

Management
Page 8 GAO-06-51 Tax Administration

IRS and the nonprofit community to provide an alternative means for 

taxpayers to receive volunteer return preparation assistance. According to 

IRS, SPEC officials identify and select partners, such as the American 

Association of Retired Persons, that meet taxpayer needs, such as tax 

assistance for the elderly, and help train, provide resource materials, and 

oversee operations at these partners’ facilities. In some cases, IRS awards 

grants, trains and certifies volunteers, and provides reference materials, 

computer software, and computers to these volunteers. 

IRS now provides many Internet services that did not exist a few years ago. 

For example, the “Where’s My Refund” feature has the benefit of reducing 

phone calls and enables taxpayers to use the IRS Web site to find out if IRS 

received their tax returns and whether their refunds were processed. IRS’s 

filing season activities and associated workload volumes are depicted in 

figure 2. 

Figure 2: IRS’s 2005 Filing Season Activities 

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

January 1, 2005, to September 16, 2005; toll-free calls for the time period January 1, 2005, to July 16, 

2005; walk-in contacts, which includes returns prepared at volunteer sites, for the time period 

December 26, 2004, to April 23, 2005; and Internet downloads for the time period October 1, 2004, to 

August 31, 2005. We used different dates for the various areas because those dates best reflect IRS’s 

filing season workload in that area. 

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

Returns 

processing

Taxpayer 

assistance

Refunds 

99 million

Electronic returns 

68 million

Paper returns 

62 million

Toll-free calls 

72 million

Walk-in contacts 

5 million

Web site 

downloads 

150 million
Page 9 GAO-06-51 Tax Administration

IRS’s Processing 

Performance 

Continued to Improve, 

and, for the First Time, 

More Returns Were 

Filed Electronically 

Than by Paper 

IRS’s performance measures show that IRS has improved its performance 

processing individual income tax returns and nearly met or exceeded most 

of its 2005 goals. The continued growth in the number of tax returns filed 

electronically resulted in more than half of all individual income tax returns 

being filed electronically for the first time. Despite the continued growth, 

IRS is not on track to meet its 80 percent long-term electronic filing goal. 

Electronic filing mandates imposed by several states on tax practitioners 

who meet certain criteria have increased electronic filing of federal 

individual income tax returns. However, stakeholders have noted 

information is lacking on the costs and burdens of mandating electronic 

filing. 

Most Measures Showed that 

IRS Continued to Improve 

Its Processing Performance

As of September 16, 2005, IRS processed about 130 million individual tax 

returns, including 68 million returns electronically, with no significant 

disruptions and issued 99 million refunds in a timely manner.9

According to IRS data, IRS equaled or exceeded its 2004 performance and 

nearly met or exceeded its 2005 goals for the following seven measures 

(see app. 1 for further details). 10

• Deposit error rate: the percentage of payments applied in error. 

• Deposit timeliness, paper: the amount of interest forgone by not 

depositing payments the business day after receipt. 

• Letter error rate: the percentage of letters issued to taxpayers with 

errors. 

9

The time period covered for paper returns and refunds was January 1 through September 

16, 2005.

10Two of IRS’s nine performance measures cannot be compared to years before 2004. 

Deposit timeliness is not comparable to years prior to 2004, since IRS changed the formula 

to not include weekends in calculating timeliness in 2004. The measure for Individual 

Master File efficiency cannot be compared to other years because this is the first year for 

this performance measure. The only performance measure that did not meet or exceed its 

performance since last year was refund interest paid, which increased $20.55 in 2004 to 

$27.54 in 2005. According to IRS officials, performance did not improve relative to this 

measure because IRS did not anticipate the significant increase in the interest rates that has 

taken place this year.
Page 10 GAO-06-51 Tax Administration

• Notice error rate: the percentage of incorrect notices issued to 

taxpayers. 

• Refund error rate, individual: the percentage of refunds with IRS-caused 

errors in the entity information (e.g., incorrect name or Social Security 

number).

• Refund timeliness, paper: the percentage of refunds issued within 

40 days or less for individual tax returns filed on paper. 

• Productivity: the weighted volume of work processed per staff year. 

For one measure IRS’s performance declined and the 2005 goal was not 

met.

• Refund interest paid rate: the interest paid per $1 million of refunds 

issued late.

One measure was new for 2005, and IRS met the goal.

• Individual Master File efficiency: the number of tax returns processed 

per staff year. 

Although IRS’s performance measures indicate smooth processing and 

improved performance, we have previously recommended that IRS adopt 

others. Specifically, we recommended that IRS adopt a refund timeliness 

performance measure for individual tax returns filed electronically to 

promote growth in electronic filing.11 This measure could help IRS better 

monitor and evaluate electronic filing performance and determine the 

impact of initiatives intended to increase electronic filing. However, IRS 

does not plan to implement such a measure, stating it would not enhance 

performance and, in fact, might be counterproductive if disappointed 

taxpayers who had to wait longer than expected to receive their refunds 

were to call or seek face-to-face assistance. Although not publicly reported, 

IRS data shows that refunds associated with returns filed electronically are 

received in about half the time as those filed on paper. IRS publications 

also inform taxpayers that they can receive their tax refund in 10 days if 

they file electronically if they use direct deposit. 

11GAO, Tax Administration: IRS Needs to Further Refine Its Tax Filing Season 

Performance Measures, GAO-03-143 (Washington, D.C.: Nov. 22, 2002).
Page 11 GAO-06-51 Tax Administration

The number and costs of refund anticipation loans (RAL) are evidence that 

taxpayers might benefit from having more information about the time it 

takes to get refunds. RALs are very short-term loans issued while taxpayers 

wait for their refunds. In a previous testimony, we found examples of 

interest rates on RALs of well over 100 percent.12 The measure could be 

designed to minimize the problem of disappointed taxpayers calling IRS by, 

for example, reporting the number of days within which 90 percent of 

refunds are issued.

For the first time, IRS used the Customer Account Data Engine (CADE)13 to 

process the simplest taxpayer returns, that is, 1040EZs. CADE is important 

because it is the foundation of IRS’s modernization effort and will 

ultimately replace the Individual Master File, which currently houses 

taxpayer data for individual filers, with new technology, applications, and 

relational databases. As of August 2005, CADE processed over 1.4 million 

returns with no significant problems, handled $424 million in refunds, and 

shortened the average turnaround for refunds from 7 days to 3.5 days. A 

recent TIGTA report noted that information from tax returns was accurate 

and posted on time to CADE accounts.14 IRS released the next update to

CADE in mid-September 2005; another release is scheduled for January 

2006 and is on schedule, according to an IRS division chief.15

IRS officials attribute this year’s smooth processing to adequate planning 

and relatively few tax law changes. Tax practitioners, who last year 

prepared approximately 60 percent of all individual income tax returns, 

agreed that the processing of individual tax returns has gone smoothly 

during the 2005 filing season. Representatives from the National 

Association of Enrolled Agents, National Society of Certified Public 

12GAO, Paid Tax Preparers: Most Taxpayers Believe They Benefit, but Some Are Poorly 

Served, GAO-03-610T (Washington, D.C.: Apr. 1, 2003).

13CADE is intended to replace IRS’s antiquated system that contains the agency’s repository 

of taxpayer information. In July 2004 and January 2005, IRS implemented the initial releases 

of CADE, which were used to process 2004 and 2005 1040EZ returns, respectively, for single 

taxpayers with refund or even-balance returns.

14Treasury Inspector General for Tax Administration, Individual Income Tax Return 

Information Was Accurately and Timely Posted to the Customer Account Data Engine 

2005-40-109, July 18, 2005. 

15The September release added the ability to process tax returns with address changes. The 

January 2006 release will add two new features, forms 1040/1040A with no schedules 

attached, and tax law changes for tax year 2005.
Page 12 GAO-06-51 Tax Administration

Accountants, and other tax-related organizations had positive comments 

about IRS’s processing of individual tax returns. Similarly, TIGTA officials 

told us that IRS generally processed individual tax returns smoothly in 

2005. 

For the First Time, More 

Than Half of All Individual 

Tax Returns Were Filed 

Electronically

Electronic filing remains important to IRS because electronic returns cost 

less to process than paper returns. While obtaining accurate cost estimates 

may be problematic given inadequacies in IRS’s financial accounting 

system,16 IRS estimates it saves $2.15 on every individual tax return that is 

processed electronically. According to IRS data, electronic filing has 

allowed IRS to use about 300 fewer staff years to process paper returns in 

2005 than in 2004, which is reflected in budget savings for processing. This 

is in addition to about 1,000 staff years saved between 2002 and 2003. IRS 

anticipates additional staff-year savings when paper processing is 

eliminated in the Submission Processing Center in Memphis, Tennessee, 

after the 2005 filing season. 

This is the first year that more than half of the 130 million returns filed were 

filed electronically. The number of individual tax returns filed 

electronically increased by about 11 percent, to an estimated 67.9 million 

electronic individual tax returns as of September 16, 2005. IRS is 

forecasting about a 9 percent increase in the number of individual income 

tax returns filed electronically in 2006. 

16GAO, Financial Audit: IRS's Fiscal Years 2005 and 2004 Financial Statements, GAO-06-

137 (Washington, D.C.:Nov. 10, 2005).
Page 13 GAO-06-51 Tax Administration

Figure 3: Number of Individual Returns and IRS Staff Years for Individual Paper and 

Electronic Processing, Fiscal Years 1999 through 2006 

a

Fiscal years 2005 and 2006 are IRS projections and, given the current lower electronic filing growth 

rates, the estimates may be optimistic.

Note: Staff years and FTEs are units of measurement that are often used interchangeably. According 

to IRS, an FTE is the equivalent of one person working full-time for 1 year with no overtime. A staff year 

includes overtime. Therefore, the cost of 1 staff year is equal to the cost of 1 FTE plus overtime. As 

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

IRS Has Taken Actions to 

Encourage Electronic Filing 

but Will Not Meet Long-term 

Goal

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

filing by taxpayers and tax practitioners, including 

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

Staff years devoted to electronic filing

Staff years for selected major paper processing activities

2006a 2005a 1999 2000 2001 2002 2003 2004

Source: GAO analysis of IRS data.

Staff years

Fiscal year

0

20

40

60

80

100

120

Electronic returns processed

Paper returns processed

Individual tax returns (in millions)

IRS projections
Page 14 GAO-06-51 Tax Administration

• making electronic filing free to most taxpayers via the Free File Alliance 

program17 on the IRS Web site;

• making the process totally paperless if a taxpayer uses a personal 

identification number to sign their tax return; 

• making over 99 percent of all individual tax forms suitable for electronic 

filing;

• allowing electronic payment of balance due payments; and 

• surveying taxpayers and tax practitioners in response to a 

recommendation in our 2001 filing season report18 to determine why 40 

million tax returns were prepared on a computer but filed on paper. 

For the 2005 filing season, IRS took the following actions to encourage 

taxpayers and tax practitioners to file electronically. IRS 

• contacted about 4,600 tax practitioners who prepared tax returns on 

computers but then filed paper tax returns and encouraged them to file 

tax returns electronically. IRS estimates that these types of practitioners 

file over 15 million paper tax returns annually;

• accepted e-filed returns from married taxpayers filing separately who 

reside in community property states; and

• made four more forms available for electronic filing. 

Despite these actions, IRS is not on track to achieve its long-term goal of 

having 80 percent of all individual income tax returns filed electronically by 

2007. IRS officials do not want to abandon the goal because it serves as a 

symbol of IRS’s determination to increase electronic filing. As we have 

previously reported, IRS’s progress toward the goal has required 

enhancement of its technology, development of software to support

17In 2003, IRS entered into a 3-year agreement with the Free File Alliance, a consortium of 

tax preparation companies that provide free electronic filing to taxpayers who access any of 

the companies via a link on IRS’s Web site. Twenty companies offered free filing via IRS’s 

Web site this filing season.

18GAO, Tax Administration: Assessment of IRS’ 2001 Tax Filing Season, GAO-02-144 

(Washington, D.C.: Dec. 21, 2001).
Page 15 GAO-06-51 Tax Administration

electronic filing, education of taxpayers and practitioners, and other steps 

that could not be completed in a short time frame.19

To achieve its long-term goal, however, IRS would have to average about a 

26 percent growth rate over the next 2 years. Assuming a continuation of 

the current growth rates of 11.08 percent for individual tax returns filed 

electronically and 1.18 percent for the total number of individual tax 

returns filed, IRS would receive an estimated 63 percent of all individual 

income tax returns filed electronically in 2007. This would leave IRS about 

23 million short of the approximately 107 million individual income tax 

returns that would need to be filed electronically to meet the goal. We 

estimate that if IRS could close this gap, it could save about $49 million in 

processing costs.20

IRS, the Electronic Tax Administration Advisory Committee (ETAAC),21

and GAO22 do not expect IRS to maintain this year’s rate of growth. IRS is 

predicting declining growth rates in 2006 and 2007, and in 2003, ETAAC 

concurred with IRS’s prediction. IRS officials stated that, to achieve its 

electronic filing goal, tax practitioners and taxpayers who prepare about 40 

million tax returns on computers but file paper returns would have to 

convert to filing electronically; however, IRS’s efforts have not resulted in 

converting a large portion of these filers from paper to electronic filing. 

19GAO, IRS Modernization: Continued Progress Requires Addressing Resource 

Management Challenges, GAO-05-707T (Washington, D.C.: May 19, 2005).

20Our estimated savings is based on the IRS figure of $2.15 per tax return processed 

electronically multiplied by the approximately 23 million additional tax returns that would 

have to be filed electronically if the 80 percent goal were met in 2007. This estimate may be 

potentially low, because IRS officials have stated that as electronic filing increases, greater 

savings are achieved because shared fixed costs are distributed to the total number of tax 

returns processed electronically. 

21ETAAC, Annual Report to Congress (Washington D.C., June 30, 2003 and June 30, 2004). 

The IRS Restructuring and Reform Act of 1998 mandated that the Secretary of the Treasury 

convene an electronic commerce advisory group to ensure that the Secretary receives input 

from the private sector on IRS’s plan to increase electronic filing. ETAAC reports annually 

on IRS’s progress towards meeting electronic filing goals.

22GAO-05-416T.
Page 16 GAO-06-51 Tax Administration

State Mandates Have 

Encouraged Electronic 

Filing of Federal Tax 

Returns 

Electronic filing mandates imposed by several states on tax practitioners 

who meet certain criteria, such as filing 100 state tax returns or more, have 

increased electronic filing of federal individual income tax returns. 

According to IRS, the growth rate in 2004 of federal tax returns filed 

electronically was greater than expected, because five states, including 

California, mandated electronic filing of state tax returns prepared by 

qualified tax practitioners who filed a certain number of state returns. In 

2005, three more states mandated electronic filing of state tax returns 

prepared by qualified tax practitioners. These state mandates have 

contributed to an increase in electronic filing of not only state tax returns, 

but of federal individual tax returns as well. According to IRS officials, 

these mandates led to significantly more electronic filing of federal tax 

returns in these states because tax practitioners converted their entire 

practices to electronic filing. In total, the eight states with electronic filing 

mandates added an estimated 5.6 million additional electronically-filed 

federal income tax returns over the 2 years. For 2006, several additional 

states, including New York, are mandating electronic filing for state returns 

for some tax practitioners. 

In its 2004 report to Congress, ETAAC stated that federal electronic filing 

growth may now be entirely dependent on what states are doing, rather 

than actions taken by IRS. IRS cannot require states to mandate electronic 

filing. However, IRS continually informs states of the benefits of electronic 

filing in hopes that more states will institute mandates. 

The growing use of mandates by the states could lead to more discussion of 

mandates at the federal level. In the past, ETAAC has recommended that 

Congress should support mandated electronic filing by tax practitioners 

because in ETAAC’s view, electronic filing mandates are key to IRS 

achieving its 80 percent goal. 

IRS knows more about the benefits of mandated electronic filing than it 

knows about the costs. The benefits are reduced processing costs to IRS, 

and faster issuance of refunds to taxpayers. As already discussed, IRS has 

an estimate of how much it saves on each electronic return. However, in 

2005, ETAAC noted that decision makers lack information on the costs and 

burdens of electronic filing. The costs are borne largely by tax practitioners 

and taxpayers. In the past, tax practitioners have complained about the 

costs and burdens associated with converting their businesses to electronic 

filing, although benefits have also been reported, once the businesses 

converted. Knowing more about the nature and magnitude of these costs 

could provide fact-based information that could help inform any future 
Page 17 GAO-06-51 Tax Administration

debate about making electronic filing mandatory for certain categories of 

tax practitioners or taxpayers. ETAAC believes that IRS is well positioned 

to gather such information. 

IRS Reduced Access to 

Telephone Assistors, 

but Accuracy of Tax 

Law and Account 

Responses 

Significantly Improved 

IRS made a strategic decision to reduce access to its telephone service to 

accommodate a budget reduction because IRS officials viewed it as flexible 

area for absorbing such reductions without significantly affecting taxpayer 

service. As a result, the average time taxpayers waited for CSRs increased 

and more taxpayers hung up without receiving service than last year. In 

contrast, the accuracy of CSR answers to millions of tax law and account 

questions significantly improved compared to past performance.

IRS Reduced Access to 

Telephone Assistors 

IRS received 72 million calls on its toll-free telephone lines through midJuly 2005. Over a third of those calls—31 million—were from callers trying 

to obtain information on the status of their tax refunds. Another 16 and 20 

million calls were about tax law or taxpayer account questions 

respectively. The rest were miscellaneous calls. 

Figure 4 shows how IRS handled those calls. Toll-free telephone calls from 

taxpayers typically are routed through IRS’s telephone system based on 

taxpayers’ response to prompts and are then answered by CSRs or by 

automated recordings. IRS’s automated service handled 24 million calls and 

CSRs handled 23 million.The remaining 26 million calls came in after 

business hours, were transferred, were disconnected, or the caller hung up 

before receiving service. 
Page 18 GAO-06-51 Tax Administration

Figure 4: How IRS Handled Calls for Telephone Assistance during the 2005 Filing Season

Note: Data cover the period January 1, 2005, through July 16, 2005. Numbers do not add to the total 

and percentages do not add to 100 due to rounding.

IRS devotes significant resources to providing access to CSRs. Since 2001, 

IRS has devoted at least 8,300 staff years per year to telephone service. IRS 

estimates that it will use 8,561 staff years to answer telephone calls in 2005, 

primarily during the filing season.

According to IRS officials, IRS made a strategic decision to reduce its CSR 

level of service goal from 85 to 82 percent to accommodate a budget 

reduction of about $5 million. (see app. II). In response, IRS reduced the 

number of FTEs devoted to phone service by less than 1 percent, resulting 

in taxpayers having less access to CSRs. Also, due to a lower call volume 

than last year, as of July 16, IRS had used 7 percent fewer FTEs than 

planned for to answer telephones. 

IRS officials chose to reduce telephone access because they viewed it as a 

more flexible area to absorb budget reductions than, for example, 

processing. IRS officials said that telephone access had improved in recent 

years to a more acceptable level, giving IRS flexibility to adjust CSR level of 

Total calls to IRS 

72 million 

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

Reached a CSR

23 million

Received automated service

24 million

Hung up or disconnected without receiving service

14 million

Called after business hours or transferred to another line

12 million

?

17%

19% 32%

33%
Page 19 GAO-06-51 Tax Administration

service. As a result of IRS reducing access to its telephone assistors, the 

average time taxpayers waited for CSRs (average speed of answer) 

increased, and more taxpayers hung up (abandoned rate) as shown in 

table 1.

Table 1: IRS Telephone Assistors Accessibility Performance, 2001-2005 Filing Seasons 

Source: GAO analysis of IRS data.

a

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

b

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

c

Average number of minutes a taxpayer waits in queue for a CSR. Beginning in 2004, IRS expanded 

the services included in this measure. However, the calculation of the measure remained the same. 

Recomputed figures are shown here and, as a result, are different than what we reported in the past 

(see GAO-04-84). 

IRS officials told us that these declines are acceptable and IRS is effectively 

managing its resources while still providing a high level of service. 

According to the IRS Oversight Board’s 2004 Taxpayer Attitude Survey,

most taxpayers are willing to wait an average of 11 minutes to speak to a 

CSR. On the other hand, table 1 shows that taxpayers abandoned more 

calls in 2005 when the average speed of answer increased. According to IRS 

officials, there are no government or industry standard definitions for 

telephone measures, such as for average speed of answer. IRS is part of a 

new government wide group organized to baseline, research, benchmark, 

standardize, and implement a minimum set of expectations for agencies 

with telephone operations so that agencies can be measured and compared 

against an objective standard to demonstrate success and improvement. 

Some taxpayers who hang up may not be receiving poor service. 

Preliminary results from IRS analyses of callers who hung up show some 

taxpayers hang up after hearing the prompt to visit IRS’s Web site. Rather 

than wait for a CSR, these taxpayers may have switched to IRS’s Web site to 

get the information they needed. Midway through the 2005 filing season, 

Accessibility 

measuresa 2001 Actual 2002 Actual 2003 Actual 2004 Actual 2005 Actual

Fiscal year 2005

goals

CSR level of 

serviceb 66% 69% 87% 86% 82% 82%

Average speed of 

answer (in 

minutes) c 5.7 4.5 2.8 2.8 4.4 2.8

Abandoned rate 16.1% 14.3% 8.3% 8.4% 12.2% n/a
Page 20 GAO-06-51 Tax Administration

IRS began collecting detailed data on why taxpayers hang up. According to 

IRS officials, they will continue to collect and analyze the hang-up data to 

further determine when and why taxpayers are hanging up. 

This year represents the first time since 1998 that IRS reduced its annual 

level of service goal. However, it is difficult to assess what this year’s 

decline means in the longer term because IRS does not have long-term 

goals for taxpayer service. A long-term CSR level of service goal may help 

Congress and other stakeholders understand whether this year’s reversal of 

telephone access is the beginning of a trend. As will be discussed in a later 

section, we recognize that setting a long-term goal for telephone service 

would depend on assumptions about available resources, but that is part of 

the value of long-term goals. They help clarify the trade-off between service 

and other priorities. 

Accuracy of Responses to 

Telephone Inquiries 

Improved

As table 2 shows, compared to goals and past performance, the accuracy of 

CSR responses to tax law and account questions significantly improved. 

First, IRS officials attributed the improved tax law accuracy rate primarily 

to changes in the Probe & Response (P&R) Guide, a publication that CSRs 

use to help answer tax law questions. In the last 2 years, IRS blamed 

problems with the P&R Guide for declines in accuracy. Unlike previous 

years, IRS tested this year’s changes before disseminating the guide to 

CSRs. 

Second, with respect to the accuracy of accounts inquiries, IRS officials 

stated that IRS improved the rate and exceeded the goal because of an 

improved quality review process, which, in their view, gives employees a 

heightened sense of their contribution to the agency’s mission. Part of that 

review process is Contact Recording, a system for recording all contacts 

between taxpayers and CSRs including, for some calls, the computer 

screen displays used by CSRs. Managers can then review the contacts in 

their entirety. IRS officials told us that Contact Recording has resulted in 

employees receiving more constructive feedback and more efficient and 

consistent scoring of performance and quality by managers, which likely 

has improved both tax law and accounts accuracy. One IRS manager we 

spoke with stated that she liked the system because it allows managers to 

listen to the prerecorded contact at their convenience, and therefore 

provide more complete feedback to employees. Furthermore, she said that 

Contact Recording is more efficient than the method used before, wherein 

managers listened to selected calls in “real time” and provided CSRs 

feedback based on what the managers heard during the call. 
Page 21 GAO-06-51 Tax Administration

As noted in our 2004 filing season report, IRS decided to implement 

Contact Recording at all call sites by the end of the 2005 filing season. IRS 

was slightly behind schedule on implementing this system by the end of 

this year’s filing season.

Table 2: IRS Telephone Assistors Accuracy Performance, 2001-2005 Filing Seasons

Source: GAO analysis of IRS data.

a

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

b

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

appropriate follow-up resolution action, with a 90 percent confidence interval.

IRS Has Efforts Intended to 

Improve Its Telephone 

Services

IRS had two efforts intended to improve telephone services for the 2005 

filing season. First, IRS continued to implement Contact Recording, as 

previously discussed. Second, in an effort to streamline the process for 

managing its telephone workforce, and in turn save FTEs, IRS began to 

implement the Centralized Contact Center Forecasting and Scheduling 

project in 2005. The project is designed to assess IRS’s current telephone 

workforce management efforts and determine the most appropriate and 

efficient solution for managing that workforce. IRS has held initial 

meetings to solicit team members and define high-level requirements for 

the project. IRS has a project plan in place and is on schedule to meets its 

deadlines for this project. 

Fewer Taxpayers Used 

IRS Walk-in Sites and 

More Used Volunteer 

Sites, but IRS Lacks 

Reliable Quality and 

Other Data

Past trends have continued as fewer taxpayers used IRS’s walk-in services 

and more used volunteer tax return preparation services. These trends are 

consistent with IRS’s strategy to direct taxpayers away from face-to-face 

assistance provided by its employees to less costly alternatives. However, 

IRS lacks reliable data on quality that could be used to compare the two 

services and understand the impact of IRS’s strategy on taxpayers. IRS 

initiated quality improvement programs for both services intended to 

Accuracy measuresa

2001

Actual

 2002

Actual

2003

Actual

2004

Actual

2005

Actual

Fiscal year

2005 goals

Tax law accuracy rateb 79.1%

+/- 0.6

84.9% 

+/- 0.5%

81.3%

+/- 0.7%

79.5%

+/- 0.8%

89.5%

+/- 0.6%

82.0%

Accounts accuracy rateb 88.1%

+/- 0.6

90.5% 

+/- 0.4%

88.6%

+/- 0.4%

89.0%

+/- 0.5%

91.3%

+/- 0.4%

89.8%
Page 22 GAO-06-51 Tax Administration

improve data reliability, but these programs have yet to produce 

sufficiently reliable data. 

Fewer Taxpayers Used IRS 

Walk-in Sites for Return 

Preparation and Other 

Types of Assistance, but 

Quality Data Are Not 

Reliable

Fewer taxpayers used IRS’s approximately 400 walk-in sites during the 

2005 filing season, continuing a trend since 2001. At these sites, IRS 

employees provide taxpayers with information about their tax accounts, 

answer a limited scope of tax law questions,23 and prepare returns if the 

taxpayer’s annual gross income is $36,000 or less. As reflected in figure 5, 

the total number of walk-in taxpayer contacts during the 2005 filing season 

declined by nearly 385,000 (10 percent) from last year.24 Contacts for return 

preparation declined by almost 68,000 (22 percent) during the same period. 

23Walk-in site employees are trained and authorized to only answer tax law questions on 

specific tax topics such as those related to income, filing status, exemptions, deductions, 

and related credits.

24Total walk-in contacts represent the total number of in-person contacts concerning 

notices, tax law inquiries, return preparation, forms, and other in-person contacts.
Page 23 GAO-06-51 Tax Administration

Figure 5: Assistance Provided by IRS Walk-in Sites, 2001-2005 Filing Seasons 

Note: “Other walk-in contacts” includes assistance for account notices, tax law inquiries, forms, and 

compliance work, but not return preparation. The time periods covered are December 31, 2000, 

through April 28, 2001; December 30, 2001, through April 27, 2002; December 29, 2002, through April 

26, 2003; December 28, 2003, through April 24, 2004; and December 26, 2004, through April 23, 

2005.

The declines in walk-in usage were consistent with IRS’s strategy of 

reducing costly face-to-face assistance in favor of other service options 

such as the telephone and Web site.25 While some of the decline in return 

assistance is likely due to taxpayers taking advantage of other increasingly 

available and attractive alternatives, like the improved Web site, some of it 

25In a similar effort to reduce face-to-face assistance, in February 2005, California’s 

Franchise Tax Board closed 11 of its 16 field offices due to budget constraints. These offices 

provided limited public access that allowed taxpayers to walk in, address particular taxrelated issues, and obtain information and assistance about other programs administered by 

the state’s tax board. The board estimated that these sites were the most expensive way by 

far to deliver general taxpayer assistance, with an average $11.15 for a field office contact, 

versus $6.07 per call center response, and $5.21 for a written response. 

0

1.0

2.0

3.0

4.0

5.0

6.0

Return preparation contacts at walk-in sites

Other walk-in contacts

2001 2002 2003 2004 2005

Source: GAO analysis of IRS data.

Walk-in contacts (in millions)

0.79 0.47 0.67

0.31

3.54

0.24

3.86

3.23

Fiscal year

4.32

4.27
Page 24 GAO-06-51 Tax Administration

is attributable to IRS’s attempt to direct taxpayers away from face-to-face 

assistance. For example, since 2003, IRS has required appointments for 

most taxpayers seeking return preparation service at its sites. 26

As we have previously reported,27 this decline and the shift of taxpayers 

from walk-in sites to other service options is important because it has 

allowed IRS to transfer time-consuming services, such as return 

preparation, from IRS to other less costly alternatives that can be more 

convenient for taxpayers. As a result, IRS devoted fewer resources—as 

represented by direct FTEs28—to providing return preparation and other 

services during the 2005 filing season. As reflected in figure 6, IRS reduced 

the number of direct FTEs devoted to walk-in sites during the filing season 

by over 4 percent overall and by 22 percent for return assistance from the 

same period last year. 

26Because of legislative concerns about the impact of reduced services at walk-in sites, IRS 

does not plan to further reduce the number of taxpayers receiving tax return assistance in 

the 2006 filing season. Instead, IRS will attempt to maintain this level of assistance with 

available resources.

27GAO, Tax Administration: IRS Improved Performance in the 2004 Filing Season, but 

Better Data on the Quality of Some Services Are Needed, GAO-05-67 (Washington, D.C.: 

Nov. 15, 2004).

28An FTE is the equivalent of one person working full-time for a year with no overtime. A 

direct FTE does not include overhead. 
Page 25 GAO-06-51 Tax Administration

Figure 6: Direct FTEs Used for Assistance Provided by IRS Walk-in Sites, 2001-2005 

Filing Seasons

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

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

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

In previous years, IRS transferred enforcement staff to walk-in sites to help 

staff handle the workload that occurs during the filing season. IRS has 

nearly eliminated this practice, which pulled the staff away from 

performing enforcement work, and instead hired more full-time staff to 

cover the workload during the filing season. 

To prevent the newly expanded walk-in staff from experiencing downtime 

after the filing season, when the workload drops off, since fiscal year 2004, 

IRS began having walk-in staff perform some collections work after the

0

100

200

300

400

500

600

Return preparation at walk-in sites

Other walk-in contacts

2001 2002 2003 2004 2005

Source: GAO analysis of IRS data.

FTEs

192

117

179

73

278

57

309

268

Fiscal year

337 341
Page 26 GAO-06-51 Tax Administration

filing season.29 For example, between October and July 2005, IRS used 53 of 

its 602 total direct FTEs (9 percent) to handle this collections work. 

According to IRS officials, this has provided sufficient work to keep walkin staff productive all year and greatly reduced dependence on 

enforcement staff. Besides regulating the filing season workload, IRS 

officials stated that handling these individual taxpayer collection cases at 

walk-in sites could help them address overdue collections that, in their 

view, may be overlooked by the normal collections process.

Some IRS officials question moving collections work out of the normal 

collection process because IRS lacks information about the effectiveness 

of conducting such work using walk-in site staff. According to IRS officials, 

IRS will have a reporting system in January 2006 that will allow it to analyze 

the results of that work and compare it to normal collection results to 

determine the most effective place to do the work. IRS is on schedule for 

implementing this system, according to IRS officials. Furthermore, IRS is 

reevaluating the services provided at walk-in sites, including collections 

work. 

IRS lacks reliable and comprehensive data on the quality of the services 

provided at walk-in sites. In 2004, IRS began implementing a program to 

collect data on the quality of services provided to taxpayers at walk-in 

sites, and we noted concerns with the reliability of the data due to the 

collection method.30 Under this program, managers directly observe a 

sample of employee interactions with taxpayers. We were concerned that 

employees’ performance could be influenced by the knowledge that they 

are being observed by managers, biasing the sample results. Also, IRS 

found that managers were not consistently coding employee performance. 

As a result, we31 and TIGTA32 have stated that the quality review program 

used to monitor walk-in sites does not provide reliable data and made 

recommendations intended to improve quality measurement. 

29IRS officials stated that IRS uses these staff to contact individual taxpayers, notify them of 

their delinquent tax accounts and, perhaps, enable them to make arrangements, such as 

face-to-face appointments at local sites, to discuss their account.

30GAO-05-67.

31GAO-05-67. 

32Treasury Inspector General for Tax Administration, Customer Service at the Taxpayer 

Assistance Centers Is Improving but Is Still Not Meeting Expectations, Reference No. 

2005-40-021 (Washington, D.C.: December 2004). 
Page 27 GAO-06-51 Tax Administration

To obtain reliable and comprehensive data on the quality of services 

provided, IRS is implementing Contact Recording at walk-in sites, which is 

similar to the method used for IRS’s telephone service, whereby IRS 

employee and taxpayer interactions will be recorded and reviewed later by 

managers.33 IRS piloted Contact Recording at a small number of walk-in 

sites, ending in July 2005, and decided to continue implementation. 

The results of the Contact Recording pilot and the current direct 

observation method are quite different. According to IRS officials, Contact 

Recording results showed quality to be significantly worse than the results 

from the direct observation method.34 However, IRS is not scheduled to 

fully implement Contact Recording at walk-in sites until December 2007. 

Until that occurs, IRS will lack reliable and comprehensive data. While IRS 

appears to be on schedule based on its implementation plan for Contact 

Recording, it has previously experienced delays implementing other parts 

of its quality review program. In fact, in a previous report we made a 

recommendation to help ensure that IRS addresses the causes of past 

delays in implementing its quality program at walk-in sites.35

For 2006, IRS asked TIGTA to assess the accuracy of tax law assistance, 

one service offered at walk-in sites. The results of TIGTA’s requested 

assessment of tax law assistance would be unreliable because sites they 

covered would be selected judgmentally and the results could not be 

projected to all sites. Also, IRS will continue to lack data on the other 

services it provides, namely account assistance and return preparation. 

33As with IRS’s telephone service, Contact Recording is intended to enable supervisors to 

provide walk-in site staff with more complete feedback on their performance and better 

assess the quality of services provided at walk-in sites. The system records all interactions, 

including the computer screen activity of the walk-in-site employee as they work with the 

taxpayer, into a database. A sample is selected for review, where managers play back and 

monitor the interaction and score it for quality. Staff can review the interaction when 

receiving feedback. 

34IRS officials believe results obtained from Contact Recording to be more reliable 

compared to results from direct observations because, for example, far more interactions 

are captured than are used for potential review and staff are not aware of which of their 

recorded interactions with taxpayers will be selected for review. 

35GAO-05-67.
Page 28 GAO-06-51 Tax Administration

In addition to the lack of reliable data on quality, IRS lacks complete data 

on what kind of services these sites should offer. As TIGTA36 and the 

National Taxpayer Advocate37 have noted, IRS lacks accurate and complete 

management information on walk-in sites. For example, TIGTA reported 

that (1) IRS has limited information on the exact numbers and types of 

services provided at IRS’s walk-in sites as well as information on what kind 

of face-to-face service taxpayers need or want and (2) the lack of 

information hinders IRS’s ability to make appropriate decisions about the 

locations and services it provides taxpayers. Consequently, TIGTA made 

recommendations to IRS to enhance the validity and reliability of 

information on taxpayer needs and ensure that the services provided 

effectively and efficiently address these needs.

More Taxpayers Sought 

Return Preparation 

Assistance from Volunteer 

Sites, but Quality Data Are 

Not Reliable

In contrast to IRS’s walk-in sites, the numbers of taxpayers seeking return 

preparation assistance at about 14,000 volunteer sites increased by nearly 

13 percent from last year (see fig. 7). Again, this increase is consistent with 

IRS’s strategy to direct taxpayers away from face-to-face IRS assistance to 

volunteer sites. 

36Treasury Inspector General for Tax Administration, The Effectiveness of the Taxpayer 

Assistance Center Program Cannot be Measured, Reference No. 2005-40-110 (Washington, 

D.C.: July 2005).

37National Taxpayer Advocate, 2004 Annual Report to Congress (Washington, D.C.: Dec. 31, 

2004).
Page 29 GAO-06-51 Tax Administration

Figure 7: Assistance Provided by Volunteer Sites, 2001-2005 Filing Seasons

Note: The time periods covered are January 1, 2001, through April 21, 2001; December 30, 2001, 

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

24, 2004; and December 26, 2004, through April 23, 2005. IRS does not collect data on the number of 

contacts at volunteer sites.

As with its walk-in sites, IRS lacks reliable data on the quality of services 

provided at volunteer sites. Ensuring quality service at volunteer sites is 

important because not only does IRS provide assistance to volunteer sites, 

but IRS actively promotes volunteer sites as an alternative for face-to-face 

services at its walk-in sites. Furthermore, we38 and TIGTA39 have reported 

concerns about the quality of return preparation assistance provided at 

volunteer sites and have made recommendations to remedy the concerns, 

some of which date back to 2000.40 More recently, a TIGTA official told us 

38GAO-05-67.

39Treasury Inspector General for Tax Administration, Improvements Are Needed to Ensure 

Tax Returns Are Prepared Correctly at Internal Revenue Service Volunteer Income Tax 

Assistance Sites, Reference No. 2004-40-154 (Washington, D.C.: August 2004).

40GAO, Tax Administration: Assessment of IRS’ 2000 Tax Filing Season, GAO-01-158 

(Washington, D.C., Dec. 22, 2000).

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2001 2002 2003 2004 2005

Millions of returns prepared at volunteer sites

0.95

1.37

1.07

1.50

1.69

Fiscal year

Source: GAO analysis of IRS data.
Page 30 GAO-06-51 Tax Administration

that that while improvements have been made at volunteer sites, continued 

effort is needed to ensure the accuracy of services provided. 

IRS recognized the data quality problems and proposed a strategy to 

address them, but there is still insufficient data to determine the quality of 

services provided. As part of IRS’s strategy for improving quality at 

volunteer sites, it developed three methods to monitor quality during the 

2005 filing season--observation reviews, site reviews, and mystery 

shopping.41 However, IRS halted its use of observation reviews immediately 

after starting due to concerns raised by the National Taxpayer Advocate 

and some partner organizations that observation reviews violate taxpayer 

privacy and unfairly target low-income taxpayers. IRS maintained its two 

other methods, but according to IRS officials, neither of these methods are 

as comprehensive as the observation method in following the process 

volunteers used to prepare returns, such as appropriate probing techniques 

to acquire dependency information from taxpayers. Furthermore, IRS 

conducted only 14 of the proposed 100 mystery shopping visits, which did 

not provide sufficient results. As a result, the methods used to collect data 

on quality at volunteer sites were inadequate for monitoring and evaluating 

quality at volunteer sites in 2005. 

IRS has proposed conducting return reviews instead of observational 

reviews for the 2006 filing season.42 During each site review, IRS officials 

plan to select three tax returns to examine by comparing a taxpayer’s 

return against their supporting tax-related documents, as well as other 

information obtained by the volunteers, to determine the accuracy of the 

return. According to IRS officials, IRS has consulted with several partner 

groups participating in the volunteer program about the return reviews. 

41Observation reviews were to be used to assess tax return preparation accuracy through 

first-hand observations of site operations as well as watching volunteers prepare taxpayers’ 

returns. IRS staff conducted site reviews through mandatory and routine visits to volunteer 

sites nationwide to gauge adherence to minimum site requirements, such as use of IRS 

resources. Mystery shopping was done by representatives from the American Institute of 

Certified Public Accountants who posed as taxpayers needing assistance.

42IRS officials stated that they would use results of return reviews to obtain information 

about the accuracy of return preparation. IRS would review a sample of taxpayers’ returns 

before the taxpayer leaves, and compare information on the return to supporting documents 

and any additional information prepared by the site. Accuracy would be determined on such 

factors as filing status, dependencies, exemptions, Earned Income Tax Credit applications, 

and income. According to IRS officials, unlike observation reviews, neither site 

representatives nor taxpayers can opt out from participating in return reviews.
Page 31 GAO-06-51 Tax Administration

The partners did not express the same concerns with return reviews as 

those they had with observation reviews. 

IRS intends to use return reviews, along with site and mystery shopping 

reviews, in an implementation plan for the 2006 filing season as part of its 

strategy to monitor and evaluate quality of return preparation at volunteer 

sites. According to IRS officials, the plan is on schedule for critical events, 

such as developing publications and training. For example, IRS officials 

told us that they were working to avoid the logistical problems of last year 

that resulted in fewer than the anticipated number of mystery shopping 

reviews. 

Web Site Performed 

Well, Was Highly Rated, 

and Used Extensively 

IRS’s Web site is important because it provides taxpayers and tax 

practitioners with assistance without having to contact IRS employees and 

results in IRS saving resources. Our review and external Web site ratings of 

IRS’s Web site and various other data indicates that it performed well, was 

user friendly, and was used extensively. This is consistent with IRS’s 

strategy to improve taxpayer service by providing options for automated 

interaction with the IRS, such as “Where’s My Refund.” 

Web Site Performed Well 

and Was User Friendly 

IRS’s Web site was user friendly, based on our testing for the types of 

information taxpayers look for when accessing the Web site. Specifically, 

our testing found it (1) was accessible and easy to navigate, (2) had no 

broken links, (3) did not have outdated or inconsistent data, (4) had facts 

and information logically arranged and easy to obtain, (5) had a search 

function that worked well, and (6) had a quick response time. 

Two independent assessments done by Keynote and Brown University's 

Center for Public Policy confirm our observations of IRS's Web site. 

• Keynote, an independent Web site rater of Internet performance that 

does a weekly study during the filing season, reported that IRS’s Web 

site performed very well. For example, it was ranked in the top 4 out of 

40 government Web sites and users were able to access the IRS Web site 

in less than 1 second during the entire filing season. The same 

independent weekly assessment reported that IRS ranked first or 

second in response time for downloading data. 
Page 32 GAO-06-51 Tax Administration

• Brown University’s Taubman Center for Public Policy rated IRS's Web 

site among the upper half of 61 federal government Web sites in 

providing service to citizens.

Taxpayers can ask IRS tax law questions via the agency’s Electronic Tax 

Law Assistance (ETLA) program on its Web site. The substantial increase 

in IRS’s performance for the ETLA program this year is due to the fact that 

IRS received significantly fewer questions than last year, which allowed it 

to improve its timeliness and accuracy in responding to those questions.

IRS received fewer questions because it kept the ETLA function at the 

same, less prominent location on the Web site that it was moved to last 

year. As we reported last year, IRS moved the ETLA function on its Web site 

to a less prominent location in the middle of the filing season last year.43

According to IRS officials, this significant increase in performance is 

because the number of questions being submitted declined from about 

64,200 last filing season to 18,700 this filing season. As a result, the average 

time to respond to questions is down from 3 days last filing season to 

1.2 days in the 2005 filing season and the accuracy rate in responding to 

questions has improved from 64 percent last year to 86 percent this filing 

season. 

IRS intended to discontinue this program for the 2006 filing season for 

taxpayers residing in the United States because questions can be answered 

more efficiently if handled via the telephone. However, due to 

congressional concerns, IRS now plans to keep the program. 

Web Site Was Used 

Extensively

IRS’s Web site experienced extensive use this filing season based on the 

number of visits to the Web site, pages viewed, and forms and publications 

downloaded. As of August 31, 2005, the Web site had been visited about 

169 million times and users viewed about 1.2 billion pages. This year is the 

first year that IRS is publicly reporting these figures. Further, as of August 

31, 2005, about 150 million forms and publications had been downloaded 

via the IRS Web site.

IRS’s Web site continues to provide two very important tax service features 

that were used extensively by taxpayers: (1) “Where’s My Refund” enables 

taxpayers to check on the status of their refund and for the first time this 

43GAO-05-67. 
Page 33 GAO-06-51 Tax Administration

year allows a taxpayer whose refund was returned as undeliverable mail to 

change their address and (2) Free File provides taxpayers the ability to file 

their tax return electronically for free. As of August 31, 2005, 28.5 million 

taxpayers had accessed the “Where’s My Refund” feature, about a 

24 percent increase over the same time period last year. As of September 

16, 2005, over 5 million tax returns had been filed via Free File, which 

represents a 46.2 percent increase over the same time period last year. For 

the first time this year, all individual taxpayers were eligible to file for free 

via IRS’s Web site. The performance of IRS’s Web site is consistent with 

IRS’s strategy to improve taxpayer service by providing options for 

automated interaction with IRS.

IRS Is Developing 

Long-term Goals for 

Taxpayer Service, but 

Completion Date Is 

Unknown 

IRS currently lacks, but is developing, long-term goals for taxpayer 

services, tax enforcement, and modernization. We have reported on lack of 

such goals in past reports in each of these three areas.44 Similarly, a 2004 

Program Assessment Rating Tool (PART)45 review conducted by the Office 

of Management and Budget found that IRS lacks long-term goals, not just 

for filing season activities, but for all aspects of its operations. PART asks, 

for example, whether a program’s long-term goals are specific, ambitious, 

and focused on outcomes, and found that IRS did not meet the criteria. 

IRS has been working to establish long-term goals as part of its strategic 

planning efforts for all aspects of its operations for well over a year. 

However, at this time IRS does not have a schedule for finalizing its longterm goals. 

According to federal law and good management practices, as part of its 

strategic planning, a executive agency should not only have annual 

performance goals for each program, but these annual goals should be 

linked to long-term goals that set longer term and broader expectations for 

44GAO-05-416T, GAO-05-707T, GAO, Tax Compliance: Better Compliance Data and Longterm Goals Would Support a More Strategic IRS Approach to Reducing the Tax Gap, GAO05-753 (Washington, D.C.: July 18, 2005), and IRS Telephone Assistance: Opportunities to 

Improve Human Capital Management, GAO-01-144 (Washington, D.C.: Jan. 30, 2001). 

45The PART is a diagnostic tool meant to provide a consistent approach to assessing federal 

programs. The PART includes general questions in each of four broad topics to which all 

programs are subjected: (1) program purpose and design, (2) strategic planning, (3) 

program management, and (4) program results (i.e., whether a program is meeting its longterm and annual goals). 
Page 34 GAO-06-51 Tax Administration

how an agency should be accomplishing its mission. While these long-term 

goals do not necessarily need to be quantifiable, they should be sufficiently 

focused on results or outcomes to provide the agency’s management and 

Congress with information not only prospectively—i.e., how well the 

agency expects to perform, but retrospectively as well—i.e., how close 

actual performance is to expectations. This information holds agencies 

accountable and helps agencies and Congress make strategic trade-offs. 

Long-term goals can help 

• an agency meet its goals by setting targets and providing incentives to 

meet them; 

• determine whether annual goals contribute to long-term progress; 

• identify gaps in performance or misaligned priorities; 

• consider new strategies to improve service in the future, especially since 

these strategies could take several years to implement; and 

• provide a framework for assessing budgetary trade-offs—for example, 

for IRS, between taxpayer service and enforcement on an annual basis 

and over the longer term. 

Long-term goals are a component of the statutory strategic planning and 

management framework that Congress adopted in the Government 

Performance and Results Act of 199346 (GPRA). GPRA requires executive 

agencies to develop a strategic plan with long-term, results- or outcomeoriented goals and objectives for all major functions and operations. 

Furthermore, each long-term goal must be linked to annual performance 

goals, which should be quantifiable, i.e., should indicate whether or not 

incremental progress is being made toward the long-term goal. 

IRS has taken some steps toward meeting GPRA’s criteria for strategic 

planning. IRS has established a strategic plan and associated strategic and 

annual performance goals. The strategic goals, which are qualitative and 

descriptive, are long-term goals in the sense that they represent IRS’s vision 

for the next 5 years. IRS’s Strategic Plan for fiscal years 2005-2009 

describes IRS’s three strategic goals for 5 years hence: (1) improve 

taxpayer service, (2) enhance enforcement of tax laws, and (3) modernize 

46Pub. L. No. 103-62 (1993). 
Page 35 GAO-06-51 Tax Administration

IRS through its people, processes, and technology. The plan includes 

strategies and means for achieving the strategic goals, such as reducing 

face-to-face assistance and increasing less expensive ways of interacting, 

i.e., electronic interactions such as IRS’s Web site. 

IRS’s strategic goals, however, lack specific targets against which progress 

can be measured. More specifically, IRS’s strategic goals do not spell out 

where IRS wants to be in the future with respect to levels of taxpayer 

service or enforcement. In contrast, IRS has one long-term goal—for 

electronic filing—which is quantitative. Because it is specific, it is useful 

for identifying gaps between actual and intended performance and 

measuring progress toward the goal.

We recognize that developing long-term goals that meet the above criteria 

is difficult. Not all goals may be as easily quantified as the goal for 

electronic filing. Because of the difficulty, IRS has experienced delays in 

finalizing its proposed goals. In our April 2005 testimony,47 we stated IRS 

reported that the goals would be finalized and publicized before May 2005. 

However, as of October 2005, IRS lacked a schedule for the public release 

of long-term goals. 

If long-term goals are not in place in a timely manner in 2006, Congress and 

IRS management will be less informed about budgetary trade-offs between 

improving taxpayer service and enhancing enforcement. Such trade-offs, as 

we have noted before, involve risk. One risk is surrendering some of the 

gains that have been made in taxpayer service.

47GAO-05-416T. 
Page 36 GAO-06-51 Tax Administration

IRS Has Taken 

Numerous Actions to 

Deal with the 

Aftermath of 

Hurricanes Katrina and 

Rita, but Implications 

for the 2006 Filing 

Season Are Not Yet 

Known 

IRS has taken numerous actions to address the aftermath of Hurricanes 

Katrina and Rita, including assessing employee and infrastructure needs, 

providing tax relief, and providing assistance to federal partners. IRS 

officials report that any effect on this year’s filing season performance was 

slight because the hurricanes occurred so late in the filing season. IRS is 

also assessing the longer term implications of the hurricanes for the 2006 

filing season and beyond. 

According to IRS officials, IRS followed mandated procedures, which focus 

on the impact to employees, critical business processes, and computer 

systems. IRS established an Emergency Command Center in Nashville, 

Tennessee, to deal with immediate issues in the field related to employee 

safety and assistance, damage to facilities and equipment, and security of 

taxpayer data and other IRS records. The center maintained ongoing 

communications with the highest levels of IRS management, including the 

two deputy commissioners, providing daily reports on the impact of the 

disaster and recovery process. IRS planned to close the center by midSeptember 2005. IRS located and contacted all 517 employees in the 

affected areas. Many have returned to work at sites that have been 

reopened or alternative locations. 

A vital part of IRS’s response to any disaster is its support of other federal 

agencies and stakeholders. IRS worked with the Federal Emergency 

Management Agency (FEMA) and the General Services Administration to 

inspect the buildings, determine if and when those facilities would be 

operational, and obtain replacement space for the offices closed 

indefinitely. IRS reopened offices in all but two locations (Gulfport, 

Mississippi, and New Orleans, Louisiana) in September and plans to 

reestablish workload inventories at those offices. IRS plans to reopen 

offices in Gulfport and New Orleans after November 4, 2005. Finally, IRS 

had four offices closed as a result of Hurricane Rita, all of which were 

reopened by the end of October 2005.

In response to Hurricane Katrina, IRS has assigned employees to work in 

approximately 30 disaster recovery centers including in Alabama, 

Mississippi, and Texas; assigned nearly 5,000 employees to augment federal 

telephone call sites; and called back 4,000 seasonal employees to minimize 

the disruption to ongoing IRS work. 

IRS gave priority over its regular telephone service to help disaster victims 

with the FEMA registration process whereby people call in and provide IRS 
Page 37 GAO-06-51 Tax Administration

employees with basic information such as their name, address, and 

property damage. IRS officials estimated that IRS staff may handle up to 

50 percent of these FEMA calls. As of September 18, 2005, IRS had 

answered over 384,000 telephone calls for FEMA, which was about 65 

percent of all calls at the time. In a letter commenting on a draft of this 

report, the Commissioner noted that as of the end of October, IRS 

answered over 786,000 disaster-related calls. Besides FEMA, IRS was the 

only other federal agency using its own facilities and employees to answer 

these calls. 

IRS’s actions to safeguard taxpayer data include working with external 

groups such as the Federal Protection Service and General Services 

Administration to secure facilities and assess operational capability. 

According to IRS officials, they are implementing the best practices learned 

from Hurricane Andrew and the September 11th attack, retrieved archived 

documents, and used many of the managers and employees who were 

involved in these prior events to support the current efforts.

IRS took numerous actions to provide broad relief to affected taxpayers 

including postponing deadlines for filing and payment, providing relief 

from interest and penalties, waiving some low-income housing tax credit 

rules, waiving the usual fees and expedite requests for copies of previously 

filed tax returns for affected taxpayers who need them to apply for benefits 

or to file amended returns claiming casualty losses, and encouraging 

widespread use of leave donation programs for disaster victims. 

IRS communicated this and other information via a series of news releases 

and notices. In addition, IRS established a special toll-free disaster number 

to handle taxpayer inquiries and launched a special section on its Web site 

to provide information on tax relief and related issues.

IRS also coordinated with the Department of Labor to expedite filing 

verifications and with the U.S. Postal Service to locate and redirect mail to 

the affected area. IRS temporarily suspended correspondence and 

compliance activities in the affected areas; additional guidance was 

pending at the time we concluded our work. Also, IRS has partnered with 

the Associated American Institute of Certified Public Accountants to 

provide outreach to affected taxpayer disaster recovery centers, and has 

coordinated with the Federation of Tax Administrators to provide 

assistance to impacted states. 
Page 38 GAO-06-51 Tax Administration

IRS also is assessing the longer term implications of Hurricanes Katrina 

and Rita for the 2006 filing season and beyond, which was complicated by 

the number of taxpayers involved, dispersion of those taxpayers across the 

country, and unanticipated computer programming and other business 

changes that need to be made in response to legislation under relatively 

tight time frames. Regarding the 2006 filing season, according to IRS 

officials, IRS’s actions, including using seasonal employees to answer IRS 

calls, should help minimize disruption to telephone service in particular 

while other employees assist FEMA in answering emergency calls. 

Conclusions In recent years, IRS has significantly improved its filing season services to 

taxpayers. The trend continued this year in several areas, such as telephone 

accuracy. However, because of overall budget constraints and its strategy 

of shifting resources from service to enforcement, IRS will be challenged to 

continue improving service. 

In principle, IRS could shift resources from service to enforcement while 

maintaining or improving the quality of service to taxpayers if it can 

provide service more efficiently. But there is risk that this strategy could 

result in surrendering some of the past gains in taxpayer services.

In practice, however, IRS has been able to shift resources and realize 

noticeable efficiency gains. IRS’s efficiency gains can be linked, in part, to 

management’s focus on results, performance measurement, and in the case 

of electronic filing, progress towards its long-term goal. 

We identified two areas where additional information might lead to better 

informed decision making about how to continue improving IRS’s 

performance. The first area is electronic filing. Despite numerous IRS 

initiatives that have increased electronic filing, there remains considerable 

room for further growth. Some states and federal tax experts have 

recognized that mandatory electronic filing for certain categories of tax 

practitioners is the one remaining option with the potential for significant 

impact. However, mandatory electronic filing would likely impose some 

costs and burdens on tax practitioners. Better information about the nature 

and magnitude of these costs and burdens would provide more facts about 

the pros and cons of mandatory electronic filing.

The second area is long-term goals. Without agency wide long-term goals 

that are concrete and as quantifiable as possible, it is difficult to assess 

IRS’s progress and budget requests. 
Page 39 GAO-06-51 Tax Administration

Recommendations for 

Executive Action

To address the problems with meeting its long-term electronic filing goal 

and needing time frames for developing and publicizing long-term goals, we 

recommend that the Commissioner of Internal Revenue direct the 

appropriate officials to 

• develop better information about the costs to tax practitioners and 

taxpayers of mandatory electronic filing of tax returns for certain 

categories of tax practitioners and 

• establish a schedule for developing its long-term goals. 

Agency Comments and 

Our Evaluation 

The Commissioner of Internal Revenue provided written comments in a 

November 4, 2005, letter outlining IRS’s view of its 2005 filing season 

performance in return processing, telephone service, walk-in service, 

volunteer return preparation, and Internet services, which is reprinted in 

appendix III. The Commissioner wrote that he appreciated our recognition 

of IRS’s successes for the 2005 filing season, which he characterized as one 

of the most successful ever for IRS. He stated that IRS was able to balance 

its resources to focus on both service and enforcement and provide 

customer service through detailed planning, improved efficiencies, and the 

dedication of IRS staff. However, he also recognized room for 

improvement. 

The Commissioner agreed with both of the report’s recommendations. In 

responding to our first recommendation to develop better information 

about the costs of mandatory electronic filing of returns for certain 

categories of tax practitioners, the Commissioner stated that IRS would 

initiate a study to analyze the relationship of state-mandated electronic 

filing requirements to the federal electronic filing rate. Regarding the 

second recommendation for IRS to establish a schedule for developing its 

long-term goals, the Commissioner stated that IRS had initiated efforts to 

develop long-term, outcome-oriented goals and would establish a schedule 

for developing these goals by the end of the calendar year 2005. 

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

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

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

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

Committee on Ways and Means, and the Ranking Minority Member, 
Page 40 GAO-06-51 Tax Administration

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

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

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

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

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

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

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

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

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

of this report. Key contributors to this report include Emily Byrne, Evan 

Gilman, John Lesser, Alan Patterson, Cheryl Peterson, Neil Pinney, Amy 

Rosewarne, Joanna Stamatiades, and Daniel Zeno.

Sincerely yours,

James R. White, 

Director, Tax Issues

Strategic Issues
Page 41 GAO-06-51 Tax Administration

Appendix I

Data on Processing Performance Relative to Apendxies

Fiscal Years 2001 through 2004 Performance 

and Fiscal Year 2005 Goals ApendxiI

As table 3 shows, the Internal Revenue Service (IRS) nearly met or 

exceeded eight of the nine processing performance goals for 2005. For five 

measures (refund timeliness, deposit error rate, letter error rate, 

productivity, and efficiency), IRS exceeded its goal. For three of the 

remaining measures (refund error rate, deposit timeliness, and notice error 

rate), IRS nearly met or met its goal. For one measure, refund interest paid, 

IRS did not meet the goal, according to IRS officials, because of an 

unanticipated but substantial increase in the interest rate. 

Comparing actual 2005 performance to 2004 performance shows that IRS’s 

performance improved or remained about the same for seven of the eight 

measures, again with the exception of refund interest paid. Table 4 also 

shows that IRS processing performance in 2005 has improved compared to 

2002 performance for all but one of the measures that could be compared.

Table 3: IRS’s Processing Performance, Fiscal Years 2001 through 2005

Measure 

name Definition

Fiscal year

2001

actuala

Fiscal year

2002

actual

Fiscal year

2003

actual

Fiscal year

2004 

actual

Fiscal year

2005 actual

(through July)a

Fiscal year

2005 goal

Deposit 

error rate

Percentage of

payments applied in

error by, for example,

reimbursing a taxpayer

who overpaid when the

taxpayer wanted any

overpayment credited

to next year’s tax bill. 5.0%

4.8%

+/-.3%d

4.2%

+/-.3% d

3.5%

+/-.31% d

2.3%

+/-.23% d 3.4%

Deposit 

timeliness–

paper

Interest foregone by not

depositing monies the

business day after

receipt, per $1 million in

deposits. Measure

assumes an 8 percent

interest rate.

Not comparable

because of

revisions to the

measure.

Not comparable

because of

revisions to the

measure.

Not comparable

because of

revisions to the

measure.

$407 e $401 e $400

Letter error 

rate

Percentage of letters

issued to taxpayers

with errors (includes

systemic errors).a

Not comparable

because of

revisions to the

measure.

7.4%

+/- .6% c

7.1%

+/-.5% c

6.6%

+/-.38% c

3.1%

+/-.30 c 5.9%

Notice error 

rate

Percentage of incorrect

notices issued to

taxpayers (includes

systemic errors). b

Not comparable

because of

revisions to the

measure.

18.7%

+/- 2.4% c

9.4%

+/- 1.2% c

9.5%

+/-1.31% c

8.8%

+/-1.07% c 8.6%
Appendix I

Data on Processing Performance Relative to 

Fiscal Years 2001 through 2004 Performance 

and Fiscal Year 2005 Goals

Page 42 GAO-06-51 Tax Administration

Note: GAO analysis of IRS data.

a

According to IRS officials, they did not compute a margin of error for these measures in 2001.

b

The measures for fiscal year 2005 are through July 31, which were the latest data available at the time 

we ended our audit work. According to IRS officials, the 2004 results through July 31 are reflective of 

IRS’s performance during the filing season. In addition, IRS officials told us that the results for the 

measures should not change significantly through September 30.c

Systemic errors are computergenerated errors over which a particular processing center would have no control. 

d IRS estimates these measures to have a 90 percent confidence interval. 

e

IRS’s measure for deposit timeliness for 2004 and 2005 was not comparable to previous years 

because IRS changed the formula to not include weekends. 

Refund error 

rate –

individual 

(paper)

The percentage of

refunds with IRScaused errors in the

entity information (e.g.,

incorrect name, Social

Security number, or

refund amount);

includes systemic

errors. c 9.8%

8.0%

+/- .46% c

5.3%

+/-.41% c

4.9%

+/-.44% c

5.1%

+/-.53% c 4.8%

Refund 

interest paid

Amount of refund

interest IRS paid per $1

million of refunds

issued.

Not comparable

because of

revisions to the

measure.

Not comparable

because of

revisions to the

measure. $36.29 $20.55 $27.54 $19.00

Refund 

timeliness–

individual 

(paper)

Percentage of refunds

issued within 40 days

or less.

95.2%

98.2%

+/- .32% d

98.8%

+/- .26% d

98.3%

+/- .17% d

99.2%

+/-.18% d 98.4%

Productivity Weighted volume of

documents processed

per staff year expended

at the processing

centers. 30,133 28,389 30,179 30,405 31,286 30,179

Individual 

Master File 

Efficiency 

Measure of individual

Master File returns

processed per staff

year expended.

Measure not in

existence.

Measure not in

existence.

Measure not in

existence.

Measure not in

existence.

16,172 14,878.

(Continued From Previous Page)

Measure 

name Definition

Fiscal year

2001

actuala

Fiscal year

2002

actual

Fiscal year

2003

actual

Fiscal year

2004 

actual

Fiscal year

2005 actual

(through July)a

Fiscal year

2005 goal
Page 43 GAO-06-51 Tax Administration

Appendix II

Budget Reduction Had Some Impact on 

Service to Taxpayers ApendxiI

IRS’s fiscal year 2005 budget was approximately $10.2 billion which funded 

approximately 96,400 full-time equivalents (FTE). The taxpayer services 

accounted for about $3.6 billion (35 percent) of the entire IRS budget. The 

remaining budget was used to fund various operations such as 

examination, collection, investigations, and business systems 

modernization. 

From fiscal year 2004 through fiscal year 2005, IRS received a slight budget 

reduction in taxpayer service of about $103 million (2.8 percent) as shown 

in table 4. 1 Although IRS officials stated that the reduction would have had 

minimal impact on taxpayer service during the 2005 filing season, our 

analysis of IRS’s performance measures showed some impact on service, 

most notably in the area of telephone access. IRS also absorbed budget 

reductions for its volunteer and Web site operations, with minimal impact 

on taxpayer service, according to IRS officials. In both these areas, 

however, officials stated that future budget reductions could have a 

negative impact on taxpayer service. As discussed in the report section on 

long-term goals, long-term goals could help IRS decision makers decide 

how to best allocate resources during times of budget reductions. 

Table 4: Overall Taxpayer Service Budget Reduction, Fiscal Years 2004 and 2005 

Source: GAO analysis of IRS data.

1

IRS presented its fiscal year 2006 taxpayer service budget in the proposed format of 

Assistance, Outreach, and Processing. However, it is unlikely that Congress will approve 

this new budget structure. We were unable to obtain information within the old structure in 

the time available for this audit, so the information is presented in the new proposed format. 

However, the impact of the budget reduction on taxpayer service remains unchanged. 

(Dollars in thousands)

Fiscal Year

2004

Fiscal

Year 2005

Change

Dollars Percentage

Assistance $1,828,373 $1,829,189 $817 0.0%

Outreach 544,146 500,329 -43,817 -8.1

Processing 1,337,128 1,276,459 -60,669 -4.5

Total $3,709,647 $3,605,977 $-103,670 -2.8%
Appendix II

Budget Reduction Had Some Impact on 

Service to Taxpayers

Page 44 GAO-06-51 Tax Administration

Direct Costs. About $18 million of the $103 million budget reduction shown 

in table 4 was a reduction in direct costs and these reductions did have 

some impact on taxpayer service, primarily telephone service. 

Support Costs. Most of the $103 million reduction, about $85 million, was in 

support costs. Support costs are composed of both indirect costs and 

overhead costs such as rent, management, information services, legal 

services, and security. According to IRS officials, while large, this reduction 

did not impact taxpayer service because the services are not directly 

related to the funding of IRS programs.

We examined those budget adjustments that we believed could have 

significantly affected the filing season activities we review annually. We 

found the following: 

• Tax return processing. Processing received a slight overall budget 

reduction of direct funds of $7.6 million, about 1 percent, in fiscal year 

2005. In particular, Submission Processing received a direct reduction of 

$11 million. IRS absorbed this reduction by allowing some management 

contracts to expire because they were no longer needed due to the 

consolidation of paper processing operations. Additionally, the 

Electronic Tax Administration, which is responsible for advertising 

electronic filing, received a marketing budget reduction of 

approximately $7.6 million (40 percent) for the 2005 filing season. In 

spite of the budget reduction, the number of tax returns filed 

electronically increased 11 percent from 2004. However, IRS officials 

are becoming increasingly concerned about the potential impact of 

future reduction on their ability to increase electronic filing. 

• Telephone services. Perhaps the most significant impact of the budget 

reduction was in the area of telephone services. According to IRS 

officials, IRS’s telephone services received a direct budget reduction of 

$5 million. As a result, taxpayers’ ability to talk to a customer service 

representative (CSR) was more limited than the year before, their wait 

time increased, and more taxpayers hung up before speaking with a 

CSR. 

• Walk-in & volunteer sites. IRS’s budget for walk-in sites remained 

stable, and due to congressional concerns, plans to close some walk-in 

sites in 2006 are on hold. For its volunteer sites, IRS shifted resources 

from taxpayer service to enforcement, resulting in an overall reduction 

in the Stakeholder Partnership, Education, and Communication (SPEC) 
Appendix II

Budget Reduction Had Some Impact on 

Service to Taxpayers

Page 45 GAO-06-51 Tax Administration

budget of about $3 million. SPEC absorbed approximately $2 million of 

the budget reduction by implementing a voluntary reassignment 

program that allowed 28 SPEC staff, including 10 front-line managers, to 

transfer to enforcement work. Although SPEC had planned to 

reorganize its field management structure for the 2006 filing season as a 

result of changes made in 2005, as with the walk-in sites, it no longer 

plans to do so. Also, IRS officials stated that future budget reductions 

could impede sustainable growth and negatively impact taxpayer 

service in the future because their model of leveraging resources relies 

on partnerships and networking opportunities. 

• Web site. Web Services, which oversees IRS’s Web site, received an 

overall budget reduction of approximately $4 million (10 percent) in 

2005. As a result, Web Services reduced some contract services. Officials 

believe that because Web site use has increased annually, its budget 

should grow to keep pace with the increase. However, they expressed 

concern that future reductions could negatively impact the Web site’s 

performance. 
Page 46 GAO-06-51 Tax Administration

Appendix III

Comments from the Internal Revenue Service ApendxiI
Appendix III

Comments from the Internal Revenue Service

Page 47 GAO-06-51 Tax Administration
Appendix III

Comments from the Internal Revenue Service

Page 48 GAO-06-51 Tax Administration
Appendix III

Comments from the Internal Revenue Service

Page 49 GAO-06-51 Tax Administration
Appendix III

Comments from the Internal Revenue Service

Page 50 GAO-06-51 Tax Administration
Appendix III

Comments from the Internal Revenue Service

(450382) Page 51 GAO-06-51 Tax Administration
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