TAX REFUNDS

IRS Is Exploring 

Verification 

Improvements, but 

Needs to Better 

Manage Risks

Report to Committee on Finance, U.S. 

Senate

June 2013

GAO-13-515

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-13-515, a report to the 

Committee on Finance, U.S. Senate

June 2013

TAX REFUNDS

IRS Is Exploring Verification Improvements, but 

Needs to Better Manage Risks

Why GAO Did This Study

For tax year 2011, IRS matched over 

140 million individual income tax 

returns against the 1.6 billion 

information returns it received from 

third parties such as employers. 

Generally, this match does not occur 

until well after refunds are issued. In 

early 2011 the then IRS Commissioner 

outlined a vision for a "Real Time Tax” 

system—a strategy to improve 

verification by matching third party 

information to income tax returns 

before refunds are issued, and IRS 

began exploring options for Real Time 

Tax later that year. GAO was asked to 

review IRS’s strategy for exploring 

Real Time Tax. This report (1) 

describes when IRS receives and 

matches individual tax and information 

returns and (2) assesses the extent to 

which IRS is following leading 

practices for managing an exploratory 

effort of this importance. GAO 

reviewed IRS documents and 

guidance, including the Internal 

Revenue Manual, information return 

forms, and drafts of Real Time Tax 

planning documents. GAO generated 

descriptive data on the timing and 

volume of 25 information returns using 

IRS’s Compliance Data Warehouse 

database. GAO identified leading 

practices on planning new initiatives at 

IRS using past GAO reports, internal 

control standards, and IRS documents.

What GAO Recommends

GAO recommends IRS identify time 

frames for the exploratory effort’s 

critical phases and activities and 

develop a risk management framework 

for Real Time Tax. IRS agreed with our 

recommendations.

What GAO Found

The Internal Revenue Service (IRS) receives few information returns before 

issuing most tax refunds. In 2012, IRS issued 50 percent of tax year 2011 

refunds to individuals by the end of February, but had only received 3 percent of 

information returns. Most information returns are not received by IRS until after 

mid-April, and IRS conducts the first match of tax and information returns in July, 

with subsequent matches in February and May of the following year. For tax year 

2010, over a year passed on average before IRS notified taxpayers of matching 

discrepancies, and IRS recognizes that this long time lag burdens taxpayers.

Timing of Refunds Issued Compared to Information Returns Received, Tax Year 2011

IRS is generally following leading practices in its Real Time Tax exploratory effort 

by, for example, dedicating a team and defining program goals. IRS did not 

develop an overall timeline because management views Real Time Tax as a 

broad goal, and officials wanted to avoid causing concern that IRS had already 

decided on a path. Without a timeline for the overall exploratory effort, IRS 

cannot know if its efforts will be completed in even the broad time frames IRS is 

considering, and Congress may not be able to determine what legislative action 

might be required. IRS officials stated that managing risk is a high priority, but 

they have not developed an overall risk management framework, as they are still 

in the early stages of the exploratory effort. They said they plan to further develop 

the strategy if IRS pursues Real Time Tax. Without systematically identifying and 

evaluating the risks of Real Time Tax options, IRS officials may miss critical 

factors that could complicate the effort. A record of prior risk analyses could help 

prevent unnecessarily repeating the same analyses. View GAO-13-515. For more information, 

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

whitej@gao.gov.
Page i GAO-13-515 Real Time Tax

Letter 1 

Background 3

IRS Issued Most 2012 Refunds Months Before Receiving 

Information Returns and Matching Them to Tax Returns 8

IRS Is Generally Following Leading Practices in Its Exploratory 

Efforts, but Has Not Developed a Timeline or Risk Management 

Framework 14

Conclusions 22

Recommendations for Executive Action 23

Agency Comments 23

Appendix I Objectives, Scope, and Methodology 25

Appendix II Information Returns Used in Matching Against Individual 

Income Tax Returns 28

Appendix III Leading Practices for Planning New Internal Revenue 

Service Initiatives 31

Appendix IV Amendment Rates for Information Returns Used in Matching 

Against Individual Income Tax Returns 33

Appendix V Comments from the Internal Revenue Service 34

Appendix VI GAO Contact and Staff Acknowledgments 36

Tables

Table 1: Key Questions for Real Time Tax and Examples of Early 

Options that IRS Is Consideringa 15

Table 2: Leading Practices for Planning New Internal Revenue 

Service Initiatives 31

Contents 
Page ii GAO-13-515 Real Time Tax

Figures

Figure 1: Volume of Information Returns and as a Percentage of 

Total Volume, Tax Year 2011 5

Figure 2: Key Dates for Information Returns, Filing Season 2012 

(Tax Year 2011) 6

Figure 3: Timing of Refunds Issued Compared to Information 

Returns Received, Tax Year 2011 9

Figure 4: Dates IRS Received 25 Information Returns and 

Individual Income Tax Returns by Cumulative Percent of 

Total Volume, Tax Year 2011 10

Figure 5: Timelines for Submission, Matching, and Taxpayer 

Notification of Discrepancies for Information Returns and 

Timely Filed Income Tax Returns, 2011 Filing Season 

(Tax Year 2010) 13

Figure 6: Assessment of the Extent to Which IRS Is Implementing 

Leading Practices in Its Real Time Tax Exploratory 

Efforts 17

Figure 7: Real Time Tax Stakeholders 18

Figure 8: Amendment Rate for Information Returns, Tax Year 2011 33

Abbreviations

AUR Automated Underreporter

CDW Compliance Data Warehouse 

IRS Internal Revenue Service

RRB Railroad Retirement Board

SSA Social Security Administration

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Page 1 GAO-13-515 Real Time Tax

441 G St. N.W.

Washington, DC 20548

June 4, 2013

The Honorable Max Baucus

Chairman

The Honorable Orrin Hatch

Ranking Member

Committee on Finance

United States Senate

The Internal Revenue Service’s (IRS) matching of tax returns to 

information provided to it by third parties is a powerful tool for helping 

ensure compliance with the tax laws. Doing so is a vast undertaking. For 

tax year 2011, IRS matched over 140 million individual income tax returns 

against the 1.6 billion third-party information returns, such as Form W-2, 

Wage and Tax Statement, it received from employers.1

In early 2011, the then IRS Commissioner outlined a vision for a “Real 

Time Tax” system—a strategy to improve verification by matching thirdparty information to income tax returns during the pre-refund screening 

process rather than after refunds are issued. In 2012, IRS launched a 

three-phase exploratory effort to assess the tradeoffs inherent in pursuing 

Real Time Tax. Moving the matching of third-party information during the 

pre-refund screening process could have significant impacts on 

taxpayers, third parties, and IRS processes and systems. It could also 

This matching 

helped IRS verify that taxpayers accurately reported their income and 

other information on their tax returns. While valuable, the matching 

process also has limitations. For example, information returns are not due 

to IRS until well after many taxpayers have filed their tax returns and 

received any refunds. As a consequence, IRS is unable to match tax 

returns to information returns before issuing most refunds. As a further 

consequence, when a mismatch shows a taxpayer underreported his or 

her tax liability, IRS cannot reduce the amount of any current refund. 

Instead, IRS must contact the taxpayer and try to collect the tax debt. 

This imposes additional burden on taxpayers and additional costs on IRS. 

Also, if the refund has been spent, taxpayers may not be able to readily 

pay the amount owed plus interest and any penalties.

 

1

This volume of information returns excludes returns that were issued to business entities, 

such as corporations or partnerships.

 
 

Page 2 GAO-13-515 Real Time Tax

require congressional action to authorize changes to the tax code, 

including, perhaps, changes to some information return due dates. 

Considerations associated with moving the due dates include whether 

third parties have the information they need before the current due dates 

and whether they would have sufficient time to detect and correct errors 

before reporting. IRS officials noted that they do not yet consider Real 

Time Tax a “project” and have not decided whether to pursue Real Time 

Tax.

Given the potential benefits and costs, you asked us to review IRS’s 

strategy for exploring Real Time Tax. The objectives of this report are to 

(1) describe when IRS receives and matches individual tax and 

information returns and (2) assess the extent to which IRS is following 

leading practices for managing an exploratory effort of this importance at 

IRS.

To describe when IRS receives and matches individual tax and 

information returns, we reviewed IRS documents and guidance, including 

the Internal Revenue Manual and IRS information return forms.2 We 

limited the scope of our review to the Form 1040 series3 and the 25 

information returns IRS officials said would likely be most relevant to 

matching to individual income tax returns under a Real Time Tax system.4

 

2

See appendix I for more information about our scope and methodology.

These information returns are listed in appendix II. We generated 

descriptive statistics by accessing selected data elements from IRS’s 

Compliance Data Warehouse (CDW) database, which provides a variety 

of tax return, enforcement, compliance, and other data. We assessed the 

reliability of CDW data by (1) performing electronic or manual testing of 

3

The Form 1040 series includes, among others, Forms 1040 and 1040A, U.S. Individual 

Income Tax Return; 1040EZ, Income Tax Return for Single And Joint Filers With No 

Dependents; 1040-NR, U.S. Nonresident Alien Income Tax Return; 1040-PR, Planilla para 

la Declaración de la Contribución Federal sobre el Trabajo por Cuenta Propia (Incluyendo 

el Crédito Tributario Adicional por Hijos para Residentes Bona Fide de Puerto Rico); and

1040-SS, U.S. Self-Employment Tax Return (Including the Additional Child Tax Credit for 

Bona Fide Residents of Puerto Rico.) The 1040-PR is the Spanish version of the 1040-

SS. In addition, Form 1040-SS is for use by bona fide residents of the U.S. Virgin Islands, 

Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands. 

4

We excluded certain information returns IRS officials said are not relevant to IRS’s Real 

Time Tax exploratory effort, such as those issued to taxpayers with employer identification 

numbers, as well as Schedule K-1s. We also excluded other types of returns not used for 

matching against Form 1040s, such as Form FinCen 104, Currency Transaction Report. 
 

Page 3 GAO-13-515 Real Time Tax

required data elements to identify obvious errors, (2) reviewing existing 

information about the data and the system that produced them, and (3) 

interviewing agency officials knowledgeable about the data. We 

determined that the data were sufficiently reliable for the purposes of this 

report.

We reviewed our previous reports, Standards for Internal Control in the 

Federal Government,

5

We conducted this performance audit from August 2012 to June 2013 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

and IRS documents, including the 2009 to 2013 

IRS Strategic Plan to identify leading practices that we consider relevant 

for planning initiatives at IRS. The leading practices we identified do not 

represent the universe of practices that IRS could employ when planning 

a new initiative. We selected examples of leading practices that we 

judged to be important for IRS to consider during its Real Time Tax 

exploratory efforts. We discussed with IRS the practices on which we 

based our descriptions and assessments during the course of our audit 

work, and IRS agreed with our approach. To assess the extent to which 

IRS is following leading practices in its exploratory efforts, we reviewed 

IRS documents related to the Real Time Tax exploratory effort, all of 

which were predecisional and subject to change. Documents we reviewed 

included draft copies of the Real Time Tax Conceptual Future Operating 

Model and the Real Time Tax Communications Strategy and Plan. We 

then compared IRS efforts to the leading practices we identified. A 

description of the leading practices is detailed in appendix III.

Third-party information reporting dramatically increases the accuracy of 

tax returns. Third parties—employers, banks, and others—report wages, 

 

5

GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1

(Washington, D.C.: Nov. 1, 1999). 

Background 
 

Page 4 GAO-13-515 Real Time Tax

interest, and other information to both taxpayers and IRS.6 An IRS study 

of individual tax compliance found that in tax year 2006, taxpayers 

accurately reported over 90 percent of income with substantial 

information reporting requirements, such as interest and dividend 

income.7

There are more than 40 different types of information returns, 25 of which 

are directly matched against income tax returns filed by individuals. 

According to IRS’s analysis of tax year 2009 data,

In contrast, the same study found taxpayers accurately reported 

only 44 percent of income subject to little or no information reporting, 

such as nonfarm sole proprietor income.

8 most taxpayers 

receive at least one of three information return types: Form W-2, Wage 

and Tax Statement; Form 1099-G, Certain Government Payments; or 

Form 1098, Mortgage Interest Statement.

9

 

6

For purposes of this report, we use the term “provider” to refer to all third parties that 

provide information returns to IRS, including employers, corporations, partnerships, payroll 

providers, estates, trusts, financial institutions, educational institutions, and state and 

federal agencies.

In terms of the volume of 

information returns IRS receives, a few types of returns accounted for the 

majority of returns in tax year 2011, as shown in figure 1.

7

IRS, Tax Gap for Tax Year 2006 Overview (Washington, D.C.: Jan. 6, 2012). Accessed 

March 4, 2013, http://www.irs.gov/pub/newsroom/overview_tax_gap_2006.pdf. 

8

A tax year is the year in which the tax liability is incurred and the filing season year is the 

year in which the taxpayer files the tax return (usually the year after the tax year). 

9

Internal Revenue Service, ‘Real Time’ Tax System Opportunity: Briefing on Initial 

Baseline Analysis (Washington, D.C.: Oct. 22, 2012). 
 

Page 5 GAO-13-515 Real Time Tax

Figure 1: Volume of Information Returns and as a Percentage of Total Volume, Tax 

Year 2011

Note: See appendix II for a list and descriptions of information returns. Analysis excludes information 

returns issued to taxpayers with employer identification numbers. Category 1099 includes 16 types of 

Form 1099, excluding the 1099-B, Proceeds From Broker and Barter Exchange Transactions.

Category W-2 includes Form W-2, Wage and Tax Statement, and Form W-2G, Certain Gambling 

Winnings. Category 1098 includes Forms 1098, Mortgage Interest Statement; 1098-T, Tuition 

Statement; and 1098-E, Student Loan Interest Statement. Category 5498 includes Forms 5498, IRA 

Contribution Information; 5498-ESA, Coverdell Education Savings Account Contribution Information;

and 5498-SA, Health Savings Account, Archer Medical Savings Account or Medicare Advantage 

Medical Savings Account Information. 

Information returns are sent to taxpayers and IRS but the dates they are 

due to taxpayers differ from the dates they are due to IRS (see fig. 2). 

Furthermore, the dates most information returns are due to IRS are well 
 

Page 6 GAO-13-515 Real Time Tax

after the start of the tax filing season.10

Figure 2: Key Dates for Information Returns, Filing Season 2012 (Tax Year 2011)

Many taxpayers who expect 

refunds file early in the filing season to get their refunds as soon as 

possible. Due dates for information returns are established by statute and 

associated regulations. (For more information on information return due 

dates, see app. II.)

Note: See appendix II for details on information return due dates.

About 97 percent of information returns for tax year 2011 issued to 

individuals that we analyzed were submitted to IRS electronically. For 22 

of the 25 return types, the electronic submission rate was at least 99 

 

10The filing season is when most taxpayers interact with IRS. Most taxpayers file their tax 

returns between January 1 and April 15, the deadline for filing individual income tax 

returns. If April 15 falls on a weekend or a holiday, the due date is the next business day. 
 

Page 7 GAO-13-515 Real Time Tax

percent. For 3 of the remaining return types, Forms W-2 had an electronic 

filing rate of 87 percent;11

IRS uses what officials refer to as a “look-back” compliance model. 

Rather than holding refunds until all compliance checks can be 

completed, IRS issues refunds after doing some automated filtering of 

returns to detect fraud and correct obvious errors such as calculation 

mistakes and violations of eligibility limits for deductions and credits.

1099-S, Proceeds from Real Estate 

Transactions, had a rate of 86 percent; and 1099-MISC, Miscellaneous 

Income, had a rate of 67 percent.

12

IRS’s Automated Underreporter (AUR) program matches information 

returns to tax returns and pursues discrepancies. The AUR program 

conducts matches in three phases, following a staggered schedule in part 

to accommodate when it receives information returns and income tax 

returns. IRS conducts its first match in July for income tax returns filed by 

April 15; the second match in February of the following year for income 

tax returns received between April 16 and October 15; and the third 

match in May of the following year for income tax returns received after 

October 15. According to IRS, the first match is performed in July to allow 

for receipt of most information returns. IRS officials commented that 

matching dates are also affected by competing demands for the agency’s 

information technology resources. When IRS identifies discrepancies it 

determines which cases to pursue and sends notices to taxpayers. These 

notices instruct the taxpayer to, at a minimum, contact IRS to resolve the 

discrepancy and in many instances will also propose the additional taxes 

For 

2013, IRS informed taxpayers that it would issue most refunds less than 

21 days after receiving a tax return.

 

11Employers file Form W-2 with the Social Security Administration (SSA), which performs 

quality checks before submitting Form W-2 data to the IRS. The SSA sends all Form W-2 

data electronically to IRS, although the original W-2 returns may be filed with SSA on 

paper or electronically. For tax year 2011, 87 percent of W-2 returns were filed 

electronically with SSA while 13 percent were filed on paper.

12IRS is granted math error authority in 26 U.S.C. § 6213(b). It can be used for certain 

purposes specified by Congress in 26 U.S.C. § 6213(g)(2) including correcting calculation 

errors and checking for other obvious noncompliance such as claims above income and 

credit limits. Without specific statutory authority, IRS cannot pursue assessment and 

collection activities without issuing a statutory notice of deficiency. 
 

Page 8 GAO-13-515 Real Time Tax

and penalties due from the taxpayer. Due to resource constraints, IRS 

does not pursue all discrepancies.13

At a high level, IRS’s concept for Real Time Tax involves (1) matching 

electronically filed individual tax returns to third-party information returns; 

(2) notifying taxpayers of potential discrepancies; and (3) resolving 

discrepancies before issuing a refund. IRS officials noted that the agency 

would need to communicate quickly with taxpayers for the Real Time Tax 

concept to be feasible. However, officials noted quick communication is 

complicated by IRS efforts to protect taxpayers from so-called “phishing 

scams” and other email-related forms of fraud. As a precaution, IRS has 

only contacted taxpayers through regular mail and has instructed 

taxpayers not to respond to email messages purporting to be from IRS.

Consistent with IRS’s practice of issuing refunds promptly after a return is 

filed,14 IRS issued 50 percent of 2012 refunds for tax year 2011 to 

individual taxpayers by the end of February, at which point only 3 percent 

of all information returns had been received.15

 

13Not all discrepancies represent noncompliance (i.e., underpayment of taxes due). Some 

cases involve discrepancies that can be explained by taxpayers while others may be 

resolved without taxpayer contact. In addition, some discrepancy cases may be 

transferred to Examination for further review. IRS also identifies nonfilers by comparing 

information return data to individual income tax return data and routes these cases to 

either the Substitute for Return or Automated Substitute for Return programs. These 

programs were not within the scope of this review.

By April 19, 2012, IRS had 

issued 82 percent of refunds to individual filers but had received only 30 

percent of all information returns. By August 2, 2012, when IRS 

completed its first match of information return data to tax returns, IRS had 

issued 92 percent of refunds to individual taxpayers, as shown in figure 3.

14If an individual files on time and is due a refund, the law requires IRS to refund any 

overpayment made by the individual within 45 days of the last day prescribed for filing the 

return. If IRS takes longer, IRS is required to pay interest beginning on the 46th day after 

the statutory due date for filing the return. 26 U.S.C. § 6611(e).

15For purposes of our analysis we use the term “received” to refer to the posting date 

when IRS posts tax return data to the master file, which represents when the tax return

data are available for matching. Officials noted that IRS must cleanse the data prior to 

posting to IRS systems. This may include identifying and correcting incomplete or 

inaccurate data before posting the data to IRS systems.

IRS Issued Most 2012 

Refunds Months 

Before Receiving 

Information Returns 

and Matching Them to 

Tax Returns 
 

Page 9 GAO-13-515 Real Time Tax

Figure 3: Timing of Refunds Issued Compared to Information Returns Received, Tax Year 2011

Note: Dates shown above are for calendar year 2012, which corresponds to the filing season for tax 

year 2011 returns. Data reflect dates by which IRS posted tax return information to the master file, at 

which point data are available for matching. Officials noted that IRS must cleanse the data prior to 

posting to IRS systems. This may include identifying and correcting incomplete or inaccurate data 

before posting the data to IRS systems. See appendix I for details.

Figure 4 expands upon figure 3 to show that IRS did not receive any type 

of information return in significant numbers until March 2012. Of the 25 

types of information returns represented in figure 4, IRS had received 

more than 30 percent of the submissions by March 1, 2012, for one form, 

Form 1099-G. For all other types, IRS had received less than 15 percent 

of submissions by March 1, 2012.

No Information Return 

Types Were Received in 

Significant Numbers 

Before the End of 

February
 

Page 10 GAO-13-515 Real Time Tax

Figure 4: Dates IRS Received 25 Information Returns and Individual Income Tax Returns by Cumulative Percent of Total 

Volume, Tax Year 2011

Notes: The data include amended returns and returns designated as “unknown” at the time of our 

analysis. Amended and “unknown” returns accounted for 2 percent (33 million) of the total 1.6 billion 

information returns associated with individual tax filers that IRS received. Forms 5498 (the lines 

furthest to the right in the figure above) are due to IRS by May 31.

Dates shown above are for calendar year 2012, which corresponds to the filing season for tax year 

2011 returns. Data reflect dates by which IRS posted tax return information to the master file, at 

which point data are available for matching. Officials noted that IRS must cleanse the data prior to 

posting to IRS systems. This may include identifying and correcting incomplete or inaccurate data 

before posting the data to IRS systems. See appendix I for details.

a

As shown in figure 4, IRS receives many information returns after their 

original due dates. To begin matching earlier in the year, one option is to 

move up information return due dates. However, without an 

understanding of why information returns are filed after they are due, 

Form 5498s include Forms 5498, IRA Contribution Information; 5498-ESA, Coverdell Education 

Savings Account Contribution Information; and 5498-SA, Health Savings Account, Archer Medical 

Savings Account or Medicare Advantage Medical Savings Account Information. 
 

Page 11 GAO-13-515 Real Time Tax

simply moving the dates may not be effective. As discussed below, IRS 

frequently grants extensions to information return providers.

Data from IRS did not indicate what proportion of the information returns 

arriving after due dates was attributable to filing extensions, but an official 

told us that the agency approved 371,000 requests for filing extensions 

from information return providers for tax year 2011.16 According to IRS, 

information providers request extensions for reasons that include complex 

IRS regulations, changes in tax laws, and changes in information return 

forms. In focus groups held by IRS, some providers of more complex 

return types noted they automatically request a filing extension to allow 

time for taxpayers to review their copy of the information return and notify 

the provider of any needed corrections. Some providers said that they are 

hesitant to provide returns to IRS before hearing from taxpayers because 

IRS can levy penalties on providers that file forms with incorrect 

information.17

Moving information return due dates could affect the volume of 

information return amendments. Amendments are changed information 

returns resubmitted to IRS and the amendment rate is the percent of total 

information return volume attributed to amended, duplicate, or corrected 

returns received by IRS. In focus groups held by IRS, some information 

return providers noted that accelerating submission due dates for 

complex information returns would create challenges, as they often need 

to correct information in consultation with information return recipients 

before submitting data to IRS. We did not assess the volume or timing of 

corrections made by providers before sending information returns to IRS.

On average, information returns had an amendment rate of less than 0.4 

percent. Only 3 of the 25 information returns we reviewed had 

amendment rates greater than 2 percent. While amendment rates for 

most information returns were low for tax year 2011, they still represented 

 

16According to IRS, extensions submitted cover the payer and all the information return 

types they submit. 

17Information providers face penalties if they fail to file correct information returns on or 

before the required filing date, they fail to include all the information required on the return, 

or they include incorrect information. 27 U.S.C. § 6721.

Filing Extensions 

Influence When IRS 

Receives Information 

Returns 

Amendment Rates 

Influence When Accurate 

Data Are Available for 

Matching
 

Page 12 GAO-13-515 Real Time Tax

millions of returns. For example, the amendment rate for Form W-2 was 

only 0.94 percent, but this represented over 2 million of the 213 million W2s for tax year 2011 that IRS received. One reason for low amendment 

rates may be providers’ fear of penalties, as discussed above. Appendix 

IV provides additional information on amendment rates.

For 2010 income tax returns which were filed starting in 2011, IRS took 

over 1 year (388 days), on average, to notify taxpayers about AUR 

discrepancies.18 This is the elapsed time between when the taxpayer filed 

his or her income tax return and when IRS issued the first notice. The 

longest elapsed time was 763 days, just over 2 years. As a consequence, 

taxpayers may not be notified about a potential error until after filing the 

following year’s return. IRS officials acknowledge that such a delay may 

be a burden to taxpayers and said they are interested in pursuing Real 

Time Tax in order to improve the taxpayer experience. The officials noted 

that the longer the time between filing an income tax return and receiving 

a notice, the harder it is for some people to locate the records or other 

information needed to understand the discrepancy, as well as to respond 

to IRS and resolve the issue.19

IRS identified nearly 24 million 2010 income tax returns with 

discrepancies. According to IRS data, IRS selected about 22 percent (or 

5.3 million) of these discrepant returns for review. After the review, IRS 

sent at least one notice to over 4 million of these taxpayers informing 

them of the discrepancy.

In addition, if taxpayers spent their refund 

or tax savings they may not have funds set aside for an unexpected tax 

debt. Finally, penalties and interest may have accumulated, which 

increases the amount due. One of the goals of Real Time Tax would be to 

reduce the number of taxpayers facing these burdens by detecting and 

resolving discrepancies before refunds are issued.

 

18The median elapsed time was 378 days. We analyzed discrepancy data including the 

timing of IRS’s follow-up based on tax year 2010, the most recent year for which IRS had 

completed its matching process as of the date of our analysis, April 17, 2013. As of this 

date IRS had not yet conducted the third match for tax year 2011 returns. 

19Taxpayers are required to keep such records under 26 U.S.C. § 6001 and its associated 

regulations under 26 C.F.R. 1.6001-1. For more specific information about recordkeeping 

for individuals, see IRS Pub. 552, Recordkeeping for Individuals (Rev. January 2011). 

Under 26 U.S.C. § 6501, the IRS can assess additional tax within 3 years after a return 

was filed. This has given rise to the general principle that taxpayers should maintain their 

tax records for at least 3 years in most circumstances.

On Average, More Than a 

Year Passes Before IRS 

Notifies Taxpayers of 

Matching Discrepancies
 

Page 13 GAO-13-515 Real Time Tax

Figure 5 shows timelines for 2011 return processing, matching, and 

taxpayer notification based on the first match at the end of July. The left 

side of the graphic illustrates when IRS and taxpayers receive most 

information returns, and the right side illustrates when IRS begins 

notifying taxpayers of discrepancies.

Figure 5: Timelines for Submission, Matching, and Taxpayer Notification of Discrepancies for Information Returns and Timely 

Filed Income Tax Returns, 2011 Filing Season (Tax Year 2010)

Note: This timeline assumes taxpayers started filing their income tax returns at the beginning of 

January, and IRS includes these returns in the first match conducted in July. Some activity occurs 

outside of the time frames depicted here. See appendix II for details on information return due dates.
 

Page 14 GAO-13-515 Real Time Tax

IRS officials and the planning documents they have developed make it 

clear that Real Time Tax is an exploratory effort. IRS officials emphasized 

that they have made no final decisions regarding Real Time Tax and that 

they do not perceive it as a “project” at this time. As part of the 

exploratory effort, IRS is collecting data to understand the potential 

disruptions to taxpayers and information return providers that could result 

should IRS implement a Real Time Tax system. Officials are also seeking 

to understand whether doing so would be an improvement over current 

processes, particularly AUR and accelerated matching for wage and 

withholding data. IRS is conducting tests to determine potential benefits, 

including whether IRS could match information returns at the time 

taxpayers file their tax returns in a Real Time Tax environment.

IRS officials are analyzing six key questions they see at the heart of the 

Real Time Tax concept. For each question, IRS has begun developing a 

list of options and is assessing them (see table 1). Officials stressed that 

they have made no final decisions regarding which options, if any, they 

may pursue.

IRS Is Generally 

Following Leading 

Practices in Its 

Exploratory Efforts, 

but Has Not 

Developed a Timeline 

or Risk Management 

Framework

IRS Is Exploring Options 

Before Deciding Whether 

to Pursue Real Time Tax
 

Page 15 GAO-13-515 Real Time Tax

Table 1: Key Questions for Real Time Tax and Examples of Early Options that IRS Is Considering

Key question

a

Early option examples 

Data. What can IRS do to improve 

the timeliness, accuracy, and 

availability of information returns?

Moving information return deadlines closer to January 31b

Matching. How will IRS perform 

matching and decide when 

resolution is required?

or requiring providers to send 

information returns to taxpayers and IRS at the same time. 

Using other data sources (e.g., state quarterly unemployment wage information) when a direct 

match is not successful, or using risk-based analytical rules for returns without data 

corroboration, such as past filing or compliance history and fraud patterns. 

Identity. How will IRS validate the 

identity of taxpayers? 

Matching identity information at the time of filing using taxpayer information, information returns, 

and/or other authentication solutions. If identity validation is insufficient, IRS would reject 

electronically filed (e-filed) returns or apply alternative identity theft treatments.

Notification. How will IRS notify the 

correct party to support issue 

resolution in the event of a 

discrepancy?

If data support identity validation, IRS is considering how to notify the taxpayer with information 

on discrepancies through notifications via tax software, email/secure notification, or paper for 

paper filers.

Resolution. How will the taxpayer 

resolve a discrepancy and what 

tools will be provided?

Providing self-service tools and customer service to help taxpayers investigate and resolve 

discrepancies, and having the taxpayer refile the return with revised information. If the 

discrepancy cannot be resolved or the taxpayer believes the original submission is accurate, IRS 

is exploring ways in which taxpayers can direct IRS to process the original return.

Return Preparers. How will return 

preparers assist their clients in 

resolving mismatch notifications?

Revising language on the Form 1040 to authorize tax preparers to view mismatch notifications 

from IRS.

Source: IRS draft Conceptual Future Operating Model.

Note: This table is not exhaustive of the options IRS is considering, and IRS officials noted they have 

not made final decisions regarding which options to pursue. We have not assessed the potential 

costs and benefits of any of the early options.

a

Key questions and early options are listed in IRS’s draft Conceptual Future Operating Model. This 

October 4, 2012, draft is predecisional, and IRS will update it as IRS completes additional analysis.

b

According to IRS, it does not currently have legislative authority to move some deadlines for 

information returns.

Each option presents challenges to IRS as it considers how a Real Time 

Tax system might operate. For example, as noted previously, moving 

information return due dates to earlier in the filing season may affect 

amendment rates for some types of information returns.

IRS is exploring options using a three-phased approach that began in 

2011. IRS focused its Phase 1 efforts on envisioning the taxpayer 

experience, incorporating input from internal and external stakeholders. 

During this phase, IRS held focus group meetings with stakeholders and 

developed a conceptual model for Real Time Tax. Phase 2 is exploring 

options for how business processes might change, and includes a gap 

analysis which considers how business operations work now versus how 

they may work if Real Time Tax was implemented. IRS officials told us 

they anticipate completing Phase 2 by the end of April 2013. If IRS 
 

Page 16 GAO-13-515 Real Time Tax

proceeds to Phase 3, it will focus on determining what operational and 

information technology infrastructure changes will be needed. As 

documented in the draft Conceptual Future Operating Model, Phase 3 

would include

• developing a roadmap for the proof of concept and implementation;

• comparing Real Time Tax work streams with IRS’s long-term 

enterprise roadmap; and

• evaluating competing demands for resources and facilitating decision 

making around key investments supporting Real Time Tax.

Figure 6 shows that IRS is following four of the six leading practices we 

used as criteria for assessing IRS’s exploratory efforts, and plans to 

implement the other two practices. Appendix III explains the practices in 

more detail and the sources we used to develop the leading practices. 

These criteria are drawn from our previous reports, IRS policy guidance, 

and other sources.

Exploratory Efforts 

Generally Follow Leading 

Practices, but Plans Lack a 

Documented Timeline and 

Risk Management 

Framework
 

Page 17 GAO-13-515 Real Time Tax

Figure 6: Assessment of the Extent to Which IRS Is Implementing Leading Practices in Its Real Time Tax Exploratory Efforts

The Commissioner’s Office created a team to lead IRS’s Real Time Tax 

exploratory efforts. The team is comprised of Real Time Tax executives 

from the Wage and Investment Division and Information Technology 

organization; a core team of senior staff who work under the direction of 

the Real Time Tax executives to lead the exploratory effort; a support 

network of subject matter experts throughout IRS; and contractors. While 

some core team members and subject matter experts have transitioned 

on and off the effort to meet other organizational needs, IRS officials and 

core team members said that they have developed strategies to ensure 

the effort’s leadership is consistent and that it has the necessary 

knowledge and skills. Core team members and other IRS officials 

IRS Dedicated a Team 
 

Page 18 GAO-13-515 Real Time Tax

confirmed that IRS provides overlapping assignments to allow for team 

members transitioning off the core team to brief incoming members on 

the history and progress of the effort. As discussed in more detail below, 

the core team has also identified external and internal stakeholders (see 

fig. 7).

Figure 7: Real Time Tax Stakeholders

a

Federal agencies include the Office of Management and Budget and other agencies.

b

Information return providers refer to all third parties that provide information returns to IRS, including 

employers, corporations, partnerships, payroll providers, estates, trusts, financial institutions, 

educational institutions, and state and federal agencies.

Key IRS stakeholders identified a vision and program goals for Real Time 

Tax that link to IRS’s mission and consider taxpayer burden. For 

example, the draft Conceptual Future Operating Model documents IRS’s 

vision to reduce taxpayer burden, improve compliance, and increase 

efficiency. IRS documents specify the following guiding principles and 

overall program goals for Real Time Tax:

IRS Defined Program Goals 
 

Page 19 GAO-13-515 Real Time Tax

• Minimize taxpayer burden by including measures to simplify the tax 

filing experience and not introducing changes that increase the 

burden for the majority of taxpayers.

• Build for the future by developing Real Time Tax with a long-term

focus and implementing it with a phased approach that provides 

incremental benefits in the near-term.

• Leverage tax industry partners to help drive a successful Real Time 

Tax model.

• Mitigate vulnerabilities to identity theft and fraud to reduce the risk of 

IRS issuing credits and refunds to identity thieves and other 

fraudsters.

IRS has particularly emphasized the importance of minimizing taxpayer 

burden. In addition to identifying it as a guiding principle, officials said 

that, if they proceed, they will use statistical modeling to better 

understand the Real Time Tax system’s potential effects on taxpayers.

The guiding principles outlined in the draft Conceptual Future Operating 

Model link closely with IRS’s mission to provide taxpayers top-quality 

service while enforcing the law and meeting the agency’s performance 

goals and objectives. Officials told us the core team has provided input for 

IRS’s next strategic plan.

IRS officials have begun planning for performance measurement and 

have taken steps such as conducting a baseline analysis, hypothesis 

testing, and considering performance measures. For example, IRS 

conducted a baseline analysis to understand the current volume, timing, 

filing patterns, and concentrations of tax filing activity for tax year 2009. 

During Phase 2, officials said that the core team is using statistical 

modeling to test possible Real Time Tax models to better understand 

their potential effects. These tests will help them understand whether they 

can match information return data at the time individuals file their tax 

returns and the extent to which IRS can notify taxpayers of a discrepancy 

at the time of filing. Officials noted that they are still determining what data 

will be needed to assess Real Time Tax, and whether such a system can 

provide benefits greater than those IRS and taxpayers receive under the 

current system. Officials consider it too early in the exploratory effort to 

define performance outcomes, but anticipate doing this as Real Time Tax 

exploration and planning progress.

IRS Began Planning for 

Performance Measurement 
 

Page 20 GAO-13-515 Real Time Tax

IRS documented time frames for its communication strategy and for 

evaluating matching capabilities, but has not developed a timeline for the 

exploratory efforts’ critical phases and essential activities. The draft 

Communications Strategy and Plan documents a high-level timeline for

implementing IRS’s stakeholder communications strategy. IRS also 

documented time frames for live tests that began in March 2013 that will 

help officials understand whether IRS can match information return data 

to simple tax returns at the time of filing. However, while officials noted 

that the core team has a general idea about how long each planning 

phase should take, IRS has not developed a timeline or planned interim 

milestones for its overall exploratory effort. Officials noted that IRS 

management views Real Time Tax as a broad goal, and the core team 

did not set milestone dates to avoid causing concern among the 

stakeholder community that IRS has already decided on a path for Real 

Time Tax. Also, officials said that they want to conduct additional tests 

before planning next steps and then use the results of those tests to help 

determine if IRS should proceed with Phase 3.

As we have stated in prior reports, the demand for transparency and 

accountability is a fact that needs to be accepted in an exploratory effort 

of this magnitude.20

We recognize that IRS’s planned time frames and milestones may evolve 

as it learns from its exploratory efforts. Also, it may not be feasible for IRS 

to develop a detailed timeline for the Real Time Tax initiative, as planning 

efforts are still ongoing and officials have not decided whether to pursue 

Real Time Tax or how to structure it. At this early stage, it may make 

sense for IRS to identify contingency-based time frames rather than firm 

dates for the exploratory effort. However, having a documented timeline 

Establishing a timeline that includes critical phases 

and essential activities that need to be completed by particular dates to 

achieve results is important for accountability and success in 

implementing a new exploratory effort. A full range of stakeholders and 

interested parties, including Congress, are concerned not only with what 

results are to be achieved, but also which processes are to be used to 

achieve those results. Also, an exploratory effort can build momentum 

internally and externally by demonstrating progress towards these goals.

 

20GAO, Foreign Account Reporting Requirements: IRS Needs to Further Develop Risk, 

Compliance, and Cost Plans, GAO-12-484 (Washington, D.C.: Apr. 16, 2012) and 

Results-Oriented Cultures: Implementation Steps to Assist Mergers and Organizational 

Transformations, GAO-03-669 (Washington, D.C.: July 2, 2003). 

IRS Documented Time Frames 

for Communicating with 

Stakeholders and Testing 

Matching Capabilities, but Has 

Not Developed a Timeline for 

the Overall Exploratory Effort 
 

Page 21 GAO-13-515 Real Time Tax

that identifies critical phases and milestones for essential activities—such 

as time frames for developing the “proof of concept” in Phase 3—could 

help IRS and Congress assess the progress of the exploratory efforts. 

Without a timeline for the overall exploratory effort, planning may go on 

endlessly, and IRS cannot know if its efforts are on track or will be 

completed in even the broad time frames IRS is considering. In addition, 

Congress may not be able to determine what legislative action may be 

needed.

IRS officials stated that managing risk is a high priority for IRS, but while 

they have documented potential risks to Phase 2 testing, they have not 

developed an overall risk management framework for Real Time Tax. A 

risk management framework helps ensure that managers systematically 

identify, analyze, and manage risks. A documented risk management 

framework articulates what managers have done to analyze the 

consequences of identified risks and the likelihood they will occur, as well 

as to assess alternatives to mitigate risk.21

Officials stated they have not yet developed a risk management 

framework because they are still in the early stages of their exploratory 

efforts. Nevertheless, an IRS official stated that officials discuss potential 

risks for Real Time Tax regularly and that they are developing 

descriptions of “pros and cons” of the different approaches. IRS officials 

plan to further develop the risk strategy if IRS decides to pursue Real 

Time Tax.

Leading practices suggest that 

a risk management framework should be developed early so that relevant 

risks are identified and managed, and that the framework should evolve 

and be reviewed on an ongoing basis. Such a framework could help IRS 

identify and mitigate the risks stemming from options it is considering for 

Real Time Tax, including the risks of moving information return due dates 

and communicating electronically with taxpayers.

Without systematically identifying and evaluating the risks of Real Time

Tax options, IRS officials may miss critical factors that could complicate 

the effort, including the potential costs to IRS, taxpayers, and other 

stakeholders. Furthermore, without a documented record of risk 

discussions, IRS may lose its knowledge of what risks and mitigations 

 

21Cost-benefit analysis is also critical in assessing alternatives, because it links the 

benefits derived from risk-reducing alternatives to the costs associated with implementing 

and maintaining them. 

IRS Has Not Yet Developed a 

Risk Management Framework 
 

Page 22 GAO-13-515 Real Time Tax

have been analyzed. For an effort that cuts across as many IRS functions 

as Real Time Tax and will likely take years to implement, a record of prior 

risk analyses could help prevent unnecessarily repeating the same 

analyses.

IRS developed a communication strategy that identifies internal and 

external stakeholders, defines stakeholder communication needs, 

identifies communication media, and describes how IRS plans to 

communicate its Real Time Tax efforts to stakeholders. In its draft 

Communications Strategy and Plan, IRS developed talking points to 

describe its vision for Real Time Tax and to explain what a possible Real 

Time Tax system does not include. For example, IRS officials have stated 

that Real Time Tax will not involve a prefill option (where IRS 

prepopulates tax returns) or replace all compliance activity that occurs 

after the filing season, such as AUR. The draft Communications Strategy 

and Plan also states that IRS will work collaboratively with external 

stakeholders to outline the vision for Real Time Tax. To obtain the views 

of external stakeholders on potential frameworks for Real Time Tax, IRS 

held two public meetings and six focus groups involving individuals 

representing consumer groups, tax return preparers, the software 

industry, oversight agencies, payroll providers, and state revenue 

departments. IRS plans to continue activities aimed at increasing the 

public’s awareness and understanding of the Real Time Tax exploratory 

effort. These activities may include responding to media inquiries, posting 

information to the IRS website, and sending IRS officials to speaking 

engagements.

Real Time Tax has the potential to provide substantial benefits, including 

reducing taxpayer burden and improving compliance by moving some 

information matching earlier in the tax season. However, it also may 

require significant and possibly costly changes to tax administration and 

impose new burdens on third parties. Careful consideration of risks and 

alternatives for mitigating those risks is crucial in weighing the potential 

benefits and costs of Real Time Tax options. While IRS has taken 

important steps in exploring the feasibility of Real Time Tax, much 

remains unknown because the exploratory effort is still underway. IRS 

has not yet developed time frames for the exploratory effort’s critical 

phases and essential activities, and we anticipate IRS may revise time 

frames as it obtains new information from its exploratory efforts. In 

addition, IRS has not created a risk management framework, which would 

provide valuable information about potential costs and benefits to IRS 

management. Given the potential scope of a Real Time Tax system, both 

IRS Developed a 

Communication Strategy

Conclusions 
 

Page 23 GAO-13-515 Real Time Tax

agreed-upon time frames and a record of risk management 

considerations are likely to be important management tools that will help 

inform IRS management’s decisions about the future of Real Time Tax 

and help Congress oversee IRS’s efforts.

Recognizing IRS’s exploratory efforts are in their early stages and the 

Real Time Tax concept will likely evolve over time, we recommend the 

Acting Commissioner of Internal Revenue take the following actions to 

help ensure managers are able to assess the progress of exploratory 

efforts and have the information needed to weigh the potential risks, 

costs, and benefits of options:

• Identify time frames for the Real Time Tax exploratory effort’s critical 

phases and essential activities. 

• Develop a risk management framework for Real Time Tax that 

includes a record of risk analyses.

We provided a draft of this report to the Acting Commissioner of Internal 

Revenue for comment. In written comments, reproduced in appendix V, 

IRS agreed with our recommendations. IRS said that as it continues to 

engage stakeholders and explore the Real Time Tax concept, it will 

identify time frames for critical phases and key activities and develop a 

risk management framework. 

We are sending copies of this report to the Acting Commissioner of 

Internal Revenue. In addition, the report is available at no charge on the 

GAO website at http://www.gao.gov. 

Recommendations for 

Executive Action

Agency Comments 
 

Page 24 GAO-13-515 Real Time Tax

If you or your staff have any questions about this report, please contact 

me at James R. White at (202) 512-9110 or whitej@gao.gov. Contact 

points for our Offices of Congressional Relations and Public Affairs may 

be found on the last page of this report. GAO staff who made key 

contributions to this report are listed in appendix VI. 

James R. White

Director, Tax Issues

Strategic Issues
Appendix I: Objectives, Scope, and 

Methodology

Page 25 GAO-13-515 Real Time Tax

This appendix describes our methodology for addressing the following 

objectives: (1) describe when the Internal Revenue Service (IRS) 

receives and matches individual tax and information returns and (2) 

assess the extent to which IRS is following leading practices for 

managing an exploratory effort of this importance at IRS.

To describe when IRS receives and matches individual tax and 

information returns, we reviewed IRS documents and guidance, including 

the Internal Revenue Manual and IRS information return forms. We 

limited the scope of our review to the Form 1040 series1 and the 25 

information returns IRS officials said would likely be most relevant to 

matching to individual income tax returns under a Real Time Tax system.2

We generated descriptive statistics by accessing selected data elements 

from the CDW database, which provides a variety of tax return, 

enforcement, compliance, and other data. To develop information related 

to return volume, timing of return receipts and amendments, and refund 

issuance, we analyzed data for tax year 2011 returns, as this is the most 

We list these information returns in appendix II. Due to the manner in 

which IRS’s Compliance Data Warehouse (CDW) consolidates data for 

Forms SSA-1099 and RRB-1099, we analyzed the combined data for 

these two returns. These two types of returns collectively accounted for 

3.8 percent (59 million out of 1.6 billion returns) received by IRS for tax 

year 2011.

 

1

The Form 1040 series includes, among others, Forms 1040 and 1040A, U.S. Individual 

Income Tax Return; 1040EZ, Income Tax Return for Single And Joint Filers With No 

Dependents; 1040-NR, U.S. Nonresident Alien Income Tax Return; 1040-PR, Planilla para 

la Declaración de la Contribución Federal sobre el Trabajo por Cuenta Propia (Incluyendo 

el Crédito Tributario Adicional por Hijos para Residentes Bona Fide de Puerto Rico); and 

1040-SS, U.S. Self-Employment Tax Return (Including the Additional Child Tax Credit for 

Bona Fide Residents of Puerto Rico). The 1040-PR is the Spanish version of the 1040-

SS. In addition, Form 1040-SS is for use by bona fide residents of the U.S. Virgin Islands, 

Guam, American Samoa, and the Commonwealth of the Northern Mariana Islands. 

2

For the 25 information return types that we analyzed, 42 percent (415 million of 1 billion 

filed) of 1099-Bs and 51 percent (36 million of 70 million filed) of 1099-MISCs were issued 

to taxpayers identified by employer identification numbers rather than to individuals. We 

excluded these and other information returns that were issued to taxpayers with employer 

identification numbers, as IRS officials said these are not considered relevant to the Real 

Time Tax exploratory effort. For this same reason, we excluded other return types, such 

as Schedule K-1s. We also excluded other types of returns not used for matching against 

Form 1040s, such as Form FinCen 104, Currency Transaction Report. 

Appendix I: Objectives, Scope, and 

Methodology 
Appendix I: Objectives, Scope, and 

Methodology

Page 26 GAO-13-515 Real Time Tax

recent year for which relatively complete data are available.3

To assess the extent to which IRS is following leading practices for the 

agency in its exploratory efforts, we reviewed IRS documents related to 

the Real Time Tax exploratory effort, all of which were predecisional and 

subject to change. Documents we reviewed included draft copies of the 

Real Time Tax Conceptual Future Operating Model and the Real Time 

Tax Communications Strategy and Plan. To further assess IRS’s 

approach, we identified leading practices that we consider relevant for 

planning new initiatives at IRS using our past reports, Standards for 

Internal Control in the Federal Government,

In analyzing 

when tax returns were received by IRS, we used the cycle posting date, 

when IRS posts tax return data to the master file, as it represents when 

the tax return data are available for matching. Officials noted that IRS 

must cleanse the data prior to posting to IRS systems. This may include 

identifying and correcting incomplete or inaccurate data before posting 

the data to IRS systems. To develop information related to the elapsed 

time between matching information returns to income tax returns and 

when IRS issued the first notice of discrepancy to taxpayers, we analyzed 

data for tax year 2010 as this is the most recent year for which IRS has 

completed the three phases of its matching process. We assessed the 

reliability of CDW data by (1) performing electronic or manual testing of 

required data elements to identify obvious errors, (2) reviewing existing 

information about the data and the system that produced them, and (3) 

interviewing agency officials knowledgeable about the data. We 

determined that the data were sufficiently reliable for the purposes of this 

report.

4

 

3

As returns may continue to be filed for tax year 2011 for 4 more years, the volume of 

returns may continue to change somewhat in the future. Our analysis is based on return 

data extracted from CDW April 17, 2013. IRS reviewed our information return counts as of 

this date and confirmed that our data were substantially the same as their current counts.

and IRS and other agency 

documents, including the 2009 to 2013 IRS Strategic Plan. We then 

compared IRS efforts to the leading practices we identified. The leading 

practices we identified do not represent the universe of practices that IRS 

could employ when planning a new initiative. We selected examples of 

leading practices that we judged to be important for IRS to consider 

during its Real Time Tax exploratory efforts. We discussed with IRS the 

practices on which we based our descriptions and assessments during 

4

GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1 

(Washington, D.C.: Nov. 1, 1999). 
Appendix I: Objectives, Scope, and 

Methodology

Page 27 GAO-13-515 Real Time Tax

the course of our audit work, and IRS agreed with our approach. Officials 

noted that they do not yet consider Real Time Tax a “project” and have 

not decided whether to pursue Real Time Tax. A description of the 

leading practices is detailed in appendix III.

We conducted this performance audit from August 2012 to June 2013 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.
Appendix II: Information Returns Used in 

Matching Against Individual Income Tax 

Returns

Page 28 GAO-13-515 Real Time Tax

Tax Year 2011 Due Dates

Due to IRS

Form Description

Due to 

Taxpayer Paper Electronic 

1098 Filed by lenders to report mortgage interest of $600 or more. 

Certain points (prepaid interest on a mortgage loan) are also 

reported if the points, plus other interest on the mortgage, are 

$600 or more.

1/31/2012 2/28/2012 4/2/2012

1098-E Filed by lenders to report student loan interest of $600 or more 

received.

1/31/2012 2/28/2012 4/2/2012

1098-T Filed by eligible educational institutions and insurers (who make 

reimbursements or refunds) to report payments received or 

amounts billed for qualified tuition and related expenses. 

1/31/2012 2/28/2012 4/2/2012

1099-A Issued by lenders who acquire an interest in property that was 

security for a loan, or who know such property has been 

abandoned, to report income or loss.

1/31/2012 2/28/2012 4/2/2012

1099-B Filed to report proceeds from broker and barter exchange 

transactions.

2/15/2012 2/28/2012 4/2/2012

1099-C Filed by lenders to report cancelled debt of $600 or more. 1/31/2012 2/28/2012 4/2/2012

1099-DIV Issued by banks and other financial institutions to report 

dividends and other distributions. 

1/31/2012 2/28/2012 4/2/2012

1099-G Filed by federal, state, and local government units to report 

payments of: unemployment compensation; state or local 

income tax refunds, credits or offsets; taxable grants; and/or 

agricultural payments.

1/31/2012 2/28/2012 4/2/2012

1099-INT Filed to report interest income or U.S. Savings Bond and 

Treasury obligation interest of $10 or more, withholding for 

foreign taxes paid on interest, and backup withholding. 

1/31/2012 2/28/2012 4/2/2012

1099-K Issued by payment settlement entities to report merchant card 

payments and third-party network payments. 

1/31/2012 2/28/2012 4/2/2012

1099-LTC Filed by insurance companies, government units, and other 

providers to report long-term care benefits.

1/31/2012 2/28/2012 4/2/2012

1099-MISC Used to report miscellaneous income, such as: royalties or 

broker payments in lieu of dividends or tax-exempt interest of 

$10 or more; $600 or more in rents, services (including parts 

and materials), prizes and awards, medical and health care 

payments, crop insurance proceeds, cash payments for fish (or 

other aquatic life); fishing boat proceeds; gross proceeds paid 

to an attorney; direct sales of at least $5,000 of consumer 

products for resale from other than a permanent retail 

establishment; payments to independent contractors; directors’ 

fees; commissions paid to lottery ticket sales agents; and 

backup withholding. 

a 1/31/2012b 2/28/2012 4/2/2012

Appendix II: Information Returns Used in 

Matching Against Individual Income Tax 

Returns 
Appendix II: Information Returns Used in 

Matching Against Individual Income Tax 

Returns

Page 29 GAO-13-515 Real Time Tax

Tax Year 2011 Due Dates

Due to IRS

Form Description

Due to 

Taxpayer Paper Electronic 

1099-OID Filed by financial institutions, brokers, and other entities to 

report the original issue discount (the excess of an obligation’s 

stated redemption price at maturity over its issue price) 

includible in gross income of at least $10.

1/31/2012 2/28/2012 4/2/2012

1099-PATR Filed by cooperatives to report payments of $10 or more in 

patronage dividends and other distributions, as well as any 

federal backup withholding.

1/31/2012 2/28/2012 4/2/2012

1099-Q Filed by states or eligible educational institutions to report 

earnings or distributions from qualified tuition programs and 

Coverdell Education Savings Accounts.

1/31/2012 2/28/2012 4/2/2012

1099-R Used to report distributions of $10 or more from pensions, 

annuities, individual retirement arrangements (IRAs), survivor 

income benefit plans, charitable gift annuities, and profit-sharing 

and retirement plans. 

1/31/2012 2/28/2012 4/2/2012

1099-S Used to report the sale or exchange of real estate. 2/15/2012 2/28/2012 4/2/2012

1099-SA Used to report distributions from a health savings account, 

Archer Medical Savings Account, or Medicare Advantage 

Medical Savings Account.

1/31/2012 2/28/2012 4/2/2012

RRB-1099 Filed by the Railroad Retirement Board (RRB) to report Tier 1 

railroad retirement benefits (the benefits railroad employees or 

beneficiaries would have been entitled to receive under the 

Social Security system) and special guaranty benefit payments. 

1/31/2012 2/28/2012 4/2/2012

SSA-1099 Filed by the Social Security Administration (SSA) to report 

Social Security benefits.

1/31/2012 2/28/2012 4/2/2012

5498 Filed by the trustee or issuer of IRAs to report contributions, 

including any catch-up contributions, and the fair market value 

of the account.

5/31/2012c 5/31/2012 5/31/2012

5498-ESA Used to report contributions, including rollover contributions, to 

any Coverdell Education Savings Account. 

4/30/2012 5/31/2012 5/31/2012

5498-SA Filed by a trustee or custodian of health savings accounts, 

Archer Medical Savings Accounts, and Medicare Advantage 

Medical Savings Accounts to report contributions, rollovers, and 

fair market value.

5/31/2012 5/31/2012 5/31/2012

W-2G Filed to report certain gambling winnings and any federal 

income tax withheld on those winnings.

1/31/2012 2/28/2012 4/2/2012

W-2 Filed by employers to report wages paid to each employee from 

whom income, Social Security, or Medicare tax was withheld or 

from whom income tax would have been withheld if the 

employee had claimed no more than one withholding allowance 

or had not claimed exemption from withholding on Form W-4 

(Employee’s Withholding Allowance Certificate).

1/31/2012 d

Source: Analysis of IRS documents.

d

a

The types of payments reportable on a 1099-MISC and their reporting thresholds vary widely. These 

include payments to nonemployees for services of at least $600 (called nonemployee compensation), 
Appendix II: Information Returns Used in 

Matching Against Individual Income Tax 

Returns

Page 30 GAO-13-515 Real Time Tax

royalty payments of $10 or more, and medical and health care payments made to physicians or other 

suppliers (including payments by insurers) of $600 or more.

b

If reporting substitute payments in lieu of dividends or interest or gross proceeds paid to an attorney, 

the due date was February 15, 2012.

c

Provider must have furnished fair market value information and required minimum distribution, if 

applicable, to participants by January 31, 2012.

d

Paper returns were due to the Social Security Administration by February 29, 2012, and electronic 

returns were due by April 2, 2012.
Appendix III: Leading Practices for Planning 

New Internal Revenue Service Initiatives

Page 31 GAO-13-515 Real Time Tax

We have identified a number of leading practices for planning new 

initiatives at the Internal Revenue Service. Table 2 lists these leading 

practices and the sources used to develop them. As the table makes 

clear, we have applied these leading practices for a decade or more. In 

addition, our own review found these leading practices still relevant today. 

We discussed with IRS officials the leading practices on which we based 

our descriptions and assessments during the course of our audit work, 

and they agreed they are relevant to the Real Time Tax exploratory effort.

Table 2: Leading Practices for Planning New Internal Revenue Service Initiatives

Leading practices Source

Dedicate a team to manage the process that

• has the support of top leadership,

• establishes support networks, and

• is composed of a consistent and stable group of highperforming team members with the necessary knowledge 

and skills. 

GAO. Foreign Account Reporting Requirements: IRS Needs to 

Further Develop Risk, Compliance, and Cost Plans. GAO-12-484. 

Washington, D.C.: April 16, 2012.

GAO. Patient Protection and Affordable Care Act: IRS Should 

Expand Its Strategic Approach to Implementation. GAO-11-719. 

Washington, D.C.: June 29, 2011.

GAO. Information Technology: Critical Factors Underlying 

Successful Major Acquisitions. GAO-12-7. Washington, D.C.: 

October 21, 2011.

GAO. Tax Administration: Planning for IRS’s Enforcement Process 

Changes Included Many Key Steps but Can Be Improved. 

GAO-04-287. Washington, D.C.: January 20, 2004.

GAO. Results-Oriented Cultures: Implementation Steps to Assist 

Mergers and Organizational Transformations. GAO-03-669. 

Washington, D.C.: July 2, 2003.

Define program goals that

• link to the agency’s mission,

• communicate a clear vision of the outcomes to be 

achieved,

• are established by key stakeholders who manage the 

program, and

• consider taxpayer burden by:

o analyzing data on likely impacts on taxpayers before 

making decisions, and

• working with stakeholders that will be important to 

implementing the initiative.

GAO-11-719. 

GAO. Government Reform: Goal Setting and Performance. 

GAO/AIMD/GGD-95-130R. Washington, D.C.: March 27, 1995.

U.S. Department of the Treasury. Internal Revenue Service. IRS 

Strategic Plan 2009-2013. http://www.irs.gov/pub/irs-pdf/p3744.pdf. 

Accessed August 20, 2012.

GAO. Internal Control Management and Evaluation Tool. 

GAO-01-1008G. Washington, D.C.: August 1, 2001.

Appendix III: Leading Practices for Planning 

New Internal Revenue Service Initiatives
Appendix III: Leading Practices for Planning 

New Internal Revenue Service Initiatives

Page 32 GAO-13-515 Real Time Tax

Leading practices Source

Plan for performance measurement so that the agency can 

collect data needed for evaluating the program.

U.S. Department of the Treasury. Internal Revenue Service. Internal 

Revenue Manual. http://www.irs.gov/irm/. Accessed September 14, 

2012.

GAO-12-484. 

GAO-11-719. 

GAO-04-287. 

GAO. Tax Administration: IRS Needs to Further Refine Its Tax Filing 

Season Performance Measures. GAO-03-143. Washington, D.C.: 

November 22, 2002.

Establish a timeline that includes critical phases and essential 

activities for the planning effort.

GAO-12-484. 

GAO. GAO Cost Estimating and Assessment Guide: Best Practices 

for Developing and Managing Capital Program Costs. GAO-09-3SP. 

Washington, D.C.: March 2, 2009.

GAO-03-669. 

Establish a risk management framework.

• Comprehensively identify and analyze risks by

• establishing a formal risk management procedure,

• analyzing the consequences and likelihood of 

occurrence of identified risks, and assessing 

alternatives to mitigate risk.

GAO. Patient Protection and Affordable Care Act: IRS Managing 

Implementation Risks, but Its Approach Could Be Refined. 

a

GAO-12-690. Washington, D.C.: June 13, 2012. 

GAO-12-484. 

GAO-11-719. 

GAO-01-1008G. 

GAO. Standards for Internal Control in the Federal Government. 

GAO/AIMD-00-21.3.1. Washington, D.C.: November 1, 1999.

GAO. Risk Management: Further Refinements Needed to Assess 

Risks and Prioritize Protective Measures at Ports and Other Critical 

Infrastructure. GAO-06-91. Washington, D.C.: December 15, 2005.

Carnegie Mellon University, for the Software Engineering Institute. 

Capability Maturity Model Integration for Acquisition, Version 1.3. 

Hanscom Air Force Base, MA: November 2010.

Establish internal and external communications strategies.

• Communicate both internally and externally program goals 

and operational changes before and as changes occur,

• Solicit employee feedback and address concerns, and

• Communicate a consistent message using a variety of 

media (e.g., e-mail, web, meetings).

U.S. Department of the Treasury. Internal Revenue Service. IRS 

Strategic Plan 2009-2013. http://www.irs.gov/pub/irs-pdf/p3744.pdf. 

Accessed August 20, 2012.

GAO-12-484. 

GAO-12-7. 

GAO-11-719. 

GAO-01-1008G. 

GAO/AIMD-00-21.3.1

Source: GAO analysis.

Note: The leading practices we identified do not represent the universe of practices that IRS could 

employ when planning a new initiative. We selected examples of leading practices that we judged to 

be important for IRS to consider during its Real Time Tax exploratory efforts. We shared with IRS the 

practices on which we based our descriptions and assessments during the course of our audit work, 

and IRS agreed with our approach. Officials noted that they do not yet consider Real Time Tax a 

“project” and have not decided whether to pursue Real Time Tax.

a

Cost-benefit analysis is critical in assessing alternatives, because it links the benefits derived from 

risk-reducing alternatives to the costs associated with implementing and maintaining them.
Appendix IV: Amendment Rates for 

Information Returns Used in Matching Against 

Individual Income Tax Returns

Page 33 GAO-13-515 Real Time Tax

The figure below provides additional information on the amendment rates 

for the 25 information returns we reviewed.

Figure 8: Amendment Rate for Information Returns, Tax Year 2011

Notes: Amendment rate is the percent of total volume attributed to amended, duplicate, and corrected 

returns. Since an individual return may be amended more than once, and an individual taxpayer may 

receive more than one type of information return that is amended, the volume of amendments 

received does not correspond to the number of unique taxpayers associated with the amendments.

Appendix IV: Amendment Rates for 

Information Returns Used in Matching 

Against Individual Income Tax Returns
Appendix V: Comments from the Internal 

Revenue Service

Page 34 GAO-13-515 Real Time Tax

Appendix V: Comments from the Internal 

Revenue Service
Appendix V: Comments from the Internal 

Revenue Service

Page 35 GAO-13-515 Real Time Tax
Page 36 GAO-13-515 Real Time Tax

James R. White, (202) 512-9110 or whitej@gao.gov.

In addition to the contact named above, David Lewis (Assistant Director), 

Shannon Finnegan (Analyst-in-Charge), Ellen Rominger, Andrew Ching, 

and Albert Sim made key contributions to this report. Also contributing to

this report were Joanna Berry, Jehan Chase, Michele Fejfar, Robert 

Gebhart, Robert Robinson, Sabrina Streagle, and John Zombro.

Appendix VI: GAO Contact and Staff 

Acknowledgments 

GAO Contact

Staff 

Acknowledgments 

(451000)
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