Report to the Chairman, Subcommittee

on Oversight, Committee on Ways and

Means, House of Representatives

United States General Accounting Office

GAO

December 2002 IRS’s 2002 TAX

FILING SEASON

Returns and Refunds

Processed Smoothly;

Quality of Assistance

Improved

GAO-03-314
The Internal Revenue Service (IRS) processed returns and issued refunds

smoothly and the quality of assistance provided to taxpayers improved in the

2002 filing season. In light of this, IRS should be commended for the various

efforts it took to prepare for the 2002 filing season and improve

performance. Still, opportunities exist for IRS to further improve aspects of

its performance and some of its performance measures.

In 2002, IRS’s performance included issuing almost all refunds on time,

providing more accurate telephone service than in 2001, and meeting many

of its 2002 performance goals in all areas. IRS also began measuring the

accuracy of assistance at its walk-in sites to obtain better performance data.

In addition, IRS’s redesigned Web site was easier to access and more user

friendly.

IRS’s improved performance can be traced to its use of performance

measures, which are part of its strategy to improve returns processing and

taxpayer assistance as shown below. However, GAO identified opportunities

for IRS to make further improvements. For example, IRS’s suite of telephone

measures lacks an indicator of how long callers wait to speak to an

assistor—a key aspect of assistance that provides useful information for

decision making by external stakeholders.

Although not a primary focus of this report, GAO also found that IRS lacked

comprehensive plans related to the extent and timing of anticipated

workload and staffing changes at its walk-in sites.

IRS’s Primary Filing Season Activities Are Processing Returns and Assisting Taxpayers

Paper returns

84 million

Electronic

returns

47 million

Toll-free calls

104 million

Internet downloads

379 million

Walk-in contacts

5 million

Taxpayer

assistance

Returns

processing

IRS Web site

Source: GAO’s analysis of IRS’s data.

8 Paper

processing centers

3 Electronic

processing centers

26 Call-sites &

automation

477 Permanent

& temporary sites

IRS’S 2002 TAX FILING SEASON

Returns and Refunds Processed

Smoothly; Quality of Assistance

Improved

www.gao.gov/cgi-bin/getrpt?GAO-03-314.

To view the full report, 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.

Highlights of GAO-03-314, a report to the

Chairman, Subcommittee on Oversight,

Committee on Ways and Means, House of

Representatives

December 2002

The tax filing season is when

millions of taxpayers file their

returns and seek assistance by

calling or visiting IRS’s offices or

Web site. Because of the large

number of returns and critical

nature of IRS’s filing season

activities, GAO was asked to assess

IRS’s 2002 filing season

performance in processing tax

returns and refunds and providing

timely and accurate assistance to

taxpayers.

GAO recommends that IRS (1)

reinstate a telephone assistance

caller wait-time measure, (2) revise

its bi-weekly wait-time reports for

walk-in sites, (3) explore the

feasibility of revising its sampling

plan for assessing the accuracy of

walk-in account assistance, and (4)

comprehensively evaluate walk-in

site resource requirements after

clarifying the extent and timing of

workload and other changes at the

sites.

In commenting on a draft of this

report, IRS cited actions it has

taken or plans to take that appear

responsive to three of GAO’s four

recommendations. IRS's comments

did not specifically address the

recommendation that bi-weekly

wait-time reports be revised.
Page i GAO-03-314 2002 Tax Filing Season

Letter 1

Results in Brief 2

Scope and Methodology 4

Background 5

IRS Processed Individual Income Tax Returns and Refunds

Smoothly in 2002 Despite Challenges 7

IRS Exceeded Its 2002 Electronic Filing Performance Goal and Is

Taking Action to Help Ensure Future Growth 15

Telephone Service Improved Compared with Last Year 21

Quality of Walk-in Assistance Showed Some Improvement, While

the Number of Taxpayers Assisted Continued to Decline 28

Performance of IRS’s Web Site Was Generally Better Than Last

Year, but Improvements Still Needed 35

Conclusions 39

Recommendations for Executive Action 39

Agency Comments and Our Evaluation 40

Appendix I Data on IRS’s Processing Performance Relative

to Fiscal Year 2001 Performance and Fiscal Year

2002 Goals 42

Appendix II Challenges Affecting the 2002 Filing Season and

IRS’s Response 45

Advance Tax Refunds and the Rate Reduction Credit Led to Many

Errors on Filed Returns 45

Terrorist Actions Required Tax Relief for Affected Taxpayers and

Security Enhancements 48

IRS’s Reorganization Required a Shifting of Computer Files and

Affected Processing Performance 49

Appendix III Changes to Third-Party Authorizations in 2002 50

Authority to Designate a Third Party Expanded 50

Oral Authorizations Offered 51

Contents
Page ii GAO-03-314 2002 Tax Filing Season

Appendix IV Results of Surveys of Taxpayers and Tax

Practitioners Who Prepared Returns on a Computer

but Filed on Paper 54

Appendix V IRS Received Fewer E-Mail Questions Via Its Web

Site and Did a Worse Job Responding to the

Questions 55

Appendix VI Comments from the Internal Revenue Service 57

Appendix VII GAO Contacts and Staff Acknowledgments 62

GAO Contacts 62

Acknowledgments 62

Tables

Table 1: Number of Individual Income Tax Returns Received, by

Filing Type 16

Table 2: IRS’s Performance in Providing Filing Season Telephone

Assistance 24

Table 3: IRS’s Processing Performance Relative to Fiscal Year 2001

Performance and Fiscal Year 2002 Goals as of September

2002 42

Table 4: Processed Returns with Rate Reduction Credit Errors as

of September 27, 2002 46

Table 5: Third-Party Authorizations 53

Table 6: Factors That Influence Preparers of Returns on a

Computer Not to File Electronically and Incentives That

Could Influence Them to File Electronically 54

Figures

Figure 1: IRS’s Primary Filing Season Activities Are Processing

Returns and Assisting Taxpayers 6
Page iii GAO-03-314 2002 Tax Filing Season

Figure 2: Highlights of IRS’s Filing Season Preparations,

Challenges, and Responses 12

Figure 3: Number of Individual Income Tax Returns Filed Since

1995 17

Figure 4: Of 104.1 Million Calls to IRS, 30.4 Million Were Covered

by Accessibility and Accuracy Performance Measures 22

Figure 5: IRS Walk-in Assistance, 1999-2002 Filing Seasons 33

Abbreviations

CSR customer service representative

ETAAC Electronic Tax Administration Advisory Committee

IRS Internal Revenue Service

NAP National Account Profile

ODC Oral Disclosure Consent

OTIA Oral Tax Information Authorization

PIN personal identification number

Q-Matic Queuing Management System

SSN Social Security number

TIGTA Treasury Inspector General for Tax Administration

W&I Wage and Investment Operating Division
Page 1 GAO-03-314 2002 Tax Filing Season

December 20, 2002

The Honorable Amo Houghton

Chairman, Subcommittee on Oversight

Committee on Ways and Means

House of Representatives

Dear Mr. Houghton:

In response to your request, this report discusses various aspects of the

Internal Revenue Service’s (IRS) performance during the 2002 tax filing

season.1

 It is during the filing season that most taxpayers have their only

contacts with IRS, generally to either seek assistance or resolve problems,

such as computational errors or missing Social Security numbers (SSN),

on their returns. The normal challenges associated with any filing season

were exacerbated in 2002 primarily by a new tax credit on the individual

income tax forms and efforts IRS took in response to terrorist activities in

2001. Because of the large number of returns and the essential nature of

IRS’s filing season activities, IRS’s filing season performance is important

to taxpayers and the Congress.

This report discusses IRS’s performance in five key filing season activities:

(1) processing individual income tax returns, refunds, and remittances;

(2) increasing the extent to which individual income tax returns are filed

electronically; (3) assisting taxpayers over the telephone; (4) providing

face-to-face assistance at its walk-in locations; and (5) providing services

via its Web site on the Internet. For each of those five areas, we discuss

(1) IRS’s performance compared with its performance in 2001 and its

performance goals for 2002, as well as any other evidence relating to IRS’s

performance and (2) any factors or initiatives that substantively enhanced

or impeded IRS’s performance and its ability to meet performance goals.

 1

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

filing individual income tax returns. However, millions of taxpayers get extensions from

IRS that allow them to delay filing until as late as October 15.

United States General Accounting Office

Washington, DC 20548
Page 2 GAO-03-314 2002 Tax Filing Season

We testified before the Subcommittee on Oversight on the interim results

of our assessment in April 2002.2

 Our assessment was based on analyses of

IRS data and data obtained from sources outside IRS, interviews of IRS

officials and persons in the private sector, and observations of IRS

operations.

Available data for each of the five filing season activities we reviewed

indicated that IRS’s performance in 2002 was generally better than or

comparable to its performance in 2001 and that IRS met many of its

2002 performance goals. Overall, individual income tax returns and

refunds were processed smoothly (i.e., without any significant disruption);

the use of electronic filing continued to grow; and the quality of assistance

provided over the telephone, at walk-in sites, and through the Web site

improved.

Processing—Available evidence indicates that IRS was able to smoothly

process about 131 million individual income tax returns and about 99

million refunds in 2002. This assessment is based on IRS’s performance in

2002 compared with its performance in 2001 and its goals for 2002 as well

as other evidence, such as testimony from the tax practitioner community.

IRS’s smooth processing was accomplished despite several challenges that

were unique to the 2002 filing season, including a new rate reduction

credit that led to a significant number of errors that IRS had to correct.

IRS attributed its ability to successfully meet these challenges, in part, to

extensive preparation in advance of the filing season.

Electronic Filing—The number of individual income tax returns filed

electronically grew from about 40.2 million in 2001 to about 46.9 million in

2002, an increase of about 16.5 percent, and the percentage of individual

tax returns filed electronically reached 35.9 percent. This 16.5-percent

increase over the number of returns received electronically in 2001 was

more than IRS’s goal of 15 percent and continued the upward trend in the

number of returns filed electronically since 1995. IRS took some positive

steps, including an increased focus on taxpayers and tax practitioners who

prepare returns on computer but file on paper, that helped it achieve that

increase and that could lead to further increases in the future.

 2

U.S. General Accounting Office, Internal Revenue Service: Assessment of Budget Request

for Fiscal Year 2003 and Interim Results of 2002 Tax Filing Season, GAO-02-580T

(Washington, D.C.: Apr. 9, 2002).

Results in Brief
Page 3 GAO-03-314 2002 Tax Filing Season

Telephone Service—IRS’s performance measures showed that IRS

provided more accessible and accurate telephone service in the 2002 filing

season than in 2001 and met most of its telephone service performance

goals. IRS achieved these results despite an increase in calls due to the

rate reduction credit. Although it is difficult to determine specific

cause/effect relationships, several initiatives that IRS implemented for the

2002 filing season, including the implementation of an accuracy

improvement strategy and enhancements to the telephone call routing

system, likely contributed to the improved service. IRS’s accessibility and

accuracy measures reflect the experiences of those callers who attempted

to reach an IRS assistor (30.4 million calls), but not the experiences of

other callers who received automated service or either hung up or were

disconnected without receiving service (73.7 million calls).

Walk-in Assistance—Despite data limitations, there was enough evidence

to suggest that the accuracy of tax law assistance provided by IRS’s walkin sites improved in 2002 compared with 2001, although the level of

accuracy (about 50 percent) was still low. Some of that improvement

might be attributed to better training of field assistance employees.

Although field assistance has made and anticipates making more workload

and staffing changes at its walk-in sites, it has no comprehensive plans for

doing so. When we discussed this with field assistance officials, they told

us that they put the changes on hold until they are able to do more

comprehensive planning.

Internet Web Site—Our assessment and external assessments indicated

that IRS’s redesigned Web site, which became operational in January

2002, was easier to access and more user friendly, although there are

certain aspects of the site that need attention. For example, someone

using the site’s search engine to find information on the earned income

credit would receive a list of over 1,500 items and would have to scroll

down several pages of items before finding reference to the primary

publication on that credit. IRS is aware of this problem and is working to

identify solutions. IRS data also indicated that the Web site was used more

often in 2002, although IRS’s primary measure of usage—number of hits—

overstates usage.

We are making recommendations to the Commissioner of Internal

Revenue to improve certain performance measures and to ensure that

changes to walk-in sites and staffing are thoroughly analyzed and planned.

In commenting on a draft of this report (see app. VI), the Acting

Commissioner of Internal Revenue cited actions that IRS has taken or

plans to take that appear responsive to three of our four
Page 4 GAO-03-314 2002 Tax Filing Season

recommendations. The Acting Commissioner’s comments on our fourth

recommendation did not speak to the specific issue addressed by the

recommendation.

To assess IRS’s performance in the five key filing season activities covered

by this report, we

• reviewed and analyzed IRS documents and data, including workload

and performance data;

• interviewed IRS officials about current operations, performance

relative to 2001 performance and 2002 goals, and significant factors and

initiatives that affected performance;

• observed operations at three of the eight processing centers operated

by IRS’s Wage and Investment Operating Division (W&I) and four of

IRS’s approximately 470 walk-in locations;3

• observed a leadership conference and program review at one

processing center;

• analyzed information posted to IRS’s Web site, specifically assessing

the ease of finding information on the site (i.e., navigation) and the

accuracy and currency of data on the site (i.e., content);

• reviewed information from private firms that assessed various aspects

of IRS's Web site;

• reviewed information from and interviewed representatives of various

private organizations that prepare tax returns and participated in IRS

and other conferences about their views on IRS’s 2002 operations and

performance; and

• reviewed related congressional testimony and work performed by the

Treasury Inspector General for Tax Administration (TIGTA).

This report discusses measures that reflect the continuing interest of the

Subcommittee—including the quality, accessibility, and timeliness of IRS’s

performance during the filing season. We did not independently verify the

data reported by IRS or, in most cases, assess the methodologies used for

computing performance measures or the appropriateness of IRS’s goals.

 3

As part of a reorganization that took effect in October 2000, IRS established four operating

divisions that serve specific groups of taxpayers. The four divisions are (1) W&I, (2) Small

Business and Self-Employed, (3) Large and Mid-Size Businesses, and (4) Tax Exempt and

Government Entities. Our review focused on W&I, which generally serves taxpayers whose

income is from wages and investments and which, as part of that service, processes

individual income tax returns and provides assistance to taxpayers who call on the

telephone or walk into an IRS office.

Scope and

Methodology
Page 5 GAO-03-314 2002 Tax Filing Season

However, we recently issued a report that discussed whether the

performance measures that IRS and we use to assess various aspects of

IRS’s filing season performance had certain key desirable attributes, such

as objectivity, reliability, and clarity.4

 Although we reported that some

measures had weaknesses in these and other areas and we made

recommendations to address the weaknesses we identified, IRS and we

still consider the measures useful in providing data to assess performance.

We did our work at IRS headquarters; W&I headquarters and Joint

Operations Center in Atlanta;5

 and W&I processing centers in Atlanta,

Memphis, and Philadelphia and walk-in locations in Georgia. We selected

these offices for a variety of reasons, including the proximity of our audit

teams and the location of IRS managers. We performed our work from

January through November 2002 in accordance with generally accepted

government auditing standards.

IRS’s filing season activities encompass two critical areas—returns

processing and taxpayer assistance. Figure 1 provides information on the

number of returns processed and the extent of assistance provided.

 4

U.S. General Accounting Office, Tax Administration: IRS Needs to Further Refine Its

Tax Filing Season Performance Measures, GAO-03-143 (Washington, D.C.: Nov. 22, 2002).

5

The Joint Operations Center is the organization responsible for managing IRS’s telephone

operations.

Background
Page 6 GAO-03-314 2002 Tax Filing Season

Figure 1: IRS’s Primary Filing Season Activities Are Processing Returns and

Assisting Taxpayers

Note: Workload data in this figure are for the following time periods: returns processing—1/1/02 to

10/25/02; toll-free telephone—1/1/02 to 7/13/02; walk-in—1/1/02 to 4/20/02; and Internet

downloads—1/1/02 to 8/31/02.

The Economic Growth and Tax Relief Reconciliation Act of 20016 directed

the Secretary of the Treasury to issue advance tax refunds to eligible

taxpayers. Accordingly, about 86 million taxpayers received checks of up

to $600 between July and December 2001. Taxpayers who did not receive

an advance tax refund as part of that process or who received less than the

maximum allowed by law may have been entitled to a rate reduction credit

when filing their tax year 2001 returns in 2002.7

 Accordingly, IRS added a

line to the individual income tax forms for eligible taxpayers to enter a

credit amount and provided a worksheet for taxpayers to use in

determining if they were eligible.

In accordance with the IRS Restructuring and Reform Act of 19988

 and the

Government Performance and Results Act,9

 IRS established a balanced

 6

P.L. 107-16.

7

The terms “advance tax refund” and “rate reduction credit” are not synonymous.

Taxpayers who were eligible to receive an advance tax refund in 2001 but who did not

receive a check may have been entitled to a rate reduction credit when filing their tax year

2001 returns. A rate reduction credit would reduce a taxpayer’s 2001 tax liability and could

have resulted in a tax refund once the 2001 return was filed.

8

P.L. 105-206.

Paper returns

84 million

Electronic

returns

47 million

Toll-free calls

104 million

Internet downloads

379 million

Walk-in contacts

5 million

Taxpayer

assistance

Returns

processing

IRS Web site

Source: GAO’s analysis of IRS’s data.

8 Paper

processing centers

3 Electronic

processing centers

26 Call-sites &

automation

477 Permanent

& temporary sites
Page 7 GAO-03-314 2002 Tax Filing Season

performance measurement system to emphasize accountability for

achieving specific results and to reflect its mission and its three strategic

goals—top quality service to all taxpayers through fair and uniform

application of the law, top quality service to each taxpayer in every

interaction, and productivity through a quality work environment. IRS has

defined three elements of a balanced performance measurement system—

customer satisfaction, employee satisfaction, and business results (quality

and quantity measures)—to ensure balance. IRS intends to use balanced

measures to hold managers and frontline staff more accountable for

improving filing season performance. Although IRS had measures of

performance prior to its establishment of balanced measures beginning in

fiscal year 2001, IRS managers have spent much effort revising measures

since that time.

Qualitative and quantitative information indicates that IRS processed

about 131 million individual income tax returns and about 99 million

refunds smoothly (i.e., without any significant disruption, such as a

computer breakdown that could cause major delays in issuing refunds).10

Part of that information resulted from our comparison of IRS’s processing

performance in 2002 with its performance in 2001 and its goals for 2002.

The smooth processing in 2002 was accomplished despite:

• the new rate reduction credit, which led to a significant number of

errors by taxpayers and tax return practitioners;

• the terrorist attacks of September 11th, which led to IRS reissuing

notices as part of its effort to provide relief to affected taxpayers, and

the subsequent anthrax attacks perpetrated through the mail, which led

to significant security enhancements; and

• IRS’s reorganization, which caused IRS to shift computer files to match

its new organizational units.

IRS attributed its success in meeting those challenges, in part, to extensive

preparation in advance of the filing season. In addition, IRS continued

initiatives begun last year to improve processing performance.

 9

The Government Performance and Results Act (P.L. 103-62) was enacted to hold federal

agencies accountable for achieving program results. IRS’s balanced measurement system is

consistent with the intent of the act.

10Of the 131 million individual income tax returns, about 84 million were filed on paper and

about 47 million were filed electronically. This section of the report focuses on IRS’s

processing of paper; electronic filing is discussed later.

IRS Processed

Individual Income Tax

Returns and Refunds

Smoothly in 2002

Despite Challenges
Page 8 GAO-03-314 2002 Tax Filing Season

Regarding IRS’s processing in 2002,

• IRS’s performance in 2002 improved relative to 2001 for five measures

(deposit error rate, deposit timeliness-paper, refund timelinessindividual (paper), refund error rate–individual (paper), and refund

interest paid). As discussed later, we could not compare IRS’s

performance for three other measures (letter error rate, notice error

rate, and productivity). Table 3 in appendix I describes these eight

measures and shows the results IRS reported for each of the measures

as of September 2002.

• IRS met its fiscal year 2002 performance goal for four measures

(deposit timeliness-paper, refund timeliness–individual (paper), refund

error rate–individual (paper) and refund interest paid) and missed its

goals for two measures (deposit error rate and productivity). As

discussed later, we could not compare IRS’s performance against goals

for the other two measures (letter error rate and notice error rate).

• Production data that IRS uses to monitor operations and identify and

resolve issues that could disrupt operations showed IRS met

processing deadlines and did not experience significant disruptions.

• In testimony given April 2002 before the Subcommittee, the

Commissioner of Internal Revenue testified that, among other things,

the filing season was smooth, with returns being processed on time.

• At that same hearing, (1) H&R Block, the largest tax return preparation

firm, testified that the filing season had gone smoothly with some

exceptions, such as the rate reduction credit, and commented on how

well IRS and the tax preparation industry were working together and

(2) a representative of the National Association of Enrolled Agents11

characterized the filing season, on the whole, as smooth.

• Representatives of other tax return preparation firms told us that, from

their perspective, processing went relatively smoothly.

• Directors, managers, and staff at processing centers we visited in

Memphis, Atlanta, and Philadelphia voiced similarly positive views

about the filing season and processing based, in part, on their

monitoring of production and inventory levels and their ability to meet

processing deadlines despite the additional error-correction workload

resulting from the rate reduction credit.

• W&I’s Director of Submission Processing characterized processing

activities as smooth because of the lack of major disruptions and IRS’s

ability to handle the extensive error-correction workload and still meet

 11The National Association of Enrolled Agents is a national association of over 10,000

independent, licensed tax professionals called enrolled agents. Enrolled agents are licensed

by the federal government and are authorized to appear in place of the taxpayer at IRS.

IRS’s Processing Went

Smoothly
Page 9 GAO-03-314 2002 Tax Filing Season

projected production rates and processing timeframes. He and other

IRS officials attributed IRS’s success to several factors, including

extensive planning and close monitoring of tax return receipts and

inventory levels at the eight W&I processing centers through such

means as weekly production meetings and a well-qualified workforce.

• According to TIGTA’s report on the 2002 filing season, IRS had a

successful filing season despite implementing numerous tax law

changes related to the Economic Growth and Tax Relief Reconciliation

Act of 2001, having to correct millions of errors related to the rate

reduction credit, and experiencing problems with its error-correction

system.12 TIGTA reported that IRS was able to complete the additional

workload without any material slowdowns in processing and issue

refunds in a timely manner by working extra hours when necessary.13

Because IRS revised its letter error rate and notice error rate performance

measures since last filing season, we could not compare its performance in

2002 with its performance in 2001 or against its goals for 2002.14 In

computing these error rates, IRS eliminated certain errors, such as

capitalization mistakes, that it referred to as “professionalism errors.” As a

result, IRS established new baselines for these two measures in 2002.15

According to IRS officials, the decision to eliminate professionalism errors

in computing these measures was based on the fact that although those

errors may make documents, such as letters and notices, less professional

in appearance, they do not make the documents inaccurate.

According to IRS officials, changes to measures used to assess processing

activities were necessary and not unexpected because the measures are

relatively new and still under development and because 2002 processing

goals were based on limited 2001 performance data. Furthermore,

 12Although the 2002 Filing Season Was Completed Timely, Customer Service Can Be

Improved During Error Processing, TIGTA, Reference No. 2002-40-200, Sept. 26, 2002.

13According to TIGTA, although employees worked overtime, the amount of overtime paid

employees in the eight W&I processing centers in 2002 did not increase compared with the

amount paid in 2001.

14We also could not compare IRS’s performance in 2002 and 2001 relative to the

productivity measure because IRS was revising its data for 2001 at the time we completed

our audit work.

15Although this change also applied to the refund error rate-individual (paper) measure, a

new baseline for refund error rate-individual (paper) was not warranted because,

according to IRS officials and supporting data provided by IRS, the policy change did not

affect this measure to the extent it affected the other two.

Revisions to Two Measures

Precluded a Complete

Quantitative Comparison
Page 10 GAO-03-314 2002 Tax Filing Season

although comparisons cannot be made between 2001 and 2002, IRS

officials believe that the measures provide important information to assess

current year performance.

IRS’s ability to process returns and refunds in 2002 without any major

disruptions was enhanced by extensive early preparation and

coordination. That preparation and coordination helped IRS meet the

following significant challenges that were unique to the 2002 filing season:

• Passage of the Economic Growth and Tax Relief Reconciliation Act of

2001, specifically the provisions relating to advance tax refunds and

rate reduction credits.

• The September 11, 2001, attacks, which led to actions by IRS to provide

tax relief to affected taxpayers, and the subsequent anthrax attacks

perpetrated through the mail, which led to significant security

enhancements.

• IRS’s shifting of computer files in conjunction with its reorganization.

Details about these challenges can be found in appendix II.

Preparation and coordination helped ensure smooth processing during the

2002 filing season. IRS begins extensive preparation well in advance of

each filing season to help ensure smooth processing. Figure 2 reflects

some of IRS’s key activities and associated deadlines in preparation for

each filing season. It also reflects the challenges that IRS faced in planning

and delivering the 2002 filing season and IRS’s responses to those

challenges.

IRS Faced Several

Challenges in Processing

Returns in the 2002 Filing

Season and Took Steps to

Meet Those Challenges

Preparation and Coordination

Helped IRS Meet Challenges
Page 11 GAO-03-314 2002 Tax Filing Season
Page 12 GAO-03-314 2002 Tax Filing Season

Figure 2: Highlights of IRS’s Filing Season Preparations, Challenges, and Responses

1/4

IRS is able to

receive tax 

year 2000

individual

income tax

returns.

January February March April May June July August September October November December

2/28

Deadline

for accepting

computer

systems 

changes in

response to

legislative and

other changes

in preparation

for the 2002

filing season.

4/16 

Deadline for

taxpayers

to either

file their

individual

income tax 

returns for

tax year 2000

or get an 

extension.a

late-May 

Deadline

for issuing

refunds on

timely filed 

returns

without

paying

interest.

9/1 

IRS begins

testing initial 

changes to 

the computer 

systems for 

the 2002 

filing season.

10/15

Final deadline 

for filing tax 

year 2000 

individual 

income tax 

returns with

extensions.

mid-Nov. 

IRS checks

for operability

of computer

systems 

changes.

mid-Dec. 

IRS conducts

final testing

of the

computer 

systems.

Filing season challenges and IRS's responses:

6/7 

Enactment of 

tax relief 

legislation.

7/1 - 12/1

IRS issued

advance tax

refund 

checks to

taxpayers.

7/30 

IRS updated

computer

systems to

address tax

relief 

legislation.

10/1

IRS held

leadership

conferences

and 

established

new office to

coordinate

filing season

preparations

and mitigate

potential 

problems.

10/1 - 12/1

IRS updated

computer

systems to

further 

address tax 

relief

legislation

and granted

tax relief to

taxpayers

affected by 

9/11 terriorist

actions.

mid-Oct.

Anthrax

attacks

perpetrated

through

the mail.

12/1 

Initial and 

final testing

of the 

computer 

systems 

were run 

concurrently 

due to

extensive 

changes 

from the tax 

relief 

legislation, 

tax relief to 

taxpayers 

affected by

9/11, and 

shifting

computer files

to match IRS's 

reorganization. 

2001

Filing season annual tasks and deadlines:

9/11

Terrorists

actions

against

the United

States.

mid-Nov.

IRS 

established

a committee

to begin 

identifying

security

enhancements for

handling

mail.
Page 13 GAO-03-314 2002 Tax Filing Season

a

The deadline for filing tax year 2000 individual income tax returns was April 16, 2001, because April

15 was a Sunday.

IRS began preparing for the 2002 filing season by translating tax law

requirements into computer system changes and testing those system

changes in early 2001. As IRS continued preparing for the filing season, it

had to make changes to the computer systems to accommodate the tax

law changes related to the rate reduction credit and test those changes

concurrently with regular testing and September 11 work. In March

January February March April May June July August September October November December

Filing season challenges and IRS's responses:

2002

Filing season annual tasks and deadlines:

1/4

IRS begins

receiving

2001 

individual

income tax 

returns. 

Filing season annual tasks and deadlines:

2/28

Deadline

for computer

systems 

changes as a

result of

legislative and

other changes

in preparation

for the 2003

filing season.

4/15 

Deadline 

for taxpayers 

to file either

their

individual

income tax

returns for

tax year 2001

or get an

extension.

5/30 

Deadline

for issuing

refunds on

timely filed

returns 

without

paying

interest.

9/1 

IRS begins 

testing initial 

changes to 

the computer 

systems for 

the 2003

filing season.

10/15

Final deadline

for filing the 

individual 

income

tax return for

year 2001with

extensions.

mid-Nov. 

IRS checks

for the

operability

of computer

systems 

changes.

mid-Dec. 

IRS conducts

final testing

of the

computer 

systems.

7/12

By this date,

IRS received 

8 million

additional

returns, of

which 

approximately

2 million 

had rate 

reduction

credit errors.

IRS corrected

these errors.

1/23

IRS began

issuing a

series of 

news

releases

informing the

public about

how to handle

the rate

reduction

credit on 

their returns.

2/14

By this date,

IRS received

31million

returns, of 

which more

than 1 million

had rate 

reduction

credit errors.

IRS corrected

these errors.

3/15

By this date,

IRS received

14 million 

additional

returns, of

which

approximately

2 million had 

rate reduction

credit errors.

IRS corrected

these errors.

4/19

By this date,

IRS received

72 million 

additional

returns, of

which 

approximately

2 million 

had rate

reduction

credit errors.

IRS corrected

these errors.

9/9-11/30

IRS 

issued

additional

rate 

reduction

credit 

checks to 

about

1.7 million

taxpayers.

Source: GAO's analysis of IRS's data.
Page 14 GAO-03-314 2002 Tax Filing Season

2002, TIGTA concluded that IRS appropriately prepared for the effective

processing of tax returns by modifying its computer systems, updating

procedural and training manuals, and performing staffing analyses.16 In

responding to that report, IRS officials indicated that preparatory efforts

were successful and were instrumental in ensuring smooth processing.

IRS also established a new office—the Release and Filing Season

Readiness Office—in October 2001 to support the coordination of

computer system development, testing, and operation in the actual

processing environment. Among other things, this office helped IRS

respond to changing priorities and unanticipated challenges by monitoring

the status of computer system changes, facilitating discussions between

information technology and other processing units on how to mitigate

problems, and helping support and coordinate testing and resources.

IRS implemented or expanded several initiatives to improve processing

performance for both the 2002 and 2003 filing seasons. For example:

• IRS established site-level performance goals in 2002 to allow better,

more individualized comparison of each processing center’s

performance against its previous performance and toward corporate

goals. According to IRS officials, these site-level comparisons should

help identify best practices.

• In October 2001, IRS conducted a 2-day “leadership conference” at all

eight W&I processing centers to communicate site goals and train

managers and employees on the importance of performance measures

and individual employees’ role in helping achieve goals. IRS officials

credit the conferences, in part, with helping improve performance in

2002.

• Given the perceived success of last year’s leadership conferences, IRS

conducted similar conferences in 2002. At the same time, IRS officials

assessed whether the processing centers and employees were

following procedures when sampling returns for review and reporting

performance data for balanced measures. As a result, IRS identified

issues that can be corrected by updating processing guidance, which

will likely improve performance. In addition, IRS identified local

procedures to help reduce the interest paid on refunds that officials

said are being communicated to the other centers as a best practice.

 16The Internal Revenue Service Certifies Its Readiness to Process Individual Income Tax

Returns in 2002, TIGTA, Reference No. 2002-40-080, Mar. 29, 2002.

IRS Implemented or

Expanded Initiatives to

Improve Processing

Performance
Page 15 GAO-03-314 2002 Tax Filing Season

• During the 2002 filing season, IRS expanded the third-party checkbox

authorization, to allow taxpayers to designate friends, family members,

or paid practitioners to help resolve problems IRS might encounter in

processing their returns, such as a missing SSN, that could result in

incorrectly computing a refund, for example. See appendix III for more

information on the third-party checkbox authority.

IRS received about 47 million individual income tax returns electronically,

or about 36 percent of all individual income tax returns filed, as of October

25, 2002. The growth rate in 2002 projected through 2007 would bring IRS

very close to its long-term goal of 80 percent of all individual income tax

returns filed electronically by 2007.17 However, the Electronic Tax

Administration Advisory Committee (ETAAC)18 does not believe that the

current growth rate can be sustained and, instead, expects the growth rate

to decline. According to ETAAC, if IRS is to continue or increase its

current growth rate, it needs to overcome various barriers to electronic

filing. IRS took several steps that were aimed at overcoming existing

barriers and that may have helped it exceed its electronic filing goal for

2002. Those steps could lead to more growth in the future. In addition, two

initiatives planned for 2003 could further encourage many taxpayers and

practitioners to convert from paper filing to electronic filing.

As shown in table 1, the number of individual tax returns filed

electronically grew from about 40.2 million in 2001 to about 46.9 million in

2002—an increase of about 16.5 percent—and the percentage of individual

income tax returns filed electronically reached 35.9 percent. This

16.5-percent increase over the number of returns received electronically in

 17This section discusses the measures that IRS uses to evaluate electronic filing

performance compared to past performance, 2002 goals, and IRS’s long-term goal for

individual income tax returns. The report we issued on IRS’s filing season performance

measures (GAO-03-143) includes many performance measures related to electronic filing

that are not discussed in this report because those measures relate to other returns, such

as those from businesses.

18The 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

was created in 1998 in response to that mandate and, among other things, is required to

report to the Congress annually on IRS’s progress towards meeting the electronic filing

goals set in the act.

IRS Exceeded Its 2002

Electronic Filing

Performance Goal

and Is Taking Action

to Help Ensure Future

Growth

Electronic Filing

Continued to Grow
Page 16 GAO-03-314 2002 Tax Filing Season

2001 was more than IRS’s goal of 15 percent and continued the upward

trend in the number of returns filed electronically since 1995.

Table 1: Number of Individual Income Tax Returns Received, by Filing Type

Number of returns in thousands

Filing type

1/1/00 to

10/27/00

1/1/01 to

10/26/01

Percentage

change 2000

to 2001

1/1/02 to

10/25/02

Percentage

change 2001

to 2002

Paper 92,322 89,834 -2.69 83,816 -6.70

Electronic

Traditionala 25,211 28,988 14.98 33,286 14.83

On-lineb5,022 6,838 36.16 9,428 37.88

TeleFilec5,161 4,419 -14.38 4,176 -5.50

Subtotal 35,394 40,245 13.71 46,891 16.51

Total 127,716 130,079 1.85 130,708 0.48

Percentage filed electronically 27.7 30.9 35.9

Source: IRS data.

Note: Totals may not add due to rounding.

a

Traditional electronic filing involves the transmission of returns over communication lines through a

third party, such as a tax return practitioner, to an IRS processing center.

b

On-line returns are prepared and transmitted by taxpayers through on-line intermediaries using

personal computers and commercial software.

c

Under TeleFile, certain taxpayers who are eligible to file a Form 1040EZ are allowed to file using a

toll-free number on touch-tone telephones.

Figure 3 shows that the growth in electronic filing in 2002 continued the

upward trend started in 1995 and the rate of growth in 2002 was larger

than the rate of growth in 2001.
Page 17 GAO-03-314 2002 Tax Filing Season

Figure 3: Number of Individual Income Tax Returns Filed Since 1995

Assuming continued annual growth rates of 16.51 percent for individual

returns filed electronically and 0.48 percent for the total number of

individual tax returns filed, about 75.2 percent of all tax returns will be

filed electronically by 2007, slightly below the long-term goal of 80 percent.

However, in its 2002 report to the Congress, ETAAC said that although the

electronic filing goal for 2002 was exceeded, the trend of electronic filing

is clearly towards lower annual growth rates, primarily for the following

reasons:

• The taxpayers most easily attracted to electronic filing have already

made the switch to electronic filing while the remaining taxpayers will

be more difficult to convert.

• As the base of total filers and electronic filers grows, the number of

new electronic filers needed to sustain the same growth rate increases.

Percent

0

5.0

10.0

15.0

20.0

25.0

30.0

Year

1995 1996 1997 1998 1999 2000 2001 2002

Numbers in thousands

 0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

Number of electronic returns

Percentage increase

Source: IRS data.
Page 18 GAO-03-314 2002 Tax Filing Season

Each year, IRS surveys taxpayers and tax practitioners who electronically

file to determine their satisfaction level with electronic filing. The survey

for 2002 showed that about 98 percent of the responding taxpayers and

85 percent of the responding tax practitioners were either satisfied or very

satisfied with electronic filing, which compares favorably with IRS’s goal

of 85 percent. Although the percentage of responding practitioners who

expressed overall satisfaction was relatively high (85 percent), it was

lower than in 2001 (90 percent), which, in turn, was lower than in

2000 (93 percent). It is not clear why the level of satisfaction among

practitioners has been decreasing because the customer satisfaction

survey does not probe for reasons behind a respondent’s choices.

Over the years, IRS has identified many impediments to electronic filing,

including privacy and security concerns, cost, a lack of awareness of or

interest in electronic filing, an inability to file all forms and schedules

electronically, and a need to send certain paper documents to IRS even if

the return was filed electronically. In 2002, IRS took numerous steps to

alleviate these impediments and thus encourage more electronic filing that

included the following:

• Increasing the electronic filing marketing budget from $9 million in

2001 to about $15 million in 2002 and focusing the marketing campaign

on taxpayers and practitioners who filed computer-prepared returns on

paper.

• Mailing a postcard to about 23 million taxpayers, including about

8 million taxpayers who had prepared their returns on a computer but

filed on paper, informing them of the benefits of electronic filing and

the self-select personal identification number (PIN) program. The

postcard also informed them that a professional tax practitioner could

be used to file their returns electronically and explained how the selfselect PIN can be used to sign returns filed through a tax practitioner.

• Mailing two different letters to tax practitioners. The first letter was

sent to practitioners who were already participating in the electronic

filing program to thank them for participating and encourage them to

continue to support the program. The second letter was sent to

practitioners who were not participating in the electronic filing

program and told them about the benefits of electronic filing, changes

that had been made to the program, and pending changes. IRS enclosed

a document with both letters that provided more information on the

benefits of electronic filing and the self-select PIN program. In total,

about 250,000 letters were sent to practitioners.

• Reinstating the practitioner PIN program. In 2001, practitioners

informed IRS that they liked the practitioner PIN program, which IRS

Taxpayers and Tax

Practitioners Report Being

Satisfied with Electronic

Filing

IRS Initiatives May Have

Helped It Exceed Its 2002

Electronic Filing

Performance Goal
Page 19 GAO-03-314 2002 Tax Filing Season

had terminated in favor of the self-select PIN program, and would like

to see it reinstated. As of October 25, 2002, 83.9 percent of the tax

returns prepared by practitioners and signed by a PIN were signed

through the practitioner PIN program. The other 16.1 percent were

signed using a self-select PIN.

• Changing the self-select PIN program at the request of tax

practitioners. In 2002, taxpayers entered only their adjusted gross

income from the prior tax year to verify their identity. In

2001, taxpayers had to enter not only their adjusted gross income but

also their total tax to verify their identity. Tax practitioners wanted the

number of items used to verify identity—known as “shared secrets”—

reduced from two to one, because errors related to shared secrets

resulted in numerous electronic tax returns being rejected. Consistent

with the reduction in the number of shared secrets from two to one, the

number of reject conditions on electronic tax returns as a result of

shared secrets went down from about 2.1 million in 2001 to about

1.3 million in 2002.

• Making 30 additional forms and schedules eligible to be filed

electronically, thereby enabling, according to IRS, 99 percent of all

individual forms and schedules to be filed electronically.

Although no information is available to confirm the extent to which these

actions, either individually or collectively, contributed to the growth of

electronic filing, it seems reasonable to assume that they had a positive

effect since they address most of the identified impediments noted earlier.

IRS also took steps to obtain additional information on impediments to

electronic filing. As in the past, for example, it held electronic filing

forums and practitioner meetings and conducted attitudinal surveys and

market research. One significant step was the surveying of taxpayers and

tax practitioners who prepared returns on a computer but filed them on

paper. We had recommended such surveys in our report on the 2001 filing

season in response to the fact that about 40 million computer-prepared

individual income tax returns were filed on paper in 2001.19

The surveys revealed that taxpayer and tax practitioner costs, security and

technology concerns, and a perceived lack of interest were among the

primary reasons why taxpayers and tax practitioners are not filing

electronically. With respect to the perceived lack of interest, (1) 87 percent

 19U.S. General Accounting Office, Tax Administration: Assessment of IRS’ 2001 Tax

Filing Season, GAO-02-144 (Washington D.C.: Dec. 21, 2001).
Page 20 GAO-03-314 2002 Tax Filing Season

of taxpayers who used paid practitioners indicated on the survey that their

practitioner never discussed electronic filing with them and 4 percent said

that their practitioner recommended against electronic filing and

(2) 66 percent of tax practitioners said that they did not offer electronic

filing because their clients did not ask for it. See appendix IV for more

details on what survey respondents cited as factors that strongly

influenced them not to file electronically and incentives that could

encourage them to do so.

IRS has two initiatives planned for the 2003 filing season—making

electronic filing free for millions of taxpayers and offering services to

practitioners who file a certain number of returns electronically. IRS

intends for these initiatives to address two major impediments—the cost

to taxpayers and the lack of interest on the part of some practitioners.

In an attempt to remove cost as an impediment to electronic filing,20 IRS

entered into an agreement with a consortium of companies in the

electronic tax preparation and filing industry that will offer free on-line tax

filing services via IRS’s Web site. IRS estimates that 78 million taxpayers

will be eligible to file their tax returns for free through this consortium.

However, in its 2002 report to the Congress, ETAAC stated that lack of

access to a computer and/or the Internet may prevent many of the

78 million eligible taxpayers from taking advantage of the free-filing

service.

To address the lack of interest on the part of some practitioners, IRS plans

to offer electronic services (such as taxpayer identification number

matching and account resolution) to tax practitioners who file a certain

number of returns electronically. The aim of this initiative is to provide

practitioners who file electronically with valuable tools to improve their

service to their customers and reduce costs. In its 2002 report to the

Congress, ETAAC stated that electronic services are likely to provide a

major incentive for practitioners to file their clients’ returns electronically.

 20To electronically file, taxpayers must generally either pay a tax practitioner to prepare

and submit their tax return, pay a transmitter to transmit their tax return, or purchase a

software package and file their tax return on-line through an on-line intermediary using a

personal computer.

Planned Initiatives for 2003

Could Lead to More

Electronic Filing
Page 21 GAO-03-314 2002 Tax Filing Season

IRS’s performance measures showed that (1) telephone service was more

accessible and accurate during the 2002 filing season than it was in

2001and (2) IRS met most of its 2002 performance goals. IRS implemented

several initiatives and strategies to improve performance, particularly in

the area of accuracy where improvement was greatest.

IRS serves telephone callers either through assistors, who are also known

as customer service representatives (CSR), or automation, depending on

how callers respond to menu prompts. As shown in figure 4, of the about

104.1 million calls that IRS received in the 2002 filing season,

• 21.2 million of the 30.4 million calls IRS estimates were from callers

attempting to reach an assistor21 actually reached one;

• 42.9 million calls resulted in the caller receiving automated service; and

• 40 million calls resulted in the caller hanging up or being disconnected

without receiving service, including callers who received a busy signal.

 21IRS determines which callers were attempting to reach an assistor based on how they

responded to menu prompts. For callers who received busy signals and, therefore, did not

get a chance to respond to the menu, IRS estimates how many were attempting to reach an

assistor based on the percentage of calls that were served by assistors that week. IRS’s

estimate of the callers who attempted to reach an assistor does not reflect callers who did

not get a busy signal but yet hung up before completing the menu responses necessary to

determine the type of assistance (assistor or automation) that would have handled their

calls.

Telephone Service

Improved Compared

with Last Year
Page 22 GAO-03-314 2002 Tax Filing Season

Figure 4: Of 104.1 Million Calls to IRS, 30.4 Million Were Covered by Accessibility

and Accuracy Performance Measures

Note: Data are for calls made to IRS’s three main live-and-automated assistance numbers; its special

number for victims of the September 11, 2001, terrorist actions; and its automated-service-only

(TeleTax) number from January 1, 2002, through July 13, 2002.

The measures that IRS and we used to assess the accessibility and

accuracy of IRS telephone assistance during the 2002 filing season, which

are discussed in the next section, reflect only the calls that IRS estimates

were from callers attempting to reach an assistor.22 Specifically, the CSR

level of service measure reflects the experience of the 30.4 million callers

who IRS estimates were attempting to reach an assistor, and other

measures reflect the experiences of the 21.2 million callers who actually

reached an assistor. The measures do not reflect the experiences of the

73.7 million calls from callers who either completed an automated service

 22IRS has other measures that we are not reporting on because they do not provide

adequate information to make conclusions about the ease with which taxpayers reached

IRS or the accuracy of the responses they received after reaching IRS.

42.6 million

0.3 million

21.2 million

IRS’s estimate of the calls from callers

attempting to reach an assistor

(30.4 million)

31.1 million

8.9 million

Reached an assistor

(21.2 million)

Received automated service

(42.9 million)

Hung up or disconnected without receiving service

 (40.5 million) = 104.6 million calls to IRS

Source: GAO’s analysis based on IRS’s data
Page 23 GAO-03-314 2002 Tax Filing Season

or hung up or were disconnected without receiving service.23 As a result,

for example, the measures do not reflect an increased number of calls in

2002 from callers who hung up without completing menu responses or an

automated service. According to IRS officials, the biggest part of this

increase was probably due to problems with IRS’s telephone service menu,

particularly during the early weeks of the filing season. When IRS revised

the menu in mid-February, it noted a decline in the hang-up rate, which

may indicate that taxpayers had been frustrated or confused by the menu.

Table 2 provides information on IRS’s performance in providing telephone

assistance to taxpayers who were attempting to reach or who received

service from an IRS assistor in the 2002 filing season.24 In summary, the

table shows the following:

• A greater percentage of calls got through and received service, and IRS

met two of its three accessibility goals for 2002. IRS likely would have

performed better in the other measure, CSR level of service, if not for

the significant demand for telephone assistance related to the rate

reduction credit.

• The accuracy of assistance improved considerably in 2002 compared

with 2001, and IRS met most of its goals. The quality and correct

response rates for both tax law and account calls were better in

2002, indicating that assistors more closely adhered to IRS procedural

guidance and more often provided callers accurate information and

service.

• Customer satisfaction was comparable to 2001. Detailed data show that

customers who were successful in reaching an assistor were least

satisfied with the time they had to wait to speak with an assistor in

both 2001 and 2002.

 23In GAO-03-143, we recommended that IRS establish measures for its automated telephone

services.

24According to IRS officials, the filing season for telephone assistance generally begins

January 1 and ends around July 15 each year. Although the tax return filing deadline is

April 15, the demand for telephone assistance continues past the deadline as taxpayers call

to, among other things, inquire about the status of their refunds or respond to notices they

received from IRS about their filed returns.

Telephone Service Was

More Accessible and

Accurate Than Last Year,

and Most 2002 Goals Were

Met
Page 24 GAO-03-314 2002 Tax Filing Season

Table 2: IRS’s Performance in Providing Filing Season Telephone Assistance

2001 2002

Accessibility measuresa Actual Actual Goal

 CSR level of serviceb

68% 71% 72%

 Assistor response levelc

39% 51% 44%

 Average speed of answerd

337 seconds 268 seconds 289 seconds

Accuracy measurese

 Tax law quality ratef

75% +/- 1% 82% +/- 1% 78%

 Accounts quality ratef

69% +/- 1% 76% +/- 1% 72%

 Tax law correct response rateg

79% +/- 1% 85% +/- 1% 85%

 Accounts correct response rateg

88% +/- 1% 91% +/- 1% 93%

Customer satisfactionh

 Wage and Investment

 January through March

 April through June

3.45 +/- .03

3.46 +/- .03

3.51 +/- .03

3.43 +/- .03 3.49

 Small Business/Self-Employed

 January through March

 April through June

3.49 +/- .03

3.43 +/- .03

3.52 +/- .03

3.47 +/- .03 3.58

Source: IRS data.

a

Accessibility data are based on actual counts from January 1 through July 13. The actual data shown

here for the 2001 filing season differ from data we cited in an earlier report. See U.S. General

Accounting Office, IRS Telephone Assistance: Limited Progress and Missed Opportunities to Analyze

Performance in the 2001 Filing Season, GAO-02-212 (Washington, D.C.: Dec. 7, 2001). According to

IRS, the difference in CSR level of service is due to an error in data it provided and a change in the

way it calculates the measure, and differences in the other accessibility measures are due to

enhancements to the telephone database that resulted in more accurate data.

b

The percentage of callers that IRS estimates attempted to reach an assistor that received service,

including some callers that received automated service.

c

The percentage of callers that waited 30 seconds or less before speaking to an assistor.

d

The average number of seconds callers waited before speaking to an assistor.

e

Accuracy measures are based on representative samples and are estimated at the 90-percent

confidence level from January through June.

f

The percentage of calls in which assistors followed all IRS procedures for the call type and provided

correct answers.

g

The percentage of calls in which assistors provided correct answers for the call type, discounting

procedural errors.

h

The overall satisfaction rating on a 4-point scale based on a survey of callers who reached an

assistor, estimated at the 95-percent confidence level. IRS compiles and reports these data quarterly

by the two operating divisions that provide toll-free telephone assistance.

The volume of calls is a key factor that can affect CSR level of service. As

we previously reported, IRS data suggest that demand for telephone

assistance related to the rate reduction credit was significant during the

2002 filing season and negatively affected telephone performance,

especially in mid- to late-February, when the greatest number of taxpayers

CSR Level of Service Improved

Despite Increased Volume Due

to the Rate Reduction Credit
Page 25 GAO-03-314 2002 Tax Filing Season

called with questions about the credit.25 Although performance declined

significantly during this period of peak demand for information on the rate

reduction credit, IRS performed well enough during the rest of the

2002 filing season so that, as shown in table 2, the CSR level of service in

2002 improved compared with 2001, and IRS almost met its goal.

According to IRS officials, although taxpayers had greater difficulty

getting access to IRS’s telephone system during certain weeks—when

there was great demand for rate reduction credit assistance and, as

discussed earlier, there were problems with IRS’s telephone service

menu—taxpayers, overall, had a considerably better telephone service

experience in the 2002 filing season than in 2001.

Effective October 2001, IRS stopped using the assistor response level and

average speed of answer measures to assess its performance in providing

telephone assistance. According to IRS officials, IRS adopted these

measures in fiscal year 2001 to focus its efforts on improving access and

allow it to gauge its performance against world-class telephone service

organizations. However, officials said that subsequent experience showed

that IRS’s telephone call sites do not have control over, nor are they

directly accountable for, key factors that affect these measures, such as

the volume of calls routed to them.

Although the sites’ control over these measures may be limited, they are

an important component of any assessment of IRS’s telephone

performance because they measure a key aspect of the customer

experience—how long callers wait to speak to an assistor. In that regard,

selected noteworthy public and private call centers we studied often used

caller wait-time measures to set service-level goals and benchmarked their

performance against the best practices of leading telephone service

providers.26 Without a caller wait-time measure similar to those used by

others, IRS’s suite of telephone measures is missing an important indicator

of the ease with which taxpayers reach IRS.

According to IRS officials, the current accuracy measures, while useful in

assessing the filing season, do not adequately reflect customer needs and

 25U.S. General Accounting Office, Advance Tax Refund Program Was a Major

Accomplishment, but Not Problem Free, GAO-02-827 (Washington, D.C.: Aug. 2, 2002).

26U.S. General Accounting Office, Customer Service: Human Capital Management at

Selected Public and Private Call Centers, GAO/GGD-00-161 (Washington, D.C.: Aug. 22,

2000).

IRS Made Changes to Its

Measures and Plans to Make

More
Page 26 GAO-03-314 2002 Tax Filing Season

employee performance. With the assistance of a contractor, IRS developed

new measures that it believes better reflect what matters most to its

customers—accuracy, timeliness, and professionalism. IRS plans to

baseline the new measures in 2003 and use them in 2004 to replace the

current accuracy measures.

IRS implemented several initiatives to improve telephone service in the

2002 filing season. For example, IRS established accessibility performance

measures and goals for its call sites and enhanced its call-routing

capabilities to provide taxpayers better access to assistors. IRS also

implemented several initiatives, including earlier assistor training, as part

of a strategy to improve accuracy and piloted a new hiring program to get

candidates with higher aptitudes and skill levels.

In 2002, IRS established two new accessibility performance measures—

services provided and total handle time27—and related goals for its

26 telephone call sites. These measures replace those discontinued in

1998. IRS officials said that the measures and goals were intended to

provide the sites with incentives for handling calls efficiently and

answering their share of total calls, thereby enhancing their contributions

to meeting IRS’s overall accessibility goals. According to IRS officials, the

new measures led to improved performance by giving the call sites a

clearer understanding of what they were expected to achieve and how

their performance would help IRS achieve its goals. IRS took action to get

employees to understand the measures and contribute to achieving goals,

by, for example, holding “leadership conferences” for telephone

operations managers similar to those conducted in the processing centers.

IRS enhanced its call routing system by implementing a feature, called

“network call screening.” Before network call screening, IRS’s contract

long-distance service provider routed calls to one of IRS’s call sites where

the caller heard and responded to a menu of options. The number of calls

IRS received often exceeded its telephone system capacity, resulting in

many calls receiving busy signals. Also, because calls were routed before

the callers had indicated, through use of a menu, the subject matter of

their calls, callers were sometimes given access to only automated service,

 27“Services provided” counts the number of times callers reached assistors. “Handle time”

measures the total time an assistor spent talking to a taxpayer, keeping the taxpayer on

hold, and finishing the call—up to the time the assistor indicated his or her readiness to

receive another call.

IRS Implemented Various

Initiatives to Improve

Telephone Service

IRS Established Accessibility

Performance Measures and

Goals for Call Sites

IRS Enhanced Call Routing
Page 27 GAO-03-314 2002 Tax Filing Season

even though assistors were available to handle their calls. With network

call screening, callers hear and respond to the menu options before the

call is routed to a call site. According to IRS officials, this reduced the

number of calls that receive busy signals, increased the chance that a

caller would reach an assistor, and decreased wait times. In that regard,

(1) IRS data show that the number of busy signals callers received

decreased from about 1.5 million in the 2001 filing season (or about

3 percent of total call attempts) to about 0.7 million in the 2002 filing

season (or about 1 percent of total call attempts) and (2) an IRS analysis

showed that the percentage of calls sent to automated-only service

decreased from 11 percent in the 2001 filing season to 8 percent in the

2002 filing season.

According to IRS officials, improving the accuracy of telephone assistance

was a major emphasis in planning for the 2002 filing season. With the

assistance of a contactor, IRS analyzed its accuracy data to identify

problems and developed initiatives to improve accuracy. IRS’s accuracy

rates in January were historically the lowest of any month for tax law

inquiries and, according to the analysis, a classic learning curve was

evident from January through April. IRS implemented several initiatives to

combat this January slump, including training assistors in their specialized

topics in November and December and requiring their managers to certify

them, by the start of the filing season, as capable of providing the correct

response to taxpayer questions. Other initiatives included reviewing and

correcting the guidance assistors use to respond to taxpayer questions and

assigning call site managers ownership of selected tax law topics, thus

making them accountable for assistor training and improving assistors’

performance in their assigned topics.

For the 2002 filing season, IRS piloted a new hiring method at some call

sites to improve service to taxpayers by hiring better-qualified assistors.

The new method used live role-playing to identify candidates with the

required competencies for successful job performance, free up front-line

manager’s time previously spent interviewing possible candidates, and

reduce assistor turnover. As we previously reported, IRS officials have

said that attrition has negatively affected IRS’s performance,28 and the lack

of time to interview applicants has led to concerns about the suitability of

 28GAO-02-212.

IRS Implemented an Accuracy

Improvement Strategy

IRS Tested a New Process

for Hiring Better Qualified

Assistors
Page 28 GAO-03-314 2002 Tax Filing Season

new hires.29 With respect to attrition, IRS data showed that the turnover

rate at sites that hired under the new process was 9.3 percentage points

lower than the turnover rate at comparable call sites that used the

traditional hiring method. IRS plans to expand this initiative in 2003.

Quality of walk-in assistance improved and wait-time was about as good as

last year, based on available information, although fewer taxpayers were

assisted. The accuracy of walk-in tax law assistance—the only type of

walk-in assistance30 for which quality was measured in recent filing

seasons—appears to have improved compared with the 2001 filing season.

IRS took several steps in 2002 to improve walk-in service—some may have

helped improve the accuracy of tax law assistance in 2002, the effect of

others should be realized later. IRS also anticipates changes in the

workload to be handled by walk-in staff. Thus, although the number of

taxpayers assisted at the walk-in sites declined about 20 percent over the

past 3 filing seasons, IRS has been increasing the number of field

assistance staff years used to provide that assistance. However, the extent

and timing of the workload changes are not clear, and field assistance

does not have comprehensive plans that clearly relate that workload to

resource needs.

The Congress directed TIGTA to review the accuracy of assistance

provided by all of IRS’s more than 400 walk-in sites. TIGTA expects to

complete its review in fiscal year 2003. From January through April

2002, TIGTA reviewers made 157 anonymous visits to 77 walk-in sites,

 29U.S. General Accounting Office, IRS Telephone Assistance: Opportunities to Improve

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

30In general, taxpayers who visit IRS walk-in locations can obtain (1) tax forms and

publications; (2) answers to questions about the tax law; (3) assistance with their tax

accounts; (4) limited return-preparation assistance; and (5) various other types of

assistance, such as help getting a taxpayer identification number.

Quality of Walk-in

Assistance Showed

Some Improvement,

While the Number of

Taxpayers Assisted

Continued to Decline

Accuracy of Tax Law

Assistance by Walk-in Sites

Improved Since Last Year

but Remains Low
Page 29 GAO-03-314 2002 Tax Filing Season

asking two tax law questions on each visit. TIGTA found that only about

50 percent of its questions were answered correctly.31

The reviews TIGTA did in 2002 were not comparable to the reviews it did

in 2001 because TIGTA asked questions from a broader range of tax law

topics in 2002 (i.e., 22 topics in 2002 compared with 4 topics in 2001). It

seems reasonable to assume, and TIGTA agrees, that covering 22 topics

versus 4 required a broader knowledge of the tax law and thus increased

the possibility for error. Yet, despite the increased possibility for error,

reported accuracy was about double the 24-percent accuracy TIGTA

reported for 2001.

In commenting on a draft of this report, the Acting Commissioner of

Internal Revenue said that our use of TIGTA’s accuracy rates is

inappropriate because TIGTA included referrals to IRS publications as

errors. While noting that IRS does not want employees to improperly refer

questions, the Acting Commissioner said that those referrals should not be

counted as incorrect answers. According to the Acting Commissioner, the

“true cumulative accuracy rate” through June 2002 was 66 percent instead

of 50 percent. We disagree. As TIGTA explained in its report, referrals

were counted as incorrect when the IRS employee merely provided the

publication, without walking the customer through it to identify the

answer, as required by established field assistance procedures. In our

view, the complexity of tax laws and varying education levels among

taxpayers seeking assistance suggest that requiring field assistance

employees to walk the taxpayer through a publication to identify the

correct response is a necessary procedure that should be followed in

practice for the response to be considered correct.

 31The 50-percent accuracy rate represents the cumulative rate from visits done from

January through April 2002; the true accuracy rate will not be known until TIGTA

completes its reviews in fiscal year 2003. TIGTA reviewers considered responses correct

when they were answered accurately and in enough detail to avert filing errors. Conversely,

they considered responses incorrect when walk-in staff did not answer accurately or in

enough detail, referred reviewers to a publication without walking them through it to get

the right answer as required by field assistance procedures, or denied assistance by failing

to either answer their question or refer them to someone who could.
Page 30 GAO-03-314 2002 Tax Filing Season

IRS’s data for January 1 through April 20, 2002, showed that about

85 percent of the 2.6 million walk-in customers for whom wait-time was

tracked waited 30 minutes or less to obtain assistance between January

1 and April 20, 2002.32 However, IRS made the following two changes to the

way it reported wait-time in 2002 that precluded any comparison to 2001.

• IRS reduced the number of sites for which wait-time data was tracked.

In 2001, all walk-in sites tracked wait-time either automatically, if they

were equipped with the Queuing Management System (Q-Matic), or

manually, if they did not have Q-Matic.33 As of March 2002, however, the

approximately 297 sites not equipped with Q-Matic were no longer

required to track or report wait-time—a decision we believe was

prudent because manual tracking was not practical at some sites with

limited staff and because manual tracking of wait-times is an errorprone process.

• IRS doubled the threshold used for wait-time tracking from 15 minutes

or less in 2001 to 30 minutes or less in 2002, thus increasing the

reported percentage of taxpayers receiving timely assistance.

The bi-weekly wait-time reports submitted by the sites and derivative

summary data provided to us by IRS did not provide any details on the

wait-times for the 15 percent of customers (about 384,000 taxpayers) who

waited longer than 30 minutes for assistance, even though this information

was available through Q-Matic,34 thus limiting management’s ability to

identify and minimize excessive wait-time.

IRS took steps to improve its walk-in service, some of which may have

helped improve the accuracy of tax law assistance in 2002. Other efforts

that involve implementing two new accuracy measures and testing new

 32Beginning with fiscal year 2001, IRS discontinued wait-time as an official measure of field

assistance performance because, according to field assistance officials, employees felt

pressured to hurry assistance to customers, which could diminish other aspects of quality,

such as accuracy. Nevertheless, realizing that timeliness is an important aspect of quality,

IRS has continued to track and report wait-time.

33Q-Matic is an automated system that keeps track of such things as customer wait-times,

assistance provided, and staff time used.

34In general, Q-Matic records the number of customers whose wait-times fell into each

15-minute interval, ranging from less than 15 minutes to less than 2.5 hours, as well as the

number that waited longer than 2.5 hours.

Most Taxpayers Waited 30

Minutes or Less for Walkin Assistance in 2002, but

Many Others Waited Much

Longer

IRS Took Steps in 2002 to

Improve Walk-in Service
Page 31 GAO-03-314 2002 Tax Filing Season

Q-Matic requirements have the potential for improved service in the

future.

Field assistance officials said that they had taken a number of steps to

improve the accuracy of assistance in 2002. For example, they said that

IRS had completed all actions listed in response to our report on the

2001 filing season35—which included providing more consistent and

standardized services, better training, and improved access to taxpayer

account information. IRS also refined the process for referring complex

tax law questions that are beyond the scope of normal walk-in staff

training to expert field assistance, toll-free telephone, or compliance staff.

The impact of some of those improvement efforts seemed to be reflected

in the results of IRS’s annual employee satisfaction survey. For example,

49 percent of field assistance employees reported being satisfied with their

training in 2002 compared with the 37 percent who reported being

satisfied in 2001.

IRS implemented two new accuracy measures for account and returnpreparation assistance. We are concerned about one of those measures—

account accuracy—because the results of that measure are not

representative of all walk-in sites. Instead of using statistical sampling

methods to select the sites to be reviewed from among the about 420 sites

that provide account assistance, IRS selected for review the largest walkin sites from among the 123 that were equipped with Q-Matic.

IRS had also planned to measure return-preparation accuracy through

visits to the largest walk-in sites. IRS subsequently decided to use existing

return-accuracy data generated by the submission processing centers. This

will allow IRS to measure the accuracy of all returns prepared at its walkin sites, rather than basing the measure on sample observations.

In May 2002, IRS changed its Q-Matic requirements to include networking

and summary reporting capabilities and decided to test these changes at

28 walk-in sites in California. In a stand-alone configuration, Q-Matic

provides site-level, real-time monitoring and tracking of assistance,

including customer wait-times, assistance provided, and staffing used.

Networking the systems is expected to provide the same real-time

monitoring and tracking at organizational levels above the site—group,

territory, area, and nationwide. Summary reporting capability is expected

 35GAO-02-144.

IRS Took Steps to Improve

Accuracy in 2002

IRS Implemented Two New

Accuracy Measures

IRS Is Testing New Q-Matic

Requirements
Page 32 GAO-03-314 2002 Tax Filing Season

to eliminate the requirement for manually recording and summarizing

assistance provided and staff resources used, which should enhance site

efficiency by increasing employee availability to provide more, or more

timely, assistance.

As shown in figure 5, the number of taxpayers assisted at IRS walk-in

sites36 declined for the third consecutive filing season—from 6.1 million in

1999 to 4.9 million in 2002—a drop of about 20 percent. Included in that

overall decline was a decrease in the number of contacts involving return

preparation, a very time-consuming service.37

 36Although the numbers may vary during the year, in 2002 IRS provided walk-in assistance

through approximately 420 walk-in sites that generally provide the full range of assistance

on a year-round basis, 50 alternate sites (such as at libraries and shopping malls) and

7 vans or mobile units that are set up mainly to provide return-preparation assistance only

during the filing season, and 15 self-service computer/printer stations (i.e., kiosks) that

print tax forms and provide answers to frequently asked tax law questions.

37Field assistance officials estimated that return-preparation assistance accounted for only

about 10 percent of their walk-in contacts but consumed about 25 percent of walk-in staff

years.

Number of Taxpayers

Assisted Declined, but

Field Assistance Staffing

Has Increased
Page 33 GAO-03-314 2002 Tax Filing Season

Figure 5: IRS Walk-in Assistance, 1999-2002 Filing Seasons

Notes: “Total Walk-in” includes all face-to-face assistance. It does not include the number of

taxpayers assisted by walk-in employees via telephone or correspondence, which ranged from over

100,000 taxpayers in 1999 to over 125,000 taxpayers in 2002.

The time periods covered by this figure each began on January 1 and ended on April 24, 1999; April

22, 2000; April 21, 2001; and April 20, 2002.

Field assistance officials attributed these declines to the following two

factors:

• Taxpayers made greater use of the assistance available from volunteers

and from IRS’s Web site and toll-free telephone network. Data provided

by the two major volunteer organizations—Volunteer Income Tax

Assistance and Tax Counseling for the Elderly—confirmed that

volunteer assistance increased substantially. Specifically, the number

of taxpayers assisted at volunteer sites increased about 45 percent

from nearly 2.5 million to 3.6 million between the 2001 and 2002 filing

seasons. Data on IRS’s Web site and toll-free telephone network are

discussed elsewhere in this report.

• IRS has been reducing the income ceiling for return preparation

assistance, thus limiting the number of taxpayers eligible to receive

that kind of assistance. For the 2001 filing season, IRS had a ceiling of

$41,000. For the 2002 filing season, IRS reduced that ceiling to

Millions of taxpayers

0

2

4

6

8

1999 2000 2001 2002

Filing season

Return-preparation

Total walk-in

Source: IRS data.

0.70

6.10

0.89 0.79 0.67

5.79

5.14 4.90
Page 34 GAO-03-314 2002 Tax Filing Season

$33,000—a level that approximated the $32,121 income ceiling on

taxpayer eligibility for the earned income credit.

Traditionally, IRS has detailed staff from its compliance functions (such as

Examination and Collection) to help provide assistance at walk-in sites.

Over the last 2 filing seasons, IRS has reduced its reliance on compliance

staff to provide walk-in assistance by about 53 percent, thus freeing those

staff to perform their normal examination and collection duties. At the

same time, and despite the continued decline in the number of taxpayers

assisted, IRS increased the number of field assistance staff years by about

31 percent, in anticipation of field assistance staff eventually assuming

some work currently done by IRS’s compliance functions, such as office

audits.

Field assistance does not have clear, comprehensive plans and timetables

for making the workload changes just discussed as well as other changes.

When we discussed this issue with field assistance officials, they informed

us that they have put their plans on hold until anticipated compliance

workloads are clarified to enable more comprehensive planning. Field

assistance officials anticipated that some compliance work would migrate

to walk-in staff over the next several years, although the extent and timing

of that work was not yet clear. As of October 4, 2002, a team was studying

the technological and other issues associated with compliance work

anticipated to be done at walk-in sites. Field assistance officials also

planned to phase out sites staffed with only one employee, because of

difficulties providing back-up staff,38 and add many new walk-in sites. The

planned phase-outs were to be done through a combination of methods,

such as staff attrition and/or site consolidation. Instead of closing some

one-employee sites, IRS may add staff where warranted by demand.

However, field assistance officials told us that these site changes also have

been put on hold until the aforementioned comprehensive planning is

completed.

 38IRS reported having 83 one-person sites during the 2002 filing season.

Field Assistance Has No

Comprehensive Workload and

Staffing Plans
Page 35 GAO-03-314 2002 Tax Filing Season

Our assessment of IRS’s Web site on the Internet, external assessments of

the site, and IRS data indicate that, compared with last year, the site was

• more user friendly, although there are certain aspects of the site that

need attention;

• generally used more often, although IRS’s primary measure of usage—

number of hits—is flawed; and

• easier to access.

IRS’s Web site provides a vehicle whereby taxpayers can receive

assistance without having to call or visit an IRS office. Among other things,

the site provides the potential to download hundreds of tax forms and

publications, contains current information on tax issues and electronic

filing, and gives taxpayers the opportunity to ask IRS tax law and

procedural questions via E-mail (see app. V for information on IRS’s

performance in answering E-mail questions.)

Our observations of IRS’s Web site indicated that the site was more user

friendly than it was in 2001, although we still encountered some navigation

problems and identified some problems with the site’s content.

The Web site had many changes that improved navigation over 2001. For

example, the home page was formatted more logically, with like items

being grouped together, and we observed only a couple of broken links

compared with last year when we found many more.39 However, there

were still some navigational problems. The most significant problem in

navigating the site is a search engine that often generates a very large

number of items relating to the subject of the search, which makes it

extremely difficult to locate the most useful/appropriate item. For

example, when we entered “earned income credit” into the general search

engine, we were provided a list of over 1,500 items. The publication that

would provide someone interested in the earned income credit with the

most thorough information (Publication 596—“Earned Income Credit”)

was the 64th item on the list. This would require users to scroll through

6 pages of items before finding the basic publication dealing with the

subject of the search.

 39According to a cognizant IRS official, a tool that helps eliminate broken links was not

added to the site in 2002 as IRS had originally intended; implementation is now planned for

2003.

Performance of IRS’s

Web Site Was

Generally Better Than

Last Year, but

Improvements Still

Needed

Web Site More User

Friendly Than Last Year

Navigation of Web Site
Page 36 GAO-03-314 2002 Tax Filing Season

We also noted the following navigation problems.

• The E-mail and comments sections of the Web site are difficult to find.

The links to pages for users to leave E-mail questions or to provide IRS

with comments on the site were not accessible through the “Contact

Us” part of the site, where one might logically expect to go to send an

E-mail or comment to IRS, but rather through the “Help” part of the

site. In that regard, IRS officials responsible for answering E-mail

questions informed us that they believe the number of E-mail questions

received this year declined, as discussed in appendix V, because

individuals may have had trouble locating the E-mail section of the

Web site. According to IRS officials responsible for the Web site, the

E-mail feature was not made easier to locate because IRS is still

considering whether it is best to answer taxpayer questions via the

Web site or the telephone.

• We had difficulty in May 2002 finding telephone numbers and other

information for local field assistance sites. For example, the page

entitled “How to contact us in Virginia” said to use local numbers if

they are not long distance, otherwise use the toll-free 800 number.

However, to obtain local numbers, we had to scroll through 11 other

topics, including information on where to file a return, TeleTax, Braille

materials, and volunteer and education programs. Since then, IRS has

taken steps to make this process less cumbersome.

• We found linkage problems in addition to the missing links noted

earlier. For example, when we accessed IRS’s Web page for electronic

filing options and paying taxes electronically, we found several

references to more data that we could obtain. However, the link to

those data was www.irs.gov, where we already were, rather than the

appropriate areas of the site.

We identified some problems with the content of IRS’s Web site. First, the

site used document numbers as primary identifiers for publications,

instructions, and forms. Many taxpayers do not know the numbers of

forms and publications, which requires them to examine voluminous data

to find the specific information they are seeking. For example, if taxpayers

were looking for data on the earned income credit and did not know that

Publication 596 is the primary publication on that topic, typing “earned

income credit” in the form and publication search engine would produce a

list of about 1,600 publications that mention the credit. Here again, as we

noted earlier with respect to the general search engine, a taxpayer would

have to scroll through several pages of the list to find Publication 596. IRS

is aware of this problem with its search engines and is working with

contractors to identify solutions.

Content of Web Site
Page 37 GAO-03-314 2002 Tax Filing Season

Second, we continued to find some incorrect and inconsistent data,

outdated material, and missing information, but not as much as last year.

For example, during our review of the Web site in 2002, we found that the

site had incorrect office hours and addresses for walk-in assistance sites

and obsolete data that pertained to 2001. In our report on the 2000 filing

season, we made recommendations to help ensure that the Web site

contained accurate and consistent data.40 In response to our

recommendations, according to IRS officials, IRS awarded a site redesign

contract, instituted an interim process that required executives to approve

all new data and significant changes to existing data, and began

implementing a content management program that is expected to be fully

operational around May 2003. Although these steps appear to have

reduced the volume of inaccurate and inconsistent data, a cognizant IRS

official opined that it would take about 2 years before all data on the Web

site are made current and consistent.

Two independent assessments tended to confirm our observations on

IRS’s Web site. In that regard:

• Arthur Andersen’s Office of Government Services Experience Design

Group concluded that the current version of the site is an improvement

over the previous version but still requires some fine-tuning to be truly

useful. They too noted that the search engines often result in a very

large number of items relating to the subject of the search making it

extremely difficult to locate the most useful/appropriate item.

• Brown University’s Center for Public Policy evaluated how well

50 federal government Web sites would aid an average citizen logging

onto a public sector Web site. IRS’s site received a score of 76 out of

100, making it the eighth highest rated Web site in the study.

IRS’s two key measures for gauging the use of its Web site are “hits” and

“downloads.” Both of those measures showed increased usage in

2002 compared with 2001. As of May 31, 2002, the site had recorded about

2.2 billion hits compared with about 1.7 billion hits at the same point in

time in 2001, a 27-percent increase. As of August 31, 2002, about

 40U.S. General Accounting Office, Tax Administration: Assessment of IRS’ 2000 Tax

Filing Season, GAO-01-158 (Washington, D.C.: Dec. 22, 2000).

Available Data Show

Increase in Web Site Use in

2002
Page 38 GAO-03-314 2002 Tax Filing Season

379 million forms, publications, and instructions had been downloaded

compared with about 279 million in 2001, a 36-percent increase.41

However, as we have reported before, hits is a flawed measure of use

because (1) every time a user accesses IRS’s home page it counts for about

16 hits and (2) a hit is counted every time the user moves to another page

of the site.42 Thus, an increase in the number of hits may not necessarily be

due to increased usage but could be attributed to changes in the structure

of the home page or problems users are experiencing in finding what they

want on the site. IRS officials had informed us that the problem would be

corrected by an improved method for counting hits when a more

sophisticated comprehensive Web analytical program became operational

in January 2002. Although the new analytical program is operational, the

problem remained. However, our concern about the hits measure could be

mitigated by the development of another Web site performance measure—

unique visitors. According to a cognizant IRS official, IRS is now able to

track unique visitors to the Web site and has begun the process to

formalize that measure.43

Keynote, an independent Web site rater and a recognized authority on

Internet performance, reviewed the availability and average delivery time

of IRS’s Web site and reported improved performance during the

2002 filing season. Keynote reported that its measure of IRS’s Web site’s

availability averaged close to 100 percent (99.8 to 100 percent) during the

entire 2002 filing season. This is a significant improvement over the

2001 filing season when Keynote identified periods during which

availability was as low as 67 percent before rebounding to about

97 percent for the first 2 weeks of April. Keynote reported an average

delivery time in 2002 of 1 second or less for the entire filing season

compared with 2 seconds or more for most of the 2001 filing season.

 41IRS updated this information as of September 30, 2002, in its written comments on a draft

of this report (see app. VI).

42GAO-02-144 and GAO-03-143.

43If someone accesses IRS’s site and moves around the site, the unique visitor measure

would count that as one visit, no matter how many hits the person accumulates while

navigating the site. If the person leaves the site and returns again after at least 1 hour has

elapsed since exiting the site, the person will be counted as a new unique visitor.

Web Site’s Availability

and Average Delivery

Time Improved in 2002
Page 39 GAO-03-314 2002 Tax Filing Season

Generally, during the 2002 filing season, IRS processed returns and issued

refunds smoothly, and the quality of assistance provided to taxpayers

improved. In light of this performance, IRS should be commended for the

various efforts it took to prepare for and improve performance during the

filing season. IRS’s filing season performance matters because it impacts

well over 100 million taxpayers.

IRS established performance measures to emphasize accountability and

improve service. IRS’s improved performance can be traced to its use of

and emphasis on performance measures, illustrating the importance of

good measures that effectively assess performance and enable

improvements to be quantified. IRS has established some new measures

and has revised some existing measures, which should serve to further

enhance its performance assessments. However, we believe that some

decisions, specifically (1) the decision to stop using the “assistor response

level” and “average speed of answer” measures to assess telephone

service; (2) not reporting readily available Q-Matic information showing

the extent of customer wait-times; and (3) limiting reviews of account

accuracy to only some walk-in sites, will reduce IRS's ability to gauge the

level of service being provided to customers. With respect to the latter,

IRS's decision to use existing data to measure return-preparation accuracy

in lieu of having staff visit walk-in sites to observe return preparation

could free up the resources needed to expand the reviews of account

accuracy. IRS also needs to ensure that changes to walk-in sites and

staffing are thoroughly analyzed and planned.

We recommend that the Commissioner of Internal Revenue direct the

appropriate officials to do the following:

• Reinstate a telephone assistance caller wait-time measure, such as

assistor response level or average speed of answer, to assess this

important aspect of the customer experience.

• Revise bi-weekly wait-time reports to show the numbers and

percentages of customers in each of the wait-time intervals tracked by

Q-Matic.

• Explore the feasibility of including all walk-in sites, rather than just

sites equipped with Q-Matic, in the universe for the purpose of

conducting sample visits/reviews of the accuracy of account

assistance.

• Ensure that field assistance officials do a comprehensive evaluation of

resource requirements (sites and staffing) after clarifying the extent

Conclusions

Recommendations for

Executive Action
Page 40 GAO-03-314 2002 Tax Filing Season

and timing of (1) expected field assistance and compliance workloads

and (2) expected walk-in site changes (additions and closures).

We requested comments on a draft of this report from IRS. The Acting

Commissioner of Internal Revenue provided written comments in a

December 16, 2002, letter (see app. VI). The Acting Commissioner

appreciated our recognition of the many challenges that IRS successfully

faced during the planning and execution of the 2002 tax filing season and

noted that IRS's filing season readiness process “served us well, especially

in handling unanticipated challenges.”

In response to our specific recommendations, the Acting Commissioner

said the following:

• IRS agrees that customer wait-time is an important aspect of toll-free

telephone service and will “begin refining an appropriate wait time

measure” for implementation in fiscal year 2004.

• In response to our recommendation that IRS revise its bi-weekly waittime reports, IRS said that it currently does not use wait-time as an

official measure of field assistance performance because past

experience has shown that employee reaction to timeliness measures

tends to increase the likelihood of inaccurate or incomplete answers.

We are aware of IRS’s position on having an official wait-time measure

and discussed our disagreement with that position in our report on

IRS's filing season performance measures.44 Our recommendation in

this report is not directed at the existence or non-existence of a waittime performance measure. It is directed, instead, at enhancing the

information available to field assistance managers in the bi-weekly

wait-time reports. IRS did not speak to that issue in its comments.

• Working with staff from IRS’s Statistics of Income group, field

assistance has developed a statistically reliable sample of accounts

work. For fiscal year 2003, IRS said it plans to sample small, medium,

and large walk-in sites. These plans should provide for a more

representative assessment of the level of account assistance being

provided to walk-in customers and, as such, appear to be responsive to

our recommendation.

 44GAO-03-143.

Agency Comments

and Our Evaluation
Page 41 GAO-03-314 2002 Tax Filing Season

• In response to our recommendation that field assistance do a

comprehensive evaluation of resource requirements, IRS said that it is

doing a workload and staffing study that will provide detailed

information on the location of field assistance work and where IRS

should provide service and staffing. According to IRS, although it had

previously projected the need to add new sites, it is currently

projecting shortages in field assistance staffing for fiscal year 2004 that

may cause it to reassess the number and location of walk-in sites. The

study described by IRS appears responsive to our recommendation.

The Acting Commissioner also commented on our use of TIGTA’s reported

accuracy rate for tax law assistance provided by walk-in sites. We

addressed those comments earlier in the report where TIGTA’s reported

accuracy rate is discussed.

We are sending copies of this report to the Chairmen and Ranking

Minority Members of the Senate Committee on Finance and the House

Committee on Ways and Means and the Ranking Minority Member,

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.

This report was prepared under the direction of David J. Attianese,

Assistant Director. Other major contributors are acknowledged in

appendix VII. If you have any questions about this report, contact me on

(202) 512-9110.

Sincerely yours,

James R. White

Director, Tax Issues
Appendix I: Data on IRS’s Processing

Performance Relative to Fiscal Year 2001

Performance and Fiscal Year 2002 Goals

Page 42 GAO-03-314 2002 Tax Filing Season

As shown in table 3, (1) the Internal Revenue Service’s (IRS) performance

in 2002 improved relative to 2001 for five measures and (2) IRS met its

2002 performance goals for four measures and missed its goals for two

measures. IRS’s performance in 2002 could not be compared with its

performance in 2001 for three measures or with its goals for 2002 for two

measures because IRS revised the way those measures were computed.

Table 3: IRS’s Processing Performance Relative to Fiscal Year 2001 Performance and Fiscal Year 2002 Goals as of September

2002

Measure

name Description

Fiscal year

2001 actuala

Fiscal

year

2002

goal

Fiscal

year

2002

actual

Revisions to

measure Comments

Deposit error

rateb

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% 3.4% 4.8%

+/- 0.3%

None known. Performance improved,

but performance goal

not met.

According to IRS

officials, the goal was

too challenging and

performance was

consistent with 2001.

Deposit

timeliness–

paper

Interest value of money not

deposited by the business

day after receipt per $1

million in deposits. Measure

assumes an 8 percent

interest rate.

$748 $751 $578 None known. Performance improved,

and performance goal

met.

Letter error

rateb

Percentage of letters issued

to taxpayers with errors,

(includes systemic errors).c

Not

comparable

because of

revisions to

the measure.

10.9% 7.4%

+/- 0.6%

Revised measure

to exclude errors

that cause a

letter to look

unprofessional

but do not affect

its accuracy.

We cannot assess if

2002 performance goal

was met due to the

exclusion of

professionalism errors.

Notice error

rateb

Percentage of incorrect

notices issued to taxpayers

(includes systemic errors).c

Not

comparable

because of

revisions to

the measure.

15.2% 18.7%

+/- 2.7%

Revised measure

to (1) exclude

errors that cause

a notice to look

unprofessional

but do not affect

its accuracy and

(2) include all

processing

notices, some of

which we

reported were

inadvertently

omitted in 2001

(see GAO-02-

144).

We cannot assess if

2002 performance goal

was met due to the

exclusion of

professionalism errors.

According to IRS

officials, employee

confusion over new

error codes associated

with the rate reduction

credit led to more

erroneous notices,

thereby increasing the

notice error rate.

Appendix I: Data on IRS’s Processing

Performance Relative to Fiscal Year 2001

Performance and Fiscal Year 2002 Goals
Appendix I: Data on IRS’s Processing

Performance Relative to Fiscal Year 2001

Performance and Fiscal Year 2002 Goals

Page 43 GAO-03-314 2002 Tax Filing Season

Measure

name Description

Fiscal year

2001 actuala

Fiscal

year

2002

goal

Fiscal

year

2002

actual

Revisions to

measure Comments

Refund error

rate –

individual

(paper)b

The percentage of refunds

with IRS-caused errors in

the entity information (e.g.,

name or Social Security

number) or refund amount;

includes systemic errors.c

9.8% 9.3% 8.0%

+/– 3.8%

Although this

measure was

revised to

exclude errors

that cause a

refund check to

look

unprofessional,

the revision did

not require

establishment of

a new baseline.

Performance improved,

and performance goal

met.

Refund

interest paid

Amount of refund interest

IRS paid per $1 million of

refunds issued.

$128.63 $94.14 $62.55 None known. Performance improved,

and performance goal

met.

According to officials,

IRS implemented

strategies to address

refund interest, resulting

in lower refund interest

paid in 2002.

Refund

timeliness–

individual

(paper)b

Percentage of refunds

issued in 40 days or less.

95.2% 98.4% 98.2%

+/ - 2.3%

Measure revised

to reflect new

start date

procedures; 2001

performance data

converted to

allow for

comparison.

Performance improved.

We consider IRS to

have met the 2002

performance goal

because a certain

degree of imprecision

exists due to sampling

and the reported result

differed from the goal by

a statistically negligible

amount.

Productivityd Weighted volume of

documents processed per

staff year expended at the

processing centers.

Data being

revised.

29,836 28,182 Measure revised

to reflect

additional

workload; 2001

performance data

being converted

to allow for

comparison.

Performance goal not

met.

According to IRS

officials, productivity

may have been lowered

by (1) the increased

error-correction

workload resulting from

the rate reduction credit

and (2) changes

associated with IRS’s

reorganization.

Source: IRS data.

a

These figures may be different than what IRS previously provided and we reported in GAO-03-143.

IRS converted 2001 data to provide comparability between fiscal years 2001 and 2002.
Appendix I: Data on IRS’s Processing

Performance Relative to Fiscal Year 2001

Performance and Fiscal Year 2002 Goals

Page 44 GAO-03-314 2002 Tax Filing Season

b

We previously reported on potential reliability weaknesses associated with these measures because

data are collected manually and evaluations of data are based on judgment. See U.S. General

Accounting Office, Tax Administration: IRS Needs to Further Refine Its Tax Filing Season

Performance Measures, GAO-03-143 (Washington D.C.: Nov. 22, 2002).

c

Systemic errors are computer generated errors over which a particular processing center would have

no control.

d

We reported concerns about the understandability and appropriateness of this measure in

GAO-03-143 because the measure’s definition is not clearly stated, unit managers do not understand

their unit’s contribution to the formula, and unit managers do not use the measure to assess

performance.
Appendix II: Challenges Affecting the 2002

Filing Season and IRS’s Response

Page 45 GAO-03-314 2002 Tax Filing Season

The following significant challenges were unique to the 2002 filing season:

• Passage of the Economic Growth and Tax Relief Reconciliation Act of

2001, specifically the provisions relating to advance tax refunds and

rate reduction credits.

• The September 11, 2001, attacks, which led to actions by IRS to provide

tax relief to affected taxpayers, and the subsequent anthrax attacks

perpetrated through the mail, which led to significant security

enhancements.

• IRS’s shifting of computer files in conjunction with its reorganization.

For tax years beginning after 2000, the Economic Growth and Tax Relief

Reconciliation Act of 2001, signed into law on June 7, 2001, applied a new

10-percent income tax rate to a portion of an individual’s income that was

previously taxed at 15 percent. To stimulate the economy more rapidly

than would be achieved if taxpayers had to wait until they filed their tax

year 2001 return to realize the full impact of this rate reduction, the act

provided for eligible taxpayers to receive an advance tax refund in

2001. The amount of the refund was to be based on the filing status and

amount of taxable income on the taxpayer’s 2000 return.

Taxpayers who were eligible to receive an advance tax refund in 2001 but

who (1) did not receive a check because IRS did not have their current

address or (2) did not have enough taxable income in 2000 to qualify for

the maximum amount allowable, may have been entitled to a rate

reduction credit when filing their tax year 2001 returns.1

 In addition,

taxpayers who were not eligible for an advance tax refund, such as those

who did not have taxable income in 2000, may have been entitled to a rate

reduction credit provided they had taxable income in 2001.

According to IRS, passage of the Economic Growth and Tax Relief

Reconciliation Act of 2001 required computer system programming

changes that were complicated by frequent revisions as the Congress and

the U.S. Treasury worked together to understand the legislative

requirements for the rate reduction credit. This resulted in concurrent

testing of those and other computer system changes. After the filing

season began and large numbers of returns were received with errors

related to the rate reduction credit, IRS made additional programming

 1

A rate reduction credit would reduce a taxpayer’s 2001 tax liability and could result in a

tax refund once the 2001 return was filed.

Appendix II: Challenges Affecting the 2002

Filing Season and IRS’s Response

Advance Tax Refunds

and the Rate

Reduction Credit Led

to Many Errors on

Filed Returns
Appendix II: Challenges Affecting the 2002

Filing Season and IRS’s Response

Page 46 GAO-03-314 2002 Tax Filing Season

changes until March 2002 to help manage the high number of errors and

assist tax examiners in correcting them.

As shown in table 4, as of September 27, 2002, IRS had identified over

8 million individual returns with rate reduction credit errors, which

represented 57 percent of the returns identified with errors and

6.5 percent of the total number of returns processed at that time.

Table 4: Processed Returns with Rate Reduction Credit Errors as of September 27, 2002

Returns

prepared by

Number of

returns

processed

Number of

returns with

errors

Percentage of

returns with

errors

Number of

returns with

rate reduction

credit errors

Percentage of

returns with rate

reduction credit

errors

Rate reduction

credit errors as a

percentage of

returns with

errors

Taxpayers 49,939,318 8,369,035 16.8% 4,208,991 8.4% 50.3%

Tax return

practitioners

73,013,833 5,691,483 7.8% 3,816,860 5.2% 67.1%

Total 122,953,151 14,060,518 11.4% 8,025,851 6.5% 57.1%

Source: GAO’s analysis of IRS's data.

Note: The number of returns processed does not include about 4.2 million returns that were filed via

TeleFile.

Taxpayers and tax return practitioners made various types of errors

related to the rate reduction credit during the 2002 tax filing season. For

example,

• taxpayers and practitioners filed over 5 million returns in which they

failed to claim a credit even though the taxpayers were entitled to one;

• about 2 million returns were filed in which a credit was claimed even

though the taxpayers had received the maximum advance tax refund in

2001 and thus were not entitled to a credit; and

• almost 1 million returns were filed in which a credit was appropriately

claimed, but the credit amount was incorrectly computed.
Appendix II: Challenges Affecting the 2002

Filing Season and IRS’s Response

Page 47 GAO-03-314 2002 Tax Filing Season

The Treasury Inspector General for Tax Administration (TIGTA) identified

and IRS corrected two problems related to the rate reduction credit. One

problem involved the lack of advance tax refund data in the National

Accounts Profile (NAP) for certain taxpayers.2

 According to TIGTA, IRS

corrected this problem by January 11, 2002, thus preventing about

217,000 taxpayers from receiving up to $50 million in rate reduction

credits to which they were not entitled. The other problem, which TIGTA

attributed to a misinterpretation of programming requirements, involved

IRS’s failure to add information in the NAP for some taxpayers who did

not receive an advance tax refund. According to TIGTA, it notified IRS of

this problem, which could have affected as many as 35 million taxpayers,

on January 8, 2002, and IRS made the necessary corrections by January

15, 2002.

IRS field staff identified another problem in which IRS’s computer system

was generating rate reduction credits for some taxpayers who had already

received the maximum advance tax refund. According to IRS officials, this

problem would have affected no more than about 15,000 taxpayers, who in

a worst-case scenario may have received an additional $300 credit, for a

total of $4.5 million in potentially erroneous credits. According to the

officials, IRS will not attempt to recover any erroneous payments resulting

from this problem because recovery would not be cost-effective.

To help handle the additional error correction workload resulting from the

rate reduction credit workload, IRS, among other things, briefly detailed

individuals from other projects, hired retirees, and postponed activities,

such as technical training and performance reviews, that were eventually

completed later in the year.

The rate reduction credit directly and adversely affected IRS’s

performance relative to its notice error rate and productivity performance

measures. According to IRS officials, (1) employee confusion over new

error codes associated with the rate reduction credit led to more

erroneous notices, thereby increasing the notice error rate, and (2) the

 2

NAP is an IRS database with information on taxpayers’ names, addresses, and SSNs. To

help determine whether taxpayers were correctly claiming the rate reduction credit on

their 2001 tax returns, IRS included information on advance tax refunds in NAP.

Problems Related to the

Rate Reduction Credit

Were Identified Early in

the 2002 Filing Season

IRS Handled the Extra

Workload from the Rate

Reduction Credit

The Rate Reduction Credit

Affected Performance

Relative to Two Measures
Appendix II: Challenges Affecting the 2002

Filing Season and IRS’s Response

Page 48 GAO-03-314 2002 Tax Filing Season

new codes associated with the rate reduction credit initially reduced

processing efficiency and caused lower productivity rates.

According to IRS officials, IRS sent corrected rate reduction credits to

about 1.6 million taxpayers. When IRS originally reviewed these taxpayers’

returns, it was determined that the taxpayers had underclaimed the

amount of their rate reduction credits. However, in accordance with IRS

policy about making corrections under certain monetary thresholds, IRS

did not initially correct the errors or give the taxpayers the additional

amounts. During its review of the 2002 filing season, TIGTA pointed out

that the policy seemed inequitable because the same kind of threshold was

not used in determining the amount of a taxpayer’s advance tax refund—

thus the amount taxpayers received could vary depending on whether they

received their money in the form of an advance tax refund or a rate

reduction credit. According to IRS officials, these taxpayers’ returns did

not go to error correction and, thus, are not included in the number of

returns with rate reduction credit errors in table 4—which IRS officials

believe contributed to their ability to handle the substantial errorcorrection workload.

The terrorist actions in 2001 created additional challenges to which IRS

responded. The September 11, 2001, terrorist actions created challenges by

causing additional workload and requiring concurrent testing of the

programming changes related to that workload with other testing. For

example, according to IRS officials, programmers modified computer

systems in order to suppress certain correspondences, such as balance

due notices, to taxpayers affected by the terrorist actions. IRS officials

also reported that where the correspondence was already printed,

processing centers held that correspondence until November. IRS then

generated new correspondence with revised balance due dates, for

example, and included leaflets with the correspondence that advised

taxpayers to contact IRS if they were unable to meet their tax obligations

due to the events of September 11.

Also, as reported by TIGTA in March 2002, IRS, in response to anthrax

attacks perpetrated through the mail, “quickly implemented actions to

increase security and safety precautions during the filing season.”3

 Those

 3

The Internal Revenue Service Certifies Its Readiness to Process Individual Income Tax

Returns in 2002, TIGTA, Reference No. 2002-40-080, Mar. 29, 2002.

Many Taxpayers Received

Corrected Rate Reduction

Credits

Terrorist Actions

Required Tax Relief

for Affected

Taxpayers and

Security

Enhancements
Appendix II: Challenges Affecting the 2002

Filing Season and IRS’s Response

Page 49 GAO-03-314 2002 Tax Filing Season

actions included providing additional security in areas where mail is

handled, changing mail handling procedures, and providing additional

training and protective equipment for employees.

As part of its reorganization, IRS shifted computer files to match taxpayer

accounts with the operating division responsible for serving the taxpayers.

For example, computer files for individual taxpayers were shifted to the

computer systems for the Wage and Investment Operating Division (W& I)

processing centers and small business accounts were shifted to the

computer systems for the centers that now specialize in small business

processing and compliance activities. IRS completed this work before the

filing season began in spite of the unanticipated challenges associated

with the rate reduction credit and terrorist actions.

According to processing officials, IRS’s ongoing reorganization affected

submission processing’s performance in other ways. It contributed to

lower overall productivity, in part by changing the predictability of filing

patterns. Also, the eight W&I centers no longer process some of the easier

business returns and are left with processing the more complicated and

time-consuming individual income tax returns, such as those with

Schedule Ds (Capital Gains and Losses). Combined with the trend toward

increased use of electronic filing by those taxpayers who file simpler tax

forms, such as the Form 1040 EZ, IRS officials believe that these changes

contributed to slower processing and a corresponding lower productivity

rate.

IRS’s Reorganization

Required a Shifting of

Computer Files and

Affected Processing

Performance
Appendix III: Changes to Third-Party

Authorizations in 2002

Page 50 GAO-03-314 2002 Tax Filing Season

IRS offers taxpayers a variety of authorizations that allow IRS to disclose

or discuss tax return information with a third party. These authorizations

range from allowing IRS to discuss the processing of a return, including

the status of tax refunds (hereafter referred to as the third-party checkbox

authority), to authorizing a third party to receive confidential tax return

information. For the 2002 filing season, IRS expanded the third-party

checkbox authority to allow the taxpayer to designate any third party,

including friends or family members (in 2001, only paid practitioners could

be designated). In response to a recommendation in our report on the

2001 filing season,1

 IRS now has a system in place for tracking how use of

the third-party checkbox authority facilitated the resolution of issues

related to a return’s processing. IRS also introduced the Oral Disclosure

Consent (ODC) and Oral Tax Information Authorization (OTIA) to enable

taxpayers to orally authorize IRS to disclose tax return information to a

third party.

For the 2002 filing season, IRS expanded the third-party checkbox

authority on individual income tax returns (Forms 1040, 1040A, and

1040EZ) to allow taxpayers to designate anyone, including a friend or

family member, to talk with IRS to resolve problems (such as math errors

and missing information) that come to light during IRS’s processing of a

return and obtain answers to questions regarding refunds or payments.

When this authority was first used during the 2001 filing season, taxpayers

were only allowed to authorize paid practitioners to serve as their

designees in resolving problems or answering questions. According to IRS,

the expansion of this authority to any third party was intended to reach

taxpayers who wanted to have a family member or close associate assist

with simple tax inquiries.

According to IRS, the third-party checkbox authority is part of IRS’s

Taxpayer Treatment and Service Improvement Initiative on third-party

authorizations. IRS considers this initiative a way to reduce taxpayer

burden by reducing the number of notices sent to taxpayers and allowing a

designee to talk directly with IRS to resolve issues during a return’s

processing. During a typical year, IRS sends out about 8 million notices

regarding tax return processing issues. According to IRS officials, the

Commissioner of Internal Revenue forecasted that, with this authority and

 1

U.S. General Accounting Office, Tax Administration: Assessment of IRS’ 2001 Tax

Filing Season, GAO-02-144 (Washington D.C.: Dec. 21, 2001).

Appendix III: Changes to Third-Party

Authorizations in 2002

Authority to

Designate a Third

Party Expanded
Appendix III: Changes to Third-Party

Authorizations in 2002

Page 51 GAO-03-314 2002 Tax Filing Season

other innovations, such as oral consent authorizations, 90 percent of those

situations might be resolved through telephone discussions with

designees.

According to IRS, taxpayers checked the box on about 32.4 million returns

as of October 7, 2002. When IRS first implemented this authority in 2001, it

lacked a system for tracking how use of the authorization facilitated the

resolution of return processing issues. In response to our recommendation

that IRS develop a plan for evaluating the implementation and

effectiveness of processing initiatives, IRS implemented computer

programming changes that now enable it to know not only how many

people used the checkbox option but also how many inquiries were

received and responded to by type of return and notice.

IRS officials estimated, based on their tracking, that the 32.4 million

returns with marked checkboxes translated to about 4 million fewer

pieces of correspondence. In addition, IRS responded to about 4 million

inquiries from persons whom taxpayers had identified as their designees

using the checkbox authority.

A taxpayer can now orally authorize IRS to disclose tax return information

to a third party. Both ODC and OTIA allow a taxpayer to contact IRS and

establish disclosure authority for all types of tax accounts. The oral

authorizations, however, differ in the range of authorities given to the third

party.

The oral authorizations were made possible by the Taxpayer Bill of Rights

II,2

 which removed the requirement that all requests of or disclosures to a

third party be in writing. The new disclosure regulations3

 authorize IRS

employees to accept a taxpayer’s verbal request or consent to disclose

return information to third parties to assist the taxpayer in resolving

account issues. When oral authorizations are used, IRS must verify the

taxpayer’s identity and the identity of the third party as well as confirm the

specific tax matter.

 2

P.L. 104-168

3

Temp. Treas. Reg. § 301.6103(c)-IT (2001).

Oral Authorizations

Offered
Appendix III: Changes to Third-Party

Authorizations in 2002

Page 52 GAO-03-314 2002 Tax Filing Season

To establish an ODC, the taxpayer must have received a notice from IRS

and have open account issues. The taxpayer may call IRS and designate a

third party to resolve issues relative to the information indicated on the

notice. Once an ODC has been established, the taxpayer does not have to

be physically present or on the telephone when IRS discloses the tax

information to the third party nor does the third party need an

authorization number. The ODC does not authorize a third party to receive

notices or other written taxpayer information. The authority is valid until

the tax related issues are resolved. If the taxpayer receives subsequent

notices from IRS, he or she must call or visit IRS and establish another

ODC even if it is for the same third party and tax matter.

An OTIA allows taxpayers to designate third parties to represent them by

telephone or in person and to receive notices or account transcripts on

open account issues. The taxpayer does not have to receive a notice from

IRS before calling to establish an OTIA. Similar to the ODC, the taxpayer

does not have to be physically present or on the telephone when IRS

discloses tax information to the third party. However, to confirm their

identify, the third party must have an authorization number given by IRS,

which must be on file, and the third party must provide this number to the

taxpayer. This authority expires upon written request by either the

taxpayer or representative.
Appendix III: Changes to Third-Party

Authorizations in 2002

Page 53 GAO-03-314 2002 Tax Filing Season

Table 5 provides comparative information on the various authorizations

discussed in this appendix.

Table 5: Third-Party Authorizations

Third-party checkbox

(2001)

Third-party checkbox

(2002)

Oral disclosure

consent

Oral tax information

authorization

Effective date Available for the 2001

filing season.

Available for the 2002

filing season.

Available for the 2002

filing season.

Available for the 2002 filing

season.

Purpose Allows a paid practitioner

to discuss return

processing and refund

issues.

Allows a practitioner,

friend, or family member

to discuss return

processing and refund

issues.

Allows IRS to

disclose information

orally, but not written

information, to a third

party on issues

related to a notice.

Allows a third party who has

an authorization number given

by IRS to receive information

orally and some written

taxpayer information.

Who can exercise this

authority

Taxpayer. Taxpayer. Taxpayer. Taxpayer.

How is authority

granted

Taxpayers check a box

on individual income tax

forms.

Taxpayers check a box

on individual income tax

forms and some

business forms.

Orally. Orally.

Expiration of authority April 15 of the year

following the year the

checkbox election was

made, through the life of

the first notice, or until the

account is resolved.

April 15 of the year

following the year the

checkbox election was

made, through the life of

the first notice, or until

the account is resolved.

Until the tax related

issue is resolved or

when a new oral

consent is entered on

the account.

By written request of taxpayer

or representative.

Processing timeframes 4 to 6 weeks. 4 to 6 weeks. Within minutes. Within minutes.

Must taxpayer have

received a notice

No. No. Yes. No.

Source: IRS data.
Appendix IV: Results of Surveys of Taxpayers

and Tax Practitioners Who Prepared Returns

on a Computer but Filed on Paper

Page 54 GAO-03-314 2002 Tax Filing Season

In 2002, IRS surveyed taxpayers and tax practitioners who prepared their

returns on computer but filed on paper. We had recommended such

surveys in our report on the 2001filing season in response to the fact that

about 40 million computer-prepared individual income tax returns were

filed on paper in 2001.1

 The surveys involved (1) taxpayers who prepared

their own tax return on a computer but filed a paper return, (2) taxpayers

who used paid practitioners who prepared their returns on computer but

filed on paper, and (3) practitioners who prepared returns on a computer

but filed on paper. Table 6 shows, for each category of respondent,

(1) factors that influenced them not to file electronically and (2) incentives

that could encourage them to file electronically.

Table 6: Factors That Influence Preparers of Returns on a Computer Not to File Electronically and Incentives That Could

Influence Them to File Electronically

Category of respondent

Factors that influenced them not to file

electronically

Incentives that could influence them to

file electronically

Taxpayers who prepare their own returns • Cost (51%).

• Security and technology concerns (32%).

• Like seeing return, signing it, and putting

it in the mail (30%).

• Free electronic filing (71%).

• Tax credit to cover cost of electronic

filing (46%).

• Electronic refund in 3 to 5 days (36%).

• Ability to file electronically on IRS’s Web

site (34%).

Taxpayers who used paid practitioners • Taxpayer always filed on paper (34%).

• Practitioner did not mention or

recommend it (33%).

• Taxpayer did not want to pay cost to file

electronically (28%).

• Free electronic filing (60%).

• Tax credit to cover cost of electronic

filing (42%).

• Electronic refund in 3 to 5 days (40%).

Paid practitioners • Taxpayers do not request it (66%).

• Practitioners do not like the need for a

paper signature document (51%).

• Software cost is too high (51%).

• Electronic filing is too time-consuming

(51%).

• IRS paying $3 for each electronically

filed return (63%).

• IRS offering free transmission of return

(52%).

• Electronic refund in 3 to 5 days (51%).

• Free software (48%).

• Lower transmission costs (47%).

Source: IRS reports on the results of its surveys.

Note: The percentages in this table represent the percent of respondents who cited the factor or

incentive as having a strong influence..

 1

U.S. General Accounting Office, Tax Administration: Assessment of IRS’ 2001 Tax

Filing Season, GAO-02-144 (Washington D.C.: Dec. 21, 2001).

Appendix IV: Results of Surveys of Taxpayers

and Tax Practitioners Who Prepared Returns

on a Computer but Filed on Paper
Appendix V: IRS Received Fewer E-Mail

Questions Via Its Web Site and Did a Worse

Job Responding to the Questions

Page 55 GAO-03-314 2002 Tax Filing Season

One aspect of IRS’s Web site where available data indicated worse

performance in 2002 than in 2001 was the feature that allows taxpayers to

ask IRS tax law and procedural questions via E-mail. For the 2002 filing

season, IRS received fewer E-mail questions and did a worse job

responding to those questions than in 2001. Also, the E-mail function of

the site received mixed reviews by users who responded to the customer

satisfaction survey.

As of May 31, 2002, IRS received about 109,000 E-mail questions compared

with about 160,000 for the same time period in 2001—a 32-percent

decrease. IRS officials we talked with did not know why the number of Email questions had decreased but speculated that redesign of the Web site

might have made it difficult for taxpayers to locate the link for submitting

questions. As noted earlier, the link for submitting questions was

accessible not through the “Contact Us” part of the site but through the

“Help” part of the site.

IRS’s goal is to respond to E-mail questions within 2 business days.

However, according to IRS data, IRS took 2.4 business days on average to

respond to taxpayer’s E-mail questions in 2002, compared with

0.8 business days in 2001. The IRS data indicated that timeliness was a

problem in January and February (4.2 and 2.4 business days, respectively)

but improved substantially in March and April (1.2 and 0.8 business days,

respectively). According to responsible IRS officials, the increase in time

to respond to E-mail questions was caused by several factors:

• The most significant factor was a decision to concentrate on E-mail

questions received in the work period just before the start of the

2002 filing season.

• IRS consolidated the responsibility for responding to all E-mail

questions in one site, and there was an inadequate alignment of

employees’ skills with the new workload.

• IRS believed that far more complex questions were received in

2002 than in 2001 because the expanded “frequently asked questions”

section of the Web site was being used by taxpayers to get answers to

more common, less complex questions.

IRS informed us that, for the 2003 filing season, it will be conducting more

training and adding another site to answer E-mail questions. The site being

added answered E-mail questions in 2001.

In 2002, IRS did not meet its 78-percent accuracy goal and, on a percentage

basis, answered fewer questions accurately, despite receiving 32 percent

Appendix V: IRS Received Fewer E-Mail

Questions Via Its Web Site and Did a Worse

Job Responding to the Questions
Appendix V: IRS Received Fewer E-Mail

Questions Via Its Web Site and Did a Worse

Job Responding to the Questions

Page 56 GAO-03-314 2002 Tax Filing Season

fewer E-mail questions than in 2001. IRS data for January 1 to April

20, 2002, showed that IRS responded accurately to 76 percent of the E-mail

questions in 2002. That compares with a 78-percent accuracy rate for a

similar time frame in 2001. Some of the same factors cited as possible

reasons for the timeliness problems (i.e., an inadequate match of employee

skills with workload and the receipt of more complex questions) could

also help explain the decrease in accuracy.

IRS provides all E-mail customers an opportunity to respond to a customer

satisfaction survey, and about 2,200 did so between January 1 and April

30, 2002. The customers who responded to the survey in 2002 provided

mixed reviews of the E-mail service.

• 91 percent of the respondents said that they were satisfied with the

time it took to get a response, compared with 96 percent in 2001—a

decline that may reflect the increase in average response times

discussed earlier.

• 92 percent of the respondents said that they would use the E-mail

service again, compared with 91 percent in 2001.

• 79 percent of the respondents said that IRS’s response answered their

question, compared with 75 percent in 2001.
Appendix VI: Comments from the Internal

Revenue Service

Page 57 GAO-03-314 2002 Tax Filing Season

Appendix VI: Comments from the Internal

Revenue Service
Appendix VI: Comments from the Internal

Revenue Service

Page 58 GAO-03-314 2002 Tax Filing Season
Appendix VI: Comments from the Internal

Revenue Service

Page 59 GAO-03-314 2002 Tax Filing Season

An IRS official told us that

the figures cited for Web

site hits and downloads

are for the full fiscal year

(October 1 through

September 30).
Appendix VI: Comments from the Internal

Revenue Service

Page 60 GAO-03-314 2002 Tax Filing Season
Appendix VI: Comments from the Internal

Revenue Service

Page 61 GAO-03-314 2002 Tax Filing Season
Appendix VII: GAO Contacts

and Staff Acknowledgments

Page 62 GAO-03-314 2002 Tax Filing Season

James White (202) 512-9110

Dave Attianese (202) 512-9110

In addition to those named above, Bob Arcenia, Heather Bothwell,

Grace Coleman, Ron Heisterkamp, Ronald W. Jones, John Lesser,

Tina Smith, and Joanna Stamatiades made key contributions to this report.

Appendix VII: GAO Contacts and Staff

Acknowledgments

GAO Contacts

Acknowledgments

(440107)
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