2011 TAX FILING

Processing Gains, but 

Taxpayer Assistance 

Could Be Enhanced by 

More Self-Service 

Tools

Report to Congressional Requesters

December 2011

GAO-12-176

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-12-176, a report to 

congressional requesters

December 2011

2011 TAX FILING 

Processing Gains, but Taxpayer Assistance Could Be 

Enhanced by More Self-Service Tools

Why GAO Did This Study

The tax filing season is an enormous 

undertaking in which the Internal 

Revenue Service (IRS) processes 

millions of tax returns, issues billions of 

dollars in refunds to taxpayers, 

corrects taxpayers’ errors, and 

provides service to millions of 

taxpayers through telephones, website, 

and face-to-face assistance. Among 

other things, GAO was asked to 

assess (1) IRS’s performance 

processing returns and issuing 

refunds, and providing telephone 

assistance, and (2) IRS’s plans to 

expand self-service options on its 

website. To conduct the analyses, 

GAO obtained and compared data 

from 2007 through 2011, reviewed IRS 

documents, interviewed IRS officials, 

observed IRS operations, and 

interviewed tax-industry experts, 

including from tax preparation firms.

What GAO Recommends

GAO recommends that IRS develop a 

new refund timeliness performance 

measure to better reflect current 

capabilities, create an automated 

telephone line for taxpayers seeking 

information about amended returns 

unless IRS has a convincing costbenefit analysis suggesting the costs 

exceed the benefits, assess the costs 

and benefits of automating a TAC/VITA 

locator line, and finalize a strategy for 

determining which self-service tools to 

provide on its website. 

IRS agreed with three of GAO’s 

recommendations, but said that 

resources are not available to 

automate the TAC/VITA line. GAO 

believes a review of the costs and 

benefits would better inform IRS 

decisions about how to allocate scarce 

resources.

What GAO Found

During the 2011 filing season the following occurred: 

• Electronic filing (e-filing) increased to nearly 80 percent of the 140 million 

individual returns filed. The benefits of e-filing include that it is more accurate, 

faster, and less expensive for IRS than processing returns filed on paper. 

• Due to the increase in e-filing, new systems, and IRS’s performance in recent 

years, its refund timeliness measure and goal are outdated. The measure only 

relates to the 22 percent of returns filed on paper. IRS’s goal is to issue refunds 

for paper-filed returns within 40 days. In 2012, IRS expects to issue most 

refunds within 4 to 6 days of processing a return (paper and e-filed), meaning 

the current goal does not reflect current performance and capabilities. 

• The percent of callers seeking live assistance who receive it remained much 

lower than in 2007 and the average wait time for callers continued to increase. 

Providing live telephone assistance is expensive. However, IRS can shift some 

assistor-answered calls to less costly tools. Two such opportunities include 

creating self-service phone lines for taxpayers seeking to identify the (1) status 

of their amended return—a source of high call volume—and (2) location of a 

Taxpayer Assistance Center (TAC) or Volunteer Income Tax Assistance (VITA) 

site, where IRS employees and volunteers prepare returns, respectively. IRS 

officials expect the benefits of the amended return line to exceed the costs, but 

have not studied the costs and benefits of adding a TAC/VITA locator line.

IRS Return Processing, Phone Service, and Website Use, 2007 through 2011 Filing Seasons 

2007 2008 2009 2010 2011

Processing (fiscal year) 

Returns processed (in millions) 135 151 139 137 140

Percent e-filed 58 59 67 71 78

Phone service (as of June 30, each year)

Percent of callers seeking live assistance who 

receive it 81 57 68 76 72

Average wait time (in minutes) 4.6 8.6 8.4 9.5 11.7

Website (as of July 31, each year)

Visits (in millions) 168 292 235 239 250

Searches (in millions) 106 125 263 277 312

Source: GAO analysis of IRS data. 

The use of IRS’s website is growing, particularly the number of searches, which 

IRS officials attribute, in part, to taxpayers having difficulties locating information. 

Having an easily searchable website is important for IRS because it reduces costly 

phone calls. IRS has begun spending a planned $320 million on its website over 10 

years. However, IRS’s initial strategy for providing new self-service tools online 

does not include allowing taxpayers to access account information and is missing 

fundamental elements, including a justification for new services and time frames. 

Doing so would provide Congress and taxpayers with a better understanding of the 

online services IRS plans to provide with its significant investment on its website. View GAO-12-176. For more information, 

contact Jim White at (202) 512-9110 or 

whitej@gao.gov.
Page i GAO-12-176 2011 Tax Filing Season

Letter 1 

Background 4

Processing of Returns Was Timely, but Opportunities to Improve 

Taxpayer Service Exist 9

IRS’s Refund Timeliness Measure and Goal Do Not Reflect 

Processing Performance and Capabilities 12

Website Use Continues to Grow, but IRS Does Not Have a 

Comprehensive Internet Strategy 20

Expanding Prerefund Compliance Checks Appears Feasible, but 

Depends on System Upgrades and Process Changes 25

RACs Have Largely Replaced RALs, and Treasury Is Continuing to 

Study Alternatives for Providing Refunds 28

Conclusion 33

Recommendations for Executive Action 33

Agency Comments and Our Evaluation 34

Appendix I IRS’s Existing Math Error Authorities 36

Appendix II Status of Prior GAO Matters for Congressional Consideration and 

TIGTA Recommendations for MEA 38

Appendix III Key IRS Prerefund Compliance Check and Tax Processing Systems 39

Appendix IV IRS’s Processing Performance Relative to 2007 and 2011 Goals 40

Appendix V Status of Modernized E-Filing (MeF) by State 42

Appendix VI Call Volume, Composition, and Level of Service, 2007 through 2011 43

Appendix VII IRS’s Prerefund Compliance Process 44

Contents
Page ii GAO-12-176 2011 Tax Filing Season

Appendix VIII Comments from the Internal Revenue Service 47

Appendix IX GAO Contact and Staff Acknowledgments 54

Tables

Table 1: Processing Data for Filing Seasons 2007 through 2011 10

Table 2: IRS Telephone Service Goals and Performance, 2007 

through 2011 Filing Seasons 14

Table 3: IRS Taxpayer Correspondence Performance, Fiscal Years 

2005 through 2011 17

Table 4: IRS Walk-in Site Accuracy, 2008 through 2011 (in percent) 18

Table 5: Website Use from 2007 through 2011 20

Table 6: Comparison of IRS, New York, and California Interactive 

Online Services 23

Table 7: IRS’s Existing Math Error Authorities (MEA) 36

Table 8: Status of Prior GAO and TIGTA Suggestions for Granting 

IRS MEA 38

Table 9: Key IRS Prerefund Compliance Check Systems 39

Table 10: IRS Processing Performance, Fiscal Years 2007 through 

2011 40

Figures

Figure 1: IRS Timeline for Implementing CADE 2 11

Figure 2: IRS Processes for Conducting Prerefund Compliance 

Checks on Tax Returns for 2011 Filing Season 26

Figure 3: Number of RACs and RALs, 1999-2010 29

Figure 4: Example of How a Taxpayer Receives a RAC and When 

Fees May Be Incurred 31

Figure 5: Call Volume, Composition, and Level of Service, 2007 

through 2011 43

Figure 6: IRS Processes for Conducting Prerefund Compliance 

Checks on Tax Returns 44

Figure 7: IRS Processes for Conducting Prerefund Compliance 

Checks on Tax Returns Filed Electronically 45

Figure 8: IRS Processes for Conducting Prerefund Compliance 

Checks on Tax Returns Filed on Paper 46
Page iii GAO-12-176 2011 Tax Filing Season

Abbreviations

BSM Business System Modernization

CADE Customer Account Data Engine

CSR customer service representative

DDb Dependent Database

EFDS Electronic Fraud Detection System

EITC Earned Income Tax Credit

ERS Error Resolution System

FTE full-time equivalent

GMF Generalized Mainline Framework

IMF Individual Master File

IRS Internal Revenue Service 

MEA math error authority

MeF Modernized e-File

PDF portable document format

PIN personal identification number

RAC Refund Anticipation Check

RAL Refund Anticipation Loan 

RRP Return Review Program

TAC Taxpayer Assistance Center

TCE Tax Counseling for the Elderly

TIGTA Treasury Inspector General for Tax Administration

TIN Taxpayer Identification Number

Treasury Department of the Treasury

VITA Volunteer Income Tax Assistance

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

United States. The published product may be reproduced and distributed in its entirety 

without further permission from GAO. However, because this work may contain 

copyrighted images or other material, permission from the copyright holder may be 

necessary if you wish to reproduce this material separately.
Page 1 GAO-12-176 2011 Tax Filing Season

United States Government Accountability Office

Washington, DC 20548

December 15, 2011

The Honorable Max Baucus

Chairman

The Honorable Orrin G. Hatch

Ranking Member

Committee on Finance

United States Senate

The Honorable Charles E. Grassley

Ranking Member

Committee on the Judiciary

United States Senate

The Honorable Charles W. Boustany, Jr.

Chairman

The Honorable John Lewis

Ranking Member

Subcommittee on Oversight

Committee on Ways and Means

House of Representatives

Every tax filing season is a large-scale undertaking during which the 

Internal Revenue Service (IRS) interacts with millions of taxpayers and 

tax preparers by processing tax returns, issuing refunds, answering 

telephone calls, and providing other services, both face-to-face and on its 

website. IRS’s information systems also begin checking tax returns for 

compliance with the tax laws during processing. These automated checks 

correct many errors before refunds are issued, benefiting IRS by avoiding 

costly audits and taxpayers by preventing interest and penalties from 

accruing.

In recent years IRS has taken or proposed a number of steps to gain 

efficiencies and provide better service to taxpayers. For example, IRS has 

been automating more of its higher-cost taxpayer services, including

telephone assistance provided by IRS employees, with more self-service 

tools such as automated phone and online applications. In addition, the 

Commissioner of Internal Revenue has articulated a long-term vision for 

employing more prerefund compliance checks to reduce the costs and 

delays associated with traditional “back end” checks such as audits. In 

the short term, IRS is upgrading key information systems, and plans to 

 
 

Page 2 GAO-12-176 2011 Tax Filing Season

develop others that could begin increasing prerefund compliance check 

opportunities.

Further, taxpayers have decreased their use of controversial Refund 

Anticipation Loans (RAL)—high-interest-rate, short-term loans from tax 

preparers or banks that give quicker access to tax refunds—while 

increasing their use of Refund Anticipation Checks (RAC)—temporary 

bank accounts set-up by tax preparers allowing them to subtract tax 

preparation and other fees from taxpayers’ refunds. At the same time, the 

Department of the Treasury (Treasury) has taken action to identify lowercost alternatives to paper check refunds that can be delivered to 

taxpayers faster, including direct deposits and debit cards.

In this context, you asked us to

(1) assess IRS’s performance in processing returns, delivering refunds, 

and providing telephone service and face-to-face assistance in 

comparison to its goals and prior years’ performance;

(2) describe trends in the use of IRS’s website and assess IRS’s plans to 

add self-service tools to the website;

(3) report on the status of changes to IRS’s prerefund compliance 

checks, including system upgrades and process changes; and

(4) report on trends in the use of RACs and RALs and efforts to provide 

refunds to taxpayers in a low-cost manner.

To meet our objectives we did the following: 

• Reviewed and analyzed IRS documents and data, including 

performance and workload data, reports, testimonies, budget 

submissions, and internal studies of programs, and compared these 

to IRS’s goals and prior years’ performance to identify trends and 

anomalies.

• Reviewed various other criteria, including industry standards, federal 

requirements, and best practices, to assess IRS’s performance in key 

areas.

• Observed operations at IRS’s Joint Operations Center (which 

manages telephone services) and listened to calls from taxpayers with 

telephone assistors, and observed examiners performing 

correspondence examinations. We also viewed operations at an IRS 

walk-in site and a Volunteer Income Tax Assistance (VITA) site in 
 

Page 3 GAO-12-176 2011 Tax Filing Season

both Atlanta, Georgia, and Washington, D.C. Additionally we visited 

the Submission Processing Center in Atlanta, Georgia. We selected 

these particular offices from IRS offices located around the country for 

a variety of reasons, including the location of IRS call centers, 

correspondence examiners, and relevant IRS managers.

• Reviewed IRS’s strategy to upgrade its website against various 

criteria, including federal guidelines and other best practices.

• Obtained documentation and interviewed officials from two states that 

have developed interactive websites.

• Reviewed prior GAO reports and Treasury Inspector General for Tax 

Administration (TIGTA) reports and interviewed TIGTA officials about 

IRS’s performance and initiatives.

• Interviewed IRS officials responsible for tax return processing, 

taxpayer services, online services, and examination and compliance 

activities about prerefund compliance checks.

• Collected data from and interviewed key external stakeholders who 

frequently interact with IRS on key aspects of the filing season, 

including representatives from major tax preparation firms and other 

organizations responsible for providing refund products (e.g., RACs 

and RALs) to taxpayers.

• Collected data from and interviewed Treasury officials responsible for 

developing a pilot program to deliver tax refunds on debit cards.

• Interviewed Urban Institute officials about evaluation plans for 

Treasury’s debit card program and its recent review of RACs and 

RALs, both of which were conducted at the request of Treasury.1

When data were available, we compared IRS’s 2011 performance to its 

performance from fiscal years 2007 through 2010. IRS officials noted that 

since 2008 varying degrees of tax law changes have affected the 

agency’s performance.

This report discusses numerous filing season and performance measures 

and data covering the quality, accessibility, and timeliness of IRS’s 

services. To the extent possible, we corroborated information from 

interviews with documentation and data, and where not possible, 

attributed the information to IRS officials. We reviewed IRS 

documentation, interviewed IRS officials about computer systems and 

data limitations, and compared those results to our standards of data 

 

1

The Urban Institute is a research organization that aims to build knowledge about the 

nation’s social and fiscal challenges.
 

Page 4 GAO-12-176 2011 Tax Filing Season

reliability.2

We conducted this performance audit from February 2011 through 

December 2011 in accordance with generally accepted government 

auditing standards. Those standards require that we plan and perform the 

audit to obtain sufficient, appropriate evidence to provide a reasonable 

basis for our findings and conclusions based on our audit objectives. We 

believe that the evidence obtained provides a reasonable basis for our 

findings and conclusions based on our audit objectives. 

Data limitations are discussed where appropriate. We consider 

the data presented in this report to be sufficiently reliable for our 

purposes. We conducted our work primarily at IRS headquarters in 

Washington, D.C., and at the Wage and Investment Division 

headquarters in Atlanta, Georgia, as well as other sites mentioned earlier.

Primarily through its telephone, website, and, to a much lesser extent, 

face-to-face operations, IRS provides tax law and account assistance, 

limited tax return preparation assistance, tax forms and publications, and 

outreach and education.

• Taxpayers can call IRS to speak directly with a customer service 

representative (CSR), or use automated telephone lines to obtain 

information quickly. IRS has 10 automated telephone lines, which 

allow, for example, taxpayers to interactively inquire about the status 

of a refund, order a transcript of their return or account information, 

and request a personal identification number (PIN) to file 

electronically. IRS’s 149 Teletax lines provide prerecorded messages 

on tax law topics ranging from alternative filing methods to what a 

taxpayer can itemize.

• CSRs are also responsible for responding to paper correspondence.

IRS tries to minimize the percent of overage paper correspondence 

(generally correspondence that is more than 45 days old).

• IRS staff provides face-to-face assistance at 401 walk-in sites or 

Taxpayer Assistance Centers (TAC) where taxpayers can get basic 

tax law questions answered, review their accounts, and have returns 

prepared if their annual income is $49,000 or less.

• IRS also has volunteer partners that staff over 12,000 volunteer sites.

Volunteers at these Volunteer Income Tax Assistance (VITA) and Tax 

 

2

GAO, Assessing the Reliability of Computer-Processed Data, GAO-09-680G

(Washington, D.C.: July 2009). 

Background 
 

Page 5 GAO-12-176 2011 Tax Filing Season

Counseling for the Elderly (TCE) sites prepare tax returns for 

traditionally underserved taxpayers, including the elderly, low-income, 

disabled, and those with limited English proficiency. These sites also 

provide other services such as helping taxpayers without a bank 

account get into the banking system and financial literacy education.

In addition to the services IRS provides to taxpayers during the filing 

season, paid tax preparers and tax software development companies play 

an important role answering taxpayers’ questions and filing tax returns. In 

2011, for the first time, paid preparers who expected to prepare 100 or

more returns were generally required to file the returns electronically.3

As part of IRS’s Business System Modernization (BSM) program, over 

the next few years IRS plans to make major changes to how it processes 

individual income tax returns to facilitate faster refund processing and 

maintain more up-to-date account information.4

• IRS is replacing the legacy Individual Master File (IMF) and current 

Customer Account Data Engine (CADE) systems that it uses to 

process individual income tax returns with CADE 2. IRS plans to 

implement its CADE 2 program in three phases beginning in 2012.

The first phase includes two projects: (1) processing tax returns daily, 

rather than weekly, using the IMF (known as IMF daily); and (2) 

implementing the CADE 2 database.

For example,

5

• IRS is also replacing its legacy e-filing system with the Modernized eFile (MeF) system, and it plans to retire the legacy e-file system in 

October 2012. IRS cannot accept electronically filed returns directly 

from taxpayers. Rather, IRS authorizes e-file providers, such as large 

 

3

GAO- E-Filing Tax Returns: Penalty Authority and Digitizing More Paper Return Data 

Could Increase Benefits, GAO-12-33 (Washington, D.C.: Oct. 5, 2011).

4

IRS’s BSM program is a long-term, multibillion-dollar, highly complex effort that involves 

the development and delivery of a number of modernized systems that are intended to 

replace the agency’s aging business and tax processing systems. The program is critical 

to transforming the agency’s manual paper-intensive business operations, fulfilling its 

obligations under the IRS Restructuring and Reform Act of 1998, and providing more

reliable and timely financial management to allow IRS to better justify resource allocation 

decisions and budgetary requests. See, GAO, Business Systems Modernization: Internal 

Revenue Service’s Fiscal Year 2011 Expenditure Plan, GAO-12-26 (Washington, D.C.: 

Oct. 6, 2011). 

5

GAO, Taxpayer Account Strategy: IRS Should Finish Defining Benefits and Improve Cost 

Estimates, GAO-11-168 (Washington, D.C.: Mar. 24, 2011).
 

Page 6 GAO-12-176 2011 Tax Filing Season

tax preparation firms, to transmit returns to IRS electronically using 

either the legacy e-file or MeF system.6 The benefits of MeF include 

accepting or rejecting individual tax returns faster, providing a clearer 

explanation of why a return was rejected, and accepting prior-year 

returns. The system also allows taxpayers to attach portable 

document format (PDF) files to their tax returns (the legacy e-filing 

system cannot accept additional documentation, requiring such 

returns to be submitted on paper).

Last year we reported that IRS has been taking actions to improve its 

website by identifying steps to enhance taxpayer service.7

• IRS’s 5-year strategic plan for improving service to taxpayers 

identified five website-management control gaps, such as content 

management, website design and usability, and frequently asked 

questions.

As part of this 

effort, IRS plans to spend $320 million to upgrade and maintain its 

website over the next 10 years. These plans include introducing a new 

website by the 2013 filing season.

8

• IRS has three existing web portals accessible to the public at large, 

registered users, and IRS employees, respectively.9 According to IRS, 

its new portal environment investment will replace the current 

environment that has reached the end of its useful life, and provide 

streamlined, web-based services to taxpayers, business partners, IRS 

employees, and other government agencies. IRS plans to begin 

phasing in the new portal environment in 2012.

 

6

Tax professionals accepted into the electronic filing program are called Authorized IRS efile Providers. They are the Electronic Return Originator that transmits tax return 

information to the IRS.

7

GAO, 2010 Tax Filing Season: IRS’s Performance Improved in Some Key Areas, but 

Efficiency Gains Are Possible in Others, GAO-11-111 (Washington, D.C.: Dec. 16, 2010).

8

IRS identified its 5-year strategic plan in the 2007 Taxpayer Assistance Blueprint.

9

The publicly available portal, also known as IRS.gov, is IRS’s Internet portal that provides 

unrestricted public access to nonsensitive materials and applications, including forms, 

instructions, news, and tax calculators. The portal for registered users is IRS’s external 

portal that allows registered individuals and third-party users to interact with selected tax 

processing and other sensitive systems, applications, and data. The portal for IRS 

employees is the internal IRS portal that allows IRS employees to access IRS data and 

systems.
 

Page 7 GAO-12-176 2011 Tax Filing Season

While processing returns, IRS validates key pieces of information and 

corrects returns before issuing refunds, which allows it to avoid auditing 

taxpayers after returns have been processed and refunds sent to 

taxpayers.10

• Completes automated and relatively low-cost (compared to audits) 

checks using its math error authority (MEA).

Such audits, which are costly to IRS and burdensome for 

taxpayers, may result in the assessment of interest and penalties, and 

may require IRS to collect amounts due. Correcting errors may result in 

taxpayers receiving larger refunds. Prerefund compliance checks help 

ensure that taxpayers submit required information to the IRS with their 

returns. In conducting prerefund compliance checks, IRS does the 

following: 

11

• Identifies errors on tax returns for which it does not have MEA to 

correct. Corrections for those errors are generally made through 

correspondence audits. Appendix III provides a more detailed 

explanation of some of the key systems used for prerefund 

compliance checks, including the

Math error checks 

increase the likelihood of IRS collecting the correct amount of tax 

owed. However, Congress must grant IRS specific authority to use 

MEA for purposes beyond computational errors. IRS can generally 

close uncontested (meaning that the taxpayer does not challenge the 

error identified by IRS) MEA cases much faster than correspondence 

audits (audits by mail)—the average cycle time for all correspondence 

audits is about 175 days (each requires an average of 2 hours of an 

examiner’s time). Appendix I shows a list of IRS’s 13 existing MEAs. 

Appendix II shows other areas where both we and TIGTA have 

suggested that additional MEA could be useful.

• Generalized Mainline Framework System (GMF), which performs 

a variety of validation and consistency checks;

• Dependent Database (DDb), which matches dependents with 

filers, among other things;

• Error Resolution System (ERS), which corrects returns on which 

math errors have been detected and IRS has MEA; and

 

10GAO, Tax Refunds: Enhanced Prerefund Compliance Checks Could Yield Significant 

Benefits, GAO-11-691T (Washington, D.C.: May 25, 2011).

11MEA is statutory authority granted to IRS by Congress to correct calculation errors and 

other obvious instances of noncompliance, such as claims above income and credit limits, 

and assess additional tax based on such errors without having to issue a statutory notice 

of deficiency. 
 

Page 8 GAO-12-176 2011 Tax Filing Season

• Electronic Fraud Detection System (EFDS), which detects returns 

at a high risk for fraud. IRS is currently replacing EFDS with the 

Return Review Program (RRP).

In addition, millions of taxpayers may choose to obtain their tax refunds 

through a RAC or RAL, which are offered to taxpayers by paid preparers 

or banks in connection with federal or state tax refunds, or both.

12

During 2011, taxpayers also could choose to receive their tax refund from 

IRS through (1) their banks’ direct deposit program, (2) paper checks, or 

(3) debit cards, which could be obtained from a participating bank, 

through Treasury’s pilot program on debit cards, or at VITA/TCE sites.

Since 2009, IRS has worked with partner organizations at VITA/TCE sites 

to encourage taxpayers not requesting a direct deposit of their refund to 

opt to receive it on a debit card sponsored by a participating financial 

institution. Last year we reported that less than 3 percent of eligible 

taxpayers at VITA/TCE sites elected to receive refunds on debit cards. 

Separately, in 2011, Treasury launched a pilot program offering about 

800,000 low-income taxpayers tax refunds on debit cards. Although 

targeting the same demographic group, the VITA site offers are made in 

person and the Treasury offer was made through the mail. Even though 

both programs are relatively small in scale, they are important because 

they are intended to identify ways to reduce the cost of delivering refunds 

to taxpayers, provide faster refunds compared to paper checks, reduce 

transaction costs, and provide individuals who might not otherwise have 

access to a bank account with banking services.

RACs 

are a refund delivery option where refunds are directly deposited into a 

temporary bank account set up by a financial institution or tax preparer on 

behalf of the taxpayer. The tax return preparation fee, along with other 

fees, is generally withheld from the refund and the remaining funds are 

available to the taxpayer. RALs are short-term, high-interest-rate bank 

loans that allow taxpayers to get their refunds faster and also allow 

taxpayers to pay return preparation and other fees out of their refunds. In 

contrast to RALs, RACs are not loans.

 

12We previously reported that fees associated with RALs may amount to an annual 

percentage interest rate of over 500 percent. GAO, Refund Anticipation Loans, 

GAO-08-800R (Washington, D.C.: June 5, 2008). 
 

Page 9 GAO-12-176 2011 Tax Filing Season

During the 2011 filing season, the percentage of returns e-filed increased 

considerably and IRS expects new systems to speed refunds to 

taxpayers. As a result of these improvements, IRS’s refund timeliness 

measure and goal, which relates only to paper returns, is outdated. In 

addition, the high call volume and amount of paper correspondence 

highlight the need to improve taxpayer service through providing 

additional self-service tools. Although fewer taxpayers receive face-toface assistance than in other ways, IRS is taking steps to improve service 

at TAC and VITA sites.

IRS processed about 140 million returns and almost reached its e-file 

goal of 80 percent (78 percent of individual returns were e-filed and 22 

percent filed on paper), established by Congress in 1998.13 E-filing 

increased about 13 percent compared to last year, as table 1 shows. Efiling has many benefits for taxpayers, such as higher accuracy rates and 

faster refunds, and it also provides IRS with significant cost savings 

through eliminating the need for manual transcription of paper returns, 

which is labor intensive and introduces errors. According to IRS, in fiscal 

year 2010, it cost 17 cents to process an e-filed return and $3.66 for 

returns filed on paper. IRS officials and representatives from major tax

preparation firms attributed the increase in the e-file rate to factors 

including the e-filing requirement for paid preparers and the fact that IRS 

did not mail out hard-copy tax forms to taxpayers.14 In addition, nearly half 

the states also have e-file mandates, which may also encourage 

taxpayers to e-file federal returns. Further, IRS met all eight returns 

processing goals, summarized in appendix IV.

 

13In March 2011, we reported that IRS had to delay processing for certain returns until 

mid-February, highlighting the need for IRS to complete new systems. See GAO, 2011 

Tax Filing: IRS Dealt with Challenges to Date, but Needs Additional Authority to Verify 

Compliance, GAO-11-481 (Washington, D.C.: Mar. 29, 2011). Once IRS was capable of 

processing all returns, it cleared the backlog. 

14GAO-12-33. 

Processing of Returns 

Was Timely, but 

Opportunities to

Improve Taxpayer 

Service Exist

E-Filing Increased and the 

Shift to New Processing 

Systems Continues
 

Page 10 GAO-12-176 2011 Tax Filing Season

Table 1: Processing Data for Filing Seasons 2007 through 2011

Numbers 2007 2008a 2009 2010 2011

Percentage change

from 2010 to 2011b

Returns processed (in millions) 135 151 139 137 140 2 

 Electronic (in millions) 79 89 94 97 109 13

 Paper (in millions) 56 62 45 40 30 -24

Percent e-filed 58 59 67 71 78 n/ac

Refunds issued (in millions) 103 105 109 107 107 0 

Dollar amount of refunds issued (in billions) $234 $248 $298 $312 $303 -3 

Average refund amount $2,259 $2,350 $2,725 $2,915 $2,836 -3 

Legend: n/a = not applicable.

Source: GAO analysis of IRS data.

Notes: Data are from January 1 through: September 28, 2007; October 3, 2008; October 2, 2009; 

October 1, 2010; and September 30, 2011.

a

The Economic Stimulus Act of 2008 mandated that IRS send stimulus payments to over 100 million 

households, many of which would not otherwise have needed to file a tax return.

b

Numbers in the table are rounded, but percentage change calculated using exact values. Therefore, 

in some cases, the percentage change is slightly different than it would be if it were calculated using 

the rounded values in the table.

c

Not applicable because we calculate the percent change in e-filed and paper returns in the table 

using the actual number of paper and e-filed returns, not the percentages.

As figure 1 shows, IRS used current CADE to process about 40 million 

returns in 2011—about the same as last year. As part of its transition to 

CADE 2, IRS transferred all accounts on CADE back to the IMF in June 

2011 and plans to retire CADE at the end of December 2011. 

Going forward, consistent with its plans for transitioning to CADE 2, IRS 

plans the following: 

• Beginning in January 2012, IRS intends to use the IMF to process 

most returns on a daily, rather than weekly, basis. Refunds generally 

are expected to be issued in 4 business days for direct deposit and 6 

business days for paper checks after IRS processes the return and 

posts the return data to the taxpayer’s account.

15

 

15For 2012, IRS plans to process returns on a daily basis, and, for returns without errors, 

IRS expects to post the return data to taxpayer accounts about 2 days after processing. 

IRS also plans to 

begin loading and validating all taxpayer account data from the IMF 

into the CADE 2 database.
 

Page 11 GAO-12-176 2011 Tax Filing Season

• Beginning in March 2012, IRS plans to begin updating the CADE 2 

database with IMF daily data.

Beginning in 2014, IRS had planned to finish modifying key compliance 

and taxpayer service systems to use information from the CADE 2 

database (second phase of CADE 2). However, IRS reported that it did 

not receive fiscal year 2011 funding to allow it to meet the 2014 time

frame.16

Figure 1: IRS Timeline for Implementing CADE 2

IRS officials responsible for MeF implementation believe that the agency 

remains on schedule to turn off the legacy e-file system in 2012 and 

replace it with MeF. Although the use of MeF increased significantly 

compared to last year—IRS accepted over 10.2 million returns in fiscal

year 2011 on MeF compared to about 1 million in 2010—the number of 

 

16IRS officials reported that it had completed planning activities associated with the 

second phase of CADE 2 and that additional progress would be contingent upon the 

availability of planned funding and resources.
 

Page 12 GAO-12-176 2011 Tax Filing Season

returns fell far short of the 30 million IRS expected or the 80 million IRS 

officials said MeF was capable of handling.

IRS faces two key challenges to increasing MeF use. First, return 

transmitters must use the MeF system. Although return transmitters 

reported that the MeF system was more stable than in 2010, not all 

transmitters eligible to use it did so in 2011. According to IRS officials, the 

major return transmitters are committed to using MeF in the future. 

Second, states must have the capability to download state returns from 

the MeF system, but not all currently do. Presently, transmitters submit 

federal and state returns through the legacy e-file system, and states then 

retrieve their state tax returns. However, 11 states that will need to 

retrieve returns from MeF beginning in 2013 are not yet capable of doing 

so. If they do not gain such capability by October 2012, when the legacy 

e-file system is scheduled to be turned off, the burden on affected 

taxpayers or transmitters submitting tax returns would increase.17 As 

appendix V shows, if all states follow through with their current plans, they 

should be prepared to download their state’s tax returns from MeF during 

the 2013 filing season.

IRS’s current refund timeliness measure and goal, which it routinely uses 

in budget justification documents and to assess its performance, do not 

include e-filed returns. The IRS Restructuring and Reform Act of 1998 

requires IRS to report to Congress on how it has maintained processing 

times of 40 days or less for paper returns, in addition to implementing a 

plan to increase electronic filing, and IRS maintains a goal of issuing 

refunds for returns filed on paper within 40 days.

18

 

17The federal/state program allows IRS to share information with the states, including filed 

tax returns. In the federal/state electronic filing program, both federal and state income tax 

returns can be filed at the same time. IRS functions as an electronic post office for the 

participant state, which receives and processes the state electronic return.

Due to improvements 

in the percentage of e-filed returns (nearly 80 percent of returns are now 

filed electronically) the measure does not apply to the majority of returns 

filed by taxpayers. IRS last made significant changes to the refund 

timeliness measure in 2003. Since that time IRS has made important 

changes to facilitate faster refund processing. For example, the number of 

e-filed returns has more than doubled, IRS implemented new systems 

18Pub. L. No. 105-206, title II, § 2001, 112 Stat. 685, 723 (July 22, 1998).

IRS’s Refund 

Timeliness Measure 

and Goal Do Not 

Reflect Processing 

Performance and 

Capabilities 
 

Page 13 GAO-12-176 2011 Tax Filing Season

including current CADE, and, in 2012, IMF daily processing should allow 

IRS to issue refunds within 4 business days for direct deposit and 6 

business days for paper checks after it processes the return and posts 

the return data to the taxpayer’s account. As a result, the goal of issuing 

97 percent of refunds within the 40 days for paper returns does not give 

IRS a meaningful indicator of how quickly it is disbursing refunds. 

According to IRS officials, the refund timeliness goal captures the 

percentage of refunds issued for returns filed on paper within 40 days, 

which is 5 days before IRS generally must begin paying interest on the 

refund. However, as we previously reported, performance measures and 

goals should provide useful information for decision-making to track how 

programs can contribute to attaining the organization’s goals and 

mission.19 We have also stressed that agencies need to consider differing 

needs of various stakeholders, including Congress, to ensure that 

performance information will be both useful and used.20 IRS has a variety 

of options for updating its refund timeliness measure. For example, more 

meaningful measures could include identifying the percentage of refunds 

issued during given periods (such as the percentage of refunds issued in 

10 or 20 days) or creating separate measures for returns filed on paper 

and returns filed electronically. Doing so would not preclude IRS from 

continuing to meet its requirement of reporting the percentage of refunds 

for returns filed on paper issued within 40 days. Without developing a new 

refund timeliness measure and goal to more appropriately reflect current 

capabilities, IRS is missing opportunities to better measure its actual 

performance and provide useful information to Congress for decisionmaking purposes.

Since 2007, IRS has struggled to respond to high call volume, which has 

adversely affected access to telephone service. In 2011, IRS received 83 

million calls as of June 30, compared to about 57 million through the 

same date in 2007 (see app. VI). Over the same years, as table 2 shows,

taxpayers’ ability to gain access to CSRs, IRS’s live telephone assistors, 

 

19GAO, Tax Administration: IRS Needs to Further Refine Its Tax Filing Season 

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

20GAO, Government Performance: GPRA Modernization Act Provides Opportunities to 

Help Address Fiscal, Performance, and Management Challenges, GAO-11-466T

(Washington, D.C.: Mar. 16, 2011).

High Call Volume Drives 

the Need to Expand SelfService Telephone Lines
 

Page 14 GAO-12-176 2011 Tax Filing Season

deteriorated. In 2011, 72 percent of taxpayers seeking live telephone 

assistance got through to a CSR, compared to 81 percent in 2007. The 

deterioration in access is also reflected in the length of time taxpayers 

must wait before speaking to a CSR. In 2011, average wait time was 

almost 12 minutes; in 2007 it was less than 5 minutes. IRS officials 

attribute the higher call volume over the years to a number of factors 

including tax law changes made very late in the year that generated a lot 

of taxpayer questions

Table 2: IRS Telephone Service Goals and Performance, 2007 through 2011 Filing Seasons

Access measures 2007 2008 2009 2010 2011

Percent 

change from 

2010 to 2011a 

Percent of callers seeking live assistance

who received it

Actual 81 57 68 76 72 -5 

Goal 82 82b 77c 71 71 0 

Average wait time (in minutes) Actual 4.6 8.6 8.4 9.5 11.7 23

Goal 4.3 4.5 10.4d 11.6 11.6 0 

Accuracy measurese

Tax Law Rate (in percent)f 90.7

+/-0.9

90.3

+/-0.9

92.5

+/-0.8

92.4

+/-0.8

93.4

+/-0.6

1 

Account Accuracy Rate (in percent)f 93.2

+/-0.5

93.5

+/-0.4

95.1

+/-0.4 

95.6

+/-0.4

96.0

+/-0.3

0 

Source: GAO analysis of IRS data.

Notes: Actual data are from January 1 through June 30, while goals are for the entire fiscal year. We 

believe comparing performance during the filing season to fiscal year goals is appropriate as IRS’s 

filing season performance is an indicator of its performance for the entire year. 

a

Numbers in the table are rounded, but percentage change was calculated using exact values.

Therefore, in some cases, the percentage change is slightly different than it would be if it were 

calculated using the rounded values in the table.

b

IRS revised its original fiscal year goal of 82 percent down to 74 percent because of high call volume 

due to economic stimulus-related calls.

c

IRS revised its original fiscal year goal of 77 percent down to 70 percent because of high call volume 

from taxpayers requesting e-filing authentication information and asking stimulus—related questions.

d

IRS determines its wait time goal based on anticipated call volume and resource availability. IRS 

significantly raised its wait time goal for 2009 compared to 2008 in light of anticipated increased call 

volume related to tax law changes.

e

Based on representative samples selected by IRS from January 1 through June 30.

f

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

appropriate actions, with a 90 percent confidence interval.

Table 2 also shows that, as performance declined, IRS reduced its goals 

for access to CSRs and increased its goal for telephone wait time.

Despite less chance of getting through to CSRs and longer wait times, 

this year IRS met its goal for providing live assistance and almost met it 
 

Page 15 GAO-12-176 2011 Tax Filing Season

for wait time. IRS sets its telephone performance goals based on the 

expected volume and complexity of calls (complexity affects the time 

required to respond to a taxpayer), resource availability, and the 

anticipated volume of paper correspondence that CSRs handle. Even 

though IRS has reduced its goals for phone service, the number of fulltime equivalents (FTE) dedicated to answering the phones has actually 

increased from about 8,000 in fiscal year 2007 to about 8,800 in fiscal 

year 2011.21

A positive aspect of IRS’s telephone service in 2011 was the accuracy of 

CSRs answers. As shown in table 2, IRS’s accuracy rate estimates for 

CSR answered calls remained well over 90 percent. In the past we have 

reported that IRS officials attribute these high accuracy rates to 

automated interactive tax law assistance tools that CSRs use to provide 

answers to taxpayers.22

Key to improving telephone access, given the high volume of taxpayers 

calling the IRS and resource constraints, is shifting as many calls as 

appropriate to self-service tools, such as interactive automated telephone 

lines or the IRS website. Providing automated answers to taxpayer 

questions reduces the demand to speak to a CSR and also reduces IRS’s 

costs. In 2011, through June 30, CSRs answered over 22 million calls at 

a cost of about $30 per call, for a total of about $660 million. Conversely, 

IRS said this year it cost $0.36 to answer an automated phone call.

IRS also attributes the high accuracy rate to the 

use of contact analytics—a tool used to identify reasons why taxpayers 

call IRS and evaluate how CSRs interact with taxpayers.

We identified two types of calls that could likely be answered through 

automation, but are instead answered by CSRs—calls about the status of 

amended tax returns and callers asking for the location of a TAC or VITA 

site.

Generally, taxpayers checking on the status of their tax refunds can either 

call IRS’s toll-free refund automated line or go to IRS.gov to use the 

 

21Full-time equivalent is a measure of the staff hours equal to those of an employee who 

works 40 hours per week in 1 year.

22GAO, 2009 Tax Filing Season: IRS Met Many 2009 Goals, but Telephone Access 

Remained Low, and Taxpayer Service and Enforcement Could Be Improved, GAO-10-225

(Washington, D.C.: Dec. 10, 2009).
 

Page 16 GAO-12-176 2011 Tax Filing Season

Where’s My Refund online self-service tool. However, taxpayers who filed 

an amended return must speak to a CSR.

Last year, IRS assessed the need to create an automated telephone line 

that gives taxpayers the status of their refund if they filed an amended 

return, similar to the current Where’s My Refund automated line. IRS 

officials do not track the exact number of calls they receive related to 

amended returns, but believe it to be a significant number. IRS received 

over 4.3 million amended returns in fiscal year 2011 alone, and according 

to IRS’s assessment, an automated self-service tool for checking on the 

status of a refund from an amended return could potentially serve as 

many as 5 million taxpayers annually.23

In addition, from January 1 through June 30, 2011, CSRs answered over 

60,000 calls from taxpayers inquiring about the location of a TAC or VITA 

site. During the same time period last year, IRS received over 35,000 

calls to the lines and, in 2009, IRS received more than 60,000 calls to 

these lines. However, IRS does not have an automated telephone line for 

those taxpayers to call. As a result, taxpayers must go online or call IRS 

and wait to speak to a CSR.

IRS officials acknowledged that 

creating this line would free up CSRs to answer other lines, and 

submitted an internal request to create such an automated line to allow 

taxpayers to determine the status of their amended return refund, which 

has yet to be funded. IRS officials were uncertain exactly how much it 

would cost to develop the line but said that it would probably cost less 

than $1 million.

Without offering an automated phone line for taxpayers inquiring about 

the status of their amended return or the location of a TAC or VITA site, 

CSRs will continue to answer calls that could be addressed through 

automation. In determining whether to create additional automated lines 

and which lines to prioritize, IRS would need to compare the up-front 

costs associated with creating such applications with the projected 

benefits over time. IRS is unsure how much it would cost to automate the 

amended return telephone line, but IRS’s preliminary estimates suggest 

that the benefits may outweigh the cost. IRS officials acknowledged they 

have not determined whether the cost of automating the TAC and VITA 

 

23According to IRS, on the basis of a sample of 300 refund-related calls, about 10 percent 

related to amended returns.
 

Page 17 GAO-12-176 2011 Tax Filing Season

locator lines would be worth the benefits. As a result, IRS may be missing 

opportunities to provide taxpayers with more self-service tools, save 

resources, and provide better access to taxpayers.

Managing the trade-offs between responding to paper correspondence 

and providing live telephone service illustrates the challenges IRS faces 

in improving taxpayer service. In 2011, IRS dedicated about 4,700 FTEs

to providing paper correspondence. We previously reported that the age 

of taxpayer paper correspondence had risen steadily since 2005, and 

recommended that IRS establish a performance measure that includes 

providing timely correspondence service to taxpayers.24

Table 3: IRS Taxpayer Correspondence Performance, Fiscal Years 2005 through 2011

IRS agreed, but 

the recommendation has not been fully implemented. Table 3 shows that 

the overall amount of paper correspondence is about the same as last 

year and the percentage of overage inventory (paper correspondence 

older than 45 days) increased again in 2011. The volume and percentage 

of overage paper correspondence further highlight the need to provide 

additional automated services and maximize resources.

Fiscal year

Percent 

change from 

fiscal year

2010 to 2011a 2005 2006 2007 2008 2009 2010 2011

Correspondence received 

(in millions)b 15 15 16 18 19 20 20 0 

Average percentage of taxpayer 

correspondence overagec 12 17 17 23 25 27 35 30

Source: GAO analysis of IRS data.

Note: Aggregate data are from Accounts Management and Submission Processing, which jointly 

respond to IRS’s taxpayer correspondence.

a

Numbers in the table are rounded, but percentage change was calculated using exact values. 

b

Data cover equivalent periods for each fiscal year with slight variation in the exact dates depending 

on the year and data source.

c

2005 through 2008 data do not include overage data for correspondence processed by submission 

processing as submission processing began tracking overage data in 2009.

 

24GAO-11-111. 

IRS Has Received about 

the Same Amount of Paper 

Correspondence as in 

2010, but Overage Paper 

Correspondence Increased
 

Page 18 GAO-12-176 2011 Tax Filing Season

Although far fewer taxpayers visit TAC and volunteer sites than call IRS 

or use its website, these sites represent an important service. As of April 

30, 2011, IRS received 2.85 million taxpayer contacts at its 401 TACs, 

compared to about 2.78 million contacts during the same period last year.

The accuracy of accounts and tax law assistance provided at TACs 

stayed about the same as last year, as table 4 shows.

Table 4: IRS Walk-in Site Accuracy, 2008 through 2011 (in percent)

 2008 actual 2009 actual 2010 actual 2011 actual 2011 goal

Accounts assistance 85 +/-2.30 86 +/-1.93 91 +/-1.66 89 +/-1.42 91

Tax law assistance 66 +/-2.73 76 +/-1.97 81 +/-1.83 82 +/-1.50 82

Return preparation assistance n/a n/a 82 +/-3.82 82 +/-2.95 84

Legend: n/a = not applicable.

Source: GAO analysis of IRS data.

Note: Actual data are from January 1 through April 30. IRS does not have comparable accuracy data 

available for the years prior to 2008.

IRS is implementing service improvements, including self-service tools, at 

TAC sites intended to increase access, reduce wait time, and extend the 

effectiveness of its employees. IRS expanded its pilot program of 

extended Saturday and evening hours to 36 TACs to increase taxpayer 

access. IRS officials said they would like to expand this program but need 

to renegotiate a letter of understanding with the National Treasury 

Employees Union so they can adjust employee schedules without 

incurring overtime costs. To reduce wait time and improve customer 

service, IRS officials told us there were 100 Facilitated Self Assistance 

kiosks located at 37 TAC sites to encourage clients with less complex 

questions to use them. For 2011, the number of taxpayer contacts at the 

TAC kiosks more than doubled to about 21,500 from about 9,550 in 2010.

For 2012, as part of IRS’s efforts to increase self-service and improve the 

productivity of its employees, IRS is piloting a virtual assistance program 

at 12 TACs that would allow employees to interact with walk-in clients 

through a video terminal at other sites when the employee is not occupied 

IRS Continues to 

Implement Programs to 

Improve Service at TAC 

and VITA/TCE Sites
 

Page 19 GAO-12-176 2011 Tax Filing Season

at their home site. Also beginning in 2012, IRS will be able to measure 

wait time at TAC sites on a nationwide basis.25

Highlights of VITA/TCE site performance include the following: 

• The number of volunteers at VITA/TCE sites increased slightly to over 

88,500, up from about 87,600 last year.

• Volunteers prepared 3.2 million tax returns, up from 2.9 million last 

year.

• Return preparation accuracy by volunteers increased to 87 percent, a 

gain from 85 percent in 2010.26

• IRS placed employees at 31 VITA sites to assist with return 

preparation and answer questions from about 6,800 taxpayers, up 

from 27 sites and about 5,500 taxpayers in 2010. Due to budgetary 

constraints, IRS does not plan to expand the number of IRS 

employees or sites supported in 2012.

IRS is supporting its volunteer site partners as they work with taxpayers 

to promote financial education and asset building, which includes efforts 

to bring taxpayers without a bank account into the banking system. The 

number of taxpayers requesting direct deposit at VITA sites has risen in 

each of the last 5 years, and by a total of about 50 percent since 2007 

(from about 970,000 in 2007 to about 1.5 million in 2010).27 Later in this 

report, we discuss the options available for taxpayers, particularly those 

without bank accounts, to receive refunds.

 

25Currently, IRS can measure wait time at certain TAC sites but not on an aggregate level 

nationwide. IRS officials said that they generally tried to serve 80 percent of taxpayers 

within 30 minutes of arriving at a TAC site.

26Return-preparation accuracy is a measure of the accuracy of volunteer return 

preparation at volunteer sites and compliance with IRS’s return-preparation procedures. 

This measure is an indication that tax law is being applied properly to critical items on tax 

returns, resulting in the proper application of tax law and the correct determination of tax 

obligations.

27According to IRS, the number of taxpayers requesting direct deposits is a good measure 

of the success of the financial education and asset building program at bringing taxpayers 

who visit VITA sites into the banking system because it is a potential indicator that 

taxpayers are opening bank accounts and entering the banking system.
 

Page 20 GAO-12-176 2011 Tax Filing Season

Visits to IRS’s website (www.irs.gov) and the use of self-service tools 

continue to increase since last year, as table 5 shows.

Table 5: Website Use from 2007 through 2011

2007 2008 2009 2010 2011

Percent change

from 2010 to 2011a

Total visits (in millions) 168 292 235 239 250 4 

Downloads (in millions) 121 136 137 157 166 6 

Searches (in millions)b 106 125 263 277 312 13 

Volunteer site list (in thousands)c n/a n/a n/a 48 152d 214e

Self-service tools

Where’s My Refund? (completions in millions) 31 38 53 64 73 15

Electronic Filing Pin Request (completions in millions) n/a n/a n/a 5 10 112

Online Payment Agreement (completions in thousands) 13 19 34 43 26f -39

Interactive Tax Assistant Tools (completions in 

thousands) 

n/a n/a n/a 42g 164h n/ai

Legend: n/a = not applicable.

Source: GAO analysis of IRS data.

Notes: Data are from January 1 to July 31 for all years unless otherwise noted. 

a

Numbers in the table are rounded, but percentage change was calculated using exact values.

Therefore, in some cases, the percentage change is slightly different than it would be if it were 

calculated using the rounded values in the table.

b

Page views; includes both successful search results and search results not found.

c

2010’s listing was on 1 page, with an index at the top. This year’s listing has been split into 52 pages; 

one for each state, the District of Columbia, and Puerto Rico.

d

Data are through June 30, 2011.

e

Percent change was calculated using 2011’s rounded value.

f

There was a programming error that led to a decrease in the number of completed agreements.

g

Data are from March 7 through July 31, 2010.

h

Data are from January 2 through July 30, 2011. 

i

IRS did not introduce interactive tax assistance tools until March 2010, and IRS added more such 

tools for 2011. As a result, the time frames and available services are not comparable.

IRS officials believe that the increase in the use of the search tool over 

the years is due in part to site visitors not being able to easily locate the 

Website Use 

Continues to Grow, 

but IRS Does Not 

Have a 

Comprehensive 

Internet Strategy
 

Page 21 GAO-12-176 2011 Tax Filing Season

information they are seeking. IRS acknowledged that the existing manner 

in which IRS manages content on its website contributes to more 

searches because of duplicative and outdated information. Currently, 

content is developed on IRS’s website by about 300 employees 

throughout IRS, and Content Area Administrators provide oversight. In 

September 2011, IRS developed a draft business case for a new content

management strategy that is expected to significantly reduce duplication 

and greatly improve user search results. According to IRS, centralizing 

certain elements of content management is a key piece of its Internet 

strategy, and removing old content should make the site more efficient 

and improve content consistency, quality control, and the user 

experience.

As we noted earlier, IRS has begun spending a planned $320 million on 

its website over a 10-year period.28

 

28IRS reported that about $68 million of this is for new investments in the website and the 

rest is for annual costs, such as operations and maintenance.

IRS awarded the contract for the new 

website in August 2011 and has begun developing the website, which it 

plans to introduce in 2013. IRS’s investment plans include, among other 

things, introducing new, more secure portals for taxpayers to access 

information. However, IRS does not have concrete plans that define what 

additional online services the new website will ultimately provide and how 

much the services will cost. To their credit, IRS officials have begun 

developing a roadmap that identifies some online services they would like 

to provide, and IRS has periodically added new online services in the 

past. However, the roadmap omits several fundamental elements. For 

example, it does not include an assessment of the costs and benefits for 

new services identified, time frames for when these online services would 

be created and available for taxpayer use, or specific plans to periodically 

revisit the strategy and make revisions based on IRS’s priorities. Online 

tools, much like automated telephone lines, are a partial substitute for 

calling IRS and perhaps speaking to a CSR. The extent to which 

taxpayers can be diverted to the web will allow IRS to assist them at a 

much lower cost and more quickly. 

IRS Is Developing an 

Internet Strategy, but 

Fundamental Elements 

Are Missing
 

Page 22 GAO-12-176 2011 Tax Filing Season

Federal guidance suggests that a strategy to guide website development 

within an agency is important.29

• a strategic plan is an essential part of web management;

For example, the guidance states that

• performance goals and time frames are necessary elements to be 

included within the strategic plan;

• cost estimates are necessary to support decisions about funding one 

program over another, evaluate resource requirements at key 

decision points, and develop performance measurement baselines; 

and

• agencies should also revisit plans periodically and update them to 

reflect changes in priorities and capabilities.

Recent organizational changes within IRS, including the addition of a 

Director of Online Services at the agencywide level and a reorganization 

of IRS’s online management team, offer opportunities to develop a more

comprehensive approach to website development. The Director of Online 

Services told us that he plans to further develop the strategy based on 

taxpayers’ needs and develop online services in an iterative manner.

However, IRS has not yet developed an initial schedule for implementing 

online services and it is not clear the IRS plans to develop a more

comprehensive Internet strategy.

Without a comprehensive Internet strategy in place that IRS revisits on a 

regular basis, IRS risks not getting the greatest possible benefits from the 

$320 million and any additional funding for online services that it 

proposes to spend. In addition, taxpayers and Congress do not have 

complete information about the online services IRS intends to provide in 

return for making these investments.

 

29We identified these criteria by reviewing Howto.gov, a federal website managed by the 

General Services Administration that compiles information on best practices for managing 

government websites; the Government Performance and Results Act Modernization Act of 

2010; and GAO’s Cost Estimating and Assessment Guide. See, GAO, Cost Estimating 

and Assessment Guide, GAO-09-3SP (Washington, D.C.: March 2009).
 

Page 23 GAO-12-176 2011 Tax Filing Season

Unlike online services offered by two states we identified, taxpayers who 

visit IRS’s website cannot view and update personal tax account 

information online.30 Online services are a substantially less expensive 

means for IRS to conduct business with taxpayers compared to telephone 

or paper correspondence, making it important for IRS to promote 

interactive website services.31 Table 6 compares online services offered 

by tax agencies in New York and California compared to IRS. New York

and California state tax officials said they expect taxpayers to increasingly 

transition from the phones to the web for information, driving down their 

operating costs. In addition, officials from New York also reported that the 

anticipated savings greatly outweigh the up-front costs in their case.32

Table 6: Comparison of IRS, New York, and California Interactive Online Services

Online service IRS New York California

View tax account balance and recent payments √ √

Make extension payments √ √

Respond to department notices √ √a

Order tax return or tax account transcript √

Estimate personal tax account payment √ √

Determine eligibility for tax creditsb √ √ √

Pay taxes online √ √ √

Check the status of a refund online √ √ √

Change taxpayer address √ √

Source: GAO analysis of IRS, New York, and California data.

Notes: This is not a complete list of services available on IRS, New York, and California tax websites.

a

California provides taxpayers with the ability to respond to a limited set of notices.

b

Taxpayers can determine their eligibility for a limited number of tax credits using these web features.

 

30Viewing and updating personal account information includes, for example, the ability to 

view tax account balance and recent payments.

31Other countries, such as Finland, have implemented online services that provide 

taxpayers with information on their tax accounts. Providing enhanced electronic services 

has been widely recognized in Finland as an approach for improving taxpayer service 

while reducing costs. See, GAO, Tax Administration: Information on Selected Foreign 

Practices That May Provide Useful Insights, GAO-11-439 (Washington, D.C.: May 24, 

2011). 

32State officials we interviewed also said they expect to see a shift in call volume from taxspecific calls to account registration questions, which one state believes are easier calls to 

handle and take less time than more complex calls about account information.

Federal Taxpayers Are 

Unable to Access Account 

Information Online
 

Page 24 GAO-12-176 2011 Tax Filing Season

According to IRS officials, they have not allowed taxpayers to view and 

update elements of their personal tax account online because of outdated 

technology and federal regulations requiring secure access to account 

information.33 However, IRS has recently taken steps that may allow it to 

meet federal requirements for electronically authenticating (eauthenticating) users online so that taxpayers can access information 

securely. By 2013, IRS plans to have online security features in place that 

would allow taxpayers to access more account information online.34

Nevertheless, IRS has not assessed the need for allowing taxpayers to 

view and update elements of their personal account information online 

nor has it conducted an assessment of the risks associated with doing 

so—all of which could be completed in conjunction with the development 

of a more comprehensive Internet strategy discussed above. Without 

making these determinations, IRS is missing opportunities to reduce 

costs and provide the most beneficial online services to taxpayers.

 

33According to National Institute of Standards and Technology Special Publication 800-63 

and Office of Management and Budget Circular 04-04, federal agencies are required to 

develop security features that allow people to access information based on the level of risk 

associated with information being accessed.

34On February 1, 2010, IRS’s Privacy Office approved the use of e-authentication—the 

process of confirming an online user’s identity when he or she electronically attempts to 

log in to a remote information system. IRS plans to deliver the first release of eauthentication in July 2012, which is expected to provide level-two identity proofing, which, 

according to industry standards, would require users to input their username and 

password to access secure information online. IRS officials told us that they are in the 

planning stages for level-three authentication, which allow users to access information 

with higher risks associated.
 

Page 25 GAO-12-176 2011 Tax Filing Season

In April 2011, the Commissioner of Internal Revenue said that IRS should 

develop a long-term vision to perform more prerefund checks of returns 

by requiring earlier submission of information provided by third parties to 

match the data with taxpayer returns.35

Figure 2 illustrates IRS’s current prerefund process for e-filed and paper 

returns. As we mentioned earlier, the key information systems that 

support the process are further outlined in appendix III.

He acknowledged that 

implementing such a strategy would require a fundamental shift in how 

IRS conducts its business and would likely need to take place over a 

significant period of time. In more recent remarks in October 2011, the 

Commissioner stated that after conducting an initial review of the steps 

IRS would need to take to achieve his long-term vision, he believes that 

implementing the vision may be even more feasible than initially thought.

 

35IRS, Prepared Remarks of IRS Commissioner Doug Shulman at the National Press Club

(Apr. 6, 2011). 

Expanding Prerefund 

Compliance Checks 

Appears Feasible, but 

Depends on System 

Upgrades and Process 

Changes 
Figure 2: IRS Processes for Conducting Prerefund Compliance Checks on Tax Returns for 2011 

Filing Season Interactive graphic

 Page  GAO-12-176 2011 Tax Filing Season

Directions:

• Click to make tab view needed visible. In the “Print” dialog box, choose “Current page,” then “OK.” Repeat for each tab view.

Print instructions • A printable version of this graphic is available in appendix VII.

[ Click ] tabs below to see IRS processes for conducting prerefund compliance checks for all individual tax 

returns, electronically filed tax returns only, and paper filed tax returns only.

Source: GAO analysis of IRS information.
 

Page 27 GAO-12-176 2011 Tax Filing Season

As IRS develops this strategy, it is also undertaking shorter-term 

initiatives, including upgrading information systems, expanding data 

collection, and identifying areas where it could use additional MEA or 

make changes to existing processes to enhance prerefund compliance 

checks.

• Upgrading Information Systems: In 2012, IRS plans to implement 

IMF daily processing and, in 2013, to make MeF the sole system for 

accepting electronic returns, and transition to CADE 2 for returns 

processing at a future date. IRS also plans to replace the EFDS—

which applies specific fraud criteria to tax returns filed with the IRS to 

identify questionable tax returns with refunds—with RRP. RRP is a 

more modern database that IRS views as a critical piece in its 

prerefund compliance activities because it will allow IRS to more

effectively identify fraudulent schemes early in the filing season. 

Although IRS believes that EFDS is obsolete and too risky to maintain 

past 2014, procurement delays and a change in vendors will likely 

result in extending the implementation of RRP beyond 2014. We plan 

to further assess RRP’s progress as part of our annual budget and 

information systems reviews.

• Expanding Data Collection: We reported earlier that IRS does not 

transcribe all data from paper filed returns due to cost constraints.36

As IRS only runs automated compliance checks on data present in 

both e-filed and transcribed paper returns, the amount of data for 

enforcement activities is limited. In October 2011, we reported that 

because an increasing percentage of returns are e-filed, IRS could be 

at the point where the benefits of digitizing additional data from paper 

returns are greater than costs.37

• Identifying Additional MEA or Process Changes: IRS works with 

Treasury on a case-by-case basis to identify areas where it may need 

MEA. Although we have suggested that granting IRS broader MEA 

would help ensure compliance before refunds are issued, we 

recognize that MEA may not always be the most effective or 

appropriate prerefund compliance tool (see apps. I and II for a list of 

current and proposed MEA for IRS). For example, in our October 

2011 report on IRS’s administration of the adoption tax credit, we 

 

36GAO-12-33. 

37GAO-12-33. 
 

Page 28 GAO-12-176 2011 Tax Filing Season

recommended that IRS determine whether existing processes could 

be used to reduce the number of costly audits conducted rather than 

obtain MEA.38

Although these short-term efforts to enhance prerefund compliance 

checks are important, the potential long-term benefits of matching 

information provided to IRS by third parties to tax return data during the 

filing season may generate benefits to taxpayers and IRS that far exceed 

those from current prerefund compliance checks.

In 2010 (the last year with data available), RACs greatly outnumbered 

RALs, 18 million to 2 million, as shown in figure 3. Since 2005 the total 

number of RACs and RALs issued has not changed much but the 

distribution has.39

 

38GAO, Adoption Tax Credit: IRS Can Reduce Audits and Refund Delays, GAO-12-98

(Washington, D.C.: Oct. 20, 2011). 

39In 2011, IRS eliminated allowing return preparation companies to view the debt indicator 

that allowed the preparer to observe whether taxpayers had other debts to the federal 

government and would likely receive the full anticipated refund from IRS. As a result, 

most banks stopped funding RALs this year when banking regulators determined them to 

present too much risk to participating banks.

RACs Have Largely 

Replaced RALs, and 

Treasury Is 

Continuing to Study 

Alternatives for 

Providing Refunds
 

Page 29 GAO-12-176 2011 Tax Filing Season

Figure 3: Number of RACs and RALs, 1999-2010

Note: Data on the number of RACs are not available before 2005.

Although less is known about RACs than controversial RALs, some have 

expressed concerns that RACs have similar features to RALs and are 

used by the same categories of taxpayers. For example, consumer 

advocacy groups have noted that the fees associated with a RAC may be 

high, lack transparency, and taxpayers may not always fully understand 

the refund product to which they are agreeing—similar to concerns 

previously raised with respect to RALs.40

 

40National Consumer Law Center, End of the Rapid Rip-Off: An Epilogue For Quickie Tax 

Loans (February 2011). 

A 2010 Urban Institute report 

developed at the request of Treasury noted that RAC and RAL usage is 

common across similar population groups. For example, RAC and RAL 

usage is highly concentrated in America’s poorest communities, and RAC 

and RAL users frequently do not have bank accounts to receive direct 

deposits. RAC and RAL users also tend to be similar to consumers of 

other alternative financial services, including pawnshop loans and payday 
 

Page 30 GAO-12-176 2011 Tax Filing Season

loans.41

The total average cost of a RAC is difficult to calculate because pricing 

varies considerably across providers, and fees beyond the flat fee for 

setting up the RAC account are difficult to calculate. Figure 4 provides an 

example of potential fees incurred by taxpayers when filing a return and 

receiving a refund through a RAC. For example, most tax preparers we 

observed charge a flat fee of about $30 to $35 for setting up a RAC 

account. Tax preparers may also charge an additional fee for issuing a 

paper check and taxpayers may incur fees when using debit cards 

supplied by tax preparers. In addition, preparers charge standard fees for 

tax preparation, including for document preparation and e-filing. 

Taxpayers may also incur other fees not charged by the preparer, such 

as check-cashing fees.

The high use of RACs and RALs in low-income areas may be 

explained, in part, by the fact that allowing the return preparer to deduct 

tax preparation fees from the refund (as opposed to being paid for out-ofpocket when the return is prepared) is the primary benefit of a RAC.

 

41Urban Institute, Who Needs Credit at Tax Time and Why: A Look at Refund Anticipation 

Loans and Refund Anticipation Checks (Washington, D.C.: November 2010). 
 

Page 31 GAO-12-176 2011 Tax Filing Season

Figure 4: Example of How a Taxpayer Receives a RAC and When Fees May Be Incurred

a

Taxpayers with bank accounts can generally cash or deposit their refund check without charge. If

not, they may use an alternative provider and pay a fee to have check cashed.

b

Many taxpayers who receive RACs may not have bank accounts, which is one of the primary 

reasons they request their refund by means of a debit card or a paper check.

Despite the fact that many taxpayers still need to pay for tax preparation 

services out of their refunds, the fees associated with RACs and the 

concerns noted above raise questions about whether taxpayers 

understand the benefits and all the fees of RACs. Federal rules require 

tax preparers to inform taxpayers that they are receiving a RAC or a RAL, 

and some states have issued additional regulations requiring more 

disclosures that must be provided to taxpayers when signing up for a 

RAC. For example, Arkansas, California, Maine, and Maryland require 

preparers to post a RAL and RAC fee schedule.

One step that could help taxpayers make more informed decisions about 

RAC use is improving the relevance of IRS’s refund timeliness 

performance measure, which we previously discussed. A refund 
 

Page 32 GAO-12-176 2011 Tax Filing Season

timeliness measure that gave taxpayers a clearer picture of how long it 

normally takes to get a refund from IRS could help them decide whether it 

is worth paying RAC fees.

In part to address concerns about costly refund delivery mechanisms, in 

January 2011 Treasury launched a pilot program that offers low- and 

medium-income taxpayers the option to receive their federal tax refund on 

a debit card, which could be delivered to taxpayers more quickly and at a 

lower cost to IRS. In part, the program was intended to measure whether 

providing such options to taxpayers would reduce reliance on costly 

refund products and offer safer and more secure refunds to taxpayers 

without bank accounts. Treasury designed the program to test a variety of 

fee structures and marketing techniques to determine whether taxpayers 

would likely use the cards if the program were expanded on a national 

basis.42

According to a Treasury official, because the program was a pilot to test 

taxpayers’ responsiveness to different debit card offers, Treasury does 

not expect to continue the program in 2012. However, it is exploring other 

options to test out products in future filing seasons. Treasury is also 

determining whether refunds could be deposited on Direct Express 

cards—cards on which citizens already receive federal benefit 

payments—at a future date.

The preliminary results indicate that taxpayers are most sensitive 

to pricing of a refund debit card, opting for the card with no fees the most 

frequently. The Urban Institute is working on the final assessment of the 

Treasury program, which is scheduled to be released in December 2011.

Separately, IRS is trying to encourage taxpayers who may not have an 

account at a bank or other financial institution to receive their refunds 

through direct deposit on a debit card issued by one of IRS’s four national 

bank partners.43

 

42Treasury extended eight different offers to evaluate different program structures.

In 2011, refunds on debit cards were available at all 

VITA sites and IRS’s national banking partners issued just over 6,000 

prepaid cards—a small percentage of potentially eligible taxpayers. In 

43IRS facilitates the relationship between national bank partners and volunteer site 

partners interested in offering the debit cards at their sites. According to IRS officials, 

other than bringing banks and volunteer site partners together, IRS has no direct role in 

promoting or facilitating the distribution of debit cards at sites. 

Treasury and IRS Are 

Exploring Lower-Cost 

Options to Deliver Refunds 

to Taxpayers
 

Page 33 GAO-12-176 2011 Tax Filing Season

August 2011, IRS completed a study to determine how to appropriately 

market debit cards and other services provided at VITA sites. IRS 

concluded that, among other things, low-cost options, such as continuing 

to work through VITA/TCE partners to promote the cards, exist to 

increase the use of debit cards at VITA/TCE sites.

IRS officials anticipate that these two efforts may result in reduced 

taxpayer use of RACs and RALs by providing taxpayers without bank 

accounts a low-cost or no-cost option to receive refunds quickly.

IRS is processing tax returns in a rapidly changing environment. In 2011, 

IRS met a number of its filing season performance goals, and e-filing 

increased to nearly 80 percent—a target that IRS has worked to reach 

over more than a decade. Moving forward, new systems, including CADE 

2 and MeF, should allow IRS to issue refunds much more quickly and 

provide other benefits. In this context, opportunities exist for IRS to revisit 

how it measures its performance in processing tax returns and refunds 

and make related goals more meaningful.

The continued low level of telephone service combined with the high cost 

of assistor answered calls highlights the importance of implementing 

additional self-service tools for both IRS’s telephones and its website. 

This is especially important in an era of tight budgets when federal 

agencies will be expected to do more with less. By developing an Internet 

strategy and implementing e-authentication, IRS is taking important steps 

to identify and provide additional online services, including starting to 

spend a planned $320 million on its website over 10 years. However, 

developing a more comprehensive strategy should help ensure that IRS 

gets the most benefit for taxpayers from this investment.

We recommend that the Commissioner of Internal Revenue take the 

following four actions:

• develop a new refund timeliness measure and goal to more 

appropriately reflect current capabilities;

• offer an automated telephone line that gives taxpayers the status of 

their amended tax return, unless IRS has a convincing cost-benefit 

analysis to suggest that the costs exceed the benefits; 

• assess the costs and benefits of automating the TAC/VITA location 

telephone lines, and automate these lines if the benefits exceed the 

costs; and

Conclusion 

Recommendations for 

Executive Action
 

Page 34 GAO-12-176 2011 Tax Filing Season

• complete an Internet strategy that

• provides a justification for the implementation of online self-service 

tools and includes an assessment of providing online self-service 

tools that allow taxpayers to access and update elements of their 

account online;

• acknowledges the cost and benefits to taxpayers of new online 

services; 

• sets the time frame for when the online service would be created 

and available for taxpayer use; and

• includes a plan to update the strategy periodically.

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

Revenue. In written comments on a draft of this report (which are 

reprinted in app. VIII) the IRS Deputy Commissioner for Services & 

Enforcement agreed with three of our four recommendations. 

IRS agreed that automating the ability to locate TAC and VITA sites could 

enhance service and convenience, but said that resources are not 

currently available to support it. We acknowledge that IRS is facing tough 

choices in an environment of constrained resources. However, we 

recommended that IRS assess the costs and benefits of automating the 

TAC/VITA location telephone lines, and automate these lines if the 

benefits exceed the costs. Since 2007, IRS telephone service has 

continued to suffer and we believe that a rigorous assessment of the 

costs and benefits of automating the TAC/VITA telephone line will give 

IRS better information on how to allocate scarce resources.

As agreed with your offices, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies to the Chairmen and 

Ranking Members of other Senate and House committees and 

subcommittees that have appropriation, authorization, and oversight 

responsibilities for IRS. We will also send copies to the Commissioner of 

Internal Revenue, the Secretary of the Treasury, the Chairman of the IRS 

Oversight Board, and the Director of the Office of Management and 

Budget. In addition, the report will be available at no charge on the GAO 

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

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

me at (202) 512-9110 or whitej@gao.gov. Contact points for our Offices 

of Congressional Relations and Public Affairs may be found on the last 

Agency Comments 

and Our Evaluation
 

Page 35 GAO-12-176 2011 Tax Filing Season

page of this report. GAO staff who made key contributions to this report 

are listed in appendix IX. 

James R. White

Director, Tax Issues

Strategic Issues
Appendix I: IRS’s Existing Math Error 

Authorities

Page 36 GAO-12-176 2011 Tax Filing Season

Table 7 summarizes the Internal Revenue Service’s (IRS) 13 areas of 

existing math error authority (MEA). As early as the first codification of the 

Internal Revenue law in 1926, Congress granted IRS MEA so that IRS 

does not have to provide taxpayers with a statutory notice of deficiency 

for math errors. A 1976 statutory revision defined the authority to include 

not only mathematical errors, but other obvious errors, such as omissions 

of data needed to substantiate an item on a return, and provided a 

statutory right to file a request for abatement of the assessment within 60 

days after the notice is sent. In the 1990s, Congress extended the 

authority multiple times, and more recently it has added other provisions 

to help determine eligibility for certain tax exemptions and credits, such as 

the First-Time Homebuyer Credit.

Table 7: IRS’s Existing Math Error Authorities (MEA) 

Number Description

(1) An error in addition, subtraction, multiplication, or division shown on any return. 

(2) An incorrect use of any table provided by IRS with respect to any return if other information in the return makes the 

incorrect use apparent. 

(3) An entry on a return of an item that is inconsistent with another entry of the same or different item on that return. 

(4) An omission of information that is required to be supplied on the return to substantiate an entry on that return.

(5) An entry on a return of a deduction or credit in an amount that exceeds the statutory limit for that deduction or credit, if 

that limit is expressed as a specific monetary amount or as a percentage, ratio, or fraction, and if the component items of 

that limit appear on the return. 

(6) A correct Taxpayer Identification Number (TIN) not provided on the return as required.

• Earned Income Tax Credit (EITC),

• child and dependent care credit,

• personal or dependent exemption,

• child tax credit, or

• Hope and Lifetime Learning credits. 

(7) A return claiming an EITC for net earnings from self-employment, where the self-employment tax imposed by IRC § 

1401 on those net earnings has not been paid.

(8) An omission of information required for recertification of eligibility for the EITC.

(9) An entry on the return of a TIN required for the EITC, the child credit, and the child and dependent care credit, when 

information associated with that TIN indicates the child does not meet the age eligibility requirements for those credits. 

(10) An entry on the return of a claim for the EITC where the Federal Case Registry of Child Support Orders indicates that 

the taxpayer is the noncustodial parent of that child. 

(11) A failure to reduce economic stimulus payment credit on a return related to the Economic Stimulus Act of 2008 by 

amounts previously advanced.

(12) A failure to reduce the Making Work Pay credit by the amount of any payment received as a result of tax abatement 

resulting from the combat-related deaths of members of the Armed Forces, deaths of astronauts, and deaths of victims 

of certain terrorist attacks, or by the amount of any credit allowed under the American Recovery and Reinvestment Act 

of 2009; or a failure to submit a proper Social Security Number with the claim.

Appendix I: IRS’s Existing Math Error 

Authorities 
Appendix I: IRS’s Existing Math Error 

Authorities

Page 37 GAO-12-176 2011 Tax Filing Season

Number Description

(13) A claim for the First Time Homebuyer Credit where the taxpayer has not included the required settlement statement; or 

where other information indicates the taxpayer is under 18 years of age; or where information from the past 2 years of 

returns indicates ineligibility for the credit. Additionally, IRS may correct the return where the taxpayer has failed to 

include the increased tax required under the recapture provision for the credit, when applicable.

Source: GAO.
Appendix II: Status of Prior GAO Matters for 

Congressional Consideration and TIGTA 

Recommendations for MEA

Page 38 GAO-12-176 2011 Tax Filing Season

For almost a century, Congress has been expanding the Internal 

Revenue Service’s (IRS) math error authority (MEA) on a case-by-case 

basis. In 2010, we suggested that authorizing the use of MEA on a 

broader basis with appropriate controls to protect taxpayer rights could 

help IRS address compliance problems with newly created tax credits. In 

the absence of broader MEA, we have also suggested that Congress 

expand MEA for more limited purposes as shown in table 8. The Treasury 

Inspector General for Tax Administration (TIGTA) also made several 

recommendations to IRS to request expanded MEA from Congress.

Table 8: Status of Prior GAO and TIGTA Suggestions for Granting IRS MEA 

Suggestion Report and date Disposition

GAO matter for congressional consideration 

Use tax return information from previous years to ensure that taxpayers do not 

improperly claim credits or deductions in excess of lifetime limits where applicable.

GAO-11-481

March 29, 2011

Not as yet enacted

Broaden MEA so it is not restricted to a case-by-case basis, with appropriate 

safeguards against misuse. 

GAO-10-349

February 10, 2010

Not as yet enacted

Use prior years’ tax return information to automatically verify taxpayers’ compliance 

with the number of years the Hope credit can be claimed. 

GAO-10-225

December 10, 2009

Not as yet enacted

Use prior years’ tax return information to automatically verify compliance with the 2008 

First Time Homebuyer Credit payback provision and ensure that homebuyers do not 

improperly claim the credit in multiple years.

GAO-09-1026

September 23, 2009

Enacted 2009 in 

Public Law 111-92

Use MEA to identify and correct returns with ineligible Individual Retirement Account 

“catch-up” contributions and contributions to traditional Individual Retirement Accounts 

from taxpayers over age 70-1⁄2. 

GAO-09-146

December 12, 2008

Not as yet enacted

TIGTA recommendation to IRS

Require taxpayers to provide documentation to support eligibility for all refundable tax 

credits and seek legislation that would provide the IRS with MEA to deny refundable 

credits when supporting documentation is not provided.

2011-41-035

March 31, 2011

Not as yet enacted

Work with the Department of the Treasury to make a request for MEA from Congress to 

deny adoption credits if documentation is not provided. 

2011-40-032

March 31, 2011a 

Not as yet enacted

Work with the Department of the Treasury, Office of Tax Policy, to obtain limited MEA 

so that the IRS can freeze refunds while contacting taxpayers with a questionable age 

for certain filing statuses, taxpayers shown as deceased based on Social Security 

Administration information, and taxpayers with questionable Earned Income Tax Credit 

(EITC) claims based on age difference.

2010-40-062

July 13, 2010

Not as yet enacted 

Clarify whether IRS should require a valid Social Security number to pay refundable tax 

credits. If so, IRS should be granted MEA to disallow associated claims for the credits, 

such as the Additional Child Tax Credit. 

2009-40-057

March 12, 2009

Not as yet enacted

Source: GAO and analysis of TIGTA data.

a

TIGTA issued an e-mail alert to IRS on October 29, 2010, advising them to seek MEA to deny 

adoption credits if documentation is not provided.

Appendix II: Status of Prior GAO Matters for 

Congressional Consideration and TIGTA 

Recommendations for MEA
Appendix III: Key IRS Prerefund Compliance 

Check and Tax Processing Systems

Page 39 GAO-12-176 2011 Tax Filing Season

Table 9 summarizes the key systems the Internal Revenue Service (IRS) 

uses to conduct prerefund compliance checks and process tax returns.

Table 9: Key IRS Prerefund Compliance Check Systems

System Description

Generalized Mainline Framework 

(GMF)

Programs within the GMF perform validation, consistency, and math verification checks on tax

return data. Paper return data are checked against National Account Profile data for the first 

time. Returns with errors are routed to the Input Corrections Operation. After processing, all 

returns go through the Dependent Database (DDb). Additionally, IRS sends all electronic 

returns and any paper filed return on which a taxpayer claimed a refund to the Electronic Fraud 

Detection System (EFDS). 

Dependent Database (DDb) DDb primarily matches dependents with filers, but IRS uses DDb’s programming capability to 

create filters for other compliance checks, mostly for cases where IRS lacks math error 

authority. As part of preparing return data for posting to the Master File, IRS uses DDb to run 

validity checks on returns claiming the Earned Income Tax Credit (EITC), the First Time 

Homebuyers Credit, and other items. Generally returns go to compliance after the DDb check. 

Electronic Fraud Detection System 

(EFDS) 

EFDS applies specific fraud criteria to tax returns filed with the IRS to identify questionable tax 

returns with refunds. IRS plans to replace EFDS with the Return Review Program (RRP). 

Error Resolution System (ERS) ERS is part of the IRS Input Control Operation. ERS examiners check transcribed paper return 

data, verify and correct the errors, and send automatically generated MEA notices to

taxpayers. 

Return Review Program (RRP) RRP is a modern relational database that can process returns faster, correct errors 

simultaneously rather than in series, and better adjust to changes in tax law and fraud patterns 

than EFDS. RRP was scheduled to come on line in 2014 but may be delayed. 

Individual Master File (IMF) IMF is the authoritative data source for individual tax account data. It is updated annually to 

incorporate new tax law procedures and changes and is critical to IRS’s ability to process tax 

returns—all other IRS information system applications use IMF data. IRS plans to transition 

from IMF, a 1960s legacy system, to the CADE 2 database as part of upgrading its information 

systems in 2014. 

Current Customer Account Data 

Engine (CADE)

IRS initiated the current CADE project in 1999 to replace its legacy data systems. Starting in 

2005, CADE processed and recorded tax return and tax account information for millions of 

individual taxpayers with simple returns. But the development of the system took longer than 

anticipated, so IRS decided to review its information systems modernization efforts. IRS plans 

retired current CADE at the end of December 2011. 

CADE 2 (beginning 2012) CADE 2 is IRS’s new program for replacing the IMF which it plans to implement in three 

phases. The CADE 2 database will be a modern relational database, which will house data on 

individual taxpayers and their accounts, allow IRS to issue refunds faster due to a daily rather 

than weekly processing cycle, and provide for the transfer of data from the database to 

downstream IRS financial, taxpayer service, and compliance systems.

Source: GAO analysis of IRS data.

Appendix III: Key IRS Prerefund Compliance 

Check and Tax Processing Systems
Appendix IV: IRS’s Processing Performance 

Relative to 2007 and 2011 Goals

Page 40 GAO-12-176 2011 Tax Filing Season

As shown below in table 10, the Internal Revenue Service (IRS) met all of 

its processing performance goals in 2011.

Table 10: IRS Processing Performance, Fiscal Years 2007 through 2011

Fiscal year

Measure name Definition

2007

actual

2008

actual

2009 

actual

2010 

actual

2011 

actual

2011 

goal

Deposit error ratea Percentage of 

payments applied in 

error by, for example, 

reimbursing a 

taxpayer who 

overpaid when the 

taxpayer wanted the 

overpayment credited 

to next year’s tax bill

1.3%

(+/- 0.22%)

1.1% 

(+/- 0.27%)

0.7% 

(+/- 0.20%)

0.4% 

(+/-.18%)

0.4% 

(+/- 0.13%)

1.0%

Deposit timeliness—

paper—individual 

master file (IMF)

Interest foregone by 

not depositing monies 

the business day after 

receipt, per $1 million 

in deposits. Measure 

assumes an 8 percent 

interest rate

$331 $290 $204 $213 $98 $213

Correspondence error 

rate (includes system 

errors) IMFa, b, c

The percentage of 

incorrect Submission 

Processing Masterfile 

notices and letters 

issued to taxpayers by 

the processing sites

4.3%

(+/- 0.38%)

3.8% 

+/-0.36%)

5.4% 

(+/-0.53%)

5.4% 

(+/-0.45%)

4.89% 

(+/- 0.50%)

5.4%

Refund error rate—

individual (paper) 

(includes systemic 

errors)a

Percentage of refunds 

with IRS-caused 

errors in the entity 

information (e.g., 

incorrect name, Social 

Security number, or 

refund amount); 

includes systemic 

errorsb

2.8%

(+/- 0.36%)

3.4% 

(+/-0.52%)

2.0% 

(+/-0.33%)

1.4% 

(+/-0.28%)

1.10% 

(+/- 0.30%)

3.0%

Refund interest paid Amount of refund 

interest IRS paid per 

$1 million of refunds 

issued

$39.60 $24.16 $15.36 $44.12 $14.04 $52.00

Refund timeliness—

individual (paper)a Percentage of refunds issued within 40 days 

or less

98.9%

(+/- 0.19%)

99.1% 

(+/-0.19%)

99.2% 

(+/-0.18%)

96.1% 

(+/-0.44%)

99.4% 

(+/- 0.15%)

97.0%

Appendix IV: IRS’s Processing Performance 

Relative to 2007 and 2011 Goals
Appendix IV: IRS’s Processing Performance 

Relative to 2007 and 2011 Goals

Page 41 GAO-12-176 2011 Tax Filing Season

Fiscal year

Measure name Definition

2007

actual

2008

actual

2009 

actual

2010 

actual

2011 

actual

2011 

goal

Productivity Weighted volume of 

documents processed 

per staff year 

expended at the 

processing centers

34,313 37,624 47,259 47,208 45,617 44,935

IMF efficiency Measure of Individual 

Master File returns 

processed per staff 

year expended

22,031 23,834 22,758 24,800 29,491 25,867

Source: GAO analysis of IRS data.

Note: Percentages are rounded to the nearest tenth.

a

Where the estimates are the result of a probability sample, IRS has provided the margin of error 

based on a 95 percent confidence interval. See the +/- numbers in parentheses after the estimate.

b

The reported Correspondence Error Rate result is a weighted combination of the results of the Letter 

and Notice Error Rate Measures. The weights are based on the actual volumes of letters and notices 

(as reported in letter and notice weighted reports).

c

Systemic errors are computer-generated errors over which a particular processing center would have 

no control.
Appendix V: Status of Modernized E-Filing 

(MeF) by State

Page 42 GAO-12-176 2011 Tax Filing Season

Appendix V: Status of Modernized E-Filing 

(MeF) by State
Appendix VI: Call Volume, Composition, and 

Level of Service, 2007 through 2011

Page 43 GAO-12-176 2011 Tax Filing Season

The Internal Revenue Service (IRS) receives millions of phone calls each 

year, some of which are answered by live assistors and some of which 

are handled through automated services, as figure 5 shows. In 2011, IRS 

received 83 million calls as of June 30 compared to about 57 million 

through the same date in 2007.

Figure 5: Call Volume, Composition, and Level of Service, 2007 through 2011

Notes: Data are from January 1 to June 30 for all years.

a

Much of the increase is due to the Economic Stimulus Act of 2008 that mandated IRS send 

economic stimulus payments to over 100 million households, many of which would not otherwise 

have needed to file a tax return.

Appendix VI: Call Volume, Composition, and 

Level of Service, 2007 through 2011
Appendix VII: IRS’s Prerefund Compliance 

Process

Page 44 GAO-12-176 2011 Tax Filing Season

Figures 6 through 8 show the Internal Revenue Service’s (IRS) process 

for conducting prerefund compliance checks for all individually filed tax 

returns, returns filed electronically, and returns filed on paper, 

respectively. An interactive graphic illustrating this process is shown in 

figure 2 of this report.

Figure 6: IRS Processes for Conducting Prerefund Compliance Checks on Tax Returns

Appendix VII: IRS’s Prerefund Compliance 

Process
Appendix VII: IRS’s Prerefund Compliance 

Process

Page 45 GAO-12-176 2011 Tax Filing Season

Figure 7: IRS Processes for Conducting Prerefund Compliance Checks on Tax Returns Filed Electronically
Appendix VII: IRS’s Prerefund Compliance 

Process

Page 46 GAO-12-176 2011 Tax Filing Season

Figure 8: IRS Processes for Conducting Prerefund Compliance Checks on Tax Returns Filed on Paper
Appendix VIII: Comments from the Internal 

Revenue Service

Page 47 GAO-12-176 2011 Tax Filing Season

Appendix VIII: Comments from the Internal 

Revenue Service
Appendix VIII: Comments from the Internal 

Revenue Service

Page 48 GAO-12-176 2011 Tax Filing Season
Appendix VIII: Comments from the Internal 

Revenue Service

Page 49 GAO-12-176 2011 Tax Filing Season
Appendix VIII: Comments from the Internal 

Revenue Service

Page 50 GAO-12-176 2011 Tax Filing Season
Appendix VIII: Comments from the Internal 

Revenue Service

Page 51 GAO-12-176 2011 Tax Filing Season
Appendix VIII: Comments from the Internal 

Revenue Service

Page 52 GAO-12-176 2011 Tax Filing Season
Appendix VIII: Comments from the Internal 

Revenue Service

Page 53 GAO-12-176 2011 Tax Filing Season
Appendix IX: GAO Contact and Staff 

Acknowledgments

Page 54 GAO-12-176 2011 Tax Filing Season

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

In addition to the contact named above, Joanna Stamatiades, Assistant 

Director; Steven J. Berke; Abbie David; David Fox; Tom Gilbert; Matt 

Johlie; Inna Livits; Kirsten Lauber; Karen O’Conor; and Sabrina Streagle 

made key contributions to this report.

Appendix IX: GAO Contact and Staff

Acknowledgments 

GAO Contact

Staff 

Acknowledgments 

(450866)
The Government Accountability Office, the audit, evaluation, and 

investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

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