2010 Tax Filing Season: IRS's Performance Improved in Some Key Areas, but Efficiency Gains Are Possible in Others
Published: 2010-12-16T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Internal Revenue Service's (IRS) filing season is an enormous undertaking that includes processing individual income tax returns, issuing refunds, and responding to taxpayers. GAO was asked to assess IRS's 2010 filing season performance in relation to its goals and prior years' performance processing individual tax returns, answering telephones, and delivering Web and face-to-face services. To conduct the analysis, GAO analyzed data and documents from IRS, interviewed IRS officials, observed IRS operations, and interviewed tax industry experts.
section_title: What GAO Found
paragraphs: IRS dealt with a number of challenges this filing season, including significant tax law changes, such as the Making Work Pay credit, and corresponding changes in taxpayer behavior. IRS balanced its resources across its filing season activities with improvements in some areas but fluctuations in others. Return processing: Electronic filing, which reduces costs to IRS, increased about 3 percent, to 71 percent of all individual returns. However, IRS experienced delays in issuing millions of refunds, which IRS officials attributed primarily to correcting taxpayer errors associated with the Making Work Pay credit and conducting additional automated checks. Telephone service: Compared to 2009, the percentage of callers seeking live assistance who received it improved in 2010 and the accuracy of answers remained high, at over 90 percent. However, the average wait time increased. Further, IRS's annual goal for providing caller assistance was lower than any of the preceding 5 years. However, IRS lacks a standard for what constitutes good customer telephone service that could be compared to its annual goals. Such a standard would make the gap between the annual goals and the standard more transparent. IRS is using a tool called Contact Analytics to better understand the reasons why taxpayers call. However, IRS has not assessed the costs and benefits of storing recorded calls for longer than the current 45 day period for use in Contact Analytics, and GAO identified gaps in the process IRS uses to solicit input on call topics from frontline IRS staff. Such input could be used to identify issues for further research using Contact Analytics. IRS's customer service staff also responds to taxpayer correspondence. IRS received about 20 million pieces of correspondence in 2010, but it does not have a performance measure that addresses the timeliness of taxpayer correspondence, a key agency objective. By not having such a performance measure, IRS managers may have a less informed basis for balancing resources across telephone and correspondence services. Web site: Visits to IRS's Web site increased and IRS is taking steps to improve content management before introducing a new Web site in 2012. Face-to-face: In 2010, taxpayer visits to IRS's walk-in sites and sites operated by volunteers remained about the same as in 2009. IRS's program to provide refunds on debit cards at certain volunteer sites, targeting taxpayers without bank accounts, received little use in 2010. IRS's evaluation of the program did not include taxpayers or volunteers. By not including these stakeholders, IRS risks not learning the real reasons for low participation. GAO's five recommendations to IRS are to establish a customer service telephone standard, assess the costs and benefits of storing recorded calls beyond 45 days, solicit information on call trends from employees, develop a performance measure for the timeliness of taxpayer correspondence, and involve key stakeholders in its evaluation of its debit card program. IRS disagreed with developing a customer service standard, not wanting to revise its measurement of phone service. However, a standard would allow IRS to communicate to Congress what it believes constitutes good service. IRS also disagreed with assessing the costs and benefits of storing calls beyond 45 days. GAO's report suggests that further analysis could show whether the benefits of doing so currently exceed the costs. IRS generally agreed with the other three recommendations.

section_title: Letter
paragraphs: Every tax filing season is a large-scale and critical undertaking during  which the Internal Revenue Service (IRS) interacts with tens of millions of  taxpayers by processing tax returns, correcting errors on returns, issuing  refunds, answering telephone calls, and providing other services to  taxpayers, both face-to-face and online. IRS has also administered  complex tax law changes over the last few filing seasons—including the  First-Time Homebuyer Credit (FTHBC) in 2009 and 2010 and the Making  Work Pay (MWP) tax credit in 2010. Earlier this year we reported on the  challenges IRS faces in ensuring compliance with recent changes to the  tax treatment of forgiven mortgage debt—an issue of particular  importance in 2010 given recent trends in the housing market and the rise  in foreclosures. We also reported on the use of the FTHBC by state and  credit version—Congress passed three separate versions of the FTHBC.
In light of its importance, at your request, we assessed IRS’s 2010 filing  season performance in comparison to 2010 goals and previous years in  processing individual income tax returns, providing telephone service,  delivering service through IRS’s Web site, and responding to face-to-face  contacts with taxpayers. Our analyses included identifying what efficiency  gains, if any, IRS could implement that would enhance taxpayer service or  compliance during the filing season.
subsections: section_title: Scope and Methodology
paragraphs: To meet our objective we took the following steps:    Reviewed and analyzed IRS documents and data, including performance  and workload data, reports, testimonies, budget submissions, and  compared these to IRS’s goals and past performance to identify trends and  anomalies.
Reviewed various criteria, including industry standards, federal  requirements, and best practices, to assess IRS’s performance in key areas.
Reviewed information from other organizations that compile data  pertinent to our objectives, such as the ForeSee Results IRS Satisfaction  Insight Review, which evaluates customer satisfaction with Web site  performance.  Interviewed IRS officials responsible for tax return processing, taxpayer  services, and examination and compliance activities.  Interviewed external stakeholders who frequently interact with IRS on key  aspects of the filing season, including representatives of a customer  service trade organization, to identify customer service benchmarks and  best practices, and representatives from major tax preparation firms and  organizations.
Observed operations at IRS’s Joint Operations Center (which manages  telephone services) and listened to calls from taxpayers with telephone  assistors. We also viewed operations at one of IRS’s walk-in sites and  Submission Processing Center in Atlanta, Ga. We selected these particular  offices for a variety of reasons, including the location of key equipment  and IRS managers.
Reviewed Treasury Inspector General for Tax Administration (TIGTA)  reports and interviewed TIGTA officials about IRS’s performance and  initiatives.
When data were available, we compared IRS’s 2010 performance to its  performance from fiscal years 2005 through 2009. IRS officials noted that  tax law changes affected performance during fiscal years 2008 and 2009 as  compared to 2005 through 2007, when tax law changes were not as  significant.
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, we  attribute 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 reliability. 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, Ga. as  well as other sites mentioned earlier.
We conducted this performance audit from February 2010 through  December 2010 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 objective.
section_title: Background
paragraphs: Each year during the filing season IRS accepts individual income tax  returns electronically and on paper, processes the returns, and validates  key pieces of information. A growing majority of taxpayers file their  individual tax returns electronically.
IRS uses the legacy Individual Master File (IMF) and current Customer  Account Data Engine (CADE) to process individual income tax returns.  IRS plans to eventually shift all return processing to a new system called  CADE 2, which is intended to facilitate faster refund processing and other  benefits, such as providing IRS with more up-to-date account information  and more timely responses to taxpayer inquiries.
IRS is also replacing its legacy electronic filing (e-file) system with the  Modernized e-File (MeF) system. IRS cannot accept electronically filed  returns directly from taxpayers. Rather, IRS-authorized e-file providers  transmit returns to IRS electronically. Return transmitters send electronic  return data directly to IRS using either the MeF or the legacy e-file  system. The MeF system is intended to accept or reject individual tax returns faster than the legacy system. In addition, if the return is rejected,  the MeF system should provide better information regarding why the  return was rejected. s  The MeF system is also intended to allow taxpayer to attach portable document format (PDF) files to their tax returns, which will be useful in instances where taxpayers are required to submit  additional documentation, such as for the FTHBC. Finally, MeF serves a single point of submission for federal and state tax return information. I is planning to fully implement the MeF system in time for the 2012 filin g  season, and retire the legacy e-file system in October 2012.
As in the last few filing seasons, in 2010, IRS administered complex tax  law changes, including the MWP and Residential Energy Property  Credits—part of the American Recovery and Reinvestment Act of 2009  (ARRA)—and the FTHBC.
The refundable MWP tax credit provides up to $400 for working  individuals and up to $800 for married taxpayers filing joint returns.  Individuals who received Social Security, Railroad Retirement, or  Veteran’s benefits received a $250 Economic Recovery Payment in 2009,  which reduced the amount of the MWP credit they were eligible to receive.
The Residential Energy Property Credit increases the existing credit rate  to 30 percent of cost up to a maximum credit of $1,500 for homeowners  who make certain energy efficient improvements to existing homes.
As we have previously reported, since 2008, Congress has enacted three  versions of the FTHBC to help stimulate the housing market by providing  first-time homebuyers and some long-term homeowners with a refundable  tax credit to assist with the purchase of a home.
Appendix II summarizes key tax law changes that affected recent filing  seasons.
Part of IRS’s filing season work involves correcting errors on tax returns,  which can benefit both IRS and taxpayers. Correcting errors before issuing  refunds allows IRS to avoid costly and burdensome audits and taxpayers  may receive larger refunds or be made aware of additional taxes owed  before being required to pay interest and penalties.
For example, IRS used math error authority (MEA) to identify and correct  errors with the FTHBC. MEA allows IRS to identify calculation errors and  check for obvious noncompliance, such as claims above income and credit  limits. These automated and relatively low-cost (compared to audits) math  error checks increase the likelihood of IRS collecting the correct amount  of tax owed. Congress must grant IRS specific authority to use MEA for  purposes beyond computational errors. We previously recommended that  Congress broaden IRS’s MEA with appropriate safeguards to prevent its  misuse.
In addition to processing tax returns, IRS also provides tax law and  account assistance, limited return preparation, tax forms and publications,  and outreach and education, primarily through its telephone services, Web  site, and, to a much lesser extent, through face-to-face assistance. For  example, IRS staff provides assistance at 401 walk-in sites where  taxpayers can receive basic tax law assistance, receive assistance with  their accounts, and have returns prepared by IRS if their annual income is  $49,000 or less. IRS also has volunteer partners that staff over 12,000  volunteer sites, which help serve traditionally underserved taxpayer  segments, including elderly, low-income, and taxpayers with limited  English proficiency. Continued improvements to telephone service and  IRS’s Web site could help reduce the demand for taxpayer service at walk- in and volunteer sites.
section_title: Electronic Processing Continued to Increase, but Some Refunds Were Delayed as a Result of IRS Correcting Millions of Taxpayer Errors
paragraphs: The number of tax returns IRS processed in 2010 declined by about 2  percent from the prior year, as shown in table 1. However, electronically  filed returns continued to increase, reaching 71 percent of all returns. As  we have previously reported, electronic filing is important because it  allows taxpayers to receive refunds faster, is less prone to transcription  and other errors, and provides IRS significant cost savings. For example,  for fiscal year 2009, IRS reported that it costs 19 cents to process an e-filed  return compared to $3.29 for a paper return.
Table 1 also shows that IRS issued about 2 percent fewer refunds in 2010  compared to 2009, with the average refund amount being about $2,915. In  all, IRS issued about $312 billion in refunds during the 2010 filing season.
IRS processed about the same number of returns on current CADE as it  did in 2009 (just over 41 million). In 2012, IRS plans to establish and use  the new CADE 2 database in conjunction with their legacy system for daily  processing of individual taxpayer accounts. Current CADE processes  returns about 1 to 8 days faster than the legacy system, and at present,  only taxpayers whose accounts have been moved to that system get this  benefit (i.e., about 30 percent of all individual returns). Although IRS once  intended for current CADE to replace the legacy system, this is no longer  the case. Rather, beginning in the 2012 filing season, IRS plans to  introduce daily processing for most returns using the legacy system and  the new CADE 2 database. At that time, IRS officials expect that the  majority of individual taxpayers will receive the benefit of faster refunds in  addition to other benefits.
Although IRS began using MeF to accept individual returns for the first  time in 2010, the system was underutilized. Return transmitters  submitted about 7 percent of the total number of returns that IRS officials  projected the MeF system could accept. IRS officials cited several  reasons for lack of use of the MeF system, including that it is unproven  compared to the current legacy e-file system. They also noted that the  legacy e-file system had a lower rejection rate than MeF and return  transmitters may have stopped using MeF after encountering performance  problems. In interviews with GAO and in a survey conducted by the  Electronic Tax Administration Advisory Committee, a group of  stakeholders that offers suggestions about current or proposed electronic  tax administration policies, industry stakeholders who are major users of  electronic filing cited MeF system “instability” (system down-time, time- outs, slow servers, and delayed acknowledgments) as a major reason for  low use of the MeF system.
For the 2011 filing season, IRS officials expect that the MeF system will be  capable of accepting up to about 85 million individual returns. However,  IRS officials acknowledged that until IRS overcomes the performance and  stability issues experienced in 2010, transmitters are likely to continue to  send Form 1040 returns to the legacy electronic filing system. Transmitters  may still be reluctant to switch to MeF until the system is proven to be  stable, and their participation is still voluntary until the legacy system is  turned off in 2012. To ensure that issues with the stability of the system do  not persist in 2011, IRS officials are testing the MeF system in preparation  for next year. IRS officials expect that by 2012, when the legacy system is  scheduled to be turned off, MeF should be able to accept all individual  returns filed electronically.
subsections: section_title: IRS Corrected Millions of Taxpayer Errors, Resulting in More Taxpayers Experiencing Delays Receiving Refunds
paragraphs: IRS corrected a large number of taxpayer MWP errors and identified  returns with residential energy credits using its Error Resolution System  (ERS) this filing season. In addition, IRS applied filters for pre-refund  examinations on certain FTHBC returns. IRS officials said that the  combined effect of these actions resulted in longer processing times in  general—not just for returns with MWP errors or FTHBC claims.
In total, about 26 million returns, or about 20 percent of all returns  processed, went to ERS this year. IRS officials said it generally takes  approximately one week to correct returns in ERS; however, between  March and May of 2010, it took up to two weeks to process these returns.  Appendix III describes in more detail the large number of returns sent to  ERS this filing season.
Correcting returns benefited either taxpayers or IRS. For example, IRS  corrected millions of MWP errors in favor of taxpayers, meaning taxpayers  received larger refunds (or had a lower balance due) than they anticipated  when they filed their return. In addition, applying filters for pre-refund  examinations allowed IRS to prevent millions of dollars from being issued  for ineligible FTHBC claims. Although applying these filters often results  in IRS identifying incorrect refunds, we have previously reported that in  some cases the filters applied were not sufficient to stop incorrect refunds  from being sent to taxpayers.
In part due to these complications, IRS’s timeliness in issuing refunds  declined by 3 percentage points, marking its lowest level since at least  2005. According to our calculations, this translates to about 3.3 million  more refunds being delayed through August 2010 compared to last year.  Delays in providing refunds adversely affect taxpayers because it takes  longer for them to receive their refunds and contributes to taxpayer calls  about the status of their refunds. In addition, IRS paid significantly more  interest on those refunds than in previous years, which imposed additional  costs to the federal government. For example, IRS paid about $12.6 million  in refund interest through August 2010, about $8 million more than in  2009. On the other hand, rapid processing of refunds without proper  checks can lead to erroneous refund payments which can be costly to the  federal government. Recovering erroneous refunds also imposes  additional burdens on taxpayers.
Finally, although IRS missed its fiscal year goals for refund timeliness and  refund interest paid, IRS met four key processing goals—correspondence  error rate, deposit error rate, productivity, and refund error rate. Appendix  IV defines and summarizes IRS’s processing performance compared to  goals from 2005 to 2010.
section_title: IRS Exceeded Some 2010 Telephone Service Goals, but Timeliness Is Not Included in Paper Correspondence Goals and IRS Could Do More to Improve Service
paragraphs: The percentage of callers seeking live assistance who actually received  it—referred to as IRS’s Customer Service Representative Level of Service  (LOS)—improved to 76 percent in 2010 as compared to the previous 2  years, as shown in table 2. However, taxpayers waited almost 10 minutes  on average to speak with a phone assistor in 2010. This is the longest  average wait time since at least 2005, and IRS officials attribute it in part to  an increase in the number of calls from taxpayers inquiring about their  individual tax account. Taxpayers’ access to phone assistors in 2010 was  below the levels from 2005 through 2007 and, although IRS met its goals in  2010, the goals were lower than any previous year since before 2005. IRS’s  LOS goal for 2010 was 11 percentage points lower than from 2005 through  2008.
As in 2008 and 2009, IRS continued to receive millions of calls related to  tax law changes, including for the FTHBC and MWP. From February 8  through June 30, 2010, calls about these two credits accounted for 9  percent of IRS’s telephone services. In response to MWP calls, in March  2010, IRS introduced an automated application to reduce the number of  taxpayers needing to talk to a live assistor.
IRS received 77 million telephone calls during the 2010 filing season, about  the same as in 2009, as table 3 shows. IRS’s automated phone system  answered about 25 percent more calls compared to 2009, which is due in  part to a new automated phone service which enables taxpayers to request  their electronic filing personal identification number (PIN), as well as a 16  percent increase in the use of the refund automated application. IRS  phone assistors answered about 24 million calls at a cost, according to IRS  officials, of about $25 per call, or about $600 million from January 1  through June 30, 2010. IRS responded to these calls using 24 call centers  with about 5,300 full-time equivalents (FTE).
The accuracy of IRS’s telephone assistors’ responses to tax law and  account-related questions was about the same as last year and exceeded  IRS’s fiscal year 2010 goals, as shown in table 4. IRS officials attribute  continued levels of accuracy to a number of factors, such as the use of  automated assistance tools and targeted training of assistors.
subsections: section_title: IRS Does Not Have a Customer Service Telephone Standard
paragraphs: The decline in IRS’s live telephone assistance goal from 82 percent in 2005  through 2008 to 71 percent in 2010 raises questions about what constitutes  good customer service. Executive Order 12862 instructs federal agencies  to establish and measure performance against customer service standards,  which are to be equal to the quality of service offered by private  organizations providing a comparable service. A related Presidential  Memorandum introduced in 1995 and still in effect also notes that  customer service standards should reflect customer views. In addition,  we have reported that performance data should be used to identify and  analyze the gap between an organization’s actual performance and desired  outcomes, including by setting performance benchmarks to compare an  organization with private organizations that are thought to be the best in  their field.
IRS sets an annual goal for LOS performance based on resource  availability, the expected number and complexity of calls, and anticipated  volume of taxpayer correspondence, and subsequently determines weekly  and other performance targets to achieve its annual goal. IRS’s LOS goal  would differ from a customer service standard in that it measures what  IRS management determines is attainable given current resources and  expected call volume, compared to defining standards based on the quality  of service provided by comparable organizations and on what matters  most to the customer—in this case, taxpayers.
According to IRS officials, they would be able to determine a customer  service telephone standard and could provide cost estimates to achieve  the standard. Once set, however, IRS officials identified several challenges  to meeting such a standard, including:  the potential need for additional resources;  the need to balance resources between telephone services, other taxpayer  services, and enforcement activities;    unexpected changes in agency priorities which require the flexibility to  shift resources to respond; and    potentially significant fluctuations in call volume, including those resulting  from tax law changes.
IRS officials expressed concern that developing a customer service  telephone standard could create the expectation that the agency would  achieve that standard each year, even when resources, call volume, and  other priorities may make the standard unattainable. This could be the  case even if the annual goal is set at a level that is attainable. However, as  noted above, a customer service standard is something to strive for and is  different than an annual performance goal. Adding a customer service  telephone standard would make the gap between the standard and annual  performance goals transparent. Further, it could help IRS communicate its  resource needs and help Congress make more informed decisions about  IRS’s budget.
section_title: IRS’s Frontline Telephone Staff Are Not Consistently Consulted to Help Identify Solutions for Taxpayer Services
paragraphs: According to senior IRS officials, IRS has a process that includes holding  regular team meetings to solicit ideas from frontline phone assistors about  how to improve service. For example, the meetings are intended to help  managers identify trends in call topics that might benefit from further  research about the source of taxpayer confusion that could lead to finding  less costly ways to provide assistance. However, we identified several gaps  in this process. Specifically:    Staff responsible for analyzing IRS’s telephone calls using a research tool  called Contact Analytics said determining appropriate search terms to  effectively identify calls from taxpayers is one key challenge to using the  system. This is something that could be improved by using frontline  employees to identify search terms or trends in call topics.
Managers and frontline phone assistors with whom we met considered the  process to be informal where phone managers would note some issues to  more senior management.
According to IRS officials responsible for phone services, IRS did not  consult with frontline phone assistors to obtain input on taxpayer call  topics when reviewing call trends and adding an additional telephone  service line for 2010.
The telephone service industry considers holding regular meetings with  experienced phone assistors to identify trends in call topics to be a key  element in improving service. By not consistently using existing processes  to solicit input from IRS’s frontline employees to identify issues for further  research, including contributing ideas for Contact Analytics, IRS may miss  areas of importance to taxpayers which could improve taxpayer service.
section_title: IRS Stores Calls for 45 Days, Which May Not Be Long Enough to Complete Data Analysis
paragraphs: Contact Analytics allows IRS to search recorded interactions between  taxpayers and IRS assistors to enhance the taxpayer’s experience by  gaining a better understanding of the reasons taxpayers call IRS and  identifying opportunities for cost savings or efficiency gains. However,  Contact Analytics is not used to access phone calls older than 45 days.  According to an IRS official, the current 45-day limit causes IRS’s business  units to use more time-consuming processes to analyze calls for proposed  improvements to IRS’s telephone operations. For example, as part of their  planned review of refund inquiry calls received during the 2010 filing  season, IRS officials explained they used an alternative system to listen to  calls because they needed to review data for several months of the filing  season, a period that extended beyond the 45 days available through  Contact Analytics.
According to officials with IRS’s Contact Analytics office, IRS is only able  to store recorded calls for 45 days because of the expense of storing the  calls and limited storage space. Separately, IRS officials responsible for  recording and storing calls explained that IRS developed its policy on the  length of time to store data, including calls available for analysis through  Contact Analytics several years ago. IRS officials acknowledged they have  not surveyed the business units as to whether they need to store the  recorded calls for a longer period or analyzed whether the benefits of  storing the calls longer would exceed the costs.
section_title: IRS Does Not Have Performance Measures to Assess the Timeliness of Its Taxpayer Correspondence Services
paragraphs: IRS’s frontline assistor staff is trained to respond to both telephone  inquiries and taxpayer correspondence. IRS shifts staff between these two  areas based on the volume of work and resource availability. For fiscal  year 2010, IRS dedicated about 5,800 FTEs to taxpayer correspondence  and, as we noted earlier, about 9,400 FTEs to telephone service. IRS  received about 20 million letters, forms, and other types of taxpayer  correspondence in 2010, a slight increase as compared to 2009 and a 25  percent increase compared to 2007. Compared to earlier years, such as  2005, the average percentage of taxpayer correspondence overage has  increased significantly, as shown in table 5, which IRS officials attribute to  legislative tax law changes and a corresponding increase in the volume of  amended returns.
Amended returns make up a significant portion of IRS’s taxpayer  correspondence work and IRS has processed an increasing number of  amended returns since 2005, due in part to taxpayers’ taking advantage of  tax law changes. Taxpayers are not able to file amended returns  electronically, which leads to increased processing time for taxpayers and  added expense for IRS.
For many of its processes, IRS has established performance measures to  make managers and frontline staff more accountable for improving  performance. As we previously reported, performance measures should  provide a clear link to organizational priorities to provide useful  information for decision making. Since one measure may not encompass  the entire performance of a program area, IRS’s balanced measures  include measures to assess employee satisfaction, customer satisfaction,  and business results. The business results measures generally take into  account both the quality and quantity, or productivity, of IRS’s work.
As we previously mentioned, IRS has a number of balanced performance  measures to monitor the productivity of its business results for telephone  service, including average wait time and the percentage of callers seeking  live assistance who actually receive it. In all, IRS has five balanced  performance measures that address the productivity of its telephone  service. IRS has one taxpayer correspondence performance measure that  addresses productivity—customer accounts resolved. However, this  measure does not account for the timeliness of its correspondence  services to taxpayers, which is one of IRS’s organizational priorities. IRS  currently measures the timeliness of the employee’s work. However, this  measure does not evaluate the time a taxpayer waits for a response.
According to IRS officials, IRS uses a number of indicators to monitor its  taxpayer correspondence workload, including size of inventory and  weekly closures, and make workforce management decisions. In addition,  a number of these indicators assess the timeliness of IRS’s response to  taxpayers. For example, IRS indicators show that for 2008 and 2009, on  average, 23 to 25 percent of IRS’s taxpayer correspondence portfolio has  been overage, while in 2010 the percentage overage increased to 27  percent. IRS management uses the percentage overage indicator, among  others, to make weekly workforce management decisions, including the  allocation of staff between telephone service and paper correspondence.  For example, IRS has a computer program that helps IRS officials balance  telephone and paper inventories and allocate staff between those two  areas.
IRS recognizes that providing timely taxpayer correspondence service is  its highest improvement opportunity for paper inventory. However,  without elevating timeliness to taxpayers as part of its suite of balanced  performance measures for taxpayer correspondence, IRS management  risks prioritizing telephone or other services, for which such measures  already exist, over providing timely taxpayer correspondence. Balanced  performance measures are recognized agency priorities and are  communicated as such to frontline staff. The lack of balanced  performance measures addressing the timeliness of IRS’s response to  taxpayers may explain, in part, why such a large percentage of IRS’s  taxpayer correspondence is overage. This is particularly important as IRS  makes trade-offs between providing telephone service and responding to  taxpayer correspondence.
Ensuring the timeliness of IRS’s response to taxpayer correspondence  directly reduces the volume of calls made to IRS’s telephone services,  which can represent significant annual cost savings as phones represent  one of the most expensive forms of taxpayer services.
section_title: Visits to IRS’s Web Site Increased and IRS Is Taking Steps to Improve Taxpayer Satisfaction
paragraphs: Visits to IRS’s Web site continue to increase, and in particular, the use of  automated services like “Where’s My Refund?” is substantially higher than  in 2007, as table 6 shows. Specifically, IRS piloted four new automated  Web services in 2010. According to IRS officials, these automated services  are designed to reduce calls to phone assistors by providing alternative  channels for taxpayers to access information:  the Did I Receive a 2009 Economic Recovery Payment? application, which  determines whether the taxpayer received the $250 stimulus payment in  2009;  the Electronic Filing Personal Identification Number (PIN) application,  which enables taxpayers to request their PIN to sign and file their return  electronically;    Seven Interactive Tax Assistant topics, which use interactive question-and- response processes, similar to what is used by phone assistors, to answer  taxpayer questions about common tax law issues such as filing status,  standard deduction, and eligibility for the Child Tax Credit; and    a state-by-state partial list of volunteer tax preparation sites with contact  and availability information.
In the Taxpayer Assistant Blueprint (TAB), IRS’s 5-year strategic plan for  improving service to taxpayers, IRS identified five Web site management  control gaps and corresponding improvements that would allow IRS to  maximize the opportunities to provide taxpayer service through its Web  site. IRS has taken action to address some of these gaps. However, other  gaps including those related to content management and usability reviews  have not been fully addressed. We previously identified management  controls as necessary to ensuring the effectiveness and efficiency of  operations and the use of resources. IRS officials said that IRS is taking  actions to address elements of these management control gaps such as  development of new Web content management guidance and usability  review guidance, which are expected to be in place by January 2011.
Ensuring effective management control for its Web site is especially  important in light of IRS’s planned improvements. From January 1 through  April 15, 2010, IRS’s 2010 taxpayer satisfaction survey results found that 73  percent of surveyed visitors to www.irs.gov reported that they obtained  the information or services they were seeking, the same level as in 2009,  but a 5 percent decrease compared to 2007. In response, IRS is taking  steps to improve its Web site, including investing $320 million over 10  years to introduce a new site by the 2013 filing season. This $320 million is  being used for Web operations, including a Web site help desk,  development of interactive Web applications, and program management of  IRS’s Web site and registered user and employee sites. According to IRS  officials, the new Web site should provide IRS with a strengthened  technical infrastructure that would allow for easier updates on the site and  new automated features.
section_title: Accuracy at IRS’s Walk-In Sites Improved, but IRS’s Evaluation of the Debit Card Program at Volunteer Sites Is Missing Stakeholder Input
paragraphs: Through April 30, 2010, IRS received 2.8 million taxpayer contacts at its  401 IRS walk-in sites, about the same as last year. To increase taxpayer  access to assistance, IRS piloted extended Saturday and evening hours in  16 IRS walk-in sites, held five Saturday open house events during the fiscal  year, and expanded a pilot project to place IRS walk-in site employees in  volunteer tax preparation sites to provide assistance with accounts and  tax law questions. From January 1 through April 15, 2010, IRS employees  worked with approximately 5,300 taxpayers at 27 volunteer sites.  According to IRS officials, they plan to continue the programs in 2011.
As of April 30, 2010, the accuracy of accounts and tax law assistance  provided at IRS walk-in sites continued to improve, as table 7 shows. IRS  officials attribute this increased accuracy to the continued use of the  Interactive Tax Law Assistant which guides assistors through a series of  questions to provide accurate and consistent responses to taxpayers’  questions. Further, IRS introduced a new return preparation assistance  accuracy measure, which assesses the extent to which IRS staff prepares  accurate returns.
According to IRS officials, IRS partnered with community-based  organizations that ran 12,326 volunteer sites, staffed with 87,602  volunteers in 2010. Through April 25, 2010, volunteers prepared 2.9 million  tax returns, about the same as last year. Return preparation accuracy by  volunteers increased compared to 2009. For 2010, volunteers achieved an  85 percent accuracy rate for return preparation compared to 78 percent  last year. According to IRS officials, this increase resulted from IRS’s new  requirement that volunteers use an IRS-approved intake sheet, expanded  training of volunteers, and increased IRS monitoring visits. For more detail  on the number of contacts at walk-in and volunteer sites, see appendix VI.
IRS is expanding its program to support its volunteer partners as they  work with taxpayers to promote financial education and asset building.  One initiative of this program is to assist taxpayers who may not have an  account at a bank, savings and loan, credit union, or other financial  institution, to receive their refund through direct deposit on a debit card  issued by one of IRS’s national bank partners. IRS anticipates that these  efforts may result in reduced taxpayer use of refund anticipation loans by  providing taxpayers with a low-cost or no-cost refund option for receiving  refunds quickly. In 2010, the program, which already had a low  participation rate, drew far fewer taxpayers than in 2009, despite  increasing the number of sites offering the cards from 15 in 2009 to 20 in  2010. Less than 3 percent of taxpayers eligible for the program elected to  receive their refund on a debit card compared to 2009 when 8 percent of  eligible taxpayers participated in the program.
According to IRS officials, poor program participation is in part due to the  challenge of appropriately marketing the program to taxpayers. However,  other factors may have contributed, including having a limited number of  volunteers available to administer the program at volunteer sites and  additional training requirements for volunteers distributing the cards. IRS  included its partner bank institutions in its evaluation of the program’s  2010 performance, but the evaluation did not include other key  stakeholders, such as taxpayers or partners from volunteer sites where the  program was implemented. By not including these other key stakeholders,  IRS may not have fully identified the causes of the program’s poor  participation rate. As we have previously reported, according to the  American Evaluation Association’s Guiding Principles for Evaluators,  evaluations should include relevant perspectives and interests of the full  range of stakeholders. IRS plans to continue to facilitate the program and  is carrying out a study and pilot test to improve marketing of the debit  card at volunteer sites. However, without an understanding informed by  multiple stakeholder perspectives on reasons why taxpayer participation  in the program was low, including reasons outside of the manner in which  the program was marketed, IRS risks missing opportunities to increase  participation.
section_title: Conclusions
paragraphs: The filing season is a large-scale, complex effort that requires IRS to  balance resources across processing returns (including some pre-refund  compliance verification) and providing assistance to taxpayers via  telephones, mail, walk-in sites and IRS’s Web site. Although IRS dealt with  a number of challenges this filing season, its performance improved in  some areas and IRS met some goals. Efficiency gains realized from  continued growth in electronic filing contributed to IRS’s performance.
However, the combined effects of recent tax law changes and changes in  taxpayer behavior can be seen in the fluctuations in IRS’s performance— not just this year, but in previous years as well. During 2010, IRS’s  performance in issuing timely refunds decreased—a result, in part, of  correcting millions of taxpayer errors to the benefit of taxpayers and the  federal government. In addition, telephone service, although better than  last year, remained below 2005 through 2007 levels and IRS continues to  have a significant amount of overage taxpayer correspondence. IRS  management faces trade-offs in determining how to best allocate  resources among these priorities. For example, when IRS dedicates more  resources to providing quality telephone service, fewer resources are  available to respond to paper correspondence and vice versa.
Opportunities exist for IRS to improve the information available to make  decisions between competing priorities and to gain efficiencies.  Establishing a customer service standard for telephone service would  provide Congress with better information on the resources needed for IRS  to deliver better telephone service. Further leveraging the use of powerful  tools already in IRS’s arsenal—namely its own staff and data contained in  Contact Analytics—should help IRS gain efficiencies. For example,  assessing the costs and benefits of storing recorded calls for longer than  the current 45-day period could help IRS use Contact Analytics to better  determine why taxpayers call. Further, establishing a performance  measure for the timeliness of its taxpayer correspondence should help IRS  better manage its full range of interactions with taxpayers. Involving all  key stakeholders in reviews of important initiatives, such as expanding the  effort to provide refunds on debit cards, will lead to a more complete  understanding of why such initiatives are or are not working.
section_title: Recommendations for Executive Action
paragraphs: To gain efficiencies and improve taxpayer service, the Commissioner of  Internal Revenue should direct the appropriate officials to:  1.  Based on the quality of service provided by comparable organizations  and on what matters most to the customer, determine a customer  service telephone standard, and the resources required to achieve this  standard based on input from Congress and other stakeholders;  2.  Use the existing process of regular team meetings with frontline  telephone assistors to solicit information on call trends and other  potential improvements to phone service and to supplement issues  identified using Contact Analytics;  3.  Assess business units’ needs for holding Contact Analytics calls  beyond 45 days and store calls for this period or document that the  costs of doing so exceed the benefits;  4.  Establish a performance measure for taxpayer correspondence that  includes providing timely service to taxpayers; and  5.  Establish an evaluation plan for the 2011 filing season debit card  program that includes taxpayers, volunteer site partners, and other  stakeholders and assesses the full range of reasons for program  participation rates.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Commissioner of Internal  Revenue.  We received written comments from the Deputy Commissioner  for Services and Enforcement, which are reprinted in appendix I. IRS also  suggested technical changes to the report, which we incorporated where  appropriate.
In response to our draft report, the Deputy Commissioner expressed  appreciation to GAO for recognizing IRS’s significant achievements in  delivering the 2010 filing season despite the challenges presented by  several complex tax law changes.
Of the five recommendations, the Deputy Commissioner agreed with two  and, although he did not explicitly agree, he described steps IRS is taking  to address a third recommendation. He disagreed with two  recommendations.
The Deputy Commissioner agreed with the recommendation to use the  existing process of regular team meetings with frontline telephone  assistors to solicit information on call trends and other potential  improvements to phone service and Contact Analytics. He also agreed  with the recommendation to develop a performance measure for taxpayer  correspondence that includes providing timely service to taxpayers.  Further, in response to the  recommendation that IRS establish an  evaluation plan for the debit card program that includes taxpayers,  volunteer site partners, and other stakeholders and assesses the reasons  for program participation rates, he described steps IRS plans to take to  assess the debit card program participation rates.
The Deputy Commissioner disagreed with the recommendation that IRS  develop a customer service telephone standard, stating that he does not  believe that IRS needs to revise its current process to measure telephone  service at this time as it currently develops its telephone plans after  consideration of many factors. Such factors include historical call demand  and the types and anticipated lengths of calls. However, a customer  service telephone standard would serve as a means of communicating to  Congress and others what IRS believes would constitute good customer  service. Having such a standard would make the gap between the standard  and annual performance goals more transparent. We recognize that IRS  may not be able to achieve the standard because of factors such as  unexpected call volume and competing resources. The intent is to  highlight for Congress and others the gap between good service and what  IRS is able to attain. In addition, developing such a standard would put IRS  in compliance with Office of Management and Budget guidance that  requires agencies to develop customer service standards. Accordingly, we  believe this recommendation remains valid.
Finally, the Deputy Commissioner disagreed with the recommendation  that IRS assess its business units’ needs for holding Contact Analytics calls  beyond 45 days and store calls for this period or document that the costs  of doing so exceed the benefits. He stressed that IRS’s Contact Recording  System is used to store calls and the Contact Analytics system is used to  analyze some calls, noting that IRS is confident that storing calls beyond  45 days would not be a low-cost effort. However, IRS officials responsible  for recording and storing calls told us that IRS developed its policy on how  long to store data, including calls available through Contact Analytics,  several years ago.  As we note in our report, IRS officials acknowledged  that they have not surveyed business units as to whether they need to  store the calls for a longer period or analyzed whether the benefits of  doing so would exceed the costs. Further, we identified an example during  our review in which IRS needed to use more time-consuming processes to  analyze calls because the calls were not available beyond 45 days for use  by Contact Analytics. Contact Analytics should allow IRS to better  understand the reasons taxpayers call. Because further analysis could  demonstrate whether the benefits of storing calls for a longer period  currently exceed the costs, we believe this recommendation remains valid.
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. The report also will  be available at no charge on the GAO Web site at http://www.gao.gov. If  you or your staff have any questions or wish to discuss the material in this  report further, please contact me at (202) 512-9110 or at whitej@gao.gov.
Contact points for our Offices of Congressional Relations and Public  Affairs may be found on the last page of this report. GAO staff who made  key contributions to this report are listed in appendix VII.
section_title: Appendix I: Comments from the Internal Revenue Service
section_title: Appendix II: Selected Key Legislative Changes Affecting IRS’s 2007 through 2010 Filing Seasons
paragraphs: Description of legislation’s effect on filing season   Extended many existing tax deduction provisions by 2 years. Late passage of  the bill caused IRS delays in processing some returns.
One-time refund on the federal income tax return that can be requested by all  individuals and entities that paid the telephone excise tax, regardless of  whether they have an obligation to file a tax return.
Mandated that IRS send stimulus payments to over 100 million households  based on taxpayers who filed a 2007 return. Taxpayers filing as single generally  received $600 and married couples received $1,200. Many parents received an  additional $300 for each qualifying child born after December 31, 1990.
Mortgage Forgiveness Debt Relief Act of 2007   (Pub. L. 110-142)
Allowed taxpayers to generally exclude from taxable income forgiven mortgage  debt used to buy, build, or substantially improve a principal residence. In 2008 it  was extended to qualifying indebtedness discharged by January 1, 2013. (Expanded by the Emergency Economic  Stabilization Act of 2008 Pub. L. 110-343)  (Provision of the American Recovery and  Reinvestment Act of 2009,   Pub. L. 111-5)
Taxable government bonds that are issued with federal subsidies for a portion  of the borrowing costs delivered through (1) nonrefundable tax credits provided  to the holders, or (2) refundable tax credits paid to state and local government  issuers of the bonds.
1. (Provision of the Housing and Economic  Recovery Act of 2008,   Pub. L. 110-289)
1. Provided taxpayers a tax credit equal to 10 percent of the purchase of a  home up to a maximum of $7,500. Taxpayers must repay the credit over 15  years beginning in the 2011 filing season.
2. (Provision of the American Recovery and  Reinvestment Act of 2009,   Pub. L. 111-5)
2. Provided taxpayers a refundable tax credit equal to 10 percent of a home’s  purchase price up to $8,000. Taxpayers are still required to repay the credit if  the home is resold or ceases to be the primary residence of the taxpayer within  3 years. (Provision of the American Recovery and  Reinvestment Act of 2009,   Pub. L. 111-5)
Allows eligible small businesses to apply certain losses experienced in 2008  against tax liability incurred in up to 5 previous years.
Allowed for taxpayers that did not receive their full stimulus payment in 2007 to  receive the unpaid portion of the credit on their 2008 return. (Provision of the Economic Stimulus Act of 2008,   Pub. L. 110-185)  (Provision of the Worker, Homeownership, and  Business Assistance Act of 2009 Pub. L. 111-92)
Extended the FTHBC from November 30, 2009, to April 30, 2010. Also allowed  certain long time homeowners purchasing new homes to claim a tax credit up to  $6,500.
Refundable tax credit providing up to $400 and $800, respectively, to working  individuals and married couples filing joint returns. (Provision of the American Recovery and  Reinvestment Act of 2009,  Pub. L. 111-5)
Description of legislation’s effect on filing season   (Provision of the American Recovery and  Reinvestment Act of 2009,   Pub. L. 111-5)
Increases the existing percentage of costs that can be claimed and maximum  allowable credit available to homeowners who make certain energy efficient  improvements to existing homes through December 2010.
section_title: Appendix III: IRS Continues to Process More Returns through the Error Resolution System
paragraphs: Figure 1 below shows that for the third consecutive year, the number of  returns in the Internal Revenue Service’s (IRS) Error Resolution System  (ERS) steadily increased. In 2008, IRS corrected many returns due to the  economic stimulus package and telephone excise tax refund. Last year  IRS corrected many returns due to the Recovery Rebate Credit and IRS  said this year’s high inventory was due to Making Work Pay (MWP) errors  and using ERS to identify returns on which taxpayers claimed certain  credits, including the residential energy credit.
Through September 30, IRS had corrected about 7.7 million errors  associated with MWP, which represents about one-third of all returns that  went to ERS. Approximately 4.6 million of these taxpayers, or 60 percent,  did not claim MWP and IRS computed the credit for them, according to  IRS data through October 1. The remainder of these taxpayers made an  error calculating the credit.
IRS officials took several actions this filing season which they believe  helped reduce the ERS inventory, but a key automated tool was not ready  when IRS processed most of the returns. Beginning in June 2009, IRS  started developing an Integrated Automation Technology tool specifically  to correct frequently recurring MWP errors. However, IRS had difficulties  developing the tool and it was not available at all processing sites until  June 18, 2010. By that time, IRS had already corrected approximately 5.6  million, or about 75 percent, of all MWP errors. In addition to creating the  tool, IRS staff worked overtime, shifted resources among various  submission processing functions, and hired and trained additional  employees.
IRS also placed a large volume of returns in ERS from taxpayers claiming  residential energy credits. However, these returns did not necessarily  contain errors. Rather, IRS used ERS to transcribe information to identify  the number of taxpayers claiming residential energy credits and the dollar  amount. For the 2011 filing season, IRS officials told us the Residential  Energy Credit will appear by itself on Form 1040, line 52 and the combined  credits from Form 8396, Mortgage Interest Credit, Form 8839, Qualified  Adoption Expenses, Form 3800, General Business Credit, and Form 8801,  Credit for Prior-Year Minimum Tax, will be reported on line 53. IRS  officials said the credits from Form 3800 and Form 8801 will be  transcribed separately in the Integrated Submission and Remittance  Processing system, eliminating the need for ERS to transcribe them. IRS  officials said this system is faster and less expensive than ERS, but there  was not enough time during the 2010 filing season to program the system  for this purpose. To prevent sending as many returns to ERS next filing  season, IRS officials told us they are updating forms and other materials  using lessons learned from this filing season.
section_title: Appendix IV: IRS’s Processing Performance Relative to 2005 and 2010 Goals
paragraphs: As shown below in table 8, the Internal Revenue Service (IRS) met half of  its performance goals, the fewest number of goals met since at least 2005.  IRS met the fiscal year 2010 goals for correspondence error rate, deposit  error rate, productivity, and refund error rate. The fiscal year goal for four  measures were not met—refund interest paid, refund timeliness, deposit  timeliness, and efficiency.
As noted earlier in the report, IRS officials attribute the combined effect of  correcting millions of taxpayer errors and conducting targeted pre-refund  compliance checks to missing goals for refund timeliness and refund  interest paid. However, IRS also narrowly missed its goals for deposit  timeliness and efficiency. IRS officials attributed missing deposit  timeliness to an increased number of payments which generally had  smaller dollar amounts. IRS officials attributed missing the efficiency  measure goal to processing fewer information return Schedule K-1  documents than projected, and using more staff resources to process  returns in ERS.
section_title: Appendix V: Weekly Toll-Free Calls and Percentage of Callers Seeking and Receiving Live Assistance
paragraphs: During the 2010 filing season, the Internal Revenue Service (IRS) received  most of its calls in the period leading up to and including the April 15th  filing deadline, with the heaviest volume of calls at the end of January and  beginning of February and during the week of the filing deadline (see fig. 2  below). IRS saw relatively fewer busy signals or IRS initiated disconnect  of taxpayers as compared with 2008 and 2009.
IRS’s Level of Service (LOS), or the percentage of callers seeking and  receiving live assistance, takes into account a number of factors, such as  the number of assistor calls answered, informational message calls  answered, calculated busy signals, courtesy disconnects, and taxpayer  hang-ups after being routed to a response line. According to IRS officials,  other telephone call centers wait a certain period of time before counting  callers who hang-up against their performance measures, whereas IRS  counts these hang-ups, referred to as “secondary abandons” immediately.
section_title: Appendix VI: Services Offered at Walk-In and Volunteer Sites
paragraphs: The total number of contacts at walk-in sites, taxpayer assistance centers  staffed by Internal Revenue Service (IRS) employees, and volunteer sites,  where volunteers prepare tax returns, are about the same in 2010 as in  2009, but lower compared to 2008. As IRS expands automated taxpayer  services online and over the telephone, the demand for face-to-face service  is likely to decline. However, face-to-face services remain an important  component of IRS’s efforts to serve many taxpayers as some taxpayers,  particularly those with low incomes or limited proficiency in English, still  require face-to-face assistance.
section_title: Appendix VII: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Joanna Stamatiades, Assistant  Director; Amy Bowser; James Cook; Tom Gilbert; Mark Kehoe; Kirsten  Lauber; Blake Luna; Patricia MacWilliams; Sabrina Streagle; Jeff Wojcik;  Jennifer Wong; and Benjamin Wories made key contributions to this  report.