Tax Administration: IRS Improved Performance in the 2004 Filing Season, But Better Data on the Quality of Some Services Are Needed
Published: 2004-11-15T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Most taxpayers have their only contact with IRS during the filing season, with tens of millions filing their returns, getting refunds, and seeking assistance by calling or visiting IRS's offices or Web site. GAO was asked to assess IRS's performance in 2004 relative to goals and prior years' performance as well as initiatives or other factors that significantly affected performance for the following areas: (1) the processing of paper and electronic returns, (2) telephone service, (3) walk-in service, and (4) Web site service.
section_title: What GAO Found
paragraphs: During the 2004 filing season, IRS met many of its performance goals and continued a trend of improvement in recent years. However, IRS did not improve in all dimensions of its filing season services and lacks sufficient data to evaluate quality in others. IRS processed returns and issued refunds smoothly. The proportion of returns filed electronically is up to 47 percent. Despite this achievement and numerous initiatives to increase electronic filing, IRS does not expect to reach its long-term goal of having 80 percent of all individual tax returns filed electronically by 2007. A higher percentage of taxpayers was able to reach IRS assistors by telephone than last year and the accuracy rate for providing taxpayers with information about their accounts remained stable. However, the accuracy rate for answering tax law questions declined to 2001 levels. Consistent with IRS's strategy, the number of taxpayers visiting IRS walk-in sites declined, while the number having tax returns prepared at volunteer sites increased. Finally, although IRS continued to expand its Web site services, the site's feature for answering tax law questions raises some concerns. Despite the 2004 improvements, IRS has opportunities for further service improvements. For example, IRS has limited data with which to assess the quality of key services at its walk-in sites and sites staffed by volunteers. Although IRS has initiatives under way to measure quality at both types of sites, the initiatives have been delayed and important details have not yet been determined, which may undermine IRS's efforts to improve services in this area. In the meantime, some of IRS's quality data is likely to be biased. Until IRS fully implements its initiatives and gathers data on quality, it will have difficulty monitoring and improving performance at its walk-in sites and volunteer sites.

section_title: Letter
paragraphs: Most taxpayers have their only contact with the IRS during the tax filing  season making the agency’s performance during this period a key indicator  of how well IRS is serving the public and helping them fulfill their tax  obligations. IRS’s filing season is an enormous undertaking, requiring  thousands of IRS staff years to process well over 100 million individual  income tax returns, issue refunds, and respond to telephone calls and other  requests for assistance. To the extent that IRS can improve filing season  operations and provide services more efficiently, it could shift resources to  other areas such as enforcement.
Because of the importance of IRS’s filing season activities to taxpayers and  the Congress, you asked us to assess the 2004 tax filing season. Our  objectives were to assess IRS’s filing season performance, relative to this  year’s goals and prior years’ performance, and any initiatives or factors that  significantly affected performance. We did this for (1) the processing of  individual tax returns filed on paper or electronically, (2) toll-free  telephone service, (3) walk-in and volunteer site service, and (4) IRS’s  Internet Web site. We testified on IRS’s interim performance in a hearing  held by your Subcommittee on Oversight, Committee on Ways and Means  on March 30, 2004.
Our assessment is based on reported results and analyses of key IRS  performance measures and data, observations of IRS’s operations,  interviews of IRS officials, information from representatives of the tax  practitioner community, and analyses by the Treasury Inspector General  for Tax Administration (TIGTA). For the purpose of this report, we found  IRS’s data to be sufficiently reliable for assessing IRS’s 2004 filing season  performance and for comparison to prior filing seasons. Further details on  our scope and methodology are provided later in this report. We performed  our work from January through September 2004 in accordance with  generally accepted government auditing standards.
subsections: section_title: Scope and Methodology
paragraphs: Our assessment of IRS’s 2004 filing season performance was based on  analyses of IRS data and information obtained from sources outside IRS,  interviews with IRS officials and private sector tax practitioners,  observations of IRS operations, and, for the comparison to previous years,  on our past filing season reports.   reviewed and analyzed IRS reports, testimonies, budget submissions,  other documents and data, including workload data and data from IRS’s  current suite of balanced performance measures, which we used to  assess performance this year;  interviewed IRS officials about current operations, performance relative  to 2004 goals and prior filing seasons, and significant factors and  initiatives that affected performance;  interviewed representatives of large private and non-profit  organizations that prepare tax returns and trade organizations that  represent both individual practitioners and tax preparation companies;   reviewed related TIGTA reports and interviewed TIGTA officials;   followed up on GAO recommendations made in prior filing season and   tested for statistical differences between yearly changes for various IRS   analyzed information posted to IRS’s Internet Web site based on GAO’s  knowledge of the type of information taxpayers look for, and assessed  the ease of finding information, as well as the accuracy and currency of  data on the site;   reviewed information from companies that evaluated Internet  performance and assessed various aspects of IRS's Web site; and   reviewed staffing data for paper and electronic processing, telephone  assistance, and walk-in assistance.
This report discusses filing season performance measures and data  covering the quality, accessibility, and timeliness of IRS’s services. We have  previously reported that some of the performance measures IRS uses to  assess aspects of its filing season performance had attributes of successful  measures, including objectivity and reliability, although in some cases, the  measures could be further refined. Since that report, IRS has made  refinements in some measures. We also reviewed IRS documentation,  interviewed IRS officials about computer systems and data limitations, and  compared those results to GAO standards of data reliability. As a result, we  determined that the IRS data we are reporting are sufficiently reliable for  assessing IRS’s filing season performance. Data limitations are discussed  where appropriate.
We conducted our work at IRS headquarters in Washington, D.C.; the Small  Business/Self-Employed Division headquarters in New Carrollton,  Maryland; the Wage and Investment Division headquarters, the Joint  Operations Center (which manages telephone service), and a telephone  call site in Atlanta, Georgia; and walk-in and volunteer locations in Georgia,  Maryland, and Virginia. We selected these offices for a variety of reasons,  including the location of key IRS managers, such as those responsible for  telephone and walk-in and volunteer services. We performed our work  from January through October 2004 in accordance with generally accepted  government auditing standards.
section_title: Background
paragraphs: IRS’s filing season is an enormous and critical undertaking that includes  two key activities—returns processing and taxpayer assistance—and  which consumes thousands of staff years annually. Processing of paper  returns is labor intensive and error-prone. IRS employees manually  transcribe paper tax return information into IRS’s computer systems,  which can introduce errors. Electronic filing allows taxpayers to receive  refunds faster, and processing is less labor-intensive and error prone than  for paper returns. IRS does not have to transcribe electronic tax return  information and built-in checks eliminate many errors that IRS has to deal  with when processing paper tax returns, such as computational mistakes  and incorrect social security numbers. The rate for this type of error on  electronic tax returns was almost 4 percent compared to almost 25 percent  on paper tax returns, as of July 9, 2004.
To help taxpayers comply with their tax obligations, IRS provides various  services at its call sites, walk-in sites, and on its Web site. Figure 1 shows  how toll-free telephone calls from taxpayers typically are routed through  IRS’s telephone system and answered by customer service representatives  (CSRs) or by automated services.
At IRS’s approximately 400 walk-in sites taxpayers ask tax law questions,  get account information, receive assistance with their accounts, and have  returns prepared (if annual gross income is $35,000 or less). In addition,  low-income and elderly taxpayers get tax returns prepared at over 13,500  volunteer sites run by community-based coalitions that partner with IRS.  IRS awards grants, trains and certifies volunteers, and provides reference  materials, computer software and, in some cases, computers to these  volunteer organizations.
IRS’s Web site is important because it allows taxpayers to instantly  download hundreds of tax forms and publications, access current  information on tax issues and electronic filing, and ask IRS tax law and  procedural questions.
Since passage of the IRS Restructuring and Reform Act of 1998 (RRA 98),  IRS has been focused on improving filing season services. In 2001, IRS  established a suite of balanced performance measures. The system  emphasizes accountability for achieving specific results and reflects IRS’s  priorities, including providing quality service to each taxpayer in every  interaction. As part of its strategic planning and budgetary processes, IRS  establishes performance goals each fiscal year and uses them to hold  managers and frontline staff more accountable for improving filing season  performance.
section_title: IRS Has Generally Improved Its Performance Processing Tax Returns but Does Not Expect to Meet Its Long-Term Electronic Filing Goal
paragraphs: IRS processed individual income tax returns and issued refunds smoothly  in 2004. IRS nearly met or exceeded many of its 2004 performance goals,  with performance generally improving since 2001. However, despite  continued growth this year and despite various initiatives to encourage  electronic filing, IRS is not on track to achieve its long-term goal of having  80 percent of all individual tax returns filed electronically by 2007.
As of September 17, 2004, IRS had processed about 128 million individual  tax returns, including for 67 million returns filed on paper, with no  significant disruptions and issued nearly 100 million refunds within  specified tolerances. According to IRS data, IRS nearly met or exceeded  seven out of its eight processing performance goals in 2004. Similarly, 2004  performance nearly met or exceeded 2003 performance for six of the seven  comparable measures. Appendix 1 provides details. Furthermore, as  Appendix 1 and the following examples show, IRS has generally improved  its processing operations over a longer period.
The percent of notices with errors has declined since 2002 (for notices  sent to taxpayers about possible simple mistakes on their returns). In  2002, 18.7 percent of the notices were issued with errors compared to  9.4 percent as of July 31, 2004 (the most current data available).
The refund error rate, the percentage of refunds with IRS-caused errors  (e.g., incorrect name or Social Security number), has decreased from 9.8  percent in 2001 to 5.3 percent in 2003, to 4.9 percent as of July 31, 2004  (the most current data available).
Tax practitioners, who last year prepared approximately 62 percent of all  individual income tax returns, agreed that the processing of returns in the  2004 filing season has gone smoothly. Representatives from the National  Association of Enrolled Agents, American Institute of Certified Public  Accountants, and other tax related organizations had positive comments  on IRS’s 2004 filing season and processing. Similarly, TIGTA officials told us  that IRS generally processed returns smoothly in 2004.
IRS officials attributed this year’s performance in part to their planning for  tax law changes, such as the advance child tax credit and the increase in  electronic filing.
subsections: section_title: Electronic Filing Grew but Is Not on Track to Achieve Long-Term Goal
paragraphs: The number of individual income tax returns that IRS received  electronically continued to grow, and IRS exceeded its 2004 goals for the  number and percentage of tax returns to be filed electronically. From  January 16 through September 17, 2004, it had received an estimated 61.1  million individual tax returns electronically or 47 percent of all returns filed  to date. Also, the growth rate of 15.8 percent is greater than IRS’s projected  growth rate of 13 percent for this year. Figure 2 shows that growth since  1996.
According to IRS officials, the primary reason for the greater than expected  growth rate is that five states mandated electronic filing of state tax returns  prepared by qualified tax practitioners for 2004. According to these same  officials, these mandates led to significantly more electronic filing of  federal tax returns in these states because tax practitioners converted their  entire practices to electronic filing. For example, for California and  Michigan, the largest of the five states, the number of tax returns filed  electronically increased from 4.7 million and 1.9 million in 2003 to 7.1  million and 2.6 million respectively as of May 2004.
The current rate of growth of electronic filing, however, will not allow IRS  to achieve its long-term electronic filing goal of 80 percent of all returns by  2007, provided by RRA 98. Assuming a continuation of the current growth  rates of 15.8 percent for individual returns filed electronically and .23  percent for the total number of individual tax returns filed, IRS would  receive 73 percent of individual tax returns electronically by 2007.
However, neither IRS nor the Electronic Tax Administration Advisory  Committee (ETAAC) expects IRS to maintain this year’s growth rate. In  fact, IRS is predicting declining growth rates of about 11.5 percent, 9.9  percent, and 8.1 percent in 2005, 2006 and 2007, respectively. In its June 30,  2003, report to Congress, ETAAC concurred with IRS’s prediction of lower  annual growth rates.
IRS officials stated that achieving the 80 percent goal would require  taxpayers and tax practitioners who prepared 39 million individual income  tax returns on a computer but filed them on paper would instead have to  file them electronically, or legislation would have to be proposed and  passed that mandates electronic filing by tax practitioners.
Electronic filing is important because, according to IRS, it costs less to  process electronic tax returns than paper tax returns. IRS estimates it  saves $2.15 on every individual tax return that is processed electronically.  However, we cannot independently verify this estimate and its basis is  unclear, because as we have reported, IRS does not have a cost accounting  system to support preparation of such cost estimates. Electronic filing  has allowed IRS to close paper processing centers, devote less staff to the  processing of tax returns, and control processing costs by shifting  resources from labor-intensive paper return processing to other areas, such  as compliance. For example, with the elimination of paper tax return  processing at the Brookhaven Submission Processing Center, IRS used  about 1,000 fewer staff years to process paper returns in 2003 than in 2002,  and plans additional staff-year savings when paper tax returns processing  at the Memphis Submission Processing Center is eliminated in 2005. (See  app. 2 for more information on staff years).
Because increasing electronic filing is so important, IRS officials do not  want to reduce the 2007 goal, even though IRS projects that it is not  achievable. Retaining this goal serves as a symbol of their determination to  take actions to convert taxpayers to file electronically.
section_title: IRS Has Taken Numerous Actions to Encourage More Electronic Filing
paragraphs: Over the years, IRS has taken numerous actions to encourage electronic  filing, including   making electronic filing free to most taxpayers via the Free File Alliance  Program, a program that began last year;   surveying taxpayers and tax practitioners in response to a  recommendation in our 2001 filing season report to determine why 40  million tax returns were prepared on a computer but filed on paper;   making over 99 percent of all individual tax forms suitable for electronic   making the process totally paperless if a person uses a personal  identification number to sign the tax return.
For the 2004 filing season, IRS took the following actions to encourage  taxpayers and practitioners—primarily those who prepared returns on a  computer, but filed them on paper—to file electronically IRS. IRS   improved the Free File Alliance Program (as of September 17, 2004,  about 3.5 million individual tax returns have been filed electronically via  the Free File Alliance, compared to 2.8 million for all of last year, a 26  percent increase);  contacted about 12,200 tax practitioners who prepared business returns  on computers, but filed electronically to advise them about the benefits  of electronic filing;   targeted the approximately 8 million individual taxpayers who filed their  own paper returns prepared on a computer by mailing them a modified  version of Publication 8160E that cites the advantages of electronic  filing;   spent $11.2 million marketing electronic filing; and   made six more forms available for electronic filing.
Other major electronic filing initiatives could lead to more individual  electronically filed tax returns starting in 2005. However, IRS did not  expect the following initiatives to dramatically increase electronic filing in  2004 because taxpayers and practitioners will need time to adjust their  behavior.
The modernized E-file program, which for the first time, allows  electronic filing of corporate tax returns, could lead to more individual  tax returns being filed electronically. According to IRS officials, some  tax practitioners reported they would not file electronically until they  could do so for both individual and corporate tax returns, saying it did  not make business sense to file tax returns two different ways.
The E-services program, offered to tax practitioners who have filed at  least 100 electronic tax returns, gives them the ability to conduct  business, such as electronic account resolution and transcript delivery  with IRS electronically 24 hours a day 7 days a week for services.
Despite these initiatives, IRS does not expect to reach its 2007 goals for  electronic filing. However, because of the potential for cost savings, we  continue to see value in such initiatives.
section_title: Access to IRS’s Telephone Assistors Improved but Tax Law Accuracy Declined
paragraphs: IRS exceeded its 2004 telephone service goal for access to customer  service representatives (CSRs) and has improved in this area since 2001.  However, the accuracy of CSR answers to tax law questions declined. IRS  initiated two pilots in 2004 to help assess options for improving its  telephone service.
subsections: section_title: Access to Customer Service Representatives Continued to Improve; the Accuracy of Account Inquiries Was Stable; but the Accuracy of Tax Law Questions Declined
paragraphs: IRS received 84 million calls on its toll-free telephone lines in 2004 through  mid-July. Figure 3 shows that almost half of those calls were from callers  trying to obtain information on the status of their tax refunds; the rest were  primarily account or tax law questions.
Figure 4 shows how the calls were handled. IRS’s automated service  handled 30 million calls and CSRs handled 24 million. The rest of the calls  came in after business hours, were transferred, were disconnected, or the  caller hung up before receiving service.
As table 1 shows, compared to last year, access to CSRs continued to  improve, the average time taxpayers waited for CSRs remained stable,  and the accuracy of CSR responses to account questions remained stable,  while the accuracy of CSR responses to tax law questions declined.
Unlike calls to CSRs, IRS does not have a quality measure for its automated  telephone services. In our report on IRS’s performance measures, we  recommended that IRS develop a customer satisfaction survey to measure  approval of the automated service. At the time, the IRS Commissioner  responded that he agreed that measuring customer satisfaction for  automated service was important. According to IRS officials, the needed  computer programming changes were not done for the 2004 filing season,  but are in the queue to be done when programming resources permit.
IRS officials continue to attribute the decline in tax law accuracy rate  primarily to changes made to the CSR’s Probe and Response (P&R) Guide,  a publication that CSRs use to help them answer taxpayers’ tax law  questions. Last year, we reported that IRS attributed the decline in the tax  law accuracy rate on a new format for the P&R guide, among other factors.   At that time, an IRS official believed that after CSRs became familiar with  the guide, the problem would be resolved and IRS continued using the new  format. IRS began to address the problems with the P&R guide during the  2004 filing season. For example, CSRs told us that they attended a meeting  of managers and CSRs in March 2004 to identify the problems with the  guide and develop an action plan to correct the problems. According to IRS  officials, IRS tested changes to the guide at the St. Louis, Missouri and  Cleveland, Ohio call sites in June 2004. In addition, IRS has a written plan  with deadlines for testing the guide for the 2005 tax filing season. The new  guide was to be made available in hard-copy by October 1, 2004 and was to  be used for purposes of training employees before the start of the 2005  filing season.
section_title: IRS Initiated Two Pilot Programs For Telephone Service
paragraphs: IRS initiated two pilot programs in 2004 to assess options for  improvements on its toll-free telephone services. IRS piloted having a  contractor answer tax law questions instead of IRS employees to determine  (1) if a contractor could deliver an equal or superior level of service and   (2) the public’s perception regarding being assisted by someone other than  IRS employees. IRS routed 10 percent of the tax law calls received on its  toll-free lines to a contractor for 60 days (February through April 2004).  With respect to the accuracy of tax law responses provided to taxpayers,  the contractor’s performance was about half that of IRS’s—44.6 versus  82.46 percent, respectively. IRS attributed the contractor’s performance to  a longer-than-expected learning curve. Also, taxpayers’ raised concerns  regarding privacy, although no confidential information is shared in  answering tax law questions. In September 2004, IRS officials decided not  to go forward with further testing.
The second pilot was for contact recording, which involves recording all  telephone contacts between taxpayers and CSRs and, for 10 percent of the  calls, also capturing computer screen displays accessed by the CSR. It is  intended to enable supervisors to provide CSRs with more complete  feedback on their performance. Figure 5 illustrates the process for contact  recording.
IRS conducted the contact recording pilot from January through April 2004  at three call sites. According to IRS officials and our interviews with CSRs,  CSRs liked being able to hear and see how they handled calls. In September  2004, IRS officials told us that they had decided to implement contact  recording at all call sites by the end of the 2005 filing season.
section_title: Taxpayer Use of IRS Walk-in Sites Continued to Decrease While Use of Volunteer Sites Increased; Quality Data Are Limited
paragraphs: The total number of taxpayers visiting IRS walk-in sites continued to  decrease while those having their returns prepared at volunteer sites  increased. Available data raise questions, however, about the quality of  services provided at both walk-in and volunteer sites. IRS has initiatives  under way intended to improve the quality of data, though implementation  may not be ready for the 2005 filing season.
subsections: section_title: Number of Taxpayers Visiting IRS Walk-in Sites Decreased While Number At Volunteer Sites Increased
paragraphs: Based on the data obtained from IRS and shown in figure 6, the total  number of taxpayers seeking assistance at IRS sites declined an average of  over 8 percent per year between 2001 and 2004. IRS officials attributed the  overall decrease to taxpayers’ use of more convenient means to obtain  services, such as IRS’s toll-free telephone lines and Web site. Taxpayers  seeking return preparation assistance at walk-in sites decreased an average  of 26 percent per year between 2001 and 2004.
In contrast, since 2001, the number of taxpayers seeking return preparation  assistance at volunteer sites increased an average of 19 percent per year.  During the 2004 filing season, taxpayers had over five times more returns  prepared at volunteer sites than at IRS walk-in sites. These divergent trends  reflect IRS’s strategy to shift return preparation to sites staffed by volunteer  and community-based coalitions that are overseen by IRS. IRS has  encouraged the shift by advertising the locations of these sites.
The shift of taxpayers from walk-in to volunteer sites is important because  it has transferred some time-consuming services, such as return  preparation, from IRS to volunteer sites. It also enabled IRS to shift more  taxpayers to its telephone and Web site services, allowing it to concentrate  on services at walk-in sites that only IRS can provide, such as account  assistance or compliance work (see app. 2).
section_title: Limited Data Raise Questions About the Quality of Services at Walk-in and Volunteer Sites
paragraphs: While shifting taxpayers from IRS walk-in sites to volunteer sites has the  advantage of freeing up some IRS resources, IRS has limited performance  measures and data on the quality of tax law assistance, account assistance,  timeliness, and return preparation provided at either type of site. We have  noted in prior filing season reports that this raises concerns about quality  and oversight.
Tax Law Assistance: Both TIGTA and IRS reported that IRS had not  reached its goal of 80 percent accuracy at the walk-in sites they visited.  Since the sites were selected judgmentally, the results cannot be  projected to all sites.
Account Assistance: During the 2004 filing season, IRS did not measure  account assistance accuracy at its walk-in sites. According to IRS  officials, the focus on tax law accuracy diverted staffing resources from  gathering data on account assistance accuracy.
Timeliness: IRS also did not measure timeliness, although GAO has  recommended that IRS re-adopt a timeliness measure for its walk-in  sites, stating that the presence of a quality measure should provide  balance and a disincentive for employees to ignore quality in favor of  timeliness.
Return Preparation: The utility of the current measure for accuracy of  return preparation assistance provided at walk-in and volunteer sites is  limited, because it narrowly defines accuracy. It counts a return as  accurate only if no calculation errors or other obvious factual errors,  such as omitted or inconsistent data, are identified on the return. In  addition, the results of recent TIGTA audits raise questions about the  accuracy of return preparation assistance at both walk-in and volunteer  sites.
section_title: IRS Has Initiatives Under Way Intended to Better Measure Quality at Walk-in and Volunteer Sites Though Implementation May Not be Timely
paragraphs: IRS has initiatives under way intended to better measure the quality of key  services at walk-in and volunteer sites. Key parts of both the walk-in and  volunteer site initiatives that were scheduled for implementation in 2005,  have experienced delays, have important details to be determined, and may  not be implemented on schedule. The initiative for walk-in sites has the  following four components.
Embedded Quality provides a standardized checklist for managers to  measure the accuracy, professionalism, and timeliness of employee  responses to taxpayers. Initially under Embedded Quality, a manager  will directly observe the employee/taxpayer interaction. However, this  could yield biased data, because employees will know they are being  observed, which could influence their behavior. Consequently,  Embedded Quality data gathered by direct observation may not be  representative of true performance.
Contact Recording will replace direct observation as the method for  gathering data on Embedded Quality. Under contact recording, the IRS  employee/taxpayer interactions will be recorded and a random sample  assessed using the Embedded Quality checklist. A pilot was scheduled  to begin in August 2004. According to IRS, as of September, the  Department of Treasury has not yet approved the pilot. It is unlikely the  pilot will begin until January 2005. Since the pilot and evaluation are  planned to take 3 months, it is also unlikely that contact recording will  be fully implemented until well into the 2005 filing season.
Q-Matic is an automated system that keeps track of such things as  customer wait-time, assistance provided, and staff time used. As of  September 2004, Q-Matic implementation is proceeding on schedule.
Performance-based individual learning (E-Learning) is a training  component that will be used to identify and address deficiencies.
Until contact recording replaces direct manager observation as a means of  gathering data, IRS may have biased data on the quality of its walk-in  services. Such biased data has significant limitations for drawing  conclusions regarding performance and for making comparisons to other  years. This in turn creates difficulties for managers trying to identify  problems and make improvements to service. Furthermore, until  Embedded Quality and contact recording are implemented together for a  full filing season, assessing quality at walk-in sites will be based on two  different data collection methods, thus limiting comparisons.
At volunteer sites, IRS plans to implement the following;   Quality Assurance is an initiative where IRS, working with volunteer  and community-based coalitions, is developing quality standards and a  means of monitoring the quality of return preparation services. This is  consistent with an earlier recommendation we made for IRS to develop  performance measures for volunteer sites to help ensure that taxpayers  were receiving an adequate level of service. IRS planned to implement  the initiative for the 2005 filing season. However, as of September 2004,  IRS had missed its milestones for developing guidelines for monitoring  volunteer sites, and was still developing and revising its implementation  plans, revising its schedule, and determining important details, such as  how and when volunteer sites will be monitored and how quality will be  measured.
We are concerned that the Quality Assurance initiative may not be  implemented in time to measure performance for the 2005 filing season. As  with IRS’s initiative for its walk-in sites, until Quality Assurance is fully  implemented, IRS will continue to have limited and potentially unreliable  information on the quality of return preparation at volunteer sites for the  2005 filing season. As a result, IRS officials have less information available  when making decisions about the role of volunteer sites and how IRS  should support them.
section_title: Use of IRS’s Web Site Increased, But Concerns Exist About a Feature for Answering Tax Law Questions
paragraphs: IRS’s Web site is important because it provides taxpayers and tax  practitioners with customer service without having to directly contact IRS  employees. Although overall Web site usage increased over last year, we  have some concerns about IRS’s performance answering tax law questions.
subsections: section_title: Web Site Use Increased and the Site Was User Friendly and Highly Rated
paragraphs: IRS’s Web site usage increased in 2004, continuing a trend as shown in  table 2. Further, there was extensive use of the “Remember Your  Advanced Child Tax Credit” feature that was new in 2004.
Overall we found that IRS’s Web site was user-friendly and generally easy to  access and use. For example, based on our knowledge of the type of  information taxpayers look for, we found (1) no broken links or outdated  or inconsistent data; (2) facts and information were logically arranged and  easy to obtain; (3) with few exceptions, search functions guided us to  appropriate forms, publications and information; and (4) response time  was quick. However, we still have concerns about the feature answering  tax law questions.
Two independent assessments done by Keynote and Brown University’s  Center for Public Policy confirmed our observations on IRS’s Web site.
Keynote, an independent Web site rater of Internet performance,  reported that IRS’s site performed very well. Keynote reported that, for  the average delivery time to download to IRS’s Web site homepage, IRS  was in the top 10 out of 40 government agencies measured for 12 of 15  weeks during the filing season. It also reported that, during the filing  season, IRS’s response time was consistent with other organizations  being measured. Finally, Keynote reported that, when it comes to  success rate (being able to access a desired location on the Web site)  IRS was always at 99 or 100 percent for the filing season.
Brown University’s Center for Public Policy rated IRS’s Web Site 5th out  of 60 federal government Web sites in providing service to citizens.
section_title: Performance and Use of Tax Law Assistance Feature Declined
paragraphs: The quality of IRS’s Electronic Tax Law Assistance (ETLA) feature, which  enables taxpayers and practitioners to ask tax law questions via the  Internet and receive an e-mail response from IRS, has declined. Usage has  also declined, apparently by design.
IRS did not meet its 2004 goal to respond to e-mail questions within  2 business days. On average, IRS responded to e-mail questions in  over 3 business days and only reached the 2 business day goal in 6 of the  27 tax law categories. Neither did IRS meet its accuracy goal. IRS’s  performance data showed that IRS answered about 64 percent of the e-mail  questions accurately, compared to its goal of 78 percent.
IRS did not meet its goals because of a mismatch between the number of  questions from taxpayers and staff available to respond to the questions. At  the beginning of the 2004 filing season, IRS increased the prominence of  the ETLA feature. However, an IRS official told us that this resulted in the  site receiving more questions than staff could handle. The official said that  in response IRS moved the ETLA feature to a less prominent position on  the Web site. In fact, in its current location, IRS does not expect taxpayers  to be aware of the ETLA feature unless they stumble upon it accidentally  while looking for other information on IRS’s Web site. As a result, the ETLA  feature was used significantly less this year than last. In 2004, taxpayers  and practitioners submitted about 90,000 tax law and procedural questions  via the Web site, down from 153,000 in 2003, a 41 percent decrease. IRS  officials have decided not to move the ETLA feature to a more prominent  location as of October 2004.
Although the number of questions received from taxpayers via the Web site  is small, when compared to the number of questions received over the  telephone, providing accurate responses to these questions is particularly  important. Not only do inaccurate and untimely responses disappoint the  taxpayers asking the questions, IRS also runs the risk of widespread  dissemination of inaccurate e-mail responses to other taxpayers.
The decisions about the prominence of the feature and staffing are related.  Achieving timeliness and accuracy goals depends, in part, on recognizing  that decisions about the prominence of the feature, which affect taxpayer  demand, and decisions about staffing are related. If IRS is unwilling to  devote significant staff to answering tax law questions, then the feature  cannot be prominent on the Web site. If IRS believes the feature is worth  making prominent, then there are implications for staffing. For the 2004  filing season, IRS’s decisions failed to recognize the relationship.
section_title: IRS Continues to Offer New Web Services
paragraphs: IRS continued to offer new services via its Web site. New services are  popular with taxpayers, as shown by the increasing use of features, such as  “Where’s My Refund?” shown in table 2. In 2004, IRS added the following  customer service features for taxpayers and tax practitioners.  “Remember Your Advanced Child Tax Credit” that allows taxpayers to  check the amount of their child tax credit.  “E- Services” which is a suite of Internet services for tax practitioners  that is previously discussed in the processing section of this report.
section_title: Conclusions
paragraphs: IRS improved its filing season performance this year compared to last.  More importantly, in many areas the improved performance is part of a  trend that IRS is sustaining over time. IRS’s filing season performance is  important because it affects over 100 million taxpayers. Taxpayers want a  quick turnaround on their refunds; they want easy access to IRS’s  telephone assistors if they have questions; and they want to instantly  download forms and publications when they need them.
The improvements we found are the result of systematic, long-term efforts  by IRS. Processing results have improved and resources have been saved  because of IRS’s promotion of electronic filing, telephone access has  improved because IRS implemented new call routing technology, and labor- intensive walk-in assistance is decreasing because of improvements to  alternative services. IRS should be commended for its efforts to improve  service.
At the same time, however, we have identified several areas that present  opportunities for further improvement. IRS has limited performance  measures and data with which to assess the quality of services at walk-in  and volunteer sites, primarily because its initiatives for doing so are only  partially implemented. IRS deserves credit for planning initiatives to  address these data limitations. However, we are concerned that until the  walk-in initiative is fully implemented, IRS will have biased quality data on  walk-in service. Furthermore, the history of delays and incomplete plans  for the walk-in and volunteer site initiatives leaves us unsure about when  IRS will fully implement them. Until IRS fully implements these initiatives  and gathers data on quality, it may not be able to effectively monitor and  improve performance at its walk-in sites or volunteer sites and, as a  consequence, could be risking its credibility among taxpayers who use the  sites and the community-based coalitions that prepare returns at volunteer  sites.
Finally, IRS failed to meet its goals for accuracy and timeliness of e-mail  responses to tax law questions, at least in part, by failing to match taxpayer  demand for the feature with staffing. The risk associated with providing  inaccurate e-mail responses may be high because of the potential for  widespread dissemination.
section_title: Recommendations
paragraphs: To address problems with the data for assessing the quality of services at  IRS walk-in and volunteer sites, we recommend that the Commissioner of  Internal Revenue direct the appropriate officials to  recognize and disclose the limitations of the Embedded Quality  performance data that will be obtained by direct management  observation in 2005 when interpreting and reporting on service quality  at walk-in sites;  ensure that the causes of delays in implementing improved quality  measurement at walk-in sites are addressed; and   ensure that the delays with the development and implementation of the  Quality Assurance initiative at volunteer sites are addressed.
With respect to the Web site’s ETLA feature, we recommend that the  Commissioner   recognize that decisions about the prominence and staffing to give the  feature are related.
section_title: Agency Comments and Our Evaluation
paragraphs: The Commissioner of Internal Revenue provided written comments in a  November 8, 2004, letter (see app. III). The Commissioner noted that the  2004 filing season was one of the best ever, with improved telephone  service, timely and effective return processing, substantial increases in  electronic filing, and a successful shift in the number of tax returns  prepared in IRS walk-in sites to volunteer sites. The Commissioner said he  appreciated that our report recognized IRS’s achievements for this filing  season and over the past few years as well.
The Commissioner agreed with the importance of recognizing and  disclosing the limitations of performance data obtained by managers  directly observing employees in 2005. He also said that IRS has  communicated the limitations in briefings with all levels of management  and outside stakeholders, and will continue to do so. However, the  Commissioner differs with our assessment of the extent of the limitations  in the data. While he agreed that there may be some bias in the data  because employees know that their managers are observing them, he  disagreed with our subsequent finding that data obtained through this  method may not be representative of true performance. However, as our  report indicates, because of the potential for bias and absence of other  data, we cannot determine if the observed performance is representative or  not. Further, according to IRS officials, the accuracy rates compiled by the  quality review staff and managerial reviews cited by the Commissioner are  not based on statistically representative samples.
The Commissioner agreed with the recommendation to ensure that causes  of delays in implementing improved quality measurement at walk-in sites  are addressed. He said that while the delay in the implementation of  contact recording as a means of collecting embedded quality data is  attributable to the lengthy approval process, IRS expects to begin the  contact recording pilot by January 2005 and is on target for post-pilot initial  implementation for the last quarter of fiscal year 2005. Regarding volunteer  sites, the Commissioner also agreed with the recommendation to  implement quality initiatives in a timely manner and address delays.
The Commissioner agreed with the intent of our recommendation about  the ETLA feature, but disagreed with our assessment of the cause. He  agreed that it is important to recognize the relationship between the  prominence of the feature and staffing, but disagreed that the decline in  ETLA performance is attributable to inadequate recognition of this  relationship. He stated that the ETLA feature was inadvertently placed in a  more prominent location on IRS’s Web site, thus creating unexpected  demand. However, inadvertent placement suggests that the IRS needs to be  more deliberative in recognizing the impact that placement of this feature  can have on demand and staffing.
We are sending copies of this report to the Chairmen and Ranking Minority  Members of the Senate Committee on Finance, the House Committee on  Ways and Means, and the Ranking Minority Member, Subcommittee on  Oversight, House Committee on Ways and Means. We are also sending  copies to the Secretary of the Treasury; the Commissioner of Internal  Revenue; the Director, Office of Management and Budget; and other  interested parties. We will also make copies available to others on request.  In addition, the report will be available at no charge on the GAO Web site at  http://www.gao.gov.
This report was prepared under the direction of Joanna M. Stamatiades,  Assistant Director. Other major contributors are acknowledged in  appendix IV. If you have any questions about this report, contact me on  (202) 512-9110.
section_title: Data on IRS’s Processing Performance Relative to Fiscal Year 2001-2003 Performance and Fiscal Year 2004 Goals
paragraphs: As table 3 shows, the Internal Revenue Service (IRS) nearly met or  exceeded seven out of the eight processing performance goals in 2004. For  four measures (i.e., deposit error rate, deposit timeliness, refund interest  paid, and productivity), IRS exceeded its goals. For two of the measures,  IRS met their goals. For the remaining two, IRS missed its goals by a  statistically significant amount. In the case of refund timeliness, however,  the point estimate of 98.2 percent, nearly met the goal of 98.4 percent. In  the case of letter error rate, the point estimate was 7 percent compared to  the goal of 6.2 percent—13 percent greater than the 2004 goal.
Comparing actual 2004 performance to 2003 shows that IRS’s performance  improved or remained about the same for six out of the seven measures  that could be compared. Table 3 also shows that IRS’s processing  performance in 2004 has generally improved in comparison to 2002 and  2001 for the measures that could be compared.
section_title: IRS Spends Thousands of Staff Years on Filing Season Activities
paragraphs: IRS’s performance during the filing season has significant budgetary  implications because IRS spends thousands of staff years on its key filing  season activities.  used for key activities related to processing individual tax returns between  fiscal years 1999 and 2003. The number of staff years used for key  processing activities such as data transcription and correcting errors has  decreased over 17 percent during this period. Beginning in fiscal year 2001,  IRS separated the processing of individual and business tax returns and  began consolidating paper processing centers. IRS officials expect  additional savings when it further consolidates processing paper  operations in Memphis, Tennessee in 2005.
The source of data for this appendix is IRS’s time and attendance systems, the output of  which is used to calculate IRS’s payroll expenses. IRS reports these payroll expenses  annually in its Statement of Net Cost, the reliability of which GAO tests as part of our audits  of IRS’s financial statements. These audits have concluded that for the fiscal years ended  September 30, 2000 through 2003, IRS’s Statement of Net Cost was reliable. See GAO,  Financial Audit: IRS’s Fiscal Years 2004 and 2003 Financial Statements, GAO-05-103  (Washington, D.C.: Nov. 10, 2004). Therefore, the data is likely to be reliable to show trends  over time.
Data for fiscal year 2004 were not available.
Table 5 shows that IRS has consistently directed over 8,000 staff years to  CSRs answering toll-free telephone calls that are not routed to automated  services.
The total staff years used for walk-in service has increased slightly between  2001 and 2003, ranging from 2,121 in fiscal year 2001, to 2,208 in fiscal year  2002, and 2,256 in fiscal year 2003.
However, the time IRS spent directly on return preparation assistance at  walk-in sites during the filing season has decreased significantly. As the  demand for walk-in assistance has declined, IRS has assigned walk-in staff  other responsibilities such as working on compliance cases. Figure 7  shows that direct Full-Time Equivalents decreased 62 percent for time  spent directly (not counting overhead) on return preparation services  between 2001 and 2004.
At the same time, IRS reduced its reliance on compliance staff at walk-in  sites. For years, IRS detailed staff from its compliance functions, such as  Examination and Collection, to help provide walk-in assistance during the  filing season. IRS has now limited the number of such details. IRS reduced  the number of compliance Full-Time Equivalents detailed to assist at walk- in sites from 244 in the 2001 filing season to 9 in the 2004 filing season.
section_title: Comments from the Internal Revenue Service
section_title: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Acknowledgments
paragraphs: In addition to those named above, Tiffany Brown, James Cook, Larry  Dandridge, Evan Gilman, John Lesser, Karen O’Conor, Neil Pinney, and  Amy Rosewarne made key contributions to this report.
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