2013 Tax Filing Season: IRS Needs to Do More to Address the Growing Imbalance between the Demand for Services and Resources
Published: 2013-12-18T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The tax filing season is when IRS processes most tax returns and provides services including telephone, correspondence, and website assistance for tens of millions of taxpayers. IRS budgeted more than $2 billion for these activities in 2013. The filing season is also when IRS begins collecting delinquent taxes by, for example, approving installment agreements and checking for non-filers. GAO was asked to review the 2013 tax filing season. This report (1) assesses IRS's performance in processing tax returns and providing services to taxpayers; (2) describes the installment agreement process and assesses its efficiency; and (3) describes the process for detecting and notifying non-filers. To conduct the analyses, GAO obtained and compared IRS data from 2007 through 2013, reviewed pertinent IRS documents, observed IRS operations, and interviewed IRS officials and experts in tax administration, including tax preparation firms.
section_title: What GAO Found
paragraphs: Despite efficiency gains from processing more tax returns electronically, adding website services, and shifting resources from enforcement, the Internal Revenue Service (IRS) was unable to keep up with demand for telephone and correspondence services. Access to IRS's telephone assistors remained at 68 percent from 2012. The percentage of overage paper correspondence (over 45 days old) increased to 47 percent from 40 percent in 2012. In the face of similar trends, last year GAO reported that a dramatic revision in IRS's taxpayer service strategy was needed and recommended IRS take steps to better balance demand for services with available resources. GAO acknowledged this may require IRS to consider difficult tradeoffs, such as limiting some services. In response, IRS has proposed eliminating or reducing some services for 2014 such as answering basic tax law questions only during the filing season. However, IRS officials told GAO the proposed cuts may not be sufficient to stop the deterioration in services. Until IRS develops a strategy, it risks not communicating expectations about the level of services it can provide based on the resources available. IRS could use the strategy to facilitate a discussion with Congress and other stakeholders about the appropriate mix of service, level of performance, and resources.
IRS offers options for installment agreements (IAs) to taxpayers who cannot fully pay their taxes when due. Taxpayers can enter into these agreements online, by phone, and by mail. In fiscal year 2012, IRS approved about 3.2 million new agreements and collected almost $10 billion. IRS devotes about 1,800 full-time equivalent staff to the program but it is not as efficient as it could be. GAO found opportunities to standardize account entries and reduce redundancy by eliminating dual entry of the same data on paper forms and into IRS's computers. IRS officials agreed that opportunities did exist to streamline the process. More standardized and less redundant data entry could reduce resource needs.
IRS detects non-filers by matching third party information (i.e., Form W-2s) with tax returns. The first match is done in October, well after the mid-April tax filing deadline from the previous year, because of the time it takes to receive the third party information and process it. IRS sends notices to non-filers in November and December.
section_title: What GAO Recommends
paragraphs: GAO recommends that IRS develop standardized account entries and eliminate unnecessary redundancy in the installment agreement process. IRS did not state whether it concurred with our recommendation. GAO believes the recommendation remains valid as discussed in this report. In addition, GAO continues to believe the prior recommendation that IRS develop a strategy that defines appropriate levels of telephone and correspondence services based on an assessment of demand and resources among other things remains valid and should be addressed.

section_title: Letter
paragraphs: Each tax filing season is an enormous undertaking. In the 2013 filing  season, the Internal Revenue Service (IRS) processed over 140 million  individual income tax returns, issued more than 100 million refunds worth  over $280 billion, and received over 90 million telephone calls. In fiscal  year 2013, IRS budgeted more than $2 billion for processing such returns  and providing taxpayer services. During the filing season, IRS also begins  its efforts to verify that tax returns are in compliance with income reporting  requirements. Two examples of compliance issues that typically surface  during the filing season are (1) failure to pay a balance due on time, and  (2) failure to file a return. Taxpayers who are unable to pay a balance due  on time can make payments through an installment agreement (IA)— which allows taxpayers to pay their tax debt in scheduled (usually  monthly) payments. Since failure to file a return cannot be detected until  after the tax filing deadline and IRS determines that the taxpayer may  have a filing obligation, timely notification of taxpayers can be a  challenge. IRS last estimated that non-filers accounted for $28 billion of  the $385 billion net tax gap in tax year 2006.
In this context, you asked us to review IRS’s 2013 tax filing season  performance. Specifically, this report (1) assesses IRS’s performance in  processing returns, delivering refunds, and providing telephone, online,  and face-to-face assistance compared to its 2013 goals and prior years’  performance; (2) describes IRS’s IA process and assesses the efficiency  of the process; and (3) describes IRS’s process for detecting non-filers,  including the time it takes to notify them.
To assess IRS’s filing season performance, we obtained and analyzed IRS documents and data, including  performance and workload data, for return processing and taxpayer  services, and used this information to compare IRS’s performance in  2013 to prior years (2008 through 2012) and agency goals to identify  trends and anomalies.  visited IRS facilities in Austin, Texas, and the Joint Operations Center  (which manages IRS’s telephone operations) in Atlanta, Georgia, to  view return processing, telephone service, and other operations.  interviewed IRS officials and tax administration experts to obtain  contextual information about IRS’s performance, including the effect  of late tax law changes, and efforts to improve taxpayer services.
To describe IRS’s IA process and assess its efficiency, we obtained and reviewed IRS documentation, such as the Internal  Revenue Manual and the IA lifecycle and default processes, and  analyzed IRS data to summarize key information about IAs from fiscal  years 2009 to 2012. observed tax examiners working IA cases at IRS facilities in Atlanta,  Georgia and Austin, Texas.  interviewed IRS officials to obtain contextual information about the IA  program.
To describe IRS’s processes for detecting non-filers including the time it  takes to notify them, we obtained and analyzed IRS data from tax years 2007 through 2010  and documentation on its non-filer program. observed tax examiners working non-filer cases at IRS facilities in  Austin, Texas.  interviewed IRS officials to obtain contextual information about the  non-filer program.
To identify limitations and assess data reliability, we reviewed IRS data  and documentation, interviewed IRS officials about computer systems  and data limitations (including a more detailed assessment of telephone  performance data), and compared those results to our data reliability  standards. We interviewed IRS collection and research staff, as well as  Treasury Inspector General for Tax Administration (TIGTA) staff who  worked on past reports relevant to our work to identify data sources and  better interpret IRS’s data. We consider the data presented in this report  to be sufficiently reliable for our purposes.
We conducted this performance audit from January 2013 through  December 2013 in accordance with generally accepted government  auditing standards. Those standards require that we plan and perform the  audit to obtain sufficient, appropriate evidence to provide a reasonable  basis for our findings and conclusions based on our audit objectives. We  believe that the evidence obtained provides a reasonable basis for our  findings and conclusions based on our audit objectives.
subsections: section_title: Background
subsections: section_title: IRS Processing and Taxpayer Services
paragraphs: Processing: IRS processes millions of paper and electronically-filed  (e-filed) tax returns and validates key pieces of information during the  tax filing season. The overwhelming majority of returns are e-filed  through IRS’s Modernized e-File (MeF) system. Beginning last filing  season, IRS and taxpayers benefitted from IRS’s switch from weekly  to daily tax return processing on its Individual Master File (IMF) legacy  system which allowed for faster refund processing for more taxpayers.  IRS is continuing to transition from its antiquated IMF legacy system  to a more modern return processing system known as the Customer  Account Data Engine 2 (CADE 2).
Telephone: Taxpayers can call to speak directly with an IRS  customer service representative (CSR) to obtain information about  their accounts or ask tax law questions. Taxpayers can also listen to  recorded tax information using automated telephone menus.  Automated services are provided on IRS’s 149 Tele-tax lines for tax  law topics and 71 phone lines for account information.
CSRs are also responsible for responding to paper correspondence  from taxpayers. IRS tries to respond to paper correspondence within  45 days of receipt, and considers correspondence that is not  addressed within that time to be overage. Minimizing the amount of  overage correspondence is important because delayed responses  may prompt taxpayers to write again or call IRS.
Website: On IRS.gov, taxpayers can download forms, instructions,  and publications and research tax law issues using interactive tools.  Taxpayers can use interactive tools to check the status of their  refunds, request transcripts (which are copies of a taxpayer’s account  information), and apply for IAs.
Face-to-Face Assistance: Taxpayers can obtain face-to-face  assistance at IRS’s 390 Taxpayer Assistance Centers (TAC) or at  more than 13,000 sites staffed by volunteer partners. At TACs, IRS  staff provide answers to basic tax law questions, review and adjust  taxpayer accounts, take payments, authenticate Individual Taxpayer  Identification Number applicants and identity theft victims, and  prepare returns for qualified taxpayers. At the sites staffed by  volunteers, taxpayers can receive return preparation assistance as  well as financial literacy information.
section_title: Installment Agreements
paragraphs: Taxpayers can enter into IAs to pay their tax debts after filing their return  with a balance due. IAs are an important tool for IRS to collect revenue.  IRS assesses and collects billions of dollars each year through IAs. IAs  can be established, paid off, defaulted on, reinstated, or terminated at any  time during the year. IRS provides four types of IAs—Guaranteed,  Streamlined, Regular/Routine, and Partial Payment—with different  eligibility and payment requirements. IAs allow taxpayers to pay off their  tax liabilities gradually over time and can encompass multiple years.  Failure to adhere to the terms of the IA can cause default, termination,   The most common type of IA by  and more expensive collection actions.far is the streamlined agreement, which provides taxpayers with flexibility  in paying off liabilities. Appendix I provides additional information on the  types and characteristics of IAs.
section_title: Individual Non-filers
paragraphs: IRS defines a non-filer as a taxpayer who has a legal obligation to file a  return, but fails to file a return by the filing deadline (either April or  October depending on whether the taxpayer filed for an extension). IRS is  authorized to issue a notice requesting a delinquent return and it can  send up to four notices to taxpayers.
section_title: IRS Achieved Processing Efficiency Gains, but Continues to Face Challenges in Providing Service to Taxpayers
subsections: section_title: Electronic Filing Continued to Grow
paragraphs: Despite late tax law changes which delayed the start of filing season and  compressed the time that IRS had available to process tax returns, IRS  officials and external stakeholders such as large tax preparation firms  reported relatively smooth processing, with a few exceptions. IRS usually  begins processing tax returns in early to mid-January; this year, it started  processing most returns January 30, 2013.
Table 1 shows that IRS achieved an 84 percent e-file rate for individual  returns, and processed 11 percent fewer paper returns compared to last  year. Continued increases in e-filing are important because processing  costs are lower for e-filed returns. According to IRS, in fiscal year 2012, it  cost 23 cents to process an e-filed return, as opposed $3.36 for returns  filed on paper. IRS relied solely on MeF this filing season, and attributed  this success to expanded testing of the system which improved the MeF’s  stability and facilitated return processing. External stakeholders confirmed  IRS’s assertion about the reason for MeF’s success.
Although operations were relatively smooth, IRS and others reported  issues that delayed processing for tax returns filed with Form 8863  (Education Credits), and with Form 5405 (First-time Homebuyer Credit).  While IRS was able to resolve processing delays for about 700,000 tax  returns filed with the Form 8863, multiple class action suits have been  filed against a large tax preparation firm regarding the issues involved in  the processing delays.about 88,000 returns filed with Form 5405 that were caused by a  compliance filter that resulted in additional scrutiny.
section_title: Access to Telephone Service Remained the Same as Last Year, and Correspondence Service Continues to Deteriorate Due to the Imbalance between Demand and Resources
paragraphs: Table 2 shows that, in 2013, IRS received 93.5 million calls— a 5 percent  decrease from 2012 but higher than 2009 through 2011. Compared to  2012, IRS answered almost 9 percent fewer calls using automated  services. Officials attributed some of the reduction in automated calls  answered to fewer e-file personal identification number requests.  Answering as many calls as possible through automation is important  because IRS estimates that it costs 38 cents per call to provide an  automated answer, but about $33 per call to use a live assistor.
Table 2 also shows that callers experienced a shorter average wait time  to speak to an IRS assistor this year compared to the same period last  year, but the time was still much longer than 2008 through 2011. The  percentage of callers seeking live help who received it stayed the same  as 2012 at 68 percent.
In 2010, we found that that IRS sets its annual goal based on factors such  as resource availability, the expected number and complexity of calls, and  anticipated volume of taxpayer correspondence, but not on an analysis of  what taxpayers would consider to be good service. At that time, we  recommended that IRS determine a telephone standard based on the  quality of service provided by comparable organizations, what matters  most to the customer, and resources required to achieve this standard  based on input from Congress and other stakeholders. IRS disagreed  saying its current process of developing a planned level of telephone  service takes into consideration many factors, including its budget and  assumptions about call demand. We noted, however, that such a  standard would allow IRS to communicate to Congress what it believes  constitutes good service. Further, since 2010, the IRS Oversight Board  has said than an acceptable level of service (LOS) should be about 80  percent.
However, IRS has yet to set such a standard.
section_title: Almost Half of All Taxpayer Correspondence is Overage, and IRS Has Plans to Conduct More Evaluations of Taxpayer Correspondence
paragraphs: As shown in Table 3, the amount of correspondence received between  2009 and 2013 increased from 19 to 21 million (a 10.5 percent increase)  and the percentage of overage correspondence nearly doubled to 47  percent in 2013 from 25 percent in 2009. As noted earlier, IRS generally  considers paper correspondence that is not resolved within 45 days to be  overage.
In December 2010, we concluded that providing timely responses to  paper correspondence remains critical to taxpayer service because if  IRS’s responses take too long taxpayers may write again or call IRS for  additional assistance. We recommended that IRS establish a  performance measure that includes providing timely correspondence  service to taxpayers. IRS agreed to this recommendation, and is  beginning to take steps to implement it. Since we made that  recommendation, the percentage of overage correspondence has  continued to increase. IRS officials attribute the increase in the  percentage of overage correspondence to budget constraints (less  overtime for CSRs who provide both telephone assistance and work  paper correspondence), and more complex taxpayer inquiries such as  correspondence related to identity theft cases which can be more time  consuming to address.
IRS has taken some steps to identify why taxpayers write in. Based on a  recent small, judgmental sample of correspondence cases, IRS found  that the top three most common reasons taxpayers write in are: balance  due payoffs, penalty abatements, and miscellaneous account inquiries. In  that same sample, IRS found that its own processes, such as the wording  of notices or requirements for a paper signature, influenced taxpayers to  write in. IRS officials told us they are currently analyzing a statistically  valid sample of correspondence to identify additional factors that  influence the level of correspondence.
section_title: Website Use Has Increased, While Some Face-to-Face Services Continue to Decline
paragraphs: Use of IRS.gov continues to increase, with IRS receiving approximately  374 million visits to its website through July 2013, an increase of nearly  26 percent over the same period in 2012. IRS officials attribute this  increase to the launch of the redesigned website, introduction of new  online tools such as Where’s My Amended Return, and implementation of  the Patient Protection and Affordable Care Act.recommended that IRS develop a long-term strategy to improve web   We previously  services provided to taxpayers that includes studies of leading practices  at a strategic level, measurable goals for taxpayer satisfaction, business  cases for new online services that describe potential benefits and costs  and prioritized projects, and links to investments in security. IRS  reported that it is planning to update its long-term web services strategy  to include our recommended changes in early 2014. See Appendix III for  additional information on website use from 2008 through 2013.
IRS received about 2.6 million visits to its TACs, a decline of  approximately 5 percent from 2012. Additionally, the number of returns  prepared continues to decline—in 2013, IRS prepared nearly 125,000  returns at TACs, about a 16 percent decline from 2012. IRS attributes the  decline to its efforts to manage demand, and increased taxpayer  awareness of online tools and services. In contrast, the number of returns  prepared at the roughly 13,000 volunteer sites increased 5 percent  between 2012 and 2013, to nearly 3.3 million in 2013. See Appendix IV  for additional information on services and taxpayer use of TACs and  volunteer sites since 2010.
section_title: IRS Has Proposed Eliminating Some Services in 2014, but the Cuts May Not Stop the Deterioration in Performance or Address GAO’s Recommendation from Last Year
paragraphs: In 2012, we noted that IRS needs to dramatically revise its strategy for  providing telephone and correspondence services and recommended that  it define appropriate levels of telephone and correspondence services  based on an assessment of demand and resources among other things.IRS neither agreed nor disagreed with our recommendation, saying it  already has an objective of providing taxpayers with access to accurate  services while managing demand. However, IRS’s efforts to date have  not reversed the declines in taxpayer service. We noted, and IRS officials  acknowledged, that incremental efficiency gains of the type IRS has  realized in recent years would not be enough to combat the imbalance  between taxpayer demand for services and available resources. We  concluded that, with expected levels of resources, reversing the declines  in telephone and correspondence services may require IRS to consider  difficult tradeoffs such as limiting the types of phone calls that would be  answered.
Given expected budget levels for the 2014 filing season, IRS has  identified six services for elimination or reduction, which officials told us  were chosen because taxpayers had other options. IRS officials reported  that they have discussed these options within IRS, with external  stakeholders, and with Congressional committees that oversee IRS  operations.
IRS’s proposed service eliminations or reductions are:  1.  Limiting tax law inquiries to answer only basic tax law questions  during the filing season, and reassigning CSRs to work account- related inquiries;  2.  Launching the “Get Transcript” tool, which will allow taxpayers to  obtain a viewable and printable transcript online on www.irs.gov, and  redirecting taxpayers to this and other automated tools for getting a  transcript;  3.  Redirecting refund-related inquiries to automated services and not  answering refund inquiries until 21 days after the tax return has been  filed, except for refunds held for potential fraud;  4.  Limiting access to the Practitioner Priority Services line to only those  practitioners working tax account issues;  5.  Limiting live assistance and redirecting requests for domestic  Employer Identification Numbers to IRS’s online tool; and  6.  Eliminating free return preparation at IRS’s TAC sites and directing  taxpayers to free alternatives including at IRS partner sites staffed by  volunteers.
The proposed elimination or reductions in services are examples of the  difficult choices that we recommended need to be made if more timely  access to telephone service and handling of correspondence is going to  be achieved from the available IRS resources. While these cuts represent  initial steps consistent with our recommendation from last year, they do  not fully address it. Furthermore, even with these reductions, officials in  IRS’s Wage and Investment Division responsible for the filing season told  us they are anticipating that the level of telephone service could be 61  percent in 2014. IRS reported that it is working on final approval to  implement the service options and bring about a better balance between  demand for service and resources. However, the continued deterioration  in taxpayer service in 2013, high cost of shifting staff from collections  work to the telephones and correspondence, and anticipated level of  telephone service for 2014 all highlight the importance of continuing to  address the recommendation we made last year based on the need for a  dramatic revision in IRS’s strategy. The choice may be between providing  a broader range of services at a low level of performance or a narrower  range of services at a higher level of performance. Until IRS develops a  strategy, it risks not communicating expectations about the level of  services it can provide based on the resources available. IRS could then  use the strategy to facilitate a discussion with Congress and other  stakeholders about the appropriate mix of service, level of performance,  and resources.
section_title: IRS Recently Expanded the Installment Agreement Program, but Some Case Handling Practices Lack Standardization and are Unnecessarily Redundant
paragraphs: Taxpayers can apply for IAs online, by phone, in person, or by completing   Depending on  and mailing Form 9465, Installment Agreement Request.the type of IA, taxpayers can make their monthly payments via check or  money order, direct debit, payroll deduction, online, or credit card. If a  taxpayer fails to make monthly payments on time or incurs a new tax  liability, the taxpayer is considered to be in default on the IA with a few  exceptions. Appendix V shows the process for taxpayers entering into  and making payments on IAs.
Table 4 shows that, in fiscal year 2012, IRS approved more than 3 million  new IAs and collected $9.8 billion. At the end of fiscal year 2012, IAs  represented nearly $28 billion in unpaid balances. The difference  between the amount of unpaid balance of assessment and amount  collected is due to the fact that IAs can be paid off over multiple years.  According to IRS officials, the increases in IA inventory since 2009 are  due to a variety of factors, such as more taxpayers entering into IAs  because of expanded eligibility and payment terms discussed below, and  changes in the economy.
Table 4 also shows, in fiscal year 2012, taxpayers defaulted on  approximately 1.2 million IAs. In 2012, we found that, of those taxpayers  that had a balance due at the filing deadline, almost two-thirds eventually  paid in full or entered into IAs, and about 18 percent of taxpayers  defaulted on IAs in fiscal year 2012. Therefore, we recommended that  IRS pilot risk-based approaches for contacting taxpayers who have a  balance with the goal of reducing the default rate. IRS agreed with the  recommendation, but has not funded the related research project. Until  IRS tests and implements more advanced risk-based approaches, it may  be challenged to deal with the default problem.
In 2012, IRS expanded its Fresh Start Initiative to assist struggling  taxpayers in meeting their tax obligations.
Specifically, the threshold for  requesting a streamlined IA was raised from $25,000 to $50,000 and the  maximum term for streamlined IAs was increased from 60 to 72 months  for repayment. The expanded eligibility for streamlined IAs in particular  allowed more people to qualify for the program and potentially pay taxes  owed. Also under Fresh Start, IRS is encouraging taxpayers with IAs to  sign up for direct debit agreements which generally have lower default  rates. IRS said it is difficult to pinpoint which specific aspects of the Fresh  Start initiative are effective. IRS is currently conducting an analysis of the  initiative’s benefits in terms of collection and default prevention. As of  November 2013, that analysis has not been completed.
IRS allocated about 1,800 FTEs to the IA program in fiscal year 2012,  which is over a 10 percent increase since fiscal year 2009. The level of  and growth in this area highlights the importance of testing and  implementing risk-based approaches for collecting balances due including  through IAs.
subsections: section_title: Some IA Case Handling Practices Lack Standardization and Include Unnecessary Redundancy
paragraphs: IRS recently made process improvements to help streamline and  standardize its IA program operations. For example, IRS introduced  automated tools, known as the Compliance Suite, which provides tax  examiners (TEs) with online tools such as helping the TE determine  which letter to send to the taxpayer. However, despite these process  improvements, we observed some inefficiency. For example, we  observed that some TEs had developed their own extensive sets of  prewritten, standardized case notes that allowed them to quickly update a  taxpayer’s account because the Compliance Suite lacked that capability.
IA program managers were aware of this practice, said it gives TEs  flexibility in writing case notes, but agreed that automated case notes may  yield efficiencies. They also noted that the Compliance Suite was only  introduced a few months ago, and its full capabilities were being explored.  We agree that flexibility is desirable but providing an extensive set of  standardized notes in the Compliance Suite would give all TEs the option  of using them. This could lower the cost of making account entries.
In addition, we found unnecessary redundancy. We observed TEs  handwriting case notes on paper copies of IAs and then typing those  same notes into IRS’s computer systems. IRS managers agreed this  practice is redundant, and TEs noted this is the way it has always been  done. Such redundant data entry increases the time it takes TEs to  handle each IA case. Furthermore, GAO’s internal control guidance  states that control activities should be regularly evaluated to ensure their  appropriateness in intended function.
By not developing a more standardized comprehensive set of case notes  and not reducing redundant data entry, IRS is missing opportunities to  reduce resources devoted to handling IA case files. With 1,800 FTEs  devoted to the program, small gains in the efficiency of each TE could  add up to substantial savings.
section_title: IRS’s Identification of and Notification to Potential Non-Filers Takes Months after Filing Deadlines
paragraphs: Beginning in October, IRS uses prior year tax returns, third-party reports,  such as W-2s and Forms 1099, and applications for automatic extensions  of time to file to identify taxpayers who appear to have missed the mid- April tax return filing deadline. In June 2013, we found that most  information reports are not received by IRS until well after the April tax  return filing deadline.
IRS does a second match in March of the following year for taxpayers  who filed an extension. According to IRS officials, not all potential non- filer cases identified are selected for notification and review; IRS  prioritizes cases based on factors such as income, the potential to collect  taxes due, and whether the taxpayer is an IRS or other federal employee.
After the first match in October, IRS sends notices to non-filers in  November and December requesting the return or a justification for not  filing. IRS begins to send notices to cases from the second match  between March and July.
Table 5 shows that, in tax year 2010 (the year for which the most current  data are available), IRS identified over 7.4 million potential non-filer  cases. Of these, IRS selected more than 3.2 million cases for review and  sent notices to those non-filers requesting the return. IRS officials said the  percentage of cases selected for review fluctuates based on resources  and selection criteria, such as income and potential balance due  amounts, which vary from year-to-year.
Table 5 also shows in tax year 2008 (the year for which the most  complete data are available), IRS received approximately 1.4 million  delinquent returns, which is about 39 percent of the non-filers selected for  review and notification. IRS officials attribute the relatively low number of  returns filed in response to notices to taxpayers that have stopped filing  for unknown reasons, those that do not have the resources to pay the  potential balance due, and taxpayers who do not file until more extensive  collection actions are taken. Securing the delinquent return as soon as  possible as part of IRS’s notification process is important because  taxpayers continue to incur penalties and interest until they file a return  and IRS undertakes increasingly expensive enforcement actions against  the taxpayer.
In addition to taxpayers who do not respond to notices, IRS’s existing  non-filer strategy notes that IRS also has a significant problem with repeat  non-filers. For fiscal year 2012, IRS data shows that 43 percent of closed  cases were repeat non-filers that did not file for more than 1 tax year.
As of November 2013, IRS is waiting on executive approval for its  updated non-filer strategy which it expects to receive by the end of the  year and should address how IRS plans to improve non-filer compliance  including notice response and repeater rates. IRS is currently analyzing  data on the characteristics of non-filers, such as filing status, income, and  other key characteristics, and their response rates to the notifications to  determine the best approach, and expect this effort to be completed in  January 2014. IRS officials also are considering several initiatives for  improving the notification process once its updated non-filer strategy is  approved.
section_title: Conclusions
paragraphs: Despite efficiency gains in processing returns, additional website  services, and shifting employees from working collections cases to  handling telephone calls and correspondence, the gap between  taxpayers’ demand for service and IRS resources widened. As a result,  taxpayer access to IRS’s telephone assistors remained at a low level and  the percentage of overage correspondence grew. The widening gap  highlights the importance of fully implementing our recommendation  made last year for a dramatic revision in managing taxpayer service that  defines an appropriate level of service and recognizes both the demand  for services and resources available. We stressed that this would mean  making difficult tradeoffs. Consistent with our recommendation, IRS has  proposed eliminating or reducing some services. By eliminating or  reducing some services IRS should be able to devote more resources to  its continuing services. However, IRS officials told us that the cuts  proposed so far may not reverse the decline in telephone and  correspondence performance. As a consequence, the cuts may only be a  down payment on the difficult choices needed and our recommendation  needs to be fully addressed. Fully addressing our recommendation would  result in a strategy that could be used to facilitate a discussion with  Congress and other stakeholders about the appropriate mix of service,  level of performance, and resources.
The imbalance between the demand for services and resources also puts  a higher priority on scrutinizing existing processes for possible further  efficiency gains. We identified opportunities in the processing of  installment agreements where the existing process could be further  streamlined to reduce resources by standardizing case notes and  reducing unnecessarily redundant data entry.
section_title: Recommendation for Executive Action
paragraphs: We recommend that the Commissioner of Internal Revenue develop a set  of standardized account entries and eliminate unnecessary redundancy  when entering installment agreement data into accounts.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Acting Commissioner of Internal  Revenue. IRS provided written comments on a draft of the report, which  are reprinted in Appendix VI. IRS also suggested technical changes to the  report, which we incorporated where appropriate.
IRS did not state whether it concurred with the recommendation.  However, IRS acknowledged that standardized account entries can  sometimes lead to increased efficiencies and lower costs, and taxpayers  and IRS can benefit by the elimination of redundancy in its processes.  IRS stated that as it continues to evaluate the Compliance Suite to  determine its full capabilities, it will (1) explore whether the introduction of  standardized account entries into the IA process will yield increased  efficiencies and lower costs; and (2) evaluate whether there are  unnecessary redundancies in its current processes that can be eliminated  without adversely affecting tax administration. GAO believes the  recommendation remains valid as discussed in the report.
We plan to send copies of this report 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 Acting Commissioner of Internal Revenue,  the Secretary of the Treasury, the Chairman of the IRS Oversight Board,  and the Deputy Director for Management of the Office of Management  and Budget. In addition, the report will be available at no charge on the  GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-9110 or whitej@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. GAO staff who made key contributions to this report  are listed in Appendix VII.
section_title: Appendix I: Installment Agreement Types and Characteristics
paragraphs: Of the four types of IAs available to individual taxpayers, the most  common type of IA by far is the streamlined.
section_title: Appendix II: Weekly Toll-Free Calls and Percentage of Callers Seeking and Receiving Live Assistance
paragraphs: Figure 1 shows that during the 2013 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 in  the early to mid-February timeframe. Importantly, the figure below shows  that access to live assistance begins to decline sharply in the weeks  following the filing deadline.
section_title: Appendix III: Use of IRS Website and Online Services
paragraphs: Table 7 shows that in 2013 use of IRS.gov increased by 26 percent  compared to 2012. Use of the online tools such as the volunteer site  locator, Where’s My Refund, electronic personal identification number  requests, and interactive tax assistance tools continued to increase in  2013. IRS attributes declines in downloading forms and publications, and  generally searching the website, to changes in how IRS tracks website  use in these areas.
section_title: Appendix IV: Services Offered at Walk-In and Volunteer Sites
paragraphs: Face-to-face service remains an important component of IRS’s efforts to  serve taxpayers, particularly those with low incomes or limited proficiency  in English. Table 8 shows that, for 2013, the total number of contacts at  walk-in sites, Taxpayer Assistance Centers (TAC) staffed by IRS  employees, is the lowest level for the 4 year period shown. Further, return  preparation has steadily declined since 2010 due to IRS’s continuing  efforts to reduce expensive return preparation services. Conversely, the  total number of returns prepared at sites staffed by volunteers has  increased since 2010.
section_title: Appendix V: Installment Agreement Process
section_title: Appendix VI: Comments from the Department of the Treasury
section_title: Appendix VII: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Joanna Stamatiades, Assistant  Director; Shilpa Grover; Emily Gruenwald; Lois Hanshaw; LaKeshia Allen  Horner; Kirsten Lauber; Natalie Maddox; Karen O’Conor; Anna Maria  Ortiz; Kelly Rubin; and John Zombro made key contributions to this  report.