Tax Filing Season: 2014 Performance Highlights the Need to Better Manage Taxpayer Service and Future Risks
Released: 2014-12-16T00:00:00

Letter

Background

Return Processing and Other Services

During the tax filing season, IRS processes paper and electronically filed (e-filed) tax returns and validates key pieces of information, such as a taxpayer’s name and social security number. The overwhelming majority of returns are e-filed.

Eligible taxpayers may use IRS’s Free File program to prepare and e-file their federal tax returns online for free.return processing, IRS offers the following services: Telephone service for tax law and account questions: Taxpayers can speak with an IRS assistor to obtain information about their accounts or to ask tax law questions. Taxpayers can also listen to recorded tax information using automated telephone menus. In 2010, 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.saying its current process of developing a planned level of telephone service takes into consideration many factors, including its resource availability 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. Furthermore, since 2010, the IRS Oversight Board—an independent body charged to provide IRS with long- term guidance and direction—has said than an acceptable level of service should be about 80 percent, but IRS has yet to set such a standard.

Correspondence: IRS assistors are also responsible for responding to paper correspondence from taxpayers. IRS tries to respond to paper correspondence within 45 days of receipt; otherwise, such correspondence is considered “overage.” Minimizing overage correspondence is important because delayed responses may prompt taxpayers to write again or call. According to IRS, the top three reasons taxpayers write relate to balance due payoffs, penalty abatements, and miscellaneous account inquiries.

Online services: IRS’s website is a low-cost method for providing taxpayers with basic interactive tools to, for example, check refund status, view and print transcripts, make payments and apply for installment agreements. In response to recommendations in our April 2013 report, IRS said that a long-term online strategy for improving web services will be completed in February 2015.

Face-to-face assistance: Taxpayers can obtain face-to-face assistance at IRS’s 390 Taxpayer Assistance Centers (TAC), also known as walk-in sites, or at more than 13,000 sites staffed by volunteer partners. At TACs, IRS staff answer basic tax law questions, review and adjust taxpayer accounts, take payments, authenticate Individual Taxpayer Identification Number (ITIN) applicants and assist identity theft victims. At the sites staffed by volunteers, taxpayers can receive return preparation assistance as well as financial literacy information.

Service Changes in 2014

In 2012, we reported that despite regularly realizing efficiency gains, IRS was struggling to provide quality services to taxpayers. We showed that increases in the demand for services have offset the efficiency gains and that unless IRS made tough choices about what services to provide, performance would likely continue to suffer. For fiscal year 2014, IRS reduced or eliminated certain telephone and walk-in services. IRS officials reported they chose these reductions and eliminations because taxpayers had other options for these services. Specifically, IRS took the following actions: 1. limited telephone assistance to only basic tax law questions during the filing season and reassigned assistors to work account-related inquiries; 2. launched the “Get Transcript” tool, which allows taxpayers to obtain a viewable and printable transcript on IRS.gov and redirected taxpayers to automated tools for additional guidance; 3. redirected refund-related inquiries to automated services and did not answer refund inquiries until 21 days after a tax return was filed electronically or 6 weeks after a return was filed by paper (unless the automated service directed the taxpayer to contact IRS); 4. limited access to the Practitioner Priority Service line to only those practitioners working tax account issues; 5. limited live assistance and redirected requests for domestic employer identification numbers to IRS’s online tool; and 6. eliminated free return preparation and reduced other services at IRS’s walk-in sites.

Risk Management

To address challenges including the requirements of PPACA and other responsibilities, IRS has recently established an agency-wide risk management program office. While IRS previously had a process to manage risk as part of the annual filing season, the agency is now standing up a process to address enterprise risk. Risk management is a tool for assessing risks, evaluating alternative management approaches, deciding which management approaches to take, and then implementing and monitoring the management steps. The goal is develop a mechanism that can be used to inform agency officials and decision makers of potential risks, and evaluate alternative countermeasures to reduce risk being considered along with associated costs. IRS’s ability to identify problems and address them with countermeasures will be crucial in having a successful filing season in 2015.

Return Processing Was Timely and IRS Continued to Shift Taxpayers to Lower Cost Services, but Opportunities Exist to Improve Telephone Service

Increases in Electronic Filing Continue to Generate Savings

IRS delayed the beginning of the 2014 filing season because the government shutdown compressed the agency’s preparation time.Despite this delay, IRS officials and stakeholders—such as large tax preparation firms—reported relatively smooth processing, in part, because there were fewer tax law changes that resulted in fewer system and form updates compared to previous years. As of September 26, 2014, IRS had achieved an 85 percent e-file rate for individual returns and processed 7 percent fewer paper returns compared to last year (see figure 1). Compared to 2009, paper returns have fallen by 51 percent, from 45 million to 22 million. See appendix I for additional data on return and refund processing.

As we have previously reported, continued increases in electronic filing are important because they allow taxpayers to receive refunds faster, are less prone to transcription and other errors, and reduce IRS’s costs. Between fiscal years 2009 and 2014, as seen in figure 1, the number of FTEs devoted to processing decreased by approximately 24 percent— from 11,360 in 2009 to 8,626 in 2014. Since 2003, IRS has reduced the number of paper processing sites from eight to three: Fresno, California; Kansas City, Missouri; and Austin, Texas. According to IRS officials, this consolidation has been a key element in the agency’s ongoing program to streamline operations, improve customer satisfaction, and achieve savings through reductions in rent and labor costs.

Despite Decreases in Call Volume and Continued Success Shifting Calls to Automated Services, Access to Live Assistors Remained Low and Wait Times Remained High Compared to Prior Years

Between fiscal years 2009 and 2014, as shown in figure 2,

Call volume to IRS’s taxpayer service lines varied, and was the lowest in 2014. IRS attributed 2014’s overall decline in call volume in part to smooth tax return and refund processing, which results in fewer phone calls about return errors and delayed refunds. IRS also attributed the decline to its efforts to limit or eliminate assistor-based services and direct taxpayers to self-service options. See appendix III for call volume and telephone service performance and goals since fiscal year 2009.

IRS significantly reduced FTEs devoted to answering telephones— from about 9,300 to about 6,900—a 26 percent decrease.

IRS answered about 41 percent more calls using automated assistance. Calls answered by IRS assistors fell to its lowest level in 5 years. Answering as many calls as possible through automation is a significant efficiency gain because IRS estimates that it costs 38 cents per call to provide an automated answer, but about $42 per call to use a live assistor—a 27 percent increase over 2013 (see appendix IV).Its costs per call grew over the past year partly because there was a bigger decline in the number of calls answered than the number of FTEs assigned to answer those calls. According to IRS officials, fewer calls were answered using live assistance because of efforts to reduce assistor-based services and because there were fewer PPACA-related calls than expected. In addition, average handle time increased from 11.8 to 12.5 minutes per call (about 6 percent) from 2013 (see appendix IV). These increases highlight the importance of IRS efforts to drive people to other sources such as web-based services.

More than a third of calls ended with the taxpayer hanging up, receiving a busy signal, or being disconnected before reaching an assistor. Taxpayers who cannot initially reach IRS may need to spend additional time redialing and waiting for assistance. Further, while taxpayers can obtain tax law assistance through alternative sources—such as tax attorneys or tax preparation firms—taxpayers who have account questions that only IRS can answer must either wait to get assistance via telephone or pursue help from IRS through some other means, such as through sending correspondence to IRS or visiting TACs.

Figure 2 illustrates aspects of IRS telephone service.

As telephone staffing fell, in fiscal year 2014 IRS’s performance in providing live telephone assistance—referred to as the level of service— remained low compared to recent years at about 64 percent (see figure This is considerably lower than the 82 percent level of service IRS 3).achieved in 2005. It is also well below the 80 percent level of service considered acceptable by the IRS Oversight Board. While during the filing season IRS’s level of service was about 70 percent or slightly higher, this rate also is still well below past performance.

IRS has requested additional funding to deliver a targeted level of service. For instance, in its fiscal year 2015 congressional justification, IRS requested a 10 percent increase in FTEs to deliver a telephone level of service of 71 percent.

One of IRS’s expected outcomes of its fiscal year 2014 service changes was to improve wait time for telephone service. However, in fiscal year 2014, taxpayers had to wait more than twice as long to speak with someone as they did in fiscal year 2009, when the average wait time was about 9 minutes (see figure 3). Wait times increased in part because IRS devoted fewer FTEs to answering telephones and because the average handle time increased (see appendix IV). This is important because taxpayers must call IRS or visit walk-in sites for certain account-related information that they cannot access online.

For a number of years, IRS assistors have answered tax law and account-related inquiries with more than 90 percent accuracy in part because IRS uses interactive tools to help prompt and direct assistors to provide more accurate and consistent responses to taxpayers (see appendix III). This trend continued in fiscal year 2014, with a 95 percent accuracy rate for tax law inquires and a 96 percent accuracy rate for account-related inquiries (with confidence intervals of 90 percent). IRS was able to maintain this high rate of accuracy even though the government shutdown delayed hiring and caused IRS to increase its reliance on just-in-time training.

In recent years, the type of telephone calls IRS receives and answers has changed. Specifically, the number of tax law inquiries has somewhat decreased and a slightly greater portion of calls are account related. This is due in part to such efforts as limiting the scope of tax law inquiries it answered in 2014. The shift in the types of calls answered by IRS assistors may explain at least in part the increase in telephone wait times as shown in figure 3. Taxpayers have alternative sources of information for tax laws inquiries, such as from tax software or a paid tax preparer. Taxpayers with questions about their accounts, however, may have no choice but to speak to an IRS assistor.

IRS May Be Missing Opportunities to Improve Telephone Service by Not Systematically Comparing Its Telephone Service to the Best in the Business

Comparing performance data on calls answered by IRS assistors to the best in the business can help IRS understand taxpayer needs and improve service. Both Congress and the executive branch have taken action to improve customer service. The GPRA Modernization Act of 2010 (GPRAMA) requires agencies to, among other things, establish a balanced set of performance indicators to be used in measuring or assessing progress toward each performance goal, including, as appropriate, customer service. In addition, Executive Order 12862, Setting Customer Service Standards, requires that all executive departments and agencies that “provide significant services directly to the public shall provide those services in a manner that seeks to meet the customer service standard established” which is “equal to the best in business.” Most recently, Executive Order 13571, Streamlining Service Delivery and Improving Customer Service, was issued to strengthen customer service and required agencies to develop and publish a customer service plan, in consultation with the Office of Management and Budget (OMB). Finally, OMB has issued memorandums and guidance to agencies identifying a number of actions to improve customer service, including setting, communicating, and using customer service standards. Most recently, in July 2014, to help agency leadership focus on this issue, OMB issued guidance that agencies include additional customer service information with their fiscal year 2016 budget submissions.

IRS has taken some steps towards conforming to federal customer service standards by, for example, having a suite of performance measures for its telephone and other key operations. It also has worked with its W&I research analysis group on a variety of issues including call demand forecasting. However, we found that IRS has not systematically benchmarked its telephone (customer) service to the best in business. Specifically, IRS conducted one study that focused on its level of service, benchmarking its measures to seven private and public sector organizations and enabling it to identify options for modifying the level of service measure. However, it has not regularly compared its suite of performance measures to those used by comparable organizations. Further, it has not benchmarked its actual performance against goals achieved by other organizations with large-scale call center operations to determine whether there are opportunities to improve telephone service provided by live assistors. IRS officials cite budget constraints and difficulty in identifying organizations (other than the Social Security Administration) that are comparable in size, complexity, and uniqueness as reasons they have not systematically compared IRS’s telephone service performance against the best in the business.

By not comparing customer service performance against the best in the business, IRS is missing an opportunity to identify and address gaps in actual and desired service and inform Congress about resources needed to improve the level of service provided to taxpayers. We have previously reported on IRS’s budgetary constraints.resulted in fewer resources available to IRS, a better understanding of the nature and size of service gaps could help it provide the best service possible with declining resources.

Overage Correspondence Continued to Increase and FTEs Stayed about the Same

In 2010, we concluded that providing timely responses to paper correspondence is a critical part of 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 and started using more detailed performance measures, including an overaged timeliness measure for its correspondence.

These performance measures indicated that the time it takes IRS to respond to correspondence has continually increased since fiscal year 2009. Taxpayers sent IRS somewhat less correspondence between fiscal years 2013 and 2014 (21 million and 20 million, respectively), yet total overage stayed close to 50 percent during the same period. While total overage slightly increased, IRS devoted about 2 percent more FTEs for responding to correspondence (see figure 4). As noted earlier, IRS assistors are responsible for both telephone and correspondence duties. Consequently, IRS’s performance in responding to correspondence is dependent on the volume and length of telephone calls answered by assistors and the volume of work that is shifted to automated services. According to IRS officials, shifting calls to automated lines enabled IRS to better focus assistors’ efforts on taxpayer services that require live assistance. Since assistors also respond to correspondence, shifting calls also enabled them to devote more time to correspondence.

New Self-Service Tools Helped Shift Demand to IRS’s Website

IRS continued to make progress in directing more taxpayers to online resources and away from telephone and face-to-face services. Use of IRS’s website reached approximately 440 million visits for fiscal year 2014, 4 percent fewer than fiscal year 2013. IRS attributes this decrease to improved website design, which allowed visitors to accomplish their goal in fewer site visits. Use of IRS’s website was slightly lower in fiscal year 2014 than the previous year partly due to fewer forms and publications being downloaded as a result of fewer tax law changes.

For the 2014 filing season, IRS launched two new self-service web applications, Get Transcript and Direct Pay:

Get Transcript allows taxpayers to request and print tax transcripts online immediately. The taxpayer must first pass IRS’s authentication process. The tool will not work for taxpayers who are filing for the first time, are victims of identity theft, or cannot remember the answers to IRS’s authentication questions, such as the street address from the last tax return filed. Taxpayers may request for the transcript to be mailed, but must wait 5 to 10 days to receive it. Use of Get Transcript exceeded IRS’s estimates of about 9 million requests. In fiscal year 2014, taxpayers used the application to request or view 19 million transcripts. This resulted in IRS receiving 43 percent fewer requests through other channels.

Direct Pay allows taxpayers to electronically pay their tax bills or make quarterly estimated tax payments directly from checking or savings accounts without any fees or preregistration. IRS reported it processed more than 1 million payments totaling more than $1.7 billion through Direct Pay (as of September 10, 2014). IRS expected Direct Pay to help significantly reduce the millions of paper checks received each year.

IRS reported that it has made progress in addressing our previous recommendations on improving its online service strategy. Specifically, IRS reported that it was in the process of developing a long-term strategy for improving web services for taxpayers and officials expected it to be released in early 2015. A long-term comprehensive strategy for online services will help ensure IRS is maximizing the benefit to taxpayers from this investment and reduce costs in other areas, such as for IRS’s telephone operations. See appendix V for additional information on use of IRS’s website.

IRS Eliminated Return Preparation and Shifted Taxpayers from Taxpayer Assistance Centers to Volunteer Partners

Face-to-face assistance at IRS’s Taxpayer Assistance Centers (TAC) and volunteer sites remains an important component of IRS’s efforts to serve taxpayers, particularly those with low incomes. As part of its service changes for 2014, IRS eliminated return preparation at TACs and redirected taxpayers to volunteer sites and Free File. In fiscal year 2014, taxpayers visited TACs 5.4 million times, a decline of about 17 percent compared to the previous year. In almost half of those visits, taxpayers received assistance with account-related inquiries. Meanwhile, IRS assigned fewer field assistance staff to TACs in fiscal years 2010 through 2013 (see figure 5).

At the same time IRS eliminated return preparation at TACs, taxpayers increased their use of volunteer sites and Free File. IRS’s 12,319 volunteer partner sites prepared a little more than 3.6 million tax returns in fiscal year 2014—a 7 percent increase from the previous year. Use of Free File also increased, although use prior to 2014 had been decreasing (see table 1). See appendix VI for additional information on taxpayer use of TAC and volunteer site services.

IRS Did Not Develop Measurable Goals or an Analysis Plan to Evaluate the Effectiveness of 2014 Service Changes, Which Could Inform Planned Changes for 2015

Our guidance on designing evaluations states that to appropriately assess program effectiveness, outcome measures must represent the nature of the expected program benefit.cover key aspects of desired performance and should not be unduly influenced by factors outside the program’s control. In addition, to know if a program directly resulted in the desired effect, the data collection and analysis plan must establish a link between the program and the expected result.

IRS identified outcomes in the form of FTE savings and other service improvements such as improving telephone level of service. However, most of those outcomes did not specify measurable goals. For example, IRS planned to improve wait time, but did not state a numeric goal for reducing wait time. As a result, IRS’s outcomes were not a clear representation of the nature of the expected program benefits.

While IRS collected some data that it could use to evaluate effectiveness, it did not develop plans to analyze the data or track it in a way that would allow officials to draw causal connections and develop valid conclusions about the effectiveness of its 2014 service changes (see appendix VII for an assessment against our criteria and appendix VIII for our analysis of IRS’s service changes). Without measurable goals and other analyses, IRS could not identify whether specific service improvements were a result of its service changes or other external influences on taxpayer behavior. For example, as discussed, wait time actually increased in 2014. While IRS sought to improve wait time, without setting a numeric goal that can be measured, it does not know the extent to which it was unable to meet its goal. Moreover, IRS does not know whether the increase in wait time was a result of external factors, or if wait time would have increased even more without its service changes.

Without such information, it will be difficult for Congress, IRS management, and others to understand the benefits and potential budget trade-offs associated with IRS’s service changes. This is important because IRS has identified additional ones for 2015 and beyond.

In addition to maintaining the 2014 service changes, as of early September IRS had proposed the following for 2015: 1. Redesign notices to clearly state why the notice was issued; if a response is required; what action, if any, is required; and inform taxpayers about online resources and self service tools as an alternative to calling or writing the IRS. 2. Expand use of the Oral Statement Authority tool to reduce the amount of written correspondence to resolve penalty relief requests.3. Direct taxpayers who meet the Online Payment Agreement qualifications to use a tool online (and at kiosks where available) to apply and set up installment payment agreements instead of calling or visiting IRS. 4. Reduce the volume of IRS products at TACs and community outlets, including forms, instructions, and publications that are available online at IRS.gov, and encourage taxpayers to use available online sources. 5. More heavily promote electronic payment options, such as IRS Direct Pay, as an alternative to cash, check, or money order payments made at a TAC site or by mail.

These service changes are examples of IRS’s efforts to promote more technology-based services to serve the maximum number of taxpayers possible more effectively and efficiently. We have previously reported that, given the volume of taxpayers calling IRS and sending correspondence, shifting taxpayers to self-service tools, such as interactive automated telephone lines or IRS’s website, is key to improving taxpayer services.then fewer will need to speak to an IRS assistor and IRS’s costs will fall.

IRS Used its New Enterprise Risk Management Process to Identify Major Risks for the 2015 Filing Season, but Management Plans Lack Specificity

According to the Commissioner of Internal Revenue, implementation of new tax laws such as PPACA combined with a tight budget and the possibility of Congress passing a late package of tax extenders threatens to make 2015 “the most complicated filing season before us in a long time, if ever.” At the enterprise level, in February 2014, IRS undertook a new approach to risk management in response to management failures related to applications for tax exempt status. In that effort, IRS established an Enterprise Risk Management (ERM) process that formalizes risk management across the organization.

As part of the ERM process, IRS created several risk registers, including an enterprise risk register that consists of 15 broad emerging risk categories. The top two risks IRS identified were (1) staffing and training and (2) budget sufficiency. IRS ranked the emerging risk categories by highest to lowest likelihood and impact. Also as part of ERM, IRS developed two other enterprise-wide risk registers, one covering PPACA and the other FATCA. In addition, IRS developed a risk register for its W&I division, which is responsible for the filing season. The PPACA, FATCA, and W&I risk registers identify risks and list management activities that might affect the filing season. IRS plans to expand risk management procedures at the process level, such as filing season operations, in the future. IRS’s ERM guidance notes that divisions and offices should determine appropriate risk management activities.

Separate from the ERM process, IRS has a long-standing process to ensure filing season readiness. This process strongly mirrors our framework for risk management—including identifying risks, developing management actions, getting management concurrence, and implementing and monitoring those actions. The FSR Action Plan contains specific steps to undertake in response to critical tasks, given the budgetary constraints under which the filing season operates.

While there is no established universally agreed upon set of requirements or processes for a risk management framework, we have previously developed one that can be used to inform agency officials and decision makers of the basic components of a risk management system or which can be used as a stand-alone guide. Consistent with our framework, risk management activities should evaluate alternative countermeasures to reduce risk being considered along with associated costs. Furthermore, evaluating alternative countermeasures should include specific countermeasures to reduce risk.

Table 2 shows the results of our analysis of IRS enterprise risk management procedures and filing season procedures.

As table 2 shows, IRS has made good progress in setting up its risk management process. In some cases we found it was too early to assess whether the ERM process meets the criteria. For example, the status of monitoring efforts is unknown because the risk management effort is still in the early stages.

However, in the alternatives evaluation stage, we found IRS has an opportunity to strengthen the ERM process. The criteria of this stage are specific countermeasures to reduce risk, use of external sources to improve decision making, and cost-benefit analysis of countermeasures.

According to IRS’s own guidance, management plans should be detailed and contain the following information: all areas that could be impacted if an adverse event occurred; all activities required to effectively reduce likelihood, impact, or both; critical or due dates, external dependencies and activity ownership; and residual risk (risk left after management activities) and actions taken to address residual risks.

IRS has not developed specific countermeasures as part of its risk management activities. Instead, in many cases, the management activities rely on decision making once the adverse event occurs rather than providing an explicit course of action (see appendix IX for examples). IRS’s proposed activities lack specific countermeasures to address the risk, but rather emphasize opportunities to assess the adverse event as it unfolds. For example, IRS has identified delays in creating PPACA forms as a high impact risk that may occur for the 2015 filing season, but has not identified specific countermeasures for addressing this likely event. Developing specific countermeasures would allow IRS to better address likely risks by either reducing the probability an event may occur or by managing the effects of an adverse event.

Officials in W&I said they have not yet fully developed alternatives because they have focused on becoming familiar with risk management processes. An official in IRS’s ERM office stressed the importance of prioritizing risks so as to most efficiently direct the use of resources to develop management activities. In April, IRS undertook what officials described as a “temperature check” that had the aim of assessing current risks and indentifying additional risks to provide a high-level overview of risks within the business units and aggregating them at the enterprise level. These risks were listed in various risk registers and include management activities as well as a link to the emerging risk categories. IRS officials acknowledged that the risk management strategies need further refinement.

We have reported on IRS budget cuts and the uncertainty the cuts cause, but simply ranking perennial concerns such as staffing and budget may delay the development of management activities on other impending potential risks and loses sight of why risk management is important. The reason for risk management is to provide options to tackle risks in a budget constrained environment.

As mentioned earlier, many of the management activities listed in the risk registers envision meetings to discuss a response to an unfolding risk situation. These types of meetings should be held ahead of time and a range of scenarios should be considered with appropriate response. Then, when a risk situation unfolds, specific countermeasures or a roadmap is already in place to guide the response. Without specific countermeasures, including a cost-benefit analysis of options, IRS is unable to provide clear guidance for implementing or prioritizing countermeasures, which could hamper its ability to respond to adverse events that could affect filing season operations.

IRS Has Implemented Six Filing Season Recommendations but Some Significant Ones Remain Open

Since 2010, we have issued seven reports on various aspects of IRS’s filing season activities. These reports included 20 recommendations for IRS to improve filing season operations, become more efficient, and provide taxpayers with better customer service. IRS has implemented six of the recommendations.

Both taxpayers and IRS have received benefits as a result of IRS’s implementation of our recommendations. For example, IRS implemented our 2011 recommendation to offer an automated telephone line that gives taxpayers the status of their amended tax return. This telephone line provided taxpayers with faster service because they did not have to wait for a live person to assist them. The phone line also enabled IRS to reduce costs and make better use of its available resources because it lowered taxpayer demand to talk to a live assistor. Table 6 in appendix X summarizes the filing season recommendations implemented by IRS.

Tables 7 and 8 in appendices XI and XII summarize the 14 recommendations IRS has yet to implement. IRS officials told us they fully agreed with seven of the recommendations, agreed in part with one, disagreed with two, and neither agreed nor disagreed with four. IRS is taking or plans to take certain actions to implement the recommendations that it agreed with or did not disagree with. Six of the 14 recommendations relate to improving web services. Specifically, in April 2013, we recommended that the IRS should develop a long-term strategy to improve web services provided to taxpayers (see appendix XII).

Expanded Math Error Authority Could Help IRS Increase Pre-refund Compliance

Since 2008, we have raised five matters for Congress to consider that make changes to the ability of IRS to use its math error authority (MEA) to quickly correct errors without the need for an audit. Without a specific grant of MEA authority, IRS must use audit procedures to correct errors before it could issue a statutory notice of deficiency. Congress took our 2009 suggestion and provided IRS with MEA so it could automatically verify taxpayers’ compliance with payback provisions for the 2008 First- Time Homebuyer Credit. With this authority, IRS was able to adjust taxpayers’ refunds if they had not complied with the payback provision. As a result, from fiscal years 2010 through 2013, IRS prevented over $500 million in improper refunds from being sent to taxpayers. Congress has not yet acted on the other four matters we have asked Congress to consider related to MEA. All five matters are summarized in table 9 in appendix XIII.

Conclusion

IRS continues to struggle with providing services to taxpayers. It is caught between declining resources on one hand and increasing statutory responsibilities and growing demand from taxpayers on the other. As we have discussed for several years, IRS needs to do two things—first, it needs to ensure that available resources are utilized as effectively as possible by identifying opportunities to improve services, and second, it needs to make tough choices about which services to continue providing.

One way IRS could more effectively use available resources is by benchmarking telephone service to the best in business. The importance of providing high quality customer service is driven by the requirements of GPRA, GPRAMA and executive orders, and OMB guidance and memorandums which emphasize the relationship of customer service to agency performance and outcomes. While IRS has taken some steps to improve telephone service, it has not systematically and periodically compared its service to the best in business. As a result, IRS is not benefiting as much as it could from the roughly 7,000 FTEs it is devoting to telephone service. Further, because IRS uses the same staff for telephone and correspondence means that it limits IRS’s ability to work paper correspondence as effectively as possible as well.

In one effort to more effectively use resources in 2014, IRS made decisions to reduce or cut services. While its stated goal was to improve service, IRS did not identify the improvements it hoped to achieve. As a result, IRS is unable to determine the effectiveness of the changes or make informed decisions about additional service changes in 2015 and beyond.

Another way that IRS is trying to better manage its constrained resources is through its new process for identifying and managing enterprise-wide risks. If well executed, IRS’s efforts should help the agency allocate resources and take actions under conditions of uncertainty when implementing PPACA. IRS has made good progress in setting up its risk management process. While it is too early to assess some aspects of the risk management framework, there is one area where IRS could take action to better prepare itself for risks. The risk management strategies IRS identified lack specifics, which could hamper IRS’s ability to respond in the event a risk occurs. More specific countermeasures would better position IRS to either reduce the probability of an adverse event or manage the consequences if an adverse event occurs.

Recommendations for Executive Action

The Commissioner of the Internal Revenue should direct the appropriate officials to take the following three actions:

Systematically and periodically compare its telephone service to the best in business to identify gaps between actual and desired performance.

Develop outcomes that are measurable and plans to analyze service changes that allow valid conclusions to be drawn so that information can be conveyed to Congress, IRS management, and others about the effectiveness of IRS’s service changes and impact on taxpayers.

Include specific countermeasures or options in risk management plans that could guide a response when an adverse event occurs.

Agency Comments and Our Response

We provided a draft of this report to the Commissioner of Internal Revenue. IRS provided written comments on a draft of the report, which are reprinted in Appendix XIV. IRS also suggested technical changes to the report, which we incorporated where appropriate.

IRS disagreed with the recommendation to systemically and periodically compare its telephone service to the best in business, stating that the differences between the purposes of IRS’s telephone operations and public sector contact centers are too significant to yield useful results when broadly compared to each other. We disagree that IRS’s telephone operations cannot be compared to others. IRS notes, and we report, that the agency has conducted targeted benchmarking against the best in the business which it believes was helpful in identifying gaps and potentially improving performance. Specifically, IRS benchmarked one measure of telephone service—level of service—to both private and public sector organizations which allowed it to identify options for modifying that measure. However, IRS uses more than one measure to more fully evaluate its telephone performance. Benchmarking all of those measures alongside each other (and potentially others it does not currently use) to the best in the business could help improve taxpayer service. Further, as we note in our report, the criteria allow for comparison to private organizations providing analogous services, not just those that are exactly comparable. Comparisons of telephone service to the best in business can help inform Congress about resources needed to improve the level of service provided to taxpayers. Accordingly, we believe this recommendation remains valid and should be implemented.

IRS agreed with our recommendation to develop outcomes that are measurable and analyze service changes to allow for valid conclusions to be drawn. To accomplish this, IRS said that it will develop projections to assess the effect of service changes during the 2015 filing season, allowing it to determine the amount of resources that are reallocated as a result of the service changes and to assess the taxpayer experience and address opportunities for improvement. IRS reported it anticipates completing this analysis by the end of fiscal year 2015.

IRS did not state whether it agreed or disagreed with our recommendation to include specific countermeasures in its risk management plans. Our report acknowledges the progress that IRS has made implementing its ERM program. For the risk registers we reviewed, IRS had assessed the probability and impact of the risks listed, meaning that it had prioritized its risks; however, it had not developed specific countermeasures. Without specific countermeasures, risk assessment becomes a fruitless exercise. Without countermeasures specifically articulated in risk management plans, IRS’s ability to respond quickly and appropriately to an adverse event may be hampered. Therefore, we believe IRS should implement our recommendation and include specific countermeasures in its risk management plans.

We plan to send copies of this report to the appropriate congressional committees. We will also send copies to the Commissioner of Internal Revenue, the Secretary of the Treasury, and other interested parties.

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 XV.

Appendix I: Individual Income Tax Returns and Refunds Processed, 2009 through 2014

Continued increases in e-filing are important because processing costs are lower for e-file returns and refunds are issued faster. For the 2014 filing season (through early March), on average IRS reported it processed direct deposit refunds for e-filed returns within 9 days.

Appendix II: Full-Time Equivalent (FTE) Data for Telephone, Correspondence, Submission Processing and Other Categories, Fiscal Years (FY) 2009 through 2014

Appendix III: IRS Call Volume and Telephone Service Goals and Performance, Fiscal Years (FY) 2009 through 2014

Total calls to IRS (in millions)

The numbers in the table are the total automated, assistor answered, abandoned, busy and disconnected calls, and do not reflect the total number of attempted calls to IRS. IRS calculation based on representative samples of phone calls from January 1 through June 30. The percentage of calls in which assistors provided accurate answers for the call type and took the appropriate actions, with a 90 percent confidence interval.

Appendix IV: Costs for Calls Answered by IRS Assistors and Automated Services and Average Handle Time with Assistors, Filing Seasons 2009 through 2014

Appendix V: Use of IRS Website and Online Services, Fiscal Years (FY) 2009 through 2014

Use of IRS website and mobile application tools Total visits to IRS.gov (in millions) IRS2GO downloads (in millions)

Self-service tools – assistance with tax filing and payments Taxpayer forms, publications, and instructions downloads (in millions) Interactive Tax Assistance Tools (completion in thousands)

Direct Pay Transactions (in millions) Volunteer site locator (in thousands)

Self-service tools – other requests for information Where’s My Refund? (completion in millions)

Electronic Filing Personal Information Number Request (completion in millions)

Where’s My Amended Return (in millions)

Appendix VI: Services Offered at IRS Taxpayer Assistance Centers (TAC) and Volunteer Sites, Fiscal Years (FY) 2009 Through 2014

Appendix VII: GAO Assessment of IRS’s Efforts to Evaluate the Effectiveness of Changes to Taxpayer Services

To identify criteria appropriate for assessing the effectiveness of IRS’ six service changes, we reviewed our guidance on designing evaluations and assessing program effectiveness and used this criteria to evaluate IRS’s efforts to evaluate the effectiveness of changes to taxpayer services. Our analysis shows that IRS met some of the criteria, but did not meet the criteria for selecting outcome measures and developing an analysis plan.

Appendix VIII: GAO Analysis of Expected and Actual Outcomes for IRS’s 2014 Service Changes

Most of the expected outcomes that IRS identified were not specific or measureable goals. IRS had some data that it could have used to assess the effectiveness of its 2014 service changes. We compiled this information to compare the reported results of the service changes against IRS’s expected outcomes.

Appendix IX: Selected Excerpts From IRS’s Risk Registers

IRS risk Patient Protection and Affordable Care Act (PPACA) risk register Wage and Investment (W&I) resources diverted from working paper inventories due to PPACA phone traffic If PPACA-related increase in phone traffic occurs, then W&I will have to divert resources from working paper inventories to manning the telephone lines, resulting in reduced levels of customer service decreased customer and employee satisfaction, and increased costs.

Research Organizations to determine the optimal balance of resources to provide customer service. 4. Adjust the Compliance work 4. Not specific — plan to move some audit starts later in the year to reduce the impact of mail. 5. New PPACA systems are being engineered to allow opportunities to change thresholds/work level receipts.

5. Not specific – Systems 6. W&I Service Delivery Approach to evaluate services to ensure delivery of core service and to drive service to most efficient delivery method. Evaluate trade-off analysis and what to “stop doing.” Filing Season 2015 Approach is under development.

IRS risk description If late or retroactive PPACA legislation occurs and shortens the planning process and/or results in rework, or if additional Presidential Executive Orders are issued to delay or alter original enacted legislation, then late changes to requirements and a delay to the Filing Season could result in decreased public confidence, decreased customer service and customer satisfaction, diminishing chances for successful implementation and introducing a reputational risk.

Analysis Tracking and Implementation Services representative who attends regular meetings to determine the impact of new or expiring legislation.

PPACA IRS Counsel resources to support decision making. staff to support future discussion 4. A PPACA dedicated staff 4. Not specific — Assigned identified at PPACA Program Management Office at Headquarters, Office of Program Coordination and Integration (OPCI) in W&I, the Electronic Invoice Presentation and Payment team and the PPACA Joint Implementation Teams to support organizational readiness activities.

IRS risk description If development of PPACA forms (other than PPACA Information Return products) does not comply with existing timeframe of Filing Season Readiness Approach, then Unified Work Requests, training development and delivery, and IRM updates may all be delayed - forms readiness drives all.

PPACA IRS Counsel resources to support decision making. staff to support future discussion 3. Significant external partner 3. Not specific – Dialogue relationships to socialize upcoming changes and robust communication strategy. 4. Repeatable, highly effective FSR planning process for a holistic look at upcoming events and legislation and impact to people, process and technology.

Foreign Account Tax Compliance Act (FATCA) risk register Timing for Form 8966 submitter requirements due to International Compliance Management Model (ICMM) schedule could prevent appropriate execution of electronic filing Help Desk mission to successfully answer calls and inquiries Development of the outputs from ICMM has not begun. Electronic Products and Services Support training is dependent upon the finalization of submitter responses (if we do not have the electronic filing of the 8966, then there will be no work for the Help Desk to do). As of right now, it is developing ICMM as the technological developments to enable electronic filing. The impact to electronic filing is lack of sufficient lead time to develop and deliver training by deployment date. Could have already hired and trained.

1. New hires typically come on 1. Not specific – Training board in October. Recalls are brought back on September/October training is typically completed in 2 weeks. Cannot complete training without knowing the ICMM process. FATCA training would have to be delivered separately in a compressed time frame. Make training room reservations now. 2. Train assistors to do other 2. Not specific — work if Form 8966 does not materialize. 3. Reallocate inventory and 3. Not specific — revise resource work plan.

IRS risk description The ICMM program will be contracted out with a contract award date of August 8, 2014. To meet the January 1 “go-live” date, there is a significant workload to accomplish in a very short period of time once the vendor is on board. If the ICMM system is not running by January 1, 2015, then Form 8966 needs to come through via paper which poses a risk to Submission Processing. The impact of this would be no electronic filing of Form 8966; the form will be on paper instead, which will cause a resource constraint.

GAO analysis 1. Not specific —Dialogue to testing and integration with W&I systems and processes and the timeframe of the testing. 2. The contingency plan for Submission Processing to incorporate paper processing F8966 into existing work is the following. When faced with over-receipts, the following actions are taken as a standard practice: —1) Receipts are monitored to determine if/when extra manpower is needed —2) People are recruited from other areas that may not be facing high volumes in their work at the time. 3. Obtain research on what the 3. Not specific – Monitoring paper volumes would be - projected volume is 100,000.

W&I risk register

IRS risk description If significant changes to, and/or expansion of, the breadth and complexity of the IRS’s mission continues then IRS will be unable to either execute on its core mission or implement the required changes in a complete, accurate, timely and/or efficient manner.

Executive Steering Committee in place to comprehensively evaluate upcoming events and legislation that impacts filing season looking holistically at people, process and technology for Filing Season 2015. 3. Significant external partner 3. Not specific – Dialogue relationship to socialize upcoming changes and robust communication strategy. 4. Established quantitative and qualitative performance measures that support and reinforce the achievement of the IRS mission and overall strategic goals. 5. FATCA implementation - 5. Not specific – Monitoring oversight provided by OPCI.

IRS risk description If service delivery options are not evaluated and adjusted to maximize return on diminishing resources then mission creep and scope expansion may impact ability to achieve core mission.

Approach - W&I Service Delivery Approach to evaluate services to ensure delivery of core service and to drive service to most efficient delivery method including evaluation of trade- off analysis and what to “stop doing.” 2. Significant external partner 2. Not specific – Dialogue relationship to socialize upcoming changes and robust communication strategy. 3. Established quantitative and qualitative performance measures that support and reinforce the achievement of the IRS mission and overall strategic goals. 4. Service On Demand project to evaluate service delivery channels moving forward.

4.

Appendix X: Prior GAO Filing Season Recommendations Implemented by IRS

Since 2010, we have issued seven reports on various aspects of IRS’s filing season operations. These reports included 20 recommendations for IRS to improve filing season operations, become more efficient, and provide taxpayers with better customer service. Listed below are the six recommendations that IRS has implemented.

Appendix XI: Prior Filing Season-Related GAO Recommendations That Remain Open

Since 2010, we have issued seven reports on various aspects of IRS’s filing season operations. These reports included 20 recommendations for IRS to improve filing season operations, become more efficient, and provide taxpayers with better customer service. IRS has not yet implemented 14 of the recommendations. Eight of these recommendations are described in Table 7 below, and we discuss the other six recommendations to improve IRS’s web-related services in appendix XII. As shown in table 7, IRS agreed with three of these recommendations, disagreed with two, and has taken certain actions in regard to the three with which it neither agreed nor disagreed.

Appendix XII: Prior Filing-Season Related GAO Recommendations Related to Improving Web Services Remaining Open

Six of the 14 open recommendations relate to improving web services. Specifically, we recommended that IRS should develop a long-term strategy to improve web services provided to taxpayers. We include these separately because we were subsequently asked to review IRS efforts to offer more interactive web services. IRS agreed with four of these recommendations, partially agreed with developing business cases because it believes other criteria should be considered, and did not take a position on establishing numerical measures. These six unimplemented recommendations are listed in table 8.

Appendix XIII: Matters for Congressional Consideration for Enhanced Math Error Authority

For almost a century, Congress has been expanding IRS’s math error authority (MEA) on a case-by-case basis. Currently, there are 13 situations where IRS can use MEA to make corrections to tax returns. Using MEA can save time and money for taxpayers and can reduce the need for audits to correct taxpayer errors. Since 2008, we have raised five matters for the Congress to consider providing IRS with additional MEA authority. The Congress has enacted one and has not yet acted on four of them.

Appendix XIV: Comments from the Internal Revenue Service

Appendix XV: GAO Contact and Staff Acknowledgments

GAO Contact:

Staff Acknowledgments:

In addition to the individual named above, Joanna Stamatiades, Assistant Director; LaKeshia Allen-Horner; Jehan Chase; Robert Gebhart; George Guttman; Kirsten Lauber; Natalie Maddox; Mark Ryan; Erin Saunders- Rath; Angela Smith; and Elwood White made key contributions to this report.