IRS improved its 2006 filing season performance in important areas that affect large numbers of taxpayers. This continues a trend of improvement since at least 2002. Returns processing has gone smoothly and electronic filing continues to grow, although at a slower rate than in previous years. Taxpayer assistance has improved in the two most commonly used services—toll-free telephones and the Internet Web site. Fewer taxpayers visited IRS’s walk-in sites, and more sought assistance at volunteer-staffed sites. From January 1 through April 14, 2006, IRS processed 91.8 million individual income tax returns. Of those returns, 63.4 million returns were filed electronically (up 2.3 percent) and 28.3 million returns were filed on paper (down 7.1 percent). According to IRS data and officials, returns processing has gone smoothly so far this filing season. IRS issued 78 million refunds, 50 million, or 64 percent of which were directly deposited, up 5.4 percent over the same period as last year. Direct deposit is faster, more convenient for taxpayers, and less expensive for IRS than mailing paper checks. Because of the volume of tax returns, it is normal for IRS to experience some processing disruptions, although this year, disruptions have not been significant. For example, 13 different tax forms were unavailable for electronic filing until February 1 due to the late hurricane relief legislation, which caused a minor processing delay for some returns. Furthermore, IRS officials said that the new Customer Account Data Engine (CADE), which is intended eventually to replace IRS’s antiquated Master File system containing taxpayer records, processed over 6 million returns and dispersed 5.3 million refunds as of April 14, 2006 without disruptions. IRS is reporting that direct deposit refunds and paper check refunds are being issued within 4 and 6 business days, respectively, after tax returns are posted to CADE, which is faster than for returns processed by the Master File system. CADE’s growth in future years will directly benefit taxpayers. Not only can it speed up refunds, but it also updates taxpayer account information quicker than the Master File system. Representatives of the taxpayer industry corroborated IRS’s view that the filing season is going smoothly. Groups and organizations that we talked to included the National Association of Enrolled Agents, the American Institute of Certified Public Accountants, and others. In addition, the TIGTA recently testified that thus far it has seen no significant problems during the filing season. The growth of electronic filing is important, because it generates savings by reducing staff years needed for labor intensive paper processing. Between fiscal years 1999 and 2006, IRS reduced the number of staff years devoted to paper and electronic processing by 1,586, or 34 percent as shown in figure 1. Electronic filing continues to grow but at a slower rate than previous years. This year’s 2.1 percent rate of growth is less than the average annual rate of growth of 5.1 percent for each of the preceding 2 years. According to IRS officials, the slower growth in electronic filing this year is due, in part, to changes in the Free File program, which reduced the number of taxpayers eligible to file electronically for free this year and reduced publicity and advertising by companies involved in that program, and the termination of the TeleFile program, which eliminated the way for taxpayers to file their returns electronically via telephone. The Free File program enables taxpayers to file their returns electronically via IRS’s Web site. Through IRS’s Web site, taxpayers can access the Web sites of 20 companies comprising the Free File Alliance. The alliance is a consortium of tax preparation companies that agreed to offer free return preparation and electronic filing for taxpayers that meet certain criteria (see app. 1 for further detail). In an amended agreement with IRS that took effect this year, the Free File Alliance set a $50,000 income limitation on taxpayer participation. This limit was absent last year and reduced the number of taxpayers eligible to participate in the program. As of April 13, 2006, IRS processed about 3.5 million free file returns, which is a decrease of 24 percent from the same period last year. This decline is inconsistent with IRS’s projection that it would receive 6 million tax returns filed through the Free File program, almost a million more compared to last year. For 2006, IRS terminated the TeleFile program. IRS expected that eliminating TeleFile would reduce electronic filing, but justified the decision because of declining usage and relatively high costs. The number of taxpayers using the program had been decreasing—from approximately 5.7 million in 1999 to 3.8 million in 2004. IRS estimated the cost per tax return submitted through TeleFile, typically Form 1040EZ, to have been $2.63 versus $1.51 for a return filed on paper, largely due to contractor, telecommunications, and other costs. Given the limitations of IRS’s cost accounting system, the validity of these figures is unknown. IRS officials stated that the reason for this year’s increase in the number of 1040EZ returns filed on paper is due, in part, to the elimination of TeleFile. Through April 14, 2006, the number of 1040EZ returns filed on paper has increased 20 percent from last year. Options for increasing electronic filing, in particular mandated electronic filing, will be discussed in the budget section of this statement. Taxpayers’ ability to access IRS’s telephone assistors and the accuracy of answers provided improved compared to previous years. From January 1 through April 15, 2006, IRS answered approximately 31 million phone calls, which is about a 7 percent decline from the same period last year. The call volume has been less than projected by IRS and less than was assumed when IRS set staffing levels for telephone assistors for the filing season. IRS officials offered several explanations for the unexpected decline in call volume. One explanation is that more taxpayers are using improved tax preparation software, which reduces their need to call IRS. Another explanation is that more taxpayers are getting through to a telephone assistor the first time they call, thus reducing the need for taxpayers to call again. As shown in table 1, the percentage of taxpayers who attempted to reach an assistor and actually got through and received service—referred to as the level of service—is 83.3 percent so far this filing season compared to 81.7 percent over the same period last year—and greater than its 2006 fiscal year goal of 82 percent. According to IRS officials, one possible explanation for the improvement in access is the decline in overall call volume. When call volume decreases, taxpayers are likely to wait less time to speak with an IRS telephone assistor. As a result, fewer taxpayers would likely hang up, increasing the percentage of taxpayers who get through to an assistor. IRS also reported that, so far this filing season, the average speed of answer (length of time taxpayers wait to get their calls answered) is down 51 seconds from the same time last year to 205 seconds, a decrease of about 20 percent, and significantly better than IRS’s 2006 fiscal year goal of 300 seconds. IRS also reported that the rate at which taxpayers abandoned their calls to IRS decreased from 12 percent to 9.7 percent compared to the same period last year. Using a statistical sampling process, IRS estimates that the accuracy of telephone assistors’ responses to taxpayers’ tax law and account questions improved compared to last year. IRS estimates its tax law accuracy rate to be 90 percent, an increase of 1.9 percentage points over the same time period last year, continuing an improvement since 2004. Additionally, IRS estimates that the accuracy rate to taxpayers’ inquiries about their accounts, to be 92.9 percent this year compared to 91.6 percent over the same period last year, continuing an improvement since 2003. IRS officials attribute these improvements in performance to several factors, including better and more timely performance feedback for telephone assistors, increased assistor experience, better training, and increased use of the Probe and Response Guide, a script used by telephone assistors to understand and respond to tax law questions. Use of IRS’s Web site has increased so far this filing season compared to prior years based on the number of visits and downloads. From January 1 through March 31, IRS’s Web site was visited 95 million times by visitors who downloaded 90 million forms and publications. The number of visits reflects a 7.5 percent increase over the same period last year while the number of forms and publications downloaded has increased by 34 percent. Further, IRS’s Web site is performing well. For example, we found IRS’s Web site to be readily accessible, easy to navigate, and an independent weekly study by Keynote, a company that evaluates Web sites, reported that IRS’s Web site has repeatedly ranked second out of 40 government agencies evaluated in terms of average download time. The same study also reported that IRS has repeatedly ranked first out of the most commonly accessed government related Web sites for response time and success rate, and the American Consumer Satisfaction Index overall customer satisfaction with IRS’s Web site increased from 68 to 72 percent after IRS reconfigured the site. IRS reconfigured its Web site for the 2006 filing season. According to IRS officials, the goal for reconfiguring the Web site was to improve overall customer service through easier navigation and a more effective search function. As a result, the number of Web site searches has decreased by 51 percent, from 108 million during the same period last year to 52.5 million this year. Typically, search functions are used when users fail to find information through links. According to IRS officials, the decrease in the number of searches indicates that users are finding the information that they need faster.