To assess IRS’s 2005 filing season performance in the four key filing season activities—processing, telephone assistance, face-to-face assistance, and Web site—compared to goals, past performance, as well as initiatives intended to improve performance, we reviewed and analyzed IRS reports, testimonies, budget submissions, and other documents and data, including workload data and data from IRS’s current suite of balanced performance measures and annual goals; reviewed legislation, policies, and procedures; reviewed related TIGTA reports and interviewed TIGTA officials about IRS’s performance and initiatives; followed up on our recommendations made in prior filing season and tested for statistical differences between yearly changes for various observed operations at IRS’s Atlanta paper processing center, and Atlanta and Pittsburgh call centers, all of which are managed by IRS’s Wage and Investment operating division (W&I); 3 of IRS’s approximately 400 walk-in locations; and 3 of over 14,000 volunteer sites. analyzed information posted to IRS’s Web site based on our knowledge of the type of information taxpayers look for, and assessed the ease of finding information, as well as the accuracy and currency of the data on the site; reviewed information from companies that evaluate Internet reviewed staffing data for paper and electronic processing, telephone assistance, and walk-in assistance; interviewed IRS officials about current operations, performance relative to 2005 performance goals, and prior filing season performance, trends, and significant factors and initiatives that affected or were intended to improve performance; and interviewed representatives of large private and nonprofit organizations that prepare tax returns and trade organizations that represent both individual practitioners and tax preparation companies. This report discusses numerous filing season performance measures and data that cover the quality, accessibility, and timeliness of IRS’s services, which we have used to evaluate IRS’s performance in key areas for years. Although some measures could be further refined, the majority of IRS’s filing season measures have the attributes of successful measures, including objectivity and reliability. We reviewed IRS documentation, interviewed IRS officials about computer systems and data limitations, and compared those results to GAO standards of data reliability. As a result, we determined that the IRS data we are reporting are sufficiently reliable for assessing IRS’s filing season performance. Data limitations are discussed where appropriate. We conducted our work at IRS headquarters in Washington, D.C.; the Small Business/Self-Employed Division headquarters in New Carrollton, Maryland; the W&I Division headquarters, the Joint Operations Center (which manages telephone service), and a telephone call site in Atlanta, Georgia; a telephone call site in Pittsburgh, Pennsylvania; and walk-in and volunteer locations in Georgia and Maryland. We selected these offices for a variety of reasons, including the location of key IRS managers, such as those responsible for telephone, walk-in, and volunteer services. Hurricanes Katrina and Rita struck just as we were completing our 2005 filing season review. Because Katrina and Rita occurred when we were finishing our work, we did not assess the effectiveness of IRS’s actions. We performed our work from January through October 2005 in accordance with generally accepted government auditing standards. IRS received over $10 billion in fiscal year 2005 to fund over 96,000 full-time equivalents (FTE). Of the total, processing and taxpayer services account for 41 percent, almost 40,000 FTEs, as shown in figure 1. Of the roughly 40,000 FTEs, almost 16,000, just less than 40 percent, were budgeted just for processing, most of which occurs during the filing season. IRS provides a variety of taxpayer services. Tens of millions of taxpayers receive telephone assistance. Taxpayers call IRS to inquire about their refunds, the tax laws, or their accounts. The calls are answered by CSRs or automated services. For face-to-face assistance, IRS has approximately 400 walk-in sites where taxpayers ask basic tax law questions, get account information, receive assistance with their accounts, and have returns prepared (if annual gross income is $36,000 or less). Also, low-income and elderly taxpayers get returns prepared at over 14,000 volunteer sites run by community-based coalitions that partner with IRS. IRS’s Stakeholder Partnership, Education, and Communication (SPEC) organization fosters relationships between IRS and the nonprofit community to provide an alternative means for taxpayers to receive volunteer return preparation assistance. According to IRS, SPEC officials identify and select partners, such as the American Association of Retired Persons, that meet taxpayer needs, such as tax assistance for the elderly, and help train, provide resource materials, and oversee operations at these partners’ facilities. In some cases, IRS awards grants, trains and certifies volunteers, and provides reference materials, computer software, and computers to these volunteers. IRS now provides many Internet services that did not exist a few years ago. For example, the “Where’s My Refund” feature has the benefit of reducing phone calls and enables taxpayers to use the IRS Web site to find out if IRS received their tax returns and whether their refunds were processed. IRS’s filing season activities and associated workload volumes are depicted in figure 2. IRS’s performance measures show that IRS has improved its performance processing individual income tax returns and nearly met or exceeded most of its 2005 goals. The continued growth in the number of tax returns filed electronically resulted in more than half of all individual income tax returns being filed electronically for the first time. Despite the continued growth, IRS is not on track to meet its 80 percent long-term electronic filing goal. Electronic filing mandates imposed by several states on tax practitioners who meet certain criteria have increased electronic filing of federal individual income tax returns. However, stakeholders have noted information is lacking on the costs and burdens of mandating electronic filing. As of September 16, 2005, IRS processed about 130 million individual tax returns, including 68 million returns electronically, with no significant disruptions and issued 99 million refunds in a timely manner. According to IRS data, IRS equaled or exceeded its 2004 performance and nearly met or exceeded its 2005 goals for the following seven measures (see app. 1 for further details). Deposit error rate: the percentage of payments applied in error. Deposit timeliness, paper: the amount of interest forgone by not depositing payments the business day after receipt. Letter error rate: the percentage of letters issued to taxpayers with errors. Notice error rate: the percentage of incorrect notices issued to taxpayers. Refund error rate, individual: the percentage of refunds with IRS-caused errors in the entity information (e.g., incorrect name or Social Security number). Refund timeliness, paper: the percentage of refunds issued within 40 days or less for individual tax returns filed on paper. Productivity: the weighted volume of work processed per staff year. For one measure IRS’s performance declined and the 2005 goal was not met. Refund interest paid rate: the interest paid per $1 million of refunds issued late. One measure was new for 2005, and IRS met the goal. Individual Master File efficiency: the number of tax returns processed per staff year. Although IRS’s performance measures indicate smooth processing and improved performance, we have previously recommended that IRS adopt others. Specifically, we recommended that IRS adopt a refund timeliness performance measure for individual tax returns filed electronically to promote growth in electronic filing. This measure could help IRS better monitor and evaluate electronic filing performance and determine the impact of initiatives intended to increase electronic filing. However, IRS does not plan to implement such a measure, stating it would not enhance performance and, in fact, might be counterproductive if disappointed taxpayers who had to wait longer than expected to receive their refunds were to call or seek face-to-face assistance. Although not publicly reported, IRS data shows that refunds associated with returns filed electronically are received in about half the time as those filed on paper. IRS publications also inform taxpayers that they can receive their tax refund in 10 days if they file electronically if they use direct deposit. The number and costs of refund anticipation loans (RAL) are evidence that taxpayers might benefit from having more information about the time it takes to get refunds. RALs are very short-term loans issued while taxpayers wait for their refunds. In a previous testimony, we found examples of interest rates on RALs of well over 100 percent. The measure could be designed to minimize the problem of disappointed taxpayers calling IRS by, for example, reporting the number of days within which 90 percent of refunds are issued. For the first time, IRS used the Customer Account Data Engine (CADE) to process the simplest taxpayer returns, that is, 1040EZs. CADE is important because it is the foundation of IRS’s modernization effort and will ultimately replace the Individual Master File, which currently houses taxpayer data for individual filers, with new technology, applications, and relational databases. As of August 2005, CADE processed over 1.4 million returns with no significant problems, handled $424 million in refunds, and shortened the average turnaround for refunds from 7 days to 3.5 days. A recent TIGTA report noted that information from tax returns was accurate and posted on time to CADE accounts. IRS released the next update to CADE in mid-September 2005; another release is scheduled for January 2006 and is on schedule, according to an IRS division chief. IRS officials attribute this year’s smooth processing to adequate planning and relatively few tax law changes. Tax practitioners, who last year prepared approximately 60 percent of all individual income tax returns, agreed that the processing of individual tax returns has gone smoothly during the 2005 filing season. Representatives from the National Association of Enrolled Agents, National Society of Certified Public Accountants, and other tax-related organizations had positive comments about IRS’s processing of individual tax returns. Similarly, TIGTA officials told us that IRS generally processed individual tax returns smoothly in 2005.