To assess IRS’s 2008 filing season performance in the key filing season activities compared to goals and past performance, report on the effect of ESP, and highlight areas where IRS could expand use of MEA, we reviewed and analyzed IRS reports, testimonies, budget submissions, and other documents and data, including workload data, data related to IRS’s performance measures and goals, and data on taxpayer usage of services and other statistics such as the number of paid preparers; observed operations at IRS’s Atlanta, Georgia, paper submission processing center, the Atlanta call site, the Joint Operations Center (which manages IRS’s telephone services) in Atlanta, and IRS’s walk-in locations in Atlanta and Baltimore, Maryland, and selected these offices for a variety of reasons, including the location of key IRS managers, such as those responsible for telephone and walk-in site services; tested for statistically significant differences between annual performance measures based on IRS sample data; analyzed staffing data for paper and electronic filing, and telephone assistance; reviewed information from organizations, such as Keynote Systems, which evaluate Internet performance; interviewed representatives of some of the larger private and nonprofit organizations that prepare tax returns, such as H&R Block, and trade organizations that represent both individual paid preparers, tax preparation companies, and professional associations, including the American Institute of Certified Public Accountants; reviewed TIGTA reports and interviewed TIGTA officials about IRS’s performance and initiatives; interviewed IRS officials about current operations, performance relative to 2008 performance goals and prior filing season performance, trends, significant factors, and initiatives that affected or were intended to improve performance, monitoring, and oversight of paid tax preparers; reviewed IRS data on math errors, information on IRS’s process for identifying and correcting math errors, legislation providing IRS with math error authority; interviewed IRS officials, including those from the EITC office, about MEA; reviewed reports on MEA from the National Taxpayer Advocate (NTA) and TIGTA; and reviewed our prior reports and followed up on our recommendations made in those reports. This report discusses numerous filing season performance measures and data that cover the quality, accessibility, and timeliness of IRS’s services. We assessed the reliability of data used in this report by (1) performing electronic testing of required data elements, (2) reviewing existing information about the data and the system that produced them, and (3) interviewing agency officials knowledgeable about the data. We determined that the data were sufficiently reliable for the purpose of this report. To the extent possible, we corroborated information from interviews with documentation and data and where not possible, we attribute the information to IRS officials. We reviewed IRS documentation, interviewed IRS officials about computer systems and data limitations, and compared those results to our standards of data reliability. Data limitations are discussed where appropriate. We conducted our work primarily at IRS headquarters in Washington, D.C., walk-in sites offices at Baltimore, Maryland, the Wage and Investment Division headquarters and walk-in sites in Atlanta, Georgia. IRS’s filing season is an enormous and critical undertaking and consists of two primary activities, processing well over 100 million individual income tax returns and refunds and providing millions of taxpayers with telephone, Web site, and face-to-face assistance. The following describes the processing of tax returns. Most taxpayers file their individual income tax returns electronically, although millions still mail paper returns. Electronic filing is faster, which allows taxpayers to receive refunds faster, and is less prone to transcription and other errors, and provides IRS with significant cost savings. Taxpayers below an income ceiling can access the Free File program offered through IRS’s Web site by a consortium of 19 tax preparation companies that offer free on-line tax preparation and filing services for qualifying taxpayers. IRS continues to develop and deliver a number of Business Systems Modernization programs, including releases of the Customer Account Data Engine (CADE). CADE is intended to eventually replace IRS’s antiquated Master File legacy processing system and facilitates faster refund processing and provides IRS with more up-to-date account information. IRS provides a variety of taxpayer services, including the following. IRS has toll-free assistance telephone lines which taxpayers can call with questions about tax law or their refunds. Depending on how taxpayers respond to menu choices, questions are answered by automated messages or calls are routed to telephone assistors located at 24 call sites around the country. IRS offers assistance through its Web site, including “Where’s My Refund?”, which enables taxpayers to use the Web site to determine whether the agency received their tax returns and processed their refunds. Taxpayers can also download forms, instructions, and publications, research their own tax law issues through Frequently Asked Questions or Tax Topics, and receive help with specific tax law questions and procedural questions via e-mail. IRS offers assistance at nearly 12,000 volunteer sites, which helps IRS serve traditionally underserved taxpayer segments, including elderly, low-income, and disabled taxpayers, and taxpayers with limited- English proficiency. Additionally, IRS has 401 walk-in sites where taxpayers can receive basic tax law and account assistance from IRS staff and have returns prepared if their annual income is $40,000 or less. In addition to depending on IRS, taxpayers depend heavily on paid tax return preparers or commercial tax prepartion software during the filing season. Paid preparers are a critical part of the nation’s tax administration system because of the wide variety of assistance they offer taxpayers, including help understanding tax obligations, return preparation and electronic filing, and providing forms and publications. In 2007, 59 percent of individual taxpayers had their return prepared and filed by paid preparers and about 16 percent prepared their return using commercial tax preparation software. Late tax law changes create filing season challenges for IRS. This can be particularly true if, like ESP, the changes are complex and significantly increase filing season workload (for a detailed description of IRS’s implementation of ESP, see app. II). ESP contained complex rules about eligibility, amount of the rebate, and filing requirements. Over the years, the Congress granted IRS legal authority to cover 11 areas so that the agency could correct return errors during processing, including calculation errors and entries that are inconsistent or exceed statutory limits, without having to issue the taxpayer a statutory notice of deficiency (see app. III for further details on the MEA process and authorities). We have reported that prompt compliance checks such as these are important because as unpaid taxes age, the likelihood of collecting all or part of the amount owed decreases, due in part to continued accrual of interest and penalties on the outstanding federal taxes. MEA also provides a taxpayer service as it allows taxpayers to receive their refunds faster, corrects return errors before interest is accrued, and can avoid time consuming interaction with IRS while the error is being resolved. MEA can also help ensure taxpayers receive the tax benefits for which they are eligible. For example, between tax years 2003 and 2006, using its MEA, IRS identified over 500,000 occurrences of taxpayers under-claiming the EITC with the result that an additional $130 million was provided to those claimants. Without MEA, most of these errors would not likely have been identified and thousands of low income taxpayers would likely have received less than they were entitled. Because math error checks are automated and require little contact with taxpayers, they provide IRS with an enforcement tool that is low cost and less intrusive and burdensome to taxpayers than audits. By using its MEA, IRS reported preventing $460 million from reaching ineligible taxpayers in fiscal year 2006. The NTA—who heads the program that helps resolve taxpayers’ tax problems with IRS and recommends changes to mitigate taxpayer problems—noted some concerns about IRS’s use of MEA in its 2006 report to Congress. NTA reported that, because MEA allows IRS to summarily assess the tax before a taxpayer has the opportunity to challenge the assessment, it should be used in specific and narrow circumstances. Because taxpayer rights are different under MEA, NTA expressed concern that math error notices did not provide enough detail for the recipient to understand what had occurred, their rights, and how they could request abatement. NTA also reported that IRS was using math error checks in some limited areas where it was not clear that IRS had the authority. In its response to the NTA’s 2006 report, IRS reported that it resolved the issues raised by NTA. While the NTA acknowledges that the IRS has made significant improvements to the math error notice process, it still notes that IRS could improve how it is administering MEA. As of September 12, 2008, IRS processed 150 million individual income tax returns, including almost 9 million ESP-only returns, and processed 105 million tax refunds totaling $246 billion. IRS processed 16 million Form 1040As on paper, a 92 percent increase from last filing season, largely due to ESP. According to IRS officials, this increase was especially burdensome not only because paper processing is more labor-intensive and expensive then electronic processing, but also because claimants made many errors on ESP-only returns, which IRS had to manually correct. As of September 12, IRS had processed 116 million stimulus payments totaling almost $94 billion. As shown in table 1, the percentage of electronically filed returns is similar to last year’s when ESP-only returns are included. Excluding the almost 9 million ESP-only returns, most of which were filed on paper, the number of taxpayers who filed electronically increased from 59 percent to 62 percent of total returns. The increase in electronic filing is due, in part, to the Free File program. The number of taxpayers who filed electronically through Free File increased 24 percent, after a 2 percent decline in participation last year, to 3.8 million. According to IRS officials, this increase is due to greater taxpayer awareness and enhanced marketing. As of August 8, CADE posted 30.5 million returns, slightly exceeding IRS’s goal of 30 million and significantly up from the 11 million returns CADE posted as of last year.