oversight

Applying Agreed-Upon Procedures: Airport and Airway Trust Fund Excise Taxes

Published by the Government Accountability Office on 2003-01-23.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

United States General Accounting Office
Washington, DC 20548




          January 23, 2003

          The Honorable Kenneth M. Mead
          Inspector General
          Department of Transportation

          Subject: Applying Agreed-Upon Procedures: Airport and Airway Trust Fund
                   Excise Taxes

          Dear Mr. Mead:

          We have performed the procedures contained in the enclosure to this report, which
          we agreed to perform and with which you concurred, solely to assist your office in
          ascertaining whether the net excise tax revenue distributed to the Airport and Airway
          Trust Fund (AATF) for the fiscal year ended September 30, 2002, is supported by the
          underlying records. As agreed with your office, we evaluated fiscal year 2002 activity
          affecting distributions to the AATF.

          In performing the agreed-upon procedures, we conducted our work in accordance
          with U.S. generally accepted government auditing standards, which incorporate
          financial audit and attestation standards established by the American Institute of
          Certified Public Accountants. These standards also provide guidance for performing
          and reporting the results of agreed-upon procedures.

          The adequacy of the procedures to meet your objectives is your responsibility, and
          we make no representation in that respect. The procedures we agreed to perform
          include (1) detailed tests of transactions that represent the underlying basis of
          amounts distributed to the AATF, (2) review of the Internal Revenue Service’s (IRS)
          quarterly AATF certifications, (3) review of the Department of the Treasury Financial
          Management Service (FMS) adjustments to the AATF for fiscal year 2002, (4) review
          of certain procedures in the Office of Tax Analysis’ (OTA) process for estimating
          amounts to be distributed to the AATF for the fourth quarter of fiscal year 2002,
          (5) comparison of net excise tax distributions to the AATF during fiscal year 2002 and
          amounts reported in the financial statements prepared by the Bureau of the Public
          Debt (BPD) for the AATF and the Federal Aviation Administration’s (FAA) draft
          consolidated financial statements, and (6) review of key reconciliations of IRS
          records to Treasury records. The enclosure contains the agreed-upon procedures
          and our findings from performing each of the procedures.

          We were not engaged to perform, and did not perform, an audit, the objective of
          which would have been the expression of an opinion on the amount of net excise


                             GAO-03-361R Airport and Airway Trust Fund Excise Tax Procedures
taxes distributed to the AATF. Accordingly, we do not express such an opinion. Had
we performed additional procedures, other matters might have come to our attention
                                     1
that would have been reported to you. We completed the agreed-upon procedures
on January 10, 2003.

We provided a draft of this report to IRS and Treasury officials, along with its
enclosure, for review and comment. They agreed with the results and findings
presented in this report.

This report is intended solely for the use of the Office of Inspector General of the
Department of Transportation and should not be used by those who have not agreed
to the procedures and have not taken responsibility for the sufficiency of the
procedures for their purposes. However, this report is a matter of public record and
its distribution is not limited. Copies are available to others upon request. This
report is also available at no charge on GAO’s home page at http://www.gao.gov. If
you have any questions, please call me at (202) 512-3406.

Sincerely yours,




Steven J. Sebastian
Director
Financial Management and Assurance

Enclosure




1
 In our report on the results of our audit of IRS’s fiscal year 2002 financial statements, we noted a
material weakness in IRS’s financial reporting process (Financial Audit: IRS’s Fiscal Year 2002 and
2001 Financial Statements, GAO-03-243, November 15, 2002). A component of this process includes
IRS’s ability to allocate excise tax collections to the appropriate trust funds at the time deposits are
made. This condition affects the adequacy of the distributions of federal excise tax revenue to
recipient trust funds and is a continuation of an issue that we have reported on in prior years.



Page 2               GAO-03-361R Airport and Airway Trust Fund Excise Tax Procedures
Enclosure


         Airport and Airway Trust Fund Excise Tax Procedures and Results

    I. Detailed tests of transactions that represent the underlying basis of
       amounts distributed to the AATF in fiscal year 2002

    A. Nonrepresentative selection of tax returns from the quarter ended September 30,
       20012

         1. For the quarter ending September 30, 2001, select the 30 largest excise tax
            returns containing excise taxes related primarily to the AATF and the Highway
                                                                3
            Trust Fund (HTF) on the basis of total tax liability amount from IRS’s master
                 4
            file.

            Description of findings and results

             We selected the 31 largest excise tax returns from the quarter ended
             September 30, 2001, for testing. 5 The selection was based on the total tax
             liability amount and type of taxes owed, for each return, from IRS’s master
             file.


             The total tax liability amount related to these 31 returns was approximately
             $8.1 billion, or 64 percent of the total excise tax liability amount
             ($12.6 billion6) for all excise tax types for the quarter ended September 30,
             2001.


             Of these 31 returns, 6 contained primarily AATF-related taxes and 25
             contained primarily HTF taxes.



2
 Since certifications are not completed until 6 months after the end of the quarter, the
certification and corresponding FMS adjustment for the quarter ended September 30, 2001, were
completed in March 2002 and thus affected fiscal year 2002 distributions to the AATF.
3
 Although the certifications are based on amounts collected, we used the tax liability amounts to
identify the taxpayers paying the largest amounts of excise taxes. Our review shows that these
taxpayers generally pay their excise taxes in full each quarter.
4
 The master file is a detailed database containing taxpayer information.
5
 Per our agreement with the Department of Transportation Office of Inspector General, we
selected one additional AATF-related return in order to test a minimum of six AATF returns.
6
Per IRS, this was the total excise tax liability amount, from its master file, for the quarter ended
September 30, 2001.



Page 3                 GAO-03-361R Airport and Airway Trust Fund Excise Tax Procedures
Enclosure


         2.   For each of the 6 returns related primarily to the AATF, we performed the
              following procedures, which resulted in our testing approximately $1.2 billion
                                     7
              in prorated collections affecting fiscal year 2002 distributions to the AATF:

                                                               8
              (a)   Trace the liability amount for abstracts 26, 27, and 28 from the tax
                    return to IRS’s master file.

                    Description of findings and results

                    The liability amount for abstracts 26, 27, and 28 on the tax return agreed
                    with IRS’s master file for all 6 of the returns.

              (b)   Check the mathematical accuracy of the taxpayer’s calculations on the
                    tax return for the selected abstracts.

                    Description of findings and results

                    The taxpayer’s calculations on all 6 returns were mathematically
                    correct.




7
 IRS certifies to trust funds the amount of excise taxes collected. Because there are occasions in
which taxpayers have not fully paid their tax liability, IRS must allocate the amount of payments
actually received among the different excise taxes reported on the taxpayer’s return. IRS’s
Collection Certification System prorates a taxpayer’s payments proportionately among all taxes
reported as owed on the tax return. For example, if a taxpayer reports that it owes $4 million for
gasoline tax, $2 million for diesel fuel tax, and $1 million for gasohol tax on its Form 720
Quarterly Federal Excise Tax Return, but has paid IRS only $3.5 million at the time IRS performs
its certification, the program prorates the $3.5 million in the following manner: $2 million to
gasoline tax, $1 million to diesel fuel tax, and $500,000 to gasohol tax.
8
 The abstract numbers identify the tax type (e.g., gasoline and ticket tax) and are used as the
basis for determining the distribution of the excise taxes to the various trust funds. Abstract
numbers are preprinted on the Form 720 Quarterly Federal Excise Tax Return and are used by
the taxpayer to report excise tax assessments. If the return was related to the AATF, we selected
(1) tax on transportation of persons by air-ticket tax (abstract 26), (2) tax on use of international
air facilities (abstract 27), and (3) tax on transportation of property by air (abstract 28). If the
return was related to the HTF, we selected (1) tax on 10 percent gasohol (abstract 59), (2) diesel
fuel tax (abstract 60), and (3) gasoline tax (abstract 62). The tax amounts related to the selected
abstracts for each trust fund are the largest tax amounts reported on the taxpayer’s excise tax
return and make up over 90 percent of the total amount certified to the AATF and over 87
percent of the total amount certified to the HTF.



Page 4                 GAO-03-361R Airport and Airway Trust Fund Excise Tax Procedures
Enclosure



            (c)    Recompute the prorated collection amount for the selected abstracts
                   based on information from the master file and compare this amount to
                   the amount from the Collection Certification System audit file.9

                   Description of findings and results

                   The recomputed prorated collection amounts for the three selected
                   abstracts agreed with amounts in IRS’s Collection Certification System
                   audit file for all 6 of the returns.

     B. Dollar unit sample (DUS) of transactions from the quarters ended December 31,
        2001, and March 31, 2002

         1. Sampling

            (a)    Obtain excise tax assessments and collection data from IRS’s master
                   file for the first 6 months of fiscal year 2002. Determine if excise tax
                   collections per master file agree with IRS’s general ledger. Reconcile
                   total excise tax collections from the master file to total excise tax
                   collections from the Collection Certification System audit files to
                                                 10
                   determine if they materially agree.

                   Description of findings and results

                   Excise tax collections for the first 6 months of fiscal year 2002 per the
                   master file materially agreed with IRS’s general ledger and with total
                   excise tax collections from the Collection Certification System.

            (b)    Select a random attribute sample of 78 excise tax assessments from
                   IRS’s master file.11 Compare assessment and receipt information for
                   each sample item from the master file to the assessment and receipt
                   information in the Collection Certification System to determine if
                   assessments and receipts from the master file are contained in the
                   Collection Certification System.
9
 The Collection Certification System produces what IRS refers to as “audit files.” These audit
files contain the individual prorated collections, by abstract and taxpayer identification number,
that make up the certified total amounts for each abstract.
10
 For the purpose of this reconciliation, material is defined as 1 percent of the total Form 720-
related excise tax collections, related to the quarters ended December 31, 2001, and March 31,
2002. For fiscal year 2002, the materiality amount was $210 million for the two quarters
combined.
11
 For this sample, if one or no errors were found in testing the 78 items, we would be 90 percent
confident that the error rate in the population would not exceed 5 percent.



Page 5                 GAO-03-361R Airport and Airway Trust Fund Excise Tax Procedures
Enclosure



                   Description of findings and results

                   For each sample item, assessments and receipts from the master file
                   were contained in the Collection Certification System.

            (c)    To determine if the Collection Certification System properly
                   summarized the prorated collections, total the prorated collections for
                                     12
                   selected abstracts from the audit files and compare these amounts to
                   amounts in the Reports of Excise Tax Collection.13

                   Description of findings and results

                   The Collection Certification System properly summarized the prorated
                   collections for all of the selected abstracts related to the AATF and the
                   HTF. Prorated collections for the above-mentioned trust funds from
                   the audit files agreed with the corresponding amounts in the Reports of
                   Excise Tax Collection.

             (d) Separate the total population of prorated collections from the audit files
                 into the following distinct populations: (1) AATF, (2) HTF, and (3) other
                 excise tax abstracts. Use DUS to select a sample of prorated excise tax
                 collections from the AATF population.




12
 The selected abstracts include the following: (1) tax on transportation of persons by air
(abstract 26), (2) tax on use of international air facilities (abstract 27), (3) tax on transportation
of property by air (abstract 28), (4) tax on aviation fuel for commercial use (abstract 77), (5) tax
on 10 percent gasohol (abstract 59), (6) diesel fuel tax (abstract 60), and (7) gasoline tax
(abstract 62). The tax amounts for the four AATF-related abstracts make up over 96 percent of
the total amount certified to the AATF and the tax amounts for the three HTF-related abstracts
make up over 87 percent of the total amounts certified to the HTF.
13
 The Report of Excise Tax Collection contains prorated collections, classified by abstracts, that
serve as the basis for IRS’s quarterly trust fund certifications.



Page 6                  GAO-03-361R Airport and Airway Trust Fund Excise Tax Procedures
Enclosure


                   Description of findings and results

                   Use of DUS with a confidence level of 80 percent, a test materiality of
                   $91 million, and an expected aggregate error amount of $27.3 million
                   resulted in a sample of 6214 prorated collections for the first 6 months of
                   fiscal year 2002.

              (e) Select samples of prorated excise tax collections from the two non-
                  AATF populations.

                   Description of findings and results

                   Use of DUS with a confidence level of 80 percent, a test materiality of
                   $315 million, and an expected aggregate error amount of $94.5 million
                                             15
                   resulted in a sample of 94 prorated collections for the first 6 months of
                   fiscal year 2002 for the HTF.

                   A random attribute sample of 45 items from the population of prorated
                   tax collections related to all excise taxes other than the AATF and the
                                                   16
                   HTF was selected for testing.

         2. Detailed tests of transactions

            (a) For each prorated excise tax collection sampled from the AATF
                population:

               •   Check to see that the assessment amount on the tax return, for the
                   sampled abstract, agrees with the amount recorded in IRS’s master file.



14
  The planned sample size using DUS was 111 items. DUS selects dollars versus specific
transaction items by dividing the population by dollar intervals. The dollar interval for the AATF
was $34 million. Accordingly, any item with a dollar value matching or exceeding the sampling
interval would be selected, whereas items less than the sampling interval might not be selected.
For example, an item of $68 million would cover two dollar-intervals, but represent one sample
item. Due to large dollar items covering more than one interval, the 62 unique sampled
transactions selected represent 111 dollar-intervals.
15
 The planned sample size using DUS was 136 items. As explained in footnote 14, DUS selects
dollars versus specific transaction items by dividing the population by dollar intervals. The
dollar interval for the HTF was $116 million. Due to large dollar items covering more than one
interval, the 94 unique sampled transactions selected represent 136 dollar-intervals.
16
 For this sample, if no errors are found in testing the 45 items, we would be 90 percent confident
that the error rate in the population would not exceed 5 percent.



Page 7                 GAO-03-361R Airport and Airway Trust Fund Excise Tax Procedures
Enclosure


                   Description of findings and results

                   The assessment amounts on the tax returns agreed with the amounts
                   recorded in IRS’s master file for all of the sampled abstracts.

               •   Check the mathematical accuracy of the taxpayers’ calculations on the
                   tax returns for the related abstract.

                   Description of findings and results

                   The taxpayers’ calculations on the tax returns for the related abstracts
                   were mathematically correct for all of the sampled abstracts.

               •   Recompute the prorated collection amount based on information from
                   the master file and compare this amount to the sample items selected
                                                                       17
                   from the Collection Certification System audit file.

                   Description of findings and results

                   The recomputed prorated collection based on information from the
                   master file agreed with the amounts for all of the sampled items.


            (b)    Perform detailed testing on the two samples of prorated collections
                   from the non-AATF populations to determine if they contain any AATF
                   excise tax collections.

                   Description of findings and results

                   The two samples of prorated collections from the non-AATF
                   populations did not contain any AATF excise tax collections.

            (c)    Evaluate the results of conducting steps (a) and (b).

                   Description of findings and results

                   As noted in the results from steps (a) and (b), we found no errors.

II. Review of IRS’s quarterly AATF certifications

     A. Receipt certifications


17
 The purpose of this test is to determine whether the Collection Certification System prorates
correctly. This test is not intended to determine whether amounts provided to the system are
correct.



Page 8                GAO-03-361R Airport and Airway Trust Fund Excise Tax Procedures
Enclosure


         Perform the following steps on IRS’s AATF receipt certifications for the quarters
         ended September 30, 2001; December 31, 2001; March 31, 2002; and June 30,
              18
         2002:

         1. Inspect the certification letters for authorizing signatures.

            Description of findings and results

            The certification letters for all four quarters had authorizing signatures.

         2. Determine if evidence exists that the supervisor or another analyst checked
            the certification letters and supporting worksheets.

            Description of findings and results

            There was evidence that another analyst and a supervisor checked the
            certification letters and supporting worksheets for all four quarters.

         3. Recalculate the totals on the certification letters to determine if they are
            mathematically correct.

            Description of findings and results

            The totals on the certification letters for all four quarters were mathematically
            correct.

         4. Trace the certified amounts for tax on transportation of persons by air
            (abstract 26), tax on use of international air facilities (abstract 27), tax on
            transportation of property by air (abstract 28), and tax on aviation fuel for
            commercial use (abstract 77)19 from the certification letters back to the
                                               20
            Reports of Excise Tax Collection.

18
 Since certifications are not completed until 6 months after the end of the quarter, the
certification and corresponding FMS adjustment for the quarter ended September 30, 2002, will
not be completed in time to affect the recorded fiscal year 2002 distributions to the AATF.
19
 The certified amounts for tax on transportation of persons by air (abstract 26), tax on use of
international air facilities (abstract 27), tax on transportation of property by air (abstract 28), and
tax on aviation fuel for commercial use (abstract 77) make up over 96 percent of the total
amount certified to the AATF.
20
 IRS uses data from two of these reports, covering sequential processing intervals, for each
quarterly certification. Collections are classified by abstract on the report when the related Form
720 tax return has been recorded in IRS’s master file during the processing interval covered by
the report. The second of the two reports used may contain collections related to previous
quarters not classified by abstract until the current quarter because the related return was not
recorded on the master file until the current quarter.



Page 9                 GAO-03-361R Airport and Airway Trust Fund Excise Tax Procedures
Enclosure



            Description of findings and results

            The certified amounts for tax on transportation of persons by air (abstract 26),
            tax on use of international air facilities (abstract 27), tax on transportation of
            property by air (abstract 28), and tax on aviation fuel for commercial use
            (abstract 77) per the certification letters agreed with the related Report of
            Excise Tax Collection for all four quarters.

            However, IRS omitted $146 million in excise tax collections from its normal
            receipt certification for the quarter ended March 31, 2002, because of
            processing delays. Specifically, IRS did not record information from two large
            excise tax returns into its master file in time for inclusion in the Report of
            Excise Tax Collection. As a result, IRS performed a supplemental
            certification in order to timely certify the additional $146 million to the AATF.
            We (1) recalculated the total on the supplemental certification letter and
            (2) traced the certified amounts for tax on transportation of persons by air
            (abstract 26), tax on use of international air facilities (abstract 27), tax on
            transportation of property by air (abstract 28), and tax on aviation fuel for
            commercial use (abstract 77) from the supplemental certification letters back
            to the two supporting tax returns. We did not identify any discrepancies.

       5. Review the Reports of Excise Tax Collection used in the certification to
                                               21
          determine if they contain significant collections from prior quarters.

            Description of findings and results

            The Reports of Excise Tax Collection supporting IRS’s certifications to the
            AATF did not contain significant prior quarter collections for the quarters
            ended September 30, 2001; March 31, 2002; and June 30, 2002.


            The Reports of Excise Tax Collection supporting IRS’s certification to the
            AATF for the quarter ended December 31, 2001, contained approximately $432
            million in AATF excise tax collections related to the quarter ended September
            30, 2001. IRS attributed this to the compressed time frame for processing of
            excise tax returns for that quarter. Congress passed the Air Transportation
            Safety and System Stabilization Act (Public Law 107-42) in response to the
            events of September 11, 2001. Section 301 gave the Secretary of the Treasury
            the option of giving airlines an extension until January 15, 2002, to make their
            excise tax deposits and to submit their excise tax returns for the quarter ended
            September 30, 2001. When the Secretary of the Treasury exercised this option,


21
 For this test, “significant” is defined as $20 million. This represents approximately 1 percent of
the total amount certified to the AATF for a quarter.



Page 10                GAO-03-361R Airport and Airway Trust Fund Excise Tax Procedures
Enclosure


             it reduced the time IRS normally has for processing these returns from
             approximately 4 months to 6 weeks.

          6. Review the distribution rates used by IRS to determine whether the
             distribution rates for tax on transportation of persons by air (abstract 26), tax
             on use of international air facilities (abstract 27), tax on transportation of
             property by air (abstract 28), and tax on aviation fuel for commercial use
             (abstract 77) agree with the applicable laws.

             Description of findings and results

             We saw no evidence that the distribution rates used by IRS for tax on
             transportation of persons by air (abstract 26), tax on use of international air
             facilities (abstract 27), tax on transportation of property by air (abstract 28),
             and tax on aviation fuel for commercial use (abstract 77) did not agree with
             the applicable laws in effect during the four quarters.

     B.   Refund/credit reclassification22

          Perform the following steps on IRS’s AATF refund/credit certifications for the
          quarters ended December 31, 2001; March 31, 2002; June 30, 2002; and
          September 30, 2002: 23

          1. Inspect the certification letters for authorizing signatures.

             Description of findings and results

             The certification letters for all four quarters had authorizing signatures.

          2. Determine if evidence exists that the certification letters and accompanying
                      24
             schedules were checked by the supervisor or another analyst.

22
 IRS performs a quarterly reclassification of excise tax refunds and credits originally entered
into its master file as personal or corporate refund/credit. IRS refers to these reclassifications as
“refund/credit certifications.” These amounts do not represent the total excise tax refund/credit
activity to the trust funds. Other routine excise tax refunds and credits (e.g., overpayments),
which are claimed on taxpayers’ Form 720 excise tax returns, are included in IRS’s excise tax
receipt certification to trust funds.
23
 In order to meet certain reporting deadlines, IRS-certified refunds and credits for the fourth
quarter of fiscal year 2002 as of September 6, 2002.
24
 IRS attaches a separate schedule to the AATF refund/credit certification letter that includes the
detailed excise tax amounts that support the total amount shown on the letter. IRS compiles the
amounts on these schedules from service center campus systems and its Interim Revenue
Accounting Control System. IRS has 10 service center campuses that process tax returns and tax
receipts.



Page 11                 GAO-03-361R Airport and Airway Trust Fund Excise Tax Procedures
Enclosure



            Description of findings and results

            There was evidence that another analyst and a supervisor checked the
            certification letters and accompanying schedules for all four quarters.

       3. Recalculate the totals on the certification letters and accompanying schedules
          to determine if they are mathematically correct.

            Description of findings and results

            The totals on the certification letters and accompanying schedules were
            mathematically correct for all four quarters.

       4. Trace the refund and credit amount for aviation gas and aviation O/T gas25
          from the schedules accompanying the certification letters to other summary
          refund/credit schedules. These other refund/credit summary schedules
          summarize refund and credit data obtained from service center campuses’
          records.

            Description of findings and results

            The refund and credit amounts for aviation gas and aviation O/T gas on the
            schedules accompanying the certification letters agreed with the amounts on
            the summary schedules for the quarters ended December 31, 2001; March 31,
            2002; and June 30, 2002.

            On IRS’s refund and credit certification for the quarter ended September 30,
            2002, the IRS analyst entered data from the summary schedules into the wrong
            sections of a schedule accompanying the certification letter. As a result, IRS
            reported $12.3 million in AATF refunds as credits and $2.2 million in AATF
            credits as refunds. There was no impact on distributions to the AATF because
            BPD deducts the total amount of refunds and credits in calculating
            distributions to the trust fund.

III.   Review of FMS adjustments

       Perform the following steps on FMS adjustments to AATF excise tax distributions
       for the quarters ended September 30, 2001; December 31, 2001; March 31, 2002;
       and June 30, 2002.




25
 Aviation gas and aviation O/T gas are the only two excise taxes on the AATF refund/credit
certification.



Page 12               GAO-03-361R Airport and Airway Trust Fund Excise Tax Procedures
Enclosure


           A. Compare the FMS adjustments made to the AATF for fiscal year 2002 with
              original OTA estimates and IRS-certified amounts to see if they agree with the
                                    26
              supporting schedules.

              Description of findings and results

              For the FMS adjustments made to the AATF, the original OTA estimates and
              IRS-certified amounts agreed with the supporting schedule for all four
              quarters.

           B. Recompute the difference between the OTA estimates and final IRS-certified
              amounts to see if the amounts agree with the differences computed by FMS.

              Description of findings and results

              The independently recalculated differences between the OTA estimates and
              the final IRS-certified amounts for the AATF agreed with the differences
              computed by FMS for all four quarters.
                                     27
              These amounts were

                  •   for the quarter ended September 30, 2001, $187,040,000;
                  •   for the quarter ended December 31, 2001, $8,832,000;
                  •   for the quarter ended March 31, 2002, ($381,091,000); and
                  •   for the quarter ended June 30, 2002, ($105,188,000).

IV.        Procedures performed on excise tax distributions to the AATF for the
           quarter ended September 30, 2002

           A. Determine if OTA’s process for identifying and incorporating into its trust fund
              estimates28 the effect of new legislation on excise tax receipts was in place
              during fiscal year 2002.




26
 An FMS accountant compiles this schedule, called the Subsidiary Quarterly Account of
Estimates and Actual Related Excise Taxes Appropriated to the AATF. It computes the
difference between IRS-certified amounts and the OTA estimate for excise taxes, individually and
in total, that relate to the AATF. The schedule, along with OTA transfer forms and IRS
certifications, supports the FMS adjustment.
27
  A positive amount indicates that the FMS adjustment increased excise taxes distributed to the
trust fund. A negative amount, shown in parentheses, indicates that the FMS adjustment
decreased excise taxes distributed to the trust fund.
28
     OTA makes semimonthly estimates of excise tax collections for transfer to trust funds.



Page 13                   GAO-03-361R Airport and Airway Trust Fund Excise Tax Procedures
Enclosure


            Description of findings and results

            OTA’s process for identifying and incorporating into its trust fund estimates
            the effect of new legislation on excise tax receipts was in place during fiscal
            year 2002. OTA prepares a tax rate table29 to capture information relating to
            legislation that affects tax rates, tax basis, accounts, and deposit rules in effect
            during the tax period.

       B. Determine if there is evidence of review of the transfer forms and supporting
          schedules.

            Description of findings and results

            There was evidence that another OTA economist reviewed the transfer forms
            and supporting schedules for the semimonthly transfers affecting distributions
            to the AATF for the quarter ended September 30, 2002.

       C. Recalculate the totals on the transfer letters to determine if they are
          mathematically correct.

            Description of findings and results

            The totals on the transfer forms affecting distributions to the AATF for the
            quarter ended September 30, 2002, were mathematically correct.

       D. Trace the transfer amounts for tax on transportation of persons by air
          (abstract 26), tax on use of international air facilities (abstract 27), tax on
          transportation of property by air (abstract 28), and tax aviation fuel for
                                         30
          commercial use (abstract 77) from the transfer letter, through the supporting
          schedules and back to the related source documents.31




29
  OTA communicates this information to interested parties at Treasury, the Federal Highway
Administration, the Federal Transit Administration, and the Department of Transportation. IRS
uses the tax and distribution rates from this table in its subsequent certification of collections to
trust funds.
30
  The transfer amounts for tax on transportation of persons by air (abstract 26), tax on use of
international air facilities (abstract 27), tax on transportation of property by air (abstract 28), and
tax aviation fuel for commercial use (abstract 77) made up over 96 percent of the total amount
transferred to the AATF during the fourth quarter of fiscal year 2002.
31
 The source documents include the IRS report of excise taxes used to derive the percentages
applied to reported receipts, the Daily Treasury Statement, the Monthly Treasury Statement, and
the excise tax rate tables.



Page 14                GAO-03-361R Airport and Airway Trust Fund Excise Tax Procedures
Enclosure


               Description of findings and results

               The transfer amounts for tax on transportation of persons by air (abstract 26),
               tax on use of international air facilities (abstract 27), tax on transportation of
               property by air (abstract 28), and tax aviation fuel for commercial use
               (abstract 77) from the transfer forms affecting distributions to the AATF for
               the quarter ended September 30, 2002, agreed with the supporting schedules
               and source documents.

V.         Other procedures

           A. Compare total fiscal year 2002 excise taxes distributed to the AATF with
              (1) drafts of FAA fiscal year 2002 consolidated financial statements and (2)
              BPD fiscal year 2002 financial statements for the AATF to determine if they
              agree.

               Description of findings and results

               Fiscal year 2002 excise taxes of $8.85 billion distributed to the AATF agreed
               with the amount reported on the draft FAA consolidated financial statements
               but did not agree with the amount on the BPD fiscal year 2002 financial
               statements for the AATF. The BPD fiscal year 2002 financial statements for
               the AATF reported excise tax distributions to the AATF of $8.95 billion. The
               difference is due to the $105 million downward FMS adjustment for the
               quarter ended June 30, 2002, which FMS recorded in December 2002. This was
               after the November 1, 2002, issue date of BPD’s financial statements for the
               AATF.

           B. Procedures performed as part of fiscal year 2002 IRS financial statement audit:

               1. From IRS’s master files for the first 8 months of fiscal year 2002, use DUS
                  to select statistical samples of (1) total tax revenue receipts and (2)
                  refunds. For each sample item, test that the collection or refund amount,
                                            32
                  tax period, and tax class from source documentation agree with the
                  information recorded in IRS’s master files.

                   Description of findings and results

                   Detailed testing of 153 revenue receipts and 50 refund sample transactions
                   showed that the collection or refund amount, tax period, and tax class
                   from source documents agreed with the information recorded in IRS’s
                   master files.



32
     IRS assigns a tax class number to specific types of taxes. Excise taxes are tax class 4.



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Enclosure


            2. Review selected service center campuses’ monthly Treasury SF-224
               reconciliations to determine if IRS-reported revenue receipts were properly
               classified and reconciled to Treasury FMS records. For refunds, review
               selected IRS service center campuses’ monthly Treasury SF-224
               reconciliations to determine if IRS-reported total refunds (all tax classes)
                               33                                     34
               were materially reconciled to Treasury FMS records.

               Description of findings and results

               Tax revenue receipts reported by selected IRS service center campuses
               through the monthly Treasury SF-224 reconciliation process were properly
               classified and materially agreed with Treasury FMS records.


               Total refunds reported by the selected IRS service center campuses
               through the monthly Treasury SF-224 reconciliation process materially
               agreed with Treasury FMS records.

            3. Perform procedures to determine whether tax revenue receipt balances by
               tax class, including excise tax, per IRS’s general ledger materially agree
               with IRS master files and Treasury records. For refunds, perform a
               comparison of total refund balances between the master file, the general
               ledger, and Treasury records. Also, compare excise tax refunds per the
               master file to the general ledger.

               Description of findings and results

               Tax receipt balances for all tax classes, including excise taxes, per IRS’s
               general ledger, materially agreed with IRS’s master files and with Treasury
               records.

               Refund balances per IRS’s general ledger materially agreed with the master
               file and with Treasury records.




(191027)

33
 For the purpose of this procedure and procedure V.B.3, we define material as $20 billion. This
represents 1 percent of the total tax revenue receipts collected by IRS in fiscal year 2002.
34
 IRS maintains records of refund balances by tax class in its master file and reports this
information monthly to Treasury on the SF-224. Treasury provides IRS with a Statement of
Differences (TFS-6652), which reports differences between total refunds reported by IRS on the
SF-224 and the total refunds per Treasury records.



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