oversight

Tax Administration: IRS's 2003 Filing Season Performance Showed Improvements

Published by the Government Accountability Office on 2003-10-31.

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

               United States General Accounting Office

GAO            Report to the Chairman, Subcommittee
               on Oversight, Committee on Ways and
               Means, House of Representatives


October 2003
               TAX
               ADMINISTRATION
               IRS’s 2003 Filing
               Season Performance
               Showed
               Improvements




GAO-04-84

               a

                                                October 2003


                                                TAX ADMINISTRATION

                                                IRS's 2003 Filing Season Performance
Highlights GAO-04-84, a report to
Chairman, Subcommittee on Oversight,
                                                Showed Improvements
Committee on Ways and Means, House of
Representatives




During the tax filing season,                   Available data for each of five key filing season activities indicates that IRS’s
millions of taxpayers file their                performance showed some improvements in 2003 compared to 2002 and IRS
returns and seek assistance by                  met or exceeded many of its 2003 performance goals. IRS processed returns
calling or visiting IRS’s offices or            and issued refunds more timely and accurately and increased the rate of
Web site. GAO was asked to assess               electronic filing, although not at a rate that would allow IRS to meet its long-
IRS’s 2003 filing season
performance in five areas:
                                                term goal. While IRS provided significantly more accessible telephone
processing returns, refunds and                 service, the accuracy rate of IRS responses declined. The accuracy of tax
remittances; electronic filing;                 law assistance provided at walk-in sites improved, although the number of
telephone service; walk-in                      taxpayers assisted at IRS’s walk-in sites declined, in part because taxpayers
assistance, and Web site. We                    made greater use of the return-preparation assistance offered by volunteer
assessed for each of those five                 organizations. In addition, IRS did not consolidate or disseminate data on
areas (1) IRS’s performance in                  how long taxpayers waited for walk-in assistance, making it difficult to
2003, including any factors that                balance quality and service. Finally, IRS’s Web site performed well and was
helped or impeded its efforts, (2)              more user friendly than last year. IRS attributes improved performance, in
any new initiatives that were                   part, to (1) fewer tax law changes that affected taxpayers and (2) continued
intended to improve IRS’s                       emphasis on performance measures, a key part of IRS’s strategy to improve
performance in 2003, and (3) IRS’s
performance over past filing
                                                its performance in processing returns and providing taxpayer assistance.
seasons.
                                                IRS implemented initiatives in 2003 intended to improve filing season
                                                performance. For example, IRS entered into an agreement with a consortium
                                                of 17 tax preparation companies to offer free on-line tax preparation,
                                                established new toll-free telephone numbers to better target different
GAO recommends that IRS                         taxpayers, and began certifying walk-in staff to answer tax law questions.
consolidate and disseminate
available wait-time information to
                                                Over a longer period of time, available data, although limited in some areas,
field managers.
                                                also show that IRS’s filing season performance has improved. Since the mid-
In commenting on a draft of this                1990s, the growth of electronic filing has allowed IRS to close one paper
report, IRS partially agreed with               processing center and the accuracy and accessibility of telephone assistance
our recommendation, stating that it             has improved. While the Congress and taxpayers expect further progress,
will require walk-in sites equipped             the improvements to date are a payoff from IRS’s ongoing modernization.
with a system to report wait-time
information quarterly and that this             IRS’s 2003 Filing Season Activities
information would provide
valuable data for assessing overall
trends and relationships in
timeliness and quality. However,
IRS did not agree to disseminate
this consolidated wait-time
information to field managers, but
without it, managers would have
difficulty balancing timeliness and
quality.
www.gao.gov/cgi-bin/getrpt?GAO-04-84

To view the full product, including the scope
and methodology, click on the link above.
For more information, contact James R. White
at (202) 512-9110 or whitej@gao.gov.
Contents




Letter
                                                                                                  1
                             Results in Brief 
                                                          1
                             Scope and Methodology 
                                                      4
                             Background                                                                  6

                             IRS’s Processing of Returns And Refunds Improved, and IRS Closed 

                               One Paper Processing Center                                               8
                             Electronic Filing Grew in 2003, but at Current Growth Rate IRS Will
                               Not Achieve Long-Term Goal                                               12
                             Telephone Service Showed Improvement in Accessibility but Not
                               Accuracy                                                                 16
                             Quality of Walk-In Assistance Improved in 2003, but Assessing
                               Long-Term Improvements Is Difficult Because of Lack of Data              24
                             IRS’s Web Site Performance Showed Some Improvement                         29
                             Conclusions                                                                32
                             Recommendation for Executive Action                                        32
                             Agency Comments and Our Evaluation                                         33


Appendixes
              Appendix I:    Data on IRS’s Processing Performance Relative to Fiscal Year
                             2001-2003 Performance and Fiscal Year 2003 Goals                           35
             Appendix II:    Advance Payment of Child Tax Credit Had Minimal Impact on
                             2003 Filing Season                                                         37
             Appendix III:   Comments from the Internal Revenue Service                                 39
             Appendix IV:    GAO Contacts and Staff Acknowledgments                                     45


Tables                       Table 1: IRS Tax Filing Season Telephone Assistance Performance,
                                      2000-2003 Filing Seasons                                          19
                             Table 2: IRS’s 2001-2003 Tax Filing Season Processing
                                      Performance                                                       35


Figures                      Figure 1: IRS’s Primary Activities During the 2003 Filing Season            7
                             Figure 2: Growth Rate in the Number of Individual Tax Returns
                                       Filed Electronically, 1996-2003                                  13
                             Figure 3: Projected Percentage of Individual Tax Returns Filed
                                       Electronically, 2004-2007                                        14
                             Figure 4: Reasons Taxpayers Called for Telephone Assistance
                                       during the 2003 Filing Season                                    17




                             Page i                                        GAO-04-84 2003 Tax Filing Season
Contents




Figure 5: How IRS Handled Calls for Telephone Assistance during
          2003 Filing Season                                                           18
Figure 6: Assistance Provided by IRS Walk-in and Volunteer Sites,
          2000-2003 Filing Seasons                                                     26




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Page ii                                                 GAO-04-84 2003 Tax Filing Season
A

United States General Accounting Office
Washington, D.C. 20548



                                    October 31, 2003


                                    The Honorable Amo Houghton

                                    Chairman, Subcommittee on Oversight

                                    Committee on Ways and Means

                                    House of Representatives


                                    Dear Mr. Chairman:


                                    In response to your request, this report discusses the Internal Revenue 

                                    Service’s (IRS) performance during the 2003 tax filing season.1 It is during 

                                    the filing season that most taxpayers have their only contact with IRS, filing 

                                    their individual income tax returns, and if needed, seeking assistance or

                                    resolving simple problems, such as computational errors or missing Social 

                                    Security numbers (SSN). Because of the millions of income tax returns 

                                    processed and refunds issued and the crucial role that the filing season

                                    plays in the collection of revenue that finances the federal government,

                                    IRS’s performance during the filing season is important to taxpayers and 

                                    the Congress.


                                    This report discusses IRS’s performance in five key filing season activities

                                    (1) processing individual income tax returns, refunds, and remittances; (2) 

                                    receiving returns electronically; (3) assisting taxpayers over the telephone;

                                    (4) providing face-to-face assistance at its walk-in locations; and (5) 

                                    providing services via its Internet Web site. For each of the five areas the 

                                    report discusses (1) IRS’s performance in 2003 compared to 2002 and 2003 

                                    goals, including any factors that significantly affected performance, (2) any 

                                    new initiatives that were intended to improve IRS’s performance in 2003, 

                                    and (3) significant trends in IRS’s performance over the past several years 

                                    resulting from modernization efforts.




Results in Brief	                   Overall, IRS’s performance during the 2003 filing season improved
                                    compared to its performance in 2002 for each of the five filing season
                                    activities we reviewed, and IRS met many of its 2003 performance goals.
                                    However, the accuracy of telephone assistance declined, the growth of



                                    1
                                     Most taxpayers file their returns between January 1 and April 15, which is the deadline for
                                    filing individual income tax returns. However, millions of taxpayers get an extension from
                                    IRS, which allows them to delay filing until as late as October 15.




                                    Page 1                                                    GAO-04-84 2003 Tax Filing Season
electronic filing is slowing, and the timeliness of walk-in assistance is
unknown.

Processing—IRS’s performance improved in 2003 relative to 2002 for seven
of the eight measures it uses to judge its performance in processing
individual income tax returns, refunds, and remittances, and IRS exceeded
most of its performance goals. Other evidence, such as testimony from
representatives of the tax practitioner community, indicated IRS’s
processing performance was smooth and without significant disruptions.
IRS officials attributed improvements in processing performance to efforts
to build upon its largely successful 2002 filing season and the relatively
small effect of tax law changes on taxpayers filing during the 2003 filing
season. The growth of electronic filing and other improvements in
processing returns, refunds, and remittances over the past several filing
seasons has allowed IRS to eliminate paper processing at one location and
reduce staff devoted to paper processing.

Electronic Filing—The number of individual income tax returns that IRS
received electronically continued to grow, from about 47 million in 2002 to
an estimated 53 million in 2003, and the percentage of returns filed
electronically reached an estimated 41 percent. However, the current rate
of growth of electronic filing is slowing and will not allow IRS to achieve its
long-term electronic filing goal of 80 percent by 2007, despite a number of
initiatives over the years to reduce barriers and encourage more electronic
filing. Electronic filing is important because it allows IRS to shift resources
out of paper processing and improve customer service.

Telephone Service—IRS performance data showed that it provided more
accessible telephone service in 2003 and exceeded its 2003 performance
goal for providing service to taxpayers trying to reach a Customer Service
Representative (CSR). However, various measures show that IRS’s
performance in providing accurate responses to taxpayer questions
declined, and IRS did not achieve most of its 2003 performance goals for
accuracy. IRS implemented several initiatives in 2003—including the
establishment of new toll-free telephone numbers targeting different types
of taxpayers—that likely contributed to improved accessibility. Since the
mid-1990s, IRS has significantly improved its telephone service. Although
telephone service is not yet at the level desired by taxpayers and the
Congress, the improvements to date represent a payoff from IRS’s
modernization efforts.




Page 2                                            GAO-04-84 2003 Tax Filing Season
Walk-in Assistance—The quality of services IRS provides at its walk-in sites
showed some improvement in 2003, and IRS met some of its 2003
performance goals. For example, the accuracy of tax law assistance
provided at walk-in sites improved from 2002 to 2003. In addition, IRS
continued its initiative to shift return preparation work to its community-
based coalitions and other volunteer organizations, contributing to a
decline in the number of taxpayers assisted at IRS’s walk-in sites. With
respect to accessibility, IRS did not consolidate or disseminate available
data to managers on how long taxpayers waited for assistance in 2003.
Without such data, managers may not be able to balance the attention given
to accuracy and accessibility. Over the last several years, IRS has made
efforts to standardize and improve its walk-in assistance, but a lack of
historical performance data makes it impossible for IRS and us to quantify
improvements.

Internet Web Site—Overall Web site usage increased in 2003, and the site
performed well in terms of availability and average delivery time, according
to an independent Web site rater. However, IRS’s performance in
responding to questions received via the Internet from taxpayers declined
in 2003. IRS did resolve one of our key concerns from prior years about the
search functions on the Web site, enabling taxpayers to find references to
publications more easily. Also, in a major initiative in 2003, IRS provided
the capability for taxpayers to check the status of their refunds on-line for
the first time, and 11 million taxpayers did so. Over the past several filing
seasons, usage of IRS’s Web site and the number of services provided have
increased. The increases are another example of payoffs from IRS’s
ongoing modernization effort.

We are making a recommendation to the Commissioner of Internal
Revenue that IRS consolidate and disseminate wait-time information to
field managers on the basis of information from walk-in sites equipped with
an automated system that can capture wait-time data in order to assess this
important aspect of quality. In commenting on a draft of this report (see
app. III), the Commissioner of Internal Revenue partially agreed with our
recommendation, stating that IRS will require walk-in sites equipped with
Q-Matic to report wait-time information quarterly. However, the
Commissioner did not agree to disseminate this consolidated wait-time
information to field managers. For years, as we report, IRS has contended
that past experience has shown that employee reaction to timeliness
measures adversely affected quality. At the same time, the Commissioner
noted that some monitoring of wait time occurs by local managers for
walk-in sites equipped with the automated reporting system. However,



Page 3                                          GAO-04-84 2003 Tax Filing Season
              routine monitoring does not provide overall performance data, and data is
              only available to some managers whose walk-in sites have the automated
              system. In our view, there needs to be a balance between measuring quality
              and timeliness, and too much focus on either could create inappropriate
              incentives for IRS’s walk-in staff. As noted in our report, timeliness is part
              of IRS’s suite of balanced measures for telephone performance. We agree
              that too much focus on timeliness could create inappropriate incentives for
              IRS’s walk-in staff, but without consolidated timeliness information, field
              managers would have a difficult time balancing quality and timeliness. We
              discuss the Commissioner’s comments in the “Agency Comments and Our
              Evaluation” section of the report.



Scope and     Our assessment of IRS’s 2003 filing season performance was based on
              analyses of IRS data and data obtained from sources outside IRS,
Methodology   interviews with IRS officials and private sector tax preparers, and
              observations of IRS operations. We testified before the Subcommittee on
              Oversight on the interim results of our assessment in April 2003.2 Our
              assessment of filing season performance over a longer period of time was
              based, in part, on our past filing season reports.

              To assess IRS’s performance in the five key filing season activities covered
              by this report, we

              •	 reviewed and analyzed IRS documents and data, including workload
                 data and data from IRS’s current suite of balanced performance
                 measures, which we used to assess performance this year and relative to
                 2003 goals;3

              •	 reviewed historical data that preceded the current performance
                 measures to assess longer term improvements and performance;




              2
               U.S. General Accounting Office, Internal Revenue Service: Assessment of Fiscal Year
              2004 Budget Request and 2003 Filing Season Performance to Date, GAO-03-641T
              (Washington, D.C.: Apr. 8, 2003).
              3
               IRS uses workload indicators, such as the number of returns processed, for purposes of
              resource planning. It uses balanced measures primarily for gauging business results
              (quantity and quality measures) in addition to employee satisfaction and customer
              satisfaction.




              Page 4                                                  GAO-04-84 2003 Tax Filing Season
•	 interviewed IRS officials about current operations, performance relative
   to the past filing season and 2003 performance goals, and significant
   factors and initiatives that affected performance;

•	 observed operations at two of the eight processing centers operated by
   IRS’s Wage and Investment Operating Division (W&I) and three of IRS’s
   walk-in locations;

•	 observed operations at three sites that offer free return preparation as
   part of IRS’s Volunteer Income Tax Assistance (VITA) and Tax
   Counseling for the Elderly (TCE) programs;

•	 analyzed information posted to IRS’s Internet Web site, specifically
   assessing the ease of finding information on the site (i.e., navigation)
   and the accuracy and currency of data on the site (i.e., content) based
   on our work reviewing IRS’s Web site for years and as experienced
   Internet Web users;

•	 reviewed information from a recognized authority on Internet
   performance that assessed various aspects of IRS's Web site;

•	 interviewed representatives of various large private organizations that
   prepare tax returns and trade organizations that represent both
   individual preparers and tax preparation companies;

•	 reviewed staff year data for the paper processing, telephone assistance,
   and walk-in assistance activities; and

•	 reviewed related congressional testimony and work performed by the
   Treasury Inspector General for Tax Administration (TIGTA).

This report discusses performance measures that reflect the continuing
interest of the Subcommittee—including the quality, accessibility, and
timeliness of IRS’s performance during the filing season. In November
2002, we assessed the methodologies IRS used for computing its current
suite of performance measures and the appropriateness of the performance
goals.4 At that time, we reported that some of the performance measures
that IRS and we use to assess various aspects of IRS’s filing season


4
 U.S. General Accounting Office, Tax Administration: IRS Needs to Further Refine Its Tax
Filing Season Performance Measures, GAO-03-143 (Washington, D.C.: Nov. 22, 2002).




Page 5                                                 GAO-04-84 2003 Tax Filing Season
              performance had attributes of successful performance measures including
              objectivity and reliability, although in some cases, the measures could be
              further refined. Even recognizing the limitation of these measures, we have
              determined that the data we are reporting are sufficiently reliable and
              useful for assessing IRS’s filing season performance.

              We did our work at IRS headquarters in Washington, D.C.; W&I
              headquarters and the Joint Operations Center in Atlanta, Ga;5 and W&I
              processing centers in Atlanta, Ga, and Holtsville, N.Y.; and walk-in and
              volunteer locations in Georgia and Louisiana. We selected these offices for
              a variety of reasons, including the location of key IRS managers and
              operations. We also selected the Brookhaven Submission Processing
              Center to visit because IRS was phasing out processing operations at that
              center, which represents a significant initiative related to both paper
              processing and electronic filing. We performed our work from January
              through September 2003 in accordance with generally accepted
              government auditing standards.



Background	   IRS’s filing season is an enormous and critical undertaking that includes
              two key activities—returns processing and taxpayer assistance. As figure 1
              shows, during the 2003 filing season, IRS processed an estimated 77 million
              individual income tax returns filed on paper, an estimated 53 million
              returns filed electronically, and issued an estimated 99 million refunds to
              taxpayers. At the same time, IRS provided extensive assistance to millions
              of taxpayers via phone, walk-in contact, and over its Web site.




              5
               The Joint Operations Center is the organization responsible for managing IRS’s telephone
              operations.




              Page 6                                                   GAO-04-84 2003 Tax Filing Season
Figure 1: IRS’s Primary Activities During the 2003 Filing Season

           Returns processing                                   Taxpayer assistance




     Paper returns ....................... 77 million       Toll-free calls .........................72 million
     Electronic returns .................. 53 million       Walk-in contacts ......................6 million
     Refunds ..................................99 million   Web site downloads ............430 million

Source : IRS and Art Explosion.


Note: GAO analysis of IRS data. The number of paper and electronic returns and refunds are
estimated for the time period January 1, 2003, to October 24, 2003; toll-free calls for the time period
January 1, 2003, to July 12, 2003; walk-in contacts, which include returns prepared at volunteer sites,
for the time period January 1, 2003, to April 19, 2003; and Internet downloads for the time period
January 1, 2003, to July 31, 2003. We use different dates for the various areas because those dates
best reflect IRS’s filing season workload in that area.


To process individual returns in 2003, IRS had eight geographically
dispersed W&I submission processing centers that were responsible for
processing returns filed on paper, three of which were also responsible for
processing tax returns filed electronically; correcting errors made on tax
returns; and forwarding the data through a data processing and
telecommunications infrastructure to two computing centers, which
maintain IRS’s primary taxpayer account databases. To help taxpayers
comply with their tax obligations, IRS provides various services at its call
sites, walk-in sites, volunteer sites, and on the Web site. For example,
taxpayers can call IRS toll-free to get answers to tax law questions and
order tax forms and publications; get information or help in preparing their
returns at IRS walk-in sites; get their returns prepared at community-based
coalition and other volunteer organization sites in partnership with IRS;
and get information, including answers to tax law questions, through IRS’s
Web site.




Page 7                                                                GAO-04-84 2003 Tax Filing Season
                      Since the IRS Restructuring and Reform Act of 19986 (RRA 98), IRS has
                      been particularly focused on improving taxpayer service. To help achieve
                      this, in 2001, IRS established a suite of balanced performance
                      measurements in accordance with RRA 98 and the Government
                      Performance and Results Act of 1993.7 The performance measurement
                      system emphasizes accountability for achieving specific results and
                      reflects IRS’s priorities, which are articulated in its mission and strategic
                      goals—top quality service to all taxpayers through fair and uniform
                      application of the law, top quality service to each taxpayer in every
                      interaction, and productivity through a quality work environment. IRS has
                      defined three elements of balanced measures to ensure balance among its
                      priorities, such as providing timely and accurate service: (1) customer
                      satisfaction, (2) employee satisfaction, and (3) business results (quality and
                      quantity measures). IRS establishes goals each fiscal year for its
                      performance measures and uses them to hold managers and frontline staff
                      more accountable for improving filing season performance.8

                      IRS’s W& I operating division is one of four divisions that IRS established as
                      part of a reorganization that took effect in October 2000. The other three
                      divisions are Small Business and Self-Employed, Large and Mid-Size
                      Businesses, and Tax Exempt and Government Entities.



IRS’s Processing of   We found that on the basis of a comparison of IRS’s performance in 2003
                      and 2002, IRS’s processing of individual income tax returns and refunds
Returns And Refunds   generally improved in 2003 and IRS exceeded most of its 2003 processing
Improved, and IRS     goals. In addition, the growth in electronic filing has enabled IRS to close
                      paper processing operations at one location and reduce the total number of
Closed One Paper      staff devoted to paper processing.
Processing Center


                      6
                       P.L. 105-206.
                      7
                        The Government Performance and Results Act of 1993 (P.L. 103-62) was enacted to hold
                      federal agencies accountable for achieving program results. IRS’s balanced measurement
                      system is consistent with the intent of the act.
                      8
                       Although IRS establishes goals for its balanced measures on a fiscal year basis, our
                      assessment of these measures is based on the filing season, when most taxpayers have their
                      only interaction with IRS.




                      Page 8                                                  GAO-04-84 2003 Tax Filing Season
Processing Performance      IRS’s performance improved in 2003 relative to 2002 for seven of the eight
Improved in 2003 Compared   measures that are part of its suite of balanced measures it uses to judge its
                            performance in processing individual income tax returns, refunds, and
To Last Year                remittances.9 For example, IRS’s measure of the percentage of refunds on
                            returns filed on paper issued within 40 days or less (refund timeliness—
                            paper) increased from 98.2 percent in 2002 to 98.8 percent in 2003. In
                            addition, IRS’s measure of the percentage of notices issued to taxpayers
                            that had an error on the notice (notice error rate) decreased from 18.7
                            percent in 2002 to 9.7 percent in 2003. IRS also exceeded its fiscal year
                            2003 performance goals for five of the eight measures (including refund
                            timeliness—paper), although it missed its goals for two measures (deposit
                            error rate and letter error rate). We could not compare performance for
                            one measure (refund interest paid) to prior years or its 2003 performance
                            goal, because IRS implemented a programming change that changed the
                            way it calculated the measure for the 2003 filing season and did not have
                            the necessary data to revise the goal for the 2003 filing season. Table 2 in
                            appendix I describes these eight measures and shows the results IRS
                            reported for each of the measures.

                            Other information supports the conclusion that the 2003 filing season went
                            smoothly and without significant disruptions, as the following examples
                            illustrate.

                            •	 Production data that IRS uses to monitor operations and identify and
                               resolve issues that could disrupt operations showed IRS met processing
                               deadlines and did not experience significant disruptions in 2003. These
                               data showed that, on average, IRS met or exceeded its goal for the
                               number of days it takes to process individual income tax returns.

                            •	 Directors, managers, and staff at the Atlanta and Brookhaven
                               Submission Processing centers voiced similarly positive views about the
                               filing season and processing, and the Director of Submission Processing
                               attributed improvements during the 2003 filing season to efforts to build
                               upon a largely successful 2002 filing season and the small effect of tax
                               law changes on taxpayers during the 2003 filing season. Appendix II
                               provides more detailed information about the Jobs and Growth Tax



                            9
                              The data we report for 2003 are as of July 31, which were the latest data available at the
                            time we ended our field work. According to IRS officials, the results through July 31 reflect
                            IRS’s performance during the filing season.




                            Page 9                                                    GAO-04-84 2003 Tax Filing Season
       Relief Reconciliation Act of 200310 and its impact on the 2003 filing
       season and potential impact in 2004.

•	 The Commissioner of IRS testified in May 2003, before the annual Joint
   Congressional Review held as part of RRA 98, that IRS had made
   progress during the 2003 filing season, although he acknowledged that
   IRS has yet to provide the level of service that taxpayers, the Congress,
   and IRS agree is necessary.

•	 The then Acting Commissioner of Internal Revenue testified in April
   2003 before the Subcommittee that, among other things, the filing
   season was going smoothly, with no significant delays in processing
   returns and issuing refunds. Representatives from the National
   Association of Enrolled Agents,11 National Association of Accountants,
   and H&R Block—the largest tax preparation firm—all expressed
   positive feedback about IRS’s processing operations during this filing
   season.

•	 According to TIGTA’s report on the 2003 filing season, IRS processed
   most returns accurately and on time and the filing season went well.12
   TIGTA reported that most of the key tax law changes that affected
   taxpayers in 2003 were correctly implemented or subsequently
   corrected after processing began. However, TIGTA identified some
   areas of the tax laws that were not correctly implemented and could
   result in loss of taxpayer entitlements and erroneous tax assessments.13




10
     P.L. 108-27.
11
   The National Association of Enrolled Agents is a national association of over 10,000
independent, licensed tax professionals called enrolled agents. Enrolled agents are licensed
by the federal government and are authorized to appear in place of the taxpayer at IRS.
12
 Treasury Inspector General for Tax Administration, The 2003 Filing Season Was
Completed Timely and Accurately, but Some New Tax Law Changes Were Not Effectively
Implemented, Reference No. 2004-40-003, (Washington, D.C., 2003).
13
 TIGTA identified taxpayers that were allowed retirement savings contribution credits and
student loan interest deductions in excess of the amounts allowed by the new tax law
changes, taxpayers with potential unclaimed additional child tax credits, and taxpayers that
were allowed a “dual benefit” for the tuition and fees deduction and the education credit.




Page 10                                                   GAO-04-84 2003 Tax Filing Season
Closing of Paper Processing   The growth in electronic filing and resulting reduction in the number of
Operations at One Center Is   paper returns received in recent years has enabled IRS to close the paper
                              processing operations at its Brookhaven Submission Processing Center—
a Key Initiative and          one of its eight centers for processing individual income tax returns filed
Represents Payoff From        on paper. The closure is a key processing initiative in 2003. IRS’s long-term
Modernization                 strategy for paper processing is to continue closing its processing centers
                              as electronic filing grows and shift the processing of paper returns to the
                              remaining centers. IRS picked Brookhaven for the initial closure based on
                              several factors, including paper return volume, personnel costs, labor
                              availability, and real estate costs. As we noted in our interim testimony on
                              IRS’s filing season performance, this closing represents a significant
                              consolidation of IRS’s processing operations and a key payoff from
                              modernization, specifically the growth in electronic filing.14 IRS officials
                              attributed not meeting the goal for the percentage of letters issued to
                              taxpayers with errors (letter error rate), in part, to the loss of experienced
                              and knowledgeable personnel as a result of IRS’s announcement that it
                              would be closing some processing centers.

                              In addition to closing paper processing operations at one of its centers, IRS
                              has seen other improvements in its processing operations over the past
                              several filing seasons. For example, in 1996, the average number of days it
                              took processing centers to process individual tax returns ranged between 8
                              and 11 days. In 2003, the average number of days ranged between 6 and 8
                              days. In addition, IRS’s measure of the percentage of refunds with IRS-
                              caused errors in the entity information (e.g., name or Social Security
                              number) or refund amount declined from 9.8 percent in 2001 to 5.4 percent
                              in 2003. IRS officials also told us that, since 2001, the eight submission
                              processing centers that process individual tax returns each met or
                              exceeded the established deposit program completion date—the date by
                              which the processing centers must finish processing all tax receipts
                              associated with the April peak processing period.

                              According to IRS officials, the improvements in processing performance
                              have resulted from a combination of factors, including better data
                              processing equipment and more emphasis on performance management.
                              For example, in the late 1990s, IRS began replacing two key data
                              processing systems, which allowed for faster processing. In addition, IRS
                              officials told us that they now rely more heavily on technology to


                              14
                                   GAO-03-641T.




                              Page 11                                          GAO-04-84 2003 Tax Filing Season
                             communicate with employees, which they believe allows for faster and
                             more accurate dissemination of information from headquarters to field
                             staff and vice versa. As a result of RRA 98, IRS also has stressed the
                             importance of reaching the goals for its balanced measures as compared to
                             prior years, when IRS placed less importance on these types of measures.

                             The improvements in processing performance also have enabled IRS to
                             reduce the number of staff devoted to its paper processing operations,
                             while employee satisfaction has increased. According to IRS officials, the
                             number of staff years used in paper processing operations has decreased
                             from 11,542 in fiscal year 2001 to 10,619 in fiscal year 2003, a decrease of
                             about 8 percent.15 At the same time, the level of employee satisfaction has
                             increased, as 63 percent of the staff assigned to processing expressed being
                             satisfied with their job in 2003, an increase from 54 percent in 2001.



Electronic Filing Grew       The number of individual income tax returns that IRS received
                             electronically continued to grow and IRS met its goal for the percentage of
in 2003, but at Current      returns filed electronically. However, the current rate of growth of
Growth Rate IRS Will         electronic filing will not allow IRS to achieve its long-term electronic filing
                             goal of 80 percent by 2007,16 despite numerous initiatives to reduce barriers
Not Achieve Long-            to and encourage more electronic filing.
Term Goal

Despite Growth in            The number of individual returns filed electronically continued to grow in
Electronic Filing In 2003,   2003. IRS received an estimated 53 million individual tax returns
                             electronically in 2003, an increase of about 13 percent from 46.9 million in
IRS is Not on Track to
                             2002. The percentage of individual tax returns filed electronically reached
Achieve Its Long-Term Goal   an estimated 41 percent in 2003, up from 35.9 percent in 2002. While the
                             number of tax returns filed electronically in 2003 fell just short of IRS’s
                             performance goal of 54 million, IRS met its performance goal for the
                             percentage of individual tax returns filed electronically.



                             15
                              According to IRS officials, the staff year data for fiscal year 2003 represent actual staff year
                             data through August 2, 2003, plus projected staff year usage through September 30, 2003.
                             16
                               RRA 98 provides, in part, that it should be the goal of IRS to have at least 80 percent of all
                             federal tax and information returns filed electronically by 2007. IRS’s goal for individual
                             income tax returns is consistent with this overall goal—80 percent by 2007.




                             Page 12                                                      GAO-04-84 2003 Tax Filing Season
Although electronic filing continues to grow, IRS is not on track to reach its
long-term electronic filing goal of 80 percent by 2007. As figure 2 shows,
the growth rate from 1996 through 2003 has generally been decreasing.
More significantly, the growth rate in 2003 represents the smallest
percentage increase in the number of individual tax returns filed
electronically since 1996. Some slowing of the growth rate might be
expected because, for example, taxpayers most easily attracted to
electronic filing have already converted.



Figure 2: Growth Rate in the Number of Individual Tax Returns Filed Electronically,
1996-2003
 40 Percent




 30




 20




 10




  0
      1996      1997        1998        1999        2000        2001      2002      2003
      Year
 Source: IRS.



Note: GAO analysis of IRS data. The growth rate for 2003 is estimated.


The current growth rate will not enable IRS to meet its long-term goals. We
estimate, on the basis of the data in figure 3, that about 64 percent of
individual tax returns will be filed electronically by 2007, assuming annual
growth rates for individual tax returns filed electronically (about 13
percent) and total number of individual tax returns filed (0.66 percent)17
continue through 2007. IRS estimated an even lower percentage (54.4
percent) of returns would be filed electronically by 2007.18 In order to
achieve the long-term goal of 80 percent, IRS would have to average more
than a 19 percent growth rate in electronic filing from 2004 to 2007.
However, in its June 30, 2003, report to the Congress, the Electronic Tax


Page 13                                                       GAO-04-84 2003 Tax Filing Season
Administration Advisory Committee (ETAAC) 19 said that the trend of
electronic filing is clearly toward lower annual growth rates and as a result,
IRS will have difficulty achieving its long-term goal unless it finds
additional ways to overcome taxpayer and tax practitioner barriers to
electronic filing. To the extent that IRS misses the goal, more resources
will have to be devoted to processing paper returns.



Figure 3: Projected Percentage of Individual Tax Returns Filed Electronically, 2004-
2007
     100 Percent



                                           Goal
      80



      60



      40



      20



       0
           2004               2005                    2006                      2007
           Year
 Source: GAO.




17
  We used a 3-year average for the growth rate in the total number of individual tax returns
because the growth rate in 2003 was negative and we believe that a 3-year average is more
representative of future growth. IRS officials attributed the negative growth rate in 2003 to
the downturn in the U.S. economy.
18
   See Report of the Joint Committee on Taxation Relating to the Internal Revenue Service
as required by the IRS Reform and Restructuring Act of 1998, JCX-53-03, May 19, 2003.
19
  Electronic Tax Administration Advisory Committee, Annual Report to Congress,
(Washington, D.C., June 2003). RRA 98 mandated that the Secretary of the Treasury
convene an electronic commerce advisory group to ensure that the Secretary receives input
from the private sector on IRS’s plan to increase electronic filing. ETAAC was created in
1998 in response to that mandate and, among other things, is required to report to the
Congress annually on IRS’s progress towards meeting the electronic filing goals set in the
act.




Page 14                                                      GAO-04-84 2003 Tax Filing Season
                              Note: GAO analysis of IRS data.




IRS Has Taken Various         In 2003, IRS took various steps to encourage taxpayers and practitioners to
Steps to Encourage More       file electronically. These steps included the following:
Electronic Filing, which Is
                              •	 IRS entered into an agreement with the Free File Alliance, a consortium
Key to Continued                 of 17 tax preparation companies, which requires the Alliance to offer
Modernization                    free on-line tax preparation and filing services for at least 60 percent (78
                                 million) of all taxpayers during the filing season. Taxpayers access the
                                 Alliance from a link on IRS’s Web site. As of July 31, 2003, about 2.8
                                 million taxpayers used the free on-line filing services offered by the
                                 Alliance, which exceeded IRS’s goal of 2.5 million taxpayers.20 However,
                                 IRS officials estimated that only about 1 million of these taxpayers were
                                 filing electronically for the first time.

                              •	 IRS continued to focus the electronic filing marketing campaign on
                                 taxpayers and practitioners who file computer-prepared tax returns on
                                 paper. In 2003, IRS planned to spend $15 million, the same as the
                                 marketing budget in 2002.

                              •	 IRS mailed a package to about 32,000 tax practitioners who prepare
                                 either some or all of their tax returns over the computer but submit
                                 paper tax returns. The package explains the benefits of electronic filing
                                 and encourages taxpayers to file all of their tax returns electronically.
                                 This built on an initiative last year where IRS sent letters to selected tax
                                 practitioners to encourage them to file returns electronically.

                              According to IRS officials, these steps contributed to the growth in the
                              number of returns filed electronically in 2003; however, the officials told us
                              that they were unable to link the initiatives to a specific increase in the
                              growth of individual returns filed electronically, with the exception of the
                              Free File initiative.

                              The growth of electronic filing has been, and continues to be, a key part of
                              IRS’s modernization strategy because it allows IRS to control costs, shift

                              20
                                TIGTA confirmed that IRS exceeded its goals for the Free File Alliance, although they had
                              recommendations to improve the program. See Treasury Inspector General for Tax
                              Administration, Improvements are Needed to Ensure Individual Taxpayers Have an Easy,
                              No-Cost Option to e-file Their Tax Returns, Reference No. 2003-40-165, (Washington, D.C.,
                              2002).




                              Page 15                                                  GAO-04-84 2003 Tax Filing Season
                            resources out of labor-intensive paper return processing, improve
                            customer service, and as previously discussed, consolidate submission
                            processing operations at fewer centers. Electronic filing has grown from
                            almost 12 million returns in 1995 to an estimated 53 million in 2003, due to
                            numerous initiatives implemented over the years. For example, in 1999,
                            IRS made electronic filing more appealing by enabling taxpayers who owe
                            money to pay their balance due either by credit card or by direct debit from
                            a checking or saving account. Also, in response to concerns voiced by
                            practitioners that electronic filing was not entirely paperless, IRS began
                            testing alternative signature options that allowed certain electronic filers to
                            sign their returns electronically and thus avoid having to send any paper to
                            IRS and expanded those initiatives in 2000. Additionally, each year IRS has
                            expanded the list of forms and schedules that can be filed electronically.
                            As a result, according to IRS, 99 percent of all individual forms and
                            schedules can be filed electronically today.



Telephone Service           IRS provided more accessible telephone service in 2003; however, its
                            performance in providing accurate responses to taxpayers declined, and
Showed Improvement          IRS did not achieve most of its 2003 performance goals, primarily related to
in Accessibility but Not    accuracy. IRS implemented several initiatives in 2003 that likely
                            contributed to improved accessibility. Over a longer period of time, IRS
Accuracy                    has significantly improved both the accessibility and accuracy of its
                            telephone service, which represents a payoff from its modernization
                            efforts.



Telephone Service Was       IRS receives millions of calls to its toll-free network during the filing season
More Accessible, Although   when taxpayers, inquire about tax law issues, the status of their refunds, or
                            issues regarding their accounts, among other things. As figure 4 shows, IRS
Not More Accurate in 2003   received about 72 million calls in 2003, about 31 percent fewer calls than it
                            received in 2002. Figure 4 also shows that calls about the status of refunds
                            accounted for almost half of total calls received through mid-July 2003.




                            Page 16                                           GAO-04-84 2003 Tax Filing Season
Figure 4: Reasons Taxpayers Called for Telephone Assistance during the 2003 Filing
Season




                                                         Calls for refund
                                                         information
                                                         33.8 million




                                 25%
                                                         Calls for account
                                                         information
              47%                                        17.6 million


                                 21%

                           7%
                                                         Calls for tax law
                                                         information
                                                         15.3 million

  Total calls to IRS                    Other
  72 million                            5.3 million


Source: IRS and Art Explosion.



Note: GAO analysis of IRS data. The “Other” category includes special telephone numbers, such as
the one for victims of the September 11, 2001, terrorist actions, and calls that were abandoned or that
reach a busy signal from IRS’s automated-service-only (TeleTax) number. In this figure, total calls to
IRS refer to the number of callers that tried to reach a Customer Service Representative (CSR) or
IRS’s TeleTax number. Data cover January 1 through July 12, 2003.


Figure 5 shows that of the 72 million calls to IRS during the 2003 filing
season (1) less than half of the calls resulted in the caller receiving
automated service, (2) about one third of the calls were handled by a
Customer Service Representative (CSR), and (3) about one fourth of the
calls resulted in the caller hanging up or being disconnected without
receiving service.




Page 17                                                           GAO-04-84 2003 Tax Filing Season
Figure 5: How IRS Handled Calls for Telephone Assistance during 2003 Filing
Season



                                             Received
                                             automated
                                             service
                                             32.3 million




                                   31%
                                             Reached a CSR
              45%                            22.4 million




                                 24%

                                             Hung up or disconnected
                                             without receiving service
                                             17.3 million
   Total calls to IRS
   72 million

Source: IRS and Art Explosion.



Note: GAO analysis of IRS data.


IRS’s overall performance in answering calls during the 2003 filing season
was mixed. As table 1 shows, IRS provided more accessible telephone
service in 2003 compared to 2002 as (1) a greater percentage of callers
attempting to reach a CSR received service, (2) a greater percentage of
callers attempting to access automated service completed their calls, (3) a
greater percentage of callers reached a CSR within IRS's threshold of 30
seconds or less, and (4) callers spent less time waiting for assistance on
average. However, table 1 also shows that IRS’s performance on various
accuracy measures declined in 2003 as compared to 2002.




Page 18                                              GAO-04-84 2003 Tax Filing Season
Table 1: IRS Tax Filing Season Telephone Assistance Performance, 2000-2003 Filing Seasons

                                                2000                 2001                 2002                         2003
Accessibility measuresa                                Actual               Actual             Actual               Actual                Goals
                         b                                    j
 CSR level of service                                                         68%                 71%                 85%                  72%
                                 c
 Automated completion rate                               47%                  47%                 36%                 59%                   N/Ak
                             d
 Assistor response level                                 39%                  39%                 51%                 56%                   N/Ak
 Average speed of answere                      237 seconds           337 seconds         268 seconds          159 seconds                   N/Ak
                         a
Accuracy measures
 Tax law quality ratef                                  73%                   75%                82%                  80%                  84%
                                                       +/- 2%               +/- 1%              +/- 1%              +/- 1%
 Accounts quality ratef                                 59%                   69%                76%                  70%                  76%
                                                       +/- 2%               +/- 1%              +/- 1%              +/- 1%
 Tax law customer accuracy rateg                              j
                                                                              79%                85%                  81%                  87%
                                                                            +/- 1%              +/- 1%              +/- 1%
 Accounts customer accuracy rateg                             j
                                                                              88%                91%                  89%                  91%
                                                                            +/- 1%              +/- 1%              +/- 1%
 Tax law timeliness rateh                                     j                    j                   j
                                                                                                                      99%                   N/Ak
                                                                                                                    +/- 1%
 Accounts timeliness rateh                                    j                    j                   j
                                                                                                                      97%                   N/Ak
                                                                                                                    +/- 1%
 Tax law professionalism ratei                                j                    j                   j
                                                                                                                     100%                   N/Ak
                                                                                                                    +/- 1%
 Account professionalism ratei                                j                    j                   j
                                                                                                                     100%                   N/Ak
                                                                                                                    +/- 1%
Source: IRS.
                                         a
                                          Accessibility measures are based on actual counts from January 1 through mid-July. Accuracy
                                         measures are based on representative samples and are estimated at the 90-percent confidence level
                                         and cover the period from January through June.
                                         b
                                          This measure is intended to show the percentage of callers who wanted to speak to a customer
                                         service representative (CSR) that got through and received service.
                                         c
                                           This measure is intended to show the percentage of total callers who completed a selected automated
                                         service. IRS did not establish a goal for 2003 because the indicator is not an official measure.
                                         dIRS uses the word “assistor” interchangeably with CSR. This measure shows the percentage of
                                         callers that waited 30 seconds or less before speaking to a CSR. IRS did not establish a goal for 2003
                                         because the indicator is not an official measure.
                                         e
                                          The average number of seconds callers waited before speaking to a CSR. IRS did not establish a
                                         goal for 2003 because the indicator is not an official measure.
                                         f
                                         The percentage of calls in which CSRs followed all IRS procedures for the call type and provided
                                         correct answers.
                                         g
                                          The percentage of calls in which CSRs provided correct answers for the call type and took the
                                         appropriate follow-up resolution action.
                                         h
                                          The percentage of calls in which CSRs used their time efficiently when responding to taxpayers
                                         inquires. IRS did not establish goals for 2003 for these measures because they were new in 2003.




                                         Page 19                                                           GAO-04-84 2003 Tax Filing Season
iThe percentage of calls in which CSRs used effective communication techniques to promote a
positive IRS image when responding to taxpayer inquires. IRS did not establish goals for 2003 for
these measures, because they were new in 2003.
jComparable data do not exist.

kNot applicable.


IRS exceeded its goal for CSR level of service during the 2003 filing season.
However, IRS did not set goals for the three other workload indicators of
accessibility shown in table 1 because it did not consider these indicators
to be performance measures. We believe these three indicators are
important because they measure taxpayers’ access to automated service
and gauge the taxpayer’s experience when attempting to reach a CSR.21 As
we reported in November 2002, IRS removed the automated completion
rate as a measure of the effectiveness of serving taxpayers through
automation.22 IRS did not agree with our recommendation to reinstate this
measure as a means of determining the level of service provided by
automation.23 In December 2002, we also reported that IRS stopped using
the assistor response level and average speed of answer measures to assess
its performance in providing telephone service because IRS’s telephone call
sites had no control over these measures.24 In response to our
recommendation that IRS reinstate a telephone assistance caller wait-time
measure, IRS plans to reintroduce a wait-time measure for fiscal year 2004.
This measure—average speed of answer—is intended to gauge the
customer’s experience when attempting to reach a CSR.

IRS officials attributed the improvement in the accessibility of telephone
service to several factors. For example, IRS experienced a lower than
expected number of calls in 2003—about 72 million calls received in 2003
as compared to more than 104 million in 2002. IRS officials told us that


21
  IRS has other measures that we are not reporting on because the measures do not provide
adequate information to make conclusions about the ease with which taxpayers reached
IRS or the accuracy of the responses they received after reaching IRS.
22
     GAO-03-143.
23
  IRS based its disagreement on the data on automated calls not being good enough to merit
attention as a balanced measure. While we recognized that there were data weaknesses
with the measure, our recommendation also called for IRS to revise the formula before
including it among its balanced measures. See GAO-03-143.
24
   U.S. General Accounting Office, IRS’s 2002 Tax Filing Season: Returns and Refunds
Processed Smoothly; Quality of Assistance Improved, GAO-03-314 (Washington, D.C.: Dec.
20, 2002).




Page 20                                                        GAO-04-84 2003 Tax Filing Season
there were relatively few tax law changes that had an impact on taxpayers
during the 2003 filing season as compared to last year, when IRS received a
significant number of calls related to the rate reduction credit. Another
possible reason for the improvement in accessibility could be the fact that
IRS began using CSRs to route tax law related calls in 2003. IRS made this
change because in 2002 (1) some callers spent up to 2 minutes navigating
the menu options, (2) other callers spent up to 3 minutes talking to one
CSR only to be transferred to another CSR for assistance, and (3) more
than 50 percent of the calls received by CSRs were re-routed to other CSRs
for some tax law topics. IRS officials told us that they made this change to
improve performance during the filing season and improve the customer
experience since many customers with tax-law-related calls had difficulty
using the menu options.

IRS did not meet its goals for any of its accuracy measures during the 2003
filing season, and its performance relative to these measures declined
compared to last year. IRS also began establishing baseline data for four
new accuracy measures and has not yet set goals for these measures.
These new measures assess how well CSRs manage their time and whether
CSRs promote a positive IRS image when communicating with telephone
callers. IRS plans to replace its existing tax law and account quality
measures and use the new timeliness and professionalism measures and
current customer accuracy measures to assess the accuracy of its
performance in providing telephone assistance beginning in fiscal year
2004. According to IRS, the new timeliness and professionalism measures
are based on what customers indicated mattered most to them and they are
designed with consideration to industry best practices. Although IRS
began an analysis to determine whether there is a correlation between how
IRS rates its CSRs on these new measures and how taxpayers report being
treated in the customer satisfaction surveys, the analysis was not
completed when we completed our field work.

IRS attributed the lack of improvement in the accuracy of telephone
service to several factors. For example, IRS officials attributed the decline
in the accounts quality rate to the training of newly hired CSRs on account-
related topics instead of the easier refund topics. In addition, with the
introduction of the Internet “Where’s My Refund” feature, IRS received
fewer refund inquires, which resulted in more complex calls being
answered by CSRs. This feature is discussed in more detail in the “IRS’s
Web Site Performance Showed Some Improvement” section. IRS identified
several items that contributed to the decrease in the tax law customer
accuracy rate, including the fact that CSRs had difficulty adapting to the



Page 21                                         GAO-04-84 2003 Tax Filing Season
                               changes in the guide they use to query callers. IRS officials also said
                               another explanation for the lack of improvement in providing accurate
                               information to callers is that some of IRS’s telephone call sites were
                               transferred from one operating division to another division, which resulted
                               in CSRs moving from one area of expertise to another area and needing to
                               be retrained.



IRS Implemented Several        IRS implemented several initiatives to improve telephone service in 2003.
Initiatives in 2003 to         According to IRS officials, these initiatives were instrumental in IRS
                               improving access to telephone service during the 2003 filing season,
Improve Telephone Service
                               although it is difficult to determine specific cause/effect relationships
                               between the initiatives and improvements in telephone service. Examples
                               include the following.

                               •	 IRS established six new toll-free telephone numbers to better reflect
                                  operating division responsibility and accountability—the Refund
                                  Hotline, Refund Callback Line, Business and Specialty Tax Line, and
                                  three new customer response numbers. These new numbers are part of
                                  IRS’s new toll-free strategy to improve the customer’s experience by
                                  targeting customer segments and creating more accountability for the
                                  operating divisions. According to IRS officials, the three new customer
                                  response numbers replaced one number that IRS used in the past and
                                  more closely correspond to the operating division responsible for a
                                  particular notice.

                               •	 IRS implemented a new feature on its Web site that enabled taxpayers to
                                  find out if IRS received their returns and whether their refunds had been
                                  processed, as discussed in the “IRS’s Web Site Performance Showed
                                  Some Improvement” section of this report. The new feature provides
                                  taxpayers with another option to receive assistance while reducing the
                                  demand for toll-free refund calls. According to IRS’s analysis for the
                                  period of January 1 to June 30, 2003, this new feature handled 32 percent
                                  of all IRS contacts from taxpayers with refund questions and reduced
                                  the toll-free refund call demand.



Telephone Service Has          Since the mid-1990s, IRS has significantly improved its telephone service.
Improved over the Past         Although telephone service is not yet at the level desired by taxpayers and
                               the Congress, the improvements to date represent payoffs from IRS’s
Several Filing Season Partly   modernization efforts. For example, in 1997, about 49 percent of calls to
as a Result of Modernization   IRS primary assistance lines either received a busy signal or were


                               Page 22                                         GAO-04-84 2003 Tax Filing Season
abandoned before being answered, as compared to about 32 percent of
calls in 2003. In addition, the percentage of calls where taxpayers
attempted to reach a CSR and received service increased from about 68 to
85 percent between the 2001 and 2003 filing seasons. With regard to
accuracy, the percentage of tax-law-related calls in which CSRs followed all
IRS procedures and provided the correct answer increased from 73 percent
in 2000 to 80 percent in 2003, while the percentage of account-related-calls
in which CSRs followed all IRS procedures and provided the correct
answer also increased from 59 to 70 percent between the 2000 and 2003
filing seasons.

IRS’s telephone service improvements over the years are, in part, the result
of numerous modernization initiatives sustained over time, although
limited data exist to link specific initiatives to improvements. In 1998, IRS
revised its method of distributing calls, shifting from an area-code-based
routing system to a nationwide call allocation system. In 1999, IRS
centralized its toll-free telephone operation at the Joint Operations Center
to enable it to route calls on the basis of availability of CSRs. Similarly,
from 2000 through 2003, IRS made several business process changes and
implemented new technology. For example, in 2001, IRS shifted millions of
calls to an automated answering system in order to free CSRs to answer
more complex calls. IRS also enhanced its call routing ability in 2002 by
implementing “network call screening” where callers, through the use of
menu options, indicated their subject matter prior to being routed to a call
site. Regarding accuracy, IRS began centralized monitoring of account- and
tax-law-related calls in 1998. In addition, a desktop electronic version of
IRS’s guide used to answer tax-law-related questions was made available to
all CSRs. The guide has been improved and now contains automated links
to on-line research material. Using this same technology, in 2002, IRS
automated the guide that CSRs use to answer account-related questions.
Finally, because of modernization, IRS’s telephone service has improved
over the years while maintaining about the same workforce level in its
telephone operations. For example, IRS expended about 8,285 staff years
in fiscal year 1999 providing toll-free telephone service compared to 8,340
staff years in fiscal year 2002.




Page 23                                         GAO-04-84 2003 Tax Filing Season
Quality of Walk-In           The quality of service provided at IRS’s walk-in sites showed some
                             improvement in 2003, and IRS met some of its 2003 performance goals.25 In
Assistance Improved in       addition, IRS continued its initiative to shift return preparation work to its
2003, but Assessing          community-based coalitions and other volunteer organizations, which
                             contributed to a decline in the number of taxpayers assisted at IRS’s walk-
Long-Term                    in sites. However, our assessment was limited by the fact that IRS did not
Improvements Is              report performance for the timeliness of walk-in assistance or the accuracy
Difficult Because of         of account assistance in 2003. Over the last several years, IRS has made
                             efforts to standardize and improve walk-in assistance, but a lack of long-
Lack of Data                 term performance data makes it impossible to quantify improvements.



Tax Law Accuracy and         The accuracy of tax law assistance provided at walk-in sites improved
Volunteer Assistance         between 2002 and 2003 on the basis of reviews conducted by TIGTA.26
                             From January through April 2003, TIGTA found that about 70 percent of its
Increased in 2003, but IRS
                             questions were answered correctly, an increase of 20 percentage points
Did Not Report on            over the same time period last year, but less than IRS’s 2003 performance
Timeliness and Account       goal of 80 percent. TIGTA also found that the number of times IRS
Assistance                   employees referred TIGTA auditors to a publication instead of answering
                             tax law questions—which had been an issue last year—declined by about
                             87 percent. TIGTA attributed the increased accuracy rates to IRS (1)
                             revising the guidelines used by walk-in staff, (2) certifying the proficiency
                             of walk-in staff in various tax law categories, and (3) immediately
                             addressing the results of TIGTA reviews at walk-in sites. As they did last
                             year, field assistance officials continue to disagree with the methodology
                             used by TIGTA to calculate tax law accuracy because TIGTA counts
                             referrals to IRS publications as incorrect.27 However, as we stated last year,
                             we believe that the complexity of tax laws and varying education levels
                             among taxpayers seeking assistance suggest that requiring field assistance


                             25
                                At any one of IRS’s more than 400 walk-in sites, taxpayers can obtain (1) forms and
                             publications; (2) assistance with their tax accounts; (3) answers to tax law questions; (4)
                             limited return preparation assistance; and (5) various other types of assistance, such as help
                             getting a taxpayer identification number.
                             26
                                In 2001, the Congress directed TIGTA to review the accuracy of tax law assistance
                             provided by all of IRS’s walk-in sites, S. Rep. No. 107-57 (2001). From January through April
                             2003, TIGTA reviewers visited 72 walk-in sites and asked a total of 283 tax law questions.
                             27
                              TIGTA counts referrals as incorrect when the IRS employee merely provided the
                             publication, without walking the customer through it to identify the answer, as required by
                             established field assistance procedures.




                             Page 24                                                    GAO-04-84 2003 Tax Filing Season
employees to walk the taxpayer through a publication to identify the
correct response is a necessary procedure that should be followed in
practice for their response to be considered correct.28

In addition to TIGTA reviews of tax law accuracy, IRS began measuring the
accuracy of return preparation assistance provided at walk-in sites in
January 2003, using existing data generated by the submission processing
centers.29 IRS data shows that from January 1 to May 3, 2003, the accuracy
rate for returns prepared at walk-in sites was 99.8 percent, which exceeded
IRS’s performance goal of 91 percent. IRS officials attributed the high
accuracy rate to the use of standardized software by walk-in staff to
prepare and electronically file returns and the lack of significant tax law
changes in 2003 as compared to last year. IRS also partners with
community-based coalitions—a collection of local organizations that help
low-income individuals and families—and other volunteer organizations to
provide free return preparation assistance to taxpayers as part of its VITA
and TCE programs.30 According to IRS officials, from January 1 to April 19,
2003, the accuracy rate for returns prepared at VITA sites was 98.1 percent
and 96.5 percent for returns prepared at TCE sites.

In 2003, the number of taxpayers that received return preparation
assistance from community-based coalitions and other volunteer
organizations increased; at the same time, the number of taxpayers assisted
at IRS’s walk-in sites continued to decline. Figure 6 shows the growth in
the number of returns prepared by community-based coalitions and other
organizations, a decline in the number of taxpayers receiving assistance at
IRS walk-in sites, and a decline in the number of returns prepared at IRS
walk-in sites.31




28
     GAO-03-314.
29
   IRS considers a return as being accurate if no math errors (obvious errors such as
mathematical errors, omitted or inconsistent data, or other inconsistencies) are identified
on the return.
30
   These programs use IRS-trained volunteers to help prepare basic tax returns for taxpayers
with special needs, including people with disabilities, those with low or fixed incomes, non-
English speaking people, and the elderly, during the filing season.
31
  IRS’s walk-in sites provide return preparation assistance to taxpayers taht meet certain
income requirements. For the 2003 filing season, the income ceiling for return preparation
assistance was $35,000.




Page 25                                                   GAO-04-84 2003 Tax Filing Season
Figure 6: Assistance Provided by IRS Walk-in and Volunteer Sites, 2000-2003 Filing
Seasons
 8 Millions




 6                  5.79
                                               5.14
                                                                     4.90

                                                                                              4.19
 4




 2
                                                                                       1.31
     0.89                          0.79 0.95                  0.94
                                                      0.67                      0.46
            N/A
 0
            2000                        2001                 2002                      2003

                Returns prepared (walk-in)

                Returns prepared (volunteer)
                Total walk-in
 Source: IRS.



Note: GAO analysis based on IRS data. Total walk-in includes all face-to-face assistance. It does not
include the number of taxpayers assisted by walk-in employees via telephone or correspondence,
which ranged from about 96,000 in 2000 to over 150,000 in 2003.
The number of returns prepared at volunteer sites was not available for the 2000 filing season.
The time periods covered by this figure each began on January 1 and ended on April 22, 2000, April
21, 2001, April 20, 2002, and April 19, 2003.


IRS officials attributed the overall decline in the number of taxpayers
receiving assistance at walk-in sites to (1) IRS’s strategy to reduce the
amount of return preparation assistance offered at walk-in sites, 32 (2)
taxpayers use of more convenient means to obtain services that do not
require face-to-face contact, such as through IRS’s toll-free network and
Web site, and (3) the increasing number of taxpayers that receive return
preparation assistance at community-based coalitions and other


32
   IRS planned to reduce return preparation assistance by 20 percent in both fiscal years 2003
and 2004 and expects walk-in sites to provide additional tax law assistance, as well as
perform some compliance functions.




Page 26                                                              GAO-04-84 2003 Tax Filing Season
organizations as part of IRS’s VITA and TCE programs.33 These officials
also told us that the decline in the number of taxpayers assisted at walk-in
sites helped IRS reduce its reliance on compliance staff. Traditionally, IRS
has detailed staff from its compliance functions, such as Examination and
Collection, to help provide walk-in assistance. In 2003, IRS was able to
reduce the number of compliance staff that helped to provide walk-in
assistance during the filing season by about 118 staff years (66 percent)
during the filing season. IRS also reduced the total number of staff years
used to provide walk-in assistance during the 2003 filing season by about 14
percent as compared to the same time period in 2002.

IRS did not report performance for two key indicators of walk-in service in
2003—timeliness and accuracy of account assistance. For years, IRS
officials have contended that, when timeliness is monitored at its walk-in
sites, employees have felt in a hurry to provide assistance to taxpayers,
which could diminish quality. As a result, IRS discontinued wait time as an
official measure of field assistance in 2001 and no longer required walk-in
sites that were manually capturing and reporting wait-time information to
do so in 2002. While we did not agree with IRS’s decision to discontinue
wait time as an official measure, we did agree with the decision to stop
manual tracking of wait time because it was not practical or accurate to do
so. 34 This year, IRS no longer required that about 140 of its 400 walk-in sites
equipped with an automated system, known as the Queuing Management
System, which captures wait-time information to report that information to
upper-level management. Further, IRS did not consolidate and disseminate
this wait-time information to field managers. According to field assistance
officials, this decision was made for the same reason they discontinued
wait time as an official measure—because walk-in staff felt pressured to
hurry assistance. However, without timeliness information, IRS lacks
information about a key component of service, which makes it difficult to
balance timeliness and quality. As a result, walk-in staff could take
excessive time providing assistance to a few taxpayers regardless of the
impact on the wait time for other taxpayers. For this reason, IRS includes
timeliness as part of its suite of balanced measures for monitoring
telephone operations. In addition, taxpayers reported in customer


33
  According to IRS, the number of community-based coalitions increased from 6 in fiscal
year 2000 to 150 in fiscal year 2003. In 2004, IRS plans to continue expanding VITA and TCE
sites in underserved areas, such as rural communities, while improving the operational
effectiveness and productivity of existing partnerships.
34
     GAO-03-143 and GAO-03-314.




Page 27                                                  GAO-04-84 2003 Tax Filing Season
                            satisfaction surveys that promptness of service was by far the highest
                            ranked improvement priority for its walk-in sites.

                            IRS also does not presently know the accuracy of the account assistance it
                            provides to taxpayers at walk-in sites. Account assistance differs from tax
                            law assistance—account assistance includes answers to questions about
                            taxpayers’ refunds, payments, and tax debts. IRS established baseline data
                            for an account accuracy measure in 2002; however, IRS subsequently
                            decided not to measure account accuracy in 2003 so that its quality
                            reviewers could focus on conducting reviews of tax law accuracy at walk-
                            in sites. IRS officials stated that they are developing a plan for measuring
                            account accuracy and hoped to begin using quality reviewers to measure
                            the accuracy of account assistance in September 2003. Account accuracy
                            is one of the balanced measures of telephone performance.



IRS Took Steps in 2003 to   IRS took several steps to improve walk-in service in 2003. According to
Improve Walk-in Service     field assistance officials, these steps likely helped improve the accuracy of
                            tax law assistance, although they have not conducted any analysis to
                            determine the impact of these steps on any particular aspect of quality of
                            walk-in service. The following are three examples of steps intended to
                            improve accuracy.

                            •	 Field assistance managers began certifying the proficiency of walk-in
                               staff in various tax law topics in March 2003. According to field
                               assistance officials, walk-in staff that do not pass the certification in a
                               particular topic cannot assist taxpayers on that topic, and managers are
                               required to develop a plan to assist the staff in improving proficiency in
                               that topic.

                            •	 Field assistance managers and quality reviewers began conducting
                               monthly reviews of tax law accuracy at walk-in sites. IRS data show
                               that from January to April 2003, its reviewers reported receiving correct
                               responses to about 88 percent of the questions asked of walk-in staff,
                               which is higher than the results reported by TIGTA for the same time
                               period.

                            •	 IRS began training walk-in staff in fiscal year 2003 on how to guide
                               taxpayers through a publication to answer a tax law question, instead of
                               merely providing the taxpayer with the publication and having the
                               taxpayers figure out the answers by themselves. As part of this training,
                               IRS also developed guidance for walk-in staff to use that is similar to



                            Page 28                                          GAO-04-84 2003 Tax Filing Season
                               what CSRs use for answering tax law questions received via IRS’s toll-
                               free telephone network. In addition, field assistance procedures
                               emphasize that walk-in staff should not give taxpayers a publication in
                               lieu of providing an answer to their tax law question.



IRS Lacks Data for        Over the last few years, IRS has made efforts to standardize walk-in
Assessing Long-term       assistance, but a lack of performance data makes it difficult for IRS and us
                          to quantify long-term improvements. As we reported in December 2000,
Improvements in Walk-In
                          IRS’s National Office did not implement a quality review program for walk-
Assistance                in sites until 2000.35 Before that time, IRS lacked meaningful nationwide
                          data to assess the performance of its walk-in sites in terms of quality,
                          timeliness, and taxpayer satisfaction. Despite this fact, field assistance
                          officials believe that there have been improvements in the quality of
                          services provided by walk-in sites in recent years, based on a number of
                          factors. For example, in 2001, IRS reorganized its walk-in sites and
                          established a set of measures, such as tax law accuracy, to assess
                          performance and to help provide consistency and standardization. As a
                          result, field assistance officials told us that walk-in sites now capture
                          workload data, for example, more consistently, which makes the data more
                          useful to management and which indicates an improvement in recent years.
                          The officials told us that, in 2002, IRS also began providing more consistent
                          and standardized services, better training, and improved access to taxpayer
                          account information at walk-in sites. In addition, IRS began refining the
                          process for referring complex tax law questions that are beyond the scope
                          of training that walk-in staff normally receive to expert field assistance,
                          toll-free telephone assistance CSRs, or compliance staff. Finally, as
                          previously noted, IRS has also been able to reduce its reliance on
                          compliance staff over the last few years, allowing it to redirect those
                          resources to higher priority, compliance-related work.



IRS’s Web Site            In 2003, IRS’s Web site showed some improvement and taxpayers used it
                          more than in 2002. For example, from January 1 to July 31, 2003, more than
Performance Showed        430 million forms, publications, and other documents had been
Some Improvement          downloaded from the Web site, a 22 percent increase over the same time
                          period last year.


                          35
                           U.S. General Accounting Office, Tax Administration: Assessment of IRS’ 2000 Tax Filing
                          Season, GAO-01-158 (Washington, D.C.: Dec. 22, 2000)




                          Page 29                                                GAO-04-84 2003 Tax Filing Season
                               Keynote—an independent Web site rater and a recognized authority on
                               Internet performance—reviewed the average delivery time and
                               availability36 of IRS’s Web site and reported that the site performed well,
                               although the Web site did exhibit some minor problematic periods.
                               Keynote reported that from April 11 through April 16, 2003, IRS’s home
                               page was delivered in around 1 second and the Web site had an average
                               availability rate of 99.35 percent.37 However, on April 14, 2003, Keynote
                               reported that the site’s average delivery time experienced slowdowns of up
                               to 6 to 8 seconds from 5 p.m. to 9 p.m., and its average availability rate
                               decreased to less than 90 percent. In 2002, Keynote reported that the Web
                               site’s average delivery time was less than 1 second and its availability
                               averaged close to 100 percent for most of the filing season.



Although Performance           One important feature of IRS’s Web site is the ability of taxpayers to ask tax
Declined for Questions         law and procedural questions of IRS via the Internet on its Web site. IRS
                               data indicate that its performance in answering questions received from
Received Via IRS’s Web Site,   taxpayers via the Internet worsened during the 2003 filing season as
Ease of Use Improved           compared to 2002. IRS took 3.7 business days on average to respond to
                               those questions in 2003, as compared with 2.1 business days in 2002 and its
                               2003 performance goal of 2 business days. In addition, from January 1 to
                               May 31, 2003, IRS responded accurately to 73.7 percent of the questions, as
                               compared to a 77.6 percent accuracy rate for the same time period in 2002
                               and its 2003 performance goal of 83.5 percent. IRS officials attributed the
                               increase in the average time to respond and the decrease in the accuracy
                               rate to the increased volume and complexity of the questions. Although the
                               number of questions received from taxpayers over the Internet is small
                               when compared to the number of questions received over the telephone,
                               providing accurate responses to these questions is particularly important



                               36
                                 According to Keynote, availability is the percentage of time the Web site’s home page
                               downloads fully and average delivery time is the time it takes for the home page to fully
                               download from the time the user hits the “enter” key on the keyboard. According to IRS, a
                               home page is charged with an error and therefore receives a lower percentage of availability
                               even if a graphic that has nothing to do with the user’s ability to get pertinent content
                               information from the page does not download properly. As such, according to IRS, the
                               measure does not reflect whether the Web site itself is available or not. Also, according to
                               IRS, errors can be the result of heavy traffic on the Internet in general and may have nothing
                               to do with the home page.
                               37
                                Keynote measured the average delivery time and availability of IRS’s Web site from 5 p.m.,
                               Eastern Daylight Time (EDT), on April 11, 2003, to 9 a.m., EDT, on April 16, 2003.




                               Page 30                                                    GAO-04-84 2003 Tax Filing Season
                             because of the potential for widespread dissemination of inaccurate
                             responses to other taxpayers.

                             We found that IRS’s Web site was more user friendly in 2003. For example,
                             we did not find broken or inappropriate links between pages as we have
                             found in previous years. IRS also added an index to the Web site, making it
                             possible for users to search for forms, instructions, or publications by
                             topic. In addition, IRS resolved our concern that the search functions do
                             not always make the most pertinent information readily available. In April
                             2003, we testified that when we typed, “earned income tax credit” into the
                             forms and publication search function, Publication 596—the primary
                             publication on the earned income tax credit—was the 70th item on the list,
                             and we had to scroll through seven pages to find it. However, in June 2003,
                             we again typed “earned income credit” into the search function and found
                             the publication was the 9th item on the list and on the first page. IRS
                             officials attributed the improvement in the search function results, in part,
                             to working with contractors to (1) determine what the expected search
                             results should be for the most frequently used search terms, (2) adjust the
                             search results to ensure that those items appear at the top of the list, and
                             (3) expand the thesaurus within the search engine to include an updated
                             repository of the most frequently searched words, phrases, and variations.



IRS Continues to Offer New   IRS offered new services on the Web site for the 2003 filing season that
Services to Increase Web     represent payoffs from modernization. For example, IRS implemented a
                             refund status check (Where’s My Refund) feature on the Web site that
Use, a Key Part of           enabled taxpayers to find out if IRS received their returns and whether
Modernization                their refunds were processed. As of June 9, 2003, IRS data show that about
                             11 million taxpayers obtained data on their refund status using this feature.
                             The ability of taxpayers to check the status of refunds on-line is particularly
                             important because it has contributed to the decreased number of refund
                             call inquiries handled by IRS’s toll-free telephone operations and has the
                             potential to further decrease those calls. Taxpayers responding to a survey
                             on the feature provided favorable reviews—about 91 percent of the survey
                             respondents said they were satisfied or somewhat satisfied with the overall
                             service provided by the feature. In January 2003, IRS also made available
                             on the Web site a direct link to the Free File program offered through IRS
                             private-sector partners.

                             IRS’s Web site is a critical part of modernization because, according to IRS,
                             it is more cost effective than other methods of providing taxpayer
                             assistance, such as answering telephone calls. As discussed above, the



                             Page 31                                           GAO-04-84 2003 Tax Filing Season
                       initiative that allowed taxpayers to check the status of their refunds shows
                       the potential of the Web site to provide more cost-effective services.
                       Taxpayer’s use of IRS’s Web site and the services IRS offers on its Web site
                       have grown considerably over the past several filing seasons, another
                       indication that taxpayers are receiving payoffs from modernization. For
                       example, by July 31, 2003, taxpayers already had downloaded more than
                       430 million forms and publications compared to the 129 million for about
                       the same time period in 2000.



Conclusions	           IRS’s performance during the filing season is important because it affects
                       so many taxpayers. The filing season also plays a crucial role in collecting
                       the revenue that finances the federal government. The improvements seen
                       this year, as well as over the past several years, are part of the payoff from
                       IRS’s ongoing modernization efforts.

                       One feature of modernization that has contributed to IRS’s improved
                       performance is the greater reliance on performance measures to manage
                       its operations. A few years ago, IRS established performance measures
                       that are intended to balance priorities such as quality, timeliness, customer
                       satisfaction, employee satisfaction, and outcomes. The measures IRS uses
                       to assess its performance in providing telephone service are an example of
                       how IRS has achieved this balance. However, as a result of IRS’s decision
                       in 2003 to stop requiring sites equipped with an automated system for
                       reporting wait-time data to report that information, IRS’s measures to
                       assess walk-in assistance lack such balance. Finally, managers do not have
                       information on this important aspect of quality and without the balance a
                       timeliness measure would offer, staff might focus on providing accurate
                       assistance to a few taxpayers regardless of the impact on the wait-time for
                       other taxpayers.



Recommendation for 	   We recommend that the Commissioner of Internal Revenue direct the
                       appropriate officials to require that IRS consolidate and disseminate wait-
Executive Action	      time information to field managers based on information from sites
                       equipped with an automated system that can capture wait-time data, in
                       order to assess this important aspect of quality.




                       Page 32                                          GAO-04-84 2003 Tax Filing Season
Agency Comments and   The Commissioner of Internal Revenue provided written comments in an
                      October 29, 2003, letter (see app. III). The Commissioner noted that IRS’s
Our Evaluation        filing season readiness process provided the framework and oversight to
                      ensure that IRS was well prepared for the 2003 filing season. The
                      Commissioner partially agreed with our specific recommendation, stating
                      that IRS will require walk-in sites equipped with Q-Matic to report wait-
                      time information on a quarterly basis and that the automated wait-time
                      information available from these locations would provide valuable data for
                      an assessment of overall trends and relationships in timeliness and quality.
                      However, the Commissioner did not agree to disseminate this consolidated
                      wait-time information to field managers. For years, as we report, IRS has
                      contended that past experience has shown employee reaction to timeliness
                      measures tended to increase the likelihood of inaccurate or incomplete
                      answers. At the same time, the Commissioner noted that routine
                      monitoring of wait time occurs by local managers for walk-in sites
                      equipped with Q-Matic. However, routine monitoring does not provide
                      overall performance data and timeliness data is only available to some
                      managers locally. In our view, there needs to be a balance between
                      measuring quality and timeliness and too much focus on either could create
                      inappropriate incentives for IRS’s walk-in staff. As noted in our report, IRS
                      already consolidates and reports tax law and return preparation accuracy
                      at its walk-in sites and plans to do the same for accounts accuracy. Without
                      consolidated timeliness information, field managers would have a difficult
                      time balancing quality and timeliness.

                      We are sending copies of this report to the Chairmen and Ranking Minority
                      Members of the Senate Committee on Finance, the House Committee on
                      Ways and Means, and the Ranking Minority Member, Subcommittee on
                      Oversight, House Committee on Ways and Means. We are also sending
                      copies to the Secretary of the Treasury; the Commissioner of Internal
                      Revenue; the Director, Office of Management and Budget; and other
                      interested parties. We will also make copies available to others on request.
                      In addition, the report will be available at no charge on the GAO Web site at
                      http://www.gao.gov.

                      This report was prepared under the direction of Joanna M. Stamatiades,
                      Assistant Director. Other major contributors are acknowledged in
                      appendix IV. If you have any questions about this report, contact me on
                      (202) 512-9110.




                      Page 33                                         GAO-04-84 2003 Tax Filing Season
Sincerely yours,




James R. White
Director, Tax Issues




Page 34                GAO-04-84 2003 Tax Filing Season
Appendix I

Data on IRS’s Processing Performance
Relative to Fiscal Year 2001-2003 Performance
and Fiscal Year 2003 Goals
                                                 As table 2 shows, (1) the Internal Revenue Service’s (IRS) performance in
                                                 2003 improved over last year for seven measures and (2) IRS exceeded its
                                                 performance goals in 2003 for five measures but missed its goals for two
                                                 measures (deposit error rate and letter error rate). IRS’s performance in
                                                 2003 could not be compared with its performance in 2002 and prior years or
                                                 2003 goal for one measure (refund interest paid) because IRS revised the
                                                 way the measure was computed and did not have the necessary data
                                                 available to revise the goal. Table 2 also shows that IRS’s processing
                                                 performance has generally improved for each of its measures since 2001.



Table 2: IRS’s 2001-2003 Tax Filing Season Processing Performance


                                                                                     Fiscal year
                                                                                           2003
                                                                       Fiscal year        actual Fiscal year
                                                   Fiscal year 2001          2002      (through        2003
Measure Name Definition                                     actualb        actual       July 31)        goal   Comments
Deposit error    Percentage of payments                       5.0%            4.8%         4.4%        2.4%    Performance improved,
rate             applied in error by, for                                 +/- 0.3%     +/- 0.3%                but performance goal
                 example, reimbursing a                                                                        not met. According to
                 taxpayer who overpaid                                                                         IRS officials, the goal
                 when the taxpayer wanted                                                                      was too aggressive.
                 any overpayment credited to
                 next year’s tax bill.
Deposit          Interest value of money not                  $748           $578          $542        $573    Performance improved
timeliness–      deposited by the business                                                                     and performance goal
paper            day after receipt per $1                                                                      exceeded.
                 million in deposits. Measure
                 assumes an 8 percent
                 interest rate.
Letter error rate Percentage of letters issued      Not comparable            7.4%         7.2%        6.2%	   Performance improved,
                  to taxpayers with errors               because of       +/- 0.6%     +/- 0.5%                but goal not met.
                  (includes systemic errors).c      revisions to the                                           According to IRS
                                                          measure.                                             officials, the goal was
                                                                                                               not met because of
                                                                                                               loss of experienced
                                                                                                               and knowledgeable
                                                                                                               personnel as a result of
                                                                                                               IRS’s announcement
                                                                                                               that it would be closing
                                                                                                               some processing
                                                                                                               centers.
Notice error     Percentage of incorrect            Not comparable          18.7%           9.7%      13.2%    Performance improved
rate             notices issued to taxpayers             because of       +/- 2.7%     +/- 0.5 %               and performance goal
                 (includes systemic errors). c      revisions to the                                           exceeded.
                                                          measure.




                                                 Page 35                                              GAO-04-84 2003 Tax Filing Season
                                                    Appendix I

                                                    Data on IRS’s Processing Performance 

                                                    Relative to Fiscal Year 2001-2003 

                                                    Performance and Fiscal Year 2003 Goals





(Continued From Previous Page)

                                                                                                  Fiscal year
                                                                                                        2003
                                                                                 Fiscal year           actual Fiscal year
                                                          Fiscal year 2001             2002         (through        2003
Measure Name Definition                                            actualb           actual          July 31)        goal        Comments
Refund error        The percentage of refunds                           9.8%             8.0%            5.4%           7.6%     Performance improved
rate –individual    with IRS-caused errors in                                        +/- 3.8%        +/- 3.5%                    and performance goal
(paper)c            the entity information (e.g.,                                                                                exceeded.
                    incorrect name or Social
                    Security number) or refund
                    amount; includes systemic
                    errors. c
Refund interest Amount of refund interest                  Not comparable                Not          Not                Not     We cannot assess
paid            IRS paid per $1 million of                      because of       comparable comparable            applicable     performance relative to
                refunds issued.                            revisions to the       because of  because of                         previous years or 2003
                                                                 measure.        revisions to revisions to                       goal. In 2002, IRS
                                                                               the measure. the measure.                         implemented a
                                                                                                                                 programming change
                                                                                                                                 that revised how it
                                                                                                                                 calculates the measure
                                                                                                                                 and did not have the
                                                                                                                                 necessary data to
                                                                                                                                 revise the goal for the
                                                                                                                                 2003 filing season.
Refund              Percentage of refunds                             95.2%            98.2%           98.8%           98.4%     Performance improved
timeliness–         issued within 40 days or                                         +/- 2.3%        +/- 2.3%                    and performance goal
individual          less.                                                                                                        exceeded.
(paper)
Productivity        Weighted volume of                                30,133          28,257           30,094         29,302     Performance improved
                    documents processed per                                                                                      and performance goal
                    staff year expended at the                                                                                   exceeded.
                    processing centers.
Source: IRS data.

                                                    Note: GAO analysis of IRS data.
                                                    a
                                                      The measures for fiscal year 2003 are through July 31, which were the latest data available at the
                                                    time we ended our audit work. According to IRS officials, the 2003 results through July 31 are
                                                    reflective of IRS’s performance during the filing season. In addition, IRS officials told us that the
                                                    results for the measures should not change significantly through September 30.
                                                    b
                                                        According to IRS officials, they did not compute a margin of error for these measures in 2001.
                                                    c
                                                     Systemic errors are computer-generated errors over which a particular processing center would have
                                                    no control.




                                                    Page 36                                                            GAO-04-84 2003 Tax Filing Season
Appendix II

Advance Payment of Child Tax Credit Had
Minimal Impact on 2003 Filing Season

              The Jobs and Growth Tax Relief Reconciliation Act of 2003,1 signed into
              law on May 28, 2003, increased the amount of the child tax credit from $600
              per child to $1,000 for 2003 and 2004. The act also provided for eligible
              taxpayers to receive the increase of $400 this summer in order to stimulate
              the economy more rapidly than if taxpayers had to wait until they filed their
              tax year 2003 return. The Department of the Treasury mailed
              approximately 24 million advanced payment checks from late July to mid-
              August 2003 in a manner similar to the advanced payment checks issued in
              2001.

              IRS took several steps in 2003 to prepare taxpayers for the advanced
              payments. For example, in May IRS set up a special menu prompt on its tax
              law and refund inquiry toll-free lines that provided taxpayers with general
              information about the child tax credit advance payment. In mid-July, IRS
              (1) provided additional information—such as when taxpayers could expect
              their advanced payment checks based on the last two digits of their social
              security number—on this special menu prompt, (2) established a new toll-
              free number to provide taxpayers with specific information about the
              advanced payments, and (3) updated its Web site to provide taxpayers with
              information on eligibility requirements and the ability to check the status of
              their advance payment.

              According to IRS officials, passage of the Jobs and Growth Tax Relief
              Reconciliation Act of 2003 had a minimal impact on the 2003 filing season.
              For example, the officials reported that IRS experienced some increase in
              telephone calls before the legislation was passed, but they expected the
              majority of taxpayers to call for telephone assistance in mid-August or
              later—after the advance payments were mailed. Data on calls were not
              available in time to be reflected in this report. IRS did not allocate
              additional resources to provide this assistance and estimated that, as a
              result of an anticipated increase in demand, the CSR level of service
              performance measure might drop by about three percentage points by the
              end of 2003 fiscal year. IRS officials anticipate that some additional impact
              on telephone service will occur during the 2004 filing season.

              IRS also anticipates that, based on its experience with the 2001 rate
              reduction credit, a number of taxpayers will make errors, such as with the
              Child Tax Credit Worksheet computation during the 2004 filing season.
              However, IRS anticipates there will be fewer errors in 2004 because fewer


              1
               P.L. 108-27.




              Page 37                                          GAO-04-84 2003 Tax Filing Season
Appendix II

Advance Payment of Child Tax Credit Had 

Minimal Impact on 2003 Filing Season





taxpayers are affected by the child tax credit. As we reported last year,
taxpayers and tax practitioners made many errors related to the rate
reduction credit during the 2002 tax filing season.2 However, IRS expects
fewer problems with the child tax credit and advanced payment and
attributes this in part to IRS having learned lessons from its experience
during the 2002 filing season. For example, IRS has identified the types of
errors taxpayers and tax professionals made related to the rate reduction
credit and was preparing strategies to minimize the impact on taxpayers
during the 2004 filing season.




2
    GAO-03-314.




Page 38                                        GAO-04-84 2003 Tax Filing Season
Appendix III

Comments from the Internal Revenue Service





               Page 39          GAO-04-84 2003 Tax Filing Season
Appendix III

Comments from the Internal Revenue Service





Page 40                                       GAO-04-84 2003 Tax Filing Season
Appendix III

Comments from the Internal Revenue Service





Page 41                                       GAO-04-84 2003 Tax Filing Season
Appendix III

Comments from the Internal Revenue Service





Page 42                                       GAO-04-84 2003 Tax Filing Season
Appendix III

Comments from the Internal Revenue Service





Page 43                                       GAO-04-84 2003 Tax Filing Season
Appendix III

Comments from the Internal Revenue Service





Page 44                                       GAO-04-84 2003 Tax Filing Season
Appendix IV

GAO Contacts and Staff Acknowledgments



              James White, (202) 512-9110
              Joanna Stamatiades, (404) 679-1984

              In addition to those named above, James Cook, Leon Green, Marshall
              Hamlett, Ron Heisterkamp, John Lesser, Jay Pelkofer, Amy Rosewarne,
              Sonja Ware, and Daniel Zeno made key contributions to this report.




(440183)      Page 45                                     GAO-04-84 2003 Tax Filing Season
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