oversight

2012 Tax Filing: IRS Faces Challenges Providing Service to Taxpayers and Could Collect Balances Due More Effectively

Published by the Government Accountability Office on 2012-12-18.

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

                United States Government Accountability Office

GAO             Report to Congressional Committees




                2012 TAX FILING
December 2012




                IRS Faces Challenges
                Providing Service to
                Taxpayers and Could
                Collect Balances Due
                More Effectively




GAO-13-156
                                              December 2012

                                              2012 TAX FILING
                                              IRS Faces Challenges Providing Service to
                                              Taxpayers and Could Collect Balances Due More
                                              Effectively
Highlights of GAO-13-156, a report to
congressional committees




Why GAO Did This Study                        What GAO Found
The tax filing season is an enormous          While there have been efficiency gains and efforts to improve service, the
undertaking during which the IRS              Internal Revenue Service (IRS) faced challenges providing telephone service
processes millions of tax returns,            and responding to correspondence, continuing trends experienced in recent
issues billions of dollars in refunds and     years. In 2012, 82 percent of individual taxpayers filed their returns electronically
provides service to millions of               (e-filed), reducing IRS’s processing costs. IRS also increased calls answered
taxpayers over the phone, online, and         using automated service and added a variety of self service tools, which helped
face-to-face. It also identifies taxpayers    gain efficiencies. However, IRS’s level of telephone service (the percentage of
who owe additional taxes and begins           callers seeking live assistance who receive it) declined to 68 percent. In addition,
the process of collecting their balance
                                              of the 21 million pieces of paper correspondence IRS received, about 40 percent
due. GAO was asked to review IRS’s
                                              were considered overage (meaning that IRS did not respond within 45 days of
performance during the 2012 filing
season. Among other things, this
                                              receipt), an increase compared to last year. While IRS plans to continue to
report (1) assesses IRS’s performance         pursue efficiency gains, its strategy for future years does not specifically address
in processing returns, issuing refunds,       how it plans to reverse these negative trends. Reversing the declines in
and providing service to taxpayers over       telephone and correspondence services may require IRS to consider difficult
the phone, online, and in-person; and         tradeoffs, such as reassessing which phone calls IRS should answer with a live
(2) describes what is known about             assistor and which it should not because automated services are available.
taxpayers who filed returns with a
                                              IRS Return Processing, Telephone Service, and Correspondence, 2007 through 2012 Filing
balance due for tax year 2010 and
                                              Seasons
assesses IRS’s efforts to ensure timely
                                                                                   2007      2008     2009    2010    2011        2012
payment. To conduct the analyses,
GAO obtained and compared IRS data             Return processing (fiscal year)
from 2007 through 2012, reviewed               Returns processed (in millions)      135       151      139     137     140          142
pertinent IRS documents, interviewed           Percent e-filed                       58        59       67      71      78             82
IRS officials and observed IRS                 Telephone service
operations, and interviewed other              (as of June 30, each year)
                                               Percentage of callers seeking
experts in tax administration, including       live assistance who receive it        81        57       68      76      72             68
from states and tax preparation firms.
                                               Average wait time (in minutes)       4.6        8.6      8.4     9.5    11.7            17
                                               Paper correspondence
What GAO Recommends                            (end of fiscal year)
GAO recommends that IRS outline a              Percentage of overage
                                               correspondence                        17        23       25      27      35             40
strategy to improve taxpayer service,
define appropriate levels of service,         Source: GAO analysis of IRS data.

and describe how it intends to manage
performance declines; clearly define          GAO identified about 3.8 million returns where taxpayers self-acknowledged a
the roles and responsibilities of those       balance due of $13.8 billion for tax year 2010, the most recent data available.
reviewing the notice phase; and pilot         During IRS’s notice phase, when IRS sends letters to taxpayers telling them how
risk-based approaches for contacting          to pay the balance, the majority of this amount is either fully paid or accounted for
taxpayers who have a balance due.             through installment agreements. However, at least $4.4 billion remained
In response to GAO’s first                    uncollected after IRS sent as many as four notices to taxpayers. These amounts
recommendation, IRS said it is                become subject to more costly collections actions, such as phone or face-to-face
pursuing some steps to improve                contact. Best practices, such as risk-based approaches where contacts are
service. IRS described plans to               tailored to the taxpayer, have helped increase collections in states such as New
implement the other two                       York and California. IRS has developed an analytics plan and uses some risk-
recommendations.                              based processes to identify which notices taxpayers will receive, but has not yet
                                              implemented the plan and management responsibilities are unclear. As a result,
View GAO-13-156. For more information,        IRS has not tested more advanced risk-based approaches. This may lead to
contact James R. White at (202) 512-9110 or   delayed collection of taxpayer debt, higher costs for IRS, and additional penalties
whitej@gao.gov.
                                              for taxpayers who pay late.
                                                                                          United States Government Accountability Office
Contents


Letter                                                                                 1
               Background                                                               3
               While IRS Has Made Efficiency Gains and Improved Performance
                 in a Variety of Areas, It Faces Challenges Providing Service to
                 Taxpayers                                                              8
               IRS Could More Effectively Apply Risk-Based Approaches to
                 Collect Balances Due                                                 17
               Use of RACs Has Increased Significantly and IRS and Others Are
                 Beginning to Address Questions About the Transparency of RAC
                 and Other Fees                                                       23
               Conclusion                                                             26
               Recommendations for Executive Action:                                  27
               Agency Comments and Our Evaluation                                     27

Appendix I     Objectives, Scope, and Methodology                                     29



Appendix II    Balance Due Notice Process                                             33



Appendix III   Use of IRS Website and Online Services                                 35



Appendix IV    Visits to Taxpayer Assistance Center and Volunteer Income
               Tax Assistance Sites                                                   37



Appendix V     Description of Telephone Calls Answered by IRS                         38



Appendix VI    Fees for Refund Anticipation Checks                                    39



Appendix VII   Comments from the Department of the Treasury                           40




               Page i                                                GAO-13-156 Tax Filing
Appendix VIII   GAO Contact and Staff Acknowledgments                                     44



Tables
                Table 1: Individual Income Tax Returns Processed from 2007 to
                         2012                                                               8
                Table 2: IRS Walk-in Site Accuracy, 2008 through 2012 Filing
                         Seasons                                                          11
                Table 3: IRS’s Telephone Service Goals and Performance, 2007
                         through 2012 Filing Seasons                                      13
                Table 4: Practitioner Priority Service Goals and Performance,
                         Fiscal Years 2007 through 2012                                   14
                Table 5: Accuracy of Telephone Service, 2007 through 2012 Filing
                         Seasons                                                          15
                Table 6: IRS Taxpayer Correspondence Performance, Fiscal Years
                         2007 through 2012                                                15
                Table 7: Balance Due Accounted for During Notice Process or Sent
                         on to Collections, Tax Year 2010                                 18
                Table 8: Actions Taken by IRS or Taxpayers on Balance Due
                         Returns by Amount Owed and Percentage, Tax Year 2010             19
                Table 9: Description of Balance Due Notices for Individual Filers of
                         Self-Assessed Balance Due Returns                                33
                Table 10: Website Use from the 2008 through 2012 Filing Seasons           35
                Table 11: Services Performed at IRS TAC and VITA Sites, 2010
                         through 2012 Filing Seasons                                      37
                Table 12: Calls to IRS by Call Type, 2007 through 2012 Filing
                         Seasons                                                          38
                Table 13: Comparisons of Fees and Refund Anticipation Check
                         Options for Five Software Packages                               39


Figures
                Figure 1: Example of How a Taxpayer Receives a Refund
                         Anticipation Check and When Fees May Be Incurred                   7
                Figure 2: Balance Due Notice Process for Individual Tax Return
                         Filers                                                           34




                Page ii                                                  GAO-13-156 Tax Filing
Abbreviations

CADE                       Customer Account Data Engine
CFPB                       Consumer Financial Protection Bureau
CONOP                      Concept of Operations
CP                         Computer Paragraph
CSR                        Customer Service Representative
e-file                     electronic filing
ETAAC                      Electronic Tax Administration Advisory Committee
FTE                        Full-Time Equivalent
IMF                        Individual Master File
IRS                        Internal Revenue Service
ITA                        Interactive Tax Assistant
MeF                        Modernized e-File
PPS                        Practitioner Priority Service
RAC                        Refund Anticipation Check
RAL                        Refund Anticipation Loan
TAC                        Taxpayer Assistance Center
TIGTA                      Treasury Inspector General for Tax Administration
VITA                       Volunteer Income Tax Assistance




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Page iii                                                             GAO-13-156 Tax Filing
United States Government Accountability Office
Washington, DC 20548




                                   December 18, 2012

                                   The Honorable Max Baucus
                                   Chairman
                                   The Honorable Orrin Hatch
                                   Ranking Member
                                   Committee on Finance
                                   United States Senate

                                   The Honorable Charles W. Boustany
                                   Chairman
                                   The Honorable John Lewis
                                   Ranking Member
                                   Subcommittee on Oversight
                                   Committee on Ways and Means
                                   House of Representatives

                                   Every tax filing season is an enormous undertaking during which the
                                   Internal Revenue Service (IRS) interacts with millions of taxpayers and
                                   hundreds of thousands of tax preparers by processing tax returns, issuing
                                   refunds, answering telephone calls, and providing other services,
                                   including those on its website. In recent years, IRS has taken a number of
                                   steps to improve return processing, provide faster refunds, and deliver
                                   better service. For example, IRS has added automated telephone lines
                                   and increased the number of self-service tools that taxpayers can use
                                   online. IRS also has a telephone line for professional tax return preparers.

                                   More than three-quarters of taxpayers receive a refund, but some owe
                                   additional tax. Taxpayers who file a return showing additional tax owed,
                                   referred to as a balance due, are generally required to submit payment to
                                   the IRS by the tax filing deadline—usually April 15th. Paying on time is
                                   critical—taxpayers avoid interest and penalties associated with late
                                   payments and IRS avoids using limited compliance staff resources to
                                   collect taxes owed.

                                   Taxpayers receiving refunds have a range of decisions to make about the
                                   best way to obtain refunds. Last year, we reported that taxpayers’ use of
                                   controversial Refund Anticipation Loans (RAL)—high interest, short-term
                                   loans from tax preparers or banks that give quicker access to tax refunds
                                   than if taxpayers wait for a direct deposit or paper check—significantly
                                   decreased because RALs were no longer widely available. In contrast,
                                   taxpayers’ use of Refund Anticipation Checks (RAC)—temporary bank


                                   Page 1                                                   GAO-13-156 Tax Filing
accounts set up by tax preparers allowing them to subtract tax
preparation and other fees from taxpayers’ refunds—has continued to
increase. 1 Some tax industry experts and consumer protection
organizations have expressed concerns that taxpayers do not always
have information, especially about RAC fees, to make the best decisions
about how to obtain their refund.

In this context, you asked us to review a number of issues related to
IRS’s 2012 tax filing services. Specifically, this report

1. Assesses IRS’s performance in processing returns, delivering
   refunds, and providing telephone service and online and face-to-face
   assistance in comparison to its 2012 goals and prior years’
   performance;
2. Describes what is known about taxpayers who filed returns with a
   balance due for tax year 2010, but did not pay by the filing deadline,
   and assesses IRS’s efforts to encourage timely payment; and
3. Summarizes the growth of RACs in recent years and the reasons
   taxpayers may obtain them, the manner in which RAC and other fees
   are disclosed to taxpayers in commonly used online tax return
   preparation software packages, and key stakeholder views regarding
   the transparency of RACs and associated fees.

To accomplish these objectives, we collected and analyzed data and
documents from IRS and tax industry experts. We used these data to
compare IRS’s performance in 2012 to prior years and IRS’s goals. We
also interviewed IRS officials and tax industry experts to obtain different
perspectives on IRS’s performance during the 2012 filing season. To
identify the number of returns and associated dollar amounts from returns
where the taxpayer self-identified a balance due, as well as the amount
IRS collected and resolved during the notice phase of collections, we
matched IRS notice data with collections data and return transaction data.

Data limitations are discussed where appropriate. We reviewed IRS
documentation, interviewed IRS officials about computer systems and
data limitations, and compared those results to our standards of data
reliability. We interviewed knowledgeable IRS collections and research


1
 GAO, 2011 Tax Filing: Processing Gains, but Taxpayer Assistance Could Be Enhanced
by More Self-Service Tools, GAO-12-176 (Washington, D.C.: Dec. 15, 2011).




Page 2                                                         GAO-13-156 Tax Filing
             staff, as well as Treasury Inspector General for Tax Administration
             (TIGTA) staff who worked on past reports relevant to this area to identify
             data sources and better interpret our data. We consider the data
             presented in this report to be sufficiently reliable for our purposes. We
             conducted our fieldwork primarily at IRS headquarters in Washington,
             D.C., and at the Wage and Investment Division headquarters in Atlanta,
             Georgia, as well as other sites with key IRS offices.

             To identify RAC and associated fees with return preparation software, we
             prepared sample returns from each of the five most frequently used
             software packages that taxpayers used to self-prepare returns in 2012.
             We also interviewed tax industry experts, consumer advocacy
             representatives, and government officials, including from the IRS and the
             Consumer Financial Protection Bureau (CFPB), to determine what, if any,
             steps are being taken to make RAC, and return preparation fees
             generally, more transparent to taxpayers. Appendix I provides additional
             details on how we did our work.

             We conducted this performance audit from February 2012 through
             December 2012 in accordance with generally accepted government
             auditing standards. Those standards require that we plan and perform the
             audit to obtain sufficient, appropriate evidence to provide a reasonable
             basis for our findings and conclusions based on our audit objectives. We
             believe that the evidence obtained provides a reasonable basis for our
             findings and conclusions based on our audit objectives. To conduct our
             analysis of the cost and features of RACs, we used investigative
             techniques. We conducted our related investigative work in accordance
             with investigation standards prescribed by the Council of the Inspectors
             General on Integrity and Efficiency.


             IRS processes paper and electronic tax returns and validates key pieces
Background   of information during the filing season. The majority of returns are now
             electronically-filed (e-filed). IRS is replacing its legacy e-file system with
             the Modernized e-File (MeF) system. 2 IRS is also transitioning from the
             antiquated Individual Master File (IMF) system to a more modern tax
             processing system known as the Customer Account Data Engine 2


             2
              IRS cannot accept electronically filed returns directly from taxpayers. Rather, IRS
             authorizes e-file providers to transmit returns to IRS electronically using either the legacy
             e-file or MeF system.




             Page 3                                                                 GAO-13-156 Tax Filing
                      (CADE 2), the systems IRS uses to process tax returns. 3 CADE 2 allows
                      IRS to provide quicker refunds and conduct more and better compliance
                      checks before refunds are issued.

                      In addition to processing tax returns, IRS provides a variety of taxpayer
                      services through its telephone, website, and face-to-face operations.


Telephone and paper   •   Taxpayers can call IRS to speak directly with a customer service
correspondence            representative (CSR) to obtain information about their accounts or ask
                          tax law questions. Providing live assistance over the phones is
                          expensive for IRS—according to IRS officials, the cost of answering
                          telephone calls has risen from about $26 per call in 2009 to about $30
                          in 2011. 4

                      •   Taxpayers can also obtain some of the same information using
                          automated telephone lines, including IRS’s 149 Tele-tax lines for tax
                          law topics and 10 phone lines for account information. In 2011, IRS
                          officials said that it cost 36 cents to answer an automated phone call.

                      •   In October 2009, IRS started using a speech analytics program called
                          Contact Analytics to better understand why taxpayers call IRS and
                          evaluate how CSRs interact with taxpayers. Contact Analytics is a
                          sophisticated speech analytics program that converts speech, such as
                          CSR conversations with taxpayers, into text for analysis.

                      •   CSRs are also responsible for responding to paper correspondence
                          from taxpayers. IRS tries to minimize the amount of overage paper
                          correspondence—correspondence that IRS has not addressed within
                          45 days of receipt.

                      •   In addition to answering calls from taxpayers, CSRs answer calls from
                          paid preparers who call about taxpayer accounts through IRS’s
                          Practitioner Priority Service (PPS). We have reported that paid
                          preparers prepare about 60 percent of tax returns and play a critical



                      3
                       The IMF is the system IRS has used to process tax returns in the past. CADE 2 will
                      eventually fully replace the IMF.
                      4
                       Cost per call for 2009 is based on calls answered from January 1, 2009, through June
                      30, 2009, and January 1, 2011, through June 30, 2011, respectively.




                      Page 4                                                             GAO-13-156 Tax Filing
                              role in answering taxpayers’ questions and filing tax returns. 5
                              Taxpayers who get their questions answered by a preparer may not
                              need to call IRS.

Website                   •   IRS also provides service to taxpayers through its website,
                              http://www.IRS.gov. For example, taxpayers can find information on
                              the status of their refunds, request transcripts (which are copies of a
                              taxpayer’s account information), and pay account balances.
                              Taxpayers can also download forms, instructions, and publications,
                              and research tax law issues through interactive tools.

Face to face              •   IRS staff provides face-to-face assistance at 397 Taxpayer Assistance
                              Centers (TAC). Staff at TACs provide answers to basic tax law
                              questions, review taxpayer accounts, and prepare returns for qualified
                              taxpayers. 6 IRS has begun pilot-testing virtual assistance, where IRS
                              employees interact with walk-in clients through a video terminal, at a
                              small number of TACs and partner sites.

                          •   IRS also has volunteer partners that staff more than 13,000 volunteer
                              sites. These Volunteer Income Tax Assistance (VITA) and Tax
                              Counseling for the Elderly sites prepare tax returns for traditionally
                              underserved taxpayers. Some of these also serve as Facilitated Self-
                              Assistance sites where volunteers guide taxpayers through simple tax
                              returns.

Debt collection process   After tax returns are filed and processed, IRS begins the process of
and RACs                  collecting unpaid tax debts. IRS attempts to collect unpaid tax debts in
                          three phases: (1) notices sent through the mail, (2) telephone contact,
                          and (3) face-to-face interactions. 7 When a taxpayer files an individual
                          return with a balance due but does not pay in full, IRS is statutorily
                          required to send a letter detailing the proposed assessment of tax,
                          penalty, and interest, and possible ways for the taxpayer to respond. If



                          5
                           GAO, Tax Preparer Regulation: IRS Needs a Documented Framework to Achieve Goal
                          of Improving Taxpayer Compliance, GAO-11-336 (Washington, D.C.: Mar. 31, 2011).
                          6
                           Taxpayers with annual incomes of $50,000 or less can have their returns prepared at
                          TACs.
                          7
                           GAO, Tax Debt Collection: IRS Has a Complex Process to Attempt to Collect Billions of
                          Dollars in Unpaid Tax Debts, GAO-08-728 (Washington, D.C.: June 13, 2008).




                          Page 5                                                            GAO-13-156 Tax Filing
IRS does not receive a response within an allotted time, it is statutorily
required to send a final notice prior to taking collection action such as
levying wages on a bank account or filing a lien. Between the first and
final notices, IRS may send up to two additional notices. Depending on
the taxpayer, IRS could send a total of four notices before initiating other,
more costly collection activities such as telephone calls to taxpayers or
face-to-face interactions. Appendix II provides a more detailed summary
of IRS’s notices process.

Finally, in recent years, millions of taxpayers have chosen to obtain their
tax refunds and pay for tax preparation services through a RAC obtained
from tax software companies or paid preparers. With a RAC, paid
preparers or software companies deduct any applicable fees from
taxpayers’ refunds. The remainder of the refund can be deposited (1) in a
bank account created by a financial institution or paid preparer on behalf
of the taxpayer, (2) in the taxpayers’ own account, or (3) on a prepaid
debit card issued by the paid preparer. In recent years, RACs have
almost entirely replaced RALs. 8 Figure 1 provides an example of potential
fees incurred by taxpayers when filing a return and receiving a refund
through a RAC. 9




8
 In August 2010, IRS announced it would no longer provide return preparation companies
with the debt indicator that had allowed preparers to observe whether taxpayers had other
debts to the federal government or if the taxpayer would likely receive the full anticipated
refund from IRS. As a result, most banks stopped funding RALs when banking regulators
determined them to present too much risk to participating banks. IR-2010-89, August 5,
2010.
9
GAO-12-176.




Page 6                                                                GAO-13-156 Tax Filing
Figure 1: Example of How a Taxpayer Receives a Refund Anticipation Check and When Fees May Be Incurred




                                       a
                                        Taxpayers with bank accounts can generally cash or deposit their refund check without charge. If
                                       not, they may use an alternative provider and pay a fee to have the check cashed.




                                       Page 7                                                                      GAO-13-156 Tax Filing
While IRS Has Made
Efficiency Gains and
Improved
Performance in a
Variety of Areas, It
Faces Challenges
Providing Service to
Taxpayers
E-Filing Continued to                            About 142 million individual income tax returns were filed in 2012, slightly
Grow, MeF Contingency                            up from last year. As table 1 shows, IRS achieved an 82 percent e-file
Plans Are Being Updated,                         rate for individual returns, surpassing the goal set by Congress for all
                                                 returns in 1998—a significant accomplishment for IRS. 10 E-filing has
and IRS Is Working to                            many benefits for taxpayers, including faster refunds and higher accuracy
Improve Its Public                               rates. It also provides IRS with significant cost savings by eliminating the
Messaging Regarding                              need to manually transcribe data on paper returns. According to IRS, in
Refund Turnaround Time                           fiscal year 2010, it cost 17 cents to process an e-filed return and $3.66 for
                                                 returns filed on paper.

Table 1: Individual Income Tax Returns Processed from 2007 to 2012

                                                                                                                                   Percent
                                                                                                                              change from
                                                                                     a                                                   b
                                                            2007            2008          2009     2010     2011     2012    2011 to 2012
Number of individual tax returns processed (in
millions)                                                    135               151         139      137      140      142                  2
    Electronic                                                 79                89         94       97      109      116                  6
    Paper                                                      56                62         45       40       30       26                 -13
Percentage e-filed                                             58                59         67       71       78       82                  5
Number of refunds issued (millions)                          103               105         109      107      107      108                  1
Amount of refunds issued (dollars in billions)              $234             $248         $298     $312     $303     $295                  -3
Average refund amount                                    $2,259           $2,350         $2,725   $2,915   $2,836   $2,726                 -4
                                                 Source: GAO analysis of IRS data.




                                                 10
                                                   IRS has yet to reach the 80 percent e-file goal for some types of returns other than
                                                 individual income tax returns.




                                                 Page 8                                                                GAO-13-156 Tax Filing
Notes: Data are from January 1 through September 28, 2007; January 1 and October 3, 2008;
January 1 and October 2, 2009; January 1 and October 1, 2010; January 1 and September 30, 2011;
and January 1 and September 28, 2012.
a
 The Economic Stimulus Act of 2008 mandated that IRS send stimulus payments to over 100 million
households, many of which would not otherwise have needed to file a tax return.
b
 The numbers in the table are rounded, but the percent change was calculated using exact values.
Therefore, in some cases, the percent change is slightly different than it would be if it were calculated
using the rounded values in the table.


In March 2012, we reported that IRS experienced problems with its MeF
processing system, for which it had implemented important changes.
Given these problems, we recommended that IRS review its contingency
plan for MeF and update it in time for the 2013 filing season. 11 We also
reported that IRS officials told us they had problems with a fraud
detection process being unable to function properly in the daily
processing environment. In June 2012, IRS officials told us that these
problems were not detected due to limited testing before implementing
the systems. Based on the experiences with MeF this year, and
recommendations we and the Electronic Tax Administration Advisory
Committee (ETAAC) made, IRS announced that it plans to keep legacy e-
file available in a limited capacity in case of a catastrophic MeF failure. 12

In addition, IRS officials said they were concerned that MeF may not be
able to handle peak volume during the 2013 filing season. To mitigate
these risks, IRS is more fully testing MeF, making necessary adjustments,
and updating its MeF Contingency Plan again in January 2013. IRS is
working with industry experts to identify which states, preparers, and
transmitters will support both systems.

For 2012, IRS’s public messaging for refund timeliness noted that most
taxpayers could receive their refunds within 10 to 21 days of filing.
According to tax industry experts, they conveyed IRS’s timeframe to
taxpayers, but delays due to processing errors or otherwise unmet



11
  GAO, Internal Revenue Service: Interim Results of 2012 Tax Filing Season and
Summary of the Fiscal Year 2013 Budget Request, GAO-12-566 (Washington, D.C.: Mar.
20, 2012).
12
  ETAAC is a committee of tax industry experts with the primary purpose of providing
input to the IRS on the development and implementation of IRS’s strategic plan for
electronic tax administration. In 2012, ETAAC issued a report that agreed with our
recommendation and went further to suggest that IRS retain the capability to roll out its
legacy e-file system in the event of a major MeF system failure.




Page 9                                                                         GAO-13-156 Tax Filing
                             expectations resulted in preparers receiving a significant number of
                             phone calls from clients. For 2013, IRS officials indicated they may
                             change IRS’s public messaging to tell taxpayers to expect refunds in 21
                             days or less. However, they added that they would consult the tax
                             preparation industry before setting refund timeliness expectations for the
                             public.


New Self-Service Tools on    IRS’s website (http://www.IRS.gov) had 297 million visits in 2012, an
IRS’s Website and Further    increase of almost 19 percent over 2011. The use of self-service tools
Development of an Online     available on the website has continued to grow, with the greatest
                             increases coming from use of Interactive Tax Assistant (ITA) tools and
Services Strategy May        Where’s My Refund. 13 For more information on website use, see
Produce Efficiency Gains     appendix III.

                             IRS officials indicated that the website could be used to offer additional
                             services. IRS is planning to develop more self-service tools so taxpayers
                             can research tax law and account information. 14 For example, in 2013,
                             IRS plans to implement a Where’s My Amended Return online tool where
                             taxpayers can check whether their amended returns have been received
                             by IRS. Online services give taxpayers access to information without
                             calling IRS, which, as previously discussed, is expensive. We are
                             conducting a separate evaluation of IRS’s efforts to develop its website.


Expanded Self-Service and    Although far fewer taxpayers visit TAC and volunteer sites than call IRS
Virtual Service Programs     or use its website, these sites provide a significant service. As of April 30,
at TAC and Volunteer Sites   2012, IRS received 2.77 million taxpayer contacts at TACs, as compared
                             to 2.85 million contacts this time in 2011. The accuracy of responses to
Have Helped IRS Serve        account and tax law questions provided at TACs increased compared to
Taxpayers                    previous years, as shown in table 2.



                             13
                               ITA provides information on certain tax law topics by taking taxpayers through a series
                             of questions. Where’s My Refund provides taxpayers with information on the expected
                             refund date. Additionally, appendix III shows that Online Payment Agreements had a
                             significant increase in usage. However, this may be due to a programming error that led to
                             a decrease in the number of completed agreements in 2011.
                             14
                               In December 2011, we recommended that IRS develop a strategy for determining which
                             self-service tools it will offer online. Since our recommendation, IRS has provided more
                             details, such as an assessment of costs and benefits for some new services identified and
                             time frames for when these online services would be created. See GAO-12-176.




                             Page 10                                                             GAO-13-156 Tax Filing
Table 2: IRS Walk-in Site Accuracy, 2008 through 2012 Filing Seasons

Accuracy measure (in percent)         2008 actual       2009 actual      2010 actual       2011 actual        2012 actual     2012 goal
Accounts assistance                             85%             86%               91%               88%              92%             91%
                                             +/-2.30         +/-1.93           +/-1.66           +/-1.94          +/-1.61
Tax law assistance                                66              76                81                82               85              83
                                             +/-2.73         +/-1.97           +/-1.83           +/-1.83          +/-1.70
                            a
Return preparation assistance                   n/a              n/a                82                83               89              n/a
                                                                               +/-3.82           +/-3.45          +/-2.86

                                        Legend: n/a = not applicable.

                                        Source: GAO analysis of IRS data.

                                        Note: Actual data for each year are from January 1 through April 30. IRS does not have comparable
                                        accuracy data available for the years prior to 2008.
                                        a
                                         Return preparation assistance data were not available before 2010.


                                        IRS expanded self-service and virtual service at both TAC and volunteer
                                        sites to increase access, reduce wait time, and extend the effectiveness
                                        of its employees. IRS piloted the Virtual Service Delivery program at 10
                                        TACs and 2 external partner sites and plans to expand this program to an
                                        additional 10 to 20 sites nationwide in 2013. Through Virtual Service
                                        Delivery, IRS employees interact with walk-in clients through a video
                                        terminal when the employees are not occupied at their home site. For the
                                        first time beginning in 2012, IRS was able to track wait time data on a
                                        nationwide basis at TAC locations. 15 For 2012, 74 percent of taxpayers
                                        waited less than 30 minutes for TAC service.

                                        IRS partnered with 3,930 community-based organizations operating over
                                        13,000 volunteer sites, staffed by about 99,000 volunteers in 2012. 16 The
                                        number of returns prepared by volunteers increased slightly to 3.15
                                        million in 2012, up from 3.07 million in 2011 (a 2.3 percent increase). 17
                                        IRS expanded the number of Facilitated Self-Assistance sites (computer
                                        kiosks) from 102 in 2011 to 496 in 2012, and plans to increase the



                                        15
                                            The wait time is calculated from the time a ticket is issued to the time service begins.
                                        16
                                            This is an increase from almost 88,500 volunteers in 2011, or about 12 percent.
                                        17
                                          IRS officials said that increase in the number of returns prepared by volunteers for 2012
                                        was not commensurate with increase in the number of volunteers because the increase in
                                        volunteers was due to more accurate accounting.




                                        Page 11                                                                    GAO-13-156 Tax Filing
                           number of sites to 1,000 nationally by the end of the 2013 filing season.
                           IRS also expanded the number of Virtual VITA sites, where taxpayers at
                           remote locations can obtain service over fax, internet, and video
                           connection, from 34 to 61. For more information on the services
                           performed at IRS walk-in and volunteer sites, see appendix IV.


Access to Live Telephone   In 2012, call volume increased, and as of June 30, 2012, IRS had
Assistance Continues to    received 98 million calls, an 18 percent increase over 2011. IRS
Decline                    answered about 50 million of these calls through automation, a 36
                           percent increase from 2011. IRS officials attributed the increase in
                           automated calls answered to refund inquiries caused, in part, by refund
                           delays early in the filing season and requests for transcripts. At the same
                           time, there was a 52 percent increase in busy signals and cases where
                           IRS determines that the best course of action is to disconnect the call
                           before answering (due to wait times for the taxpayer or other reasons).
                           For more information on calls to IRS by call type, see appendix V.

                           While calls answered through automation have increased, the number of
                           CSR answered calls declined by about 14 percent (19.4 million calls
                           compared to 22.6 million calls in 2011). However, IRS officials said that
                           as more automated telephone features are added, the calls that CSRs
                           actually answer have increased in complexity. For example, questions
                           about topics such as identity theft, an increasingly important topic, take
                           longer to resolve than inquiries about refunds and other, more basic
                           services. 18 Consequently, the average length of a CSR answered call has
                           also increased by about 19 percent since 2009. IRS had about the same
                           amount of CSR resources to answer calls and respond to paper
                           correspondence in 2012 as in 2011—about 13,500 full-time equivalents
                           (FTE) in both years. These CSRs are responsible for not only answering
                           calls but also responding to paper correspondence (which we discuss
                           below). 19




                           18
                            GAO, Identity Theft: Total Extent of Refund Fraud Using Stolen Identities is Unknown,
                           GAO-13-132T (Washington, D.C.: Nov. 29, 2012).
                           19
                             In the past, IRS has had more FTEs dedicated to telephone service and paper
                           correspondence. For example, in 2010, IRS had over 15,000 FTEs dedicated to these
                           services.




                           Page 12                                                            GAO-13-156 Tax Filing
                                               Taken together, these factors explain, at least in part, why IRS’s
                                               performance in providing live assistance has declined in recent years
                                               even though fewer calls were answered by live assistors. In 2012, IRS’s
                                               level of service, the percentage of callers seeking live assistance who
                                               receive it, was 68 percent, down from 81 percent in 2007, as is shown in
                                               table 3. The average wait time increased to 17 minutes in 2012, up from
                                               4.6 minutes in 2007. While IRS exceeded its 2012 level of service and
                                               wait time goals, those goals were the lowest IRS has established in
                                               recent years.

Table 3: IRS’s Telephone Service Goals and Performance, 2007 through 2012 Filing Seasons

                                                                                                                                            Percent
                                                                                                                                        change from
                                                                                                                                                   a
 Access measure                                             2007            2008        2009       2010         2011         2012      2011 to 2012
                                                                                    b          c
 Percentage of callers seeking live   Goal                   82%            82%         77%        71%          71%          61%               -14.1%
 help who received it                 Actual                    81                 57     68         76            72           68                 -5.6
                                                                                           d
 Average wait time (in minutes)       Goal                     4.3             4.5      10.4       11.6         11.6            19                 62.1
                                      Actual                   4.6             8.6       8.4         9.5        11.7            17                 42.7
                                               Source: GAO analysis of IRS data.

                                               Notes: Actual data are from January 1 through June 30, while goals are for the entire fiscal year. We
                                               believe comparing performance during the filing season to fiscal year goals is appropriate as IRS’s
                                               filing season performance is an indicator of its performance for the entire year.
                                               a
                                                Numbers in the table are rounded, but percentage change was calculated using exact values.
                                               Therefore, in some cases, the percentage change is slightly different than it would be if it were
                                               calculated using the rounded values in the table.
                                               b
                                                IRS revised its original fiscal year goal of 82 percent down to 74 percent because of high call volume
                                               due to economic stimulus-related calls.
                                               c
                                                IRS revised its original fiscal year goal of 77 percent down to 70 percent because of high call volume
                                               from taxpayers requesting e-filing authentication information and asking stimulus-related questions.
                                               d
                                                IRS determines its wait time goals based on anticipated call volume and resource availability. IRS
                                               significantly raised its wait time goal for 2009 compared to 2008 in light of anticipated increased call
                                               volume related to tax law changes.

                                               In 2010, we recommended that IRS take steps to define what appropriate
                                               levels of telephone service would be, determine a standard for telephone
                                               service, and identify the resources required to achieve this standard.
                                               However, IRS disagreed with this recommendation, saying that its current
                                               process of developing a planned level of telephone service takes into
                                               consideration many factors, including budget and assumptions about
                                               potential call volume. The IRS Oversight Board has said that an
                                               acceptable level of service should be about 80 percent.




                                               Page 13                                                                         GAO-13-156 Tax Filing
                                           Performance on IRS’s Practitioner Priority Service, where paid preparers
                                           can call IRS, telephone lines also declined. As shown in table 4, the level
                                           of service for the paid preparer telephone line decreased to 73 percent in
                                           2012, down from 91 percent in 2007. Over the same period, the average
                                           wait time for the paid preparer line increased from 2.8 minutes to 22.1
                                           minutes. Officials said that paid preparers are willing to wait longer than
                                           taxpayers because paid preparers are attempting to get answers for their
                                           clients. Like phone service for taxpayers, IRS lowered the level of service
                                           goal for the Practitioner Priority Service in 2012.

Table 4: Practitioner Priority Service Goals and Performance, Fiscal Years 2007 through 2012

                                                                                                                              Percent change
                                                                                                                                          a,b
Access measure                                                    2007         2008   2009    2010          2011      2012       from 2011
                                                                                                                                                 a
Percentage of tax preparers seeking live       Goal               87%          87%    82%     76%           78%        72%                -7.7%
assistance who received it                     Actual                91          86     88       80            78        73                 -6.4
                                                                                                                                                 a


Average wait time (in minutes)                 Goal                 4.9         4.5    6.5     10.0         10.7       26.2                145.4
                                               Actual               2.8         5.2    4.7     10.5         13.3       22.1                  65.8
                                           Source: GAO analysis of IRS data.
                                           a
                                            The difference is 5 percentage points between actual performance in 2011 and 2012 and 6
                                           percentage points between fiscal year 2011 and 2012 goals.
                                           b
                                            The numbers in the table are rounded, but the percent change was calculated using exact values.
                                           Therefore, in some cases, the percent change is slightly different than it would be if it were calculated
                                           using the rounded values in the table.

                                           The continued accuracy of the CSRs’ answers represents a positive
                                           aspect of IRS’s telephone service. As shown in table 5, IRS’s accuracy
                                           rate for CSR answered calls remained well over 90 percent. We have
                                           reported that IRS officials attributed the high accuracy rate to automated
                                           interactive tax assistance tools that CSRs use to provide answers to
                                           taxpayers as well as use of Contact Analytics. 20




                                           20
                                                GAO-12-176.




                                           Page 14                                                                        GAO-13-156 Tax Filing
Table 5: Accuracy of Telephone Service, 2007 through 2012 Filing Seasons
                    a
Accuracy measures                                              2007              2008           2009           2010           2011         2012
Tax law rate                                                  90.7%             90.3%          92.5%          92.4%         92.9%        92.5%
            b
(in percent)                                                  +/-0.9            +/-0.9         +/-0.8         +/-0.8        +/-0.6       +/-0.7
                                  b
Account accuracy Rate (in percent)                             93.2              93.5           95.1           95.6              96        95.4
                                                              +/-0.5            +/-0.4         +/-0.4         +/-0.4         +/-0.3       +/-0.3
                                          Source: IRS data.

                                          a
                                          Based on representative samples of phone calls selected by IRS from January 1 through June 30.
                                          b
                                           The percentage of calls in which CSRs provided accurate answers for the call type and took the
                                          appropriate actions, with a 90 percent confidence interval.



Overage Paper                             As shown in table 6, while the amount of paper correspondence in 2012
Correspondence Increased                  increased by 5 percent from 2011, the percentage of overage taxpayer
                                          correspondence increased by 14 percent over the same period. Providing
                                          a timely response to paper correspondence is important because if IRS’s
                                          response takes too long taxpayers may write again or call IRS.

Table 6: IRS Taxpayer Correspondence Performance, Fiscal Years 2007 through 2012

                                                                               Fiscal Year
                                                                                                                           Percent Change
                                                                                                                           from fiscal year
                                                        2007           2008       2009       2010   2011     2012             2011 to 2012
                                      a
Correspondence received (in millions)                         16          18        19         20       20     21                          5%
Percentage of taxpayer correspondence
       b
overage                                                  17%           23%        25%        27%    35%      40%                          14%
                                          Source: GAO analysis of IRS data.


                                          Note: Aggregate data are from Accounts Management and Submission Processing, which jointly
                                          responds to IRS’s taxpayer correspondence.
                                          a
                                           Data cover equivalent periods for each fiscal year with slight variation in the exact dates depending
                                          on the year and data source.
                                          b
                                           IRS generally considers paper correspondence that is not resolved within 45 days to be overage.
                                          Data from 2007 and 2008 data do not include overage data for correspondence processed by
                                          submission processing as submission processing began tracking overage data in 2009.



IRS Does Not Have a                       IRS has taken a multi pronged approach to improve taxpayer service and
Strategy to Reverse                       better manage call volumes. For example, in 2012, to reduce the time
Declines in Service                       CSRs spend on phone calls, IRS implemented personal identification
                                          numbers that taxpayers who are transferred to a new CSR can provide to



                                          Page 15                                                                       GAO-13-156 Tax Filing
eliminate the re-authentication process. To increase the number of calls
answered by CSRs, IRS also implemented a new procedure where the
CSR is automatically connected to the next caller after finishing the
current call. To better manage call volume, pre-empt taxpayer questions,
and identify which services could be provided through automation, IRS is
using Contact Analytics to identify trends in taxpayers’ calls and update
information on IRS.gov. Additionally, in response to our previous
recommendation in 2009, IRS deployed an online VITA locator during
2012 where taxpayers can enter their ZIP codes to find VITA sites close
to their location. 21

The numerous efficiency initiatives IRS has implemented to date have not
kept pace with call or correspondence volume. IRS’s current Concept of
Operations (CONOP) outlines a 3- to 5-year strategic plan for providing
taxpayer services. The plan acknowledges that IRS will experience
declining levels of service absent aggressive action and outlines potential
actions that IRS could take to deflect demand and improve efficiency of
operations. However, the potential actions generally continue the
approach IRS has followed in recent years seeking incremental efficiency
gains. The federal government’s tight budget environment makes any
meaningful increase in resources for taxpayer service unlikely. Further,
IRS officials said that the actions and time frames presented in the
CONOP would be difficult for IRS to meet. Without a more strategic
approach that recognizes the inability of efficiency initiatives to keep up
with call volume and call complexity, as well as the reality of IRS’s
resources and capabilities, telephone service and response time to paper
correspondence is at risk of further decline.

Given the above, reversing the declines in telephone and correspondence
services may require IRS to consider difficult tradeoffs. Rather than
limiting access through long wait times, other ways of reducing demand
might be considered. One option might be reassessing which phone calls
IRS should answer with a CSR and which it should not because
automated services are readily available—either online or over the
phones. Although limiting access to CSRs for certain callers is not an
optimal solution, it might help better target taxpayer assistance to those
for whom live assistance is the only option. Another option might be to


21
  GAO, Tax Administration: Opportunities Exist for IRS to Enhance Taxpayer Service and
Enforcement for the 2010 Filing Season, GAO-09-1026 (Washington, D.C.: Sept. 23,
2009).




Page 16                                                          GAO-13-156 Tax Filing
                            consider whether certain types of questions should be directed to paid
                            preparers or tax software companies. Identifying options, assessing their
                            pros and cons, and deciding on a course of action would need to be part
                            of a more extensive strategy than the currently existing CONOP.


                            For tax year 2010, the most recent year with available data, we found
IRS Could More              about $13.8 billion on returns where taxpayers filed with a self-
Effectively Apply           acknowledged balance due that was not paid on time. State officials we
                            interviewed described some best practices for collecting balances due,
Risk-Based                  including earlier contact based on the characteristics and behaviors of
Approaches to Collect       individual taxpayers and more extensive use of complex data analytics
                            and modeling. IRS has adopted some risk-based approaches to its notice
Balances Due                phase, such as determining which taxpayers will receive which notices
                            (IRS sends up to four notices), based on factors such as the size of the
                            amount owed. However, a lack of clarity in the roles and responsibilities
                            of IRS officials in charge of sending notices to taxpayers impedes IRS’s
                            ability to best identify and implement risk-based approaches for resolving
                            balances due. Although IRS has developed a data analytics plan for
                            managing its balance due process, the plan has not yet been
                            implemented. Further, IRS has not pilot tested other, more extensive risk-
                            based approaches being used in some states.


For Tax Year 2010,          As table 7 shows, about 3.8 million returns were filed where taxpayers
Taxpayers Self-Assessed     self-assessed unpaid balances owed for tax year 2010, meaning that they
Balances Due for Billions   filed a return where they acknowledged that they owe additional tax and
                            did not pay in full by the filing deadline. These taxpayers owed a total of
of Dollars                  about $13.8 billion. 22




                            22
                              We calculated $13.8 billion based on the amount listed on the first notice sent to
                            taxpayers who filed an individual return with a balance due but did not pay in full.




                            Page 17                                                               GAO-13-156 Tax Filing
Table 7: Balance Due Accounted for During Notice Process or Sent on to
Collections, Tax Year 2010

 Dollars in billions
                                         Total amount due on          Number of returns
 Description                                      first notice               (millions)
 Balance due returns resolved
 during the notice process                                 $9.4                          3.2
 Balance due returns sent to
 collections                                                4.4                          0.6
 Total                                                    $13.8                          3.8
Source: GAO analysis of IRS data.


As shown in table 8, of those taxpayers that had a balance due at the
filing deadline, almost two-thirds eventually paid in full or entered into
installment agreements, which are payment plans where the taxpayer can
repay the debt owed in scheduled increments (usually monthly).
However, IRS was unable to collect at least $4.4 billion in balances
through notices and these returns progressed to later collections stages.
Additionally, an unknown amount of tax owed remained uncollected in
cases where the taxpayer defaulted on an installment agreement.
According to IRS officials, about 18 percent of taxpayers default on
installment agreements, resulting in IRS eventually sending these
taxpayers to collections. 23 Unpaid balances due result in IRS using more
expensive resources, such as phone contact and field visits, to collect the
taxes. In addition, taxpayers may face additional interest and penalties.




23
   According to IRS, the default rate for IMF installment agreements was 18 percent in
fiscal year 2012 and 17 percent for fiscal year 2011.




Page 18                                                             GAO-13-156 Tax Filing
                            Table 8: Actions Taken by IRS or Taxpayers on Balance Due Returns by Amount
                            Owed and Percentage, Tax Year 2010

                                Dollars in billions
                                                                                      Percentage of             Percentage of
                                Action Taken                          Amount          amount owed                     returns
                                Installment agreement                      $5.5                   40%                       33%
                                Full paid                                   3.1                     23                        39
                                Sent to collections                         4.4                     32                        16
                                        a
                                Other                                       0.7                       5                       12
                                                                              b
                                Total                                   $13.8                    100%                     100%
                            Source: GAO analysis of IRS data.
                            a
                             The other categories include a range of taxpayers, including those that IRS determines are currently
                            unable to pay and taxpayers whose returns have been referred for criminal investigation.
                            b
                            Numbers do not add due to rounding.



Some States Have            States have employed risk-based approaches to help them collect
Implemented Risk-Based      uncollected taxes that provide options that may be appropriate for IRS to
Approaches to Debt          also consider. Representatives from three states with advanced collection
                            approaches (identified by the Federation of Tax Administrators, an
Collection That Are         organization that represents state tax administration agencies) we spoke
Considered Best Practices   with identified two best practices for collections strategies:

                            •       applying risk-based approaches to collections strategies, including
                                    risk-based analytics such as risk scores based on taxpayer data, and

                            •       initiating timely contact of taxpayers who owe debts. Both we and the
                                    Treasury Inspector General for Tax Administration (TIGTA) have
                                    reported on the success of timely contact with debtors, and it is an
                                    accepted debt collection best practice. 24

                            Risk-based approaches use data on taxpayers’ filing status, payment
                            history, public records such as bankruptcies, and payment behaviors to
                            determine for a given taxpayer which collections methods will produce the
                            best results. Risk-based analytics have been in use by IRS and other tax
                            agencies for many years, but mostly in fraud detection and prevention.



                            24
                             GAO-08-728 and TIGTA, Reducing the Processing Time Between Balance Due Notices
                            Could Increase Collections (Sept. 26, 2011).




                            Page 19                                                                       GAO-13-156 Tax Filing
For example, IRS applies a risk score to returns during its screening
process to estimate the risk of fraud. IRS sometimes audits taxpayers
who submit returns with scores that exceed certain thresholds, which are
those returns predicted most likely to be fraudulent. The use of such tools
in early phases of collecting balances owed by taxpayers is an emerging
best practice and can (1) increase amounts of debt collected if applied to
taxpayers who do not respond quickly and (2) save resources by
identifying taxpayers who may not require intervention (those who are
likely to comply or tend to self-resolve their debts without intervention
from the IRS).

According to experts we interviewed, some taxpayers may respond better
to multiple notices sent more quickly or a phone call shortly after a notice,
while others may respond to a single notice. According to state level
officials we interviewed, data analysis sometimes showed that certain
taxpayers are likely to pay without further intervention from the tax agency
and that collection activities should be focused elsewhere.

New York State Department of Taxation and Finance officials reported
that although they had fewer available collections resources, they
collected an additional $83 million in 2010, an increase of 8 percent,
during the first year using their revenue-based analytics collections
program. According to New York State officials we interviewed, the
program uses data analytics to determine the collection actions most
likely to generate the greatest amount of revenue at a given point in time,
within certain resource constraints. New York State officials reported that
they believe the program has been instrumental in helping increase
collections.

Officials from two other state revenue agencies, California’s Franchise
Tax Board and North Carolina’s Department of Revenue, told us that they
have seen some improvement in collection rates as they implement risk-
based approaches and other strategies to contact taxpayers who owe
debt, but they cannot quantify how much of the improvement is related to
these activities as they are part of a comprehensive change in collections
processes. California’s Franchise Tax Board experienced an 18 percent
increase in collections revenue from fiscal years 2010 to 2011, which
officials there attribute to the implementation of new tools, including risk-
based analytics and proactive call center strategies.

In all three states, these activities are part of broad changes in collections
processes. According to representatives from the New York State
Department of Taxation and Finance, in their experience, the initial


Page 20                                                    GAO-13-156 Tax Filing
                            investment and set up of a revenue-based analytics collections program
                            required both time and resources. The maintenance of this system also
                            requires continuous updates as new events occur. For example, one of
                            the most challenging parts of implementing the New York State system
                            was to develop a way to correctly adhere to all of the state’s laws and
                            policies that affected collections and at the same time not to restrict the
                            analytics engine so much that it cannot make the right choices. However,
                            tax administration experts at the three states we interviewed and the
                            Federation of Tax Administrators generally agreed that the benefits
                            should outweigh the costs.


IRS Uses Some Risk-Based    IRS applies business rules, which determine the sequence of notices sent
Approaches in the Notice    to a taxpayer, in an attempt to apply a risk-based approach to its notice
Process but the Rationale   process. IRS officials told us that they have some basic criteria, including
                            taxpayers who repeatedly pay late, owe larger dollar amounts, or owe
and Management              other taxes to the IRS, to determine which taxpayers receive which
Responsibilities Are        notices. However, we previously reported that IRS lacked information
Unclear                     describing what the business rules for balance due notices are,
                            specifically finding that IRS did not meet our criteria for internal controls
                            for this process. 25 For example, although guidance for federal internal
                            control standards states that managers should have information in forms
                            to ensure the effectiveness of operations, IRS officials lacked
                            documentation for the business rules of the notice phase and how the
                            rules operated. We recommended that IRS document rationales for the
                            business rules for managers. At the time of this review, IRS was still
                            unable to provide us with clear documentation of these business rules
                            that would meet internal control requirements.

                            IRS does not have well-documented, risk-based business rules, in part
                            because of a lack of clear management responsibility for administering



                            25
                              In GAO-09-976, Tax Debt Collection: IRS Needs To Better Manage Collection Notices
                            Sent to Individuals, (Washington, D.C.: Sept. 30, 2009), we cited the Internal Control and
                            Management Evaluation Tool (GAO-01-1008G) which specifies criteria for a well run
                            program that includes: written documentation covering the agency’s internal control
                            structure and for all significant transactions and events; the documentation is readily
                            available for examination; documentation, whether in paper or electronic form, is useful to
                            managers in controlling their operations and to any others involved in evaluating or
                            analyzing operations; and, pertinent information is identified, captured, and distributed to
                            the right people in sufficient detail, in the right form, and at the appropriate time to carry
                            out their duties and responsibilities efficiently and effectively.




                            Page 21                                                                GAO-13-156 Tax Filing
                            parts of the collection notice process. This is partly because of the
                            substantial reorganizations at IRS over the last 2 years, including the
                            creation of an Enterprise Collection Strategy (ECS) and a Return Integrity
                            Correspondence Service (RICS). 26 RICS officials told us that they have
                            authority over the development and revision of balance due notices but
                            that ECS is responsible for most of the analytics for the collections
                            process. However, ECS officials told us that they were still determining
                            the scope of their authority, but that IRS’s Wage and Investment division
                            has the majority of responsibility over the balance due notices process. 27
                            Lack of clarity in the roles and responsibilities of IRS officials responsible
                            for sending notices to taxpayers impedes IRS’s ability to best identify and
                            implement risk-based approaches for resolving balances due.


IRS Has Not Implemented     More effective risk-based analytics could benefit taxpayers by making
More Advanced Risk-         them aware of payment options earlier and allowing them to avoid interest
Based Approaches Early in   and penalties. For example, IRS does not contact taxpayers who e-file
                            and have a balance due but do not pay in full until mid-May—IRS
Its Collections Process     contacts taxpayers who file on paper as soon as the balance due is
                            identified. Other approaches may also allow IRS to reduce costs by
                            applying collections resources in a more targeted and effective manner.
                            In recent comments, the Commissioner of Internal Revenue indicated that
                            leveraging data analytics to continually improve IRS’s operations is one of
                            the agency’s next major priorities. 28 IRS officials told us that they have a
                            proposal, referred to as their Advanced Consolidated Data Analytics Plan,
                            to apply a risk-based approach to determine to the extent to which each
                            taxpayer who files a balance due and does not pay in full on time is
                            contacted. The plan includes routing some taxpayers directly to phone


                            26
                              ECS is a unit within the IRS Small Business and Self-Employed division to centralize
                            more of the collections functions. ECS became active in October 2011 and is currently
                            developing a mission statement and strategy based on the IRS Collections Process
                            Strategy issued in 2010. The IRS Return Integrity and Correspondence Services began its
                            operations in October 2011, bringing together the Accounts Management Taxpayer
                            Assurance Program, Earned Income Tax Credit and Health Coverage Tax Credit offices,
                            and the Office of Taxpayer Correspondence under one umbrella. This consolidation is part
                            of a strategy to address rising concerns about refundable credits and refund fraud.
                            27
                              According to GAO’s Standards for Internal Control in the Federal Government, a good
                            internal control environment requires that the agency’s organizational structure clearly
                            define key areas of authority and responsibility. GAO/AIMD-00-21.3.1.
                            28
                              Prepared Remarks of IRS Commissioner Doug Shulman before the American Institute
                            of Certified Public Accountants. Washington, D.C. IR-2012-89, November 7, 2012.




                            Page 22                                                             GAO-13-156 Tax Filing
                        and field collections after the first notice is issued. However, due to other
                        priorities, IRS has not scheduled implementation of the plan.

                        Potential additional risk-based approaches to collecting balances due
                        range from relatively simple steps to more robust data analytics similar to
                        what some states have implemented. While earlier contact with taxpayers
                        based on payment history, or other indicators that they are not likely to
                        pay on time, is an example of a relatively simple risk-based approach,
                        options exist to test more complex approaches, similar to those described
                        earlier and being used by some states. Such approaches involve more
                        complex statistical analysis and help better determine which
                        communication strategies are likely to work the best for a given taxpayer
                        and yield the most revenue.


                        As of September 30, 2012, taxpayers had requested more than 20 million
Use of RACs Has         RACs, which is about the same as 2010, but more than double the
Increased               roughly 10 million RACs issued in 2005. Stakeholders we interviewed
                        from both consumer protection groups and the tax industry generally
Significantly and IRS   agreed the primary benefits of RACs are allowing taxpayers to deduct
and Others Are          return preparation fees from their refunds and ensuring some taxpayers
                        receive refunds faster. Tax industry professionals said that RACs offer
Beginning to Address    taxpayers flexibility that might otherwise not be available. For example,
Questions About the     taxpayers may want to obtain a RAC if they do not have a personal bank
                        account or lack sufficient funds to pay tax preparation fees in advance.
Transparency of RAC     Taxpayers can obtain a RAC through either use of a tax software
and Other Fees          package or paid preparer.

                        IRS data shows that nearly 40 percent of taxpayers who obtain a RAC
                        use a software package to help self-prepare their returns. Our analysis of
                        the five most frequently used tax software packages, 4 of which offered a
                        RAC, found that

                        •    three of the four RAC providers charged about $30 for a RAC, which
                             is consistent with findings from an Urban Institute study released in
                             2010, 29 and




                        29
                          Urban Institute, Who Needs Credit at Tax Time and Why: A Look at Refund Anticipation
                        Loans and Refund Anticipation Checks (Washington, D.C.: November 2010).




                        Page 23                                                          GAO-13-156 Tax Filing
•    three of the four software packages offering RACs required taxpayers
     to have a bank account to receive the remainder of the refund once all
     the fees, including the RAC fee, had been paid. This is noteworthy
     because helping taxpayers without bank accounts receive refunds is
     one of the major stated benefits of RACs.

In addition to RAC fees, we found that taxpayers may incur other fees
related to the receipt of their refund. For example, if taxpayers choose to
receive their refund on a prepaid debit card, they may incur fees for using
the card or making withdrawals. Our analysis showed that cash
withdrawal, monthly maintenance, and balance inquiry fees generally
applied to the prepaid debit cards. Appendix VI includes more information
on the fee structure of the software packages we reviewed.

We also found that, in general, RACs and associated fees varied, and the
tax preparation software packages we reviewed included the required
disclosures to taxpayers about the product. However, we were not able to
evaluate the extent to which taxpayers read and understand the
disclosures. 30 Further, we did not analyze how paid preparers operating
commercial stores offered RACs to taxpayers or otherwise presented tax
preparation fees.

Convincing empirical evidence about whether taxpayers are aware of and
understand RACs and associated fees does not exist. Although we found
that the fee structure and disclosures were included in tax software
packages we reviewed, interested parties have expressed concerns
about the transparency and cost of RACs. For example, we found that:

•    Representatives from consumer protection groups we interviewed
     have noted that the fees associated with a RAC may be high, lack
     transparency, and taxpayers may not fully understand alternatives for
     receiving their refunds. 31 These representatives noted that taxpayers



30
  We have previously reported that disclosures related to some credit cards and
mortgages are difficult for people to understand. GAO, Credit Cards: Increased
Complexity in Rates and Fees Heightens Need for More Effective Disclosures to
Consumers, GAO-06-929 (Washington, D.C.: Sept. 12, 2006); and Alternative Mortgage
Products: Impact on Defaults Remains Unclear, but Disclosure of Risks to Borrowers
Could Be Improved, GAO-06-1021 (Washington, D.C.: Sept. 19, 2006).
31
 See also, National Consumer Law Center, End of the Rapid Rip-Off: An Epilogue For
Quickie Tax Loans (February 2011).




Page 24                                                         GAO-13-156 Tax Filing
      who have bank accounts and access to credit should have little need
      for a RAC.

•     Industry participants stated that, in some cases, RAC and other fees
      could be more effectively disclosed to taxpayers. Tax industry
      representatives told us they have made proposals to policy makers
      and regulators to enhance return preparation and bank fee
      disclosures, monitor third-party vendors, and develop marketing
      requirements and other agreed upon prohibited and best practices.

•     Some states have enacted legislation governing paid tax preparers
      that offer RACs. The state laws that have been enacted require the
      disclosure of fees and the posting of a fee schedule. 32 In some cases,
      the required disclosures include informing the taxpayer that the
      taxpayer has the right to not obtain a RAL or RAC. 33 Some states
      have taken the additional step of placing restrictions on the fees a tax
      preparer can charge when providing a RAC. For example, Illinois law
      prohibits tax preparers from charging any additional fee to obtain a
      RAC apart from that charged by the financial institution providing the
      RAC. 34

Finally, IRS officials told us that because a RAC is a bank product it
would be more appropriate for banking regulators, who also played a key
role in eliminating RALs, to determine whether further steps need to be
taken to address issues that have been raised with respect to the
transparency of RACs. 35 The Bureau of Consumer Financial Protection,
commonly referred to as the Consumer Financial Protection Bureau
(CFPB), examines short-term, small-dollar lending, which could include




32
  See, for example, Ark. Code §§ 4-116-101 to 4-116-108 (2012); Conn. Gen. Stat. Ann. §
42-480 (2012); Me. Rev. Stat. tit. 9-A, § 10-310 (2012); Tex. Fin. Code § 352.001 (West
2012).
33
  See, for example, Cal. Bus. & Prof. Code §§ 22251 and 22253 (2012); Md. Code, Com.
Law, §§ 14-3806; Mich. Comp. Laws Ann. § 446.111, et. seq.
34
    Tax Refund Anticipation Loan Reform Act, 2012 Ill. Laws P.A. 97-849.
35
  The Office of Professional Responsibility governs paid preparers in accordance with
Circular 230, which includes unreasonable fees and misleading or false advertising by
paid preparers. See GAO-12-176 for an explanation of the role banking regulators played
in limiting the use of RALs.




Page 25                                                             GAO-13-156 Tax Filing
             RACs; however, CFPB has not done extensive work with RACs. 36 CFPB
             officials said that they do not have specific jurisdiction over return
             preparation fees. Recently, in response to increased interest about RAC
             and other tax preparation fees, IRS and CFPB have begun discussing
             whether there is a need for further regulation of RAC and other fees or if
             additional steps need to be taken to help taxpayers understand return
             preparation fees. As IRS is beginning to work with consumer and
             regulatory groups on these issues, we are not making any
             recommendations to IRS at this time.


             IRS deserves credit for achieving noticeable efficiency gains in
Conclusion   processing returns and providing taxpayer services over recent years. In
             an era of tight budgets, such gains are vital for keeping up with an
             expanding workload and improving outcomes for taxpayers. However,
             while IRS has realized efficiency gains, it is still struggling in its efforts to
             give taxpayers access to telephone assistors and provide timely
             responses to correspondence. The efficiency gains have been more than
             offset by increases in demand for services. While further improvements,
             as envisioned in IRS’s CONOP are desirable, recent history provides little
             prospect of such gains reversing the service declines. Without a more
             dramatic revision in strategy, the recent declines in access and
             correspondence services seem likely to continue.

             While processing returns and issuing refunds to taxpayers, IRS also
             collects taxes owed to the government. New analytical, risk-based tools
             are helping state tax administration agencies better determine when and
             how to contact taxpayers who file a return with a balance due but do not
             pay the government when they file their returns. However, IRS has yet to
             experiment with implementing such tools during the notice phase before
             more expensive methods of collection, including telephone calls and face-
             to-face visits to taxpayers, are necessary. This is due, in part, to IRS’s
             lack of clearly defined responsibilities for administering the notice phase.
             Resolving payment issues early on also helps taxpayers avoid paying
             interest and penalties on their remaining balances.




             36
               The CFPB was created in 2010 to ensure that consumers get the information they need
             to make the financial decisions they believe are best for themselves. Consumer Financial
             Protection Act of 2010, Pub. L. No. 111-203, title X, 124 Stat. 1955.




             Page 26                                                            GAO-13-156 Tax Filing
                      We recommend that the Acting Commissioner of Internal Revenue take
Recommendations for   the following actions:
Executive Action:
                      1. Outline a strategy that defines appropriate levels of telephone and
                         correspondence service and wait time and lists specific steps to
                         manage service based on an assessment of time frames, demand,
                         capabilities, and resources.
                      2. Clearly define and document the roles and responsibilities of IRS
                         offices administering the notice phase, such as in resolving tax debts.
                      3. Tailor appropriate and timely interventions with taxpayers who file
                         balance due returns, by pilot testing risk-based approaches that could
                         include
                          •     implementing the Advanced Consolidated Data Analytics plan,
                                and

                          •     using more data driven methods to identify the most appropriate
                                method for contacting a taxpayer.

                      We provided a draft of this report to the Acting Commissioner of Internal
Agency Comments       Revenue. He provided written comments on a draft of the report, which
and Our Evaluation    are reprinted in appendix VII. IRS also suggested technical changes to
                      the report, which we incorporated where appropriate.

                      IRS neither agreed nor disagreed with our first recommendation. IRS said
                      it already has an objective of providing taxpayers with access to accurate
                      services while managing demand and that this will be achieved by
                      improving contact center efficiency, providing issue resolution alternatives
                      to reduce demand, and equipping the workforce with additional tools.
                      However, as we stated in the draft, in recent years, IRS has realized
                      efficiency gains and provided alternative types of services, including more
                      automated services. Notwithstanding these efforts, IRS has not kept up
                      with the demand for service. Its service to taxpayers has continued to
                      decline—the percentage of calls answered by a CSR has decreased and
                      telephone wait times and the percentage of overage paper
                      correspondence have increased. Because IRS’s efforts to date have not
                      reversed these declines in taxpayer service, we believe our
                      recommendation to outline a strategy that defines appropriate levels of
                      service and lists specific steps to manage service that would reverse
                      recent trends remains valid. As the draft stated, a strategy to reverse the
                      trends may require difficult tradeoffs.




                      Page 27                                                  GAO-13-156 Tax Filing
Regarding our other two recommendations, IRS described its plans to
implement them.


As agreed with your offices, unless you publicly announce the contents of
this report earlier, we plan no further distribution until 30 days from the
report date. At that time, we will send copies to the Chairmen and
Ranking Members of other Senate and House committees and
subcommittees that have appropriation, authorization, and oversight
responsibilities for IRS. We will also send copies to the Acting
Commissioner of Internal Revenue, the Secretary of the Treasury, the
Chairman of the IRS Oversight Board, and the Deputy Director for
Management of the Office of Management and Budget. In addition, the
report will be available at no charge on the GAO website at
http://www.gao.gov.

If you or your staff have any questions about this report, please contact
me at (202) 512-9110 or whitej@gao.gov. Contact points for our Offices
of Congressional Relations and Public Affairs may be found on the last
page of this report. GAO staff who made key contributions to this report
are listed in appendix VIII.




James R. White
Director, Tax Issues
Strategic Issues




Page 28                                                  GAO-13-156 Tax Filing
Appendix I: Objectives, Scope, and
              Appendix I: Objectives, Scope, and
              Methodology



Methodology

              This report
              1. Assesses the Internal Revenue Service’s (IRS) performance in
                 processing returns, delivering refunds, and providing telephone
                 service and online and face-to-face assistance in comparison to its
                 2012 goals and prior years’ performance;

              2. Describes what is known about taxpayers who filed returns and had a
                 balance due for tax year 2010 but did not pay on or before the filing
                 deadline, and assesses IRS’s efforts to encourage timely payment;
                 and

              3. Summarizes the growth of Refund Anticipation Checks (RAC) in
                 recent years and the reasons taxpayers may obtain them, the manner
                 in which RAC and other fees are disclosed to taxpayers in commonly
                 used online tax return preparation software packages, and key
                 stakeholder views regarding the transparency of RACs and
                 associated fees.

              To assess IRS’s performance in 2012 relative to its goals and prior years’
              performance we:

              •   Obtained and analyzed IRS documents and data, including
                  performance and workload data, reports, testimonies, budget
                  submissions, and internal studies of programs, and compared these
                  to IRS’s 2012 goals and prior years’ performance to identify trends
                  and anomalies.

              •   Reviewed various other criteria, including industry standards, federal
                  requirements, and best practices to assess IRS’s performance in key
                  areas.

              •   Observed operations at IRS’s Joint Operations Center (which
                  manages telephone services) and listened to calls from taxpayers with
                  telephone Customer Service Representatives (CSR). We also
                  observed operations at a walk-in site located in Richmond, Virginia,
                  including virtual service delivery.

              •   Interviewed IRS officials responsible for tax return processing,
                  taxpayer services, and online services.

              •   Collected data from and interviewed key external stakeholders who
                  frequently interact with IRS on key aspects of the filing season,




              Page 29                                                   GAO-13-156 Tax Filing
Appendix I: Objectives, Scope, and
Methodology




    including representatives from major tax return preparation
    companies.
To describe what is known about taxpayers who filed returns with a
balance due in tax year 2010 but did not pay on or before the filing
deadline, and to assess IRS’s efforts to encourage timely payment, we:

•   Reviewed IRS’s process and organizational structure for contacting
    taxpayers who submit returns and owe a balance to the IRS but do
    not pay before the deadline. This included obtaining documentation
    from IRS and interviewing IRS officials responsible for this process.

•   Analyzed IRS data on the number of taxpayers who file returns with a
    balance due in tax year 2010, the most recent year for which
    complete data are available. We also analyzed IRS data on the dollar
    amounts associated with these balances and the manner in which the
    balances were resolved. For our analysis, the amount on the first
    notice sent to the taxpayer, including any interest and penalties, is the
    amount owed.

•   Determined the amounts owed by the taxpayer through matching data
    on notices sent to taxpayers against data from returns entering IRS’s
    collections process across databases using the Taxpayer
    Identification Number, to assure that our population included only
    those who received a notice for a self-assessed balance due.

•   Analyzed the amount and distribution of returns for the types of
    notices received and whether and how they were resolved or entered
    later collection phases.

•   Interviewed representatives from state tax administration agencies,
    other experts in tax administration, and private industry experts in
    collecting balances owed to identify criteria and best practices, such
    as the use of risk-based approaches and timely contact, for getting
    taxpayers to pay balances owed on time. An organization that
    represents state tax administration agencies provided contact
    information for states with advanced collection practices. Experts from
    those states directed us to knowledgeable private industry experts.

To summarize the growth of RACs in recent years and the reasons
taxpayers may obtain them, the manner in which RAC and other fees are
disclosed to taxpayers in commonly used online tax return preparation
software packages, and key stakeholder views regarding the
transparency of RACs and associated fees, we:



Page 30                                                   GAO-13-156 Tax Filing
Appendix I: Objectives, Scope, and
Methodology




•   Obtained data from IRS’s return preparer office identifying the five
    most frequently used software packages by taxpayers who self-
    prepare returns. We analyzed information regarding RACs from the
    largest online tax preparation software companies to identify RAC
    fees and the manner in which they are presented to taxpayers
    preparing returns.

•   Interviewed consumer protection experts, tax return preparation
    industry experts, and officials from cognizant government agencies,
    including the IRS and Consumer Financial Protection Bureau (CFPB).
    We identified these experts to interview based on our prior reports
    involving consumer protection and tax administration issues and in
    consultation with organizations representing tax return preparation
    and related financial services companies. We conducted these
    interviews to obtain a range of views on the need for RACs, return
    preparation fees more generally, and whether additional actions are
    needed to regulate RACs and other associated fees.

When data were available, we compared IRS’s performance to its 2012
goals and performance from fiscal years 2007 through 2011. IRS officials
noted that since 2008, varying degrees of tax law changes and other
factors have affected the agency’s performance. This report discusses
numerous filing season and performance measures and data covering the
quality, accessibility, and timeliness of IRS’s services. Where estimates
are presented, we used 90 percent confidence intervals and 10 percent
levels of statistical significance, the same used by IRS. To the extent
possible, we corroborated information from interviews with documentation
and data, and where not possible, attributed the information to IRS
officials. We reviewed IRS documentation, interviewed IRS officials about
computer systems and data limitations, and compared those results to
our standards of data reliability. 1 We determined that the data presented
in this report are sufficiently reliable for our purposes.

We conducted this performance audit from February 2012 through
December 2012 in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the
audit to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives. We


1
 GAO, Assessing the Reliability of Computer-Processed Data, GAO-09-680G
(Washington, D.C.: July 2009).




Page 31                                                       GAO-13-156 Tax Filing
Appendix I: Objectives, Scope, and
Methodology




believe that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives. To conduct our
analysis of the cost and features of RACs, we used investigative
techniques. We conducted our related investigative work in accordance
with investigation standards prescribed by the Council of the Inspectors
General on Integrity and Efficiency.




Page 32                                                 GAO-13-156 Tax Filing
Appendix II: Balance Due Notice Process
                                          Appendix II: Balance Due Notice Process




                                          IRS is required by law to send at least two notices to taxpayers who have
                                          a balance due on their taxes—the first notice (known as computer
                                          paragraph or CP-14) and a final notice (CP-504). IRS may also send up
                                          to two other discretionary notices (known as CP-501 and CP-503)
                                          between the first and final notices. IRS uses business rules embedded in
                                          the programming of its computer systems to determine the number and
                                          type of notices sent to a taxpayer. IRS officials told us that business rules
                                          impact the notice path for taxpayers who meet certain criteria, including
                                          taxpayers who repeatedly pay late and owe larger dollar amounts.
                                          However, these business rules are static and IRS does not otherwise
                                          tailor its contact methods to individual taxpayers during the notice phase.
                                          (See table 9).

Table 9: Description of Balance Due Notices for Individual Filers of Self-Assessed Balance Due Returns

Name            CP         Explanation
First notice    CP-14      Issued as a first notice to inform a taxpayer of a balance due of $5.00 or more, no math error. It tells
                           taxpayers they have unpaid taxes, lists the amount due, the amount of penalties and interest assessed,
                           and how to contact IRS to dispute the amount or to pay. This notice is required by law.
Second notice   CP-501     Second notice sent to taxpayer if no response after CP-14 notice. This notice is discretionary.
Third notice    CP-503     Third notice sent to taxpayer if no response to CP-14 or to second notice. This notice is discretionary.
Final notice    CP-504     Final notice issued to taxpayers informing them that IRS intends to issue a levy against the taxpayer’s
                           state tax refund because there is still a balance due on one or more of their tax accounts. Also, it informs
                           the taxpayers that the IRS will begin searching for other assets on which to issue a levy and that the IRS
                           may also file a federal tax lien. This notice is required by law.
                                          Source: GAO analysis of TIGTA and IRS data.


                                          Figure 2 shows that IRS’s balance due notice process for a taxpayer
                                          receiving all four notices is at least 21 weeks. IRS allows 5 weeks
                                          between notices to give the taxpayer a chance to respond. If the taxpayer
                                          does not respond to the final notice within 6 to 10 weeks to make
                                          arrangements to settle the balance, then IRS sends the account to phone
                                          or field collections or the queue, where IRS holds some accounts to
                                          determine what actions to take later.

                                          IRS does not typically contact taxpayers beyond the standard two to four
                                          notices during the notice phase.




                                          Page 33                                                               GAO-13-156 Tax Filing
                                         Appendix II: Balance Due Notice Process




Figure 2: Balance Due Notice Process for Individual Tax Return Filers




                                         Page 34                                   GAO-13-156 Tax Filing
Appendix III: Use of IRS Website and Online
                                             Appendix III: Use of IRS Website and Online
                                             Services



Services

                                             Taxpayers are increasingly using http://www.IRS.gov to download forms
                                             and publications and to check refund status. In 2012, IRS increased the
                                             number of Interactive Tax Assistant (ITA) topics from 11 to 19, which IRS
                                             officials said contributed to an 83 percent increase in ITA usage.
                                             Taxpayers’ use of the Where’s My Refund tool increased by almost 73
                                             percent in 2012, which IRS officials said may be attributed to processing
                                             issues that affected when estimated refund dates were posted and
                                             programming errors which provided visitors with erroneous messages.

Table 10: Website Use from the 2008 through 2012 Filing Seasons

                                                                                                                             Percent change
                                                                                                                                from 2011 to
                                                                                                                                           a
                                                                                 2008   2009      2010        2011      2012           2012
                                       b
Total visits to IRS.gov (in millions)                                             292      235     239         250       297                     18.8
Taxpayer forms, publications, and instructions downloads (in
                                                                                                                              c
millions)                                                                         136      137     157         166       259                     56.0
                       d
Searches (in millions)                                                            125      263     277         312       290                     -7.1
                                   e                                                                     f       g           h
Volunteer site list (in thousands)                                                n/a      n/a      48        152       152                        0
Self-Service Tools
Where’s My Refund? (completion in millions)                                        38       53       64         73       126                     72.6
Electronic Filing Pin Request (completion in millions)                            n/a      n/a        5         10         12                    20.0
                                                                                                                    i
Online Payment Agreement (completion in thousands)                                 19       34       43        26          64                 146.2
                                                                 j                                     k
Interactive Tax Assistance Tools (completion in thousands)                        n/a      n/a      42         212       388                     83.0
                                             Source: GAO analysis of IRS data.

                                             Note: Data are from January 1 to July 31 for each year unless otherwise noted.
                                             a
                                              Numbers in the table are rounded, but percentage change was calculated using exact values.
                                             Therefore, in some cases, the percentage change is slightly different than it would be if it were
                                             calculated using the rounded values in the table.
                                             b
                                             A visit is a series of actions that begins when a visitor views their first page from the server, and ends
                                             when the visitor leaves the site.
                                             c
                                                 Data is for January 1 to June 30, 2012.
                                             d
                                                 Page views include both successful search results and search results not found.
                                             e
                                              2010’s listing was on 1 page, with an index at the top. 2011’s listing was split into 52 pages; one for
                                             each state, the District of Columbia, and Puerto Rico. For 2012, IRS created a volunteer site locator
                                             tool for searches using zip codes.
                                             f
                                                 Page views data are for February 12 through July 31, 2010.
                                             g
                                                 Data are from January 1 through June 30, 2011.
                                             h
                                              Data represents the number of visits to the disclaimer page where users leave IRS.gov to use the
                                             volunteer site locator application, hosted by the Department of Treasury.




                                             Page 35                                                                         GAO-13-156 Tax Filing
Appendix III: Use of IRS Website and Online
Services




i
A programming error led to a decrease in the number of completed agreements.
j
IRS introduced the interactive tax assistance tools in March 2010 and added more tools in 2011 and
2012. As a result, the time frames and available services are not comparable.
k
    Data are from March 7 through July 31, 2010.




Page 36                                                                    GAO-13-156 Tax Filing
Appendix IV: Visits to Taxpayer Assistance
              Appendix IV: Visits to Taxpayer Assistance
              Center and Volunteer Income Tax Assistance
              Sites


Center and Volunteer Income Tax Assistance
Sites
              The total number of contacts at Taxpayer Assistance Centers (TAC)
              staffed by IRS employees had decreased in 2012 as compared to 2010
              and 2011. The total number of returns prepared at Volunteer Income Tax
              Assistance (VITA) sites for 2012 increased slightly compared to 2011,
              while 97 percent of the returns prepared at volunteer sites were
              electronically-filed.

              Table 11: Services Performed at IRS TAC and VITA Sites, 2010 through 2012 Filing
              Seasons

                                                                                              Percent change
                                                                                                 from 2011 to
                                                      2010             2011            2012             2012
                  TAC
                  Total contacts                  2,777,478      2,847,221     2,772,044                  -2.6
                  Return preparation               222,624         201,413       148,075                 -26.5
                  Tax law questions                177,002         153,398       128,746                 -16.1
                  Account notices                 1,217,383      1,327,406     1,446,413                   9.0
                  Forms                            440,417         457,839       378,051                 -17.4
                          a
                  Other                            720,052         707,165       670,759                  -5.1
                  VITA
                  Return preparation              2,951,952      3,077,687     3,149,197                   2.3
                  Percent of returns e-filed            95               96              97                n/a
              Legend: n/a = not applicable.

              Source: GAO analysis of IRS data.

              Notes: Data for each calendar year are for January 1 through April 30.
              a
               Other contacts include responding to correspondence, scheduling appointments, and providing self-
              assistance services, which do not fall into the defined categories.




              Page 37                                                                     GAO-13-156 Tax Filing
Appendix V: Description of Telephone Calls
              Appendix V: Description of Telephone Calls
              Answered by IRS



Answered by IRS

              IRS receives millions of calls each year from taxpayers. As table 12
              shows, while an increasingly large number of calls are answered through
              automation, the number of calls answered by customer service
              representatives (CSRs) has declined. Abandoned calls are those calls
              where the taxpayer hangs-up before receiving assistance.

              Table 12: Calls to IRS by Call Type, 2007 through 2012 Filing Seasons

                  In millions
                                                                                                       Percent
                                                                                                  change from
                                                            a                                                b
                                                  2007 2008     2009    2010       2011     2012 2011 to 2012
                  Automated calls
                  answered                        20.8   43.0   25.3     31.6      36.7      50.1                 36
                  CSR calls answered              21.5   27.0   25.7     24.1      22.6      19.4                 -14
                  Abandoned calls                 13.3   34.4   21.4     20.5      22.7      27.3                 20
                  Busies and IRS
                  disconnects                      1.0   13.6    5.3      1.2        1.1       1.6                52
                  Total calls received            56.6 118.0    77.6     77.4      83.1      98.4                 18
              Source: GAO analysis of IRS data.

              Note: Data are from January 1 through June 30 for all years.
              a
               According to IRS officials, IRS received an unprecedented number of calls in 2008 primarily related
              to economic stimulus package payments.
              b
               The numbers in the table are rounded, but the percent change was calculated using exact values.
              Therefore, in some cases, the percent change is slightly different than it would be if it were calculated
              using the rounded values in the table.




              Page 38                                                                        GAO-13-156 Tax Filing
Appendix VI: Fees for Refund Anticipation
                                       Appendix VI: Fees for Refund Anticipation
                                       Checks



Checks

                                       As part of our review of Refund Anticipation Checks (RAC), we observed
                                       how RACs and the fees associated with them, including fees for prepaid
                                       debit cards, are presented to taxpayers. Table 13 summarizes our results.

Table 13: Comparisons of Fees and Refund Anticipation Check Options for Five Software Packages

                                               Software             Software              Software              Software              Software
                                              Package 1            Package 2             Package 3             package 4             package 5
Tax Return and RAC Fees
Tax preparation fee                                $74.90               $74.90               $17.95                 $12.95              $17.90
RAC fee                                              29.95                32.95                16.95                    n/a              29.95
Pre-paid Card Fees
ATM cash withdrawal one time                          2.50                 2.50                 1.95                    n/a                n/a
Over the counter withdrawal                           2.50                25.00                 5.00                    n/a                n/a
ATM balance inquiry                                   0.50                 1.00                 0.50                    n/a                n/a
                                                          a                    b                     c
Monthly maintenance fee                              5.95                 2.50                 2.50                     n/a                n/a
                                       Legend: n/a = not applicable.

                                       Source: GAO analysis.

                                       a
                                        The maintenance fee is waived when available balance is $50 or greater on the last day of billing
                                       cycle.
                                       b
                                           This is a monthly inactivity fee (charged after 3 months consecutive with no activity).
                                       c
                                        The maintenance fee is charged monthly, therefore the $2.50 amount could increase depending on
                                       the length of card’s activation.




                                       Page 39                                                                           GAO-13-156 Tax Filing
Appendix VII: Comments from the
             Appendix VII: Comments from the Department
             of the Treasury



Department of the Treasury




             Page 40                                      GAO-13-156 Tax Filing
Appendix VII: Comments from the Department
of the Treasury




Page 41                                      GAO-13-156 Tax Filing
Appendix VII: Comments from the Department
of the Treasury




Page 42                                      GAO-13-156 Tax Filing
Appendix VII: Comments from the Department
of the Treasury




Page 43                                      GAO-13-156 Tax Filing
Appendix VIII: GAO Contact and Staff
                  Appendix VIII: GAO Contact and Staff
                  Acknowledgments



Acknowledgments

                  James R. White, (202) 512-9110, whitej@gao.gov
GAO Contact
                  In addition to the individual named above, Joanna Stamatiades, Assistant
Staff             Director; LaKeshia Allen Horner; Andrew Ching; David Fox; Tom Gilbert;
Acknowledgments   Ron Jones; Inna Livits; Kirsten Lauber; Karen O’Conor; Albert Sim;
                  Sabrina Streagle; Weifei Zheng; and John Zombro made key
                  contributions to this report.




(450959)
                  Page 44                                               GAO-13-156 Tax Filing
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