oversight

Tax Administration: IRS' 1999 Tax Filing Season

Published by the Government Accountability Office on 1999-12-15.

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

                United States General Accounting Office

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


December 1999

                TAX
                ADMINISTRATION
                IRS’ 1999 Tax Filing
                Season




GAO/GGD-00-37
United States General Accounting Office                                            General Government Division
Washington, D.C. 20548




                 B-281530




                 December 15, 1999

                 The Honorable Amo Houghton
                 Chairman, Subcommittee on Oversight
                 Committee on Ways and Means
                 House of Representatives

                 Dear Mr. Chairman:

                 In response to your request, this report discusses the Internal Revenue Service’s (IRS)
                 performance during the 1999 tax filing season. Besides providing data on various indicators
                 that IRS uses to measure its filing season performance, we discuss the following areas: (1)
                 telephone service; (2) service provided at walk-in sites; (3) other taxpayer service efforts; (4)
                 Earned Income Credit noncompliance; (5) electronic filing; (6) implementation of recent tax
                 law changes; and (7) implementation of a new return and remittance processing system. This
                 report also includes several recommendations to the Commissioner of Internal Revenue.

                 We are sending copies of this report to Senator William V. Roth, Jr., Chairman, and Senator
                 Daniel P. Moynihan, Ranking Minority Member, Senate Committee on Finance;
                 Representative Bill Archer, Chairman, and Representative Charles B. Rangel, Ranking
                 Minority Member, House Committee on Ways and Means; and Representative William J.
                 Coyne, Ranking Minority Member of this Subcommittee. We are also sending copies to the
                 Honorable Lawrence H. Summers, Secretary of the Treasury; the Honorable Charles O.
                 Rossotti, Commissioner of Internal Revenue; the Honorable Jacob J. Lew, Director, Office of
                 Management and Budget; and other interested parties. Copies will also be made available to
                 others upon request.




                 Page 1                                                      GAO/GGD-00-37 IRS' 1999 Tax Filing Season
B-281530

This report was prepared under the direction of David J. Attianese, Assistant Director. Other
major contributors are acknowledged in appendix III. If you have any questions about this
report, please contact me or Mr. Attianese on (202) 512-9110.

Sincerely yours,




James R. White
Director, Tax Policy and
  Administration Issues




Page 2                                                    GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Page 3   GAO/GGD-00-37 IRS’ 1999 Tax Filing Season
Executive Summary


                   As of October 29, 1999, U.S. taxpayers had filed about 126 million
Purpose            individual income tax returns. For most taxpayers, their only contacts with
                   the Internal Revenue Service (IRS) are associated with this filing activity.
                   In addition to the filing itself, those contacts generally involve (1)
                   taxpayers’ calls to IRS or visits to an IRS walk-in site to obtain tax forms or
                   publications or to seek help in preparing their returns and/or (2) IRS
                   correspondence to taxpayers about problems, such as computational
                   errors or missing Social Security numbers (SSN), that can affect
                   processing of taxpayers’ returns and/or issuance of their refunds.

                   In response to a request from the Subcommittee on Oversight of the House
                   Committee on Ways and Means, GAO assessed IRS’ performance during
                   the 1999 filing season. To do so, GAO compiled and analyzed data on IRS’
                   own filing season-related performance measures. In addition, GAO
                   assessed IRS’ efforts to (1) improve telephone service; (2) expand the
                   availability of walk-in services; (3) provide other forms of assistance, such
                   as through the Internet; (4) reduce Earned Income Credit (EIC)
                   noncompliance; (5) increase the use of electronic filing; (6) implement
                   recent tax law changes; and (7) implement a new return and remittance
                   processing system.

                   Most taxpayers file their returns between January 1 and April 15, the
Background         deadline for filing individual income tax returns. However, millions of
                   taxpayers get extensions from IRS that allow them to delay filing until as
                   late as October 15.

                   The 1999 filing season included several challenges for IRS. For example, it
                   was the first year that IRS provided around-the-clock telephone service
                   and used a new computer system nationwide to process tax returns. It was
                   also the first year that IRS implemented a legislative provision aimed at
                   reducing EIC noncompliance and that qualifying taxpayers could claim
                   several new tax credits and deductions, including a child tax credit.

                   IRS met or exceeded its 1999 goals for several performance measures. But,
Results in Brief   IRS fell short of its goals in two key areas—taxpayers’ ability to access
                   IRS’ toll-free telephone service and the quality of IRS’ responses to
                   taxpayers who called IRS with tax law questions. GAO also identified
                   certain features of IRS’ methodology for measuring the quality of
                   responses to tax law questions that warranted IRS’ attention. IRS’
                   accomplishment in a third area, that is, timeliness of refunds for paper
                   returns, raised some questions about IRS’ timeliness that IRS could not
                   answer.




                   Page 4                                  GAO/GGD-00-37 IRS' 1999 Tax Filing Season
  Executive Summary




  GAO’s assessment of the 1999 filing season identified many positive
  aspects. But, there were problems—the most significant involving IRS’
  telephone service. IRS took several steps in an attempt to improve
  telephone service in 1999, such as having assistors available to answer the
  telephone 24 hours a day, 7 days a week. But service did not improve.
  Instead, it deteriorated. GAO’s work indicated that this deterioration
  resulted from (1) unrealistic assumptions about the implementation and
  impact of IRS’ changes and (2) other problems managing staff training and
  scheduling and implementing new technology. Although GAO recognizes
  the difficulty in anticipating how new initiatives will work and what their
  effect will be, the problems IRS encountered in 1999, when considered
  together, raise significant questions about IRS’ management of the
  telephone assistance program.

  With respect to other aspects of the 1999 filing season, GAO observed the
  following:

• IRS enhanced the availability of its walk-in services by, among other
  things, increasing Saturday hours and making services more accessible to
  taxpayers who did not have convenient access to a walk-in office. IRS also
  did a better job of measuring walk-in customer satisfaction in 1999 than in
  1998, and taxpayers who responded to IRS’ survey scored their overall
  satisfaction with an average of 6.44 on a 7-point scale. However, IRS made
  little progress in measuring the quality and timeliness of its walk-in
  services.
• Use of IRS’ World Wide Web site on the Internet increased significantly
  during the 1999 filing season. Despite the site’s success, IRS’ data pointed
  to some problems with the feature that allows taxpayers to get answers to
  tax law questions via electronic mail (E-mail).
• IRS stopped millions of dollars in erroneous EIC claims in 1999 by
  validating SSNs and scrutinizing certain claims. IRS also implemented new
  procedures in 1999 that require certain taxpayers to document their
  eligibility for the EIC before IRS approves their claim (a process referred
  to as “recertification”). IRS data indicate that implementation of this new
  process helped reduce the number of erroneous claims. GAO identified
  certain opportunities to streamline the recertification process and thus
  make it less burdensome to taxpayers and IRS. Also, IRS service centers
  were not consistently following national guidelines for recertification,
  which could result in disparate treatment of taxpayers.
• Of the almost 126 million tax returns filed in 1999, 29.3 million (23 percent)
  were filed electronically. IRS implemented several initiatives in 1999
  directed at making electronic filing paperless and thus more appealing to




  Page 5                                  GAO/GGD-00-37 IRS' 1999 Tax Filing Season
                               Executive Summary




                               potential users. At the time GAO completed its work, IRS had not finished
                               assessing all of those initiatives.
                             • Twenty percent of the returns filed in 1999 included the new child tax
                               credit. Many of those taxpayers erred in calculating the credit amount.
                               Many other taxpayers who were eligible for the credit failed to claim it.
                               Correction of these errors increased IRS’ processing workload.
                             • IRS made significant changes to the computer systems it uses to process
                               returns and remittances. IRS accomplished those changes without any
                               discernible processing disruptions.


                               GAO is making several recommendations to the Commissioner of Internal
                               Revenue.


Principal Findings

IRS Met Most of Its Filing     IRS uses various measures to gauge its performance during a filing season.
                               In 1999, IRS either came close to, met, or exceeded the goals for 7 of the 9
Season Goals but Missed        measures for which it established goals, including measures relating to the
Goals in Two Key Areas         accuracy with which it processes returns and fills orders for tax forms and
Affecting Taxpayers            the timeliness with which it processes tax payments. For the other two
                               measures, IRS fell short of its goals.

                               The first missed goal dealt with the ability of taxpayers to access IRS’ toll-
                               free telephone service. Issues surrounding IRS’ telephone service in 1999
                               are discussed in the next section.

                               The second missed goal dealt with the quality of IRS’ responses to
                               taxpayers who called IRS with tax law questions. IRS’ goal was to answer
                               85 percent of those questions accurately; however, it achieved an accuracy
                               rate of 72.5 percent. According to IRS, one reason for the lower accuracy
                               was that assistors needed knowledge in more areas of the tax law in 1999
                               than in the past and that the assistors may not have had recent or complete
                               training in the additional areas. GAO also identified some features of IRS’
                               sampling methodology that could have a bearing on the results of its
                               accuracy measurement. For example:

                             • During the filing season, IRS monitored calls for 8 hours a day, Monday
                               through Friday, even though it provided around-the-clock service. (IRS has
                               since expanded its monitoring hours.) The effect on IRS’ accuracy measure
                               would depend on the extent to which taxpayers called during the



                               Page 6                                   GAO/GGD-00-37 IRS' 1999 Tax Filing Season
                          Executive Summary




                          nonmonitored hours and the difference, if any, between the accuracy of
                          assistors who worked during the monitored hours versus those who
                          worked during the nonmonitored hours.
                        • IRS based its planned sample size on assumptions about the number of
                          incoming telephone calls and estimates of the number of work hours
                          available to monitor. IRS did not achieve the estimated number of calls it
                          planned to monitor. The use of assumptions and estimates that are not
                          achieved may weaken the precision of the results of its monitoring.


                          IRS’ accomplishment in a third area, timeliness in issuing refunds to
                          taxpayers who filed their returns on paper, raised some questions that IRS
                          had no data to answer. IRS measured its performance in that area in terms
                          of the percentage of refunds issued within 40 days. Because 1999 was the
                          first year that IRS measured its refund timeliness in that way, IRS
                          considered 1999 to be a baseline year and did not set a performance goal.
                          However, IRS data showed that IRS took longer than 40 days to issue
                          about 15 percent of the refunds on paper returns. GAO’s attempt to learn
                          more about those 15 percent, such as how many days beyond 40 the
                          affected taxpayers had to wait before receiving their refunds, was
                          unsuccessful because IRS did not have the necessary data. (See pp. 20 to
                          27.)

IRS Telephone Service     During the 1998 filing season, IRS provided a 74-percent level of service,
                          meaning that 74 percent of taxpayers’ attempts to contact an IRS assistor
Deteriorated              by telephone were successful (these data do not reflect the quality of the
                                                                                                  1
                          service taxpayers received, only their success in reaching an assistor). In
                          an effort to provide better telephone service in 1999, IRS, among other
                          things, (1) extended its hours of operation to 24 hours a day, 7 days a
                          week, and (2) started managing its telephone operations centrally, which
                          included implementation of new call routing technology. Although these
                          initiatives were intended to improve telephone service, the level of service
                          during the 1999 filing season dropped to 55 percent.

                          GAO’s discussions with IRS officials and review of available
                          documentation indicated that the decline in telephone service resulted
                          from unrealistic assumptions. For example, IRS assumed that productivity
                          would increase, but it decreased. IRS also assumed that around-the-clock
                          service would level demand by enabling some taxpayers to call during off-
                          hours, thereby reducing the number of calls coming in during peak times;

                          1
                           Unlike level of access, level of service considers abandoned telephone calls as unsuccessful call
                          attempts.




                          Page 7                                                GAO/GGD-00-37 IRS' 1999 Tax Filing Season
                             Executive Summary




                             but IRS’ expectations did not fully materialize. Among other things, IRS’
                             inaccurate assumptions led to discontinuance of a special procedure for
                             handling complex tax law questions, which further contributed to the
                             deterioration in telephone service.

                             Although GAO recognizes the difficulty in anticipating how new initiatives
                             will work and what their effect will be, the problems IRS encountered
                             when considered together, raise significant questions about IRS’
                             management of the telephone assistance program in 1999. GAO saw
                             evidence of (1) assumptions and decisions that appeared to be based on
                             inadequate data or that seemed to ignore existing data, (2) a failure to
                             appropriately time the training of assistors and coordinate the timing of
                             union negotiations that would directly affect productivity and the
                             development of work schedules, (3) inadequate testing and contingency
                             planning with respect to new call routing technology, and (4) the absence
                             of data that management would need to adequately assess what happened
                             in 1999 and provide a basis for making appropriate changes for the 2000
                             filing season. (See pp. 28 to 37.)

IRS Expanded the             Staff at IRS’ walk-in sites answer tax law questions, distribute tax forms
                             and publications, and help taxpayers prepare their returns and resolve
Availability of Walk-In      their account issues. IRS data show that walk-in sites served about 6.2
Services but Had Only        million taxpayers between January 1 and May 1, 1999—a slight increase
Limited Ability to Measure   over the number served during the same period in 1998.
Results
                             IRS expanded the availability of walk-in services during the 1999 filing
                             season. For example, IRS increased Saturday hours at more walk-in offices
                             and used mobile vans and temporary space in shopping malls to make its
                             services more accessible to taxpayers who were not near a walk-in office.
                             IRS also did a better job of measuring customer satisfaction with its walk-
                             in services. In 1998, IRS did not start distributing its satisfaction survey
                             until late in the filing season. In 1999, IRS added questions to the survey
                             and distributed it during the entire filing season. Taxpayers who responded
                             to the survey in 1999 scored their overall satisfaction, on average, at 6.44
                             on a 7-point scale.

                             While IRS made progress in measuring customer satisfaction with walk-in
                             services in 1999, it made little progress in measuring the quality and
                             timeliness of those services. With respect to timeliness, for example, IRS
                             established taxpayer wait-time goals but (1) the National Office did not
                             require regional offices to report wait times and (2) most of IRS’ walk-in
                             sites had to manually track wait times, thus making the data more prone to
                             error. IRS cannot determine if the walk-in program is meeting its



                             Page 8                                  GAO/GGD-00-37 IRS' 1999 Tax Filing Season
                              Executive Summary




                              objectives and goals, and thus whether it is an effective way of providing
                              service, without meaningful nationwide performance data. (See pp. 38 to
                              42.)

Use of Other Sources of       Besides the help that is available over the telephone and at walk-in sites,
                              taxpayers can receive assistance from other sources, such as IRS’ Web
Taxpayer Assistance           site. Measured by either the number of “hits” or the number of files
Increased, but Some           downloaded, use of that site during the 1999 filing season increased by
Problems Existed              over 100 percent compared to 1998. The Web site also includes an E-mail
                              feature that enables taxpayers to ask IRS questions about the tax law and
                              receive a response.

                              Despite the general success of IRS’ Web site during the 1999 filing season,
                              including a favorable assessment by an outside organization, there were
                              some problems. IRS tests showed that only 65 percent of the responses to
                              E-mail questions during the 1999 filing season were accurate, and IRS data
                              indicate that IRS did not meet its goal of responding to E-mail questions
                              within an average of 2 business days. IRS could not actually determine
                              how close it came to its timeliness goal in 1999 because it tracked
                              response times in calendar days while its goal was in business days—a
                              situation that IRS said it would correct for the 2000 filing season.

                              IRS also told GAO that it (1) would be providing staff with additional
                              training on the E-mail topics with the highest error rates and (2) expects to
                              have better workload projections and better work plans for the 2000 filing
                              season, which should better enable IRS to meet its response-time goal by
                              better ensuring that an adequate number of staff is available to meet the
                              demand for service. (See pp. 43 to 46.)

IRS Continued to Stop         IRS’ continuing efforts to reduce EIC noncompliance by validating SSNs
                              and scrutinizing certain EIC claims stopped millions of dollars in
Some Improper EIC             erroneous EIC payments in 1999. IRS also implemented procedures in
Payments; Opportunities       1999, as mandated by the Taxpayer Relief Act of 1997, that require certain
Exist to Streamline the EIC   taxpayers to document their eligibility for the EIC before IRS approves
Recertification Process       their claim (i.e., recertification). IRS data show that many taxpayers who
                              were required to recertify did not claim the EIC in 1999, which seems to
                              indicate that recertification helped reduce the number of improper claims.
                              It is possible, however, that some of those taxpayers did not submit a
                              claim in 1999 even though they were entitled to the EIC because they did
                              not understand the recertification process or found it too burdensome.

                              The form that taxpayers are required to submit to be recertified may
                              mislead them to believe that the information required to complete the form



                              Page 9                                 GAO/GGD-00-37 IRS' 1999 Tax Filing Season
                           Executive Summary




                           is sufficient for recertification. Taxpayers may become discouraged and
                           confused when they realize that the form is not sufficient but, instead,
                           leads to another IRS request for documents. Taxpayers might rightfully
                           wonder why, if the documents required by later correspondence are
                           essential for recertification, IRS did not tell them that those documents
                           were required when IRS first notified them about the need to recertify. In
                           addition, even though there was national guidance on the recertification
                           process that service centers were to follow, the guidance was not followed
                           consistently, which could result in disparate treatment of taxpayers. (See
                           pp. 47 to 53.)

Use of Electronic Filing   About 29.3 million individual income tax returns were filed electronically
                           in 1999—an increase of about 19 percent over 1998. Even with that
Continued to Increase      increase, about 77 percent of all individual returns were still filed on paper.

                           Consistent with a provision in the IRS Restructuring and Reform Act of
                           1998, IRS’ strategic goal is to have 80 percent of all returns filed
                           electronically by 2007. Toward that end, IRS, in 1999, implemented several
                           initiatives directed at making electronic filing truly paperless (by
                           eliminating the need for signature forms, checks, and payment vouchers)
                           and thus more appealing to taxpayers and tax return preparers. Those
                           initiatives enabled certain taxpayers to (1) sign their returns through, for
                           example, the use of a personal identification number and (2) pay their tax
                           liability by credit card or by a direct debit from their bank accounts. At the
                           time GAO completed its work, IRS had not compiled the necessary data to
                           assess the impact of all of those initiatives on electronic filing. (See pp. 54
                           to 59.)

New Child Tax Credit Was   Some tax law changes mandated by the Taxpayer Relief Act of 1997 took
                           effect during the 1999 filing season. One change involved a new child tax
the Source of Many         credit. According to IRS data, about 20 percent of all individual income tax
Taxpayer Errors            returns filed in 1999 included a child tax credit claim. That credit caused
                           some confusion for taxpayers, as evidenced by the large number of errors
                           identified by IRS. About one-half of the errors were of a computational
                           nature; the other one-half involved taxpayers’ failure to claim a child tax
                           credit to which they were entitled. The need to correct these errors added
                           to IRS’ processing workload and may have delayed some refunds. (See pp.
                           60 to 62.)




                           Page 10                                  GAO/GGD-00-37 IRS' 1999 Tax Filing Season
                         Executive Summary




Significant Changes to   IRS made significant changes this year to the computer systems it uses to
                         process tax returns and remittances. GAO’s work did not identify any
Computer Systems         significant disruption of IRS’ ability to process returns and issue refunds
Accomplished Without     that might be indicative of computer-related problems. (See p. 63.)
Processing Disruptions

                         GAO is recommending that the Commissioner of Internal Revenue (1)
Recommendations          analyze the results of its refund timeliness tests, (2) analyze the effect of
                         not achieving the planned sample size for monitoring the accuracy of tax
                         law calls, (3) implement a program for assessing the performance of IRS’
                         walk-in sites, and (4) take steps to streamline the recertification process
                         and avoid possible disparate treatment of taxpayers. (See p. 66.)

                         To better understand the problems facing IRS in providing good telephone
                         service and help develop constructive solutions, GAO is reviewing, in more
                         detail, IRS’ management of its telephone operations. Accordingly, this
                         report includes no recommendations in that area. GAO is not
                         recommending changes in other areas, such as E-mail responses and the
                         child tax credit, because IRS has taken or plans to take action to address
                         the identified problems in those areas.

                         In a letter dated December 3, 1999, the Commissioner of Internal Revenue
Agency Comments          commented on a draft of this report (see app. II). The Commissioner said
                         that the draft report provided a fair and balanced assessment of IRS’
                         efforts to improve processing while providing taxpayers with top quality
                         service, and that IRS would make every effort to resolve the issues noted
                         in the draft. The Commissioner’s comments are discussed in more detail in
                         chapter 10.




                         Page 11                                  GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Contents



Executive Summary                                                                                     4


Chapter 1                                                                                            16
                          Background                                                                 16
Introduction              Objective, Scope, and Methodology                                          17


Chapter 2                                                                                            20
                          Many Taxpayers Received Inaccurate Responses to Their                      23
IRS Missed Its Filing       Tax Law Questions
Season Goals in Two       Taxpayers’ Ability to Access IRS’ Telephone System                         25
                            Declined
Key Areas Affecting       Taxpayers Who Filed Paper Returns Did Not Always                           26
Taxpayers                   Receive Timely Refunds


Chapter 3                                                                                            28
                          IRS Made Several Changes in an Attempt to Improve                          28
IRS’ Telephone Service      Telephone Service in 1999
Deteriorated              Compared to 1998, Telephone Service Significantly                          29
                            Declined During the 1999 Filing Season
                          Unrealistic Assumptions Led to the Decrease in                             31
                            Telephone Service
                          Limited Use of New Call Router During Parts of the 1999                    35
                            Filing Season


Chapter 4                                                                                            38
                          IRS Enhanced the Availability of Services at Its Walk-In                   38
IRS Expanded the            Offices
Availability of Walk-In   IRS Expanded Nontraditional Sources of Taxpayer                            39
                            Service
Services but Had Only     Except for Measuring Customer Satisfaction, IRS Has Not                    40
Limited Ability to          Made Much Progress in Measuring the Performance of
                            Walk-In Sites
Measure Results
Chapter 5                                                                                            43
                          Significant Increase in Use of IRS’ Web Site, but Some                     44
Use of Other Sources        Problems With Timeliness and Accuracy of E-mail
of Taxpayer Assistance      Responses
                          Availability and Use of Volunteer Tax Return Preparation                   46
Increased, but Some         Services Increased; Some Problems Were Encountered
Problems Existed

                          Page 12                              GAO/GGD-00-37 IRS’ 1999 Tax Filing Season
                         Contents




Chapter 6                                                                                           47
                         IRS Continued to Stop Some Improper EIC Payments                           47
IRS Continued to Stop      Through the Use of Math Error Authority
Some Improper EIC        IRS Targeted Certain Types of EIC Claims for In-Depth                      48
                           Review
Payments;                EIC Recertification Process Further Deterred Improper                      49
Opportunities Exist to     Claims but May Have Confused Taxpayers and
                           Unnecessarily Delayed Return Processing
Streamline the EIC
Recertification
Process
Chapter 7                                                                                           54
                         Several Factors May Have Contributed to the Increase in                    55
Use of Electronic          Electronic Filing
Filing Continued to      Use of TeleFile Decreased Despite IRS Initiative                           58

Increase
Chapter 8                                                                                           60
                         Basic Child Tax Credit                                                     60
Tax Law Changes          Additional Child Tax Credit                                                61
Added Complexity and     Education Benefits                                                         62

Led to Numerous
Taxpayer Errors
Chapter 9                                                                                           63
                         Replacement of Return and Remittance Processing                            63
Significant Changes to     Systems
Computer Systems         Consolidation of Mainframe Computer Equipment                              63

Accomplished Without
Processing Disruptions
Chapter 10                                                                                          64
                         Conclusions                                                                64
Conclusions,             Recommendations                                                            66
Recommendations,         Agency Comments and Our Evaluation                                         67

and Agency Comments


                         Page 13                              GAO/GGD-00-37 IRS’ 1999 Tax Filing Season
             Contents




Appendixes   Appendix I: IRS Workload Indicators                                           70
             Appendix II: Comments From the Internal Revenue                               72
               Service
             Appendix III: GAO Contacts and Staff Acknowledgments                          76


Tables       Table 2.1: IRS’ Performance Measures for the 1998 and                         21
               1999 Filing Seasons
             Table 3.1: Data on IRS’ Toll-Free Telephone Assistance                        30
               for the 1998 and 1999 Filing Seasons
             Table 5.1: Use of Other IRS and IRS-Sponsored Taxpayer                        43
               Assistance
             Table 6.1: EIC Claims and Math Errors During 1998 and                         48
               1999
             Table 7.1: Number of Individual Income Tax Returns                            54
               Received, by Filing Type


Figures      Figure 3.1: Weekly Comparison of IRS’ Toll-Free                               31
               Telephone Assistance—Level of Access and Level of
               Service—During the 1998 and 1999 Filing Seasons




             Abbreviations

             ECN           E-file Customer Number
             EIC           Earned Income Credit
             ERO           electronic return originator
             IDRS          Integrated Data Retrieval System
             IRS           Internal Revenue Service
             NTEU          National Treasury Employees Union
             PIN           personal identification number
             SEA           selected expanded access
             SSN           Social Security number
             TCE           Tax Counseling for the Elderly
             TRA97         Taxpayer Relief Act of 1997
             VITA          Volunteer Income Tax Assistance




             Page 14                                 GAO/GGD-00-37 IRS’ 1999 Tax Filing Season
Page 15   GAO/GGD-00-37 IRS’ 1999 Tax Filing Season
Chapter 1

Introduction


               This report responds to a request from the Chairman of the Subcommittee
               on Oversight of the House Committee on Ways and Means that we assess
               the Internal Revenue Service’s (IRS) performance during the 1999 tax filing
               season. In April 1999, we testified before the Subcommittee on the interim
                                   1
               results of our work.

               In addition to providing data on various indicators that IRS uses to
               measure its filing season performance, this report discusses (1) IRS’
               telephone service; (2) service provided at IRS walk-in sites; (3) other IRS
               efforts to assist taxpayers; (4) IRS efforts to reduce Earned Income Credit
               (EIC) noncompliance; (5) electronic filing; (6) IRS’ implementation of
               certain tax law changes; and (7) implementation of IRS’ new return and
               remittance processing system. The last chapter of this report contains our
               overall conclusions, several recommendations to the Commissioner of
               Internal Revenue, and IRS’ comments on those recommendations.

               For most taxpayers, their only contacts with IRS involve the annual filing
Background     of their income tax returns. Most taxpayers file their returns between
               January 1 and April 15, the deadline for filing individual income tax
               returns. However, a large number of taxpayers get extensions from IRS
               that allow them to delay filing their returns until as late as October 15.

               IRS provides various services in an effort to help taxpayers file correct
               returns. For example, taxpayers can (1) call IRS toll-free to get answers to
               tax law questions and order tax forms and publications; (2) get
               information or help in preparing their returns at IRS walk-in sites; (3) get
               their returns prepared at volunteer tax assistance sites sponsored by IRS;
               and get information, including answers to tax law questions, through IRS’
               Web site.

               Most taxpayers file their returns on paper but a growing number have been
               filing electronically. In December 1998, IRS issued a strategic plan for
               expanding the use of electronic filing. As described by IRS, that plan was

               “designed to eliminate barriers, provide incentives, and use competitive market forces to
               make significant progress toward: (1) the overriding goal of 80 percent of all tax and
               information returns being filed electronically by the year 2007, and (2) the interim goal that,
               to the extent practicable, all returns prepared electronically should be filed electronically
               for taxable years beginning after 2001.”




               1
                Tax Administration: IRS’ Fiscal Year 2000 Budget Request and 1999 Tax Filing Season (GAO/T-
               GGD/AIMD-99-140, Apr. 13, 1999).




               Page 16                                            GAO/GGD-00-37 IRS' 1999 Tax Filing Season
                          Chapter 1
                          Introduction




                          The 80-percent goal cited in IRS’ plan derives from a requirement in the
                          IRS Restructuring and Reform Act of 1998.

                          One benefit of electronic filing is that IRS can bypass its labor-intensive
                          and error-prone paper processing system. For the 1999 filing season, IRS
                          introduced a new processing system called the Integrated Submission and
                          Remittance Processing System. The return and remittance processing
                          systems that the new system replaced were old and could not be made
                          year 2000 compliant.

                          Several new tax credits and deductions took effect in tax year 1998 (the
                          tax year for which returns are filed in 1999). Those new credits and
                          deductions included a maximum $400 tax credit for each qualifying child,
                          an additional child tax credit that was designed to benefit taxpayers with
                          three or more children, and various education-related deductions and
                          credits.

                          One tax credit that has been around for several years is the EIC, which is a
                          refundable tax credit established by Congress in 1975 to offset the impact
                          of Social Security taxes and to encourage low-income workers to seek
                          employment rather than welfare. Because of concerns about significant
                          levels of noncompliance associated with the EIC, Congress, in fiscal year
                          1998, began appropriating funds to IRS that were specifically targeted at
                          EIC noncompliance. With those funds, IRS has initiated various assistance
                          and enforcement efforts focused on reducing that noncompliance. Also, in
                          1999, IRS implemented new procedures, as mandated by the Taxpayer
                          Relief Act of 1997 (TRA97), that require certain taxpayers to document
                          their eligibility for the EIC before IRS approves their claim.

                          Our objective was to assess IRS’ performance during the 1999 filing
Objective, Scope, and     season, with particular emphasis on several areas identified in the
Methodology               Subcommittee’s request. To achieve our objective, we

                        • analyzed filing-season data from various IRS management information
                          systems, such as the Management Information System for Top Level
                          Executives; IRS data on processing errors, including errors involving the
                          EIC and the child tax credit; and data on IRS’ toll-free telephone assistance
                          and IRS’ Web site;
                        • obtained data on IRS’ goals and accomplishments for various performance
                          measures and discussed the methodology for computing many of those
                          measures with cognizant officials;




                          Page 17                                 GAO/GGD-00-37 IRS' 1999 Tax Filing Season
  Chapter 1
  Introduction




• assessed IRS’ methodology for measuring the quality of assistance
  provided taxpayers who call IRS with tax law questions and analyzed the
  results of that methodology;
• interviewed officials who were responsible for managing IRS’ toll-free
  telephone operations as well as officials at telephone call sites in Atlanta,
  GA, and Fresno, CA, and analyzed the results of toll-free telephone service
  customer satisfaction surveys;
• interviewed officials at IRS walk-in assistance sites in the Georgia and
  Northern California District Offices; observed walk-in services provided at
  shopping centers, grocery stores, and mobile van sites by the Georgia,
  Northern California, and Central California District Offices; and analyzed
  the results of walk-in customer satisfaction surveys;
• interviewed IRS National Office officials about the Taxpayer Education
  Program, with an emphasis on volunteer tax preparation services that are
  supported by IRS;
• interviewed officials in IRS’ Office of Electronic Tax Administration about
  various initiatives undertaken in 1999 in an effort to increase the use of
  electronic filing, reviewed data on taxpayer participation in the initiatives,
  and reviewed data on the results of those initiatives;
• interviewed officials in IRS’ EIC Project Office and in the Atlanta, Fresno,
  and Kansas City, MO, Service Centers about various efforts to improve the
  level of compliance associated with EIC claims; analyzed data on the
  results of those efforts; and interviewed National Office officials located at
  the Brookhaven, NY, Service Center who were responsible for national
  EIC compliance efforts;
• reviewed IRS’ returns processing guidance relating to the child tax credit,
  interviewed service center officials about their processing procedures, and
  discussed potential changes to IRS’ forms and instructions with officials at
  IRS’ National Office;
• obtained filing-season information from the largest national tax return
  preparation company; and
• reviewed reports issued by the Treasury Inspector General for Tax
  Administration on filing-season activities.

  We did our work at IRS’ National Office; the Atlanta, Brookhaven, Fresno,
  and Kansas City Service Centers; the Customer Service Center in Atlanta;
                                                           2
  and the Georgia and Northern California District Offices.



  2
   Except for Brookhaven, we selected these locations because we had staff available in those areas to
  do the work. We visited Brookhaven to interview officials who were responsible for EIC compliance
  work.




  Page 18                                             GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Chapter 1
Introduction




We requested comments on a draft of this report from the Commissioner
of Internal Revenue. IRS provided comments in a letter dated December 3,
1999, and at a related meeting on the same date. We have incorporated IRS’
comments as appropriate and have reprinted the letter in appendix II.

We did our work from November 1998 through October 1999 in
accordance with generally accepted government auditing standards.




Page 19                               GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Chapter 2

IRS Missed Its Filing Season Goals in Two
Key Areas Affecting Taxpayers

               IRS uses various measures to gauge its performance during a filing season.
               Those measures relate to timeliness, such as the number of days needed to
               process and issue refunds; quality, such as the accuracy of notices sent to
               taxpayers and answers to taxpayers’ questions; and service accessibility,
               such as the extent to which taxpayers with tax-related questions were able
                                          1
               to reach IRS by telephone.

               In 1999, according to IRS’ own data, it met or exceeded its performance
               goals for five measures, came close to its goals for two measures, and fell
               short of its goals for two measures (i.e., quality of responses to tax law
                                                                                          2
               questions and level of access to the taxpayer service telephone system).
               As shown in table 2.1, there were four other measures for which IRS had
               no goal in 1999. IRS’ accomplishment in one of those areas, that is,
               timeliness of refunds for paper returns, raised some questions that IRS did
               not have the necessary data to answer.




               1
                IRS also has various workload indicators, such as the number of returns received and refunds issued.
               Several of those indicators, which generally show a growth in IRS’ filing season workload and a growth
               in taxpayer use of such things as electronic filing and direct deposits, are shown in appendix I.
               2
                The goals shown in table 2.1 were set by IRS generally on the basis of prior experience and projected
               workload. We did not assess the appropriateness of IRS’ goals.




               Page 20                                              GAO/GGD-00-37 IRS' 1999 Tax Filing Season
                                               Chapter 2
                                               IRS Missed Its Filing Season Goals in Two Key Areas Affecting Taxpayers




 Table 2.1: IRS’ Performance Measures for the 1998 and 1999 Filing Seasons
                                                        a                                                                a
                                                   1998                                                             1999
Indicator                     Goal                    Accomplishment                   Goal                           Accomplishment
Accuracy of individual        Process 95%             95.5% were processed             Process 96%                    96.6% were processed
income tax return             accurately              accurately                       accurately                     accurately
processing by Code
                b
and Edit staff
Accuracy of individual        Process 95%             94.2% were processed             Process 94.6%                   94% were processed
income tax return             accurately              accurately                       accurately                      accurately
processing by data
              c
transcribers
                    d
Notice accuracy               Provide accurate        Provided accurate                Provide accurate                Provided accurate notices
                              notices to taxpayers    notices to taxpayers             notices to taxpayers            to taxpayers 97.7% of the
                              98.5% of the time       98.4% of the time                98.5% of the time               time
Timeliness of                 Payments received       All payments received            Payments received               All payments received
processing tax payments 4/15/98 through 4/29/98 4/15/98 through 4/29/98                4/15/99 through                 4/15/99 through 4/29/99
submitted with individual were to be deposited no were deposited by                    4/29/99 must by                 were deposited by 4/30/99
                        e
income tax returns            later than 4/30/98      4/30/98                          deposited by 4/30/99
Accuracy of individual        Process 99.3%           99.6% were processed             Process 99.3%                   99.6% were processed
income tax refunds on         accurately              accurately                       accurately                      accurately
                f
paper returns
Timeliness of refunds         Issue within an         Issued within an                 Baseline year                   Processed 84.7% of the
for individual income tax     average of 40 days      average of 34 days                                               refunds in 40 days or less
                          g
returns filed on paper
Timeliness of refunds for Issue within an             Issued within an                 Process 98% of the              Processed 99.6% of the
individual income tax re-     average of 21 days      average of 15 days               refunds in less than 21         refunds in less than 21
                            h
turns filed electronically                                                             days                            days
                                             j                                                       k
Level of service provided Not applicable              Provided 74% level of            Baseline year                   Provided 55% level of
by taxpayer service                                   service                                                          service
                      i
telephone system
Level of access to            Provide 70% level of    Provided 91% level of            Provide 80%-90%                 Provided 69% level of
                                                                                                      m
taxpayer service              access                  access                           level of access                 access
                      l
telephone system
Accuracy of tax law           Answer 96% of           Answered 93.6%                   Not applicable                  Not applicable
            n
assistance                    taxpayer’s questions    accurately
                              accurately
                  o
Tax law quality               Not applicable          Not applicable                   Answer 85% of                   Answered 72.5%
                                                                                       taxpayers’ questions            accurately
                                                                                       accurately
Accuracy of processing        Process 96.5%              Processed 97.3%               Process 96.5%                   Processed 97% accurately
            p
form orders                   accurately                 accurately                    accurately
                                                                                                    r
Level of customer             Not applicable             Not applicable                Baseline year                   Average overall
satisfaction with toll-free                                                                                            satisfaction of 6.31 on a 7-
                   q                                                                                                                           s
telephone service                                                                                                      point scale (as of 3/99)
                                                                                                       r
Level of customer             Not applicable             Not applicable                Baseline year                   Average overall
satisfaction with                                                                                                      satisfaction of 6.44 on a 7-
                t                                                                                                                              u
walk-in service                                                                                                        point scale (as of 3/99)
                                               a
                                               Data are as of April 1998 and April 1999, unless otherwise noted.
                                               b
                                                Code and Edit staff are to prepare paper returns for computer entry by, among other things, ensuring
                                               that all data are present on the return and legible. This indicator represents the percentage of other-
                                               than-full-paid individual paper returns that are processed accurately by Code and Edit staff. Other-




                                               Page 21                                              GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Chapter 2
IRS Missed Its Filing Season Goals in Two Key Areas Affecting Taxpayers




than-full-paid returns are those that involve either a refund or an unpaid liability and account for the
majority of paper returns processed.
c
This indicator represents the percentage of other-than-full-paid, individual paper returns that are
processed without transcription errors.
d
 This indicator is based on a sample of returns processing notices to be sent to individual and
business taxpayers. Among other things, IRS uses returns processing notices to advise taxpayers of
missing schedules or forms, missing SSNs, or refunds being delayed or used to offset another
liability. IRS reviewers compare the printed notice to various data, including information in the
taxpayer’s account and on the taxpayer’s tax return. The indicator is calculated by dividing the
number of correct notices reviewed by the total number of notices reviewed. IRS told us that the
results for individual and business taxpayers cannot be separated.
e
 Service centers are to deposit payments in a timely manner, generally within 24 hours of receipt.
Because of the volume of payments received between April 15 and April 29, IRS suspends the 24-
hour requirement during that period. Instead, IRS requires that all payments received during that
period are to be deposited by the close of business on April 30. After April 29, the centers are to
resume the 24-hour deposit schedule.
f
This indicator is based on a sample of individual income tax returns filed on paper. The indicator is
calculated as the percentage of refunds on those returns that are free of any IRS-caused errors in the
name and address field or in the refund amount.
g
 In 1998, this indicator was based on a sample of paper returns and was an average calculated
starting from the signature date on the return to the date the taxpayer should have received the
refund, allowing 2 or 3 days after issuance (depending on whether the refund is paid by check or
direct deposit) for the refund to reach the taxpayer or the taxpayer’s bank account. The 1999 indicator
was still based on a sample of paper returns; however, it was calculated as the percentage of refunds
processed in 40 days or less. The days are counted from signature date to the day after the refund is
issued, allowing 1 day for the refund to reach the taxpayer. IRS recalculated the 1998 data using the
1999 method and found that 88.1 percent of the 1998 refunds were processed in 40 days or less. IRS
recalculated the 1999 data using the 1998 method and found that 1999 refunds were issued within an
average of 34.6 days.
h
 In 1998, this indicator was based on a sample of electronically filed returns and was an average
calculated from the date the return was received to the date the taxpayer should have received the
refund, allowing 2 or 3 days after issuance (depending on whether the refund was by check or direct
deposit) for the refund to reach the taxpayer or the taxpayer’s bank account. The 1999 indicator was
still based on a sample of electronically filed returns; however, it was calculated as the percentage of
refunds processed in less than 21 days. The days are counted from the date the return is received to
the date the refund is issued, with no allowance for the refund to reach the taxpayer. IRS recalculated
the 1998 data using the 1999 method and found that 98.3 percent of the 1998 refunds were
processed in less than 21 days. IRS recalculated the 1999 data using the 1998 method and found
that 1999 refunds were issued within an average of 13.7 days.
i
Level of service is calculated by dividing the number of calls answered by the total call attempts.
Answered calls include calls to the voice messaging system that were subsequently returned by IRS.
Total call attempts is the sum of calls answered, calls abandoned by the caller before receiving
assistance, and calls that received a busy signal.
j
IRS did not establish a goal for this indicator for 1998 because it was selected as an indicator after
planning for the 1998 filing season had been completed.
k
According to IRS, it is using fiscal year 1999 as a baseline, and, therefore, established no goal.
However, IRS did track the measure in 1998 and achieved a 73.7 percent level of service.
l
Level of access is the sum of the number of calls answered plus the number of abandoned calls
divided by the total call attempts (as defined in i above).
m
 According to IRS, this goal was established as a range due to uncertainty about resource availability
and implementation of new call routing technology.
n
 This indicator measured the accuracy of tax law information provided to taxpayers through the toll-
free telephone assistance program. For 1998, the indicator was based on test calls placed to
telephone assistors. For 1999, IRS changed the measure’s name to Tax Law Quality and changed
the methodology for testing the accuracy as described in note o.




Page 22                                                GAO/GGD-00-37 IRS' 1999 Tax Filing Season
                      Chapter 2
                      IRS Missed Its Filing Season Goals in Two Key Areas Affecting Taxpayers




                      o
                          In 1999, IRS monitored actual telephone calls to assess the quality of answers to tax law questions.
                      p
                       The accuracy with which forms distribution centers process taxpayers’ orders is determined by
                      randomly checking selected orders, monitoring telephone calls from taxpayers, and reviewing data
                      transcription of written orders from taxpayers.
                      q
                       This measure is determined through surveys of a random sample of taxpayers who call IRS’ toll-free
                      telephone numbers and choose to participate.
                      r
                      According to IRS, it is using fiscal year 1999 as a baseline year; therefore, no performance goal was
                      established.
                      s
                       The results of the survey were also analyzed in a manner that shows 84 percent of the customers
                      rated satisfaction with the handling of their case as a 6 or 7 on a 7-point scale.
                      t
                      This measure is determined through surveys of taxpayers who visit IRS’ walk-in sites and choose to
                      participate.
                      u
                       The results of the survey were also analyzed in a manner that shows 89 percent of the customers
                      rated satisfaction with the handling of their case as a 6 or 7 on a 7-point scale.
                      Source: GAO analysis of IRS data.


                      From 1989 to 1998, IRS measured the quality of assistance to taxpayers
Many Taxpayers        who called with tax law questions by making structured test calls to IRS
Received Inaccurate   assistors. This method was phased out after the 1998 filing season. During
Responses to Their    the 1998 filing season, besides making test calls, IRS also measured the
                      quality of its tax law assistance by monitoring a sample of actual calls. In
Tax Law Questions     monitoring the calls, IRS assessed whether telephone assistors gave
                      accurate responses and followed correct procedures when responding to
                      taxpayers’ questions. IRS used the results of that monitoring (an 83.2-
                      percent accuracy rate) as a baseline for setting its 85-percent accuracy
                      goal for the 1999 filing season. IRS also changed the name of this measure
                      from “accuracy of tax law assistance” to “tax law quality.”

                      Results of IRS’ call monitoring during the 1999 filing season showed that
                      IRS achieved an accuracy rate of 72.5 percent—12.5 percentage points
                      below the goal and 10.7 percentage points below the achievement in 1998.
                      IRS told us that one reason for the lower accuracy rate was the broader
                      skill level each assistor needed in 1999. An IRS official explained that in
                      1998 an assistor may have needed expertise in only one or two topics.
                      However, due to IRS’ change in the equipment used to route telephone
                      calls, as discussed later in this report, an assistor may have been required
                      to answer questions on several more topics in 1999. The official told us
                      that even though the assistors received training on the additional topics,
                      they may not have used the training in several years or received complete
                      training in all areas of a topic. Therefore, with the increase in the number
                      of topics an assistor was responsible for and dated and/or limited training
                      in the topics, the assistors were not always able to answer taxpayers’
                      questions accurately.




                      Page 23                                                 GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Chapter 2
IRS Missed Its Filing Season Goals in Two Key Areas Affecting Taxpayers




IRS also noted that, in some instances, the assistor may have provided a
correct answer to a taxpayer’s question, but the call was scored as
incorrect because the assistor failed to follow correct procedures. For
example, the assistor may have failed to provide his or her employee
identification number or inform the taxpayer which form or schedule to
use when filing the return. During the filing season, IRS did not capture the
data needed to determine the extent to which calls were inaccurate
because the assistor provided an incorrect response versus failed to follow
prescribed procedures. As of the end of June 1999, IRS began gathering
that kind of data. IRS said that it would use the data to help focus training
for assistors, which it planned to provide before the 2000 filing season.

We reviewed the method that IRS used to score the overall accuracy of its
responses to tax law questions, that is, its decision to score the call as
inaccurate if any part of the answer was incorrect. This scoring method is
one of several analytical approaches for measuring accuracy and is more
conservative than most other options because it tends to produce a lower
accuracy rate than might result if other scoring methods were used.

We also reviewed IRS’ sampling plan for assessing tax law quality and
noted that IRS’ results for the filing season were based on telephone calls
monitored for 8 hours a day, Monday through Friday, even though IRS
provided telephone service 24 hours a day, 7 days a week. The effect on
IRS’ accuracy measure, had the measure been based on 24-hours-a-day, 7-
days-a-week monitoring, would depend on the extent to which taxpayers
called during the nonmonitored hours and the difference, if any, between
the accuracy of assistors who answered calls during the monitored hours
versus the accuracy of those who answered calls during the nonmonitored
hours.

As discussed later in this report, IRS could not readily provide data on the
number of calls received during the nonmonitored hours, and several IRS
officials expressed concern about the skill level of assistors who worked
during nonmonitored hours. According to cognizant IRS officials, IRS
limited its monitoring to 8 hours a day, Monday through Friday, during the
1999 filing season because it did not have enough adequately trained staff
to do more monitoring. That situation improved after the filing season,
and, in May 1999, IRS began monitoring calls Monday through Saturday, 16
hours a day. IRS plans to continue that schedule during the 2000 filing
season.




Page 24                                       GAO/GGD-00-37 IRS' 1999 Tax Filing Season
                          Chapter 2
                          IRS Missed Its Filing Season Goals in Two Key Areas Affecting Taxpayers




                          We also noted the following regarding IRS’ sampling plan:

                        • The sampling plan includes a sample of the hours during which calls were
                          monitored and then a sample of telephone calls on various subject matters
                          within those hours. While the sample of hours is essentially random, the
                          sample of telephone calls is a cluster sample within those hours. The effect
                          of a cluster sample could impact the precision estimates by understating
                          them, meaning that IRS’ estimates could be less precise. After discussions
                          with responsible IRS officials, they agreed to examine the effect of cluster
                          sampling on the precision of IRS estimates.
                        • The sampling plan called for monitoring about 4,300 calls during the filing
                          season; however, IRS monitored 2,960 calls—31 percent less than the plan.
                          The planned sample size was based on assumptions about the number of
                          incoming telephone calls per hour and estimates of the number of work
                          hours available to monitor calls. IRS did not monitor as many calls as it
                          had planned. There is concern that the use of assumptions and estimates
                          that are not achieved may weaken the precision of the question the
                          monitoring was intended to answer—how accurate are the responses to
                          taxpayers’ questions.

                          Each year, millions of taxpayers call IRS to ask questions about the tax
Taxpayers’ Ability to     law, inquire about their refunds, resolve account-related issues, and order
Access IRS’ Telephone     forms. To assess how well it is serving these taxpayers, IRS measures the
System Declined           “level of access” and “level of service” provided by its telephone system.

                          Level of access indicates the extent to which taxpayers are able to access
                          IRS’ system (i.e., not get a busy signal). However, it does not take into
                          account the extent to which taxpayers get into IRS’ system but are put on
                          hold and abandon their calls before an assistor comes on the line. In effect,
                          level of access considers abandoned calls as successful call attempts.
                          Level of service, on the other hand, considers abandoned calls as
                          unsuccessful call attempts and, thus, measures the extent to which
                          taxpayers are successful in reaching an assistor.

                          As noted in its budget request for fiscal year 2000, IRS has identified level
                          of access as one of its Servicewide performance measures. As we
                          discussed in our testimony on that budget request, we believe that level of
                          service would be the more appropriate Servicewide measure because it
                          indicates the extent to which taxpayers were successful in actually talking




                          Page 25                                       GAO/GGD-00-37 IRS' 1999 Tax Filing Season
                        Chapter 2
                        IRS Missed Its Filing Season Goals in Two Key Areas Affecting Taxpayers




                                                  3
                        to someone in IRS. The Department of the Treasury and IRS have recently
                        expressed agreement with that position.

                        During the 1999 filing season, IRS reported its level of access at 69 percent
                        and its level of service at 55 percent. These accomplishments were well
                        below the 91-percent level of access and the 74-percent level of service IRS
                        reported for the 1998 filing season. In the next chapter, we discuss the
                        significant decline in IRS’ telephone service and various factors that may
                        have contributed to the decline.

                        One of IRS’ customer service standards says that “If you file a complete
Taxpayers Who Filed     and accurate tax return and you are due a refund, your refund will be
Paper Returns Did Not   issued in 6 weeks.” In that regard, IRS, each year, reviews samples of
Always Receive Timely   individual income tax returns to measure its timeliness in issuing refunds.
                        IRS takes separate samples of returns filed on paper and returns filed
Refunds                 electronically.

                        In the past, IRS measured its timeliness in terms of the average number of
                        days it took taxpayers to receive a refund. In 1998, for example, it
                        determined that filers of paper returns received their refunds within an
                        average of 34.1 days while filers of electronic returns received their
                        refunds within an average of 15.1 days. In 1999, IRS used the same
                        sampling methodology but changed the way it measured timeliness.
                        Instead of computing average refund time, IRS computed the percentage of
                        refunds processed within a certain time frame—40 days or less for paper
                        returns and less than 21 days for electronic returns. We agree with this
                        change in methodology. Showing a percentage of refunds that met IRS’
                        timeliness goal seems more informative than just showing the average
                        number of days it took for taxpayers to receive a refund.

                        As of the end of April 1999, IRS’ refund test results showed that 84.7
                        percent of the refunds for individual income tax returns filed on paper had
                        been processed within 40 days, and that 99.6 percent of the refunds for
                        returns filed electronically had been processed in less than 21 days. The
                        result for electronic returns exceeded IRS’ goal for 1999 (98 percent) and
                        IRS’ performance in 1998 (98.3 percent). IRS did not set a goal for paper
                        returns. However, IRS’ reported accomplishment in 1999 (84.7 percent)
                                                                                        4
                        was below its reported accomplishment in 1998 (88.1 percent).


                        3
                            GAO/T-GGD/AIMD-99-140.
                        4
                         For analytical purposes, IRS recalculated its 1998 data for both paper and electronic returns using the
                        1999 method of computing timeliness.




                        Page 26                                               GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Chapter 2
IRS Missed Its Filing Season Goals in Two Key Areas Affecting Taxpayers




Although IRS’ accomplishment in 1999 was close to its accomplishment in
1998, about 15 percent of the taxpayers who had filed paper returns and
had claimed a refund did not receive those refunds within 40 days. IRS
could not tell us how many days beyond 40 these taxpayers had to wait
before receiving their refunds, so the significance of IRS’ untimeliness is
unclear. Some of the untimeliness may be due to delays caused by
taxpayers. For example, one official told us that some of the delays were
because taxpayers who were entitled to the new child tax credit did not
claim it. As discussed later in this report, IRS corrected those returns to
include the credit, thus adding to its processing time and increasing the
amount of the refund.

Because the samples for IRS’ refund timeliness measure included returns
with errors, such as math errors and errors associated with the child tax
       5
credit, we asked IRS what its sample results showed for returns that were
error free. We wanted to compare those results to IRS’ customer service
standard, which promises a refund within 6 weeks if a taxpayer files a
complete and accurate return. IRS said that it did not have that
information.




5
 Math errors are mistakes, such as calculation mistakes or invalid or missing SSNs, that are made by
taxpayers and are detected by IRS validation systems.




Page 27                                              GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Chapter 3

IRS’ Telephone Service Deteriorated


                        IRS took several steps in an attempt to improve telephone service in 1999.
                        But, service did not improve; it deteriorated. Our discussions with IRS
                        officials and analysis of relevant documentation indicated that the
                        deterioration resulted from (1) unrealistic assumptions about the
                        implementation and impact of IRS’ changes and (2) other problems
                        managing staff training and scheduling and implementing new technology.

                        Although we recognize the difficulty in anticipating how new initiatives
                        will work and what their effect will be, the problems IRS encountered
                        when considered together, raise significant questions about IRS’
                        management of the telephone assistance program in 1999. We saw
                        evidence of (1) assumptions and decisions that appeared to be based on
                        inadequate data or that seemed to ignore existing data, (2) a failure to
                        appropriately time the training of assistors and coordinate the timing of
                        union negotiations that would directly affect productivity and the
                        development of work schedules, (3) inadequate testing and contingency
                        planning with respect to new call routing technology, and (4) the absence
                        of data that management would need to adequately assess what happened
                        in 1999 and provide a basis for making appropriate changes for the 2000
                        filing season.

                        In an effort to improve its telephone service in 1999, IRS, among other
IRS Made Several        things, extended its hours of operation and began managing its telephone
Changes in an Attempt   operations centrally, which included implementation of new call routing
to Improve Telephone    technology.
Service in 1999

Extended Hours of       In 1998, IRS’ customer service representatives were available 16 hours a
                        day, 6 days a week (7 a.m. to 11 p.m., Monday through Saturday), to
Operation               answer questions from taxpayers about the tax law, their accounts, or their
                        refunds. For the 1999 filing season, IRS expanded that service to 24 hours a
                        day, 7 days a week. IRS officials said that they believed that around-the-
                        clock service would level the demand for service. For example, there has
                        traditionally been heavier demand for telephone service on Mondays. IRS
                        officials speculated that many taxpayers worked on their tax returns
                        during the weekends and tended to call at the first opportunity for
                        assistance on Monday. IRS hoped to reduce such peak demand times and
                        distribute demand more evenly by making assistance available at any time.

                        Although IRS’ customer service representatives were available all night
                        and on weekends, it is uncertain to what extent they were able to assist
                        taxpayers who called during those times. For example, some taxpayers



                        Page 28                                GAO/GGD-00-37 IRS' 1999 Tax Filing Season
                         Chapter 3
                         IRS’ Telephone Service Deteriorated




                         who called to resolve account issues during the night and on weekends did
                         not receive the assistance they needed because normal maintenance
                         requirements caused IRS’ main taxpayer data computer system, known as
                         the Integrated Data Retrieval System (IDRS), to be unavailable, mainly in
                         the early morning hours on weekdays, 8 hours on Saturdays, and all day on
                         Sundays.

                         IRS offered around-the-clock service for account-related issues in 1999
                         even though it knew that IDRS would not always be available. IRS believed
                         that assistors would be able to serve many taxpayers who called during
                         IDRS downtime by accessing another information system that, according
                         to IRS, was available virtually anytime. However, that other system was
                                                     1
                         insufficient in many cases. According to IRS’ review of a sample of
                         telephone calls to selected service centers on four Sundays during the
                         filing season, 20 percent of the taxpayers were told to call back during the
                         week when IDRS would be available.

Central Management and   In 1999, IRS began managing its telephone operations centrally through its
                         Customer Service Operations Center in Atlanta. As part of this centralized
Call Routing             management, IRS developed its first national call schedule that projected
                         the volume of calls—for each half-hour—at each of IRS’ 24 call sites and
                         the staff resources that would be needed to handle that volume.

                         As an integral part of its new approach to managing telephone service, IRS
                         implemented a new customer service call router. The router was intended
                         to lessen disparities in the level of service taxpayers receive by sending
                         each call to the first available assistor nationwide who had the necessary
                         skills to answer the taxpayer’s question. To do this the router was to do
                         use real-time information about (1) the nature of each taxpayer’s question
                         and (2) the availability of qualified telephone assistors nationwide. We
                         provide more information on how the new call router was to work and did
                         work later in this chapter.

                         Although the various initiatives just discussed were intended to improve
Compared to 1998,        IRS’ telephone service, that service declined significantly during the 1999
Telephone Service        filing season. Compared to the 1998 filing season, as shown in table 3.1,
Significantly Declined   level of access decreased from 91 percent to 69 percent and level of
                         service decreased from 74 percent to 55 percent.
During the 1999 Filing
Season
                         1
                          The other information system was often insufficient because, unlike IDRS, it was a read-only system,
                         which meant that assistors could view taxpayers’ accounts but not make changes that might be
                         necessary to resolve account issues.




                         Page 29                                             GAO/GGD-00-37 IRS' 1999 Tax Filing Season
                                           Chapter 3
                                           IRS’ Telephone Service Deteriorated




Table 3.1: Data on IRS’ Toll-Free Telephone Assistance for the 1998 and 1999 Filing Seasons
                               Call attempts   Calls answered        Busy signals     Calls abandoned                    Level of      Level of
Filing season                      (millions)        (millions)         (millions)            (millions)                  access        service
1998                                     50.1              37.1                4.5                   8.5                     91%           74%
1999                                     65.3              35.6               20.4                   9.3                       69            55
        a
Change                                   15.2               -1.5              15.9                   0.7                    -22%          -19%
                                           Note 1: This table combines data on six of IRS’ toll-free telephone lines—tax law assistance,
                                           EIC/refund inquiry, account inquiry, forms ordering, Automated Collection System, and fraud hotline.
                                           Note 2: Data are for January 1 through April 18, 1998, and January 1 through April 17, 1999.
                                           a
                                            Change may not compute due to rounding.
                                           Source: IRS data.


                                           IRS’ performance in providing telephone service during the 1999 filing
                                           season reached its lowest point during the week of February 6, 1999 (see
                                           fig. 3.1). During that week, level of access and level of service were 31
                                           percent and 25 percent, respectively, as compared to 92 percent and 77
                                           percent, respectively, for the same week in 1998. Accessibility improved
                                           after the initial weeks of the filing season and almost reached the levels
                                           achieved in 1998 during the week of March 13. However, unlike 1998,
                                           performance then moved steadily downward until the end of the filing
                                           season.




                                           Page 30                                             GAO/GGD-00-37 IRS' 1999 Tax Filing Season
                                        Chapter 3
                                        IRS’ Telephone Service Deteriorated




Figure 3.1: Weekly Comparison of IRS’ Toll-Free Telephone Assistance—Level of Access and Level of Service—During the
1998 and 1999 Filing Seasons




                                        Note: IRS did not start tracking 1999 data until the week ending January 23 because it did not have
                                        data that it considered reliable before then.
                                        Source: IRS data.


                                        Our discussions with IRS officials and our review of available
Unrealistic                             documentation indicated that the decrease in telephone service during the
Assumptions Led to                      1999 filing season resulted from unrealistic assumptions about the
the Decrease in                         implementation and impact of IRS’ changes. For example, IRS assumed
                                        that assistor productivity would increase, but it decreased; IRS assumed
Telephone Service                       that around-the-clock service would level demand more than it did; and
                                        IRS assumed that work schedules were adequate, but they proved to be
                                        flawed. Among other things, IRS’ assumptions led to discontinuance of a




                                        Page 31                                             GAO/GGD-00-37 IRS' 1999 Tax Filing Season
                         Chapter 3
                         IRS’ Telephone Service Deteriorated




                         special procedure for handling complex tax law questions, which further
                         contributed to the deterioration in telephone service.

Productivity Did Not     In planning for the 1999 filing season, IRS originally projected a slight
                         increase in productivity due to implementation of the new call router. IRS
Increase as Expected     officials expected the call router to increase productivity by routing calls
                         to the first available assistor qualified to answer the taxpayer’s question,
                         thereby preventing assistors from sitting idle. However, according to IRS
                         officials and data, productivity actually decreased in 1999 as compared to
                         1998.

                         IRS officials cited several factors that might have led to lower-than-
                         expected productivity, including the following:

                       • To staff its around-the-clock service, IRS offered experienced seasonal
                                                                                                 2
                         employees permanent positions if they agreed to work the off-hours.
                         According to some officials, the movement of these productive, skilled
                         seasonal employees left a gap during the core hours when most taxpayers
                         seek assistance—from 9 a.m. to 5 p.m. IRS filled the core hours with newly
                         hired, less skilled seasonal employees. Other officials said that there was a
                         skill gap during the off-hours, especially during the overnight shift.
                         However, IRS only had to move staff at a few sites. Of IRS’ 24 call sites, 2
                         answered taxpayer telephone calls during the overnight shift, and 5
                         regularly answered calls on Sundays.
                       • IRS discontinued use of a call management tool called “auto-available,”
                         which, as soon as a call was completed, automatically routed another
                         telephone call to the assistor. During the 1999 filing season, pursuant to an
                         agreement with the National Treasury Employees Union (NTEU), assistors
                         were placed in a waiting status after each call and remained in that status
                                                                                                     3
                         until they pressed a keyboard button that put them in an available status.
                         IRS officials said that, by definition, this practice added some amount of
                         time to each call, causing other calls to receive busy signals and, thus,
                         lowering accessibility.
                       • Changes that required new procedures, new responsibilities, and training
                         for assistors affected productivity. For example, the IRS Restructuring and
                         Reform Act of 1998 required that assistors provide their name and
                         2
                          Generally, IRS considers the telephone assistance “off-hours” to be the time periods outside of the
                         “core hours” when most taxpayers call IRS for help. IRS officials said that the core hours are 9 a.m. to 5
                         p.m., Monday through Friday.
                         3
                          The waiting status, known as wrap time, was designed to allow assistors to make themselves
                         unavailable after certain calls that needed “wrap up,” such as calls that required that documentation be
                         completed or calls that were particularly complex or stressful and required that the assistor take a
                         momentary mental break.




                         Page 32                                               GAO/GGD-00-37 IRS' 1999 Tax Filing Season
                           Chapter 3
                           IRS’ Telephone Service Deteriorated




                           employee identification number at the beginning of each call, which added
                           a little time to each call. Also, according to a cognizant official, the need to
                           train all staff on various provisions of the IRS Restructuring and Reform
                           Act of 1998 and train those assistors who, in accordance with the NTEU
                           agreement, had accepted broader responsibilities in exchange for
                           increased pay grade led to a shortage of assistors who were available to
                           answer the telephone during the early part of the filing season.

Demand Leveling Did Not    IRS expected that around-the-clock service would level demand by
                           enabling some taxpayers to call during off-hours, thereby reducing the
Occur as Expected          number of calls coming in during peak times. However, according to
                           cognizant officials, IRS’ expectations about leveling demand did not fully
                           materialize. As a result, IRS underestimated the number of assistors
                           needed to answer incoming call volume during the hours that most
                           taxpayers called and, according to one official, off-hours staff often sat in
                           available status with no call to answer.

                           IRS did not have data readily available to determine the volume of calls
                           received during its expanded hours of telephone service, even though such
                           data would seem important in assessing the impact of around-the-clock
                           telephone service and in developing workload assumptions and staffing
                           plans for the 2000 filing season. After we requested these data, IRS
                           compiled information on the number of calls received on Sundays but was
                           unable to provide data on the number of calls it received during the
                           overnight hours of 11 p.m. to 7 a.m. The information IRS compiled showed
                           that about 2.3 million calls were received on Sundays over IRS’ three main
                           tax law and account telephone lines—about 4 percent of the 57.3 million
                           calls received on those three lines during the filing season.

                           IRS’ expectation that around-the-clock service would level demand and
                           reduce peak demand times may have been unrealistic considering its
                           experience in 1998. According to IRS officials in 1998, IRS first attempted
                           to level demand by extending its service to 6 days a week, 16 hours a day.
                           The expected leveling did not occur, and IRS officials told us, at that time,
                           that it would probably take 4 to 5 years for taxpayers to become familiar
                           with the extended hours of service available.

Call Site Work Schedules   IRS’ original staffing plans were done on the assumption that IRS would
                           have the authority that it had last year to direct staff to work other than
Not Adequate               their regular work schedule. According to IRS, the new agreement with
                           NTEU limited the extent to which IRS could change an assistor’s regular
                           work schedule. The agreement stipulates that IRS must first seek
                           volunteers before requiring assistors to change their work hours to meet



                           Page 33                                  GAO/GGD-00-37 IRS' 1999 Tax Filing Season
                             Chapter 3
                             IRS’ Telephone Service Deteriorated




                             staffing shortages at a site. A cognizant official said that IRS had to quickly
                             redo work schedules to accommodate the volunteer provision, which
                             resulted in significant staff shortages in relation to projected call volumes
                             and, thus, schedules that were not as sound as they should have been.

                             The timing of the completion of the work schedules also presented a
                             problem. IRS’ negotiations with NTEU took longer than IRS expected, and
                             the agreement was not completed until October 1998. IRS officials said the
                             schedules were not made available until December 1998, just a few weeks
                             before the beginning of the filing season. In responding to a survey of IRS
                             call sites by the Treasury Inspector General for Tax Administration,
                             several call site officials said that the timing of the schedules did not allow
                             adequate time to hire and train staff, and that, during the filing season,
                             schedules were changed frequently with little advance notice and did not
                             allow for adequate planning.

Discontinued Voice           One result of IRS’ unrealistic assumptions was a decision, before the filing
                             season began, to discontinue a procedure that IRS had used in 1997 and
Messaging Adversely          1998 to handle the more complex calls from taxpayers. Because
Affected Telephone Service   discontinuance of that procedure had a negative effect on telephone
                             service, IRS reinstated the procedure after the start of the filing season.

                             As we discussed in our 1997 filing season report, IRS studied the topic and
                             length of taxpayers’ telephone calls and found that certain topics resulted
                                                                                       4
                             in assistors’ spending significantly longer time per call. As a result, IRS
                             revised its procedures so that, in 1997 and 1998, callers with questions in
                             complex areas were automatically connected to a voice messaging system.
                             Taxpayers were asked to leave their name, telephone number, and address
                             and the best time to reach them so that their call could be returned within
                             2 to 3 business days. IRS’ Examination function supported the Customer
                             Service function by detailing staff to return taxpayer calls from the voice
                             messaging system. According to IRS, routing these potentially lengthy,
                             complex calls to a recording freed up assistors to handle shorter, less
                             complex calls.

                             According to cognizant IRS officials, IRS decided not to use voice
                             messaging for the 1999 filing season because IRS believed that (1)
                             requiring taxpayers to leave messages and then calling them back days
                             later was not the best possible customer service and (2) there would be
                             adequate customer service staff to handle the expected volume of calls as
                             the calls came in. IRS based the expectation that it would have adequate
                             4
                                 Tax Administration: IRS’ 1997 Tax Filing Season (GAO/GGD-98-33, Dec. 29, 1997).




                             Page 34                                               GAO/GGD-00-37 IRS' 1999 Tax Filing Season
                           Chapter 3
                           IRS’ Telephone Service Deteriorated




                           staff on the assumptions that (1) productivity would increase through
                           improved call routing and (2) demand would be leveled through around-
                           the-clock service. However, IRS’ expectations about productivity and
                           demand leveling were not realized, as previously discussed. Therefore,
                           attempting to answer these more complex, lengthy calls with “live”
                           assistors contributed to longer on-hold times and busy signals for other
                           taxpayers.

                           A cognizant official said that the decision to discontinue voice messaging
                           in 1999 was a mistake, considering that these complex calls take longer to
                           resolve. In response to longer on-hold times for assistance and excessive
                           busy signals, IRS reestablished voice messaging in mid-February.
                           According to a cognizant official, IRS plans to continue using voice
                           messaging in 2000.

                           IRS’ new call routing equipment was designed to route a taxpayer’s
Limited Use of New         telephone call where it could most quickly be answered on the basis of the
Call Router During         availability of an assistor and the type of question. However, at various
Parts of the 1999 Filing   times, IRS had to limit its use of the call router because of various
                           problems, such as a lack of standardized programming among call site
Season                     computers. Also, at the time we completed our audit work, IRS had not
                           reviewed the performance of the call router and, therefore, could not
                           determine if the desired results were achieved or what impact the
                           equipment had on taxpayer access to the telephone system.

                           Before the 1999 filing season, calls were routed to a call site by area code
                           or on the basis of the percentage of the total available staff the site had
                           scheduled to work (known as the staff allocation-based routing system).
                           These methods could have caused service disparities for taxpayers. Calls
                           routed to a busy site might have had long on-hold times or received busy
                           signals, while another site might have had low demand and provided
                           immediate assistance. Calls could not easily be rerouted. Historically, IRS
                           call sites operated with a great degree of independence; there were no
                           comprehensive, uniform standards as to how taxpayer calls would be
                           handled. Therefore, taxpayers could experience a different quality of
                           service depending on where their calls were answered.

                           IRS’ new call router was designed to remedy any disparities by performing
                           “intelligent” routing in two stages. First-stage intelligent routing was to
                           send the call to the site that, on the basis of assistor availability and
                           expected on-hold times, appeared to be the site that would most quickly
                           answer the taxpayer’s call. Second-stage intelligent routing was to be done
                           after the call had been routed to a site and the taxpayer had responded to



                           Page 35                                 GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Chapter 3
IRS’ Telephone Service Deteriorated




IRS’ automated telephone service menu, thus indicating the nature of his
or her call. If an assistor who was qualified to handle that type of call was
not immediately available at that site, the call router was to query real-time
accessibility data on computers at all of the call sites. The call would then
be routed to the qualified assistor who, on the basis of accessibility data,
would be able to answer the call most quickly no matter where the assistor
was located.

However, at various times during the filing season, problems kept IRS from
using intelligent routing. During the first weeks of the 1999 filing season,
IRS only did limited second-stage intelligent routing as it tested the system
and corrected errors in site computer programming. According to IRS
officials, programming at the call sites had to be standardized to accurately
route calls. Without correct programming, a call could be routed to a site
that actually did not have an assistor available for that type of call. IRS
officials said that the programming errors had not surfaced during pre-
filing season testing of the system because the volume of calls was not
great enough to reveal the errors. IRS corrected these errors and began
using second-stage intelligent routing regularly on February 17, 1999.

IRS also had to limit its use of first-stage intelligent routing during the 1999
filing season. In response to the low accessibility rate, IRS began using a
feature known as selected expanded access (SEA) in early February. When
the queue for speaking to an assistor is full, SEA gives taxpayers the option
                                                                      5
to access automated, interactive telephone services and TeleTax;
otherwise, the taxpayers would have received a busy signal. Because IRS
did not expect to use SEA, the call router had not been programmed with
the capability to centrally determine when a taxpayer should be given
access to the automated services. The use of SEA resulted in disparities in
access when intelligent routing was used because the programming for
sites was not uniform as to when SEA was to be offered. Therefore, IRS
discontinued first-stage intelligent routing after it started using SEA. Until
the router could be programmed for SEA, IRS switched to the staff
allocation-based routing system it used in the 1998 filing season. Once a
call was routed to a site under that system, second-stage intelligent routing
could still be used to send the call to a specific assistor.

IRS staff monitored accessibility data among sites and rerouted calls in
case of disparities among sites. After the call router was reprogrammed
and tested for SEA, IRS reinstated first-stage intelligent routing on its toll-
free line for tax law questions on April 9, 1999. SEA programming for the
5
    TeleTax is an automated system that provides recorded information on about 150 tax topics.




Page 36                                               GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Chapter 3
IRS’ Telephone Service Deteriorated




account and refund lines was completed, tested, and implemented soon
after the April 15 filing date.

IRS officials had varying views on the impact of the call router problems
on accessibility. One official said that some of the early problems with the
router decreased accessibility because site computer programming errors
caused calls to be sent to sites that did not have assistors available and this
caused increased wait times. Another official maintained that routing
worked properly at this stage. Still another official characterized the
problems with the router as having caused IRS to miss opportunities to
improve access, rather than actually causing decreased accessibility.

IRS did not do a systematic review of the router’s performance in 1999.
According to the IRS project manager, multiple changes to IRS’ telephone
operations in 1999 made it impossible to isolate the impact of the router on
such things as accessibility and productivity. Absent such information, IRS
has no reliable basis for determining whether the router was effective or
how, if at all, to improve its effectiveness in 2000.




Page 37                                 GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Chapter 4

IRS Expanded the Availability of Walk-In
Services but Had Only Limited Ability to
Measure Results
                           Staff at IRS’ walk-in sites answer tax law questions, distribute tax forms
                           and publications, and help taxpayers prepare their returns and resolve
                           their account issues. As used in this report, the term “walk-in sites”
                           includes IRS’ walk-in offices that are generally open all year and temporary
                           locations that IRS sets up during the filing season. IRS data show that
                           walk-in sites served about 6.2 million taxpayers between January 1 and
                           May 1, 1999—a slight increase over the number served during the same
                           period in 1998.

                           Overall, IRS’ walk-in assistance efforts during the 1999 filing season were
                           positive. For example, IRS enhanced the availability of services at its walk-
                           in offices and expanded the availability of assistance to taxpayers who did
                           not have convenient access to a walk-in office. Taxpayers who completed
                           a customer satisfaction survey as the result of a visit to a walk-in site
                           scored their overall satisfaction with an average of 6.44 on a 7-point scale.
                           However, while IRS made progress in assessing customer satisfaction with
                           walk-in services in 1999, it made little progress in measuring the quality
                           and timeliness of those services.

                           During the 1999 filing season, IRS enhanced the availability of services at
IRS Enhanced the           its walk-in offices by increasing the number of offices, expanding the
Availability of Services   availability of Saturday service, and providing targeted EIC assistance
at Its Walk-In Offices     earlier than it did in 1998.

                           According to IRS, 236 walk-in offices were open in IRS’ 33 districts during
                           the 1999 filing season as compared to 178 offices during the 1998 filing
                           season. Also, according to IRS, most walk-in offices were open on each
                           Saturday during the 1999 filing season, which was not the case in 1998. In
                           that regard, of the 236 walk-in offices that were open in 1999, 182 provided
                           4 hours of service on each Saturday during the filing season, and the other
                           54 provided service on selected Saturdays. By comparison, each of the 178
                           offices that were open during the 1998 filing season provided service on
                           only 6 Saturdays. According to IRS, walk-in offices served 141,725
                           taxpayers on Saturdays during the 1999 filing season as compared to
                           82,722 taxpayers served on Saturdays during the 1998 filing season.

                           As in 1998, IRS provided targeted assistance to potential EIC claimants by
                           scheduling EIC Awareness Days at many walk-in offices. However, unlike
                           in 1998, IRS scheduled these days early in the 1999 filing season. IRS
                           scheduled the EIC Awareness Days for the first six Saturdays of the 1999
                           filing season as compared to mid-March through mid-April in 1998. This




                           Page 38                                 GAO/GGD-00-37 IRS' 1999 Tax Filing Season
                         Chapter 4
                         IRS Expanded the Availability of Walk-In Services but Had Only Limited Ability to Measure
                         Results




                                                                                                                   1
                         scheduling change was consistent with our July 1998 recommendation
                         that customer service efforts aimed at EIC claimants be made available
                         early in the filing season.

                         During the 1999 filing season, IRS took steps to expand the availability of
IRS Expanded             assistance to taxpayers who could not easily reach a walk-in office. Those
Nontraditional Sources   steps included a greater use of alternative ways to provide walk-in service
of Taxpayer Service      and an effort to improve the availability of tax forms in certain parts of the
                         country.

                         For the 1999 filing season, IRS’ National Office encouraged districts to
                         make more use of nontraditional ways, such as mobile vans and kiosks at
                         retail locations, to provide walk-in service, particularly on Saturdays. The
                         National Office stated that although these initiatives would benefit all IRS
                         customers, they would be of particular value to individuals in rural areas.

                         In response to that direction, local IRS offices used various nontraditional
                         outlets, such as shopping malls, community centers, the offices of state
                         taxing authorities, grocery stores, copy centers, and newspaper inserts to
                         help prepare returns, distribute tax forms and publications, and provide
                         other types of taxpayer assistance in 1999. Additionally, some districts in
                         three regions used mobile vans that went to less-populated, rural locations
                         where taxpayers did not have easy access to a walk-in site. For example,
                         vans in the Georgia District went to locales that were more than 40 miles
                         from the nearest IRS office.

                         Another effort to expand taxpayer service targeted underserved counties.
                         In 1998, IRS’ National Office conducted a study in which it identified 478
                         counties that it considered underserved, at least concerning the availability
                         of forms. IRS believes that additional forms distribution outlets in these
                         counties may be advantageous. Although districts were encouraged to
                         conduct outreach efforts in any underserved counties in their areas, the
                         districts were not required to report the results of any such efforts to the
                         National Office. In that regard, IRS did not have a formal national outreach
                         program for the underserved counties during the 1999 filing season.
                         Instead, according to a cognizant IRS official, the National Office deferred
                         any nationally coordinated outreach efforts until 2000. Therefore, the
                         National Office had no way of monitoring and determining the success or
                         failure of outreach efforts in 1999.


                         1
                          Earned Income Credit: IRS’ Tax Year 1994 Compliance Study and Recent Efforts to Reduce
                         Noncompliance (GAO/GGD-98-150, July 28, 1998).




                         Page 39                                           GAO/GGD-00-37 IRS' 1999 Tax Filing Season
                         Chapter 4
                         IRS Expanded the Availability of Walk-In Services but Had Only Limited Ability to Measure
                         Results




                         Despite the lack of national monitoring, some IRS districts, on their own
                         initiative, provided the National Office with data on outlets that they had
                         established in underserved counties in 1999. According to officials at those
                         districts, they established community-based outlets in about 50
                         underserved counties in 1999.

                         According to IRS’ business vision and its walk-in site mission statement,
Except for Measuring     walk-in operations are to provide accessible, high-quality service to the
Customer Satisfaction,   public; reduce taxpayer burden; and ensure compliance with tax laws. IRS
IRS Has Not Made         recognizes that providing accurate information and serving customers
                         expeditiously and professionally are critical to the success of its walk-in
Much Progress in                                                                      2
                         program. However, in our reports on IRS’ 1998 filing season and IRS’
Measuring the                                                  3
                         efforts to measure customer service, we discussed the lack of meaningful
Performance of Walk-     nationwide data for assessing the performance of IRS’ walk-in sites in
In Sites                                                                         4
                         terms of quality, timeliness, and taxpayer satisfaction. Our review of the
                         1999 filing season indicated that IRS had made progress in assessing
                         taxpayer satisfaction with walk-in services but had made little progress in
                         instituting key performance indicators for quality and timeliness.
                                                                                                           5
                         In response to an IRS Internal Audit report issued in 1997, IRS
                         implemented a customer satisfaction survey at its walk-in sites during the
                         1998 filing season. However, due to printing and distribution problems, the
                         survey for the 1998 filing season was not started until late in the filing
                         season (about mid-March) and, therefore, did not provide a complete
                         assessment of taxpayers’ satisfaction with the walk-in program. For 1999,
                         IRS added questions to the survey, such as a question about how long it
                         took the taxpayer to receive service, and conducted the survey at all walk-
                         in sites during the entire filing season.

                         Results of the walk-in surveys distributed during the first 3 months of the
                         1999 filing season, as summarized by IRS’ contractor, showed an average


                         2
                             Tax Administration: IRS’ 1998 Filing Season (GAO/GGD-99-21, Dec. 31, 1998).
                         3
                          Tax Administration: IRS Faces Challenges in Measuring Customer Service (GAO/GGD-98-59, Feb. 23,
                         1998).
                         4
                          We recognize that a complete evaluation of the walk-in program would involve other factors, such as
                         the comparative costs and benefits of (1) answering tax law questions or resolving account issues at
                         walk-in sites versus over the telephone, (2) return preparation at walk-in sites versus return
                         preparation by community volunteers, and (3) forms distribution at walk-in sites versus community-
                         based locations. An analysis of costs and benefits for these various services was beyond the scope of
                         our review of the 1999 filing season.
                         5
                          Taxpayer Walk-In Program for the 1997 Filing Season, IRS Internal Audit, Reference No. 081004,
                         December 22, 1997.




                         Page 40                                               GAO/GGD-00-37 IRS' 1999 Tax Filing Season
  Chapter 4
  IRS Expanded the Availability of Walk-In Services but Had Only Limited Ability to Measure
  Results




                                                               6
  overall satisfaction of 6.44 on a 7-point scale. The contractor’s summary
  also showed that

• 89 percent of the walk-in customers who completed the surveys indicated
  a high degree of satisfaction with the services obtained at IRS’ walk-in
  sites;
• none of the 10 areas customers were asked to rate (such as convenience of
  office hours, employee courtesy, and promptness of service) received a
  score below 6.06;
• customers who came into an IRS site for help in preparing their tax returns
  gave the highest satisfaction ratings, while customers who requested a
  form or publication gave the lowest; and
• taxpayers whose wait times were less than 15 minutes gave higher
  satisfaction ratings than customers who waited longer.


  In response to findings in the 1997 Internal Audit report and an IRS Walk-
                                                7
  In Steering Committee report issued in 1998, IRS’ National Office stated
  that the walk-in program’s quality assurance process had to be improved.
  The National Office said that IRS would be assessing quality at its walk-in
  offices—including the accuracy of responses to taxpayers’ questions and
  the professional treatment of customers—during the 1999 filing season
  through quality reviews and filing season readiness reviews. However,
  quality reviews were not done and the National Office did not provide
  specific guidance on what should be examined during readiness reviews.

  Quality reviews (during which, regional staff who are unknown to
  personnel at the walk-in office pose as taxpayers) were scheduled to begin
  in fiscal year 1999 and were designed to examine the implementation of
  standardized services, office environment, proper use of equipment, and
  accuracy of responses at walk-in offices. However, early in the 1999 filing
  season, IRS decided not to do quality reviews because, according to IRS, it
  did not have the necessary time or resources to implement the program.

  Filing-season readiness reviews were conducted by IRS regional officials
  before the start of the filing season. These reviews are designed to
  determine if a walk-in office is prepared for the filing season. IRS’ National
  Office provided regional offices with some overall management guidance
  but that guidance did not include specific requirements on how the site
  6
   According to the contractor, 4 percent of the customers visiting an IRS office during the 3-month
  period completed a questionnaire, for a margin of error of about 1 percent.
  7
      Walk-In Steering Committee Concept of Operations, IRS Walk-In Steering Committee, May 28, 1998.




  Page 41                                              GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Chapter 4
IRS Expanded the Availability of Walk-In Services but Had Only Limited Ability to Measure
Results




was to assess the quality of its assistance to taxpayers. Additionally, the
National Office did not require that regional offices communicate the
results of filing season readiness reviews; any identified problems were to
be handled within the region.

Regarding timeliness, the National Office established taxpayer wait-time
goals at walk-in sites of 30 minutes for return preparation and 15 minutes
                                                                            8
for all other forms of assistance for both the 1998 and 1999 filing seasons.
However, IRS did not have a complete mechanism for monitoring
performance. For example, the National Office did not require the regions
to report wait times, and most sites had to manually track wait times, thus
making the data more prone to error.

IRS has an automated system, known as Q-Matic, that is designed to
enable accurate tracking of customer wait times. That system was
operational at 33 of IRS’ walk-in sites during the 1999 filing season as
compared to 8 sites during the 1998 filing season. As customers arrive at
walk-in sites with the Q-Matic system, they are to take or are to be given a
numbered ticket from the Q-Matic ticket printer. The ticket reflects the
estimated wait time for the service, and the system will automatically
“call” the customer when it is his or her turn. The system records the time
that a customer received a ticket and the time that an assistor started
helping the customer.

Most of IRS sites did not have the Q-Matic system in 1999. Some of those
sites used a manual system, whereby a greeter or receptionist was to
record on a taxpayer contact card the time that the taxpayer arrived and
an assistor was to record on the same card the time that he/she started to
help the taxpayer. Other non-Q-Matic sites relied on greeters or taxpayers
to fill out a sign-in sheet. According to a cognizant IRS official, the non-Q-
Matic methods of tracking wait times are more prone to error because they
are manual. Because complete and reliable data are not available, IRS
cannot determine if the walk-in program met the wait-time goals of 15 and
30 minutes during the 1999 filing season.




8
    We did not assess the appropriateness of these goals.




Page 42                                                 GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Chapter 5

Use of Other Sources of Taxpayer Assistance
Increased, but Some Problems Existed

                                       In addition to the help that is available to taxpayers over the telephone and
                                       at IRS walk-in sites, taxpayers can receive assistance from various other
                                       IRS or IRS-sponsored sources. Those sources include IRS’ World Wide
                                       Web site on the Internet; IRS-sponsored volunteer tax return preparation
                                       sites; IRS’ Tax-Fax program, through which taxpayers can order and
                                       receive forms and instructions via a fax machine; and a corporate
                                       partnership program, through which employees of participating
                                       corporations can obtain copies of IRS forms and publications at their work
                                       sites. Table 5.1 shows that use of each of these sources increased during
                                       the 1999 filing season as compared to 1998.

Table 5.1: Use of Other IRS and IRS-
Sponsored Taxpayer Assistance                                                                                                      Percentage
                                                                                        1999 filing          1998 filing              change:
                                                                                                   a                    a
                                       Source of assistance                               season               season             1998 to 1999
                                       World Wide Web site
                                                          b
                                         Home page hits                               793.7 million        370.3 million                114%
                                         File downloads                                57.0 million         26.8 million                  113
                                                                    c
                                         E-mail questions received                        155,000               82,000                     89
                                       Volunteer tax return
                                       preparation sites
                                         Number of sites                                     7,384                5,783                     28
                                                                                                                                              d
                                         Taxpayers assisted                              1.9 million          1.7 million                  11
                                       Tax-Fax program
                                         Successful faxes                                  970,379              906,011                      7
                                       Corporate partnership
                                       program
                                         Participating corporations                           2,149                  400                  437
                                       a
                                       Data are for January 1 through April 30, 1999, and January 1 through April 30, 1998, unless
                                       otherwise indicated.
                                       b
                                           Data are for January 1 through May 2, 1999, and January 1 through May 3, 1998.
                                       c
                                           Data are for January 1 through April 15, 1999, and January 1 through April 15, 1998.
                                       d
                                           Percentage change does not compute due to rounding.
                                       Source: GAO analysis of IRS data.

                                       As table 5.1 indicates, the most used of these services was IRS’ Web site.
                                       Despite the general success of that site, including a favorable assessment
                                       by an outside organization, some problems existed with the timeliness and
                                       quality of IRS’ responses to questions received from taxpayers via
                                       electronic mail (E-mail). Also, although the number of IRS-sponsored
                                       volunteer sites increased, as did the number of taxpayers assisted at those
                                       sites, many sites reported problems with inadequate staffing, funding,
                                       software, and hardware that affected their ability to function effectively.




                                       Page 43                                                GAO/GGD-00-37 IRS' 1999 Tax Filing Season
                            Chapter 5
                            Use of Other Sources of Taxpayer Assistance Increased, but Some Problems Existed




                            Among other things, IRS’ Web site offers taxpayers hundreds of tax forms
Significant Increase in     and publications for immediate downloading as well as the latest tax
Use of IRS’ Web Site,       information, answers to the most frequently asked questions, details about
but Some Problems           electronic filing, and special features on items such as the child tax credit.
                            The Web site also offers taxpayers the ability to submit tax law or
With Timeliness and         procedural questions to IRS via E-mail. As shown in table 5.1, taxpayers’
Accuracy of E-mail          use of IRS’ Web site during the 1999 filing season increased significantly
Responses                   when compared to 1998. The number of “hits” increased by 114 percent,
                            the number of files downloaded increased by 113 percent, and the number
                            of E-mail questions received increased by 89 percent.

                            An independent rating of service on IRS’ Web site on April 15, 1999, stated
                            that the site delivered “remarkable” quality of service on that day. The
                            rating showed that the home page was delivered in an average of 6.9
                            seconds, with an availability rate of 97.4 percent. The rating showed that
                            the level of service also improved over last year. During the busiest half-
                            hour on April 15, 1999, the average performance time was 17 seconds
                            compared to 23.2 seconds during the peak half-hour on April 15, 1998.

                            Taxpayers who access IRS’ Web site may submit their tax law or
                            procedural questions to IRS for a response via E-mail. This service began
                            as a pilot at the Nashville Customer Service Site during the 1994 and 1995
                            filing seasons. In March 1996, it became a year-round project in Nashville.
                            Four additional sites were added in 1998 and were on-line by the 1999
                            filing season. IRS’ goal during the 1999 filing season was to respond to E-
                            mail questions within 2 business days. However, during the 1999 filing
                            season, IRS’ average response time was 4.11 calendar days. Although IRS’
                            goal was stated in business days, IRS’ information system tracked
                            response times in calendar days due to a coding problem. Nevertheless,
                            IRS decided to use the calendar day data to assess its performance.

                            According to IRS officials, the following factors contributed to longer
                            response times:

                          • The questions customer service representatives received via E-mail were
                            more complex than those received over the telephone. This posed a
                            particular problem for customer service representatives who, because of
                            the program’s expansion in 1999, were responding to E-mail questions for
                            the first time and did not have the benefit of past experience. Besides
                            response time, complexity also affected response accuracy. In that regard,
                            IRS tests showed that only 65 percent of the responses to E-mail questions
                            during the 1999 filing season were accurate.




                            Page 44                                      GAO/GGD-00-37 IRS' 1999 Tax Filing Season
  Chapter 5
  Use of Other Sources of Taxpayer Assistance Increased, but Some Problems Existed




• Customer service representatives who answered the E-mail questions were
  also responsible for answering telephone questions. In that regard, the
  increased telephone demand strained the sections’ resources so that they
  were unable to manage the E-mail inventory simultaneously.
• The volume of E-mail questions increased to the point that they had to
  borrow personnel from IRS’ Compliance function to help provide timely
  responses. As previously noted, the number of E-mail questions that IRS
  received between January 1 and April 15, 1999, increased 89 percent when
  compared to the same time period in 1998.

  All E-mail customers were given the opportunity to respond to a customer
  satisfaction survey and provide general comments indicating their
  satisfaction with the E-mail service. According to IRS data, 3,571 taxpayers
  responded to the survey between January 1 and April 30, 1999
  (representing about 2.2 percent of the total E-mail questions received). Of
  the taxpayers who responded to the survey, 94 percent said that they were
  satisfied with the time it took to get a response to their E-mail question.
  What is unknown, however, is how long it took the respondents to the
  survey to get answers to their questions. It is possible that those who were
  satisfied with the response time received their response within 2 business
  days. Additionally, 79 percent of the respondents said that the response
  they received via E-mail answered their question.

  According to a cognizant official, IRS will keep its goal of 2 business days
  for responding to E-mail questions for the 2000 filing season and will add
  four new sites to respond to those questions. According to the official,
  because there is more historical data on the E-mail project, there should be
  better projections of E-mail volumes and the number of cases assistors can
  handle during the 2000 filing season. The official added that better
  projections would result in better work plans, which should better enable
  IRS to meet its response-time goal by better ensuring that an adequate
  number of staff are available to meet the demand for service. The official
  also said that IRS is planning to correct the coding problem before the
  start of the 2000 filing season so that its system will track response times
  in business days, which would enable IRS to measure actual response
  times against its goal. In regard to improving the quality of the E-mail
  responses, the official said that IRS would be providing assistors with
  additional training on the six E-mail topics with the highest error rates
  before the start of the 2000 filing season.




  Page 45                                      GAO/GGD-00-37 IRS' 1999 Tax Filing Season
                          Chapter 5
                          Use of Other Sources of Taxpayer Assistance Increased, but Some Problems Existed




                          IRS sponsors volunteer tax return preparation through its Volunteer
Availability and Use of   Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE)
Volunteer Tax Return      programs. VITA offers free tax help to persons with low to limited income,
Preparation Services      persons who are non-English speaking, and persons with disabilities. TCE
                          offers free tax help to elderly taxpayers. IRS reported that 7,384 VITA and
Increased; Some           TCE sites had assisted 1,907,151 taxpayers during the 1999 filing season.
Problems Were             Those numbers compared favorably to the 1,718,995 taxpayers assisted at
Encountered               5,783 sites last year. However, according to IRS reports, (1) sites in three
                          IRS regions reported a lack of staff to adequately implement the VITA
                          program, (2) sites in three regions reported problems with software and
                          hardware, and (3) sites in two regions reported funding and equipment
                          problems that hampered their ability to file returns electronically.
                          According to IRS officials, these problems affected the sites’ ability to
                          serve taxpayers effectively.




                          Page 46                                      GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Chapter 6

IRS Continued to Stop Some Improper EIC
Payments; Opportunities Exist to Streamline
the EIC Recertification Process
                                                                                                                     1
                        Congress and IRS have long been concerned about noncompliance with
                        the eligibility requirements for the EIC. During the past several filing
                        seasons, IRS implemented a number of efforts aimed at reducing that
                        noncompliance. Generally speaking, those efforts involved (1) the denial of
                                                                               2
                        EIC claims that were not accompanied by valid SSNs and (2) in-depth
                        reviews of EIC claims that met certain criteria. In 1999, IRS continued
                        those efforts and stopped hundreds of millions of dollars in erroneous EIC
                        payments.

                        IRS also implemented new procedures in 1999, as mandated by TRA97,
                        that require certain taxpayers to recertify their eligibility for the EIC before
                                                  3
                        IRS approves their claim. According to IRS data, many taxpayers who had
                        an EIC claim denied for tax year 1997 and were required to recertify did
                        not claim the EIC on their tax year 1998 returns (i.e., the returns filed in
                        1999), thus indicating that the procedures may have helped reduce the
                        number of improper EIC claims. What is unclear is how many of those
                        taxpayers, if any, were entitled to the EIC but either could not understand
                        the recertification process or found it too burdensome. In that regard, our
                        review identified certain opportunities to streamline the recertification
                        process and thus make it less burdensome to taxpayers and IRS. Our
                        review also found that IRS service centers were not consistently following
                        national guidelines for recertification, which could result in disparate
                        treatment of taxpayers.

                        As IRS processes individual returns, it looks for computational errors
IRS Continued to Stop   made by taxpayers or their representatives in preparing the returns. When
Some Improper EIC       such errors are identified, IRS can automatically adjust the return through
Payments Through the    the use of its math error authority. During the first 6 months of 1999,
                        according to data provided by IRS, it stopped about $412 million in
Use of Math Error       erroneous EIC payments as a result of its math error program.
Authority
                        Many of the EIC-related math errors corrected by IRS in 1999 involved
                        invalid SSNs. In 1996, Congress authorized IRS to treat invalid SSNs as
                        math errors, similar to the way it had historically handled computational
                        1
                         The term “noncompliance” includes erroneous EIC claims caused by mistakes, confusion, negligence,
                        and fraud.
                        2
                         IRS considers an SSN invalid if it is missing from the return or if the SSN and associated name on the
                        return do not match data in the Social Security Administration’s records.
                        3
                         The recertification procedures require those taxpayers who were denied the EIC through an audit
                        beginning with tax year 1997 to provide evidence of eligibility for the EIC before they can claim the
                        credit in subsequent years. Although taxpayers claiming the EIC must meet certain eligibility criteria,
                        new claimants or claimants who did not have the credit denied in tax year 1997 are not required to
                        submit certification evidence.




                        Page 47                                               GAO/GGD-00-37 IRS' 1999 Tax Filing Season
                                        Chapter 6
                                        IRS Continued to Stop Some Improper EIC Payments; Opportunities Exist to Streamline the
                                        EIC Recertification Process




                                        mistakes. Thus, IRS has the authority to (1) automatically disallow,
                                        through its math error program, any deductions and credits, such as the
                                        EIC, associated with an invalid SSN and (2) make appropriate adjustments
                                        to any refund that the taxpayer might be claiming.

                                        As shown in table 6.1, the number of taxpayers claiming the EIC in 1999
                                        dropped 1.9 percent from 1998, while the number of EIC-related math
                                        errors involving SSNs declined by more than 27 percent.

Table 6.1: EIC Claims and Math Errors
During 1998 and 1999                                                                                1/1/98          1/1/99    Percentage
                                        EIC claims and math errors                              to 8/29/98      to 8/28/99       change
                                        Number of taxpayers claiming                           19,393,098      19,016,474          -1.9%
                                        EIC
                                        EIC math errors as a result of                             600,676        435,991             -27.4
                                        an invalid SSN
                                                              a
                                        Other EIC math errors                                    1,391,703      1,226,911             -11.8
                                        a
                                         Other EIC math errors include errors in figuring the EIC and in computing earned income. To be
                                        comparable with data for 1998, the number for 1999 excludes 217,913 errors in two categories that
                                        were not considered math errors in 1998.
                                        Source: IRS data.

                                        The decrease in the number of EIC math errors involving invalid SSNs may
                                        indicate that fewer taxpayers are attempting to claim an EIC to which they
                                        are not entitled. It may also reflect that prior IRS efforts to alert taxpayers
                                        who had used invalid SSNs caused those taxpayers to correct the problem
                                        before filing their next year’s return.

                                        Other types of EIC noncompliance are not as easy to identify as math
IRS Targeted Certain                    errors. Those types can be detected only through an audit. In 1999, IRS
Types of EIC Claims                     continued to target for in-depth review certain types of EIC claims that IRS
                                                                                                   4
for In-Depth Review                     had identified as the main sources of EIC noncompliance. These targeted
                                        EIC claims include those that involve (1) the use of a qualifying child’s SSN
                                        on multiple returns for the same tax year, (2) erroneous claims of head-of-
                                        household filing status, and (3) misreported income. Taxpayers whose
                                        returns were identified for inclusion in one of these programs were to be
                                        audited to determine if their EIC claims were valid.

                                        For fiscal year 1999, IRS anticipated a potential caseload of 421,393 cases
                                        involving multiple uses of the same qualifying child’s SSN. However, the
                                        actual caseload was 344,572 because taxpayers had either filed their tax
                                        year 1998 returns without the questionable SSN (57,024) or did not file any
                                        tax year 1998 return (19,797). As of August 28, 1999, IRS had completed

                                        4
                                            Study of [EIC] Filers for Tax Year 1994, IRS, April 1997.




                                        Page 48                                                  GAO/GGD-00-37 IRS' 1999 Tax Filing Season
                      Chapter 6
                      IRS Continued to Stop Some Improper EIC Payments; Opportunities Exist to Streamline the
                      EIC Recertification Process




                                                                                                                5
                      audits on 204,912 cases (out of the 344,572) and had recommended that
                      $379.6 million in erroneous claims not be paid.

                      Although filing status per se does not affect either EIC eligibility or amount
                      (except that married taxpayers filing separate returns are ineligible for the
                      EIC), IRS’ April 1997 study had shown that erroneous filings as head of
                      household often occurred with an EIC overclaim. From October 1, 1998,
                      to August 28, 1999, IRS had completed 256,365 audits examining taxpayers’
                      head-of-household status and recommended that $517.1 million in
                      erroneous claims not be paid.

                      IRS’ misreported income projects focus on EIC claims that (1) appear to
                      be inflated by the inclusion of nonqualifying income, such as investment
                      income, in the computation of earned income or (2) involve earned
                      income, such as self-employment income, that can be used to qualify for
                      the EIC but cannot be verified through a third party. From October 1, 1998,
                      to August 28, 1999, IRS had completed audits of 13,829 returns in these
                      projects and recommended that $7.7 million in erroneous claims not be
                      paid.

                      TRA97 requires that taxpayers who were denied the EIC through IRS’
EIC Recertification   deficiency procedures (i.e., as the result of an audit) must recertify their
Process Further       eligibility before they can claim the EIC again. This provision became
Deterred Improper     effective beginning with tax year 1997 returns filed in 1998. As a result,
                      taxpayers who were denied the EIC on their tax year 1997 returns were
Claims but May Have   required to recertify with their tax year 1998 return if they claimed the EIC
Confused Taxpayers    on that return. TRA97 also has provisions that are intended to prevent a
and Unnecessarily     taxpayer from receiving an EIC for (1) the next 10 years if IRS, as a result
Delayed Return        of its audit, determined that the taxpayer had fraudulently claimed the
Processing            credit or (2) the next 2 years if IRS determined that the taxpayer
                      negligently claimed the credit. After the 10 or 2 years expire, the taxpayer
                      has to recertify the next time he or she claims the EIC. IRS has a specific
                      indicator that it can put on its master file of taxpayer accounts to identify
                      taxpayers who are required to recertify. These recertification requirements
                      appear to have further deterred improper claims, but the process may
                      confuse taxpayers and unnecessarily delay the processing of their returns.




                      5
                       Some of the unpaid claims mentioned here and elsewhere in this section might eventually be paid if
                      the taxpayers overturn IRS’ findings on appeal.




                      Page 49                                             GAO/GGD-00-37 IRS' 1999 Tax Filing Season
                              Chapter 6
                              IRS Continued to Stop Some Improper EIC Payments; Opportunities Exist to Streamline the
                              EIC Recertification Process




The Recertification Process   To recertify for the EIC, IRS requires that taxpayers attach a Form 8862
                              (Information to Claim Earned Income Credit After Disallowance) to the
                              next tax return they file that includes an EIC claim. If a taxpayer claims the
                              EIC without attaching a Form 8862, IRS is authorized to disallow the claim
                              as a math error.

                              According to IRS guidelines, service centers were to review the returns of
                              all “required to recertify” taxpayers who claimed the EIC on their tax year
                              1998 returns and filed a Form 8862. If a “required to recertify” taxpayer
                              claimed either the same EIC-qualifying child who was disallowed on the
                              tax year 1997 return or claimed a new EIC-qualifying child, the return was
                              to be examined. The taxpayer’s entire refund was to be held until IRS
                                                                                         6
                              determined whether the taxpayer was entitled to the EIC. If the taxpayer
                              did not claim the disallowed EIC-qualifying child and did not claim a new
                              EIC-qualifying child, an audit was not required, and the taxpayer’s refund
                              was to be released.

                              While examining the returns of taxpayers who are required to recertify,
                              IRS notifies them that their refunds are being withheld pending a review of
                              the EIC claim and that certain documentation is required. The
                              documentation IRS expects from taxpayers includes copies of birth
                              certificates and Social Security cards; documents, such as school records,
                              to verify that the child lived with the taxpayer; and documents, such as
                              canceled checks for household expenses or child support payments, to
                              verify that the taxpayer supported the child.

                              If a taxpayer provides the necessary documents and those documents
                              support the taxpayer’s EIC claim, the claim is to be allowed and the
                              taxpayer would not have to be recertified again for future EICs. Otherwise,
                              the taxpayer’s claim is to be denied.

Recertification Results       As of January 30, 1999, IRS had identified 197,625 taxpayers who were
                              denied the EIC on their tax year 1997 returns (the returns filed in 1998)
                                                                  7
                              through IRS’ deficiency procedures. These taxpayers would have been
                              required to submit a Form 8862 with their tax year 1998 return if that
                              return included an EIC claim.

                              As of August 28, 1999, according to IRS, of the 197,625 taxpayers, (1)
                              23,617 filed tax year 1998 returns claiming the EIC and attached a Form
                              6
                               According to an IRS official, IRS’ system cannot automatically separate out and hold only the portion
                              of the refund that relates to the EIC claim.
                              7
                                  According to IRS, none of these cases involved a finding of fraud or negligence.




                              Page 50                                                 GAO/GGD-00-37 IRS' 1999 Tax Filing Season
                            Chapter 6
                            IRS Continued to Stop Some Improper EIC Payments; Opportunities Exist to Streamline the
                            EIC Recertification Process




                            8862 and (2) 63,372 filed returns with EIC claims but did not attach a Form
                                 8
                            8862. IRS, using its math error authority, denied the 63,372 claims that
                            were not accompanied by a Form 8862. Of the taxpayers whose claims
                            were denied, 6,992 subsequently submitted a Form 8862 after receiving
                            IRS' math error notice.

                            IRS officials believe that the low number of taxpayers trying to get
                            recertified in 1999 may indicate that many of the taxpayers who were
                            disallowed the EIC in 1998 were not eligible for the credit.

Problems With the           Although it is too early to assess the effectiveness of IRS’ recertification
                            process, we did identify opportunities for streamlining the process. We
Recertification Process     discussed some of these opportunities in a July 1999 letter to IRS’ Chief
                                                9
                            Operations Officer. In that letter, we discussed the following concerns we
                            had with correspondence that IRS used to communicate with taxpayers
                            who were involved in the recertification process:

                          • The form letter that IRS used to tell taxpayers that their EIC claims were
                            disallowed contained irrelevant information pertaining to fraud and
                            negligence. We expressed the belief that the language used could cause
                            some taxpayers to not file a claim to which they might be entitled. IRS
                            agreed to modify the letter.
                          • Taxpayers could be confused because two form letters used by IRS cited
                            different time frames as to when taxpayers may expect their refunds. One
                            letter said 30 days while the other said 8 weeks. IRS agreed to make the
                            time frames consistent.
                          • A letter and form that IRS used to tell taxpayers that IRS needed additional
                            information to verify their EIC eligibility could burden taxpayers by
                            causing them to send much more documentation than called for by IRS’
                            operating procedures. IRS said that it would revise the letter and form.


                            In addition to our concerns with IRS’ correspondence, we identified two
                            problems with the recertification process. The first problem involves
                            apparently unnecessary steps in the process that create additional burden
                            for IRS and taxpayers; the second problem involves inconsistent
                            procedures that could result in disparate treatment of taxpayers.

                            8
                             Although IRS had no readily available data on the other 110,636 taxpayers who were denied the EIC
                            on their tax year 1997 returns, it seems reasonable to assume that most, if not all, either filed returns
                            without an EIC claim or did not file.
                            9
                             IRS Correspondence to Taxpayers on Earned Income Credit Recertification (GAO/GGD-99-112R, July
                            30, 1999).




                            Page 51                                                GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Chapter 6
IRS Continued to Stop Some Improper EIC Payments; Opportunities Exist to Streamline the
EIC Recertification Process




Although IRS tells taxpayers that to recertify they must submit a Form
8862 with their tax returns, officials at three service centers we visited said
that the information provided on the Form 8862 is not sufficient to
recertify anyone. Instead, after receiving Form 8862, service center
personnel are to send a separate letter and a form (Form 886-H) asking
taxpayers to provide various documents to prove their eligibility. Even IRS’
internal recertification guidelines show the ambiguous purpose of Form
8862, as follows:

“…To demonstrate current eligibility, the regulations require the taxpayer to complete
Form 8862…[However] The Treasury Department and the IRS anticipate that the
Commissioner of the IRS may require taxpayers to provide documentary evidence in
addition to Form 8862. Whether or not the Commissioner requires taxpayers to provide
documentary evidence in addition to Form 8862, the Commissioner may choose to examine
any return claiming the EIC for which Form 8862 is required…The Form 8862 is designed to
lead the taxpayer through the EIC tests of entitlement. Because Service Center
Examination will look at all [tax year] 1998 returns of “required to recertify” taxpayers who
file Form 8862, the actual taxpayer entries on the Forms 8862 will not determine
entitlement in Processing Year 1999. However, it is anticipated that in future years, the
Form 8862 will be used to determine entitlement in pipeline processing.”

Under current procedures, taxpayers may have to wait from 30 to 60 days
after filing their returns with the required Form 8862 before receiving IRS’
request for supporting documentation. Taxpayers would then have up to
30 days to gather the documents and submit them to IRS. According to
some service center officials, this exchange of correspondence creates
additional burden on both taxpayers and IRS and delays return processing.

The second problem involves an inconsistency in the procedures followed
by the three service centers we visited. One service center, after reviewing
the Forms 8862, sent Letter 525 and Form 886-H to those taxpayers who
claimed the same EIC-qualifying child who had been disallowed or claimed
a new EIC-qualifying child. Letter 525 tells taxpayers that IRS denied their
EIC claim but will reconsider that denial if the taxpayers provide
supporting documents within 30 days.

The second service center did not summarily deny taxpayers’ EIC claims
after reviewing the Forms 8862. Instead, that center sent Letter 566A and
Form 886-H to those taxpayers. Letter 566A tells taxpayers that their
returns are being examined and that they must provide, within 30 days, the
documents listed on Form 886-H before they can be recertified. If
taxpayers did not respond within 30 days or if their responses were
insufficient, the service center sent Letter 525 to inform the taxpayers that
their EIC claims were denied.




Page 52                                         GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Chapter 6
IRS Continued to Stop Some Improper EIC Payments; Opportunities Exist to Streamline the
EIC Recertification Process




The third service center used varying recertification procedures,
depending on its workload. When its workload was not too heavy, the
service center sent taxpayers Letter 525, denying the EIC. However, when
its workload became too heavy, the service center changed procedures
and sent taxpayers Letter 566A. Officials at this service center said that it
is time-consuming to prepare a Letter 525, which requires an explanation
to the taxpayer as to why he or she did not qualify for the EIC. As a result,
when workload became heavy, the service center relied on Letter 566A to
allow the center some additional time before “auditing” the return.

According to IRS’ recertification guidelines, the first service center was
following prescribed procedures and the second and the third centers,
although seemingly more customer friendly, were not. In explaining the
rationale for sending a Letter 525 so quickly, an IRS official at the first
center said that the process would be unnecessarily delayed for at least 30
days, as in the case of the second and third service centers, waiting for a
response to Letter 566A before denying the EIC. The official pointed out
that taxpayers who immediately receive a Letter 525 still have the
opportunity to submit documentation and prove their entitlement to the
EIC.




Page 53                                      GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Chapter 7

Use of Electronic Filing Continued to
Increase

                                          As of October 29, 1999, IRS had received about 126 million individual
                                          income tax returns, which is an increase of about 2 percent compared to
                                          the same time last year. The use of electronic filing increased at a much
                                          more robust pace (about 19 percent). This increase in electronic filing
                                          continued a period of continual growth since 1996. Even with the increase
                                          in electronic filing, about 96 million tax returns (77 percent) were filed on
                                          paper in 1999. IRS, in 1999, tested several initiatives to increase the use of
                                          electronic filing. As of November 2, 1999, IRS had not compiled the
                                          necessary data to assess the impact of those initiatives on electronic filing.

                                          There are three types of electronic filing: (1) traditional, whereby returns
                                          are transmitted through a third party (such as a tax return preparer or
                                          electronic return transmitter) known as an electronic return originator; (2)
                                          on-line, whereby returns are transmitted by the taxpayer through an on-
                                          line intermediary using a personal computer and commercial software; and
                                          (3) TeleFile, whereby returns are transmitted by the taxpayer over the
                                          telephone lines using a Touch-Tone telephone.

                                          Although IRS has not done the kind of comprehensive analysis needed to
                                          fully assess the costs and benefits associated with these alternative filing
                                          methods, it assumes that the methods save IRS money by, among other
                                          things, significantly reducing the number of errors that IRS has to correct.
                                          Electronic filing options include built-in checks that are designed to catch
                                          certain taxpayer errors, such as computational mistakes, in advance so
                                          that they can be corrected by the taxpayer before IRS takes possession of
                                          the return. Also, returns filed electronically bypass the error-prone manual
                                          procedures that IRS uses to process paper returns.

                                          Table 7.1 shows that the use of traditional electronic filing and on-line
                                          filing increased in 1999, while the use of TeleFile decreased.


Table 7.1: Number of Individual Income Tax Returns Received, by Filing Type
(Number of returns in thousands)
                                                                                  Percentage                       Percentage
                                            1/1/97 to        1/1/98 to               change:          1/1/99 to       change:
Filing type                                 10/31/97         10/30/98            1997 to 1998         10/29/99    1998 to 1999
Paper                                        101,790           98,453                  -3.28%           96,178          -2.31%
Electronic
  Traditional                                 14,090           17,697                    25.60          21,227          19.95
  TeleFile                                     4,694            5,963                    27.03           5,665          -5.00
  On-Line                                        367              942                   156.68           2,457         160.83
    Subtotal                                  19,151           24,602                    28.46          29,349          19.30
Total                                        120,941          123,055                   1.75%          125,527         2.01%
                                          Source: IRS’ Management Information System for Top Level Executives.




                                          Page 54
                                Chapter 7
                                Use of Electronic Filing Continued to Increase




                                IRS officials cited several factors, as follows, that may have contributed to
Several Factors May             the increase in electronic filing in 1999:
Have Contributed to
the Increase in               • IRS entered into new partnerships with private sector companies to
Electronic Filing               broaden the electronic services accessible through IRS’ Web site. As part
                                of these arrangements, IRS placed hyper-links from its Web site to the
                                partners’ Web sites, and the partners developed initiatives, such as free
                                electronic filing and free tax preparation software, to increase electronic
                                filing.
                              • The number of electronic return originators (ERO) increased from about
                                82,000 in 1998 to about 90,000 in 1999. Also, some EROs charged taxpayers
                                less to file electronic returns in 1999, and some offered free electronic
                                filing to taxpayers who met certain criteria.
                              • Due, in part, to IRS’ marketing and education efforts, taxpayers are
                                becoming more familiar and comfortable with electronic filing and
                                therefore are more likely to file electronically.

                                Another step that IRS took in 1999, which could have a significant positive
                                effect on future growth in electronic filing, was to test several initiatives
                                directed at making electronic filing paperless.

Initiatives to Make             One aspect of electronic filing that has been cited consistently as a barrier
                                to greater use is the requirement that electronic filers continue to send IRS
Electronic Filing Paperless     certain paper documents. For example, except for taxpayers who use
                                TeleFile, taxpayers who file electronically have had to submit a paper
                                signature document (Form 8453) along with copies of their Wage and Tax
                                                         1
                                Statements (Form W-2). Also, taxpayers who file electronically and have a
                                balance due have had to mail a check and payment voucher to IRS. To
                                make electronic filing paperless and thus more attractive to potential
                                users, IRS tested four initiatives in 1999. Two initiatives enabled certain
                                taxpayers to use electronic signatures; the two other initiatives provided
                                electronic payment alternatives to taxpayers who owed money.

Electronic Signature Tests      IRS, during the 1999 filing season, tested two signature alternatives that
                                waived the need for taxpayers who participated in these tests to submit
                                                       2
                                Forms 8453 and W-2s. In one test, taxpayers filing electronic returns
                                1
                                 Instead of submitting their W-2s, TeleFile users must enter certain information from each of their
                                W-2s via the telephone. In lieu of a signature document, TeleFile users must make the following
                                declaration over the telephone: “Under penalties of perjury, I declare that to the best of my knowledge
                                and belief, the return information I provided is true and correct and includes all amounts and sources
                                of income I received during the tax year.”
                                2
                                 Taxpayers who had other paper documents that had to be sent to IRS in support of their electronic
                                submission could not participate in these alternative signature tests.




                                Page 55
  Chapter 7
  Use of Electronic Filing Continued to Increase




  prepared by about 2,500 participating EROs used a self-selected personal
  identification number (PIN) instead of completing a Form 8453. An IRS
  official told us that as of October 10, 1999, about 497,000 taxpayers had
  used the PIN option to sign their tax returns. According to a cognizant
  official, IRS did not encounter any problems during this test.

  IRS surveyed practitioners to ascertain, among other things, if they
  believed that the PIN option increased their electronic filing business. A
  July 1999 report on the results of IRS’ survey noted that “most
  practitioners did not believe that PINs increased their number of
  [electronically filed] returns, but it did make those returns that they
  otherwise would [electronically file] less burdensome.”

  An official of the largest national tax return preparation company told us
  that IRS’ test was a good start. However, he mentioned the following two
  features of the process that he would like to see changed:

• Although participating taxpayers no longer have to send IRS a paper
  signature form, the process is not paperless. Taxpayers still have to sign an
  authentication worksheet that the preparer is to keep on file in case there
  is any dispute about the return’s authenticity. The official felt that the PIN
  was sufficient to authenticate the return and would like to see the
  authentication worksheet eliminated.
• On a joint return, both taxpayers must be present to enter their own PINs.
  While understanding the intent of the requirement, the official thought that
  it was unrealistic to expect both taxpayers to be present when the return is
  being prepared. The need for taxpayers to be present in the practitioner’s
  office to enter their PINs was mentioned in IRS’ July 1999 report as the
  “greatest difficulty” with the use of PINs. The report recommended further
  exploration of that issue.

  To increase the use of on-line filing, IRS, in its second alternative signature
  test, identified 12 million taxpayers who had prepared their own tax
  returns in 1998 using tax preparation computer software but who had filed
  on paper. IRS mailed those taxpayers a postcard instead of a paper tax
  package. The postcards provided each taxpayer with a unique E-file
  Customer Number (ECN) and informed them that, by using that number,
                                                         3
  they could file a totally paperless tax return on-line. As of October 10,
  1999, according to IRS, about 660,000 taxpayers had used ECNs as their
  signatures. IRS encountered one problem during the early phase of this

  3
   On-line filers who were not selected to participate in this test had to submit a paper signature
  document.




  Page 56
                           Chapter 7
                           Use of Electronic Filing Continued to Increase




                           test. The contractor who had transmitted the on-line returns mistakenly
                           blocked out the taxpayers’ ECNs; therefore, no legal signature existed on
                           some returns. (IRS officials told us that they did not know how many
                           taxpayers were affected by this problem.) The contractor sent a letter to
                           affected taxpayers telling them that it had made a mistake and that the
                           taxpayers would have to submit a paper signature document.

                           IRS surveyed taxpayers who had used ECNs to determine if this signature
                           alternative encouraged them to file on-line. As of November 2, 1999, IRS
                           had not finished analyzing the results of that survey. However, according
                           to IRS, about 54 percent of the survey respondents said that the ECN made
                           them more likely to file electronically.

                           Officials responsible for the electronic filing effort told us that, for the 2000
                           filing season, IRS (1) hopes to double the number of EROs participating in
                           the PIN project and (2) intends to increase the number of taxpayers who
                           are allowed to use ECNs.

Electronic Payment Tests   In 1999, for the first time, many taxpayers who electronically filed balance
                           due returns could electronically pay their balance due in one of two
                           ways—either by credit card or by direct debit from a checking or saving
                                                                                       4
                           account. On-line filers who used Intuit software packages after February
                           26, 1999, when testing of the system was completed, were able to indicate
                           on-line when filing their tax returns that they wanted to pay their balance
                           due by credit card. Taxpayers who used traditional electronic filing or
                           TeleFile, as well as taxpayers who filed on paper, could charge their
                           balance due by credit card with a toll-free telephone call to a private
                           company that processed the credit card payment.

                           IRS’ contractor for the pay-by-phone credit card program encountered a
                           problem that resulted in about 13,700 payments being processed
                           improperly. Even though the taxpayers’ credit card accounts were charged
                           on April 15, 1999—the filing and payment deadline—these payments were
                           treated as advanced payments of the taxpayers’ tax year 1999 tax liability
                           and resulted in a balance due for the 1998 tax year. According to a
                           cognizant IRS official, about 1,000 of these taxpayers received a notice
                           from IRS telling them that their 1998 tax year payment was delinquent. IRS
                           was able to stop notices from going to the other taxpayers. Therefore,
                           these taxpayers did not know that their credit card payment was originally
                           processed incorrectly. According to IRS, the contractor contacted all of


                           4
                               On-line filers who did not use Intuit software packages could not pay by credit card.




                           Page 57
                        Chapter 7
                        Use of Electronic Filing Continued to Increase




                        the affected taxpayers and informed them that IRS had corrected its
                        records and that the contractor, not IRS, had made the mistake.

                        Taxpayers filing electronic balance due returns could also pay their
                        balance due by a direct debit to their checking or savings account through
                                                       5
                        an automated clearing house. Taxpayers using the direct debit option
                        were able to file early and postpone their payment until April 15. However,
                        the direct debit option was only paperless for on-line filers who
                        participated in the ECN test. Other on-line filers and traditional electronic
                        filers who chose the direct debit option had to submit a Form 8453, which
                        contains a disclosure statement that requires the taxpayer’s signature
                        authorizing the direct debit. On-line filers who participated in the ECN test
                        were using the ECN as their signature and had to indicate, via an on-line
                        prompt, that they wanted to use the direct debit option. IRS informed us
                        that there were virtually no problems encountered in processing the debit
                        payments.

                        Both the credit card and direct debit options eliminated the need for
                        taxpayers to send checks and payment vouchers to IRS. As of October 8,
                        1999, about 53,000 and 75,000 taxpayers had paid their tax liabilities by
                        credit cards and direct debits, respectively. An IRS spokesman said that
                        IRS was unable to determine the impact of these payment options on
                        persons’ decisions to file electronically.

                        Officials responsible for the electronic filing effort told us that IRS intends
                        to expand the electronic payment options. For the 2000 filing season, IRS
                        intends to expand the credit card payment option to taxpayers who file
                        two other forms—Form 1040-ES (Estimated Tax) and Form 4868 (Request
                        for Extension). IRS also plans to expand the use of the direct debit option
                        to TeleFile users in 2000.

                        IRS, in an effort to increase the use of TeleFile, initiated a pilot program in
Use of TeleFile         Indiana and Kentucky to study the possibility of allowing taxpayers the
Decreased Despite IRS   opportunity to file both their federal and state tax returns with one
Initiative              telephone call. As of October 29, 1999, about 107,000 taxpayers in these
                        two states had filed their federal and state tax returns via this pilot
                        program. Despite the joint federal/state TeleFile pilot and the credit card
                        payment option previously discussed, the number of TeleFile returns filed
                        in total, as well as by taxpayers in Indiana and Kentucky, decreased
                        slightly from the numbers filed in 1998.

                        5
                         Taxpayers filing TeleFile returns could not use the direct debit option because programming for
                        Touch-Tone telephone payments could not be completed in time for the 1999 filing season.




                        Page 58
  Chapter 7
  Use of Electronic Filing Continued to Increase




  Officials in IRS’ Office of Electronic Tax Administration suggested the
  following two possible reasons for the decrease in TeleFile use:

• Taxpayers who would have been eligible to use TeleFile in prior years
  were ineligible in 1999 because they claimed the new student loan interest
  deduction or new education credits, which cannot be claimed by someone
  filing via TeleFile.
• Taxpayers who could have used TeleFile might have switched to on-line
  filing.




  Page 59
Chapter 8

Tax Law Changes Added Complexity and Led
to Numerous Taxpayer Errors

                         Some tax law changes mandated by TRA97 took effect during the 1999
                         filing season. Those changes included (1) a new basic child tax credit, (2)
                         an additional child tax credit for taxpayers with three or more eligible
                         dependents, and (3) various new education-related deductions and credits.
                         The added complexity associated with the child tax credit provisions led to
                         numerous taxpayer errors and increased IRS’ processing workload.

                         A tax law change affecting certain taxpayers with dependents provided a
Basic Child Tax Credit   maximum nonrefundable child tax credit of $400 for each qualifying child.
                                                                                                       1


                         Taxpayers with children must first determine if their children qualify for
                         the credit using criteria that differ from the criteria for determining if a
                         child qualifies for a dependent exemption or for the EIC. After taxpayers
                         determine that they have qualifying dependents, they are to fill out an 11-
                         line worksheet to determine the amount, if any, of their credit. The credit
                         is phased out over various income levels on the basis of filing status and
                         cannot exceed the taxpayer’s tax liability. In addition, the credit is reduced
                         by other credits, including the child care credit, the credit for the elderly
                         and disabled, and education credits.

                         About 28 percent of the individual income tax returns filed as of August 27,
                         1999, listed one or more dependents who the taxpayers believed qualified
                         for the child tax credit. But, according to IRS data, only about 20 percent
                         of the filed returns actually included a child tax credit claim. As noted in
                         the preceding paragraph, additional criteria beyond the existence of a
                         qualifying child would have made some of these taxpayers ineligible.
                         However, as discussed in the next paragraph, some taxpayers who were
                         eligible for the credit did not claim it.

                         According to data provided by IRS, the child tax credit was the fourth most
                         common source of errors made on individual income tax returns filed in
                              2
                         1999. As of July 16, 1999, IRS had mailed about 571,000 notices to
                         taxpayers whose returns contained errors relating to that credit. About 88
                         percent of these errors were made by taxpayers who prepared their own
                         returns. Service center processing officials estimated that about one-half
                         of these taxpayers failed to take the credit, even though they checked the
                         box indicating that they had an eligible dependent and other information
                         on the return (e.g., amount of income) indicated that they were eligible.
                         The other one-half erred in calculating the credit amount. The need to

                         1
                             In tax year 1999, the maximum credit will be increased to $500.
                         2
                          The two most common errors dealt with the name or SSN of dependents not matching the Social
                         Security Administration’s records, leading to disallowance of the exemption and child tax credit,
                         respectively. The third most common error was that the EIC was figured or entered incorrectly.




                         Page 60                                                 GAO/GGD-00-37 IRS' 1999 Tax Filing Season
                       Chapter 8
                       Tax Law Changes Added Complexity and Led to Numerous Taxpayer Errors




                       correct these mistakes added to IRS’ processing workload and may have
                       led to a refund delay for some taxpayers.

                       During the filing season, IRS revised its procedures for dealing with
                       returns in which taxpayers failed to take the child tax credit even though
                       information on the return indicated that they were eligible. Initially, IRS
                       adjusted such returns to include the credit, without verifying the
                       dependent’s age. To qualify, a dependent must be under 17. After March 2,
                       1999, IRS began verifying the dependent’s age using information from the
                       Social Security Administration. Because this verification was done
                       manually, service center officials told us that it significantly increased their
                       workload, although they were unable to quantify the workload increase.

                       In response to the numerous errors, IRS issued a press release in early
                       March 1999 cautioning taxpayers to carefully check the child tax credit
                       instructions before filing their returns. In addition, IRS is developing
                       revised instructions for next year’s tax packages in an effort to reduce
                       taxpayer errors during the 2000 filing season.

                       The additional child tax credit was designed to benefit taxpayers with
Additional Child Tax   three or more dependents and could be a refundable credit. To benefit
Credit                 from this credit, taxpayers had to meet conditions beyond those for the
                       basic child tax credit and were required to fill out an additional form to
                       determine how much, if any, additional credit they were due.

                       Because of the numerous limitations placed on the additional child tax
                       credit, very few taxpayers benefited from this credit. Only about 4 percent
                       of filed returns listed three or more eligible dependents. For taxpayers
                       with three or more eligible dependents, the credit was limited by the
                       amount of Social Security and Medicare tax withheld, if any; one-half of
                       any reported self-employment tax; and any Social Security and Medicare
                       tax on tip income not reported to the taxpayers’ employers. The credit was
                       then reduced by amounts claimed for the EIC, the credit for the elderly
                       and disabled, education credits, and any excess Social Security tax
                       withheld. As a result, about 86 percent of the returns with three or more
                       eligible dependents that were filed as of August 27, 1999, did not claim any
                       additional child tax credit because the taxpayers either were not eligible
                       for the credit or overlooked taking the credit even though they were
                       eligible. Overall, only about 1/2 of 1 percent of all tax returns showed some
                       amount for the additional child tax credit.

                       As of July 16, 1999, IRS had sent out about 40,000 notices to taxpayers who
                       had made a mistake in claiming the additional child tax credit.



                       Page 61                                    GAO/GGD-00-37 IRS' 1999 Tax Filing Season
                     Chapter 8
                     Tax Law Changes Added Complexity and Led to Numerous Taxpayer Errors




                     During the 1999 filing season, several education-related deductions and
Education Benefits   credits took effect, including student loan interest deductions and the
                     Hope and lifetime learning credits. As of August 27, 1999, about 3 percent
                     of all returns claimed a student loan interest deduction, and about 4
                     percent of the returns claimed education credits.

                     Various witnesses at a May 25, 1999, Oversight Subcommittee hearing on
                     tax law complexity expressed concern about the overall complexity
                     associated with the array of education assistance programs now available
                     in the tax code. However, unlike the child tax credit, the impact of such
                     complexity in terms of the number of taxpayers who inappropriately
                     claimed the credit or deductions or who failed to claim a credit or
                     deduction to which they were entitled generally cannot be determined
                     from the face of the return. An audit of the return and supporting
                     documents would be needed to determine if taxpayers claimed the proper
                     amount or were entitled to amounts that they did not claim.

                     Even with these limitations, IRS, as of July 16, 1999, had sent about 53,000
                     notices to taxpayers who had erred in claiming education-related benefits.
                     Nearly all of these errors were by taxpayers who claimed more student
                                                                                  3
                     loan interest than the $1,000 maximum allowed by the law.




                     3
                      The maximum deduction for student loan interest is phased in over 4 years, beginning with $1,000 for
                     tax year 1998; $1,500 for tax year 1999; $2,000 for tax year 2,000; and $2,500 for tax year 2001 and
                     thereafter.




                     Page 62                                             GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Chapter 9

Significant Changes to Computer Systems
Accomplished Without Processing
Disruptions
                        For the 1999 filing season, IRS made significant changes to the computer
                        hardware and software that it uses to process returns and remittances. IRS
                        accomplished these changes without any discernible disruption to the
                        processing of returns, refunds, and remittances.

                        One major change involved replacement of the returns processing system
Replacement of Return   at all 10 service centers and replacement of the remittance processing
and Remittance          system at 6 centers (the other 4 centers were to have their remittance
Processing Systems      processing systems replaced in time for the 2000 filing season). According
                        to an IRS official responsible for this replacement project and processing
                        officials at two service centers, the transition to the new systems went
                        well, and workloads were processed as expected. Also, our analysis of
                        various filing season data and comparisons of those data to similar data for
                        the 1998 filing season disclosed nothing to indicate that this replacement
                        project caused any significant processing delays in 1999.

                        IRS continually worked throughout the filing season to resolve various
                        system problems, most of which did not affect taxpayers. For example,
                        there were problems with the transport system on the remittance
                        processing system, which required additional personnel to perform
                        maintenance. IRS reported one problem with the remittance processing
                        system that failed to record some taxpayers’ payments, which led to the
                        issuance of about 2,400 erroneous balance due notices. According to IRS,
                        it quickly contacted the affected taxpayers to provide the correct
                        information.

                        A second major change involved consolidating service centers’ mainframe
Consolidation of        computer equipment at IRS’ two computer centers in Martinsburg, WV,
Mainframe Computer      and Memphis, TN. At the beginning of the 1999 filing season, computer
Equipment               operations for three service centers had been consolidated. IRS projects
                        that the other seven centers will be consolidated by January 2001. Because
                        this project is ongoing, IRS is continuing to resolve problems, such as
                        isolated printer problems affecting the printing of address labels for
                        Examination and Collection cases. An official at one of the consolidated
                        service centers said that this problem delayed the issuance of some notices
                        and that, in some cases, IRS personnel resorted to handwriting labels.
                        However, the IRS official stated that these problems had no effect on filing
                        season-related taxpayer notices.




                        Page 63                                GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Chapter 10

Conclusions, Recommendations, and Agency
Comments

              A successful filing season requires that IRS effectively manage a wide
Conclusions   range of programs, through which it assists taxpayers in meeting their
              filing requirements; processes filed returns and related tax payments; and
              takes certain steps to help ensure that taxpayers’ refund claims, especially
              those involving the EIC, are valid. There were many positive
              accomplishments during the 1999 filing season. IRS expanded the
              availability of walk-in services, stopped hundreds of millions of dollars in
              erroneous EIC payments, saw a sizable increase in electronic filing, and
              implemented a major new processing system without significant
              disruption. However, there were also some problems—the most important
              being a significant decline in telephone service despite IRS’ efforts to
              improve that service.

              IRS officials cited several factors that contributed to the decline in
              telephone service, some of which might be due to IRS’ inexperience with
              its new way of managing telephone operations and its new call routing
              technology. However, other factors, such as inadequate planning and
              decisionmaking that appeared to be based on inadequate data or that
              seemed to ignore existing data, may be symptomatic of basic management
              weaknesses or challenges. To better understand the challenges facing IRS
              and better position ourselves to propose constructive solutions, we are
              reviewing, in more detail, IRS’ management of its telephone operations.
              Thus, we are making no telephone-related recommendations in this report.

              In addition to the decline in access to the telephone system, the quality of
              answers that taxpayers received when they reached an IRS assistor also
              dropped. IRS recognizes the need to provide further training to its
              assistors, and officials said there are plans to do so before the start of the
              2000 filing season. That training should help improve quality. We also
              identified some features of IRS’ methodology for measuring quality during
              the 1999 filing season that warranted IRS’ attention. For example, IRS
              monitored about 31 percent fewer telephone calls than provided for in its
              sampling plan, which could affect the precision of IRS’ estimates of quality.
              With respect to our other concerns about IRS’ methodology, IRS has
              agreed to examine the effect of cluster sampling on the precision of its
              estimates and has extended the hours during which it is monitoring calls.
              Even with the increase in monitoring hours, IRS’ measure of quality might
              still provide different results than it would if all hours were monitored.

              Besides expanding the availability of walk-in services in 1999, IRS did a
              better job of measuring customer satisfaction with those services.
              However, it made little progress in measuring service quality and
              timeliness. Without meaningful nationwide performance data, IRS cannot



              Page 64                                 GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Chapter 10
Conclusions, Recommendations, and Agency Comments




determine if the walk-in program is meeting its objectives and goals, and
thus whether it is an effective method of providing service.

IRS also increased the information and services it provides through
various other methods, such as its Web site. However, the substantial
increase in use of the Web site’s E-mail service strained resources and
apparently contributed to inaccurate responses and slow response times.
Due to the way IRS tracked response times (calendar days v. business
days), it could not actually determine how close it came to meeting its
timeliness goal. We are not making any recommendations in this area
because IRS told us that it plans to (1) change the response-time tracking
system to align it with the way the goal is stated and (2) provide assistors
with additional training on the E-mail topics with the highest error rates.

IRS data strongly suggest that the continuing emphasis on EIC
noncompliance has produced significant results. IRS identified many
erroneous claims by validating SSNs and scrutinizing certain EIC claims. In
addition, the many taxpayers who had their EIC denied for tax year 1997
and did not claim the EIC for tax year 1998 would seem to indicate that the
new recertification procedures had a positive effect. However, it is
possible that some of those taxpayers who did not claim the EIC for tax
year 1998 may have been entitled to the credit but did not understand the
recertification process or found it too burdensome. IRS has agreed to
                                                                     1
make some changes in that regard in response to our July 1999 letter.

In addition to those changes, we believe that the form taxpayers are
required to submit to be “recertified” (Form 8862) may mislead them to
believe that the information they provide in response to the questions on
the form will be sufficient for recertification. Taxpayers may become
discouraged and confused when they realize that the information is not
sufficient and, instead, that submission of Form 8862 leads to still another
IRS request for documents. Taxpayers might rightfully wonder why, if the
documents required by later correspondence are essential for
recertification, IRS did not tell them that those documents were required
when it first notified them about the need to recertify. In addition, even
though there was national guidance on the recertification process that
service centers were to follow, the guidance was not being followed
consistently, which could result in disparate treatment of taxpayers.

Tax law changes dealing with the new child tax credit seem to have added
complexity to filing a tax return, as evidenced by the numerous errors and
1
    GAO/GGD-99-112R.




Page 65                                   GAO/GGD-00-37 IRS' 1999 Tax Filing Season
                    Chapter 10
                    Conclusions, Recommendations, and Agency Comments




                    increased processing workload for IRS. IRS is planning to revise the tax
                    package instructions for tax year 1999 (filing year 2000) in an attempt to
                    reduce taxpayer confusion.

                    Our analysis of various performance data indicated that IRS successfully
                    implemented a new processing system. One piece of evidence that we
                    initially thought might indicate some problem with the new system was
                    that IRS took longer than 40 days to issue about 15 percent of the refunds
                    on paper returns. Further inquiry indicated, however, that IRS’
                    performance in 1999 was close to its performance in 1998. However, we
                    are still concerned that IRS took more than 40 days to issue so many
                    refunds. There may be valid reasons, but IRS was unable to provide us
                    with the kind of data needed to make that determination. Such data are
                    important if IRS wants to identify ways that it might improve its
                    performance.

                    We recommend that the Commissioner of Internal Revenue direct the
Recommendations     appropriate officials to take the following steps:

                  • Analyze the effect of not achieving the planned sample size for monitoring
                    the accuracy of responses to tax law calls and use the results of that
                    analysis to design the sample used in future monitoring.
                  • Implement a program for assessing the performance of IRS’ walk-in sites.
                    As part of that program, require that quality reviews be done, provide
                    sufficient guidance to ensure that the reviews are done consistently and
                    address appropriate issues, and require that data on the results of quality
                    reviews and wait-time monitoring (whether done automatically or
                    manually) be reported to a central location for analysis.
                  • If IRS does not rely on Form 8862 for recertification purposes, discontinue
                    its use.
                  • If IRS continues using Form 8862 for recertification purposes, redesign the
                    form to include reference to the documentation listed on Form 886-H and
                    any other documentation that IRS thinks is necessary for recertification so
                    that taxpayers who are required to recertify know as early as possible
                    what documentation is required for recertification.
                  • Ensure that all service centers implement the recertification procedures
                    according to national guidelines to avoid possible disparate treatment of
                    taxpayers.
                  • Analyze the results of the refund timeliness tests to determine, among
                    other things, why about 15 percent of the refunds took longer than 40 days
                    to issue and what the test results showed for returns that were filed error-
                    free.




                    Page 66                                   GAO/GGD-00-37 IRS' 1999 Tax Filing Season
                      Chapter 10
                      Conclusions, Recommendations, and Agency Comments




                      We requested comments on a draft of this report from IRS. We obtained
Agency Comments and   IRS’ written comments in a December 3, 1999, letter from the
Our Evaluation        Commissioner of Internal Revenue (see app. II). On December 3, 1999, we
                      also met with various representatives from the office of IRS’ Chief
                      Operations Officer, which is responsible for the various programs we
                      reviewed, to discuss IRS’ comments. In his letter, the Commissioner said
                      that (1) our draft report provided a fair and balanced assessment of IRS’
                      efforts to improve processing while providing taxpayers with top quality
                      service and (2) IRS would make every effort to resolve the issues noted in
                      the draft report.

                      Regarding our recommendation to analyze the effect of not achieving the
                      planned sample size for monitoring the accuracy of responses to tax law
                      calls, the Commissioner said that IRS has completed such an analysis and
                      is in the process of filling 20 additional monitoring positions. He said that
                      with the additional staff, IRS will be able to meet the desired sampling plan
                      for tax law and other telephone calls. IRS’ actions appear responsive to our
                      recommendation.

                      IRS agreed with our recommendation regarding the implementation of a
                      program for assessing the performance of IRS’ walk-in sites. The
                      Commissioner said that, in fiscal year 2000, IRS will implement a quality
                      review program to measure the quality and timeliness of services at walk-
                      in sites. According to IRS, training was conducted in October 1999 to
                      ensure consistency among the quality reviewers, and quality review results
                      and wait-time monitoring results will be reported to the National Office for
                      analysis. These actions, if effectively implemented, will meet the intent of
                      our recommendation.

                      In responding to our two recommendations dealing with Form 8862, the
                      Commissioner said that (1) IRS relies on Form 8862 to “identify the type of
                      action to be taken for taxpayers required to recertify” and (2) any
                      modifications to Form 8862 will be made after assessing the results of the
                      recertification process in 1999 and after completion of an ongoing IRS
                      research project on recertification. At the December 3, 1999, meeting, IRS
                      officials confirmed that IRS’ intent is to defer any decision on either
                      discontinuing or modifying Form 8862 until after the assessment and
                      research project referred to by the Commissioner are completed.

                      We believe that it would be useful to await the results of IRS’ assessment
                      and research project before deciding on changes to the recertification
                      process in general and the use of Form 8862 in particular. We encourage
                      the Commissioner to ensure timely completion of those efforts so that any



                      Page 67                                   GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Chapter 10
Conclusions, Recommendations, and Agency Comments




changes can be implemented in time for the 2001 filing season. We will be
checking on the results of IRS’ assessment and research project as part of
our review of the 2000 tax filing season.

The Commissioner also noted that redesigning Form 8862 to include
references to documentation that might be needed for recertification may
be counterproductive to IRS’ efforts to reduce taxpayer burden. He
explained that such a change, for example, could cause some taxpayers to
submit unnecessary documentation with their returns.

We agree with the Commissioner about the need to reduce taxpayer
burden, and that is the intent of our recommendation. We believe that the
current process could mislead taxpayers into believing that the
information they provide on Form 8862 will be sufficient for recertification
and that their refund is being processed. When taxpayers subsequently
receive the notice that their refund is being delayed and that additional
documents are necessary for recertification, they may feel burdened by the
delayed refund and by the fact that IRS waited until after they filed to tell
them what information they had to provide to prove their eligibility for the
EIC. We also believe that IRS can mitigate any risk that adoption of our
recommendation will cause some taxpayers to provide unnecessary
documentation by making it clear, in the notice sent to taxpayers, when
submission of the documentation is required.

IRS agreed with our recommendation that all service centers implement
the recertification procedures according to the national guidelines.
According to the Commissioner, (1) the guidelines have been incorporated
into the Internal Revenue Manual, (2) adherence to procedures in the
manual is mandatory, and (3) special reviews will be done during fiscal
year 2000 to assess conformance to the procedures.

IRS also agreed with our recommendation that it analyze the results of the
refund timeliness tests to determine why some refunds took longer than 40
days to issue and what the test results showed for returns that were filed
error-free. The Commissioner said that IRS will be doing an initial analysis
that will provide some of the information called for in our
recommendation. Depending on the results of that analysis, which is to be
completed by February 1, 2000, IRS said that it might conduct a more
extensive analysis. We will be following up on the results of IRS’ analysis
as part of our assessment of the 2000 tax filing season.

IRS also provided various technical comments, which we incorporated in
the body of this report where appropriate.



Page 68                                   GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Page 69   GAO/GGD-00-37 IRS’ 1999 Tax Filing Season
Appendix I

IRS Workload Indicators



(Numbers and dollars in thousands
                                                                                                                                      Percentage
                                                                                                                                                a
Indicator                                            As of date                          1998                         1999               change
Individual income tax returns received
  Electronic returns:
                          b
   Traditional electronic                                  10/29                       17,697                       21,227                 19.95%
           c
   TeleFile                                                10/29                        5,963                         5,665                  -5.00
             d
   On-line                                                 10/29                          942                         2,457                 160.83
  Paper returns:
   Form 1040                                               10/29                      61,664                        62,082                     0.68
   Form 1040A                                              10/29                      16,440                        15,663                    -4.73
   Form 1040EZ                                             10/29                      12,816                        11,896                    -7.18
                    e
   Form 1040PC                                             10/29                       7,533                         6,537                   -13.22
  Total, paper and electronic                              10/29                     123,055                       125,527                     2.01
Refunds issued
  Number                                                     9/03                     82,048                       88,751                      8.17
  Amount                                                     9/03                   $109,675                     $135,984                     23.99
   Number of direct deposits                                 9/03                     19,187                       23,456                     22.25
   Amount of direct deposits                                 9/03                    $34,422                      $47,320                     37.47
EIC
  Number of recipients                                       8/28                    19,393                       19,016                      -1.94
  Total amount of EIC                                        8/28               $29,406,298                  $30,190,199                       2.67
               f
Remittances
  Total number of remittances                                9/30                   230,459                      227,181                      -1.42
  Total amount of remittances                                9/30            $1,754,921,238               $1,890,874,382                       7.75
Extension of time to file                                    5/21                     6,984                        7,143                       2.28
Internet use
  Hits                                                       5/02                    370,256                       793,678                  114.36
  Files downloaded                                           4/30                     26,798                        57,009                  112.74
  E-mail tax law questions received                          4/15                         82                           155                   89.02
Tax form orders filled                                       5/01                      7,783                         7,345                   -5.63
Tax forms faxed to taxpayers                                 4/30                        906                           970                    7.06
Total TeleTax calls                                          4/17                     37,463                        35,697                   -4.71
  Tax law calls                                              4/17                      7,728                         8,151                    5.47
  Refund calls                                               4/17                     29,735                        27,547                   -7.36
                                g
Total toll-free telephone calls                              4/17                     50,125                        65,278                   30.23
  Calls answered                                             4/17                     37,127                        35,597                   -4.12
  Busy signals                                               4/17                      4,478                        20,424                  356.10
  Abandons                                                   4/17                      8,520                         9,256                    8.64
Taxpayers assisted at walk-in sites                          5/01                      6,233                         6,237                     .06
                                         a
                                             Numbers may not compute to this percentage due to rounding.
                                         b
                                             Traditional electronic returns are transmitted through a third party (such as a tax return preparer).
                                         c
                                             TeleFile returns are transmitted by taxpayers over the telephone lines using a Touch-Tone telephone.
                                         d
                                          On-line returns are transmitted by taxpayers through an on-line intermediary using a personal
                                         computer and commercial software.




                                         Page 70                                                   GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Appendix I
IRS Workload Indicators




e
    Form 1040PC is a paper return prepared using computer software.
f
Remittances include payments from individuals and businesses.
g
 Toll-free telephone calls include calls to six IRS telephone lines: tax law assistance, EIC/refund
inquiry, account inquiry, forms ordering, Automated Collection System, and fraud hotline.
Source: IRS data.




Page 71                                               GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Appendix II

Comments From the Internal Revenue Service




              Page 72       GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Appendix II
Comments From the Internal Revenue Service




Page 73                                      GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Appendix II
Comments From the Internal Revenue Service




Page 74                                      GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Appendix II
Comments From the Internal Revenue Service




Page 75                                      GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Appendix III

GAO Contacts and Staff Acknowledgments


                  James White, (202) 512-9110
GAO Contacts      David Attianese, (202) 512-9110

                  In addition to those named above, Wendy Ahmed, Rose Dorlac, Jyoti
Acknowledgments   Gupta, Doris Hynes, Ronald Jones, John Lesser, Susan Mak, Sidney
                  Schwartz, and Bradley Terry made key contributions to this report.




                  Page 76                              GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Page 77   GAO/GGD-00-37 IRS’ 1999 Tax Filing Season
Page 78   GAO/GGD-00-37 IRS’ 1999 Tax Filing Season
Page 79   GAO/GGD-00-37 IRS’ 1999 Tax Filing Season
Ordering Information

The first copy of each GAO report and testimony is free.
Additional copies are $2 each. Orders should be sent to the
following address, accompanied by a check or money order made
out to the Superintendent of Documents, when necessary. VISA
and MasterCard credit cards are accepted, also. Orders for 100 or
more copies to be mailed to a single address are discounted 25
percent.

Order by mail:

U.S. General Accounting Office
P.O. Box 37050
Washington, DC 20013

or visit:

Room 1100
700 4th St. NW (corner of 4th and G Sts. NW)
U.S. General Accounting Office
Washington, DC

Orders may also be placed by calling (202) 512-6000 or by using
fax number (202) 512-6061, or TDD (202) 512-2537.

Each day, GAO issues a list of newly available reports and
testimony. To receive facsimile copies of the daily list or any list
from the past 30 days, please call (202) 512-6000 using a touch-
tone phone. A recorded menu will provide information on how to
obtain these lists.

For information on how to access GAO reports on the INTERNET,
send e-mail message with “info” in the body to:

info@www.gao.gov

or visit GAO’s World Wide Web Home Page at:

http://www.gao.gov
United States                       Bulk Rate
General Accounting Office      Postage & Fees Paid
Washington, D.C. 20548-0001           GAO
                                Permit No. G100
Official Business
Penalty for Private Use $300

Address Correction Requested




(268864)