This is the accessible text file for GAO report number GAO-06-198R 
entitled 'Applying Agreed-Upon Procedures: Highway Trust Fund Excise 
Taxes' which was released on November 7, 2005. 

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November 4, 2005: 

The Honorable Kenneth M. Mead: 
Inspector General: 
Department of Transportation: 

Subject: Applying Agreed-Upon Procedures: Highway Trust Fund Excise 
Taxes: 

Dear Mr. Mead: 

We have performed the procedures contained in the enclosure to this 
report, which we agreed to perform and with which you concurred, solely 
to assist your office in ascertaining whether the net excise tax 
revenue distributed to the Highway Trust Fund (HTF) for the fiscal year 
ended September 30, 2005, is supported by the underlying records. As 
agreed with your office, we evaluated fiscal year 2005 activity 
affecting distributions to the HTF. 

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

The adequacy of the procedures to meet your objectives is your 
responsibility, and we make no representation in that respect. The 
procedures we agreed to perform relate to (1) transactions that 
represent the underlying basis of amounts distributed to the HTF, (2) 
the Internal Revenue Service's (IRS) quarterly HTF certifications, (3) 
the Department of the Treasury's Financial Management Service 
adjustments to the HTF during fiscal year 2005, (4) IRS's 
precertification[Footnote 1] of receipts for each quarter of fiscal 
year 2005, (5) certain procedures of the Department of the Treasury's 
Office of Tax Analysis's (OTA) process for estimating amounts to be 
distributed to the HTF for the fourth quarter of fiscal year 2005, and 
other procedures related to (6) the net amount of fiscal year 2005 
excise taxes distributed to the HTF, (7) transactions that represent 
total IRS tax revenue receipts and refunds, and (8) reconciliations of 
IRS records to Treasury records. The enclosure contains the agreed-upon 
procedures and our findings and results from performing each of the 
procedures. 

We were not engaged to and did not conduct an examination, the 
objective of which would have been the expression of an opinion on the 
amount of net excise taxes distributed to the HTF. Accordingly, we do 
not express such an opinion. Had we performed additional procedures, 
other matters might have come to our attention that would have been 
reported to you.[Footnote 2] We completed the agreed-upon procedures on 
October 27, 2005. 

We provided a draft of this report to IRS and OTA officials for review 
and comment. IRS agreed with the results and findings presented in this 
report. OTA's review of the report only covered the procedures related 
to the estimation process for the quarter ended September 30, 2005. OTA 
agreed with the results and findings presented in this report relating 
to procedures performed on the estimation process for the quarter ended 
September 30, 2005. 

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

Sincerely yours, 

Signed by: 

Steven J. Sebastian: 
Director: 
Financial Management and Assurance: 

Enclosure: 

[End of section] 

Highway Trust Fund Excise Tax Procedures and Results: 

I. Procedures on detailed transactions that represent the underlying 
basis of amounts distributed to the Highway Trust Fund (HTF) in fiscal 
year 2005: 

A. Nonrepresentative selection of tax returns from the quarters ended 
June 30, 2004, and September 30, 2004[Footnote 3] 

1. For each of the quarters ending June 30, 2004, and September 30, 
2004, select the 30 largest excise tax returns containing excise taxes 
related primarily to the HTF and the Airport and Airway Trust Fund 
(AATF) on the basis of total tax liability amount[Footnote 4] from the 
Internal Revenue Service's (IRS) master file.[Footnote 5] 

Description of findings and results: 

We selected the 30 largest excise tax returns related primarily to the 
HTF and the AATF from each of the two quarters for testing. The 
selection was based on the total tax liability amount owed for each 
return from IRS's master file. 

The total tax liability amount related to the 30 returns from the 
quarter ended June 30, 2004, was approximately $8.4 billion, or 64 
percent of the total excise tax liability amount of $13.1 billion for 
all excise tax types for the quarter. Of these 30 returns, 21 contained 
primarily HTF-related taxes and 9 contained primarily AATF taxes. 

The total tax liability amount related to the 30 returns from the 
quarter ended September 30, 2004, was approximately $9.0 billion, or 65 
percent of the total excise tax liability amount of $13.8 billion for 
all excise tax types for the quarter. Of these 30 returns, 21 contained 
primarily HTF-related taxes and 9 contained primarily AATF taxes. 

2. For each of the 42 returns related primarily to the HTF from the 
quarters ended June 30, 2004, and September 30, 2004, we performed the 
following procedures, which encompassed approximately $13 billion in 
prorated collections[Footnote 6] affecting fiscal year 2005 
distributions to the HTF: 

(a) Trace the liability amount for abstracts[Footnote 7] 59, 60, and 62 
from the tax return to IRS's master file. 

Description of findings and results: 

The liability amount for abstracts 59, 60, and 62 on the tax return 
agreed with the master file for all 42 returns. 

(b) Inspect taxpayers' calculations on the tax return for the selected 
abstracts to determine whether they are mathematically correct. 

Description of findings and results: 

The taxpayers' calculations on all 42 returns were mathematically 
correct. 

(c) Calculate the prorated collection amount for the selected abstracts 
based on information from the master file and compare this amount to 
the amount from the Collection Certification System audit 
files.[Footnote 8] 

Description of findings and results: 

The independently calculated prorated collection amounts for the three 
selected abstracts agreed with amounts in IRS's Collection 
Certification System for all 42 returns. 

B. Dollar unit sample (DUS) of transactions from the quarters ended 
December 31, 2004, and March 31, 2005: 

1. Sampling: 

(a) Obtain excise tax collection data from the master file for the 
first two quarters of fiscal year 2005. Compare excise tax collection 
data from the master file with data from IRS's general ledger to 
determine if they materially agree.[Footnote 9] Compare total excise 
tax collections from the master file with total excise tax collections 
from the Collection Certification System audit files to determine if 
they materially agree. 

Description of findings and results: 

Excise tax collections for the first two quarters of fiscal year 2005 
from the master file materially agreed with IRS's general ledger and 
with total excise tax collections from the Collection Certification 
System. 

(b) Select a random attribute sample of 78 excise tax assessments from 
the master file.[Footnote 10] Compare assessment and receipt 
information for each sample item from the master file to the assessment 
and receipt information in the Collection Certification System to 
determine if assessments and receipts from the master file are 
contained in the Collection Certification System. 

Description of findings and results: 

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

(c) Sum the prorated collections for selected abstracts[Footnote 11] 
from the audit files and compare these amounts to amounts in the Report 
of Excise Tax Collection[Footnote 12] to determine if the Collection 
Certification System properly summarized the prorated collections. 

Description of findings and results: 

The Collection Certification System properly summarized the prorated 
collections for all of the selected abstracts. Prorated collections 
from the audit files for the selected abstracts agreed with the 
corresponding amounts in the Report of Excise Tax Collection. 

(d) Separate the total population of prorated collections from the 
audit files into the following distinct populations: (1) HTF, (2) AATF, 
and (3) other excise tax abstracts. Use DUS to select a sample of 
prorated excise tax collections from the HTF population using a 
confidence level of 80 percent, a test materiality of $347 million, and 
an expected aggregate error amount of $104.1 million. 

Description of findings and results: 

Use of DUS with a confidence level of 80 percent, a test materiality of 
$347 million, and an expected aggregate error amount of $104.1 million 
resulted in a sample of 101[Footnote 13] prorated collections for the 
HTF for the first two quarters of fiscal year 2005. 

(e) Select samples of prorated excise tax collections from the two non-
HTF populations. Use DUS to select a sample of prorated excise tax 
collections from the AATF population using a confidence level of 80 
percent, a test materiality of $92 million, and an expected aggregate 
error amount of $27.6 million. Select a random attribute sample of 45 
items from the population of prorated tax collections related to all 
excise taxes other than the HTF and the AATF. 

Description of findings and results: 

Use of DUS with a confidence level of 80 percent, a test materiality of 
$92 million, and an expected aggregate error amount of $27.6 million 
resulted in a sample of 80[Footnote 14] prorated collections for the 
AATF for the first two quarters of fiscal year 2005. 

A random attribute sample of 45 items was selected from the population 
of prorated tax collections related to all excise taxes other than the 
HTF and the AATF.[Footnote 15] 

2. Detailed transactions: 

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

* Compare the assessment amount on the tax return for the sampled 
abstract with the amount recorded in the master file. 

Description of findings and results: 

The assessment amount on the tax return agreed with the amount recorded 
in the master file for all of the sampled items. 

* Inspect the taxpayers' calculations on the tax returns for the 
related abstract to determine whether they are mathematically correct. 

Description of findings and results: 

The taxpayers' calculations were mathematically correct on the tax 
return for 100 of the 101 sampled items. On one return, the taxpayer 
miscalculated the assessment amount for the sampled abstract by $2 
million. As a result, the prorated collection amount for the sampled 
item was understated by $2 million. 

* Calculate the prorated collection amount based on information from 
the master file and compare this amount to the sample items selected 
from the Collection Certification System audit files.[Footnote 16] 

Description of findings and results: 

The independently calculated prorated collection, based on information 
from the master file, agreed with the amounts for all of the sampled 
items selected from the Collection Certification System audit files. 

(b) Inspect the tax returns and master file information for the two 
samples of prorated collections from the non-HTF populations to 
determine if they contain any HTF excise tax collections. 

Description of findings and results: 

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

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

Description of findings and results: 

For the first 6 months of fiscal year 2005, the net most likely error 
is ($2 million) with an upper error limit of $197 million at the 80 
percent confidence level. 

II. Procedures on IRS's quarterly HTF receipt certifications: 

Perform the following procedures on IRS's HTF receipt certification for 
the quarters ended September 30, 2004, December 31, 2004, and March 31, 
2005: 

A. Inspect the certification letters[Footnote 17] for authorizing 
signatures. 

Description of findings and results: 

The certification letters for all three quarters had authorizing 
signatures. 

B. Inspect the certification letters and supporting worksheets to 
determine if evidence exists that they were reviewed by the supervisor 
or another analyst. 

Description of findings and results: 

There was evidence that the supervisor or another analyst reviewed the 
certification letters and supporting worksheets for all three quarters. 

C. Calculate the totals on the certification letters to determine if 
they are mathematically correct. 

Description of findings and results: 

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

D. Trace the certified amounts for diesel fuel tax (abstract 60), 
gasoline tax (abstract 62), and tax on 10 percent gasohol (abstract 
59)[Footnote 18] from the certification letters back to the Report of 
Excise Tax Collection[Footnote 19] and the Treasury 90 Report.[Footnote 
20] 

Description of findings and results: 

The certified amounts for diesel fuel tax (abstract 60), gasoline tax 
(abstract 62), and tax on 10 percent gasohol (abstract 59) from the 
certification letters agreed with the related Report of Excise Tax 
Collection and the Treasury 90 Report for the quarters ended September 
30, 2004, and December 31, 2004, and for abstracts 60 and 62 for the 
quarter ended March 31, 2005. 

E. Compare the distribution rates used by IRS for diesel fuel tax 
(abstract 60), gasoline tax (abstract 62), and tax on 10 percent 
gasohol (abstract 59) with the applicable laws.[Footnote 21] 

Description of findings and results: 

The distribution rates used by IRS for diesel fuel tax (abstract 60), 
gasoline tax (abstract 62), and tax on 10 percent gasohol (abstract 59) 
agreed with the applicable laws in effect during the quarters ended 
September 30, 2004, and December 31, 2004, and for abstracts 60 and 62 
agreed with the applicable laws in effect during the quarter ended 
March 31, 2005. 

F. Inspect the Report of Excise Tax Collection used in the 
certification to determine if it contains significant[Footnote 22] 
collections from prior quarters. 

Description of findings and results: 

The Report of Excise Tax Collection used in the certification for all 
three quarters did not contain significant collections from prior 
quarters. 

G. Trace heavy vehicle use tax amounts from the Highway Account 
certification letters to the master file. These taxes, which go to HTF, 
are reported on: 

Form 2290 and are not included in the Collection Certification System. 

Description of findings and results: 

The heavy vehicle use tax amounts from the Highway Account 
certification letter agreed with the master file for all three 
quarters. 

III. Procedures on Financial Management Service adjustments: 

Perform the following procedures on Financial Management Service (FMS) 
adjustments to HTF excise tax distributions for the quarters ended 
September 30, 2004, December 31, 2004, and March 31, 2005: 

A. Compare the FMS adjustments made to the HTF with original Office of 
Tax Analysis (OTA) estimates and IRS-certified amounts to determine if 
they agree with the supporting schedules.[Footnote 23] 

Description of findings and results: 

For the FMS adjustments made to the HTF accounts (Highway and Mass 
Transit), the original OTA estimates and IRS-certified amounts agreed 
with the supporting schedules for all three quarters. 

B. Calculate the differences between the OTA estimates and IRS-
certified amounts to determine if the amounts agree with the 
differences computed by FMS. 

Description of findings and results: 

The independently calculated differences between the OTA estimates and 
the IRS-certified amounts for the Highway Account agreed with the 
differences computed by FMS for all three quarters. These amounts 
were[Footnote 24] 

* $279,061,000 for the quarter ended September 30, 2004, 

* ($592,317,000) for the quarter ended December 31, 2004, and: 

* ($135,718,000) for the quarter ended March 31, 2005. 

The independently calculated differences between the OTA estimates and 
IRS-certified amounts for the Mass Transit Account agreed with the 
differences computed by FMS for all three quarters. These amounts were: 

* ($22,284,000) for the quarter ended September 30, 2004, 

* ($32,504,000) for the quarter ended December 31, 2004, and: 

* ($54,408,000) for the quarter ended March 31, 2005. 

IV. Procedures on IRS's HTF precertification for the quarters ended 
September 30, 2004, December 31, 2004, March 31, 2005, and June 30, 
2005[Footnote 25] 

A. Compare the precertified amount to the actual certified amount to 
the HTF for the quarters ended September 30, 2004, December 31, 2004, 
and March 31, 2005. If there is a significant variance,[Footnote 26] 
request from the IRS their data on any large returns omitted from the 
precertification. 

Description of findings and results: 

There were no significant variances between the precertified amounts 
and the actual certified amounts for the quarters ended September 30, 
2004, and December 31, 2004. For the quarter ended March 31, 2005, 
there was a significant variance of $541 million. $505 million of this 
was attributable to IRS's identification of two large tax returns that 
were omitted from the precertification for the quarter ended March 31, 
2005. 

B. Perform the following procedures on IRS's HTF precertification for 
the quarter ended June 30, 2005: 

1. Inspect the precertification results and supporting worksheets to 
determine if evidence exists that they were reviewed by the supervisor 
or another analyst. 

Description of findings and results: 

There was evidence that the supervisor or another analyst reviewed the 
results and supporting worksheets. 

2. Calculate the totals on the precertification letters to determine if 
they are mathematically correct. 

Description of findings and results: 

The totals on the precertification letters were mathematically correct. 

3. Trace the amounts for diesel fuel tax (abstract 60) and gasoline tax 
(abstract 62)[Footnote 27] from the precertification letters back to 
the Report of Excise Tax Collection and the Treasury 90 Report. 

Description of findings and results: 

The amounts for diesel fuel tax (abstract 60) and gasoline tax 
(abstract 62) from the precertification letters agreed with the related 
Report of Excise Tax Collection and the Treasury 90 Report for the 
quarter ended June 30, 2005. 

4. Compare the distribution rates used by IRS for diesel fuel tax 
(abstract 60) and gasoline tax (abstract 62) with the applicable laws. 

Description of findings and results: 

The distribution rates used by IRS for diesel fuel tax (abstract 60) 
and gasoline tax (abstract 62) agreed with the applicable laws in 
effect during the quarter. 

5. Inspect the Report of Excise Tax Collection used in the 
precertification to determine if it contains significant[Footnote 28] 
collections from prior quarters. 

Description of findings and results: 

The Report of Excise Tax Collection supporting the precertification did 
not contain significant collections from prior quarters. 

6. Inspect the Collection Certification System information to determine 
whether IRS omitted any significant[Footnote 29] returns from the 
precertification. If so, report for the Highway Account and the Mass 
Transit Account (1) the average amount of HTF-related excise taxes from 
these taxpayers' returns that were included in IRS's certification from 
the four previous quarters and (2) the amount of HTF-related excise 
taxes from these taxpayers' returns that were included in IRS's 
certification for the quarter ended June 30, 2004. 

Description of findings and results: 

IRS did not omit any significant returns from the precertification. 

7. Trace the heavy vehicle use tax amount from the Highway Account 
precertification letter to the master file. 

Description of findings and results: 

The heavy vehicle use tax amount from the Highway Account 
precertification letter agreed with the master file. 

V. Procedures performed on excise tax distributions to the HTF for the 
quarter ended September 30, 2005: 

A. Determine if OTA's process for identifying and incorporating the 
effect of new legislation on excise tax receipts into its trust fund 
estimates[Footnote 30] was in place during the quarter ended September 
30, 2005. 

Description of findings and results: 

OTA's process for identifying and incorporating into its trust fund 
estimates the effect of new legislation on excise tax receipts was in 
place during the quarter ended September 30, 2005. OTA prepares a tax 
rate table[Footnote 31] to capture information relating to legislation 
that affects tax rates, tax basis, accounts, and deposit rules in 
effect during the quarter. 

B. Inspect transfer forms and supporting schedules to determine if 
there is evidence of review. 

Description of findings and results: 

There was evidence that another OTA economist reviewed the transfer 
forms and supporting schedules for the semimonthly transfers affecting 
distributions to the HTF for the quarter ended September 30, 2005. 

C. Calculate the totals on the transfer forms to determine if they are 
mathematically correct. 

Description of findings and results: 

The totals on the transfer forms affecting distributions to the HTF for 
the quarter ended September 30, 2005, were mathematically correct. 

D. Trace the transfer amounts for diesel fuel tax (abstract 60), 
gasoline tax (abstract 62), and heavy vehicle use tax[Footnote 32] from 
the transfer forms through the supporting schedules and back to the 
related source documents.[Footnote 33] 

Description of findings and results: 

The transfer amounts for diesel fuel tax (abstract 60), gasoline tax 
(abstract 62), and heavy vehicle use tax from the transfer forms agreed 
with the supporting schedules and source documents for the semimonthly 
transfers affecting distributions to the HTF for the quarter ended 
September 30, 2005. 

VI. Other procedures: 

A. Using IRS's quarterly certifications, OTA's estimated distributions, 
and any adjustments, compile and report excise taxes distributed to the 
HTF in fiscal year 2005. 

Description of findings and results: 

Based on a compilation of IRS's quarterly certifications, OTA's 
estimations, and adjustments, the net amount of excise taxes 
distributed to the HTF in fiscal year 2005 was $37,632,909,000. 

B. Procedures performed as part of the fiscal year 2005 IRS financial 
statement audit: 

1. From IRS's master files for the first 8 months of fiscal year 2005, 
use DUS to select statistical samples of (1) total tax revenue receipts 
and (2) refunds. For each sample item, compare the collection or refund 
amount, tax period, and tax class[Footnote 34] from source 
documentation with those recorded in IRS's master files. 

Description of findings and results: 

The receipt or refund amount, tax period, and tax class from source 
documents for 158 revenue receipts and 48 refund sample transactions 
were consistent with amounts recorded in IRS's master files. 

2. Obtain selected IRS service center campuses' monthly Treasury FMS 
224 reconciliations[Footnote 35] and determine whether IRS-reported 
revenue receipts were properly classified and materially 
reconciled[Footnote 36] to Treasury FMS records. For refunds, obtain 
selected IRS service center campuses' monthly Treasury FMS 224 
reconciliations and determine whether IRS-reported total refunds (all 
tax classes) materially reconciled to Treasury FMS records. 

Description of findings and results: 

Tax revenue receipts reported by selected IRS service center campuses 
through the monthly Treasury FMS 224 reconciliation process were 
properly classified and materially reconciled to Treasury FMS records. 
Total refunds reported by selected IRS service center campuses through 
the monthly Treasury FMS 224 reconciliation process materially 
reconciled to Treasury FMS records. 

3. Compare tax revenue receipt balances by tax class, including excise 
taxes, recorded in IRS's general ledger with the master files and 
Treasury records to determine if they agree in all material respects. 
For refunds, compare total refund balances between the master files, 
the general ledger, and Treasury records to determine if they agree in 
all material respects. 

Description of findings and results: 

Tax receipt balances for all tax classes, including excise taxes, 
recorded in IRS's general ledger materially agreed with the master 
files and Treasury records. Refund balances recorded in IRS's general 
ledger materially agreed with the master files and with Treasury 
records. 

(196033): 

FOOTNOTES 

[1] To accommodate the Department of Transportation's accelerated 
reporting date for fiscal year 2005, IRS performed precertifications of 
excise tax collections. The data are for information purposes only and 
the precertification does not constitute an official certification. 

[2] In our report on the results of our audit of IRS's fiscal year 2004 
financial statements, we noted a material weakness in IRS's financial 
reporting process; see GAO, Financial Audit: IRS's Fiscal Years 2004 
and 2003 Financial Statements, GAO-05-103 (Washington, D.C. Nov. 10, 
2004). A component of this weakness includes IRS's inability to 
allocate excise tax collections to the appropriate trust funds at the 
time deposits are made. This condition affects the adequacy of the 
distributions of federal excise tax revenue to recipient trust funds 
and is a continuation of an issue that we have reported on in prior 
years. 

[3] Since certifications are not completed until 6 months after the end 
of the quarter, the certification and corresponding adjustment by the 
Department of the Treasury's Financial Management Service for the 
quarters ended June 30, 2004, and September 30, 2004, were completed in 
December 2004 and March 2005, respectively, and thus affected 
distributions to the HTF during fiscal year 2005. 

[4] Although the certifications are based on amounts collected, we used 
the tax liability amounts to identify the taxpayers paying the largest 
amounts of excise taxes. Our work shows that these taxpayers generally 
pay their excise taxes in full each quarter. 

[5] The master file is a detailed database containing taxpayer 
information. 

[6] IRS certifies to trust funds the amount of excise taxes collected. 
Because taxpayers have sometimes not fully paid their tax liability, 
IRS must allocate the amount of payments actually received among the 
different excise taxes reported on the taxpayer's return. IRS's 
Collection Certification System prorates a taxpayer's payments 
proportionately among all taxes reported as owed on the tax return. For 
example, if a corporation reports that it owes $4 million for gasoline 
tax, $2 million for diesel fuel tax, and $1 million for gasohol tax on 
its Form 720, Quarterly Federal Excise Tax Return, but has paid IRS 
only $3.5 million at the time IRS performs its certification, the 
program prorates the $3.5 million in the following manner: 

$2 million to gasoline tax, $1 million to diesel fuel tax, and $500,000 
to gasohol tax. 

[7] The abstract numbers identify the tax type (e.g., gasoline and 
ticket tax) and are used as the basis for determining the distribution 
of the excise taxes to the various trust funds. Abstract numbers are 
preprinted on Form 720, Quarterly Federal Excise Tax Return, and are 
used by the taxpayer to report excise tax assessments. If the return 
was related to the HTF, we selected (1) tax on 10 percent gasohol 
(abstract 59), (2) diesel fuel tax (abstract 60), and (3) gasoline tax 
(abstract 62). If the return was related to the AATF, we selected (1) 
tax on transportation of persons by air (abstract 26), (2) tax on the 
use of international air facilities (abstract 27), and (3) tax on 
transportation of property by air (abstract 28). The tax amounts 
related to the selected abstracts for each trust fund are the largest 
tax amounts reported on the taxpayers' excise tax returns and made up 
over 79 percent of the total amount certified to the HTF and over 91 
percent of the total amount certified to the AATF for the quarters 
ended June 30, 2004, and September 30, 2004. 

[8] The Collection Certification System produces what IRS refers to as 
audit files. These audit files contain the individual prorated 
collections, by abstract and taxpayer identification number, that make 
up the total certified amount for each abstract. 

[9] For the purpose of this procedure, "material" is defined as 1 
percent of the Form 720-related excise tax collections for the quarters 
ended December 31, 2004, and March 31, 2005. For fiscal year 2005, the 
materiality amount was $220 million for the two quarters combined. 

[10] For this sample, if one or no errors were found in testing the 78 
items, we would be 90 percent confident that the error rate in the 
population would not exceed 5 percent. 

[11] The selected abstracts are (1) tax on 10 percent gasohol (abstract 
59), (2) diesel fuel tax (abstract 60), 

(3) gasoline tax (abstract 62), (4) tax on transportation of persons by 
air (abstract 26), (5) tax on the use of international air facilities 
(abstract 27), (6) tax on transportation of property by air (abstract 
28), and (7) tax on aviation fuel for commercial use (abstract 77). As 
of January 1, 2005, abstract 59 was eliminated as a result of the 
American Jobs Creation Act of 2004, Pub. L. No. 108-357,  301(c)(7), 
(d)(1), 118 Stat. 1418, 1461, 1463 (Oct. 22, 2004). Abstract 59, along 
with all other gasohol taxes, was reported under abstract 62 as 
gasoline for the quarter ended March 31, 2005. The tax amounts for the 
three HTF-related abstracts made up over 81 percent of the total amount 
certified to the HTF for the quarter ended December 31, 2004, and over 
88 percent for abstracts 60 and 62 for the quarter ended March 31, 
2005. The tax amounts for the four AATF-related abstracts made up over 
87 percent of the total amount certified to the AATF for the quarters 
ended December 31, 2004, and March 31, 2005. 

[12] The Report of Excise Tax Collection contains prorated collections, 
classified by abstracts, that serve as the basis for IRS's quarterly 
trust fund certifications. 

[13] The planned sample size using DUS was 147 items. DUS selects 
dollars instead of specific transaction items by dividing the 
population by dollar intervals. The dollar interval for the HTF was 
$126 million. Accordingly, any item with a dollar value matching or 
exceeding the sampling interval would be selected, whereas items with 
dollar values below the sampling interval might not be selected. For 
example, an item of $252 million would cover 2 dollar intervals, but 
represent one sample item. Due to large-dollar items covering more than 
one interval, the 101 unique sampled transactions selected represent 
147 dollar intervals. 

[14] The planned sample size using DUS was 151 items. As explained in 
footnote 13, DUS selects dollars instead of specific transaction items 
by dividing the population by dollar intervals. The dollar interval for 
the AATF was $34 million. Because large-dollar items cover more than 
one interval, the 80 unique sampled transactions selected represent 151 
dollar intervals. 

[15] For this sample, if no errors are found in the 45 items, we would 
be 90 percent confident that the error rate in the population would not 
exceed 5 percent. 

[16] The purpose of this procedure is to determine whether the 
Collection Certification System prorates correctly. This procedure is 
not intended to determine whether amounts provided to the system are 
correct. 

[17] IRS prepares two certification letters for the HTF each quarter: 
one for the Highway Account and the other for the Mass Transit Account. 

[18] The certified amounts for diesel fuel tax (abstract 60), gasoline 
tax (abstract 62), and tax on 10 percent gasohol (abstract 59), along 
with the heavy vehicle use tax (traced separately), made up over 82 
percent of the total amount certified to the HTF for the quarters ended 
September 30, 2004, and December 31, 2004, and over 91 percent for 
abstracts 60, 62, and the heavy vehicle use tax for the quarter ended 
March 31, 2005. Since abstract 59 was eliminated as a result of the 
American Jobs Creation Act of 2004, Pub. L. No. 108-357,  301(c)(7), 
(d)(1), 118 Stat. 1418, 1461, 1463 (Oct. 22, 2004), we did not perform 
procedures on abstract 59 for the quarter ended March 31, 2005. 

[19] IRS uses data from two of these reports, covering sequential 
processing intervals, for each quarterly certification. Collections are 
classified by abstract on the report when the related Form 720 tax 
return has been posted to IRS's master file during the processing 
interval covered by the report. The second of the two reports used may 
contain collections related to prior quarters that IRS certifies as 
part of the current quarter's collections because the related return 
was not posted to the master file until the processing interval covered 
by this report. 

[20] The Treasury 90 Report summarizes excise tax credit information 
and is produced quarterly by IRS submission processing campus systems. 
IRS has eight submission processing campuses that receive and process 
tax returns and payments. 

[21] IRS calculates certified collections to the Highway Account and 
the Mass Transit Account using the total prorated collection amount, 
tax rate, and distribution rates applicable to each account. 

[22] For this procedure, "significant" is defined as $175 million, 
which represents approximately 2 percent of the quarterly total 
certified to HTF. 

[23] An FMS accountant compiles this schedule, called the "Subsidiary 
Quarterly Account of Estimates and Actual Related Taxes Appropriated to 
Highway Trust Fund." This schedule computes the difference between IRS- 
certified amounts and the OTA estimate for excise taxes, individually 
and in total, that relate to the Highway Account. A similar schedule is 
prepared for the Mass Transit Account. The schedules, along with OTA 
transfer forms and IRS certifications, support the FMS adjustment. 

[24] A positive amount indicates that the FMS adjustment increased 
excise taxes distributed to the trust fund. A negative amount, shown in 
parentheses, indicates that the FMS adjustment decreased excise taxes 
distributed to the trust fund. Since the adjustment amount is the 
difference between OTA's estimate and IRS's certified amount, it may be 
affected by IRS's ability to certify receipts in the appropriate 
quarter. 

[25] In order to accommodate the Department of Transportation's 
November 15 reporting date for fiscal year 2005, IRS performed 
precertifications. The data in the precertification are for information 
purposes only and do not represent an official certification. 

[26] Significant is defined as 5 percent of the actual certified amount 
for the quarter. 

[27] The certified amounts for diesel fuel tax (abstract 60) and 
gasoline tax (abstract 62) made up over 89 percent of the precertified 
total to the HTF. 

[28] For this procedure, "significant" is defined as $175 million. This 
represents approximately 2 percent of the precertified amount to the 
HTF for the quarter ended June 30, 2004. 

[29] For this procedure, "significant" is defined as tax returns with a 
total quarterly excise tax liability equal to or greater than $10 
million during each of the prior four quarters. Tax returns related 
specifically to the HTF with liabilities equal to or greater than $10 
million have, in the aggregate, historically accounted for over 91 
percent of distributions certified to HTF. 

[30] OTA makes semimonthly estimates of excise tax collections for 
transfer to trust funds. There are five semimonthly estimates for the 
quarter ended September 30, 2005, which affect fiscal year 2005 
distributions to the HTF. 

[31] OTA communicates this information to interested parties at 
Treasury and the Department of Transportation. IRS uses the tax and 
distribution rates from this table in its subsequent certification of 
collections to trust funds. 

[32] The transfer amounts for diesel fuel tax (abstract 60), gasoline 
tax (abstract 62), and heavy vehicle use tax made up over 92 percent of 
the total amount transferred to the HTF for the fourth quarter of 
fiscal year 2005. 

[33] The source documents include the IRS report of excise taxes used 
to derive the percentages applied to reported receipts, the Daily 
Treasury Statement, the Monthly Treasury Statement, and the excise tax 
rate tables. 

[34] IRS assigns a tax class number to specific types of taxes. Excise 
taxes are tax class 4. 

[35] At the end of each month, each IRS campus provides Treasury its 
FMS 224 (Statement of Transactions) generated from IRS's general 
ledger, reporting receipts and refunds journalized during the month. 
Treasury reconciles the amounts on the FMS 224 with its records and 
provides IRS a Statement of Differences for any differences identified. 

[36] For the purpose of this procedure and procedure VI.B.3, we define 
"material" as $20 billion. This represents 1 percent of the estimated 
total tax revenue receipts to be collected by IRS in fiscal year 2005.