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entitled 'Applying Agreed-Upon Procedures: Highway Trust Fund Excise 
Taxes' which was released on November 3, 2006. 

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November 3, 2006: 

The Honorable Todd J. Zinser: 
Acting Inspector General: 
Department of Transportation: 

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

Dear Mr. Zinser: 

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, 2006, is supported by the underlying records. As 
agreed with your office, we evaluated fiscal year 2006 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 were related to (1) detailed tests of 
transactions that represent the underlying basis of amounts distributed 
to the HTF, (2) Internal Revenue Service's (IRS) quarterly HTF 
certifications, (3) Department of the Treasury's Financial Management 
Service adjustments to the HTF during fiscal year 2006, (4) IRS's 
precertification[Footnote 1] of receipts for each quarter completed in 
fiscal year 2006, (5) certain procedures of the Department of the 
Treasury's Office of Tax Analysis' (OTA) process for estimating amounts 
to be distributed to the HTF for the fourth quarter of fiscal year 
2006, and other procedures related to (6) the net amount of fiscal year 
2006 excise taxes distributed to the HTF, (7) transactions that 
represent total IRS tax revenue receipts and refunds, and (8) key 
reconciliations of IRS records to Treasury records. The enclosure 
contains the agreed-upon procedures and our findings from performing 
each of the procedures. 

We were not engaged to perform, and did not perform, an audit, the 
objective of which would have been the expression of an opinion on the 
amount of net excise 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 25, 2006. 

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, 2006. 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, 2006. 

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: 

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 2006: 

A. Nonstatistical selection of tax returns from the quarters ended June 
30, 2005, and September 30, 2005[Footnote 3] 

1. For each of the quarters ending June 30, 2005, and September 30, 
2005, 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, 2005, was approximately $9.7 billion, or 65 
percent of the total excise tax liability amount of $15 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, 2005, was approximately $9.8 billion, or 65 
percent of the total excise tax liability amount of $15 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, 2005, and September 30, 2005, we performed the 
following procedures, which encompassed approximately $15 billion in 
prorated collections[Footnote 6] affecting fiscal year 2006 
distributions to the HTF: 

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

Description of findings and results: 

The liability amount for abstracts 60 and 62 on the tax return agreed 
with the master file for 41 of the 42 returns. For one tax return for 
the quarter ended September 30, 2005, the taxpayer reported a credit 
for abstract 62, but the IRS did not have the supporting documentation 
to substantiate the credit. As a result, the prorated collection amount 
in the Collection Certification System may be overstated by $363,000 
for abstract 62 and $107,000 for abstract 60. 

(b) Inspect the 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 two 
selected abstracts agreed with the amounts in IRS's Collection 
Certification System for all 42 returns. 

B. Dollar unit sample (DUS) of transactions from the quarters ended 
December 31, 2005, and March 31, 2006: 

1. Sampling: 

(a) Obtain excise tax collection data from the master file for the 
first two quarters of fiscal year 2006. 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 2006 
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 77 of the 78 sample items, assessments and receipts from the master 
file were contained in the Collection Certification System. For one 
sample item, the tax liability associated with the tax return was 
abated,[Footnote 11] however, the assessment amount of $18,000 for 
abstract 71 was not abated and, therefore, was incorrectly included in 
the Collection Certification System. 

(c) Sum the prorated collections for selected abstracts[Footnote 12] 
from the audit files and compare these amounts to amounts in the Report 
of Excise Tax Collection[Footnote 13] 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 $379 million, and 
an expected aggregate error amount of $114 million. 

Description of findings and results: 

Use of DUS with a confidence level of 80 percent, a test materiality of 
$379 million, and an expected aggregate error amount of $114 million 
resulted in a sample of 94[Footnote 14] prorated collections for the 
HTF for the first two quarters of fiscal year 2006. 

(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 $103 million, and an expected aggregate 
error amount of $31 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 
$103 million, and an expected aggregate error amount of $31 million 
resulted in a sample of 66[Footnote 15] prorated collections for the 
AATF for the first two quarters of fiscal year 2006. 

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 16] 

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 IRS's 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 all of the sampled items. 

* 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 17] 

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 2006, the net most likely error 
is $0 with an upper error limit of $228 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, 2005, December 31, 2005, and March 31, 
2006: 

A. Inspect the certification letters[Footnote 18] 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) and 
gasoline tax (abstract 62)[Footnote 19] from the certification letters 
back to the Report of Excise Tax Collection[Footnote 20] and the 
Treasury 90 Report.[Footnote 21] 

Description of findings and results: 

The certified amounts for diesel fuel tax (abstract 60) and gasoline 
tax (abstract 62) from the certification letters agreed with the 
related Report of Excise Tax Collection and the Treasury 90 Report for 
the quarters ended September 30, 2005, and December 31, 2005. For the 
quarter ended March 31, 2006, the certified amounts for abstracts 60 
and 62 from the certification letters agreed with the Report of Excise 
Tax Collection but not with the Treasury 90 Report. In deriving the 
certified amounts for abstracts 60 and 62 for that quarter, IRS 
deducted the incorrect amount of credits from the Treasury 90 Report. 
This resulted in a $15,398,992 understatement of the amount certified 
to the HTF for the quarter ended March 31, 2006. 

E. Compare the distribution rates used by IRS for diesel fuel tax 
(abstract 60) and gasoline tax (abstract 62) with the applicable 
laws.[Footnote 22] 

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 all three quarters. 

F. Inspect the Report of Excise Tax Collection used in the 
certification to determine if it contains significant[Footnote 23] 
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.[Footnote 24] 

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 steps on Financial Management Service (FMS) 
adjustments to HTF excise tax distributions for the quarters ended June 
30, 2005, September 30, 2005, December 31, 2005, and March 31, 2006: 

A. Compare the FMS adjustments made to the HTF with original Office of 
Tax Analysis (OTA) estimates and IRS-certified amounts, and with the 
supporting schedules.[Footnote 25] 

Description of findings and results: 

The FMS adjustments made to the HTF accounts (Highway and Mass Transit) 
agreed with the original OTA estimates and IRS-certified amounts, and 
with the supporting schedules, for all four 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 four quarters. These amounts 
were[Footnote 26] 

* ($162,439,000) for the quarter ended June 30, 2005; 

* $388,440,000 for the quarter ended September 30, 2005; 

* ($321,139,000) for the quarter ended December 31, 2005; and: 

* $2,248,000 for the quarter ended March 31, 2006. 

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

* ($64,407,000) for the quarter ended June 30, 2005; 

* ($20,809,000) for the quarter ended September 30, 2005; 

* ($74,917,000) for the quarter ended December 31, 2005; and: 

* ($10,322,000) for the quarter ended March 31, 2006. 

IV. Procedures on IRS's HTF precertification for the quarters ended 
September 30, 2005, December 31, 2005, March 31, 2006, and June 30, 
2006[Footnote 27] 

A. Compare the precertified amount to the actual amount certified to 
the HTF for the quarters ended September 30, 2005, December 31, 2005, 
and March 31, 2006. If there is a significant variance,[Footnote 28] 
request from the IRS 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 December 31, 
2005, and March 31, 2006. For the quarter ended September 30, 2005, 
there was a significant variance of $755 million. $702 million of this 
was attributable to an error IRS made on the precertification related 
to the heavy vehicle use tax, which resulted in an understatement of 
the total HTF precertified amount. Because IRS's precertification is 
not an actual certification that results in any redistributions of 
excise taxes among the trust funds, this error did not have an effect 
on fiscal year 2006 distributions to the HTF. 

B. Perform the following procedures on IRS's HTF precertification for 
the quarter ended June 30, 2006: 

1. Inspect the precertification 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 
precertification letters 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 29] from the precertification letters back to 
the Report of Excise Tax Collection and the Treasury 90 Report. 

Description of findings and results: 

The precertified amounts for gasoline tax (abstract 62) from the 
precertification letters agreed with the related Report of Excise Tax 
Collection and Treasury 90 Report. The precertified amounts for diesel 
fuel tax (abstract 60) from the precertification letters agreed with 
the related Report of Excise Tax Collection but not with the Treasury 
90 Report. In deriving the precertified amounts for abstract 60, the 
IRS deducted the incorrect amount of credits from the Treasury 90 
Report. This resulted in an understatement of the precertified amount 
to the HTF for the quarter ended June 30, 2006, of $88,363,365. Because 
IRS's precertification is not an actual certification that results in 
any redistributions of excise taxes among the trust funds, this error 
did not have an effect on fiscal year 2006 distributions to the HTF. 

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 30] 
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 31] 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, 2005. 

Description of findings and results: 

Our procedures did not identify any missing 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, 2006: 

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 32] was in place during the quarter ended September 
30, 2006. 

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, 2006. OTA prepares a tax 
rate table[Footnote 33] to capture information relating to legislation 
that affects tax rates, tax basis, accounts, and deposit rules in 
effect during the quarter. 

B. Inspect the 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, 2006. 

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, 2006, were mathematically correct. 

D. Trace the transfer amounts for diesel fuel tax (abstract 60), 
gasoline tax (abstract 62), and heavy vehicle use tax[Footnote 34] from 
the transfer forms through the supporting schedules and back to the 
related source documents.[Footnote 35] 

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, 2006. 

VI. Other procedures: 

A. Using IRS's quarterly certifications, OTA's estimated distributions, 
and any adjustments, report excise taxes distributed to the HTF in 
fiscal year 2006. 

Description of findings and results: 

Based on a compilation of IRS's quarterly certifications, OTA's 
estimated distributions, and adjustments, the net amount of excise 
taxes distributed to the HTF in fiscal year 2006 was $38,754,503,680. 

B. Procedures performed as part of the fiscal year 2006 IRS financial 
statement audit: 

1. From IRS's master files for the first 8 months of fiscal year 2006, 
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 36] 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 156 revenue receipts and 53 refund sample transactions 
were consistent with amounts recorded in IRS's master files. 

2. Obtain selected IRS service center campuses' monthly Department of 
the Treasury (Treasury) FMS 224 reconciliations[Footnote 37] and 
determine whether IRS-reported revenue receipts and refunds were 
materially reconciled[Footnote 38] to Treasury FMS records. 

Description of findings and results: 

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

3. Compare tax revenue receipt balances by tax class, including excise 
taxes, and total refund balances recorded in IRS's general ledger with 
the master files 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, and 
total refund balances per IRS's general ledger materially agreed with 
IRS's master files and Treasury records. 

(196090): 

FOOTNOTES 

[1] To accommodate the Department of Transportation's accelerated 
reporting date for fiscal year 2006, 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 2005 
financial statements, we noted a material weakness in IRS's financial 
reporting process (GAO, Financial Audit: IRS's Fiscal Years 2005 and 
2004 Financial Statements, GAO-06-137, [Washington, D.C.: Nov. 10, 
2005]). 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 (Treasury) Financial Management Service 
for the quarters ended June 30, 2005, and September 30, 2005, were 
completed in December 2005 and March 2006, respectively, and thus 
affected distributions to the HTF during fiscal year 2006. 

[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 kerosene 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 
kerosene 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) diesel fuel tax (abstract 60) 
and (2) 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 travel 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 taxpayer's 
excise tax return and made up over 83 percent of the total amount 
certified to the HTF and over 90 percent of the total amount certified 
to the AATF for the quarters ended June 30, 2005, and September 30, 
2005. 

[8] The Collection Certification System produces what IRS refers to as 
audit files. These audit files contain individual prorated collections 
by abstract and taxpayer identification number. The certified amounts 
to the trust funds are calculated by subtracting credits from prorated 
collections and then multiplying the difference by the applicable trust 
fund distribution rates. 

[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, 2005, and March 31, 2006. For fiscal year 2006, the 
materiality amount was $236 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] Abatements are reductions in the amount of taxes owed and can 
occur for a variety of reasons, such as to correct errors made by IRS 
or taxpayers or to provide relief from interest and penalties. 26 
U.S.C.  6404. 

[12] The selected abstracts are (1) diesel fuel tax (abstract 60), (2) 
gasoline tax (abstract 62), (3) tax on transportation of persons by air 
(abstract 26), (4) tax on the use of international air travel 
facilities (abstract 27), (5) tax on transportation of property by air 
(abstract 28), and (6) tax on kerosene for use in commercial aviation 
(abstract 77). The tax amounts for the two HTF-related abstracts made 
up over 86 percent of the total amount certified to the HTF and the tax 
amounts for the four AATF-related abstracts made up over 99 percent of 
the total amount certified to the AATF for the quarters ended December 
31, 2005, and March 31, 2006. 

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

[14] The planned sample size using DUS was 145 items. DUS selects 
dollars instead of specific transaction items by dividing the 
population by dollar intervals. The dollar interval for the HTF was 
$137 million. Accordingly, any item with a dollar value equal to 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 $274 million would cover two dollar intervals, but 
represent one sample item. Due to large-dollar items covering more than 
one interval, the 94 unique sampled transactions selected represent 145 
dollar intervals. 

[15] The planned sample size using DUS was 136 items. As explained in 
footnote 14, DUS selects dollars instead of specific transaction items 
by dividing the population by dollar intervals. The dollar interval for 
the AATF was $37 million. Because large-dollar items cover more than 
one interval, the 66 unique sampled transactions represent 136 dollar 
intervals. 

[16] 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. 

[17] 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. 

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

[19] The certified amounts for diesel fuel tax (abstract 60) and 
gasoline tax (abstract 62), along with the heavy vehicle use tax 
(traced separately), made up over 87 percent of the total amount 
certified to the HTF for the quarters ended September 30, 2005, 
December 31, 2005, and March 31, 2006. 

[20] IRS uses data from two of these reports, covering sequential 
processing intervals, for each quarterly certification. Collections are 
classified by abstract on the report when the related Form 720 tax 
return has been 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. 

[21] 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. 

[22] 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. 

[23] For this procedure, "significant" is defined as $175 million, 
which represents approximately 2 percent of the total amount certified 
to the HTF for the quarters ended September 30, 2005, December 31, 
2005, and March 31, 2006. 

[24] These taxes, which go to HTF, are reported on Form 2290 and are 
not included in the Collection Certification System. 

[25] An FMS accountant compiles this schedule, called the "Subsidiary 
Quarterly Account of Estimates and Actual Related Excise 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. 

[26] 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. 

[27] In order to accommodate the Department of Transportation's 
November 15 reporting date for fiscal year 2006, IRS performed 
precertifications of excise tax receipts. The data in the 
precertification are for information purposes only and do not represent 
an official certification for use in adjusting the excise tax 
distributions to the HTF. 

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

[29] The certified amounts for diesel fuel tax (abstract 60) and 
gasoline tax (abstract 62) made up over 86 percent of the precertified 
amount to the HTF for the quarter ended June 30, 2006. 

[30] For this procedure, "significant" is defined as $175 million. This 
represents approximately 2 percent of the precertified total to the 
HTF. 

[31] 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. 

[32] OTA makes semimonthly estimates of excise tax collections for 
transfer to trust funds. There are five semimonthly estimates for the 
quarter ended September 30, 2006, which affect fiscal year 2006 
distributions to the HTF. 

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

[34] The transfer amounts for diesel fuel tax (abstract 60), gasoline 
tax (abstract 62), and heavy vehicle use tax made up over 91 percent of 
the total amount transferred to the HTF for the fourth quarter of 
fiscal year 2006. 

[35] 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. 

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

[37] 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. 

[38] For the purpose of this procedure and procedure VI.B.3, we define 
"material" as $23 billion. This represents 1 percent of the estimated 
gross tax revenue receipts to be collected by IRS in fiscal year 2006. 

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