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

October 2003:

Tax Administration:

IRS's 2003 Filing Season Performance Showed Improvements:

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-84] GAO-04-84:

GAO Highlights:

Highlights GAO-04-84, a report to Chairman, Subcommittee on Oversight, 
Committee on Ways and Means, House of Representatives 

Why GAO Did This Study:

During the tax filing season, millions of taxpayers file their returns 
and seek assistance by calling or visiting IRSís offices or Web site. 
GAO was asked to assess IRSís 2003 filing season performance in five 
areas: processing returns, refunds and remittances; electronic filing; 
telephone service; walk-in assistance, and Web site. We assessed for 
each of those five areas (1) IRSís performance in 2003, including any 
factors that helped or impeded its efforts, (2) any new initiatives 
that were intended to improve IRSís performance in 2003, and (3) IRSís 
performance over past filing seasons.

What GAO Found:

Available data for each of five key filing season activities indicates 
that IRSís performance showed some improvements in 2003 compared to 
2002 and IRS met or exceeded many of its 2003 performance goals. IRS 
processed returns and issued refunds more timely and accurately and 
increased the rate of electronic filing, although not at a rate that 
would allow IRS to meet its long-term goal. While IRS provided 
significantly more accessible telephone service, the accuracy rate of 
IRS responses declined. The accuracy of tax law assistance provided at 
walk-in sites improved, although the number of taxpayers assisted at 
IRSís walk-in sites declined, in part because taxpayers made greater 
use of the return-preparation assistance offered by volunteer 
organizations. In addition, IRS did not consolidate or disseminate 
data on how long taxpayers waited for walk-in assistance, making it 
difficult to balance quality and service. Finally, IRSís Web site 
performed well and was more user friendly than last year. IRS 
attributes improved performance, in part, to (1) fewer tax law changes 
that affected taxpayers and (2) continued emphasis on performance 
measures, a key part of IRSís strategy to improve its performance in 
processing returns and providing taxpayer assistance. 

IRS implemented initiatives in 2003 intended to improve filing season 
performance. For example, IRS entered into an agreement with a 
consortium of 17 tax preparation companies to offer free on-line tax 
preparation, established new toll-free telephone numbers to better 
target different taxpayers, and began certifying walk-in staff to 
answer tax law questions. 

Over a longer period of time, available data, although limited in some 
areas, also show that IRSís filing season performance has improved. 
Since the mid-1990s, the growth of electronic filing has allowed IRS 
to close one paper processing center and the accuracy and 
accessibility of telephone assistance has improved. While the Congress 
and taxpayers expect further progress, the improvements to date are a 
payoff from IRSís ongoing modernization.

What GAO Recommends:

GAO recommends that IRS consolidate and disseminate available wait-
time information to field managers.  

In commenting on a draft of this report, IRS partially agreed with our 
recommendation, stating that it will require walk-in sites equipped 
with a system to report wait-time information quarterly and that this 
information would provide valuable data for assessing overall trends 
and relationships in timeliness and quality. However, IRS did not 
agree to disseminate this consolidated wait-time information to field 
managers, but without it, managers would have difficulty balancing 
timeliness and quality.

www.gao.gov/cgi-bin/getrpt?GAO-04-84

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

[End of section]

Contents:

Letter: 

Results in Brief: 

Scope and Methodology: 

Background: 

IRS's Processing of Returns And Refunds Improved, and IRS Closed One 
Paper Processing Center: 

Electronic Filing Grew in 2003, but at Current Growth Rate IRS Will Not 
Achieve Long-Term Goal: 

Telephone Service Showed Improvement in Accessibility but Not Accuracy: 

Quality of Walk-In Assistance Improved in 2003, but Assessing Long-Term 
Improvements Is Difficult Because of Lack of Data: 

IRS's Web Site Performance Showed Some Improvement: 

Conclusions: 

Recommendation for Executive Action: 

Agency Comments and Our Evaluation: 

Appendixes:

Appendix I: Data on IRS's Processing Performance Relative to Fiscal 
Year 2001-2003 Performance and Fiscal Year 2003 Goals: 

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

Appendix III: Comments from the Internal Revenue Service: 

Appendix IV: GAO Contacts and Staff Acknowledgments: 

Tables:

Table 1: IRS Tax Filing Season Telephone Assistance Performance, 2000-
2003 Filing Seasons: 

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

Figures:

Figure 1: IRS's Primary Activities During the 2003 Filing Season: 

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

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

Figure 4: Reasons Taxpayers Called for Telephone Assistance during the 
2003 Filing Season: 

Figure 5: How IRS Handled Calls for Telephone Assistance during 2003 
Filing Season: 

Figure 6: Assistance Provided by IRS Walk-in and Volunteer Sites, 2000-
2003 Filing Seasons: 

Letter October 31, 2003:

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

Dear Mr. Chairman:

In response to your request, this report discusses the Internal Revenue 
Service's (IRS) performance during the 2003 tax filing season.[Footnote 
1] It is during the filing season that most taxpayers have their only 
contact with IRS, filing their individual income tax returns, and if 
needed, seeking assistance or resolving simple problems, such as 
computational errors or missing Social Security numbers (SSN). Because 
of the millions of income tax returns processed and refunds issued and 
the crucial role that the filing season plays in the collection of 
revenue that finances the federal government, IRS's performance during 
the filing season is important to taxpayers and the Congress.

This report discusses IRS's performance in five key filing season 
activities (1) processing individual income tax returns, refunds, and 
remittances; (2) receiving returns electronically; (3) assisting 
taxpayers over the telephone; (4) providing face-to-face assistance at 
its walk-in locations; and (5) providing services via its Internet Web 
site. For each of the five areas the report discusses (1) IRS's 
performance in 2003 compared to 2002 and 2003 goals, including any 
factors that significantly affected performance, (2) any new 
initiatives that were intended to improve IRS's performance in 2003, 
and (3) significant trends in IRS's performance over the past several 
years resulting from modernization efforts.

Results in Brief:

Overall, IRS's performance during the 2003 filing season improved 
compared to its performance in 2002 for each of the five filing season 
activities we reviewed, and IRS met many of its 2003 performance goals. 
However, the accuracy of telephone assistance declined, the growth of 
electronic filing is slowing, and the timeliness of walk-in assistance 
is unknown.

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

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

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

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

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

We are making a recommendation to the Commissioner of Internal Revenue 
that IRS consolidate and disseminate wait-time information to field 
managers on the basis of information from walk-in sites equipped with 
an automated system that can capture wait-time data in order to assess 
this important aspect of quality. In commenting on a draft of this 
report (see app. III), the Commissioner of Internal Revenue partially 
agreed with our recommendation, stating that IRS will require walk-in 
sites equipped with Q-Matic to report wait-time information quarterly. 
However, the Commissioner did not agree to disseminate this 
consolidated wait-time information to field managers. For years, as we 
report, IRS has contended that past experience has shown that employee 
reaction to timeliness measures adversely affected quality. At the same 
time, the Commissioner noted that some monitoring of wait time occurs 
by local managers for walk-in sites equipped with the automated 
reporting system. However, routine monitoring does not provide overall 
performance data, and data is only available to some managers whose 
walk-in sites have the automated system. In our view, there needs to be 
a balance between measuring quality and timeliness, and too much focus 
on either could create inappropriate incentives for IRS's walk-in 
staff. As noted in our report, timeliness is part of IRS's suite of 
balanced measures for telephone performance. We agree that too much 
focus on timeliness could create inappropriate incentives for IRS's 
walk-in staff, but without consolidated timeliness information, field 
managers would have a difficult time balancing quality and timeliness. 
We discuss the Commissioner's comments in the "Agency Comments and Our 
Evaluation" section of the report.

Scope and Methodology:

Our assessment of IRS's 2003 filing season performance was based on 
analyses of IRS data and data obtained from sources outside IRS, 
interviews with IRS officials and private sector tax preparers, and 
observations of IRS operations. We testified before the Subcommittee on 
Oversight on the interim results of our assessment in April 
2003.[Footnote 2] Our assessment of filing season performance over a 
longer period of time was based, in part, on our past filing season 
reports.

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

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

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

* interviewed IRS officials about current operations, performance 
relative to the past filing season and 2003 performance goals, and 
significant factors and initiatives that affected performance;

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

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

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

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

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

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

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

This report discusses performance measures that reflect the continuing 
interest of the Subcommittee--including the quality, accessibility, and 
timeliness of IRS's performance during the filing season. In November 
2002, we assessed the methodologies IRS used for computing its current 
suite of performance measures and the appropriateness of the 
performance goals.[Footnote 4] At that time, we reported that some of 
the performance measures that IRS and we use to assess various aspects 
of IRS's filing season performance had attributes of successful 
performance measures including objectivity and reliability, although in 
some cases, the measures could be further refined. Even recognizing the 
limitation of these measures, we have determined that the data we are 
reporting are sufficiently reliable and useful for assessing IRS's 
filing season performance.

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

Background:

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

Figure 1: IRS's Primary Activities During the 2003 Filing Season:

[See PDF for image]

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

[End of figure]

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

Since the IRS Restructuring and Reform Act of 1998[Footnote 6] (RRA 
98), IRS has been particularly focused on improving taxpayer service. 
To help achieve this, in 2001, IRS established a suite of balanced 
performance measurements in accordance with RRA 98 and the Government 
Performance and Results Act of 1993.[Footnote 7] The performance 
measurement system emphasizes accountability for achieving specific 
results and reflects IRS's priorities, which are articulated in its 
mission and strategic goals--top quality service to all taxpayers 
through fair and uniform application of the law, top quality service to 
each taxpayer in every interaction, and productivity through a quality 
work environment. IRS has defined three elements of balanced measures 
to ensure balance among its priorities, such as providing timely and 
accurate service: (1) customer satisfaction, (2) employee satisfaction, 
and (3) business results (quality and quantity measures). IRS 
establishes goals each fiscal year for its performance measures and 
uses them to hold managers and frontline staff more accountable for 
improving filing season performance.[Footnote 8]

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

IRS's Processing of Returns And Refunds Improved, and IRS Closed One 
Paper Processing Center:

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

Processing Performance Improved in 2003 Compared To Last Year:

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

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

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

* Directors, managers, and staff at the Atlanta and Brookhaven 
Submission Processing centers voiced similarly positive views about the 
filing season and processing, and the Director of Submission Processing 
attributed improvements during the 2003 filing season to efforts to 
build upon a largely successful 2002 filing season and the small effect 
of tax law changes on taxpayers during the 2003 filing season. Appendix 
II provides more detailed information about the Jobs and Growth Tax 
Relief Reconciliation Act of 2003[Footnote 10] and its impact on the 
2003 filing season and potential impact in 2004.

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

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

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

Closing of Paper Processing Operations at One Center Is a Key 
Initiative and Represents Payoff From Modernization:

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

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

According to IRS officials, the improvements in processing performance 
have resulted from a combination of factors, including better data 
processing equipment and more emphasis on performance management. For 
example, in the late 1990s, IRS began replacing two key data processing 
systems, which allowed for faster processing. In addition, IRS 
officials told us that they now rely more heavily on technology to 
communicate with employees, which they believe allows for faster and 
more accurate dissemination of information from headquarters to field 
staff and vice versa. As a result of RRA 98, IRS also has stressed the 
importance of reaching the goals for its balanced measures as compared 
to prior years, when IRS placed less importance on these types of 
measures.

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

Electronic Filing Grew in 2003, but at Current Growth Rate IRS Will Not 
Achieve Long-Term Goal:

The number of individual income tax returns that IRS received 
electronically continued to grow and IRS met its goal for the 
percentage of returns filed electronically. However, the current rate 
of growth of electronic filing will not allow IRS to achieve its long-
term electronic filing goal of 80 percent by 2007,[Footnote 16] despite 
numerous initiatives to reduce barriers to and encourage more 
electronic filing.

Despite Growth in Electronic Filing In 2003, IRS is Not on Track to 
Achieve Its Long-Term Goal:

The number of individual returns filed electronically continued to grow 
in 2003. IRS received an estimated 53 million individual tax returns 
electronically in 2003, an increase of about 13 percent from 46.9 
million in 2002. The percentage of individual tax returns filed 
electronically reached an estimated 41 percent in 2003, up from 35.9 
percent in 2002. While the number of tax returns filed electronically 
in 2003 fell just short of IRS's performance goal of 54 million, IRS 
met its performance goal for the percentage of individual tax returns 
filed electronically.

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

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

[See PDF for image]

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

[End of figure]

The current growth rate will not enable IRS to meet its long-term 
goals. We estimate, on the basis of the data in figure 3, that about 64 
percent of individual tax returns will be filed electronically by 2007, 
assuming annual growth rates for individual tax returns filed 
electronically (about 13 percent) and total number of individual tax 
returns filed (0.66 percent)[Footnote 17] continue through 2007. IRS 
estimated an even lower percentage (54.4 percent) of returns would be 
filed electronically by 2007.[Footnote 18] In order to achieve the 
long-term goal of 80 percent, IRS would have to average more than a 19 
percent growth rate in electronic filing from 2004 to 2007. However, in 
its June 30, 2003, report to the Congress, the Electronic Tax 
Administration Advisory Committee (ETAAC) [Footnote 19] said that the 
trend of electronic filing is clearly toward lower annual growth rates 
and as a result, IRS will have difficulty achieving its long-term goal 
unless it finds additional ways to overcome taxpayer and tax 
practitioner barriers to electronic filing. To the extent that IRS 
misses the goal, more resources will have to be devoted to processing 
paper returns.

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

[See PDF for image]

Note: GAO analysis of IRS data.

[End of figure]

IRS Has Taken Various Steps to Encourage More Electronic Filing, which 
Is Key to Continued Modernization:

In 2003, IRS took various steps to encourage taxpayers and 
practitioners to file electronically. These steps included the 
following:

* IRS entered into an agreement with the Free File Alliance, a 
consortium of 17 tax preparation companies, which requires the Alliance 
to offer free on-line tax preparation and filing services for at least 
60 percent (78 million) of all taxpayers during the filing season. 
Taxpayers access the Alliance from a link on IRS's Web site. As of July 
31, 2003, about 2.8 million taxpayers used the free on-line filing 
services offered by the Alliance, which exceeded IRS's goal of 2.5 
million taxpayers.[Footnote 20] However, IRS officials estimated that 
only about 1 million of these taxpayers were filing electronically for 
the first time.

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

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

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

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

Telephone Service Showed Improvement in Accessibility but Not Accuracy:

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

Telephone Service Was More Accessible, Although Not More Accurate in 
2003:

IRS receives millions of calls to its toll-free network during the 
filing season when taxpayers, inquire about tax law issues, the status 
of their refunds, or issues regarding their accounts, among other 
things. As figure 4 shows, IRS received about 72 million calls in 2003, 
about 31 percent fewer calls than it received in 2002. Figure 4 also 
shows that calls about the status of refunds accounted for almost half 
of total calls received through mid-July 2003.

Figure 4: Reasons Taxpayers Called for Telephone Assistance during the 
2003 Filing Season:

[See PDF for image]

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

[End of figure]

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

Figure 5: How IRS Handled Calls for Telephone Assistance during 2003 
Filing Season:

[See PDF for image]

Note: GAO analysis of IRS data.

[End of figure]

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


Table 1: IRS Tax Filing Season Telephone Assistance Performance, 2000-
2003 Filing Seasons:

Accessibility measures[A]: CSR level of service[B]; 2000: Actual: [J]; 
2001: Actual: 68%; 2002: Actual: 71%; 2003: Actual: 85%; Goals: 72%.

Accessibility measures[A]: Automated completion rate[C]; 2000: Actual: 
47%; 2001: Actual: 47%; 2002: Actual: 36%; 2003: Actual: 59%; Goals: N/
A[K].

Accessibility measures[A]: Assistor response level[D]; 2000: Actual: 
39%; 2001: Actual: 39%; 2002: Actual: 51%; 2003: Actual: 56%; Goals: N/
A[K].

Accessibility measures[A]: Average speed of answer[E]; 2000: Actual: 
237 seconds; 2001: Actual: 337 seconds; 2002: Actual: 268 seconds; 
2003: Actual: 159 seconds; Goals: N/A[K].

Accessibility measures[A]: Accuracy measures[A]; 2000: Actual: 
2001: Actual: 2002: Actual: 2003: Actual: 
Goals: [Empty].

Accessibility measures[A]: Tax law quality rate[F]; 2000: Actual: 73%; 
+/-2%; 2001: Actual: 75%; +/-1%; 2002: Actual: 82%; +/-1%; 2003: 
Actual: 80%; +/-1%; Goals: 84%.

Accessibility measures[A]: Accounts quality rate[F]; 2000: Actual: 59%; 
+/-2%; 2001: Actual: 69%; +/-1%; 2002: Actual: 76%; +/-1%; 2003: 
Actual: 70%; +/-1%; Goals: 76%.

Accessibility measures[A]: Tax law customer accuracy rate[G]; 2000: 
Actual: [J]; 2001: Actual: 79%; +/-1%; 2002: Actual: 85%; +/-1%; 2003: 
Actual: 81%; +/-1%; Goals: 87%.

Accessibility measures[A]: Accounts customer accuracy rate[G]; 2000: 
Actual: [J]; 2001: Actual: 88%; +/-1%; 2002: Actual: 91%; +/-1%; 2003: 
Actual: 89%; +/-1%; Goals: 91%.

Accessibility measures[A]: Tax law timeliness rate[H]; 2000: Actual: 
[J]; 2001: Actual: [J]; 2002: Actual: [J]; 2003: Actual: 99%; +/-1%; 
Goals: N/A[K].

Accessibility measures[A]: Accounts timeliness rate[H]; 2000: Actual: 
[J]; 2001: Actual: [J]; 2002: Actual: [J]; 2003: Actual: 97%; +/-1%; 
Goals: N/A[K].

Accessibility measures[A]: Tax law professionalism rate[I]; 2000: 
Actual: [J]; 2001: Actual: [J]; 2002: Actual: [J]; 2003: Actual: 100%; 
+/-1%; Goals: N/A[K].

Accessibility measures[A]: Account professionalism rate[I]; 2000: 
Actual: [J]; 2001: Actual: [J]; 2002: Actual: [J]; 2003: Actual: 100%; 
+/-1%; Goals: N/A[K].

Source: IRS.

[A] Accessibility measures are based on actual counts from January 1 
through mid-July. Accuracy measures are based on representative samples 
and are estimated at the 90-percent confidence level and cover the 
period from January through June.

BThis measure is intended to show the percentage of callers who wanted 
to speak to a customer service representative (CSR) that got through 
and received service.

CThis measure is intended to show the percentage of total callers who 
completed a selected automated service. IRS did not establish a goal 
for 2003 because the indicator is not an official measure.

DIRS uses the word "assistor" interchangeably with CSR. This measure 
shows the percentage of callers that waited 30 seconds or less before 
speaking to a CSR. IRS did not establish a goal for 2003 because the 
indicator is not an official measure.

[E] The average number of seconds callers waited before speaking to a 
CSR. IRS did not establish a goal for 2003 because the indicator is not 
an official measure.

[F] The percentage of calls in which CSRs followed all IRS procedures 
for the call type and provided correct answers.

[G] The percentage of calls in which CSRs provided correct answers for 
the call type and took the appropriate follow-up resolution action.

[H] The percentage of calls in which CSRs used their time efficiently 
when responding to taxpayers inquires. IRS did not establish goals for 
2003 for these measures because they were new in 2003.

[I] The percentage of calls in which CSRs used effective communication 
techniques to promote a positive IRS image when responding to taxpayer 
inquires. IRS did not establish goals for 2003 for these measures, 
because they were new in 2003.

[J] Comparable data do not exist.

[K] Not applicable.

[End of table]

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

IRS officials attributed the improvement in the accessibility of 
telephone service to several factors. For example, IRS experienced a 
lower than expected number of calls in 2003--about 72 million calls 
received in 2003 as compared to more than 104 million in 2002. IRS 
officials told us that there were relatively few tax law changes that 
had an impact on taxpayers during the 2003 filing season as compared to 
last year, when IRS received a significant number of calls related to 
the rate reduction credit. Another possible reason for the improvement 
in accessibility could be the fact that IRS began using CSRs to route 
tax law related calls in 2003. IRS made this change because in 2002 (1) 
some callers spent up to 2 minutes navigating the menu options, (2) 
other callers spent up to 3 minutes talking to one CSR only to be 
transferred to another CSR for assistance, and (3) more than 50 percent 
of the calls received by CSRs were re-routed to other CSRs for some tax 
law topics. IRS officials told us that they made this change to improve 
performance during the filing season and improve the customer 
experience since many customers with tax-law-related calls had 
difficulty using the menu options.

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

IRS attributed the lack of improvement in the accuracy of telephone 
service to several factors. For example, IRS officials attributed the 
decline in the accounts quality rate to the training of newly hired 
CSRs on account-related topics instead of the easier refund topics. In 
addition, with the introduction of the Internet "Where's My Refund" 
feature, IRS received fewer refund inquires, which resulted in more 
complex calls being answered by CSRs. This feature is discussed in more 
detail in the "IRS's Web Site Performance Showed Some Improvement" 
section. IRS identified several items that contributed to the decrease 
in the tax law customer accuracy rate, including the fact that CSRs had 
difficulty adapting to the changes in the guide they use to query 
callers. IRS officials also said another explanation for the lack of 
improvement in providing accurate information to callers is that some 
of IRS's telephone call sites were transferred from one operating 
division to another division, which resulted in CSRs moving from one 
area of expertise to another area and needing to be retrained.

IRS Implemented Several Initiatives in 2003 to Improve Telephone 
Service:

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

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

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

Telephone Service Has Improved over the Past Several Filing Season 
Partly as a Result of Modernization:

Since the mid-1990s, IRS has significantly improved its telephone 
service. Although telephone service is not yet at the level desired by 
taxpayers and the Congress, the improvements to date represent payoffs 
from IRS's modernization efforts. For example, in 1997, about 49 
percent of calls to IRS primary assistance lines either received a busy 
signal or were abandoned before being answered, as compared to about 32 
percent of calls in 2003. In addition, the percentage of calls where 
taxpayers attempted to reach a CSR and received service increased from 
about 68 to 85 percent between the 2001 and 2003 filing seasons. With 
regard to accuracy, the percentage of tax-law-related calls in which 
CSRs followed all IRS procedures and provided the correct answer 
increased from 73 percent in 2000 to 80 percent in 2003, while the 
percentage of account-related-calls in which CSRs followed all IRS 
procedures and provided the correct answer also increased from 59 to 70 
percent between the 2000 and 2003 filing seasons.

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

Quality of Walk-In Assistance Improved in 2003, but Assessing Long-Term 
Improvements Is Difficult Because of Lack of Data:

The quality of service provided at IRS's walk-in sites showed some 
improvement in 2003, and IRS met some of its 2003 performance 
goals.[Footnote 25] In addition, IRS continued its initiative to shift 
return preparation work to its community-based coalitions and other 
volunteer organizations, which contributed to a decline in the number 
of taxpayers assisted at IRS's walk-in sites. However, our assessment 
was limited by the fact that IRS did not report performance for the 
timeliness of walk-in assistance or the accuracy of account assistance 
in 2003. Over the last several years, IRS has made efforts to 
standardize and improve walk-in assistance, but a lack of long-term 
performance data makes it impossible to quantify improvements.

Tax Law Accuracy and Volunteer Assistance Increased in 2003, but IRS 
Did Not Report on Timeliness and Account Assistance:

The accuracy of tax law assistance provided at walk-in sites improved 
between 2002 and 2003 on the basis of reviews conducted by 
TIGTA.[Footnote 26] From January through April 2003, TIGTA found that 
about 70 percent of its questions were answered correctly, an increase 
of 20 percentage points over the same time period last year, but less 
than IRS's 2003 performance goal of 80 percent. TIGTA also found that 
the number of times IRS employees referred TIGTA auditors to a 
publication instead of answering tax law questions--which had been an 
issue last year--declined by about 87 percent. TIGTA attributed the 
increased accuracy rates to IRS (1) revising the guidelines used by 
walk-in staff, (2) certifying the proficiency of walk-in staff in 
various tax law categories, and (3) immediately addressing the results 
of TIGTA reviews at walk-in sites. As they did last year, field 
assistance officials continue to disagree with the methodology used by 
TIGTA to calculate tax law accuracy because TIGTA counts referrals to 
IRS publications as incorrect.[Footnote 27] However, as we stated last 
year, we believe that the complexity of tax laws and varying education 
levels among taxpayers seeking assistance suggest that requiring field 
assistance employees to walk the taxpayer through a publication to 
identify the correct response is a necessary procedure that should be 
followed in practice for their response to be considered 
correct.[Footnote 28]

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

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

Figure 6: Assistance Provided by IRS Walk-in and Volunteer Sites, 2000-
2003 Filing Seasons:

[See PDF for image]

Note: GAO analysis based on IRS data. Total walk-in includes all face-
to-face assistance. It does not include the number of taxpayers 
assisted by walk-in employees via telephone or correspondence, which 
ranged from about 96,000 in 2000 to over 150,000 in 2003.

The number of returns prepared at volunteer sites was not available for 
the 2000 filing season.

The time periods covered by this figure each began on January 1 and 
ended on April 22, 2000, April 21, 2001, April 20, 2002, and April 19, 
2003.

[End of figure]

IRS officials attributed the overall decline in the number of taxpayers 
receiving assistance at walk-in sites to (1) IRS's strategy to reduce 
the amount of return preparation assistance offered at walk-in 
sites,[Footnote 32] (2) taxpayers use of more convenient means to 
obtain services that do not require face-to-face contact, such as 
through IRS's toll-free network and Web site, and (3) the increasing 
number of taxpayers that receive return preparation assistance at 
community-based coalitions and other organizations as part of IRS's 
VITA and TCE programs.[Footnote 33] These officials also told us that 
the decline in the number of taxpayers assisted at walk-in sites helped 
IRS reduce its reliance on compliance staff. Traditionally, IRS has 
detailed staff from its compliance functions, such as Examination and 
Collection, to help provide walk-in assistance. In 2003, IRS was able 
to reduce the number of compliance staff that helped to provide walk-in 
assistance during the filing season by about 118 staff years (66 
percent) during the filing season. IRS also reduced the total number of 
staff years used to provide walk-in assistance during the 2003 filing 
season by about 14 percent as compared to the same time period in 2002.

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

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

IRS Took Steps in 2003 to Improve Walk-in Service:

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

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

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

* IRS began training walk-in staff in fiscal year 2003 on how to guide 
taxpayers through a publication to answer a tax law question, instead 
of merely providing the taxpayer with the publication and having the 
taxpayers figure out the answers by themselves. As part of this 
training, IRS also developed guidance for walk-in staff to use that is 
similar to what CSRs use for answering tax law questions received via 
IRS's toll-free telephone network. In addition, field assistance 
procedures emphasize that walk-in staff should not give taxpayers a 
publication in lieu of providing an answer to their tax law question.

IRS Lacks Data for Assessing Long-term Improvements in Walk-In 
Assistance:

Over the last few years, IRS has made efforts to standardize walk-in 
assistance, but a lack of performance data makes it difficult for IRS 
and us to quantify long-term improvements. As we reported in December 
2000, IRS's National Office did not implement a quality review program 
for walk-in sites until 2000.[Footnote 35] Before that time, IRS lacked 
meaningful nationwide data to assess the performance of its walk-in 
sites in terms of quality, timeliness, and taxpayer satisfaction. 
Despite this fact, field assistance officials believe that there have 
been improvements in the quality of services provided by walk-in sites 
in recent years, based on a number of factors. For example, in 2001, 
IRS reorganized its walk-in sites and established a set of measures, 
such as tax law accuracy, to assess performance and to help provide 
consistency and standardization. As a result, field assistance 
officials told us that walk-in sites now capture workload data, for 
example, more consistently, which makes the data more useful to 
management and which indicates an improvement in recent years. The 
officials told us that, in 2002, IRS also began providing more 
consistent and standardized services, better training, and improved 
access to taxpayer account information at walk-in sites. In addition, 
IRS began refining the process for referring complex tax law questions 
that are beyond the scope of training that walk-in staff normally 
receive to expert field assistance, toll-free telephone assistance 
CSRs, or compliance staff. Finally, as previously noted, IRS has also 
been able to reduce its reliance on compliance staff over the last few 
years, allowing it to redirect those resources to higher priority, 
compliance-related work.

IRS's Web Site Performance Showed Some Improvement:

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

Keynote--an independent Web site rater and a recognized authority on 
Internet performance--reviewed the average delivery time and 
availability[Footnote 36] of IRS's Web site and reported that the site 
performed well, although the Web site did exhibit some minor 
problematic periods. Keynote reported that from April 11 through April 
16, 2003, IRS's home page was delivered in around 1 second and the Web 
site had an average availability rate of 99.35 percent.[Footnote 37] 
However, on April 14, 2003, Keynote reported that the site's average 
delivery time experienced slowdowns of up to 6 to 8 seconds from 5 p.m. 
to 9 p.m., and its average availability rate decreased to less than 90 
percent. In 2002, Keynote reported that the Web site's average delivery 
time was less than 1 second and its availability averaged close to 100 
percent for most of the filing season.

Although Performance Declined for Questions Received Via IRS's Web 
Site, Ease of Use Improved:

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

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

IRS Continues to Offer New Services to Increase Web Use, a Key Part of 
Modernization:

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

IRS's Web site is a critical part of modernization because, according 
to IRS, it is more cost effective than other methods of providing 
taxpayer assistance, such as answering telephone calls. As discussed 
above, the initiative that allowed taxpayers to check the status of 
their refunds shows the potential of the Web site to provide more cost-
effective services. Taxpayer's use of IRS's Web site and the services 
IRS offers on its Web site have grown considerably over the past 
several filing seasons, another indication that taxpayers are receiving 
payoffs from modernization. For example, by July 31, 2003, taxpayers 
already had downloaded more than 430 million forms and publications 
compared to the 129 million for about the same time period in 2000.

Conclusions:

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

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

Recommendation for Executive Action:

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

Agency Comments and Our Evaluation:

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

:

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

:

:

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

Sincerely yours,

Signed by: 

James R. White: 
Director, Tax Issues:

[End of section]

Appendixes: 

Appendix I: Data on IRS's Processing Performance Relative to Fiscal Year 
2001-2003 Performance and Fiscal Year 2003 Goals:

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

Table 2: IRS's 2001-2003 Tax Filing Season Processing PerformanceA:

Measure Name: Deposit error rate; Definition: Percentage of payments 
applied in error by, for example, reimbursing a taxpayer who overpaid 
when the taxpayer wanted any overpayment credited to next year's tax 
bill; Fiscal year 2001 actual[B]: 5.0%; Fiscal year: 2002: actual: 
4.8%; +/-0.3%; Fiscal year: 2003: actual: (through July 31): 4.4%; +/
-0.3%; Fiscal year: 2003: goal: 2.4%; Comments: Performance 
improved, but performance goal not met. According to IRS officials, the 
goal was too aggressive.

Measure Name: Deposit timeliness-paper; Definition: Interest value of 
money not deposited by the business day after receipt per $1 million in 
deposits. Measure assumes an 8 percent interest rate; Fiscal year 2001 
actual[B]: $748; Fiscal year: 2002: actual: $578; Fiscal year: 2003: 
actual: (through July 31): $542; Fiscal year: 2003: goal: $573; 
Comments: Performance improved and performance goal exceeded.

Measure Name: Letter error rate; Definition: Percentage of letters 
issued to taxpayers with errors (includes systemic errors).[C]; Fiscal 
year 2001 actual[B]: Not comparable because of revisions to the 
measure; Fiscal year: 2002: actual: 7.4%; +/-0.6%; Fiscal year: 
2003: actual: (through July 31): 7.2%; +/-0.5%; Fiscal year: 2003: 
goal: 6.2%; Comments: Performance improved, but goal not met. 
According to IRS officials, the goal was not met because of loss of 
experienced and knowledgeable personnel as a result of IRS's 
announcement that it would be closing some processing centers.

Measure Name: Notice error rate; Definition: Percentage of incorrect 
notices issued to taxpayers (includes systemic errors).[ C]; Fiscal 
year 2001 actual[B]: Not comparable because of revisions to the 
measure; Fiscal year: 2002: actual: 18.7%; +/-2.7%; Fiscal year: 
2003: actual: (through July 31): 9.7%; +/-0.5 %; Fiscal year: 2003: 
goal: 13.2%; Comments: Performance improved and performance 
goal exceeded.

Measure Name: Refund error rate -individual (paper); Definition: The 
percentage of refunds with IRS-caused errors in the entity information 
(e.g., incorrect name or Social Security number) or refund amount; 
includes systemic errors.[ C]; Fiscal year 2001 actual[B]: 9.8%; Fiscal 
year: 2002: actual: 8.0%; +/-3.8%; Fiscal year: 2003: actual: 
(through July 31): 5.4%; +/-3.5%; Fiscal year: 2003: goal: 7.6%; 
Comments: Performance improved and performance goal exceeded.

Measure Name: Refund interest paid; Definition: Amount of refund 
interest IRS paid per $1 million of refunds issued; Fiscal year 2001 
actual[B]: Not comparable because of revisions to the measure; Fiscal 
year: 2002: actual: Not comparable because of revisions to the 
measure; Fiscal year: 2003: actual: (through July 31): Not 
comparable because of revisions to the measure; Fiscal year: 2003: 
goal: Not applicable; Comments: We cannot assess performance 
relative to previous years or 2003 goal. In 2002, IRS implemented a 
programming change that revised how it calculates the measure and did 
not have the necessary data to revise the goal for the 2003 filing 
season.

Measure Name: Refund timeliness-individual (paper); Definition: 
Percentage of refunds issued within 40 days or less; Fiscal year 2001 
actual[B]: 95.2%; Fiscal year: 2002: actual: 98.2%; +/-2.3%; Fiscal 
year: 2003: actual: (through July 31): 98.8%; +/-2.3%; Fiscal year: 
2003: goal: 98.4%; Comments: Performance improved and 
performance goal exceeded.

Measure Name: Productivity; Definition: Weighted volume of documents 
processed per staff year expended at the processing centers; Fiscal 
year 2001 actual[B]: 30,133; Fiscal year: 2002: actual: 28,257; 
Fiscal year: 2003: actual: (through July 31): 30,094; Fiscal year: 
2003: goal: 29,302; Comments: Performance improved and 
performance goal exceeded.

Source: IRS data.

Note: GAO analysis of IRS data.

[A] The measures for fiscal year 2003 are through July 31, which were 
the latest data available at the time we ended our audit work. 
According to IRS officials, the 2003 results through July 31 are 
reflective of IRS's performance during the filing season. In addition, 
IRS officials told us that the results for the measures should not 
change significantly through September 30.

[B] According to IRS officials, they did not compute a margin of error 
for these measures in 2001.

[C] Systemic errors are computer-generated errors over which a 
particular processing center would have no control.

[End of table]

[End of section]

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

The Jobs and Growth Tax Relief Reconciliation Act of 2003,[Footnote 38] 
signed into law on May 28, 2003, increased the amount of the child tax 
credit from $600 per child to $1,000 for 2003 and 2004. The act also 
provided for eligible taxpayers to receive the increase of $400 this 
summer in order to stimulate the economy more rapidly than if taxpayers 
had to wait until they filed their tax year 2003 return. The Department 
of the Treasury mailed approximately 24 million advanced payment checks 
from late July to mid-August 2003 in a manner similar to the advanced 
payment checks issued in 2001.

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

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

IRS also anticipates that, based on its experience with the 2001 rate 
reduction credit, a number of taxpayers will make errors, such as with 
the Child Tax Credit Worksheet computation during the 2004 filing 
season. However, IRS anticipates there will be fewer errors in 2004 
because fewer taxpayers are affected by the child tax credit. As we 
reported last year, taxpayers and tax practitioners made many errors 
related to the rate reduction credit during the 2002 tax filing 
season.[Footnote 39] However, IRS expects fewer problems with the child 
tax credit and advanced payment and attributes this in part to IRS 
having learned lessons from its experience during the 2002 filing 
season. For example, IRS has identified the types of errors taxpayers 
and tax professionals made related to the rate reduction credit and was 
preparing strategies to minimize the impact on taxpayers during the 
2004 filing season.

[End of section]

Appendix III: Comments from the Internal Revenue Service:

DEPARTMENT OF THE TREASURY INTERNAL REVENUE SERVICE WASHINGTON, D.C. 
20224:

COMMISSIONER:

October 29, 2003:

Mr. James R. White Director, Tax Issues U.S. General Accounting Office 
441 G Street, N.W. Washington, D.C. 20548:

Dear Mr. White:

I agree with your assessment that the 2003 filing season was one 
highlighted by many improvements. As you acknowledged, preparing for 
the filing season is a monumental undertaking requiring cross-
functional planning and coordination. Our Filing Season Readiness 
process provides the framework and oversight to insure that we are well 
prepared, and I appreciate your recognition of our success. The brief 
synopsis highlighting the progress we have made since 1998 reflects our 
sustained efforts and the many improvements from our modernization 
program. We recognize that there are still improvement opportunities, 
and we plan to continue to build on our success.

Telephone Service:

We dramatically improved our customers' experience by increasing 
telephone access this filing season. Increased accessibility meant that 
more taxpayers were able to receive service on their initial attempt 
and waited for a much shorter period of time when requiring assistance 
from a Customer Service Representative (CSR). While we did receive 
fewer calls than planned, part of that decrease and the improved access 
was the result of a comprehensive strategy that:

Established six new toll-free numbers specifically targeting customer 
segments based on their service need;

Provided improved scripts, menu options, and personalized call routing 
for tax law callers to reduce the number of transferred calls;

Implemented a skill-based routing process that supports specialization 
and matches each call to a CSR with the identified skills; and:

* Realigned five call sites from Small Business/Self Employed Division 
to the Wage and Investment Division to better match the specialized 
workload.

Our success in improving our customer's experience is evidenced by the 
results of the Customer Satisfaction Survey related to telephone 
service. For the period January through March 2003, 94 percent of the 
callers responding to the survey gave the IRS a rating of 4 ("mostly 
satisfied") or 5 ("completely satisfied"):

regarding their experience using our toll-free service. For the period 
April through June 2003, the result was 93 percent satisfied.

As noted in your report, our tax law customer accuracy rate decreased 
from 85 percent in 2002 to 81 percent in 2003, and our accounts 
customer accuracy rate decreased from 91 percent in 2002 to 89 percent 
in 2003. However, we successfully implemented a new quality measurement 
and improvement system that has the potential for achieving significant 
progress. The Embedded Quality (EQ) System represents a cultural 
transition from our pass/fail system of quality review to a system that 
aligns quality review standards with employee performance standards. 
Under the old pass/fail system, any one incorrect action would result 
in a fail rating. The EQ System computes defects per opportunity. The 
measurement for defects per opportunity is the total number of 
opportunities to take correct action divided by missed opportunities 
(defects). This provides a more accurate picture of service quality and 
allows for targeted performance feedback. It represents a new way of 
doing business that builds commitment and capability among all 
individuals to continually improve customer service, employee 
satisfaction, and business results.

The components that are evaluated by the EQ System include:

Timeliness; Professionalism; Customer Accuracy; Regulatory/Statutory 
Accuracy; and Procedural Quality.

Our new approach to the EQ System of measurement and improvement is 
expected to:

* Shape organizational and individual performance by developing 
appropriate measures; and:

* Establish accountability by connecting organizational and human 
performance.

Tax Return Processing:

Our returns processing activities were highly effective. Detailed 
planning, coordination and a dedicated staff contributed to this 
success. As noted in your report, we continued to improve our 
performance while consolidating our processing workload. We improved 
our performance in each of our Processing Performance measures. Through 
July, we processed over 125 million income tax returns and issued over 
$189 billion in timely refunds to our customers.

Electronic Filing:

We are pleased that your report recognizes our progress with the IRS's 
website and electronic filing. In particular, the report notes our 
success with the Free File Alliance. While we have not yet reached our 
long-range goal of 80 percent of all federal tax and information 
returns filed electronically, we are making progress.

During the 2003 tax filing season, we continued to set new records in 
e-file:

* Electronic Filing -As of September 25, 2003, over 53 million taxpayers 
e-filed, surpassing last year's volume of 46.7 million.

* Home computer e-filing - People filed more than 11.9 million returns 
from their home computers, a 27 percent increase from last year.

* Over 2.8 million taxpayers used the free online filing services 
offered by the Free File Alliance, which exceeded our goal of 2.5 
million taxpayers.

Electronic payments - There were more than 1.2 million e-payments, a 
rise of 37.3 percent over the same time last year. This includes 
552,694 credit card payments.

Electronic signatures - More than 32.5 million taxpayers signed their 
return electronically using one of the three Personal Identification 
Number options.

* Web activity -The IRS site at www.irs.gov remains one of the most used 
sites during the filing season, with 4.3 billion hits. In addition, the 
IRS continues to experience an increase in the number of files 
downloaded, exceeding 534 million.

Plans for improving electronic filing for the 2004 tax filing season 
include:

* Continuing our aggressive encouragement of electronic filing through 
the deployment of e-services. E-services are a suite of Web-based 
products that will allow firms to do business with the IRS 
electronically.

E-services will give IRS e-file Providers easier access to the IRS and 
the ability to receive information electronically. This will reduce 
response times enabling IRS e-fife Providers to better serve their 
clients. All e-services products will be quick, convenient, and easy-
to-use.

* We are working with the Free File Alliance members to develop program 
requirements (i.e., refinements) designed to improve Free File. The 
requirements being discussed are a direct result of analysis and 
feedback gathered from taxpayers regarding their experience with the 
program. Also, throughout this past filing season we monitored the 
performance of Alliance members' by doing independent reviews of each 
of their websites and online programs to ensure compliance with 
requirements set forth in our Agreement. As a result, key improvements 
for 2004 include:

* Increasing information about forms an* schedules on the Alliance 
websites;

* Guaranteeing tax return calculations; and:

* Increasing information regarding the Alliance members' customer 
service options and state return programs.

Taxpayer Assistance Centers (Walk-In Service):

We are continuing our strategy to reduce the number of taxpayers who 
need to visit us in person by increasing the availability of electronic 
services and volunteer services. In addition, we have taken steps to 
enhance the taxpayer's experience at our Taxpayer Assistance Centers 
(TACs). As your report recognizes, we took aggressive actions to 
improve the accuracy of tax law assistance. We required employees to 
complete directed learning on each tax law subject and validated their 
proficiency by conducting monthly certifications of selected topics. We 
are also revising all tax law training to incorporate the Publication 
Method. The Publication Method is a technique to "walk" a taxpayer 
through a publication to cover all appropriate probing questions and to 
illustrate the correct answer to his/her question. Our long-term 
approach to improving quality is the implementation of the EQ System, 
similar to the process discussed above for telephone service. When 
fully implemented (Fiscal Year 2005), the EQ System will provide us 
with a common approach to measure our performance keyed to what is 
critical to the customer, employees, and our organization.

Stakeholder Partnerships, Education and Communication (SPEC):

In the second year of implementing a partner-based business model that 
leverages the resources of community coalitions in delivering tax 
preparation and education, IRS significantly increased the scope and 
availability of volunteer services. Based on annual surveys conducted 
after the filing season, the IRS:

increased its partner overall satisfaction from 83 percent to 87 
percent, and maintained a very high taxpayer overall satisfaction rate 
of 96 percent. For example, these efforts achieved:

* 1.6 million volunteer prepared returns, a 29.6 percent increase over 
2002, with a 97 percent filing accuracy rate;

143 million outreach contacts, including 57 million EITC-related 
contacts, using a wide variety of communication channels including 
media, direct mail, seminars, conferences, and community-based 
marketing; and:

* An increase from 40 to over 160 community-based coalitions in 2003. 
National partners such as United Way, Health and Human Services Office 
of Community Services, Annie E. Casey Foundation, and the National 
League of Cities serve as the foundation to access, serve, and educate 
millions of taxpayers.

My response to your recommendation for Executive Action is as follows:

Recommendation:

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

Response:

We continue to agree with you that measuring customer wait-time is an 
important indicator of the service we are providing to our customers. 
Although we do not currently consolidate and disseminate wait-time 
information to TAC managers, these managers have information on wait-
time available for their local TACs. TAC managers routinely monitor 
wait-time information on the automated system (Q-Matic) and allocate 
TAC resources to ensure that customers do not have excessive wait-
times. We believe this local monitoring is the best method available to 
ensure that customers are being served within a reasonable time period. 
For the same reasons noted in our response to your 2002 Filing Season 
report (GAO-03-314), we do not agree that it is necessary for 
headquarters to consolidate and report TAC wait-times. Therefore, we do 
not plan to implement your recommendation.

However, your report also observed that during the 2003 filing season, 
Q-Matic equipped sites were not required to report wait-time data to 
headquarters. We agree that the automated wait-time information 
available from these locations 
would provide valuable data for an assessment of overall trends and 
relationships in timeliness and quality. As a result. Q-Matic sites 
will be required to report wait-time information on a quarterly basis.

Again, I appreciate your observations on the successful tax filing 
season for 2003. If you have any questions, please call Floyd Williams, 
Director, Legislative Affairs, at (202) 622-3720.

Sincerely,

Signed for: 

Mark W. Everson:

[End of section]

Appendix IV: GAO Contacts and Staff Acknowledgments:

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

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


(440183):



FOOTNOTES

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

[2] U.S. General Accounting Office, Internal Revenue Service: 
Assessment of Fiscal Year 2004 Budget Request and 2003 Filing Season 
Performance to Date, GAO-03-641T (Washington, D.C.: Apr. 8, 2003).

[3] IRS uses workload indicators, such as the number of returns 
processed, for purposes of resource planning. It uses balanced measures 
primarily for gauging business results (quantity and quality measures) 
in addition to employee satisfaction and customer satisfaction. 

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

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

[6] P.L. 105-206. 

[7] The Government Performance and Results Act of 1993 (P.L. 103-62) 
was enacted to hold federal agencies accountable for achieving program 
results. IRS's balanced measurement system is consistent with the 
intent of the act.

[8] Although IRS establishes goals for its balanced measures on a 
fiscal year basis, our assessment of these measures is based on the 
filing season, when most taxpayers have their only interaction with 
IRS.

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

[10] P.L. 108-27.

[11] The National Association of Enrolled Agents is a national 
association of over 10,000 independent, licensed tax professionals 
called enrolled agents. Enrolled agents are licensed by the federal 
government and are authorized to appear in place of the taxpayer at 
IRS.

[12] Treasury Inspector General for Tax Administration, The 2003 Filing 
Season Was Completed Timely and Accurately, but Some New Tax Law 
Changes Were Not Effectively Implemented, Reference No. 2004-40-003, 
(Washington, D.C., 2003).

[13] TIGTA identified taxpayers that were allowed retirement savings 
contribution credits and student loan interest deductions in excess of 
the amounts allowed by the new tax law changes, taxpayers with 
potential unclaimed additional child tax credits, and taxpayers that 
were allowed a "dual benefit" for the tuition and fees deduction and 
the education credit.

[14] GAO-03-641T.

[15] According to IRS officials, the staff year data for fiscal year 
2003 represent actual staff year data through August 2, 2003, plus 
projected staff year usage through September 30, 2003.

[16] RRA 98 provides, in part, that it should be the goal of IRS to 
have at least 80 percent of all federal tax and information returns 
filed electronically by 2007. IRS's goal for individual income tax 
returns is consistent with this overall goal--80 percent by 2007.

[17] We used a 3-year average for the growth rate in the total number 
of individual tax returns because the growth rate in 2003 was negative 
and we believe that a 3-year average is more representative of future 
growth. IRS officials attributed the negative growth rate in 2003 to 
the downturn in the U.S. economy.

[18] See Report of the Joint Committee on Taxation Relating to the 
Internal Revenue Service as required by the IRS Reform and 
Restructuring Act of 1998, JCX-53-03, May 19, 2003. 

[19] Electronic Tax Administration Advisory Committee, Annual Report to 
Congress, (Washington, D.C., June 2003). RRA 98 mandated that the 
Secretary of the Treasury convene an electronic commerce advisory group 
to ensure that the Secretary receives input from the private sector on 
IRS's plan to increase electronic filing. ETAAC was created in 1998 in 
response to that mandate and, among other things, is required to report 
to the Congress annually on IRS's progress towards meeting the 
electronic filing goals set in the act.

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

[21] IRS has other measures that we are not reporting on because the 
measures do not provide adequate information to make conclusions about 
the ease with which taxpayers reached IRS or the accuracy of the 
responses they received after reaching IRS.

[22] GAO-03-143.

[23] IRS based its disagreement on the data on automated calls not 
being good enough to merit attention as a balanced measure. While we 
recognized that there were data weaknesses with the measure, our 
recommendation also called for IRS to revise the formula before 
including it among its balanced measures. See GAO-03-143. 

[24] U.S. General Accounting Office, IRS's 2002 Tax Filing Season: 
Returns and Refunds Processed Smoothly; Quality of Assistance Improved, 
GAO-03-314 (Washington, D.C.: Dec. 20, 2002).

[25] At any one of IRS's more than 400 walk-in sites, taxpayers can 
obtain (1) forms and publications; (2) assistance with their tax 
accounts; (3) answers to tax law questions; (4) limited return 
preparation assistance; and (5) various other types of assistance, such 
as help getting a taxpayer identification number. 

[26] In 2001, the Congress directed TIGTA to review the accuracy of tax 
law assistance provided by all of IRS's walk-in sites, S. Rep. No. 107-
57 (2001). From January through April 2003, TIGTA reviewers visited 72 
walk-in sites and asked a total of 283 tax law questions. 

[27] TIGTA counts referrals as incorrect when the IRS employee merely 
provided the publication, without walking the customer through it to 
identify the answer, as required by established field assistance 
procedures.

[28] GAO-03-314.

[29] IRS considers a return as being accurate if no math errors 
(obvious errors such as mathematical errors, omitted or inconsistent 
data, or other inconsistencies) are identified on the return.

[30] These programs use IRS-trained volunteers to help prepare basic 
tax returns for taxpayers with special needs, including people with 
disabilities, those with low or fixed incomes, non-English speaking 
people, and the elderly, during the filing season.

[31] IRS's walk-in sites provide return preparation assistance to 
taxpayers taht meet certain income requirements. For the 2003 filing 
season, the income ceiling for return preparation assistance was 
$35,000.

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

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

[34] GAO-03-143 and GAO-03-314. 

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

[36] According to Keynote, availability is the percentage of time the 
Web site's home page downloads fully and average delivery time is the 
time it takes for the home page to fully download from the time the 
user hits the "enter" key on the keyboard. According to IRS, a home 
page is charged with an error and therefore receives a lower percentage 
of availability even if a graphic that has nothing to do with the 
user's ability to get pertinent content information from the page does 
not download properly. As such, according to IRS, the measure does not 
reflect whether the Web site itself is available or not. Also, 
according to IRS, errors can be the result of heavy traffic on the 
Internet in general and may have nothing to do with the home page.

[37] Keynote measured the average delivery time and availability of 
IRS's Web site from 5 p.m., Eastern Daylight Time (EDT), on April 11, 
2003, to 9 a.m., EDT, on April 16, 2003.

[38] P.L. 108-27.

[39] GAO-03-314.

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