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entitled 'Tax Administration: IRS Improved Performance in the 2004 
Filing Season, But Better Data on the Quality of Some Services Is 
Needed' which was released on November 15, 2004.

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

November 2004:

TAX ADMINISTRATION:

IRS Improved Performance in the 2004 Filing Season, But Better Data on 
the Quality of Some Services Are Needed:

GAO-05-67:

GAO Highlights:

Highlights of GAO-05-67, a report to Chairman, Subcommittee on 
Oversight, Committee on Ways and Means, House of Representatives: 

Why GAO Did This Study:

Most taxpayers have their only contact with IRS during the filing 
season, with tens of millions filing their returns, getting refunds, 
and seeking assistance by calling or visiting IRSís offices or Web 
site. GAO was asked to assess IRSís performance in 2004 relative to 
goals and prior yearsí performance as well as initiatives or other 
factors that significantly affected performance for the following 
areas: (1) the processing of paper and electronic returns, (2) 
telephone service, (3) walk-in service, and (4) Web site service. 

What GAO Found:

During the 2004 filing season, IRS met many of its performance goals 
and continued a trend of improvement in recent years. However, IRS did 
not improve in all dimensions of its filing season services and lacks 
sufficient data to evaluate quality in others. 

IRS processed returns and issued refunds smoothly. The proportion of 
returns filed electronically is up to 47 percent. Despite this 
achievement and numerous initiatives to increase electronic filing, IRS 
does not expect to reach its long-term goal of having 80 percent of all 
individual tax returns filed electronically by 2007. A higher 
percentage of taxpayers was able to reach IRS assistors by telephone 
than last year and the accuracy rate for providing taxpayers with 
information about their accounts remained stable. However, the accuracy 
rate for answering tax law questions declined to 2001 levels. 
Consistent with IRSís strategy, the number of taxpayers visiting IRS 
walk-in sites declined, while the number having tax returns prepared at 
volunteer sites increased. Finally, although IRS continued to expand 
its Web site services, the siteís feature for answering tax law 
questions raises some concerns.

Despite the 2004 improvements, IRS has opportunities for further 
service improvements. For example, IRS has limited data with which to 
assess the quality of key services at its walk-in sites and sites 
staffed by volunteers. Although IRS has initiatives under way to 
measure quality at both types of sites, the initiatives have been 
delayed and important details have not yet been determined, which may 
undermine IRSís efforts to improve services in this area. In the 
meantime, some of IRSís quality data is likely to be biased. Until IRS 
fully implements its initiatives and gathers data on quality, it will 
have difficulty monitoring and improving performance at its walk-in 
sites and volunteer sites.

IRSís Primary Activities During the 2004 Filing Season: 

Returns processing: 

Paper returns: 67 million; 
Electronic returns: 61 million;
Refunds: 100 million. 

Taxpayer assistance: 

Toll-free telephone calls: 84 million; 
Walk-in contacts: 3.5 million; 
Web site downloads: 464 million; 

Source: GAO analysis of IRS data. 

Note: Time periods covered are January 1 through September 17, 2004 for 
paper returns; January 16 through September 17, 2004 for electronic 
returns; January 1 through September 17, 2004 for refunds; January 1 
through July 10, 2004 for toll-free calls; December 28, 2003 through 
April 24, 2004 for walk-in contacts; and January 1 through August 31, 
2004 for Web site downloads. 

[End of table]

What GAO Recommends:

GAO recommends IRS (1) recognize and disclose the limitations of the 
performance data that will be collected at walk-in sites in 2005, and 
ensure that initiatives to measure the quality of services at IRS walk-
in and volunteer sites are implemented timely; and (2) recognize that 
decisions about the prominence and staffing of the tax law Web site 
feature are related.

In comments, IRS agreed with the recommendations about walk-in and 
volunteer site initiatives. Additionally, IRS agreed with the intent of 
the other two recommendations, but disagreed with our assessment of the 
extent of the problems. However, without stronger evidence, such as 
statistically valid data, our concerns remain. 

www.gao.gov/cgi-bin/getrpt?GAO-05-67.

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 Has Generally Improved Its Performance Processing Tax Returns but 
Does Not Expect to Meet Its Long-Term Electronic Filing Goal:

Access to IRS's Telephone Assistors Improved but Tax Law Accuracy 
Declined:

Taxpayer Use of IRS Walk-in Sites Continued to Decrease While Use of 
Volunteer Sites Increased; Quality Data Are Limited:

Use of IRS's Web Site Increased, But Concerns Exist About a Feature 
for Answering Tax Law Questions:

Conclusions:

Recommendations:

Agency Comments and Our Evaluation:

Appendixes:

Appendix I: Data on IRS's Processing Performance Relative to Fiscal 
Year 2001-2003 Performance and Fiscal Year 2004 Goals:

Appendix II: IRS Spends Thousands of Staff Years on Filing Season 
Activities:

Appendix III: Comments from the Internal Revenue Service:

Appendix IV: GAO Contacts and Staff Acknowledgments:

Tables:

Table 1: IRS Telephone Assistors Performance, 2001-2004 Filing Seasons:

Table 2: Use of IRS's Web site from 2001-2004:

Table 3: IRS's Processing Performance, 2001-2004:

Table 4: The Number of Staff Years Used in Key Processing Activities 
for Individual Income Tax Returns, Fiscal Years 1999-2003:

Table 5: Staff Years Directed to Answering Toll Free Calls Fiscal Year 
2001-2003:

Figures:

Figure 1: How IRS Typically Routes Taxpayers' Calls to Toll-Free 
Numbers:

Figure 2: Percent of Tax Returns Filed Electronically 1996-2004:

Figure 3: Reasons Taxpayers Called for Telephone Assistance During the 
2004 Filing Season:

Figure 4: How IRS Handled Calls for Telephone Assistance During the 
2004 Filing Season:

Figure 5: The Contact Recording Pilot Process:

Figure 6: Assistance Provided by IRS Walk-in and Volunteer Sites, 2001-
2004 Filing Season (in millions):

Figure 7: Direct Full-Time Equivalents Used for Return Preparation at 
IRS Walk-in Sites, 2001-2004 Filing Seasons:

Letter: November 15, 2004:

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

Dear Mr. Chairman:

Most taxpayers have their only contact with the IRS during the tax 
filing season[Footnote 1] making the agency's performance during this 
period a key indicator of how well IRS is serving the public and 
helping them fulfill their tax obligations. IRS's filing season is an 
enormous undertaking, requiring thousands of IRS staff years to process 
well over 100 million individual income tax returns, issue refunds, and 
respond to telephone calls and other requests for assistance. To the 
extent that IRS can improve filing season operations and provide 
services more efficiently, it could shift resources to other areas such 
as enforcement.

Because of the importance of IRS's filing season activities to 
taxpayers and the Congress, you asked us to assess the 2004 tax filing 
season. Our objectives were to assess IRS's filing season performance, 
relative to this year's goals and prior years' performance, and any 
initiatives or factors that significantly affected performance. We did 
this for (1) the processing of individual tax returns filed on paper or 
electronically, (2) toll-free telephone service, (3) walk-in and 
volunteer site service, and (4) IRS's Internet Web site. We testified 
on IRS's interim performance in a hearing held by your Subcommittee on 
Oversight, Committee on Ways and Means on March 30, 2004.[Footnote 2]

Our assessment is based on reported results and analyses of key IRS 
performance measures and data, observations of IRS's operations, 
interviews of IRS officials, information from representatives of the 
tax practitioner community, and analyses by the Treasury Inspector 
General for Tax Administration (TIGTA). For the purpose of this report, 
we found IRS's data to be sufficiently reliable for assessing IRS's 
2004 filing season performance and for comparison to prior filing 
seasons. Further details on our scope and methodology are provided 
later in this report. We performed our work from January through 
September 2004 in accordance with generally accepted government 
auditing standards.

Results in Brief:

During the 2004 filing season, IRS met many of its performance goals 
and continued a trend of improvement in recent years. However, IRS did 
not improve in all dimensions of its filing season services and lacks 
sufficient data to evaluate quality in others.

Processing: IRS nearly met or exceeded most of its 2004 goals for 
processing tax returns and issuing refunds. Performance has generally 
improved since 2001. Over 61 million returns or 47 percent of all 
individual income tax returns were electronically filed in 2004. 
Despite this achievement and numerous initiatives to increase 
electronic filing, IRS does not expect to meet its long-term goal of 
having 80 percent of all individual tax returns filed electronically by 
2007.

Telephone Service: Access to IRS assistors increased and the accuracy 
of IRS's response to account questions has remained stable since last 
year. However, the accuracy rate for responding to tax law questions 
declined for the second consecutive year and is at the same level as 
2001.

Walk-in Assistance: The number of taxpayers visiting IRS walk-in sites 
continued to decline in the 2004 filing season, while the number 
receiving return preparation assistance at non-IRS sites staffed by 
volunteers increased, consistent with IRS's strategy to shift return 
preparation to those sites. Available, but limited, data raise 
questions about the quality of key services provided at both types of 
sites. In addition, some of the quality data IRS expects to have 
available in 2005 is likely to be biased. Initiatives under way to 
improve quality measurement have experienced delays, and important 
details have not yet been determined.

Internet Web Site: IRS's Web site is generally easy to access and use. 
However, we still have some concerns about IRS's performance answering 
tax law questions submitted via the site.

We are making recommendations to the Commissioner of Internal Revenue 
that IRS recognize and disclose the limitations of the performance data 
that will be collected at walk-in sites in the 2005 filing season; take 
steps to ensure that its initiatives to improve data on the quality of 
services at walk-in and volunteer sites are implemented in a timely 
manner; and recognize that decisions about the prominence and staffing 
to give its Web site feature for answering tax law questions are 
related. In commenting on a draft of this report (see app. III), IRS 
agreed with the recommendations about walk-in and volunteer site 
initiatives. Additionally, IRS agreed with the intent of the other two 
recommendations, but disagreed with our assessment of the extent of the 
problems. However, without stronger evidence, such as statistically 
valid data, our concerns remain.

Scope and Methodology:

Our assessment of IRS's 2004 filing season performance was based on 
analyses of IRS data and information obtained from sources outside IRS, 
interviews with IRS officials and private sector tax practitioners, 
observations of IRS operations, and, for the comparison to previous 
years, on our past filing season reports.

More specifically, we:

* reviewed and analyzed IRS reports, testimonies, budget submissions, 
other 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;

* interviewed IRS officials about current operations, performance 
relative to 2004 goals and prior filing seasons, and significant 
factors and initiatives that affected performance;

* interviewed representatives of large private and non-profit 
organizations that prepare tax returns and trade organizations that 
represent both individual practitioners and tax preparation companies;

* reviewed related TIGTA reports and interviewed TIGTA officials;

* followed up on GAO recommendations made in prior filing season and 
related reports;

* tested for statistical differences between yearly changes for various 
IRS performance measures;

* analyzed information posted to IRS's Internet Web site based on GAO's 
knowledge of the type of information taxpayers look for, and assessed 
the ease of finding information, as well as the accuracy and currency 
of data on the site;

* reviewed information from companies that evaluated Internet 
performance and assessed various aspects of IRS's Web site; and:

* reviewed staffing data for paper and electronic processing, telephone 
assistance, and walk-in assistance.

This report discusses filing season performance measures and data 
covering the quality, accessibility, and timeliness of IRS's services. 
We have previously reported that some of the performance measures IRS 
uses to assess aspects of its filing season performance had attributes 
of successful measures, including objectivity and reliability, although 
in some cases, the measures could be further refined.[Footnote 3] Since 
that report, IRS has made refinements in some measures. We also 
reviewed IRS documentation, interviewed IRS officials about computer 
systems and data limitations, and compared those results to GAO 
standards of data reliability.[Footnote 4] As a result, we determined 
that the IRS data we are reporting are sufficiently reliable for 
assessing IRS's filing season performance. Data limitations are 
discussed where appropriate.

We conducted our work at IRS headquarters in Washington, D.C; the 
Small Business/Self-Employed Division headquarters in New Carrollton, 
Maryland; the Wage and Investment Division headquarters, the Joint 
Operations Center (which manages telephone service), and a telephone 
call site in Atlanta, Georgia; and walk-in and volunteer locations in 
Georgia, Maryland, and Virginia. We selected these offices for a 
variety of reasons, including the location of key IRS managers, such as 
those responsible for telephone and walk-in and volunteer services. We 
performed our work from January through October 2004 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--and which consumes thousands of staff years annually. 
Processing of paper returns is labor intensive and error-prone.IRS 
employees manually transcribe paper tax return information into IRS's 
computer systems, which can introduce errors. Electronic filing allows 
taxpayers to receive refunds faster, and processing is less labor-
intensive and error prone than for paper returns. IRS does not have to 
transcribe electronic tax return information and built-in checks 
eliminate many errors that IRS has to deal with when processing paper 
tax returns, such as computational mistakes and incorrect social 
security numbers. The rate for this type of error on electronic tax 
returns was almost 4 percent compared to almost 25 percent on paper tax 
returns, as of July 9, 2004.

To help taxpayers comply with their tax obligations, IRS provides 
various services at its call sites, walk-in sites, and on its Web site. 
Figure 1 shows how toll-free telephone calls from taxpayers typically 
are routed through IRS's telephone system and answered by customer 
service representatives (CSRs) or by automated services.

Figure 1: How IRS Typically Routes Taxpayers' Calls to Toll-Free 
Numbers:

[See PDF for image] 

[End of figure] 

At IRS's approximately 400 walk-in sites taxpayers ask tax law 
questions, get account information, receive assistance with their 
accounts, and have returns prepared (if annual gross income is $35,000 
or less). In addition, low-income and elderly taxpayers get tax returns 
prepared at over 13,500 volunteer sites[Footnote 5] run by community-
based coalitions that partner with IRS. IRS awards grants, trains and 
certifies volunteers, and provides reference materials, computer 
software and, in some cases, computers to these volunteer 
organizations.

IRS's Web site is important because it allows taxpayers to instantly 
download hundreds of tax forms and publications, access current 
information on tax issues and electronic filing, and ask IRS tax law 
and procedural questions.

Since passage of the IRS Restructuring and Reform Act of 1998[Footnote 
6] (RRA 98), IRS has been focused on improving filing season services. 
In 2001, IRS established a suite of balanced performance 
measures.[Footnote 7] The system emphasizes accountability for 
achieving specific results and reflects IRS's priorities, including 
providing quality service to each taxpayer in every interaction. As 
part of its strategic planning and budgetary processes, IRS establishes 
performance goals each fiscal year[Footnote 8] and uses them to hold 
managers and frontline staff more accountable for improving filing 
season performance.

IRS Has Generally Improved Its Performance Processing Tax Returns but 
Does Not Expect to Meet Its Long-Term Electronic Filing Goal:

IRS processed individual income tax returns and issued refunds smoothly 
in 2004. IRS nearly met or exceeded many of its 2004 performance goals, 
with performance generally improving since 2001. However, despite 
continued growth this year and despite various initiatives to encourage 
electronic filing, IRS is not on track to achieve its long-term goal of 
having 80 percent of all individual tax returns filed electronically by 
2007.

As of September 17, 2004, IRS had processed about 128 million 
individual tax returns, including for 67 million returns filed on 
paper, with no significant disruptions and issued nearly 100 million 
refunds within specified tolerances.[Footnote 9] According to IRS data, 
IRS nearly met or exceeded seven out of its eight processing 
performance goals in 2004. Similarly, 2004 performance nearly met or 
exceeded 2003 performance for six of the seven comparable 
measures.[Footnote 10] Appendix 1 provides details. Furthermore, as 
Appendix 1 and the following examples show, IRS has generally improved 
its processing operations over a longer period.

* The percent of notices with errors has declined since 2002 (for 
notices sent to taxpayers about possible simple mistakes on their 
returns). In 2002, 18.7 percent of the notices were issued with errors 
compared to 9.4 percent as of July 31, 2004 (the most current data 
available).

* The refund error rate, the percentage of refunds with IRS-caused 
errors (e.g., incorrect name or Social Security number), has decreased 
from 9.8 percent in 2001 to 5.3 percent in 2003, to 4.9 percent as of 
July 31, 2004 (the most current data available).

Tax practitioners, who last year prepared approximately 62 percent of 
all individual income tax returns, agreed that the processing of 
returns in the 2004 filing season has gone smoothly. Representatives 
from the National Association of Enrolled Agents, American Institute of 
Certified Public Accountants, and other tax related organizations had 
positive comments on IRS's 2004 filing season and processing. 
Similarly, TIGTA officials told us that IRS generally processed returns 
smoothly in 2004.

IRS officials attributed this year's performance in part to their 
planning for tax law changes, such as the advance child tax credit and 
the increase in electronic filing.

Electronic Filing Grew but Is Not on Track to Achieve Long-Term Goal:

The number of individual income tax returns that IRS received 
electronically continued to grow, and IRS exceeded its 2004 goals for 
the number and percentage of tax returns to be filed electronically. 
From January 16 through September 17, 2004, it had received an 
estimated 61.1 million individual tax returns electronically or 47 
percent of all returns filed to date. Also, the growth rate of 15.8 
percent is greater than IRS's projected growth rate of 13 percent for 
this year. Figure 2 shows that growth since 1996.

Figure 2: Percent of Tax Returns Filed Electronically 1996-2004:

[See PDF for image] 

[End of figure] 

According to IRS officials, the primary reason for the greater than 
expected growth rate is that five states mandated electronic filing of 
state tax returns prepared by qualified tax practitioners for 2004. 
According to these same officials, these mandates led to significantly 
more electronic filing of federal tax returns in these states because 
tax practitioners converted their entire practices to electronic 
filing. For example, for California and Michigan, the largest of the 
five states, the number of tax returns filed electronically increased 
from 4.7 million and 1.9 million in 2003 to 7.1 million and 2.6 million 
respectively as of May 2004.

The current rate of growth of electronic filing, however, will not 
allow IRS to achieve its long-term electronic filing goal of 80 percent 
of all returns by 2007, provided by RRA 98. Assuming a continuation of 
the current growth rates of 15.8 percent for individual returns filed 
electronically and .23 percent for the total number of individual tax 
returns filed, IRS would receive 73 percent of individual tax returns 
electronically by 2007.

However, neither IRS nor the Electronic Tax Administration Advisory 
Committee (ETAAC)[Footnote 11] expects IRS to maintain this year's 
growth rate. In fact, IRS is predicting declining growth rates of about 
11.5 percent, 9.9 percent, and 8.1 percent in 2005, 2006 and 2007, 
respectively. In its June 30, 2003, report to Congress, ETAAC concurred 
with IRS's prediction of lower annual growth rates.

IRS officials stated that achieving the 80 percent goal would require 
taxpayers and tax practitioners who prepared 39 million individual 
income tax returns[Footnote 12] on a computer but filed them on paper 
would instead have to file them electronically, or legislation would 
have to be proposed and passed that mandates electronic filing by tax 
practitioners.

Electronic filing is important because, according to IRS, it costs less 
to process electronic tax returns than paper tax returns. IRS estimates 
it saves $2.15 on every individual tax return that is processed 
electronically. However, we cannot independently verify this estimate 
and its basis is unclear, because as we have reported, IRS does not 
have a cost accounting system to support preparation of such cost 
estimates.[Footnote 13] Electronic filing has allowed IRS to close 
paper processing centers, devote less staff to the processing of tax 
returns, and control processing costs by shifting resources from labor-
intensive paper return processing to other areas, such as compliance. 
For example, with the elimination of paper tax return processing at the 
Brookhaven Submission Processing Center, IRS used about 1,000 fewer 
staff years to process paper returns in 2003 than in 2002, and plans 
additional staff-year savings when paper tax returns processing at the 
Memphis Submission Processing Center is eliminated in 2005. (See app. 2 
for more information on staff years).

Because increasing electronic filing is so important, IRS officials do 
not want to reduce the 2007 goal, even though IRS projects that it is 
not achievable. Retaining this goal serves as a symbol of their 
determination to take actions to convert taxpayers to file 
electronically.

IRS Has Taken Numerous Actions to Encourage More Electronic Filing:

Over the years, IRS has taken numerous actions to encourage electronic 
filing, including:

* making electronic filing free to most taxpayers via the Free File 
Alliance Program,[Footnote 14] a program that began last year;

* surveying taxpayers and tax practitioners in response to a 
recommendation in our 2001 filing season report[Footnote 15] to 
determine why 40 million tax returns were prepared on a computer but 
filed on paper;

* making over 99 percent of all individual tax forms suitable for 
electronic filing; and:

* making the process totally paperless if a person uses a personal 
identification number to sign the tax return.

For the 2004 filing season, IRS took the following actions to encourage 
taxpayers and practitioners--primarily those who prepared returns on a 
computer, but filed them on paper--to file electronically IRS. IRS:

* improved the Free File Alliance Program (as of September 17, 2004, 
about 3.5 million individual tax returns have been filed electronically 
via the Free File Alliance, compared to 2.8 million for all of last 
year, a 26 percent increase);

* contacted about 12,200 tax practitioners who prepared business 
returns on computers, but filed electronically to advise them about the 
benefits of electronic filing;

* targeted the approximately 8 million individual taxpayers who filed 
their own paper returns prepared on a computer by mailing them a 
modified version of Publication 8160E that cites the advantages of 
electronic filing;

* spent $11.2 million marketing electronic filing; and:

* made six more forms available for electronic filing.

Other major electronic filing initiatives could lead to more individual 
electronically filed tax returns starting in 2005. However, IRS did not 
expect the following initiatives to dramatically increase electronic 
filing in 2004 because taxpayers and practitioners will need time to 
adjust their behavior.

* The modernized E-file program, which for the first time, allows 
electronic filing of corporate tax returns, could lead to more 
individual tax returns being filed electronically. According to IRS 
officials, some tax practitioners reported they would not file 
electronically until they could do so for both individual and corporate 
tax returns, saying it did not make business sense to file tax returns 
two different ways.

* The E-services program, offered to tax practitioners who have filed 
at least 100 electronic tax returns, gives them the ability to conduct 
business, such as electronic account resolution and transcript delivery 
with IRS electronically 24 hours a day 7 days a week for services.

Despite these initiatives, IRS does not expect to reach its 2007 goals 
for electronic filing. However, because of the potential for cost 
savings, we continue to see value in such initiatives.

Access to IRS's Telephone Assistors Improved but Tax Law Accuracy 
Declined:

IRS exceeded its 2004 telephone service goal for access to customer 
service representatives (CSRs) and has improved in this area since 
2001. However, the accuracy of CSR answers to tax law questions 
declined. IRS initiated two pilots in 2004 to help assess options for 
improving its telephone service.

Access to Customer Service Representatives Continued to Improve; the 
Accuracy of Account Inquiries Was Stable; but the Accuracy of Tax Law 
Questions Declined:

IRS received 84 million calls on its toll-free telephone lines in 2004 
through mid-July. Figure 3 shows that almost half of those calls were 
from callers trying to obtain information on the status of their tax 
refunds; the rest were primarily account or tax law questions.

Figure 3: Reasons Taxpayers Called for Telephone Assistance During the 
2004 Filing Season:

[See PDF for image] 

Note: The "other" category includes, for example, special telephone 
numbers not available to the public, such as those for disaster relief, 
tax practitioners, and calls that were received on the automated 
services line that were abandoned. Data cover the period January 1, 
2004 through July 10, 2004.

[End of figure] 

Figure 4 shows how the calls were handled. IRS's automated service 
handled 30 million calls and CSRs handled 24 million.[Footnote 16] The 
rest of the calls came in after business hours, were transferred, were 
disconnected, or the caller hung up before receiving service.

Figure 4: How IRS Handled Calls for Telephone Assistance During the 
2004 Filing Season:

[See PDF for image] 

Note: Percentages do not add to 100 percent due to rounding. Data cover 
the period January 1, 2004 through July 10, 2004.

[End of figure] 

As table 1 shows, compared to last year, access to CSRs continued to 
improve, the average time taxpayers waited for CSRs remained stable, 
and the accuracy of CSR responses to account questions remained stable, 
while the accuracy of CSR responses to tax law questions declined.

Table 1: IRS Telephone Assistors Performance, 2001-2004 Filing Seasons:

Accessibility measures[A]: CSR level of service[B]; 
2001: 68%; 
2002: 71%; 
2003: 85%; 
2004: 86%; 
Fiscal year goals 2004: 83%.

Accessibility measures[A]: Average speed of answer[C]; 
2001: 334 seconds; 
2002: 274 seconds; 
2003: 168 seconds; 
2004: 170 seconds; 
Fiscal year goals 2004: 199 seconds.

Accuracy measures[D]: Accounts customer accuracy rate[E]; 
2001: 88.1%; +/-0.6; 
2002: 90.5%; +/-0.4; 
2003: 88.6%; +/-0.4; 
2004: 89.0%; +/-0.5; 
Fiscal year goals 2004: 90%.

Accuracy measures[D]: Tax law customer accuracy rate[E]; 
2001: 79.1%; +/-0.6; 
2002: 84.9%; +/-0.5; 
2003: 81.3%; +/-0.7; 
2004: 79.5%; +/-0.8; 
Fiscal year goals 2004: 85%. 

Source: GAO analysis of IRS data.

[A] Based on actual counts from January through mid-July for 2001, 
2002, 2003, and 2004.

[B] The percentage of callers who want to speak to a customer service 
representative (CSR) who get through and receive service.

[C] Average number of seconds a taxpayer waits in queue for a CSR. 
Beginning in 2004, IRS expanded the services included in this measure. 
However, the calculation of the measure remained the same. Recomputed 
figures are shown here and are different than what we reported in the 
past (see [Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-84]. 
Based on actual counts from January through mid-July for 2001, 2002, 
2003, and 2004.

[D] Based on representative samples and from January through June for 
2001, 2002, 2003, and 2004.

[E] The percentage of calls in which CSRs provided accurate answers for 
the call type and took the appropriate follow-up resolution action, 
with a 90 percent confidence interval.

[End of table]

Unlike calls to CSRs, IRS does not have a quality measure for its 
automated telephone services. In our report on IRS's performance 
measures,[Footnote 17] we recommended that IRS develop a customer 
satisfaction survey to measure approval of the automated service. At 
the time, the IRS Commissioner responded that he agreed that measuring 
customer satisfaction for automated service was important. According to 
IRS officials, the needed computer programming changes were not done 
for the 2004 filing season, but are in the queue to be done when 
programming resources permit.

IRS officials continue to attribute the decline in tax law accuracy 
rate primarily to changes made to the CSR's Probe and Response (P&R) 
Guide, a publication that CSRs use to help them answer taxpayers' tax 
law questions. Last year, we reported[Footnote 18] that IRS attributed 
the decline in the tax law accuracy rate on a new format for the P&R 
guide, among other factors. At that time, an IRS official believed that 
after CSRs became familiar with the guide, the problem would be 
resolved and IRS continued using the new format. IRS began to address 
the problems with the P&R guide during the 2004 filing season. For 
example, CSRs told us that they attended a meeting of managers and CSRs 
in March 2004 to identify the problems with the guide and develop an 
action plan to correct the problems. According to IRS officials, IRS 
tested changes to the guide at the St. Louis, Missouri and Cleveland, 
Ohio call sites in June 2004. In addition, IRS has a written plan with 
deadlines for testing the guide for the 2005 tax filing season. The new 
guide was to be made available in hard-copy by October 1, 2004 and was 
to be used for purposes of training employees before the start of the 
2005 filing season.

IRS Initiated Two Pilot Programs For Telephone Service:

IRS initiated two pilot programs in 2004 to assess options for 
improvements on its toll-free telephone services. IRS piloted having a 
contractor answer tax law questions instead of IRS employees to 
determine (1) if a contractor could deliver an equal or superior level 
of service and (2) the public's perception regarding being assisted by 
someone other than IRS employees. IRS routed 10 percent of the tax law 
calls[Footnote 19] received on its toll-free lines to a contractor for 
60 days (February through April 2004). With respect to the accuracy of 
tax law responses provided to taxpayers, the contractor's performance 
was about half that of IRS's--44.6 versus 82.46 percent, respectively. 
IRS attributed the contractor's performance to a longer-than-expected 
learning curve. Also, taxpayers' raised concerns regarding privacy, 
although no confidential information is shared in answering tax law 
questions. In September 2004, IRS officials decided not to go forward 
with further testing.

The second pilot was for contact recording, which involves recording 
all telephone contacts between taxpayers and CSRs and, for 10 percent 
of the calls, also capturing computer screen displays accessed by the 
CSR. It is intended to enable supervisors to provide CSRs with more 
complete feedback on their performance. Figure 5 illustrates the 
process for contact recording.

Figure 5: The Contact Recording Pilot Process:

[See PDF for image] 

[End of figure] 

IRS conducted the contact recording pilot from January through April 
2004 at three call sites. According to IRS officials and our interviews 
with CSRs, CSRs liked being able to hear and see how they handled 
calls. In September 2004, IRS officials told us that they had decided 
to implement contact recording at all call sites by the end of the 2005 
filing season.

Taxpayer Use of IRS Walk-in Sites Continued to Decrease While Use of 
Volunteer Sites Increased; Quality Data Are Limited:

The total number of taxpayers visiting IRS walk-in sites continued to 
decrease while those having their returns prepared at volunteer sites 
increased. Available data raise questions, however, about the quality 
of services provided at both walk-in and volunteer sites. IRS has 
initiatives under way intended to improve the quality of data, though 
implementation may not be ready for the 2005 filing season.

Number of Taxpayers Visiting IRS Walk-in Sites Decreased While Number 
At Volunteer Sites Increased:

Based on the data obtained from IRS and shown in figure 6, the total 
number of taxpayers seeking assistance at IRS sites declined an average 
of over 8 percent per year between 2001 and 2004. IRS officials 
attributed the overall decrease to taxpayers' use of more convenient 
means to obtain services, such as IRS's toll-free telephone lines and 
Web site. Taxpayers seeking return preparation assistance at walk-in 
sites decreased an average of 26 percent per year between 2001 and 
2004.

In contrast, since 2001, the number of taxpayers seeking return 
preparation assistance at volunteer sites increased an average of 19 
percent per year. During the 2004 filing season, taxpayers had over 
five times more returns prepared at volunteer sites than at IRS walk-in 
sites. These divergent trends reflect IRS's strategy to shift return 
preparation to sites staffed by volunteer and community-based 
coalitions that are overseen by IRS. IRS has encouraged the shift by 
advertising the locations of these sites.

Figure 6: Assistance Provided by IRS Walk-in and Volunteer Sites, 2001-
2004 Filing Season (in millions):

[See PDF for image] 

Note: "Other walk-in contacts" includes assistance for account notices, 
tax law inquiries, forms, and compliance work, but not return 
preparation. For the walk-in sites, the time periods covered are 
December 31, 2000 through April 28, 2001; December 30, 2001 through 
April 27, 2002; December 29, 2002 through April 26, 2003; and December 
28, 2003 through April 24, 2004. For volunteer sites, the time period 
covered for 2001 is January 1, 2001 through April 21, 2001; all other 
periods are the same as those for IRS walk-in sites.

[End of figure] 

The shift of taxpayers from walk-in to volunteer sites is important 
because it has transferred some time-consuming services, such as return 
preparation, from IRS to volunteer sites. It also enabled IRS to shift 
more taxpayers to its telephone and Web site services, allowing it to 
concentrate on services at walk-in sites that only IRS can provide, 
such as account assistance or compliance work (see app. 2).

Limited Data Raise Questions About the Quality of Services at Walk-in 
and Volunteer Sites:

While shifting taxpayers from IRS walk-in sites to volunteer sites has 
the advantage of freeing up some IRS resources, IRS has limited 
performance measures and data on the quality of tax law assistance, 
account assistance, timeliness, and return preparation provided at 
either type of site. We have noted in prior filing season reports that 
this raises concerns about quality and oversight.[Footnote 20]

* Tax Law Assistance: Both TIGTA and IRS reported that IRS had not 
reached its goal of 80 percent accuracy at the walk-in sites they 
visited.[Footnote 21] Since the sites were selected judgmentally, the 
results cannot be projected to all sites.

* Account Assistance:During the 2004 filing season, IRS did not measure 
account assistance accuracy at its walk-in sites. According to IRS 
officials, the focus on tax law accuracy diverted staffing resources 
from gathering data on account assistance accuracy.

* Timeliness: IRS also did not measure timeliness, although GAO has 
recommended[Footnote 22] that IRS re-adopt a timeliness measure for its 
walk-in sites, stating that the presence of a quality measure should 
provide balance and a disincentive for employees to ignore quality in 
favor of timeliness.

* Return Preparation: The utility of the current measure for accuracy 
of return preparation assistance provided at walk-in and volunteer 
sites is limited, because it narrowly defines accuracy. It counts a 
return as accurate only if no calculation errors or other obvious 
factual errors, such as omitted or inconsistent data, are identified on 
the return. In addition, the results of recent TIGTA audits raise 
questions about the accuracy of return preparation assistance at both 
walk-in and volunteer sites.[Footnote 23]

IRS Has Initiatives Under Way Intended to Better Measure Quality at 
Walk-in and Volunteer Sites Though Implementation May Not be Timely:

IRS has initiatives under way intended to better measure the quality of 
key services at walk-in and volunteer sites. Key parts of both the 
walk-in and volunteer site initiatives that were scheduled for 
implementation in 2005, have experienced delays, have important details 
to be determined, and may not be implemented on schedule. The 
initiative for walk-in sites has the following four components.

* Embedded Quality provides a standardized checklist for managers to 
measure the accuracy, professionalism, and timeliness of employee 
responses to taxpayers. Initially under Embedded Quality, a manager 
will directly observe the employee/taxpayer interaction. However, this 
could yield biased data, because employees will know they are being 
observed, which could influence their behavior. Consequently, Embedded 
Quality data gathered by direct observation may not be representative 
of true performance.

* Contact Recording[Footnote 24] will replace direct observation as the 
method for gathering data on Embedded Quality. Under contact recording, 
the IRS employee/taxpayer interactions will be recorded and a random 
sample assessed using the Embedded Quality checklist. A pilot was 
scheduled to begin in August 2004. According to IRS, as of September, 
the Department of Treasury has not yet approved the pilot. It is 
unlikely the pilot will begin until January 2005. Since the pilot and 
evaluation are planned to take 3 months, it is also unlikely that 
contact recording will be fully implemented until well into the 2005 
filing season.

* Q-Matic is an automated system that keeps track of such things as 
customer wait-time, assistance provided, and staff time used. As of 
September 2004, Q-Matic implementation is proceeding on schedule.

* Performance-based individual learning (E-Learning) is a training 
component that will be used to identify and address deficiencies.

Until contact recording replaces direct manager observation as a means 
of gathering data, IRS may have biased data on the quality of its walk-
in services. Such biased data has significant limitations for drawing 
conclusions regarding performance and for making comparisons to other 
years. This in turn creates difficulties for managers trying to 
identify problems and make improvements to service. Furthermore, until 
Embedded Quality and contact recording are implemented together for a 
full filing season, assessing quality at walk-in sites will be based on 
two different data collection methods, thus limiting comparisons.

At volunteer sites, IRS plans to implement the following;

* Quality Assurance is an initiative where IRS, working with volunteer 
and community-based coalitions, is developing quality standards and a 
means of monitoring the quality of return preparation 
services.[Footnote 25] This is consistent with an earlier 
recommendation we made for IRS to develop performance measures for 
volunteer sites to help ensure that taxpayers were receiving an 
adequate level of service.[Footnote 26] IRS planned to implement the 
initiative for the 2005 filing season. However, as of September 2004, 
IRS had missed its milestones for developing guidelines for monitoring 
volunteer sites, and was still developing and revising its 
implementation plans, revising its schedule, and determining important 
details, such as how and when volunteer sites will be monitored and how 
quality will be measured.

We are concerned that the Quality Assurance initiative may not be 
implemented in time to measure performance for the 2005 filing season. 
As with IRS's initiative for its walk-in sites, until Quality Assurance 
is fully implemented, IRS will continue to have limited and potentially 
unreliable information on the quality of return preparation at 
volunteer sites for the 2005 filing season. As a result, IRS officials 
have less information available when making decisions about the role of 
volunteer sites and how IRS should support them.

Use of IRS's Web Site Increased, But Concerns Exist About a Feature 
for Answering Tax Law Questions:

IRS's Web site is important because it provides taxpayers and tax 
practitioners with customer service without having to directly contact 
IRS employees. Although overall Web site usage increased over last 
year, we have some concerns about IRS's performance answering tax law 
questions.

Web Site Use Increased and the Site Was User Friendly and Highly Rated:

IRS's Web site usage increased in 2004, continuing a trend as shown in 
table 2.[Footnote 27] Further, there was extensive use of the "Remember 
Your Advanced Child Tax Credit" feature that was new in 2004.

Table 2: Use of IRS's Web site from 2001-2004:

Web site usage: Forms, Publications, and Other Documents Downloaded; 
2001: 279 million; 
2002: 379 million; 
2003: 457 million; 
2004: 464 million.

Web site usage: Where's My Refund inquiries; 
2001: Not applicable; 
2002: Not applicable; 
2003: 17 million; 
2004: 23 million.

Web site usage: Remember Your Advanced Child Tax Credit inquiries; 
2001: Not applicable; 
2002: Not applicable; 
2003: Not applicable; 
2004: 11 million. 

Source: GAO analysis of IRS data.

Note: All figures rounded to closest million, as of August 31, 2004.

[End of table]

Overall we found that IRS's Web site was user-friendly and generally 
easy to access and use. For example, based on our knowledge of the type 
of information taxpayers look for, we found (1) no broken links or 
outdated or inconsistent data; (2) facts and information were logically 
arranged and easy to obtain; (3) with few exceptions, search functions 
guided us to appropriate forms, publications and information; and (4) 
response time was quick. However, we still have concerns about the 
feature answering tax law questions.

Two independent assessments done by Keynote and Brown University's 
Center for Public Policy confirmed our observations on IRS's Web site.

* Keynote, an independent Web site rater of Internet performance, 
reported that IRS's site performed very well. Keynote reported that, 
for the average delivery time to download to IRS's Web site homepage, 
IRS was in the top 10 out of 40 government agencies measured for 12 of 
15 weeks during the filing season. It also reported that, during the 
filing season, IRS's response time was consistent with other 
organizations being measured. Finally, Keynote reported that, when it 
comes to success rate (being able to access a desired location on the 
Web site) IRS was always at 99 or 100 percent for the filing season.

* Brown University's Center for Public Policy rated IRS's Web Site 5TH 
out of 60 federal government Web sites in providing service to 
citizens.

Performance and Use of Tax Law Assistance Feature Declined:

The quality of IRS's Electronic Tax Law Assistance (ETLA) feature, 
which enables taxpayers and practitioners to ask tax law questions via 
the Internet and receive an e-mail response from IRS, has declined. 
Usage has also declined, apparently by design.

IRS did not meet its 2004 goal to respond to e-mail questions within 
2 business days. On average, IRS responded to e-mail questions in 
over 3 business days and only reached the 2 business day goal in 6 of 
the 27 tax law categories. Neither did IRS meet its accuracy goal. 
IRS's performance data showed that IRS answered about 64 percent of the 
e-mail questions accurately, compared to its goal of 78 percent.

IRS did not meet its goals because of a mismatch between the number of 
questions from taxpayers and staff available to respond to the 
questions. At the beginning of the 2004 filing season, IRS increased 
the prominence of the ETLA feature. However, an IRS official told us 
that this resulted in the site receiving more questions than staff 
could handle. The official said that in response IRS moved the ETLA 
feature to a less prominent position on the Web site. In fact, in its 
current location, IRS does not expect taxpayers to be aware of the ETLA 
feature unless they stumble upon it accidentally while looking for 
other information on IRS's Web site. As a result, the ETLA feature was 
used significantly less this year than last. In 2004, taxpayers and 
practitioners submitted about 90,000 tax law and procedural questions 
via the Web site, down from 153,000 in 2003, a 41 percent decrease. IRS 
officials have decided not to move the ETLA feature to a more prominent 
location as of October 2004.

Although the number of questions received from taxpayers via the Web 
site is small, when compared to the number of questions received over 
the telephone, providing accurate responses to these questions is 
particularly important. Not only do inaccurate and untimely responses 
disappoint the taxpayers asking the questions, IRS also runs the risk 
of widespread dissemination of inaccurate e-mail responses to other 
taxpayers.

The decisions about the prominence of the feature and staffing are 
related. Achieving timeliness and accuracy goals depends, in part, on 
recognizing that decisions about the prominence of the feature, which 
affect taxpayer demand, and decisions about staffing are related. If 
IRS is unwilling to devote significant staff to answering tax law 
questions, then the feature cannot be prominent on the Web site. If IRS 
believes the feature is worth making prominent, then there are 
implications for staffing. For the 2004 filing season, IRS's decisions 
failed to recognize the relationship.

IRS Continues to Offer New Web Services:

IRS continued to offer new services via its Web site. New services are 
popular with taxpayers, as shown by the increasing use of features, 
such as "Where's My Refund?" shown in table 2. In 2004, IRS added the 
following customer service features for taxpayers and tax 
practitioners.

* "Remember Your Advanced Child Tax Credit" that allows taxpayers to 
check the amount of their child tax credit.

* "E-Services" which is a suite of Internet services for tax 
practitioners that is previously discussed in the processing section of 
this report.

Conclusions:

IRS improved its filing season performance this year compared to last. 
More importantly, in many areas the improved performance is part of a 
trend that IRS is sustaining over time. IRS's filing season performance 
is important because it affects over 100 million taxpayers. Taxpayers 
want a quick turnaround on their refunds; they want easy access to 
IRS's telephone assistors if they have questions; and they want to 
instantly download forms and publications when they need them.

The improvements we found are the result of systematic, long-term 
efforts by IRS. Processing results have improved and resources have 
been saved because of IRS's promotion of electronic filing, telephone 
access has improved because IRS implemented new call routing 
technology, and labor-intensive walk-in assistance is decreasing 
because of improvements to alternative services. IRS should be 
commended for its efforts to improve service.

At the same time, however, we have identified several areas that 
present opportunities for further improvement. IRS has limited 
performance measures and data with which to assess the quality of 
services at walk-in and volunteer sites, primarily because its 
initiatives for doing so are only partially implemented. IRS deserves 
credit for planning initiatives to address these data limitations. 
However, we are concerned that until the walk-in initiative is fully 
implemented, IRS will have biased quality data on walk-in service. 
Furthermore, the history of delays and incomplete plans for the walk-in 
and volunteer site initiatives leaves us unsure about when IRS will 
fully implement them. Until IRS fully implements these initiatives and 
gathers data on quality, it may not be able to effectively monitor and 
improve performance at its walk-in sites or volunteer sites and, as a 
consequence, could be risking its credibility among taxpayers who use 
the sites and the community-based coalitions that prepare returns at 
volunteer sites.

Finally, IRS failed to meet its goals for accuracy and timeliness of e-
mail responses to tax law questions, at least in part, by failing to 
match taxpayer demand for the feature with staffing. The risk 
associated with providing inaccurate e-mail responses may be high 
because of the potential for widespread dissemination.

Recommendations:

To address problems with the data for assessing the quality of services 
at IRS walk-in and volunteer sites, we recommend that the Commissioner 
of Internal Revenue direct the appropriate officials to:

* recognize and disclose the limitations of the Embedded Quality 
performance data that will be obtained by direct management observation 
in 2005 when interpreting and reporting on service quality at walk-in 
sites;

* ensure that the causes of delays in implementing improved quality 
measurement at walk-in sites are addressed; and:

* ensure that the delays with the development and implementation of the 
Quality Assurance initiative at volunteer sites are addressed.

With respect to the Web site's ETLA feature, we recommend that the 
Commissioner:

* recognize that decisions about the prominence and staffing to give 
the feature are related.

Agency Comments and Our Evaluation:

The Commissioner of Internal Revenue provided written comments in a 
November 8, 2004, letter (see app. III). The Commissioner noted that 
the 2004 filing season was one of the best ever, with improved 
telephone service, timely and effective return processing, substantial 
increases in electronic filing, and a successful shift in the number of 
tax returns prepared in IRS walk-in sites to volunteer sites. The 
Commissioner said he appreciated that our report recognized IRS's 
achievements for this filing season and over the past few years as 
well.

The Commissioner agreed with the importance of recognizing and 
disclosing the limitations of performance data obtained by managers 
directly observing employees in 2005. He also said that IRS has 
communicated the limitations in briefings with all levels of management 
and outside stakeholders, and will continue to do so. However, the 
Commissioner differs with our assessment of the extent of the 
limitations in the data. While he agreed that there may be some bias in 
the data because employees know that their managers are observing them, 
he disagreed with our subsequent finding that data obtained through 
this method may not be representative of true performance. However, as 
our report indicates, because of the potential for bias and absence of 
other data, we cannot determine if the observed performance is 
representative or not. Further, according to IRS officials, the 
accuracy rates compiled by the quality review staff and managerial 
reviews cited by the Commissioner are not based on statistically 
representative samples.

The Commissioner agreed with the recommendation to ensure that causes 
of delays in implementing improved quality measurement at walk-in sites 
are addressed. He said that while the delay in the implementation of 
contact recording as a means of collecting embedded quality data is 
attributable to the lengthy approval process, IRS expects to begin the 
contact recording pilot by January 2005 and is on target for post-pilot 
initial implementation for the last quarter of fiscal year 2005. 
Regarding volunteer sites, the Commissioner also agreed with the 
recommendation to implement quality initiatives in a timely manner and 
address delays.

The Commissioner agreed with the intent of our recommendation about the 
ETLA feature, but disagreed with our assessment of the cause. He agreed 
that it is important to recognize the relationship between the 
prominence of the feature and staffing, but disagreed that the decline 
in ETLA performance is attributable to inadequate recognition of this 
relationship. He stated that the ETLA feature was inadvertently placed 
in a more prominent location on IRS's Web site, thus creating 
unexpected demand. However, inadvertent placement suggests that the IRS 
needs to be more deliberative in recognizing the impact that placement 
of this feature can have on demand and staffing.

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].

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 2004 Goals:

As table 3 shows, the Internal Revenue Service (IRS) nearly met or 
exceeded seven out of the eight processing performance goals in 2004. 
For four measures (i.e., deposit error rate, deposit timeliness, refund 
interest paid, and productivity), IRS exceeded its goals. For two of 
the measures, IRS met their goals. For the remaining two, IRS missed 
its goals by a statistically significant amount. In the case of refund 
timeliness, however, the point estimate of 98.2 percent, nearly met the 
goal of 98.4 percent. In the case of letter error rate, the point 
estimate was 7 percent compared to the goal of 6.2 percent--13 percent 
greater than the 2004 goal.

Comparing actual 2004 performance to 2003 shows that IRS's performance 
improved or remained about the same for six out of the seven measures 
that could be compared. Table 3 also shows that IRS's processing 
performance in 2004 has generally improved in comparison to 2002 and 
2001 for the measures that could be compared.

Table 3: IRS's Processing Performance, 2001-2004:

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%; +/- .3%[D]; 
Fiscal year 2003 actual: 4.2%; +/- .3%[D]; 
Fiscal year 2004 actual: (through July)[A]: 3.6%; +/- .34%[D]; 
Fiscal year 2004 goal: 4.0%.

Measure name: Deposit timeliness-paper; 
Definition: Interest foregone by not depositing monies the business day 
after receipt, per $1 million in deposits. Measure assumes an 8 percent 
interest rate; 
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: Not comparable because of revisions to the 
measure; 
Fiscal year 2004 actual: (through July)[A]: $422[E]; 
Fiscal year 2004 goal: $500.

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%; +/- .6%[D]; 
Fiscal year 2003 actual: 7.1%; +/- .5%[D]; 
Fiscal year 2004 actual: (through July)[A]: 7.0%; +/- .41%[D]; 
Fiscal year 2004 goal: 6.2%.

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%; +/-2.4%[D]; 
Fiscal year 2003 actual: 9.4%; +/-1.2%[D]; 
Fiscal year 2004 actual: (through July)[A]: 9.4%; +/-1.60%[D]; 
Fiscal year 2004 goal: 10.3%.

Measure name: Refund error rate -individual (paper); 
Definition: The percentage of refunds with IRS-caused errors in the 
entity information (e.g., incorrect name, Social Security number, or 
refund amount); includes systemic errors.[C]; 
Fiscal year 2001 actual[B]: 9.8%; 
Fiscal year 2002 actual: 8.0%; +/- .46%[D]; 
Fiscal year 2003 actual: 5.3%; +/- .41%[D]; 
Fiscal year 2004 actual: (through July)[A]: 4.9%; +/- .43%[D]; 
Fiscal year 2004 goal: 5.3%.

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: $36.29; 
Fiscal year 2004 actual: (through July)[A]: $21.43; 
Fiscal year 2004 goal: $66.00.

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%; +/- .32%[D]; 
Fiscal year 2003 actual: 98.8%; +/- .26%[D]; 
Fiscal year 2004 actual: (through July)[A]: 98.2%; +/- .16%[D]; 
Fiscal year 2004 goal: 98.4%.

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: 28,389; 
Fiscal year 2003 actual: 30,179; 
Fiscal year 2004 actual: (through July)[A]: 30,236; 
Fiscal year 2004 goal: 29,530.

Note: GAO analysis of IRS data.

[A] The measures for fiscal year 2004 are through July 31, which were 
the latest data available at the time we ended our audit work. 
According to IRS officials, the 2004 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.

[D] IRS estimates these measures to have a 90 percent confidence 
interval.

[E] IRS's measure for Deposit timeliness for 2004 was not comparable to 
previous years because IRS changed the formula to not include weekends 
in calculating timeliness.

[End of table] 

[End of section]

Appendix II: IRS Spends Thousands of Staff Years on Filing Season 
Activities:

IRS's performance during the filing season has significant budgetary
[Footnote 28] implications because IRS spends thousands of staff years 
on its key filing season activities.1:

Table 4 shows IRS has significantly decreased the number of staff 
years[Footnote 29] used for key activities related to processing 
individual tax returns between fiscal years 1999 and 2003.[Footnote 
30] The number of staff years used for key processing activities such 
as data transcription and correcting errors has decreased over 17 
percent during this period.[Footnote 31] Beginning in fiscal year 2001, 
IRS separated the processing of individual and business tax returns and 
began consolidating paper processing centers. IRS officials expect 
additional savings when it further consolidates processing paper 
operations in Memphis, Tennessee in 2005.

Table 4: The Number of Staff Years Used in Key Processing Activities 
for Individual Income Tax Returns, Fiscal Years 1999-2003:

Paper processing; 
Fiscal year 1999: Individual income returns: 96,620; 
Fiscal year 1999: Staff years used: 4,384; 
Fiscal year 2000: Individual income returns: 92,930; 
Fiscal year 2000: Staff years used: 4,108; 
Fiscal year 2001: Individual income returns: 90,248; 
Fiscal year 2001: Staff years used: 4,290; 
Fiscal year 2002: Individual income returns: 84,645; 
Fiscal year 2002: Staff years used: 4,207; 
Fiscal year 2003: Individual income returns: 78,308; 
Fiscal year 2003: Staff years used: 3,613; 
Difference 1999- 2003: Individual income returns: 19% decrease; 
Difference 1999-2003: Staff years used: 17.6% decrease.

Electronic processing; 
Fiscal year 1999: Individual income returns: 29,345; 
Fiscal year 1999: Staff years used: 280; 
Fiscal year 2000: Individual income returns: 35,406; 
Fiscal year 2000: Staff years used: 274; 
Fiscal year 2001: Individual income returns: 40,223; 
Fiscal year 2001: Staff years used: 302; 
Fiscal year 2002: Individual income returns: 46,841; 
Fiscal year 2002: Staff years used: 265; 
Fiscal year 2003: Individual income returns: 54,611; 
Fiscal year 2003: Staff years used: 226; 
Difference 1999-2003: Individual income returns: 86% increase; 
Difference 1999- 2003: Staff years used: 19.3% decrease.

Total; 
Fiscal year 1999: Individual income returns: 125,965; 
Fiscal year 1999: Staff years used: 4,664; 
Fiscal year 2000: Individual income returns: 128,336; 
Fiscal year 2000: Staff years used: 4,382; 
Fiscal year 2001: Individual income returns: 130,471; 
Fiscal year 2001: Staff years used: 4,592; 
Fiscal year 2002: Individual income returns: 131,486; 
Fiscal year 2002: Staff years used: 4,472; 
Fiscal year 2003: Individual income returns: 131,919; 
Fiscal year 2003: Staff years used: 3,839; 
Difference 1999-2003: Individual income returns: 5.5% increase; 
Difference 1999-2003: Staff years used: 17.7% decrease.

Source: GAO analysis of IRS data.

[A] Data for fiscal year 2004 were not available.

[End of table]

Table 5 shows that IRS has consistently directed over 8,000 staff years 
to CSRs answering toll-free telephone calls that are not routed to 
automated services.[Footnote 32]

Table 5: Staff Years Directed to Answering Toll Free Calls Fiscal Year 
2001-2003:

Total calls (thousands); 
Fiscal year 2001 actual: 32,786; 
Fiscal year 2002 actual: 31,496; 
Fiscal year 2003 actual: 33,168; 
Increase between Fiscal year 2001-2003: 382.

Total staff years; 
Fiscal year 2001 actual: 8,397; 
Fiscal year 2002 actual: 8,340; 
Fiscal year 2003 actual: 8,491; 
Increase between Fiscal year 2001-2003: 94.

Source: GAO analysis of IRS. 

[End of table]

The total staff years used for walk-in service has increased slightly 
between 2001 and 2003, ranging from 2,121 in fiscal year 2001, to 2,208 
in fiscal year 2002, and 2,256 in fiscal year 2003.

However, the time IRS spent directly on return preparation assistance 
at walk-in sites during the filing season has decreased significantly. 
As the demand for walk-in assistance has declined, IRS has assigned 
walk-in staff other responsibilities such as working on compliance 
cases. Figure 7 shows that direct Full-Time Equivalents[Footnote 33] 
decreased 62 percent for time spent directly (not counting overhead) on 
return preparation services between 2001 and 2004.

At the same time, IRS reduced its reliance on compliance staff at walk-
in sites. For years, IRS detailed staff from its compliance functions, 
such as Examination and Collection, to help provide walk-in assistance 
during the filing season. IRS has now limited the number of such 
details. IRS reduced the number of compliance Full-Time Equivalents 
detailed to assist at walk-in sites from 244 in the 2001 filing season 
to 9 in the 2004 filing season.

Figure 7: Direct Full-Time Equivalents Used for Return Preparation at 
IRS Walk-in Sites, 2001-2004 Filing Seasons:

[See PDF for image] 

Note: The time periods covered by this figure are December 31, 2000 
through April 28, 2001; December 30, 2001 through April 27, 2002; 
December 29, 2002 through April 26, 2003; and December 28, 2003 through 
April 24, 2004.

[End of figure] 

[End of section]

Appendix III: Comments from the Internal Revenue Service:

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

November 8, 2004:

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

Dear Mr. White:

The 2004 filing season was one of the best ever with improved telephone 
service, timely and effective return processing, substantial increases 
in electronic filing, and a successful shift in the number of tax 
returns prepared from our IRS walk-in sites to our volunteer sites. 
Also, the planned decline in the number of persons visiting our walk-in 
sites enabled us to provide an increased concentration on account 
assistance and compliance work. During the 2004 filing season, we met 
or exceeded many of our performance goals and made substantial progress 
towards achieving others.

One very successful initiative focused on the Advance Child Tax Credit 
(ACTC) enhancements. After successfully issuing over $14 billion in 
ACTC payments to 25 million taxpayers in late fiscal year 2003, we 
recognized that many customers would need to know the exact amount of 
their ACTC to correctly file their Tax Year 2003 return. We developed 
an Internet application and an automated telephone feature to provide 
customers with the information they needed. The interactive "Remember 
Your Advanced Child Tax Credit" applications provided customers with 
the correct amount of ACTC credit they were required to report on their 
2003 return. These interactive applications were convenient, easy to 
use and readily available through our automated telephone service and 
on www.IRS.GOV. These two applications received over 13 million 
inquires from January through the end of the fiscal year. The benefits 
of these automated self-service solutions were numerous, including 
enabling us to focus our Customer Service Representative (CSR) staff on 
helping those truly needing personal service, increasing the likelihood 
that the ACTC was accurately reported on returns filed, preventing 
taxpayer burden, and avoiding costly error correction actions during 
return processing.

I believe it is important to recognize our filing season successes. I 
appreciate the perspective you provide in your report in recognizing 
these achievements. Your comparisons show how our customer-focused 
efforts have had a positive impact on the service we provide. Striving 
to achieve continuous improvement is a critical element of our 
strategic planning process. We recognize that we can still serve our 
customers better and will continue to build upon our successes.

Additional comments concerning specific filing season services are 
outlined below.

Telephone Service:

Our telephone service continued to improve this filing season. We 
improved our productivity by increasing the number of calls answered 
per Full Time Equivalent by six percent. Callers were much more 
successful in connecting to our system because we decreased the number 
of busy signals by 42 percent even though call attempts increased 16 
percent. Callers who needed to speak with a CSR also received improved 
service. The CSR Level of Service (LOS) measure increased from 85 
percent in 2003 to 86 percent in 2004, far exceeding 68 and 71 percent 
LOS for 2001 and 2002. Once connected, callers needing assistance from 
a CSR waited an average of only 170 seconds, which is comparable to the 
prior year and down substantially from 274 seconds in 2002, and 334 
seconds in 2001. The actions shown below contributed to this year's 
substantially improved customer experience:

* Consolidated the topic areas that CSRs answer by combining similar 
subjects to improve efficiency of call processing.

* Replaced outdated Voice Response Units with new equipment that 
enhanced automated service.

* Improved the work scheduling/staffing process that allowed more 
accurate and detailed planning to match staff to workload.

We recognize challenges remain with our telephone tax law quality 
performance. Early in the filing season when our performance was below 
expectations we took aggressive corrective actions. While we remained 
under our tax law accuracy goal, as a result of our efforts we made 
steady progress, improving our accuracy from February 2004 through the 
balance of the fiscal year. We anticipate continued improvement in the 
accuracy of tax law responses in fiscal year 2005. We also improved our 
accuracy for customers with account related inquiries to 89.6 percent. 
This was within .6 percent of our goal of 90.2 percent and an 
improvement of 1.1 percent from the prior year.

The results from the Toll-Free Customer Satisfaction Survey show that 
our customers again recognized our improved service. For the period 
January through March 2004, on a five-point scale, the overall 
satisfaction rating was 4.66 for Wage and Investment (W&I) and 4.65 for 
Small Business/Self-Employed. Areas where we achieved strong gains in 
customer satisfaction include the following:

* Ease of understanding the menu and instructions.

* Finding the appropriate menu.

* Time to get to the right person.

* Time to complete the call after reaching a representative.

Tax Return Processing:

Our emphasis on detailed planning as part of our Filing Season 
Readiness again resulted in a highly successful filing season. We 
correctly forecasted our workload receipt pattern and matched our 
staffing to ensure we processed returns in compliance with our goals. 
As a result, our returns processing activities continue to be highly 
effective.

Through the end of the fiscal year, we processed 129 million income tax 
returns and issued over $208 billion in refunds to our customers. We 
successfully implemented three critical provisions of the Jobs and 
Growth Tax Relief Reconciliation Act of 2003, as well as three 
provisions of the Military Family Tax Relief Act of 2003. Early in the 
filing season we noted higher than anticipated errors on returns caused 
by an incorrect calculation of the advanced child tax credit payment. 
We immediately initiated proactive communication with the practitioner 
community and the public to reverse this trend. As a result, error 
rates dropped from approximately 5 percent to around 3.5 percent. 
Despite the success of this effort, we did receive approximately 1.9 
million more returns with errors than last year. Many of the error 
returns were associated with the advanced child tax payment. Due to our 
planning, we were still able to promptly handle this workload without 
delays in processing.

I believe it is important to recognize that we have improved our 
processing of individual income tax returns and generally met or 
exceeded performance goals for each year since 2001, despite the fact 
that we have established annual goals that are more challenging for 
each area of performance. This fact recognizes both our performance and 
our management philosophy of continuous improvement.

Electronic Filing and Internet Services:

We are pleased that your report recognizes our achievements in 
electronic filing. The following are highlights of our 2004 
accomplishments:

* As of October 17, 2004, over 61.5 million taxpayers filed 
electronically; surpassing the 52 million for the prior year. Nearly 
150,000 electronic return originators participated in e-file resulting 
in more accurate returns and faster processing.

* Home computer e-filing increased as taxpayers filed more than 14.6 
million returns from their home computers, a 21 percent increase over 
last year. Over 3.5 million taxpayers used the free online filing 
services offered by the Free File Alliance, which exceeded last year's 
volume of 2.8 million.

* More than 42.4 million taxpayers signed their return electronically 
using one of the three Personalized Identification Number options.

* The IRS website, www.IRS.GOV, was one of the most heavily used 
government sites. During the 2004 filing season, we had 3.5 billion 
hits. The IRS continues to experience an increase in the number of page 
views, which exceeded 574 million. In addition, approximately 368 
million forms, publications, instructions, and other documents were 
downloaded from IRS.GOV.

* The IRS web site handled 23 million "Where is my refund" and 11 
million "Remember Your Advanced Child Tax Credit" inquiries.

For 2005 we will continue to pursue increased electronic filing of 
returns. We are adding six new forms that can be filed electronically, 
continuing to encourage free online filing services, and increasing 
service to electronic return preparers. Increased electronic filing 
results in cost and staff savings enabled us to shift these resources 
to enforcement and other areas.

Electronic Tax Law Assistance (ETLA):

As you stated in your report, our web site was user friendly and 
generally easy to access and use. On the other hand, usage of our ETLA 
feature, which allows taxpayers and practitioners to ask tax law 
questions via the Internet and receive responses via e-mail declined 
from 153,000 in 2003 to 90,000 in 2004. However, this decline in ETLA 
performance is not attributable to inadequate recognition of the 
relationship between ETLA prominence on the website and customer 
demand.

We carefully planned our staffing needs in 2004 to correspond with the 
volume and complexity of the questions anticipated with the ETLA link 
located in the same place as in the prior year. Early in the filing 
season we experienced unanticipated demand for this service when the 
ETLA option was inadvertently placed in a much more prominent web 
location. In addition, other non-IRS web sites began to promote the 
link to ETLA, which further increased unanticipated inquiries. The 
volume of questions received quickly exceeded our ability to deliver 
the service levels that we desired and contributed to a decrease in the 
accuracy of our responses.

ETLA was not designed nor envisioned to be a primary customer service 
delivery channel for large numbers of taxpayers. The ETLA feature, when 
compared to our other service options, was designed to serve a very 
limited number of customers. We also recognize the risk that inaccurate 
information provided through this service can be widely disseminated 
through the Internet. Our experience this past filing season reinforces 
that we cannot adequately service large volumes of individual tax law 
questions using an e-mail based system. Rather, large volume inquiries 
are best serviced through self-service tools, such as Frequently Asked 
Questions, Tax Trails, and ready access to all forms and publications. 
We will continue our efforts to effectively use the Internet as a tool 
to deliver information and broad market-based interactive self-service 
assistance options.

Our primary method of providing direct assistance to customers with tax 
law questions remains our toll-free telephone system. As a result, 
during the past five years we have invested heavily in improving 
virtually every aspect of this service and we are making substantial 
progress toward achieving our goal of "world class" service. Allocating 
appropriate levels of staffing to service a large volume of e-mail 
inquiries would diminish our staff available to provide telephone 
service. In addition, telephone assistance provides several benefits to 
the IRS and our customers that are not found in an e-mail based system, 
such as:

* Access to a telephone is readily available to virtually all socio-
economic strata of our diverse customer base.

* Active two-way communication between the customer and our CSR, 
allowing clarification of the issues and facts to arrive at a correct 
answer. Due to systemic limitations ETLA allows only one response 
opportunity to each e-mail received.

* Match-up of customer questions to CSR skill levels and the ability to 
dynamically route the call to an available CSR.

* Ability to answer customer calls for tax law assistance more 
efficiently than responding to tax law questions submitted by e-mail.

We do not plan to increase the prominence of the ETLA feature for the 
2005 filing season. We will continue to offer an e-mail based option to 
our citizens located overseas who do not have easy access to our toll-
free telephone service. We believe that maintaining this service for 
this small number of overseas customers is an effective way to assist 
them and compensate for the limited services offered due to their 
location.

Taxpayer Assistance Centers (Walk-In Service):

We continued efforts to enhance taxpayers' experience at our Taxpayer 
Assistance Centers (TAC). As your report recognizes, and consistent 
with IRS' strategy to shift return preparation to volunteer sites, the 
number of persons visiting IRS walk-in sites continued to decline in 
the 2004 filing season. This allowed us to redirect resources to other 
activities. In addition, we reduced reliance on SBSE support by 85 
percent, thereby enabling these personnel to concentrate on their core 
enforcement responsibilities. This is attributable to the reduced 
return preparation, as well as operational efficiencies achieved in 
training and reduced Individual Tax Identification Number traffic.

Further, we continued aggressive actions to improve the accuracy of tax 
law assistance. We emphasized quality of responses by training all 
employees to use the Publication Method Guide, 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.

To standardize the quality review process, we moved forward with 
implementing our long-term approach to improving quality, the Embedded 
Quality Business Integration (EQBI) initiative. In April 2004, we 
rolled out Embedded Quality (EQ), one of the four components of EQBI.

We do not agree that the IRS has limited performance measures and data 
on the quality of tax law assistance, account assistance, timeliness, 
and return preparation provided at our TACs. Field Assistance managers 
and quality review staff conducted anonymous visits to our TACs between 
October 2003 and April 2004, and asked over 1,200 tax law questions. 
While the results of these visits did not produce a statistically 
reliable sample, we did consider the data valuable and used it to 
identify training needs and other actions to improve accuracy of 
responses to tax law questions.

We are currently using the EQ data we collected since April 2004 to 
assess performance in our TACs. EQ provides a statistically reliable 
sample, facilitates consistent reviews of employee performance, and 
delivers comprehensive data that defines our overall level of quality 
incorporating tax law, accounts, and return preparation assistance. We 
are pleased to report that through the end of FY 2004, more than 10,000 
entries into the EQ database reflected an overall 96 percent level of 
quality for these services.

Also, we recognize there may be a slight bias in data we gathered under 
EQ because employees know when they are being directly observed. 
However, we disagree that the data gathered by these observations may 
not be representative of true performance. We compensate for the 
potential bias through our approach to monitoring, measuring, and 
ultimately improving quality. As a result, we believe the volume of 
observations being conducted and the data gathered is a reasonably 
reliable measure of employee performance.

You stated in your report that both the TIGTA and IRS reported the IRS 
had not reached its goal of 80 percent tax law accuracy at the walk-in 
sites they visited. Prior to the implementation of EQ, the IRS' 
official measure of tax law accuracy for FY 2004 was based on modified 
TIGTA results[NOTE 1]. However, it should be noted that the results 
from visits conducted by our quality review staff and managers indicate 
we exceeded our 80 percent goal for tax law accuracy. The accuracy 
rates from the quality review staff and manager visits from October 
2003 through April 2004 were 86 percent and 93 percent, respectively.

We agree we did not measure the timeliness of our service at walk-in 
sites as stated in your report. For the same reasons noted in our 
responses to your 2002 (GAO-03-314[NOTE 2]) and 2003 (GAO-04-843) 
filing season reports, we do not agree that it is necessary to 
consolidate and report TAC wait-times. However, as observed in your 
2003 report, Q-matic sites were not required to report wait-time 
information to headquarters. We agreed with this observation and 
required Q-matic sites to report wait-time information on a quarterly 
basis. This data is being evaluated to identify overall trends in 
timeliness and quality.

Volunteer Return Preparation:

Through September 30, 2004, over 1.93 million returns were filed 
through Volunteer Income Tax Assistance (VITA) and Tax Counseling for 
the Elderly sites, an increase of 20.4 percent over 2003. Other 
achievements include:

* More than 262 million outreach contacts, including over 190 million 
through media channels (television, radio, newspaper, etc.), and 72 
million through non-media channels (seminars, etc.).

* Increased outreach to the underserved population (low-income, elderly, 
disabled, and Limited English Proficient) by expanding the community-
based coalitions from 160 in 2003 to 265 in FY 2004.

* Increased electronic filing (of the 1.93 million returns prepared in 
FY04 by volunteers, 71 percent were e-filed).

Your report indicates that as of September 2004, IRS had missed its 
milestones for developing guidelines for monitoring volunteer sites. It 
should be noted that you received an abbreviated version of our action 
plan, which has been revised to include additional steps that will be 
taken to ensure milestones are met. While expansion of our initial plan 
resulted in later completion dates, these revisions will not impact 
timely implementation for the FY 2005 filing season. In addition, 
performance measures are under development for the FY 2005 filing 
season to establish a baseline for use in establishing performance 
goals and standards for FY 2006.

Also, we are pleased to report the development of the multi-year 
quality business plan for our VITA program is complete. Its components 
include the following five strategies:

Provide volunteers the training they need.

* Establish a set of standardized operating procedures for taxpayers, 
volunteers, and partners.

[3] GAO, Tax Administration: IRS' 2003 Filing Season Performance Showed 
Improvements, GAO-04-84 (Washington, D.C.: Oct. 2003).

Ensure all participants in the volunteer return preparation program 
understand their respective roles, responsibilities, and capabilities.

* Continually assess the quality of the volunteer return preparation.

Proactively communicate quality improvement efforts to stakeholders.

Significant actions associated with the five major strategies that 
support appropriate operational priorities are either complete or 
underway.

Responses to your specific recommendations are enclosed. I appreciate 
your observations on the successful filing season for 2004. If you have 
any questions, please contact Floyd Williams, Director, Legislative 
Affairs, at (202) 622-3720.

Sincerely,

Signed by: 

Mark W. Everson:

Enclosure:

Enclosure:

Recommendation for the Commissioner:

With respect to the Web site's ETLA feature, we recommend that the 
Commissioner recognize, that decisions about the prominence and 
staffing to give the feature are related.

Response:

We fully recognize the relationship between the prominence of the ETLA 
web location and the need for commensurate staffing. We do not plan to 
offer ETLA as a prominent web site tax law service option during the 
2005 filing season. We will continue to provide tax law assistance to 
overseas citizens using an e-mail based system targeted to meet their 
specific service needs.

Recommendation for the Commissioner:

Recognize and disclose the limitations of the Embedded Quality 
performance data that will be obtained by direct management observation 
in 2005 when interpreting and reporting on service quality at walk-in 
sites.

Response:

Our Embedded Quality Business Integration (EQBI) Initiative, when fully 
implemented, will provide a standardized approach to improve the 
quality of services provided in our TACs. We recognize the limitations 
of Embedded Quality and will continue to disclose any limitations when 
reporting on service quality at walk-in sites. Without the benefits of 
Contact Recording, which records employee/taxpayer interactions in the 
TACs, managers' direct observations of employees may result in a slight 
bias because the employees know they are being observed. We 
communicated these limitations in briefings with all levels of IRS 
management and outside stakeholders and will continue to do so. 
However, because of the volume involved, we disagree that the data 
gathered by these observations may not be representative of true 
performance.

Recommendation for the Commissioner:

Ensure that the causes of delays in implementing improved quality 
measurement at walk-in sites are addressed.

Response:

We will ensure that the causes of delays in implementing improved 
quality measurement at walk-in sites are addressed. The delay in the 
implementation of Contact Recording as a companion to EQ is 
attributable to the lengthy approval process for the required Privacy 
Act System of Records Notification, which is beyond our control. 
However, we expect to begin the pilot for Contact Recording by January 
2005. Our original target date for post-pilot initial implementation is 
the last quarter of Fiscal Year (FY) 2005, and we remain on target to 
meet that date.

Recommendation for the Commissioner:

Ensure that the delays with the development and implementation of the 
Quality Assurance initiative at volunteer sites are addressed.

Response:

While expansion to the initial plan resulted in later completion dates, 
these revisions will not impact timely implementation for the FY 2005 
filing season. We will continue to revise and review our action plan as 
appropriate, while ensuring the quality initiatives at volunteer sites 
are implemented timely and delays are addressed.

NOTES: 

[1] IRS excluded referrals to publications, referrals to other 
employees, and service denied when computing the tax law accuracy rate.

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

[End of section]

Appendix IV: GAO Contacts and Staff Acknowledgments:

GAO Contacts:

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

Acknowledgments:

In addition to those named above, Tiffany Brown, James Cook, Larry 
Dandridge, Evan Gilman, John Lesser, Karen O'Conor, Neil Pinney, and 
Amy Rosewarne made key contributions to this report.

(450279):

FOOTNOTES

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

[2] GAO, Internal Revenue Service: Assessment of Fiscal Year 2005 
Budget Request and 2004 Filing Season Performance, GAO-04-560T 
(Washington, D.C.: Mar. 30, 2004). 

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

[4] GAO, Assessing the Reliability of Computer-Processed Data, GAO-02-
15G (Washington, D.C.: Sept. 1, 2002).

[5] Most volunteer sites have limited days and hours of operation and 
are open primarily between January and April 15. 

[6] P.L. 105-206, July 22, 1998. 

[7] IRS's balanced measures system is consistent with the Government 
Performance and Results Act of 1993 (P.L. 103-62), which was enacted to 
hold federal agencies accountable for achieving program results (See 
GAO-03-143). 

[8] Although IRS establishes goals for its balanced measures on a 
fiscal year basis, our assessment of these measures was based on 
different times during the filing season, depending on the filing 
season activity being assessed.

[9] Time periods covered for paper returns and refunds were January 1 
through September 17, 2004. 

[10] IRS's measure for deposit timeliness for 2004 was not comparable 
to previous years because IRS changed the formula to not include 
weekends in calculating timeliness.

[11] 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 reports to Congress 
annually on IRS's progress towards meeting electronic filing goals. 

[12] Data as of June 30, 2003, the latest available data. 

[13] GAO, Financial Audit: IRS's Fiscal Year 2003 and 2002 Financial 
Statements, GAO-04-126 (Washington, D.C.: Nov. 13, 2003). 

[14] In 2003, IRS entered into a 3-year agreement with the Free File 
Alliance, a consortium of tax preparation companies that provides free 
electronic filing to taxpayers who access any of the companies via a 
link on IRS's Web site. IRS is currently in the second year of the 
initiative, and 17 companies offered free filing via IRS's Web site.

[15] GAO, Tax Administration: Assessment of IRS' 2001 Tax Filing 
Season, GAO-02-144, (Washington, D.C.: Dec. 21, 2001).

[16] Of the 84 million calls, IRS had 173,000 busy signals--less than 
one-half of 1 percent. In comparison, during the 2002 filing season, 
busy signals represented about 3.8 percent of calls.

[17] GAO-03-143. 

[18] GAO, Tax Administration: IRS's 2003 Filing Season Performance 
Showed Improvements, GAO-04-84 (Washington, D.C.: Oct. 2003).

[19] The study did not include questions related to taxpayer accounts. 

[20] GAO-04-84 and GAO, Tax Administration, Assessment of IRS' 2000 
Tax Filing Season, GAO-01-158 (Washington, D.C.: Dec. 22, 2000). Also, 
see GAO-03-143 for further discussion of data and measures for IRS 
walk-in sites.

[21] Treasury Inspector General for Tax Administration, Taxpayer 
Experience at the Taxpayer Assistance Centers Could be Improved, 
Reference No. 2004-40-152 (Washington, D.C.: 2004). 

[22] GAO-03-143. 

[23] Treasury Inspector General for Tax Administration, Improvements 
Are Needed to Ensure Tax Returns Are Correctly Prepared at Taxpayer 
Assistance Centers, Reference No. 2004-40-025, (Washington, D.C.: 2003) 
and Treasury Inspector General for Tax Administration, Improvements Are 
Needed to Ensure Tax Returns Are Prepared Correctly at Internal Revenue 
Service Volunteer Income Tax Assistance Sites, Reference No. 2004-40-
154, (Washington, D.C.: 2004).

[24] Contact recording for IRS walk-in sites is similar to the one for 
IRS's telephone system. 

[25] According to IRS officials, IRS and members of community-based 
coalitions will likely share responsibility for monitoring volunteer 
sites. IRS officials will conduct various types of visits to volunteer 
sites. With some visits, IRS officials will visit a statistically valid 
sample to observe volunteers and operational procedures. With others, 
they will have returns prepared by volunteers, similar to TIGTA's audit 
in the 2004 filing season.

[26] GAO-01-158. 

[27] IRS officials believe that the 2004 Forms, publications and other 
documents download figure reported in table 2 is understated when 
compared to last year for two reasons. First, a major Form 1040 file 
was not formatted the same as last year by error, resulting in 
significantly fewer downloads being reported. Second, taxpayers can now 
view publications and instructions directly via the Web site's normal 
search function and these views do not count as the form being 
downloaded. Evidence exists to support IRS's contention that downloads 
would have been higher. 

[28] The source of data for this appendix is IRS's time and attendance 
systems, the output of which is used to calculate IRS's payroll 
expenses. IRS reports these payroll expenses annually in its Statement 
of Net Cost, the reliability of which GAO tests as part of our audits 
of IRS's financial statements. These audits have concluded that for the 
fiscal years ended September 30, 2000 through 2003, IRS's Statement of 
Net Cost was reliable. See GAO, Financial Audit: IRS's Fiscal Years 
2004 and 2003 Financial Statements, GAO-05-103 (Washington, D.C.: Nov. 
10, 2004). Therefore, the data is likely to be reliable to show trends 
over time.

[29] Staff years and Full-Time Equivalents are units of measurement 
that are often used interchangeably. According to IRS, a Full-Time 
Equivalent is the equivalent of one person working full-time for one 
year with no overtime. A staff year includes overtime. Therefore, the 
cost of one staff year is equal to the cost of one Full-Time Equivalent 
plus overtime. 

[30] On a larger scale, we have previously reported that IRS spent 
about 14,065 Full-Time Equivalents for all submission-processing 
activities and operations (i.e., both individual and business income 
tax returns and other correspondence work outside of processing 
returns) in fiscal year 2003 or about 14 percent of its entire 98,381 
Full-Time Equivalent allocation. This was down over 1,000 Full-Time 
Equivalents or 1 percent from around 15,101 Full-Time Equivalents used 
in fiscal year 2002. See GAO-04-560T and GAO, Internal Revenue Service: 
Assessment of Fiscal Year 2004 Budget Request and 2003 Filing Season 
Performance to Date, GAO-03-641T (Washington, D.C.: Apr. 2003).

[31] According to IRS officials, the decrease in staff years for 
electronic filing is due to the reduction of documents required by IRS 
to be filed on paper. For example, power of attorney forms can now be 
filed electronically. 

[32] IRS could not provide comparable information for fiscal years 1999 
and 2000. 

[33] Staff year data were not available. According to IRS, a direct 
Full-Time Equivalent does not include overhead. 

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