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entitled 'Tax Administration: Telephone Excise Tax Refund Requests Are 
Fewer Than Projected and Have Has Minimal Impact on IRS Services' which 
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Report to the Committee on Finance, U.S. Senate: 

United States Government Accountability Office: 

GAO: 

April 2007: 

Tax Administration: 

Telephone Excise Tax Refund Requests Are Fewer Than Projected and Have 
Had Minimal Impact on IRS Services: 

GAO-07-695: 

GAO Highlights: 

Highlights of GAO-07-695, a report to the Committee on Finance, U.S. 
Senate 

Why GAO Did This Study: 

The Internal Revenue Service (IRS) is implementing three tax system 
changes during the 2007 filing season that potentially could impact 
compliance by taxpayers as well as IRSís service to taxpayers. These 
changes are (1) the telephone excise tax refund (TETR), which can be 
requested by all individuals and entities that paid the excise tax 
regardless of whether they have an obligation to file a tax return, (2) 
the option to deposit refunds into up to three accounts, hereafter 
referred to as the split refund option, and (3) the extension of some 
tax provisions that had expired, hereafter referred to as the extender 
provisions. Because the 2007 filing season may be complicated by these 
changes, the Committee asked GAO to determine the effects of these 
changes on compliance and taxpayer service including (1) the number of 
individuals or entities affected by these changes, (2) how the changes 
were expected to affect compliance and the results of compliance 
activities to date, and (3) the impact of the changes on returns 
processing and taxpayer service. GAO analyzed IRS documents and data 
from IRS databases and interviewed IRS officials. 

What GAO Found: 

IRS has received fewer TETR requests and fewer taxpayers have used the 
split refund option than expected. IRS projected up to 181 million 
individuals and entities would request TETR and about 3.8 million 
individuals would use the split refund option. As of March 24, 2007, 
about two-thirds of the individual taxpayers who had filed their tax 
returns requested TETR and IRS had received 2 percent of the projected 
10 to 30 million TETR requests from individuals without a tax filing 
obligation. As of March 3, 2007, about 48,000 individuals had used the 
split refund option. Currently, there are no data on the number of 
taxpayers using the extender provisions; however, IRS expects about the 
same number of claims as last year. 

Of the three tax system changes, only TETR creates new compliance 
concerns for IRS and through March 25, 2007, IRS has selected over 
9,900 individual and over 550 business TETR requests for audit. Four of 
the individual audits are completed and the individuals agreed to 
accept the standard amount ($30-$60) instead of the amount they 
originally requested. The split refund option does not create 
compliance concerns since it relates to where refunds are deposited 
rather than to compliance with tax provisions. The extender provisions 
could be used by taxpayers to prepare previous yearsí tax returns and 
IRS does not anticipate new compliance issues related to 2006 returns. 

Early data show that the impact of the tax system changes on returns 
processing and taxpayer service has been minimal. IRS projected 
significant increases in returns processing, telephone assistance, and 
walk-in sitesí workloads from TETR, but they have not materialized. For 
example, as of March 3, 2007, IRS had only received about 4.8 percent 
of the 6.8 million TETR calls expected. IRSís planned returns 
processing volume from the split refund option has not materialized and 
IRS did not anticipate significant workload from the extender 
provisions. 

Figure: Telephone Excise Tax Refund Data for Individual Returns: 

[See PDF for Image] 

Source: GAO analysis of IRS data. 

[A] Week ending January 20, 2007, through week ending March 24, 2007. 

[B] Based on 20 million projected filers-midpoint of estimated range. 

[End of figure] 

What GAO Recommends: 

GAO is making no recommendations in this report. IRS provided technical 
comments and we incorporated them as appropriate. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-695]. 

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

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Agency Comments and Our Evaluation: 

Appendix I: Briefing Slides: 

United States Government Accountability Office: 
Washington, DC 20548: 

April 11, 2007: 

The Honorable Max Baucus: 
Chairman: 
The Honorable Charles E. Grassley: 
Ranking Member: 
Committee on Finance: 
United States Senate: 

IRS is implementing three tax system changes during the 2007 filing 
season that potentially could impact compliance by taxpayers as well as 
IRS's service to taxpayers, such as telephone assistance. The first 
change is the telephone excise tax refund (TETR), which can be 
requested by all individuals and entities that paid the telephone 
excise tax, regardless of whether they have an obligation to file a tax 
return, making it possibly the most far-reaching refund in IRS history. 
The second change is giving taxpayers the option to deposit their 
refunds into up to three accounts, hereafter referred to as the split 
refund option. The third change is the December 2006 extension of some 
tax provisions that had expired, hereafter referred to as extender 
provisions.[Footnote 1] The Commissioner of Internal Revenue said that 
these three tax system changes make the Internal Revenue Service's 
(IRS) 2007 filing season a "high" risk filing season. 

Because the 2007 filing season may be complicated by these three tax 
system changes, you asked us to determine the effects of these changes 
on compliance and taxpayer service. Our objectives were to: 

* determine, based on available data, the number of individuals and 
entities affected by the tax system changes related to the TETR, split 
refund option, and extender provisions; 

* determine how the tax system changes were expected to affect 
compliance; 

* assess IRS's plans for ensuring compliance with those tax system 
changes that created new compliance concerns for IRS; 

* summarize the results of compliance activities to date for those tax 
system changes that created new compliance concerns for IRS; and: 

* summarize the impact of the TETR, split refund option, and extender 
provisions on returns processing and taxpayer service. 

To determine (1) the number of taxpayers affected by the tax system 
changes related to the TETR, split refund option, and extender 
provisions, (2) how the tax system changes were expected to affect 
compliance, (3) the results of compliance activities for the tax system 
changes that created new compliance concerns for IRS, and (4) the 
impact of the tax system changes on returns processing and taxpayer 
service, we analyzed IRS documents and data from IRS databases and 
interviewed IRS officials. In past work, we assessed IRS's filing 
season performance data. We considered filing season performance data 
on the number of individual and business returns processed and related 
compliance activities to be objective and reliable based on our prior 
work. Since the data sources and procedures for producing this year's 
filing season data have not significantly changed from prior years, we 
determined that the data were sufficiently reliable for the purposes of 
this report. Officials interviewed included, among others, the 
Commissioner of the Wage and Investment Division, the Executive-in- 
Charge of TETR, and the Director of Submission Processing. To assess 
IRS's plans for ensuring compliance with TETR, the only one of the 
three tax system changes that created new compliance concerns for IRS, 
we compared good management practices identified in our previous 
reports to IRS's plans for ensuring compliance with TETR.[Footnote 2] 

We conducted our work from January 2007 through April 2007 in 
accordance with generally accepted government auditing standards. On 
March 14, 2007, we briefed your staff on the results of our work. This 
report conveys the information provided during that briefing. A copy of 
the briefing document is included in appendix I with information 
updated through March 24, 2007. 

Results in Brief: 

IRS has received fewer TETR requests and fewer taxpayers have used the 
split refund option than expected. IRS projected that up to 181 million 
individuals and entities would request TETR and about 3.8 million 
individual taxpayers would use the split refund option. As of March 24, 
2007, two-thirds of the individual taxpayers who had filed their tax 
returns requested TETR and IRS had received 2 percent of the projected 
requests for TETR from individuals who did not have a tax filing 
obligation. Also, as of March 3, 2007, about 48,000 taxpayers of the 
approximately 36 million taxpayers that had their refunds direct 
deposited had taken advantage of the split refund option. According to 
IRS officials, the late passage of the extender provisions delayed the 
processing of tax returns from individuals claiming the extender 
provisions until February 3, 2007. There are no data currently 
available on the number of taxpayers affected by the extender 
provisions, but IRS expects the volume to be similar to the number of 
claims made last year. 

TETR is the only one of the three tax system changes expected to create 
new compliance concerns for IRS. TETR is new in 2007 and filers may 
request refunds greater than that to which they are entitled. The split 
refund option does not create compliance concerns for IRS since it 
relates to the accounts into which taxpayers want their refunds 
deposited rather than to complying with tax provisions.[Footnote 3] The 
extender provisions could be used by taxpayers when preparing previous 
years' returns and IRS anticipates that any compliance concerns for 
2006 returns will be the same as for previous years' returns. 

IRS compliance plans for TETR were consistent with good management 
practices identified in our previous reports. Examples of good 
management practices we identified include identifying leader(s), 
developing a compliance plan, and monitoring compliance efforts. IRS's 
compliance plans for TETR included, among other things, appointing an 
executive to coordinate TETR plans IRS-wide, developing a compliance 
plan to select TETR requests for audit based on the probability that 
the amounts of the requests were statistically unlikely based on an 
analysis of telephone industry data, and monitoring compliance efforts 
weekly by comparing the number of TETR requests identified as 
potentially erroneous to the available audit resources in order to 
maximize the number of TETR audits. 

As of March 25, 2007, IRS had selected for audit over 9,900 individual 
returns and over 550 business returns that requested TETR and froze the 
TETR refunds. So far, IRS has closed four of the individual audits with 
taxpayers agreeing to accept the standard amount, and has not completed 
the remaining individual audits or any of the business audits. IRS 
reassigned about 77 full-time equivalent (FTE) staff from discretionary 
and earned income tax credit audits to conduct the TETR audits. 

Early data show that the impact of TETR, the split refund option, and 
extender provisions on returns processing and taxpayer service 
operations has been minimal. Although IRS projected increases in 
workload for returns processing, telephone assistance, and walk-in site 
contacts from TETR, the workload IRS planned to receive has not 
materialized. For example, as of March 3, 2007, IRS had only received 
4.8 percent of the 6.8 million TETR calls expected. Similarly, IRS's 
planned workload from the split refund option for returns processing 
has not materialized. IRS did not anticipate and has not experienced 
significant workload from extender provisions. 

Agency Comments and Our Evaluation: 

We provided a draft of this report to the Commissioner of Internal 
Revenue for his review and comment. The IRS provided informal technical 
comments, and we incorporated them as appropriate. 

As agreed with your offices, unless you publicly announce its contents 
earlier, we plan no further distribution of this report until 30 days 
from its issue date. At that time, we will send copies to the Chairman 
and Ranking Minority Member, House Committee on Ways and Means; the 
Secretary of the Treasury; the Commissioner of Internal Revenue; and 
other interested parties. We will also make copies available to others 
upon request. In addition, this report will be available at no charge 
on the GAO Web site at http://www.gao.gov. 

If you or your staffs have any questions, please contact me at (202) 
512-9110 or at whitej@gao.gov. Contact points for our Offices of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. Key contributors to this report were Amy Dingler, 
Evan Gilman, Shirley Jones, Matt Kalmuk, Frederick Lyles, Signora May, 
Jennifer McDonald, Neil Pinney, Lerone Reid, Shellee Soliday, and 
Joanna Stamatiades. 

Signed by: 

James R. White: 
Director, Tax Issues Strategic Issues: 

[End of section] 

Appendix I: Briefing Slides: 

2007 Filing Season Compliance: 

Update of March 14, 2007 Briefing to the Senate Committee on Finance: 

Briefing Contents: 

Objectives: 

Scope and Methodology: 

Background: 

Results: 

Objectives: 

GAO was asked to: 

1. determine, based on available data, the number of individuals and 
entities affected by the tax system changes related to the telephone 
excise tax refund (TETR), split refund option, and extender provisions, 

2. determine how the tax system changes were expected to affect 
compliance, 

3. assess IRS's plans for ensuring compliance for those tax system 
changes that created new compliance concerns for IRS, 

4. summarize the results of compliance activities to date for those tax 
system changes that created new compliance concerns for IRS, and: 

5. summarize the impact of the TETR, split refund option, and extender 
provisions on returns processing and taxpayer service. 

Scope and Methodology: 

Analyzed IRS documents and data from various IRS databases related to 
compliance, returns processing, and taxpayer services for the three tax 
system changes. 

Compared good management practices identified in previous GAO reports 
to IRS's plans for ensuring compliance with TETR.[Footnote 4] 

Interviewed IRS officials with responsibilities for compliance, returns 
processing, and taxpayer services related to the TETR, split refund 
option, and extender provisions. 

Data Reliability: 

We considered filing season performance data on the number of 
individual and business returns processed and related compliance 
activities to be objective and reliable based on our prior work. Since 
the data sources and procedures for producing this year's filing season 
data have not significantly changed from prior years, we determined 
that the data were sufficiently reliable for the purposes of this 
report. 

Background: 

TETR: 

The federal telephone excise tax was first imposed in 1898 to fund the 
Spanish-American War. According to the tax code, the tax is to be paid 
on telephone charges that are based on distance and elapsed time. Some 
individuals and corporations challenged the collection of the tax on 
long-distance services since these charges are based only on elapsed 
time. After five circuit court losses, on May 25, 2006, the Department 
of the Treasury conceded the legal dispute over the federal excise tax 
on long-distance telephone service. As a result, IRS will issue refunds 
of excise tax paid (including interest) on long-distance service after 
February 28, 2003 and before August 1, 2006. 

Anyone who paid the excise tax during this period may request TETR when 
filing their income tax returns including individuals, businesses, tax-
exempt organizations, and government entities. Individuals who do not 
normally file tax returns but paid the tax can request the refund on 
Form 1040EZ-T (Request for Refund of Federal Telephone Excise Tax). 

Individuals can request a standard amount when filing their income tax 
return, ranging from $30 to $60 depending on the number of exemptions 
they are eligible to claim, or they can use Form 8913 (Credit for 
Federal Telephone Excise Tax Paid) to request the actual amount paid. 

Businesses, tax-exempt organizations, and government entities can 
request the actual amount paid or use a formula developed by IRS to 
estimate their actual costs. They must file Form 8913 for either 
method. 

Taxpayers have 3 years to file an amended return to request TETR. 
Individuals who have no tax filing obligation have 3 years to file a 
1040 EZ-T without filing an extension. 

Split Refund Option and Extender Provisions: 

Prior to 2007, taxpayers could have their tax refund directly deposited 
into one account. Beginning in 2007, to promote savings, taxpayers are 
allowed to deposit their refunds into up to three accounts with U.S. 
financial institutions. 

The Tax Relief and Health Care Act of 2006 signed into law in December 
2006 extended some provisions that expired at the end of calendar year 
2005. These changes primarily involve three tax deductions: 

(1) state and local sales tax, 

(2) higher education tuition and fees, and: 

(3) educator expenses. 

Number of Individuals and Entities Affected by Tax System Changes: 

As of March 24, 2007: 

About two-thirds of individual tax filers requested TETR. 

For individuals without a tax filing obligation, IRS has received about 
2 percent of the projected number of TETR requests. 

TETR could be the most far-reaching refund in IRS history-a projected 
159 to 181 million (M) individuals and entities may request the refund: 

Individuals[B]; 
Eligible TETR filers: Tax return filers[A]; 
Projected number of filers: 135 M; 
Total number of filers to date: 69.1 M; 
Number of TETR requests: 47.3 M; 
Percentage: 68.5 percent of actual filers. 

Individuals[B]; 
Eligible TETR filers: Individuals without a tax filing obligations; 
Projected number of filers: 10-30 M; 
Total number of filers to date: 334,054; 
Number of TETR requests: 332,963[C]; 
Percentage: 1.7 percent[D] of projected filers. 

Entities[E]; 
Eligible TETR filers: Businesses (C-Corporations, S-Corporations, and 
partnerships); 
Projected number of filers: 11 M; 
Total number of filers to date: Not available; 
Number of TETR requests: 189,510; 
Percentage: 1.7 percent of projected filers. 

Entities[E]; 
Eligible TETR filers: Tax-exempt filers; 
Projected number of filers: 1.3 M; 
Total number of filers to date: Not available; 
Number of TETR requests: 280; 
Percentage: 0.0 percent of projected filers. 

Entities[E]; 
Eligible TETR filers: State, local government, and other non-filers; 
Projected number of filers: 2-4 M; 
Total number of filers to date: Not available; 
Number of TETR requests: Not available; 
Percentage: Not available. 

Total; 
Projected number of filers: 159-181 M; 
Total number of filers to date: Not available; 
Number of TETR requests: Not available; 
Percentage: Not available. 

Source: GAO analysis of IRS data. 

[A] Includes 1040 series forms: 1040, 1040A, 1040EZ, and 1040NR. 

[B] Data for the week ending January 20, 2007 through the week ending 
March 24, 2007. 

[C] About 500 individual filers submitted a form 1040EZ-T but did not 
request TETR and 591 did not request the actual or standard amount on 
the respective form. 

[D] For the actual as a percentage of estimated calculation, we used 
the midpoint of the estimated range: 20 M-- estimated number of filers. 

[E] Data for the week ending January 13, 2007 through the week ending 
March 24, 2007. 

[End of table] 

Individual tax returns requesting TETR averaged 4.7 million per week. 
Individual tax returns not requesting TETR averaged 2.2 million: 

[See PDF for Image] 

Source: GAO analysis of IRS data. 

[End of figure] 

About 48,000 taxpayers have used the split refund option-through early 
March 2007: 

Split refund option: 

IRS issued 57 million direct deposit refunds (from 136 million tax 
returns) as of December 15, 2006. The direct deposit refunds totaled 
$149 billion. 

As of March 2, 2007, taxpayers chose to have about 36 million 2007 
refunds totaling $101.5 billion directly deposited, which is an 8.7 
percent increase over the same period last year. While most taxpayers 
are electing to use just one account, as of March 3, 2007, about 48,000 
taxpayers (.13 percent) have taken advantage of the new split refund 
option which allows them to use up to 3 accounts. 

Data not available for extender provisions: 

Extender provisions: 

In 2006, about 11.2 million taxpayers claimed state and local sales 
taxes, about 4.7 million claimed higher education tuition and fees, and 
about 3.5 million claimed educator expenses. 

IRS expects a similar number of claims for each of the three deductions 
in 2007. 

The act including the extender provisions was signed into law in 
December 2006. This delayed the processing of returns claiming the 
provisions until February 3, 2007. No data are currently available on 
the number of taxpayers affected. 

How Tax Changes Expected to Affect Compliance: 

TETR is the only tax change expected to create new compliance concerns 
for IRS: 

TETR creates new compliance concerns for IRS. It is a new provision in 
2007 and those filers requesting the actual amount may request a refund 
greater than the amount of TETR they actually paid. Individuals who 
request the standard amount will generally not be selected for audit 
while individuals and entities who request the actual amount of 
telephone excise tax paid may be selected for audit. 

The split refund option does not create compliance concerns for IRS. It 
relates to the accounts into which taxpayers want their refunds 
deposited rather than to complying with tax provisions. While there are 
no compliance concerns, there is a potential for errors due to 
taxpayers entering incorrect account numbers on Form 8888 (Direct 
Deposit of Refund to More Than One Account) or IRS incorrectly 
transcribing the account numbers or the dollar amounts to be deposited 
into each account. 

The extender provisions do not create new compliance concerns for IRS. 
Taxpayers could use these provisions to prepare previous years' tax 
returns and IRS does not anticipate new compliance issues related to 
2006 returns. Also, the late passage of these provisions did not create 
compliance concerns that did not previously exist. 

IRS Plans for Ensuring Compliance for Tax Changes That Created New 
Compliance Concerns: 

IRS's TETR compliance plans consistent with good management practices 
identified by GAO: 

IRS's plans included: 

appointing an executive to coordinate TETR plans IRS-wide, 

collaborating across operating divisions and offices on designing TETR 
processes, and: 

developing a TETR implementation plan that included: 

1. standard amounts that individuals could request based on a model 
that assessed the risks of how different standard amounts would affect 
the number of filers that would request the actual amount of telephone 
excise tax paid rather than the standard amounts and the related effect 
this would have on the overall cost of TETR to the government. 

2. a methodology that businesses and tax exempt and government entities 
could use to estimate their TETR. 

IRS's TETR compliance plans consistent with good management practices 
identified by GAO: 

IRS's plans included (continued): 

developing a compliance plan to select TETR requests for audit based on 
the probability that the amounts of the requests were statistically 
unlikely based on an analysis of telephone industry data, and: 

monitoring compliance efforts weekly by comparing the number of TETR 
requests identified as potentially erroneous to the available audit 
resources in order to maximize the number of TETR audits. 

Results of Compliance Activities for Tax Changes That Created New 
Compliance Concerns for IRS: 

IRS developed plan for TETR audits: 

Operating divisions: 

IRS reassigned about 77 full-time equivalent (FTE) staff from 
discretionary and earned income tax credit audits to conduct the TETR 
audits. 

Only the TETR portion of a refund is frozen. The TETR refund will stay 
frozen until the audit is completed. The amount of time this takes 
depends in part on how long it takes the person or entity requesting 
the refund to respond to IRS requests for documentation. 

IRS officials are confident, based on meetings held to discuss 
resources, that they will be able to complete audits of all the TETR 
requests selected for audit. 

Criminal Investigations: 

Criminal Investigation has spent 13 FTEs on TETR activities in fiscal 
year 2007. 

TETR audit data for individual returns[A]: 

Data summary: Total dollar amount requested; 
Telephone excise tax refund requests[B]: Standard amount: $2 billion; 
Telephone excise tax refund requests[B]: Requested actual: $98.8 
million; 
Telephone excise tax refund requests[B]: Total: $2.01 billion. 

Data summary: Total number of returns; 
Telephone excise tax refund requests[B]: Standard amount: $47.4 
million; 
Telephone excise tax refund requests[B]: Requested actual: $211,247; 
Telephone excise tax refund requests[B]: Total: $47.6 million. 

Data summary: Total dollar amount: selected for audit and refunds 
frozen; 
Telephone excise tax refund requests[B]: Standard amount: None; 
Telephone excise tax refund requests[B]: Requested actual: $29.6 
million; 
Telephone excise tax refund requests[B]: Total: $29.6 million. 

Data summary: Total number of returns selected for audit and refunds 
frozen[C]; 
Telephone excise tax refund requests[B]: Standard amount: None; 
Telephone excise tax refund requests[B]: Requested actual: 9,914; 
Telephone excise tax refund requests[B]: Total: 9,914. 

Data summary: Audit disposition; 
Telephone excise tax refund requests[B]: Standard amount: None; 
Telephone excise tax refund requests[B]: Requested actual: Four (4) 
audits closed. All agreed to accept the standard amount; 
Telephone excise tax refund requests[B]: Total: Four (4) audits closed. 
All agreed to accept the standard amount.  

Source: GAO analysis of IRS data. 

[A] Data for the week ending January 20, 2007 through the week ending 
March 24, 2007. 

[B] Includes all 1040 Series and 1040 EZ-Ts. 

[C] Data for the week ending January 20, 2007 through the week ending 
March 25, 2007. 

[End of table] 

Individual Returns That Requested Standard Amount Represent About 95 
Percent ($2 Billion) of the Total Requested TETR Amount[A]: 

[See PDF for image] 

[A] Data for the week ending January 20, 2007 through the week ending 
March 24, 2007. 

Source: GAO analysis of IRS data. 

[End of figure] 

Results of Compliance Activities for Tax Changes That Created New 
Compliance Concerns for IRS: 

TETR audit data for businesses and tax exempt and government 
entities[A]: 

Data summary. 

Total dollar amount requested: $74.7 million. 
Total number of returns: 189,790. 
Total dollar amount: selected for audit and frozen[B]: $5.6 million. 
Total number of returns selected for audit and refunds frozen: 561. 
Audit disposition: No audits closed. 

Source: GAO analysis of IRS data. 

[A] Data for the week ending January 13, 2007 through the week ending 
March 25, 2007. 

[B] Includes the telephone excise tax refund plus interest. 

[End of table] 

TIGTA Ongoing TETR Audit: 

TIGTA began reviewing the TETR program in late 2006. The review is 
being conducted in two phases. TIGTA plans to send a draft report 
covering both phases to IRS for comment in July 2007. 

Phase I: 

(1) Assess IRS's preparation for handling TETR including the 
development of forms and instructions and interaction with taxpayers, 
including outreach efforts. 

(2) Assess how IRS developed the standard amount and the reasonableness 
of the amount. 

(3) Assess the controls IRS plans to use to ensure taxpayer compliance. 
TIGTA will also identify the requests for information and strategies 
implemented. 

Phase II: Determine whether IRS is following its TETR plans and monitor 
returns being filed for potential processing problems or trends 
regarding questionable TETR requests. 

Impact of TETR and the Split Refund Option on Returns Processing and 
Taxpayer Service Has Been Minimal: 

IRS anticipated increases in the returns processing workload due to 
TETR and the split refund option, but the expected volume has not 
materialized. 

* IRS expected to receive 10-30 million Forms 1040EZ-T, but as of March 
24, 2007, had only received about 335,000. 

* IRS anticipated processing 3.8 million split refund requests; however 
as of March 24, 2007, only 61,000 taxpayers have used the split refund 
option. 

Both IRS's new tax returns processing system and its legacy system are 
able to process TETR requests made on 1040 forms and 1040EZ-T forms. 
However the new system, the Customer Account Data Engine (CADE) system, 
just became operational March-2 months behind schedule because of 
problems identified during testing. 

* IRS had originally planned to post 33 million taxpayer accounts to 
CADE, but as a result of the delay, now will post about 17-19 million 
accounts to that system. Thus, returns processing has been slowed for 
millions of taxpayers who would have been eligible for their accounts 
to be posted on CADE, because of the longer posting times for the 
legacy system versus CADE. Refunds for millions of those CADE-eligible 
taxpayers were delayed by 1-5 days for direct deposit and 4-8 days for 
paper checks. 

* IRS did not plan to process split refund returns on CADE this year 
because of IRS's concerns about including it in the programming for the 
current release of CADE given the timing of the legislation. 

While all 19 companies participating in the Free File program-which 
offers free return preparation to taxpayers with an average gross 
income of $52,000 or less, equating to 95 million taxpayers (70 percent 
of all taxpayers)-allow for TETR requests, 3 offer TETR requests via 
Form 1040EZ-T. As of February 22, 2007, about 2 million returns (7.9 
percent down from last year) were filed via free file, with just under 
half requesting TETR. 

IRS anticipated increases in its taxpayer service operations (face-to- 
face and telephone assistance) due to TETR. However, TETR has had 
minimal impact on those operations because the volume of TETR requests 
IRS planned to receive has not materialized. 

For face-to-face taxpayer assistance: 

Walk-in: As of March 10, of the approximately 1.8 million taxpayer 
contacts, IRS has prepared about 6,700 1040EZ-T forms, 5.3 percent of 
the approximate 126,000 forms it projected it would prepare in TETR 
requests. 

Volunteer sites: As of March 11, IRS reported that over 1.3 million 
returns had been prepared at volunteer sites including over 33,000 
1040EZ-T forms. IRS did not develop TETR projections for volunteer 
sites. 

For telephone assistance: 

TETR-related calls are a fraction of what IRS projected. 

By March 3, 2007, IRS had planned to receive over 20.5 million 
telephone calls for live and automated assistance. Of the almost 18.5 
million calls received through that date, IRS received over 326,000 
calls for assistance with TETR. This represents 1.8 percent of all 
calls for assistance and 4.8 percent of the 6.8 million TETR calls IRS 
expected to receive during the filing season. 

IRS hired 650 FTEs in fiscal year 2007, with the expectation that those 
hires would be used to cover anticipated attrition in 2008. Their first 
assignment was answering TETR telephone calls. They were also trained 
to handle other accounts calls should the demand for TETR assistance 
not materialize. 

Because TETR call volume has not materialized, staff assigned to work 
TETR cases are being used to work other account calls so that more 
experienced staff can process paper correspondence, such as amended 
returns, at call sites. 

IRS anticipated handling 7,000 split refund telephone calls (compared 
to the 70 million total calls it receives each year). 

IRS did not expect filing season service to be impacted by the extender 
provisions. 

Selected GAO Reports on Management Practices: 

Results-Oriented Government: Practices That Can Help Enhance and 
Sustain Collaboration among Federal Agencies. GAO-06-15. Washington, 
D.C.: October 21, 2005. (Practices identified: identify a leader, 
collaborate across operational lines, develop implementation and 
compliance plans, and monitor and evaluate results in real time in 
order to make timely changes.) 

Managing For Results: Enhancing Agency Use of Performance Information 
for Management Decision Making. GAO-05-927. Washington, D.C.: September 
9, 2005. (Practice identified: monitor and evaluate results in real 
time in order to make timely changes.) 

Homeland Security. Better Management Practices Could Enhance DHS's 
Ability to Allocate Investigative Resources. GAO-06-462T. Washington, 
D.C.: March 28, 2006. (Practice identified: assess risks.) 

[End of section] 

(450567) 

FOOTNOTES 

[1] The extender provisions were included in the Tax Relief and Health 
Care Act of 2006 which was signed into law in December 2006 (Pub. L. 
No. 109-432, Dec. 20, 2006). The provisions primarily involve three tax 
deductions related to state and local sales taxes, higher education 
tuition and fees, and educator expenses. 

[2] The GAO reports included a wide range of management practices. We 
compared those practices that related to the development of IRS's plans 
for ensuring compliance with TETR. See GAO, Results-Oriented 
Government: Practices That Can Help Enhance and Sustain Collaboration 
among Federal Agencies, GAO-06-15 (Washington, D.C.: Oct. 21, 2005), 
Managing For Results: Enhancing Agency Use of Performance Information 
for Management Decision Making, GAO-05-927 (Washington, D.C.: Sept. 9, 
2005), and Homeland Security: Better Management Practices Could Enhance 
DHS's Ability to Allocate Investigative Resources, GAO-06-462T 
(Washington, D.C.: Mar. 28, 2006). 

[3] While there are no compliance concerns, there is a potential for 
errors due to taxpayers entering incorrect account numbers on Form 8888 
(Direct Deposit of Refund to More Than One Account) or IRS incorrectly 
transcribing the account numbers or the dollar amounts to be deposited 
into each account. 

[4] The GAO reports included a wide range of management practices. We 
compared those practices that related to the development of IRS's plans 
for ensuring compliance with TETR. For additional Information, see the 
GAO reports listed on page 28. 

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