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entitled 'Tax Administration: Opportunities Exist for IRS to Enhance 
Taxpayer Service and Enforcement for the 2010 Filing Season' which was 
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Report to Congressional Requesters: 

United States Government Accountability Office: 
GAO: 

September 2009: 

Tax Administration: 

Opportunities Exist for IRS to Enhance Taxpayer Service and Enforcement 
for the 2010 Filing Season: 

GAO-09-1026: 

Contents: 

Letter: 

Results: 

Conclusions: 

Matters for Congressional Consideration: 

Recommendations for Executive Action: 

Agency Comments: 

Appendix I: Updated Slides from the September 1, 2009, Briefing: 

Appendix II: Most Common Error Reject Codes in the 2009 Filing Season 
and IRS Descriptions: 

Appendix III: GAO Contact and Staff Acknowledgments: 

Table: 

Table 1: Most Common Error Reject Codes and IRS Descriptions for the 
2009 Filing Season: 

Abbreviations: 

AGI: adjusted gross income: 

DOB: date of birth: 

EIC: Earned Income Tax Credit: 

EIN: employer identification number: 

ERC: error reject code: 

ETAAC: Electronic Tax Administration Advisory Committee: 

IRS: Internal Revenue Service: 

PIN: personal identification number: 

SEQ: sequence number: 

SSA: Social Security Administration: 

SSN: Social Security number: 

TIGTA: Treasury Inspector General for Tax Administration: 

[End of section] 

United States Government Accountability Office:
Washington, DC 20548: 

September 23, 2009: 

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

The Honorable John R. Lewis:
Chairman:
The Honorable Charles W. Boustany Jr.
Ranking Member:
Subcommittee on Oversight:
Committee on Ways and Means: 

House of Representatives: 

Preparing for the tax filing season is a significant undertaking for 
Internal Revenue Service (IRS). The filing season is when most 
individuals file their tax returns, receive refunds, and contact IRS if 
they have questions.[Footnote 1] As returns are received, IRS begins a 
series of automated compliance checks to correct errors on tax returns 
and ensure that refunds are justified. For example, IRS rejects 
electronically filed returns with basic errors requiring taxpayers to 
correct and resubmit them. It uses what is called "math error 
authority" to automatically correct obvious noncompliance such as 
violations of limits on deductions or credits, which allows IRS to 
avoid costly audits.[Footnote 2] As we reported earlier to you, from 
January 1 through May 15, 2009, IRS had processed over 120 million 
returns, issued over 100 million refunds, received 66 million telephone 
calls, and answered 20 million calls using nearly 12,000 assistors. 
[Footnote 3] 

IRS must begin preparing for each filing season months in advance and 
preparations include the following. 

* Revising tax forms and publications to implement tax law changes. 
Recent major law changes that affected the 2009 filing season include 
the: 

- Economic Stimulus Act of 2008, which contained the recovery rebate 
credit allowing taxpayers who did not receive the full economic 
stimulus payment last year to claim some or all of the unpaid credit on 
their 2008 returns;[Footnote 4] 

- Housing and Economic Recovery Act of 2008 (Housing Act), which 
included a first-time homebuyer credit of up to $7,500;[Footnote 5] 
and: 

- American Recovery and Reinvestment Act of 2009 (Recovery Act), which 
increased the maximum credit to $8,000 and eliminated the payback 
provision of the first-time homebuyer credit for homes purchased before 
December 1, 2009.[Footnote 6] 

* Reprogramming and testing computer systems to incorporate tax law 
changes. 

* Hiring and training telephone assistors, many of whom are temporary 
hires employed for the filing season. 

* Coordinating with the paid preparer and tax software industries, 
which serve as important intermediaries between IRS and taxpayers and 
prepare close to 90 percent of all returns and all electronically filed 
returns.[Footnote 7] IRS also coordinates with a network of volunteer 
tax return preparers who help elderly individuals and others prepare 
their tax returns at over 12,000 volunteer sites. 

Because of the magnitude and importance of the filing season, you 
requested that we review IRS's 2009 filing season performance. As part 
of that review, we looked for opportunities to improve service and 
enhance enforcement in time for the 2010 filing season, which this 
report addresses. On September 1, 2009, we briefed Subcommittee on 
Oversight, House Committee on Ways and Means, and Senate Committee on 
Finance staff on opportunities for IRS to enhance taxpayer service and 
enforcement for the 2010 filing season. This report transmits the 
updated briefing materials, which are reprinted in appendix I. Our 
report on IRS's 2009 filing season performance will be issued in 
November. 

To identify opportunities to make improvements for 2010, we obtained 
and analyzed IRS's performance and production data and compared them to 
annual goals and prior years' performance; viewed IRS operations; 
reviewed relevant external documentation including our reports and 
reports of the Treasury Inspector General for Tax Administration; and 
interviewed IRS officials and representatives of paid preparers and tax 
software developers. We conducted our work primarily at IRS 
Headquarters in Washington, D.C., and division and field offices, 
including those in Atlanta, Georgia. We previously assessed IRS's 
filing season performance data for reliability. For example, we 
considered filing season performance measures and data that cover the 
quality, accessibility, and timeliness of IRS's services to be 
objective and reliable based on that 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. To the 
extent possible, we corroborated information from interviews with 
documentation and data, and where this was not possible, we report the 
information as attributed to IRS officials. We conducted this 
performance audit from January 2009 through September 2009 in 
accordance with generally accepted government auditing standards. Those 
standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe that 
the evidence obtained provides a reasonable basis for our findings and 
conclusions based on our objectives. 

Results: 

IRS may be missing opportunities to improve taxpayer service and 
enhance compliance for the 2010 filing season for the following 
reasons. 

* IRS lacks a strategy for preventing and resolving errors that cause 
electronically filed returns to be rejected. Without a strategy that 
documents, for example, its objectives, the role of external 
stakeholders, and schedules for specific actions, IRS may be missing an 
opportunity to make electronic filing less cumbersome for taxpayers. 

* IRS does not fully leverage the expertise of external stakeholders in 
its efforts to reduce rejected electronic returns, according to 
industry representatives, the Treasury Inspector General for Tax 
Administration, and an IRS advisory group. IRS has established an 
internal working group to reduce rejects and simplify error codes, but 
that group does not include industry representatives. Without 
soliciting the expertise of these stakeholders, IRS may be missing an 
opportunity to better understand why rejects occur and what can be done 
to prevent them. 

* IRS acknowledges that its codes for errors on electronically filed 
tax returns are not very useful for helping taxpayers resolve the 
errors and has established the reject working group, but IRS does not 
have an action plan for implementing improvements. Without such an 
action plan, the working group risks being less effective in developing 
more useful reject codes. 

* The electronic acknowledgments that IRS sends to paid preparers, 
software providers, and taxpayers about rejected electronic returns are 
confusing and unclear. Unclear notices frustrate taxpayers and increase 
IRS's costs because such notices generate phone calls from taxpayers 
(see appendix II for more information on the common error reject codes 
in 2009 and IRS's electronic acknowledgments). 

* According to IRS, its assistors answered 3 million calls from 
taxpayers needing authentication to file electronically, nearly 10 
percent of all assistor calls, at a cost of $36 million through June 
2009. Instead of relying on assistors to provide taxpayers with this 
information, IRS recently began developing an automated application for 
authenticating electronic filers, which could increase efficiency by 
diverting some calls currently answered by IRS telephone assistors. The 
new application is scheduled to launch on January 18, 2010. As of 
August 26, 2009, IRS officials reported that they were on schedule. If 
IRS were to experience any slippage in the launch date, it would be 
missing an opportunity to reduce call volume at the beginning of the 
filing season. 

* IRS lacks an automated means for helping taxpayers locate its 12,000 
volunteer tax preparation sites or their hours of operation. In the 
2009 filing season, taxpayers contacting IRS for this information had 
to call IRS and speak to an IRS assistor. Assistors have a list of 
volunteer site locations and hours that is updated twice a week. 
However, that information is not on IRS's Web site. Low-cost options, 
such as posting IRS's existing list of volunteer sites on its Web site, 
could eliminate some calls currently being answered by IRS assistors. 

* IRS lacks math error authority, which must be provided by statute for 
specific purposes, to verify compliance with two aspects of the first- 
time homebuyer tax credit. First, IRS would have to use labor-intensive 
audits to ensure compliance with the repayment provision of the 2008 
credit--according to IRS, 1.2 million taxpayers claimed the 2008 credit 
for a total of $8.6 billion that must be repaid. Similarly, IRS has to 
use audits to ensure taxpayers do not claim the credit for both 2008 
and 2009. Because math error checks are automated and could substitute 
for burdensome audits, IRS could check all returns at relatively low 
cost with such authority. 

Conclusions: 

As part of its preparations for the 2010 filing season, IRS has the 
opportunity to improve service to millions of taxpayers and reduce its 
own costs by reducing electronic filing rejects and providing more 
automated services. If IRS were to take advantage of these 
opportunities, it may be able to reduce the volume of taxpayer phone 
calls, which would improve taxpayer access to IRS assistors. 

To realize maximum benefit for the 2010 filing season from its new 
automated applications for authenticating electronic filers, IRS will 
need to adhere to its schedule of implementation by January 18, 2010. 
The beginning of the filing season is when many taxpayers file returns 
electronically in order to receive their refund. Any slippage in the 
schedule means that taxpayers wishing to file electronically will have 
little option but to contact an IRS assistor. Missing this early window 
in 2010 could also delay potential benefits to both taxpayers and IRS 
of an improved authentication system for early filers until the 2011 
filing season. 

We also identified two opportunities for Congress to provide IRS with 
additional authority to improve compliance for the 2010 filing season 
and beyond and reduce its costs by extending math error authority to 
cover two aspects of the first-time homebuyer tax credit. Compared to 
audits, automated math error checks provide a low-cost option that may 
be particularly useful as IRS confronts the challenges of ensuring 
compliance with new tax law provisions. 

Matters for Congressional Consideration: 

In order to provide a low-cost option that helps ensure compliance with 
recent legislation, we suggest that Congress consider providing IRS 
with math error authority to (1) use the prior year's tax return 
information to automatically verify taxpayers' compliance with the 2008 
first-time homebuyer credit payback provision, and (2) ensure that 
taxpayers do not improperly claim the credit in multiple years. 

Recommendations for Executive Action: 

We recommend that the Commissioner of Internal Revenue take the 
following five actions. 

* Develop and document a strategy to prevent and resolve errors causing 
electronically filed returns to be rejected. 

* Involve stakeholders from the paid preparer and tax software 
industries in IRS's current reject working group. 

* Develop an action plan for its reject working group that includes 
such elements as the scope of responsibility, a plan for testing 
changes, and a schedule for implementing changes. 

* Provide paid preparers and software providers with clearer 
descriptions of why returns are rejected. 

* Implement a low-cost automated method for providing volunteer site 
locations and hours of operation to taxpayers. 

Agency Comments: 

In commenting on a draft of this report, the IRS Commissioner for Wage 
and Investment stated that based on the allotted response time that IRS 
neither agrees nor disagrees with the recommendations contained in this 
report. 

As agreed with your offices, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies to the Chairmen 
and Ranking Members of other Senate and House committees and 
subcommittees that have appropriation, authorization, and oversight 
responsibilities for IRS. We will also send copies to the Commissioner 
of Internal Revenue, the Secretary of the Treasury, the Chairman of the 
IRS Oversight Board, and the Director of the Office of Management and 
Budget. The report also will be available at no charge on the GAO Web 
site at [hyperlink, http://www.gao.gov]. 

If you or your staff have any questions or wish to discuss the material 
in this report further, 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. GAO staff who made contributions are listed in appendix IV. 

Signed by: 

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

[End of section] 

Appendix I: Updated Slides from the September 1, 2009, Briefing: 

Tax Administration: Opportunities Exist for IRS to Enhance Taxpayer 
Service and Enforcement for the 2010 Filing Season: 

Prepared for the Committee on Finance, U.S. Senate and the Subcommittee 
on Oversight, Committee on Ways and Means, House of Representatives: 

Sept. 1, 2009 (Updated): 

Background: 

The Internal Revenue Serviceís (IRS) preparation for the filing season, 
which begins months in advance, includes: updating forms, guidance, and 
processes to reflect tax law changes; hiring and training staff 
including part time staff who answer telephones; and programming and 
testing IRSís computer systems. 

* IRS has been challenged in recent filing seasons with having to 
implement major tax law changes, such as the stimulus-related 2008 
Housing Act and 2009 Recovery Act provisions, which provided and 
extended the new first-time homebuyer credit. 

As of June 30, 2009, IRS received 78 million phone calls, 26 million of 
which were answered by assistors. Quick access to IRS telephone 
assistors contributes to accurate returns by reducing taxpayersí 
confusion about their tax obligations. 

Taxpayers used paid preparers or tax preparation software to prepare 85 
percent of all individual income tax returns in 2008. In addition to 
preparing tax returns, these stakeholders provide advice and other 
assistance to taxpayers, thus sharing the costs of administering the 
tax code with IRS. Taxpayers who file electronically must do so through 
such intermediaries. 

As of August 14, 2009, taxpayers filed over 90 million tax returns 
electronically (68 percent of all returns), which continues to expedite 
refunds and save IRS resources. 

IRS begins checking taxpayer compliance as it receives tax returns. 

IRSís electronic filing system has automated validity checks to help 
ensure the accuracy of returns and correct mistakes in a timely manner, 
benefiting taxpayers and reducing IRSís costs. These automated checks 
look for errors, such as incorrect Social Security numbers (SSNs) for 
dependents, incorrect birth dates, and invalid zip codes, at the time 
the return is submitted electronically. 

* IRS automatically rejects electronic returns with these errors, 
associates them with one of about 600 possible reject codes and sends 
taxpayers, through their intermediaries, electronic acknowledgements 
giving the error code. Taxpayers are responsible for correcting the 
errors and resubmitting the returns. 

* For paper returns, these validity checks are done after returns are 
accepted. 

After returns are accepted, IRSís math error program identifies 
calculation errors and checks for obvious noncompliance such as claims 
above income and credit limits. IRS corrects these errors during 
processing, which avoids the need for audits. 

Objectives, Scope, and Methodology: 

Our objective was to identify opportunities for IRS to provide better 
service and enhance enforcement in time for the 2010 filing season. 

We analyzed IRS performance and production data, observed IRS 
operations, attended IRS production meetings, reviewed Treasury 
Inspector General for Tax Administration (TIGTA) and Electronic Tax 
Administration Advisory Committee (ETAAC) reports, and interviewed IRS 
officials and external stakeholders about performance issues and 
anomalies. 

We previously assessed IRSís filing season performance data for 
reliability. We considered performance measures and data that cover the 
quality,accessibility, and timeliness of IRSís service to be objective 
and reliable based on that work. 

We conducted our work at IRS headquarters in Washington, D.C. and 
division and field offices, including those in Atlanta, from January 
through August 2009 in accordance with generally accepted government 
auditing standards. 

We prepared this briefing because, in the course of our ongoing filing 
season work, we identified several opportunities where immediate action 
could be taken in time to improve the 2010 filing season. 

Results in Brief: 

IRS may be missing opportunities to improve service to taxpayers and 
enhance enforcement for the 2010 filing season because it: 

* lacks a strategy for preventing and resolving errors that cause 
electronically filed returns to be rejected; 

* does not fully leverage the expertise of paid preparers and the tax 
software industry in its efforts to prevent and resolve rejected 
electronically filed returns; 

* does not have an action plan for implementing improvements to the 
error reject codes; 

* sends electronic acknowledgments to preparers and software providers 
about rejected returns that are confusing and unclear; 

* is developing an automated application for authenticating electronic 
filers, but is not scheduled to launch it until after the date 
electronic filing begins; 

* lacks an automated means for helping taxpayers locate volunteer 
sites; and; 

* lacks math error authority to check compliance with two aspects of 
the first-time homebuyer tax credit. 

IRS Lacks a Strategy for Preventing and Resolving Errors That Cause 
Electronically Filed Returns to Be Rejected: 

According to IRSís September 2008 Advancing E-file study, electronic 
validation aids taxpayers by helping ensure that returns are accurate, 
but it can sometimes be cumbersome for taxpayers to understand and 
correct errors. Paid preparers and tax software industry 
representatives that we spoke with during the 2009 filing season said 
this remains an issue. 

While IRS has some efforts under way to make dealing with rejects less 
cumbersome, IRS lacks a coordinated strategy for preventing and 
resolving rejects. It lacks a documented strategy that describes, for 
example, overall objectives, the role of external stakeholders, 
schedules for specific actions, and needed resources. According to 
ETAAC, IRS has made progress on an ad hoc basis, but addressing the 
reject issue must be a permanent, structured process.[Footnote 8] 

Without a strategy, IRS may be missing an opportunity to increase 
electronic filing, reduce paper filing, and reduce taxpayer burden. 

IRS Could Further Leverage the Expertise of External Stakeholders in 
Its Efforts to Prevent and Resolve Rejects: 

Tax industry representatives we spoke with said that IRS is missing 
opportunities to leverage industry expertise in order to prevent and 
resolve rejects. TIGTA and ETAAC have made the same point.[Footnote 9] 

* Recent experience with the recovery rebate credit shows the value of 
working with stakeholders. Early in the 2009 filing season, IRS 
realized that millions of taxpayers were making errors claiming the 
credit. IRS consulted with industry representatives to develop a 
successful approach for preventing more of these errors. 

Stakeholder involvement can be particularly important for agencies that 
operate in a complex environment, such as tax policy, and where issues 
can best be addressed by soliciting the views of stakeholders with 
specialized expertise.[Footnote 10] 

Without soliciting the expertise of these stakeholders, who assist 85 
percent of taxpayers in filing their returns, IRS may be missing an 
opportunity to better understand why rejects occur, work with 
stakeholders to prevent rejects, and help taxpayers correct errors in a 
less cumbersome way. 

IRS Has a Working Group to Simplify Error Reject Codes, but Does Not 
Have an Action Plan for Implementing Changes: 

IRS has over 600 error reject codes, but they are not very useful. Of 
the 600 codes, 13 account for 81 percent of all rejected electronically 
filed returns. Paid preparer and software industry representatives said 
that some codes are very general and cover multiple issues, while 
others are so narrow that they are rarely used. IRS and TIGTA similarly 
reported that the rejection codes are often not useful in determining 
why the return was rejected.[Footnote 11] 

IRS acknowledges that error reject codes are a problem and has 
established a working group to simplify the codes. However, IRSís 
internal working group does not include industry representatives nor at 
the time we completed our work did IRS have an action plan that 
included elements such as the scope of responsibility of the working 
group, a plan for testing changes, and a schedule for implementing 
changes. 

Without such an action plan, the working group risks being less 
effective and timely at developing more useful reject codes. 

Electronic Acknowledgments That IRS Sends Preparers and Software 
Providers About Rejects are Confusing and Unclear: 

According to paid preparers and software providers, the error codes 
included in IRSís electronic acknowledgments too often do not clearly 
indicate the line on a return where an error was made or the precise 
nature of the error. They said that they are unable to provide an 
explanation of some error codes to taxpayers and that taxpayers must 
call IRS for help. 

Table 2: Common Error Reject Codes and Descriptions Sent to Paid 
Preparers and Software Providers: 

Error reject code number: 0029; 
Description: Tax return record identification page 1 ĖEFIN of 
originator (SEQ 0008B) must be for a valid electronic filer. 

Error reject code number: 0500; 
Description: Tax Form: Primary SSN (SEQ 0010) and Primary Name Control 
(SEQ 0050) of the Tax Form must match data from the IRS Master File. 

Error reject code number: 0502; 
Description: Employer Identification Number (SEQ 0040) of Form W-2 
and/or W-2GU, Payer Identification Number (SEQ 0026) of Form W-2G, and 
Payer Identification Number (SEQ 0050) of Form 1099-R and Company or 
Trust Identification Number (SEQ 0120) of Form 2439, and Employer EIN 
(SEQ 0200) of 499R-2/W-2PR Record must match data from the IRS Master 
File. 

Source: IRS. 

[End of table] 

IRS recently placed clearer descriptions and possible solutions for 13 
common electronic reject codes on its Web site. However, IRS did not 
change the electronic acknowledgments. IRS officials said that IRSís 
Modernized E-file program is supposed to provide clearer 
acknowledgments, but also said that the program will not be fully 
implemented until 2012. 

Unclear acknowledgments create frustration for taxpayers and expense 
for IRS because confused taxpayers call IRS. 

Answering AGI Calls Cost IRS Millions of Dollars Because It Lacked an 
Automated Method for Providing That Information: 

During the 2009 filing season, taxpayers had to provide their last yearí
s adjusted gross income (AGI) or personal identification number (PIN) 
to authenticate their identity in order to electronically file. 

* Taxpayers who did not know their AGI or PIN and tried to get them 
from IRS had to call an assistor or visit an IRS walk-in site. 

As of June 30, 2009, IRS had answered 3 million calls from taxpayers 
requesting their AGI, over 10 percent of the calls answered by 
assistors. 

Counting calls not answered, IRS received over 5 million AGI-related 
calls, contributing to increased wait times. Taxpayers waited an 
average of 8 minutes to be connected to an IRS assistor and millions of 
taxpayers abandoned their calls or were disconnected by IRS while 
waiting. 

According to IRS, AGI authentication-related calls cost nearly $36 
million through June 30, 2009. 

IRS is Developing an Automated Application to Authenticate Electronic 
Filers, but the Launch Date Is in 2010: 

Although initially reluctant, in August 2009, IRS officials informed us 
that they took action and were developing Web and automated telephone 
applications for the 2010 filing season for taxpayers who do not have 
their prior yearís AGI or PIN. The officials said that the new 
application will provide taxpayers with an alternative number that will 
allow them to file electronically. 

IRS officials showed us plans that included costs, milestones and a 
launch date of January 18, 2010, 3 days after the date electronic 
filing begins. As of August 26, 2009, the officials reported that they 
were on schedule. 

Meeting the launch date is important for IRS to realize the full 
benefits of its efforts, since taxpayers expecting a refund tend to 
file early and file electronically. Therefore, any delay could leave 
taxpayers with little option but to call IRS and speak with an 
assistor. 

Successful implementation in time for the 2010 filing season has the 
potential to significantly reduce the burden on IRSís telephone 
assistors and improve taxpayer service. However, IRS has just begun 
developing these applications, testing is scheduled to continue up to 
the launch date, which is just after electronic filing begins, and 
there is no time for schedule slippage. 

Taxpayers Seeking Information from IRS on the Location and Hours of 
Volunteer Sites Must Speak to an IRS Assistor: 

Taxpayers contacting IRS for the location and hours of the 12,000 
volunteer sites must speak to an IRS assistor. 

* Assistors have a list of volunteer site locations and hours that is 
updated twice a week. However, that information is not on IRSís Web 
site, which directs taxpayers to call IRS. 

* Although IRS reported receiving a relatively small number of such 
callsó60,000 as of June 30óthe calls do add to IRSís telephone queues. 
Even at half of the average assistor cost per call of $25.75 this is 
nearly $800,000 a year to answer such calls. 

IRS does post location information for its Super Saturdays, 1-day 
events that provide tax assistance at hundreds of sites across the 
country, on its Web site, IRS.gov. 

Although IRS has plans to provide a zip code locator as part of a 
future redesign of its Web site, that redesign has yet to be funded. In 
the meantime, low-cost options, such as posting IRSís existing list of 
volunteer sites and hours on IRS.gov, could eliminate some calls to 
assistors. 

IRS Lacks Math Error Authority for Ensuring Compliance with Two Aspects 
of the First-Time Homebuyer Tax Credit: 

Currently, IRS has to use labor-intensive, expensive audits to check 
compliance with the new first-time home homebuyer tax credit resulting 
from 2008 and 2009 legislation. Two aspects of the credit lend 
themselves to an automated approach. 

* One is the requirement that the 2008 credit be repaid in increments 
of up to $500 per taxpayer for 15 years beginning in 2011. IRS 
estimates that 1.2 million taxpayers claimed the 2008 credit for a 
total of approximately $8.6 billion. 

* The other is that a taxpayer cannot claim the first-time homebuyer 
credit in both 2008 and 2009. 

The number of taxpayers claiming the credit and the amounts at risk per 
taxpayer mean that auditing every credit claimed may not be cost-
effective. 

IRS lacks math error authority, which must be provided by statute, to 
use taxpayersí prior year return information to check for compliance 
with these two provisions. Math error checks are suitable for checking 
compliance with these provisions because, for many tax returns, the 
requirement to repay and violations of the limit on multiple claims 
will be obvious from the prior yearís return. Because math error checks 
are automated, with this authority, IRS could check all returns at 
relatively low cost. 

Conclusion: 

As IRS prepares for the 2010 filing season, it has opportunities to 
improve service to millions of taxpayers and reduce its own operating 
costs by reducing electronic filing reject rates and providing more 
automated services. If IRS were to take advantage of these 
opportunities, it may be able to reduce the volume of taxpayer phone 
calls, which would improve taxpayer access to IRS assistors. 

To realize maximum benefit for the 2010 filing season from its new 
automated application for authenticating electronic filers, IRS will 
need to adhere to its implementation date of January 18, 2010. The 
beginning of the filing season is when many taxpayers file returns 
electronically in order to receive their refund. Any slippage in the 
schedule means that taxpayers wishing to file electronically will have 
little option but to contact an IRS assistor. Missing this early window 
in 2010 could also delay the potential benefits to both taxpayers and 
IRS of an improved authentication system for early filers until the 
2011 filing season. 

We also identified two opportunities for Congress to provide IRS with 
additional authority to improve compliance for the 2010 filing season 
and beyond and reduce its costs by extending math error authority to 
cover two aspects of the first-time homebuyer tax credit. Compared to 
audits, automated math error checks provide a low-cost option that may 
be particularly useful as IRS confronts the challenges of ensuring 
compliance with new tax law provisions. 

Matters for Congressional Consideration: 

Given the potential for improving compliance for the next filing season 
and beyond, the Congress should consider providing IRS with math error 
authority to use prior yearsí tax return information to automatically: 

* verify taxpayersí compliance with the 2008 first-time homebuyer 
credit payback provision and; 

* ensure that taxpayers do not improperly claim the credit in multiple 
years. 

Recommendations for Executive Action: 

The Commissioner of Internal Revenue should ensure that IRS: 

1. develops and documents a strategy to prevent and resolve errors 
causing electronically filed returns to be rejected; 

2. involves stakeholders from the paid preparer and tax software 
industries in its current reject working group; 

3. develops an action plan for its reject working group that includes 
such elements as the scope of responsibility, a plan for testing 
changes, and a schedule for implementing changes; 

4. provides paid preparers and software providers with clearer 
descriptions of why electronically filed returns are rejected; and; 

5. implements a low cost automated method for providing volunteer site 
locations and hours of operation to taxpayers. 

[End of section] 

Appendix II: Most Common Error Reject Codes in the 2009 Filing Season 
and IRS Descriptions: 

Of the more than 600 possible error reject codes that the Internal 
Revenue Service (IRS) sent to taxpayers attempting to file 
electronically during the 2009 filing season, table 1 lists 15 of the 
most common. These error codes accounted for 85 percent of all error 
reject codes included in the electronic acknowledgments received by 
taxpayers through paid preparers and software providers. 

Table 1: Most Common Error Reject Codes and IRS Descriptions for the 
2009 Filing Season: 

Error reject code: 0679; 
IRS explanations of error reject codes contained in electronic 
acknowledgments[A]: Authentication Record - When the PIN TYPE Code (SEQ 
0008) equals "S" or "O", the Primary Prior Year Adjusted Gross Income 
(SEQ 0020) or Primary Prior Year PIN (SEQ 0025) must match the Primary 
Prior Year Adjusted Gross Income or Primary Prior Year PIN on the IRS 
Master File; 
Clearer description found on IRS's Web site: The primary taxpayer's or 
spouse's Prior Year Adjusted Gross Income (Prior Year AGI) or the Prior 
Year PIN entered on the Authentication Record does not match the 
original Prior Year AGI or Prior Year PIN entered on Form 8879, IRS e-
file Signature Authorization; 
Percentage of error incidences: 19.7; 
Cumulative percentage: 19.7. 

Error reject code: 0504; 
IRS explanations of error reject codes contained in electronic 
acknowledgments[A]: Dependent's SSN (SEQ 0175, 0185, 0195, 0205) of 
Form 1040/1040A and corresponding Dependent Name Control (SEQ 0172, 
0182, 0192, 0202) must match data from the IRS Master File. Qualifying 
Child SSN (SEQ +0175, 0185, 0195, 0205) of Form 1040-SS (PR) and 
corresponding Qualifying Child Name Control (SEQ +0172, 0182, 0192, 
0202) must match data from the IRS Master File; 
Clearer description found on IRS's Web site: The last name of the 
dependent on the return does not match the IRS Master File and/or SSA 
records. This could be caused by misspelling the last name or using the 
wrong SSN. It can also result if the dependent has multiple or 
hyphenated last names; 
Percentage of error incidences: 9.1; 
Cumulative percentage: 28.8. 

Error reject code: 0269b; 
IRS explanations of error reject codes contained in electronic 
acknowledgments[A]: Form 1040/1040A/1040EZ - Recovery Rebate Credit 
(SEQ 1220) cannot be claimed because the maximum amount has already 
been received based on the information contained on the 2007 tax 
return; Clearer description found on IRS's Web site: NA; 
Percentage of error incidences: 8.1; 
Cumulative percentage: 36.9. 

Error reject code: 0502; 
IRS explanations of error reject codes contained in electronic 
acknowledgments[A]: Employer Identification Number (SEQ 0040) of Form W-
2 and/or; W-2GU, Payer Identification Number (SEQ 0026) of Form W-2G, 
and Payer Identification Number (SEQ 0050) of Form 1099-R; and Company 
or Trust Identification Number (SEQ 0120) of; Form 2439, and Employer 
EIN (SEQ 0200) of 499R-2/W-2PR Record must match data from the IRS 
Master File. Note: Form 1099-R is ONLY required when federal income tax 
is withheld; 
Clearer description found on IRS's Web site: The Employer 
Identification Number (EIN) of the business reported on Form(s) W-2, W-
2G, W-2GU, 499R-2/W-2PR, 1099R, or 2439 must match the EIN on the IRS 
Master File. This error could be caused by entering the EIN incorrectly 
or using an EIN that is invalid; 
Percentage of error incidences: 6.1; 
Cumulative percentage: 43.0. 

Error reject code: 0522; 
IRS explanations of error reject codes contained in electronic 
acknowledgments[A]: Primary Date of Birth (SEQ 0010) in the 
Authentication Record of an Online Return does not match data from the 
IRS Master File; 
Clearer description found on IRS's Web site: The Date of Birth (DOB) of 
the primary taxpayer (ERC 0522) or spouse (ERC 0523) does not match the 
IRS Master File. The DOB is required to authenticate the taxpayer's 
Self-Select PIN which acts as the taxpayers' signature when filing an 
online return; 
Percentage of error incidences: 5.8; 
Cumulative percentage: 48.8. 

Error reject code: 0507; 
IRS explanations of error reject codes contained in electronic 
acknowledgments[A]: Dependent's SSN (SEQ 0175, 0185, 0195, 0205) of 
Form 1040/1040A was previously used for the same purpose; 
Clearer description found on IRS's Web site: The dependent's SSN 
claimed on the tax return and/or Schedule EIC has been used on another 
tax return. This could be the result of an inadvertent data entry error 
or someone else has claimed this dependent; 
Percentage of error incidences: 5.7; 
Cumulative percentage: 54.5. 

Error reject code: 0500; 
IRS explanations of error reject codes contained in electronic 
acknowledgments[A]: Primary SSN (SEQ 0010) and Primary Name Control 
(SEQ 0050) of the Tax Form must match data from the IRS Master File; 
Clearer description found on IRS's Web site: The last name for the 
primary taxpayer on the return does not match what the IRS and/or the 
Social Security Administration (SSA) have on file. This could be caused 
by misspelling the primary taxpayer's last name or using the wrong SSN 
for the primary taxpayer. It can also result if the primary taxpayer 
has multiple or hyphenated last names, or has changed their last name 
(e.g., by marriage or court order) and has not notified SSA; 
Percentage of error incidences: 5.4; 
Cumulative percentage: 59.9. 

Error reject code: 0501; 
IRS explanations of error reject codes contained in electronic 
acknowledgments[A]: Qualifying SSN (SEQ 0015, 0085) of Schedule EIC and 
the corresponding Qualifying Child Name Control (SEQ 0007, 0077) must 
match data from the IRS Master File; 
Clearer description found on IRS's Web site: The SSN and last name 
entered for the qualifying child does not match what the IRS and/or SSA 
have on file. The qualifying SSN of the dependent on Schedule EIC, 
Earned Income Credit, must match data from the IRS Master File. This 
could be a companion error code to Reject Code 0504. If the child does 
not qualify as a dependent, the child is not eligible to be a 
qualifying child for EIC; 
Percentage of error incidences: 4.5; 
Cumulative percentage: 64.4. 

Error reject code: 0680; 
IRS explanations of error reject codes contained in electronic 
acknowledgments[A]: Authentication Record - When the PIN TYPE Code (SEQ 
0008) equals "S" or "O" and the Filing Status (SEQ 0130) is "2" 
(Married Filing Jointly) on the return, the Spouse Prior Year Adjusted 
Gross Income (SEQ 0050) or Spouse Prior Year PIN (SEQ 0055) must match 
the Spouse Prior Year Adjusted Gross Income or Spouse Prior Year PIN on 
the IRS Master File; 
Clearer description found on IRS's Web site: The primary taxpayer's or 
spouse's Prior Year Adjusted Gross Income (Prior Year AGI) or the Prior 
Year PIN entered on the Authentication Record does not match the 
original Prior Year AGI or Prior Year PIN entered on Form 8879, IRS e-
file Signature Authorization; 
Percentage of error incidences: 4.4; 
Cumulative percentage: 68.8. 

Error reject code: 0510; 
IRS explanations of error reject codes contained in electronic 
acknowledgments[A]: Primary SSN (SEQ 0010) and/or Secondary SSN (SEQ 
0030) where the SSN was claimed as an exemption (SEQ 0160) and/or (SEQ 
0163) on the return and was also used as a Dependent's SS Non Form 1040 
or Qualifying Child on Form 1040-SS(PR) (SEQ 0175, 0185, 0195, 0205)on 
another return. Dependent's SSN (SEQ 0175, 0185, 0195, 0205) was used 
as a Primary SSN (SEQ 0010) or Secondary SSN (SEQ 0030) on another 
return and was claimed as an exemption (SEQ 0160) on that return; 
Clearer description found on IRS's Web site: Normally, this error is 
the result of a child submitting their own tax return and claiming 
their own exemption. When the parent(s) file and claim the child as a 
dependent, the parents' return will reject with ERC 0510. Example 1: A 
college student submits their own return and fails to indicate that 
they can be claimed as a dependent on another return. When the parents 
submit their return after the student has filed, and attempts to claim 
the student as a dependent, the return will reject. Example 2: A newly 
married couple files a joint return. When the parents submit their 
return after the couple has filed, and attempt to claim their daughter 
as a dependent, the return will reject. Using an incorrect SSN may also 
cause this error if the erroneous SSN matches another taxpayer or 
dependent; 
Percentage of error incidences: 4.0; 
Cumulative percentage: 72.9. 

Error reject code: 0503; 
IRS explanations of error reject codes contained in electronic 
acknowledgments[A]: Secondary SSN (SEQ 0030) and Spouse's Name Control 
(SEQ 0055) of the Tax Form must match data from the IRS Master File; 
or; If filing status (SEQ 0130) equals "4" and Exempt Spouse (SEQ 0163) 
equals "X", then the Spouse SSN (SEQ 0030) and Exempt Spouse Name 
Control (SEQ 0165) must match data from the IRS Master File; 
Clearer description found on IRS's Web site: The last name for the 
secondary taxpayer on the return does not match the IRS Master File 
and/or SSA records. This can be caused by misspelling the last name or 
using the wrong SSN. It can also result if the spouse has multiple or 
hyphenated last names, or has changed their last name (e.g., marriage 
or court order) and has not notified the SSA; 
Percentage of error incidences: 3.5; 
Cumulative percentage: 76.3. 

Error reject code: 0515[B]; 
IRS explanations of error reject codes contained in electronic 
acknowledgments[A]: Primary SSN (SEQ 0010) was used as a Primary SSN 
more than once; 
Clearer description found on IRS's Web site: NA; 
Percentage of error incidences: 2.8; 
Cumulative percentage: 79.1. 

Error reject code: 0506; 
IRS explanations of error reject codes contained in electronic 
acknowledgments[A]: Schedule EIC - Qualifying SSN (SEQ 0015, 0085) of 
Schedule EIC was previously used for the same purpose; 
Clearer description found on IRS's Web site: The qualifying child's SSN 
listed for the purpose of claiming EIC has been used on another tax 
return. This could be the result of an inadvertent data entry error or 
someone else has claimed this dependent. This is often a companion to 
Reject Code 0507. The qualifying child for EIC purposes must be a 
qualifying dependent; 
Percentage of error incidences: 2.4; 
Cumulative percentage: 81.5. 

Error reject code: 0523; 
IRS explanations of error reject codes contained in electronic 
acknowledgments[A]: Spouse Date of Birth (SEQ 0040) in the 
Authentication Record of an Online Return does not match data from the 
IRS Master File; 
Clearer description found on IRS's Web site: The Date of Birth (DOB) of 
the primary taxpayer (ERC 0522) or spouse (ERC 0523) does not match the 
IRS Master File. The DOB is required to authenticate the taxpayer's 
Self-Select PIN which acts as the taxpayers' signature when filing an 
online return; 
Percentage of error incidences: 1.9; 
Cumulative percentage: 83.4. 

Error reject code: 0535; 
IRS explanations of error reject codes contained in electronic 
acknowledgments[A]: Schedule EIC - Qualifying SSN (SEQ 0015, 0085) of 
Schedule EIC and the corresponding Year of Birth (SEQ 0020, 0090) must 
match data received from the Social Security Administration; 
Clearer description found on IRS's Web site: The year of birth for the 
qualifying child does not match what the IRS and/or SSA have on file. 
The qualifying SSN of the dependent on Schedule EIC, Earned Income 
Credit, must match data from the IRS Master File; 
Percentage of error incidences: 1.8; 
Cumulative percentage: 85.2. 

Error reject code: Total of all other error reject codes; 
Percentage of error incidences: 14.8; 
Cumulative percentage: 100. 

Source: GAO analysis of IRS data. 

Note: Data are from January 1, 2009 through August 19, 2009. 

[A] Exceptions not shown. 

[B] Error Reject Code does not have a simplified description on IRS's 
Web site. 

[End of table] 

[End of section] 

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

James R. White, (202) 512-9110 or whitej@gao.gov: 

Acknowledgments: 

In addition to the contact named above, Joanna M. Stamatiades, 
Assistant Director; Vida Awumey, John Dell'Osso, Kara Eusebio, Melanie 
Helser, Lina Khan, Kirsten B. Lauber, Angela Leventis, Natalie Maddox, 
Karen V. O'Conor, Neil A. Pinney, and Sabrina C. Streagle made key 
contributions to this report. 

[End of section] 

Footnotes: 

[1] Most taxpayers filed their 2008 tax returns from January 1 to April 
15, 2009, which is the deadline for filing individual income tax 
returns. For the 2009 filing season, IRS began accepting electronic 
returns on January 16. However, millions of taxpayers receive 
extensions from IRS, which allowed them to delay filing until as late 
as October 15. 

[2] Over the years, Congress granted IRS legal authority to cover 11 
areas through its math error authority so the agency could correct 
return errors during processing, including calculation errors and 
entries that are inconsistent or exceed statutory limits. If it is not 
specified in the statute, IRS cannot pursue assessment and collection 
activities without issuing a statutory notice of deficiency. IRS was 
granted math error authority in 26 U.S.C. ß 6213(b) and it can only be 
used as specified in 26 U.S.C. ß 6213(g)(2). An example of a math error 
correction would be where IRS can automatically correct a return by 
disallowing a child tax credit if the filer fails to provide the 
correct taxpayer identification number. Prompt compliance checks are 
important because as unpaid taxes age, the likelihood of collecting all 
or part of the amount owed decreases. 

[3] GAO, Tax Administration: Interim Results of IRS's 2009 Filing 
Season, [hyperlink, http://www.gao.gov/products/GAO-09-640] 
(Washington, D.C.: June 3, 2009). IRS answered 23 million calls through 
its automated service and nearly 23 million taxpayers abandoned their 
calls, received busy signals, or were disconnected by IRS. 

[4] Economic Stimulus Act of 2008, Pub. L. No 110-185, 122 Stat. 613 
(2008). 

[5] Housing and Economic Recovery Act of 2008, Pub. L. No. 110-289, 122 
Stat. 2654 (2008). 

[6] American Recovery and Reinvestment Act of 2009, Pub. L. No. 111-5, 
123 Stat. 115 (2009). While many of the provisions of the two credits 
are the same, a major difference is that the 2008 first-time homebuyer 
credit has to be paid back over a 15-year period, while the 2009 credit 
does not. 

[7] As we have reported, the number of returns they prepare and the 
advice and support paid preparers and software companies provide to 
taxpayers make these intermediaries a critical component in the tax 
system. See, for example, GAO, Tax Administration: Many Taxpayers Rely 
on Tax Software and IRS Needs to Assess Associated Risks, [hyperlink, 
http://www.gao.gov/products/GAO-09-297] (Washington, D.C.: Feb. 25, 
2009), and Tax Preparers: Oregon's Regulatory Regime May Lead to 
Improved Federal Tax Return Accuracy and Provides a Possible Model for 
National Regulation, [hyperlink, 
http://www.gao.gov/products/GAO-08-781] (Washington, D.C.: Aug. 15, 
2008). 

[8] Electronic Tax Administration Advisory Committee, Annual Report to 
Congress(Lanham, Md., June 2009). 

[9] Treasury Inspector General for Tax Administration, A Self-
assistance Option Would Reduce Burden and Costs Associated with 
Resolving Rejected Electronic Tax Returns, Reference No. 2007-40-128 
(Washington, D.C.: June 17, 2008). 

[10] GAO, Agenciesí Strategic Plans Under GPRA: Key Questions to 
Facilitate Congressional Review, [hyperlink, 
http://www.gao.gov/products/GAO/GGD-10.1.16] (Washington, D.C.: May 
1997). 

[11] See Internal Revenue Service, Advancing E-file Study, Phase 1 
Report, Document Number 0206.0210, Sept. 30, 2008). 

[End of section] 

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