Tax Administration:

Most Filing Season Services Continue to Improve, but Opportunities Exist for Additional Savings

GAO-07-27: Published: Nov 15, 2006. Publicly Released: Nov 15, 2006.

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In 2006, the Internal Revenue Service (IRS) spent about 38 percent of its $10.8 billion budget on processing returns and providing taxpayer assistance. GAO was asked to (1) assess IRS's 2006 filing season performance processing paper and electronically filed tax returns and providing telephone, Web site, and face-to-face assistance relative to 2006 goals and prior years' performance; (2) identify potential cost savings or other improvements; and (3) report on the status of IRS's Taxpayer Assistance Blueprint (TAB). To address these issues, GAO collected relevant information from IRS and other sources, reviewed performance measures and past filing season assessments, and interviewed officials.

IRS improved most filing season services in 2006, continuing improvements since 2001. IRS also generated efficiencies from increased electronic filing and benefits for taxpayers through systems modernization. IRS's processing of individual tax returns and refunds improved by most measures, but the growth rate of electronic filing continued to slow in part because of changes to the Free File Program, which reduced the number of taxpayers eligible to use it and the elimination of a program that allowed taxpayers to file via the telephone. Access to IRS's telephone assistors was comparable to last year. The accuracy of responses to telephone inquiries was 90 percent or over in 2006. Use of IRS's Web site increased substantially and IRS reconfigured the site to improve service. Continuing past trends, fewer taxpayers used IRS walk-in sites and more used less-costly volunteer sites. Also, IRS completed Phase I of the TAB, which identified strategic themes for improving taxpayer service; TAB Phase II is expected to be completed by early 2007. With the slowing growth rate in electronic filing, IRS is missing an opportunity to generate additional savings. Federal and state mandates for electronic filing have demonstrated success in increasing electronic filing; however, IRS currently lacks the authority to mandate electronic filing for certain income tax returns such as individual returns filed by paid tax preparers. Using IRS estimates, savings from such a mandate could be on the order of $60 million per year. IRS has another opportunity to generate savings because of excess space at its call sites. However, IRS lacks a strategy for eliminating that space by consolidating call sites. To replace its aging legacy computer system, IRS continues to implement a modernized system for processing tax returns and refunds. However, IRS does not report information on the chief benefit realized to date, faster refund issuance. Such information could be useful for the Congress when making decisions about funding the completion of the individual tax return processing part of the system, estimated by IRS to require at least another $500 million.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Matter for Congressional Consideration

    Matter: Given the efficiencies to be gained, the Congress may wish to mandate electronic filing by paid tax preparers meeting criteria such as a threshold number of returns filed.

    Status: Closed - Implemented

    Comments: Public Law 111-92 (November 6, 2009) mandates that tax return preparers filing more than 10 individual income tax returns in one tax year must file those individual income tax returns on magnetic media. This mandate applies to returns filed after December 31, 2010.

    Recommendations for Executive Action

    Recommendation: The Commissioner of Internal Revenue should direct the appropriate officials to timely develop, validate, and implement a plan to consolidate call sites.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Not Implemented

    Comments: IRS has completed a workload analysis designed to evaluate changes in telephone resources and call demand, resulting in a preliminary ranked list of call sites for potential closure. According to IRS officials, the next steps include (1) conducting an extensive cost-analysis review of different options for reducing excess capacity at call sites (i.e. closing sites versus leasing smaller spaces for some sites), (2) formulating a consolidation timeline and workload redistribution plan, and (3) developing external communication plans. IRS expects to begin the cost-analysis around October 2007 and complete it by April 2008. During the course of our 2009 filing season work, IRS officials informed us that because of the high volume of calls IRS has received over the last two years, it is no longer considered consolidating sites. Instead, IRS feels that it will need to fully utilize all existing call site resources.

    Recommendation: The Commissioner of Internal Revenue should direct the appropriate officials to report to the Congress refund timeliness for Customer Account Data Engine compared to the Master File legacy system.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: Various IRS documents, including its Business Systems Modernization (BSM) Expenditure Plans, budget requests, and testimonies by IRS officials have reported to Congress the benefits of Customer Account Data Engine (CADE) 2, including expedited refunds compared to the Master File.

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