Tax Administration:

2007 Filing Season Continues Trend of Improvement, but Opportunities to Reduce Costs and Increase Tax Compliance Should be Evaluated

GAO-08-38: Published: Nov 15, 2007. Publicly Released: Dec 17, 2007.

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In 2007, the Internal Revenue Service (IRS) will spend over $3 billion to process returns and provide taxpayer service. Effective service can reduce taxpayers' burden of complying with tax laws and, many tax experts believe, may improve compliance. GAO was asked to assess IRS's performance relative to 2007 goals and prior years' performance including identifying actions that might generate efficiencies and increase compliance. GAO analyzed IRS performance data, reviewed IRS operations at various locations, and interviewed IRS and paid preparer representatives.

IRS improved most filing season services during 2007, continuing a longer-term trend. Tax return processing exceeded last year's performance by most measures. Electronic filing grew at a faster rate than IRS anticipated and continued to generate savings. Access to IRS telephone assistors was comparable to last year, and the accuracy of responses to questions remained at about 90 percent. The performance of IRS's Web site improved in several measures, such as customer satisfaction. Continuing past trends, more taxpayers used volunteer sites, which are less costly than IRS's walk-in sites. Despite these improvements, IRS could reduce the number of paper tax returns processed and also transcribe all lines from the residual paper returns, making that data more available for enforcement. Two options for reducing paper processing are electronic filing mandates, previously suggested by GAO, and bar coding, which could be required for paper returns prepared on computers and reduces processing costs. Currently, because of the cost, IRS does not transcribe all lines from paper returns. Further, IRS policy is to post the same lines from electronic and paper returns to its enforcement databases. As a result, IRS does not use all tax return information in its automated compliance checking programs. However, IRS does not know the actions needed to require software vendors to include bar codes on printed tax returns; the benefits, in terms of processing savings and improved enforcement, of having all return data available electronically; or how much electronic filing would have to increase, either through mandates or bar coding, for the benefits of transcribing all residual paper returns to exceed the costs. Despite more reliance on its volunteer program, IRS has not evaluated its effectiveness at reaching underserved taxpayers. Further, IRS may be missing an opportunity to assess the quality of return preparation assistance at its walk-in sites through contact recording, a system IRS uses to record and assess the quality of other interactions between its employees and taxpayers.

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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

    Recommendations for Executive Action

    Recommendation: The Acting Commissioner of Internal Revenue should direct the appropriate officials to develop estimates of the effectiveness of IRS's volunteer program at targeting underserved populations.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: IRS officials report that the Stakeholders, Partnerships, Education and Communication (SPEC) group has hired a contractor to conduct a taxpayer survey and focus groups to help SPEC develop a measure for the effectiveness of SPEC's outreach efforts. The delivery date for the final report to IRS May 31, 2009.

    Recommendation: The Acting Commissioner of Internal Revenue should direct the appropriate officials to determine how much electronic filing would have to increase, either through electronic filing mandates or bar coding, for the benefits of transcribing all remaining paper returns to exceed the costs.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: IRS conducted a detailed break even analysis on the benefits of transcribing all tax returns information. IRS's Research Division projected that it would receive approximately 33.4 million paper individual tax returns in calendar year 2012 due in part to the legislation which mandates certain paid tax preparers to provide IRS with electronic tax return information in 2011. Considering this data, IRS determined that the current processing infrastructure would support 100 percent data transcription. IRS identified that would require about 740 additional FTEs to support transcription for the remaining volume of residual paper returns.

    Recommendation: The Acting Commissioner of Internal Revenue should direct the appropriate officials to determine the benefits, in terms of processing costs and improved enforcement, of having all return information available electronically.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Not Implemented

    Comments: Although IRS agreed with our recommendation and in another report, GAO-12-33, we noted that IRS has not fully analyzed the benefits and costs of different options for digitizing the remaining paper returns. However, as of August 2012, IRS officials said they may do a survey to determine the costs and benefits but IRS has yet to do so.

    Recommendation: The Acting Commissioner of Internal Revenue should direct the appropriate officials to determine actions needed to require software vendors to include bar codes on printed individual income tax returns and the cost of those actions.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: The Administration's fiscal years 2012 and 2013 revenue proposals included a legislative proposal that would require all taxpayers who prepare their returns electronically but print and file them on paper to print the returns with a 2-D barcode. In addition, the President's budget for fiscal year 2013 requested $8.6 million to fund the 2-D barcode project. However, as of January 2013, there has been no action on these legislative proposals nor has IRS received an appropriation for fiscal year 2013.

    Recommendation: The Acting Commissioner of Internal Revenue should direct the appropriate officials to determine the feasibility of using contact recording as a method of monitoring and improving the quality of return preparation assistance at IRS's walk-in sites.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: IRS has initiated a pilot program to expand contact recording to include return preparation. IRS estimates that by December 31, 2008, 306 of the 401 sites will be recording return preparation. The other 95 sites are not equipped to do this, either because they do not have adequate technology or the privacy of cubicles, but Field Assistance is working on updating these sites. IRS is working with Centralized Quality Review System officials to review the recordings, but because a return preparation service can last up to two hours, CQRS has not been able to do a large sample of returns. To solve this, CQRS is hiring new staff before the 2009 filing season to fully implement contact recording of return preparation.

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