Summary
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.
Recommendations
Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director:
Team:
Phone:
James R. White
Government Accountability Office: Strategic Issues
(202) 512-5594
Recommendations for Executive Action
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: Open
Comments: IRS plans to start using scanning technology in all of its systems with an estimated implementation date of 2011 for updating legacy systems. IRS expects that 2-D barcodes will be a project proposal in the 2012 Modernization Vision and Strategy. According to the Advancing E-File study (2008), IRS must conduct further research on the burden to IRS and software providers of requiring bar codes on printed individual income tax returns. Phase 2 of the Advancing E-File Study will include such an analysis. Although the report was schedule for release in August 2009, it has not yet been released by IRS. However, Congress recently mandated that tax return preparers must provide IRS with electronic tax return information--unless such preparer reasonably expects to file 10 or fewer individual income tax returns--during the year (effective tax year 2011). As such, this mandate may partially resolve cost issues associated with the transcription of 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: Open
Comments: IRS has stated that its goal is to have 80 percent of all taxpayers e-file. In a 2007 report entitled "IRS Oversight Board Electronic Filing 2007: Annual Report to Congress", IRS requested that the deadline for reaching 80 percent be extended to 2012. IRS projections indicate that reaching the goal by 2012 may not be attainable. However, the recent mandate by Congress that, for the 2011 filing season, tax return preparers must provide IRS with electronic tax return information--unless such preparer reasonably expects to file 10 or fewer individual income tax returns--may partially resolve cost issues associated with the transcription of paper returns.
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: Open
Comments: To date, IRS has not conducted a detailed breakeven analysis on the benefits of transcribing all tax returns information. Phase 2 of the Advancing E-File Study is suppose to include such an analysis. Although the report was scheduled for release in August 2009, it has not yet been released by IRS. However, the necessity of such an analysis may be affected by a recent mandate from Congress that, for the 2011 filing season tax return preparers, must provide IRS with electronic tax return information--unless such preparer reasonably expects to file 10 or fewer individual income tax returns. This mandate may partially resolve cost issues associated with the transcription of paper returns.
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 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. JJ 8/29/08
