2009 Tax Filing Season
IRS Met Many 2009 Goals, but Telephone Access Remained Low, and Taxpayer Service and Enforcement Could Be Improved
GAO-10-225, Jan 11, 2010
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The Internal Revenue Service's (IRS) filing season is an enormous undertaking that includes processing tax returns, issuing refunds, and responding to taxpayer questions. IRS's efforts to ensure compliance begin during the filing season. GAO was asked to assess IRS's 2009 filing season performance, identify ways to reduce taxpayers' use of short-term, high-interest refund anticipation loans (RAL) offered by paid preparers or banks, and identify ways to enhance compliance during processing. GAO analyzed IRS performance data, reviewed IRS operations, interviewed IRS officials, and reviewed its compliance programs and relevant statutes.
IRS processed 139 million returns and issued $298 billion in refunds as of October 2, 2009. Electronic filing, which provides IRS with significant cost savings and taxpayers with faster refunds, increased to 68 percent of all returns filed. While taxpayers' access to telephone assistors was better than last year, it remained lower than in 2007 in part because of calls about tax law changes. Compared to 2005 through 2007, IRS reduced its goal for assistor answered calls in 2009 and set its 2010 goal at 71 percent. Despite heavy call volume, the accuracy of IRS responses to taxpayers' questions remained above 90 percent. IRS started a major data collection effort on why taxpayers call, but lacks a plan to analyze the data and improve telephone service. According to IRS, issuing refunds faster reduces taxpayers' use of RALs, high-interest loans made by paid tax preparers or banks in anticipation of a refund. Issuing refunds is a joint effort by IRS, Treasury's Financial Management Service, which checks for non-tax debt owed to the federal government, and the Automated Clearing House, which distributes funds. However, IRS has not coordinated extensively with them to expedite refunds. Further, IRS has not studied the use of debit cards for unbanked taxpayers, which could also reduce taxpayers' use of RALs by providing faster and more secure refunds. IRS automatically identifies and corrects select types of errors while processing tax returns. It could also correct tax returns that claim the Hope credit, a tax credit to help offset qualified education expenses, for longer than the number of years allowed. However, IRS lacks the authority to use prior years' tax return information for this purpose. Also, information reported by education institutions to taxpayers and IRS about qualifying educational expenses on the Form 1098-T is confusing for taxpayers and not useful for IRS. Many institutions report the total amount billed to students, but not what is actually paid after taking into account scholarships and grants. This results in some taxpayers under-claiming benefits, while others over-claim. Finally, because Form 1098-T can show the amount billed, which may not be the amount paid, IRS is unable to use the information to automatically verify taxpayers' claims for the credit through its computerized matching program.
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Recommendations for Executive Action
Recommendation: To reduce taxpayer confusion and enhance compliance with the eligibility requirements for higher education benefits, IRS should revise Form 1098-T to improve the usefulness of information on qualifying education expenses.
Agency Affected: Department of the Treasury: Internal Revenue Service
Status: Open
Comments: On 12/08/2010, IRS reported its Wage and Investment Compliance organization, in partnership with the Tax Exempt and Government Entities Division, will develop a plan to address possible changes to the Form 1098-T. As part of that plan, IRS plans to obtain feedback from educational institutions on changes that provide clarity and improve the usefulness of the form, including location of the educational institution.
Recommendation: To reduce taxpayer confusion and enhance compliance with the eligibility requirements for higher education benefits, IRS should determine the feasibility of using current information reported on Form 1098-T, such as school location and taxpayer identification number or social security number (SSN), in IRS's compliance programs.
Agency Affected: Department of the Treasury: Internal Revenue Service
Status: Open
Comments: IRS provided GAO with an update to the report's recommendations on 12/08/2010. IRS agreed to consider the feasibility of using Form 1098-T information in conjunction with its examination program. IRS reported that should IRS/Wage and Investment Compliance officials determine that using Form 1098-T would be feasible, it will coordinate with Small Business/Self-Employed Division on actual changes.
Recommendation: To further improve refund timeliness and reduce reliance on RALs and RACs, IRS should determine the feasibility of offering debit cards for refunds.
Agency Affected: Department of the Treasury: Internal Revenue Service
Status: Closed - Implemented
Comments: IRS provided GAO with an update to the report's recommendations on 12/08/2010, stating it was exploring a range of alternatives to deliver refunds to unbanked taxpayers. On January 13, 2011, IRS announced a pilot program to provide low-and moderate-income taxpayers to receive federal tax refunds electronically through a Visa prepaid debit card for the 2011 Filing Season.
Recommendation: To further improve refund timeliness and reduce reliance on RALs and RACs, IRS should work more proactively with Financial Management Service (FMS) and Automated Clearing House (ACH) to help improve refund timeliness.
Agency Affected: Department of the Treasury: Internal Revenue Service
Status: Open
Comments: IRS provided GAO with an update to the report's recommendations on 12/08/2010 and noted the agency and Financial Management Service (FMS) already maintain a constant dialogue on issues, including refund timeliness. However, we still believe that more can be done with FMS to improve refund timeliness.
Recommendation: To further improve refund timeliness and reduce reliance on RALs and refund anticipation checks (RACs), IRS should update and publicly release a report on RAL and RAC use.
Agency Affected: Department of the Treasury: Internal Revenue Service
Status: Open
Comments: IRS provided GAO with an update to the report's recommendations on 12/08/2010. IRS stated that instead of focusing on updating the Report to Congress which was in response to a directive from Congress in 2006 Treasury Appropriation Act conference report, it will convene a working group to review the refund product industry. The working group will address the issues in the 2006 Report to Congress and include stakeholders from the original report. IRS plans to seek input from industry representatives and consumer advocates during this process. Further, part of this review will include analyzing opportunities available for the improvement of refund delivery options, including those for unbanked taxpayers.
Recommendation: Related to improving IRS's performance during the filing season, the Commissioner of Internal Revenue should explicitly integrate the Taxpayer Assistance Blueprint (TAB) in strategic planning documents.
Agency Affected: Department of the Treasury: Internal Revenue Service
Status: Open
Comments: IRS provided GAO with an update to the report's recommendations on 12/08/2010. IRS stated that though not repeated verbatim in its Strategic Plan, the TAB guiding principles resonate throughout the document. IRS noted that insofar as the Strategic Plan embodies the goals and objectives of the TAB, these documents maintain reference to taxpayer-centric understanding and administration of taxpayer service first explored by the TAB and adopted in its Strategic Plan. In addition, IRS expressed that beyond the Plan, it maintains linkages to the precepts of improving taxpayer service from the taxpayer perspective, including through internal planning documents and budget proposals. However, we continue to believe that Congress and others would benefit from more explicitly linking the TAB guiding principles into key IRS documents.
Recommendation: Related to improving IRS's performance during the filing season, the Commissioner of Internal Revenue should develop as soon as possible an analysis plan for using the data IRS captures through Contact Analytics.
Agency Affected: Department of the Treasury: Internal Revenue Service
Status: Open
Comments: The draft Contact Analytics Analysis Plan, dated June 2010, does not discuss one of GAO's criteria for an analysis plan (i.e., analysis methods). Without a discussion of the specific methods used by IRS to analyze sample calls, the plan does not provide a framework to ensure a logical connection between the data collected through the Contact Analytics system and the business use of that data.
Recommendation: Congress may wish to consider providing IRS with math error authority (MEA) to use prior years' tax return information to automatically verify taxpayers' compliance with the limit on the number of years the Hope credit can be claimed.
Agency Affected: Congress
Status: Open
Comments: Congress has not extended IRS with math error authority (MEA) to use prior years' tax return information to automatically verify taxpayers' compliance with the limit on the number of years the Hope credit can be claimed. The Hope Credit has been replaced by the American Opportunity Credit through December 31, 2011.