2012 Tax Filing:

IRS Faces Challenges Providing Service to Taxpayers and Could Collect Balances Due More Effectively

GAO-13-156: Published: Dec 18, 2012. Publicly Released: Jan 17, 2013.

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What GAO Found

While there have been efficiency gains and efforts to improve service, the Internal Revenue Service (IRS) faced challenges providing telephone service and responding to correspondence, continuing trends experienced in recent years. In 2012, 82 percent of individual taxpayers filed their returns electronically (e-filed), reducing IRS's processing costs. IRS also increased calls answered using automated service and added a variety of self service tools, which helped gain efficiencies. However, IRS's level of telephone service (the percentage of callers seeking live assistance who receive it) declined to 68 percent. In addition, of the 21 million pieces of paper correspondence IRS received, about 40 percent were considered overage (meaning that IRS did not respond within 45 days of receipt), an increase compared to last year. While IRS plans to continue to pursue efficiency gains, its strategy for future years does not specifically address how it plans to reverse these negative trends. Reversing the declines in telephone and correspondence services may require IRS to consider difficult tradeoffs, such as reassessing which phone calls IRS should answer with a live assistor and which it should not because automated services are available.

GAO identified about 3.8 million returns where taxpayers self-acknowledged a balance due of $13.8 billion for tax year 2010, the most recent data available. During IRS's notice phase, when IRS sends letters to taxpayers telling them how to pay the balance, the majority of this amount is either fully paid or accounted for through installment agreements. However, at least $4.4 billion remained uncollected after IRS sent as many as four notices to taxpayers. These amounts become subject to more costly collections actions, such as phone or face-to-face contact. Best practices, such as risk-based approaches where contacts are tailored to the taxpayer, have helped increase collections in states such as New York and California. IRS has developed an analytics plan and uses some riskbased processes to identify which notices taxpayers will receive, but has not yet implemented the plan and management responsibilities are unclear. As a result, IRS has not tested more advanced risk-based approaches. This may lead to delayed collection of taxpayer debt, higher costs for IRS, and additional penalties for taxpayers who pay late.

Why GAO Did This Study

The tax filing season is an enormous undertaking during which the IRS processes millions of tax returns, issues billions of dollars in refunds and provides service to millions of taxpayers over the phone, online, and face-to-face. It also identifies taxpayers who owe additional taxes and begins the process of collecting their balance due. GAO was asked to review IRS's performance during the 2012 filing season. Among other things, this report (1) assesses IRS's performance in processing returns, issuing refunds, and providing service to taxpayers over the phone, online, and in-person; and (2) describes what is known about taxpayers who filed returns with a balance due for tax year 2010 and assesses IRS's efforts to ensure timely payment. To conduct the analyses, GAO obtained and compared IRS data from 2007 through 2012, reviewed pertinent IRS documents, interviewed IRS officials and observed IRS operations, and interviewed other experts in tax administration, including from states and tax preparation firms.

What GAO Recommends

GAO recommends that IRS outline a strategy to improve taxpayer service, define appropriate levels of service, and describe how it intends to manage performance declines; clearly define the roles and responsibilities of those reviewing the notice phase; and pilot risk-based approaches for contacting taxpayers who have a balance due.

In response to GAO's first recommendation, IRS said it is pursuing some steps to improve service. IRS described plans to implement the other two recommendations.

For more information, contact James R. White at (202) 512-9110 or whitej@gao.gov.

Recommendations for Executive Action

  1. Status: Open

    Comments: In fiscal years 2014 and 2015, IRS implemented service changes that shifted taxpayers from using telephone and walk-in services to more cost-effective self-service options and that redirected IRS staff to answer telephone calls and provide walk-in services on questions only IRS can answer. However, IRS's unsuccessful attempts to improve services while reducing costs are consistent with GAO's December 2012 finding that recent service-related declines seem likely to continue without a dramatic revision in IRS's management strategy. In particular, the service changes implemented in fiscal year 2014 were not linked to an overall strategy outlining IRS's customer service goals. In June 2015, IRS officials said that in lieu of developing a customer service strategy, they plan to continue to use a planning process and strategy designed to achieve the highest level of service based on available resources and competing priorities. In October 2015, officials from the Department of the Treasury (Treasury) added they are not inclined to develop such a strategy since IRS already has a sufficient number of customer service performance goals. However, GAO maintains that such a strategy would enable IRS to make more informed requests to Congress about the resource requirements to deliver desired levels of service. As such, in December 2015, GAO suggested that Congress consider requiring Treasury to develop a comprehensive customer service strategy in consultation with IRS that would, among other things, determine appropriate telephone and correspondence levels of service.

    Recommendation: The Acting Commissioner of Internal Revenue should take the following action outline a strategy that defines appropriate levels of telephone and correspondence service and wait time and lists specific steps to manage service based on an assessment of time frames, demand, capabilities, and resources.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: In March 2014, IRS indicated the roles and responsibilities around the Collection Balance Due Notice process had been documented and executive approval had been obtained as of February 18, 2014.

    Recommendation: The Acting Commissioner of Internal Revenue should clearly define and document the roles and responsibilities of IRS offices administering the notice phase, such as in resolving tax debts.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Open

    Comments: IRS agreed with GAO's December 2012 recommendation to pilot more risk-based approaches for contacting taxpayers who have a balance due. However, according to IRS, the advanced analytics research project for doing so had not been funded. As an alternative to that project, IRS officials conducted an in-depth analysis of the model they used to identify potential cases that have balances that are currently considered to be not collectable. The model predicts less productive collection inventory; IRS then uses model results to either close the case or assign it to the appropriate work stream. IRS implemented its updated model in late April 2014. In October 2014, IRS reported that better (more productive) cases would be assigned to those work streams. In December 2015, IRS officials said it had implemented new models for scoring cases in its Automated Collection System as of July 2015. According to IRS, it can use scores from these models in its prioritization and case assignment processes and enable Field Collection to select and assign the most productive cases to revenue officers. However, IRS officials said that as of December 2015, they have not yet fully evaluated the performance of the models. They also said it can take 2-1/2 years from implementation to obtain a complete understanding of the models' performance.

    Recommendation: The Acting Commissioner of Internal Revenue should tailor appropriate and timely interventions with taxpayers who file balance due returns, by pilot testing risk-based approaches that could include (1) implementing the Advanced Consolidated Data Analytics plan, and (2) using more data driven methods to identify the most appropriate method for contacting a taxpayer.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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