Tax Administration:

Data Needed on Whether to Regulate Filers of Information Returns for Others

GGD-90-95: Published: Jul 3, 1990. Publicly Released: Jul 3, 1990.

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Pursuant to a legislative requirement, GAO: (1) determined the extent of any problems the Internal Revenue Service (IRS) had with magnetic media returns filed by service bureaus; and (2) explored the need for any administrative or legislative measures to regulate service bureaus.

GAO found that: (1) the proportion of magnetic media submissions rejected from all filers, including service bureaus, has declined since 1987; (2) over 99 million of 670 million 1988 information returns were successfully processed the first time through; (3) 96.5 percent of all information returns submitted a second time were successfully processed; (4) rejection rates for service bureaus were about the same as the rejection rates for payors submitting their own returns; (5) 3,899 of the 4,102 potential service bureaus submitted acceptable information returns on magnetic media, but IRS needed to obtain better data on the nature and extent of the problems it may have with service bureaus; and (6) although a large number of information returns were rejected by IRS as unacceptable for processing, it could not determine how many of those returns were filed by service bureaus.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: IRS has implemented additional standards and controls to improve the quality of information return data and has taken six customer service steps to improve communication with all transmitters. Because 90 percent of the magnetic media is currently being processed the first time without any problems, IRS has decided not to impose any additional standards or controls at this time.

    Recommendation: The Commissioner of Internal Revenue should collect information on problems caused by service bureaus that submit information returns. Specifically, IRS should obtain data on cost and benefits to IRS and service bureaus of instituting standards and controls.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: IRS has changed its method of calculating magnetic media rejection rates to conform to the method GAO recommended.

    Recommendation: The Commissioner of Internal Revenue should collect information on problems caused by service bureaus that submit information returns. Specifically, IRS should modify its method of calculating the magnetic media rejection rate.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Closed - Implemented

    Comments: For tax year 1990, the number of problem code fields available will be four. IRS believes this will allow sufficient space to accurately identify all reasons for returning media for replacement.

    Recommendation: The Commissioner of Internal Revenue should collect information on problems caused by service bureaus that submit information returns. Specifically, IRS should modify its records to more accurately identify magnetic media processing errors.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  4. Status: Closed - Implemented

    Comments: IRS has included a field for the idenitifcation of service bureaus in its revenue procedures. These procedures, printed in June 1991, provide an indicator in IRS records identifying which filers are service bureaus.

    Recommendation: The Commissioner of Internal Revenue should collect information on problems caused by service bureaus that submit information returns. Specifically, IRS should modify its records to identify which filers are service bureaus.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  5. Status: Closed - Not Implemented

    Comments: If in the future service bureaus are shown to submit more erroneous documents than others, IRS will further investigate the feasibility of regulation, including costs and impacts on new members of the industry.

    Recommendation: The Commissioner of Internal Revenue should collect information on problems caused by service bureaus that submit information returns. Specifically, IRS should obtain data on the impact any regulation or control may have on the entry of new small businesses into the service bureau industry.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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