Tax Administration:

Electronic Filing Falling Short of Expectations

GGD-96-12: Published: Oct 31, 1995. Publicly Released: Nov 20, 1995.

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GAO reviewed the Internal Revenue Service's (IRS) plans to maximize electronic filing, focusing on: (1) IRS progress in broadening the use of electronic filing; (2) the availability of data needed to develop an electronic filing strategy; and (3) the implications for IRS if it does not significantly reduce its paper-processing workload.

GAO found that: (1) IRS will fall far short of its 2001 goal of 80 million electronic returns if the increase in electronic filing continues at its present pace; (2) IRS believes the decrease in the number of returns filed electronically in 1995 was due to its actions against electronic filing fraud; (3) IRS is having little success in increasing the electronic filing of individual 1040 and business tax returns which constitute the bulk of returns and take the most time to process manually; (4) the transmittal fees for electronic filing tend to deter filers unless they need their tax refunds quickly; (5) IRS does not have the data needed to determine whether greater electronic filings of 1040 and business returns would reduce its administrative costs; (6) IRS has contracted to gather some data on why taxpayers do not use electronic filing more and how many returns it could expect if it could motivate people to file electronically; (7) IRS plans to use scanning more to process paper returns, which should reduce some costs; and (8) unless IRS can increase electronic filing, its customer service and paper processing workloads may overwhelm its planned staffing and alter various aspects of its modernization efforts.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: IRS issued a strategic plan for electronic tax administration, of which electronic filing is a major component, on December 3, 1998.

    Recommendation: To help better ensure the success of IRS modernization, the Commissioner of Internal Revenue should identify those groups of taxpayers who offer the greatest opportunity to reduce IRS paper-processing workload and operating costs if they were to file electronically and develop strategies that focus IRS resources on eliminating or alleviating impediments that inhibit those groups from participating in the program, including the impediment posed by the program's cost.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Not Implemented

    Comments: IRS did not set the kind of goals anticipated by the recommendation. Instead, it has a new overall goal that was mandated by the IRS Restructuring and Reform Act of 1998. The new goal is to have 80 percent of all tax and information returns filed electronically by 2007.

    Recommendation: To help better ensure the success of IRS modernization, the Commissioner of Internal Revenue should adopt goals for electronic filing that focus on reducing IRS paper-processing workload and operating costs. These goals could be used in addition to the existing electronic filing goal to assess IRS progress in achieving the intended benefits of electronic filing.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Closed - Not Implemented

    Comments: When GAO issued this report, IRS' modernization plans called for reducing the number of service centers that process paper returns from 10 to 5. The recommendation derived from a concern that if the electronic filing program fell short of expectations, IRS' paper processing workload would be more than expected and thus might exceed the capacity of the 5 remaining paper processing centers. IRS has since backed away from its plan to reduce the number of paper processing centers, at least in the foreseeable future. As a result, this recommendation is no longer applicable.

    Recommendation: To help better ensure the success of IRS modernization, the Commissioner of Internal Revenue should prepare contingency plans for the possibility that the electronic filing program will fall short of expectations.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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