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entitled 'Applying Agreed-Upon Procedures: Airport and Airway Trust 
Fund Excise Taxes' which was released on January 23, 2003. 

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GAO-03-361R: 

United States General Accounting Office: 
Washington, DC 20548: 

January 23, 2003: 

The Honorable Kenneth M. Mead: 
Inspector General: 
Department of Transportation: 

Subject: Applying Agreed-Upon Procedures: Airport and Airway Trust Fund 
Excise Taxes: 

Dear Mr. Mead: 

We have performed the procedures contained in the enclosure to this 
report, which we agreed to perform and with which you concurred, solely 
to assist your office in ascertaining whether the net excise tax 
revenue distributed to the Airport and Airway Trust Fund (AATF) for the 
fiscal year ended September 30, 2002, is supported by the underlying 
records. As agreed with your office, we evaluated fiscal year 2002 
activity affecting distributions to the AATF. 

In performing the agreed-upon procedures, we conducted our work in 
accordance with U.S. generally accepted government auditing standards, 
which incorporate financial audit and attestation standards established 
by the American Institute of Certified Public Accountants. These 
standards also provide guidance for performing and reporting the 
results of agreed-upon procedures. 

The adequacy of the procedures to meet your objectives is your 
responsibility, and we make no representation in that respect. The 
procedures we agreed to perform include (1) detailed tests of 
transactions that represent the underlying basis of amounts distributed 
to the AATF, (2) review of the Internal Revenue Serviceís (IRS) 
quarterly AATF certifications, (3) review of the Department of the 
Treasury Financial Management Service (FMS) adjustments to the AATF for 
fiscal year 2002, (4) review of certain procedures in the Office of Tax 
Analysisí (OTA) process for estimating amounts to be distributed to the 
AATF for the fourth quarter of fiscal year 2002, (5) comparison of net 
excise tax distributions to the AATF during fiscal year 2002 and 
amounts reported in the financial statements prepared by the Bureau of 
the Public Debt (BPD) for the AATF and the Federal Aviation 
Administrationís (FAA) draft consolidated financial statements, and (6) 
review of key reconciliations of IRS records to Treasury records. The 
enclosure contains the agreed-upon procedures and our findings from 
performing each of the procedures. 

We were not engaged to perform, and did not perform, an audit, the 
objective of which would have been the expression of an opinion on the 
amount of net excise taxes distributed to the AATF. Accordingly, we do 
not express such an opinion. Had we performed additional procedures, 
other matters might have come to our attention that would have been 
reported to you. [Footnote 1] We completed the agreed-upon procedures
on January 10, 2003. 

We provided a draft of this report to IRS and Treasury officials, along 
with its enclosure, for review and comment. They agreed with the 
results and findings presented in this report. 

This report is intended solely for the use of the Office of Inspector 
General of the Department of Transportation and should not be used by 
those who have not agreed to the procedures and have not taken 
responsibility for the sufficiency of the procedures for their 
purposes. However, this report is a matter of public record and its 
distribution is not limited. Copies are available to others upon 
request. This report is also available at no charge on GAOís home page 
at [hyperlink, http://www.gao.gov]. If you have any questions, please 
call me at (202) 512-3406. 

Sincerely yours, 

Signed by: 

Steven J. Sebastian: 
Director: 
Financial Management and Assurance: 

Enclosure: 

[End of correspondence] 

Enclosure: 

Airport and Airway Trust Fund Excise Tax Procedures and Results: 

I. Detailed tests of transactions that represent the underlying basis of
amounts distributed to the AATF in fiscal year 2002: 

A. Nonrepresentative selection of tax returns from the quarter ended 
September 30, 2001. [Footnote 2] 

1. For the quarter ending September 30, 2001, select the 30 largest 
excise tax returns containing excise taxes related primarily to the 
AATF and the Highway Trust Fund (HTF) on the basis of total tax 
liability [Footnote 3]amount from IRSís master file. [Footnote 4] 

Description of findings and results: 

We selected the 31 largest excise tax returns from the quarter ended
September 30, 2001, for testing. [Footnote 5] The selection was based 
on the total tax liability amount and type of taxes owed, for each 
return, from IRSís master file. 

The total tax liability amount related to these 31 returns was 
approximately $8.1 billion, or 64 percent of the total excise tax 
liability amount ($12.6 billion [Footnote 6]) for all excise tax types 
for the quarter ended September 30, 2001. 

Of these 31 returns, 6 contained primarily AATF-related taxes and 25
contained primarily HTF taxes. 

2. For each of the 6 returns related primarily to the AATF, we 
performed the following procedures, which resulted in our testing 
approximately $1.2 billion in prorated collections [Footnote 7] 
affecting fiscal year 2002 distributions to the AATF: 

(a) Trace the liability amount for abstracts [Footnote 8] 26, 27, and 
28 from the tax return to IRSís master file. 

Description of findings and results: 

The liability amount for abstracts 26, 27, and 28 on the tax return 
agreed with IRSís master file for all 6 of the returns. 

(b) Check the mathematical accuracy of the taxpayerís calculations on 
the tax return for the selected abstracts. 

Description of findings and results: 

The taxpayerís calculations on all 6 returns were mathematically
correct. 

(c) Recompute the prorated collection amount for the selected abstracts
based on information from the master file and compare this amount to
the amount from the Collection Certification System audit file. 
[Footnote 9] 

Description of findings and results: 

The recomputed prorated collection amounts for the three selected
abstracts agreed with amounts in IRSís Collection Certification System
audit file for all 6 of the returns. 

B. Dollar unit sample (DUS) of transactions from the quarters ended 
December 31, 2001, and March 31, 2002. 

1. Sampling: 

(a) Obtain excise tax assessments and collection data from IRSís master
file for the first 6 months of fiscal year 2002. Determine if excise tax
collections per master file agree with IRSís general ledger. Reconcile
total excise tax collections from the master file to total excise tax
collections from the Collection Certification System audit files to
determine if they materially [Footnote 10] agree. 

Description of findings and results: 

Excise tax collections for the first 6 months of fiscal year 2002 per 
the master file materially agreed with IRSís general ledger and with 
total excise tax collections from the Collection Certification System. 

(b) Select a random attribute sample of 78 excise tax assessments from
IRSís master file. [Footnote 11] Compare assessment and receipt 
information for each sample item from the master file to the assessment 
and receipt information in the Collection Certification System to 
determine if assessments and receipts from the master file are 
contained in the Collection Certification System. 

Description of findings and results: 

For each sample item, assessments and receipts from the master file
were contained in the Collection Certification System. 

(c) To determine if the Collection Certification System properly
summarized the prorated collections, total the prorated collections for
selected abstracts [Footnote 12] from the audit files and compare these 
amounts to amounts in the Reports of Excise Tax Collection. [Footnote 
13] 

Description of findings and results: 

The Collection Certification System properly summarized the prorated
collections for all of the selected abstracts related to the AATF and 
the HTF. Prorated collections for the above-mentioned trust funds from
the audit files agreed with the corresponding amounts in the Reports of
Excise Tax Collection. 

(d) Separate the total population of prorated collections from the 
audit files into the following distinct populations: (1) AATF, (2) HTF, 
and (3) other excise tax abstracts. Use DUS to select a sample of 
prorated excise tax collections from the AATF population. 

Description of findings and results: 

Use of DUS with a confidence level of 80 percent, a test materiality of
$91 million, and an expected aggregate error amount of $27.3 million
resulted in a sample of 62 [Footnote 14] prorated collections for the 
first 6 months of fiscal year 2002. 

(e) Select samples of prorated excise tax collections from the two non-
AATF populations. 

Description of findings and results: 

Use of DUS with a confidence level of 80 percent, a test materiality of
$315 million, and an expected aggregate error amount of $94.5 million
resulted in a sample of 94 [Footnote 15] prorated collections for the 
first 6 months of fiscal year 2002 for the HTF. 

A random attribute sample of 45 items from the population of prorated
tax collections related to all excise taxes other than the AATF and the
HTF was selected for testing. [Footnote 16] 

2. Detailed tests of transactions: 

(a) For each prorated excise tax collection sampled from the AATF
population: 

* Check to see that the assessment amount on the tax return, for the
sampled abstract, agrees with the amount recorded in IRSís master file. 

Description of findings and results: 

The assessment amounts on the tax returns agreed with the amounts 
recorded in IRSís master file for all of the sampled abstracts. 

* Check the mathematical accuracy of the taxpayersí calculations on the
tax returns for the related abstract. 

Description of findings and results: 

The taxpayersí calculations on the tax returns for the related abstracts
were mathematically correct for all of the sampled abstracts. 

* Recompute the prorated collection amount based on information from 
the master file and compare this amount to the sample items selected
from the Collection Certification System audit file. [Footnote 17] 

Description of findings and results: 

The recomputed prorated collection based on information from the master 
file agreed with the amounts for all of the sampled items. 

(b) Perform detailed testing on the two samples of prorated collections
from the non-AATF populations to determine if they contain any AATF
excise tax collections. 

Description of findings and results: 

The two samples of prorated collections from the non-AATF populations 
did not contain any AATF excise tax collections. 

(c) Evaluate the results of conducting steps (a) and (b). 

Description of findings and results: 

As noted in the results from steps (a) and (b), we found no errors. 

II. Review of IRSís quarterly AATF certifications: 

A. Receipt certifications. 

Perform the following steps on IRSís AATF receipt certifications for 
the quarters ended September 30, 2001; December 31, 2001; March 31, 
2002; and June 30, 2002: [Footnote 18] 

1. Inspect the certification letters for authorizing signatures.
Description of findings and results The certification letters for all 
four quarters had authorizing signatures. 

2. Determine if evidence exists that the supervisor or another analyst 
checked the certification letters and supporting worksheets. 

Description of findings and results: 

There was evidence that another analyst and a supervisor checked the
certification letters and supporting worksheets for all four quarters. 

3. Recalculate the totals on the certification letters to determine if 
they are mathematically correct. 

Description of findings and results: 

The totals on the certification letters for all four quarters were 
mathematically correct. 

4. Trace the certified amounts for tax on transportation of persons by 
air (abstract 26), tax on use of international air facilities (abstract 
27), tax on transportation of property by air (abstract 28), and tax on 
aviation fuel for commercial use (abstract 77) [Footnote 19] from the 
certification letters back to the Reports of Excise Tax Collection. 
[Footnote 20] 

Description of findings and results: 

The certified amounts for tax on transportation of persons by air 
(abstract 26), tax on use of international air facilities (abstract 
27), tax on transportation of property by air (abstract 28), and tax on 
aviation fuel for commercial use (abstract 77) per the certification 
letters agreed with the related Report of Excise Tax Collection for all 
four quarters. 

However, IRS omitted $146 million in excise tax collections from its 
normal receipt certification for the quarter ended March 31, 2002, 
because of processing delays. Specifically, IRS did not record 
information from two large excise tax returns into its master file in 
time for inclusion in the Report of Excise Tax Collection. As a result, 
IRS performed a supplemental certification in order to timely certify 
the additional $146 million to the AATF. We (1) recalculated the total 
on the supplemental certification letter and (2) traced the certified 
amounts for tax on transportation of persons by air (abstract 26), tax 
on use of international air facilities (abstract 27), tax on 
transportation of property by air (abstract 28), and tax on aviation 
fuel for commercial use (abstract 77) from the supplemental 
certification letters back to the two supporting tax returns. We did 
not identify any discrepancies. 

5. Review the Reports of Excise Tax Collection used in the 
certification to determine if they contain significant [Footnote 21] 
collections from prior quarters. 

Description of findings and results: 

The Reports of Excise Tax Collection supporting IRSís certifications to 
the AATF did not contain significant prior quarter collections for the 
quarters ended September 30, 2001; March 31, 2002; and June 30, 2002. 

The Reports of Excise Tax Collection supporting IRSís certification to 
the AATF for the quarter ended December 31, 2001, contained 
approximately $432 million in AATF excise tax collections related to 
the quarter ended September 30, 2001. IRS attributed this to the 
compressed time frame for processing of excise tax returns for that 
quarter. Congress passed the Air Transportation Safety and System 
Stabilization Act (Public Law 107-42) in response to the events of 
September 11, 2001. Section 301 gave the Secretary of the Treasury the 
option of giving airlines an extension until January 15, 2002, to make 
their excise tax deposits and to submit their excise tax returns for 
the quarter ended September 30, 2001. When the Secretary of the 
Treasury exercised this option, it reduced the time IRS normally has 
for processing these returns from approximately 4 months to 6 weeks. 

6. Review the distribution rates used by IRS to determine whether the
distribution rates for tax on transportation of persons by air 
(abstract 26), tax on use of international air facilities (abstract 
27), tax on transportation of property by air (abstract 28), and tax on 
aviation fuel for commercial use (abstract 77) agree with the 
applicable laws. 

Description of findings and results: 

We saw no evidence that the distribution rates used by IRS for tax on
transportation of persons by air (abstract 26), tax on use of 
international air facilities (abstract 27), tax on transportation of 
property by air (abstract 28), and tax on aviation fuel for commercial 
use (abstract 77) did not agree with the applicable laws in effect 
during the four quarters. 

B. Refund/credit reclassification: [Footnote 22] 

Perform the following steps on IRSís AATF refund/credit certifications 
for the quarters ended December 31, 2001; March 31, 2002; June 30, 
2002; and September 30, 2002: [Footnote 23] 

1. Inspect the certification letters for authorizing signatures.
Description of findings and results The certification letters for all 
four quarters had authorizing signatures. 

2. Determine if evidence exists that the certification letters and 
accompanying schedules [Footnote 24] were checked by the supervisor or 
another analyst. 

Description of findings and results: 

There was evidence that another analyst and a supervisor checked the
certification letters and accompanying schedules for all four quarters. 

3. Recalculate the totals on the certification letters and accompanying 
schedules to determine if they are mathematically correct. 

Description of findings and results: 

The totals on the certification letters and accompanying schedules were
mathematically correct for all four quarters. 

4. Trace the refund and credit amount for aviation gas and aviation O/T 
gas [Footnote 25] from the schedules accompanying the certification 
letters to other summary refund/credit schedules. These other 
refund/credit summary schedules summarize refund and credit data 
obtained from service center campusesí records. 

Description of findings and results: 

The refund and credit amounts for aviation gas and aviation O/T gas on 
the schedules accompanying the certification letters agreed with the 
amounts on the summary schedules for the quarters ended December 31, 
2001; March 31, 2002; and June 30, 2002. 

On IRSís refund and credit certification for the quarter ended 
September 30, 2002, the IRS analyst entered data from the summary 
schedules into the wrong sections of a schedule accompanying the 
certification letter. As a result, IRS reported $12.3 million in AATF 
refunds as credits and $2.2 million in AATF credits as refunds. There 
was no impact on distributions to the AATF because BPD deducts the 
total amount of refunds and credits in calculating distributions to the 
trust fund. 

III. Review of FMS adjustments: 

Perform the following steps on FMS adjustments to AATF excise tax 
distributions for the quarters ended September 30, 2001; December 31, 
2001; March 31, 2002; and June 30, 2002. 

A. Compare the FMS adjustments made to the AATF for fiscal year 2002 
with original OTA estimates and IRS-certified amounts to see if they 
agree with the supporting schedules. [Footnote 26] 

Description of findings and results: 

For the FMS adjustments made to the AATF, the original OTA estimates and
IRS-certified amounts agreed with the supporting schedule for all four
quarters. 

B. Recompute the difference between the OTA estimates and final IRS-
certified amounts to see if the amounts agree with the differences 
computed by FMS. 

Description of findings and results: 

The independently recalculated differences between the OTA estimates and
the final IRS-certified amounts for the AATF agreed with the differences
computed by FMS for all four quarters. 

These amounts were: [Footnote 27] 
* for the quarter ended September 30, 2001, $187,040,000; 
* for the quarter ended December 31, 2001, $8,832,000; 
* for the quarter ended March 31, 2002, ($381,091,000); and; 
* for the quarter ended June 30, 2002, ($105,188,000). 

IV. Procedures performed on excise tax distributions to the AATF for the
quarter ended September 30, 2002 A. Determine if OTAís process for 
identifying and incorporating into its trust fund estimates [Footnote 
28] the effect of new legislation on excise tax receipts was in place 
during fiscal year 2002. 

Description of findings and results: 

OTAís process for identifying and incorporating into its trust fund 
estimates the effect of new legislation on excise tax receipts was in 
place during fiscal year 2002. OTA prepares a tax rate table [Footnote 
29] to capture information relating to legislation that affects tax 
rates, tax basis, accounts, and deposit rules in effect during the tax 
period. 

B. Determine if there is evidence of review of the transfer forms and 
supporting schedules. 

Description of findings and results: 

There was evidence that another OTA economist reviewed the transfer 
forms and supporting schedules for the semimonthly transfers affecting 
distributions to the AATF for the quarter ended September 30, 2002. 

C. Recalculate the totals on the transfer letters to determine if they 
are mathematically correct. 

Description of findings and results: 

The totals on the transfer forms affecting distributions to the AATF 
for the quarter ended September 30, 2002, were mathematically correct. 

D. Trace the transfer amounts for tax on transportation of persons by 
air (abstract 26), tax on use of international air facilities (abstract 
27), tax on transportation of property by air (abstract 28), and tax 
aviation fuel for commercial use (abstract 77) [Footnote 30] from the 
transfer letter, through the supporting schedules and back to the 
related source documents. [Footnote 31] 

Description of findings and results: 

The transfer amounts for tax on transportation of persons by air 
(abstract 26), tax on use of international air facilities (abstract 
27), tax on transportation of property by air (abstract 28), and tax 
aviation fuel for commercial use (abstract 77) from the transfer forms 
affecting distributions to the AATF for the quarter ended September 30, 
2002, agreed with the supporting schedules and source documents. 

V. Other procedures: 

A. Compare total fiscal year 2002 excise taxes distributed to the AATF 
with (1) drafts of FAA fiscal year 2002 consolidated financial 
statements and (2) BPD fiscal year 2002 financial statements for the 
AATF to determine if they agree. 

Description of findings and results: 

Fiscal year 2002 excise taxes of $8.85 billion distributed to the AATF 
agreed with the amount reported on the draft FAA consolidated financial 
statements but did not agree with the amount on the BPD fiscal year 
2002 financial statements for the AATF. The BPD fiscal year 2002 
financial statements for the AATF reported excise tax distributions to 
the AATF of $8.95 billion. The difference is due to the $105 million 
downward FMS adjustment for the quarter ended June 30, 2002, which FMS 
recorded in December 2002. This was after the November 1, 2002, issue 
date of BPDís financial statements for the AATF. 

B. Procedures performed as part of fiscal year 2002 IRS financial 
statement audit: 

1. From IRSís master files for the first 8 months of fiscal year 2002, 
use DUS to select statistical samples of (1) total tax revenue receipts 
and (2) refunds. For each sample item, test that the collection or 
refund amount, tax period, and tax class [Footnote 32] from source 
documentation agree with the information recorded in IRSís master 
files. 

Description of findings and results: 

Detailed testing of 153 revenue receipts and 50 refund sample 
transactions showed that the collection or refund amount, tax period, 
and tax class from source documents agreed with the information 
recorded in IRSís master files. 

2. Review selected service center campusesí monthly Treasury SF-224
reconciliations to determine if IRS-reported revenue receipts were 
properly classified and reconciled to Treasury FMS records. For 
refunds, review selected IRS service center campusesí monthly Treasury 
SF-224 reconciliations to determine if IRS-reported total refunds (all 
tax classes) were materially [Footnote 33] reconciled to Treasury FMS 
records. [Footnote 34] 

Description of findings and results: 

Tax revenue receipts reported by selected IRS service center campuses
through the monthly Treasury SF-224 reconciliation process were properly
classified and materially agreed with Treasury FMS records. 

Total refunds reported by the selected IRS service center campuses
through the monthly Treasury SF-224 reconciliation process materially
agreed with Treasury FMS records. 

3. Perform procedures to determine whether tax revenue receipt balances 
by tax class, including excise tax, per IRSís general ledger materially 
agree with IRS master files and Treasury records. For refunds, perform a
comparison of total refund balances between the master file, the general
ledger, and Treasury records. Also, compare excise tax refunds per the
master file to the general ledger. 

Description of findings and results: 

Tax receipt balances for all tax classes, including excise taxes, per 
IRSís general ledger, materially agreed with IRSís master files and 
with Treasury records. 

Refund balances per IRSís general ledger materially agreed with the 
master file and with Treasury records. 

[End of enclosure] 

Footnotes: 

[1] In our report on the results of our audit of IRSís fiscal year 2002 
financial statements, we noted a material weakness in IRSís financial 
reporting process (Financial Audit: IRSís Fiscal Year 2002 and 2001 
Financial Statements, GAO-03-243, November 15, 2002). A component of 
this process includes IRSís ability to allocate excise tax collections 
to the appropriate trust funds at the time deposits are made. This 
condition affects the adequacy of the distributions of federal excise 
tax revenue to recipient trust funds and is a continuation of an issue 
that we have reported on in prior years. 

[2] Since certifications are not completed until 6 months after the end 
of the quarter, the certification and corresponding FMS adjustment for 
the quarter ended September 30, 2001, were completed in March 2002 and 
thus affected fiscal year 2002 distributions to the AATF. 

[3] Although the certifications are based on amounts collected, we used 
the tax liability amounts to identify the taxpayers paying the largest 
amounts of excise taxes. Our review shows that these taxpayers 
generally pay their excise taxes in full each quarter. 

[4] The master file is a detailed database containing taxpayer 
information. 

[5] Per our agreement with the Department of Transportation Office of 
Inspector General, we selected one additional AATF-related return in 
order to test a minimum of six AATF returns. 

[6] Per IRS, this was the total excise tax liability amount, from its 
master file, for the quarter ended September 30, 2001. 

[7] IRS certifies to trust funds the amount of excise taxes collected. 
Because there are occasions in which taxpayers have not fully paid 
their tax liability, IRS must allocate the amount of payments actually 
received among the different excise taxes reported on the taxpayerís 
return. IRSís Collection Certification System prorates a taxpayerís 
payments proportionately among all taxes reported as owed on the tax 
return. For example, if a taxpayer reports that it owes $4 million for
gasoline tax, $2 million for diesel fuel tax, and $1 million for 
gasohol tax on its Form 720 Quarterly Federal Excise Tax Return, but 
has paid IRS only $3.5 million at the time IRS performs its 
certification, the program prorates the $3.5 million in the following 
manner: $2 million to gasoline tax, $1 million to diesel fuel tax, and 
$500,000 to gasohol tax. 

[8] The abstract numbers identify the tax type (e.g., gasoline and 
ticket tax) and are used as the basis for determining the distribution 
of the excise taxes to the various trust funds. Abstract numbers are 
preprinted on the Form 720 Quarterly Federal Excise Tax Return and are 
used by the taxpayer to report excise tax assessments. If the return 
was related to the AATF, we selected (1) tax on transportation of 
persons by air-ticket tax (abstract 26), (2) tax on use of international
air facilities (abstract 27), and (3) tax on transportation of property 
by air (abstract 28). If the return was related to the HTF, we selected 
(1) tax on 10 percent gasohol (abstract 59), (2) diesel fuel tax 
(abstract 60), and (3) gasoline tax (abstract 62). The tax amounts 
related to the selected abstracts for each trust fund are the largest 
tax amounts reported on the taxpayerís excise tax return and make up 
over 90 percent of the total amount certified to the AATF and over 87
percent of the total amount certified to the HTF. 

[9] The Collection Certification System produces what IRS refers to as 
ďaudit files.Ē These audit files contain the individual prorated 
collections, by abstract and taxpayer identification number, that make 
up the certified total amounts for each abstract. 

[10] For the purpose of this reconciliation, material is defined as 1 
percent of the total Form 720-related excise tax collections, related 
to the quarters ended December 31, 2001, and March 31, 2002. For fiscal 
year 2002, the materiality amount was $210 million for the two quarters
combined. 

[11] For this sample, if one or no errors were found in testing the 78 
items, we would be 90 percent confident that the error rate in the 
population would not exceed 5 percent. 

[12] The selected abstracts include the following: (1) tax on 
transportation of persons by air (abstract 26), (2) tax on use of 
international air facilities (abstract 27), (3) tax on transportation
of property by air (abstract 28), (4) tax on aviation fuel for 
commercial use (abstract 77), (5) tax on 10 percent gasohol (abstract 
59), (6) diesel fuel tax (abstract 60), and (7) gasoline tax (abstract 
62). The tax amounts for the four AATF-related abstracts make up over 
96 percent of the total amount certified to the AATF and the tax 
amounts for the three HTF-related abstracts make up over 87 percent of 
the total amounts certified to the HTF. 

[13] The Report of Excise Tax Collection contains prorated collections, 
classified by abstracts, that serve as the basis for IRSís quarterly 
trust fund certifications. 

[14] The planned sample size using DUS was 111 items. DUS selects 
dollars versus specific transaction items by dividing the population by 
dollar intervals. The dollar interval for the AATF was $34 million. 
Accordingly, any item with a dollar value matching or exceeding the 
sampling interval would be selected, whereas items less than the 
sampling interval might not be selected. For example, an item of $68 
million would cover two dollar-intervals, but represent one sample
item. Due to large dollar items covering more than one interval, the 62 
unique sampled transactions selected represent 111 dollar-intervals. 

[15] The planned sample size using DUS was 136 items. As explained in 
footnote 14, DUS selects dollars versus specific transaction items by 
dividing the population by dollar intervals. The dollar interval for 
the HTF was $116 million. Due to large dollar items covering more than 
one interval, the 94 unique sampled transactions selected represent 136 
dollar-intervals. 

[16] For this sample, if no errors are found in testing the 45 items, 
we would be 90 percent confident that the error rate in the population 
would not exceed 5 percent. 

[17] The purpose of this test is to determine whether the Collection 
Certification System prorates correctly. This test is not intended to 
determine whether amounts provided to the system are correct. 

[18] Since certifications are not completed until 6 months after the 
end of the quarter, the certification and corresponding FMS adjustment 
for the quarter ended September 30, 2002, will not be completed in time 
to affect the recorded fiscal year 2002 distributions to the AATF. 

[19] The certified amounts for tax on transportation of persons by air 
(abstract 26), tax on use of international air facilities (abstract 
27), tax on transportation of property by air (abstract 28), and tax on 
aviation fuel for commercial use (abstract 77) make up over 96 percent 
of the total amount certified to the AATF. 

[20] IRS uses data from two of these reports, covering sequential 
processing intervals, for each quarterly certification. Collections are 
classified by abstract on the report when the related Form 720 tax 
return has been recorded in IRSís master file during the processing 
interval covered by the report. The second of the two reports used may 
contain collections related to previous quarters not classified by 
abstract until the current quarter because the related return was not
recorded on the master file until the current quarter. 

[21] For this test, ďsignificantĒ is defined as $20 million. This 
represents approximately 1 percent of the total amount certified to the 
AATF for a quarter. 

[22] IRS performs a quarterly reclassification of excise tax refunds 
and credits originally entered into its master file as personal or 
corporate refund/credit. IRS refers to these reclassifications as
ďrefund/credit certifications.Ē These amounts do not represent the 
total excise tax refund/credit activity to the trust funds. Other 
routine excise tax refunds and credits (e.g., overpayments), which are 
claimed on taxpayersí Form 720 excise tax returns, are included in 
IRSís excise tax receipt certification to trust funds. 

[23] In order to meet certain reporting deadlines, IRS-certified 
refunds and credits for the fourth quarter of fiscal year 2002 as of 
September 6, 2002. 

[24] IRS attaches a separate schedule to the AATF refund/credit 
certification letter that includes the detailed excise tax amounts that 
support the total amount shown on the letter. IRS compiles the amounts 
on these schedules from service center campus systems and its Interim 
Revenue Accounting Control System. IRS has 10 service center campuses 
that process tax returns and tax receipts. 

[25] Aviation gas and aviation O/T gas are the only two excise taxes on 
the AATF refund/credit certification. 

[26] An FMS accountant compiles this schedule, called the Subsidiary 
Quarterly Account of Estimates and Actual Related Excise Taxes 
Appropriated to the AATF. It computes the difference between IRS-
certified amounts and the OTA estimate for excise taxes, individually 
and in total, that relate to the AATF. The schedule, along with OTA 
transfer forms and IRS certifications, supports the FMS adjustment. 

[27] A positive amount indicates that the FMS adjustment increased 
excise taxes distributed to the trust fund. A negative amount, shown in 
parentheses, indicates that the FMS adjustment decreased excise taxes 
distributed to the trust fund. 

[28] OTA makes semimonthly estimates of excise tax collections for 
transfer to trust funds. 

[29] OTA communicates this information to interested parties at 
Treasury, the Federal Highway Administration, the Federal Transit 
Administration, and the Department of Transportation. IRS uses the tax 
and distribution rates from this table in its subsequent certification 
of collections to trust funds. 

[30] The transfer amounts for tax on transportation of persons by air 
(abstract 26), tax on use of international air facilities (abstract 
27), tax on transportation of property by air (abstract 28), and tax 
aviation fuel for commercial use (abstract 77) made up over 96 percent 
of the total amount transferred to the AATF during the fourth quarter 
of fiscal year 2002. 

[31] The source documents include the IRS report of excise taxes used 
to derive the percentages applied to reported receipts, the Daily 
Treasury Statement, the Monthly Treasury Statement, and the excise tax 
rate tables. 

[32] IRS assigns a tax class number to specific types of taxes. Excise 
taxes are tax class 4. 

[End of section] 

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