This is the accessible text file for GAO report number GAO-13-156 
entitled '2012 Tax Filing: IRS Faces Challenges Providing Service to 
Taxpayers and Could Collect Balances Due More Effectively' which was 
released on January 17, 2012. 

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as 
part of a longer term project to improve GAO products' accessibility. 
Every attempt has been made to maintain the structural and data 
integrity of the original printed product. Accessibility features, 
such as text descriptions of tables, consecutively numbered footnotes 
placed at the end of the file, and the text of agency comment letters, 
are provided but may not exactly duplicate the presentation or format 
of the printed version. The portable document format (PDF) file is an 
exact electronic replica of the printed version. We welcome your 
feedback. Please E-mail your comments regarding the contents or 
accessibility features of this document to Webmaster@gao.gov. 

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately. 

United States Government Accountability Office: 
GAO: 

Report to Congressional Committees: 

December 2012: 

2012 Tax Filing: 

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

GAO-13-156: 

GAO Highlights: 

Highlights of GAO-13-156, a report to congressional committees. 

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 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. 

Table: IRS Return Processing, Telephone Service, and Correspondence, 
2007 through 2012 Filing Seasons: 

Return processing (fiscal year): 

Returns processed: 
2007: 135 million; 
2008: 151 million; 
2009: 139 million; 
2010: 137 million; 
2011: 140 million; 
2012: 142 million; 

Percent e-filed         
2007: 58%; 
2008: 59%; 
2009: 67%; 
2010: 71%; 
2011: 78%; 
2012: 82%. 

Telephone service (as of June 30, each year): 

Percentage of callers seeking live assistance who receive it: 
2007: 81%; 
2008: 57%; 
2009: 68%; 
2010: 76%; 
2011: 72%; 
2012: 68%. 

Average wait time (in minutes): 
2007: 4.6; 
2008: 8.6; 
2009: 8.4; 
2010: 9.5; 
2011: 11.7; 
2012: 17. 

Paper correspondence (end of fiscal year): 

Percentage of overage correspondence: 
2007: 17%; 
2008: 23%; 
2009: 25%; 
2010: 27%; 
2011: 35%; 
2012: 40%. 

Source: GAO analysis of IRS data. 

[End of table] 

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 risk-based 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. 

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. 

View [hyperlink, http://www.gao.gov/products/GAO-13-156]. For more 
information, contact James R. White at (202) 512-9110 or 
whitej@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

While IRS Has Made Efficiency Gains and Improved Performance in a 
Variety of Areas, It Faces Challenges Providing Service to Taxpayers: 

IRS Could More Effectively Apply Risk-Based Approaches to Collect 
Balances Due: 

Use of RACs Has Increased Significantly and IRS and Others Are 
Beginning to Address Questions About the Transparency of RAC and Other 
Fees: 

Conclusion: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Balance Due Notice Process: 

Appendix III: Use of IRS Website and Online Services: 

Appendix IV: Visits to Taxpayer Assistance Center and Volunteer Income 
Tax Assistance Sites: 

Appendix V: Description of Telephone Calls Answered by IRS: 

Appendix VI: Fees for Refund Anticipation Checks: 

Appendix VII: Comments from the Department of the Treasury: 

Appendix VIII: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Individual Income Tax Returns Processed from 2007 to 2012: 

Table 2: IRS Walk-in Site Accuracy, 2008 through 2012 Filing Seasons: 

Table 3: IRS's Telephone Service Goals and Performance, 2007 through 
2012 Filing Seasons: 

Table 4: Practitioner Priority Service Goals and Performance, Fiscal 
Years 2007 through 2012: 

Table 5: Accuracy of Telephone Service, 2007 through 2012 Filing 
Seasons: 

Table 6: IRS Taxpayer Correspondence Performance, Fiscal Years 2007 
through 2012: 

Table 7: Balance Due Accounted for During Notice Process or Sent on to 
Collections, Tax Year 2010: 

Table 8: Actions Taken by IRS or Taxpayers on Balance Due Returns by 
Amount Owed and Percentage, Tax Year 2010: 

Table 9: Description of Balance Due Notices for Individual Filers of 
Self-Assessed Balance Due Returns: 

Table 10: Website Use from the 2008 through 2012 Filing Seasons: 

Table 11: Services Performed at IRS TAC and VITA Sites, 2010 through 
2012 Filing Seasons: 

Table 12: Calls to IRS by Call Type, 2007 through 2012 Filing Seasons: 

Table 13: Comparisons of Fees and Refund Anticipation Check Options 
for Five Software Packages: 

Figures: 

Figure 1: Example of How a Taxpayer Receives a Refund Anticipation 
Check and When Fees May Be Incurred: 

Figure 2: Balance Due Notice Process for Individual Tax Return Filers: 

Abbreviations: 

CADE: Customer Account Data Engine: 

CFPB: Consumer Financial Protection Bureau: 

CONOP: Concept of Operations: 

CP: Computer Paragraph: 

CSR: Customer Service Representative: 

e-file: electronic filing: 

ETAAC: Electronic Tax Administration Advisory Committee: 

FTE: Full-Time Equivalent: 

IMF: Individual Master File: 

IRS: Internal Revenue Service: 

ITA: Interactive Tax Assistant: 

MeF: Modernized e-File: 

PPS: Practitioner Priority Service: 

RAC: Refund Anticipation Check: 

RAL: Refund Anticipation Loan: 

TAC: Taxpayer Assistance Center: 

TIGTA: Treasury Inspector General for Tax Administration: 

VITA: Volunteer Income Tax Assistance: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

December 18, 2012: 

The Honorable Max Baucus: 
Chairman: 
The Honorable Orrin Hatch: 
Ranking Member: 
Committee on Finance: 
United States Senate: 

The Honorable Charles W. Boustany: 
Chairman: 
The Honorable John Lewis: 
Ranking Member: 
Subcommittee on Oversight: 
Committee on Ways and Means: 
House of Representatives: 

Every tax filing season is an enormous undertaking during which the 
Internal Revenue Service (IRS) interacts with millions of taxpayers 
and hundreds of thousands of tax preparers by processing tax returns, 
issuing refunds, answering telephone calls, and providing other 
services, including those on its website. In recent years, IRS has 
taken a number of steps to improve return processing, provide faster 
refunds, and deliver better service. For example, IRS has added 
automated telephone lines and increased the number of self-service 
tools that taxpayers can use online. IRS also has a telephone line for 
professional tax return preparers. 

More than three-quarters of taxpayers receive a refund, but some owe 
additional tax. Taxpayers who file a return showing additional tax 
owed, referred to as a balance due, are generally required to submit 
payment to the IRS by the tax filing deadline--usually April 15th. 
Paying on time is critical--taxpayers avoid interest and penalties 
associated with late payments and IRS avoids using limited compliance 
staff resources to collect taxes owed. 

Taxpayers receiving refunds have a range of decisions to make about 
the best way to obtain refunds. Last year, we reported that taxpayers' 
use of controversial Refund Anticipation Loans (RAL)--high interest, 
short-term loans from tax preparers or banks that give quicker access 
to tax refunds than if taxpayers wait for a direct deposit or paper 
check--significantly decreased because RALs were no longer widely 
available. In contrast, taxpayers' use of Refund Anticipation Checks 
(RAC)--temporary bank accounts set up by tax preparers allowing them 
to subtract tax preparation and other fees from taxpayers' refunds--
has continued to increase.[Footnote 1] Some tax industry experts and 
consumer protection organizations have expressed concerns that 
taxpayers do not always have information, especially about RAC fees, 
to make the best decisions about how to obtain their refund. 

In this context, you asked us to review a number of issues related to 
IRS's 2012 tax filing services. Specifically, this report: 

1. Assesses IRS's performance in processing returns, delivering 
refunds, and providing telephone service and online and face-to-face 
assistance in comparison to its 2012 goals and prior years' 
performance; 

2. Describes what is known about taxpayers who filed returns with a 
balance due for tax year 2010, but did not pay by the filing deadline, 
and assesses IRS's efforts to encourage timely payment; and: 

3. Summarizes the growth of RACs in recent years and the reasons 
taxpayers may obtain them, the manner in which RAC and other fees are 
disclosed to taxpayers in commonly used online tax return preparation 
software packages, and key stakeholder views regarding the 
transparency of RACs and associated fees. 

To accomplish these objectives, we collected and analyzed data and 
documents from IRS and tax industry experts. We used these data to 
compare IRS's performance in 2012 to prior years and IRS's goals. We 
also interviewed IRS officials and tax industry experts to obtain 
different perspectives on IRS's performance during the 2012 filing 
season. To identify the number of returns and associated dollar 
amounts from returns where the taxpayer self-identified a balance due, 
as well as the amount IRS collected and resolved during the notice 
phase of collections, we matched IRS notice data with collections data 
and return transaction data. 

Data limitations are discussed where appropriate. We reviewed IRS 
documentation, interviewed IRS officials about computer systems and 
data limitations, and compared those results to our standards of data 
reliability. We interviewed knowledgeable IRS collections and research 
staff, as well as Treasury Inspector General for Tax Administration 
(TIGTA) staff who worked on past reports relevant to this area to 
identify data sources and better interpret our data. We consider the 
data presented in this report to be sufficiently reliable for our 
purposes. We conducted our fieldwork primarily at IRS headquarters in 
Washington, D.C., and at the Wage and Investment Division headquarters 
in Atlanta, Georgia, as well as other sites with key IRS offices. 

To identify RAC and associated fees with return preparation software, 
we prepared sample returns from each of the five most frequently used 
software packages that taxpayers used to self-prepare returns in 2012. 
We also interviewed tax industry experts, consumer advocacy 
representatives, and government officials, including from the IRS and 
the Consumer Financial Protection Bureau (CFPB), to determine what, if 
any, steps are being taken to make RAC, and return preparation fees 
generally, more transparent to taxpayers. Appendix I provides 
additional details on how we did our work. 

We conducted this performance audit from February 2012 through 
December 2012 in accordance with generally accepted government 
auditing standards. Those standards require that we plan and perform 
the audit to obtain sufficient, appropriate evidence to provide a 
reasonable basis for our findings and conclusions based on our audit 
objectives. We believe that the evidence obtained provides a 
reasonable basis for our findings and conclusions based on our audit 
objectives. To conduct our analysis of the cost and features of RACs, 
we used investigative techniques. We conducted our related 
investigative work in accordance with investigation standards 
prescribed by the Council of the Inspectors General on Integrity and 
Efficiency. 

Background: 

IRS processes paper and electronic tax returns and validates key 
pieces of information during the filing season. The majority of 
returns are now electronically-filed (e-filed). IRS is replacing its 
legacy e-file system with the Modernized e-File (MeF) system.[Footnote 
2] IRS is also transitioning from the antiquated Individual Master 
File (IMF) system to a more modern tax processing system known as the 
Customer Account Data Engine 2 (CADE 2), the systems IRS uses to 
process tax returns.[Footnote 3] CADE 2 allows IRS to provide quicker 
refunds and conduct more and better compliance checks before refunds 
are issued. 

In addition to processing tax returns, IRS provides a variety of 
taxpayer services through its telephone, website, and face-to-face 
operations. 

Telephone and paper correspondence: 

* Taxpayers can call IRS to speak directly with a customer service 
representative (CSR) to obtain information about their accounts or ask 
tax law questions. Providing live assistance over the phones is 
expensive for IRS--according to IRS officials, the cost of answering 
telephone calls has risen from about $26 per call in 2009 to about $30 
in 2011.[Footnote 4] 

* Taxpayers can also obtain some of the same information using 
automated telephone lines, including IRS's 149 Tele-tax lines for tax 
law topics and 10 phone lines for account information. In 2011, IRS 
officials said that it cost 36 cents to answer an automated phone call. 

* In October 2009, IRS started using a speech analytics program called 
Contact Analytics to better understand why taxpayers call IRS and 
evaluate how CSRs interact with taxpayers. Contact Analytics is a 
sophisticated speech analytics program that converts speech, such as 
CSR conversations with taxpayers, into text for analysis. 

* CSRs are also responsible for responding to paper correspondence 
from taxpayers. IRS tries to minimize the amount of overage paper 
correspondence--correspondence that IRS has not addressed within 45 
days of receipt. 

* In addition to answering calls from taxpayers, CSRs answer calls 
from paid preparers who call about taxpayer accounts through IRS's 
Practitioner Priority Service (PPS). We have reported that paid 
preparers prepare about 60 percent of tax returns and play a critical 
role in answering taxpayers' questions and filing tax returns. 
[Footnote 5] Taxpayers who get their questions answered by a preparer 
may not need to call IRS. 

Website: 

* IRS also provides service to taxpayers through its website, 
[hyperlink, http://www.IRS.gov]. For example, taxpayers can find 
information on the status of their refunds, request transcripts (which 
are copies of a taxpayer's account information), and pay account 
balances. Taxpayers can also download forms, instructions, and 
publications, and research tax law issues through interactive tools. 

Face to face: 

* IRS staff provides face-to-face assistance at 397 Taxpayer 
Assistance Centers (TAC). Staff at TACs provide answers to basic tax 
law questions, review taxpayer accounts, and prepare returns for 
qualified taxpayers.[Footnote 6] IRS has begun pilot-testing virtual 
assistance, where IRS employees interact with walk-in clients through 
a video terminal, at a small number of TACs and partner sites. 

* IRS also has volunteer partners that staff more than 13,000 
volunteer sites. These Volunteer Income Tax Assistance (VITA) and Tax 
Counseling for the Elderly sites prepare tax returns for traditionally 
underserved taxpayers. Some of these also serve as Facilitated Self-
Assistance sites where volunteers guide taxpayers through simple tax 
returns. 

Debt collection process and RACs: 

After tax returns are filed and processed, IRS begins the process of 
collecting unpaid tax debts. IRS attempts to collect unpaid tax debts 
in three phases: (1) notices sent through the mail, (2) telephone 
contact, and (3) face-to-face interactions.[Footnote 7] When a 
taxpayer files an individual return with a balance due but does not 
pay in full, IRS is statutorily required to send a letter detailing 
the proposed assessment of tax, penalty, and interest, and possible 
ways for the taxpayer to respond. If IRS does not receive a response 
within an allotted time, it is statutorily required to send a final 
notice prior to taking collection action such as levying wages on a 
bank account or filing a lien. Between the first and final notices, 
IRS may send up to two additional notices. Depending on the taxpayer, 
IRS could send a total of four notices before initiating other, more 
costly collection activities such as telephone calls to taxpayers or 
face-to-face interactions. Appendix II provides a more detailed 
summary of IRS's notices process. 

Finally, in recent years, millions of taxpayers have chosen to obtain 
their tax refunds and pay for tax preparation services through a RAC 
obtained from tax software companies or paid preparers. With a RAC, 
paid preparers or software companies deduct any applicable fees from 
taxpayers' refunds. The remainder of the refund can be deposited (1) 
in a bank account created by a financial institution or paid preparer 
on behalf of the taxpayer, (2) in the taxpayers' own account, or (3) 
on a prepaid debit card issued by the paid preparer. In recent years, 
RACs have almost entirely replaced RALs.[Footnote 8] Figure 1 provides 
an example of potential fees incurred by taxpayers when filing a 
return and receiving a refund through a RAC.[Footnote 9] 

Figure 1: Example of How a Taxpayer Receives a Refund Anticipation 
Check and When Fees May Be Incurred: 

[Refer to PDF for image: process illustration] 

Taxpayer: 
* Taxpayer has return prepared by a paid preparer; 
A taxpayer who asks for a refund as a (1) debit card, or (2) paper 
check from the bank that set up the RAC account may pay fees to use 
the debit card or to receive the paper check[A]. 

Tax preparer: 
* Tax return sent to the IRS. 

IRS: 
* IRS deposits refund in a temporary bank account set up by a bank 
partnering with a paid preparer. 

RAC account: 
* Paid preparer deducts tax preparation fees and RAC account fees, 
sone of which may go to the RAC bank. 

Taxpayer's bank: 
* If refund is directly deposited, other charges generally do not 
apply. 

Source: GAO analysis. 

[A] Taxpayers with bank accounts can generally cash or deposit their 
refund check without charge. If not, they may use an alternative 
provider and pay a fee to have the check cashed. 

[End of figure] 

While IRS Has Made Efficiency Gains and Improved Performance in a 
Variety of Areas, It Faces Challenges Providing Service to Taxpayers: 

E-Filing Continued to Grow, MeF Contingency Plans Are Being Updated, 
and IRS Is Working to Improve Its Public Messaging Regarding Refund 
Turnaround Time: 

About 142 million individual income tax returns were filed in 2012, 
slightly up from last year. As table 1 shows, IRS achieved an 82 
percent e-file rate for individual returns, surpassing the goal set by 
Congress for all returns in 1998--a significant accomplishment for 
IRS.[Footnote 10] E-filing has many benefits for taxpayers, including 
faster refunds and higher accuracy rates. It also provides IRS with 
significant cost savings by eliminating the need to manually 
transcribe data on paper returns. According to IRS, in fiscal year 
2010, it cost 17 cents to process an e-filed return and $3.66 for 
returns filed on paper. 

Table 1: Individual Income Tax Returns Processed from 2007 to 2012: 

Number of individual tax returns processed: 
2007: 135,000; 
2008[A]: 151,000; 
2009: 139,000; 
2010: 137,000; 
2011: 140,000; 
2012: 142,000; 
Percent change from 2011 to 2012[B]: 2%. 

Number of individual tax returns processed: Electronic; 
2007: 79,000; 
2008[A]: 89,000; 
2009: 94,000; 
2010: 97,000; 
2011: 109,000; 
2012: 116,000; 
Percent change from 2011 to 2012[B]: 6%. 

Number of individual tax returns processed: Paper; 
2007: 56,000; 
2008[A]: 62,000; 
2009: 45,000; 
2010: 40,000; 
2011: 30,000; 
2012: 26,000; 
Percent change from 2011 to 2012[B]: -13%. 

Percentage e-filed: 
2007: 58%; 
2008[A]: 59%; 
2009: 67%; 
2010: 71%; 
2011: 78%; 
2012: 82%; 
Percent change from 2011 to 2012[B]: 5%. 

Number of refunds issued: 
2007: 103 million; 
2008[A]: 105 million; 
2009: 109 million; 
2010: 107 million; 
2011: 107 million; 
2012: 108 million; 
Percent change from 2011 to 2012[B]: 1%. 

Amount of refunds issued (dollars in billions); 
2007: $234 billion; 
2008[A]: $248 billion; 
2009: $298 billion; 
2010: $312 billion; 
2011: $303 billion; 
2012: $295 billion; 
Percent change from 2011 to 2012[B]: -4%. 

Average refund amount; 
2007: $2,259; 
2008[A]: $2,350; 
2009: $2,725; 
2010: $2,915; 
2011: $2,836; 
2012: $2,726; 
Percent change from 2011 to 2012[B]: -3%. 

Source: GAO analysis of IRS data. 

Notes: Data are from January 1 through September 28, 2007; January 1 
and October 3, 2008; January 1 and October 2, 2009; January 1 and 
October 1, 2010; January 1 and September 30, 2011; and January 1 and 
September 28, 2012. 

[A] The Economic Stimulus Act of 2008 mandated that IRS send stimulus 
payments to over 100 million households, many of which would not 
otherwise have needed to file a tax return. 

[B] The numbers in the table are rounded, but the percent change was 
calculated using exact values. Therefore, in some cases, the percent 
change is slightly different than it would be if it were calculated 
using the rounded values in the table. 

[End of table] 

In March 2012, we reported that IRS experienced problems with its MeF 
processing system, for which it had implemented important changes. 
Given these problems, we recommended that IRS review its contingency 
plan for MeF and update it in time for the 2013 filing season. 
[Footnote 11] We also reported that IRS officials told us they had 
problems with a fraud detection process being unable to function 
properly in the daily processing environment. In June 2012, IRS 
officials told us that these problems were not detected due to limited 
testing before implementing the systems. Based on the experiences with 
MeF this year, and recommendations we and the Electronic Tax 
Administration Advisory Committee (ETAAC) made, IRS announced that it 
plans to keep legacy e-file available in a limited capacity in case of 
a catastrophic MeF failure.[Footnote 12] 

In addition, IRS officials said they were concerned that MeF may not 
be able to handle peak volume during the 2013 filing season. To 
mitigate these risks, IRS is more fully testing MeF, making necessary 
adjustments, and updating its MeF Contingency Plan again in January 
2013. IRS is working with industry experts to identify which states, 
preparers, and transmitters will support both systems. 

For 2012, IRS's public messaging for refund timeliness noted that most 
taxpayers could receive their refunds within 10 to 21 days of filing. 
According to tax industry experts, they conveyed IRS's timeframe to 
taxpayers, but delays due to processing errors or otherwise unmet 
expectations resulted in preparers receiving a significant number of 
phone calls from clients. For 2013, IRS officials indicated they may 
change IRS's public messaging to tell taxpayers to expect refunds in 
21 days or less. However, they added that they would consult the tax 
preparation industry before setting refund timeliness expectations for 
the public. 

New Self-Service Tools on IRS's Website and Further Development of an 
Online Services Strategy May Produce Efficiency Gains: 

IRS's website [hyperlink, http://www.IRS.gov] had 297 million visits 
in 2012, an increase of almost 19 percent over 2011. The use of self-
service tools available on the website has continued to grow, with the 
greatest increases coming from use of Interactive Tax Assistant (ITA) 
tools and Where's My Refund.[Footnote 13] For more information on 
website use, see appendix III. 

IRS officials indicated that the website could be used to offer 
additional services. IRS is planning to develop more self-service 
tools so taxpayers can research tax law and account information. 
[Footnote 14] For example, in 2013, IRS plans to implement a Where's 
My Amended Return online tool where taxpayers can check whether their 
amended returns have been received by IRS. Online services give 
taxpayers access to information without calling IRS, which, as 
previously discussed, is expensive. We are conducting a separate 
evaluation of IRS's efforts to develop its website. 

Expanded Self-Service and Virtual Service Programs at TAC and 
Volunteer Sites Have Helped IRS Serve Taxpayers: 

Although far fewer taxpayers visit TAC and volunteer sites than call 
IRS or use its website, these sites provide a significant service. As 
of April 30, 2012, IRS received 2.77 million taxpayer contacts at 
TACs, as compared to 2.85 million contacts this time in 2011. The 
accuracy of responses to account and tax law questions provided at 
TACs increased compared to previous years, as shown in table 2. 

Table 2: IRS Walk-in Site Accuracy, 2008 through 2012 Filing Seasons: 

Accuracy measure: Accounts assistance; 
2008 actual: 85%; +/-2.30%; 
2009 actual: 86%; +/-1.93%; 
2010 actual: 91%; +/-1.66%; 
2011 actual: 88%; +/-1.94%; 
2012 actual: 92%; +/-1.61%; 
2012 Goal: 91%. 

Accuracy measure: Tax law assistance; 
2008 actual: 66%; +/-2.73%; 
2009 actual: 76%; +/-1.97%; 
2010 actual: 81%; +/-1.83%; 
2011 actual: 82%; +/-1.83%; 
2012 actual: 85%; +/-1.70%; 
2012 Goal: 83%. 

Accuracy measure: Return preparation assistance[A]; 
2008 actual: n/a; 
2009 actual: n/a; 
2010 actual: 82%; +/-3.82%; 
2011 actual: 83%; +/-3.45%; 
2012 actual: 89%; +/-2.86%; 
2012 Goal: n/a. 

Legend: n/a = not applicable. 

Source: GAO analysis of IRS data. 

Note: Actual data for each year are from January 1 through April 30. 
IRS does not have comparable accuracy data available for the years 
prior to 2008. 

[A] Return preparation assistance data were not available before 2010. 

[End of table] 

IRS expanded self-service and virtual service at both TAC and 
volunteer sites to increase access, reduce wait time, and extend the 
effectiveness of its employees. IRS piloted the Virtual Service 
Delivery program at 10 TACs and 2 external partner sites and plans to 
expand this program to an additional 10 to 20 sites nationwide in 
2013. Through Virtual Service Delivery, IRS employees interact with 
walk-in clients through a video terminal when the employees are not 
occupied at their home site. For the first time beginning in 2012, IRS 
was able to track wait time data on a nationwide basis at TAC 
locations.[Footnote 15] For 2012, 74 percent of taxpayers waited less 
than 30 minutes for TAC service. 

IRS partnered with 3,930 community-based organizations operating over 
13,000 volunteer sites, staffed by about 99,000 volunteers in 2012. 
[Footnote 16] The number of returns prepared by volunteers increased 
slightly to 3.15 million in 2012, up from 3.07 million in 2011 (a 2.3 
percent increase).[Footnote 17] IRS expanded the number of Facilitated 
Self-Assistance sites (computer kiosks) from 102 in 2011 to 496 in 
2012, and plans to increase the number of sites to 1,000 nationally by 
the end of the 2013 filing season. IRS also expanded the number of 
Virtual VITA sites, where taxpayers at remote locations can obtain 
service over fax, internet, and video connection, from 34 to 61. For 
more information on the services performed at IRS walk-in and 
volunteer sites, see appendix IV. 

Access to Live Telephone Assistance Continues to Decline: 

In 2012, call volume increased, and as of June 30, 2012, IRS had 
received 98 million calls, an 18 percent increase over 2011. IRS 
answered about 50 million of these calls through automation, a 36 
percent increase from 2011. IRS officials attributed the increase in 
automated calls answered to refund inquiries caused, in part, by 
refund delays early in the filing season and requests for transcripts. 
At the same time, there was a 52 percent increase in busy signals and 
cases where IRS determines that the best course of action is to 
disconnect the call before answering (due to wait times for the 
taxpayer or other reasons). For more information on calls to IRS by 
call type, see appendix V. 

While calls answered through automation have increased, the number of 
CSR answered calls declined by about 14 percent (19.4 million calls 
compared to 22.6 million calls in 2011). However, IRS officials said 
that as more automated telephone features are added, the calls that 
CSRs actually answer have increased in complexity. For example, 
questions about topics such as identity theft, an increasingly 
important topic, take longer to resolve than inquiries about refunds 
and other, more basic services.[Footnote 18] Consequently, the average 
length of a CSR answered call has also increased by about 19 percent 
since 2009. IRS had about the same amount of CSR resources to answer 
calls and respond to paper correspondence in 2012 as in 2011--about 
13,500 full-time equivalents (FTE) in both years. These CSRs are 
responsible for not only answering calls but also responding to paper 
correspondence (which we discuss below).[Footnote 19] 

Taken together, these factors explain, at least in part, why IRS's 
performance in providing live assistance has declined in recent years 
even though fewer calls were answered by live assistors. In 2012, 
IRS's level of service, the percentage of callers seeking live 
assistance who receive it, was 68 percent, down from 81 percent in 
2007, as is shown in table 3. The average wait time increased to 17 
minutes in 2012, up from 4.6 minutes in 2007. While IRS exceeded its 
2012 level of service and wait time goals, those goals were the lowest 
IRS has established in recent years. 

Table 3: IRS's Telephone Service Goals and Performance, 2007 through 
2012 Filing Seasons: 

Access measure: Percentage of callers seeking live help who received 
it; 
Goal 2007: 82%; 
Actual 2007: 81%; 
Goal 2008: 82%[B]; 
Actual 2008: 57%; 
Goal 2009: 77%[C]; 
Actual 2009: 68%; 
Goal 2010: 71%; 
Actual 2010: 76%; 
Goal 2011: 71%; 
Actual 2011: 72%; 
Goal 2012: 61%; 
Actual 2012: 68%; 
Goal Percent change from 2011 to 2012[A]: -14.1%.
Actual Percent change from 2011 to 2012[A]: -5.5%. 

Access measure: Average wait time (in minutes); 
Goal 2007: 4.3; 
Actual 2007: 4.6; 
Goal 2008: 4.5; 
Actual 2008: 8.6; 
Goal 2009: 10.4[D]; 
Actual 2009: 8.4; 
Goal 2010: 11.6; 
Actual 2010: 9.5; 
Goal 2011: 11.6; 
Actual 2011: 11.7; 
Goal 2012: 19; 
Actual 2012: 17; 
Goal Percent change from 2011 to 2012[A]: 62.1%.
Actual Percent change from 2011 to 2012[A]: 42.7%. 

Source: GAO analysis of IRS data. 

Notes: Actual data are from January 1 through June 30, while goals are 
for the entire fiscal year. We believe comparing performance during the 
filing season to fiscal year goals is appropriate as IRS's filing 
season performance is an indicator of its performance for the entire 
year. 

[A] Numbers in the table are rounded, but percentage change was 
calculated using exact values. Therefore, in some cases, the percentage 
change is slightly different than it would be if it were calculated 
using the rounded values in the table. 

[B] IRS revised its original fiscal year goal of 82 percent down to 74 
percent because of high call volume due to economic stimulus-related 
calls. 

[C] IRS revised its original fiscal year goal of 77 percent down to 70 
percent because of high call volume from taxpayers requesting e-filing 
authentication information and asking stimulus-related questions. 

[D] IRS determines its wait time goals based on anticipated call volume 
and resource availability. IRS significantly raised its wait time goal 
for 2009 compared to 2008 in light of anticipated increased call volume 
related to tax law changes. 

[End of table] 

In 2010, we recommended that IRS take steps to define what appropriate 
levels of telephone service would be, determine a standard for 
telephone service, and identify the resources required to achieve this 
standard. However, IRS disagreed with this recommendation, saying that 
its current process of developing a planned level of telephone service 
takes into consideration many factors, including budget and 
assumptions about potential call volume. The IRS Oversight Board has 
said that an acceptable level of service should be about 80 percent. 

Performance on IRS's Practitioner Priority Service, where paid 
preparers can call IRS, telephone lines also declined. As shown in 
table 4, the level of service for the paid preparer telephone line 
decreased to 73 percent in 2012, down from 91 percent in 2007. Over 
the same period, the average wait time for the paid preparer line 
increased from 2.8 minutes to 22.1 minutes. Officials said that paid 
preparers are willing to wait longer than taxpayers because paid 
preparers are attempting to get answers for their clients. Like phone 
service for taxpayers, IRS lowered the level of service goal for the 
Practitioner Priority Service in 2012. 

Table 4: Practitioner Priority Service Goals and Performance, Fiscal 
Years 2007 through 2012: 

Access measure: Percentage of tax preparers seeking live assistance 
who received it; 
Goal 2007: 87%; 
Actual 2007: 91%; 
Goal 2008: 87%; 
Actual 2008: 86%; 
Goal 2009: 82%; 
Actual 2009: 88%; 
Goal 2010: 76%; 
Actual 2010: 80%; 
Goal 2011: 78%; 
Actual 2011: 78%; 
Goal 2012: 72%; 
Actual 2012: 73%; 
Goal Percent change from 2011[A,B]: -7.7%[A].
Actual Percent change from 2011[A,B]: -6.4%[A]. 

Access measure: Average wait time (in minutes); 
Goal 2007: 4.9; 
Actual 2007: 2.8; 
Goal 2008: 4.5; 
Actual 2008: 5.2; 
Goal 2009: 6.5; 
Actual 2009: 4.7; 
Goal 2010: 10.0; 
Actual 2010: 10.5; 
Goal 2011: 10.7; 
Actual 2011: 13.3; 
Goal 2012: 26.2; 
Actual 2012: 22.1; 
Goal Percent change from 2011[A,B]: 145.4%.
Actual Percent change from 2011[A,B]: 65.8%. 

Source: GAO analysis of IRS data. 

[A] The difference is 5 percentage points between actual performance in 
2011 and 2012 and 6 percentage points between fiscal year 2011 and 2012 
goals. 

[B] The numbers in the table are rounded, but the percent change was 
calculated using exact values. Therefore, in some cases, the percent 
change is slightly different than it would be if it were calculated 
using the rounded values in the table. 

[End of table] 

The continued accuracy of the CSRs' answers represents a positive 
aspect of IRS's telephone service. As shown in table 5, IRS's accuracy 
rate for CSR answered calls remained well over 90 percent. We have 
reported that IRS officials attributed the high accuracy rate to 
automated interactive tax assistance tools that CSRs use to provide 
answers to taxpayers as well as use of Contact Analytics.[Footnote 20] 

Table 5: Accuracy of Telephone Service, 2007 through 2012 Filing 
Seasons: 

Accuracy measures[A]: Tax law rate[B]; 
2007: 90.7%; +/-0.9%; 
2008: 90.3%; +/-0.9%; 
2009: 92.5%; +/-0.8%; 
2010: 92.4%; +/-0.8%; 
2011: 92.9%; +/-0.6%; 
2012: 92.5%; +/-0.7%. 

Accuracy measures[A]: Account accuracy Rate[B]; 
2007: 93.2%; +/-0.5%; 
2008: 93.5%; +/-0.4%; 
2009: 95.1%; +/-0.4%; 
2010: 95.6%; +/-0.4%; 
2011: 96%; +/-0.3%; 
2012: 95.4%; +/-0.3%. 

Source: IRS data. 

[A] Based on representative samples of phone calls selected by IRS from 
January 1 through June 30. 

[B] The percentage of calls in which CSRs provided accurate answers for 
the call type and took the appropriate actions, with a 90 percent 
confidence interval. 

[End of table] 

Overage Paper Correspondence Increased: 

As shown in table 6, while the amount of paper correspondence in 2012 
increased by 5 percent from 2011, the percentage of overage taxpayer 
correspondence increased by 14 percent over the same period. Providing 
a timely response to paper correspondence is important because if 
IRS's response takes too long taxpayers may write again or call IRS. 

Table 6: IRS Taxpayer Correspondence Performance, Fiscal Years 2007 
through 2012: 

Correspondence received[A]: 
Fiscal Year: 
2007: 16 million; 
2008: 18 million; 
2009: 19 million; 
2010: 20 million; 
2011: 20 million; 
2012: 21 million; 
Percent Change from fiscal year 2011 to 2012: 5%. 

Percentage of taxpayer correspondence overage[B]; 
Fiscal Year: 
2007: 17%; 
2008: 23%; 
2009: 25%; 
2010: 27%; 
2011: 35%; 
2012: 40%; 
Percent Change from fiscal year 2011 to 2012: 14%. 

Source: GAO analysis of IRS data. 

Note: Aggregate data are from Accounts Management and Submission 
Processing, which jointly responds to IRS's taxpayer correspondence. 

[A] Data cover equivalent periods for each fiscal year with slight 
variation in the exact dates depending on the year and data source. 

[B] IRS generally considers paper correspondence that is not resolved 
within 45 days to be overage. Data from 2007 and 2008 data do not 
include overage data for correspondence processed by submission 
processing as submission processing began tracking overage data in 
2009. 

[End of table] 

IRS Does Not Have a Strategy to Reverse Declines in Service: 

IRS has taken a multi pronged approach to improve taxpayer service and 
better manage call volumes. For example, in 2012, to reduce the time 
CSRs spend on phone calls, IRS implemented personal identification 
numbers that taxpayers who are transferred to a new CSR can provide to 
eliminate the re-authentication process. To increase the number of 
calls answered by CSRs, IRS also implemented a new procedure where the 
CSR is automatically connected to the next caller after finishing the 
current call. To better manage call volume, preempt taxpayer 
questions, and identify which services could be provided through 
automation, IRS is using Contact Analytics to identify trends in 
taxpayers' calls and update information on IRS.gov. Additionally, in 
response to our previous recommendation in 2009, IRS deployed an 
online VITA locator during 2012 where taxpayers can enter their ZIP 
codes to find VITA sites close to their location.[Footnote 21] 

The numerous efficiency initiatives IRS has implemented to date have 
not kept pace with call or correspondence volume. IRS's current 
Concept of Operations (CONOP) outlines a 3-to 5-year strategic plan 
for providing taxpayer services. The plan acknowledges that IRS will 
experience declining levels of service absent aggressive action and 
outlines potential actions that IRS could take to deflect demand and 
improve efficiency of operations. However, the potential actions 
generally continue the approach IRS has followed in recent years 
seeking incremental efficiency gains. The federal government's tight 
budget environment makes any meaningful increase in resources for 
taxpayer service unlikely. Further, IRS officials said that the 
actions and time frames presented in the CONOP would be difficult for 
IRS to meet. Without a more strategic approach that recognizes the 
inability of efficiency initiatives to keep up with call volume and 
call complexity, as well as the reality of IRS's resources and 
capabilities, telephone service and response time to paper 
correspondence is at risk of further decline. 

Given the above, reversing the declines in telephone and 
correspondence services may require IRS to consider difficult 
tradeoffs. Rather than limiting access through long wait times, other 
ways of reducing demand might be considered. One option might be 
reassessing which phone calls IRS should answer with a CSR and which 
it should not because automated services are readily available--either 
online or over the phones. Although limiting access to CSRs for 
certain callers is not an optimal solution, it might help better 
target taxpayer assistance to those for whom live assistance is the 
only option. Another option might be to consider whether certain types 
of questions should be directed to paid preparers or tax software 
companies. Identifying options, assessing their pros and cons, and 
deciding on a course of action would need to be part of a more 
extensive strategy than the currently existing CONOP. 

IRS Could More Effectively Apply Risk-Based Approaches to Collect 
Balances Due: 

For tax year 2010, the most recent year with available data, we found 
about $13.8 billion on returns where taxpayers filed with a self-
acknowledged balance due that was not paid on time. State officials we 
interviewed described some best practices for collecting balances due, 
including earlier contact based on the characteristics and behaviors 
of individual taxpayers and more extensive use of complex data 
analytics and modeling. IRS has adopted some risk-based approaches to 
its notice phase, such as determining which taxpayers will receive 
which notices (IRS sends up to four notices), based on factors such as 
the size of the amount owed. However, a lack of clarity in the roles 
and responsibilities of IRS officials in charge of sending notices to 
taxpayers impedes IRS's ability to best identify and implement risk-
based approaches for resolving balances due. Although IRS has 
developed a data analytics plan for managing its balance due process, 
the plan has not yet been implemented. Further, IRS has not pilot 
tested other, more extensive risk-based approaches being used in some 
states. 

For Tax Year 2010, Taxpayers Self-Assessed Balances Due for Billions 
of Dollars: 

As table 7 shows, about 3.8 million returns were filed where taxpayers 
self-assessed unpaid balances owed for tax year 2010, meaning that 
they filed a return where they acknowledged that they owe additional 
tax and did not pay in full by the filing deadline. These taxpayers 
owed a total of about $13.8 billion.[Footnote 22] 

Table 7: Balance Due Accounted for During Notice Process or Sent on to 
Collections, Tax Year 2010: 

Description: Balance due returns resolved during the notice process; 
Total amount due on first notice: $9.4 billion; 
Number of returns: 3.2 million. 

Description: Balance due returns sent to collections; 
Total amount due on first notice: $4.4 billion; 
Number of returns: 0.6 million. 

Description: Total; 
Total amount due on first notice: $13.8 billion; 
Number of returns: 3.8 million. 

Source: GAO analysis of IRS data. 

[End of table] 

As shown in table 8, of those taxpayers that had a balance due at the 
filing deadline, almost two-thirds eventually paid in full or entered 
into installment agreements, which are payment plans where the 
taxpayer can repay the debt owed in scheduled increments (usually 
monthly). However, IRS was unable to collect at least $4.4 billion in 
balances through notices and these returns progressed to later 
collections stages. Additionally, an unknown amount of tax owed 
remained uncollected in cases where the taxpayer defaulted on an 
installment agreement. According to IRS officials, about 18 percent of 
taxpayers default on installment agreements, resulting in IRS 
eventually sending these taxpayers to collections.[Footnote 23] Unpaid 
balances due result in IRS using more expensive resources, such as 
phone contact and field visits, to collect the taxes. In addition, 
taxpayers may face additional interest and penalties. 

Table 8: Actions Taken by IRS or Taxpayers on Balance Due Returns by 
Amount Owed and Percentage, Tax Year 2010: 

Action Taken: Installment agreement; 
Amount: $5.5 billion; 
Percentage of amount owed: 40%; 
Percentage of returns: 33%. 

Action Taken: Full paid; 
Amount: $3.1 billion; 
Percentage of amount owed: 23%; 
Percentage of returns: 39%. 

Action Taken: Sent to collections; 
Amount: $4.4 billion; 
Percentage of amount owed: 32%; 
Percentage of returns: 16%. 

Action Taken: Other[A]; 
Amount: $0.7 billion; 
Percentage of amount owed: 5%; 
Percentage of returns: 12%. 

Action Taken: Total; 
Amount: $13.8 billion[B]; 
Percentage of amount owed: 100%; 
Percentage of returns: 100%[B]. 

Source: GAO analysis of IRS data. 

[A] The other categories include a range of taxpayers, including those 
that IRS determines are currently unable to pay and taxpayers whose 
returns have been referred for criminal investigation. 

[B] Numbers do not add due to rounding. 

[End of table] 

Some States Have Implemented Risk-Based Approaches to Debt Collection 
That Are Considered Best Practices: 

States have employed risk-based approaches to help them collect 
uncollected taxes that provide options that may be appropriate for IRS 
to also consider. Representatives from three states with advanced 
collection approaches (identified by the Federation of Tax 
Administrators, an organization that represents state tax 
administration agencies) we spoke with identified two best practices 
for collections strategies: 

* applying risk-based approaches to collections strategies, including 
risk-based analytics such as risk scores based on taxpayer data, and: 

* initiating timely contact of taxpayers who owe debts. Both we and 
the Treasury Inspector General for Tax Administration (TIGTA) have 
reported on the success of timely contact with debtors, and it is an 
accepted debt collection best practice.[Footnote 24] 

Risk-based approaches use data on taxpayers' filing status, payment 
history, public records such as bankruptcies, and payment behaviors to 
determine for a given taxpayer which collections methods will produce 
the best results. Risk-based analytics have been in use by IRS and 
other tax agencies for many years, but mostly in fraud detection and 
prevention. For example, IRS applies a risk score to returns during 
its screening process to estimate the risk of fraud. IRS sometimes 
audits taxpayers who submit returns with scores that exceed certain 
thresholds, which are those returns predicted most likely to be 
fraudulent. The use of such tools in early phases of collecting 
balances owed by taxpayers is an emerging best practice and can (1) 
increase amounts of debt collected if applied to taxpayers who do not 
respond quickly and (2) save resources by identifying taxpayers who 
may not require intervention (those who are likely to comply or tend 
to self-resolve their debts without intervention from the IRS). 

According to experts we interviewed, some taxpayers may respond better 
to multiple notices sent more quickly or a phone call shortly after a 
notice, while others may respond to a single notice. According to 
state level officials we interviewed, data analysis sometimes showed 
that certain taxpayers are likely to pay without further intervention 
from the tax agency and that collection activities should be focused 
elsewhere. 

New York State Department of Taxation and Finance officials reported 
that although they had fewer available collections resources, they 
collected an additional $83 million in 2010, an increase of 8 percent, 
during the first year using their revenue-based analytics collections 
program. According to New York State officials we interviewed, the 
program uses data analytics to determine the collection actions most 
likely to generate the greatest amount of revenue at a given point in 
time, within certain resource constraints. New York State officials 
reported that they believe the program has been instrumental in 
helping increase collections. 

Officials from two other state revenue agencies, California's 
Franchise Tax Board and North Carolina's Department of Revenue, told 
us that they have seen some improvement in collection rates as they 
implement risk-based approaches and other strategies to contact 
taxpayers who owe debt, but they cannot quantify how much of the 
improvement is related to these activities as they are part of a 
comprehensive change in collections processes. California's Franchise 
Tax Board experienced an 18 percent increase in collections revenue 
from fiscal years 2010 to 2011, which officials there attribute to the 
implementation of new tools, including risk-based analytics and 
proactive call center strategies. 

In all three states, these activities are part of broad changes in 
collections processes. According to representatives from the New York 
State Department of Taxation and Finance, in their experience, the 
initial investment and set up of a revenue-based analytics collections 
program required both time and resources. The maintenance of this 
system also requires continuous updates as new events occur. For 
example, one of the most challenging parts of implementing the New 
York State system was to develop a way to correctly adhere to all of 
the state's laws and policies that affected collections and at the 
same time not to restrict the analytics engine so much that it cannot 
make the right choices. However, tax administration experts at the 
three states we interviewed and the Federation of Tax Administrators 
generally agreed that the benefits should outweigh the costs. 

IRS Uses Some Risk-Based Approaches in the Notice Process but the 
Rationale and Management Responsibilities Are Unclear: 

IRS applies business rules, which determine the sequence of notices 
sent to a taxpayer, in an attempt to apply a risk-based approach to 
its notice process. IRS officials told us that they have some basic 
criteria, including taxpayers who repeatedly pay late, owe larger 
dollar amounts, or owe other taxes to the IRS, to determine which 
taxpayers receive which notices. However, we previously reported that 
IRS lacked information describing what the business rules for balance 
due notices are, specifically finding that IRS did not meet our 
criteria for internal controls for this process.[Footnote 25] For 
example, although guidance for federal internal control standards 
states that managers should have information in forms to ensure the 
effectiveness of operations, IRS officials lacked documentation for 
the business rules of the notice phase and how the rules operated. We 
recommended that IRS document rationales for the business rules for 
managers. At the time of this review, IRS was still unable to provide 
us with clear documentation of these business rules that would meet 
internal control requirements. 

IRS does not have well-documented, risk-based business rules, in part 
because of a lack of clear management responsibility for administering 
parts of the collection notice process. This is partly because of the 
substantial reorganizations at IRS over the last 2 years, including 
the creation of an Enterprise Collection Strategy (ECS) and a Return 
Integrity Correspondence Service (RICS).[Footnote 26] RICS officials 
told us that they have authority over the development and revision of 
balance due notices but that ECS is responsible for most of the 
analytics for the collections process. However, ECS officials told us 
that they were still determining the scope of their authority, but 
that IRS's Wage and Investment division has the majority of 
responsibility over the balance due notices process.[Footnote 27] Lack 
of clarity in the roles and responsibilities of IRS officials 
responsible for sending notices to taxpayers impedes IRS's ability to 
best identify and implement risk-based approaches for resolving 
balances due. 

IRS Has Not Implemented More Advanced Risk-Based Approaches Early in 
Its Collections Process: 

More effective risk-based analytics could benefit taxpayers by making 
them aware of payment options earlier and allowing them to avoid 
interest and penalties. For example, IRS does not contact taxpayers 
who e-file and have a balance due but do not pay in full until mid-
May--IRS contacts taxpayers who file on paper as soon as the balance 
due is identified. Other approaches may also allow IRS to reduce costs 
by applying collections resources in a more targeted and effective 
manner. In recent comments, the Commissioner of Internal Revenue 
indicated that leveraging data analytics to continually improve IRS's 
operations is one of the agency's next major priorities.[Footnote 28] 
IRS officials told us that they have a proposal, referred to as their 
Advanced Consolidated Data Analytics Plan, to apply a risk-based 
approach to determine to the extent to which each taxpayer who files a 
balance due and does not pay in full on time is contacted. The plan 
includes routing some taxpayers directly to phone and field 
collections after the first notice is issued. However, due to other 
priorities, IRS has not scheduled implementation of the plan. 

Potential additional risk-based approaches to collecting balances due 
range from relatively simple steps to more robust data analytics 
similar to what some states have implemented. While earlier contact 
with taxpayers based on payment history, or other indicators that they 
are not likely to pay on time, is an example of a relatively simple 
risk-based approach, options exist to test more complex approaches, 
similar to those described earlier and being used by some states. Such 
approaches involve more complex statistical analysis and help better 
determine which communication strategies are likely to work the best 
for a given taxpayer and yield the most revenue. 

Use of RACs Has Increased Significantly and IRS and Others Are 
Beginning to Address Questions About the Transparency of RAC and Other 
Fees: 

As of September 30, 2012, taxpayers had requested more than 20 million 
RACs, which is about the same as 2010, but more than double the 
roughly 10 million RACs issued in 2005. Stakeholders we interviewed 
from both consumer protection groups and the tax industry generally 
agreed the primary benefits of RACs are allowing taxpayers to deduct 
return preparation fees from their refunds and ensuring some taxpayers 
receive refunds faster. Tax industry professionals said that RACs 
offer taxpayers flexibility that might otherwise not be available. For 
example, taxpayers may want to obtain a RAC if they do not have a 
personal bank account or lack sufficient funds to pay tax preparation 
fees in advance. Taxpayers can obtain a RAC through either use of a 
tax software package or paid preparer. 

IRS data shows that nearly 40 percent of taxpayers who obtain a RAC 
use a software package to help self-prepare their returns. Our 
analysis of the five most frequently used tax software packages, 4 of 
which offered a RAC, found that: 

* three of the four RAC providers charged about $30 for a RAC, which 
is consistent with findings from an Urban Institute study released in 
2010,[Footnote 29] and: 

* three of the four software packages offering RACs required taxpayers 
to have a bank account to receive the remainder of the refund once all 
the fees, including the RAC fee, had been paid. This is noteworthy 
because helping taxpayers without bank accounts receive refunds is one 
of the major stated benefits of RACs. 

In addition to RAC fees, we found that taxpayers may incur other fees 
related to the receipt of their refund. For example, if taxpayers 
choose to receive their refund on a prepaid debit card, they may incur 
fees for using the card or making withdrawals. Our analysis showed 
that cash withdrawal, monthly maintenance, and balance inquiry fees 
generally applied to the prepaid debit cards. Appendix VI includes 
more information on the fee structure of the software packages we 
reviewed. 

We also found that, in general, RACs and associated fees varied, and 
the tax preparation software packages we reviewed included the 
required disclosures to taxpayers about the product. However, we were 
not able to evaluate the extent to which taxpayers read and understand 
the disclosures.[Footnote 30] Further, we did not analyze how paid 
preparers operating commercial stores offered RACs to taxpayers or 
otherwise presented tax preparation fees. 

Convincing empirical evidence about whether taxpayers are aware of and 
understand RACs and associated fees does not exist. Although we found 
that the fee structure and disclosures were included in tax software 
packages we reviewed, interested parties have expressed concerns about 
the transparency and cost of RACs. For example, we found that: 

* Representatives from consumer protection groups we interviewed have 
noted that the fees associated with a RAC may be high, lack 
transparency, and taxpayers may not fully understand alternatives for 
receiving their refunds.[Footnote 31] These representatives noted that 
taxpayers who have bank accounts and access to credit should have 
little need for a RAC. 

* Industry participants stated that, in some cases, RAC and other fees 
could be more effectively disclosed to taxpayers. Tax industry 
representatives told us they have made proposals to policy makers and 
regulators to enhance return preparation and bank fee disclosures, 
monitor third-party vendors, and develop marketing requirements and 
other agreed upon prohibited and best practices. 

* Some states have enacted legislation governing paid tax preparers 
that offer RACs. The state laws that have been enacted require the 
disclosure of fees and the posting of a fee schedule.[Footnote 32] In 
some cases, the required disclosures include informing the taxpayer 
that the taxpayer has the right to not obtain a RAL or RAC.[Footnote 
33] Some states have taken the additional step of placing restrictions 
on the fees a tax preparer can charge when providing a RAC. For 
example, Illinois law prohibits tax preparers from charging any 
additional fee to obtain a RAC apart from that charged by the 
financial institution providing the RAC.[Footnote 34] 

Finally, IRS officials told us that because a RAC is a bank product it 
would be more appropriate for banking regulators, who also played a 
key role in eliminating RALs, to determine whether further steps need 
to be taken to address issues that have been raised with respect to 
the transparency of RACs.[Footnote 35] The Bureau of Consumer 
Financial Protection, commonly referred to as the Consumer Financial 
Protection Bureau (CFPB), examines short-term, small-dollar lending, 
which could include RACs; however, CFPB has not done extensive work 
with RACs.[Footnote 36] CFPB officials said that they do not have 
specific jurisdiction over return preparation fees. Recently, in 
response to increased interest about RAC and other tax preparation 
fees, IRS and CFPB have begun discussing whether there is a need for 
further regulation of RAC and other fees or if additional steps need 
to be taken to help taxpayers understand return preparation fees. As 
IRS is beginning to work with consumer and regulatory groups on these 
issues, we are not making any recommendations to IRS at this time. 

Conclusion: 

IRS deserves credit for achieving noticeable efficiency gains in 
processing returns and providing taxpayer services over recent years. 
In an era of tight budgets, such gains are vital for keeping up with 
an expanding workload and improving outcomes for taxpayers. However, 
while IRS has realized efficiency gains, it is still struggling in its 
efforts to give taxpayers access to telephone assistors and provide 
timely responses to correspondence. The efficiency gains have been 
more than offset by increases in demand for services. While further 
improvements, as envisioned in IRS's CONOP are desirable, recent 
history provides little prospect of such gains reversing the service 
declines. Without a more dramatic revision in strategy, the recent 
declines in access and correspondence services seem likely to continue. 

While processing returns and issuing refunds to taxpayers, IRS also 
collects taxes owed to the government. New analytical, risk-based 
tools are helping state tax administration agencies better determine 
when and how to contact taxpayers who file a return with a balance due 
but do not pay the government when they file their returns. However, 
IRS has yet to experiment with implementing such tools during the 
notice phase before more expensive methods of collection, including 
telephone calls and face-to-face visits to taxpayers, are necessary. 
This is due, in part, to IRS's lack of clearly defined 
responsibilities for administering the notice phase. Resolving payment 
issues early on also helps taxpayers avoid paying interest and 
penalties on their remaining balances. 

Recommendations for Executive Action: 

We recommend that the Acting Commissioner of Internal Revenue take the 
following actions: 

1. 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. 

2. Clearly define and document the roles and responsibilities of IRS 
offices administering the notice phase, such as in resolving tax debts. 

3. Tailor appropriate and timely interventions with taxpayers who file 
balance due returns, by pilot testing risk-based approaches that could 
include: 

* implementing the Advanced Consolidated Data Analytics plan, and: 

* using more data driven methods to identify the most appropriate 
method for contacting a taxpayer. 

Agency Comments and Our Evaluation: 

We provided a draft of this report to the Acting Commissioner of 
Internal Revenue. He provided written comments on a draft of the 
report, which are reprinted in appendix VII. IRS also suggested 
technical changes to the report, which we incorporated where 
appropriate. 

IRS neither agreed nor disagreed with our first recommendation. IRS 
said it already has an objective of providing taxpayers with access to 
accurate services while managing demand and that this will be achieved 
by improving contact center efficiency, providing issue resolution 
alternatives to reduce demand, and equipping the workforce with 
additional tools. However, as we stated in the draft, in recent years, 
IRS has realized efficiency gains and provided alternative types of 
services, including more automated services. Notwithstanding these 
efforts, IRS has not kept up with the demand for service. Its service 
to taxpayers has continued to decline--the percentage of calls 
answered by a CSR has decreased and telephone wait times and the 
percentage of overage paper correspondence have increased. Because 
IRS's efforts to date have not reversed these declines in taxpayer 
service, we believe our recommendation to outline a strategy that 
defines appropriate levels of service and lists specific steps to 
manage service that would reverse recent trends remains valid. As the 
draft stated, a strategy to reverse the trends may require difficult 
tradeoffs. 

Regarding our other two recommendations, IRS described its plans to 
implement them. 

As agreed with your offices, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies to the 
Chairmen and Ranking Members of other Senate and House committees and 
subcommittees that have appropriation, authorization, and oversight 
responsibilities for IRS. We will also send copies to the Acting 
Commissioner of Internal Revenue, the Secretary of the Treasury, the 
Chairman of the IRS Oversight Board, and the Deputy Director for 
Management of the Office of Management and Budget. In addition, the 
report will be available at no charge on the GAO website at 
[hyperlink, http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact me at (202) 512-9110 or whitej@gao.gov. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this report. GAO staff who made key contributions to 
this report are listed in appendix VIII. 

Signed by: 

James R. White: 
Director, Tax Issues: 
Strategic Issues: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

This report: 

1. Assesses the Internal Revenue Service's (IRS) performance in 
processing returns, delivering refunds, and providing telephone 
service and online and face-to-face assistance in comparison to its 
2012 goals and prior years' performance; 

2. Describes what is known about taxpayers who filed returns and had a 
balance due for tax year 2010 but did not pay on or before the filing 
deadline, and assesses IRS's efforts to encourage timely payment; and: 

3. Summarizes the growth of Refund Anticipation Checks (RAC) in recent 
years and the reasons taxpayers may obtain them, the manner in which 
RAC and other fees are disclosed to taxpayers in commonly used online 
tax return preparation software packages, and key stakeholder views 
regarding the transparency of RACs and associated fees. 

To assess IRS's performance in 2012 relative to its goals and prior 
years' performance we: 

* Obtained and analyzed IRS documents and data, including performance 
and workload data, reports, testimonies, budget submissions, and 
internal studies of programs, and compared these to IRS's 2012 goals 
and prior years' performance to identify trends and anomalies. 

* Reviewed various other criteria, including industry standards, 
federal requirements, and best practices to assess IRS's performance 
in key areas. 

* Observed operations at IRS's Joint Operations Center (which manages 
telephone services) and listened to calls from taxpayers with 
telephone Customer Service Representatives (CSR). We also observed 
operations at a walk-in site located in Richmond, Virginia, including 
virtual service delivery. 

* Interviewed IRS officials responsible for tax return processing, 
taxpayer services, and online services. 

* Collected data from and interviewed key external stakeholders who 
frequently interact with IRS on key aspects of the filing season, 
including representatives from major tax return preparation companies. 

To describe what is known about taxpayers who filed returns with a 
balance due in tax year 2010 but did not pay on or before the filing 
deadline, and to assess IRS's efforts to encourage timely payment, we: 

* Reviewed IRS's process and organizational structure for contacting 
taxpayers who submit returns and owe a balance to the IRS but do not 
pay before the deadline. This included obtaining documentation from 
IRS and interviewing IRS officials responsible for this process. 

* Analyzed IRS data on the number of taxpayers who file returns with a 
balance due in tax year 2010, the most recent year for which complete 
data are available. We also analyzed IRS data on the dollar amounts 
associated with these balances and the manner in which the balances 
were resolved. For our analysis, the amount on the first notice sent 
to the taxpayer, including any interest and penalties, is the amount 
owed. 

* Determined the amounts owed by the taxpayer through matching data on 
notices sent to taxpayers against data from returns entering IRS's 
collections process across databases using the Taxpayer Identification 
Number, to assure that our population included only those who received 
a notice for a self-assessed balance due. 

* Analyzed the amount and distribution of returns for the types of 
notices received and whether and how they were resolved or entered 
later collection phases. 

* Interviewed representatives from state tax administration agencies, 
other experts in tax administration, and private industry experts in 
collecting balances owed to identify criteria and best practices, such 
as the use of risk-based approaches and timely contact, for getting 
taxpayers to pay balances owed on time. An organization that 
represents state tax administration agencies provided contact 
information for states with advanced collection practices. Experts 
from those states directed us to knowledgeable private industry 
experts. 

To summarize the growth of RACs in recent years and the reasons 
taxpayers may obtain them, the manner in which RAC and other fees are 
disclosed to taxpayers in commonly used online tax return preparation 
software packages, and key stakeholder views regarding the 
transparency of RACs and associated fees, we: 

* Obtained data from IRS's return preparer office identifying the five 
most frequently used software packages by taxpayers who self-prepare 
returns. We analyzed information regarding RACs from the largest 
online tax preparation software companies to identify RAC fees and the 
manner in which they are presented to taxpayers preparing returns. 

* Interviewed consumer protection experts, tax return preparation 
industry experts, and officials from cognizant government agencies, 
including the IRS and Consumer Financial Protection Bureau (CFPB). We 
identified these experts to interview based on our prior reports 
involving consumer protection and tax administration issues and in 
consultation with organizations representing tax return preparation 
and related financial services companies. We conducted these 
interviews to obtain a range of views on the need for RACs, return 
preparation fees more generally, and whether additional actions are 
needed to regulate RACs and other associated fees. 

When data were available, we compared IRS's performance to its 2012 
goals and performance from fiscal years 2007 through 2011. IRS 
officials noted that since 2008, varying degrees of tax law changes 
and other factors have affected the agency's performance. This report 
discusses numerous filing season and performance measures and data 
covering the quality, accessibility, and timeliness of IRS's services. 
Where estimates are presented, we used 90 percent confidence intervals 
and 10 percent levels of statistical significance, the same used by 
IRS. To the extent possible, we corroborated information from 
interviews with documentation and data, and where not possible, 
attributed the information to IRS officials. We reviewed IRS 
documentation, interviewed IRS officials about computer systems and 
data limitations, and compared those results to our standards of data 
reliability.[Footnote 37] We determined that the data presented in 
this report are sufficiently reliable for our purposes. 

We conducted this performance audit from February 2012 through 
December 2012 in accordance with generally accepted government 
auditing standards. Those standards require that we plan and perform 
the audit to obtain sufficient, appropriate evidence to provide a 
reasonable basis for our findings and conclusions based on our audit 
objectives. We believe that the evidence obtained provides a 
reasonable basis for our findings and conclusions based on our audit 
objectives. To conduct our analysis of the cost and features of RACs, 
we used investigative techniques. We conducted our related 
investigative work in accordance with investigation standards 
prescribed by the Council of the Inspectors General on Integrity and 
Efficiency. 

[End of section] 

Appendix II: Balance Due Notice Process: 

IRS is required by law to send at least two notices to taxpayers who 
have a balance due on their taxes--the first notice (known as computer 
paragraph or CP-14) and a final notice (CP-504). IRS may also send up 
to two other discretionary notices (known as CP-501 and CP-503) 
between the first and final notices. IRS uses business rules embedded 
in the programming of its computer systems to determine the number and 
type of notices sent to a taxpayer. IRS officials told us that 
business rules impact the notice path for taxpayers who meet certain 
criteria, including taxpayers who repeatedly pay late and owe larger 
dollar amounts. However, these business rules are static and IRS does 
not otherwise tailor its contact methods to individual taxpayers 
during the notice phase. (See table 9). 

Table 9: Description of Balance Due Notices for Individual Filers of 
Self-Assessed Balance Due Returns: 

Name: First notice; 
CP: CP-14; 
Explanation: Issued as a first notice to inform a taxpayer of a 
balance due of $5.00 or more, no math error. It tells taxpayers they 
have unpaid taxes, lists the amount due, the amount of penalties and 
interest assessed, and how to contact IRS to dispute the amount or to 
pay. This notice is required by law. 

Name: Second notice; 
CP: CP-501; 
Explanation: Second notice sent to taxpayer if no response after CP-14 
notice. This notice is discretionary. 

Name: Third notice; 
CP: CP-503; 
Explanation: Third notice sent to taxpayer if no response to CP-14 or 
to second notice. This notice is discretionary. 

Name: Final notice; 
CP: CP-504; 
Explanation: Final notice issued to taxpayers informing them that IRS 
intends to issue a levy against the taxpayer's State tax refund 
because there is still a balance due on one or more of their tax 
accounts. Also, it informs the taxpayers that the IRS will begin 
searching for other assets on which to issue a levy and that the IRS 
may also file a Federal Tax Lien. This notice is required by law. 

Source: GAO analysis of TIGTA and IRS data. 

[End of table] 

Figure 2 shows that IRS's balance due notice process for a taxpayer 
receiving all four notices is at least 21 weeks. IRS allows 5 weeks 
between notices to give the taxpayer a chance to respond. If the 
taxpayer does not respond to the final notice within 6 to 10 weeks to 
make arrangements to settle the balance, then IRS sends the account to 
phone or field collections or the queue, where IRS holds some accounts 
to determine what actions to take later. 

IRS does not typically contact taxpayers beyond the standard two to 
four notices during the notice phase. 

Figure 2: Balance Due Notice Process for Individual Tax Return Filers: 

[Refer to PDF for image: process illustration] 

Filing  deadline: 

Taxpayer files balance due return and does not pay by filing date. 
IRS sends notices for paper-filed returns immediately after posting. 
IRS sends notices in mid May for e-filed returns. 

Notice phase: 
If taxpayer responds to any of the notices and the balance, notices 
stop.
1st notice to Final notice: 5 weeks. 

IRS may send a 2nd or 3rd notice, or both. This adds 5 to 10 weeks to 
the notice phase.
2nd notice: Add 5 weeks; 
3rd notice: Add 5 weeks. 

Phone/field collections: 
After 6 to 10 weeks. 
If IRS sends 1st and final notices, process takes at least 11 weeks. 
For all 4 notices, process takes at least 21 weeks. 

If no response, IRS sends account on to next phase of collections 
(phone, field visits or queue). 

Source: GAO analysis of IRS information. 

[End of figure] 

[End of section] 

Appendix III: Use of IRS Website and Online Services: 

Taxpayers are increasingly using [hyperlink, http://www.IRS.gov] to 
download forms and publications and to check refund status. In 2012, 
IRS increased the number of Interactive Tax Assistant (ITA) topics 
from 11 to 19, which IRS officials said contributed to an 83 percent 
increase in ITA usage. Taxpayers' use of the Where's My Refund tool 
increased by almost 73 percent in 2012, which IRS officials said may 
be attributed to processing issues that affected when estimated refund 
dates were posted and programming errors which provided visitors with 
erroneous messages. 

Table 10: Website Use from the 2008 through 2012 Filing Seasons: 

Total visits to IRS.gov[B]: 
2008: 292 million; 
2009: 235 million; 
2010: 239 million; 
2011: 250 million; 
2012: 297 million; 
Percent change from 2011 to 2012[A]: 18.8%. 

Taxpayer forms, publications, and instructions downloads: 
2008: 136 million; 
2009: 137 million; 
2010: 157 million; 
2011: 166 million; 
2012: 259 million[C]; 
Percent change from 2011 to 2012[A]: 56.0%. 

Searches[D]: 
2008: 125 million; 
2009: 263 million; 
2010: 277 million; 
2011: 312 million; 
2012: 290 million; 
Percent change from 2011 to 2012[A]: -7.1%. 

Volunteer site list[E]: 
2008: n/a; 
2009: n/a; 
2010: 48,000[F]; 
2011: 152,000[G]; 
2012: 152,000[H]; 
Percent change from 2011 to 2012[A]: 0. 

Self-Service Tools: 

Where's My Refund? (completions): 
2008: 38 million; 
2009: 53 million; 
2010: 64 million; 
2011: 73 million; 
2012: 126 million; 
Percent change from 2011 to 2012[A]: 72.6$. 

Electronic Filing Pin Request (completions): 
2008: n/a; 
2009: n/a; 
2010: 5 million; 
2011: 10 million; 
2012: 12 million; 
Percent change from 2011 to 2012[A]: 20.0%. 

Online Payment Agreement (completions): 
2008: 19,000; 
2009: 34,000; 
2010: 43,000; 
2011: 26,000[I]; 
2012: 64,000; 
Percent change from 2011 to 2012[A]: 146.2%. 

Interactive Tax Assistance Tools (completions): 
2008: n/a; 
2009: n/a; 
2010: 42,000[K]; 
2011: 212,000; 
2012: 388,000; 
Percent change from 2011 to 2012[A]: 83.0%. 

Source: GAO analysis of IRS data. 

Note: Data are from January 1 to July 31 for each year unless otherwise 
noted. 

[A] Numbers in the table are rounded, but percentage change was 
calculated using exact values. Therefore, in some cases, the percentage 
change is slightly different than it would be if it were calculated 
using the rounded values in the table. 

[B] A visit is a series of actions that begins when a visitor views 
their first page from the server, and ends when the visitor leaves the 
site. 

[C] Data is for January 1 to June 30, 2012. 

[D] Page views; include both successful search results and search 
results not found. 

[E] 2010's listing was on 1 page, with an index at the top. 2011's 
listing has been was split into 52 pages; one for each state, the 
District of Columbia, and Puerto Rico. For 2012, IRS created a 
volunteer site locator tool for searches using zip codes. 

[F] Page views; data are for February 12 through July 31, 2010. 

[G] Data are from January 1 through June 30, 2011. 

[H] Data represents the number of visits to the disclaimer page where 
users leave IRS.gov to use the volunteer site locator application, 
hosted by the Department of Treasury. 

[I] A programming error led to a decrease in the number of completed 
agreements. 

[J] IRS introduced the interactive tax assistance tools in March 2010 
and added more tools in 2011 and 2012. As a result, the time frames and 
available services are not comparable. 

[K] Data are from March 7 through July 31, 2010. 

[End of table] 

[End of section] 

Appendix IV: Visits to Taxpayer Assistance Center and Volunteer Income 
Tax Assistance Sites: 

The total number of contacts at Taxpayer Assistance Centers (TAC) 
staffed by IRS employees had decreased in 2012 as compared to 2010 and 
2011. The total number of returns prepared at Volunteer Income Tax 
Assistance (VITA) sites for 2012 increased slightly compared to 2011, 
while 97 percent of the returns prepared at volunteer sites were 
electronically-filed. 

Table 11: Services Performed at IRS TAC and VITA Sites, 2010 through 
2012 Filing Seasons: 

TAC: 

Total contacts; 
2010: 2,777,478; 
2011: 2,847,221; 
2012: 2,772,044; 
Percentage change from 2011 to 2012: -2.6%. 

Return preparation; 
2010: 222,624; 
2011: 201,413; 
2012: 148,075; 
Percentage change from 2011 to 2012: -26.5%. 

Tax law questions; 
2010: 177,002; 
2011: 153,398; 
2012: 128,746; 
Percentage change from 2011 to 2012: -16.1%. 

Account notices; 
2010: 1,217,383; 
2011: 1,327,406; 
2012: 1,446,413; 
Percentage change from 2011 to 2012: 9.0%. 

Forms; 
2010: 440,417; 
2011: 457,839; 
2012: 378,051; 
Percentage change from 2011 to 2012: -17.4%. 

Other[A]; 
2010: 720,052; 
2011: 707,165; 
2012: 670,759; 
Percentage change from 2011 to 2012: -5.1%. 

VITA: 

Return preparation; 
2010: 2,951,952; 
2011: 3,077,687; 
2012: 3,149,197; 
Percentage change from 2011 to 2012: 2.3%. 

Percent of returns e-filed; 
2010: 95%; 
2011: 96%; 
2012: 97%; 
Percentage change from 2011 to 2012: n/a. 

Legend: n/a = not applicable. 

Source: GAO analysis of IRS data. 

Notes: Data for each calendar year are for January 1 through April 30. 

[A] Other contacts include responding to correspondence, scheduling 
appointments, and providing self-assistance services, which do not fall 
into the defined categories. 

[B] The numbers in the table are rounded, but the percent change was 
calculated using exact values. 

[End of table] 

[End of section] 

Appendix V: Description of Telephone Calls Answered by IRS: 

IRS receives millions of calls each year from taxpayers. As table 12 
shows, while an increasingly large number of calls are answered 
through automation, the number of calls answered by customer service 
representatives (CSRs) has declined. Abandoned calls are those calls 
where the taxpayer hangs-up before receiving assistance. 

Table 12: Calls to IRS by Call Type, 2007 through 2012 Filing Seasons: 

Automated calls answered; 
2007: 20.8 million; 
2008[A]: 43.0 million; 
2009: 25.3 million; 
2010: 31.6 million; 
2011: 36.7 million; 
2012: 50.1 million; 
Percent change from 2011 to 2012[B]: 36%. 

CSR calls answered; 
2007: 21.5 million; 
2008[A]: 27.0 million; 
2009: 25.7 million; 
2010: 24.1 million; 
2011: 22.6 million; 
2012: 19.4 million; 
Percent change from 2011 to 2012[B]: -14%. 

Abandoned calls; 
2007: 13.3 million; 
2008[A]: 34.4 million; 
2009: 21.4 million; 
2010: 20.5 million; 
2011: 22.7 million; 
2012: 27.3 million; 
Percent change from 2011 to 2012[B]: 20%. 

Busies and IRS disconnects; 
2007: 1.0 million; 
2008[A]: 13.6 million; 
2009: 5.3 million; 
2010: 1.2 million; 
2011: 1.1 million; 
2012: 1.6 million; 
Percent change from 2011 to 2012[B]: 52%. 

Total calls received; 
2007: 56.6 million; 
2008[A]: 118.0 million; 
2009: 77.6 million; 
2010: 77.4 million; 
2011: 83.1 million; 
2012: 98.4 million; 
Percent change from 2011 to 2012[B]: 18%. 

Source: GAO analysis of IRS data. 

Note: Data are from January 1 through June 30 for all years. 

[A] IRS received an unprecedented number of calls in 2008 primarily 
related to economic stimulus package payments. 

[B] The numbers in the table are rounded, but the percent change was 
calculated using exact values. Therefore, in some cases, the percent 
change is slightly different than it would be if it were calculated 
using the rounded values in the table. 

[End of table] 

[End of section] 

Appendix VI: Fees for Refund Anticipation Checks: 

As part of our review of Refund Anticipation Checks (RAC), we observed 
how RACs and the fees associated with them, including fees for prepaid 
debit cards, are presented to taxpayers. Table 13 summarizes our 
results. 

Table 13: Comparisons of Fees and Refund Anticipation Check Options for 
Five Software Packages: 

Tax Return and RAC Fees: 

Tax preparation fee; 
Software Package 1: $74.90; 
Software Package 2: $74.90; 
Software Package 3: $17.95; 
Software package 4: $12.95; 
Software package 5: $17.90. 

RAC fee; 
Software Package 1: $29.95; 
Software Package 2: $32.95; 
Software Package 3: $16.95; 
Software package 4: n/a; 
Software package 5: $29.95. 

Pre-paid Card Fees: 

ATM cash withdrawal one time; 
Software Package 1: $2.50; 
Software Package 2: $2.50; 
Software Package 3: $1.95; 
Software package 4: n/a; 
Software package 5: n/a. 

Over the counter withdrawal; 
Software Package 1: $2.50; 
Software Package 2: $25.00; 
Software Package 3: $5.00; 
Software package 4: n/a; 
Software package 5: n/a. 

ATM balance inquiry; 
Software Package 1: $0.50; 
Software Package 2: $1.00; 
Software Package 3: $0.50; 
Software package 4: n/a; 
Software package 5: n/a. 

Monthly maintenance fee; 
Software Package 1: $5.95[A]; 
Software Package 2: $2.50[B]; 
Software Package 3: $2.50[C]; 
Software package 4: n/a; 
Software package 5: n/a. 

Legend: n/a = not applicable. 

Source: GAO analysis. 

[A] The maintenance fee is waived when available balance is $50 or 
greater on the last day of billing cycle. 

[B] This is a monthly inactivity fee (charged after 3 months 
consecutive with no activity). 

[C] The maintenance fee is charged monthly, therefore the $2.50 amount 
could increase depending on the length of card's activation. 

[End of table] 

Appendix VII: Comments from the Department of the Treasury: 

Department Of The Treasury: 
Deputy Commissioner
Internal Revenue Service: 
Washington, D.C. 20224: 
        
December 13, 2012: 

Mr. James R. White: 
Director, Tax Issues: 
U.S. Government Accountability Office:
441 G Street, N.W. 
Washington, DC 20548: 

Dear Mr. White: 

I have reviewed your draft report entitled 2012 TAX FILING: IRS Faces 
Challenges Providing Service to Taxpayers and Could Collect Balances 
Due More Effectively, and appreciate your acknowledgment of our 
efficiency gains in processing returns and providing taxpayer service 
in recent years. We delivered another successful filing season in 
2012. The Modernized e-File (MeF) platform met all performance 
expectations. Although there were some issues with subordinate systems 
handling MeF return data and fraud detection processes early in the 
season, we took immediate steps to identify and resolve the problems. 
All tax returns were properly processed and the majority of taxpayers 
received refunds within 10 to 21 days. We expect to use the MeF as the 
sole platform for receiving electronic returns in 2013; however, as a
precautionary measure, the legacy e-file system will remain available 
as a backup measure. 

While significant gains in taxpayer service and collection of taxes 
have been achieved, more can be done in some areas noted in your 
report. For example, we are pursuing implementation of Advanced 
Consolidated Decision Analytics (ACDA) which will apply a risk-based 
approach to balance due returns, expediting taxpayer contact after the 
first notice. Successful implementation of ACDA will assist the IRS in 
collecting taxes due more efficiently and effectively. To address 
concerns about designated roles and responsibilities in the collection 
notice process, we will establish a cross functional team to review 
this area and document their determinations. 

Regarding your first recommendation, the IRS is already using customer 
and stakeholder expectations, external factors, and capability 
analysis to segment recommendations into core improvement themes. The 
objective is to provide customers with easy access to accurate, user 
friendly tax law and account services, while proactively managing the 
increase in customer demand. This will be achieved by improving 
contact center efficiency, providing issue resolution alternatives to 
reduce customer demand, and equipping the workforce with the tools to 
be productive. 

Responses to your specific recommendations are enclosed. If you have 
any questions, please contact Robin L. Canady, Director, Strategy and 
Finance, Wage and Investment Division, at (404) 338-8801. 

Sincerely, 

Signed by: 

Steven T. Miller: 
Deputy Commissioner for Services and Enforcement: 

Enclosure: 

We recommend that the Acting Commissioner of Internal Revenue take the 
following actions: 

Recommendation: 

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. 

Comment: 

The IRS is using customer and stakeholder expectations, external 
factors, and capability analysis to segment recommendations into core 
improvement themes. The objective is to provide customers with easy 
access to accurate, user friendly tax law and account services, while 
proactively managing the increase in customer demand. This will be 
achieved by improving contact center efficiency, providing issue 
resolution alternatives to reduce customer demand, and equipping the 
workforce with the tools to be productive. 

It would be difficult to define a customer service telephone standard 
because, in practice, telephone plans are developed after 
consideration of many factors, including: historical demand adjusted 
for known anomalies; the types and anticipated lengths of calls we 
expect to receive; assumptions concerning upcoming events, such as 
known or pending legislation or trends in customer behavior; and the 
availability of existing or new automated and other alternative 
services. These plans are then matched with available or anticipated 
resources to determine the level of service that can be provided to 
generate the telephone program goals. Goals are finalized only after 
sharing projections with oversight functions including, the IRS 
Oversight Board, the Office of Management and Budget, and Treasury, 
and after consideration of the President's budget request by the House 
and Senate Appropriations Committees and congressional enactment of 
the Treasury budget. 

Recommendation: 

Clearly define and document the roles and responsibilities of IRS 
offices administering the notice phase, such as in resolving tax debts. 

Comment: 

A cross functional team will be formed to specifically define the 
roles and responsibilities of each operating division within the 
collection notice process. 

Recommendation: 

Tailor appropriate and timely interventions with taxpayers who file 
balance due returns, by pilot testing risk-based approaches that could 
include implementing the Advanced Consolidated Data Analytics plan and 
using more data driven methods to identify the most appropriate method 
for contacting a taxpayer. 

Comment: 

The Advanced Consolidated Decision Analytics (ACDA) proposal has 
recently been finalized and is currently under consideration for 
funding and prioritization. In the event full funding is not 
available, we will evaluate the effectiveness of incremental 
development and deployment of ACDA. 

[End of section] 

Appendix VIII: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

James R. White, (202) 512-9110, whitej@gao.gov: 

Staff Acknowledgments: 

In addition to the individual named above, Joanna Stamatiades, 
Assistant Director; LaKeshia Allen; Andrew Ching; David Fox; Tom 
Gilbert; Inna Livits; Kirsten Lauber; Karen O'Conor; Albert Sim; 
Sabrina Streagle; Weifei Zheng; and John Zombro made key contributions 
to this report. 

[End of section] 

Footnotes: 

[1] GAO, 2011 Tax Filing: Processing Gains, but Taxpayer Assistance 
Could Be Enhanced by More Self-Service Tools, [hyperlink, 
http://www.gao.gov/products/GAO-12-176] (Washington, D.C.: Dec. 15, 
2011). 

[2] IRS cannot accept electronically filed returns directly from 
taxpayers. Rather, IRS authorizes e-file providers to transmit returns 
to IRS electronically using either the legacy e-file or MeF system. 

[3] The IMF is the system IRS has used to process tax returns in the 
past. CADE 2 will eventually fully replace the IMF. 

[4] Cost per call for 2009 is based on calls answered from January 1, 
2009, through June 30, 2009, and January 1, 2011, through June 30, 
2011, respectively. 

[5] GAO, Tax Preparer Regulation: IRS Needs a Documented Framework to 
Achieve Goal of Improving Taxpayer Compliance, [hyperlink, 
http://www.gao.gov/products/GAO-11-336] (Washington, D.C.: Mar. 31, 
2011). 

[6] Taxpayers with annual incomes of $50,000 or less can have their 
returns prepared at TACs. 

[7] GAO, Tax Debt Collection: IRS Has a Complex Process to Attempt to 
Collect Billions of Dollars in Unpaid Tax Debts, [hyperlink, 
http://www.gao.gov/products/GAO-08-728] (Washington, D.C.: June 13, 
2008). 

[8] In August 2010, IRS announced it would no longer provide return 
preparation companies with the debt indicator that had allowed 
preparers to observe whether taxpayers had other debts to the federal 
government or if the taxpayer would likely receive the full 
anticipated refund from IRS. As a result, most banks stopped funding 
RALs when banking regulators determined them to present too much risk 
to participating banks. IR-2010-89, August 5, 2010. 

[9] [hyperlink, http://www.gao.gov/products/GAO-12-176]. 

[10] IRS has yet to reach the 80 percent e-file goal for some types of 
returns other than individual income tax returns. 

[11] GAO, Internal Revenue Service: Interim Results of 2012 Tax Filing 
Season and Summary of the Fiscal Year 2013 Budget Request, [hyperlink, 
http://www.gao.gov/products/GAO-12-566] (Washington, D.C.: Mar. 20, 
2012). 

[12] ETAAC is a committee of tax industry experts with the primary 
purpose of providing input to the IRS on the development and 
implementation of IRS's strategic plan for electronic tax 
administration. In 2012, ETAAC issued a report that agreed with our 
recommendation and went further to suggest that IRS retain the 
capability to roll out its legacy e-file system in the event of a 
major MeF system failure. 

[13] ITA provides information on certain tax law topics by taking 
taxpayers through a series of questions. Where's My Refund provides 
taxpayers with information on the expected refund date. Additionally, 
appendix III shows that Online Payment Agreements had a significant 
increase in usage. However, this may be due to a programming error 
that led to a decrease in the number of completed agreements in 2011. 

[14] In December 2011, we recommended that IRS develop a strategy for 
determining which self-service tools it will offer online. Since our 
recommendation, IRS has provided more details, such as an assessment 
of costs and benefits for some new services identified and time frames 
for when these online services would be created. See [hyperlink, 
http://www.gao.gov/products/GAO-12-176]. 

[15] The wait time is calculated from the time a ticket is issued to 
the time service begins. 

[16] This is an increase from almost 88,500 volunteers in 2011, or 
about 12 percent. 

[17] IRS officials said that increase in the number of returns 
prepared by volunteers for 2012 was not commensurate with increase in 
the number of volunteers because the increase in volunteers was due to 
more accurate accounting. 

[18] GAO, Identity Theft: Total Extent of Refund Fraud Using Stolen 
Identities is Unknown, [hyperlink, 
http://www.gao.gov/products/GAO-13-132T] (Washington, D.C.: Nov. 29, 
2012). 

[19] In the past, IRS has had more FTEs dedicated to telephone service 
and paper correspondence. For example, in 2010, IRS had over 15,000 
FTEs dedicated to these services. 

[20] [hyperlink, http://www.gao.gov/products/GAO-12-176]. 

[21] GAO, Tax Administration: Opportunities Exist for IRS to Enhance 
Taxpayer Service and Enforcement for the 2010 Filing Season, 
[hyperlink, http://www.gao.gov/products/GAO-09-1026] (Washington, 
D.C.: Sept. 23, 2009). 

[22] We calculated $13.8 billion based on the amount listed on the 
first notice sent to taxpayers who filed an individual return with a 
balance due but did not pay in full. 

[23] According to IRS, the default rate for IMF installment agreements 
was 18 percent in fiscal year 2012 and 17 percent for fiscal year 2011. 

[24] [hyperlink, http://www.gao.gov/products/GAO-08-728] and TIGTA, 
Reducing the Processing Time Between Balance Due Notices Could 
Increase Collections (Sept. 26, 2011). 

[25] In [hyperlink, http://www.gao.gov/products/GAO-09-976], Tax Debt 
Collection: IRS Needs To Better Manage Collection Notices Sent to 
Individuals, (Washington, D.C.: Sept. 30, 2009), we cited the Internal 
Control and Management Evaluation Tool [hyperlink, 
http://www.gao.gov/products/GAO-01-1008G] which specifies criteria for 
a well run program that includes: written documentation covering the 
agency's internal control structure and for all significant 
transactions and events; the documentation is readily available for 
examination; documentation, whether in paper or electronic form, is 
useful to managers in controlling their operations and to any others 
involved in evaluating or analyzing operations; and, pertinent 
information is identified, captured, and distributed to the right 
people in sufficient detail, in the right form, and at the appropriate 
time to carry out their duties and responsibilities efficiently and 
effectively. 

[26] ECS is a unit within the IRS Small Business and Self-Employed 
division to centralize more of the collections functions. ECS became 
active in October 2011 and is currently developing a mission statement 
and strategy based on the IRS Collections Process Strategy issued in 
2010. The IRS Return Integrity and Correspondence Services began its 
operations in October 2011, bringing together the Accounts Management 
Taxpayer Assurance Program, Earned Income Tax Credit and Health 
Coverage Tax Credit offices, and the Office of Taxpayer Correspondence 
under one umbrella. This consolidation is part of a strategy to 
address rising concerns about refundable credits and refund fraud. 

[27] According to GAO's Standards for Internal Control in the Federal 
Government, a good internal control environment requires that the 
agency's organizational structure clearly define key areas of 
authority and responsibility. [hyperlink, 
http://www.gao.gov/products/GAO/AIMD-00-21.3.1]. 

[28] Prepared Remarks of IRS Commissioner Doug Shulman before the 
American Institute of Certified Public Accountants. Washington, D.C. 
IR-2012-89, November 7, 2012. 

[29] Urban Institute, Who Needs Credit at Tax Time and Why: A Look at 
Refund Anticipation Loans and Refund Anticipation Checks (Washington, 
D.C.: November 2010). 

[30] We have previously reported that disclosures related to some 
credit cards and mortgages are difficult for people to understand. 
GAO, Credit Cards: Increased Complexity in Rates and Fees Heightens 
Need for More Effective Disclosures to Consumers, [hyperlink, 
http://www.gao.gov/products/GAO-06-929] (Washington, D.C.: Sept. 12, 
2006); and Alternative Mortgage Products: Impact on Defaults Remains 
Unclear, but Disclosure of Risks to Borrowers Could Be Improved, 
[hyperlink, http://www.gao.gov/products/GAO-06-1021] (Washington, 
D.C.: Sept. 19, 2006). 

[31] See also, National Consumer Law Center, End of the Rapid Rip-Off: 
An Epilogue For Quickie Tax Loans (February 2011). 

[32] See, for example, Ark. Code §§ 4-116-101 to 4-116-108 (2012); 
Conn. Gen. Stat. Ann. § 42-480 (2012); Me. Rev. Stat. tit. 9-A, § 10-
310 (2012); Tex. Fin. Code § 352.001 (West 2012). 

[33] See, for example, Cal. Bus. & Prof. Code §§ 22251 and 22253 
(2012); Md. Code, Com. Law, §§ 14-3806; Mich. Comp. Laws Ann. § 
446.111, et. seq. 

[34] Tax Refund Anticipation Loan Reform Act, 2012 Ill. Laws P.A. 97-
849. 

[35] The Office of Professional Responsibility governs paid preparers 
in accordance with Circular 230, which includes unreasonable fees and 
misleading or false advertising by paid preparers. See [hyperlink, 
http://www.gao.gov/products/GAO-12-176] for an explanation of the role 
banking regulators played in limiting the use of RALs. 

[36] The CFPB was created in 2010 to ensure that consumers get the 
information they need to make the financial decisions they believe are 
best for themselves. Consumer Financial Protection Act of 2010, Pub. 
L. No. 111-203, title X, 124 Stat. 1955. 

[37] GAO, Assessing the Reliability of Computer-Processed Data, 
[hyperlink, http://www.gao.gov/products/GAO-09-680G] (Washington, 
D.C.: July 2009). 

[End of section] 

GAO’s Mission: 

The Government Accountability Office, the audit, evaluation, and 
investigative arm of Congress, exists to support Congress in meeting 
its constitutional responsibilities and to help improve the 
performance and accountability of the federal government for the 
American people. GAO examines the use of public funds; evaluates 
federal programs and policies; and provides analyses, recommendations, 
and other assistance to help Congress make informed oversight, policy, 
and funding decisions. GAO’s commitment to good government is 
reflected in its core values of accountability, integrity, and 
reliability. 

Obtaining Copies of GAO Reports and Testimony: 

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through GAO’s website [hyperlink, http://www.gao.gov]. Each 
weekday afternoon, GAO posts on its website newly released reports, 
testimony, and correspondence. To have GAO e-mail you a list of newly 
posted products, go to [hyperlink, http://www.gao.gov] and select 
“E-mail Updates.” 

Order by Phone: 

The price of each GAO publication reflects GAO’s actual cost of 
production and distribution and depends on the number of pages in the 
publication and whether the publication is printed in color or black 
and white. Pricing and ordering information is posted on GAO’s 
website, [hyperlink, http://www.gao.gov/ordering.htm]. 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or 
TDD (202) 512-2537. 

Orders may be paid for using American Express, Discover Card, 
MasterCard, Visa, check, or money order. Call for additional 
information. 

Connect with GAO: 

Connect with GAO on facebook, flickr, twitter, and YouTube.
Subscribe to our RSS Feeds or E mail Updates. Listen to our Podcasts.
Visit GAO on the web at [hyperlink, http://www.gao.gov]. 

To Report Fraud, Waste, and Abuse in Federal Programs: 

Contact: 
Website: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]; 
E-mail: fraudnet@gao.gov; 
Automated answering system: (800) 424-5454 or (202) 512-7470. 

Congressional Relations: 

Katherine Siggerud, Managing Director, siggerudk@gao.gov: 
(202) 512-4400: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7125: 
Washington, DC 20548. 

Public Affairs: 
Chuck Young, Managing Director, youngc1@gao.gov: 
(202) 512-4800: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7149: 
Washington, DC 20548. 

[End of document]