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United States Government Accountability Office: 
GAO: 

Report to Congressional Requesters: 

March 2011: 

2011 Tax Filing: 

IRS Dealt with Challenges to Date but Needs Additional Authority to 
Verify Compliance: 

GAO-11-481: 

Contents: 

Letter: 

Scope and Methodology: 

Background: 

Interim Filing Season Results: 

Conclusion: 

Matter for Congressional Consideration: 

Agency Comments and Our Evaluation: 

Appendix I: Updated Slides from the March 23 and March 24, 2011, 
Congressional Briefings: 

Appendix II: IRS's Existing Math Error Authority: 

Appendix III: Descriptions of IRS Volunteer Income Tax Assistance/Tax 
Centers for the Elderly and Treasury Programs to Offer Tax Refunds on 
Debit Cards: 

Appendix IV: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: IRS's 13 Existing MEAs: 

Table 2: Tax Refunds Offered on Debit Cards at IRS VITA and TCE Sites: 

Table 3: Treasury Pilot Debit Card Program Offers: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

March 29, 2011: 

The Honorable Max Baucus: 
Chairman: 
Committee on Finance: 
United States Senate: 

The Honorable Charles Grassley: 
Ranking Member: 
Committee on the Judiciary: 
United States Senate: 

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

Every tax filing season is a large-scale undertaking during which the 
Internal Revenue Service (IRS) interacts with taxpayers by processing 
returns, issuing refunds, answering telephone calls, and providing 
other services, both face-to-face and on its Web site. As part of 
processing returns and before refunds are issued, IRS uses its 
statutory authority to automatically correct errors. This allows IRS 
to avoid costly and burdensome audits and taxpayers to be made aware 
of additional taxes owed before being required to pay interest and 
penalties. For the 2011 filing season, IRS is administering a number 
of complex tax law changes, including the Residential Energy Property 
Tax Credit and provisions enacted in December as part of the Tax 
Relief, Unemployment Insurance Reauthorization, and Job Creation Act 
of 2010 (commonly known as the tax extenders).[Footnote 1] 

Other changes for the 2011 filing season include paid preparer 
regulations and expanded efforts to provide refunds on debit cards. In 
2011, for the first time, paid preparers must register with IRS. In 
the future, certain paid preparers will be subject to competency tests 
and continuing education requirements to be allowed to prepare tax 
returns.[Footnote 2] This year IRS is offering taxpayers at almost all 
of its roughly 12,000 Volunteer Income Tax Assistance (VITA) and Tax 
Counseling for the Elderly (TCE) sites refunds on debit cards. Also, 
the Department of the Treasury (Treasury) is pilot testing whether 
offering refunds on debit cards on a larger scale would be feasible. 

As part of our ongoing assessment of IRS's 2011 filing season being 
conducted at your request, on March 23 and 24, 2011, we briefed the 
offices of the Senate Committee on Finance and the Subcommittee on 
Oversight, House Committee on Ways and Means, respectively, on IRS's 
performance to date. This report includes updated materials presented 
at the briefing in appendix I. 

Based on discussions with your offices, our objective was to provide 
an interim assessment of IRS's performance during the 2011 filing 
season, including its efforts to streamline returns processing, 
conduct pre-refund compliance checks, improve taxpayer service, and 
issue refunds on debit cards. 

Scope and Methodology: 

To accomplish our objective, we: 

* obtained and analyzed data from IRS related to processing returns, 
telephone service, Web site performance, and debit card refund offers; 

* reviewed documentation to identify areas where additional statutory 
authority to conduct automated pre-refund compliance checks would 
benefit taxpayers or IRS; 

* obtained and analyzed Treasury data on its 2011 debit card 
initiative and plans to evaluate it and also interviewed Treasury 
officials; 

* interviewed representatives of tax preparation and tax software 
firms about challenges IRS faced during the 2011 filing season; 

* interviewed IRS officials on various aspects of filing season 
performance, including ongoing efforts to provide refunds on debit 
cards at VITA sites and efforts to evaluate the program; and: 

* interviewed Treasury Inspector General for Tax Administration 
officials about IRS's 2011 filing season. 

We interviewed IRS and Treasury officials and determined that the data 
presented in our briefing were sufficiently reliable for our purposes. 
We conducted this performance audit in March 2011 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. 

Background: 

IRS is making major changes to how it processes individual income tax 
returns. IRS initiated its current Customer Account Data Engine (CADE) 
in 1999 to provide a modernized system for processing tax returns, 
which proved to be more complicated than IRS expected. As a result, 
IRS created a new strategy referred to as CADE 2, which it expects to 
deliver in three phases--one in 2012, one in 2014, and one at a yet to 
be determined date. IRS is finalizing plans to deliver the first phase 
of CADE 2 for the 2012 filing season, and, if effectively implemented, 
IRS expects it should provide many benefits, including providing 
faster refunds and IRS with more timely account information. IRS's 
Modernized E-file (MeF) system is expected to replace the legacy 
electronic filing (e-file) system, which IRS is scheduled to retire in 
October 2012. MeF provides taxpayers with a faster acknowledgment that 
their returns have been accepted and better information on why 
electronically filed returns are rejected. 

In the past, Congress has granted IRS statutory authority, called math 
error authority (MEA), to correct calculation errors and check for 
obvious noncompliance, such as claims above income and credit limits. 
In some cases, MEA allows IRS to use prior year tax return information 
to verify compliance before issuing refunds. These automated and 
relatively low-cost compliance checks (compared to audits) can prevent 
erroneous refunds and avert the need to try to recover such payments. 
Congress must grant IRS specific authority to use MEA for purposes 
beyond computational errors. For example, in 2009, Congress gave IRS 
MEA following our suggestion that IRS should be authorized to 
determine whether taxpayers claimed the First-Time Homebuyer Credit 
more than once.[Footnote 3] For more discussion of IRS's and 
taxpayers' responsibilities and rights under MEA, see our 2010 report. 
[Footnote 4] IRS's 13 existing MEAs are described in appendix II. 

Since 2009, IRS has worked with partner organizations at VITA and Tax 
Center for the Elderly sites to encourage taxpayers not requesting a 
direct deposit of their refund to opt to receive it on a debit card 
sponsored by a participating financial institution. Separately, in 
2011, Treasury launched a pilot program which offers low-income 
taxpayers tax refunds on debit cards. Although targeting the same 
demographic group, the VITA site offer is made in person and the 
Treasury offer is made through the mail. Both the IRS and Treasury 
initiatives are intended to reduce the cost of delivering refunds to 
taxpayers, provide faster refunds compared to paper checks, reduce 
transaction costs, and provide individuals who might not otherwise 
have access with an ongoing financial account to obtain banking 
services.[Footnote 5] 

Interim Filing Season Results: 

* As of March 18, 2011, IRS had processed about 73 million returns and 
issued about 65 million refunds totaling close to $193 billion. 

* The percentage of e-filed returns continues to grow, which remains 
important because it significantly reduces IRS's costs and speeds 
refunds. For fiscal year 2009, IRS reported that it costs 19 cents to 
process an e-filed return compared to $3.29 for a paper return. 

* Late tax law changes in 2010 resulted in IRS not being able to 
accept certain returns until mid-February 2011 because of the time it 
took to complete programming changes. According to officials from 
IRS's Business Modernization Office, when CADE 2 and MeF are fully 
implemented, IRS will be able to reprogram its computers more 
efficiently. 

* IRS's inability to accept certain returns until mid-February also 
affected paid preparers and tax preparation software providers. 
Representatives from those groups told us that some taxpayers believed 
that the delay applied to all tax returns and delayed filing as a 
result, effectively condensing the filing season. According to IRS 
data, IRS received about 21 percent fewer returns through mid-February 
2011 compared to mid-February 2010. Those same representatives also 
expressed some concerns about the new paid preparer registration 
process.[Footnote 6] 

* IRS has rejected about 13 percent of e-filed returns for reasons 
such as incorrect personal identification numbers. According to IRS 
officials, when returns are rejected through MeF, taxpayers receive 
better information on why returns are rejected and MeF allows 
taxpayers to submit additional documentation electronically, both of 
which reduce IRS's costs. 

* IRS lacks MEA to review prior year tax returns to verify compliance 
with lifetime limits on amounts that can be claimed. For example, IRS 
does not have MEA to verify that the Residential Energy Credits 
claimed for 2009 and 2010 do not exceed the lifetime credit limit of 
$1,500. According to IRS officials, evidence exists that some 
taxpayers may be claiming Residential Energy Credits beyond the limit. 
Without MEA, IRS must ensure compliance through audits, which are time 
consuming for taxpayers and too costly to conduct in large numbers. 

* Total telephone call volume increased by nearly 13 percent compared 
to volume during the same time period last year. Wait times to speak 
to an assistor averaged about 10 minutes, slightly longer than last 
year. 

* The number of visits to IRS's Web site has increased by about 9 
percent compared to visits during the same time period last year. 

* It is too early to tell the extent to which the various debit card 
offers are being accepted by taxpayers. Both IRS and Treasury 
officials said they will evaluate their programs after the filing 
season.[Footnote 7] 

Conclusion: 

IRS has had to deal with several challenges this filing season, 
including late tax law changes and an increase in the volume of 
telephone calls. IRS's inability to accept certain returns until mid- 
February highlights the importance of fully implementing new systems 
to modernize returns processing, particularly CADE 2 and MeF. 
According to IRS officials, these systems should allow IRS to more 
easily accommodate tax law changes and issue refunds faster. 

Additional MEA to verify compliance with lifetime limits on credits 
and deductions has advantages, compared to audits, for both taxpayers 
and IRS. For example, taxpayer errors can be caught and corrected 
before they result in penalties. This, in turn, would allow IRS to use 
its expensive auditors' time on more significant compliance problems. 

Matter for Congressional Consideration: 

To ensure that IRS can adequately enforce certain tax provisions, 
Congress should provide IRS with MEA to use tax return information 
from previous years to ensure that taxpayers do not improperly claim 
credits or deductions in excess of lifetime limits where applicable. 

Agency Comments and Our Evaluation: 

IRS officials provided us with technical comments on this report, 
which we incorporated as appropriate. 

As agreed with your offices, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 2 days 
from the report date. At that time, we will send copies of this report 
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 Commissioner of Internal Revenue, the Secretary of the Treasury, 
the Chairman of the IRS Oversight Board, and the Director of the 
Office of Management and Budget. 

The report also is available at no charge on the GAO Web site at 
[hyperlink, http://www.gao.gov]. If you or your staff have any 
questions or wish to discuss the material in this report further, 
please contact me at (202) 512-9110 or at whitej@gao.gov. Contact 
points for our Offices of Congressional Relations and Public Affairs 
may be found on the last page of this report. Major contributors to 
this report are listed in appendix IV. 

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

[End of section] 

Appendix I: Updated Slides from the March 23 and March 24, 2011, 
Congressional Briefings: 

2011 Tax Filing: 

IRS Dealt with Challenges to Date but Needs Additional Authority to 
Verify Compliance: 

Senate Committee on Finance and Subcommittee on Oversight, House 
Committee on Ways and Means, March 23 and 24, 2011: 

Objective: 

Based on discussions with your offices, our objective was to provide 
an interim assessment of the Internal Revenue Service's (IRS) 
performance during the 2011 filing season, including: 

* its efforts to streamline returns processing;
* conduct pre-refund compliance checks;
* improve taxpayer service; and
* issue refunds on debit cards. 

Results-in Brief: 

To date, for the 2011 tax filing season: 

* IRS processed about 73 million returns and issued about 65 million 
refunds and the percentage of taxpayers filing electronically 
continues to grow, which is important because it reduces IRS's costs. 

* IRS's inability to process certain returns until mid-February 
highlights the need for IRS to complete new systems. 

* IRS lacks statutory authority to review prior year tax returns for 
provisions with lifetime limits on the amount that can be claimed. 

* Total call volume increased to 40 million calls (or about 12 
percent) and the average wait time to reach a live assistor was about 
10 minutes. 

* The number of visits to IRS's Web site has increased by about 9 
percent. 

* It is too early to tell the extent to which debit card offers are 
being accepted by taxpayers. Both IRS and Treasury officials said they 
will evaluate their programs this year. 

Scope and Methodology: 

To accomplish our objective, we: 

* obtained and analyzed data from IRS related to processing returns, 
telephone service, Web site performance, and debit card offers; 

* reviewed debit card refund offers; 

* reviewed documentation to identify areas where additional statutory 
authority to conduct automated pre-refund compliance checks would 
benefit taxpayers or IRS; 

* obtained and analyzed Department of the Treasury (Treasury) data on 
its 2011 debit card initiative and plan to evaluate it and also 
interviewed Treasury officials; 

* interviewed representatives of tax preparation and tax software 
firms about challenges IRS faced during the 2011 filing season; 

* interviewed IRS officials on various aspects of filing season 
performance, including ongoing efforts to provide refunds on debit 
cards at Volunteer Incom0 Tax Assistance (VITA) sites and efforts to 
evaluate the program; and; 

* interviewed Treasury Inspector General for Tax Administration 
(TIGTA) officials about IRS's 2011 filing season. 

As part of our ongoing work on IRS's 2011 filing season performance, 
we conducted this performance audit in March 2011 in accordance with 
generally accepted government auditing standards. We interviewed IRS 
and Treasury officials and determined that the data presented in this 
briefing were sufficiently reliable for our purposes. 

Background: 

IRS is making major changes to how it processes individual income tax 
returns. 

IRS initiated its current Customer Account Data Engine (CADE) in 1999 
to provide a modernized system for processing tax returns, with the 
intention of ultimately replacing the Individual Master File (IMF), 
the authoritative source for individual taxpayer accounts. However, 
developing the system was more complex and taking longer than IRS 
expected. 

* As a result, IRS created a new strategy to replace the current CADE, 
referred to as CADE 2, which it expects to deliver in three phases-—
one in 2012, one in 2014, and one at a yet to be determined date. 

* If effectively implemented, CADE 2 should provide many benefits, 
including providing faster refunds and IRS with access to more timely 
account data for use in compliance and resolution of taxpayer 
questions or issues. 

IRS's Modernized E-file (MeF) system is expected to replace the legacy 
electronic filing (e-file) system and be fully operational for the 
2012 filing season. IRS began accepting some individual tax returns on 
MeF in 2010 and expects to retire the legacy e-file system in October 
2012. 

According to IRS officials: 

* MeF provides taxpayers with a faster acknowledgment that their 
returns have been accepted and better information on why returns are 
rejected. 

* MeF currently provides IRS with the ability to accept additional 
documentation electronically through portable document files.
Without MeF, IRS must accept certain returns on paper. 

Taxpayers and IRS rely heavily on paid preparers and tax preparation 
software providers. About 90 percent of returns are prepared by 
individual taxpayers or paid preparers using tax preparation software.
Additionally, in 2010, over 70 percent of taxpayers electronically 
filed their tax returns, which has benefits for IRS. 

In 2011, paid preparers must register with IRS, and in the future, 
certain paid preparers will be subject to competency tests and 
continuing education requirements to be allowed to prepare tax returns. 

* We plan to issue a report on paid preparer regulations at the end
of March 2011. 

Complex tax law changes enacted in December 2010 as part of the Tax 
Relief, Unemployment Insurance Reauthorization, and Job Creation Act 
of 2010—commonly referred to as the tax extenders (Pub. L. No. 111-
312)—caused IRS to be unable to process returns until February 14, 
2011, for taxpayers: 

* filing a Schedule A, because of the extension of the state and local 
general sales tax deduction; 

* claiming the higher education tuition and fees deduction on Form 
8917; or; 

* claiming the educator expense deduction, for K-12 educators with out-
of-pocket classroom expenses. 

In addition, IRS is administering the Residential Energy Property. 
Credit (I.R.C. § 25C). This credit allows taxpayers to receive 30 
percent of the cost of improvements with a maximum lifetime credit 
limit of $1,500 for the combined 2009 and 2010 tax years (Pub. L. No. 
111-5, § 1121). 

* In 2011, the limit drops to 10 percent of the cost of improvements 
with a $500 credit limit (Pub. L. No. 111-312, § 710). 

As part of its pre-refund compliance checks, Congress has granted IRS 
13 specific math error authorities (MEA). MEA allows IRS to correct 
calculation errors and check for obvious noncompliance, such as claims 
above income and credit limits. Congress: 

* must grant MEA to IRS for purposes beyond correcting computational 
errors. 

* has granted MEA to use information from prior year returns to 
determine compliance. This was The case followinsour Matter for 
congressional Consideration on the First-Time Homebuyer Credit. 
[Footnote 8] IRS's existing MEA is	described in appendix II of our 
report. 

When IRS has MEA, it does not have to provide the taxpayer with a 
statutory notice of deficiency to correct a return. 

Correcting errors before issuing refunds allows IRS to avoid costly 
and burdensome audits and taxpayers may receive larger refunds or be 
made aware of additional taxes owed before they are required to pay 
interest and penalties. 

We previously suggested that Congress should provide IRS with broader 
MEA.[Footnote 9] Congress has yet to provide IRS with this authority. 

Since 2009, a small number of VITA sites have encouraged taxpayers not 
requesting a direct deposit to opt for a debit card sponsored by a 
participating financial institution. 

* In 2010, IRS partnered with three large financial institutions to 
offer debit cards at 20 VITA sites. However, only about 3 percent of 
eligible taxpayers elected to receive the cards, down from 8 percent 
of eligible taxpayers in 2009.[Footnote 10] 

*	Taxpayers may sign up for the card at a participating VITA site. 

In 2011, Treasury launched a pilot program that offers low-income 
taxpayers and taxpayers without bank accounts debit cards to receive 
their refunds at a low cost. 

*	Treasury informed taxpayers of this program through targeted 
mailings. 

These debit card initiatives are intended to: 

*	reduce the cost of delivering refunds to taxpayers, provide faster 
refunds compared to paper checks, and reduce transaction costs and; 

*	provide banking services to individuals who might not otherwise have 
access to an ongoing financial account. 

We previously recommended that IRS examine the feasibility of offering 
refunds on debit cards.[Footnote 11] IRS stated that they were 
exploring a range of options to deliver refunds to unbanked taxpayers, 
including providing refunds on debit cards. 

Processing: Percentage of E-Filed Returns Continues to Grow: 

Table 1: Tax Returns Processed through Mid-March (in Thousands): 

Number of returns processed: 
2007: 70,194; 
2008: 74,139; 
2009: 74,806; 
2010: 70,937; 
2011: 73,342; 
Percentage change from 2010 to 2011: 3.4. 

Number of returns processed: Electronic: 
2007: 53,053; 
2008: 57,702; 
2009: 61,110; 
2010: 60,764; 
2011: 65,275; 
Percentage change from 2010 to 2011: 7.4. 

Number of returns processed: Paper: 
2007: 17,141; 
2008: 16,437; 
2009: 13,696; 
2010: 10,173; 
2011: 8,067; 
Percentage change from 2010 to 2011: -20.7. 

Percentage electronically filed[A]: 
2007: 75.6; 
2008: 77.8; 
2009: 81.7; 
2010: 85.7; 
2011: 89.0; 
Percentage change from 2010 to 2011: N/A. 

Number of refunds issued (millions): 
2007: 63.0; 
2008: 64.7; 
2009: 66.9; 
2010: 63.3; 
2011: 64.7; 
Percentage change from 2010 to 2011: 2.2. 

Amount of refunds (dollars in billions): 
2007: $152.8; 
2008: $161.3; 
2009: $183.3; 
2010: $190.0; 
2011: $193.1; 
Percentage change from 2010 to 2011: 1.6. 

Average refund amount[B]: 
2007: $2,427; 
2008: $2,492; 
2009: $2,740; 
2010: $3,004; 
2011: $2,985; 
Percentage change from 2010 to 2011: -0.6. 

Source: GAO analysis of IRS data. 

Note: Data are from January 1 of each year through March 23, 2007; 
March 21, 2008; March 20, 2009; March 19, 2010; and March 18, 2011.	 

[A] The percentage of electronic returns filed is for returns filed 
early in the filing season and is likely to decline before the filing 
season is over. In 2010 taxpayers filed about 71 percent of all 
individual returns electronically. 

[B] Average refund amount is in actual dollars, not thousands. 

[End of table] 

Electronic filing: 

*	Is important because it reduces IRS's costs. For fiscal year 2009, 
IRS reported that it cost 19 cents to process an e-filed return 
compared to $3.29 for a paper return. 

* Reduces errors because it eliminates the need for IRS to manually 
transcribe information from returns and it allows taxpayers to receive 
refunds faster. 

Processing: IRS's Inability to Process Certain Returns until Mid-
February Highlights the Need for IRS to Complete New Systems: 

According to officials from IRS's Business Modernization Office, when
CADE 2 and MeF are fully implemented, IRS will be able to reprogram 
its computers more efficiently following tax law changes. 

As of March 18, 2011, over 24 million returns have been processed 
using the current CADE. 

* In 2011, IRS expects to process approximately 42 million returns 
using the current CADE, about the same as last year. 

*	IRS plans to retire the current CADE later this year and all 
taxpayer accounts will be shifted to accelerated processing on the
IMF next year and then to CADE 2. Accelerated processing on the
IMF will also result in faster refunds to all taxpayers. 

IRS data show that through March 27, 2011, MeF had accepted about
4.8 million individual returns (on Form 1040), up from about 281,000 
returns at the same time last year. 

*	Last year we noted that IRS-authorized e-file providers did not use
MeF as much as IRS anticipated because of issues with the system's 
stability. 

*	According to industry experts, the MeF system is much more stable 
this filing season and IRS is continuing to promote its use. 

IRS plans to fully retire the legacy e-file system in October 2012 and 
use MeF to accept all individual tax returns after that. 

Processing: IRS's Inability to Accept Certain Returns until	
Mid-February Also Affected Paid Preparers and Tax	Preparation Software 
Providers: 
	
According to industry experts representing paid preparers and tax 
preparation software firms we interviewed:	 

*	Some taxpayers believed that the delay applied to all tax returns 
and not a limited number of tax returns and delayed filing as a 
result;	 

*	Delays result in tax professionals preparing and transmitting to IRS 
a larger volume of returns in a shorter period of time, effectively 
condensing the filing season. According to IRS data, IRS received 
about 21 percent fewer returns through mid-February 2011 compared to 
mid-February 2010.	 

*	The implementation of new paid preparer regulations caused some 
concerns, but did not indicate that the new rules have had a 
significant effect on return preparation during the 2011 filing 
season.	 

Our forthcoming report on paid preparer regulations will discuss IRS's 
efforts to implement the program.	 

Processing: Reducing Rejected Electronic Returns Could Result in Cost 
Savings: 

IRS automatically rejects a return and sends it back to the taxpayer 
when basic information proved by the taxpayer, such as verification of 
identity with a personal identification number (PIN) or address, does 
not match IRS records. 

As of March 21, 2011, IRS had a rejection rate of 13 percent for 
electronically filed returns. 

*	According to IRS data, the most common reasons for rejection were 
(1) incorrect PIN information provided, (2) a dependent's Social 
Security number not matching the IMF and (3) incorrect information for 
taxpayers claiming the Earned income tax Credit.[Footnote 12] 

MeF provides better information to taxpayers on why returns are 
rejected and allow taxpayers to submit additional documentation 
electronically, both of which, according to IRS, reduce IRS's costs. 

*	Taxpayers with rejected returns frequently call IRS to learn why and 
may refile on paper rather than electronigally. It costs IRS about $25 
for an IRS assistor to answer a call and about $3.10 extra to process 
a paper return. 

Pre-Refund Compliance Checks: IRS Lacks MEA to Use Prior Year 
Information: 

IRS lacks MEA to review prior year tax returns for provisions with 
lifetime limits on the amount that can be claimed. 

* For example, IRS does not have MEA that would allow it to review
the 2009 return to see if the total amount of Residential Energy
Credits claimed for 2009 and 2010 exceeds the $1,500 lifetime limit. 

*	According to IRS officials, preliminary analysis conducted by TIGTA
indicates that some taxpayers may be claiming more Residential
Energy Credits than they are entitled to claim. 

Without MEA, IRS must ensure compliance through audits, which are time 
consuming for taxpayers and costly for IRS. Resource constraints also 
limit the number of audits IRS can complete in a given year. 

Service to Taxpayers: Total Call Volume Is Up Compared	to Last Year: 

Table 2: IRS Call Volume from January 1 through Mid-March (in 
Millions): 

Assistor calls answered: 
2007: 9.4; 
2008: 9.5; 
2009: 11.4; 
2010: 9.6; 
2011: 9.6; 
Percentage	change	from	2010 to	2011: 0%. 

Automated calls answered: 
2007: 13.4; 
2008: 13.7; 
2009: 16.4; 
2010: 18.3; 
2011: 22.3; 
Percentage	change	from	2010 to	2011: 21.9%. 

Abandoned calls: 
2007: 6.3; 
2008: 6.8; 
2009: 11.2; 
2010: 9.6; 
2011: 10.3; 
Percentage	change	from	2010 to	2011: 7.3%. 

Busies and IRS disconnects: 
2007: 0.4; 
2008: 0.5; 
2009: 4.0; 
2010: 0.7; 
2011: 0.8; 
Percentage	change	from	2010 to	2011: 14.3%. 

Total calls to IRS: 
2007: 29.5; 
2008: 30.5; 
2009: 43.0; 
2010: 38.2; 
2011: 43.0; 
Percentage	change	from	2010 to	2011: 12.6%. 

Source: GAO analysis of IRS data. 

Note: Data are cumulative for IRS from January 1 of each year to March 
17, 2007; March 15, 2008; March 14, 2009; March 13, 2010; and March 
12, 2011.	 

[End of table] 

Service to Taxpayers: Average Telephone Wait Times Remain High, and 
the Goal for Providing Live Assistance	Remains Low:	 

Table 3: Telephone Service Goals and Performance from January 1 
through Mid-March: 

Percentage of callers seeking live assistance who received it (in 
percent): FY goals: 
2007: 82.0; 
2008: 82.0[B]; 
2009: 77.0[C]; 
2010: 71.0; 
2011: 71.0; 
Percentage	change	from	2010 to	2011: 0.0%. 

Percentage of callers seeking live assistance who received it (in 
percent): Actual to Date: 
2007: 83.3; 
2008: 80.0; 
2009: 60.9; 
2010: 74.2; 
2011: 72.6; 
Percentage	change	from	2010 to	2011: -2.2%. 

Average wait time (in minutes): FY Goal[A]; 
2007: 4.3; 
2008: 4.5; 
2009: 10.4; 
2010: 11.6; 
2011: 11.6; 
Percentage	change	from	2010 to	2011: 0.0%. 

Average wait time (in minutes): Actual to Date: 
2007: 4.1; 
2008: 5.4; 
2009: 9.2; 
2010: 9.9; 
2011: 10.3; 
Percentage	change	from	2010 to	2011: 4.0%. 
							
Source: GAO analysis of IRS data. 

Note: Data are cumulative for IRS from January 1 to March 17, 2007; 
March 15, 2008; March 14, 2009; March 13, 2010; and March 12, 2011. 

[A] The goal listed is for the entire fiscal year, not just the time 
period from January 1 through mid-March. 

[B] IRS revised its original fiscal year goal of 82.0 percent down to 
74.0 percent because of high call volume caused by stimulus-related 
calls.	 

[C] IRS revised its original fiscal year goal of 77.0 percent down to 
70.0 percent because of high call volume from taxpayers requesting 
electronic filing	authentication information and asking stimulus-
related questions. 

[End of table] 

Service to Taxpayers: IRS Has Requested Additional Funding to Improve 
Its Level of Telephone Service: 

IRS sets its annual goal for telephone level of service—the percentage 
of taxpayers seeking live assistance who actually receive it-—based on 
anticipated call volume and available resources. 

IRS has requested additional funds to increase the goal for level of 
service to 80 percent in fiscal year 2012. 

* The level of service goal for fiscal year 2011 remains 71 percent, 
the same as in fiscal year 2010. IRS has asked for an additional $20.9 
million to raise this goal to 75 percent, but has not received this 
funding under the current continuing budget resolution. 

*	In its fiscal year 2012 budget request, IRS asked for an additional 
$30 million (on top of the $20.9 million requested in 2011) to raise 
the level of telephone service to 80 percent. 

Service to Taxpayers: Use of IRS's Website Continues to	Grow: 

Table 4: IRS's Web site Visits from January 1 through Mid-March (in 
Millions): 
	
Total IRS.gov visits: 
2008: 97.1; 
2009: 124.9; 
2010: 120.1; 
2011: 131.1; 
Percentage change from 2010 through 2011: 9.2%. 

IRS searches: 
2008: 56.5; 
2009: 130.9; 
2010: 139.0; 
2011: 159.0; 
Percentage change from 2010 through 2011: 14.4%. 

"Where's My Refund" visits (landing page): 
2008: 21.4; 
2009: 34.0; 
2010: 37.8; 
2011: 40.7; 
Percentage change from 2010 through 2011: 7.7%. 

Source: GAO analysis of IRS data. 

Note: Data are from January 1 through March 12 for all years. 

Service to Taxpayers: IRS Has Requested Funding to Expand Its E-
Services: 

	IRS is taking steps to improve its Web site, including planning to 
invest $320 million over 10 years to introduce a new Web site by the 
2013 filing season. 
	
*	For the fiscal year 2011 budget, IRS asked for $25 million to 
upgrade its public user portal, which will allow for the installation 
of additional e-services, but has not received this funding under the 
current continuing budget resolution. 

*	For the fiscal year 2012 budget, IRS requested $25 million to 
replace both the employee and registered user portal (on top of the 
$25 million requested in 2011). IRS requested an additional $8 million 
to create an e-service, called E-Notices. 
-	This service would allow taxpayers who have entered into installment 
agreements to opt for monthly electronic payment reminders. 

Issuing Refunds on Debit Cards: IRS Partners with Financial 
Institutions to Offer Debit Cards at VITA Sites: 

For 2011 IRS is partnering with J.P. Morgan Chase, PNC Bank, U.S. 
Bank, and Western Union (PNC and-U.S. Bank also participated last 
year) to offer refunds on debit cards and debit cards are available to 
taxpayers at almost all of IRS's roughly 12,000 volunteer sites across 
the country. Additionally, IRS partner organizations work with 
financial institutions locally to provide debit cards to taxpayers. 

*	Debit cards from Western Union are available through the software 
program used to prepare returns at nearly all VITA sites. This card 
includes a $1.95 fee per ATM withdrawal and may only be used in the 
United States. 

*	The other three partnering financial institutions offer debit cards 
at a limited number of VITA sites (18 sites, 154 sites, and 45 sites, 
respectively). 

All four options include no monthly or activation fee. 

All of the debit cards except the Western Union card include free in-
network ATM withdrawals. Except for Western Union, each bank has ATMs 
in a limited number of states. 

Issuing Refunds on Debit Cards: Treasury's 2011 Pilot Program Involves 
Testing Different Debit Card Offers: 

In January 2011 Treasury mailed offers to about 808,000 taxpayers who 
likely make less than $35,000 per year, and are unlikely to have bank 
accounts. 

*	Treasury offered eight different options to different groups of 
taxpayers, randomly assigning which taxpayers received which offer, to 
test how taxpayers respond to the different offers. Program invitees 
may only enroll in the option they received with their offer and may 
not choose among offers. 

*	The offers vary by monthly fee ($4.95 or none) and whether the card 
includes access to a savings account. The Offers also differ based on 
the message used to promote the card (convenience versus safety). 

All cards are provided on a Visa debit card by a contractor selected 
by Treasury. Card options include no acquisition fee, free in-network 
ATM withdrawals, and $2.50 out-of-network ATM withdrawals. 

* According to Treasury officials, if Treasury expands the program 
next year they will hold a competitive bidding process to select the 
contractor. 

Appendix III of our report provides a more detailed comparison of the 
Treasury and IRS programs. 

Issuing Refunds on Debit Cards: Both IRS and Treasury Are Conducting 
Program Evaluations: 

It is too early to tell what the take-up rate for the IRS program will 
be this year or whether any of the debit card options in the Treasury 
program will be widely used. Both IRS and Treasury plan to evaluate 
their programs after the filing season. 

IRS will apply social marketing principles and techniques to promote 
and increase the use of prepaid cards by different target groups.
[Footnote 13] 

*	IRS will engage a range of stakeholders and partners to issue a 
program evaluation report by August 2011. 

*	IRS designed its evaluation based, in part, on a recommendation we 
made in 2010 for IRS to include the taxpayers, volunteer site 
partners, and other stakeholders in its analysis of the debit card 
program.[Footnote 14] 

Treasury contracted with the Urban Institute, a research organization, 
to evaluate its debit card program. The study will compare taxpayers' 
responsiveness to the eight different offers and evaluate the design 
and execution of the program. 

*	The study should be publicly released later this year, and, 
according to Treasury officials, will be used as one of the factors in 
the decision regarding the future of its debit card program. 

Conclusion:	 

IRS has had to deal with several challenges this filing season, 
including late tax law changes and an increase in the volume of 
telephone calls. IRS's inability to accept certain returns until mid-
February highlights the importance of fully implementing new systems 
to modernize returns processing, particularly CADE 2 and MeF. 
According to IRS officials, these systems should allow IRS to more 
easily accommodate tax law changes and issue refunds faster. 

Additional MEA to verify compliance with lifetime limits on credits 
and deductions has advantages, compared to audits, for both taxpayers 
and IRS. For example, taxpayer errors can be caught and corrected 
before they result in penalties. This, in turn, would allow IRS to use 
its expensive auditors' time on more significant compliance problems. 

Matter for Congressional Consideration: 

To ensure IRS can adequately enforce certain tax provisions and 
consistent with our previous suggestion that Congress grant MEA to IRS 
more broadly, Congress should provide IRS with MEA to use tax return 
information from previous years to ensure that taxpayers do not 
improperly claim credits or deductions in excess of lifetime limits 
where applicable. 

[End of section] 

Appendix II: IRS's Existing Math Error Authority: 

Table 1 summarizes the Internal Revenue Service's (IRS) existing math 
error authority (MEA). 

Table 1: IRS's 13 Existing MEAs: 

No. 1; 
Description: An error in addition, subtraction, multiplication, or 
division shown on any return. 

No. 2; 
Description: An incorrect use of any table provided by IRS with 
respect to any return if other information in the return makes the 
incorrect use apparent. 

No. 3; 
Description: An entry on a return of an item that is inconsistent with 
another entry of the same or different item on that return. 

No. 4; 
Description: An omission of information that is required to be 
supplied on the return to substantiate an entry on that return. 

No. 5; 
Description: An entry on a return of a deduction or credit in an 
amount that exceeds the statutory limit for that deduction or credit, 
if that limit is expressed as a specific monetary amount or as a 
percentage, ratio, or fraction, and if the component items of that 
limit appear on the return. 

No. 6; 
Description: A correct Taxpayer Identification Number (TIN) not 
provided on the return as required for the following provisions: 
* Earned Income Tax Credit (EITC); 
* child and dependent care credit; 
* personal or dependent exemption; 
* child tax credit; or; 
* Hope and Lifetime Learning credits. 

No. 7; 
Description: A return claiming an EITC for net earnings from self-
employment, where the self employment tax imposed by I.R.C. § 1401 on 
those net earnings has not been paid. 

No. 8; 
Description: An omission of information required for recertification 
of eligibility for the EITC. 

No. 9; 
Description: An entry on the return of a TIN required for the EITC, 
the child credit, and the child and dependent care credit, when 
information associated with that TIN indicates that the child does not 
meet the age eligibility requirements for those credits. 

No. 10; 
Description: An entry on the return of a claim for the EITC where the 
Federal Case Registry of Child Support Orders indicates that the 
taxpayer is the noncustodial parent of that child. 

No. 11; 
Description: A failure to reduce Electronic Stimulus Payment credit on 
a return related to the Economic Stimulus Act of 2008 by amounts 
previously advanced. 

No. 12; 
Description: A failure to reduce the Making Work Pay credit by the 
amount of any payment received as a result of tax abatement resulting 
from the combat-related deaths of members of the Armed Forces, deaths 
of astronauts, and deaths of victims of certain terrorist attacks, or 
by the amount of any credit allowed under the American Recovery and 
Reinvestment Act of 2009, or a failure to submit a proper Social 
Security number with the claim. 

No. 13; 
Description: A claim for the First Time Homebuyer Credit where the 
taxpayer has not included the required settlement statement; 
or where other information indicates that the taxpayer is under 18 
years of age, or where information from the past 2 years of returns 
indicates ineligibility for the credit. Additionally, IRS may correct 
the return where the taxpayer has failed to include the increased tax 
required under the recapture provision for the credit, when applicable. 

Source: GAO analysis. 

[End of table] 

[End of section] 

Appendix III: Descriptions of IRS Volunteer Income Tax Assistance/Tax 
Centers for the Elderly and Treasury Programs to Offer Tax Refunds on 
Debit Cards: 

Table 2 provides further details on the debit cards being offered at 
Volunteer Income Tax Assistance (VITA) and Tax Center for the Elderly 
(TCE) sites. 

Table 2: Tax Refunds Offered on Debit Cards at IRS VITA and TCE Sites: 

Type of card: 
J.P. Morgan Chase: Visa; 
PNC Bank: Visa; 
U.S. Bank: Visa; 
Western Union: MasterCard. 

Card activation: 
J.P. Morgan Chase: Free; 
PNC Bank: Free; 
U.S. Bank: Free; 
Western Union: Free. 

Monthly maintenance: 
J.P. Morgan Chase: Free; 
PNC Bank: Free; 
U.S. Bank: Free; 
Western Union: Free. 

Signature purchase: 
J.P. Morgan Chase: Free; 
PNC Bank: Free; 
U.S. Bank: Free; 
Western Union: Free. 

PIN Purchase: 
J.P. Morgan Chase: Free; 
PNC Bank: Free; 
U.S. Bank: Free; 
Western Union: Free. 

Retailer purchase with cash back option: 
J.P. Morgan Chase: Free; 
PNC Bank: Free; 
U.S. Bank: Free; 
Western Union: Free. 

ATM cash withdrawals: 
J.P. Morgan Chase: Free at Chase and network; 
PNC Bank: Free at PNC and network; 
U.S. Bank: Free at US Bank and network; 
Western Union: $1.95 plus additional ATM fees could be accessed by ATM 
owner. 

Bill payment: 
J.P. Morgan Chase: $0.75; 
PNC Bank: Free; 
U.S. Bank: Free; 
Western Union: Free. 

Live customer service: 
J.P. Morgan Chase: Free; 
PNC Bank: Free; 
U.S. Bank: Two free per month; 
Western Union: Free. 

Overdraft: 
J.P. Morgan Chase: No fee ($.75 per denied transaction for 
insufficient funds); 
PNC Bank: No charge; 
U.S. Bank: No charge; 
Western Union: No charge. 

Online electronic statements: 
J.P. Morgan Chase: Free; 
PNC Bank: Free; 
U.S. Bank: Free; 
Western Union: Free. 

Payroll direct deposit (employer must have the capabilities for direct 
deposits): 
J.P. Morgan Chase: N/A; 
PNC Bank: Free; 
U.S. Bank: Free; 
Western Union: Free. 

Money transfer load: 
J.P. Morgan Chase: N/A; 
PNC Bank: N/A; 
U.S. Bank: N/A; 
Western Union: Free. 

Online/Interactive Voice Response account activity: 
J.P. Morgan Chase: Free; 
PNC Bank: Free; 
U.S. Bank: Free; 
Western Union: Free. 

Short Message Service account notifications (wireless provider could 
charge a fee): 
J.P. Morgan Chase: Free; 
PNC Bank: Free; 
U.S. Bank: $0.15; 
Western Union: Free. 

Card replacement: 
J.P. Morgan Chase: One free per year. Additional card $7.50; 
PNC Bank: Free; 
U.S. Bank: Free; 
Western Union: Free. 

Cash reloads: 
J.P. Morgan Chase: N/A; 
PNC Bank: Free at PNC branch; 
U.S. Bank: Free at U.S. Bank branch; 
Western Union: $4.95. 

Teller cash advance: 
J.P. Morgan Chase: $10; 
PNC Bank: Free; 
U.S. Bank: $5; 
Western Union: Not available. 

Card consecutive month inactivity fee assessed after: 
J.P. Morgan Chase: 6 months; 
PNC Bank: 3 months; 
U.S. Bank: 3 months; 
Western Union: 12 months. 

Relationship building with financial institution: 
J.P. Morgan Chase: Yes; 
PNC Bank: Yes; 
U.S. Bank: Yes; 
Western Union: No. 

Federal Deposit Insurance Corporation protected: 
J.P. Morgan Chase: Yes; 
PNC Bank: Yes; 
U.S. Bank: Yes; 
Western Union: Yes. 

Visa/MasterCard zero liability protected: 
J.P. Morgan Chase: Yes; 
PNC Bank: Yes; 
U.S. Bank: Yes; 
Western Union: Yes. 

Personalized card: 
J.P. Morgan Chase: Yes; 
PNC Bank: Yes; 
U.S. Bank: Yes; 
Western Union: Yes. 

Geographic coverage: 
J.P. Morgan Chase: Arizona, California, Colorado, Connecticut, 
Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Kentucky 
Louisiana, Michigan, Missouri, Nevada, New Jersey, New York, Ohio, 
Oklahoma, Oregon, South Carolina, Texas, Utah, Washington, West 
Virginia, and Wisconsin; 
PNC Bank: Delaware, District of Columbia, Florida, Illinois, Indiana, 
Kentucky, Maryland, Missouri, New York, Ohio, Virginia, West Virginia, 
and Wisconsin; 
U.S. Bank: Arizona, Arkansas, California, Colorado, Florida, Georgia, 
Idaho, Illinois, Iowa, Kentucky, Minnesota, Missouri, Montana, 
Nebraska, Nevada, North, Dakota, Ohio, Oregon, Pennsylvania, South 
Dakota, Tennessee, Texas, Utah, Washington, Wisconsin, and Wyoming; 
Western Union: USA only. 

Source: GAO analysis of IRS data. 

[End of table] 

Table 3 provides additional details on the fee structures offered 
through Treasury's pilot program. 

Table 3: Treasury Pilot Debit Card Program Offers: 

Service: Monthly Fee; 
Fee: $0 or $4.95 depending on offer (for offers with $4.95 monthly 
fee, that charge is waived in any monthly billing cycle in which 
cardholder loads at least $1,000 to the Card or makes 30 purchase 
transactions). 

Service: Savings Account; 
Fee: For those participants who are offered a savings feature, there 
is no charge to open or maintain the account, no minimum balance, and 
0.25 percent annual percentage yield (variable rate, subject to 
change). Fees may apply to withdraw funds if cardholder uses an ATM 
outside of the MyAccountCard network. There are limitations on the 
number of transfers in and out of the account per month. 

Service: Card acquisition fee; 
Fee: Free. 

Service: Unlimited ATM cash withdrawals and balance check at 15,000 
participating locations nationwide ($2.50 service fee applies for out- 
of-network ATM withdrawals; 
Fee: Free. 

Service: Transactions at U.S. merchant locations; 
Fee: Free. 

Service: Purchases online or over the phone; 
Fee: Free. 

Service: Cash back with purchases; 
Fee: Free. 

Service: Online bill pay; 
Fee: Free. 

Service: Balance inquiries online, by phone, by text and at in-network 
ATMs (standard text messaging rates may apply from your wireless 
carrier); 
Fee: Free. 

Service: Add money with direct deposit; 
Fee: Free. 

Service: Lost/stolen card replacement; 
Fee: $4.95. 

Service: Second card; 
Fee: $4.95. 

Service: Out-of-network ATM cash withdrawals; 
Fee: $2.50 plus any fee the ATM owner may charge. 

Service: Teller cash withdrawals; 
Fee: $2.50. 

Service: Balance inquiries at out-of-network ATMs; 
Fee: $0.50. 

Service: Add money in-person at participating locations; 
Fee: Up to $4.95. 

Service: Card use outside of the 50 United States; 
Fee: 3 percent of transaction amount. 

Source: Treasury. 

[End of table] 

[End of section] 

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

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

Staff Acknowledgments: 

In addition to the contact named above, Joanna Stamatiades, Assistant 
Director; Steven J. Berke; Abbie David; David Fox; Tom Gilbert; Matt 
Johlie; Inna Livits; Karen O'Conor; and Sabrina Streagle made key 
contributions to this report. 

[End of section] 

Footnotes: 

[1] I.R.C. § 25C and Pub. L. No. 111-312, respectively. 

[2] We plan to issue a report on paid preparer regulations in March 
2011. 

[3] Congress enacted the First-Time Homebuyer Credit to assist the 
struggling housing market and help taxpayers purchase their first 
homes. GAO, Tax Administration: Opportunities Exist for IRS to Enhance 
Taxpayer Service and Improve Enforcement for the 2010 Filing Season, 
[hyperlink, http://www.gao.gov/products/GAO-09-1026] (Washington, 
D.C.: Sept. 23, 2009). 

[4] GAO, Recovery Act: IRS Quickly Implemented Tax Provisions, but 
Reporting and Enforcement Improvements Are Needed, [hyperlink, 
http://www.gao.gov/products/GAO-10-349] (Washington, D.C.: Feb. 10, 
2010). In this report, we suggested that Congress should provide IRS 
with broader MEA. 

[5] We previously recommended that IRS examine the feasibility of 
offering refunds on debit cards. See, GAO, 2009 Tax Filing Season: IRS 
Met Many 2009 Goals, but Telephone Service Remained Low, and Taxpayer 
Service and Enforcement Could Be Improved, [hyperlink, 
http://www.gao.gov/products/GAO-10-225] (Washington, D.C.: Dec. 10, 
2009), and Tax Administration: Most Filing Season Services Continue to 
Improve, but Opportunities Exist for Additional Savings, [hyperlink, 
http://www.gao.gov/products/GAO-07-27] (Washington, D.C.: Nov. 15, 
2006). 

[6] Our forthcoming report on paid preparer regulations will discuss 
IRS's efforts to implement the program. 

[7] IRS designed the evaluation based in part on a recommendation we 
made in 2010 for IRS to include the full range of stakeholders in its 
analysis of the debit card program. See GAO, 2010 Tax Filing Season: 
IRS's Performance Improved in Some Key Areas, but Efficiency Gains Are 
Possible in Others, [hyperlink, http://www.gao.gov/products/GAO-11-
111] (Washington, D.C.: Dec. 16, 2010). 

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

[9] GAO, Recovery Act: IRS Quickly Implemented Tax Provisions, but 
Reporting and Enforcement Improvements Are Needed, [hyperlink, 
http://www.gao.gov/products/GAO-10349] (Washington, D.C.: Feb. 10, 
2010). 

[10] GAO, 2010 Tax Filing Season: IRS's Performance Improved in Some 
Key Areas, but Efficiency Gains Are Possible in Others, [hyperlink, 
http://www.gao.gov/products/GAO-11-111] (Washington, D.C.: Dec. 16, 
2010). 

[11] GA0, 2009 Tax Filing Season: IRS Met Many 2009 Goals, but 
Telephone Access Remained Low, and Taxpayer Service and
Enforcement Could Be Improved, [hyperlink, 
http://www.gao.gov/products/GA0-10-225] (Washington, D.C.: Dec. 10, 
2009), and Tax Administration: Most Filing Season Services
Continue to Improve, but Opportunities Exist for Additional Savings, 
[hyperlink, http://www.gao.gov/products/GAO-07-27] (Washington, D.C.: 
Nov. 15, 2006). 

[12] The Earned Income Tax Credit is a refundable tax credit for 
moderate and low-income working individuals and families. For	
refundable credits, taxpayers receive payments even when there is no 
tax liability. 

[13] Social marketing emphasizes listening to the needs and desires of 
the target audience to develop a program to benefit them.	 

[14] [hyperlink, http://www.gao.gov/products/GAO-11-111]. 

[End of section] 

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