Tax Administration:

IRS Issued Advanced Child Tax Credit Payments on Time but Should Study Lessons Learned

GAO-04-372: Published: Feb 17, 2004. Publicly Released: Feb 26, 2004.

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The Jobs and Growth Tax Relief Reconciliation Act of 2003 provided eligible taxpayers up to $400 in advance Child Tax Credit (ACTC) payments. GAO was asked for information on (1) the number, dollar amount, and timeliness of the ACTC payments, (2) the impact on the Internal Revenue Service's (IRS') toll-free telephone service, (3) the cost to IRS and the Financial Management Service (FMS) for implementing the advance payment effort, including the impact of these costs on other IRS programs, and (4) the extent to which IRS identified and used evaluations from the 2001 advance refund effort to implement the ACTC payment effort and whether an evaluation of the ACTC payment effort is planned.

Between July and December 2003, IRS, through FMS, issued over $14 billion in ACTC payments to more than 25 million taxpayers. IRS was able to issue the checks on schedule over a 15-day period ending August 8, 2003, to taxpayers who had filed by April 15, 2003. Other taxpayers received their checks later. The ACTC had an impact on IRS' toll-free telephone assistance service. Between late July, when the first notices of the advance payments were sent to taxpayers, and the middle of August, by which time the majority of notices had been sent, IRS experienced both a marked increase in the number of telephone call attempts from taxpayers and a corresponding decline in taxpayers' success in reaching an IRS assistor. IRS' strategy for dealing with the expected increase in taxpayer inquiries may have mitigated the impact of the ACTC payment effort on IRS' toll-free telephone service. According to IRS and FMS officials, implementing the ACTC payment effort cost about $32 million, nearly all incurred by IRS. In order to accomplish this mandate, IRS used funds earmarked for other programs. As a result, some of these programs, for example improvements to IRS' computer servers, were delayed slightly. IRS officials said they identified and used "lessons learned" from the evaluations of the 2001 advance refund effort done by GAO and the Treasury Inspector General for Tax Administration, and their own internal evaluation. With the exception of the telephone service, IRS officials believe the implementation of the ACTC has gone more smoothly because they used the lessons learned. Although IRS officials acknowledged the usefulness of the lessons learned evaluation, IRS had not committed to a similar evaluation of the ACTC effort at the time of our review.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: In February 2004, GAO reported on IRS's issuance of advance child tax credit payments to taxpayers as mandated by Congress. GAO recommended that IRS prepare a "lessons learned" study on the advance child tax credits that might help them improve issuance of future advance payments. In August of 2004, IRS created a project report entitled "Lessons Learned from the IRS Implementation of the Advance Child Tax Credit Legislation", which provided both positive and negative lessons learned and will be helpful in implementing further advance tax credits.

    Recommendation: The Commissioner of Internal Revenue should conduct a modestly scaled "lessons learned" evaluation of the ACTC payment effort similar to the one conducted for the 2001 advance refund effort.

    Agency Affected: Department of the Treasury: Internal Revenue Service


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