System Integrity:

IRS Can Reduce Processing Errors With Better Controls and Information

IMTEC-88-25: Published: Aug 2, 1988. Publicly Released: Aug 2, 1988.

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Howard G. Rhile, Jr
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GAO assessed the Internal Revenue Service's (IRS): (1) controls for correcting errors in processing tax returns and issuing refunds and notices; and (2) efforts to identify the causes of processing errors.

GAO found that: (1) automated controls detected errors in 327 of the 389 IRS adjustment cases GAO reviewed, with taxpayers causing 57 percent of errors, IRS coding and editing causing 29 percent, and IRS data conversion causing 36 percent; (2) in at least 281 cases, error resolution examiners did not properly correct the errors or follow IRS instructions to compare master file system data with return data; (3) data transcribers should have corrected 49 of the cases that examiners overlooked before sending them to the next processing phase; (4) IRS stopped and corrected incorrect refunds and tax-due notices in 306 cases, causing a 3- to 11-week delay in sending them out; (5) IRS sent incorrect refunds and tax-due notices in 86 cases, resulting in taxpayers receiving $7 to $5,000 more in refunds than IRS owed them and others receiving notices requiring them to pay $1 to $8,100 more than they owed; (6) the cost to correct these errors after initial processing was about $4.00 per case, but only $0.30 during the error resolution stage; (7) some IRS quality monitoring activities' management reports were inaccurate and untimely; and (8) service center managers did not believe that the reports addressed certain management needs.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Reviews are being conducted on a sample basis in service centers. IRS determined that 100 percent of the reviews were not cost-effective.

    Recommendation: The Commissioner of Internal Revenue should require service center directors to implement a program to review tax returns corrected by the Error Resolution Units before sending them to the master files, as is being done by the Fresno and Kansas City Service Centers. Service center directors should have flexibility to adjust the percentage of returns reviewed to their units' performance.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: Program Analysis System (PAS) reports showing trends in taxpayer errors were provided on a weekly basis to the service center and National Office management. Reports are to be used to determine the percentage and types of error documents for review.

    Recommendation: The Commissioner of Internal Revenue should ensure that feedback on the nature and source of errors identified in these reviews is provided promptly to the processing units responsible for missing or creating the errors, and to national office managers, so that both parties can take timely corrective action and thus help prevent future errors.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Closed - Implemented

    Comments: Most planned agency actions were completed as of May 1989. The Internal Revenue Manual was revised for the January 1, 1990 publication.

    Recommendation: The Commissioner of Internal Revenue should direct his staff to review the completeness, timeliness, and accuracy of management information produced by IRS quality monitoring and modify those reports that do not meet management needs.

    Agency Affected: Department of the Treasury: Internal Revenue Service


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