As shown in table 1, those indicators show that IRS met or exceeded most of its performance goals for the 1997 filing season. In that regard, IRS’ telephone data showed that the number of busy signals dropped from 86.0 million during the 1996 filing season to 22.7 million during the 1997 filing season and that the average number of call attempts per taxpayer dropped from 2.5 during the 1996 filing season to 1.4 during the 1997 filing season. Although the increase in the overall number of returns filed was small, the increase in the number filed through alternative methods was significant—about 25 percent higher than last year. New Procedures Enable IRS to Protect More Revenue

An important change for the 1997 filing season involved IRS’ implementation of new procedures for handling returns filed with missing or incorrect SSNs. IRS’ SSN error procedures changed in 1997 as a result of a provision in the Welfare Reform Act of 1996. That provision authorized IRS to treat missing or incorrect SSNs as math errors, similar to the way it has historically handled computational mistakes. As of September 1, after netting out adjustments made in response to taxpayers’ calls and letters, IRS reported that it had protected about $1.46 billion in revenue (i.e., claimed refunds or credits not paid and additional taxes assessed). Information we obtained this year called into question a key assumption used to calculate the interest cost avoidance figures that IRS and FMS have cited to support the use of lockboxes to process those payments. For returns that will continue to be filed on paper, IRS planned to achieve its objective through document imaging and optical character recognition systems. In that regard, IRS estimated that about 95 percent of the Forms 1040EZ processed through SCRIPS in 1997 did not have the scannable preprinted address label, compared with about 50 percent in 1996, causing a significant increase in the amount of data IRS had to manually transcribe. It achieved significant increases in telephone accessibility and alternative filings, and it implemented a major change in dealing with missing or incorrect SSNs, all without any noticeable major problems. We are concerned, however, about the cost effectiveness of IRS’ use of lockboxes rather than service centers to receive and process Form 1040 tax payments. Although FMS had planned another study to further assess the comparative processing times and costs for lockboxes and service centers, those plans have been deferred, and it is unclear when such a study will be done. Recommendations to the Commissioner of Internal Revenue

We recommend that the Commissioner of Internal Revenue require the appropriate IRS officials to conduct, during the 1998 tax filing season, the analyses necessary to determine (1) whether there are net savings to the government attributable to the use of lockboxes to process Form 1040 tax payments and (2) whether the potential savings of requiring affected taxpayers to mail their tax returns to IRS and their tax payments to lockboxes in separate envelopes outweigh the estimated additional cost and other burden that this could be expected to cause taxpayers. Toll-Free Telephone Accessibility Test

To assess the ability of taxpayers to reach IRS by telephone to ask a question about the tax law or their accounts, we conducted a nonstatistical test of IRS’ toll-free telephone assistance system. The other five centers used the traditional keypunching system to process the Forms 1040EZ they received. 3. 4.
Why GAO Did This Study

Pursuant to a congressional request, GAO assessed the Internal Revenue Service's (IRS) performance during the 1997 tax filing season, focusing on: (1) the ability of taxpayers seeking answers to questions to reach IRS via the telephone; (2) the number of returns filed by means other than the traditional paper method; (3) IRS' efforts to deal with returns that have missing or incorrect social security numbers (SSN); (4) the use of banks, known as lockboxes, to process certain tax payments; and (5) performance of the imaging system IRS uses to process certain tax returns.

What GAO Found

GAO noted that: (1) the IRS met or exceeded most of its 1997 filing season related performance goals; (2) of particular note is the substantial improvement in two important areas where GAO has criticized IRS' performance in past filing seasons--telephone accessibility and the use of alternative filing methods; (3) according to IRS data, telephone accessibility increased from 20 percent during the 1996 filing season to 51 percent during the 1997 filing season; (4) the number of tax returns filed by means other than the traditional paper method increased by 25 percent over the last year, with the number of returns filed by telephone (TeleFile) showing the most significant increase--65 percent; (5) although the revised tax package apparently contributed to an increase in the use of TeleFile, it also apparently contributed to a decrease in the performance of the Service Center Recognition/Image Processing System (SCRIPS)--a document imaging and optical character recognition system that IRS implemented in 1994 to process Forms 1040EZ and certain other tax documents; (6) another major change during the 1997 filing season involved the procedures IRS used to process returns that were filed with missing or incorrect SSNs; (7) in 1997, as authorized by the Welfare Reform Act of 1996, IRS began treating missing or incorrect SSNs as math errors rather than as issues that, in the past, had to be resolved through a lengthy notice process; (8) as of September 1, 1997, according to IRS, it had protected about $1.46 billion in revenue through the disallowance of claimed credits or dependent exemptions in 1997, more than doubling the amount disallowed using the procedures IRS followed in 1996; (9) one issue that GAO discussed in a previous report that continues to be of concern is the cost-effectiveness of IRS' use of lockboxes to process 1040 tax payments; (10) additional information GAO obtained this year heightened its concern by calling into question a key assumption IRS and the Department of the Treasury's Financial Management Service (FMS) have used to calculate the interest cost savings associated with this use of lockboxes; and (11) although FMS had planned a study to further assess interest cost savings, those plans have been deferred, and there is no assurance when such a study will be done.