	Background

For tax years beginning after 2000, the Economic Growth and Tax Relief  Reconciliation Act of 2001 applied a new 10-percent income tax rate to a  portion of an individual’s income that was previously taxed at 15 percent. All checks were to be issued by December  31, 2001. Billions of Dollars in Advance Tax Refunds Sent to Millions of Taxpayers

IRS, through FMS, mailed out advance tax refunds according to a schedule  that called for taxpayers to begin receiving checks the week of July 23,  2001. To administer the advance tax refund program, IRS, among other things,  had to develop the computer programming necessary to determine taxpayer  eligibility for the refund and the amount of each refund, including any  related federal tax offset; arrange for printing and mailing of notices that informed taxpayers prepare adjustment notices for refunds that were offset due to federal tax  whether they would receive a refund;  respond to telephone calls and correspondence from taxpayers  concerning the refund;  resolve undelivered and returned advance refund checks; and  debts. As of September 30, 2001, IRS had offset about $2.1 billion to recover  delinquent federal tax. Taxpayers who called IRS during the advance tax refund period had  greater difficulty reaching IRS assistors than did taxpayers who called  during the same timeframe in 2000 or during the 2001 tax filing season. A small number of taxpayers received duplicate checks in the early stages  of the program. Many Taxpayers Received Untimely Notices

TIGTA also determined that 5.3 million taxpayers who filed their tax  returns by the April 16 filing deadline would have delays from 1 week to 9  weeks in receiving their advance refund notices. Many Advance Refund Notices and Checks Were Undeliverable

One problem that IRS encountered throughout the implementation of the  advance tax refund program involved undeliverable refund notices and  checks due to incorrect addresses. The problem involved duplicate checks sent to taxpayers by one of the  three DFAS centers that assisted FMS in issuing the advance tax refund  checks. Appendix I: Comments From the Internal Revenue Service
What GAO Found

The Economic Growth and Tax Relief Reconciliation Act of 2001 directed the Treasury to issue advance 2001 tax refunds to individual taxpayers who filed a tax year 2000 return. As a result, the Internal Revenue Service (IRS) had to identify eligible taxpayers so that checks could be sent to these taxpayers by December 31, 2001. The Department of the Treasury's Financial Management Service was to issue the checks on behalf of IRS, with the first checks to be received during the week of July 23, 2001. As of September 30, 2001, 84 million taxpayers were to have received $36 billion in advance tax funds. IRS offset about $2.1 billion from these advance tax refunds to recover delinquent federal taxes. IRS spent $104 million to run the program through September 2001, which included IRS staffing costs as well as the costs associated with contracts, postage, and printing. The Treasury Inspector General for Tax Administration identified two initial problems that affected either the accuracy or timeliness of the advance refund notices. One involved computer programming errors that resulted in 523,000 taxpayers receiving notices indicating that they would receive larger advance tax refunds than they were entitled to receive. The IG also determined that 5.3 million taxpayers who had filled their tax returns by the April 16 filing deadline would have delays of up to nine weeks in receiving their advance refund notices. Two problems that continued throughout the advance tax refund period involved (1) undeliverable refund notices and checks due to incorrect addresses and (2) taxpayer difficulties in reaching IRS telephone assistors. Another problem that was quickly identified and corrected during the early stages of the advance tax refund period involved duplicate checks sent to about 25 taxpayers.