In recent years, IRS has improved its returns  processing but has seen its taxpayer service performance deteriorate. However, as we have reported, IRS has experienced declines in  performance in selected taxpayer service areas, most notably with  respect to providing live telephone assistance and timely responses to  taxpayers’ correspondence.from IRS to paper correspondence or have access to information online,  they call IRS, correspond again, or seek face-to-face assistance—all of  which are costly to IRS and burdensome to the taxpayer. Opportunities Exist to Improve the Taxpayer Experience and Voluntary Compliance

To improve the taxpayer experience and voluntary compliance, IRS has a  range of options. Simplifying the tax code could reduce unintentional errors and  make intentional tax evasion harder. IRS Can Provide More Self- Service Tools to Give Taxpayers Better Access to Information

GAO-12-176. develop an online locator tool listing volunteer tax preparation sites—  and IRS introduced an enhanced volunteer site locator tool in 2012;complete an Internet strategy that provides a justification for online  self-service tools as IRS expands its capacity to introduce such tools. According to IRS officials, the  study should be completed later this year. Better Leveraging of Third Parties Could Provide Taxpayers With Other Avenues to Receive Service

			Paid Preparer Regulations

GAO-12-176. most effective for improving the quality of tax returns prepared by different  types of paid preparers. Almost 30 percent of taxpayers use such software to prepare their returns  and, in the process, understand their tax obligations, learn about tax law  changes, and get questions answered. Many also electronically file  through their software provider. Consequently, tax software companies  are another important intermediary between taxpayers and IRS. We have  reported that IRS has made considerable progress in working with tax  software companies to provide, for example, clearer information about  why an e-filed return was not accepted, require additional information on  returns to allow for IRS to better identify the software used, and enhance  security requirements for e-filing. Expanded Information Reporting Could Reduce Taxpayer Burden and Improve Accuracy

Information reporting is a proven tool that reduces tax evasion, reduces  taxpayer burden, and helps taxpayers voluntarily comply. Identifying additional third-party reporting opportunities is challenging. Implementing Modernized Systems Should Provide for Faster Refunds and Account Updates

Modernized systems should better position IRS to conduct more accurate  and faster compliance checks, which benefits taxpayers by detecting  errors before interest and penalties accrue. Two new,  modernized systems IRS is implementing include the following:
Customer Account Data Engine (CADE) 2. Expanding Pre-Refund Compliance Checks Could Result in More Efficient Error Correction

The Commissioner of Internal Revenue has talked about a long-term  vision to increase pre-refund compliance checks before refunds are sent  to taxpayers. Reducing Tax Code Complexity Could Ease Taxpayer Burden and Make It Easier to Comply

Tax code complexity can make it difficult for taxpayers to voluntarily  comply. These criteria include the  equity, or fairness, of the tax system; the economic efficiency, or  neutrality, of the system; and the simplicity, transparency, and  administrability of the system. In closing, improving the taxpayer experience and increasing voluntary  compliance will not be achieved through a single solution. Because  voluntary compliance is influenced by so many factors, multiple  approaches, such as those listed here, will be needed.
Why GAO Did This Study

The U.S. tax system depends on taxpayers calculating their tax liability, filing their tax return, and paying what they owe on timewhat is often referred to as voluntary compliance. Voluntary compliance depends on a number of factors, including the quality of IRSs assistance to taxpayers, knowledge that its enforcement programs are effective, and a belief that the tax system is fair and other people are paying their share of taxes. Voluntary compliance is also influenced by other parties, including paid tax return preparers, tax software companies, and information return filers (employers, financial institutions, and others who report income or expense information about taxpayers to IRS). For this testimony, GAO was asked to (1) evaluate the current state of IRSs performance and its effect on the taxpayer experience, and (2) identify opportunities to improve the taxpayer experience and voluntary compliance. This testimony is based on prior GAO reports and recommendations. Additionally, GAO analyzed IRS data in delivering selected taxpayer services in recent years.

What GAO Found

The Internal Revenue Service (IRS) has made improvements in processing tax returns, and electronic filing (e-filing), which provides benefits to taxpayers including faster refunds, continues to increase. However, IRSs performance in providing service over the phone and responding to paper correspondence has declined in recent years. For 2012, as with previous years, IRS officials attribute the lower performance to other funding priorities.
The following are among the opportunities to improve the taxpayer experience and increase voluntary compliance that GAO identifies in this testimony:
IRS can provide more self-service tools to give taxpayers better access to information. IRS can create an automated telephone line for amended returns (a source of high call volume) and complete an online services strategy that provides justification for adding new self-service tools online.
Better leveraging of third parties could provide taxpayers with other avenues to receive service. Paid preparers and tax software providers combine to prepare about 90 percent of tax returns. IRS is making progress implementing new regulation of paid preparers. As it develops better data, IRS should be able to test strategies for improving the quality of tax return preparation by paid preparers. Similarly, IRS may also be able to leverage tax software companies.
Expanded information reporting could reduce taxpayer burden and improve accuracy. Expanded information reporting, such as the recent requirements for banks and others to report businesses credit card receipts to IRS, can reduce taxpayers record keeping and give IRS another tool.
Implementing modernized systems should provide faster refunds and account updates. Modernized systems should allow IRS to conduct more accurate and faster compliance checks, which benefits taxpayers by detecting errors before interest and penalties accrue.
Expanding pre-refund compliance checks could result in more efficient error correction. Expanding such checks could reduce the burden of audits on taxpayers and their costs to IRS.
Reducing tax complexity could ease taxpayer burden and make it easier to comply. Simplifying the tax code could reduce unintentional errors and make intentional tax evasion easier to detect.

What GAO Recommends

GAO has made numerous prior recommendations that could help improve the taxpayer experience. Congress and IRS have acted on some recommendations, while others are reflected in the strategies presented in this testimony.