	Scope and Methodology

To assess IRS’s 2008 filing season performance in the key filing season  activities compared to goals and past performance, report on the effect of  ESP, and highlight areas where IRS could expand use of MEA, we  reviewed and analyzed IRS reports, testimonies, budget submissions,  and other documents and data, including workload data, data related  to IRS’s performance measures and goals, and data on taxpayer usage  of services and other statistics such as the number of paid preparers;    observed operations at IRS’s Atlanta, Georgia, paper submission  processing center, the Atlanta call site, the Joint Operations Center  (which manages IRS’s telephone services) in Atlanta, and IRS’s walk-in  locations in Atlanta and Baltimore, Maryland, and selected these  offices for a variety of reasons, including the location of key IRS  managers, such as those responsible for telephone and walk-in site  services;  tested for statistically significant differences between annual  performance measures based on IRS sample data;  analyzed staffing data for paper and electronic filing, and telephone  assistance;  reviewed information from organizations, such as Keynote Systems,  which evaluate Internet performance;  interviewed representatives of some of the larger private and nonprofit  organizations that prepare tax returns, such as H&R Block, and trade  organizations that represent both individual paid preparers, tax  preparation companies, and professional associations, including the  American Institute of Certified Public Accountants;  reviewed TIGTA reports and interviewed TIGTA officials about IRS’s  performance and initiatives;  interviewed IRS officials about current operations, performance  relative to 2008 performance goals and prior filing season  performance, trends, significant factors, and initiatives that affected or  were intended to improve performance, monitoring, and oversight of  paid tax preparers;  reviewed IRS data on math errors, information on IRS’s process for  identifying and correcting math errors, legislation providing IRS with  math error authority;  interviewed IRS officials, including those from the EITC office, about  MEA;  reviewed reports on MEA from the National Taxpayer Advocate (NTA)  and TIGTA; and  reviewed our prior reports and followed up on our recommendations  made in those reports. IRS has toll-free assistance telephone lines which taxpayers can call  with questions about tax law or their refunds. Despite the Increased Volume of Tax Returns Due to the Economic Stimulus, IRS’s Filing Season was Successful Compared to Previous Years’ with the Exception of Access to Telephone Assistance

As of September 12, 2008, IRS processed 150 million individual income tax  returns, including almost 9 million ESP-only returns, and processed   105 million tax refunds totaling $246 billion. As of September 12, IRS had processed 116 million stimulus  payments totaling almost $94 billion. CADE also was successful in processing 24 million stimulus payments and  contributed to IRS’s early distribution of some stimulus payments. IRS agreed to study this recommendation. Telephone Performance Was Substantially Lower Compared to Last Year’s Due to the High Volume of Stimulus-Related Calls, with the Greatest Downturn Beginning in Early May

Taxpayers’ access to IRS’s telephone assistors was substantially lower  than last year’s because, according to IRS, it received an unprecedented  number of calls primarily due to ESP-related questions. As table 2 shows,  through June 30 of this year, IRS received over 118 million calls, more than  double the total number of calls from last year. 1). The Costs and Foregone Revenue Associated with Implementing ESP Are Expected to Reach over $900 Million and IRS Plans to Document Lessons Learned

Based on IRS data, the estimated costs and foregone revenue of  implementing ESP will reach up to $960 million. Instead, IRS shifted hundreds of  Automated Collection System (ACS) staff to answer calls to the Rebate  Hotline from March through August 2008. IRS Does Not Fully Use Its Existing MEA and Congressional Expansion of MEA in Two New Areas Could Enhance Enforcement at Low Cost

IRS has authority to disallow child and dependent credit claims on returns  with the filing status of “Married Filing Separately;” however, if taxpayers  use this filing status, they would not be eligible for the credit. A second area where IRS has MEA but does not use it is to disallow EITC  clams is when taxpayers are listed as the noncustodial parent in the FCR. IRS does not  know how many of these claims were incorrect, but for the claims it  audited, the error rate was about 91 percent of claims for 2006. By focusing on FCR data alone, IRS’s review may be missing another way  to use MEA to verify EITC claims by noncustodial parents and minimize  the chance of disallowing eligible claims. There are two areas where IRS could use its existing authority  more fully and where the agency could improve service through notices  informing taxpayers of potential eligibility for child and dependent care  credits. The Deputy Commissioner also supported our suggestions for  congressional consideration to provide IRS with legal authority to  automatically correct returns for individual retirement account  contributions that violate the dollar or age limits.
Why GAO Did This Study

The tax filing season is when the Internal Revenue Service (IRS) has most of its contacts with taxpayers, answering questions and processing returns and refunds. The 2008 filing season was particularly challenging due to the unanticipated mandate to make economic stimulus payments. The filing season is also the start of IRS's efforts to ensure the newly filed returns are compliant with the tax laws. GAO was asked to assess IRS's performance, describe the costs and foregone revenue of administering the economic stimulus payments, and identify any opportunities for improving filing season compliance checks. GAO analyzed IRS performance data, reviewed IRS operations, and interviewed IRS officials.

What GAO Found

IRS successfully processed150 million returns and issued 105million refundsfor $246 billion as of September 12, 2008. In addition, IRS issued 116 million stimulus payments totaling $94 billion. However, taxpayers' access to IRS's telephone assistors was substantially lower than last year because of an unanticipated increase in telephone call volume. Calls to IRS more than doubled to 118 million as many taxpayers had questions about the amount of their stimulus payment or its timing. IRS acted to answer the calls including shifting hundreds of staff from collection cases to telephone assistance. IRS took other actions such as adding features to its Web site that answered stimulus-related questions and likely diverted some calls. Regardless, taxpayers' ability to get through to IRS telephone assistors declined from about 81 percent of waiting callers getting through last year to about 57 percent from January through June 30 of this year. IRS expects the costs and foregone revenue associated with issuing the economic stimulus package (ESP) payments to reach about $960 million, of which $655 million is revenue foregone due to the shift of collections staff to telephone service. There are two areas where IRS does not use its current legal authority to automatically correct errors when processing tax returns. One involves eligibility for the child and dependent care credit by taxpayers who are "Married Filing Separately." Taxpayers in this filing status are not eligible for the credit, but IRS allows the credit to be claimed, issues refunds, and then audits taxpayers to try to recover the money. The second is that IRS does not use its existing legislative authority to verify earned income tax credit claims by noncustodial parents--in 2006, $91 million of claims were unverified. IRS has plans to study one option for verifying these claims, but is not planning to study another option, combining federal data on noncustodial parents and other taxpayer characteristics to automatically determine eligibility. Finally, there are two areas where IRS lacks legal authority, but has the technical ability to use automated error checks. IRS could prevent (1) individuals from deducting contributions to individual retirement accounts above the allowable limit and (2) individuals from violating the age requirements for such contributions.