	Scope and Methodology

To assess IRS’s 2006 filing season performance in the key filing season  activities—paper and electronic processing, plus telephone, Web site, and  face-to-face assistance—compared to goals and past performance, and  report on the status of the TAB, we  reviewed and analyzed IRS reports, testimonies, budget submissions,  and other documents and data, including workload data and data  related to IRS’s current suite of balanced performance measures and  annual goals;   analyzed staffing data for paper and electronic processing, telephone  assistance, and walk-in assistance; tested for statistically significant differences between annual  performance measures based on sample data;   observed operations at IRS’s Atlanta and Cincinnati paper processing  centers, the Atlanta Call Site and Joint Operations Center, and 4 of  IRS’s 400 walk-in locations;  reviewed legislation, policies, and procedures;  reviewed information from organizations that evaluate Internet  performance;  reviewed related TIGTA reports and interviewed TIGTA officials about  IRS’s performance and initiatives;  reviewed prior GAO reports and followed up on our recommendations  made in prior filing season and related reports; interviewed IRS officials about current operations, performance  relative to 2006 performance goals and prior filing season performance,  trends, and significant factors and initiatives that affected or were  intended to improve performance; and interviewed representatives of the few larger private and nonprofit  organizations that prepare tax returns including H&R Block and trade  organizations that represent both individual paid tax preparers and tax  preparation companies including the American Institute of Certified  Public Accountants. Opportunities Exist to Generate Savings by Encouraging Electronic Filing; Processing Performance Continued to Improve

The growth rate of electronic filing is important because electronic filing  eliminates costs associated with processing paper returns. Two other factors that contributed to this year’s slower growth in  electronic filing were (1) changes in the Free File program, which reduced  the number of taxpayers eligible to file electronically for free this year, and  (2) termination of the TeleFile program, which had allowed taxpayers to  file their returns electronically via telephone. Mandates Have Demonstrated Success in Increasing Electronic Filing, but IRS Lacks the Authority to Impose Mandates for Individual Taxpayers

For the first time, in the 2006 filing season IRS mandated that corporations  with assets over $50 million file their corporate tax returns electronically. State mandates have increased the electronic filing of federal individual  income tax returns. By not requiring electronic filing by  paid preparers, IRS is missing an opportunity for generating savings and  efficiencies. CADE is only  partially completed, and IRS estimates that over $500 million more is  required to fully implement the individual tax return processing part of the  system. Access to IRS’s Telephone Assistors Was Comparable to Last Year and Accuracy Improved, but IRS Has Excess Space at Its Call Sites

Taxpayers’ access to IRS’s telephone assistors and the accuracy of  answers are both key indicators of IRS’s filing season performance  because of the volume of calls and labor costs associated with answering  them. IRS could eliminate underutilized space by consolidating or closing call  sites. Continuing Past Trends, Fewer Taxpayers Used IRS Walk-in Sites and More Used Volunteer Sites, but Data on Services Provided Remains Incomplete for Both

Shifting taxpayers from IRS walk-in sites to community sites staffed by  volunteers is part of IRS’s strategy for reducing the costs of providing  taxpayers with face-to-face assistance, while providing taxpayers with  additional, and perhaps more convenient, options. Phase II research and review is in progress and is  expected to be released by early 2007. It also contains demographic information on the  population of individual taxpayers. Finally, IRS developed the following five strategic  themes for improving taxpayer service:  1. 3. However, IRS lacks the statutory  authority to expand its use of mandates. Requiring certain paid tax  preparers to file individual returns electronically could increase electronic  filing and generate savings for IRS. In addition, IRS continues to implement CADE. However, IRS is not reporting on one of the chief benefits already realized  from CADE, issuing refunds faster. The Congress could benefit from  knowing this information as it makes decisions about funding the  completion of CADE. Appendix VI: Comments from the Internal Revenue Service
Why GAO Did This Study

In 2006, the Internal Revenue Service (IRS) spent about 38 percent of its $10.8 billion budget on processing returns and providing taxpayer assistance. GAO was asked to (1) assess IRS's 2006 filing season performance processing paper and electronically filed tax returns and providing telephone, Web site, and face-to-face assistance relative to 2006 goals and prior years' performance; (2) identify potential cost savings or other improvements; and (3) report on the status of IRS's Taxpayer Assistance Blueprint (TAB). To address these issues, GAO collected relevant information from IRS and other sources, reviewed performance measures and past filing season assessments, and interviewed officials.

What GAO Found

IRS improved most filing season services in 2006, continuing improvements since 2001. IRS also generated efficiencies from increased electronic filing and benefits for taxpayers through systems modernization. IRS's processing of individual tax returns and refunds improved by most measures, but the growth rate of electronic filing continued to slow in part because of changes to the Free File Program, which reduced the number of taxpayers eligible to use it and the elimination of a program that allowed taxpayers to file via the telephone. Access to IRS's telephone assistors was comparable to last year. The accuracy of responses to telephone inquiries was 90 percent or over in 2006. Use of IRS's Web site increased substantially and IRS reconfigured the site to improve service. Continuing past trends, fewer taxpayers used IRS walk-in sites and more used less-costly volunteer sites. Also, IRS completed Phase I of the TAB, which identified strategic themes for improving taxpayer service; TAB Phase II is expected to be completed by early 2007. With the slowing growth rate in electronic filing, IRS is missing an opportunity to generate additional savings. Federal and state mandates for electronic filing have demonstrated success in increasing electronic filing; however, IRS currently lacks the authority to mandate electronic filing for certain income tax returns such as individual returns filed by paid tax preparers. Using IRS estimates, savings from such a mandate could be on the order of $60 million per year. IRS has another opportunity to generate savings because of excess space at its call sites. However, IRS lacks a strategy for eliminating that space by consolidating call sites. To replace its aging legacy computer system, IRS continues to implement a modernized system for processing tax returns and refunds. However, IRS does not report information on the chief benefit realized to date, faster refund issuance. Such information could be useful for the Congress when making decisions about funding the completion of the individual tax return processing part of the system, estimated by IRS to require at least another $500 million.