	Scope and Methodology

To assess IRS’s 2005 filing season performance in the four key filing season  activities—processing, telephone assistance, face-to-face assistance, and  Web site—compared to goals, past performance, as well as initiatives  intended to improve performance, we  reviewed and analyzed IRS reports, testimonies, budget submissions,  and other documents and data, including workload data and data from  IRS’s current suite of balanced performance measures and annual goals;  reviewed legislation, policies, and procedures;   reviewed related TIGTA reports and interviewed TIGTA officials about  IRS’s performance and initiatives;  followed up on our recommendations made in prior filing season and   tested for statistical differences between yearly changes for various   observed operations at IRS’s Atlanta paper processing center, and  Atlanta and Pittsburgh call centers, all of which are managed by IRS’s  Wage and Investment operating division (W&I); 3 of IRS’s approximately  400 walk-in locations; and 3 of over 14,000 volunteer sites. However, stakeholders have noted  information is lacking on the costs and burdens of mandating electronic  filing. For the First Time, More Than Half of All Individual Tax Returns Were Filed Electronically

Electronic filing remains important to IRS because electronic returns cost  less to process than paper returns. IRS Has Taken Actions to Encourage Electronic Filing but Will Not Meet Long-term Goal

Over the years, IRS has taken numerous actions to encourage electronic  filing by taxpayers and tax practitioners, including   making electronic filing free to most taxpayers via the Free File Alliance  program on the IRS Web site;  making the process totally paperless if a taxpayer uses a personal  identification number to sign their tax return;   making over 99 percent of all individual tax forms suitable for electronic   allowing electronic payment of balance due payments; and   surveying taxpayers and tax practitioners in response to a  recommendation in our 2001 filing season report to determine why 40  million tax returns were prepared on a computer but filed on paper. Despite these actions, IRS is not on track to achieve its long-term goal of  having 80 percent of all individual income tax returns filed electronically by  2007. The growing use of mandates by the states could lead to more discussion of  mandates at the federal level. IRS Reduced Access to Telephone Assistors, but Accuracy of Tax Law and Account Responses Significantly Improved

IRS made a strategic decision to reduce access to its telephone service to  accommodate a budget reduction because IRS officials viewed it as flexible  area for absorbing such reductions without significantly affecting taxpayer  service. IRS officials chose to reduce telephone access because they viewed it as a  more flexible area to absorb budget reductions than, for example,  processing. However,  IRS lacks reliable data on quality that could be used to compare the two  services and understand the impact of IRS’s strategy on taxpayers. The declines in walk-in usage were consistent with IRS’s strategy of  reducing costly face-to-face assistance in favor of other service options  such as the telephone and Web site. However, at this time IRS does not have a schedule for finalizing its long- term goals. Because of the difficulty, IRS has experienced delays in  finalizing its proposed goals. IRS Has Taken Numerous Actions to Deal with the Aftermath of Hurricanes Katrina and Rita, but Implications for the 2006 Filing Season Are Not Yet Known

IRS has taken numerous actions to address the aftermath of Hurricanes  Katrina and Rita, including assessing employee and infrastructure needs,  providing tax relief, and providing assistance to federal partners. However, because of overall budget constraints and its strategy  of shifting resources from service to enforcement, IRS will be challenged to  continue improving service. Walk-in & volunteer sites.
Why GAO Did This Study

During the filing season, the Internal Revenue Service (IRS) processes about 130 million individual tax returns, issues refunds, and responds to millions of inquiries. Budget cuts combined with IRS's strategy of shifting resources from taxpayer service to enforcement make providing quality service a challenge. GAO was asked to assess IRS's 2005 filing season performance compared to past years and 2005 goals in the processing of paper and electronic tax returns, telephone service, face-to-face assistance, and Web site service. GAO also examined whether IRS has long-term goals to help assess progress and guide in making decisions. Finally, GAO summarized IRS's response to Hurricanes Katrina and Rita, and their possible effects on IRS's performance.

What GAO Found

IRS improved some filing season services. According to officials, IRS made a strategic decision to reduce others to accommodate budget cuts. IRS's processing of returns and refunds went smoothly. Accuracy of responses to telephone inquiries about tax law and about taxpayers' accounts significantly improved. And, IRS's Web site performed well. On the other hand, in response to budget cuts, IRS reduced access to telephone assistors, resulting in longer wait-times and more callers hanging up. IRS officials viewed telephone access as a more flexible area for absorbing budget cuts than, for example, processing. The number of taxpayers visiting IRS walk-in sites continued to decline, while the number of tax returns prepared at volunteer sites increased. This is consistent with IRS's strategy of reducing the number of its employees providing expensive face-to-face assistance. IRS continues to lack reliable data on the accuracy of walk-in and volunteer site assistance but has plans in place to improve quality measurement. For the first time, more than half of individual tax returns were filed electronically, which is important because electronic filing has allowed IRS to reduce resources devoted to processing paper returns. However, despite IRS's actions to promote electronic filing, it is not on track to achieve its long-term goal of having 80 percent of such returns filed electronically by 2007. State mandated electronic filing has proven effective at encouraging electronic filing at the federal level and one IRS advisory group has recommended a federal mandate. However, little is known about the costs and burdens of such mandates. IRS has been developing long-term goals to help assess agency progress and understand the impact of budget decisions. Because of the difficulty in developing goals, IRS has experienced delays and lacks a schedule for finalizing those goals. IRS is taking numerous actions to assist taxpayers affected by Hurricanes Katrina and Rita. Most of the impact on IRS, such as more questions from taxpayers, will be felt during the 2006 filing season and beyond.