	Scope and Methodology

To assess IRS’s 2007 filing season performance in the key filing season  activities compared to goals and past performance, and identify and assess  potential improvements or efficiencies in filing season operations, 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 and other  statistics such as the number of paid preparers;   observed operations at IRS’s Atlanta, Ga. and Andover, Ma. It consumes more than $3 billion annually. Growth in electronic filing generates savings for IRS by reducing staff  needed for labor-intensive paper processing. For eight of its nine measures, IRS met or  exceeded its previous year’s performance. IRS May Be Missing Opportunities to Further Reduce Costs and Increase Compliance by Not Doing More to Reduce the Number of Paper Returns Processed and Transcribe all Tax Return Data

Paper returns cost IRS tens of millions of dollars to process. To control costs, IRS does not transcribe all the lines on paper tax returns  into its computer databases, such as taxpayers’ telephone numbers,  limiting the amount of information available electronically for  enforcement purposes. Further, to avoid disadvantaging taxpayers who file electronically, IRS has  a policy of posting the same information from electronic and paper returns  to its databases. Consequently, if a line is not transcribed from paper  returns, it is not posted from electronic returns either. Only information  posted to computer databases is readily available for use in IRS’s  automated compliance checking programs. At least two options exist to increase electronic filing—mandates and bar  coding. Additionally, taxpayer compliance burden  might be reduced. IRS estimates that the accuracy of telephone assistors’ responses to tax  law and account questions was comparable to the same time period last  year and met IRS’s goals. IRS has initiatives to expand and improve on its Web site services. With the exception  of a microphone that sits atop the desk of the walk-in site assistor, contact  recording is similar to the system IRS uses to monitor and assess the  quality of telephone interaction between taxpayers and telephone  assistors. Including submission processing services. Conclusions

Over the last decade, IRS has improved its performance processing tax  returns and providing taxpayer assistance. Recommendations for Executive Action

We recommend that the Acting Commissioner of Internal Revenue direct  the appropriate officials to    determine actions needed to require software vendors to include bar  codes on printed individual income tax returns and the cost of those  actions;   determine the benefits, in terms of processing costs and improved  enforcement, of having all return information available electronically;   determine how much electronic filing would have to increase, either  through electronic filing mandates or bar coding, for the benefits of  transcribing all remaining paper returns to exceed the costs;   develop estimates of the effectiveness of IRS’s volunteer program at  targeting underserved populations; and   determine the feasibility of using contact recording as a method of  monitoring and improving the quality of return preparation assistance at  IRS’s walk-in sites.
Why GAO Did This Study

In 2007, the Internal Revenue Service (IRS) will spend over $3 billion to process returns and provide taxpayer service. Effective service can reduce taxpayers' burden of complying with tax laws and, many tax experts believe, may improve compliance. GAO was asked to assess IRS's performance relative to 2007 goals and prior years' performance including identifying actions that might generate efficiencies and increase compliance. GAO analyzed IRS performance data, reviewed IRS operations at various locations, and interviewed IRS and paid preparer representatives.

What GAO Found

IRS improved most filing season services during 2007, continuing a longer-term trend. Tax return processing exceeded last year's performance by most measures. Electronic filing grew at a faster rate than IRS anticipated and continued to generate savings. Access to IRS telephone assistors was comparable to last year, and the accuracy of responses to questions remained at about 90 percent. The performance of IRS's Web site improved in several measures, such as customer satisfaction. Continuing past trends, more taxpayers used volunteer sites, which are less costly than IRS's walk-in sites. Despite these improvements, IRS could reduce the number of paper tax returns processed and also transcribe all lines from the residual paper returns, making that data more available for enforcement. Two options for reducing paper processing are electronic filing mandates, previously suggested by GAO, and bar coding, which could be required for paper returns prepared on computers and reduces processing costs. Currently, because of the cost, IRS does not transcribe all lines from paper returns. Further, IRS policy is to post the same lines from electronic and paper returns to its enforcement databases. As a result, IRS does not use all tax return information in its automated compliance checking programs. However, IRS does not know the actions needed to require software vendors to include bar codes on printed tax returns; the benefits, in terms of processing savings and improved enforcement, of having all return data available electronically; or how much electronic filing would have to increase, either through mandates or bar coding, for the benefits of transcribing all residual paper returns to exceed the costs. Despite more reliance on its volunteer program, IRS has not evaluated its effectiveness at reaching underserved taxpayers. Further, IRS may be missing an opportunity to assess the quality of return preparation assistance at its walk-in sites through contact recording, a system IRS uses to record and assess the quality of other interactions between its employees and taxpayers.