Objectives, Scope, and Methodology

Our objectives were to assess (1) IRS’ progress in achieving its electronic filing goal, (2) the availability of data needed to develop an electronic filing strategy, and (3) the implications for IRS if it does not reach its electronic filing goal and reduce its reliance on paper. We used IRS data on the average cost to process electronic returns and various types of paper returns in 1993 (the latest available), along with data on the number of returns filed in 1994, to estimate (1) the potential savings if all forms 1040, 1040A, and 1040EZ had been filed electronically in 1994 and (2) the portion of potential savings that IRS realized, given the number of returns that were actually filed electronically in 1994. IRS attributes the decrease in electronic filing in 1995 to steps it took to prevent refund fraud. Since electronic filing began, IRS has focused its marketing efforts on individual income tax returns. IRS Does Not Have Adequate Data to Focus Its Electronic Filing Strategy

IRS recognizes that it needs to increase the appeal of electronic filing to attract more taxpayers. If fewer returns are filed electronically or if the returns filed electronically do not substantially decrease IRS’ paper-processing workload, IRS will have to process more paper, which would decrease productivity and increase costs. If the growth and impact of electronic filing fall short of expectations, IRS’ paper-processing workload will increase. However, these actions are steps IRS is taking to achieve its existing performance goal of 80 million returns.
Why GAO Did This Study

GAO reviewed the Internal Revenue Service's (IRS) plans to maximize electronic filing, focusing on: (1) IRS progress in broadening the use of electronic filing; (2) the availability of data needed to develop an electronic filing strategy; and (3) the implications for IRS if it does not significantly reduce its paper-processing workload.

What GAO Found

GAO found that: (1) IRS will fall far short of its 2001 goal of 80 million electronic returns if the increase in electronic filing continues at its present pace; (2) IRS believes the decrease in the number of returns filed electronically in 1995 was due to its actions against electronic filing fraud; (3) IRS is having little success in increasing the electronic filing of individual 1040 and business tax returns which constitute the bulk of returns and take the most time to process manually; (4) the transmittal fees for electronic filing tend to deter filers unless they need their tax refunds quickly; (5) IRS does not have the data needed to determine whether greater electronic filings of 1040 and business returns would reduce its administrative costs; (6) IRS has contracted to gather some data on why taxpayers do not use electronic filing more and how many returns it could expect if it could motivate people to file electronically; (7) IRS plans to use scanning more to process paper returns, which should reduce some costs; and (8) unless IRS can increase electronic filing, its customer service and paper processing workloads may overwhelm its planned staffing and alter various aspects of its modernization efforts.