Our objectives for this report were to (1) identify the potential benefits of FedState cooperative efforts; (2) determine what, if any, conditions may impede the success of the program; and (3) determine what, if any, FedState program concerns the states have with IRS’ planned reorganization. More sophisticated technology provides additional ways for IRS and the states to reduce taxpayer burden. By exchanging tapes that include taxpayer return data, IRS and the states have been able to identify taxpayers who failed to file returns or who filed returns but owed more taxes. Also, according to IRS, electronic filing reduces administrative costs to both IRS and the states because mathematical errors are detected electronically and transcription errors are eliminated. State Refund Offset Program

The state refund offset program, also referred to as the State Income Tax Levy Program (SITLP), allows IRS to levy state tax refunds to fulfill federal tax debts. Additional FedState Program Actions Could Increase Potential Benefits

While the FedState program offers opportunities for increasing taxpayer compliance, improving taxpayer service, reducing the burden on the taxpayer, and increasing the efficiency of tax administration, IRS has not developed an overall strategy to guide FedState projects to better assure the most efficient use of IRS resources. With performance-based data, IRS national and district offices could make more informed decisions on resource allocations and program priorities. Currently, IRS does not have the project information needed to ensure that the FedState program is managed in a way that maximizes resource investments. IRS did not provide more specific details on the nature of the issues and the impact of staffing and organizational changes on IRS’ ability to measure program results. It is too early to determine what impact the reorganization will have on the program.
Why GAO Did This Study

GAO reviewed the status of the Internal Revenue Service's (IRS) FedState Cooperative Program, focusing on: (1) potential program benefits to taxpayers, IRS, and the states; (2) conditions that may impede program success; and (3) states' concerns on the impact of IRS reorganization on the program.

What GAO Found

GAO found that: (1) the potential benefits of the FedState program include increasing taxpayer compliance, reducing taxpayer burden, and improving the efficiency of tax administration functions; (2) the FedState joint electronic filing program reduces administrative costs for IRS and the states by detecting math errors and eliminating transcription errors; (3) taxpayer data tape exchanges enable IRS and the states to identify taxpayers who fail to file a return or who owe more taxes; (4) the state refund offset program allows IRS to levy state refunds to fulfill the federal tax debt; (5) IRS lacks a centralized, strategic plan for ensuring that the FedState program is achieving the agency's objectives; (6) IRS and the states do not have a system to monitor and assess the results of individual FedState projects; (7) IRS needs to establish performance-based criteria for the program so that district offices can make more informed decisions on resource allocations and program priorities; and (8) some states have expressed concern that the reorganization of IRS will have a negative impact on the FedState program.