	Background

		IRS Processing and Taxpayer Services

Processing: IRS processes millions of paper and electronically-filed  (e-filed) tax returns and validates key pieces of information during the  tax filing season. Installment Agreements

Taxpayers can enter into IAs to pay their tax debts after filing their return  with a balance due. IRS Achieved Processing Efficiency Gains, but Continues to Face Challenges in Providing Service to Taxpayers

		Electronic Filing Continued to Grow

Despite late tax law changes which delayed the start of filing season and  compressed the time that IRS had available to process tax returns, IRS  officials and external stakeholders such as large tax preparation firms  reported relatively smooth processing, with a few exceptions. See Appendix III for  additional information on website use from 2008 through 2013. IRS Has Proposed Eliminating Some Services in 2014, but the Cuts May Not Stop the Deterioration in Performance or Address GAO’s Recommendation from Last Year

In 2012, we noted that IRS needs to dramatically revise its strategy for  providing telephone and correspondence services and recommended that  it define appropriate levels of telephone and correspondence services  based on an assessment of demand and resources among other things.IRS neither agreed nor disagreed with our recommendation, saying it  already has an objective of providing taxpayers with access to accurate  services while managing demand. We  concluded that, with expected levels of resources, reversing the declines  in telephone and correspondence services may require IRS to consider  difficult tradeoffs such as limiting the types of phone calls that would be  answered. IRS reported that it is working on final approval to  implement the service options and bring about a better balance between  demand for service and resources. However, the continued deterioration  in taxpayer service in 2013, high cost of shifting staff from collections  work to the telephones and correspondence, and anticipated level of  telephone service for 2014 all highlight the importance of continuing to  address the recommendation we made last year based on the need for a  dramatic revision in IRS’s strategy. Until IRS develops a  strategy, it risks not communicating expectations about the level of  services it can provide based on the resources available. Table 4 shows that, in fiscal year 2012, IRS approved more than 3 million  new IAs and collected $9.8 billion. IRS’s Identification of and Notification to Potential Non-Filers Takes Months after Filing Deadlines

Beginning in October, IRS uses prior year tax returns, third-party reports,  such as W-2s and Forms 1099, and applications for automatic extensions  of time to file to identify taxpayers who appear to have missed the mid- April tax return filing deadline. After the first match in October, IRS sends notices to non-filers in  November and December requesting the return or a justification for not  filing. Of these, IRS selected more than 3.2 million cases for review and  sent notices to those non-filers requesting the return. As a result,  taxpayer access to IRS’s telephone assistors remained at a low level and  the percentage of overage correspondence grew. By eliminating or  reducing some services IRS should be able to devote more resources to  its continuing services. Fully addressing our recommendation would  result in a strategy that could be used to facilitate a discussion with  Congress and other stakeholders about the appropriate mix of service,  level of performance, and resources. We identified opportunities in the processing of  installment agreements where the existing process could be further  streamlined to reduce resources by standardizing case notes and  reducing unnecessarily redundant data entry. Recommendation for Executive Action

We recommend that the Commissioner of Internal Revenue develop a set  of standardized account entries and eliminate unnecessary redundancy  when entering installment agreement data into accounts. IRS did not state whether it concurred with the recommendation. GAO believes the  recommendation remains valid as discussed in the report.
Why GAO Did This Study

The tax filing season is when IRS processes most tax returns and provides services including telephone, correspondence, and website assistance for tens of millions of taxpayers. IRS budgeted more than $2 billion for these activities in 2013. The filing season is also when IRS begins collecting delinquent taxes by, for example, approving installment agreements and checking for non-filers. GAO was asked to review the 2013 tax filing season. This report (1) assesses IRS's performance in processing tax returns and providing services to taxpayers; (2) describes the installment agreement process and assesses its efficiency; and (3) describes the process for detecting and notifying non-filers. To conduct the analyses, GAO obtained and compared IRS data from 2007 through 2013, reviewed pertinent IRS documents, observed IRS operations, and interviewed IRS officials and experts in tax administration, including tax preparation firms.

What GAO Found

Despite efficiency gains from processing more tax returns electronically, adding website services, and shifting resources from enforcement, the Internal Revenue Service (IRS) was unable to keep up with demand for telephone and correspondence services. Access to IRS's telephone assistors remained at 68 percent from 2012. The percentage of overage paper correspondence (over 45 days old) increased to 47 percent from 40 percent in 2012. In the face of similar trends, last year GAO reported that a dramatic revision in IRS's taxpayer service strategy was needed and recommended IRS take steps to better balance demand for services with available resources. GAO acknowledged this may require IRS to consider difficult tradeoffs, such as limiting some services. In response, IRS has proposed eliminating or reducing some services for 2014 such as answering basic tax law questions only during the filing season. However, IRS officials told GAO the proposed cuts may not be sufficient to stop the deterioration in services. Until IRS develops a strategy, it risks not communicating expectations about the level of services it can provide based on the resources available. IRS could use the strategy to facilitate a discussion with Congress and other stakeholders about the appropriate mix of service, level of performance, and resources.
IRS offers options for installment agreements (IAs) to taxpayers who cannot fully pay their taxes when due. Taxpayers can enter into these agreements online, by phone, and by mail. In fiscal year 2012, IRS approved about 3.2 million new agreements and collected almost $10 billion. IRS devotes about 1,800 full-time equivalent staff to the program but it is not as efficient as it could be. GAO found opportunities to standardize account entries and reduce redundancy by eliminating dual entry of the same data on paper forms and into IRS's computers. IRS officials agreed that opportunities did exist to streamline the process. More standardized and less redundant data entry could reduce resource needs.
IRS detects non-filers by matching third party information (i.e., Form W-2s) with tax returns. The first match is done in October, well after the mid-April tax filing deadline from the previous year, because of the time it takes to receive the third party information and process it. IRS sends notices to non-filers in November and December.

What GAO Recommends

GAO recommends that IRS develop standardized account entries and eliminate unnecessary redundancy in the installment agreement process. IRS did not state whether it concurred with our recommendation. GAO believes the recommendation remains valid as discussed in this report. In addition, GAO continues to believe the prior recommendation that IRS develop a strategy that defines appropriate levels of telephone and correspondence services based on an assessment of demand and resources among other things remains valid and should be addressed.