IRS's 2002 Tax Filing Season: Returns and Refunds Processed	 
Smoothly; Quality of Assistance Improved (20-DEC-02, GAO-03-314).
                                                                 
The tax filing season is when millions of taxpayers file their	 
returns and seek assistance by calling or visiting IRS's offices 
or Web site. Because of the large number of returns and critical 
nature of IRS's filing season activities, GAO was asked to assess
IRS's 2002 filing season performance in processing tax returns	 
and refunds and providing timely and accurate assistance to	 
taxpayers.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-314 					        
    ACCNO:   A05747						        
  TITLE:     IRS's 2002 Tax Filing Season: Returns and Refunds	      
Processed Smoothly; Quality of Assistance Improved		 
     DATE:   12/20/2002 
  SUBJECT:   Internal controls					 
	     Performance measures				 
	     Personal income taxes				 
	     Tax refunds					 
	     Tax returns					 
	     Taxpayers						 
	     Web sites						 
	     IRS Queuing Management System			 
	     IRS Tax Counseling for the Elderly 		 
	     Program						 
                                                                 
	     IRS TeleTax System 				 
	     IRS Volunteer Income Tax Assistance		 
	     Program						 
                                                                 
	     IRS Personal Identification Number 		 
	     Program						 
                                                                 

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GAO-03-314

Report to the Chairman, Subcommittee on Oversight, Committee on Ways and
Means, House of Representatives

United States General Accounting Office

GAO

December 2002 IRS*s 2002 TAX FILING SEASON

Returns and Refunds Processed Smoothly; Quality of Assistance Improved

GAO- 03- 314

The Internal Revenue Service (IRS) processed returns and issued refunds
smoothly and the quality of assistance provided to taxpayers improved in
the 2002 filing season. In light of this, IRS should be commended for the
various efforts it took to prepare for the 2002 filing season and improve
performance. Still, opportunities exist for IRS to further improve aspects
of its performance and some of its performance measures.

In 2002, IRS*s performance included issuing almost all refunds on time,
providing more accurate telephone service than in 2001, and meeting many
of its 2002 performance goals in all areas. IRS also began measuring the
accuracy of assistance at its walk- in sites to obtain better performance
data. In addition, IRS*s redesigned Web site was easier to access and more
user friendly.

IRS*s improved performance can be traced to its use of performance
measures, which are part of its strategy to improve returns processing and
taxpayer assistance as shown below. However, GAO identified opportunities
for IRS to make further improvements. For example, IRS*s suite of
telephone measures lacks an indicator of how long callers wait to speak to
an assistor* a key aspect of assistance that provides useful information
for decision making by external stakeholders.

Although not a primary focus of this report, GAO also found that IRS
lacked comprehensive plans related to the extent and timing of anticipated
workload and staffing changes at its walk- in sites.

IRS*s Primary Filing Season Activities Are Processing Returns and
Assisting Taxpayers

Paper returns 84 million

Electronic returns 47 million

Toll- free calls 104 million

Internet downloads 379 million Walk- in contacts

5 million Taxpayer

assistance Returns

processing IRS Web site Source: GAO*s analysis of IRS*s data.

8 Paper processing centers

3 Electronic processing centers

26 Call- sites & automation

477 Permanent & temporary sites

IRS*S 2002 TAX FILING SEASON

Returns and Refunds Processed Smoothly; Quality of Assistance Improved

www. gao. gov/ cgi- bin/ getrpt? GAO- 03- 314. To view the full report,
including the scope and methodology, click on the link above. For more
information, contact James R. White at 202- 512- 9110 or whitej@ gao. gov.

Highlights of GAO- 03- 314, a report to the Chairman, Subcommittee on
Oversight, Committee on Ways and Means, House of Representatives

December 2002

The tax filing season is when millions of taxpayers file their returns and
seek assistance by calling or visiting IRS*s offices or Web site. Because
of the large number of returns and critical nature of IRS*s filing season
activities, GAO was asked to assess IRS*s 2002 filing season performance
in processing tax returns and refunds and providing timely and accurate
assistance to taxpayers.

GAO recommends that IRS (1) reinstate a telephone assistance caller wait-
time measure, (2) revise its bi- weekly wait- time reports for walk- in
sites, (3) explore the feasibility of revising its sampling plan for
assessing the accuracy of walk- in account assistance, and (4)
comprehensively evaluate walk- in site resource requirements after
clarifying the extent and timing of workload and other changes at the
sites.

In commenting on a draft of this report, IRS cited actions it has taken or
plans to take that appear responsive to three of GAO*s four
recommendations. IRS's comments did not specifically address the
recommendation that bi- weekly wait- time reports be revised.

Page i GAO- 03- 314 2002 Tax Filing Season Letter 1

Results in Brief 2 Scope and Methodology 4 Background 5 IRS Processed
Individual Income Tax Returns and Refunds

Smoothly in 2002 Despite Challenges 7 IRS Exceeded Its 2002 Electronic
Filing Performance Goal and Is

Taking Action to Help Ensure Future Growth 15 Telephone Service Improved
Compared with Last Year 21 Quality of Walk- in Assistance Showed Some
Improvement, While

the Number of Taxpayers Assisted Continued to Decline 28 Performance of
IRS*s Web Site Was Generally Better Than Last

Year, but Improvements Still Needed 35 Conclusions 39 Recommendations for
Executive Action 39 Agency Comments and Our Evaluation 40

Appendix I Data on IRS*s Processing Performance Relative to Fiscal Year
2001 Performance and Fiscal Year 2002 Goals 42

Appendix II Challenges Affecting the 2002 Filing Season and IRS*s Response
45

Advance Tax Refunds and the Rate Reduction Credit Led to Many Errors on
Filed Returns 45 Terrorist Actions Required Tax Relief for Affected
Taxpayers and

Security Enhancements 48 IRS*s Reorganization Required a Shifting of
Computer Files and

Affected Processing Performance 49

Appendix III Changes to Third- Party Authorizations in 2002 50 Authority
to Designate a Third Party Expanded 50 Oral Authorizations Offered 51
Contents

Page ii GAO- 03- 314 2002 Tax Filing Season Appendix IV Results of Surveys
of Taxpayers and Tax

Practitioners Who Prepared Returns on a Computer but Filed on Paper 54

Appendix V IRS Received Fewer E- Mail Questions Via Its Web Site and Did a
Worse Job Responding to the Questions 55

Appendix VI Comments from the Internal Revenue Service 57

Appendix VII GAO Contacts and Staff Acknowledgments 62 GAO Contacts 62
Acknowledgments 62

Tables

Table 1: Number of Individual Income Tax Returns Received, by Filing Type
16 Table 2: IRS*s Performance in Providing Filing Season Telephone

Assistance 24 Table 3: IRS*s Processing Performance Relative to Fiscal
Year 2001

Performance and Fiscal Year 2002 Goals as of September 2002 42 Table 4:
Processed Returns with Rate Reduction Credit Errors as

of September 27, 2002 46 Table 5: Third- Party Authorizations 53 Table 6:
Factors That Influence Preparers of Returns on a

Computer Not to File Electronically and Incentives That Could Influence
Them to File Electronically 54

Figures

Figure 1: IRS*s Primary Filing Season Activities Are Processing Returns
and Assisting Taxpayers 6

Page iii GAO- 03- 314 2002 Tax Filing Season

Figure 2: Highlights of IRS*s Filing Season Preparations, Challenges, and
Responses 12 Figure 3: Number of Individual Income Tax Returns Filed Since

1995 17 Figure 4: Of 104. 1 Million Calls to IRS, 30. 4 Million Were
Covered

by Accessibility and Accuracy Performance Measures 22 Figure 5: IRS Walk-
in Assistance, 1999- 2002 Filing Seasons 33

Abbreviations

CSR customer service representative ETAAC Electronic Tax Administration
Advisory Committee IRS Internal Revenue Service NAP National Account
Profile ODC Oral Disclosure Consent OTIA Oral Tax Information
Authorization PIN personal identification number Q- Matic Queuing
Management System SSN Social Security number TIGTA Treasury Inspector
General for Tax Administration W& I Wage and Investment Operating Division

Page 1 GAO- 03- 314 2002 Tax Filing Season

December 20, 2002 The Honorable Amo Houghton Chairman, Subcommittee on
Oversight Committee on Ways and Means House of Representatives

Dear Mr. Houghton: In response to your request, this report discusses
various aspects of the Internal Revenue Service*s (IRS) performance during
the 2002 tax filing season. 1 It is during the filing season that most
taxpayers have their only contacts with IRS, generally to either seek
assistance or resolve problems, such as computational errors or missing
Social Security numbers (SSN), on their returns. The normal challenges
associated with any filing season were exacerbated in 2002 primarily by a
new tax credit on the individual income tax forms and efforts IRS took in
response to terrorist activities in 2001. Because of the large number of
returns and the essential nature of IRS*s filing season activities, IRS*s
filing season performance is important to taxpayers and the Congress.

This report discusses IRS*s performance in five key filing season
activities: (1) processing individual income tax returns, refunds, and
remittances; (2) increasing the extent to which individual income tax
returns are filed electronically; (3) assisting taxpayers over the
telephone; (4) providing face- to- face assistance at its walk- in
locations; and (5) providing services via its Web site on the Internet.
For each of those five areas, we discuss (1) IRS*s performance compared
with its performance in 2001 and its performance goals for 2002, as well
as any other evidence relating to IRS*s performance and (2) any factors or
initiatives that substantively enhanced or impeded IRS*s performance and
its ability to meet performance goals.

1 Most taxpayers file their returns between January 1 and April 15, which
is the deadline for filing individual income tax returns. However,
millions of taxpayers get extensions from IRS that allow them to delay
filing until as late as October 15.

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 03- 314 2002 Tax Filing Season

We testified before the Subcommittee on Oversight on the interim results
of our assessment in April 2002. 2 Our assessment was based on analyses of
IRS data and data obtained from sources outside IRS, interviews of IRS
officials and persons in the private sector, and observations of IRS
operations.

Available data for each of the five filing season activities we reviewed
indicated that IRS*s performance in 2002 was generally better than or
comparable to its performance in 2001 and that IRS met many of its 2002
performance goals. Overall, individual income tax returns and refunds were
processed smoothly (i. e., without any significant disruption); the use of
electronic filing continued to grow; and the quality of assistance
provided over the telephone, at walk- in sites, and through the Web site
improved.

Processing* Available evidence indicates that IRS was able to smoothly
process about 131 million individual income tax returns and about 99
million refunds in 2002. This assessment is based on IRS*s performance in
2002 compared with its performance in 2001 and its goals for 2002 as well
as other evidence, such as testimony from the tax practitioner community.
IRS*s smooth processing was accomplished despite several challenges that
were unique to the 2002 filing season, including a new rate reduction
credit that led to a significant number of errors that IRS had to correct.
IRS attributed its ability to successfully meet these challenges, in part,
to extensive preparation in advance of the filing season.

Electronic Filing* The number of individual income tax returns filed
electronically grew from about 40.2 million in 2001 to about 46.9 million
in 2002, an increase of about 16.5 percent, and the percentage of
individual tax returns filed electronically reached 35.9 percent. This
16.5- percent increase over the number of returns received electronically
in 2001 was more than IRS*s goal of 15 percent and continued the upward
trend in the number of returns filed electronically since 1995. IRS took
some positive steps, including an increased focus on taxpayers and tax
practitioners who prepare returns on computer but file on paper, that
helped it achieve that increase and that could lead to further increases
in the future.

2 U. S. General Accounting Office, Internal Revenue Service: Assessment of
Budget Request for Fiscal Year 2003 and Interim Results of 2002 Tax Filing
Season, GAO- 02- 580T (Washington, D. C.: Apr. 9, 2002). Results in Brief

Page 3 GAO- 03- 314 2002 Tax Filing Season

Telephone Service* IRS*s performance measures showed that IRS provided
more accessible and accurate telephone service in the 2002 filing season
than in 2001 and met most of its telephone service performance goals. IRS
achieved these results despite an increase in calls due to the rate
reduction credit. Although it is difficult to determine specific cause/
effect relationships, several initiatives that IRS implemented for the
2002 filing season, including the implementation of an accuracy
improvement strategy and enhancements to the telephone call routing
system, likely contributed to the improved service. IRS*s accessibility
and accuracy measures reflect the experiences of those callers who
attempted to reach an IRS assistor (30.4 million calls), but not the
experiences of other callers who received automated service or either hung
up or were disconnected without receiving service (73.7 million calls).

Walk- in Assistance* Despite data limitations, there was enough evidence
to suggest that the accuracy of tax law assistance provided by IRS*s
walkin sites improved in 2002 compared with 2001, although the level of
accuracy (about 50 percent) was still low. Some of that improvement might
be attributed to better training of field assistance employees. Although
field assistance has made and anticipates making more workload and
staffing changes at its walk- in sites, it has no comprehensive plans for
doing so. When we discussed this with field assistance officials, they
told us that they put the changes on hold until they are able to do more
comprehensive planning.

Internet Web Site* Our assessment and external assessments indicated that
IRS*s redesigned Web site, which became operational in January 2002, was
easier to access and more user friendly, although there are certain
aspects of the site that need attention. For example, someone using the
site*s search engine to find information on the earned income credit would
receive a list of over 1,500 items and would have to scroll down several
pages of items before finding reference to the primary publication on that
credit. IRS is aware of this problem and is working to identify solutions.
IRS data also indicated that the Web site was used more often in 2002,
although IRS*s primary measure of usage* number of hits* overstates usage.

We are making recommendations to the Commissioner of Internal Revenue to
improve certain performance measures and to ensure that changes to walk-
in sites and staffing are thoroughly analyzed and planned. In commenting
on a draft of this report (see app. VI), the Acting Commissioner of
Internal Revenue cited actions that IRS has taken or plans to take that
appear responsive to three of our four

Page 4 GAO- 03- 314 2002 Tax Filing Season

recommendations. The Acting Commissioner*s comments on our fourth
recommendation did not speak to the specific issue addressed by the
recommendation.

To assess IRS*s performance in the five key filing season activities
covered by this report, we

 reviewed and analyzed IRS documents and data, including workload and
performance data;  interviewed IRS officials about current operations,
performance

relative to 2001 performance and 2002 goals, and significant factors and
initiatives that affected performance;  observed operations at three of
the eight processing centers operated

by IRS*s Wage and Investment Operating Division (W& I) and four of IRS*s
approximately 470 walk- in locations; 3  observed a leadership conference
and program review at one

processing center;  analyzed information posted to IRS*s Web site,
specifically assessing

the ease of finding information on the site (i. e., navigation) and the
accuracy and currency of data on the site (i. e., content);  reviewed
information from private firms that assessed various aspects

of IRS's Web site;  reviewed information from and interviewed
representatives of various

private organizations that prepare tax returns and participated in IRS and
other conferences about their views on IRS*s 2002 operations and
performance; and  reviewed related congressional testimony and work
performed by the

Treasury Inspector General for Tax Administration (TIGTA). This report
discusses measures that reflect the continuing interest of the
Subcommittee* including the quality, accessibility, and timeliness of
IRS*s performance during the filing season. We did not independently
verify the data reported by IRS or, in most cases, assess the
methodologies used for computing performance measures or the
appropriateness of IRS*s goals.

3 As part of a reorganization that took effect in October 2000, IRS
established four operating divisions that serve specific groups of
taxpayers. The four divisions are (1) W& I, (2) Small Business and Self-
Employed, (3) Large and Mid- Size Businesses, and (4) Tax Exempt and
Government Entities. Our review focused on W& I, which generally serves
taxpayers whose income is from wages and investments and which, as part of
that service, processes individual income tax returns and provides
assistance to taxpayers who call on the telephone or walk into an IRS
office. Scope and

Methodology

Page 5 GAO- 03- 314 2002 Tax Filing Season

However, we recently issued a report that discussed whether the
performance measures that IRS and we use to assess various aspects of
IRS*s filing season performance had certain key desirable attributes, such
as objectivity, reliability, and clarity. 4 Although we reported that some
measures had weaknesses in these and other areas and we made
recommendations to address the weaknesses we identified, IRS and we still
consider the measures useful in providing data to assess performance.

We did our work at IRS headquarters; W& I headquarters and Joint
Operations Center in Atlanta; 5 and W& I processing centers in Atlanta,
Memphis, and Philadelphia and walk- in locations in Georgia. We selected
these offices for a variety of reasons, including the proximity of our
audit teams and the location of IRS managers. We performed our work from
January through November 2002 in accordance with generally accepted
government auditing standards.

IRS*s filing season activities encompass two critical areas* returns
processing and taxpayer assistance. Figure 1 provides information on the
number of returns processed and the extent of assistance provided.

4 U. S. General Accounting Office, Tax Administration: IRS Needs to
Further Refine Its Tax Filing Season Performance Measures, GAO- 03- 143
(Washington, D. C.: Nov. 22, 2002). 5 The Joint Operations Center is the
organization responsible for managing IRS*s telephone operations.
Background

Page 6 GAO- 03- 314 2002 Tax Filing Season

Figure 1: IRS*s Primary Filing Season Activities Are Processing Returns
and Assisting Taxpayers

Note: Workload data in this figure are for the following time periods:
returns processing* 1/ 1/ 02 to 10/ 25/ 02; toll- free telephone* 1/ 1/ 02
to 7/ 13/ 02; walk- in* 1/ 1/ 02 to 4/ 20/ 02; and Internet downloads* 1/
1/ 02 to 8/ 31/ 02.

The Economic Growth and Tax Relief Reconciliation Act of 2001 6 directed
the Secretary of the Treasury to issue advance tax refunds to eligible
taxpayers. Accordingly, about 86 million taxpayers received checks of up
to $600 between July and December 2001. Taxpayers who did not receive an
advance tax refund as part of that process or who received less than the
maximum allowed by law may have been entitled to a rate reduction credit
when filing their tax year 2001 returns in 2002. 7 Accordingly, IRS added
a line to the individual income tax forms for eligible taxpayers to enter
a credit amount and provided a worksheet for taxpayers to use in
determining if they were eligible.

In accordance with the IRS Restructuring and Reform Act of 1998 8 and the
Government Performance and Results Act, 9 IRS established a balanced

6 P. L. 107- 16. 7 The terms *advance tax refund* and *rate reduction
credit* are not synonymous. Taxpayers who were eligible to receive an
advance tax refund in 2001 but who did not receive a check may have been
entitled to a rate reduction credit when filing their tax year 2001
returns. A rate reduction credit would reduce a taxpayer*s 2001 tax
liability and could have resulted in a tax refund once the 2001 return was
filed.

8 P. L. 105- 206.

Paper returns 84 million

Electronic returns 47 million

Toll- free calls 104 million

Internet downloads 379 million Walk- in contacts

5 million Taxpayer

assistance Returns

processing IRS Web site Source: GAO*s analysis of IRS*s data.

8 Paper processing centers

3 Electronic processing centers

26 Call- sites & automation

477 Permanent & temporary sites

Page 7 GAO- 03- 314 2002 Tax Filing Season

performance measurement system to emphasize accountability for achieving
specific results and to reflect its mission and its three strategic goals*
top quality service to all taxpayers through fair and uniform application
of the law, top quality service to each taxpayer in every interaction, and
productivity through a quality work environment. IRS has defined three
elements of a balanced performance measurement system* customer
satisfaction, employee satisfaction, and business results (quality and
quantity measures)* to ensure balance. IRS intends to use balanced
measures to hold managers and frontline staff more accountable for
improving filing season performance. Although IRS had measures of
performance prior to its establishment of balanced measures beginning in
fiscal year 2001, IRS managers have spent much effort revising measures
since that time.

Qualitative and quantitative information indicates that IRS processed
about 131 million individual income tax returns and about 99 million
refunds smoothly (i. e., without any significant disruption, such as a
computer breakdown that could cause major delays in issuing refunds). 10
Part of that information resulted from our comparison of IRS*s processing
performance in 2002 with its performance in 2001 and its goals for 2002.

The smooth processing in 2002 was accomplished despite:  the new rate
reduction credit, which led to a significant number of

errors by taxpayers and tax return practitioners;  the terrorist attacks
of September 11th, which led to IRS reissuing

notices as part of its effort to provide relief to affected taxpayers, and
the subsequent anthrax attacks perpetrated through the mail, which led to
significant security enhancements; and  IRS*s reorganization, which
caused IRS to shift computer files to match

its new organizational units. IRS attributed its success in meeting those
challenges, in part, to extensive preparation in advance of the filing
season. In addition, IRS continued initiatives begun last year to improve
processing performance.

9 The Government Performance and Results Act (P. L. 103- 62) was enacted
to hold federal agencies accountable for achieving program results. IRS*s
balanced measurement system is consistent with the intent of the act.

10 Of the 131 million individual income tax returns, about 84 million were
filed on paper and about 47 million were filed electronically. This
section of the report focuses on IRS*s processing of paper; electronic
filing is discussed later. IRS Processed

Individual Income Tax Returns and Refunds Smoothly in 2002 Despite
Challenges

Page 8 GAO- 03- 314 2002 Tax Filing Season

Regarding IRS*s processing in 2002,  IRS*s performance in 2002 improved
relative to 2001 for five measures

(deposit error rate, deposit timeliness- paper, refund
timelinessindividual (paper), refund error rate* individual (paper), and
refund interest paid). As discussed later, we could not compare IRS*s
performance for three other measures (letter error rate, notice error
rate, and productivity). Table 3 in appendix I describes these eight
measures and shows the results IRS reported for each of the measures as of
September 2002.  IRS met its fiscal year 2002 performance goal for four
measures

(deposit timeliness- paper, refund timeliness* individual (paper), refund
error rate* individual (paper) and refund interest paid) and missed its
goals for two measures (deposit error rate and productivity). As discussed
later, we could not compare IRS*s performance against goals for the other
two measures (letter error rate and notice error rate).  Production data
that IRS uses to monitor operations and identify and

resolve issues that could disrupt operations showed IRS met processing
deadlines and did not experience significant disruptions.  In testimony
given April 2002 before the Subcommittee, the

Commissioner of Internal Revenue testified that, among other things, the
filing season was smooth, with returns being processed on time.  At that
same hearing, (1) H& R Block, the largest tax return preparation

firm, testified that the filing season had gone smoothly with some
exceptions, such as the rate reduction credit, and commented on how well
IRS and the tax preparation industry were working together and (2) a
representative of the National Association of Enrolled Agents 11
characterized the filing season, on the whole, as smooth. 
Representatives of other tax return preparation firms told us that, from

their perspective, processing went relatively smoothly.  Directors,
managers, and staff at processing centers we visited in

Memphis, Atlanta, and Philadelphia voiced similarly positive views about
the filing season and processing based, in part, on their monitoring of
production and inventory levels and their ability to meet processing
deadlines despite the additional error- correction workload resulting from
the rate reduction credit.  W& I*s Director of Submission Processing
characterized processing

activities as smooth because of the lack of major disruptions and IRS*s
ability to handle the extensive error- correction workload and still meet

11 The National Association of Enrolled Agents is a national association
of over 10,000 independent, licensed tax professionals called enrolled
agents. Enrolled agents are licensed by the federal government and are
authorized to appear in place of the taxpayer at IRS. IRS*s Processing
Went

Smoothly

Page 9 GAO- 03- 314 2002 Tax Filing Season

projected production rates and processing timeframes. He and other IRS
officials attributed IRS*s success to several factors, including extensive
planning and close monitoring of tax return receipts and inventory levels
at the eight W& I processing centers through such means as weekly
production meetings and a well- qualified workforce.  According to
TIGTA*s report on the 2002 filing season, IRS had a

successful filing season despite implementing numerous tax law changes
related to the Economic Growth and Tax Relief Reconciliation Act of 2001,
having to correct millions of errors related to the rate reduction credit,
and experiencing problems with its error- correction system. 12 TIGTA
reported that IRS was able to complete the additional workload without any
material slowdowns in processing and issue refunds in a timely manner by
working extra hours when necessary. 13

Because IRS revised its letter error rate and notice error rate
performance measures since last filing season, we could not compare its
performance in 2002 with its performance in 2001 or against its goals for
2002. 14 In computing these error rates, IRS eliminated certain errors,
such as capitalization mistakes, that it referred to as *professionalism
errors.* As a result, IRS established new baselines for these two measures
in 2002. 15 According to IRS officials, the decision to eliminate
professionalism errors in computing these measures was based on the fact
that although those errors may make documents, such as letters and
notices, less professional in appearance, they do not make the documents
inaccurate.

According to IRS officials, changes to measures used to assess processing
activities were necessary and not unexpected because the measures are
relatively new and still under development and because 2002 processing
goals were based on limited 2001 performance data. Furthermore,

12 Although the 2002 Filing Season Was Completed Timely, Customer Service
Can Be Improved During Error Processing, TIGTA, Reference No. 2002- 40-
200, Sept. 26, 2002. 13 According to TIGTA, although employees worked
overtime, the amount of overtime paid employees in the eight W& I
processing centers in 2002 did not increase compared with the amount paid
in 2001.

14 We also could not compare IRS*s performance in 2002 and 2001 relative
to the productivity measure because IRS was revising its data for 2001 at
the time we completed our audit work.

15 Although this change also applied to the refund error rate- individual
(paper) measure, a new baseline for refund error rate- individual (paper)
was not warranted because, according to IRS officials and supporting data
provided by IRS, the policy change did not affect this measure to the
extent it affected the other two. Revisions to Two Measures

Precluded a Complete Quantitative Comparison

Page 10 GAO- 03- 314 2002 Tax Filing Season

although comparisons cannot be made between 2001 and 2002, IRS officials
believe that the measures provide important information to assess current
year performance.

IRS*s ability to process returns and refunds in 2002 without any major
disruptions was enhanced by extensive early preparation and coordination.
That preparation and coordination helped IRS meet the following
significant challenges that were unique to the 2002 filing season:

 Passage of the Economic Growth and Tax Relief Reconciliation Act of
2001, specifically the provisions relating to advance tax refunds and rate
reduction credits.  The September 11, 2001, attacks, which led to actions
by IRS to provide

tax relief to affected taxpayers, and the subsequent anthrax attacks
perpetrated through the mail, which led to significant security
enhancements.  IRS*s shifting of computer files in conjunction with its
reorganization.

Details about these challenges can be found in appendix II. Preparation
and coordination helped ensure smooth processing during the 2002 filing
season. IRS begins extensive preparation well in advance of each filing
season to help ensure smooth processing. Figure 2 reflects some of IRS*s
key activities and associated deadlines in preparation for each filing
season. It also reflects the challenges that IRS faced in planning and
delivering the 2002 filing season and IRS*s responses to those challenges.
IRS Faced Several

Challenges in Processing Returns in the 2002 Filing Season and Took Steps
to Meet Those Challenges

Preparation and Coordination Helped IRS Meet Challenges

Page 11 GAO- 03- 314 2002 Tax Filing Season

Page 12 GAO- 03- 314 2002 Tax Filing Season

Figure 2: Highlights of IRS*s Filing Season Preparations, Challenges, and
Responses

1/ 4

IRS is able to receive tax year 2000 individual income tax returns.
January February March April May June July August September October
December November

2/ 28 Deadline for accepting computer systems changes in response to
legislative and other changes in preparation for the 2002 filing season.

4/ 16 Deadline for taxpayers to either file their individual income tax
returns for tax year 2000 or get an extension. a late- May Deadline

for issuing refunds on timely filed returns without paying interest.

9/ 1 IRS begins testing initial changes to the computer systems for the
2002 filing season.

10/ 15

Final deadline for filing tax year 2000 individual income tax returns with
extensions.

mid- Nov. IRS checks for operability of computer systems changes.

mid- Dec. IRS conducts final testing of the computer systems.

Filing season challenges and IRS's responses: 6/ 7 Enactment of

tax relief legislation.

7/ 1 - 12/ 1

IRS issued advance tax refund checks to taxpayers.

7/ 30

IRS updated computer systems to address tax relief legislation.

10/ 1

IRS held leadership conferences and established new office to coordinate
filing season preparations and mitigate potential problems.

10/ 1 - 12/ 1

IRS updated computer systems to further address tax relief legislation and
granted tax relief to taxpayers affected by 9/ 11 terriorist actions.

mid- Oct.

Anthrax attacks perpetrated through the mail.

12/ 1 Initial and final testing of the computer systems were run
concurrently due to extensive changes from the tax relief legislation, tax
relief to taxpayers affected by 9/ 11, and shifting computer files to
match IRS's reorganization.

2001 Filing season annual tasks and deadlines:

9/ 11

Terrorists actions against the United States.

mid- Nov.

IRS established a committee to begin identifying security enhancements for
handling mail.

Page 13 GAO- 03- 314 2002 Tax Filing Season

a The deadline for filing tax year 2000 individual income tax returns was
April 16, 2001, because April 15 was a Sunday.

IRS began preparing for the 2002 filing season by translating tax law
requirements into computer system changes and testing those system changes
in early 2001. As IRS continued preparing for the filing season, it had to
make changes to the computer systems to accommodate the tax law changes
related to the rate reduction credit and test those changes concurrently
with regular testing and September 11 work. In March

January February March April May June July August September October
December November Filing season challenges and IRS's responses: 2002

Filing season annual tasks and deadlines: 1/ 4

IRS begins receiving 2001 individual income tax returns.

Filing season annual tasks and deadlines: 2/ 28 Deadline

for computer systems changes as a result of legislative and other changes
in preparation for the 2003 filing season.

4/ 15 Deadline for taxpayers to file either their individual income tax
returns for tax year 2001 or get an extension.

5/ 30 Deadline for issuing refunds on timely filed returns without paying
interest.

9/ 1 IRS begins testing initial changes to the computer systems for the
2003 filing season.

10/ 15

Final deadline for filing the individual income tax return for year
2001with extensions.

mid- Nov. IRS checks for the operability of computer systems changes.

mid- Dec. IRS conducts final testing of the computer systems.

7/ 12

By this date, IRS received 8 million additional returns, of which
approximately 2 million had rate reduction credit errors. IRS corrected
these errors.

1/ 23 IRS began issuing a series of news releases informing the public
about how to handle the rate reduction credit on their returns.

2/ 14 By this date, IRS received 31million returns, of which more than 1
million had rate reduction credit errors. IRS corrected these errors.

3/ 15 By this date, IRS received 14 million additional returns, of which
approximately 2 million had rate reduction credit errors. IRS corrected
these errors.

4/ 19 By this date, IRS received 72 million additional returns, of which
approximately 2 million had rate reduction credit errors. IRS corrected
these errors.

9/ 9- 11/ 30

IRS issued additional rate reduction credit checks to about 1.7 million
taxpayers.

Source: GAO's analysis of IRS's data.

Page 14 GAO- 03- 314 2002 Tax Filing Season

2002, TIGTA concluded that IRS appropriately prepared for the effective
processing of tax returns by modifying its computer systems, updating
procedural and training manuals, and performing staffing analyses. 16 In
responding to that report, IRS officials indicated that preparatory
efforts were successful and were instrumental in ensuring smooth
processing.

IRS also established a new office* the Release and Filing Season Readiness
Office* in October 2001 to support the coordination of computer system
development, testing, and operation in the actual processing environment.
Among other things, this office helped IRS respond to changing priorities
and unanticipated challenges by monitoring the status of computer system
changes, facilitating discussions between information technology and other
processing units on how to mitigate problems, and helping support and
coordinate testing and resources.

IRS implemented or expanded several initiatives to improve processing
performance for both the 2002 and 2003 filing seasons. For example:

 IRS established site- level performance goals in 2002 to allow better,
more individualized comparison of each processing center*s performance
against its previous performance and toward corporate goals. According to
IRS officials, these site- level comparisons should help identify best
practices.  In October 2001, IRS conducted a 2- day *leadership
conference* at all

eight W& I processing centers to communicate site goals and train managers
and employees on the importance of performance measures and individual
employees* role in helping achieve goals. IRS officials credit the
conferences, in part, with helping improve performance in 2002.  Given
the perceived success of last year*s leadership conferences, IRS

conducted similar conferences in 2002. At the same time, IRS officials
assessed whether the processing centers and employees were following
procedures when sampling returns for review and reporting performance data
for balanced measures. As a result, IRS identified issues that can be
corrected by updating processing guidance, which will likely improve
performance. In addition, IRS identified local procedures to help reduce
the interest paid on refunds that officials said are being communicated to
the other centers as a best practice.

16 The Internal Revenue Service Certifies Its Readiness to Process
Individual Income Tax Returns in 2002, TIGTA, Reference No. 2002- 40- 080,
Mar. 29, 2002. IRS Implemented or

Expanded Initiatives to Improve Processing Performance

Page 15 GAO- 03- 314 2002 Tax Filing Season

 During the 2002 filing season, IRS expanded the third- party checkbox
authorization, to allow taxpayers to designate friends, family members, or
paid practitioners to help resolve problems IRS might encounter in
processing their returns, such as a missing SSN, that could result in
incorrectly computing a refund, for example. See appendix III for more
information on the third- party checkbox authority.

IRS received about 47 million individual income tax returns
electronically, or about 36 percent of all individual income tax returns
filed, as of October 25, 2002. The growth rate in 2002 projected through
2007 would bring IRS very close to its long- term goal of 80 percent of
all individual income tax returns filed electronically by 2007. 17
However, the Electronic Tax Administration Advisory Committee (ETAAC) 18
does not believe that the current growth rate can be sustained and,
instead, expects the growth rate to decline. According to ETAAC, if IRS is
to continue or increase its current growth rate, it needs to overcome
various barriers to electronic filing. IRS took several steps that were
aimed at overcoming existing barriers and that may have helped it exceed
its electronic filing goal for 2002. Those steps could lead to more growth
in the future. In addition, two initiatives planned for 2003 could further
encourage many taxpayers and practitioners to convert from paper filing to
electronic filing.

As shown in table 1, the number of individual tax returns filed
electronically grew from about 40.2 million in 2001 to about 46.9 million
in 2002* an increase of about 16.5 percent* and the percentage of
individual income tax returns filed electronically reached 35.9 percent.
This 16.5- percent increase over the number of returns received
electronically in

17 This section discusses the measures that IRS uses to evaluate
electronic filing performance compared to past performance, 2002 goals,
and IRS*s long- term goal for individual income tax returns. The report we
issued on IRS*s filing season performance measures (GAO- 03- 143) includes
many performance measures related to electronic filing that are not
discussed in this report because those measures relate to other returns,
such as those from businesses.

18 The IRS Restructuring and Reform Act of 1998 mandated that the
Secretary of the Treasury convene an electronic commerce advisory group to
ensure that the Secretary receives input from the private sector on IRS*s
plan to increase electronic filing. ETAAC was created in 1998 in response
to that mandate and, among other things, is required to report to the
Congress annually on IRS*s progress towards meeting the electronic filing
goals set in the act. IRS Exceeded Its 2002

Electronic Filing Performance Goal and Is Taking Action to Help Ensure
Future Growth

Electronic Filing Continued to Grow

Page 16 GAO- 03- 314 2002 Tax Filing Season

2001 was more than IRS*s goal of 15 percent and continued the upward trend
in the number of returns filed electronically since 1995.

Table 1: Number of Individual Income Tax Returns Received, by Filing Type

Number of returns in thousands

Filing type 1/ 1/ 00 to 10/ 27/ 00 1/ 1/ 01 to

10/ 26/ 01 Percentage

change 2000 to 2001 1/ 1/ 02 to

10/ 25/ 02 Percentage

change 2001 to 2002

Paper 92,322 89,834 -2.69 83,816 -6.70

Electronic

Traditional a 25,211 28,988 14.98 33,286 14.83 On- line b 5,022 6,838
36.16 9,428 37.88 TeleFile c 5,161 4,419 -14.38 4,176 -5.50

Subtotal 35,394 40,245 13.71 46,891 16.51 Total 127,716 130,079 1. 85
130,708 0.48

Percentage filed electronically 27.7 30.9 35.9 Source: IRS data. Note:
Totals may not add due to rounding. a Traditional electronic filing
involves the transmission of returns over communication lines through a

third party, such as a tax return practitioner, to an IRS processing
center. b On- line returns are prepared and transmitted by taxpayers
through on- line intermediaries using personal computers and commercial
software. c Under TeleFile, certain taxpayers who are eligible to file a
Form 1040EZ are allowed to file using a

toll- free number on touch- tone telephones.

Figure 3 shows that the growth in electronic filing in 2002 continued the
upward trend started in 1995 and the rate of growth in 2002 was larger
than the rate of growth in 2001.

Page 17 GAO- 03- 314 2002 Tax Filing Season

Figure 3: Number of Individual Income Tax Returns Filed Since 1995

Assuming continued annual growth rates of 16.51 percent for individual
returns filed electronically and 0.48 percent for the total number of
individual tax returns filed, about 75.2 percent of all tax returns will
be filed electronically by 2007, slightly below the long- term goal of 80
percent. However, in its 2002 report to the Congress, ETAAC said that
although the electronic filing goal for 2002 was exceeded, the trend of
electronic filing is clearly towards lower annual growth rates, primarily
for the following reasons:

 The taxpayers most easily attracted to electronic filing have already
made the switch to electronic filing while the remaining taxpayers will be
more difficult to convert.  As the base of total filers and electronic
filers grows, the number of

new electronic filers needed to sustain the same growth rate increases.

Percent 0 5.0

10.0 15.0

20.0 25.0

30.0 Year 1995 1996 1997 1998 1999 2000 2001 2002 Numbers in thousands

0 5,000

10,000 15,000

20,000 25,000

30,000 35,000

40,000 45,000

50,000

Number of electronic returns Percentage increase Source: IRS data.

Page 18 GAO- 03- 314 2002 Tax Filing Season

Each year, IRS surveys taxpayers and tax practitioners who electronically
file to determine their satisfaction level with electronic filing. The
survey for 2002 showed that about 98 percent of the responding taxpayers
and 85 percent of the responding tax practitioners were either satisfied
or very satisfied with electronic filing, which compares favorably with
IRS*s goal of 85 percent. Although the percentage of responding
practitioners who expressed overall satisfaction was relatively high (85
percent), it was lower than in 2001 (90 percent), which, in turn, was
lower than in 2000 (93 percent). It is not clear why the level of
satisfaction among practitioners has been decreasing because the customer
satisfaction survey does not probe for reasons behind a respondent*s
choices.

Over the years, IRS has identified many impediments to electronic filing,
including privacy and security concerns, cost, a lack of awareness of or
interest in electronic filing, an inability to file all forms and
schedules electronically, and a need to send certain paper documents to
IRS even if the return was filed electronically. In 2002, IRS took
numerous steps to alleviate these impediments and thus encourage more
electronic filing that included the following:

 Increasing the electronic filing marketing budget from $9 million in
2001 to about $15 million in 2002 and focusing the marketing campaign on
taxpayers and practitioners who filed computer- prepared returns on paper.
 Mailing a postcard to about 23 million taxpayers, including about

8 million taxpayers who had prepared their returns on a computer but filed
on paper, informing them of the benefits of electronic filing and the
self- select personal identification number (PIN) program. The postcard
also informed them that a professional tax practitioner could be used to
file their returns electronically and explained how the selfselect PIN can
be used to sign returns filed through a tax practitioner.  Mailing two
different letters to tax practitioners. The first letter was

sent to practitioners who were already participating in the electronic
filing program to thank them for participating and encourage them to
continue to support the program. The second letter was sent to
practitioners who were not participating in the electronic filing program
and told them about the benefits of electronic filing, changes that had
been made to the program, and pending changes. IRS enclosed a document
with both letters that provided more information on the benefits of
electronic filing and the self- select PIN program. In total, about
250,000 letters were sent to practitioners.  Reinstating the practitioner
PIN program. In 2001, practitioners

informed IRS that they liked the practitioner PIN program, which IRS
Taxpayers and Tax

Practitioners Report Being Satisfied with Electronic Filing

IRS Initiatives May Have Helped It Exceed Its 2002 Electronic Filing
Performance Goal

Page 19 GAO- 03- 314 2002 Tax Filing Season

had terminated in favor of the self- select PIN program, and would like to
see it reinstated. As of October 25, 2002, 83.9 percent of the tax returns
prepared by practitioners and signed by a PIN were signed through the
practitioner PIN program. The other 16.1 percent were signed using a self-
select PIN.  Changing the self- select PIN program at the request of tax

practitioners. In 2002, taxpayers entered only their adjusted gross income
from the prior tax year to verify their identity. In 2001, taxpayers had
to enter not only their adjusted gross income but also their total tax to
verify their identity. Tax practitioners wanted the number of items used
to verify identity* known as *shared secrets** reduced from two to one,
because errors related to shared secrets resulted in numerous electronic
tax returns being rejected. Consistent with the reduction in the number of
shared secrets from two to one, the number of reject conditions on
electronic tax returns as a result of shared secrets went down from about
2.1 million in 2001 to about 1.3 million in 2002.  Making 30 additional
forms and schedules eligible to be filed

electronically, thereby enabling, according to IRS, 99 percent of all
individual forms and schedules to be filed electronically.

Although no information is available to confirm the extent to which these
actions, either individually or collectively, contributed to the growth of
electronic filing, it seems reasonable to assume that they had a positive
effect since they address most of the identified impediments noted
earlier.

IRS also took steps to obtain additional information on impediments to
electronic filing. As in the past, for example, it held electronic filing
forums and practitioner meetings and conducted attitudinal surveys and
market research. One significant step was the surveying of taxpayers and
tax practitioners who prepared returns on a computer but filed them on
paper. We had recommended such surveys in our report on the 2001 filing
season in response to the fact that about 40 million computer- prepared
individual income tax returns were filed on paper in 2001. 19

The surveys revealed that taxpayer and tax practitioner costs, security
and technology concerns, and a perceived lack of interest were among the
primary reasons why taxpayers and tax practitioners are not filing
electronically. With respect to the perceived lack of interest, (1) 87
percent

19 U. S. General Accounting Office, Tax Administration: Assessment of IRS*
2001 Tax Filing Season, GAO- 02- 144 (Washington D. C.: Dec. 21, 2001).

Page 20 GAO- 03- 314 2002 Tax Filing Season

of taxpayers who used paid practitioners indicated on the survey that
their practitioner never discussed electronic filing with them and 4
percent said that their practitioner recommended against electronic filing
and (2) 66 percent of tax practitioners said that they did not offer
electronic filing because their clients did not ask for it. See appendix
IV for more details on what survey respondents cited as factors that
strongly influenced them not to file electronically and incentives that
could encourage them to do so.

IRS has two initiatives planned for the 2003 filing season* making
electronic filing free for millions of taxpayers and offering services to
practitioners who file a certain number of returns electronically. IRS
intends for these initiatives to address two major impediments* the cost
to taxpayers and the lack of interest on the part of some practitioners.

In an attempt to remove cost as an impediment to electronic filing, 20 IRS
entered into an agreement with a consortium of companies in the electronic
tax preparation and filing industry that will offer free on- line tax
filing services via IRS*s Web site. IRS estimates that 78 million
taxpayers will be eligible to file their tax returns for free through this
consortium. However, in its 2002 report to the Congress, ETAAC stated that
lack of access to a computer and/ or the Internet may prevent many of the
78 million eligible taxpayers from taking advantage of the free- filing
service.

To address the lack of interest on the part of some practitioners, IRS
plans to offer electronic services (such as taxpayer identification number
matching and account resolution) to tax practitioners who file a certain
number of returns electronically. The aim of this initiative is to provide
practitioners who file electronically with valuable tools to improve their
service to their customers and reduce costs. In its 2002 report to the
Congress, ETAAC stated that electronic services are likely to provide a
major incentive for practitioners to file their clients* returns
electronically.

20 To electronically file, taxpayers must generally either pay a tax
practitioner to prepare and submit their tax return, pay a transmitter to
transmit their tax return, or purchase a software package and file their
tax return on- line through an on- line intermediary using a personal
computer. Planned Initiatives for 2003

Could Lead to More Electronic Filing

Page 21 GAO- 03- 314 2002 Tax Filing Season

IRS*s performance measures showed that (1) telephone service was more
accessible and accurate during the 2002 filing season than it was in
2001and (2) IRS met most of its 2002 performance goals. IRS implemented
several initiatives and strategies to improve performance, particularly in
the area of accuracy where improvement was greatest.

IRS serves telephone callers either through assistors, who are also known
as customer service representatives (CSR), or automation, depending on how
callers respond to menu prompts. As shown in figure 4, of the about 104.1
million calls that IRS received in the 2002 filing season,

 21.2 million of the 30.4 million calls IRS estimates were from callers
attempting to reach an assistor 21 actually reached one;  42.9 million
calls resulted in the caller receiving automated service; and  40 million
calls resulted in the caller hanging up or being disconnected

without receiving service, including callers who received a busy signal.
21 IRS determines which callers were attempting to reach an assistor based
on how they responded to menu prompts. For callers who received busy
signals and, therefore, did not get a chance to respond to the menu, IRS
estimates how many were attempting to reach an assistor based on the
percentage of calls that were served by assistors that week. IRS*s
estimate of the callers who attempted to reach an assistor does not
reflect callers who did not get a busy signal but yet hung up before
completing the menu responses necessary to determine the type of
assistance (assistor or automation) that would have handled their calls.
Telephone Service

Improved Compared with Last Year

Page 22 GAO- 03- 314 2002 Tax Filing Season

Figure 4: Of 104.1 Million Calls to IRS, 30. 4 Million Were Covered by
Accessibility and Accuracy Performance Measures

Note: Data are for calls made to IRS*s three main live- and- automated
assistance numbers; its special number for victims of the September 11,
2001, terrorist actions; and its automated- service- only (TeleTax) number
from January 1, 2002, through July 13, 2002.

The measures that IRS and we used to assess the accessibility and accuracy
of IRS telephone assistance during the 2002 filing season, which are
discussed in the next section, reflect only the calls that IRS estimates
were from callers attempting to reach an assistor. 22 Specifically, the
CSR level of service measure reflects the experience of the 30.4 million
callers who IRS estimates were attempting to reach an assistor, and other
measures reflect the experiences of the 21.2 million callers who actually
reached an assistor. The measures do not reflect the experiences of the
73.7 million calls from callers who either completed an automated service

22 IRS has other measures that we are not reporting on because they do not
provide adequate information to make conclusions about the ease with which
taxpayers reached IRS or the accuracy of the responses they received after
reaching IRS.

42.6 million 0.3 million

21.2 million IRS*s estimate of the calls from callers

attempting to reach an assistor (30.4 million)

31.1 million 8.9 million

Reached an assistor (21.2 million)

Received automated service (42.9 million)

Hung up or disconnected without receiving service (40.5 million) = 104.6
million calls to IRS

Source: GAO*s analysis based on IRS*s data

Page 23 GAO- 03- 314 2002 Tax Filing Season

or hung up or were disconnected without receiving service. 23 As a result,
for example, the measures do not reflect an increased number of calls in
2002 from callers who hung up without completing menu responses or an
automated service. According to IRS officials, the biggest part of this
increase was probably due to problems with IRS*s telephone service menu,
particularly during the early weeks of the filing season. When IRS revised
the menu in mid- February, it noted a decline in the hang- up rate, which
may indicate that taxpayers had been frustrated or confused by the menu.

Table 2 provides information on IRS*s performance in providing telephone
assistance to taxpayers who were attempting to reach or who received
service from an IRS assistor in the 2002 filing season. 24 In summary, the
table shows the following:

 A greater percentage of calls got through and received service, and IRS
met two of its three accessibility goals for 2002. IRS likely would have
performed better in the other measure, CSR level of service, if not for
the significant demand for telephone assistance related to the rate
reduction credit.  The accuracy of assistance improved considerably in
2002 compared

with 2001, and IRS met most of its goals. The quality and correct response
rates for both tax law and account calls were better in 2002, indicating
that assistors more closely adhered to IRS procedural guidance and more
often provided callers accurate information and service.  Customer
satisfaction was comparable to 2001. Detailed data show that

customers who were successful in reaching an assistor were least satisfied
with the time they had to wait to speak with an assistor in both 2001 and
2002.

23 In GAO- 03- 143, we recommended that IRS establish measures for its
automated telephone services. 24 According to IRS officials, the filing
season for telephone assistance generally begins January 1 and ends around
July 15 each year. Although the tax return filing deadline is April 15,
the demand for telephone assistance continues past the deadline as
taxpayers call to, among other things, inquire about the status of their
refunds or respond to notices they received from IRS about their filed
returns. Telephone Service Was

More Accessible and Accurate Than Last Year, and Most 2002 Goals Were Met

Page 24 GAO- 03- 314 2002 Tax Filing Season

Table 2: IRS*s Performance in Providing Filing Season Telephone Assistance
2001 2002 Accessibility measures a Actual Actual Goal

CSR level of service b 68% 71% 72% Assistor response level c 39% 51% 44%
Average speed of answer d 337 seconds 268 seconds 289 seconds

Accuracy measures e

Tax law quality rate f 75% +/- 1% 82% +/- 1% 78% Accounts quality rate f
69% +/- 1% 76% +/- 1% 72% Tax law correct response rate g 79% +/- 1% 85%
+/- 1% 85% Accounts correct response rate g 88% +/- 1% 91% +/- 1% 93%

Customer satisfaction h

Wage and Investment January through March April through June

3.45 +/- .03 3.46 +/- .03

3.51 +/- .03 3.43 +/- .03 3. 49 Small Business/ Self- Employed January
through March April through June

3.49 +/- .03 3.43 +/- .03

3.52 +/- .03 3.47 +/- .03 3. 58

Source: IRS data. a Accessibility data are based on actual counts from
January 1 through July 13. The actual data shown

here for the 2001 filing season differ from data we cited in an earlier
report. See U. S. General Accounting Office, IRS Telephone Assistance:
Limited Progress and Missed Opportunities to Analyze Performance in the
2001 Filing Season, GAO- 02- 212 (Washington, D. C.: Dec. 7, 2001).
According to IRS, the difference in CSR level of service is due to an
error in data it provided and a change in the way it calculates the
measure, and differences in the other accessibility measures are due to
enhancements to the telephone database that resulted in more accurate
data. b The percentage of callers that IRS estimates attempted to reach an
assistor that received service, including some callers that received
automated service. c The percentage of callers that waited 30 seconds or
less before speaking to an assistor.

d The average number of seconds callers waited before speaking to an
assistor. e Accuracy measures are based on representative samples and are
estimated at the 90- percent confidence level from January through June. f
The percentage of calls in which assistors followed all IRS procedures for
the call type and provided

correct answers. g The percentage of calls in which assistors provided
correct answers for the call type, discounting

procedural errors. h The overall satisfaction rating on a 4- point scale
based on a survey of callers who reached an assistor, estimated at the 95-
percent confidence level. IRS compiles and reports these data quarterly by
the two operating divisions that provide toll- free telephone assistance.

The volume of calls is a key factor that can affect CSR level of service.
As we previously reported, IRS data suggest that demand for telephone
assistance related to the rate reduction credit was significant during the
2002 filing season and negatively affected telephone performance,
especially in mid- to late- February, when the greatest number of
taxpayers CSR Level of Service Improved

Despite Increased Volume Due to the Rate Reduction Credit

Page 25 GAO- 03- 314 2002 Tax Filing Season

called with questions about the credit. 25 Although performance declined
significantly during this period of peak demand for information on the
rate reduction credit, IRS performed well enough during the rest of the
2002 filing season so that, as shown in table 2, the CSR level of service
in 2002 improved compared with 2001, and IRS almost met its goal.
According to IRS officials, although taxpayers had greater difficulty
getting access to IRS*s telephone system during certain weeks* when there
was great demand for rate reduction credit assistance and, as discussed
earlier, there were problems with IRS*s telephone service menu* taxpayers,
overall, had a considerably better telephone service experience in the
2002 filing season than in 2001.

Effective October 2001, IRS stopped using the assistor response level and
average speed of answer measures to assess its performance in providing
telephone assistance. According to IRS officials, IRS adopted these
measures in fiscal year 2001 to focus its efforts on improving access and
allow it to gauge its performance against world- class telephone service
organizations. However, officials said that subsequent experience showed
that IRS*s telephone call sites do not have control over, nor are they
directly accountable for, key factors that affect these measures, such as
the volume of calls routed to them.

Although the sites* control over these measures may be limited, they are
an important component of any assessment of IRS*s telephone performance
because they measure a key aspect of the customer experience* how long
callers wait to speak to an assistor. In that regard, selected noteworthy
public and private call centers we studied often used caller wait- time
measures to set service- level goals and benchmarked their performance
against the best practices of leading telephone service providers. 26
Without a caller wait- time measure similar to those used by others, IRS*s
suite of telephone measures is missing an important indicator of the ease
with which taxpayers reach IRS.

According to IRS officials, the current accuracy measures, while useful in
assessing the filing season, do not adequately reflect customer needs and

25 U. S. General Accounting Office, Advance Tax Refund Program Was a Major
Accomplishment, but Not Problem Free, GAO- 02- 827 (Washington, D. C.:
Aug. 2, 2002). 26 U. S. General Accounting Office, Customer Service: Human
Capital Management at Selected Public and Private Call Centers, GAO/ GGD-
00- 161 (Washington, D. C.: Aug. 22, 2000). IRS Made Changes to Its

Measures and Plans to Make More

Page 26 GAO- 03- 314 2002 Tax Filing Season

employee performance. With the assistance of a contractor, IRS developed
new measures that it believes better reflect what matters most to its
customers* accuracy, timeliness, and professionalism. IRS plans to
baseline the new measures in 2003 and use them in 2004 to replace the
current accuracy measures.

IRS implemented several initiatives to improve telephone service in the
2002 filing season. For example, IRS established accessibility performance
measures and goals for its call sites and enhanced its call- routing
capabilities to provide taxpayers better access to assistors. IRS also
implemented several initiatives, including earlier assistor training, as
part of a strategy to improve accuracy and piloted a new hiring program to
get candidates with higher aptitudes and skill levels.

In 2002, IRS established two new accessibility performance measures*
services provided and total handle time 27 *and related goals for its 26
telephone call sites. These measures replace those discontinued in 1998.
IRS officials said that the measures and goals were intended to provide
the sites with incentives for handling calls efficiently and answering
their share of total calls, thereby enhancing their contributions to
meeting IRS*s overall accessibility goals. According to IRS officials, the
new measures led to improved performance by giving the call sites a
clearer understanding of what they were expected to achieve and how their
performance would help IRS achieve its goals. IRS took action to get
employees to understand the measures and contribute to achieving goals,
by, for example, holding *leadership conferences* for telephone operations
managers similar to those conducted in the processing centers.

IRS enhanced its call routing system by implementing a feature, called
*network call screening.* Before network call screening, IRS*s contract
long- distance service provider routed calls to one of IRS*s call sites
where the caller heard and responded to a menu of options. The number of
calls IRS received often exceeded its telephone system capacity, resulting
in many calls receiving busy signals. Also, because calls were routed
before the callers had indicated, through use of a menu, the subject
matter of their calls, callers were sometimes given access to only
automated service,

27 *Services provided* counts the number of times callers reached
assistors. *Handle time* measures the total time an assistor spent talking
to a taxpayer, keeping the taxpayer on hold, and finishing the call* up to
the time the assistor indicated his or her readiness to receive another
call. IRS Implemented Various

Initiatives to Improve Telephone Service

IRS Established Accessibility Performance Measures and Goals for Call
Sites

IRS Enhanced Call Routing

Page 27 GAO- 03- 314 2002 Tax Filing Season

even though assistors were available to handle their calls. With network
call screening, callers hear and respond to the menu options before the
call is routed to a call site. According to IRS officials, this reduced
the number of calls that receive busy signals, increased the chance that a
caller would reach an assistor, and decreased wait times. In that regard,
(1) IRS data show that the number of busy signals callers received
decreased from about 1.5 million in the 2001 filing season (or about 3
percent of total call attempts) to about 0.7 million in the 2002 filing
season (or about 1 percent of total call attempts) and (2) an IRS analysis
showed that the percentage of calls sent to automated- only service
decreased from 11 percent in the 2001 filing season to 8 percent in the
2002 filing season.

According to IRS officials, improving the accuracy of telephone assistance
was a major emphasis in planning for the 2002 filing season. With the
assistance of a contactor, IRS analyzed its accuracy data to identify
problems and developed initiatives to improve accuracy. IRS*s accuracy
rates in January were historically the lowest of any month for tax law
inquiries and, according to the analysis, a classic learning curve was
evident from January through April. IRS implemented several initiatives to
combat this January slump, including training assistors in their
specialized topics in November and December and requiring their managers
to certify them, by the start of the filing season, as capable of
providing the correct response to taxpayer questions. Other initiatives
included reviewing and correcting the guidance assistors use to respond to
taxpayer questions and assigning call site managers ownership of selected
tax law topics, thus making them accountable for assistor training and
improving assistors* performance in their assigned topics.

For the 2002 filing season, IRS piloted a new hiring method at some call
sites to improve service to taxpayers by hiring better- qualified
assistors. The new method used live role- playing to identify candidates
with the required competencies for successful job performance, free up
front- line manager*s time previously spent interviewing possible
candidates, and reduce assistor turnover. As we previously reported, IRS
officials have said that attrition has negatively affected IRS*s
performance, 28 and the lack of time to interview applicants has led to
concerns about the suitability of

28 GAO- 02- 212. IRS Implemented an Accuracy

Improvement Strategy IRS Tested a New Process for Hiring Better Qualified
Assistors

Page 28 GAO- 03- 314 2002 Tax Filing Season

new hires. 29 With respect to attrition, IRS data showed that the turnover
rate at sites that hired under the new process was 9.3 percentage points
lower than the turnover rate at comparable call sites that used the
traditional hiring method. IRS plans to expand this initiative in 2003.

Quality of walk- in assistance improved and wait- time was about as good
as last year, based on available information, although fewer taxpayers
were assisted. The accuracy of walk- in tax law assistance* the only type
of walk- in assistance 30 for which quality was measured in recent filing
seasons* appears to have improved compared with the 2001 filing season.
IRS took several steps in 2002 to improve walk- in service* some may have
helped improve the accuracy of tax law assistance in 2002, the effect of
others should be realized later. IRS also anticipates changes in the
workload to be handled by walk- in staff. Thus, although the number of
taxpayers assisted at the walk- in sites declined about 20 percent over
the past 3 filing seasons, IRS has been increasing the number of field
assistance staff years used to provide that assistance. However, the
extent and timing of the workload changes are not clear, and field
assistance does not have comprehensive plans that clearly relate that
workload to resource needs.

The Congress directed TIGTA to review the accuracy of assistance provided
by all of IRS*s more than 400 walk- in sites. TIGTA expects to complete
its review in fiscal year 2003. From January through April 2002, TIGTA
reviewers made 157 anonymous visits to 77 walk- in sites,

29 U. S. General Accounting Office, IRS Telephone Assistance:
Opportunities to Improve Human Capital Management, GAO- 01- 144
(Washington, D. C.: Jan. 30, 2001). 30 In general, taxpayers who visit IRS
walk- in locations can obtain (1) tax forms and publications; (2) answers
to questions about the tax law; (3) assistance with their tax accounts;
(4) limited return- preparation assistance; and (5) various other types of
assistance, such as help getting a taxpayer identification number. Quality
of Walk- in

Assistance Showed Some Improvement, While the Number of Taxpayers Assisted
Continued to Decline

Accuracy of Tax Law Assistance by Walk- in Sites Improved Since Last Year
but Remains Low

Page 29 GAO- 03- 314 2002 Tax Filing Season

asking two tax law questions on each visit. TIGTA found that only about 50
percent of its questions were answered correctly. 31

The reviews TIGTA did in 2002 were not comparable to the reviews it did in
2001 because TIGTA asked questions from a broader range of tax law topics
in 2002 (i. e., 22 topics in 2002 compared with 4 topics in 2001). It
seems reasonable to assume, and TIGTA agrees, that covering 22 topics
versus 4 required a broader knowledge of the tax law and thus increased
the possibility for error. Yet, despite the increased possibility for
error, reported accuracy was about double the 24- percent accuracy TIGTA
reported for 2001.

In commenting on a draft of this report, the Acting Commissioner of
Internal Revenue said that our use of TIGTA*s accuracy rates is
inappropriate because TIGTA included referrals to IRS publications as
errors. While noting that IRS does not want employees to improperly refer
questions, the Acting Commissioner said that those referrals should not be
counted as incorrect answers. According to the Acting Commissioner, the
*true cumulative accuracy rate* through June 2002 was 66 percent instead
of 50 percent. We disagree. As TIGTA explained in its report, referrals
were counted as incorrect when the IRS employee merely provided the
publication, without walking the customer through it to identify the
answer, as required by established field assistance procedures. In our
view, the complexity of tax laws and varying education levels among
taxpayers seeking assistance suggest that requiring field assistance
employees to walk the taxpayer through a publication to identify the
correct response is a necessary procedure that should be followed in
practice for the response to be considered correct.

31 The 50- percent accuracy rate represents the cumulative rate from
visits done from January through April 2002; the true accuracy rate will
not be known until TIGTA completes its reviews in fiscal year 2003. TIGTA
reviewers considered responses correct when they were answered accurately
and in enough detail to avert filing errors. Conversely, they considered
responses incorrect when walk- in staff did not answer accurately or in
enough detail, referred reviewers to a publication without walking them
through it to get the right answer as required by field assistance
procedures, or denied assistance by failing to either answer their
question or refer them to someone who could.

Page 30 GAO- 03- 314 2002 Tax Filing Season

IRS*s data for January 1 through April 20, 2002, showed that about 85
percent of the 2.6 million walk- in customers for whom wait- time was
tracked waited 30 minutes or less to obtain assistance between January 1
and April 20, 2002. 32 However, IRS made the following two changes to the
way it reported wait- time in 2002 that precluded any comparison to 2001.

 IRS reduced the number of sites for which wait- time data was tracked.
In 2001, all walk- in sites tracked wait- time either automatically, if
they were equipped with the Queuing Management System (Q- Matic), or
manually, if they did not have Q- Matic. 33 As of March 2002, however, the
approximately 297 sites not equipped with Q- Matic were no longer required
to track or report wait- time* a decision we believe was prudent because
manual tracking was not practical at some sites with limited staff and
because manual tracking of wait- times is an errorprone process.  IRS
doubled the threshold used for wait- time tracking from 15 minutes

or less in 2001 to 30 minutes or less in 2002, thus increasing the
reported percentage of taxpayers receiving timely assistance.

The bi- weekly wait- time reports submitted by the sites and derivative
summary data provided to us by IRS did not provide any details on the
wait- times for the 15 percent of customers (about 384,000 taxpayers) who
waited longer than 30 minutes for assistance, even though this information
was available through Q- Matic, 34 thus limiting management*s ability to
identify and minimize excessive wait- time.

IRS took steps to improve its walk- in service, some of which may have
helped improve the accuracy of tax law assistance in 2002. Other efforts
that involve implementing two new accuracy measures and testing new

32 Beginning with fiscal year 2001, IRS discontinued wait- time as an
official measure of field assistance performance because, according to
field assistance officials, employees felt pressured to hurry assistance
to customers, which could diminish other aspects of quality, such as
accuracy. Nevertheless, realizing that timeliness is an important aspect
of quality, IRS has continued to track and report wait- time.

33 Q- Matic is an automated system that keeps track of such things as
customer wait- times, assistance provided, and staff time used. 34 In
general, Q- Matic records the number of customers whose wait- times fell
into each 15- minute interval, ranging from less than 15 minutes to less
than 2.5 hours, as well as the number that waited longer than 2.5 hours.
Most Taxpayers Waited 30

Minutes or Less for Walkin Assistance in 2002, but Many Others Waited Much
Longer

IRS Took Steps in 2002 to Improve Walk- in Service

Page 31 GAO- 03- 314 2002 Tax Filing Season

Q- Matic requirements have the potential for improved service in the
future.

Field assistance officials said that they had taken a number of steps to
improve the accuracy of assistance in 2002. For example, they said that
IRS had completed all actions listed in response to our report on the 2001
filing season 35 *which included providing more consistent and
standardized services, better training, and improved access to taxpayer
account information. IRS also refined the process for referring complex
tax law questions that are beyond the scope of normal walk- in staff
training to expert field assistance, toll- free telephone, or compliance
staff. The impact of some of those improvement efforts seemed to be
reflected in the results of IRS*s annual employee satisfaction survey. For
example, 49 percent of field assistance employees reported being satisfied
with their training in 2002 compared with the 37 percent who reported
being satisfied in 2001.

IRS implemented two new accuracy measures for account and
returnpreparation assistance. We are concerned about one of those
measures* account accuracy* because the results of that measure are not
representative of all walk- in sites. Instead of using statistical
sampling methods to select the sites to be reviewed from among the about
420 sites that provide account assistance, IRS selected for review the
largest walkin sites from among the 123 that were equipped with Q- Matic.

IRS had also planned to measure return- preparation accuracy through
visits to the largest walk- in sites. IRS subsequently decided to use
existing return- accuracy data generated by the submission processing
centers. This will allow IRS to measure the accuracy of all returns
prepared at its walkin sites, rather than basing the measure on sample
observations.

In May 2002, IRS changed its Q- Matic requirements to include networking
and summary reporting capabilities and decided to test these changes at 28
walk- in sites in California. In a stand- alone configuration, Q- Matic
provides site- level, real- time monitoring and tracking of assistance,
including customer wait- times, assistance provided, and staffing used.
Networking the systems is expected to provide the same real- time
monitoring and tracking at organizational levels above the site* group,
territory, area, and nationwide. Summary reporting capability is expected

35 GAO- 02- 144. IRS Took Steps to Improve

Accuracy in 2002 IRS Implemented Two New Accuracy Measures

IRS Is Testing New Q- Matic Requirements

Page 32 GAO- 03- 314 2002 Tax Filing Season

to eliminate the requirement for manually recording and summarizing
assistance provided and staff resources used, which should enhance site
efficiency by increasing employee availability to provide more, or more
timely, assistance.

As shown in figure 5, the number of taxpayers assisted at IRS walk- in
sites 36 declined for the third consecutive filing season* from 6.1
million in 1999 to 4. 9 million in 2002* a drop of about 20 percent.
Included in that overall decline was a decrease in the number of contacts
involving return preparation, a very time- consuming service. 37

36 Although the numbers may vary during the year, in 2002 IRS provided
walk- in assistance through approximately 420 walk- in sites that
generally provide the full range of assistance on a year- round basis, 50
alternate sites (such as at libraries and shopping malls) and 7 vans or
mobile units that are set up mainly to provide return- preparation
assistance only during the filing season, and 15 self- service computer/
printer stations (i. e., kiosks) that print tax forms and provide answers
to frequently asked tax law questions.

37 Field assistance officials estimated that return- preparation
assistance accounted for only about 10 percent of their walk- in contacts
but consumed about 25 percent of walk- in staff years. Number of Taxpayers

Assisted Declined, but Field Assistance Staffing Has Increased

Page 33 GAO- 03- 314 2002 Tax Filing Season

Figure 5: IRS Walk- in Assistance, 1999- 2002 Filing Seasons

Notes: *Total Walk- in* includes all face- to- face assistance. It does
not include the number of taxpayers assisted by walk- in employees via
telephone or correspondence, which ranged from over 100,000 taxpayers in
1999 to over 125, 000 taxpayers in 2002.

The time periods covered by this figure each began on January 1 and ended
on April 24, 1999; April 22, 2000; April 21, 2001; and April 20, 2002.

Field assistance officials attributed these declines to the following two
factors:

 Taxpayers made greater use of the assistance available from volunteers
and from IRS*s Web site and toll- free telephone network. Data provided by
the two major volunteer organizations* Volunteer Income Tax Assistance and
Tax Counseling for the Elderly* confirmed that volunteer assistance
increased substantially. Specifically, the number of taxpayers assisted at
volunteer sites increased about 45 percent from nearly 2.5 million to 3.6
million between the 2001 and 2002 filing seasons. Data on IRS*s Web site
and toll- free telephone network are discussed elsewhere in this report. 
IRS has been reducing the income ceiling for return preparation

assistance, thus limiting the number of taxpayers eligible to receive that
kind of assistance. For the 2001 filing season, IRS had a ceiling of
$41,000. For the 2002 filing season, IRS reduced that ceiling to

Millions of taxpayers 0 2

4 6

8 1999 2000 2001 2002 Filing season

Return- preparation Total walk- in Source: IRS data.

0.70 6.10

0.89 0.79 0.67 5.79

5.14 4.90

Page 34 GAO- 03- 314 2002 Tax Filing Season

$33,000* a level that approximated the $32,121 income ceiling on taxpayer
eligibility for the earned income credit.

Traditionally, IRS has detailed staff from its compliance functions (such
as Examination and Collection) to help provide assistance at walk- in
sites. Over the last 2 filing seasons, IRS has reduced its reliance on
compliance staff to provide walk- in assistance by about 53 percent, thus
freeing those staff to perform their normal examination and collection
duties. At the same time, and despite the continued decline in the number
of taxpayers assisted, IRS increased the number of field assistance staff
years by about 31 percent, in anticipation of field assistance staff
eventually assuming some work currently done by IRS*s compliance
functions, such as office audits.

Field assistance does not have clear, comprehensive plans and timetables
for making the workload changes just discussed as well as other changes.
When we discussed this issue with field assistance officials, they
informed us that they have put their plans on hold until anticipated
compliance workloads are clarified to enable more comprehensive planning.
Field assistance officials anticipated that some compliance work would
migrate to walk- in staff over the next several years, although the extent
and timing of that work was not yet clear. As of October 4, 2002, a team
was studying the technological and other issues associated with compliance
work anticipated to be done at walk- in sites. Field assistance officials
also planned to phase out sites staffed with only one employee, because of
difficulties providing back- up staff, 38 and add many new walk- in sites.
The planned phase- outs were to be done through a combination of methods,
such as staff attrition and/ or site consolidation. Instead of closing
some one- employee sites, IRS may add staff where warranted by demand.
However, field assistance officials told us that these site changes also
have been put on hold until the aforementioned comprehensive planning is
completed.

38 IRS reported having 83 one- person sites during the 2002 filing season.
Field Assistance Has No

Comprehensive Workload and Staffing Plans

Page 35 GAO- 03- 314 2002 Tax Filing Season

Our assessment of IRS*s Web site on the Internet, external assessments of
the site, and IRS data indicate that, compared with last year, the site
was

 more user friendly, although there are certain aspects of the site that
need attention;  generally used more often, although IRS*s primary
measure of usage*

number of hits* is flawed; and  easier to access.

IRS*s Web site provides a vehicle whereby taxpayers can receive assistance
without having to call or visit an IRS office. Among other things, the
site provides the potential to download hundreds of tax forms and
publications, contains current information on tax issues and electronic
filing, and gives taxpayers the opportunity to ask IRS tax law and
procedural questions via E- mail (see app. V for information on IRS*s
performance in answering E- mail questions.)

Our observations of IRS*s Web site indicated that the site was more user
friendly than it was in 2001, although we still encountered some
navigation problems and identified some problems with the site*s content.

The Web site had many changes that improved navigation over 2001. For
example, the home page was formatted more logically, with like items being
grouped together, and we observed only a couple of broken links compared
with last year when we found many more. 39 However, there were still some
navigational problems. The most significant problem in navigating the site
is a search engine that often generates a very large number of items
relating to the subject of the search, which makes it extremely difficult
to locate the most useful/ appropriate item. For example, when we entered
*earned income credit* into the general search engine, we were provided a
list of over 1,500 items. The publication that would provide someone
interested in the earned income credit with the most thorough information
(Publication 596** Earned Income Credit*) was the 64th item on the list.
This would require users to scroll through 6 pages of items before finding
the basic publication dealing with the subject of the search.

39 According to a cognizant IRS official, a tool that helps eliminate
broken links was not added to the site in 2002 as IRS had originally
intended; implementation is now planned for 2003. Performance of IRS*s

Web Site Was Generally Better Than Last Year, but Improvements Still
Needed

Web Site More User Friendly Than Last Year

Navigation of Web Site

Page 36 GAO- 03- 314 2002 Tax Filing Season

We also noted the following navigation problems.  The E- mail and
comments sections of the Web site are difficult to find.

The links to pages for users to leave E- mail questions or to provide IRS
with comments on the site were not accessible through the *Contact Us*
part of the site, where one might logically expect to go to send an E-
mail or comment to IRS, but rather through the *Help* part of the site. In
that regard, IRS officials responsible for answering E- mail questions
informed us that they believe the number of E- mail questions received
this year declined, as discussed in appendix V, because individuals may
have had trouble locating the E- mail section of the Web site. According
to IRS officials responsible for the Web site, the E- mail feature was not
made easier to locate because IRS is still considering whether it is best
to answer taxpayer questions via the Web site or the telephone.  We had
difficulty in May 2002 finding telephone numbers and other

information for local field assistance sites. For example, the page
entitled *How to contact us in Virginia* said to use local numbers if they
are not long distance, otherwise use the toll- free 800 number. However,
to obtain local numbers, we had to scroll through 11 other topics,
including information on where to file a return, TeleTax, Braille
materials, and volunteer and education programs. Since then, IRS has taken
steps to make this process less cumbersome.  We found linkage problems in
addition to the missing links noted

earlier. For example, when we accessed IRS*s Web page for electronic
filing options and paying taxes electronically, we found several
references to more data that we could obtain. However, the link to those
data was www. irs. gov, where we already were, rather than the appropriate
areas of the site.

We identified some problems with the content of IRS*s Web site. First, the
site used document numbers as primary identifiers for publications,
instructions, and forms. Many taxpayers do not know the numbers of forms
and publications, which requires them to examine voluminous data to find
the specific information they are seeking. For example, if taxpayers were
looking for data on the earned income credit and did not know that
Publication 596 is the primary publication on that topic, typing *earned
income credit* in the form and publication search engine would produce a
list of about 1, 600 publications that mention the credit. Here again, as
we noted earlier with respect to the general search engine, a taxpayer
would have to scroll through several pages of the list to find Publication
596. IRS is aware of this problem with its search engines and is working
with contractors to identify solutions. Content of Web Site

Page 37 GAO- 03- 314 2002 Tax Filing Season

Second, we continued to find some incorrect and inconsistent data,
outdated material, and missing information, but not as much as last year.
For example, during our review of the Web site in 2002, we found that the
site had incorrect office hours and addresses for walk- in assistance
sites and obsolete data that pertained to 2001. In our report on the 2000
filing season, we made recommendations to help ensure that the Web site
contained accurate and consistent data. 40 In response to our
recommendations, according to IRS officials, IRS awarded a site redesign
contract, instituted an interim process that required executives to
approve all new data and significant changes to existing data, and began
implementing a content management program that is expected to be fully
operational around May 2003. Although these steps appear to have reduced
the volume of inaccurate and inconsistent data, a cognizant IRS official
opined that it would take about 2 years before all data on the Web site
are made current and consistent.

Two independent assessments tended to confirm our observations on IRS*s
Web site. In that regard:

 Arthur Andersen*s Office of Government Services Experience Design Group
concluded that the current version of the site is an improvement over the
previous version but still requires some fine- tuning to be truly useful.
They too noted that the search engines often result in a very large number
of items relating to the subject of the search making it extremely
difficult to locate the most useful/ appropriate item.  Brown
University*s Center for Public Policy evaluated how well

50 federal government Web sites would aid an average citizen logging onto
a public sector Web site. IRS*s site received a score of 76 out of 100,
making it the eighth highest rated Web site in the study.

IRS*s two key measures for gauging the use of its Web site are *hits* and
*downloads.* Both of those measures showed increased usage in 2002
compared with 2001. As of May 31, 2002, the site had recorded about 2.2
billion hits compared with about 1.7 billion hits at the same point in
time in 2001, a 27- percent increase. As of August 31, 2002, about

40 U. S. General Accounting Office, Tax Administration: Assessment of IRS*
2000 Tax Filing Season, GAO- 01- 158 (Washington, D. C.: Dec. 22, 2000).
Available Data Show

Increase in Web Site Use in 2002

Page 38 GAO- 03- 314 2002 Tax Filing Season

379 million forms, publications, and instructions had been downloaded
compared with about 279 million in 2001, a 36- percent increase. 41

However, as we have reported before, hits is a flawed measure of use
because (1) every time a user accesses IRS*s home page it counts for about
16 hits and (2) a hit is counted every time the user moves to another page
of the site. 42 Thus, an increase in the number of hits may not
necessarily be due to increased usage but could be attributed to changes
in the structure of the home page or problems users are experiencing in
finding what they want on the site. IRS officials had informed us that the
problem would be corrected by an improved method for counting hits when a
more sophisticated comprehensive Web analytical program became operational
in January 2002. Although the new analytical program is operational, the
problem remained. However, our concern about the hits measure could be
mitigated by the development of another Web site performance measure*
unique visitors. According to a cognizant IRS official, IRS is now able to
track unique visitors to the Web site and has begun the process to
formalize that measure. 43

Keynote, an independent Web site rater and a recognized authority on
Internet performance, reviewed the availability and average delivery time
of IRS*s Web site and reported improved performance during the 2002 filing
season. Keynote reported that its measure of IRS*s Web site*s availability
averaged close to 100 percent (99.8 to 100 percent) during the entire 2002
filing season. This is a significant improvement over the 2001 filing
season when Keynote identified periods during which availability was as
low as 67 percent before rebounding to about 97 percent for the first 2
weeks of April. Keynote reported an average delivery time in 2002 of 1
second or less for the entire filing season compared with 2 seconds or
more for most of the 2001 filing season.

41 IRS updated this information as of September 30, 2002, in its written
comments on a draft of this report (see app. VI). 42 GAO- 02- 144 and GAO-
03- 143.

43 If someone accesses IRS*s site and moves around the site, the unique
visitor measure would count that as one visit, no matter how many hits the
person accumulates while navigating the site. If the person leaves the
site and returns again after at least 1 hour has elapsed since exiting the
site, the person will be counted as a new unique visitor. Web Site*s
Availability

and Average Delivery Time Improved in 2002

Page 39 GAO- 03- 314 2002 Tax Filing Season

Generally, during the 2002 filing season, IRS processed returns and issued
refunds smoothly, and the quality of assistance provided to taxpayers
improved. In light of this performance, IRS should be commended for the
various efforts it took to prepare for and improve performance during the
filing season. IRS*s filing season performance matters because it impacts
well over 100 million taxpayers.

IRS established performance measures to emphasize accountability and
improve service. IRS*s improved performance can be traced to its use of
and emphasis on performance measures, illustrating the importance of good
measures that effectively assess performance and enable improvements to be
quantified. IRS has established some new measures and has revised some
existing measures, which should serve to further enhance its performance
assessments. However, we believe that some decisions, specifically (1) the
decision to stop using the *assistor response level* and *average speed of
answer* measures to assess telephone service; (2) not reporting readily
available Q- Matic information showing the extent of customer wait- times;
and (3) limiting reviews of account accuracy to only some walk- in sites,
will reduce IRS's ability to gauge the level of service being provided to
customers. With respect to the latter, IRS's decision to use existing data
to measure return- preparation accuracy in lieu of having staff visit
walk- in sites to observe return preparation could free up the resources
needed to expand the reviews of account accuracy. IRS also needs to ensure
that changes to walk- in sites and staffing are thoroughly analyzed and
planned.

We recommend that the Commissioner of Internal Revenue direct the
appropriate officials to do the following:

 Reinstate a telephone assistance caller wait- time measure, such as
assistor response level or average speed of answer, to assess this
important aspect of the customer experience.  Revise bi- weekly wait-
time reports to show the numbers and

percentages of customers in each of the wait- time intervals tracked by Q-
Matic.  Explore the feasibility of including all walk- in sites, rather
than just

sites equipped with Q- Matic, in the universe for the purpose of
conducting sample visits/ reviews of the accuracy of account assistance. 
Ensure that field assistance officials do a comprehensive evaluation of

resource requirements (sites and staffing) after clarifying the extent
Conclusions

Recommendations for Executive Action

Page 40 GAO- 03- 314 2002 Tax Filing Season

and timing of (1) expected field assistance and compliance workloads and
(2) expected walk- in site changes (additions and closures).

We requested comments on a draft of this report from IRS. The Acting
Commissioner of Internal Revenue provided written comments in a December
16, 2002, letter (see app. VI). The Acting Commissioner appreciated our
recognition of the many challenges that IRS successfully faced during the
planning and execution of the 2002 tax filing season and noted that IRS's
filing season readiness process *served us well, especially in handling
unanticipated challenges.*

In response to our specific recommendations, the Acting Commissioner said
the following:

IRS agrees that customer wait- time is an important aspect of toll- free
telephone service and will *begin refining an appropriate wait time
measure* for implementation in fiscal year 2004.

In response to our recommendation that IRS revise its bi- weekly waittime
reports, IRS said that it currently does not use wait- time as an official
measure of field assistance performance because past experience has shown
that employee reaction to timeliness measures tends to increase the
likelihood of inaccurate or incomplete answers. We are aware of IRS*s
position on having an official wait- time measure and discussed our
disagreement with that position in our report on IRS's filing season
performance measures. 44 Our recommendation in this report is not directed
at the existence or non- existence of a waittime performance measure. It
is directed, instead, at enhancing the information available to field
assistance managers in the bi- weekly wait- time reports. IRS did not
speak to that issue in its comments.

Working with staff from IRS*s Statistics of Income group, field assistance
has developed a statistically reliable sample of accounts work. For fiscal
year 2003, IRS said it plans to sample small, medium, and large walk- in
sites. These plans should provide for a more representative assessment of
the level of account assistance being provided to walk- in customers and,
as such, appear to be responsive to our recommendation.

44 GAO- 03- 143. Agency Comments

and Our Evaluation

Page 41 GAO- 03- 314 2002 Tax Filing Season

In response to our recommendation that field assistance do a comprehensive
evaluation of resource requirements, IRS said that it is doing a workload
and staffing study that will provide detailed information on the location
of field assistance work and where IRS should provide service and
staffing. According to IRS, although it had previously projected the need
to add new sites, it is currently projecting shortages in field assistance
staffing for fiscal year 2004 that may cause it to reassess the number and
location of walk- in sites. The study described by IRS appears responsive
to our recommendation.

The Acting Commissioner also commented on our use of TIGTA*s reported
accuracy rate for tax law assistance provided by walk- in sites. We
addressed those comments earlier in the report where TIGTA*s reported
accuracy rate is discussed.

We are sending copies of this report to the Chairmen and Ranking Minority
Members of the Senate Committee on Finance and the House Committee on Ways
and Means and the Ranking Minority Member, Subcommittee on Oversight,
House Committee on Ways and Means. We are also sending copies to the
Secretary of the Treasury; the Commissioner of Internal Revenue; the
Director, Office of Management and Budget; and other interested parties.
We will also make copies available to others on request. In addition, the
report will be available at no charge on the GAO Web site at http:// www.
gao. gov.

This report was prepared under the direction of David J. Attianese,
Assistant Director. Other major contributors are acknowledged in appendix
VII. If you have any questions about this report, contact me on (202) 512-
9110.

Sincerely yours, James R. White Director, Tax Issues

Appendix I: Data on IRS*s Processing Performance Relative to Fiscal Year
2001 Performance and Fiscal Year 2002 Goals

Page 42 GAO- 03- 314 2002 Tax Filing Season

As shown in table 3, (1) the Internal Revenue Service*s (IRS) performance
in 2002 improved relative to 2001 for five measures and (2) IRS met its
2002 performance goals for four measures and missed its goals for two
measures. IRS*s performance in 2002 could not be compared with its
performance in 2001 for three measures or with its goals for 2002 for two
measures because IRS revised the way those measures were computed.

Table 3: IRS*s Processing Performance Relative to Fiscal Year 2001
Performance and Fiscal Year 2002 Goals as of September 2002

Measure name Description Fiscal year

2001 actual a Fiscal

year 2002

goal Fiscal

year 2002 actual Revisions to

measure Comments

Deposit error rate b Percentage of payments

applied in error by, for example, reimbursing a taxpayer who overpaid when
the taxpayer wanted any overpayment credited to next year*s tax bill.

5.0% 3.4% 4.8% +/- 0.3%

None known. Performance improved, but performance goal not met. According
to IRS officials, the goal was too challenging and performance was
consistent with 2001. Deposit timeliness* paper

Interest value of money not deposited by the business day after receipt
per $1 million in deposits. Measure assumes an 8 percent interest rate.

$748 $751 $578 None known. Performance improved, and performance goal met.

Letter error rate b Percentage of letters issued

to taxpayers with errors, (includes systemic errors). c

Not comparable because of revisions to the measure.

10.9% 7.4% +/- 0.6%

Revised measure to exclude errors that cause a letter to look
unprofessional but do not affect its accuracy.

We cannot assess if 2002 performance goal was met due to the exclusion of
professionalism errors.

Notice error rate b Percentage of incorrect

notices issued to taxpayers (includes systemic errors). c

Not comparable because of revisions to the measure.

15.2% 18.7% +/- 2.7%

Revised measure to (1) exclude errors that cause a notice to look
unprofessional but do not affect its accuracy and (2) include all
processing notices, some of which we reported were inadvertently omitted
in 2001 (see GAO- 02 144).

We cannot assess if 2002 performance goal was met due to the exclusion of
professionalism errors. According to IRS officials, employee confusion
over new error codes associated with the rate reduction credit led to more
erroneous notices, thereby increasing the notice error rate.

Appendix I: Data on IRS*s Processing Performance Relative to Fiscal Year
2001 Performance and Fiscal Year 2002 Goals

Appendix I: Data on IRS*s Processing Performance Relative to Fiscal Year
2001 Performance and Fiscal Year 2002 Goals

Page 43 GAO- 03- 314 2002 Tax Filing Season

Measure name Description Fiscal year

2001 actual a Fiscal

year 2002

goal Fiscal

year 2002 actual Revisions to

measure Comments

Refund error rate *

individual (paper) b

The percentage of refunds with IRS- caused errors in the entity
information (e. g., name or Social Security number) or refund amount;
includes systemic errors. c

9.8% 9.3% 8.0% +/* 3.8%

Although this measure was revised to exclude errors that cause a refund
check to look unprofessional, the revision did not require establishment
of a new baseline.

Performance improved, and performance goal met.

Refund interest paid Amount of refund interest

IRS paid per $1 million of refunds issued.

$128.63 $94.14 $62.55 None known. Performance improved, and performance
goal met. According to officials, IRS implemented strategies to address
refund interest, resulting in lower refund interest paid in 2002. Refund
timeliness* individual (paper) b

Percentage of refunds issued in 40 days or less. 95.2% 98.4% 98.2%

+/ - 2.3% Measure revised

to reflect new start date procedures; 2001 performance data converted to
allow for comparison.

Performance improved. We consider IRS to have met the 2002 performance
goal because a certain degree of imprecision exists due to sampling and
the reported result differed from the goal by a statistically negligible
amount. Productivity d Weighted volume of

documents processed per staff year expended at the processing centers.

Data being revised. 29,836 28,182 Measure revised

to reflect additional workload; 2001 performance data being converted to
allow for comparison.

Performance goal not met. According to IRS officials, productivity may
have been lowered by (1) the increased error- correction workload
resulting from the rate reduction credit and (2) changes associated with
IRS*s reorganization.

Source: IRS data. a These figures may be different than what IRS
previously provided and we reported in GAO- 03- 143.

IRS converted 2001 data to provide comparability between fiscal years 2001
and 2002.

Appendix I: Data on IRS*s Processing Performance Relative to Fiscal Year
2001 Performance and Fiscal Year 2002 Goals

Page 44 GAO- 03- 314 2002 Tax Filing Season

b We previously reported on potential reliability weaknesses associated
with these measures because data are collected manually and evaluations of
data are based on judgment. See U. S. General Accounting Office, Tax
Administration: IRS Needs to Further Refine Its Tax Filing Season
Performance Measures, GAO- 03- 143 (Washington D. C.: Nov. 22, 2002). c
Systemic errors are computer generated errors over which a particular
processing center would have

no control. d We reported concerns about the understandability and
appropriateness of this measure in GAO- 03- 143 because the measure*s
definition is not clearly stated, unit managers do not understand their
unit*s contribution to the formula, and unit managers do not use the
measure to assess performance.

Appendix II: Challenges Affecting the 2002 Filing Season and IRS*s
Response

Page 45 GAO- 03- 314 2002 Tax Filing Season

The following significant challenges were unique to the 2002 filing
season:  Passage of the Economic Growth and Tax Relief Reconciliation Act
of

2001, specifically the provisions relating to advance tax refunds and rate
reduction credits.  The September 11, 2001, attacks, which led to actions
by IRS to provide

tax relief to affected taxpayers, and the subsequent anthrax attacks
perpetrated through the mail, which led to significant security
enhancements.  IRS*s shifting of computer files in conjunction with its
reorganization.

For tax years beginning after 2000, the Economic Growth and Tax Relief
Reconciliation Act of 2001, signed into law on June 7, 2001, applied a new
10- percent income tax rate to a portion of an individual*s income that
was previously taxed at 15 percent. To stimulate the economy more rapidly
than would be achieved if taxpayers had to wait until they filed their tax
year 2001 return to realize the full impact of this rate reduction, the
act provided for eligible taxpayers to receive an advance tax refund in
2001. The amount of the refund was to be based on the filing status and
amount of taxable income on the taxpayer*s 2000 return.

Taxpayers who were eligible to receive an advance tax refund in 2001 but
who (1) did not receive a check because IRS did not have their current
address or (2) did not have enough taxable income in 2000 to qualify for
the maximum amount allowable, may have been entitled to a rate reduction
credit when filing their tax year 2001 returns. 1 In addition, taxpayers
who were not eligible for an advance tax refund, such as those who did not
have taxable income in 2000, may have been entitled to a rate reduction
credit provided they had taxable income in 2001.

According to IRS, passage of the Economic Growth and Tax Relief
Reconciliation Act of 2001 required computer system programming changes
that were complicated by frequent revisions as the Congress and the U. S.
Treasury worked together to understand the legislative requirements for
the rate reduction credit. This resulted in concurrent testing of those
and other computer system changes. After the filing season began and large
numbers of returns were received with errors related to the rate reduction
credit, IRS made additional programming

1 A rate reduction credit would reduce a taxpayer*s 2001 tax liability and
could result in a tax refund once the 2001 return was filed. Appendix II:
Challenges Affecting the 2002

Filing Season and IRS*s Response Advance Tax Refunds and the Rate
Reduction Credit Led to Many Errors on Filed Returns

Appendix II: Challenges Affecting the 2002 Filing Season and IRS*s
Response

Page 46 GAO- 03- 314 2002 Tax Filing Season

changes until March 2002 to help manage the high number of errors and
assist tax examiners in correcting them.

As shown in table 4, as of September 27, 2002, IRS had identified over 8
million individual returns with rate reduction credit errors, which
represented 57 percent of the returns identified with errors and 6.5
percent of the total number of returns processed at that time.

Table 4: Processed Returns with Rate Reduction Credit Errors as of
September 27, 2002 Returns prepared by

Number of returns processed

Number of returns with

errors Percentage of

returns with errors

Number of returns with rate reduction

credit errors Percentage of

returns with rate reduction credit

errors Rate reduction

credit errors as a percentage of

returns with errors

Taxpayers 49,939,318 8, 369,035 16.8% 4,208,991 8.4% 50.3% Tax return
practitioners 73,013,833 5, 691,483 7.8% 3,816,860 5.2% 67.1%

Total 122,953,151 14,060,518 11.4% 8,025,851 6.5% 57.1%

Source: GAO*s analysis of IRS's data. Note: The number of returns
processed does not include about 4.2 million returns that were filed via
TeleFile.

Taxpayers and tax return practitioners made various types of errors
related to the rate reduction credit during the 2002 tax filing season.
For example,

 taxpayers and practitioners filed over 5 million returns in which they
failed to claim a credit even though the taxpayers were entitled to one; 
about 2 million returns were filed in which a credit was claimed even

though the taxpayers had received the maximum advance tax refund in 2001
and thus were not entitled to a credit; and  almost 1 million returns
were filed in which a credit was appropriately

claimed, but the credit amount was incorrectly computed.

Appendix II: Challenges Affecting the 2002 Filing Season and IRS*s
Response

Page 47 GAO- 03- 314 2002 Tax Filing Season

The Treasury Inspector General for Tax Administration (TIGTA) identified
and IRS corrected two problems related to the rate reduction credit. One
problem involved the lack of advance tax refund data in the National
Accounts Profile (NAP) for certain taxpayers. 2 According to TIGTA, IRS
corrected this problem by January 11, 2002, thus preventing about 217,000
taxpayers from receiving up to $50 million in rate reduction credits to
which they were not entitled. The other problem, which TIGTA attributed to
a misinterpretation of programming requirements, involved IRS*s failure to
add information in the NAP for some taxpayers who did not receive an
advance tax refund. According to TIGTA, it notified IRS of this problem,
which could have affected as many as 35 million taxpayers, on January 8,
2002, and IRS made the necessary corrections by January 15, 2002.

IRS field staff identified another problem in which IRS*s computer system
was generating rate reduction credits for some taxpayers who had already
received the maximum advance tax refund. According to IRS officials, this
problem would have affected no more than about 15,000 taxpayers, who in a
worst- case scenario may have received an additional $300 credit, for a
total of $4.5 million in potentially erroneous credits. According to the
officials, IRS will not attempt to recover any erroneous payments
resulting from this problem because recovery would not be cost- effective.

To help handle the additional error correction workload resulting from the
rate reduction credit workload, IRS, among other things, briefly detailed
individuals from other projects, hired retirees, and postponed activities,
such as technical training and performance reviews, that were eventually
completed later in the year.

The rate reduction credit directly and adversely affected IRS*s
performance relative to its notice error rate and productivity performance
measures. According to IRS officials, (1) employee confusion over new
error codes associated with the rate reduction credit led to more
erroneous notices, thereby increasing the notice error rate, and (2) the

2 NAP is an IRS database with information on taxpayers* names, addresses,
and SSNs. To help determine whether taxpayers were correctly claiming the
rate reduction credit on their 2001 tax returns, IRS included information
on advance tax refunds in NAP. Problems Related to the

Rate Reduction Credit Were Identified Early in the 2002 Filing Season

IRS Handled the Extra Workload from the Rate Reduction Credit

The Rate Reduction Credit Affected Performance Relative to Two Measures

Appendix II: Challenges Affecting the 2002 Filing Season and IRS*s
Response

Page 48 GAO- 03- 314 2002 Tax Filing Season

new codes associated with the rate reduction credit initially reduced
processing efficiency and caused lower productivity rates.

According to IRS officials, IRS sent corrected rate reduction credits to
about 1.6 million taxpayers. When IRS originally reviewed these taxpayers*
returns, it was determined that the taxpayers had underclaimed the amount
of their rate reduction credits. However, in accordance with IRS policy
about making corrections under certain monetary thresholds, IRS did not
initially correct the errors or give the taxpayers the additional amounts.
During its review of the 2002 filing season, TIGTA pointed out that the
policy seemed inequitable because the same kind of threshold was not used
in determining the amount of a taxpayer*s advance tax refund* thus the
amount taxpayers received could vary depending on whether they received
their money in the form of an advance tax refund or a rate reduction
credit. According to IRS officials, these taxpayers* returns did not go to
error correction and, thus, are not included in the number of returns with
rate reduction credit errors in table 4* which IRS officials believe
contributed to their ability to handle the substantial errorcorrection
workload.

The terrorist actions in 2001 created additional challenges to which IRS
responded. The September 11, 2001, terrorist actions created challenges by
causing additional workload and requiring concurrent testing of the
programming changes related to that workload with other testing. For
example, according to IRS officials, programmers modified computer systems
in order to suppress certain correspondences, such as balance due notices,
to taxpayers affected by the terrorist actions. IRS officials also
reported that where the correspondence was already printed, processing
centers held that correspondence until November. IRS then generated new
correspondence with revised balance due dates, for example, and included
leaflets with the correspondence that advised taxpayers to contact IRS if
they were unable to meet their tax obligations due to the events of
September 11.

Also, as reported by TIGTA in March 2002, IRS, in response to anthrax
attacks perpetrated through the mail, *quickly implemented actions to
increase security and safety precautions during the filing season.* 3
Those

3 The Internal Revenue Service Certifies Its Readiness to Process
Individual Income Tax Returns in 2002, TIGTA, Reference No. 2002- 40- 080,
Mar. 29, 2002. Many Taxpayers Received

Corrected Rate Reduction Credits

Terrorist Actions Required Tax Relief for Affected Taxpayers and Security
Enhancements

Appendix II: Challenges Affecting the 2002 Filing Season and IRS*s
Response

Page 49 GAO- 03- 314 2002 Tax Filing Season

actions included providing additional security in areas where mail is
handled, changing mail handling procedures, and providing additional
training and protective equipment for employees.

As part of its reorganization, IRS shifted computer files to match
taxpayer accounts with the operating division responsible for serving the
taxpayers. For example, computer files for individual taxpayers were
shifted to the computer systems for the Wage and Investment Operating
Division (W& I) processing centers and small business accounts were
shifted to the computer systems for the centers that now specialize in
small business processing and compliance activities. IRS completed this
work before the filing season began in spite of the unanticipated
challenges associated with the rate reduction credit and terrorist
actions.

According to processing officials, IRS*s ongoing reorganization affected
submission processing*s performance in other ways. It contributed to lower
overall productivity, in part by changing the predictability of filing
patterns. Also, the eight W& I centers no longer process some of the
easier business returns and are left with processing the more complicated
and time- consuming individual income tax returns, such as those with
Schedule Ds (Capital Gains and Losses). Combined with the trend toward
increased use of electronic filing by those taxpayers who file simpler tax
forms, such as the Form 1040 EZ, IRS officials believe that these changes
contributed to slower processing and a corresponding lower productivity
rate. IRS*s Reorganization

Required a Shifting of Computer Files and Affected Processing Performance

Appendix III: Changes to Third- Party Authorizations in 2002

Page 50 GAO- 03- 314 2002 Tax Filing Season

IRS offers taxpayers a variety of authorizations that allow IRS to
disclose or discuss tax return information with a third party. These
authorizations range from allowing IRS to discuss the processing of a
return, including the status of tax refunds (hereafter referred to as the
third- party checkbox authority), to authorizing a third party to receive
confidential tax return information. For the 2002 filing season, IRS
expanded the third- party checkbox authority to allow the taxpayer to
designate any third party, including friends or family members (in 2001,
only paid practitioners could be designated). In response to a
recommendation in our report on the 2001 filing season, 1 IRS now has a
system in place for tracking how use of the third- party checkbox
authority facilitated the resolution of issues related to a return*s
processing. IRS also introduced the Oral Disclosure Consent (ODC) and Oral
Tax Information Authorization (OTIA) to enable taxpayers to orally
authorize IRS to disclose tax return information to a third party.

For the 2002 filing season, IRS expanded the third- party checkbox
authority on individual income tax returns (Forms 1040, 1040A, and 1040EZ)
to allow taxpayers to designate anyone, including a friend or family
member, to talk with IRS to resolve problems (such as math errors and
missing information) that come to light during IRS*s processing of a
return and obtain answers to questions regarding refunds or payments. When
this authority was first used during the 2001 filing season, taxpayers
were only allowed to authorize paid practitioners to serve as their
designees in resolving problems or answering questions. According to IRS,
the expansion of this authority to any third party was intended to reach
taxpayers who wanted to have a family member or close associate assist
with simple tax inquiries.

According to IRS, the third- party checkbox authority is part of IRS*s
Taxpayer Treatment and Service Improvement Initiative on third- party
authorizations. IRS considers this initiative a way to reduce taxpayer
burden by reducing the number of notices sent to taxpayers and allowing a
designee to talk directly with IRS to resolve issues during a return*s
processing. During a typical year, IRS sends out about 8 million notices
regarding tax return processing issues. According to IRS officials, the
Commissioner of Internal Revenue forecasted that, with this authority and

1 U. S. General Accounting Office, Tax Administration: Assessment of IRS*
2001 Tax Filing Season, GAO- 02- 144 (Washington D. C.: Dec. 21, 2001).
Appendix III: Changes to Third- Party

Authorizations in 2002 Authority to Designate a Third Party Expanded

Appendix III: Changes to Third- Party Authorizations in 2002

Page 51 GAO- 03- 314 2002 Tax Filing Season

other innovations, such as oral consent authorizations, 90 percent of
those situations might be resolved through telephone discussions with
designees.

According to IRS, taxpayers checked the box on about 32.4 million returns
as of October 7, 2002. When IRS first implemented this authority in 2001,
it lacked a system for tracking how use of the authorization facilitated
the resolution of return processing issues. In response to our
recommendation that IRS develop a plan for evaluating the implementation
and effectiveness of processing initiatives, IRS implemented computer
programming changes that now enable it to know not only how many people
used the checkbox option but also how many inquiries were received and
responded to by type of return and notice.

IRS officials estimated, based on their tracking, that the 32.4 million
returns with marked checkboxes translated to about 4 million fewer pieces
of correspondence. In addition, IRS responded to about 4 million inquiries
from persons whom taxpayers had identified as their designees using the
checkbox authority.

A taxpayer can now orally authorize IRS to disclose tax return information
to a third party. Both ODC and OTIA allow a taxpayer to contact IRS and
establish disclosure authority for all types of tax accounts. The oral
authorizations, however, differ in the range of authorities given to the
third party.

The oral authorizations were made possible by the Taxpayer Bill of Rights
II, 2 which removed the requirement that all requests of or disclosures to
a third party be in writing. The new disclosure regulations 3 authorize
IRS employees to accept a taxpayer*s verbal request or consent to disclose
return information to third parties to assist the taxpayer in resolving
account issues. When oral authorizations are used, IRS must verify the
taxpayer*s identity and the identity of the third party as well as confirm
the specific tax matter.

2 P. L. 104- 168 3 Temp. Treas. Reg. S: 301.6103( c)- IT (2001). Oral
Authorizations

Offered

Appendix III: Changes to Third- Party Authorizations in 2002

Page 52 GAO- 03- 314 2002 Tax Filing Season

To establish an ODC, the taxpayer must have received a notice from IRS and
have open account issues. The taxpayer may call IRS and designate a third
party to resolve issues relative to the information indicated on the
notice. Once an ODC has been established, the taxpayer does not have to be
physically present or on the telephone when IRS discloses the tax
information to the third party nor does the third party need an
authorization number. The ODC does not authorize a third party to receive
notices or other written taxpayer information. The authority is valid
until the tax related issues are resolved. If the taxpayer receives
subsequent notices from IRS, he or she must call or visit IRS and
establish another ODC even if it is for the same third party and tax
matter.

An OTIA allows taxpayers to designate third parties to represent them by
telephone or in person and to receive notices or account transcripts on
open account issues. The taxpayer does not have to receive a notice from
IRS before calling to establish an OTIA. Similar to the ODC, the taxpayer
does not have to be physically present or on the telephone when IRS
discloses tax information to the third party. However, to confirm their
identify, the third party must have an authorization number given by IRS,
which must be on file, and the third party must provide this number to the
taxpayer. This authority expires upon written request by either the
taxpayer or representative.

Appendix III: Changes to Third- Party Authorizations in 2002

Page 53 GAO- 03- 314 2002 Tax Filing Season

Table 5 provides comparative information on the various authorizations
discussed in this appendix.

Table 5: Third- Party Authorizations Third- party checkbox (2001) Third-
party checkbox

(2002) Oral disclosure consent Oral tax information

authorization

Effective date Available for the 2001 filing season. Available for the
2002

filing season. Available for the 2002 filing season. Available for the
2002 filing

season. Purpose Allows a paid practitioner

to discuss return processing and refund issues.

Allows a practitioner, friend, or family member to discuss return
processing and refund issues.

Allows IRS to disclose information orally, but not written information, to
a third party on issues related to a notice.

Allows a third party who has an authorization number given by IRS to
receive information orally and some written taxpayer information.

Who can exercise this authority Taxpayer. Taxpayer. Taxpayer. Taxpayer.
How is authority granted Taxpayers check a box

on individual income tax forms.

Taxpayers check a box on individual income tax forms and some business
forms.

Orally. Orally. Expiration of authority April 15 of the year

following the year the checkbox election was made, through the life of the
first notice, or until the account is resolved.

April 15 of the year following the year the checkbox election was made,
through the life of the first notice, or until the account is resolved.

Until the tax related issue is resolved or when a new oral consent is
entered on the account.

By written request of taxpayer or representative.

Processing timeframes 4 to 6 weeks. 4 to 6 weeks. Within minutes. Within
minutes. Must taxpayer have received a notice No. No. Yes. No.

Source: IRS data.

Appendix IV: Results of Surveys of Taxpayers and Tax Practitioners Who
Prepared Returns on a Computer but Filed on Paper

Page 54 GAO- 03- 314 2002 Tax Filing Season

In 2002, IRS surveyed taxpayers and tax practitioners who prepared their
returns on computer but filed on paper. We had recommended such surveys in
our report on the 2001filing season in response to the fact that about 40
million computer- prepared individual income tax returns were filed on
paper in 2001. 1 The surveys involved (1) taxpayers who prepared their own
tax return on a computer but filed a paper return, (2) taxpayers who used
paid practitioners who prepared their returns on computer but filed on
paper, and (3) practitioners who prepared returns on a computer but filed
on paper. Table 6 shows, for each category of respondent, (1) factors that
influenced them not to file electronically and (2) incentives that could
encourage them to file electronically.

Table 6: Factors That Influence Preparers of Returns on a Computer Not to
File Electronically and Incentives That Could Influence Them to File
Electronically

Category of respondent Factors that influenced them not to file
electronically Incentives that could influence them to

file electronically

Taxpayers who prepare their own returns  Cost (51%).

 Security and technology concerns (32%).

 Like seeing return, signing it, and putting it in the mail (30%).

 Free electronic filing (71%).

 Tax credit to cover cost of electronic filing (46%).

 Electronic refund in 3 to 5 days (36%).

 Ability to file electronically on IRS*s Web site (34%). Taxpayers who
used paid practitioners  Taxpayer always filed on paper (34%).

 Practitioner did not mention or recommend it (33%).

 Taxpayer did not want to pay cost to file electronically (28%).

 Free electronic filing (60%).

 Tax credit to cover cost of electronic filing (42%).

 Electronic refund in 3 to 5 days (40%). Paid practitioners  Taxpayers
do not request it (66%).

 Practitioners do not like the need for a paper signature document (51%).

 Software cost is too high (51%).

 Electronic filing is too time- consuming (51%).

 IRS paying $3 for each electronically filed return (63%).

 IRS offering free transmission of return (52%).

 Electronic refund in 3 to 5 days (51%).

 Free software (48%).

 Lower transmission costs (47%). Source: IRS reports on the results of
its surveys. Note: The percentages in this table represent the percent of
respondents who cited the factor or incentive as having a strong
influence..

1 U. S. General Accounting Office, Tax Administration: Assessment of IRS*
2001 Tax Filing Season, GAO- 02- 144 (Washington D. C.: Dec. 21, 2001).
Appendix IV: Results of Surveys of Taxpayers

and Tax Practitioners Who Prepared Returns on a Computer but Filed on
Paper

Appendix V: IRS Received Fewer E- Mail Questions Via Its Web Site and Did
a Worse Job Responding to the Questions

Page 55 GAO- 03- 314 2002 Tax Filing Season

One aspect of IRS*s Web site where available data indicated worse
performance in 2002 than in 2001 was the feature that allows taxpayers to
ask IRS tax law and procedural questions via E- mail. For the 2002 filing
season, IRS received fewer E- mail questions and did a worse job
responding to those questions than in 2001. Also, the E- mail function of
the site received mixed reviews by users who responded to the customer
satisfaction survey.

As of May 31, 2002, IRS received about 109,000 E- mail questions compared
with about 160,000 for the same time period in 2001* a 32- percent
decrease. IRS officials we talked with did not know why the number of
Email questions had decreased but speculated that redesign of the Web site
might have made it difficult for taxpayers to locate the link for
submitting questions. As noted earlier, the link for submitting questions
was accessible not through the *Contact Us* part of the site but through
the *Help* part of the site.

IRS*s goal is to respond to E- mail questions within 2 business days.
However, according to IRS data, IRS took 2. 4 business days on average to
respond to taxpayer*s E- mail questions in 2002, compared with 0.8
business days in 2001. The IRS data indicated that timeliness was a
problem in January and February (4.2 and 2.4 business days, respectively)
but improved substantially in March and April (1.2 and 0.8 business days,
respectively). According to responsible IRS officials, the increase in
time to respond to E- mail questions was caused by several factors:

 The most significant factor was a decision to concentrate on E- mail
questions received in the work period just before the start of the 2002
filing season.  IRS consolidated the responsibility for responding to all
E- mail

questions in one site, and there was an inadequate alignment of employees*
skills with the new workload.  IRS believed that far more complex
questions were received in

2002 than in 2001 because the expanded *frequently asked questions*
section of the Web site was being used by taxpayers to get answers to more
common, less complex questions.

IRS informed us that, for the 2003 filing season, it will be conducting
more training and adding another site to answer E- mail questions. The
site being added answered E- mail questions in 2001.

In 2002, IRS did not meet its 78- percent accuracy goal and, on a
percentage basis, answered fewer questions accurately, despite receiving
32 percent Appendix V: IRS Received Fewer E- Mail

Questions Via Its Web Site and Did a Worse Job Responding to the Questions

Appendix V: IRS Received Fewer E- Mail Questions Via Its Web Site and Did
a Worse Job Responding to the Questions

Page 56 GAO- 03- 314 2002 Tax Filing Season

fewer E- mail questions than in 2001. IRS data for January 1 to April 20,
2002, showed that IRS responded accurately to 76 percent of the E- mail
questions in 2002. That compares with a 78- percent accuracy rate for a
similar time frame in 2001. Some of the same factors cited as possible
reasons for the timeliness problems (i. e., an inadequate match of
employee skills with workload and the receipt of more complex questions)
could also help explain the decrease in accuracy.

IRS provides all E- mail customers an opportunity to respond to a customer
satisfaction survey, and about 2,200 did so between January 1 and April
30, 2002. The customers who responded to the survey in 2002 provided mixed
reviews of the E- mail service.

 91 percent of the respondents said that they were satisfied with the
time it took to get a response, compared with 96 percent in 2001* a
decline that may reflect the increase in average response times discussed
earlier.  92 percent of the respondents said that they would use the E-
mail

service again, compared with 91 percent in 2001.  79 percent of the
respondents said that IRS*s response answered their

question, compared with 75 percent in 2001.

Appendix VI: Comments from the Internal Revenue Service

Page 57 GAO- 03- 314 2002 Tax Filing Season

Appendix VI: Comments from the Internal Revenue Service

Appendix VI: Comments from the Internal Revenue Service

Page 58 GAO- 03- 314 2002 Tax Filing Season

Appendix VI: Comments from the Internal Revenue Service

Page 59 GAO- 03- 314 2002 Tax Filing Season

An IRS official told us that the figures cited for Web site hits and
downloads are for the full fiscal year (October 1 through September 30).

Appendix VI: Comments from the Internal Revenue Service

Page 60 GAO- 03- 314 2002 Tax Filing Season

Appendix VI: Comments from the Internal Revenue Service

Page 61 GAO- 03- 314 2002 Tax Filing Season

Appendix VII: GAO Contacts and Staff Acknowledgments

Page 62 GAO- 03- 314 2002 Tax Filing Season

James White (202) 512- 9110 Dave Attianese (202) 512- 9110

In addition to those named above, Bob Arcenia, Heather Bothwell, Grace
Coleman, Ron Heisterkamp, Ronald W. Jones, John Lesser, Tina Smith, and
Joanna Stamatiades made key contributions to this report. Appendix VII:
GAO Contacts and Staff

Acknowledgments GAO Contacts Acknowledgments

(440107)

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