    Tax Administration: IRS's 2003 Filing Season Performance Showed
    Improvements (31-OCT-03, GAO-04-84).

    During the tax filing season, millions of taxpayers file their
    returns and seek assistance by calling or visiting IRS's offices
    or Web site. GAO was asked to assess IRS's 2003 filing season
    performance in five areas: processing returns, refunds and
    remittances; electronic filing; telephone service; walk-in
    assistance, and Web site. We assessed for each of those five
    areas (1) IRS's performance in 2003, including any factors that
    helped or impeded its efforts, (2) any new initiatives that were
    intended to improve IRS's performance in 2003, and (3) IRS's
    performance over past filing seasons.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-04-84
        ACCNO:   A08804
      TITLE:     Tax Administration: IRS's 2003 Filing Season Performance
    Showed Improvements
         DATE:   10/31/2003
      SUBJECT:   Performance measures
    	     Program evaluation
    	     Tax administration
    	     Comparative analysis
    	     Tax consultants
    	     Tax returns
    	     Tax refunds
    	     Web sites
    	     Customer service
    	     Taxpayers

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    GAO-04-84

    United States General Accounting Office

    GAO

    Report to the Chairman, Subcommittee

          on Oversight, Committee on Ways and Means, House of Representatives

    October 2003

    TAX ADMINISTRATION

                IRS's 2003 Filing Season Performance Showed Improvements

                                           a

    GAO-04-84

    Highlights GAO-04-84, a report to Chairman, Subcommittee on Oversight,
    Committee on Ways and Means, House of Representatives

    During the tax filing season, millions of taxpayers file their returns and
    seek assistance by calling or visiting IRS's offices or Web site. GAO was
    asked to assess IRS's 2003 filing season performance in five areas:
    processing returns, refunds and remittances; electronic filing; telephone
    service; walk-in assistance, and Web site. We assessed for each of those
    five areas (1) IRS's performance in 2003, including any factors that
    helped or impeded its efforts, (2) any new initiatives that were intended
    to improve IRS's performance in 2003, and (3) IRS's performance over past
    filing seasons.

    GAO recommends that IRS consolidate and disseminate available wait-time
    information to field managers.

    In commenting on a draft of this report, IRS partially agreed with our
    recommendation, stating that it will require walk-in sites equipped with a
    system to report wait-time information quarterly and that this information
    would provide valuable data for assessing overall trends and relationships
    in timeliness and quality. However, IRS did not agree to disseminate this
    consolidated wait-time information to field managers, but without it,
    managers would have difficulty balancing timeliness and quality.

    www.gao.gov/cgi-bin/getrpt?GAO-04-84

    To view the full product, 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.

    October 2003

    TAX ADMINISTRATION

    IRS's 2003 Filing Season Performance Showed Improvements

    Available data for each of five key filing season activities indicates
    that IRS's performance showed some improvements in 2003 compared to 2002
    and IRS met or exceeded many of its 2003 performance goals. IRS processed
    returns and issued refunds more timely and accurately and increased the
    rate of electronic filing, although not at a rate that would allow IRS to
    meet its long-term goal. While IRS provided significantly more accessible
    telephone service, the accuracy rate of IRS responses declined. The
    accuracy of tax law assistance provided at walk-in sites improved,
    although the number of taxpayers assisted at IRS's walk-in sites declined,
    in part because taxpayers made greater use of the return-preparation
    assistance offered by volunteer organizations. In addition, IRS did not
    consolidate or disseminate data on how long taxpayers waited for walk-in
    assistance, making it difficult to balance quality and service. Finally,
    IRS's Web site performed well and was more user friendly than last year.
    IRS attributes improved performance, in part, to (1) fewer tax law changes
    that affected taxpayers and (2) continued emphasis on performance
    measures, a key part of IRS's strategy to improve its performance in
    processing returns and providing taxpayer assistance.

    IRS implemented initiatives in 2003 intended to improve filing season
    performance. For example, IRS entered into an agreement with a consortium
    of 17 tax preparation companies to offer free on-line tax preparation,
    established new toll-free telephone numbers to better target different
    taxpayers, and began certifying walk-in staff to answer tax law questions.

    Over a longer period of time, available data, although limited in some
    areas, also show that IRS's filing season performance has improved. Since
    the mid-1990s, the growth of electronic filing has allowed IRS to close
    one paper processing center and the accuracy and accessibility of
    telephone assistance has improved. While the Congress and taxpayers expect
    further progress, the improvements to date are a payoff from IRS's ongoing
    modernization.

    IRS's 2003 Filing Season Activities

    Contents

      Letter

    Results in Brief
    Scope and Methodology
    Background
    IRS's Processing of Returns And Refunds Improved, and IRS Closed

    One Paper Processing Center Electronic Filing Grew in 2003, but at Current
    Growth Rate IRS Will Not Achieve Long-Term Goal Telephone Service Showed
    Improvement in Accessibility but Not Accuracy Quality of Walk-In
    Assistance Improved in 2003, but Assessing

    Long-Term Improvements Is Difficult Because of Lack of Data IRS's Web Site
    Performance Showed Some Improvement Conclusions Recommendation for
    Executive Action Agency Comments and Our Evaluation

    1 1 4 6

    8

    12

    16

    24 29 32 32 33

    Appendixes

    Appendix I:

    Appendix II:

    Appendix III: Appendix IV:

    Data on IRS's Processing Performance Relative to Fiscal Year 2001-2003
    Performance and Fiscal Year 2003 Goals

    Advance Payment of Child Tax Credit Had Minimal Impact on 2003 Filing
    Season

    Comments from the Internal Revenue Service

    GAO Contacts and Staff Acknowledgments

    35

    37 39 45

    Tables              Table 1: IRS Tax Filing Season Telephone Assistance
                                                                  Performance,
                                  2000-2003 Filing Seasons                     19
                    Table 2: IRS's 2001-2003 Tax Filing Season Processing
                                         Performance                           35
                     Figure 1: IRS's Primary Activities During the 2003 Filing
    Figures    Season Figure 2: Growth Rate in the Number of Individual Tax  7
                                                                       Returns
                               Filed Electronically, 1996-2003                 13
                Figure 3: Projected Percentage of Individual Tax Returns Filed
                                  Electronically, 2004-2007                    14
               Figure 4: Reasons Taxpayers Called for Telephone Assistance
                                during the 2003 Filing Season                  17

    Contents

    Figure 5: How IRS Handled Calls for Telephone Assistance during 2003
    Filing Season 18 Figure 6: Assistance Provided by IRS Walk-in and
    Volunteer Sites, 2000-2003 Filing Seasons 26

    This is a work of the U.S. government and is not subject to copyright
    protection in the United States. It may be reproduced and distributed in
    its entirety without further permission from GAO. However, because this
    work may contain copyrighted images or other material, permission from the
    copyright holder may be necessary if you wish to reproduce this material
    separately.

    A

    United States General Accounting Office Washington, D.C. 20548

    October 31, 2003

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

    Dear Mr. Chairman:

    In response to your request, this report discusses the Internal Revenue
    Service's (IRS) performance during the 2003 tax filing season.1 It is
    during
    the filing season that most taxpayers have their only contact with IRS,
    filing
    their individual income tax returns, and if needed, seeking assistance or
    resolving simple problems, such as computational errors or missing Social
    Security numbers (SSN). Because of the millions of income tax returns
    processed and refunds issued and the crucial role that the filing season
    plays in the collection of revenue that finances the federal government,
    IRS's performance during the filing season 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)
    receiving returns electronically; (3) assisting taxpayers over the
    telephone;
    (4) providing face-to-face assistance at its walk-in locations; and (5)
    providing services via its Internet Web site. For each of the five areas
    the
    report discusses (1) IRS's performance in 2003 compared to 2002 and 2003
    goals, including any factors that significantly affected performance, (2)
    any
    new initiatives that were intended to improve IRS's performance in 2003,
    and (3) significant trends in IRS's performance over the past several
    years
    resulting from modernization efforts.

    Results in Brief	Overall, IRS's performance during the 2003 filing season
    improved compared to its performance in 2002 for each of the five filing
    season activities we reviewed, and IRS met many of its 2003 performance
    goals. However, the accuracy of telephone assistance declined, the growth
    of

    1Most 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 an extension from IRS, which allows them to
    delay filing until as late as October 15.

    electronic filing is slowing, and the timeliness of walk-in assistance is
    unknown.

    Processing-IRS's performance improved in 2003 relative to 2002 for seven
    of the eight measures it uses to judge its performance in processing
    individual income tax returns, refunds, and remittances, and IRS exceeded
    most of its performance goals. Other evidence, such as testimony from
    representatives of the tax practitioner community, indicated IRS's
    processing performance was smooth and without significant disruptions. IRS
    officials attributed improvements in processing performance to efforts to
    build upon its largely successful 2002 filing season and the relatively
    small effect of tax law changes on taxpayers filing during the 2003 filing
    season. The growth of electronic filing and other improvements in
    processing returns, refunds, and remittances over the past several filing
    seasons has allowed IRS to eliminate paper processing at one location and
    reduce staff devoted to paper processing.

    Electronic Filing-The number of individual income tax returns that IRS
    received electronically continued to grow, from about 47 million in 2002
    to an estimated 53 million in 2003, and the percentage of returns filed
    electronically reached an estimated 41 percent. However, the current rate
    of growth of electronic filing is slowing and will not allow IRS to
    achieve its long-term electronic filing goal of 80 percent by 2007,
    despite a number of initiatives over the years to reduce barriers and
    encourage more electronic filing. Electronic filing is important because
    it allows IRS to shift resources out of paper processing and improve
    customer service.

    Telephone Service-IRS performance data showed that it provided more
    accessible telephone service in 2003 and exceeded its 2003 performance
    goal for providing service to taxpayers trying to reach a Customer Service
    Representative (CSR). However, various measures show that IRS's
    performance in providing accurate responses to taxpayer questions
    declined, and IRS did not achieve most of its 2003 performance goals for
    accuracy. IRS implemented several initiatives in 2003-including the
    establishment of new toll-free telephone numbers targeting different types
    of taxpayers-that likely contributed to improved accessibility. Since the
    mid-1990s, IRS has significantly improved its telephone service. Although
    telephone service is not yet at the level desired by taxpayers and the
    Congress, the improvements to date represent a payoff from IRS's
    modernization efforts.

    Walk-in Assistance-The quality of services IRS provides at its walk-in
    sites showed some improvement in 2003, and IRS met some of its 2003
    performance goals. For example, the accuracy of tax law assistance
    provided at walk-in sites improved from 2002 to 2003. In addition, IRS
    continued its initiative to shift return preparation work to its
    community-based coalitions and other volunteer organizations, contributing
    to a decline in the number of taxpayers assisted at IRS's walk-in sites.
    With respect to accessibility, IRS did not consolidate or disseminate
    available data to managers on how long taxpayers waited for assistance in
    2003. Without such data, managers may not be able to balance the attention
    given to accuracy and accessibility. Over the last several years, IRS has
    made efforts to standardize and improve its walk-in assistance, but a lack
    of historical performance data makes it impossible for IRS and us to
    quantify improvements.

    Internet Web Site-Overall Web site usage increased in 2003, and the site
    performed well in terms of availability and average delivery time,
    according to an independent Web site rater. However, IRS's performance in
    responding to questions received via the Internet from taxpayers declined
    in 2003. IRS did resolve one of our key concerns from prior years about
    the search functions on the Web site, enabling taxpayers to find
    references to publications more easily. Also, in a major initiative in
    2003, IRS provided the capability for taxpayers to check the status of
    their refunds on-line for the first time, and 11 million taxpayers did so.
    Over the past several filing seasons, usage of IRS's Web site and the
    number of services provided have increased. The increases are another
    example of payoffs from IRS's ongoing modernization effort.

    We are making a recommendation to the Commissioner of Internal Revenue
    that IRS consolidate and disseminate wait-time information to field
    managers on the basis of information from walk-in sites equipped with an
    automated system that can capture wait-time data in order to assess this
    important aspect of quality. In commenting on a draft of this report (see
    app. III), the Commissioner of Internal Revenue partially agreed with our
    recommendation, stating that IRS will require walk-in sites equipped with
    Q-Matic to report wait-time information quarterly. However, the
    Commissioner did not agree to disseminate this consolidated wait-time
    information to field managers. For years, as we report, IRS has contended
    that past experience has shown that employee reaction to timeliness
    measures adversely affected quality. At the same time, the Commissioner
    noted that some monitoring of wait time occurs by local managers for
    walk-in sites equipped with the automated reporting system. However,

    routine monitoring does not provide overall performance data, and data is
    only available to some managers whose walk-in sites have the automated
    system. In our view, there needs to be a balance between measuring quality
    and timeliness, and too much focus on either could create inappropriate
    incentives for IRS's walk-in staff. As noted in our report, timeliness is
    part of IRS's suite of balanced measures for telephone performance. We
    agree that too much focus on timeliness could create inappropriate
    incentives for IRS's walk-in staff, but without consolidated timeliness
    information, field managers would have a difficult time balancing quality
    and timeliness. We discuss the Commissioner's comments in the "Agency
    Comments and Our Evaluation" section of the report.

    Scope and Methodology

    Our assessment of IRS's 2003 filing season performance was based on
    analyses of IRS data and data obtained from sources outside IRS,
    interviews with IRS officials and private sector tax preparers, and
    observations of IRS operations. We testified before the Subcommittee on
    Oversight on the interim results of our assessment in April 2003.2 Our
    assessment of filing season performance over a longer period of time was
    based, in part, on our past filing season reports.

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

    o 	reviewed and analyzed IRS documents and data, including workload data
    and data from IRS's current suite of balanced performance measures, which
    we used to assess performance this year and relative to 2003 goals;3

    o 	reviewed historical data that preceded the current performance measures
    to assess longer term improvements and performance;

    2 U.S. General Accounting Office, Internal Revenue Service: Assessment of
    Fiscal Year 2004 Budget Request and 2003 Filing Season Performance to
    Date, GAO-03-641T (Washington, D.C.: Apr. 8, 2003).

    3IRS uses workload indicators, such as the number of returns processed,
    for purposes of resource planning. It uses balanced measures primarily for
    gauging business results (quantity and quality measures) in addition to
    employee satisfaction and customer satisfaction.

    o 	interviewed IRS officials about current operations, performance
    relative to the past filing season and 2003 performance goals, and
    significant factors and initiatives that affected performance;

    o 	observed operations at two of the eight processing centers operated by
    IRS's Wage and Investment Operating Division (W&I) and three of IRS's
    walk-in locations;

    o 	observed operations at three sites that offer free return preparation
    as part of IRS's Volunteer Income Tax Assistance (VITA) and Tax Counseling
    for the Elderly (TCE) programs;

    o 	analyzed information posted to IRS's Internet 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) based on
    our work reviewing IRS's Web site for years and as experienced Internet
    Web users;

    o 	reviewed information from a recognized authority on Internet
    performance that assessed various aspects of IRS's Web site;

    o 	interviewed representatives of various large private organizations that
    prepare tax returns and trade organizations that represent both individual
    preparers and tax preparation companies;

    o 	reviewed staff year data for the paper processing, telephone
    assistance, and walk-in assistance activities; and

    o 	reviewed related congressional testimony and work performed by the
    Treasury Inspector General for Tax Administration (TIGTA).

    This report discusses performance measures that reflect the continuing
    interest of the Subcommittee-including the quality, accessibility, and
    timeliness of IRS's performance during the filing season. In November
    2002, we assessed the methodologies IRS used for computing its current
    suite of performance measures and the appropriateness of the performance
    goals.4 At that time, we reported that some of the performance measures
    that IRS and we use to assess various aspects of IRS's filing season

    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).

    performance had attributes of successful performance measures including
    objectivity and reliability, although in some cases, the measures could be
    further refined. Even recognizing the limitation of these measures, we
    have determined that the data we are reporting are sufficiently reliable
    and useful for assessing IRS's filing season performance.

    We did our work at IRS headquarters in Washington, D.C.; W&I headquarters
    and the Joint Operations Center in Atlanta, Ga;5 and W&I processing
    centers in Atlanta, Ga, and Holtsville, N.Y.; and walk-in and volunteer
    locations in Georgia and Louisiana. We selected these offices for a
    variety of reasons, including the location of key IRS managers and
    operations. We also selected the Brookhaven Submission Processing Center
    to visit because IRS was phasing out processing operations at that center,
    which represents a significant initiative related to both paper processing
    and electronic filing. We performed our work from January through
    September 2003 in accordance with generally accepted government auditing
    standards.

    Background	IRS's filing season is an enormous and critical undertaking
    that includes two key activities-returns processing and taxpayer
    assistance. As figure 1 shows, during the 2003 filing season, IRS
    processed an estimated 77 million individual income tax returns filed on
    paper, an estimated 53 million returns filed electronically, and issued an
    estimated 99 million refunds to taxpayers. At the same time, IRS provided
    extensive assistance to millions of taxpayers via phone, walk-in contact,
    and over its Web site.

    5The Joint Operations Center is the organization responsible for managing
    IRS's telephone operations.

    Figure 1: IRS's Primary Activities During the 2003 Filing Season

    Source : IRS and Art Explosion.

    Note: GAO analysis of IRS data. The number of paper and electronic returns
    and refunds are estimated for the time period January 1, 2003, to October
    24, 2003; toll-free calls for the time period January 1, 2003, to July 12,
    2003; walk-in contacts, which include returns prepared at volunteer sites,
    for the time period January 1, 2003, to April 19, 2003; and Internet
    downloads for the time period January 1, 2003, to July 31, 2003. We use
    different dates for the various areas because those dates best reflect
    IRS's filing season workload in that area.

    To process individual returns in 2003, IRS had eight geographically
    dispersed W&I submission processing centers that were responsible for
    processing returns filed on paper, three of which were also responsible
    for processing tax returns filed electronically; correcting errors made on
    tax returns; and forwarding the data through a data processing and
    telecommunications infrastructure to two computing centers, which maintain
    IRS's primary taxpayer account databases. To help taxpayers comply with
    their tax obligations, IRS provides various services at its call sites,
    walk-in sites, volunteer sites, and on the Web site. For example,
    taxpayers can call IRS toll-free to get answers to tax law questions and
    order tax forms and publications; get information or help in preparing
    their returns at IRS walk-in sites; get their returns prepared at
    community-based coalition and other volunteer organization sites in
    partnership with IRS; and get information, including answers to tax law
    questions, through IRS's Web site.

    Since the IRS Restructuring and Reform Act of 19986 (RRA 98), IRS has been
    particularly focused on improving taxpayer service. To help achieve this,
    in 2001, IRS established a suite of balanced performance measurements in
    accordance with RRA 98 and the Government Performance and Results Act of
    1993.7 The performance measurement system emphasizes accountability for
    achieving specific results and reflects IRS's priorities, which are
    articulated in its mission and 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 balanced
    measures to ensure balance among its priorities, such as providing timely
    and accurate service: (1) customer satisfaction, (2) employee
    satisfaction, and (3) business results (quality and quantity measures).
    IRS establishes goals each fiscal year for its performance measures and
    uses them to hold managers and frontline staff more accountable for
    improving filing season performance.8

    IRS's W& I operating division is one of four divisions that IRS
    established as part of a reorganization that took effect in October 2000.
    The other three divisions are Small Business and Self-Employed, Large and
    Mid-Size Businesses, and Tax Exempt and Government Entities.

    IRS's Processing of We found that on the basis of a comparison of IRS's
    performance in 2003

    and 2002, IRS's processing of individual income tax returns and
    refundsReturns And Refunds generally improved in 2003 and IRS exceeded
    most of its 2003 processingImproved, and IRS goals. In addition, the
    growth in electronic filing has enabled IRS to close Closed One Paper
    paper processing operations at one location and reduce the total number of

    staff devoted to paper processing.

    Processing Center

    6P.L. 105-206.

    7The Government Performance and Results Act of 1993 (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.

    8Although IRS establishes goals for its balanced measures on a fiscal year
    basis, our assessment of these measures is based on the filing season,
    when most taxpayers have their only interaction with IRS.

    Processing Performance Improved in 2003 Compared To Last Year

    IRS's performance improved in 2003 relative to 2002 for seven of the eight
    measures that are part of its suite of balanced measures it uses to judge
    its performance in processing individual income tax returns, refunds, and
    remittances.9 For example, IRS's measure of the percentage of refunds on
    returns filed on paper issued within 40 days or less (refund timeliness-
    paper) increased from 98.2 percent in 2002 to 98.8 percent in 2003. In
    addition, IRS's measure of the percentage of notices issued to taxpayers
    that had an error on the notice (notice error rate) decreased from 18.7
    percent in 2002 to 9.7 percent in 2003. IRS also exceeded its fiscal year
    2003 performance goals for five of the eight measures (including refund
    timeliness-paper), although it missed its goals for two measures (deposit
    error rate and letter error rate). We could not compare performance for
    one measure (refund interest paid) to prior years or its 2003 performance
    goal, because IRS implemented a programming change that changed the way it
    calculated the measure for the 2003 filing season and did not have the
    necessary data to revise the goal for the 2003 filing season. Table 2 in
    appendix I describes these eight measures and shows the results IRS
    reported for each of the measures.

    Other information supports the conclusion that the 2003 filing season went
    smoothly and without significant disruptions, as the following examples
    illustrate.

    o 	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 2003. These
    data showed that, on average, IRS met or exceeded its goal for the number
    of days it takes to process individual income tax returns.

    o 	Directors, managers, and staff at the Atlanta and Brookhaven Submission
    Processing centers voiced similarly positive views about the filing season
    and processing, and the Director of Submission Processing attributed
    improvements during the 2003 filing season to efforts to build upon a
    largely successful 2002 filing season and the small effect of tax law
    changes on taxpayers during the 2003 filing season. Appendix II provides
    more detailed information about the Jobs and Growth Tax

    9The data we report for 2003 are as of July 31, which were the latest data
    available at the time we ended our field work. According to IRS officials,
    the results through July 31 reflect IRS's performance during the filing
    season.

    Relief Reconciliation Act of 200310 and its impact on the 2003 filing
    season and potential impact in 2004.

    o 	The Commissioner of IRS testified in May 2003, before the annual Joint
    Congressional Review held as part of RRA 98, that IRS had made progress
    during the 2003 filing season, although he acknowledged that IRS has yet
    to provide the level of service that taxpayers, the Congress, and IRS
    agree is necessary.

    o 	The then Acting Commissioner of Internal Revenue testified in April
    2003 before the Subcommittee that, among other things, the filing season
    was going smoothly, with no significant delays in processing returns and
    issuing refunds. Representatives from the National Association of Enrolled
    Agents,11 National Association of Accountants, and H&R Block-the largest
    tax preparation firm-all expressed positive feedback about IRS's
    processing operations during this filing season.

    o 	According to TIGTA's report on the 2003 filing season, IRS processed
    most returns accurately and on time and the filing season went well.12
    TIGTA reported that most of the key tax law changes that affected
    taxpayers in 2003 were correctly implemented or subsequently corrected
    after processing began. However, TIGTA identified some areas of the tax
    laws that were not correctly implemented and could result in loss of
    taxpayer entitlements and erroneous tax assessments.13

    10P.L. 108-27.

    11The 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.

    12Treasury Inspector General for Tax Administration, The 2003 Filing
    Season Was Completed Timely and Accurately, but Some New Tax Law Changes
    Were Not Effectively Implemented, Reference No. 2004-40-003, (Washington,
    D.C., 2003).

    13TIGTA identified taxpayers that were allowed retirement savings
    contribution credits and student loan interest deductions in excess of the
    amounts allowed by the new tax law changes, taxpayers with potential
    unclaimed additional child tax credits, and taxpayers that were allowed a
    "dual benefit" for the tuition and fees deduction and the education
    credit.

    Closing of Paper Processing Operations at One Center Is a Key Initiative
    and Represents Payoff From Modernization

    The growth in electronic filing and resulting reduction in the number of
    paper returns received in recent years has enabled IRS to close the paper
    processing operations at its Brookhaven Submission Processing Center- one
    of its eight centers for processing individual income tax returns filed on
    paper. The closure is a key processing initiative in 2003. IRS's long-term
    strategy for paper processing is to continue closing its processing
    centers as electronic filing grows and shift the processing of paper
    returns to the remaining centers. IRS picked Brookhaven for the initial
    closure based on several factors, including paper return volume, personnel
    costs, labor availability, and real estate costs. As we noted in our
    interim testimony on IRS's filing season performance, this closing
    represents a significant consolidation of IRS's processing operations and
    a key payoff from modernization, specifically the growth in electronic
    filing.14 IRS officials attributed not meeting the goal for the percentage
    of letters issued to taxpayers with errors (letter error rate), in part,
    to the loss of experienced and knowledgeable personnel as a result of
    IRS's announcement that it would be closing some processing centers.

    In addition to closing paper processing operations at one of its centers,
    IRS has seen other improvements in its processing operations over the past
    several filing seasons. For example, in 1996, the average number of days
    it took processing centers to process individual tax returns ranged
    between 8 and 11 days. In 2003, the average number of days ranged between
    6 and 8 days. In addition, IRS's measure of the percentage of refunds with
    IRS-caused errors in the entity information (e.g., name or Social Security
    number) or refund amount declined from 9.8 percent in 2001 to 5.4 percent
    in 2003. IRS officials also told us that, since 2001, the eight submission
    processing centers that process individual tax returns each met or
    exceeded the established deposit program completion date-the date by which
    the processing centers must finish processing all tax receipts associated
    with the April peak processing period.

    According to IRS officials, the improvements in processing performance
    have resulted from a combination of factors, including better data
    processing equipment and more emphasis on performance management. For
    example, in the late 1990s, IRS began replacing two key data processing
    systems, which allowed for faster processing. In addition, IRS officials
    told us that they now rely more heavily on technology to

    14GAO-03-641T.

    communicate with employees, which they believe allows for faster and more
    accurate dissemination of information from headquarters to field staff and
    vice versa. As a result of RRA 98, IRS also has stressed the importance of
    reaching the goals for its balanced measures as compared to prior years,
    when IRS placed less importance on these types of measures.

    The improvements in processing performance also have enabled IRS to reduce
    the number of staff devoted to its paper processing operations, while
    employee satisfaction has increased. According to IRS officials, the
    number of staff years used in paper processing operations has decreased
    from 11,542 in fiscal year 2001 to 10,619 in fiscal year 2003, a decrease
    of about 8 percent.15 At the same time, the level of employee satisfaction
    has increased, as 63 percent of the staff assigned to processing expressed
    being satisfied with their job in 2003, an increase from 54 percent in
    2001.

    Electronic Filing Grew The number of individual income tax returns that
    IRS received

    electronically continued to grow and IRS met its goal for the percentage
    ofin 2003, but at Current returns filed electronically. However, the
    current rate of growth of Growth Rate IRS Will electronic filing will not
    allow IRS to achieve its long-term electronic filing Not Achieve Long-goal
    of 80 percent by 2007,16 despite numerous initiatives to reduce barriers
    Term Goal to and encourage more electronic filing.

    Despite Growth in Electronic Filing In 2003, IRS is Not on Track to
    Achieve Its Long-Term Goal

    The number of individual returns filed electronically continued to grow in
    2003. IRS received an estimated 53 million individual tax returns
    electronically in 2003, an increase of about 13 percent from 46.9 million
    in 2002. The percentage of individual tax returns filed electronically
    reached an estimated 41 percent in 2003, up from 35.9 percent in 2002.
    While the number of tax returns filed electronically in 2003 fell just
    short of IRS's performance goal of 54 million, IRS met its performance
    goal for the percentage of individual tax returns filed electronically.

    15According to IRS officials, the staff year data for fiscal year 2003
    represent actual staff year data through August 2, 2003, plus projected
    staff year usage through September 30, 2003.

    16RRA 98 provides, in part, that it should be the goal of IRS to have at
    least 80 percent of all federal tax and information returns filed
    electronically by 2007. IRS's goal for individual income tax returns is
    consistent with this overall goal-80 percent by 2007.

    Although electronic filing continues to grow, IRS is not on track to reach
    its long-term electronic filing goal of 80 percent by 2007. As figure 2
    shows, the growth rate from 1996 through 2003 has generally been
    decreasing. More significantly, the growth rate in 2003 represents the
    smallest percentage increase in the number of individual tax returns filed
    electronically since 1996. Some slowing of the growth rate might be
    expected because, for example, taxpayers most easily attracted to
    electronic filing have already converted.

    Figure 2: Growth Rate in the Number of Individual Tax Returns Filed
    Electronically, 1996-2003

    40 Percent

    30

    20

    10

    0 1996 1997 1998 1999 2000 2001 2002 2003

    Year

    Source: IRS.

    Note: GAO analysis of IRS data. The growth rate for 2003 is estimated.

    The current growth rate will not enable IRS to meet its long-term goals.
    We estimate, on the basis of the data in figure 3, that about 64 percent
    of individual tax returns will be filed electronically by 2007, assuming
    annual growth rates for individual tax returns filed electronically (about
    13 percent) and total number of individual tax returns filed (0.66
    percent)17 continue through 2007. IRS estimated an even lower percentage
    (54.4 percent) of returns would be filed electronically by 2007.18 In
    order to achieve the long-term goal of 80 percent, IRS would have to
    average more than a 19 percent growth rate in electronic filing from 2004
    to 2007. However, in its June 30, 2003, report to the Congress, the
    Electronic Tax

    Administration Advisory Committee (ETAAC) 19 said that the trend of
    electronic filing is clearly toward lower annual growth rates and as a
    result, IRS will have difficulty achieving its long-term goal unless it
    finds additional ways to overcome taxpayer and tax practitioner barriers
    to electronic filing. To the extent that IRS misses the goal, more
    resources will have to be devoted to processing paper returns.

    Figure 3: Projected Percentage of Individual Tax Returns Filed
    Electronically, 2004-

    2007

    100 Percent

                                          Goal

    80

    60

    40

    20

    0

    2004 2005 2006 2007

    Year

    Source: GAO.

    17 We used a 3-year average for the growth rate in the total number of
    individual tax returns because the growth rate in 2003 was negative and we
    believe that a 3-year average is more representative of future growth. IRS
    officials attributed the negative growth rate in 2003 to the downturn in
    the U.S. economy.

    18See Report of the Joint Committee on Taxation Relating to the Internal
    Revenue Service as required by the IRS Reform and Restructuring Act of
    1998, JCX-53-03, May 19, 2003.

    19Electronic Tax Administration Advisory Committee, Annual Report to
    Congress, (Washington, D.C., June 2003). RRA 98 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.

                            Note: GAO analysis of IRS data.

    IRS Has Taken Various Steps to Encourage More Electronic Filing, which Is
    Key to Continued Modernization

    In 2003, IRS took various steps to encourage taxpayers and practitioners
    to file electronically. These steps included the following:

    o 	IRS entered into an agreement with the Free File Alliance, a consortium
    of 17 tax preparation companies, which requires the Alliance to offer free
    on-line tax preparation and filing services for at least 60 percent (78
    million) of all taxpayers during the filing season. Taxpayers access the
    Alliance from a link on IRS's Web site. As of July 31, 2003, about 2.8
    million taxpayers used the free on-line filing services offered by the
    Alliance, which exceeded IRS's goal of 2.5 million taxpayers.20 However,
    IRS officials estimated that only about 1 million of these taxpayers were
    filing electronically for the first time.

    o 	IRS continued to focus the electronic filing marketing campaign on
    taxpayers and practitioners who file computer-prepared tax returns on
    paper. In 2003, IRS planned to spend $15 million, the same as the
    marketing budget in 2002.

    o 	IRS mailed a package to about 32,000 tax practitioners who prepare
    either some or all of their tax returns over the computer but submit paper
    tax returns. The package explains the benefits of electronic filing and
    encourages taxpayers to file all of their tax returns electronically. This
    built on an initiative last year where IRS sent letters to selected tax
    practitioners to encourage them to file returns electronically.

    According to IRS officials, these steps contributed to the growth in the
    number of returns filed electronically in 2003; however, the officials
    told us that they were unable to link the initiatives to a specific
    increase in the growth of individual returns filed electronically, with
    the exception of the Free File initiative.

    The growth of electronic filing has been, and continues to be, a key part
    of IRS's modernization strategy because it allows IRS to control costs,
    shift

    20 TIGTA confirmed that IRS exceeded its goals for the Free File Alliance,
    although they had recommendations to improve the program. See Treasury
    Inspector General for Tax Administration, Improvements are Needed to
    Ensure Individual Taxpayers Have an Easy, No-Cost Option to e-file Their
    Tax Returns, Reference No. 2003-40-165, (Washington, D.C., 2002).

    resources out of labor-intensive paper return processing, improve customer
    service, and as previously discussed, consolidate submission processing
    operations at fewer centers. Electronic filing has grown from almost 12
    million returns in 1995 to an estimated 53 million in 2003, due to
    numerous initiatives implemented over the years. For example, in 1999, IRS
    made electronic filing more appealing by enabling taxpayers who owe money
    to pay their balance due either by credit card or by direct debit from a
    checking or saving account. Also, in response to concerns voiced by
    practitioners that electronic filing was not entirely paperless, IRS began
    testing alternative signature options that allowed certain electronic
    filers to sign their returns electronically and thus avoid having to send
    any paper to IRS and expanded those initiatives in 2000. Additionally,
    each year IRS has expanded the list of forms and schedules that can be
    filed electronically. As a result, according to IRS, 99 percent of all
    individual forms and schedules can be filed electronically today.

    Telephone Service Showed Improvement in Accessibility but Not Accuracy

    IRS provided more accessible telephone service in 2003; however, its
    performance in providing accurate responses to taxpayers declined, and IRS
    did not achieve most of its 2003 performance goals, primarily related to
    accuracy. IRS implemented several initiatives in 2003 that likely
    contributed to improved accessibility. Over a longer period of time, IRS
    has significantly improved both the accessibility and accuracy of its
    telephone service, which represents a payoff from its modernization
    efforts.

    Telephone Service Was IRS receives millions of calls to its toll-free
    network during the filing season More Accessible, Although when taxpayers,
    inquire about tax law issues, the status of their refunds, or Not More
    Accurate in 2003 issues regarding their accounts, among other things. As
    figure 4 shows, IRS

    received about 72 million calls in 2003, about 31 percent fewer calls than
    it

    received in 2002. Figure 4 also shows that calls about the status of
    refunds

    accounted for almost half of total calls received through mid-July 2003.

    Figure 4: Reasons Taxpayers Called for Telephone Assistance during the
    2003 Filing Season

    Note: GAO analysis of IRS data. The "Other" category includes special
    telephone numbers, such as the one for victims of the September 11, 2001,
    terrorist actions, and calls that were abandoned or that reach a busy
    signal from IRS's automated-service-only (TeleTax) number. In this figure,
    total calls to IRS refer to the number of callers that tried to reach a
    Customer Service Representative (CSR) or IRS's TeleTax number. Data cover
    January 1 through July 12, 2003.

    Figure 5 shows that of the 72 million calls to IRS during the 2003 filing
    season (1) less than half of the calls resulted in the caller receiving
    automated service, (2) about one third of the calls were handled by a
    Customer Service Representative (CSR), and (3) about one fourth of the
    calls resulted in the caller hanging up or being disconnected without
    receiving service.

    Figure 5: How IRS Handled Calls for Telephone Assistance during 2003
    Filing Season

    Source: IRS and Art Explosion.

    Note: GAO analysis of IRS data.

    IRS's overall performance in answering calls during the 2003 filing season
    was mixed. As table 1 shows, IRS provided more accessible telephone
    service in 2003 compared to 2002 as (1) a greater percentage of callers
    attempting to reach a CSR received service, (2) a greater percentage of
    callers attempting to access automated service completed their calls, (3)
    a greater percentage of callers reached a CSR within IRS's threshold of 30
    seconds or less, and (4) callers spent less time waiting for assistance on
    average. However, table 1 also shows that IRS's performance on various
    accuracy measures declined in 2003 as compared to 2002.

    Table 1: IRS Tax Filing Season Telephone Assistance Performance, 2000-2003
                           Filing Seasons Accuracy measuresa

                               2000        2001        2002            2003
          Accessibility          Actual      Actual      Actual   Actual    Goals
            measuresa
           CSR level of               j         68%         71%     85%       72%
             serviceb
    Automated completion         47%         47%         36%     59%      N/Ak
              ratec
        Assistor response           39%         39%         51%     56%      N/Ak
              leveld
         Average speed of   237 seconds 337 seconds 268 seconds 159 seconds
             answere                                                         N/Ak

             Tax law quality ratef          73%      75%      82%     80%     84%
                                           +/- 2%   +/- 1%   +/- 1%  +/-1%
             Accounts quality ratef         59%      69%      76%     70%     76%
                                           +/- 2%   +/- 1%   +/- 1%  +/-1%
        Tax law customer accuracy rateg          j   79%      85%     81%     87%
                                                    +/- 1%   +/- 1%  +/-1%
        Accounts customer accuracy rateg         j   88%      91%     89%     91%
                                                    +/- 1%   +/- 1%  +/-1%
            Tax law timeliness rateh             j        j        j  99%    N/Ak
                                                                     +/-1%
           Accounts timeliness rateh             j        j        j  97%    N/Ak
                                                                     +/-1%
         Tax law professionalism ratei           j        j        j  100%   N/Ak
                                                                     +/-1%
         Account professionalism ratei           j        j        j  100%   N/Ak
                                                                     +/-1%

    Source: IRS.

    aAccessibility measures are based on actual counts from January 1 through
    mid-July. Accuracy measures are based on representative samples and are
    estimated at the 90-percent confidence level and cover the period from
    January through June.

    bThis measure is intended to show the percentage of callers who wanted to
    speak to a customer service representative (CSR) that got through and
    received service.

    cThis measure is intended to show the percentage of total callers who
    completed a selected automated service. IRS did not establish a goal for
    2003 because the indicator is not an official measure.

    dIRS uses the word "assistor" interchangeably with CSR. This measure shows
    the percentage of callers that waited 30 seconds or less before speaking
    to a CSR. IRS did not establish a goal for 2003 because the indicator is
    not an official measure.

    eThe average number of seconds callers waited before speaking to a CSR.
    IRS did not establish a goal for 2003 because the indicator is not an
    official measure.

    fThe percentage of calls in which CSRs followed all IRS procedures for the
    call type and provided correct answers.

    gThe percentage of calls in which CSRs provided correct answers for the
    call type and took the appropriate follow-up resolution action.

    hThe percentage of calls in which CSRs used their time efficiently when
    responding to taxpayers inquires. IRS did not establish goals for 2003 for
    these measures because they were new in 2003.

    iThe percentage of calls in which CSRs used effective communication
    techniques to promote a positive IRS image when responding to taxpayer
    inquires. IRS did not establish goals for 2003 for these measures, because
    they were new in 2003.

    jComparable data do not exist.

    kNot applicable.

    IRS exceeded its goal for CSR level of service during the 2003 filing
    season. However, IRS did not set goals for the three other workload
    indicators of accessibility shown in table 1 because it did not consider
    these indicators to be performance measures. We believe these three
    indicators are important because they measure taxpayers' access to
    automated service and gauge the taxpayer's experience when attempting to
    reach a CSR.21 As we reported in November 2002, IRS removed the automated
    completion rate as a measure of the effectiveness of serving taxpayers
    through automation.22 IRS did not agree with our recommendation to
    reinstate this measure as a means of determining the level of service
    provided by automation.23 In December 2002, we also reported that IRS
    stopped using the assistor response level and average speed of answer
    measures to assess its performance in providing telephone service because
    IRS's telephone call sites had no control over these measures.24 In
    response to our recommendation that IRS reinstate a telephone assistance
    caller wait-time measure, IRS plans to reintroduce a wait-time measure for
    fiscal year 2004. This measure-average speed of answer-is intended to
    gauge the customer's experience when attempting to reach a CSR.

    IRS officials attributed the improvement in the accessibility of telephone
    service to several factors. For example, IRS experienced a lower than
    expected number of calls in 2003-about 72 million calls received in 2003
    as compared to more than 104 million in 2002. IRS officials told us that

    21 IRS has other measures that we are not reporting on because the
    measures 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.

    22GAO-03-143.

    23 IRS based its disagreement on the data on automated calls not being
    good enough to merit attention as a balanced measure. While we recognized
    that there were data weaknesses with the measure, our recommendation also
    called for IRS to revise the formula before including it among its
    balanced measures. See GAO-03-143.

    24U.S. General Accounting Office, IRS's 2002 Tax Filing Season: Returns
    and Refunds Processed Smoothly; Quality of Assistance Improved, GAO-03-314
    (Washington, D.C.: Dec. 20, 2002).

    there were relatively few tax law changes that had an impact on taxpayers
    during the 2003 filing season as compared to last year, when IRS received
    a significant number of calls related to the rate reduction credit.
    Another possible reason for the improvement in accessibility could be the
    fact that IRS began using CSRs to route tax law related calls in 2003. IRS
    made this change because in 2002 (1) some callers spent up to 2 minutes
    navigating the menu options, (2) other callers spent up to 3 minutes
    talking to one CSR only to be transferred to another CSR for assistance,
    and (3) more than 50 percent of the calls received by CSRs were re-routed
    to other CSRs for some tax law topics. IRS officials told us that they
    made this change to improve performance during the filing season and
    improve the customer experience since many customers with tax-law-related
    calls had difficulty using the menu options.

    IRS did not meet its goals for any of its accuracy measures during the
    2003 filing season, and its performance relative to these measures
    declined compared to last year. IRS also began establishing baseline data
    for four new accuracy measures and has not yet set goals for these
    measures. These new measures assess how well CSRs manage their time and
    whether CSRs promote a positive IRS image when communicating with
    telephone callers. IRS plans to replace its existing tax law and account
    quality measures and use the new timeliness and professionalism measures
    and current customer accuracy measures to assess the accuracy of its
    performance in providing telephone assistance beginning in fiscal year
    2004. According to IRS, the new timeliness and professionalism measures
    are based on what customers indicated mattered most to them and they are
    designed with consideration to industry best practices. Although IRS began
    an analysis to determine whether there is a correlation between how IRS
    rates its CSRs on these new measures and how taxpayers report being
    treated in the customer satisfaction surveys, the analysis was not
    completed when we completed our field work.

    IRS attributed the lack of improvement in the accuracy of telephone
    service to several factors. For example, IRS officials attributed the
    decline in the accounts quality rate to the training of newly hired CSRs
    on account-related topics instead of the easier refund topics. In
    addition, with the introduction of the Internet "Where's My Refund"
    feature, IRS received fewer refund inquires, which resulted in more
    complex calls being answered by CSRs. This feature is discussed in more
    detail in the "IRS's Web Site Performance Showed Some Improvement"
    section. IRS identified several items that contributed to the decrease in
    the tax law customer accuracy rate, including the fact that CSRs had
    difficulty adapting to the

    changes in the guide they use to query callers. IRS officials also said
    another explanation for the lack of improvement in providing accurate
    information to callers is that some of IRS's telephone call sites were
    transferred from one operating division to another division, which
    resulted in CSRs moving from one area of expertise to another area and
    needing to be retrained.

    IRS Implemented Several Initiatives in 2003 to Improve Telephone Service

    IRS implemented several initiatives to improve telephone service in 2003.
    According to IRS officials, these initiatives were instrumental in IRS
    improving access to telephone service during the 2003 filing season,
    although it is difficult to determine specific cause/effect relationships
    between the initiatives and improvements in telephone service. Examples
    include the following.

    o 	IRS established six new toll-free telephone numbers to better reflect
    operating division responsibility and accountability-the Refund Hotline,
    Refund Callback Line, Business and Specialty Tax Line, and three new
    customer response numbers. These new numbers are part of IRS's new
    toll-free strategy to improve the customer's experience by targeting
    customer segments and creating more accountability for the operating
    divisions. According to IRS officials, the three new customer response
    numbers replaced one number that IRS used in the past and more closely
    correspond to the operating division responsible for a particular notice.

    o 	IRS implemented a new feature on its Web site that enabled taxpayers to
    find out if IRS received their returns and whether their refunds had been
    processed, as discussed in the "IRS's Web Site Performance Showed Some
    Improvement" section of this report. The new feature provides taxpayers
    with another option to receive assistance while reducing the demand for
    toll-free refund calls. According to IRS's analysis for the period of
    January 1 to June 30, 2003, this new feature handled 32 percent of all IRS
    contacts from taxpayers with refund questions and reduced the toll-free
    refund call demand.

    Telephone Service Has Since the mid-1990s, IRS has significantly improved
    its telephone service. Improved over the Past Although telephone service
    is not yet at the level desired by taxpayers and Several Filing Season
    Partly the Congress, the improvements to date represent payoffs from IRS's

    modernization efforts. For example, in 1997, about 49 percent of calls
    toas a Result of Modernization IRS primary assistance lines either
    received a busy signal or were

    abandoned before being answered, as compared to about 32 percent of calls
    in 2003. In addition, the percentage of calls where taxpayers attempted to
    reach a CSR and received service increased from about 68 to 85 percent
    between the 2001 and 2003 filing seasons. With regard to accuracy, the
    percentage of tax-law-related calls in which CSRs followed all IRS
    procedures and provided the correct answer increased from 73 percent in
    2000 to 80 percent in 2003, while the percentage of account-related-calls
    in which CSRs followed all IRS procedures and provided the correct answer
    also increased from 59 to 70 percent between the 2000 and 2003 filing
    seasons.

    IRS's telephone service improvements over the years are, in part, the
    result of numerous modernization initiatives sustained over time, although
    limited data exist to link specific initiatives to improvements. In 1998,
    IRS revised its method of distributing calls, shifting from an
    area-code-based routing system to a nationwide call allocation system. In
    1999, IRS centralized its toll-free telephone operation at the Joint
    Operations Center to enable it to route calls on the basis of availability
    of CSRs. Similarly, from 2000 through 2003, IRS made several business
    process changes and implemented new technology. For example, in 2001, IRS
    shifted millions of calls to an automated answering system in order to
    free CSRs to answer more complex calls. IRS also enhanced its call routing
    ability in 2002 by implementing "network call screening" where callers,
    through the use of menu options, indicated their subject matter prior to
    being routed to a call site. Regarding accuracy, IRS began centralized
    monitoring of account- and tax-law-related calls in 1998. In addition, a
    desktop electronic version of IRS's guide used to answer tax-law-related
    questions was made available to all CSRs. The guide has been improved and
    now contains automated links to on-line research material. Using this same
    technology, in 2002, IRS automated the guide that CSRs use to answer
    account-related questions. Finally, because of modernization, IRS's
    telephone service has improved over the years while maintaining about the
    same workforce level in its telephone operations. For example, IRS
    expended about 8,285 staff years in fiscal year 1999 providing toll-free
    telephone service compared to 8,340 staff years in fiscal year 2002.

    Quality of Walk-In Assistance Improved in 2003, but Assessing Long-Term
    Improvements Is Difficult Because of Lack of Data

    The quality of service provided at IRS's walk-in sites showed some
    improvement in 2003, and IRS met some of its 2003 performance goals.25 In
    addition, IRS continued its initiative to shift return preparation work to
    its community-based coalitions and other volunteer organizations, which
    contributed to a decline in the number of taxpayers assisted at IRS's
    walk-in sites. However, our assessment was limited by the fact that IRS
    did not report performance for the timeliness of walk-in assistance or the
    accuracy of account assistance in 2003. Over the last several years, IRS
    has made efforts to standardize and improve walk-in assistance, but a lack
    of long-term performance data makes it impossible to quantify
    improvements.

    Tax Law Accuracy and Volunteer Assistance Increased in 2003, but IRS Did
    Not Report on Timeliness and Account Assistance

    The accuracy of tax law assistance provided at walk-in sites improved
    between 2002 and 2003 on the basis of reviews conducted by TIGTA.26 From
    January through April 2003, TIGTA found that about 70 percent of its
    questions were answered correctly, an increase of 20 percentage points
    over the same time period last year, but less than IRS's 2003 performance
    goal of 80 percent. TIGTA also found that the number of times IRS
    employees referred TIGTA auditors to a publication instead of answering
    tax law questions-which had been an issue last year-declined by about 87
    percent. TIGTA attributed the increased accuracy rates to IRS (1) revising
    the guidelines used by walk-in staff, (2) certifying the proficiency of
    walk-in staff in various tax law categories, and (3) immediately
    addressing the results of TIGTA reviews at walk-in sites. As they did last
    year, field assistance officials continue to disagree with the methodology
    used by TIGTA to calculate tax law accuracy because TIGTA counts referrals
    to IRS publications as incorrect.27 However, as we stated last year, we
    believe that the complexity of tax laws and varying education levels among
    taxpayers seeking assistance suggest that requiring field assistance

    25At any one of IRS's more than 400 walk-in sites, taxpayers can obtain
    (1) forms and publications; (2) assistance with their tax accounts; (3)
    answers to tax law questions; (4) limited return preparation assistance;
    and (5) various other types of assistance, such as help getting a taxpayer
    identification number.

    26In 2001, the Congress directed TIGTA to review the accuracy of tax law
    assistance provided by all of IRS's walk-in sites, S. Rep. No. 107-57
    (2001). From January through April 2003, TIGTA reviewers visited 72
    walk-in sites and asked a total of 283 tax law questions.

    27TIGTA counts referrals 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.

    employees to walk the taxpayer through a publication to identify the
    correct response is a necessary procedure that should be followed in
    practice for their response to be considered correct.28

    In addition to TIGTA reviews of tax law accuracy, IRS began measuring the
    accuracy of return preparation assistance provided at walk-in sites in
    January 2003, using existing data generated by the submission processing
    centers.29 IRS data shows that from January 1 to May 3, 2003, the accuracy
    rate for returns prepared at walk-in sites was 99.8 percent, which
    exceeded IRS's performance goal of 91 percent. IRS officials attributed
    the high accuracy rate to the use of standardized software by walk-in
    staff to prepare and electronically file returns and the lack of
    significant tax law changes in 2003 as compared to last year. IRS also
    partners with community-based coalitions-a collection of local
    organizations that help low-income individuals and families-and other
    volunteer organizations to provide free return preparation assistance to
    taxpayers as part of its VITA and TCE programs.30 According to IRS
    officials, from January 1 to April 19, 2003, the accuracy rate for returns
    prepared at VITA sites was 98.1 percent and 96.5 percent for returns
    prepared at TCE sites.

    In 2003, the number of taxpayers that received return preparation
    assistance from community-based coalitions and other volunteer
    organizations increased; at the same time, the number of taxpayers
    assisted at IRS's walk-in sites continued to decline. Figure 6 shows the
    growth in the number of returns prepared by community-based coalitions and
    other organizations, a decline in the number of taxpayers receiving
    assistance at IRS walk-in sites, and a decline in the number of returns
    prepared at IRS walk-in sites.31

    28GAO-03-314.

    29IRS considers a return as being accurate if no math errors (obvious
    errors such as mathematical errors, omitted or inconsistent data, or other
    inconsistencies) are identified on the return.

    30These programs use IRS-trained volunteers to help prepare basic tax
    returns for taxpayers with special needs, including people with
    disabilities, those with low or fixed incomes, non-English speaking
    people, and the elderly, during the filing season.

    31IRS's walk-in sites provide return preparation assistance to taxpayers
    taht meet certain income requirements. For the 2003 filing season, the
    income ceiling for return preparation assistance was $35,000.

    Figure 6: Assistance Provided by IRS Walk-in and Volunteer Sites,
    2000-2003 Filing Seasons

    8 Millions

    6 5.79

    4

    2

    0 2000 2001 2002 2003

    Returns prepared (walk-in)

    Returns prepared (volunteer)

    Total walk-in

    Source: IRS.

    Note: GAO analysis based on IRS data. 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 about 96,000 in 2000 to over 150,000 in 2003.

    The number of returns prepared at volunteer sites was not available for
    the 2000 filing season.

    The time periods covered by this figure each began on January 1 and ended
    on April 22, 2000, April 21, 2001, April 20, 2002, and April 19, 2003.

    IRS officials attributed the overall decline in the number of taxpayers
    receiving assistance at walk-in sites to (1) IRS's strategy to reduce the
    amount of return preparation assistance offered at walk-in sites, 32 (2)
    taxpayers use of more convenient means to obtain services that do not
    require face-to-face contact, such as through IRS's toll-free network and
    Web site, and (3) the increasing number of taxpayers that receive return
    preparation assistance at community-based coalitions and other

    32IRS planned to reduce return preparation assistance by 20 percent in
    both fiscal years 2003 and 2004 and expects walk-in sites to provide
    additional tax law assistance, as well as perform some compliance
    functions.

    organizations as part of IRS's VITA and TCE programs.33 These officials
    also told us that the decline in the number of taxpayers assisted at
    walk-in sites helped IRS reduce its reliance on compliance staff.
    Traditionally, IRS has detailed staff from its compliance functions, such
    as Examination and Collection, to help provide walk-in assistance. In
    2003, IRS was able to reduce the number of compliance staff that helped to
    provide walk-in assistance during the filing season by about 118 staff
    years (66 percent) during the filing season. IRS also reduced the total
    number of staff years used to provide walk-in assistance during the 2003
    filing season by about 14 percent as compared to the same time period in
    2002.

    IRS did not report performance for two key indicators of walk-in service
    in 2003-timeliness and accuracy of account assistance. For years, IRS
    officials have contended that, when timeliness is monitored at its walk-in
    sites, employees have felt in a hurry to provide assistance to taxpayers,
    which could diminish quality. As a result, IRS discontinued wait time as
    an official measure of field assistance in 2001 and no longer required
    walk-in sites that were manually capturing and reporting wait-time
    information to do so in 2002. While we did not agree with IRS's decision
    to discontinue wait time as an official measure, we did agree with the
    decision to stop manual tracking of wait time because it was not practical
    or accurate to do so. 34 This year, IRS no longer required that about 140
    of its 400 walk-in sites equipped with an automated system, known as the
    Queuing Management System, which captures wait-time information to report
    that information to upper-level management. Further, IRS did not
    consolidate and disseminate this wait-time information to field managers.
    According to field assistance officials, this decision was made for the
    same reason they discontinued wait time as an official measure-because
    walk-in staff felt pressured to hurry assistance. However, without
    timeliness information, IRS lacks information about a key component of
    service, which makes it difficult to balance timeliness and quality. As a
    result, walk-in staff could take excessive time providing assistance to a
    few taxpayers regardless of the impact on the wait time for other
    taxpayers. For this reason, IRS includes timeliness as part of its suite
    of balanced measures for monitoring telephone operations. In addition,
    taxpayers reported in customer

    33According to IRS, the number of community-based coalitions increased
    from 6 in fiscal year 2000 to 150 in fiscal year 2003. In 2004, IRS plans
    to continue expanding VITA and TCE sites in underserved areas, such as
    rural communities, while improving the operational effectiveness and
    productivity of existing partnerships.

    34GAO-03-143 and GAO-03-314.

    satisfaction surveys that promptness of service was by far the highest
    ranked improvement priority for its walk-in sites.

    IRS also does not presently know the accuracy of the account assistance it
    provides to taxpayers at walk-in sites. Account assistance differs from
    tax law assistance-account assistance includes answers to questions about
    taxpayers' refunds, payments, and tax debts. IRS established baseline data
    for an account accuracy measure in 2002; however, IRS subsequently decided
    not to measure account accuracy in 2003 so that its quality reviewers
    could focus on conducting reviews of tax law accuracy at walk-in sites.
    IRS officials stated that they are developing a plan for measuring account
    accuracy and hoped to begin using quality reviewers to measure the
    accuracy of account assistance in September 2003. Account accuracy is one
    of the balanced measures of telephone performance.

                   IRS Took Steps in 2003 to Improve Walk-in Service

    IRS took several steps to improve walk-in service in 2003. According to
    field assistance officials, these steps likely helped improve the accuracy
    of tax law assistance, although they have not conducted any analysis to
    determine the impact of these steps on any particular aspect of quality of
    walk-in service. The following are three examples of steps intended to
    improve accuracy.

    o 	Field assistance managers began certifying the proficiency of walk-in
    staff in various tax law topics in March 2003. According to field
    assistance officials, walk-in staff that do not pass the certification in
    a particular topic cannot assist taxpayers on that topic, and managers are
    required to develop a plan to assist the staff in improving proficiency in
    that topic.

    o 	Field assistance managers and quality reviewers began conducting
    monthly reviews of tax law accuracy at walk-in sites. IRS data show that
    from January to April 2003, its reviewers reported receiving correct
    responses to about 88 percent of the questions asked of walk-in staff,
    which is higher than the results reported by TIGTA for the same time
    period.

    o 	IRS began training walk-in staff in fiscal year 2003 on how to guide
    taxpayers through a publication to answer a tax law question, instead of
    merely providing the taxpayer with the publication and having the
    taxpayers figure out the answers by themselves. As part of this training,
    IRS also developed guidance for walk-in staff to use that is similar to

    what CSRs use for answering tax law questions received via IRS's toll-free
    telephone network. In addition, field assistance procedures emphasize that
    walk-in staff should not give taxpayers a publication in lieu of providing
    an answer to their tax law question.

    IRS Lacks Data for Assessing Long-term Improvements in Walk-In Assistance

    Over the last few years, IRS has made efforts to standardize walk-in
    assistance, but a lack of performance data makes it difficult for IRS and
    us to quantify long-term improvements. As we reported in December 2000,
    IRS's National Office did not implement a quality review program for
    walk-in sites until 2000.35 Before that time, IRS lacked meaningful
    nationwide data to assess the performance of its walk-in sites in terms of
    quality, timeliness, and taxpayer satisfaction. Despite this fact, field
    assistance officials believe that there have been improvements in the
    quality of services provided by walk-in sites in recent years, based on a
    number of factors. For example, in 2001, IRS reorganized its walk-in sites
    and established a set of measures, such as tax law accuracy, to assess
    performance and to help provide consistency and standardization. As a
    result, field assistance officials told us that walk-in sites now capture
    workload data, for example, more consistently, which makes the data more
    useful to management and which indicates an improvement in recent years.
    The officials told us that, in 2002, IRS also began providing more
    consistent and standardized services, better training, and improved access
    to taxpayer account information at walk-in sites. In addition, IRS began
    refining the process for referring complex tax law questions that are
    beyond the scope of training that walk-in staff normally receive to expert
    field assistance, toll-free telephone assistance CSRs, or compliance
    staff. Finally, as previously noted, IRS has also been able to reduce its
    reliance on compliance staff over the last few years, allowing it to
    redirect those resources to higher priority, compliance-related work.

    IRS's Web Site Performance Showed Some Improvement

    In 2003, IRS's Web site showed some improvement and taxpayers used it more
    than in 2002. For example, from January 1 to July 31, 2003, more than 430
    million forms, publications, and other documents had been downloaded from
    the Web site, a 22 percent increase over the same time period last year.

    35U.S. General Accounting Office, Tax Administration: Assessment of IRS'
    2000 Tax Filing Season, GAO-01-158 (Washington, D.C.: Dec. 22, 2000)

    Keynote-an independent Web site rater and a recognized authority on
    Internet performance-reviewed the average delivery time and availability36
    of IRS's Web site and reported that the site performed well, although the
    Web site did exhibit some minor problematic periods. Keynote reported that
    from April 11 through April 16, 2003, IRS's home page was delivered in
    around 1 second and the Web site had an average availability rate of 99.35
    percent.37 However, on April 14, 2003, Keynote reported that the site's
    average delivery time experienced slowdowns of up to 6 to 8 seconds from 5
    p.m. to 9 p.m., and its average availability rate decreased to less than
    90 percent. In 2002, Keynote reported that the Web site's average delivery
    time was less than 1 second and its availability averaged close to 100
    percent for most of the filing season.

    Although Performance Declined for Questions Received Via IRS's Web Site,
    Ease of Use Improved

    One important feature of IRS's Web site is the ability of taxpayers to ask
    tax law and procedural questions of IRS via the Internet on its Web site.
    IRS data indicate that its performance in answering questions received
    from taxpayers via the Internet worsened during the 2003 filing season as
    compared to 2002. IRS took 3.7 business days on average to respond to
    those questions in 2003, as compared with 2.1 business days in 2002 and
    its 2003 performance goal of 2 business days. In addition, from January 1
    to May 31, 2003, IRS responded accurately to 73.7 percent of the
    questions, as compared to a 77.6 percent accuracy rate for the same time
    period in 2002 and its 2003 performance goal of 83.5 percent. IRS
    officials attributed the increase in the average time to respond and the
    decrease in the accuracy rate to the increased volume and complexity of
    the questions. Although the number of questions received from taxpayers
    over the Internet is small when compared to the number of questions
    received over the telephone, providing accurate responses to these
    questions is particularly important

    36According to Keynote, availability is the percentage of time the Web
    site's home page downloads fully and average delivery time is the time it
    takes for the home page to fully download from the time the user hits the
    "enter" key on the keyboard. According to IRS, a home page is charged with
    an error and therefore receives a lower percentage of availability even if
    a graphic that has nothing to do with the user's ability to get pertinent
    content information from the page does not download properly. As such,
    according to IRS, the measure does not reflect whether the Web site itself
    is available or not. Also, according to IRS, errors can be the result of
    heavy traffic on the Internet in general and may have nothing to do with
    the home page.

    37Keynote measured the average delivery time and availability of IRS's Web
    site from 5 p.m., Eastern Daylight Time (EDT), on April 11, 2003, to 9
    a.m., EDT, on April 16, 2003.

    because of the potential for widespread dissemination of inaccurate
    responses to other taxpayers.

    We found that IRS's Web site was more user friendly in 2003. For example,
    we did not find broken or inappropriate links between pages as we have
    found in previous years. IRS also added an index to the Web site, making
    it possible for users to search for forms, instructions, or publications
    by topic. In addition, IRS resolved our concern that the search functions
    do not always make the most pertinent information readily available. In
    April 2003, we testified that when we typed, "earned income tax credit"
    into the forms and publication search function, Publication 596-the
    primary publication on the earned income tax credit-was the 70th item on
    the list, and we had to scroll through seven pages to find it. However, in
    June 2003, we again typed "earned income credit" into the search function
    and found the publication was the 9th item on the list and on the first
    page. IRS officials attributed the improvement in the search function
    results, in part, to working with contractors to (1) determine what the
    expected search results should be for the most frequently used search
    terms, (2) adjust the search results to ensure that those items appear at
    the top of the list, and (3) expand the thesaurus within the search engine
    to include an updated repository of the most frequently searched words,
    phrases, and variations.

    IRS Continues to Offer New Services to Increase Web Use, a Key Part of
    Modernization

    IRS offered new services on the Web site for the 2003 filing season that
    represent payoffs from modernization. For example, IRS implemented a
    refund status check (Where's My Refund) feature on the Web site that
    enabled taxpayers to find out if IRS received their returns and whether
    their refunds were processed. As of June 9, 2003, IRS data show that about
    11 million taxpayers obtained data on their refund status using this
    feature. The ability of taxpayers to check the status of refunds on-line
    is particularly important because it has contributed to the decreased
    number of refund call inquiries handled by IRS's toll-free telephone
    operations and has the potential to further decrease those calls.
    Taxpayers responding to a survey on the feature provided favorable
    reviews-about 91 percent of the survey respondents said they were
    satisfied or somewhat satisfied with the overall service provided by the
    feature. In January 2003, IRS also made available on the Web site a direct
    link to the Free File program offered through IRS private-sector partners.

    IRS's Web site is a critical part of modernization because, according to
    IRS, it is more cost effective than other methods of providing taxpayer
    assistance, such as answering telephone calls. As discussed above, the

    initiative that allowed taxpayers to check the status of their refunds
    shows the potential of the Web site to provide more cost-effective
    services. Taxpayer's use of IRS's Web site and the services IRS offers on
    its Web site have grown considerably over the past several filing seasons,
    another indication that taxpayers are receiving payoffs from
    modernization. For example, by July 31, 2003, taxpayers already had
    downloaded more than 430 million forms and publications compared to the
    129 million for about the same time period in 2000.

    Conclusions	IRS's performance during the filing season is important
    because it affects so many taxpayers. The filing season also plays a
    crucial role in collecting the revenue that finances the federal
    government. The improvements seen this year, as well as over the past
    several years, are part of the payoff from IRS's ongoing modernization
    efforts.

    One feature of modernization that has contributed to IRS's improved
    performance is the greater reliance on performance measures to manage its
    operations. A few years ago, IRS established performance measures that are
    intended to balance priorities such as quality, timeliness, customer
    satisfaction, employee satisfaction, and outcomes. The measures IRS uses
    to assess its performance in providing telephone service are an example of
    how IRS has achieved this balance. However, as a result of IRS's decision
    in 2003 to stop requiring sites equipped with an automated system for
    reporting wait-time data to report that information, IRS's measures to
    assess walk-in assistance lack such balance. Finally, managers do not have
    information on this important aspect of quality and without the balance a
    timeliness measure would offer, staff might focus on providing accurate
    assistance to a few taxpayers regardless of the impact on the wait-time
    for other taxpayers.

    Recommendation for 	We recommend that the Commissioner of Internal Revenue
    direct the appropriate officials to require that IRS consolidate and
    disseminate wait-

    Executive Action	time information to field managers based on information
    from sites equipped with an automated system that can capture wait-time
    data, in order to assess this important aspect of quality.

    Agency Comments and Our Evaluation

    The Commissioner of Internal Revenue provided written comments in an
    October 29, 2003, letter (see app. III). The Commissioner noted that IRS's
    filing season readiness process provided the framework and oversight to
    ensure that IRS was well prepared for the 2003 filing season. The
    Commissioner partially agreed with our specific recommendation, stating
    that IRS will require walk-in sites equipped with Q-Matic to report
    wait-time information on a quarterly basis and that the automated
    wait-time information available from these locations would provide
    valuable data for an assessment of overall trends and relationships in
    timeliness and quality. However, the Commissioner did not agree to
    disseminate this consolidated wait-time information to field managers. For
    years, as we report, IRS has contended that past experience has shown
    employee reaction to timeliness measures tended to increase the likelihood
    of inaccurate or incomplete answers. At the same time, the Commissioner
    noted that routine monitoring of wait time occurs by local managers for
    walk-in sites equipped with Q-Matic. However, routine monitoring does not
    provide overall performance data and timeliness data is only available to
    some managers locally. In our view, there needs to be a balance between
    measuring quality and timeliness and too much focus on either could create
    inappropriate incentives for IRS's walk-in staff. As noted in our report,
    IRS already consolidates and reports tax law and return preparation
    accuracy at its walk-in sites and plans to do the same for accounts
    accuracy. Without consolidated timeliness information, field managers
    would have a difficult time balancing quality and timeliness.

    We are sending copies of this report to the Chairmen and Ranking Minority
    Members of the Senate Committee on Finance, 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 Joanna M. Stamatiades,
    Assistant Director. Other major contributors are acknowledged in appendix
    IV. 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 2001-2003
    Performance and Fiscal Year 2003 Goals

    As table 2 shows, (1) the Internal Revenue Service's (IRS) performance in
    2003 improved over last year for seven measures and (2) IRS exceeded its
    performance goals in 2003 for five measures but missed its goals for two
    measures (deposit error rate and letter error rate). IRS's performance in
    2003 could not be compared with its performance in 2002 and prior years or
    2003 goal for one measure (refund interest paid) because IRS revised the
    way the measure was computed and did not have the necessary data available
    to revise the goal. Table 2 also shows that IRS's processing performance
    has generally improved for each of its measures since 2001.

           Table 2: IRS's 2001-2003 Tax Filing Season Processing Performance

                                                          Fiscal year
                                                              2003
                                                           actual Fiscal
                                            Fiscal year             year
                                Fiscal year        2002
                                       2001                (through 2003
           Measure Name             actualb      actual                  Comments
            Definition                                     July 31) goal

         Deposit      Percentage of    5.0%    4.8%  4.4%   2.4%      Performance
          error          payments                                       improved,
           rate      applied in error         +/-     +/-        but performance
                         by, for             0.3%    0.3%        goal
                         example,                                not met.
                      reimbursing a                              According to
                       taxpayer who                              IRS officials,
                         overpaid                                the goal
                    when the taxpayer                                was too
                          wanted                                   aggressive.
                     any overpayment
                       credited to
                     next year's tax
                          bill.

         Deposit     Interest value of   $748 $578 $542 $573 Performance improved
                         money not
    timeliness-   deposited by the                        and performance goal
                         business
                   day after receipt per                          exceeded.
          paper             $1
                   million in deposits.
                          Measure
                   assumes an 8 percent
                      interest rate.

    Letter error rate Percentage of letters issued Not comparable 7.4% 7.2% to
    taxpayers with errors because of +/- 0.6% +/- 0.5% (includes systemic
    errors).c revisions to the measure.

    6.2%	Performance improved, but goal not met. According to IRS officials,
    the goal was not met because of loss of experienced and knowledgeable
    personnel as a result of IRS's announcement that it would be closing some
    processing centers.

    Notice error Percentage of incorrect Not comparable 18.7% 9.7% 13.2%
    Performance improved rate notices issued to taxpayers because of +/- 2.7%
    +/- 0.5 % and performance goal (includes systemic errors). c revisions to
    the exceeded. measure.

                                       Appendix I
                          Data on IRS's Processing Performance
                           Relative to Fiscal Year 2001-2003
                         Performance and Fiscal Year 2003 Goals

                             (Continued From Previous Page)

                                                          Fiscal year
                                                              2003
                                                           actual Fiscal
                                            Fiscal year             year
                                Fiscal year        2002
                                       2001                (through 2003
           Measure Name             actualb      actual                  Comments
            Definition                                     July 31) goal

    Refund error  The percentage of refunds  9.8%  8.0% 5.4%  7.6% Performance
                                                                         improved
           rate                                       +/-   +/-               and
        -individual  with IRS-caused errors in       3.8%  3.5%       performance
                                                                             goal
                       the entity information
         (paper)c     (e.g., incorrect name or                         exceeded.
                               Social
                     Security number) or refund
                     amount; includes systemic
                             errors. c

     Refund interest Amount of refund interest Not comparable Not Not Not paid IRS
           paid per $1 million of because of comparable comparable applicable

                 refunds issued. revisions to the because of because of

    measure. revisions to revisions to

    the measure. the measure.

    We cannot assess performance relative to previous years or 2003 goal. In
    2002, IRS implemented a programming change that revised how it calculates
    the measure and did not have the necessary data to revise the goal for the
    2003 filing season.

          Refund      Percentage of    95.2%  98.2%    98.8%    98.4% Performance
                         refunds                                         improved
                    issued within 40                                          and
    timeliness-       days or             +/- 2.3% +/- 2.3%        performance
                                                                             goal
        individual        less.                                        exceeded.
         (paper)
                     Weighted volume  30,133  28,257   30,094  29,302 Performance
    Productivity        of                                            improved
                        documents                                             and
                      processed per                                   performance
                                                                             goal
                       staff year                                      exceeded.
                     expended at the
                       processing
                        centers.

    Source: IRS data.

    Note: GAO analysis of IRS data.

    a The measures for fiscal year 2003 are through July 31, which were the
    latest data available at the time we ended our audit work. According to
    IRS officials, the 2003 results through July 31 are reflective of IRS's
    performance during the filing season. In addition, IRS officials told us
    that the results for the measures should not change significantly through
    September 30.

    bAccording to IRS officials, they did not compute a margin of error for
    these measures in 2001.

    c Systemic errors are computer-generated errors over which a particular
    processing center would have no control.

    Appendix II

    Advance Payment of Child Tax Credit Had Minimal Impact on 2003 Filing
    Season

    The Jobs and Growth Tax Relief Reconciliation Act of 2003,1 signed into
    law on May 28, 2003, increased the amount of the child tax credit from
    $600 per child to $1,000 for 2003 and 2004. The act also provided for
    eligible taxpayers to receive the increase of $400 this summer in order to
    stimulate the economy more rapidly than if taxpayers had to wait until
    they filed their tax year 2003 return. The Department of the Treasury
    mailed approximately 24 million advanced payment checks from late July to
    mid-August 2003 in a manner similar to the advanced payment checks issued
    in 2001.

    IRS took several steps in 2003 to prepare taxpayers for the advanced
    payments. For example, in May IRS set up a special menu prompt on its tax
    law and refund inquiry toll-free lines that provided taxpayers with
    general information about the child tax credit advance payment. In
    mid-July, IRS (1) provided additional information-such as when taxpayers
    could expect their advanced payment checks based on the last two digits of
    their social security number-on this special menu prompt, (2) established
    a new toll-free number to provide taxpayers with specific information
    about the advanced payments, and (3) updated its Web site to provide
    taxpayers with information on eligibility requirements and the ability to
    check the status of their advance payment.

    According to IRS officials, passage of the Jobs and Growth Tax Relief
    Reconciliation Act of 2003 had a minimal impact on the 2003 filing season.
    For example, the officials reported that IRS experienced some increase in
    telephone calls before the legislation was passed, but they expected the
    majority of taxpayers to call for telephone assistance in mid-August or
    later-after the advance payments were mailed. Data on calls were not
    available in time to be reflected in this report. IRS did not allocate
    additional resources to provide this assistance and estimated that, as a
    result of an anticipated increase in demand, the CSR level of service
    performance measure might drop by about three percentage points by the end
    of 2003 fiscal year. IRS officials anticipate that some additional impact
    on telephone service will occur during the 2004 filing season.

    IRS also anticipates that, based on its experience with the 2001 rate
    reduction credit, a number of taxpayers will make errors, such as with the
    Child Tax Credit Worksheet computation during the 2004 filing season.
    However, IRS anticipates there will be fewer errors in 2004 because fewer

    1P.L. 108-27.

    Appendix II
    Advance Payment of Child Tax Credit Had
    Minimal Impact on 2003 Filing Season

    taxpayers are affected by the child tax credit. As we reported last year,
    taxpayers and tax practitioners made many errors related to the rate
    reduction credit during the 2002 tax filing season.2 However, IRS expects
    fewer problems with the child tax credit and advanced payment and
    attributes this in part to IRS having learned lessons from its experience
    during the 2002 filing season. For example, IRS has identified the types
    of errors taxpayers and tax professionals made related to the rate
    reduction credit and was preparing strategies to minimize the impact on
    taxpayers during the 2004 filing season.

    2 GAO-03-314.

                                      Appendix III

                       Comments from the Internal Revenue Service

    Appendix III
    Comments from the Internal Revenue Service

    Appendix III
    Comments from the Internal Revenue Service

    Appendix III
    Comments from the Internal Revenue Service

    Appendix III
    Comments from the Internal Revenue Service

    Appendix III
    Comments from the Internal Revenue Service

    Appendix IV

                         GAO Contacts and Staff Acknowledgments

    James White, (202) 512-9110 Joanna Stamatiades, (404) 679-1984

    In addition to those named above, James Cook, Leon Green, Marshall
    Hamlett, Ron Heisterkamp, John Lesser, Jay Pelkofer, Amy Rosewarne, Sonja
    Ware, and Daniel Zeno made key contributions to this report.

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