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 [email protected].
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
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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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