Applying Agreed-Upon Procedures: Airport and Airway Trust Fund	 
Excise Taxes (05-NOV-04, GAO-05-29R).				 
                                                                 
We have performed the procedures contained in this report, which 
we agreed to perform and with which the Inspector General (IG) of
the Department of Transportation concurred, solely to assist that
office in ascertaining whether the net excise tax revenue	 
distributed to the Airport and Airway Trust Fund (AATF) for the  
fiscal year ended September 30, 2004, is supported by the	 
underlying records. We evaluated fiscal year 2004 activity	 
affecting distributions to the AATF. The adequacy of the	 
procedures to meet the IG's objectives is the IG's		 
responsibility, and we make no representation in that respect.	 
The procedures we agreed to perform were (1) detailed tests of	 
transactions that represent the underlying basis of amounts	 
distributed to the AATF, (2) review of the Internal Revenue	 
Service's (IRS) quarterly AATF certifications, (3) review of the 
Department of the Treasury's Financial Management Service	 
adjustments to the AATF for fiscal year 2004, (4) review of IRS's
precertification1 of receipts for the second and third quarters  
of fiscal year 2004, (5) review of certain procedures of the	 
Department of the Treasury's Office of Tax Analysis' (OTA)	 
estimation procedures affecting excise tax distributions to the  
AATF for the fourth quarter of fiscal year 2004, and other	 
procedures including (6) compiling and reporting the net amount  
of fiscal year 2004 excise taxes distributed to the AATF, (7)	 
detailed tests of transactions that represent total IRS tax	 
revenue receipts and refunds, and (8) review of key		 
reconciliations of IRS records to Treasury records. The enclosure
contains the agreed-upon procedures and our findings from	 
performing each of the procedures.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-29R 					        
    ACCNO:   A13416						        
  TITLE:     Applying Agreed-Upon Procedures: Airport and Airway Trust
Fund Excise Taxes						 
     DATE:   11/05/2004 
  SUBJECT:   Excise taxes					 
	     Air transportation operations			 
	     Trust funds					 
	     Auditing procedures				 
	     Auditing standards 				 
	     Fund audits					 
	     Financial management				 
	     Allocation (Government accounting) 		 
	     Airport and Airway Trust Fund			 

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GAO-05-29R

United States Government Accountability Office Washington, DC 20548

November 5, 2004 

The Honorable Kenneth M. Mead Inspector General Department of Transportation 

Subject: 	Applying Agreed-Upon Procedures: Airport and Airway Trust Fund
Excise Taxes

Dear Mr. Mead: 

We have performed the procedures contained in the enclosure to this report, which we agreed to perform and with which you concurred, solely to assist your office in ascertaining whether the net excise tax revenue distributed to the Airport and Airway Trust Fund (AATF) for the fiscal year ended September 30, 2004, is supported by the underlying records. As agreed with your office, we evaluated fiscal year 2004 activity affecting distributions to the AATF. 

In performing the agreed-upon procedures, we conducted our work in accordance with U.S. generally accepted government auditing standards, which incorporate financial audit and attestation standards established by the American Institute of Certified Public Accountants. These standards also provide guidance for performing and reporting the results of agreed-upon procedures. 

The adequacy of the procedures to meet your objectives is your responsibility, and we make no representation in that respect. The procedures we agreed to perform were (1) detailed tests of transactions that represent the underlying basis of amounts distributed to the AATF, (2) review of the Internal Revenue Service's (IRS) quarterly AATF certifications, (3) review of the Department of the Treasury's Financial Management Service adjustments to the AATF for fiscal year 2004, (4) review of IRS's precertification1 of receipts for the second and third quarters of fiscal year 2004, (5) review of certain procedures of the Department of the Treasury's Office of Tax Analysis' (OTA) estimation procedures affecting excise tax distributions to the AATF for the fourth quarter of fiscal year 2004, and other procedures including (6) compiling and reporting the net amount of fiscal year 2004 excise taxes distributed to the AATF, (7) detailed tests of transactions that represent total IRS tax 

1To accommodate the Department of Transportation's accelerated reporting date for fiscal year 2004, IRS performed precertifications of excise tax collections. The data are for information purposes only, and the precertification does not constitute an official certification. 

GAO-05-29R Airport and Airway Trust Fund Excise Tax Procedures 

revenue receipts and refunds, and (8) review of key reconciliations of IRS records to Treasury records. The enclosure contains the agreed-upon procedures and our findings from performing each of the procedures. 

We were not engaged to perform, and did not perform, an audit, the objective of which would have been the expression of an opinion on the amount of net excise taxes distributed to the AATF. Accordingly, we do not express such an opinion. Had we performed additional procedures, other matters might have come to our attention 

                                       2

that would have been reported to you. We completed the agreed-upon procedures 
on October 27, 2004. 

We provided a draft of this report to IRS and OTA officials for review and comment. 
IRS agreed with the results and findings presented in this report. OTA's review of the 
report only covered the procedures related to the estimation process for the quarter 
ended September 30, 2004. OTA agreed with the results and findings presented in this 
report relating to procedures performed on the estimation process for the quarter 
ended September 30, 2004. 

This report is intended solely for the use of the Office of Inspector General of the 
Department of Transportation and should not be used by those who have not agreed 
to the procedures and have not taken responsibility for the sufficiency of the 
procedures for their purposes. However, this report is a matter of public record, and 
its distribution is not limited. Copies are available to others upon request. This
report is also available at no charge on GAO's Web site at http://www.gao.gov. If you 
have any questions, please call me at (202) 512-3406. 

Sincerely yours, 

Steven J. Sebastian 
Director 
Financial Management and Assurance 

Enclosure 

2In our report on the results of our audit of IRS's fiscal year 2003 financial statements, we noted a material weakness in IRS's financial reporting process (GAO, Financial
Audit: IRS's Fiscal Years 2003 and 2002 Financial
Statements, GAO-04-126, Nov. 13, 2003). A component of this process includes IRS's ability to allocate excise tax collections to the appropriate trust funds at the time deposits are made. This condition affects the adequacy of the distributions of federal excise tax revenue to recipient trust funds and is a continuation of an issue that we have reported on in prior years. 

Page 2 GAO-05-29R Airport and Airway Trust Fund Excise Tax Procedures 

        Airport and Airway Trust Fund Excise Tax Procedures and Results

I. Detailed tests of transactions that represent the underlying basis of
amounts distributed to the Airport and Airway Trust Fund (AATF) in fiscal
year 2004

A. 	Nonrepresentative selection of tax returns from the quarters ended
June 30, 2003, and September 30, 20033

1. 	For each of the quarters ending June 30, 2003, and September 30, 2003,
select the 30 largest excise tax returns containing excise taxes related
primarily to the AATF and the Highway Trust Fund (HTF) on the basis of
total tax liability amount4 from the Internal Revenue Service's (IRS)
master file.5

Description of findings and results

We selected the 30 largest excise tax returns related primarily to the
AATF and the HTF from each of the two quarters for testing. The selection
was based on the total tax liability amount and type of taxes owed for
each return from the master file.

The total tax liability amount related to the 30 returns from the quarter
ended June 30, 2003, was approximately $8.8 billion, or 68 percent of the
total excise tax liability amount of $13 billion for all excise tax types
for the quarter. Of these 30 returns, 9 contained primarily AATFrelated
taxes and 21 contained primarily HTF taxes.

The total tax liability amount related to the 30 returns from the quarter
ended September 30, 2003, was approximately $8.9 billion, or 67 percent of
the total excise tax liability amount of $13.3 billion for all excise tax
types for the quarter. Of these 30 returns, 9 contained primarily
AATFrelated taxes and 21 contained primarily HTF taxes.

3Since certifications are not completed until 6 months after the end of
the quarter, the certification and corresponding adjustment by the
Department of the Treasury's Financial Management Service for the quarters
ended June 30, 2003, and September 30, 2003, were completed in December
2003 and March 2004, respectively, and thus affected fiscal year 2004
distributions to the AATF.

4Although the certifications are based on amounts collected, we used the
tax liability amounts to identify the taxpayers paying the largest amounts
of excise taxes. Our review shows that these taxpayers generally pay their
excise taxes in full each quarter.

5The master file is a detailed database containing taxpayer information.

2. 	For each of the 18 returns related primarily to the AATF from the
quarters ended June 30, 2003, and September 30, 2003, we performed the
following procedures, which resulted in our testing approximately $3.2
billion in prorated collections6 affecting fiscal year 2004 distributions
to the AATF:

(a) Trace the liability amount for abstracts7 26, 27, and 28 from the tax
return to the master file.

Description of findings and results

The liability amount for abstracts 26, 27, and 28 on the tax return agreed
with the master file for all 18 returns.

(b) Check the mathematical accuracy of taxpayers' calculations on the tax
return for the selected abstracts.

Description of findings and results

The taxpayers' calculations on all 18 returns were mathematically correct.

(c) Recompute the prorated collection amount for the selected abstracts
based on information from the master file and compare this amount to

8

the amount from the Collection Certification System audit files.

6IRS certifies to trust funds the amount of excise taxes collected.
Because taxpayers have sometimes not fully paid their tax liability, IRS
must allocate the amount of payments actually received among the different
excise taxes reported on the taxpayer's return. IRS's Collection
Certification System prorates a taxpayer's payments proportionately among
all taxes reported as owed on the tax return. For example, if a
corporation reports that it owes $4 million for gasoline tax, $2 million
for diesel fuel tax, and $1 million for gasohol tax on its Form 720,
Quarterly Federal Excise Tax Return, but has paid IRS only $3.5 million at
the time IRS performs its certification, the program prorates the $3.5
million in the following manner: $2 million to gasoline tax, $1 million to
diesel fuel tax, and $500,000 to gasohol tax.

7The abstract numbers identify the tax type (e.g., gasoline and ticket
tax) and are used as the basis for determining the distribution of the
excise taxes to the various trust funds. Abstract numbers are preprinted
on Form 720, Quarterly Federal Excise Tax Return, and are used by the
taxpayer to report excise tax assessments. If the return was related to
the AATF, we selected (1) tax on transportation of persons by air
(abstract 26), (2) tax on the use of international air facilities
(abstract 27), and (3) tax on transportation of property by air (abstract
28). If the return was related to the HTF, we selected (1) tax on 10
percent gasohol (abstract 59), (2) diesel fuel tax (abstract 60), and (3)
gasoline tax (abstract 62). The tax amounts related to the selected
abstracts for each trust fund are the largest tax amounts reported on the
taxpayer's excise tax return and made up over 89 percent of the total
amount certified to the AATF and over 82 percent of the total amount
certified to the HTF each quarter.

8The Collection Certification System produces what IRS refers to as audit
files. These audit files contain the individual prorated collections, by
abstract and taxpayer identification number, that make up the certified
total amounts for each abstract.

Description of findings and results

The recomputed prorated collection amounts for the three selected
abstracts agreed with amounts in IRS's Collection Certification System for
all 18 returns.

B. 	Dollar unit sample (DUS) of transactions from the quarters ended
December 31, 2003, and March 31, 2004

1. Sampling

(a) Obtain excise tax collection data from the master file for the first
two quarters of fiscal year 2004. Determine if excise tax collection data
from the master file agree with data from IRS's general ledger. Reconcile
total excise tax collections from the master file to total excise tax
collections from the Collection Certification System audit files to
determine if they materially9 agree.

Description of findings and results

Excise tax collections for the first two quarters of fiscal year 2004 from
the master file materially agreed with IRS's general ledger and with
excise tax collections from the Collection Certification System.

(b) Select a random attribute sample of 78 excise tax assessments from the
master file.10 Compare assessment and receipt information for each sample
item from the master file to the assessment and receipt information in the
Collection Certification System to determine if assessments and receipts
from the master file are contained in the Collection Certification System.

Description of findings and results

For each sample item, assessments and receipts from the master file were
contained in the Collection Certification System.

9For the purpose of this reconciliation, "material" is defined as 1
percent of the Form 720related excise tax collections for the quarters
ended December 31, 2003, and March 31, 2004. For fiscal year 2004, the
materiality amount was $226 million for the two quarters combined.

10For this sample, if one or no errors were found in testing the 78 items,
we would be 90 percent confident that the error rate in the population
would not exceed 5 percent.

(c) To determine if the Collection Certification System properly
summarized the prorated collections, total the prorated collections for
selected abstracts11 from the audit files and compare these amounts to

12

amounts in the Report of Excise Tax Collection.

Description of findings and results

The Collection Certification System properly summarized the prorated
collections for all of the selected abstracts. Prorated collections from
the audit files for the selected abstracts agreed with the corresponding
amounts in the Report of Excise Tax Collection.

(d) Separate the total population of prorated collections from the audit
files into the following distinct populations: (1) AATF, (2) HTF, and (3)
other excise tax abstracts. Use DUS to select a sample of prorated excise
tax collections from the AATF population.

Description of findings and results

Use of DUS with a confidence level of 80 percent, a test materiality of
$88 million, and an expected aggregate error amount of $26.4 million
resulted in a sample of 7313 prorated collections for the AATF for the
first two quarters of fiscal year 2004.

(e) Select samples of prorated excise tax collections from the two nonAATF
populations.

11The selected abstracts are (1) tax on transportation of persons by air
(abstract 26), (2) tax on the use of international air facilities
(abstract 27), (3) tax on transportation of property by air (abstract 28),
(4) tax on aviation fuel for commercial use (abstract 77), (5) tax on 10
percent gasohol (abstract 59), (6) diesel fuel tax (abstract 60), and (7)
gasoline tax (abstract 62). The tax amounts for the four AATFrelated
abstracts made up over 95 percent of the total amount certified to the
AATF, and the tax amounts for the three HTFrelated abstracts made up over
82 percent of the total amounts certified to the HTF each quarter.

12The Report of Excise Tax Collection contains prorated collections,
classified by abstracts, that serve as the basis for IRS's quarterly trust
fund certifications.

13The planned sample size using DUS was 143 items. DUS selects dollars
instead of specific transaction items by dividing the population by dollar
intervals. The dollar interval for the AATF was $32 million. Accordingly,
any item with a dollar value matching or exceeding the sampling interval
would be selected, whereas items with dollar values below the sampling
interval might not be selected. For example, an item of $64 million would
cover 2 dollarintervals, but represent one sample item. Due to large
dollar items covering more than one interval, the 73 unique sampled
transactions selected represent 143 dollarintervals.

Description of findings and results

Use of DUS with a confidence level of 80 percent, a test materiality of
$341 million, and an expected aggregate error amount of $102.3 million
resulted in a sample of 10214 prorated collections for the HTF for the
first two quarters of fiscal year 2004.

A random attribute sample of 45 items from the population of prorated tax
collections, related to all excise taxes other than the AATF and the HTF,
was selected for testing.15

2. Detailed tests of transactions

(a) For each prorated excise tax collection sampled from the AATF
population:

o  	 Check to determine whether the assessment amount on the tax return,
for the sampled abstract, agrees with the amount recorded in the master
file.

Description of findings and results

The assessment amount on the tax return agreed with the amount recorded in
the master file for all of the sampled items.

o  	 Check the mathematical accuracy of the taxpayers' calculations on the
tax return for the related abstract.

Description of findings and results

The taxpayers' calculations were mathematically correct on the tax return
for all of the sampled items.

o  	 Recompute the prorated collection amount based on information from
the master file and compare this amount to the sample items

16

selected from the Collection Certification System audit files.

14The planned sample size using DUS was 139 items. As explained in
footnote 13, DUS selects dollars instead of specific transaction items by
dividing the population by dollar intervals. The dollar interval for the
HTF was $125 million. Because large dollar items cover more than one
interval, the 102 unique sampled transactions selected represent 139
dollarintervals.

15For this sample, if no errors are found in testing the 45 items, we
would be 90 percent confident that the error rate in the population would
not exceed 5 percent.

16The purpose of this test is to determine whether the Collection
Certification System prorates correctly. This test is not intended to
determine whether amounts provided to the system are correct.

Description of findings and results

The recomputed prorated collection, based on information from the master
file, agreed with the amounts for all of the sampled items.

(b) 	Perform detailed testing on the two samples of prorated collections
from the nonAATF populations to determine if they contain any AATF excise
tax collections.

Description of findings and results

The two samples of prorated collections from the nonAATF populations did
not contain any AATF excise tax collections.

(c) Evaluate the results of conducting steps (a) and (b).

Description of findings and results

As noted in the results from steps (a) and (b), we found no errors.

II. Review of IRS's quarterly AATF certifications

A. Receipt certifications

Perform the following steps on IRS's AATF receipt certifications for the
quarters ended September 30, 2003, December 31, 2003, and March 31, 2004:

1. 	Inspect the certification letters for authorizing signatures.
Description of findings and results The certification letters for all
three quarters had authorizing signatures.

2. 	Determine if evidence exists that the supervisor or another analyst
checked the certification letters and supporting worksheets.

Description of findings and results

There was evidence that the supervisor or another analyst checked the
certification letters and supporting worksheets for all three quarters.

3. 	Recalculate the totals on the certification letters to determine if
they are mathematically correct.

Description of findings and results

The totals on the certification letters for all three quarters were
mathematically correct.

4. 	Trace the certified amounts for tax on transportation of persons by
air (abstract 26), tax on the use of international air facilities
(abstract 27), tax on transportation of property by air (abstract 28), and
tax on aviation fuel for commercial use (abstract 77)17 from the
certification letters back to the

19

Report of Excise Tax Collection18 and the Treasury 90 Report.

Description of findings and results

The certified amounts for tax on transportation of persons by air
(abstract 26), tax on the use of international air facilities (abstract
27), tax on transportation of property by air (abstract 28), and tax on
aviation fuel for commercial use (abstract 77) from the certification
letters agreed with the related Report of Excise Tax Collection and the
Treasury 90 Report for all three quarters.

5. 	Review the distribution rates used by IRS to determine if the
distribution rates for tax on transportation of persons by air (abstract
26), tax on the use of international air facilities (abstract 27), tax on
transportation of property by air (abstract 28), and tax on aviation fuel
for commercial use (abstract 77) agree with the applicable laws.

Description of findings and results

The distribution rates used by IRS for tax on transportation of persons by
air (abstract 26), tax on the use of international air facilities
(abstract 27), tax on transportation of property by air (abstract 28), and
tax on aviation fuel for commercial use (abstract 77) agreed with the
applicable laws in effect during all three quarters.

17The certified amounts for tax on transportation of persons by air
(abstract 26), tax on the use of international air facilities (abstract
27), tax on transportation of property by air (abstract 28), and tax on
aviation fuel for commercial use (abstract 77) made up over 95 percent of
the total amount certified to the AATF each quarter.

18IRS uses data from two of these reports, covering sequential processing
intervals, for each quarterly certification. Collections are classified by
abstract on the report when the related Form 720 tax return has been
recorded in IRS's master file during the processing interval covered by
the report. The second of the two reports used may contain collections
related to previous quarters not classified by abstract until the current
quarter because the related return was not recorded on the master file
until the current quarter.

19The Treasury 90 Report summarizes excise tax credit information and is
produced quarterly by IRS submission processing campus systems. IRS has
nine submission processing campuses that receive and process tax returns
and payments.

6. Review the Report of Excise Tax Collection used in the certification to
determine if it contains significant20 collections from prior quarters.

Description of findings and results

The Report of Excise Tax Collection used in the certification for all
three quarters did not contain significant collections from prior
quarters.

III. Review of Financial Management Service adjustments

Perform the following steps on Financial Management Service (FMS)
adjustments to AATF excise tax distributions for the quarters ended
September 30, 2003, December 31, 2003, and March 31, 2004:

A. 	Compare the FMS adjustments made to the AATF for fiscal year 2004 with
original Office of Tax Analysis (OTA) estimates and IRScertified amounts
to

21

determine if they agree with the supporting schedules.

Description of findings and results

For the FMS adjustments made to the AATF, the original OTA estimates and
IRScertified amounts agreed with the supporting schedules for all three
quarters.

B. 	Recompute the difference between the OTA estimates and final
IRScertified amounts to determine if the amounts agree with the
differences computed by FMS.

Description of findings and results

The independently recalculated differences between the OTA estimates and
the final IRScertified amounts for the AATF agreed with the differences

22

computed by FMS for all three quarters. These amounts were

20For this test, "significant" is defined as $45 million, which represents
approximately 2 percent of the quarterly total certified to the AATF.

21An FMS accountant compiles this schedule, called the "Subsidiary
Quarterly Account of Estimates and Actual Related Taxes Appropriated to
Airport and Airway Trust Fund." This schedule computes the difference
between IRScertified amounts and the OTA estimate for excise taxes,
individually and in total, that relate to the AATF. The schedule, along
with OTA transfer forms and IRS certifications, supports the FMS
adjustment.

22A positive amount indicates that the FMS adjustment increased excise
taxes distributed to the trust fund. A negative amount, shown in
parentheses, indicates that the FMS adjustment decreased excise taxes
distributed to the trust fund. Since the adjustment amount is the
difference between OTA's estimate and IRS's certified amount, it may be
significantly affected by IRS's ability to certify receipts in the
appropriate quarter.

o  ($41,806,000) for the quarter ended September 30, 2003,

o  ($39,881,000) for the quarter ended December 31, 2003, and

o  $54,196,000 for the quarter ended March 31, 2004.

IV. Review of IRS precertification for the quarters ended March 31, 2004,
and June 30, 200423

A. 	Determine if evidence exists that the supervisor or another analyst
checked the results and supporting worksheets.

Description of findings and results

There was evidence that the supervisor or another analyst checked the
results and supporting worksheets for both quarters.

B. 	Recalculate the totals on the precertification to determine if they
are mathematically correct.

Description of findings and results

The totals on the precertification were mathematically correct for both
quarters.

C. 	Trace the amounts for tax on transportation of persons by air
(abstract 26), tax on the use of international air facilities (abstract
27), tax on transportation of property by air (abstract 28), and tax on
aviation fuel for commercial use (abstract 77)24 from the precertification
back to the Report of Excise Tax Collection and the Treasury 90 Report.

Description of findings and results

The amounts for tax on transportation of persons by air (abstract 26), tax
on the use of international air facilities (abstract 27), tax on
transportation of property by air (abstract 28), and tax on aviation fuel
for commercial use (abstract 77) from the precertification agreed with the
related Report of Excise Tax Collection and the Treasury 90 Report for the
quarter ended June 30, 2004.

23In order to accommodate the Department of Transportation's November 15
reporting date for fiscal year 2004, IRS performed precertifications. The
data in the precertification are for information purposes only and do not
represent an official certification.

24The certified amounts for tax on transportation of persons by air
(abstract 26), tax on the use of international air facilities (abstract
27), tax on transportation of property by air (abstract 28), and tax on
aviation fuel for commercial use (abstract 77) made up over 95 percent of
the precertified total to the AATF.

In the precertification for the quarter ended March 31, 2004, IRS
erroneously omitted returns related to the quarter that posted during the
month of March. The total amount of prorated collections related to the
AATF for these returns was approximately $300. Because IRS's
precertification is not an actual certification that results in any
redistributions of excise taxes among the trust funds, this error did not
have an effect on fiscal year 2004 distributions to the AATF.

D. 	Review the distribution rates used by IRS to determine if the rates
for tax on transportation of persons by air (abstract 26), tax on the use
of international air facilities (abstract 27), tax on transportation of
property by air (abstract 28), and tax on aviation fuel for commercial use
(abstract 77) agree with the applicable laws.

Description of findings and results

The distribution rates used by IRS for tax on transportation of persons by
air (abstract 26), tax on the use of international air facilities
(abstract 27), tax on transportation of property by air (abstract 28), and
tax on aviation fuel for commercial use (abstract 77) agreed with the
applicable laws in effect during both quarters.

E. Review the Report of Excise Tax Collection used in the precertification
to determine if it contains significant 25 collections from prior
quarters.

Description of findings and results

The Report of Excise Tax Collection supporting IRS's precertification for
both quarters did not contain significant collections from prior quarters.

F. 	Review the Collection Certification System information to determine
whether IRS omitted any significant26 returns from the precertification.
If so, report (1) the average amount of AATFrelated excise taxes from
these taxpayers' returns that were included in IRS's certification from
the four previous quarters and (2) the amount of AATFrelated excise taxes
from these taxpayers' returns that were included in IRS's certification
for the quarters ended March 31, 2003, and June 30, 2003.

25For this test, "significant" is defined as $45 million. This represents
approximately 2 percent of the precertified total to the AATF.

26For this test, "significant" is defined as tax returns with a total
quarterly excise tax liability equal to or greater than $10 million during
each of the prior four quarters. Tax returns related specifically to the
AATF with liabilities equal to or greater than $10 million have, in the
aggregate, historically accounted for over 85 percent of distributions
certified to the AATF.

Description of findings and results

IRS did not omit any significant returns from the precertifications for
both quarters.

V. 	Procedures performed on excise tax distributions to the AATF for the
quarter ended September 30, 2004

A.	Determine if OTA's process for identifying and incorporating the effect
of new legislation on excise tax receipts into its trust fund estimates27
was in place during the quarter ended September 30, 2004.

Description of findings and results

OTA's process for identifying and incorporating into its trust fund
estimates the effect of new legislation on excise tax receipts was in
place during the quarter ended September 30, 2004. OTA prepares a tax rate
table28 to capture information relating to legislation that affects tax
rates, tax basis, accounts, and deposit rules in effect during the
quarter.

B. 	Determine if there is evidence of review of the transfer forms and
supporting schedules.

Description of findings and results

There was evidence that another OTA economist reviewed the transfer forms
and supporting schedules for the semimonthly transfers affecting
distributions to the AATF for the quarter ended September 30, 2004.

C. 	Recalculate the totals on the transfer forms to determine if they are
mathematically correct.

Description of findings and results

The totals on the transfer forms affecting distributions to the AATF for
the quarter ended September 30, 2004, were mathematically correct.

27OTA makes semimonthly estimates of excise tax collections for transfer
to trust funds. There are five semimonthly estimates for the quarter ended
September 30, 2004, which affect fiscal year 2004 distributions to the
AATF.

28OTA communicates this information to interested parties at Treasury, the
Federal Highway Administration, the Federal Transit Administration, and
the Department of Transportation. IRS uses the tax and distribution rates
from this table in its subsequent certification of collections to trust
funds.

D. 	Trace the transfer amounts for tax on transportation of persons by air
(abstract 26), tax on the use of international air facilities (abstract
27), tax on transportation of property by air (abstract 28), and tax on
aviation fuel for commercial use (abstract 77)29 from the transfer letter
through the supporting

30

schedules and back to the related source documents.

Description of findings and results

The transfer amounts for tax on transportation of persons by air (abstract
26), tax on the use of international air facilities (abstract 27), tax on
transportation of property by air (abstract 28), and tax on aviation fuel
for commercial use (abstract 77) from the transfer letter agreed with the
supporting schedules and source documents for the semimonthly transfers
affecting distributions to the AATF for the quarter ended September 30,
2004.

VI. Other procedures

A. 	Compile and report the net amount of fiscal year 2004 excise taxes
distributed to the AATF.

Description of findings and results

Based on a compilation of IRS's certifications, OTA's estimations, and
adjustments, the net amount of fiscal year 2004 excise taxes distributed
to the AATF was $9,174,242,800.

B. Procedures performed as part of the fiscal year 2004 IRS financial
statement audit:

1. 	From IRS's master files for the first 8 months of fiscal year 2004,
use DUS to select statistical samples of (1) total tax revenue receipts
and (2) refunds. For each sample item, test that the collection or refund
amount, tax period, and tax class31 from source documentation agree with
those recorded in the master files.

29The transfer amounts for tax on transportation of persons by air
(abstract 26), tax on the use of international air facilities (abstract
27), tax on transportation of property by air (abstract 28), and tax on
aviation fuel for commercial use (abstract 77) made up 96 percent of the
total amount transferred to the AATF for the fourth quarter of fiscal year
2004.

30The source documents include the IRS report of excise taxes used to
derive the percentages applied to reported receipts, the Daily Treasury
Statement, the Monthly Treasury Statement, and the excise tax rate tables.

31IRS assigns a tax class number to specific types of taxes. Excise taxes
are tax class 4.

Description of findings and results

Detailed testing of 135 revenue receipts and 48 refund sample transactions
showed that the collection or refund amount, tax period, and tax class
from source documents agreed with amounts recorded in the master files.

2. 	Review selected IRS service center campuses' monthly Treasury SF224
reconciliations to determine if IRSreported revenue receipts were properly
classified and reconciled to Treasury FMS records. For refunds, review
selected IRS service center campuses' monthly Treasury SF224
reconciliations to determine if IRSreported total refunds (all tax
classes)

33

materially32 reconciled to Treasury FMS records.

Description of findings and results

Tax revenue receipts reported by selected IRS service center campuses
through the monthly Treasury SF224 reconciliation process were properly
classified and materially agreed with Treasury FMS records. Total refunds
reported by selected IRS service center campuses through the monthly
Treasury SF224 reconciliation process materially agreed with Treasury FMS
records.

3. 	Perform procedures to determine whether tax revenue receipt balances
by tax class, including excise taxes, recorded in IRS's general ledger
materially agree with the master files and Treasury records. For refunds,
perform a comparison of total refund balances between the master files,
the general ledger, and Treasury records.

Description of findings and results

Tax receipt balances for all tax classes, including excise taxes, recorded
in IRS's general ledger materially agreed with the master files and
Treasury records. Refund balances recorded in IRS's general ledger
materially agreed with the master files and with Treasury records.

(196010)

32For the purpose of this procedure and procedure VI.B.3, we define
"material" as $20 billion. This represents 1 percent of the estimated
total tax revenue receipts collected by IRS in fiscal year 2004.

33IRS maintains records of refund balances by tax class in its master file
and reports this information monthly to Treasury on the SF224. Treasury
provides IRS with a Statement of Differences (TFS6652), which reports
differences between total refunds reported by IRS on the SF224 and the
total refunds in Treasury records.

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