Applying Agreed-Upon Procedures: Highway Trust Fund Excise Taxes
(04-NOV-05, GAO-06-198R).
We assisted the Department of Transportation (DOT) in
ascertaining whether the net excise tax revenue distributed to
the Highway Trust Fund (HTF) for the fiscal year ended September
30, 2005, is supported by the underlying records. As agreed with
DOT, we evaluated fiscal year 2005 activity affecting
distributions to the HTF. 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.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-06-198R
ACCNO: A41041
TITLE: Applying Agreed-Upon Procedures: Highway Trust Fund
Excise Taxes
DATE: 11/04/2005
SUBJECT: Allocation (Government accounting)
Auditing procedures
Auditing standards
Excise taxes
Fund audits
Trust funds
Highway Trust Fund
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GAO-06-198R
* LOS_ANGELES-#65910-v4-HTF_AGREED-UPON_PROCEDURE_REPORT_FY_2005.pdf
* Highway Trust Fund Excise Tax Procedures and Results
* Description of findings and results
* Description of findings and results
* Description of findings and results
* Description of findings and results
* Description of findings and results
* Description of findings and results
* Description of findings and results
* Description of findings and results
* Description of findings and results
* Description of findings and results
* Description of findings and results
* PDF6-Ordering Information.pdf
* Order by Mail or Phone
November 4, 2005
The Honorable Kenneth M. Mead
Inspector General
Department of Transportation
Subject: Applying Agreed-Upon Procedures: Highway 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 Highway Trust Fund (HTF) for the fiscal year ended
September 30, 2005, is supported by the underlying records. As agreed with
your office, we evaluated fiscal year 2005 activity affecting
distributions to the HTF.
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 relate to (1) transactions that represent
the underlying basis of amounts distributed to the HTF, (2) the Internal
Revenue Service's (IRS) quarterly HTF certifications, (3) the Department
of the Treasury's Financial Management Service adjustments to the HTF
during fiscal year 2005, (4) IRS's precertification1 of receipts for each
quarter of fiscal year 2005, (5) certain procedures of the Department of
the Treasury's Office of Tax Analysis's (OTA) process for estimating
amounts to be distributed to the HTF for the fourth quarter of fiscal year
2005, and other procedures related to (6) the net amount of fiscal year
2005 excise taxes distributed to the HTF, (7) transactions that represent
total IRS tax revenue receipts and refunds, and (8) reconciliations of IRS
records to Treasury records. The enclosure contains the agreed-upon
procedures and our findings and results from performing each of the
procedures.
1To accommodate the Department of Transportation's accelerated reporting
date for fiscal year 2005, IRS performed precertifications of excise tax
collections. The data are for information purposes only and the
precertification does not constitute an official certification.
We were not engaged to and did not conduct an examination, the objective
of
which would have been the expression of an opinion on the amount of net
excise taxes distributed to the HTF. Accordingly, we do not express such
an opinion. Had we performed additional procedures, other matters might
have come to our attention that would have been reported to you.2 We
completed the agreed-upon procedures on October 27, 2005.
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, 2005. 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, 2005.
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 purpose.
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. Contact points
for our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report.
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 2004
financial statements, we noted a material weakness in IRS's financial
reporting process; see GAO, Financial Audit: IRS's Fiscal Years 2004 and
2003 Financial Statements, GAO-05-103 (Washington, D.C.: Nov. 10, 2004). A
component of this weakness includes IRS's inability 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.
Highway Trust Fund Excise Tax Procedures and Results
I. Procedures on detailed transactions that represent the
underlying basis of amounts distributed to the Highway Trust Fund
(HTF) in fiscal year 2005
A. Nonrepresentative selection of tax returns from
the quarters ended
June 30, 2004, and September 30, 20043
1. For each of the quarters ending June
30, 2004, and September 30, 2004, select
the 30 largest excise tax returns
containing excise taxes related
primarily to the HTF and the Airport and
Airway Trust Fund (AATF) 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 HTF and
the AATF from each of the two quarters
for testing. The selection was based on
the total tax liability amount owed for
each return from IRS's master file.
The total tax liability amount related
to the 30 returns from the quarter ended
June 30, 2004, was approximately $8.4
billion, or 64 percent of the total
excise tax liability amount of $13.1
billion for all excise tax types for the
quarter. Of these 30 returns, 21
contained primarily HTF-related taxes
and 9 contained primarily AATF taxes.
The total tax liability amount related
to the 30 returns from the quarter ended
September 30, 2004, was approximately
$9.0 billion, or 65 percent of the total
excise tax liability amount of $13.8
billion for all excise tax types for the
quarter. Of these 30 returns, 21
contained primarily HTF-related taxes
and 9 contained primarily AATF taxes.
2. For each of the 42 returns related
primarily to the HTF from the quarters
ended June 30, 2004, and September 30,
2004, we performed the following
procedures, which encompassed
approximately $13 billion in prorated
collections6 affecting fiscal year 2005
distributions to the HTF:
(a) Trace the liability amount for
abstracts7 59, 60, and 62 from the
tax return to IRS's master file.
Description of findings and results
The liability amount for abstracts
59, 60, and 62 on the tax return
agreed with the master file for all
42 returns.
(b) Inspect taxpayers' calculations
on the tax return for the selected
abstracts to determine whether they
are mathematically correct.
Description of findings and results
The taxpayers' calculations on all 42
returns were mathematically correct.
(c) Calculate the prorated collection
amount for the selected abstracts
based on information from the master
file and compare this amount to the
amount from the Collection
Certification System audit files.8
Description of findings and results
The independently calculated prorated
collection amounts for the three
selected abstracts agreed with
amounts in IRS's Collection
Certification System for all 42
returns.
B. Dollar unit sample (DUS) of transactions from the
quarters ended
December 31, 2004, and March 31, 2005
1. Sampling
(a) Obtain excise tax collection data
from the master file for the first
two quarters of fiscal year 2005.
Compare excise tax collection data
from the master file with data from
IRS's general ledger to determine if
they materially agree.9 Compare total
excise tax collections from the
master file with total excise tax
collections from the Collection
Certification System audit files to
determine if they materially agree.
Description of findings and results
Excise tax collections for the first
two quarters of fiscal year 2005 from
the master file materially agreed
with IRS's general ledger and with
total 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.
(c) Sum the prorated collections for
selected abstracts11 from the audit
files and compare these amounts to
amounts in the Report of Excise Tax
Collection12 to determine if the
Collection Certification System
properly summarized the prorated
collections.
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) HTF, (2) AATF, and
(3) other excise tax abstracts. Use
DUS to select a sample of prorated
excise tax collections from the HTF
population using a confidence level
of 80 percent, a test materiality of
$347 million, and an expected
aggregate error amount of $104.1
million.
Description of findings and results
Use of DUS with a confidence level of
80 percent, a test materiality of
$347 million, and an expected
aggregate error amount of $104.1
million resulted in a sample of 10113
prorated collections for the HTF for
the first two quarters of fiscal year
2005.
(e) Select samples of prorated excise
tax collections from the two non-HTF
populations. Use DUS to select a
sample of prorated excise tax
collections from the AATF population
using a confidence level of 80
percent, a test materiality of $92
million, and an expected aggregate
error amount of $27.6 million. Select
a random attribute sample of 45 items
from the population of prorated tax
collections related to all excise
taxes other than the HTF and the
AATF.
Description of findings and results
Use of DUS with a confidence level of
80 percent, a test materiality of $92
million, and an expected aggregate
error amount of $27.6 million
resulted in a sample of 8014 prorated
collections for the AATF for the
first two quarters of fiscal year
2005.
A random attribute sample of 45 items
was selected from the population of
prorated tax collections related to
all excise taxes other than the HTF
and the AATF.15
2. Detailed transactions
(a) For each prorated excise tax
collection sampled from the HTF
population:
o Compare the assessment amount on
the tax return for the sampled
abstract 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 Inspect the taxpayers'
calculations on the tax returns for
the related abstract to determine
whether they are mathematically
correct.
Description of findings and results
The taxpayers' calculations were
mathematically correct on the tax
return for 100 of the 101 sampled
items. On one return, the taxpayer
miscalculated the assessment amount
for the sampled abstract by $2
million. As a result, the prorated
collection amount for the sampled
item was understated by $2 million.
o Calculate the prorated collection
amount based on information from the
master file and compare this amount
to the sample items selected from the
Collection Certification System audit
files.16
Description of findings and results
The independently calculated prorated
collection, based on information from
the master file, agreed with the
amounts for all of the sampled items
selected from the Collection
Certification System audit files.
(b) Inspect the tax returns and
master file information for the two
samples of prorated collections from
the non-HTF populations to determine
if they contain any HTF excise tax
collections.
Description of findings and results
The two samples of prorated
collections from the non-HTF
populations did not contain any HTF
excise tax collections.
(c) Evaluate the results of
conducting steps (a) and (b).
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, 2004, and September 30, 2004, were completed in December
2004 and March 2005, respectively, and thus affected distributions to the
HTF during fiscal year 2005.
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 work shows that these taxpayers generally pay their
excise taxes in full each quarter.
5The master file is a detailed database containing taxpayer information.
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 HTF, we selected (1) tax on 10 percent gasohol (abstract 59), (2)
diesel fuel tax (abstract 60), and (3) gasoline tax (abstract 62). 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). The tax amounts related to the selected abstracts for each
trust fund are the largest tax amounts reported on the taxpayers' excise
tax returns and made up over 79 percent of the total amount certified to
the HTF and over 91 percent of the total amount certified to the AATF for
the quarters ended June 30, 2004, and September 30, 2004.
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 total
certified amount for each abstract.
9For the purpose of this procedure, "material" is defined as 1 percent of
the Form 720-related excise tax collections for the quarters ended
December 31, 2004, and March 31, 2005. For fiscal year 2005, the
materiality amount was $220 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.
11The selected abstracts are (1) tax on 10 percent gasohol (abstract 59),
(2) diesel fuel tax (abstract 60),
(3) gasoline tax (abstract 62), (4) tax on transportation of persons by
air (abstract 26), (5) tax on the use of international air facilities
(abstract 27), (6) tax on transportation of property by air (abstract 28),
and (7) tax on aviation fuel for commercial use (abstract 77). As of
January 1, 2005, abstract 59 was eliminated as a result of the American
Jobs Creation Act of 2004, Pub. L. No. 108-357, S: 301(c)(7), (d)(1), 118
Stat. 1418, 1461, 1463 (Oct. 22, 2004). Abstract 59, along with all other
gasohol taxes, was reported under abstract 62 as gasoline for the quarter
ended March 31, 2005. The tax amounts for the three HTF-related abstracts
made up over 81 percent of the total amount certified to the HTF for the
quarter ended December 31, 2004, and over 88 percent for abstracts 60 and
62 for the quarter ended March 31, 2005. The tax amounts for the four
AATF-related abstracts made up over 87 percent of the total amount
certified to the AATF for the quarters ended December 31, 2004, and March
31, 2005.
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 147 items. DUS selects dollars
instead of specific transaction items by dividing the population by dollar
intervals. The dollar interval for the HTF was $126 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 $252 million would
cover 2 dollar intervals, but represent one sample item. Due to
large-dollar items covering more than one interval, the 101 unique sampled
transactions selected represent 147 dollar intervals.
14The planned sample size using DUS was 151 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
AATF was $34 million. Because large-dollar items cover more than one
interval, the 80 unique sampled transactions selected represent 151 dollar
intervals.
15For this sample, if no errors are found in the 45 items, we would be 90
percent confident that the error rate in the population would not exceed 5
percent.
Description of findings and results
For the first 6 months of fiscal year 2005, the net most likely error is
($2 million) with an upper error limit of $197 million at the 80 percent
confidence level.
II. Procedures on IRS's quarterly HTF receipt certifications
Perform the following procedures on IRS's HTF receipt
certification for the quarters ended September 30, 2004, December
31, 2004, and March 31, 2005:
A. Inspect the certification letters17 for
authorizing signatures.
Description of findings and results
16The purpose of this procedure is to determine whether the Collection
Certification System prorates correctly. This procedure is not intended to
determine whether amounts provided to the system are correct.
The certification letters for all three quarters had authorizing
signatures.
B. Inspect the certification letters and supporting worksheets to
determine if evidence exists that they were reviewed by the
supervisor or another analyst.
Description of findings and results
There was evidence that the supervisor or another analyst reviewed the
certification letters and supporting worksheets for all three quarters.
C. Calculate 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.
D. Trace the certified amounts for diesel fuel tax (abstract 60),
gasoline tax (abstract 62), and tax on 10 percent gasohol
(abstract 59)18 from the certification letters back to the Report
of Excise Tax Collection19 and the Treasury 90 Report.20
Description of findings and results
The certified amounts for diesel fuel tax (abstract 60), gasoline
tax (abstract 62), and tax on 10 percent gasohol (abstract 59)
from the certification letters agreed with the related Report of
Excise Tax Collection and the Treasury 90 Report for the quarters
ended September 30, 2004, and December 31, 2004, and for abstracts
60 and 62 for the quarter ended March 31, 2005.
E. Compare the distribution rates used by IRS for diesel fuel tax
(abstract 60), gasoline tax (abstract 62), and tax on 10 percent
gasohol (abstract 59) with the applicable laws.21
17IRS prepares two certification letters for the HTF each quarter: one for
the Highway Account and the other for the Mass Transit Account.
18The certified amounts for diesel fuel tax (abstract 60), gasoline tax
(abstract 62), and tax on 10 percent gasohol (abstract 59), along with the
heavy vehicle use tax (traced separately), made up over 82 percent of the
total amount certified to the HTF for the quarters ended September 30,
2004, and December 31, 2004, and over 91 percent for abstracts 60, 62, and
the heavy vehicle use tax for the quarter ended March 31, 2005. Since
abstract 59 was eliminated as a result of the American Jobs Creation Act
of 2004, Pub. L. No. 108-357, S: 301(c)(7), (d)(1), 118 Stat. 1418, 1461,
1463 (Oct. 22, 2004), we did not perform procedures on abstract 59 for the
quarter ended March 31, 2005.
19IRS 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
posted to IRS's master file during the processing interval covered by the
report. The second of the two reports used may contain collections related
to prior quarters that IRS certifies as part of the current quarter's
collections because the related return was not posted to the master file
until the processing interval covered by this report.
20The Treasury 90 Report summarizes excise tax credit information and is
produced quarterly by IRS submission processing campus systems. IRS has
eight submission processing campuses that receive and process tax returns
and payments.
Description of findings and results
The distribution rates used by IRS for diesel fuel tax (abstract 60),
gasoline tax (abstract 62), and tax on 10 percent gasohol (abstract 59)
agreed with the applicable laws in effect during the quarters ended
September 30, 2004, and December 31, 2004, and for abstracts 60 and 62
agreed with the applicable laws in effect during the quarter ended March
31, 2005.
F. Inspect the Report of Excise Tax Collection used in the
certification to determine if it contains significant22
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.
G. Trace heavy vehicle use tax amounts from the Highway Account
certification letters to the master file. These taxes, which go to
HTF, are reported on
Form 2290 and are not included in the Collection Certification System.
Description of findings and results
The heavy vehicle use tax amounts from the Highway Account certification
letter agreed with the master file for all three quarters.
21IRS calculates certified collections to the Highway Account and the Mass
Transit Account using the total prorated collection amount, tax rate, and
distribution rates applicable to each account.
22For this procedure, "significant" is defined as $175 million, which
represents approximately 2 percent of the quarterly total certified to
HTF.
III. Procedures on Financial Management Service adjustments
Perform the following procedures on Financial Management Service
(FMS) adjustments to HTF excise tax distributions for the quarters
ended September 30, 2004, December 31, 2004, and March 31, 2005:
A. Compare the FMS adjustments made to the HTF with
original Office of Tax Analysis (OTA) estimates and
IRS-certified amounts to determine if they agree with
the supporting schedules.23
Description of findings and results
For the FMS adjustments made to the HTF accounts (Highway and Mass
Transit), the original OTA estimates and IRS-certified amounts agreed with
the supporting schedules for all three quarters.
B. Calculate the differences between the OTA estimates and
IRS-certified amounts to determine if the amounts agree with the
differences computed by FMS.
Description of findings and results
The independently calculated differences between the OTA estimates
and the IRS-certified amounts for the Highway Account agreed with
the differences computed by FMS for all three quarters. These
amounts were24
o $279,061,000 for the quarter ended September 30,
2004,
o ($592,317,000) for the quarter ended December 31,
2004, and
o ($135,718,000) for the quarter ended March 31,
2005.
The independently calculated differences between the OTA estimates
and IRS-certified amounts for the Mass Transit Account agreed with
the differences computed by FMS for all three quarters. These
amounts were
o ($22,284,000) for the quarter ended September 30,
2004,
o ($32,504,000) for the quarter ended December 31,
2004, and
o ($54,408,000) for the quarter ended March 31,
2005.
23An FMS accountant compiles this schedule, called the "Subsidiary
Quarterly Account of Estimates and Actual Related Taxes Appropriated to
Highway Trust Fund." This schedule computes the difference between
IRS-certified amounts and the OTA estimate for excise taxes, individually
and in total, that relate to the Highway Account. A similar schedule is
prepared for the Mass Transit Account. The schedules, along with OTA
transfer forms and IRS certifications, support the FMS adjustment.
24A 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
affected by IRS's ability to certify receipts in the appropriate quarter.
IV. Procedures on IRS's HTF precertification for the quarters
ended September 30, 2004, December 31, 2004, March 31, 2005, and
June 30, 200525
A. Compare the precertified amount to the actual
certified amount to the HTF for the quarters ended
September 30, 2004, December 31, 2004, and March 31,
2005. If there is a significant variance,26 request
from the IRS their data on any large returns omitted
from the precertification.
Description of findings and results
There were no significant variances between the precertified amounts and
the actual certified amounts for the quarters ended September 30, 2004,
and December 31, 2004. For the quarter ended March 31, 2005, there was a
significant variance of $541 million. $505 million of this was
attributable to IRS's identification of two large tax returns that were
omitted from the precertification for the quarter ended March 31, 2005.
B. Perform the following procedures on IRS's HTF precertification
for the quarter ended June 30, 2005:
1. Inspect the precertification results and
supporting worksheets to determine if evidence exists
that they were reviewed by the supervisor or another
analyst.
Description of findings and results
There was evidence that the supervisor or another analyst reviewed
the results and supporting worksheets.
2. Calculate the totals on the precertification
letters to determine if they are mathematically
correct.
Description of findings and results
The totals on the precertification letters were
mathematically correct.
3. Trace the amounts for diesel fuel tax (abstract
60) and gasoline tax (abstract 62)27 from the
precertification letters back to the Report of Excise
Tax Collection and the Treasury 90 Report.
Description of findings and results
The amounts for diesel fuel tax (abstract 60) and
gasoline tax (abstract 62) from the precertification
letters agreed with the related Report of Excise Tax
Collection and the Treasury 90 Report for the quarter
ended June 30, 2005.
4. Compare the distribution rates used by IRS for
diesel fuel tax (abstract 60) and gasoline tax
(abstract 62) with the applicable laws.
Description of findings and results
The distribution rates used by IRS for diesel fuel
tax (abstract 60) and gasoline tax (abstract 62)
agreed with the applicable laws in effect during the
quarter.
5. Inspect the Report of Excise Tax Collection used
in the precertification to determine if it contains
significant28 collections from prior quarters.
Description of findings and results
The Report of Excise Tax Collection supporting the
precertification did not contain significant
collections from prior quarters.
6. Inspect the Collection Certification System
information to determine whether IRS omitted any
significant29 returns from the precertification. If
so, report for the Highway Account and the Mass
Transit Account (1) the average amount of HTF-related
excise taxes from these taxpayers' returns that were
included in IRS's certification from the four
previous quarters and (2) the amount of HTF-related
excise taxes from these taxpayers' returns that were
included in IRS's certification for the quarter ended
June 30, 2004.
Description of findings and results
IRS did not omit any significant returns from the
precertification.
7. Trace the heavy vehicle use tax amount from the
Highway Account precertification letter to the master
file.
Description of findings and results
The heavy vehicle use tax amount from the Highway
Account precertification letter agreed with the
master file.
25In order to accommodate the Department of Transportation's November 15
reporting date for fiscal year 2005, IRS performed precertifications. The
data in the precertification are for information purposes only and do not
represent an official certification.
26Significant is defined as 5 percent of the actual certified amount for
the quarter.
27The certified amounts for diesel fuel tax (abstract 60) and gasoline tax
(abstract 62) made up over 89 percent of the precertified total to the
HTF.
28For this procedure, "significant" is defined as $175 million. This
represents approximately 2 percent of the precertified amount to the HTF
for the quarter ended June 30, 2004.
29For this procedure, "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
HTF with liabilities equal to or greater than $10 million have, in the
aggregate, historically accounted for over 91 percent of distributions
certified to HTF.
V. Procedures performed on excise tax distributions to the HTF for
the quarter ended September 30, 2005
A. Determine if OTA's process for identifying and
incorporating the effect of new legislation on excise
tax receipts into its trust fund estimates30 was in
place during the quarter ended September 30, 2005.
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, 2005. OTA
prepares a tax rate table31 to capture information
relating to legislation that affects tax rates, tax
basis, accounts, and deposit rules in effect during
the quarter.
B. Inspect transfer forms and supporting schedules to
determine if there is evidence of review.
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 HTF for the quarter ended
September 30, 2005.
C. Calculate 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 HTF for the quarter ended
September 30, 2005, were mathematically correct.
D. Trace the transfer amounts for diesel fuel tax
(abstract 60), gasoline tax (abstract 62), and heavy
vehicle use tax32 from the transfer forms through the
supporting schedules and back to the related source
documents.33
Description of findings and results
The transfer amounts for diesel fuel tax (abstract
60), gasoline tax (abstract 62), and heavy vehicle
use tax from the transfer forms agreed with the
supporting schedules and source documents for the
semimonthly transfers affecting distributions to the
HTF for the quarter ended September 30, 2005.
VI. Other procedures
A. Using IRS's quarterly certifications, OTA's
estimated distributions, and any adjustments, compile
and report excise taxes distributed to the HTF in
fiscal year 2005.
Description of findings and results
Based on a compilation of IRS's quarterly
certifications, OTA's estimations, and adjustments,
the net amount of excise taxes distributed to the HTF
in fiscal year 2005 was $37,632,909,000.
B. Procedures performed as part of the fiscal year
2005 IRS financial statement audit:
1. From IRS's master files for the first
8 months of fiscal year 2005, use DUS to
select statistical samples of (1) total
tax revenue receipts and (2) refunds.
For each sample item, compare the
collection or refund amount, tax period,
and tax class34 from source
documentation with those recorded in
IRS's master files.
Description of findings and results
The receipt or refund amount, tax
period, and tax class from source
documents for 158 revenue receipts and
48 refund sample transactions were
consistent with amounts recorded in
IRS's master files.
2. Obtain selected IRS service center
campuses' monthly Treasury FMS 224
reconciliations35 and determine whether
IRS-reported revenue receipts were
properly classified and materially
reconciled36 to Treasury FMS records.
For refunds, obtain selected IRS service
center campuses' monthly Treasury FMS
224 reconciliations and determine
whether IRS-reported total refunds (all
tax classes) materially reconciled to
Treasury FMS records.
Description of findings and results
Tax revenue receipts reported by
selected IRS service center campuses
through the monthly Treasury FMS 224
reconciliation process were properly
classified and materially reconciled to
Treasury FMS records. Total refunds
reported by selected IRS service center
campuses through the monthly Treasury
FMS 224 reconciliation process
materially reconciled to Treasury FMS
records.
3. Compare tax revenue receipt balances
by tax class, including excise taxes,
recorded in IRS's general ledger with
the master files and Treasury records to
determine if they agree in all material
respects. For refunds, compare total
refund balances between the master
files, the general ledger, and Treasury
records to determine if they agree in
all material respects.
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.
30OTA makes semimonthly estimates of excise tax collections for transfer
to trust funds. There are five semimonthly estimates for the quarter ended
September 30, 2005, which affect fiscal year 2005 distributions to the
HTF.
31OTA communicates this information to interested parties at Treasury and
the Department of Transportation. IRS uses the tax and distribution rates
from this table in its subsequent certification of collections to trust
funds.
32The transfer amounts for diesel fuel tax (abstract 60), gasoline tax
(abstract 62), and heavy vehicle use tax made up over 92 percent of the
total amount transferred to the HTF for the fourth quarter of fiscal year
2005.
33The 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.
34IRS assigns a tax class number to specific types of taxes. Excise taxes
are tax class 4.
35At the end of each month, each IRS campus provides Treasury its FMS 224
(Statement of Transactions) generated from IRS's general ledger, reporting
receipts and refunds journalized during the month. Treasury reconciles the
amounts on the FMS 224 with its records and provides IRS a Statement of
Differences for any differences identified.
36For 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 to be collected by IRS in fiscal year 2005.
(196033)
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