Applying Agreed-Upon Procedures: Airport and Airway Trust Fund	 
Excise Taxes (03-NOV-06, GAO-07-132R).				 
                                                                 
We assisted the Department of Transportation (DOT) in		 
ascertaining whether the net excise tax revenue distributed to	 
the Airport and Airway Trust Fund (AATF) for the fiscal year	 
ended September 30, 2006, is supported by the underlying records.
As agreed with the DOT Office of Inspector General, we evaluated 
fiscal year 2006 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 DOT's objectives is the	 
department's responsibility, and we make no representation in	 
that respect. The procedures we agreed to perform were related to
(1) detailed tests of transactions that represent the underlying 
basis of amounts distributed to the AATF, (2) Internal Revenue	 
Service's (IRS) quarterly AATF certifications, (3) Department of 
the Treasury's Financial Management Service adjustments to the	 
AATF during fiscal year 2006, (4) IRS's precertification of	 
receipts for each quarter completed in fiscal year 2006, (5)	 
certain procedures of the Department of the Treasury's Office of 
Tax Analysis' (OTA) process for estimating amounts to be	 
distributed to the AATF for the fourth quarter of fiscal year	 
2006, and other procedures related to (6) the net amount of	 
fiscal year 2006 excise taxes distributed to the AATF, (7)	 
transactions that represent total IRS tax revenue receipts and	 
refunds, and (8) key reconciliations of IRS records to Department
of the Treasury records.					 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-132R					        
    ACCNO:   A62926						        
  TITLE:     Applying Agreed-Upon Procedures: Airport and Airway Trust
Fund Excise Taxes						 
     DATE:   11/03/2006 
  SUBJECT:   Allocation (Government accounting) 		 
	     Auditing procedures				 
	     Auditing standards 				 
	     Excise taxes					 
	     Financial records					 
	     Fund audits					 
	     Trust funds					 
	     Policies and procedures				 
	     Airport and Airway Trust Fund			 

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GAO-07-132R

     

     * 132r enclosures.pdf
          * Procedures on IRS's quarterly AATF receipt certifications
          * Procedures on Financial Management Service adjustments
          * The FMS adjustments made to the AATF agreed with the origina
               * Procedures on IRS's AATF precertification for the quarters e
                    * September 30, 2005, December 31, 2005, March 31, 2006,
                      and J
     * end of correspond & Test.pdf
          * PDF6-Ordering Information.pdf
               * Order by Mail or Phone

November 3, 2006

The Honorable Todd J. Zinser

Acting Inspector General

Department of Transportation

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

Excise Taxes

Dear Mr. Zinser:

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, 2006, is supported by the underlying records. As
agreed with your office, we evaluated fiscal year 2006 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 related to (1) detailed tests of
transactions that represent the underlying basis of amounts distributed to
the AATF, (2) Internal Revenue Service's (IRS) quarterly AATF
certifications, (3) Department of the Treasury's Financial Management
Service adjustments to the AATF during fiscal year 2006, (4) IRS's
precertification1 of receipts for each quarter completed in fiscal year
2006, (5) certain procedures of the Department of the Treasury's Office of
Tax Analysis' (OTA) process for estimating amounts to be distributed to
the AATF for the fourth quarter of fiscal year 2006, and other procedures
related to (6) the net amount of fiscal year 2006 excise taxes distributed
to the AATF, (7) transactions that represent total IRS tax revenue
receipts and refunds, and (8) key reconciliations of IRS records to
Department of the Treasury records. The enclosure contains the agreed-upon
procedures and our findings from performing each of the procedures.

1 To accommodate the Department of Transportation's accelerated reporting
date for fiscal year 2006, 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 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 that would have been reported to
you.2 We completed the agreed-upon procedures on October 25, 2006.

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, 2006. 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, 2006.

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

2 In our report on the results of our audit of IRS's fiscal year 2005
financial statements, we noted a material weakness in IRS's financial
reporting process (GAO, Financial Audit: IRS's Fiscal Years 2005 and 2004
Financial Statements, GAO-06-137, [Washington D.C.: Nov. 10, 2005]). 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.

        Airport and Airway Trust Fund Excise Tax Procedures and Results

           I. Procedures on detailed transactions that represent the
           underlying basis of amounts distributed to the Airport and Airway
           Trust Fund (AATF) in fiscal year 2006

                        A. Nonstatistical selection of tax returns from the
                        quarters ended

                        June 30, 2005, and September 30, 20053

                                     1. For the quarters ending June 30,
                                     2005, and September 30, 2005, 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
                                     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, 2005, was approximately $9.7
                                     billion, or 65 percent of the total
                                     excise tax liability amount of $15
                                     billion for all excise tax types for the
                                     quarter. Of these 30 returns, 9
                                     contained primarily AATF-related taxes
                                     and 21 contained primarily HTF taxes.

                                     The total tax liability amount related
                                     to the 30 returns from the quarter ended
                                     September 30, 2005, was approximately
                                     $9.8 billion, or 65 percent of the total
                                     excise tax liability amount of $15
                                     billion for all excise tax types for the
                                     quarter. Of these 30 returns, 9
                                     contained primarily AATF-related taxes
                                     and 21 contained primarily HTF taxes.

                                     2. For each of the 18 returns related
                                     primarily to the AATF from the quarters
                                     ended June 30, 2005, and September 30,
                                     2005, we performed the following
                                     procedures, which encompassed
                                     approximately $3.7 billion in prorated
                                     collections6 affecting fiscal year 2006
                                     distributions to the AATF:

                                        (a) Trace the liability amount for
                                        abstracts7 26, 27, and 28 from the
                                        tax return to IRS's 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) Inspect the 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 18
                                        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 18
                                        returns.

                        B. Dollar unit sample (DUS) of transactions from the
                        quarters ended

                        December 31, 2005, and March 31, 2006

                                     1. Sampling

                                        (a) Obtain excise tax collection data
                                        from the master file for the first
                                        two quarters of fiscal year 2006.
                                        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 2006 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 77 of the 78 sample items,
                                        assessments and receipts from the
                                        master file were contained in the
                                        Collection Certification System. For
                                        one sample item, the tax liability
                                        associated with the tax return was
                                        abated11, however, the assessment
                                        amount of $18,000 for abstract 71 was
                                        not abated and, therefore, was
                                        incorrectly included in the
                                        Collection Certification System.

                                        (c) Sum the prorated collections for
                                        selected abstracts12 from the audit
                                        files and compare these amounts to
                                        amounts in the Report of Excise Tax
                                        Collection13 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) AATF, (2) HTF, and
                                        (3) other excise tax abstracts. 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
                                        $103 million, and an expected
                                        aggregate error amount of $31
                                        million.

                                        Description of findings and results

                                        Use of DUS with a confidence level of
                                        80 percent, a test materiality of
                                        $103 million, and an expected
                                        aggregate error amount of $31 million
                                        resulted in a sample of 6614 prorated
                                        collections for the AATF for the
                                        first two quarters of fiscal year
                                        2006.

                                        (e) Select samples of prorated excise
                                        tax collections from the two non-AATF
                                        populations. 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 $379
                                        million, and an expected aggregate
                                        error amount of $114 million. Select
                                        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.

                                        Description of findings and results

                                        Use of DUS with a confidence level of
                                        80 percent, a test materiality of
                                        $379 million, and an expected
                                        aggregate error amount of $114
                                        million resulted in a sample of 9415
                                        prorated collections for the HTF for
                                        the first two quarters of fiscal year
                                        2006.

                                        A random attribute sample of 45 items
                                        was selected from the population of
                                        prorated tax collections related to
                                        all excise taxes other than the AATF
                                        and the HTF.16

                                     2. Detailed transactions

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

                                        o  Compare the assessment amount on
                                        the tax return for the sampled
                                        abstract with the amount recorded in
                                        IRS's 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 all of the sampled items.

                                        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.17

                                     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-AATF populations to determine
                                        if they contain any AATF excise tax
                                        collections.

3 Since 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 (Treasury) Financial Management Service for
the quarters ended June 30, 2005, and September 30, 2005, were completed
in December 2005 and March 2006, respectively, and thus affected
distributions to the AATF during fiscal year 2006.

4 Although 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.

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

6 IRS 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 kerosene 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 kerosene tax.

7 The 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 the 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 travel 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) diesel fuel tax
(abstract 60) and (2) 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 90 percent
of the total amount certified to the AATF and over 83 percent of the total
amount certified to the HTF for the quarters ended June 30, 2005, and
September 30, 2005.

8 The Collection Certification System produces what IRS refers to as audit
files. These audit files contain individual prorated collections by
abstract and taxpayer identification number. The certified amounts to the
trust funds are calculated by subtracting credits from prorated
collections and then multiplying the difference by the applicable trust
fund distribution rates.

9 For 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, 2005, and March 31, 2006. For fiscal year 2006, the
materiality amount was $236 million for the two quarters combined.

10 For 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.

11 Abatements are reductions in the amount of taxes owed and can occur for
a variety of reasons, such as to correct errors made by IRS or taxpayers
or to provide relief from interest and penalties. 26 U.S.C. S: 6404.

12 The selected abstracts are (1) tax on transportation of persons by air
(abstract 26), (2) tax on the use of international air travel facilities
(abstract 27), (3) tax on transportation of property by air (abstract 28),
(4) tax on kerosene for use in commercial aviation (abstract 77), (5)
diesel fuel tax (abstract 60), and (6) gasoline tax (abstract 62). The tax
amounts for the four AATF-related abstracts made up over 99 percent of the
total amount certified to the AATF and the tax amounts for the two
HTF-related abstracts made up over 86 percent of the total amount
certified to the HTF for the quarters ended December 31, 2005, and March
31, 2006.

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

14 The planned sample size using DUS was 136 items. DUS selects dollars
instead of specific transaction items by dividing the population by dollar
intervals. The dollar interval for the AATF was $37 million. Accordingly,
any item with a dollar value equal to 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 $74 million would
cover 2 dollar intervals, but represent one sample item. Due to
large-dollar items covering more than one interval, the 66 unique sampled
transactions selected represent 136 dollar intervals.

15 The planned sample size using DUS was 145 items. As explained in
footnote 14, DUS selects dollars instead of specific transaction items by
dividing the population by dollar intervals. The dollar interval for the
HTF was $137 million. Because large-dollar items cover more than one
interval, the 94 unique sampled transactions represent 145 dollar
intervals.

16 For 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

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

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

Description of findings and results

For the first 6 months of fiscal year 2006, the net most likely error is
$0 with an upper error limit of $62 million at the 80-percent confidence
level.

           II. Procedures on IRS's quarterly AATF receipt certifications

           Perform the following procedures on IRS's AATF receipt
           certification for the quarters ended September 30, 2005, December
           31, 2005, and March 31, 2006:

A. Inspect the certification letters for authorizing signatures.

Description of findings and results

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.

17 The 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.

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

E. Compare the distribution rates used by IRS for tax on transportation of
persons by air (abstract 26), tax on the use of international air travel
facilities (abstract 27), tax on transportation of property by air
(abstract 28), and tax on kerosene for use in commercial aviation
(abstract 77) with the applicable laws.

18 The certified amounts for tax on transportation of persons by air
(abstract 26), tax on the use of international air travel facilities
(abstract 27), tax on transportation of property by air (abstract 28), and
tax on kerosene for use in commercial aviation (abstract 77) made up over
87 percent of the total amount certified to AATF for the quarters ended
September 30, 2005, December 31, 2005, and March 31, 2006.

19 IRS 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.

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

           F. Inspect the Report of Excise Tax Collection used in the
           certification to determine if it contains significant21
           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. Procedures on Financial Management Service adjustments

           Perform the following procedures on Financial Management Service
           (FMS) adjustments to the AATF excise tax distributions for the
           quarters ended June 30, 2005, September 30, 2005, December 31,
           2005, and March 31, 2006:

                        A. Compare the FMS adjustments made to the AATF with
                        original Office of Tax Analysis (OTA) estimates and
                        IRS-certified amounts, and with the supporting
                        schedules.22

                        Description of findings and results

The FMS adjustments made to the AATF agreed with the original OTA estimates and
IRS-certified amounts, and with the supporting schedules, for all four 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
                        AATF agreed with the differences computed by FMS for
                        all four quarters. These amounts were23

                                     o  $118,835,000 for the quarter ended
                                     June 30, 2005;
                                     o  $195,817,000 for the quarter ended
                                     September 30, 2005;
                                     o  ($229,109,000) for the quarter ended
                                     December 31, 2005; and
                                     o  ($263,237,000) for the quarter ended
                                     March 31, 2006.

           IV. Procedures on IRS's AATF precertification for the quarters
           ended

        September 30, 2005, December 31, 2005, March 31, 2006, and June 30,
        200624

                        A. Compare the precertified amount to the actual
                        amount certified to the AATF for the quarters ended
                        September 30, 2005, December 31, 2005, and March 31,
                        2006. If there is a significant variance,25 request
                        from the IRS 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 all three quarters.

                        B. Perform the following procedures on IRS's AATF
                        precertification for the quarter ended June 30, 2006:

                                     1. Inspect the precertification letter
                                     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 precertification letter and
                        supporting worksheets.

                                     2. Calculate the total on the
                                     precertification letter to determine if
                                     it is mathematically correct.

                        Description of findings and results

                        The total on the precertification letter was
                        mathematically correct.

                                     3. Trace the amounts for tax on
                                     transportation of persons by air
                                     (abstract 26), tax on the use of
                                     international air travel facilities
                                     (abstract 27), tax on transportation of
                                     property by air (abstract 28), and tax
                                     on kerosene for use in commercial
                                     aviation (abstract 77)26 from the
                                     precertification letter 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 travel facilities (abstract 27), tax on
                        transportation of property by air (abstract 28), and
                        tax on kerosene for use in commercial aviation
                        (abstract 77) from the precertification letter agreed
                        with the related Report of Excise Tax Collection and
                        the Treasury 90 Report.

                                     4. Compare the distribution rates used
                                     by IRS for tax on transportation of
                                     persons by air (abstract 26), tax on the
                                     use of international air travel
                                     facilities (abstract 27), tax on
                                     transportation of property by air
                                     (abstract 28), and tax on kerosene for
                                     use in commercial aviation (abstract 77)
                                     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 travel facilities
                        (abstract 27), tax on transportation of property by
                        air (abstract 28), and tax on kerosene for use in
                        commercial aviation (abstract 77) 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
                                     significant27 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 significant28 returns
                                     from the precertification. If so, report
                                     (1) the average amount of AATF-related
                                     excise taxes from these taxpayers'
                                     returns that were included in IRS's
                                     certification from the four previous
                                     quarters and (2) the amount of
                                     AATF-related excise taxes from these
                                     taxpayers' returns that were included in
                                     IRS's certification for the quarter
                                     ended June 30, 2005.

                        Description of findings and results

                        Our procedures did not identify any missing
                        significant returns from the

                        precertification.

21 For this procedure, "significant" is defined as $45 million, which
represents approximately 2 percent of the total amount certified to the
AATF for the quarters ended September 30, 2005, December 31, 2005, and
March 31, 2006.

22 An FMS accountant compiles this schedule, called the "Subsidiary
Quarterly Account of Estimates and Actual Related Excise Taxes
Appropriated to Airport and Airway 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 AATF. The schedule, along
with OTA transfer forms and IRS certifications, supports the FMS
adjustment.

23 A 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.

24 In order to accommodate the Department of Transportation's November 15
reporting date for fiscal year 2006, IRS performed precertifications of
excise tax receipts. The data in the precertification are for information
purposes only and do not represent an official certification for use in
adjusting the excise tax distributions to the AATF.

25 Significant is defined as 5 percent of the actual certified amount for
the quarter.

26 The certified amounts for tax on transportation of persons by air
(abstract 26), tax on the use of international air travel facilities
(abstract 27), tax on transportation of property by air (abstract 28), and
tax on kerosene for use in commercial aviation (abstract 77) made up over
99 percent of the precertified amount to the AATF for the quarter ended
June 30, 2006.

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

           V. Procedures performed on excise tax distributions to the AATF
           for the quarter ended September 30, 2006

                        A. Determine if OTA's process for identifying and
                        incorporating the effect of new legislation on excise
                        tax receipts into its trust fund estimates29 was in
                        place during the quarter ended September 30, 2006.

                        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, 2006. OTA
                        prepares a tax rate table30 to capture information
                        relating to legislation that affects tax rates, tax
                        basis, accounts, and deposit rules in effect during
                        the quarter.

                        B. Inspect the 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 AATF for the quarter ended September 30, 2006.

                        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 AATF for the quarter ended
                        September 30, 2006, were mathematically correct.

                        D. Trace the transfer amounts for tax on
                        transportation of persons by air (abstract 26), tax
                        on the use of international air travel facilities
                        (abstract 27), tax on transportation of property by
                        air (abstract 28), and tax on kerosene for use in
                        commercial aviation (abstract 77)31 from the transfer
                        forms through the supporting schedules and back to
                        the related source documents.32

                        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 travel facilities (abstract 27),
                        tax on transportation of property by air (abstract
                        28), and tax on kerosene for use in commercial
                        aviation (abstract 77) from the transfer forms agreed
                        with the supporting schedules and source documents
                        for the semimonthly transfers affecting distributions
                        to the AATF for the quarter ended September 30, 2006.

           VI. Other procedures

                        A. Using IRS's quarterly certifications, OTA's
                        estimated distributions, and any adjustments, report
                        excise taxes distributed to the AATF in fiscal year
                        2006.

                        Description of findings and results

                        Based on a compilation of IRS's quarterly
                        certifications, OTA's estimated distributions, and
                        adjustments, the net amount of excise taxes
                        distributed to the AATF in fiscal year 2006 was
                        $10,202,200,000.

                        B. Procedures performed as part of the fiscal year
                        2006 IRS financial statement audit:

                                     1. From IRS's master files for the first
                                     8 months of fiscal year 2006, 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 class33 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 156 revenue receipts and
                                     53 refund sample transactions were
                                     consistent with amounts recorded in
                                     IRS's master files.

                                     2. Obtain selected IRS service center
                                     campuses' monthly Department of the
                                     Treasury (Treasury) FMS 224
                                     reconciliations34 and determine whether
                                     IRS-reported revenue receipts and
                                     refunds were materially reconciled35 to
                                     Treasury FMS records. 

                                     Description of findings and results

                                     Tax revenue receipts and refunds
                                     reported by selected IRS service center
                                     campuses through the monthly Treasury
                                     FMS 224 reconciliation process
                                     materially reconcile to Treasury FMS
                                     records.

                                     3. Compare tax revenue receipt balances
                                     by tax class, including excise taxes,
                                     and total refund balances recorded in
                                     IRS's general ledger with the master
                                     files 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, and
                                     total refund balances per IRS's general
                                     ledger materially agreed with IRS's
                                     master files and Treasury records.

28 For 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 AATF with liabilities equal to or greater than $10 million have, in
the aggregate, historically accounted for over 85 percent of distributions
certified to AATF.

29 OTA makes semimonthly estimates of excise tax collections for transfer
to trust funds. There are five semimonthly estimates for the quarter ended
September 30, 2006, which affect fiscal year 2006 distributions to the
AATF.

30 OTA communicates this information to interested parties at Treasury and
the Department of Transportation. IRS used the tax and distribution rates
from this table in its subsequent certification of collections to trust
funds.

31 The transfer amounts for tax on transportation of persons by air
(abstract 26), tax on the use of international air travel facilities
(abstract 27), tax on transportation of property by air (abstract 28), and
tax on kerosene for use in commercial aviation (abstract 77) made up over
87 percent of the total amount transferred to AATF for the fourth quarter
of fiscal year 2006.

32 The 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.

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

34 At 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.

35 For the purpose of this procedure and procedure VI.B.3, we define
"material" as $23 billion. This represents 1 percent of the estimated
gross tax revenue receipts to be collected by IRS in fiscal year 2006.

(196091)

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