Tax Administration: IRS' 1999 Tax Filing Season (Chapter Report,
12/15/1999, GAO/GGD-00-37).

Pursuant to a congressional request, the GAO discussed the Internal
Revenue Service's (IRS) performance during the 1999 tax filing season,
focusing on: (1) telephone service; (2) availability of walk-in
services; (3) other taxpayer service efforts; (4) Earned Income Credit
(EIC) noncompliance; (5) electronic filing; (6) implementation of recent
tax law changes; and (7) implementation of a new return and remittance
processing system.

GAO noted that: (1) IRS met or exceeded its 1999 goals for several
performance measures, but fell short of its goals in two key areas -
taxpayers' ability to access IRS' toll-free telephone service and the
quality of IRS' responses to taxpayers tax law questions; (2) certain
features of IRS' methodology for measuring the quality of responses to
tax law questions also warranted IRS' attention; (3) the timeliness of
refunds for paper returns raised some questions about IRS' timeliness
that IRS could not answer; (4) IRS attempted to improve telephone
service in 1999, however, service did not improve, but deteriorated; (5)
GAO's work indicated this deterioration resulted from (a) unrealistic
assumptions about the implementation and impact of IRS' changes, and (b)
other problems managing staff training and scheduling and implementing
new technology; (6) IRS enhanced the availability of its walk-in
services by increasing Saturday hours and making services more
accessible to taxpayers who did not have convenient access to a walk-in
office; (7) IRS did a better job of measuring walk-in customer
satisfaction in 1999 than 1998; (8) however, IRS made little progress in
measuring the quality and timeliness of its walk-in services; (9) use of
IRS' World Wide Web site on the Internet increased significantly during
the 1999 filing season, but IRS data pointed to problems with taxpayers
getting answers to tax law questions via electronic mail; (10) IRS
stopped millions of dollars in erroneous EIC claims in 1999 by
validating social security numbers and scrutinizing certain claims; (11)
IRS implemented new procedures (called recertification) in 1999 that
require certain taxpayers to document their eligibility for the EIC
before IRS approves their claim; (12) GAO identified certain
opportunities to streamline the recertification process and thus make it
less burdensome to taxpayers and IRS; (13) IRS service centers were not
consistently following the national guidelines for recertification,
which could result in disparate treatment of taxpayers; (14) IRS
implemented several initiatives in 1999 directed at making electronic
filing paperless and thus more appealing to potential users; (15) 20
percent of the returns filed in 1999 included the new child tax credit;
(16) many of those taxpayers erred in calculating the credit amount,
while others who were eligible for the credit failed to claim it; (17)
correction of these errors increased IRS' processing workload; (18) IRS
made significant changes to the computer systems it uses to process
returns and remittances; and (19) IRS accomplished those changes without
any discernible processing disruptions.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GGD-00-37
     TITLE:  Tax Administration: IRS' 1999 Tax Filing Season
      DATE:  12/15/1999
   SUBJECT:  Tax returns
	     Tax credit
	     Tax administration systems
	     Taxpayers
	     Tax refunds
	     Customer service
	     Telephone
	     Tax law
	     Performance measures
	     Voluntary compliance
IDENTIFIER:  Earned Income Tax Credit
	     IRS Integrated Data Retrieval System
	     IRS Volunteer Income Tax Assistance Program
	     IRS Tax Counseling for the Elderly Program

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United States General Accounting Office
GAO

Report to the Chairman, Subcommittee on

Oversight, Committee on Ways and Means, House of

Representatives

December 1999

GAO/GGD-00-37

TAX ADMINISTRATION
IRS' 1999 Tax Filing Season

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Contents
Page 121 GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Executive Summary                                                           4
                                                                             
Chapter 1                                                                  16
Introduction
                           Background                                      16
                           Objective, Scope, and Methodology               17
                                                                             
Chapter 2                                                                  20
IRS Missed Its Filing
Season Goals in Two Key
Areas Affecting
Taxpayers
                           Many Taxpayers Received Inaccurate              23
                           Responses to Their Tax Law Questions
                           Taxpayers' Ability to Access IRS'               25
                           Telephone System Declined
                           Taxpayers Who Filed Paper Returns Did           26
                           Not Always Receive Timely Refunds
                                                                             
Chapter 3                                                                  28
IRS' Telephone Service
Deteriorated
                           IRS Made Several Changes in an Attempt          28
                           to Improve Telephone Service in 1999
                           Compared to 1998, Telephone Service             29
                           Significantly Declined During the
                           1999 Filing Season
                           Unrealistic Assumptions Led to the              31
                           Decrease in Telephone Service
                           Limited Use of New Call Router During           35
                           Parts of the 1999 Filing Season
                                                                             
Chapter 4                                                                  38
IRS Expanded the
Availability of Walk-In
Services but Had Only
Limited Ability to
Measure Results
                           IRS Enhanced the Availability of                38
                           Services at Its Walk-In Offices
                           IRS Expanded Nontraditional Sources of          39
                           Taxpayer Service
                           Except for Measuring Customer                   40
                           Satisfaction, IRS Has Not Made Much
                           Progress in Measuring the Performance
                           of Walk-In Sites
                                                                             
Chapter 5                                                                  43
Use of Other Sources of
Taxpayer Assistance
Increased, but Some
Problems Existed
                           Significant Increase in Use of IRS'             44
                           Web Site, but Some Problems With
                           Timeliness and Accuracy of E-mail
                           Responses
                           Availability and Use of Volunteer Tax           46
                           Return Preparation Services
                           Increased; Some Problems Were
                           Encountered
Chapter 6                                                                  47
IRS Continued to Stop
Some Improper EIC
Payments; Opportunities
Exist to Streamline the
EIC Recertification
Process
                           IRS Continued to Stop Some Improper             47
                           EIC Payments Through the Use of Math
                           Error Authority
                           IRS Targeted Certain Types of EIC               48
                           Claims for In-Depth Review
                           EIC Recertification Process Further             49
                           Deterred Improper Claims but May Have
                           Confused Taxpayers and Unnecessarily
                           Delayed Return Processing
                                                                             
Chapter 7                                                                  54
Use of Electronic Filing
Continued to Increase
                           Several Factors May Have Contributed            55
                           to the Increase in Electronic Filing
                           Use of TeleFile Decreased Despite IRS           58
                           Initiative
                                                                             
Chapter 8                                                                  60
Tax Law Changes Added
Complexity and Led to
Numerous Taxpayer Errors
                           Basic Child Tax Credit                          60
                           Additional Child Tax Credit                     61
                           Education Benefits                              62
                                                                             
Chapter 9                                                                  63
Significant Changes to
Computer Systems
Accomplished Without
Processing Disruptions
                           Replacement of Return and Remittance            63
                           Processing Systems
                           Consolidation of Mainframe Computer             63
                           Equipment
                                                                             
Chapter 10                                                                 64
Conclusions,
Recommendations, and
Agency Comments
                           Conclusions                                     64
                           Recommendations                                 66
                           Agency Comments and Our Evaluation              67
                                                                             
Appendixes                 Appendix I: IRS Workload Indicators             70
                           Appendix II: Comments From the                  72
                           Internal Revenue Service
                           Appendix III: GAO Contacts and Staff            76
                           Acknowledgments
                                                                             
Tables                     Table 2.1: IRS' Performance Measures            21
                           for the 1998 and 1999 Filing Seasons
                           Table 3.1:  Data on IRS' Toll-Free              30
                           Telephone Assistance for the 1998 and
                           1999 Filing Seasons
                           Table 5.1: Use of Other IRS and IRS-            43
                           Sponsored Taxpayer Assistance
                           Table 6.1:  EIC Claims and Math Errors          48
                           During 1998 and 1999
                           Table 7.1:  Number of Individual                54
                           Income Tax Returns Received, by
                           Filing Type
                                                                             
Figures                    Figure 3.1:  Weekly Comparison of IRS'          31
                           Toll-Free Telephone Assistance-Level
                           of Access and Level of Service-During
                           the 1998 and 1999 Filing Seasons
                                                                             

Abbreviations

ECN       E-file Customer Number
EIC       Earned Income Credit
ERO       electronic return originator
IDRS      Integrated Data Retrieval System
IRS       Internal Revenue Service
NTEU      National Treasury Employees Union
PIN       personal identification number
SEA       selected expanded access
SSN       Social Security number
TCE       Tax Counseling for the Elderly
TRA97     Taxpayer Relief Act of 1997
VITA      Volunteer Income Tax Assistance

TAX ADMINISTRATION  IRS' 1999 Tax Filing Season                                    GAO/GGD-00-37

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

Page 2               GAO/GGD-00-37 IRS' 1999 Tax Filing Season

B-281530

December 15, 1999

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

In response to your request, this report discusses the
Internal Revenue Service's (IRS) performance during the 1999
tax filing season. Besides providing data on various
indicators that IRS uses to measure its filing season
performance, we discuss the following areas: (1) telephone
service; (2) service provided at walk-in sites; (3) other
taxpayer service efforts; (4) Earned Income Credit
noncompliance; (5) electronic filing; (6) implementation of
recent tax law changes; and (7) implementation of a new return
and remittance processing system. This report also includes
several recommendations to the Commissioner of Internal
Revenue.

We are sending copies of this report to Senator William V.
Roth, Jr., Chairman, and Senator Daniel P. Moynihan, Ranking
Minority Member, Senate Committee on Finance; Representative
Bill Archer, Chairman, and Representative Charles B. Rangel,
Ranking Minority Member, House Committee on Ways and Means;
and Representative William J. Coyne, Ranking Minority Member
of this Subcommittee. We are also sending copies to the
Honorable Lawrence H. Summers, Secretary of the Treasury; the
Honorable Charles O. Rossotti, Commissioner of Internal
Revenue; the Honorable Jacob J. Lew, Director, Office of
Management and Budget; and other interested parties. Copies
will also be made available to others upon request.

B-281530

This report was prepared under the direction of David J.
Attianese, Assistant Director. Other major contributors are
acknowledged in appendix III. If you have any questions about
this report, please contact me or Mr. Attianese on (202) 512-
9110.

Sincerely yours,

James R. White
Director, Tax Policy and
 Administration Issues

Executive Summary

Page 8   GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Purpose
As of October 29, 1999, U.S. taxpayers had filed
about 126 million individual income tax returns.
For most taxpayers, their only contacts with the
Internal Revenue Service (IRS) are associated with
this filing activity. In addition to the filing
itself, those contacts generally involve (1)
taxpayers' calls to IRS or visits to an IRS walk-
in site to obtain tax forms or publications or to
seek help in preparing their returns and/or (2)
IRS correspondence to taxpayers about problems,
such as computational errors or missing Social
Security numbers (SSN), that can affect processing
of taxpayers' returns and/or issuance of their
refunds.

In response to a request from the Subcommittee on
Oversight of the House Committee on Ways and
Means, GAO assessed IRS' performance during the
1999 filing season. To do so, GAO compiled and
analyzed data on IRS' own filing season-related
performance measures. In addition, GAO assessed
IRS' efforts to (1) improve telephone service; (2)
expand the availability of walk-in services; (3)
provide other forms of assistance, such as through
the Internet; (4) reduce Earned Income Credit
(EIC) noncompliance; (5) increase the use of
electronic filing; (6) implement recent tax law
changes; and (7) implement a new return and
remittance processing system.

Background
     Most taxpayers file their returns between
January 1 and April 15, the deadline for filing
individual income tax returns. However, millions
of taxpayers get extensions from IRS that allow
them to delay filing until as late as October 15.

     The 1999 filing season included several
challenges for IRS. For example, it was the first
year that IRS provided around-the-clock telephone
service and used a new computer system nationwide
to process tax returns. It was also the first year
that IRS implemented a legislative provision aimed
at reducing EIC noncompliance and that qualifying
taxpayers could claim several new tax credits and
deductions, including a child tax credit.

Results in Brief
IRS met or exceeded its 1999 goals for several
performance measures. But, IRS fell short of its
goals in two key areas-taxpayers' ability to
access IRS' toll-free telephone service and the
quality of IRS' responses to taxpayers who called
IRS with tax law questions. GAO also identified
certain features of IRS' methodology for measuring
the quality of responses to tax law questions that
warranted IRS' attention. IRS' accomplishment in a
third area, that is, timeliness of refunds for
paper returns, raised some questions about IRS'
timeliness that IRS could not answer.

GAO's assessment of the 1999 filing season
identified many positive aspects. But, there were
problems-the most significant involving IRS'
telephone service. IRS took several steps in an
attempt to improve telephone service in 1999, such
as having assistors available to answer the
telephone 24 hours a day, 7 days a week. But
service did not improve. Instead, it deteriorated.
GAO's work indicated that this deterioration
resulted from (1) unrealistic assumptions about
the implementation and impact of IRS' changes and
(2) other problems managing staff training and
scheduling and implementing new technology.
Although GAO recognizes the difficulty in
anticipating how new initiatives will work and
what their effect will be, the problems IRS
encountered in 1999, when considered together,
raise significant questions about IRS' management
of the telephone assistance program.

With respect to other aspects of the 1999 filing
season, GAO observed the following:

ï¿½    IRS enhanced the availability of its walk-in
services by, among other things, increasing
Saturday hours and making services more accessible
to taxpayers who did not have convenient access to
a walk-in office. IRS also did a better job of
measuring walk-in customer satisfaction in 1999
than in 1998, and taxpayers who responded to IRS'
survey scored their overall satisfaction with an
average of 6.44 on a 7-point scale. However, IRS
made little progress in measuring the quality and
timeliness of its walk-in services.
ï¿½    Use of IRS' World Wide Web site on the
Internet increased significantly during the 1999
filing season. Despite the site's success, IRS'
data pointed to some problems with the feature
that allows taxpayers to get answers to tax law
questions via electronic mail (E-mail).
ï¿½    IRS stopped millions of dollars in erroneous
EIC claims in 1999 by validating SSNs and
scrutinizing certain claims. IRS also implemented
new procedures in 1999 that require certain
taxpayers to document their eligibility for the
EIC before IRS approves their claim (a process
referred to as "recertification"). IRS data
indicate that implementation of this new process
helped reduce the number of erroneous claims. GAO
identified certain opportunities to streamline the
recertification process and thus make it less
burdensome to taxpayers and IRS. Also, IRS service
centers were not consistently following national
guidelines for recertification, which could result
in disparate treatment of taxpayers.
ï¿½    Of the almost 126 million tax returns filed
in 1999, 29.3 million (23 percent) were filed
electronically. IRS implemented several
initiatives in 1999 directed at making electronic
filing paperless and thus more appealing to
potential users. At the time GAO completed its
work, IRS had not finished assessing all of those
initiatives.
ï¿½    Twenty percent of the returns filed in 1999
included the new child tax credit. Many of those
taxpayers erred in calculating the credit amount.
Many other taxpayers who were eligible for the
credit failed to claim it. Correction of these
errors increased IRS' processing workload.
ï¿½    IRS made significant changes to the computer
systems it uses to process returns and
remittances. IRS accomplished those changes
without any discernible processing disruptions.

     GAO is making several recommendations to the
Commissioner of Internal Revenue.

Principal Findings

IRS Met Most of Its Filing Season Goals but Missed
Goals in Two Key Areas Affecting Taxpayers
     IRS uses various measures to gauge its
performance during a filing season. In 1999, IRS
either came close to, met, or exceeded the goals
for 7 of the 9 measures for which it established
goals, including measures relating to the accuracy
with which it processes returns and fills orders
for tax forms and the timeliness with which it
processes tax payments. For the other two
measures, IRS fell short of its goals.

     The first missed goal dealt with the ability
of taxpayers to access IRS' toll-free telephone
service. Issues surrounding IRS' telephone service
in 1999 are discussed in the next section.

     The second missed goal dealt with the quality
of IRS' responses to taxpayers who called IRS with
tax law questions. IRS' goal was to answer 85
percent of those questions accurately; however, it
achieved an accuracy rate of 72.5 percent.
According to IRS, one reason for the lower
accuracy was that assistors needed knowledge in
more areas of the tax law in 1999 than in the past
and that the assistors may not have had recent or
complete training in the additional areas. GAO
also identified some features of IRS' sampling
methodology that could have a bearing on the
results of its accuracy measurement. For example:

ï¿½    During the filing season, IRS monitored calls
for 8 hours a day, Monday through Friday, even
though it provided around-the-clock service. (IRS
has since expanded its monitoring hours.) The
effect on IRS' accuracy measure would depend on
the extent to which taxpayers called during the
nonmonitored hours and the difference, if any,
between the accuracy of assistors who worked
during the monitored hours versus those who worked
during the nonmonitored hours.
ï¿½    IRS based its planned sample size on
assumptions about the number of incoming telephone
calls and estimates of the number of work hours
available to monitor. IRS did not achieve the
estimated number of calls it planned to monitor.
The use of assumptions and estimates that are not
achieved may weaken the precision of the results
of its monitoring.

     IRS' accomplishment in a third area,
timeliness in issuing refunds to taxpayers who
filed their returns on paper, raised some
questions that IRS had no data to answer. IRS
measured its performance in that area in terms of
the percentage of refunds issued within 40 days.
Because 1999 was the first year that IRS measured
its refund timeliness in that way, IRS considered
1999 to be a baseline year and did not set a
performance goal. However, IRS data showed that
IRS took longer than 40 days to issue about 15
percent of the refunds on paper returns. GAO's
attempt to learn more about those 15 percent, such
as how many days beyond 40 the affected taxpayers
had to wait before receiving their refunds, was
unsuccessful because IRS did not have the
necessary data. (See pp. 20 to 27.)

IRS Telephone Service Deteriorated
     During the 1998 filing season, IRS provided a
74-percent level of service, meaning that 74
percent of taxpayers' attempts to contact an IRS
assistor by telephone were successful (these data
do not reflect the quality of the service
taxpayers received, only their success in reaching
an assistor).1 In an effort to provide better
telephone service in 1999, IRS, among other
things, (1) extended its hours of operation to 24
hours a day, 7 days a week, and (2) started
managing its telephone operations centrally, which
included implementation of new call routing
technology. Although these initiatives were
intended to improve telephone service, the level
of service during the 1999 filing season dropped
to 55 percent.

     GAO's discussions with IRS officials and
review of available documentation indicated that
the decline in telephone service resulted from
unrealistic assumptions. For example, IRS assumed
that productivity would increase, but it
decreased. IRS also assumed that around-the-clock
service would level demand by enabling some
taxpayers to call during off-hours, thereby
reducing the number of calls coming in during peak
times; but IRS' expectations did not fully
materialize. Among other things, IRS' inaccurate
assumptions led to discontinuance of a special
procedure for handling complex tax law questions,
which further contributed to the deterioration in
telephone service.

Although GAO recognizes the difficulty in
anticipating how new initiatives will work and
what their effect will be, the problems IRS
encountered when considered together, raise
significant questions about IRS' management of the
telephone assistance program in 1999. GAO saw
evidence of (1) assumptions and decisions that
appeared to be based on inadequate data or that
seemed to ignore existing data, (2) a failure to
appropriately time the training of assistors and
coordinate the timing of union negotiations that
would directly affect productivity and the
development of work schedules, (3) inadequate
testing and contingency planning with respect to
new call routing technology, and (4) the absence
of data that management would need to adequately
assess what happened in 1999 and provide a basis
for making appropriate changes for the 2000 filing
season. (See pp. 28 to 37.)

IRS Expanded the Availability of Walk-In Services
but Had Only Limited Ability to Measure Results

     Staff at IRS' walk-in sites answer tax law
questions, distribute tax forms and publications,
and help taxpayers prepare their returns and
resolve their account issues. IRS data show that
walk-in sites served about 6.2 million taxpayers
between January 1 and May 1, 1999-a slight
increase over the number served during the same
period in 1998.

     IRS expanded the availability of walk-in
services during the 1999 filing season. For
example, IRS increased Saturday hours at more walk-
in offices and used mobile vans and temporary
space in shopping malls to make its services more
accessible to taxpayers who were not near a walk-
in office. IRS also did a better job of measuring
customer satisfaction with its walk-in services.
In 1998, IRS did not start distributing its
satisfaction survey until late in the filing
season. In 1999, IRS added questions to the survey
and distributed it during the entire filing
season. Taxpayers who responded to the survey in
1999 scored their overall satisfaction, on
average, at 6.44 on a 7-point scale.

     While IRS made progress in measuring customer
satisfaction with walk-in services in 1999, it
made little progress in measuring the quality and
timeliness of those services. With respect to
timeliness, for example, IRS established taxpayer
wait-time goals but (1) the National Office did
not require regional offices to report wait times
and (2) most of IRS' walk-in sites had to manually
track wait times, thus making the data more prone
to error. IRS cannot determine if the walk-in
program is meeting its objectives and goals, and
thus whether it is an effective way of providing
service, without meaningful nationwide performance
data. (See pp. 38 to 42.)

Use of Other Sources of Taxpayer Assistance
Increased, but Some Problems Existed
     Besides the help that is available over the
telephone and at walk-in sites, taxpayers can
receive assistance from other sources, such as
IRS' Web site. Measured by either the number of
"hits" or the number of files downloaded, use of
that site during the 1999 filing season increased
by over 100 percent compared to 1998. The Web site
also includes an E-mail feature that enables
taxpayers to ask IRS questions about the tax law
and receive a response.

Despite the general success of IRS' Web site
during the 1999 filing season, including a
favorable assessment by an outside organization,
there were some problems. IRS tests showed that
only 65 percent of the responses to E-mail
questions during the 1999 filing season were
accurate, and IRS data indicate that IRS did not
meet its goal of responding to E-mail questions
within an average of 2 business days. IRS could
not actually determine how close it came to its
timeliness goal in 1999 because it tracked
response times in calendar days while its goal was
in business days-a situation that IRS said it
would correct for the 2000 filing season.

IRS also told GAO that it (1) would be providing
staff with additional training on the E-mail
topics with the highest error rates and (2)
expects to have better workload projections and
better work plans for the 2000 filing season,
which should better enable IRS to meet its
response-time goal by better ensuring that an
adequate number of staff is available to meet the
demand for service. (See pp. 43 to 46.)

IRS Continued to Stop Some Improper EIC Payments;
Opportunities Exist to Streamline the EIC
Recertification Process
     IRS' continuing efforts to reduce EIC
noncompliance by validating SSNs and scrutinizing
certain EIC claims stopped millions of dollars in
erroneous EIC payments in 1999. IRS also
implemented procedures in 1999, as mandated by the
Taxpayer Relief Act of 1997, that require certain
taxpayers to document their eligibility for the
EIC before IRS approves their claim (i.e.,
recertification). IRS data show that many
taxpayers who were required to recertify did not
claim the EIC in 1999, which seems to indicate
that recertification helped reduce the number of
improper claims.  It is possible, however, that
some of those taxpayers did not submit a claim in
1999 even though they were entitled to the EIC
because they did not understand the
recertification process or found it too
burdensome.

     The form that taxpayers are required to
submit to be recertified may mislead them to
believe that the information required to complete
the form is sufficient for recertification.
Taxpayers may become discouraged and confused when
they realize that the form is not sufficient but,
instead, leads to another IRS request for
documents.  Taxpayers might rightfully wonder why,
if the documents required by later correspondence
are essential for recertification, IRS did not
tell them that those documents were required when
IRS first notified them about the need to
recertify.  In addition, even though there was
national guidance on the recertification process
that service centers were to follow, the guidance
was not followed consistently, which could result
in disparate treatment of taxpayers. (See pp. 47
to 53.)

Use of Electronic Filing Continued to Increase
     About 29.3 million individual income tax
returns were filed electronically in 1999-an
increase of about 19 percent over 1998. Even with
that increase, about 77 percent of all individual
returns were still filed on paper.

     Consistent with a provision in the IRS
Restructuring and Reform Act of 1998, IRS'
strategic goal is to have 80 percent of all
returns filed electronically by 2007. Toward that
end, IRS, in 1999, implemented several initiatives
directed at making electronic filing truly
paperless (by eliminating the need for signature
forms, checks, and payment vouchers) and thus more
appealing to taxpayers and tax return preparers.
Those initiatives enabled certain taxpayers to (1)
sign their returns through, for example, the use
of a personal identification number and (2) pay
their tax liability by credit card or by a direct
debit from their bank accounts. At the time GAO
completed its work, IRS had not compiled the
necessary data to assess the impact of all of
those initiatives on electronic filing. (See pp.
54 to 59.)

New Child Tax Credit Was the Source of Many
Taxpayer Errors
     Some tax law changes mandated by the Taxpayer
Relief Act of 1997 took effect during the 1999
filing season. One change involved a new child tax
credit. According to IRS data, about 20 percent of
all individual income tax returns filed in 1999
included a child tax credit claim. That credit
caused some confusion for taxpayers, as evidenced
by the large number of errors identified by IRS.
About one-half of the errors were of a
computational nature; the other one-half involved
taxpayers' failure to claim a child tax credit to
which they were entitled. The need to correct
these errors added to IRS' processing workload and
may have delayed some refunds. (See pp. 60 to 62.)

Significant Changes to Computer Systems
Accomplished Without Processing Disruptions
     IRS made significant changes this year to the
computer systems it uses to process tax returns
and remittances. GAO's work did not identify any
significant disruption of IRS' ability to process
returns and issue refunds that might be indicative
of computer-related problems. (See p. 63.)

Recommendations
GAO is recommending that the Commissioner of
Internal Revenue (1) analyze the results of its
refund timeliness tests, (2) analyze the effect of
not achieving the planned sample size for
monitoring the accuracy of tax law calls, (3)
implement a program for assessing the performance
of IRS' walk-in sites, and (4) take steps to
streamline the recertification process and avoid
possible disparate treatment of taxpayers. (See p.
66.)

To better understand the problems facing IRS in
providing good telephone service and help develop
constructive solutions, GAO is reviewing, in more
detail, IRS' management of its telephone
operations. Accordingly, this report includes no
recommendations in that area. GAO is not
recommending changes in other areas, such as E-
mail responses and the child tax credit, because
IRS has taken or plans to take action to address
the identified problems in those areas.

Agency Comments
     In a letter dated December 3, 1999, the
Commissioner of Internal Revenue commented on a
draft of this report (see app. II). The
Commissioner said that the draft report provided a
fair and balanced assessment of IRS' efforts to
improve processing while providing taxpayers with
top quality service, and that IRS would make every
effort to resolve the issues noted in the draft.
The Commissioner's comments are discussed in more
detail in chapter 10.

_______________________________
1 Unlike level of access, level of service
considers abandoned telephone calls as
unsuccessful call attempts.

Chapter 1
Introduction
Page 19  GAO/GGD-00-37 IRS' 1999 Tax Filing Season
     This report responds to a request from the
Chairman of the Subcommittee on Oversight of the
House Committee on Ways and Means that we assess
the Internal Revenue Service's (IRS) performance
during the 1999 tax filing season. In April 1999,
we testified before the Subcommittee on the
interim results of our work.1

     In addition to providing data on various
indicators that IRS uses to measure its filing
season performance, this report discusses (1) IRS'
telephone service; (2) service provided at IRS
walk-in sites; (3) other IRS efforts to assist
taxpayers; (4) IRS efforts to reduce Earned Income
Credit (EIC) noncompliance; (5) electronic filing;
(6) IRS' implementation of certain tax law
changes; and (7) implementation of IRS' new return
and remittance processing system. The last chapter
of this report contains our overall conclusions,
several recommendations to the Commissioner of
Internal Revenue, and IRS' comments on those
recommendations.

Background
     For most taxpayers, their only contacts with
IRS involve the annual filing of their income tax
returns. Most taxpayers file their returns between
January 1 and April 15, the deadline for filing
individual income tax returns. However, a large
number of taxpayers get extensions from IRS that
allow them to delay filing their returns until as
late as October 15.

     IRS provides various services in an effort to
help taxpayers file correct returns. For example,
taxpayers can (1) call IRS toll-free to get
answers to tax law questions and order tax forms
and publications; (2) get information or help in
preparing their returns at IRS walk-in sites; (3)
get their returns prepared at volunteer tax
assistance sites sponsored by IRS; and get
information, including answers to tax law
questions, through IRS' Web site.

     Most taxpayers file their returns on paper
but a growing number have been filing
electronically. In December 1998, IRS issued a
strategic plan for expanding the use of electronic
filing. As described by IRS, that plan was

"designed to eliminate barriers, provide
incentives, and use competitive market forces to
make significant progress toward: (1) the
overriding goal of 80 percent of all tax and
information returns being filed electronically by
the year 2007, and (2) the interim goal that, to
the extent practicable, all returns prepared
electronically should be filed electronically for
taxable years beginning after 2001."

     The 80-percent goal cited in IRS' plan
derives from a requirement in the IRS
Restructuring and Reform Act of 1998.

     One benefit of electronic filing is that IRS
can bypass its labor-intensive and error-prone
paper processing system. For the 1999 filing
season, IRS introduced a new processing system
called the Integrated Submission and Remittance
Processing System. The return and remittance
processing systems that the new system replaced
were old and could not be made year 2000
compliant.

     Several new tax credits and deductions took
effect in tax year 1998 (the tax year for which
returns are filed in 1999). Those new credits and
deductions included a maximum $400 tax credit for
each qualifying child, an additional child tax
credit that was designed to benefit taxpayers with
three or more children, and various education-
related deductions and credits.

     One tax credit that has been around for
several years is the EIC, which is a refundable
tax credit established by Congress in 1975 to
offset the impact of Social Security taxes and to
encourage low-income workers to seek employment
rather than welfare. Because of concerns about
significant levels of noncompliance associated
with the EIC, Congress, in fiscal year 1998, began
appropriating funds to IRS that were specifically
targeted at EIC noncompliance. With those funds,
IRS has initiated various assistance and
enforcement efforts focused on reducing that
noncompliance. Also, in 1999, IRS implemented new
procedures, as mandated by the Taxpayer Relief Act
of 1997 (TRA97), that require certain taxpayers to
document their eligibility for the EIC before IRS
approves their claim.

Objective, Scope, and Methodology
     Our objective was to assess IRS' performance
during the 1999 filing season, with particular
emphasis on several areas identified in the
Subcommittee's request.  To achieve our objective,
we

ï¿½    analyzed filing-season data from various IRS
management information systems, such as the
Management Information System for Top Level
Executives; IRS data on processing errors,
including errors involving the EIC and the child
tax credit; and data on IRS' toll-free telephone
assistance and IRS' Web site;
ï¿½    obtained data on IRS' goals and
accomplishments for various performance measures
and discussed the methodology for computing many
of those measures with cognizant officials;
ï¿½    assessed IRS' methodology for measuring the
quality of assistance provided taxpayers who call
IRS with tax law questions and analyzed the
results of that methodology;
ï¿½    interviewed officials who were responsible
for managing IRS' toll-free telephone operations
as well as officials at telephone call sites in
Atlanta, GA, and Fresno, CA, and analyzed the
results of toll-free telephone service customer
satisfaction surveys;
ï¿½    interviewed officials at IRS walk-in
assistance sites in the Georgia and Northern
California District Offices; observed walk-in
services provided at shopping centers, grocery
stores, and mobile van sites by the Georgia,
Northern California, and Central California
District Offices; and analyzed the results of walk-
in customer satisfaction surveys;
ï¿½    interviewed IRS National Office officials
about the Taxpayer Education Program, with an
emphasis on volunteer tax preparation services
that are supported by IRS;
ï¿½    interviewed officials in IRS' Office of
Electronic Tax Administration about various
initiatives undertaken in 1999 in an effort to
increase the use of electronic filing, reviewed
data on taxpayer participation in the initiatives,
and reviewed data on the results of those
initiatives;
ï¿½    interviewed officials in IRS' EIC Project
Office and in the Atlanta, Fresno, and Kansas
City, MO, Service Centers about various efforts to
improve the level of compliance associated with
EIC claims; analyzed data on the results of those
efforts; and interviewed National Office officials
located at the Brookhaven, NY, Service Center who
were responsible for national EIC compliance
efforts;
ï¿½    reviewed IRS' returns processing guidance
relating to the child tax credit, interviewed
service center officials about their processing
procedures, and discussed potential changes to
IRS' forms and instructions with officials at IRS'
National Office;
ï¿½    obtained filing-season information from the
largest national tax return preparation company;
and
ï¿½    reviewed reports issued by the Treasury
Inspector General for Tax Administration on filing-
season activities.

We did our work at IRS' National Office; the
Atlanta, Brookhaven, Fresno, and Kansas City
Service Centers; the Customer Service Center in
Atlanta; and the Georgia and Northern California
District Offices.2

We requested comments on a draft of this report
from the Commissioner of Internal Revenue. IRS
provided comments in a letter dated December 3,
1999, and at a related meeting on the same date.
We have incorporated IRS' comments as appropriate
and have reprinted the letter in appendix II.

We did our work from November 1998 through October
1999 in accordance with generally accepted
government auditing standards.

_______________________________
1 Tax Administration:  IRS' Fiscal Year 2000
Budget Request and 1999 Tax Filing Season (GAO/T-
GGD/AIMD-99-140, Apr. 13, 1999).
2 Except for Brookhaven, we selected these
locations because we had staff available in those
areas to do the work. We visited Brookhaven to
interview officials who were responsible for EIC
compliance work.

Chapter 2
IRS Missed Its Filing Season Goals in Two Key
Areas Affecting Taxpayers
Page 27  GAO/GGD-00-37 IRS' 1999 Tax Filing Season
IRS uses various measures to gauge its performance
during a filing season. Those measures relate to
timeliness, such as the number of days needed to
process and issue refunds; quality, such as the
accuracy of notices sent to taxpayers and answers
to taxpayers' questions; and service
accessibility, such as the extent to which
taxpayers with tax-related questions were able to
reach IRS by telephone.1

In 1999, according to IRS' own data, it met or
exceeded its performance goals for five measures,
came close to its goals for two measures, and fell
short of its goals for two measures (i.e., quality
of responses to tax law questions and level of
access to the taxpayer service telephone system).2
As shown in table 2.1, there were four other
measures for which IRS had no goal in 1999. IRS'
accomplishment in one of those areas, that is,
timeliness of refunds for paper returns, raised
some questions that IRS did not have the necessary
data to answer.

Table 2.1: IRS' Performance Measures for the 1998
and 1999 Filing Seasons
Indicator                   1998a                         1999a
                 Goal           Accomplishment  Goal            Accomplishment
Accuracy of    Process 95%     95.5% were      Process 96%     96.6% were
individual     accurately      processed       accurately      processed
income tax                     accurately                     accurately
return
processing by
Code
and Edit
staffb
Accuracy of    Process 95%     94.2% were      Process 94.6%   94% were
individual     accurately      processed       accurately      processed
income tax                     accurately                     accurately
return
processing by
data
transcribersc
Notice         Provide         Provided        Provide         Provided
accuracyd      accurate        accurate        accurate        accurate
               notices to      notices to      notices to      notices to
               taxpayers       taxpayers       taxpayers       taxpayers 97.7%
               98.5% of the    98.4% of the    98.5% of the    of the time
               time            time            time
Timeliness of  Payments        All payments    Payments        All payments
processing tax received        received        received        received
payments       4/15/98         4/15/98 through 4/15/99 through 4/15/99 through
submitted with through         4/29/98 were    4/29/99 must by 4/29/99 were
individual     4/29/98 were    deposited by    deposited by    deposited by
income tax     to be           4/30/98         4/30/99         4/30/99
returnse       deposited no
               later than
               4/30/98
Accuracy of    Process 99.3%   99.6% were      Process 99.3%   99.6% were
individual     accurately      processed       accurately      processed
income tax                     accurately                     accurately
refunds on
paper returnsf
Timeliness of  Issue within    Issued within   Baseline year   Processed 84.7%
refunds        an              an                             of the refunds
for individual average of 40   average of 34                  in 40 days or
income tax     days            days                           less
returns filed
on paperg
Timeliness of  Issue within    Issued within   Process 98% of  Processed 99.6%
refunds for    an              an              the refunds in  of the refunds
individual     average of 21   average of 15   less than 21    in less than 21
income tax re- days            days            days            days
turns filed
electronically
h
Level of       Not             Provided 74%    Baseline yeark  Provided 55%
service        applicablej     level of                       level of
provided by                    service                        service
taxpayer
service
telephone
systemi
Level of       Provide 70%     Provided 91%    Provide 80%-90% Provided 69%
access to      level of        level of access level of        level of access
taxpayer       access                         accessm
service
telephone
systeml
Accuracy of    Answer 96% of   Answered 93.6%  Not applicable  Not applicable
tax law        taxpayer's      accurately
assistancen    questions
               accurately
Tax law        Not applicable  Not applicable  Answer 85% of   Answered 72.5%
qualityo                                      taxpayers'      accurately
                                             questions
                                             accurately
Accuracy of    Process 96.5%   Processed 97.3% Process 96.5%   Processed 97%
processing     accurately      accurately      accurately      accurately
form ordersp
Level of       Not applicable  Not applicable  Baseline yearr  Average overall
customer                                                     satisfaction of
satisfaction                                                 6.31 on a 7-
with toll-free                                               point scale (as
telephone                                                    of 3/99)s
serviceq
Level of       Not applicable  Not applicable  Baseline yearr  Average overall
customer                                                     satisfaction of
satisfaction                                                 6.44 on a 7-
with                                                         point scale (as
walk-in                                                      of 3/99)u
servicet
aData are as of April 1998 and April 1999, unless
otherwise noted.
bCode and Edit staff are to prepare paper returns
for computer entry by, among other things,
ensuring that all data are present on the return
and legible. This indicator represents the
percentage of other-than-full-paid individual
paper returns that are processed accurately by
Code and Edit staff. Other-than-full-paid returns
are those that involve either a refund or an
unpaid liability and account for the majority of
paper returns processed.
cThis indicator represents the percentage of other-
than-full-paid, individual paper returns that are
processed without transcription errors.
dThis indicator is based on a sample of returns
processing notices to be sent to individual and
business taxpayers. Among other things, IRS uses
returns processing notices to advise taxpayers of
missing schedules or forms, missing SSNs, or
refunds being delayed or used to offset another
liability. IRS reviewers compare the printed
notice to various data, including information in
the taxpayer's account and on the taxpayer's tax
return. The indicator is calculated by dividing
the number of correct notices reviewed by the
total number of notices reviewed. IRS told us that
the results for individual and business taxpayers
cannot be separated.
eService centers are to deposit payments in a
timely manner, generally within 24 hours of
receipt. Because of the volume of payments
received between April 15 and April 29, IRS
suspends the 24-hour requirement during that
period. Instead, IRS requires that all payments
received during that period are to be deposited by
the close of business on April 30. After April 29,
the centers are to resume the 24-hour deposit
schedule.
fThis indicator is based on a sample of individual
income tax returns filed on paper. The indicator
is calculated as the percentage of refunds on
those returns that are free of any IRS-caused
errors in the name and address field or in the
refund amount.
gIn 1998, this indicator was based on a sample of
paper returns and was an average calculated
starting from the signature date on the return to
the date the taxpayer should have received the
refund, allowing 2 or 3 days after issuance
(depending on whether the refund is paid by check
or direct deposit) for the refund to reach the
taxpayer or the taxpayer's bank account. The 1999
indicator was still based on a sample of paper
returns; however, it was calculated as the
percentage of refunds processed in 40 days or
less. The days are counted from signature date to
the day after the refund is issued, allowing 1 day
for the refund to reach the taxpayer. IRS
recalculated the 1998 data using the 1999 method
and found that 88.1 percent of the 1998 refunds
were processed in 40 days or less. IRS
recalculated the 1999 data using the 1998 method
and found that 1999 refunds were issued within an
average of 34.6 days.
hIn 1998, this indicator was based on a sample of
electronically filed returns and was an average
calculated from the date the return was received
to the date the taxpayer should have received the
refund, allowing 2 or 3 days after issuance
(depending on whether the refund was by check or
direct deposit) for the refund to reach the
taxpayer or the taxpayer's bank account. The 1999
indicator was still based on a sample of
electronically filed returns; however, it was
calculated as the percentage of refunds processed
in less than 21 days. The days are counted from
the date the return is received to the date the
refund is issued, with no allowance for the refund
to reach the taxpayer. IRS recalculated the 1998
data using the 1999 method and found that 98.3
percent of the 1998 refunds were processed in less
than 21 days. IRS recalculated the 1999 data using
the 1998 method and found that 1999 refunds were
issued within an average of 13.7 days.
iLevel of service is calculated by dividing the
number of calls answered by the total call
attempts. Answered calls include calls to the
voice messaging system that were subsequently
returned by IRS. Total call attempts is the sum of
calls answered, calls abandoned by the caller
before receiving assistance, and calls that
received a busy signal.
jIRS did not establish a goal for this indicator
for 1998 because it was selected as an indicator
after planning for the 1998 filing season had been
completed.
kAccording to IRS, it is using fiscal year 1999 as
a baseline, and, therefore, established no goal.
However, IRS did track the measure in 1998 and
achieved a 73.7 percent level of service.
lLevel of access is the sum of the number of calls
answered plus the number of abandoned calls
divided by the total call attempts (as defined in
i above).
mAccording to IRS, this goal was established as a
range due to uncertainty about resource
availability and implementation of new call
routing technology.
nThis indicator measured the accuracy of tax law
information provided to taxpayers through the toll-
free telephone assistance program. For 1998, the
indicator was based on test calls placed to
telephone assistors. For 1999, IRS changed the
measure's name to Tax Law Quality and changed the
methodology for testing the accuracy as described
in note o.
oIn 1999, IRS monitored actual telephone calls to
assess the quality of answers to tax law
questions.
pThe accuracy with which forms distribution
centers process taxpayers' orders is determined by
randomly checking selected orders, monitoring
telephone calls from taxpayers, and reviewing data
transcription of written orders from taxpayers.
qThis measure is determined through surveys of a
random sample of taxpayers who call IRS' toll-free
telephone numbers and choose to participate.
rAccording to IRS, it is using fiscal year 1999 as
a baseline year; therefore, no performance goal
was established.
sThe results of the survey were also analyzed in a
manner that shows 84 percent of the customers
rated satisfaction with the handling of their case
as a 6 or 7 on a 7-point scale.
tThis measure is determined through surveys of
taxpayers who visit IRS' walk-in sites and choose
to participate.
uThe results of the survey were also analyzed in a
manner that shows 89 percent of the customers
rated satisfaction with the handling of their case
as a 6 or 7 on a 7-point scale.
Source: GAO analysis of IRS data.

Many Taxpayers Received Inaccurate Responses to
Their Tax Law Questions
From 1989 to 1998, IRS measured the quality of
assistance to taxpayers who called with tax law
questions by making structured test calls to IRS
assistors. This method was phased out after the
1998 filing season. During the 1998 filing season,
besides making test calls, IRS also measured the
quality of its tax law assistance by monitoring a
sample of actual calls. In monitoring the calls,
IRS assessed whether telephone assistors gave
accurate responses and followed correct procedures
when responding to taxpayers' questions. IRS used
the results of that monitoring (an 83.2-percent
accuracy rate) as a baseline for setting its 85-
percent accuracy goal for the 1999 filing season.
IRS also changed the name of this measure from
"accuracy of tax law assistance" to "tax law
quality."

Results of IRS' call monitoring during the 1999
filing season showed that IRS achieved an accuracy
rate of 72.5 percent-12.5 percentage points below
the goal and 10.7 percentage points below the
achievement in 1998. IRS told us that one reason
for the lower accuracy rate was the broader skill
level each assistor needed in 1999. An IRS
official explained that in 1998 an assistor may
have needed expertise in only one or two topics.
However, due to IRS' change in the equipment used
to route telephone calls, as discussed later in
this report, an assistor may have been required to
answer questions on several more topics in 1999.
The official told us that even though the
assistors received training on the additional
topics, they may not have used the training in
several years or received complete training in all
areas of a topic. Therefore, with the increase in
the number of topics an assistor was responsible
for and dated and/or limited training in the
topics, the assistors were not always able to
answer taxpayers' questions accurately.

IRS also noted that, in some instances, the
assistor may have provided a correct answer to a
taxpayer's question, but the call was scored as
incorrect because the assistor failed to follow
correct procedures. For example, the assistor may
have failed to provide his or her employee
identification number or inform the taxpayer which
form or schedule to use when filing the return.
During the filing season, IRS did not capture the
data needed to determine the extent to which calls
were inaccurate because the assistor provided an
incorrect response versus failed to follow
prescribed procedures. As of the end of June 1999,
IRS began gathering that kind of data. IRS said
that it would use the data to help focus training
for assistors, which it planned to provide before
the 2000 filing season.

We reviewed the method that IRS used to score the
overall accuracy of its responses to tax law
questions, that is, its decision to score the call
as inaccurate if any part of the answer was
incorrect.  This scoring method is one of several
analytical approaches for measuring accuracy and
is more conservative than most other options
because it tends to produce a lower accuracy rate
than might result if other scoring methods were
used.

We also reviewed IRS' sampling plan for assessing
tax law quality and noted that IRS' results for
the filing season were based on telephone calls
monitored for 8 hours a day, Monday through
Friday, even though IRS provided telephone service
24 hours a day, 7 days a week. The effect on IRS'
accuracy measure, had the measure been based on 24-
hours-a-day, 7-days-a-week monitoring, would
depend on the extent to which taxpayers called
during the nonmonitored hours and the difference,
if any, between the accuracy of assistors who
answered calls during the monitored hours versus
the accuracy of those who answered calls during
the nonmonitored hours.

As discussed later in this report, IRS could not
readily provide data on the number of calls
received during the nonmonitored hours, and
several IRS officials expressed concern about the
skill level of assistors who worked during
nonmonitored hours. According to cognizant IRS
officials, IRS limited its monitoring to 8 hours a
day, Monday through Friday, during the 1999 filing
season because it did not have enough adequately
trained staff to do more monitoring. That
situation improved after the filing season, and,
in May 1999, IRS began monitoring calls Monday
through Saturday, 16 hours a day. IRS plans to
continue that schedule during the 2000 filing
season.

We also noted the following regarding IRS'
sampling plan:

ï¿½    The sampling plan includes a sample of the
hours during which calls were monitored and then a
sample of telephone calls on various subject
matters within those hours. While the sample of
hours is essentially random, the sample of
telephone calls is a cluster sample within those
hours. The effect of a cluster sample could impact
the precision estimates by understating them,
meaning that IRS' estimates could be less precise.
After discussions with responsible IRS officials,
they agreed to examine the effect of cluster
sampling on the precision of IRS estimates.
ï¿½    The sampling plan called for monitoring about
4,300 calls during the filing season; however, IRS
monitored 2,960 calls-31 percent less than the
plan. The planned sample size was based on
assumptions about the number of incoming telephone
calls per hour and estimates of the number of work
hours available to monitor calls. IRS did not
monitor as many calls as it had planned. There is
concern that the use of assumptions and estimates
that are not achieved may weaken the precision of
the question the monitoring was intended to
answer-how accurate are the responses to
taxpayers' questions.

Taxpayers' Ability to Access IRS' Telephone System
Declined
Each year, millions of taxpayers call IRS to ask
questions about the tax law, inquire about their
refunds, resolve account-related issues, and order
forms. To assess how well it is serving these
taxpayers, IRS measures the "level of access" and
"level of service" provided by its telephone
system.

Level of access indicates the extent to which
taxpayers are able to access IRS' system (i.e.,
not get a busy signal). However, it does not take
into account the extent to which taxpayers get
into IRS' system but are put on hold and abandon
their calls before an assistor comes on the line.
In effect, level of access considers abandoned
calls as successful call attempts. Level of
service, on the other hand, considers abandoned
calls as unsuccessful call attempts and, thus,
measures the extent to which taxpayers are
successful in reaching an assistor.

As noted in its budget request for fiscal year
2000, IRS has identified level of access as one of
its Servicewide performance measures. As we
discussed in our testimony on that budget request,
we believe that level of service would be the more
appropriate Servicewide measure because it
indicates the extent to which taxpayers were
successful in actually talking to someone in IRS.3
The Department of the Treasury and IRS have
recently expressed agreement with that position.

During the 1999 filing season, IRS reported its
level of access at 69 percent and its level of
service at 55 percent. These accomplishments were
well below the 91-percent level of access and the
74-percent level of service IRS reported for the
1998 filing season. In the next chapter, we
discuss the significant decline in IRS' telephone
service and various factors that may have
contributed to the decline.

Taxpayers Who Filed Paper Returns Did Not Always
Receive Timely Refunds
One of IRS' customer service standards says that
"If you file a complete and accurate tax return
and you are due a refund, your refund will be
issued in 6 weeks." In that regard, IRS, each
year, reviews samples of individual income tax
returns to measure its timeliness in issuing
refunds. IRS takes separate samples of returns
filed on paper and returns filed electronically.

In the past, IRS measured its timeliness in terms
of the average number of days it took taxpayers to
receive a refund. In 1998, for example, it
determined that filers of paper returns received
their refunds within an average of 34.1 days while
filers of electronic returns received their
refunds within an average of 15.1 days. In 1999,
IRS used the same sampling methodology but changed
the way it measured timeliness. Instead of
computing average refund time, IRS computed the
percentage of refunds processed within a certain
time frame-40 days or less for paper returns and
less than 21 days for electronic returns. We agree
with this change in methodology. Showing a
percentage of refunds that met IRS' timeliness
goal seems more informative than just showing the
average number of days it took for taxpayers to
receive a refund.

As of the end of April 1999, IRS' refund test
results showed that 84.7 percent of the refunds
for individual income tax returns filed on paper
had been processed within 40 days, and that 99.6
percent of the refunds for returns filed
electronically had been processed in less than 21
days. The result for electronic returns exceeded
IRS' goal for 1999 (98 percent) and IRS'
performance in 1998 (98.3 percent). IRS did not
set a goal for paper returns. However, IRS'
reported accomplishment in 1999 (84.7 percent) was
below its reported accomplishment in 1998 (88.1
percent).4

Although IRS' accomplishment in 1999 was close to
its accomplishment in 1998, about 15 percent of
the taxpayers who had filed paper returns and had
claimed a refund did not receive those refunds
within 40 days. IRS could not tell us how many
days beyond 40 these taxpayers had to wait before
receiving their refunds, so the significance of
IRS' untimeliness is unclear. Some of the
untimeliness may be due to delays caused by
taxpayers. For example, one official told us that
some of the delays were because taxpayers who were
entitled to the new child tax credit did not claim
it. As discussed later in this report, IRS
corrected those returns to include the credit,
thus adding to its processing time and increasing
the amount of the refund.

Because the samples for IRS' refund timeliness
measure included returns with errors, such as math
errors and errors associated with the child tax
credit,5 we asked IRS what its sample results
showed for returns that were error free. We wanted
to compare those results to IRS' customer service
standard, which promises a refund within 6 weeks
if a taxpayer files a complete and accurate
return. IRS said that it did not have that
information.

_______________________________
1 IRS also has various workload indicators, such
as the number of returns received and refunds
issued. Several of those indicators, which
generally show a growth in IRS' filing season
workload and a growth in taxpayer use of such
things as electronic filing and direct deposits,
are shown in appendix I.
2 The goals shown in table 2.1 were set by IRS
generally on the basis of prior experience and
projected workload. We did not assess the
appropriateness of IRS' goals.
3 GAO/T-GGD/AIMD-99-140.
4 For analytical purposes, IRS recalculated its
1998 data for both paper and electronic returns
using the 1999 method of computing timeliness.
5 Math errors are mistakes, such as calculation
mistakes or invalid or missing SSNs, that are made
by taxpayers and are detected by IRS validation
systems.

Chapter 3
IRS' Telephone Service Deteriorated
Page 37  GAO/GGD-00-37 IRS' 1999 Tax Filing Season
IRS took several steps in an attempt to improve
telephone service in 1999. But, service did not
improve; it deteriorated. Our discussions with IRS
officials and analysis of relevant documentation
indicated that the deterioration resulted from (1)
unrealistic assumptions about the implementation
and impact of IRS' changes and (2) other problems
managing staff training and scheduling and
implementing new technology.

Although we recognize the difficulty in
anticipating how new initiatives will work and
what their effect will be, the problems IRS
encountered when considered together, raise
significant questions about IRS' management of the
telephone assistance program in 1999. We saw
evidence of (1) assumptions and decisions that
appeared to be based on inadequate data or that
seemed to ignore existing data, (2) a failure to
appropriately time the training of assistors and
coordinate the timing of union negotiations that
would directly affect productivity and the
development of work schedules, (3) inadequate
testing and contingency planning with respect to
new call routing technology, and (4) the absence
of data that management would need to adequately
assess what happened in 1999 and provide a basis
for making appropriate changes for the 2000 filing
season.

IRS Made Several Changes in an Attempt to Improve
Telephone Service in 1999
In an effort to improve its telephone service in
1999, IRS, among other things, extended its hours
of operation and began managing its telephone
operations centrally, which included
implementation of new call routing technology.

Extended Hours of Operation
In 1998, IRS' customer service representatives
were available 16 hours a day, 6 days a week (7
a.m. to 11 p.m., Monday through Saturday), to
answer questions from taxpayers about the tax law,
their accounts, or their refunds. For the 1999
filing season, IRS expanded that service to 24
hours a day, 7 days a week. IRS officials said
that they believed that around-the-clock service
would level the demand for service. For example,
there has traditionally been heavier demand for
telephone service on Mondays. IRS officials
speculated that many taxpayers worked on their tax
returns during the weekends and tended to call at
the first opportunity for assistance on Monday.
IRS hoped to reduce such peak demand times and
distribute demand more evenly by making assistance
available at any time.

Although IRS' customer service representatives
were available all night and on weekends, it is
uncertain to what extent they were able to assist
taxpayers who called during those times. For
example, some taxpayers who called to resolve
account issues during the night and on weekends
did not receive the assistance they needed because
normal maintenance requirements caused IRS' main
taxpayer data computer system, known as the
Integrated Data Retrieval System (IDRS), to be
unavailable, mainly in the early morning hours on
weekdays, 8 hours on Saturdays, and all day on
Sundays.

IRS offered around-the-clock service for account-
related issues in 1999 even though it knew that
IDRS would not always be available. IRS believed
that assistors would be able to serve many
taxpayers who called during IDRS downtime by
accessing another information system that,
according to IRS, was available virtually anytime.
However, that other system was insufficient in
many cases.1 According to IRS' review of a sample
of telephone calls to selected service centers on
four Sundays during the filing season, 20 percent
of the taxpayers were told to call back during the
week when IDRS would be available.

Central Management and Call Routing
     In 1999, IRS began managing its telephone
operations centrally through its Customer Service
Operations Center in Atlanta. As part of this
centralized management, IRS developed its first
national call schedule that projected the volume
of calls-for each half-hour-at each of IRS' 24
call sites and the staff resources that would be
needed to handle that volume.

     As an integral part of its new approach to
managing telephone service, IRS implemented a new
customer service call router. The router was
intended to lessen disparities in the level of
service taxpayers receive by sending each call to
the first available assistor nationwide who had
the necessary skills to answer the taxpayer's
question. To do this the router was to do use real-
time information about (1) the nature of each
taxpayer's question and (2) the availability of
qualified telephone assistors nationwide. We
provide more information on how the new call
router was to work and did work later in this
chapter.

Compared to 1998, Telephone Service Significantly
Declined During the 1999 Filing Season
     Although the various initiatives just
discussed were intended to improve IRS' telephone
service, that service declined significantly
during the 1999 filing season. Compared to the
1998 filing season, as shown in table 3.1, level
of access decreased from 91 percent to 69 percent
and level of service decreased from 74 percent to
55 percent.

Table 3.1:  Data on IRS' Toll-Free Telephone
Assistance for the 1998 and 1999 Filing Seasons
Filing season        Call       Calls       Busy        Calls  Level  Level
                 attempts    answered    signals    abandoned     of     of
               (millions)  (millions) (millions)   (millions) access servic
                                                                          e
1998                 50.1        37.1        4.5          8.5    91%    74%
1999                 65.3        35.6       20.4          9.3     69     55
Changea              15.2        -1.5       15.9          0.7   -22%   -19%
Note 1: This table combines data on six of IRS'
toll-free telephone lines-tax law assistance,
EIC/refund inquiry, account inquiry, forms
ordering, Automated Collection System, and fraud
hotline.
Note 2: Data are for January 1 through April 18,
1998, and January 1 through April 17, 1999.
aChange may not compute due to rounding.
Source: IRS data.

     IRS' performance in providing telephone
service during the 1999 filing season reached its
lowest point during the week of February 6, 1999
(see fig. 3.1). During that week, level of access
and level of service were 31 percent and 25
percent, respectively, as compared to 92 percent
and 77 percent, respectively, for the same week in
1998. Accessibility improved after the initial
weeks of the filing season and almost reached the
levels achieved in 1998 during the week of March
13. However, unlike 1998, performance then moved
steadily downward until the end of the filing
season.

Figure 3.1:  Weekly Comparison of IRS' Toll-Free
Telephone Assistance-Level of Access and Level of
Service-During the 1998 and 1999 Filing Seasons

Note: IRS did not start tracking 1999 data until
the week ending January 23 because it did not have
data that it considered reliable before then.
Source: IRS data.

Unrealistic Assumptions Led to the Decrease in
Telephone Service
     Our discussions with IRS officials and our
review of available documentation indicated that
the decrease in telephone service during the 1999
filing season resulted from unrealistic
assumptions about the implementation and impact of
IRS' changes. For example, IRS assumed that
assistor productivity would increase, but it
decreased; IRS assumed that around-the-clock
service would level demand more than it did; and
IRS assumed that work schedules were adequate, but
they proved to be flawed. Among other things, IRS'
assumptions led to discontinuance of a special
procedure for handling complex tax law questions,
which further contributed to the deterioration in
telephone service.

Productivity Did Not Increase as Expected
     In planning for the 1999 filing season, IRS
originally projected a slight increase in
productivity due to implementation of the new call
router. IRS officials expected the call router to
increase productivity by routing calls to the
first available assistor qualified to answer the
taxpayer's question, thereby preventing assistors
from sitting idle. However, according to IRS
officials and data, productivity actually
decreased in 1999 as compared to 1998.

     IRS officials cited several factors that
might have led to lower-than-expected
productivity, including the following:

ï¿½    To staff its around-the-clock service, IRS
offered experienced seasonal employees permanent
positions if they agreed to work the off-hours. 2
According to some officials, the movement of these
productive, skilled seasonal employees left a gap
during the core hours when most taxpayers seek
assistance-from 9 a.m. to 5 p.m. IRS filled the
core hours with newly hired, less skilled seasonal
employees. Other officials said that there was a
skill gap during the off-hours, especially during
the overnight shift. However, IRS only had to move
staff at a few sites. Of IRS' 24 call sites, 2
answered taxpayer telephone calls during the
overnight shift, and 5 regularly answered calls on
Sundays.
ï¿½    IRS discontinued use of a call management
tool called "auto-available," which, as soon as a
call was completed, automatically routed another
telephone call to the assistor. During the 1999
filing season, pursuant to an agreement with the
National Treasury Employees Union (NTEU),
assistors were placed in a waiting status after
each call and remained in that status until they
pressed a keyboard button that put them in an
available status.3 IRS officials said that, by
definition, this practice added some amount of
time to each call, causing other calls to receive
busy signals and, thus, lowering accessibility.
ï¿½    Changes that required new procedures, new
responsibilities, and training for assistors
affected productivity. For example, the IRS
Restructuring and Reform Act of 1998 required that
assistors provide their name and employee
identification number at the beginning of each
call, which added a little time to each call.
Also, according to a cognizant official, the need
to train all staff on various provisions of the
IRS Restructuring and Reform Act of 1998 and train
those assistors who, in accordance with the NTEU
agreement, had accepted broader responsibilities
in exchange for increased pay grade led to a
shortage of assistors who were available to answer
the telephone during the early part of the filing
season.

Demand Leveling Did Not Occur as Expected
     IRS expected that around-the-clock service
would level demand by enabling some taxpayers to
call during off-hours, thereby reducing the number
of calls coming in during peak times. However,
according to cognizant officials, IRS'
expectations about leveling demand did not fully
materialize. As a result, IRS underestimated the
number of assistors needed to answer incoming call
volume during the hours that most taxpayers called
and, according to one official, off-hours staff
often sat in available status with no call to
answer.

     IRS did not have data readily available to
determine the volume of calls received during its
expanded hours of telephone service, even though
such data would seem important in assessing the
impact of around-the-clock telephone service and
in developing workload assumptions and staffing
plans for the 2000 filing season. After we
requested these data, IRS compiled information on
the number of calls received on Sundays but was
unable to provide data on the number of calls it
received during the overnight hours of 11 p.m. to
7 a.m. The information IRS compiled showed that
about 2.3 million calls were received on Sundays
over IRS' three main tax law and account telephone
lines-about 4 percent of the 57.3 million calls
received on those three lines during the filing
season.

     IRS' expectation that around-the-clock
service would level demand and reduce peak demand
times may have been unrealistic considering its
experience in 1998. According to IRS officials in
1998, IRS first attempted to level demand by
extending its service to 6 days a week, 16 hours a
day. The expected leveling did not occur, and IRS
officials told us, at that time, that it would
probably take 4 to 5 years for taxpayers to become
familiar with the extended hours of service
available.

Call Site Work Schedules Not Adequate
IRS' original staffing plans were done on the
assumption that IRS would have the authority that
it had last year to direct staff to work other
than their regular work schedule. According to
IRS, the new agreement with NTEU limited the
extent to which IRS could change an assistor's
regular work schedule. The agreement stipulates
that IRS must first seek volunteers before
requiring assistors to change their work hours to
meet staffing shortages at a site. A cognizant
official said that IRS had to quickly redo work
schedules to accommodate the volunteer provision,
which resulted in significant staff shortages in
relation to projected call volumes and, thus,
schedules that were not as sound as they should
have been.

     The timing of the completion of the work
schedules also presented a problem. IRS'
negotiations with NTEU took longer than IRS
expected, and the agreement was not completed
until October 1998. IRS officials said the
schedules were not made available until December
1998, just a few weeks before the beginning of the
filing season. In responding to a survey of IRS
call sites by the Treasury Inspector General for
Tax Administration, several call site officials
said that the timing of the schedules did not
allow adequate time to hire and train staff, and
that, during the filing season, schedules were
changed frequently with little advance notice and
did not allow for adequate planning.

Discontinued Voice Messaging Adversely Affected
Telephone Service
     One result of IRS' unrealistic assumptions
was a decision, before the filing season began, to
discontinue a procedure that IRS had used in 1997
and 1998 to handle the more complex calls from
taxpayers. Because discontinuance of that
procedure had a negative effect on telephone
service, IRS reinstated the procedure after the
start of the filing season.

     As we discussed in our 1997 filing season
report, IRS studied the topic and length of
taxpayers' telephone calls and found that certain
topics resulted in assistors' spending
significantly longer time per call.4 As a result,
IRS revised its procedures so that, in 1997 and
1998, callers with questions in complex areas were
automatically connected to a voice messaging
system. Taxpayers were asked to leave their name,
telephone number, and address and the best time to
reach them so that their call could be returned
within 2 to 3 business days. IRS' Examination
function supported the Customer Service function
by detailing staff to return taxpayer calls from
the voice messaging system. According to IRS,
routing these potentially lengthy, complex calls
to a recording freed up assistors to handle
shorter, less complex calls.

     According to cognizant IRS officials, IRS
decided not to use voice messaging for the 1999
filing season because IRS believed that (1)
requiring taxpayers to leave messages and then
calling them back days later was not the best
possible customer service and (2) there would be
adequate customer service staff to handle the
expected volume of calls as the calls came in. IRS
based the expectation that it would have adequate
staff on the assumptions that (1) productivity
would increase through improved call routing and
(2) demand would be leveled through around-the-
clock service. However, IRS' expectations about
productivity and demand leveling were not
realized, as previously discussed. Therefore,
attempting to answer these more complex, lengthy
calls with "live" assistors contributed to longer
on-hold times and busy signals for other
taxpayers.

     A cognizant official said that the decision
to discontinue voice messaging in 1999 was a
mistake, considering that these complex calls take
longer to resolve. In response to longer on-hold
times for assistance and excessive busy signals,
IRS reestablished voice messaging in mid-February.
According to a cognizant official, IRS plans to
continue using voice messaging in 2000.

Limited Use of New Call Router During Parts of the
1999 Filing Season
     IRS' new call routing equipment was designed
to route a taxpayer's telephone call where it
could most quickly be answered on the basis of the
availability of an assistor and the type of
question. However, at various times, IRS had to
limit its use of the call router because of
various problems, such as a lack of standardized
programming among call site computers. Also, at
the time we completed our audit work, IRS had not
reviewed the performance of the call router and,
therefore, could not determine if the desired
results were achieved or what impact the equipment
had on taxpayer access to the telephone system.

     Before the 1999 filing season, calls were
routed to a call site by area code or on the basis
of the percentage of the total available staff the
site had scheduled to work (known as the staff
allocation-based routing system). These methods
could have caused service disparities for
taxpayers. Calls routed to a busy site might have
had long on-hold times or received busy signals,
while another site might have had low demand and
provided immediate assistance. Calls could not
easily be rerouted. Historically, IRS call sites
operated with a great degree of independence;
there were no comprehensive, uniform standards as
to how taxpayer calls would be handled. Therefore,
taxpayers could experience a different quality of
service depending on where their calls were
answered.

     IRS' new call router was designed to remedy
any disparities by performing "intelligent"
routing in two stages. First-stage intelligent
routing was to send the call to the site that, on
the basis of assistor availability and expected on-
hold times, appeared to be the site that would
most quickly answer the taxpayer's call. Second-
stage intelligent routing was to be done after the
call had been routed to a site and the taxpayer
had responded to IRS' automated telephone service
menu, thus indicating the nature of his or her
call. If an assistor who was qualified to handle
that type of call was not immediately available at
that site, the call router was to query real-time
accessibility data on computers at all of the call
sites. The call would then be routed to the
qualified assistor who, on the basis of
accessibility data, would be able to answer the
call most quickly no matter where the assistor was
located.

     However, at various times during the filing
season, problems kept IRS from using intelligent
routing. During the first weeks of the 1999 filing
season, IRS only did limited second-stage
intelligent routing as it tested the system and
corrected errors in site computer programming.
According to IRS officials, programming at the
call sites had to be standardized to accurately
route calls. Without correct programming, a call
could be routed to a site that actually did not
have an assistor available for that type of call.
IRS officials said that the programming errors had
not surfaced during pre-filing season testing of
the system because the volume of calls was not
great enough to reveal the errors. IRS corrected
these errors and began using second-stage
intelligent routing regularly on February 17,
1999.

     IRS also had to limit its use of first-stage
intelligent routing during the 1999 filing season.
In response to the low accessibility rate, IRS
began using a feature known as selected expanded
access (SEA) in early February. When the queue for
speaking to an assistor is full, SEA gives
taxpayers the option to access automated,
interactive telephone services and TeleTax;5
otherwise, the taxpayers would have received a
busy signal. Because IRS did not expect to use
SEA, the call router had not been programmed with
the capability to centrally determine when a
taxpayer should be given access to the automated
services. The use of SEA resulted in disparities
in access when intelligent routing was used
because the programming for sites was not uniform
as to when SEA was to be offered. Therefore, IRS
discontinued first-stage intelligent routing after
it started using SEA. Until the router could be
programmed for SEA, IRS switched to the staff
allocation-based routing system it used in the
1998 filing season. Once a call was routed to a
site under that system, second-stage intelligent
routing could still be used to send the call to a
specific assistor.

     IRS staff monitored accessibility data among
sites and rerouted calls in case of disparities
among sites. After the call router was
reprogrammed and tested for SEA, IRS reinstated
first-stage intelligent routing on its toll-free
line for tax law questions on April 9, 1999. SEA
programming for the account and refund lines was
completed, tested, and implemented soon after the
April 15 filing date.

IRS officials had varying views on the impact of
the call router problems on accessibility. One
official said that some of the early problems with
the router decreased accessibility because site
computer programming errors caused calls to be
sent to sites that did not have assistors
available and this caused increased wait times.
Another official maintained that routing worked
properly at this stage. Still another official
characterized the problems with the router as
having caused IRS to miss opportunities to improve
access, rather than actually causing decreased
accessibility.

IRS did not do a systematic review of the router's
performance in 1999. According to the IRS project
manager, multiple changes to IRS' telephone
operations in 1999 made it impossible to isolate
the impact of the router on such things as
accessibility and productivity. Absent such
information, IRS has no reliable basis for
determining whether the router was effective or
how, if at all, to improve its effectiveness in
2000.

_______________________________
1 The other information system was often
insufficient because, unlike IDRS, it was a read-
only system, which meant that assistors could view
taxpayers' accounts but not make changes that
might be necessary to resolve account issues.
2 Generally, IRS considers the telephone
assistance "off-hours" to be the time periods
outside of the "core hours" when most taxpayers
call IRS for help. IRS officials said that the
core hours are 9 a.m. to 5 p.m., Monday through
Friday.
3 The waiting status, known as wrap time, was
designed to allow assistors to make themselves
unavailable after certain calls that needed "wrap
up," such as calls that required that
documentation be completed or calls that were
particularly complex or stressful and required
that the assistor take a momentary mental break.
4 Tax Administration: IRS' 1997 Tax Filing Season
(GAO/GGD-98-33, Dec. 29, 1997).
5 TeleTax is an automated system that provides
recorded information on about 150 tax topics.

Chapter 4
IRS Expanded the Availability of Walk-In Services
but Had Only Limited Ability to Measure Results
Page 42  GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Staff at IRS' walk-in sites answer tax law
questions, distribute tax forms and publications,
and help taxpayers prepare their returns and
resolve their account issues. As used in this
report, the term "walk-in sites" includes IRS'
walk-in offices that are generally open all year
and temporary locations that IRS sets up during
the filing season. IRS data show that walk-in
sites served about 6.2 million taxpayers between
January 1 and May 1, 1999-a slight increase over
the number served during the same period in 1998.

Overall, IRS' walk-in assistance efforts during
the 1999 filing season were positive. For example,
IRS enhanced the availability of services at its
walk-in offices and expanded the availability of
assistance to taxpayers who did not have
convenient access to a walk-in office. Taxpayers
who completed a customer satisfaction survey as
the result of a visit to a walk-in site scored
their overall satisfaction with an average of 6.44
on a 7-point scale. However, while IRS made
progress in assessing customer satisfaction with
walk-in services in 1999, it made little progress
in measuring the quality and timeliness of those
services.

IRS Enhanced the Availability of Services at Its
Walk-In Offices
During the 1999 filing season, IRS enhanced the
availability of services at its walk-in offices by
increasing the number of offices, expanding the
availability of Saturday service, and providing
targeted EIC assistance earlier than it did in
1998.

According to IRS, 236 walk-in offices were open in
IRS' 33 districts during the 1999 filing season as
compared to 178 offices during the 1998 filing
season. Also, according to IRS, most walk-in
offices were open on each Saturday during the 1999
filing season, which was not the case in 1998. In
that regard, of the 236 walk-in offices that were
open in 1999, 182 provided 4 hours of service on
each Saturday during the filing season, and the
other 54 provided service on selected Saturdays.
By comparison, each of the 178 offices that were
open during the 1998 filing season provided
service on only 6 Saturdays. According to IRS,
walk-in offices served 141,725 taxpayers on
Saturdays during the 1999 filing season as
compared to 82,722 taxpayers served on Saturdays
during the 1998 filing season.

As in 1998, IRS provided targeted assistance to
potential EIC claimants by scheduling EIC
Awareness Days at many walk-in offices. However,
unlike in 1998, IRS scheduled these days early in
the 1999 filing season. IRS scheduled the EIC
Awareness Days for the first six Saturdays of the
1999 filing season as compared to mid-March
through mid-April in 1998. This scheduling change
was consistent with our July 1998 recommendation1
that customer service efforts aimed at EIC
claimants be made available early in the filing
season.

IRS Expanded Nontraditional Sources of Taxpayer
Service
During the 1999 filing season, IRS took steps to
expand the availability of assistance to taxpayers
who could not easily reach a walk-in office. Those
steps included a greater use of alternative ways
to provide walk-in service and an effort to
improve the availability of tax forms in certain
parts of the country.

For the 1999 filing season, IRS' National Office
encouraged districts to make more use of
nontraditional ways, such as mobile vans and
kiosks at retail locations, to provide walk-in
service, particularly on Saturdays. The National
Office stated that although these initiatives
would benefit all IRS customers, they would be of
particular value to individuals in rural areas.

In response to that direction, local IRS offices
used various nontraditional outlets, such as
shopping malls, community centers, the offices of
state taxing authorities, grocery stores, copy
centers, and newspaper inserts to help prepare
returns, distribute tax forms and publications,
and provide other types of taxpayer assistance in
1999. Additionally, some districts in three
regions used mobile vans that went to less-
populated, rural locations where taxpayers did not
have easy access to a walk-in site. For example,
vans in the Georgia District went to locales that
were more than 40 miles from the nearest IRS
office.

Another effort to expand taxpayer service targeted
underserved counties. In 1998, IRS' National
Office conducted a study in which it identified
478 counties that it considered underserved, at
least concerning the availability of forms. IRS
believes that additional forms distribution
outlets in these counties may be advantageous.
Although districts were encouraged to conduct
outreach efforts in any underserved counties in
their areas, the districts were not required to
report the results of any such efforts to the
National Office. In that regard, IRS did not have
a formal national outreach program for the
underserved counties during the 1999 filing
season. Instead, according to a cognizant IRS
official, the National Office deferred any
nationally coordinated outreach efforts until
2000. Therefore, the National Office had no way of
monitoring and determining the success or failure
of outreach efforts in 1999.

Despite the lack of national monitoring, some IRS
districts, on their own initiative, provided the
National Office with data on outlets that they had
established in underserved counties in 1999.
According to officials at those districts, they
established community-based outlets in about 50
underserved counties in 1999.

Except for Measuring Customer Satisfaction, IRS
Has Not Made Much Progress in Measuring the
Performance of Walk-In Sites
According to IRS' business vision and its walk-in
site mission statement, walk-in operations are to
provide accessible, high-quality service to the
public; reduce taxpayer burden; and ensure
compliance with tax laws. IRS recognizes that
providing accurate information and serving
customers expeditiously and professionally are
critical to the success of its walk-in program.
However, in our reports on IRS' 1998 filing season2
and IRS' efforts to measure customer service,3 we
discussed the lack of meaningful nationwide data
for assessing the performance of IRS' walk-in
sites in terms of quality, timeliness, and
taxpayer satisfaction.4 Our review of the 1999
filing season indicated that IRS had made progress
in assessing taxpayer satisfaction with walk-in
services but had made little progress in
instituting key performance indicators for quality
and timeliness.

In response to an IRS Internal Audit report issued
in 1997,5 IRS implemented a customer satisfaction
survey at its walk-in sites during the 1998 filing
season. However, due to printing and distribution
problems, the survey for the 1998 filing season
was not started until late in the filing season
(about mid-March) and, therefore, did not provide
a complete assessment of taxpayers' satisfaction
with the walk-in program. For 1999, IRS added
questions to the survey, such as a question about
how long it took the taxpayer to receive service,
and conducted the survey at all walk-in sites
during the entire filing season.

Results of the walk-in surveys distributed during
the first 3 months of the 1999 filing season, as
summarized by IRS' contractor, showed an average
overall satisfaction of 6.44 on a 7-point scale.6
The contractor's summary also showed that

ï¿½    89 percent of the walk-in customers who
completed the surveys indicated a high degree of
satisfaction with the services obtained at IRS'
walk-in sites;
ï¿½    none of the 10 areas customers were asked to
rate (such as convenience of office hours,
employee courtesy, and promptness of service)
received a score below 6.06;
ï¿½    customers who came into an IRS site for help
in preparing their tax returns gave the highest
satisfaction ratings, while customers who
requested a form or publication gave the lowest;
and
ï¿½    taxpayers whose wait times were less than 15
minutes gave higher satisfaction ratings than
customers who waited longer.

In response to findings in the 1997 Internal Audit
report and an IRS Walk-In Steering Committee
report issued in 1998,7 IRS' National Office
stated that the walk-in program's quality
assurance process had to be improved. The National
Office said that IRS would be assessing quality at
its walk-in offices-including the accuracy of
responses to taxpayers' questions and the
professional treatment of customers-during the
1999 filing season through quality reviews and
filing season readiness reviews. However, quality
reviews were not done and the National Office did
not provide specific guidance on what should be
examined during readiness reviews.

Quality reviews (during which, regional staff who
are unknown to personnel at the walk-in office
pose as taxpayers) were scheduled to begin in
fiscal year 1999 and were designed to examine the
implementation of standardized services, office
environment, proper use of equipment, and accuracy
of responses at walk-in offices. However, early in
the 1999 filing season, IRS decided not to do
quality reviews because, according to IRS, it did
not have the necessary time or resources to
implement the program.

Filing-season readiness reviews were conducted by
IRS regional officials before the start of the
filing season.  These reviews are designed to
determine if a walk-in office is prepared for the
filing season. IRS' National Office provided
regional offices with some overall management
guidance but that guidance did not include
specific requirements on how the site was to
assess the quality of its assistance to taxpayers.
Additionally, the National Office did not require
that regional offices communicate the results of
filing season readiness reviews; any identified
problems were to be handled within the region.

Regarding timeliness, the National Office
established taxpayer wait-time goals at walk-in
sites of 30 minutes for return preparation and 15
minutes for all other forms of assistance for both
the 1998 and 1999 filing seasons.8 However, IRS
did not have a complete mechanism for monitoring
performance. For example, the National Office did
not require the regions to report wait times, and
most sites had to manually track wait times, thus
making the data more prone to error.

IRS has an automated system, known as Q-Matic,
that is designed to enable accurate tracking of
customer wait times. That system was operational
at 33 of IRS' walk-in sites during the 1999 filing
season as compared to 8 sites during the 1998
filing season. As customers arrive at walk-in
sites with the Q-Matic system, they are to take or
are to be given a numbered ticket from the Q-Matic
ticket printer. The ticket reflects the estimated
wait time for the service, and the system will
automatically "call" the customer when it is his
or her turn. The system records the time that a
customer received a ticket and the time that an
assistor started helping the customer.

Most of IRS sites did not have the Q-Matic system
in 1999. Some of those sites used a manual system,
whereby a greeter or receptionist was to record on
a taxpayer contact card the time that the taxpayer
arrived and an assistor was to record on the same
card the time  that he/she started to help the
taxpayer. Other non-Q-Matic sites relied on
greeters or taxpayers to fill out a sign-in sheet.
According to a cognizant IRS official, the non-Q-
Matic methods of tracking wait times are more
prone to error because they are manual. Because
complete and reliable data are not available, IRS
cannot determine if the walk-in program met the
wait-time goals of 15 and 30 minutes during the
1999 filing season.

_______________________________
1 Earned Income Credit: IRS' Tax Year 1994
Compliance Study and Recent Efforts to Reduce
Noncompliance (GAO/GGD-98-150, July 28, 1998).
2 Tax Administration: IRS' 1998 Filing Season
(GAO/GGD-99-21, Dec. 31, 1998).
3 Tax Administration: IRS Faces Challenges in
Measuring Customer Service (GAO/GGD-98-59, Feb.
23, 1998).
4 We recognize that a complete evaluation of the
walk-in program would involve other factors, such
as the comparative costs and benefits of (1)
answering tax law questions or resolving account
issues at walk-in sites versus over the telephone,
(2) return preparation at walk-in sites versus
return preparation by community volunteers, and
(3) forms distribution at walk-in sites versus
community-based locations. An analysis of costs
and benefits for these various services was beyond
the scope of our review of the 1999 filing season.
5 Taxpayer Walk-In Program for the 1997 Filing
Season, IRS Internal Audit, Reference No. 081004,
December 22, 1997.
6 According to the contractor, 4 percent of the
customers visiting an IRS office during the 3-
month period completed a questionnaire, for a
margin of error of about 1 percent.
7 Walk-In Steering Committee Concept of
Operations, IRS Walk-In Steering Committee, May
28, 1998.
8 We did not assess the appropriateness of these
goals.

Chapter 5
Use of Other Sources of Taxpayer Assistance
Increased, but Some Problems Existed
Page 46  GAO/GGD-00-37 IRS' 1999 Tax Filing Season
     In addition to the help that is available to
taxpayers over the telephone and at IRS walk-in
sites, taxpayers can receive assistance from
various other IRS or IRS-sponsored sources. Those
sources include IRS' World Wide Web site on the
Internet; IRS-sponsored volunteer tax return
preparation sites; IRS' Tax-Fax program, through
which taxpayers can order and receive forms and
instructions via a fax machine; and a corporate
partnership program, through which employees of
participating corporations can obtain copies of
IRS forms and publications at their work sites.
Table 5.1 shows that use of each of these sources
increased during the 1999 filing season as
compared to 1998.

Table 5.1: Use of Other IRS and IRS-Sponsored
Taxpayer Assistance
Source of        1999 filing       1998 Percentage
assistance           seasona     filing    change:
                                seasona    1998 to
                                              1999
World Wide Web                            
site
    Home page          793.7      370.3       114%
hitsb                million    million
    File                57.0       26.8        113
downloads            million    million
    E-mail           155,000     82,000         89
questions
receivedc
Volunteer tax                                     
return
preparation
sites
    Number of          7,384      5,783         28
sites
    Taxpayers    1.9 million        1.7        11d
assisted                        million
Tax-Fax program                                   
    Successful       970,379    906,011          7
faxes
Corporate                                         
partnership
program
                       2,149        400        437
Participating
corporations
aData are for January 1 through April 30, 1999,
and January 1 through April 30, 1998, unless
otherwise indicated.
bData are for January 1 through May 2, 1999, and
January 1 through May 3, 1998.
cData are for January 1 through April 15, 1999,
and January 1 through April 15, 1998.
dPercentage change does not compute due to
rounding.
Source: GAO analysis of IRS data.

     As table 5.1 indicates, the most used of
these services was IRS' Web site. Despite the
general success of that site, including a
favorable assessment by an outside organization,
some problems existed with the timeliness and
quality of IRS' responses to questions received
from taxpayers via electronic mail (E-mail). Also,
although the number of IRS-sponsored volunteer
sites increased, as did the number of taxpayers
assisted at those sites, many sites reported
problems with inadequate staffing, funding,
software, and hardware that affected their ability
to function effectively.

Significant Increase in Use of IRS' Web Site, but
Some Problems With Timeliness and Accuracy of E-
mail Responses
Among other things, IRS' Web site offers taxpayers
hundreds of tax forms and publications for
immediate downloading as well as the latest tax
information, answers to the most frequently asked
questions, details about electronic filing, and
special features on items such as the child tax
credit. The Web site also offers taxpayers the
ability to submit tax law or procedural questions
to IRS via E-mail. As shown in table 5.1,
taxpayers' use of IRS' Web site during the 1999
filing season increased significantly when
compared to 1998. The number of "hits" increased
by 114 percent, the number of files downloaded
increased by 113 percent, and the number of E-mail
questions received increased by 89 percent.

An independent rating of service on IRS' Web site
on April 15, 1999, stated that the site delivered
"remarkable" quality of service on that day. The
rating showed that the home page was delivered in
an average of 6.9 seconds, with an availability
rate of 97.4 percent. The rating showed that the
level of service also improved over last year.
During the busiest half-hour on April 15, 1999,
the average performance time was 17 seconds
compared to 23.2 seconds during the peak half-hour
on April 15, 1998.

Taxpayers who access IRS' Web site may submit
their tax law or procedural questions to IRS for a
response via E-mail. This service began as a pilot
at the Nashville Customer Service Site during the
1994 and 1995 filing seasons. In March 1996, it
became a year-round project in Nashville. Four
additional sites were added in 1998 and were on-
line by the 1999 filing season. IRS' goal during
the 1999 filing season was to respond to E-mail
questions within 2 business days. However, during
the 1999 filing season, IRS' average response time
was 4.11 calendar days. Although IRS' goal was
stated in business days, IRS' information system
tracked response times in calendar days due to a
coding problem. Nevertheless, IRS decided to use
the calendar day data to assess its performance.

According to IRS officials, the following factors
contributed to longer response times:

ï¿½    The questions customer service
representatives received via E-mail were more
complex than those received over the telephone.
This posed a particular problem for customer
service representatives who, because of the
program's expansion in 1999, were responding to E-
mail questions for the first time and did not have
the benefit of past experience. Besides response
time, complexity also affected response accuracy.
In that regard, IRS tests showed that only 65
percent of the responses to E-mail questions
during the 1999 filing season were accurate.
ï¿½    Customer service representatives who answered
the E-mail questions were also responsible for
answering telephone questions. In that regard, the
increased telephone demand strained the sections'
resources so that they were unable to manage the E-
mail inventory simultaneously.
ï¿½    The volume of E-mail questions increased to
the point that they had to borrow personnel from
IRS' Compliance function to help provide timely
responses. As previously noted, the number of E-
mail questions that IRS received between January 1
and April 15, 1999, increased 89 percent when
compared to the same time period in 1998.

All E-mail customers were given the opportunity to
respond to a customer satisfaction survey and
provide general comments indicating their
satisfaction with the E-mail service. According to
IRS data, 3,571 taxpayers responded to the survey
between January 1 and April 30, 1999 (representing
about 2.2 percent of the total E-mail questions
received). Of the taxpayers who responded to the
survey, 94 percent said that they were satisfied
with the time it took to get a response to their E-
mail question. What is unknown, however, is how
long it took the respondents to the survey to get
answers to their questions. It is possible that
those who were satisfied with the response time
received their response within 2 business days.
Additionally, 79 percent of the respondents said
that the response they received via E-mail
answered their question.

According to a cognizant official, IRS will keep
its goal of 2 business days for responding to E-
mail questions for the 2000 filing season and will
add four new sites to respond to those questions.
According to the official, because there is more
historical data on the E-mail project, there
should be better projections of E-mail volumes and
the number of cases assistors can handle during
the 2000 filing season. The official added that
better projections would result in better work
plans, which should better enable IRS to meet its
response-time goal by better ensuring that an
adequate number of staff are available to meet the
demand for service. The official also said that
IRS is planning to correct the coding problem
before the start of the 2000 filing season so that
its system will track response times in business
days, which would enable IRS to measure actual
response times against its goal. In regard to
improving the quality of the E-mail responses, the
official said that IRS would be providing
assistors with additional training on the six E-
mail topics with the highest error rates before
the start of the 2000 filing season.

Availability and Use of Volunteer Tax Return
Preparation Services Increased; Some Problems Were
Encountered
IRS sponsors volunteer tax return preparation
through its Volunteer Income Tax Assistance (VITA)
and Tax Counseling for the Elderly (TCE) programs.
VITA offers free tax help to persons with low to
limited income, persons who are non-English
speaking, and persons with disabilities. TCE
offers free tax help to elderly taxpayers. IRS
reported that 7,384 VITA and TCE sites had
assisted 1,907,151 taxpayers during the 1999
filing season. Those numbers compared favorably to
the 1,718,995 taxpayers assisted at 5,783 sites
last year. However, according to IRS reports, (1)
sites in three IRS regions reported a lack of
staff to adequately implement the VITA program,
(2) sites in three regions reported problems with
software and hardware, and (3) sites in two
regions reported funding and equipment problems
that hampered their ability to file returns
electronically. According to IRS officials, these
problems affected the sites' ability to serve
taxpayers effectively.

Chapter 6
IRS Continued to Stop Some Improper EIC Payments;
Opportunities Exist to Streamline the EIC
Recertification Process
Page 52  GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Congress and IRS have long been concerned about
noncompliance1 with the eligibility requirements
for the EIC. During the past several filing
seasons, IRS implemented a number of efforts aimed
at reducing that noncompliance. Generally
speaking, those efforts involved (1) the denial of
EIC claims that were not accompanied by valid SSNs2
and (2) in-depth reviews of EIC claims that met
certain criteria. In 1999, IRS continued those
efforts and stopped hundreds of millions of
dollars in erroneous EIC payments.

     IRS also implemented new procedures in 1999,
as mandated by TRA97, that require certain
taxpayers to recertify their eligibility for the
EIC before IRS approves their claim.3 According to
IRS data, many taxpayers who had an EIC claim
denied for tax year 1997 and were required to
recertify did not claim the EIC on their tax year
1998 returns (i.e., the returns filed in 1999),
thus indicating that the procedures may have
helped reduce the number of improper EIC claims.
What is unclear is how many of those taxpayers, if
any, were entitled to the EIC but either could not
understand the recertification process or found it
too burdensome. In that regard, our review
identified certain opportunities to streamline the
recertification process and thus make it less
burdensome to taxpayers and IRS. Our review also
found that IRS service centers were not
consistently following national guidelines for
recertification, which could result in disparate
treatment of taxpayers.

IRS Continued to Stop Some Improper EIC Payments
Through the Use of Math Error Authority
     As IRS processes individual returns, it looks
for computational errors made by taxpayers or
their representatives in preparing the returns.
When such errors are identified, IRS can
automatically adjust the return through the use of
its math error authority. During the first 6
months of 1999, according to data provided by IRS,
it stopped about $412 million in erroneous EIC
payments as a result of its math error program.

     Many of the EIC-related math errors corrected
by IRS in 1999 involved invalid SSNs.  In 1996,
Congress authorized IRS to treat invalid SSNs as
math errors, similar to the way it had
historically handled computational mistakes. Thus,
IRS has the authority to (1) automatically
disallow, through its math error program, any
deductions and credits, such as the EIC,
associated with an invalid SSN and (2) make
appropriate adjustments to any refund that the
taxpayer might be claiming.

     As shown in table 6.1, the number of
taxpayers claiming the EIC in 1999 dropped 1.9
percent from 1998, while the number of EIC-related
math errors involving SSNs declined by more than
27 percent.

Table 6.1:  EIC Claims and Math Errors During 1998
and 1999
                         1/1/98   1/1/99 Percentag
EIC claims and math  to 8/29/98       to         e
errors                           8/28/99    change
Number of taxpayers  19,393,098 19,016,47     -1.9%
claiming                               4
EIC
EIC math errors as      600,676  435,991     -27.4
a result of
an invalid SSN
Other EIC math        1,391,703 1,226,911     -11.8
errorsa
aOther EIC math errors include errors in figuring
the EIC and in computing earned income. To be
comparable with data for 1998, the number for 1999
excludes 217,913 errors in two categories that
were not considered math errors in 1998.
Source: IRS data.

     The decrease in the number of EIC math errors
involving invalid SSNs may indicate that fewer
taxpayers are attempting to claim an EIC to which
they are not entitled. It may also reflect that
prior IRS efforts to alert taxpayers who had used
invalid SSNs caused those taxpayers to correct the
problem before filing their next year's return.

IRS Targeted Certain Types of EIC Claims for In-
Depth Review
     Other types of EIC noncompliance are not as
easy to identify as math errors. Those types can
be detected only through an audit. In 1999, IRS
continued to target for in-depth review certain
types of EIC claims that IRS had identified as the
main sources of EIC noncompliance.4 These targeted
EIC claims include those that involve (1) the use
of a qualifying child's SSN on multiple returns
for the same tax year, (2) erroneous claims of
head-of-household filing status, and (3)
misreported income. Taxpayers whose returns were
identified for inclusion in one of these programs
were to be audited to determine if their EIC
claims were valid.

     For fiscal year 1999, IRS anticipated a
potential caseload of 421,393 cases involving
multiple uses of the same qualifying child's SSN.
However, the actual caseload was 344,572 because
taxpayers had either filed their tax year 1998
returns without the questionable SSN (57,024) or
did not file any tax year 1998 return (19,797). As
of August 28, 1999, IRS had completed audits on
204,912 cases (out of the 344,572) and had
recommended5 that $379.6 million in erroneous
claims not be paid.

     Although filing status per se does not affect
either EIC eligibility or amount (except that
married taxpayers filing separate returns are
ineligible for the EIC), IRS' April 1997 study had
shown that erroneous filings as head of household
often occurred with an EIC overclaim.  From
October 1, 1998, to August 28, 1999, IRS had
completed 256,365 audits examining taxpayers' head-
of-household status and recommended that $517.1
million in erroneous claims not be paid.

     IRS' misreported income projects focus on EIC
claims that (1) appear to be inflated by the
inclusion of nonqualifying income, such as
investment income, in the computation of earned
income or (2) involve earned income, such as self-
employment income, that can be used to qualify for
the EIC but cannot be verified through a third
party. From October 1, 1998, to August 28, 1999,
IRS had completed audits of 13,829 returns in
these projects and recommended that $7.7 million
in erroneous claims not be paid.

EIC Recertification Process Further Deterred
Improper Claims but May Have Confused Taxpayers
and Unnecessarily Delayed Return Processing
     TRA97 requires that taxpayers who were denied
the EIC through IRS' deficiency procedures (i.e.,
as the result of an audit) must recertify their
eligibility before they can claim the EIC again.
This provision became effective beginning with tax
year 1997 returns filed in 1998. As a result,
taxpayers who were denied the EIC on their tax
year 1997 returns were required to recertify with
their tax year 1998 return if they claimed the EIC
on that return. TRA97 also has provisions that are
intended to prevent a taxpayer from receiving an
EIC for (1) the next 10 years if IRS, as a result
of its audit, determined that the taxpayer had
fraudulently claimed the credit or (2) the next 2
years if IRS determined that the taxpayer
negligently claimed the credit. After the 10 or 2
years expire, the taxpayer has to recertify the
next time he or she claims the EIC. IRS has a
specific indicator that it can put on its master
file of taxpayer accounts to identify taxpayers
who are required to recertify. These
recertification requirements appear to have
further deterred improper claims, but the process
may confuse taxpayers and unnecessarily delay the
processing of their returns.

The Recertification Process
     To recertify for the EIC, IRS requires that
taxpayers attach a Form 8862 (Information to Claim
Earned Income Credit After Disallowance) to the
next tax return they file that includes an EIC
claim. If a taxpayer claims the EIC without
attaching a Form 8862, IRS is authorized to
disallow the claim as a math error.

     According to IRS guidelines, service centers
were to review the returns of all "required to
recertify" taxpayers who claimed the EIC on their
tax year 1998 returns and filed a Form 8862. If a
"required to recertify" taxpayer claimed either
the same EIC-qualifying child who was disallowed
on the tax year 1997 return or claimed a new EIC-
qualifying child, the return was to be examined.
The taxpayer's entire refund was to be held until
IRS determined whether the taxpayer was entitled
to the EIC.6 If the taxpayer did not claim the
disallowed EIC-qualifying child and did not claim
a new EIC-qualifying child, an audit was not
required, and the taxpayer's refund was to be
released.

     While examining the returns of taxpayers who
are required to recertify, IRS notifies them that
their refunds are being withheld pending a review
of the EIC claim and that certain documentation is
required. The documentation IRS expects from
taxpayers includes copies of birth certificates
and Social Security cards; documents, such as
school records, to verify that the child lived
with the taxpayer; and documents, such as canceled
checks for household expenses or child support
payments, to verify that the taxpayer supported
the child.

     If a taxpayer provides the necessary
documents and those documents support the
taxpayer's EIC claim, the claim is to be allowed
and the taxpayer would not have to be recertified
again for future EICs. Otherwise, the taxpayer's
claim is to be denied.

Recertification Results
     As of January 30, 1999, IRS had identified
197,625 taxpayers who were denied the EIC on their
tax year 1997 returns (the returns filed in 1998)
through IRS' deficiency procedures.7 These
taxpayers would have been required to submit a
Form 8862 with their tax year 1998 return if that
return included an EIC claim.

     As of August 28, 1999, according to IRS, of
the 197,625 taxpayers, (1) 23,617 filed tax year
1998 returns claiming the EIC and attached a Form
8862 and (2) 63,372 filed returns with EIC claims
but did not attach a Form 8862.8  IRS, using its
math error authority, denied the 63,372 claims
that were not accompanied by a Form 8862. Of the
taxpayers whose claims were denied, 6,992
subsequently submitted a Form 8862 after receiving
IRS' math error notice.

     IRS officials believe that the low number of
taxpayers trying to get recertified in 1999 may
indicate that many of the taxpayers who were
disallowed the EIC in 1998 were not eligible for
the credit.

Problems With the Recertification Process
     Although it is too early to assess the
effectiveness of IRS' recertification process, we
did identify opportunities for streamlining the
process. We discussed some of these opportunities
in a July 1999 letter to IRS' Chief Operations
Officer.9 In that letter, we discussed the
following concerns we had with correspondence that
IRS used to communicate with taxpayers who were
involved in the recertification process:

ï¿½    The form letter that IRS used to tell
taxpayers that their EIC claims were disallowed
contained irrelevant information pertaining to
fraud and negligence. We expressed the belief that
the language used could cause some taxpayers to
not file a claim to which they might be entitled.
IRS agreed to modify the letter.
ï¿½    Taxpayers could be confused because two form
letters used by IRS cited different time frames as
to when taxpayers may expect their refunds. One
letter said 30 days while the other said 8 weeks.
IRS agreed to make the time frames consistent.
ï¿½    A letter and form that IRS used to tell
taxpayers that IRS needed additional information
to verify their EIC eligibility could burden
taxpayers by causing them to send much more
documentation than called for by IRS' operating
procedures. IRS said that it would revise the
letter and form.

     In addition to our concerns with IRS'
correspondence, we identified two problems with
the recertification process. The first problem
involves apparently unnecessary steps in the
process that create additional burden for IRS and
taxpayers; the second problem involves
inconsistent procedures that could result in
disparate treatment of taxpayers.

     Although IRS tells taxpayers that to
recertify they must submit a Form 8862 with their
tax returns, officials at three service centers we
visited said that the information provided on the
Form 8862 is not sufficient to recertify anyone.
Instead, after receiving Form 8862, service center
personnel are to send a separate letter and a form
(Form 886-H) asking taxpayers to provide various
documents to prove their eligibility. Even IRS'
internal recertification guidelines show the
ambiguous purpose of Form 8862, as follows:

".To demonstrate current eligibility, the
regulations require the taxpayer to complete Form
8862.[However] The Treasury Department and the IRS
anticipate that the Commissioner of the IRS may
require taxpayers to provide documentary evidence
in addition to Form 8862. Whether or not the
Commissioner requires taxpayers to provide
documentary evidence in addition to Form 8862, the
Commissioner may choose to examine any return
claiming the EIC for which Form 8862 is
required.The Form 8862 is designed to lead the
taxpayer through the EIC tests of entitlement.
Because Service Center Examination will look at
all [tax year] 1998 returns of "required to
recertify" taxpayers who file Form 8862, the
actual taxpayer entries on the Forms 8862 will not
determine entitlement in Processing Year 1999.
However, it is anticipated that in future years,
the Form 8862 will be used to determine
entitlement in pipeline processing."

     Under current procedures, taxpayers may have
to wait from 30 to 60 days after filing their
returns with the required Form 8862 before
receiving IRS' request for supporting
documentation. Taxpayers would then have up to 30
days to gather the documents and submit them to
IRS. According to some service center officials,
this exchange of correspondence creates additional
burden on both taxpayers and IRS and delays return
processing.

     The second problem involves an inconsistency
in the procedures followed by the three service
centers we visited. One service center, after
reviewing the Forms 8862, sent Letter 525 and Form
886-H to those taxpayers who claimed the same EIC-
qualifying child who had been disallowed or
claimed a new EIC-qualifying child. Letter 525
tells taxpayers that IRS denied their EIC claim
but will reconsider that denial if the taxpayers
provide supporting documents within 30 days.

     The second service center did not summarily
deny taxpayers' EIC claims after reviewing the
Forms 8862. Instead, that center sent Letter 566A
and Form 886-H to those taxpayers. Letter 566A
tells taxpayers that their returns are being
examined and that they must provide, within 30
days, the documents listed on Form 886-H before
they can be recertified. If taxpayers did not
respond within 30 days or if their responses were
insufficient, the service center sent Letter 525
to inform the taxpayers that their EIC claims were
denied.

     The third service center used varying
recertification procedures, depending on its
workload. When its workload was not too heavy, the
service center sent taxpayers Letter 525, denying
the EIC. However, when its workload became too
heavy, the service center changed procedures and
sent taxpayers Letter 566A. Officials at this
service center said that it is time-consuming to
prepare a Letter 525, which requires an
explanation to the taxpayer as to why he or she
did not qualify for the EIC. As a result, when
workload became heavy, the service center relied
on Letter 566A to allow the center some additional
time before "auditing" the return.

According to IRS' recertification guidelines, the
first service center was following prescribed
procedures and the second and the third centers,
although seemingly more customer friendly, were
not. In explaining the rationale for sending a
Letter 525 so quickly, an IRS official at the
first center said that the process would be
unnecessarily delayed for at least 30 days, as in
the case of the second and third service centers,
waiting for a response to Letter 566A before
denying the EIC. The official pointed out that
taxpayers who immediately receive a Letter 525
still have the opportunity to submit documentation
and prove their entitlement to the EIC.

_______________________________
1 The term "noncompliance" includes erroneous EIC
claims caused by mistakes, confusion, negligence,
and fraud.
2 IRS considers an SSN invalid if it is missing
from the return or if the SSN and associated name
on the return do not match data in the Social
Security Administration's records.
3 The recertification procedures require those
taxpayers who were denied the EIC through an audit
beginning with tax year 1997 to provide evidence
of eligibility for the EIC before they can claim
the credit in subsequent years. Although taxpayers
claiming the EIC must meet certain eligibility
criteria, new claimants or claimants who did not
have the credit denied in tax year 1997 are not
required to submit certification evidence.
4 Study of [EIC] Filers for Tax Year 1994, IRS,
April 1997.
5 Some of the unpaid claims mentioned here and
elsewhere in this section might eventually be paid
if the taxpayers overturn IRS' findings on appeal.
6 According to an IRS official, IRS' system cannot
automatically separate out and hold only the
portion of the refund that relates to the EIC
claim.
7 According to IRS, none of these cases involved a
finding of fraud or negligence.
8 Although IRS had no readily available data on
the other 110,636 taxpayers who were denied the
EIC on their tax year 1997 returns, it seems
reasonable to assume that most, if not all, either
filed returns without an EIC claim or did not
file.
9 IRS Correspondence to Taxpayers on Earned Income
Credit Recertification (GAO/GGD-99-112R, July 30,
1999).

Chapter 7
Use of Electronic Filing Continued to Increase
Page 55
As of October 29, 1999, IRS had received about 126
million individual income tax returns, which is an
increase of about 2 percent compared to the same
time last year.  The use of electronic filing
increased at a much more robust pace (about 19
percent). This increase in electronic filing
continued a period of continual growth since 1996.
Even with the increase in electronic filing, about
96 million tax returns (77 percent) were filed on
paper in 1999.  IRS, in 1999, tested several
initiatives to increase the use of electronic
filing. As of November 2, 1999, IRS had not
compiled the necessary data to assess the impact
of those initiatives on electronic filing.

There are three types of electronic filing: (1)
traditional, whereby returns are transmitted
through a third party (such as a tax return
preparer or electronic return transmitter) known
as an electronic return originator; (2) on-line,
whereby returns are transmitted by the taxpayer
through an on-line intermediary using a personal
computer and commercial software; and (3)
TeleFile, whereby returns are transmitted by the
taxpayer over the telephone lines using a Touch-
Tone telephone.

Although IRS has not done the kind of
comprehensive analysis needed to fully assess the
costs and benefits associated with these
alternative filing methods, it assumes that the
methods save IRS money by, among other things,
significantly reducing the number of errors that
IRS has to correct. Electronic filing options
include built-in checks that are designed to catch
certain taxpayer errors, such as computational
mistakes, in advance so that they can be corrected
by the taxpayer before IRS takes possession of the
return. Also, returns filed electronically bypass
the error-prone manual procedures that IRS uses to
process paper returns.

Table 7.1 shows that the use of traditional
electronic filing and on-line filing increased in
1999, while the use of TeleFile decreased.

Table 7.1:  Number of Individual Income Tax
Returns Received, by Filing Type
(Number of returns in thousands)
Filing type            1/1/97 to 1/1/98 to  Percentage   1/1/99  Percentage
                        10/31/97 10/30/98     change:       to     change:
                                              1997 to 10/29/99     1998 to
                                                 1998                 1999
Paper                    101,790   98,453      -3.28%   96,178      -2.31%
Electronic                                                                
                          14,090   17,697       25.60   21,227       19.95
Traditional
   TeleFile                4,694    5,963       27.03    5,665       -5.00
   On-Line                   367      942      156.68    2,457      160.83
                          19,151   24,602       28.46   29,349       19.30
Subtotal
Total                    120,941  123,055       1.75%  125,527       2.01%
Source: IRS' Management Information System for Top
Level Executives.
Several Factors May Have Contributed to the
Increase in Electronic Filing
IRS officials cited several factors, as follows,
that may have contributed to the increase in
electronic filing in 1999:

ï¿½    IRS entered into new partnerships with
private sector companies to broaden the electronic
services accessible through IRS' Web site. As part
of these arrangements, IRS placed hyper-links from
its Web site to the partners' Web sites, and the
partners developed initiatives, such as free
electronic filing and free tax preparation
software, to increase electronic filing.
ï¿½    The number of electronic return originators
(ERO) increased from about 82,000 in 1998 to about
90,000 in 1999. Also, some EROs charged taxpayers
less to file electronic returns in 1999, and some
offered free electronic filing to taxpayers who
met certain criteria.
ï¿½    Due, in part, to IRS' marketing and education
efforts, taxpayers are becoming more familiar and
comfortable with electronic filing and therefore
are more likely to file electronically.

Another step that IRS took in 1999, which could
have a significant positive effect on future
growth in electronic filing, was to test several
initiatives directed at making electronic filing
paperless.

Initiatives to Make Electronic Filing Paperless
One aspect of electronic filing that has been
cited consistently as a barrier to greater use is
the requirement that electronic filers continue to
send IRS certain paper documents. For example,
except for taxpayers who use TeleFile, taxpayers
who file electronically have had to submit a paper
signature document (Form 8453) along with copies
of their Wage and Tax Statements (Form W-2).1
Also, taxpayers who file electronically and have a
balance due have had to mail a check and payment
voucher to IRS. To make electronic filing
paperless and thus more attractive to potential
users, IRS tested four initiatives in 1999. Two
initiatives enabled certain taxpayers to use
electronic signatures; the two other initiatives
provided electronic payment alternatives to
taxpayers who owed money.

Electronic Signature Tests
IRS, during the 1999 filing season, tested two
signature alternatives that waived the need for
taxpayers who participated in these tests to
submit Forms 8453 and W-2s.2 In one test,
taxpayers filing electronic returns prepared by
about 2,500 participating EROs used a self-
selected personal identification number (PIN)
instead of completing a Form 8453. An IRS official
told us that as of October 10, 1999, about 497,000
taxpayers had used the PIN option to sign their
tax returns. According to a cognizant official,
IRS did not encounter any problems during this
test.

IRS surveyed practitioners to ascertain, among
other things, if they believed that the PIN option
increased their electronic filing business. A July
1999 report on the results of IRS' survey noted
that "most practitioners did not believe that PINs
increased their number of [electronically filed]
returns, but it did make those returns that they
otherwise would [electronically file] less
burdensome."

An official of the largest national tax return
preparation company told us that IRS' test was a
good start. However, he mentioned the following
two features of the process that he would like to
see changed:

ï¿½    Although participating taxpayers no longer
have to send IRS a paper signature form, the
process is not paperless. Taxpayers still have to
sign an authentication worksheet that the preparer
is to keep on file in case there is any dispute
about the return's authenticity. The official felt
that the PIN was sufficient to authenticate the
return and would like to see the authentication
worksheet eliminated.
ï¿½    On a joint return, both taxpayers must be
present to enter their own PINs. While
understanding the intent of the requirement, the
official thought that it was unrealistic to expect
both taxpayers to be present when the return is
being prepared. The need for taxpayers to be
present in the practitioner's office to enter
their PINs was mentioned in IRS' July 1999 report
as the "greatest difficulty" with the use of PINs.
The report recommended further exploration of that
issue.

To increase the use of on-line filing, IRS, in its
second alternative signature test, identified 12
million taxpayers who had prepared their own tax
returns in 1998 using tax preparation computer
software but who had filed on paper. IRS mailed
those taxpayers a postcard instead of a paper tax
package. The postcards provided each taxpayer with
a unique E-file Customer Number (ECN) and informed
them that, by using that number, they could file a
totally paperless tax return on-line.3 As of
October 10, 1999, according to IRS, about 660,000
taxpayers had used ECNs as their signatures. IRS
encountered one problem during the early phase of
this test. The contractor who had transmitted the
on-line returns mistakenly blocked out the
taxpayers' ECNs; therefore, no legal signature
existed on some returns. (IRS officials told us
that they did not know how many taxpayers were
affected by this problem.) The contractor sent a
letter to affected taxpayers telling them that it
had made a mistake and that the taxpayers would
have to submit a paper signature document.

IRS surveyed taxpayers who had used ECNs to
determine if this signature alternative encouraged
them to file on-line. As of November 2, 1999, IRS
had not finished analyzing the results of that
survey. However, according to IRS, about 54
percent of the survey respondents said that the
ECN made them more likely to file electronically.

Officials responsible for the electronic filing
effort told us that, for the 2000 filing season,
IRS (1) hopes to double the number of EROs
participating in the PIN project and (2) intends
to increase the number of taxpayers who are
allowed to use ECNs.

Electronic Payment Tests
In 1999, for the first time, many taxpayers who
electronically filed balance due returns could
electronically pay their balance due in one of two
ways-either by credit card or by direct debit from
a checking or saving account. On-line filers who
used Intuit software packages4 after February 26,
1999, when testing of the system was completed,
were able to indicate on-line when filing their
tax returns that they wanted to pay their balance
due by credit card. Taxpayers who used traditional
electronic filing or TeleFile, as well as
taxpayers who filed on paper, could charge their
balance due by credit card with a toll-free
telephone call to a private company that processed
the credit card payment.

IRS' contractor for the pay-by-phone credit card
program encountered a problem that resulted in
about 13,700 payments being processed improperly.
Even though the taxpayers' credit card accounts
were charged on April 15, 1999-the filing and
payment deadline-these payments were treated as
advanced payments of the taxpayers' tax year 1999
tax liability and resulted in a balance due for
the 1998 tax year. According to a cognizant IRS
official, about 1,000 of these taxpayers received
a notice from IRS telling them that their 1998 tax
year payment was delinquent. IRS was able to stop
notices from going to the other taxpayers.
Therefore, these taxpayers did not know that their
credit card payment was originally processed
incorrectly. According to IRS, the contractor
contacted all of the affected taxpayers and
informed them that IRS had corrected its records
and that the contractor, not IRS, had made the
mistake.

Taxpayers filing electronic balance due returns
could also pay their balance due by a direct debit
to their checking or savings account through an
automated clearing house.5  Taxpayers using the
direct debit option were able to file early and
postpone their payment until April 15. However,
the direct debit option was only paperless for on-
line filers who participated in the ECN test.
Other on-line filers and traditional electronic
filers who chose the direct debit option had to
submit a Form 8453, which contains a disclosure
statement that requires the taxpayer's signature
authorizing the direct debit. On-line filers who
participated in the ECN test were using the ECN as
their signature and had to indicate, via an on-
line prompt, that they wanted to use the direct
debit option. IRS informed us that there were
virtually no problems encountered in processing
the debit payments.

Both the credit card and direct debit options
eliminated the need for taxpayers to send checks
and payment vouchers to IRS. As of October 8,
1999, about 53,000 and 75,000 taxpayers had paid
their tax liabilities by credit cards and direct
debits, respectively. An IRS spokesman said that
IRS was unable to determine the impact of these
payment options on persons' decisions to file
electronically.

Officials responsible for the electronic filing
effort told us that IRS intends to expand the
electronic payment options.  For the 2000 filing
season, IRS intends to expand the credit card
payment option to taxpayers who file two other
forms-Form 1040-ES (Estimated Tax) and Form 4868
(Request for Extension).  IRS also plans to expand
the use of the direct debit option to TeleFile
users in 2000.

Use of TeleFile Decreased Despite IRS Initiative
IRS, in an effort to increase the use of TeleFile,
initiated a pilot program in Indiana and Kentucky
to study the possibility of allowing taxpayers the
opportunity to file both their federal and state
tax returns with one telephone call. As of October
29, 1999, about 107,000 taxpayers in these two
states had filed their federal and state tax
returns via this pilot program. Despite the joint
federal/state TeleFile pilot and the credit card
payment option previously discussed, the number of
TeleFile returns filed in total, as well as by
taxpayers in Indiana and Kentucky, decreased
slightly from the numbers filed in 1998.

Officials in IRS' Office of Electronic Tax
Administration suggested the following two
possible reasons for the decrease in TeleFile use:

ï¿½    Taxpayers who would have been eligible to use
TeleFile in prior years were ineligible in 1999
because they claimed the new student loan interest
deduction or new education credits, which cannot
be claimed by someone filing via TeleFile.
ï¿½    Taxpayers who could have used TeleFile might
have switched to on-line filing.

_______________________________
1 Instead of submitting their W-2s, TeleFile users
must enter certain information from each of their
W-2s via the telephone. In lieu of a signature
document, TeleFile users must make the following
declaration over the telephone:  "Under penalties
of perjury, I declare that to the best of my
knowledge and belief, the return information I
provided is true and correct and includes all
amounts and sources of income I received during
the tax year."
2 Taxpayers who had other paper documents that had
to be sent to IRS in support of their electronic
submission could not participate in these
alternative signature tests.
3 On-line filers who were not selected to
participate in this test had to submit a paper
signature document.
4 On-line filers who did not use Intuit software
packages could not pay by credit card.
5 Taxpayers filing TeleFile returns could not use
the direct debit option because programming for
Touch-Tone telephone payments could not be
completed in time for the 1999 filing season.

Chapter 8
Tax Law Changes Added Complexity and Led to
Numerous Taxpayer Errors
Page 62  GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Some tax law changes mandated by TRA97 took effect
during the 1999 filing season. Those changes
included (1) a new basic child tax credit, (2) an
additional child tax credit for taxpayers with
three or more eligible dependents, and (3) various
new education-related deductions and credits. The
added complexity associated with the child tax
credit provisions led to numerous taxpayer errors
and increased IRS' processing workload.

Basic Child Tax Credit
     A tax law change affecting certain taxpayers
with dependents provided a maximum nonrefundable
child tax credit of $400 for each qualifying
child.1 Taxpayers with children must first
determine if their children qualify for the credit
using criteria that differ from the criteria for
determining if a child qualifies for a dependent
exemption or for the EIC. After taxpayers
determine that they have qualifying dependents,
they are to fill out an 11-line worksheet to
determine the amount, if any, of their credit. The
credit is phased out over various income levels on
the basis of filing status and cannot exceed the
taxpayer's tax liability. In addition, the credit
is reduced by other credits, including the child
care credit, the credit for the elderly and
disabled, and education credits.

     About 28 percent of the individual income tax
returns filed as of August 27, 1999, listed one or
more dependents who the taxpayers believed
qualified for the child tax credit. But, according
to IRS data, only about 20 percent of the filed
returns actually included a child tax credit
claim. As noted in the preceding paragraph,
additional criteria beyond the existence of a
qualifying child would have made some of these
taxpayers ineligible. However, as discussed in the
next paragraph, some taxpayers who were eligible
for the credit did not claim it.

     According to data provided by IRS, the child
tax credit was the fourth most common source of
errors made on individual income tax returns filed
in 1999.2 As of July 16, 1999, IRS had mailed
about 571,000 notices to taxpayers whose returns
contained errors relating to that credit. About 88
percent of these errors were made by taxpayers who
prepared their own returns. Service center
processing officials estimated that about one-half
of these taxpayers failed to take the credit, even
though they checked the box indicating that they
had an eligible dependent and other information on
the return (e.g., amount of income) indicated that
they were eligible. The other one-half erred in
calculating the credit amount. The need to correct
these mistakes added to IRS' processing workload
and may have led to a refund delay for some
taxpayers.

     During the filing season, IRS revised its
procedures for dealing with returns in which
taxpayers failed to take the child tax credit even
though information on the return indicated that
they were eligible. Initially, IRS adjusted such
returns to include the credit, without verifying
the dependent's age. To qualify, a dependent must
be under 17. After March 2, 1999, IRS began
verifying the dependent's age using information
from the Social Security Administration. Because
this verification was done manually, service
center officials told us that it significantly
increased their workload, although they were
unable to quantify the workload increase.

     In response to the numerous errors, IRS
issued a press release in early March 1999
cautioning taxpayers to carefully check the child
tax credit instructions before filing their
returns. In addition, IRS is developing revised
instructions for next year's tax packages in an
effort to reduce taxpayer errors during the 2000
filing season.

Additional Child Tax Credit
     The additional child tax credit was designed
to benefit taxpayers with three or more dependents
and could be a refundable credit. To benefit from
this credit, taxpayers had to meet conditions
beyond those for the basic child tax credit and
were required to fill out an additional form to
determine how much, if any, additional credit they
were due.

     Because of the numerous limitations placed on
the additional child tax credit, very few
taxpayers benefited from this credit. Only about 4
percent of filed returns listed three or more
eligible dependents. For taxpayers with three or
more eligible dependents, the credit was limited
by the amount of Social Security and Medicare tax
withheld, if any; one-half of any reported self-
employment tax; and any Social Security and
Medicare tax on tip income not reported to the
taxpayers' employers. The credit was then reduced
by amounts claimed for the EIC, the credit for the
elderly and disabled, education credits, and any
excess Social Security tax withheld. As a result,
about 86 percent of the returns with three or more
eligible dependents that were filed as of August
27, 1999, did not claim any additional child tax
credit because the taxpayers either were not
eligible for the credit or overlooked taking the
credit even though they were eligible. Overall,
only about 1/2 of 1 percent of all tax returns
showed some amount for the additional child tax
credit.

     As of July 16, 1999, IRS had sent out about
40,000 notices to taxpayers who had made a mistake
in claiming the additional child tax credit.

Education Benefits
     During the 1999 filing season, several
education-related deductions and credits took
effect, including student loan interest deductions
and the Hope and lifetime learning credits. As of
August 27, 1999, about 3 percent of all returns
claimed a student loan interest deduction, and
about 4 percent of the returns claimed education
credits.

     Various witnesses at a May 25, 1999,
Oversight Subcommittee hearing on tax law
complexity expressed concern about the overall
complexity associated with the array of education
assistance programs now available in the tax code.
However, unlike the child tax credit, the impact
of such complexity in terms of the number of
taxpayers who inappropriately claimed the credit
or deductions or who failed to claim a credit or
deduction to which they were entitled generally
cannot be determined from the face of the return.
An audit of the return and supporting documents
would be needed to determine if taxpayers claimed
the proper amount or were entitled to amounts that
they did not claim.

     Even with these limitations, IRS, as of July
16, 1999, had sent about 53,000 notices to
taxpayers who had erred in claiming education-
related benefits. Nearly all of these errors were
by taxpayers who claimed more student loan
interest than the $1,000 maximum allowed by the
law.3

_______________________________
1 In tax year 1999, the maximum credit will be
increased to $500.
2 The two most common errors dealt with the name
or SSN of dependents not matching the Social
Security Administration's records, leading to
disallowance of the exemption and child tax
credit, respectively.  The third most common error
was that the EIC was figured or entered
incorrectly.
3 The maximum deduction for student loan interest
is phased in over 4 years, beginning with $1,000
for tax year 1998; $1,500 for tax year 1999;
$2,000 for tax year 2,000; and $2,500 for tax year
2001 and  thereafter.

Chapter 9
Significant Changes to Computer Systems
Accomplished Without Processing Disruptions
Page 64  GAO/GGD-00-37 IRS' 1999 Tax Filing Season
     For the 1999 filing season, IRS made
significant changes to the computer hardware and
software that it uses to process returns and
remittances. IRS accomplished these changes
without any discernible disruption to the
processing of returns, refunds, and remittances.

Replacement of Return and Remittance Processing
Systems
     One major change involved replacement of the
returns processing system at all 10 service
centers and replacement of the remittance
processing system at 6 centers (the other 4
centers were to have their remittance processing
systems replaced in time for the 2000 filing
season). According to an IRS official responsible
for this replacement project and processing
officials at two service centers, the transition
to the new systems went well, and workloads were
processed as expected. Also, our analysis of
various filing season data and comparisons of
those data to similar data for the 1998 filing
season disclosed nothing to indicate that this
replacement project caused any significant
processing delays in 1999.

     IRS continually worked throughout the filing
season to resolve various system problems, most of
which did not affect taxpayers. For example, there
were problems with the transport system on the
remittance processing system, which required
additional personnel to perform maintenance. IRS
reported one problem with the remittance
processing system that failed to record some
taxpayers' payments, which led to the issuance of
about 2,400 erroneous balance due notices.
According to IRS, it quickly contacted the
affected taxpayers to provide the correct
information.

Consolidation of Mainframe Computer Equipment
A second major change involved consolidating
service centers' mainframe computer equipment at
IRS' two computer centers in Martinsburg, WV, and
Memphis, TN. At the beginning of the 1999 filing
season, computer operations for three service
centers had been consolidated. IRS projects that
the other seven centers will be consolidated by
January 2001. Because this project is ongoing, IRS
is continuing to resolve problems, such as
isolated printer problems affecting the printing
of address labels for Examination and Collection
cases. An official at one of the consolidated
service centers said that this problem delayed the
issuance of some notices and that, in some cases,
IRS personnel resorted to handwriting labels.
However, the IRS official stated that these
problems had no effect on filing season-related
taxpayer notices.

Chapter 10
Conclusions, Recommendations, and Agency Comments
Page 68  GAO/GGD-00-37 IRS' 1999 Tax Filing Season
Conclusions
A successful filing season requires that IRS
effectively manage a wide range of programs,
through which it assists taxpayers in meeting
their filing requirements; processes filed returns
and related tax payments; and takes certain steps
to help ensure that taxpayers' refund claims,
especially those involving the EIC, are valid.
There were many positive accomplishments during
the 1999 filing season. IRS expanded the
availability of walk-in services, stopped hundreds
of millions of dollars in erroneous EIC payments,
saw a sizable increase in electronic filing, and
implemented a major new processing system without
significant disruption. However, there were also
some problems-the most important being a
significant decline in telephone service despite
IRS' efforts to improve that service.

     IRS officials cited several factors that
contributed to the decline in telephone service,
some of which might be due to IRS' inexperience
with its new way of managing telephone operations
and its new call routing technology. However,
other factors, such as inadequate planning and
decisionmaking that appeared to be based on
inadequate data or that seemed to ignore existing
data, may be symptomatic of basic management
weaknesses or challenges. To better understand the
challenges facing IRS and better position
ourselves to propose constructive solutions, we
are reviewing, in more detail, IRS' management of
its telephone operations. Thus, we are making no
telephone-related recommendations in this report.

     In addition to the decline in access to the
telephone system, the quality of answers that
taxpayers received when they reached an IRS
assistor also dropped. IRS recognizes the need to
provide further training to its assistors, and
officials said there are plans to do so before the
start of the 2000 filing season. That training
should help improve quality. We also identified
some features of IRS' methodology for measuring
quality during the 1999 filing season that
warranted IRS' attention. For example, IRS
monitored about 31 percent fewer telephone calls
than provided for in its sampling plan, which
could affect the precision of IRS' estimates of
quality. With respect to our other concerns about
IRS' methodology, IRS has agreed to examine the
effect of cluster sampling on the precision of its
estimates and has extended the hours during which
it is monitoring calls. Even with the increase in
monitoring hours, IRS' measure of quality might
still provide different results than it would if
all hours were monitored.

     Besides expanding the availability of walk-in
services in 1999, IRS did a better job of
measuring customer satisfaction with those
services. However, it made little progress in
measuring service quality and timeliness. Without
meaningful nationwide performance data, IRS cannot
determine if the walk-in program is meeting its
objectives and goals, and thus whether it is an
effective method of providing service.

     IRS also increased the information and
services it provides through various other
methods, such as its Web site. However, the
substantial increase in use of the Web site's E-
mail service strained resources and apparently
contributed to inaccurate responses and slow
response times. Due to the way IRS tracked
response times (calendar days v. business days),
it could not actually determine how close it came
to meeting its timeliness goal. We are not making
any recommendations in this area because IRS told
us that it plans to (1) change the response-time
tracking system to align it with the way the goal
is stated and (2) provide assistors with
additional training on the E-mail topics with the
highest error rates.

     IRS data strongly suggest that the continuing
emphasis on EIC noncompliance has produced
significant results. IRS identified many erroneous
claims by validating SSNs and scrutinizing certain
EIC claims. In addition, the many taxpayers who
had their EIC denied for tax year 1997 and did not
claim the EIC for tax year 1998 would seem to
indicate that the new recertification procedures
had a positive effect. However, it is possible
that some of those taxpayers who did not claim the
EIC for tax year 1998 may have been entitled to
the credit but did not understand the
recertification process or found it too
burdensome. IRS has agreed to make some changes in
that regard in response to our July 1999 letter.1

     In addition to those changes, we believe that
the form taxpayers are required to submit to be
"recertified" (Form 8862) may mislead them to
believe that the information they provide in
response to the questions on the form will be
sufficient for recertification. Taxpayers may
become discouraged and confused when they realize
that the information is not sufficient and,
instead, that submission of Form 8862 leads to
still another IRS request for documents. Taxpayers
might rightfully wonder why, if the documents
required by later correspondence are essential for
recertification, IRS did not tell them that those
documents were required when it first notified
them about the need to recertify. In addition,
even though there was national guidance on the
recertification process that service centers were
to follow, the guidance was not being followed
consistently, which could result in disparate
treatment of taxpayers.

     Tax law changes dealing with the new child
tax credit seem to have added complexity to filing
a tax return, as evidenced by the numerous errors
and increased processing workload for IRS. IRS is
planning to revise the tax package instructions
for tax year 1999 (filing year 2000) in an attempt
to reduce taxpayer confusion.

     Our analysis of various performance data
indicated that IRS successfully implemented a new
processing system. One piece of evidence that we
initially thought might indicate some problem with
the new system was that IRS took longer than 40
days to issue about 15 percent of the refunds on
paper returns. Further inquiry indicated, however,
that IRS' performance in 1999 was close to its
performance in 1998. However, we are still
concerned that IRS took more than 40 days to issue
so many refunds. There may be valid reasons, but
IRS was unable to provide us with the kind of data
needed to make that determination. Such data are
important if IRS wants to identify ways that it
might improve its performance.

Recommendations
     We recommend that the Commissioner of
Internal Revenue direct the appropriate officials
to take the following steps:

ï¿½    Analyze the effect of not achieving the
planned sample size for monitoring the accuracy of
responses to tax law calls and use the results of
that analysis to design the sample used in future
monitoring.
ï¿½    Implement a program for assessing the
performance of IRS' walk-in sites.  As part of
that program, require that quality reviews be
done, provide sufficient guidance to ensure that
the reviews are done consistently and address
appropriate issues, and require that data on the
results of quality reviews and wait-time
monitoring (whether done automatically or
manually) be reported to a central location for
analysis.
ï¿½    If IRS does not rely on Form 8862 for
recertification purposes, discontinue its use.
ï¿½    If IRS continues using Form 8862 for
recertification purposes, redesign the form to
include reference to the documentation listed on
Form 886-H and any other documentation that IRS
thinks is necessary for recertification so that
taxpayers who are required to recertify know as
early as possible what documentation is required
for recertification.
ï¿½    Ensure that all service centers implement the
recertification procedures according to national
guidelines to avoid possible disparate treatment
of taxpayers.
ï¿½    Analyze the results of the refund timeliness
tests to determine, among other things, why about
15 percent of the refunds took longer than 40 days
to issue and what the test results showed for
returns that were filed error-free.

Agency Comments and Our Evaluation
We requested comments on a draft of this report
from IRS. We obtained IRS' written comments in a
December 3, 1999, letter from the Commissioner of
Internal Revenue (see app. II). On December 3,
1999, we also met with various representatives
from the office of IRS' Chief Operations Officer,
which is responsible for the various programs we
reviewed, to discuss IRS' comments. In his letter,
the Commissioner said that (1) our draft report
provided a fair and balanced assessment of IRS'
efforts to improve processing while providing
taxpayers with top quality service and (2) IRS
would make every effort to resolve the issues
noted in the draft report.

Regarding our recommendation to analyze the effect
of not achieving the planned sample size for
monitoring the accuracy of responses to tax law
calls, the Commissioner said that IRS has
completed such an analysis and is in the process
of filling 20 additional monitoring positions. He
said that with the additional staff, IRS will be
able to meet the desired sampling plan for tax law
and other telephone calls. IRS' actions appear
responsive to our recommendation.

IRS agreed with our recommendation regarding the
implementation of a program for assessing the
performance of IRS' walk-in sites. The
Commissioner said that, in fiscal year 2000, IRS
will implement a quality review program to measure
the quality and timeliness of services at walk-in
sites. According to IRS, training was conducted in
October 1999 to ensure consistency among the
quality reviewers, and quality review results and
wait-time monitoring results will be reported to
the National Office for analysis. These actions,
if effectively implemented, will meet the intent
of our recommendation.

In responding to our two recommendations dealing
with Form 8862, the Commissioner said that (1) IRS
relies on Form 8862 to "identify the type of
action to be taken for taxpayers required to
recertify" and (2) any modifications to Form 8862
will be made after assessing the results of the
recertification process in 1999 and after
completion of an ongoing IRS research project on
recertification. At the December 3, 1999, meeting,
IRS officials confirmed that IRS' intent is to
defer any decision on either discontinuing or
modifying Form 8862 until after the assessment and
research project referred to by the Commissioner
are completed.

We believe that it would be useful to await the
results of IRS' assessment and research project
before deciding on changes to the recertification
process in general and the use of Form 8862 in
particular. We encourage the Commissioner to
ensure timely completion of those efforts so that
any changes can be implemented in time for the
2001 filing season. We will be checking on the
results of IRS' assessment and research project as
part of our review of the 2000 tax filing season.

The Commissioner also noted that redesigning Form
8862 to include references to documentation that
might be needed for recertification may be
counterproductive to IRS' efforts to reduce
taxpayer burden. He explained that such a change,
for example, could cause some taxpayers to submit
unnecessary documentation with their returns.

We agree with the Commissioner about the need to
reduce taxpayer burden, and that is the intent of
our recommendation. We believe that the current
process could mislead taxpayers into believing
that the information they provide on Form 8862
will be sufficient for recertification and that
their refund is being processed. When taxpayers
subsequently receive the notice that their refund
is being delayed and that additional documents are
necessary for recertification, they may feel
burdened by the delayed refund and by the fact
that IRS waited until after they filed to tell
them what information they had to provide to prove
their eligibility for the EIC. We also believe
that IRS can mitigate any risk that adoption of
our recommendation will cause some taxpayers to
provide unnecessary documentation by making it
clear, in the notice sent to taxpayers, when
submission of the documentation is required.

IRS agreed with our recommendation that all
service centers implement the recertification
procedures according to the national guidelines.
According to the Commissioner, (1) the guidelines
have been incorporated into the Internal Revenue
Manual, (2) adherence to procedures in the manual
is mandatory, and (3) special reviews will be done
during fiscal year 2000 to assess conformance to
the procedures.

IRS also agreed with our recommendation that it
analyze the results of the refund timeliness tests
to determine why some refunds took longer than 40
days to issue and what the test results showed for
returns that were filed error-free. The
Commissioner said that IRS will be doing an
initial analysis that will provide some of the
information called for in our recommendation.
Depending on the results of that analysis, which
is to be completed by February 1, 2000, IRS said
that it might conduct a more extensive analysis.
We will be following up on the results of IRS'
analysis as part of our assessment of the 2000 tax
filing season.

IRS also provided various technical comments,
which we incorporated in the body of this report
where appropriate.

_______________________________
1 GAO/GGD-99-112R.

Appendix I
IRS Workload Indicators
Page 71  GAO/GGD-00-37 IRS' 1999 Tax Filing Season

(Numbers and dollars in                                                    
thousands
Indicator                 As of date          1998          1999 Percentage
                                                                    changea
Individual income tax                                                      
returns received
Electronic returns:                                                        
Traditional electronicb        10/29        17,697        21,227     19.95%
TeleFilec                      10/29         5,963         5,665      -5.00
On-lined                       10/29           942         2,457     160.83
Paper returns:                                                             
Form 1040                      10/29        61,664        62,082       0.68
Form 1040A                     10/29        16,440        15,663      -4.73
Form 1040EZ                    10/29        12,816        11,896      -7.18
Form 1040PCe                   10/29         7,533         6,537     -13.22
Total, paper and               10/29       123,055       125,527       2.01
electronic
Refunds issued                                                             
Number                          9/03        82,048        88,751       8.17
Amount                          9/03      $109,675      $135,984      23.99
Number of direct                9/03        19,187        23,456      22.25
deposits
Amount of direct                9/03       $34,422       $47,320      37.47
deposits
EIC                                                                        
Number of recipients            8/28        19,393        19,016      -1.94
Total amount of EIC             8/28   $29,406,298   $30,190,199       2.67
Remittancesf                                                               
Total number of                 9/30       230,459       227,181      -1.42
remittances
Total amount of                 9/30  $1,754,921,23 $1,890,874,38       7.75
remittances                                      8             2
Extension of time to            5/21         6,984         7,143       2.28
file
Internet use                                                               
Hits                            5/02       370,256       793,678     114.36
Files downloaded                4/30        26,798        57,009     112.74
E-mail tax law                  4/15            82           155      89.02
questions received
Tax form orders filled          5/01         7,783         7,345      -5.63
Tax forms faxed to              4/30           906           970       7.06
taxpayers
Total TeleTax calls             4/17        37,463        35,697      -4.71
Tax law calls                   4/17         7,728         8,151       5.47
Refund calls                    4/17        29,735        27,547      -7.36
Total toll-free                 4/17        50,125        65,278      30.23
telephone callsg
Calls answered                  4/17        37,127        35,597      -4.12
Busy signals                    4/17         4,478        20,424     356.10
Abandons                        4/17         8,520         9,256       8.64
Taxpayers assisted at           5/01         6,233         6,237        .06
walk-in sites
aNumbers may not compute to this percentage due to
rounding.
bTraditional electronic returns are transmitted
through a third party (such as a tax return
preparer).
cTeleFile returns are transmitted by taxpayers
over the telephone lines using a Touch-Tone
telephone.
dOn-line returns are transmitted by taxpayers
through an on-line intermediary using a personal
computer and commercial software.
eForm 1040PC is a paper return prepared using
computer software.
fRemittances include payments from individuals and
businesses.
gToll-free telephone calls include calls to six
IRS telephone lines: tax law assistance,
EIC/refund inquiry, account inquiry, forms
ordering, Automated Collection System, and fraud
hotline.
Source: IRS data.

Appendix II
Comments From the Internal Revenue Service
Page 75  GAO/GGD-00-37 IRS' 1999 Tax Filing Season

Appendix III
GAO Contacts and Staff Acknowledgments
Page 76  GAO/GGD-00-37 IRS' 1999 Tax Filing Season
GAO Contacts
James White, (202) 512-9110
David Attianese, (202) 512-9110

Acknowledgments
In addition to those named above, Wendy Ahmed,
Rose Dorlac, Jyoti Gupta, Doris Hynes, Ronald
Jones, John Lesser, Susan Mak, Sidney Schwartz,
and Bradley Terry made key contributions to this
report.

*** End of Document ***