Tax Administration: Tracking Taxpayer Information About IRS Notices Could
Reduce Burden (Letter Report, 03/28/2000, GAO/GGD-00-54).

Pursuant to a congressional request, GAO provided information on the
Internal Revenue Service's (IRS) efforts to track taxpayer information
about IRS notices, focusing on: (1) whether IRS tracks information about
notices from individual taxpayers who call IRS; and (2) if not, whether
such a tracking system could be useful and feasible.

GAO noted that: (1) IRS does not track information during telephone
calls from taxpayers about notices; (2) such information could include
the number of calls generated about each notice or the problems cited
during the calls; (3) instead, IRS identifies problem notices through ad
hoc discussions with IRS employees who have interacted with taxpayers;
(4) IRS officials said that it has not developed a tracking system
because its higher priority is modernizing IRS' computer systems and
stabilizing its existing systems as it modernizes; (5) IRS officials
said that a tracking system could be useful in improving notices; (6)
they said that the degree of usefulness would depend on the information
tracked; (7) the literature GAO reviewed and three other tax agencies
GAO visited reported that collecting such information from customers was
useful in identifying problems; (8) IRS officials believed it would be
feasible to track some information about notices during telephone calls;
(9) these officials identified at least three existing systems that
could be modified to track information, such as the type of notice and
problems associated with the notice; (10) these systems included one
that helps IRS assistors handle all calls, a quality review system for a
sample of calls, and a system used to survey a sample of callers about
their satisfaction with IRS' services; (11) IRS officials also
identified planned systems that could be enhanced to track notice
information; (12) the cost of tracking information from taxpayers about
notices is also an important factor in deciding whether such a tracking
system is economically feasible; (13) costs would include those to
modify an existing system and to enhance computer systems that are to be
developed over the next 5 to 7 years so that they collect the
information about notices; (14) the amount of additional cost incurred
to collect the information would depend on the number of calls involved
in the tracking, the amount of information collected, and the extent to
which extra time is spent on such calls; (15) IRS officials raised two
concerns with modifying an existing system for the purpose of tracking
in the short term; (16) the officials said that major modifications to
an existing system could create instability in that system causing other
problems; and (17) the officials were concerned that spending
significant resources to modify any existing system could disrupt IRS'
computer modernization effort.

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

 REPORTNUM:  GGD-00-54
     TITLE:  Tax Administration: Tracking Taxpayer Information About
	     IRS Notices Could Reduce Burden
      DATE:  03/28/2000
   SUBJECT:  Customer service
	     Written communication
	     Taxpayers
	     Tax administration systems
	     Federal taxes
	     Tax returns
	     Federal forms
	     Cost effectiveness analysis
	     Data collection
	     Reporting requirements
IDENTIFIER:  IRS Integrated Case Processing System
	     IRS Customer Satisfaction Survey
	     IRS Quality Review Database
	     IRS Notices Reengineering Project

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United States General Accounting Office
GAO

Report to Congressional Requesters

March 2000

GAO/GGD-00-54

TAX ADMINISTRATION
Tracking Taxpayer Information About IRS Notices

Could Reduce Burden

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Contents
Page 141        GAO/GGD-00-54 Tracking IRS Notices
Letter                                                                      1
                                                                             
Appendix I                                                                 16
Previous GAO Reports on
IRS Notices and Taxpayer
Inquiries
                                                                             
Appendix II                                                                17
IRS Initiatives to
Improve the Notices It
Sends to Taxpayers
                           Notice-Reengineering Project                    17
                           Customer Service Task Force Report:             17
                           Reinventing Service at the IRS
                           IRS Initiatives to Improve Notices              18
                                                                             
Appendix III                                                               19
Existing and Planned IRS
Systems That Could
Involve Tracking
                           Existing Systems                                19
                           Planned Systems                                 20
                                                                             
Appendix IV                                                                21
Comments From the
Internal Revenue Service
                                                                             

Abbreviations

IRS       Internal Revenue Service
NPR       National Performance Review
QRDB      Quality Review Database

B-284256

Page 13         GAO/GGD-00-54 Tracking IRS Notices
B-284256

March 28, 2000

The Honorable Bill Archer
Chairman, Committee on Ways and Means
House of Representatives

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

In fiscal year 1998, the Internal Revenue Service
(IRS) sent over 80 million notices to individual
taxpayers about various enforcement actions, such
as audits or demands for payment of past due tax
debts. If taxpayers disagreed with or did not
understand how to respond to a notice, they could
call IRS toll-free. In fiscal year 1998, IRS
received at least 20 million calls regarding
notices. Notices that are wrong or not easily
understood may impose a burden on taxpayers that
is potentially preventable.

Given your interest in reducing taxpayers' burden
and whether information obtained during telephone
calls from taxpayers about notices could be useful
in identifying notices that are causing certain
problems, such as confusing instructions or
incorrect information, you asked us to determine
(1) whether IRS tracks information about notices
from individual taxpayers who call IRS and (2) if
not, whether such a tracking system could be
useful and feasible. To answer these questions, we
talked with responsible IRS officials, visited
three other tax agencies,1 and reviewed relevant
literature. We based our assessment of the
usefulness, feasibility, and cost of tracking
information about notices on the views of IRS
officials.

Results in Brief
IRS does not track information2 during telephone
calls from taxpayers about notices. Such
information could include the number of calls
generated about each notice or the problems cited
during the calls. Instead, IRS identifies problem
notices through ad hoc discussions with IRS
employees who have interacted with taxpayers.  IRS
officials said that it has not developed a
tracking system because its higher priority is
modernizing IRS' computer systems and stabilizing
its existing systems as it modernizes.

IRS officials said that a tracking system could be
useful in improving notices. They said that the
degree of usefulness would depend on the
information tracked. For example, they said that
it would be useful to track information about
notices that generated the most calls or the most
problems so that the most significant problems
could be addressed. In addition, the literature we
reviewed and three other tax agencies we visited
reported that collecting such information from
customers was useful, for example, in identifying
problems.

IRS officials believed it would be feasible to
track some information about notices during
telephone calls. These officials identified at
least three existing systems that could be
modified to track information, such as the type of
notice and problems associated with the notice.
These systems included one that helps IRS
assistors handle all calls, a quality review
system for a sample of calls, and a system used to
survey a sample of callers about their
satisfaction with IRS' services. IRS officials
also identified planned systems that could be
enhanced to track notice information.

The cost of tracking information from taxpayers
about notices is also an important factor in
deciding whether such a tracking system is
economically feasible. Costs would include those
to modify an existing system and to enhance
computer systems that are to be developed over the
next 5 to 7 years so that they collect the
information about notices.  The amount of
additional cost incurred to collect the
information would depend on the number of calls
involved in the tracking, the amount of
information collected, and the extent to which
extra time is spent on such calls.  For example,
collecting information from a sample of calls
would cost less than collecting information from
all calls.

IRS officials raised two concerns with modifying
an existing system for the purpose of tracking in
the short term. First, the officials said that
major modifications to an existing system could
create instability in that system, causing other
problems. Second, the officials were concerned
that spending significant resources to modify any
existing system could disrupt IRS' computer
modernization effort.

We are recommending that IRS explore the cost-
effectiveness of both modifying one of the
existing systems and enhancing one of the planned
systems in order to track some information from
taxpayers who call about notices.  To the extent
warranted, IRS should make the modifications and
the enhancements as soon as possible.

Background
Each year, IRS sends millions of notices to
individual taxpayers. Notices are often the first
IRS contact with taxpayers to alert them to
potential tax problems, such as unpaid
assessments, changes to reported assessments, and
errors found on filed tax returns. In fiscal year
1998, IRS sent over 80 million such notices to
individuals. If notices are unclear, inaccurate,
or unnecessary, they can lead to taxpayer mistakes
and contacts with IRS through calls,
correspondence, or visits.

Each notice includes a toll-free telephone number
that taxpayers can call to discuss a notice. IRS
also has toll-free numbers that allow taxpayers to
request forms and ask questions about tax law.
During fiscal year 1998, taxpayers made 100
million telephone calls to these toll-free lines.

In recent years, we have issued three reports that
identify problems with IRS' written products such
as correspondences, forms, publications, and
notices.3  These problems include information sent
to taxpayers that was incorrect or unclear, among
other things.  Our reports also discussed the need
to improve these written products and to track
information on taxpayer concerns. Appendix I
summarizes these three reports.

IRS has the following three systems that contain
some data about notices or calls.

ï¿½    The Integrated Case Processing system
provides telephone assistors with historical
taxpayer data, such as the dates of notices, from
several IRS databases to help respond more
effectively to taxpayer calls.
ï¿½    The Quality Review Database (QRDB) enables
IRS to review and collect data on the quality of
employees' interactions with a sample of
taxpayers, which is used to determine how well IRS
telephone assistors respond to taxpayers.
ï¿½    The Customer Satisfaction Survey collects
data from a sample of taxpayers on their
satisfaction with IRS services, such as toll-free
telephone lines.

Within the next 5 to 7 years, IRS plans to develop
sophisticated systems that contain a history of
written and telephone contacts between IRS and
individual taxpayers. Appendix III summarizes
these existing and planned systems.

Scope and Methodology
To obtain information on whether IRS tracks
information about notices in calls from individual
taxpayers, we talked to IRS officials in the
Customer Service Division and the Office of the
Taxpayer Advocate.4  We obtained information on
IRS' notices and telephone systems, including the
number of notices sent and telephone calls
received.

To determine the potential usefulness of tracking
information about notices from calls, we talked to
IRS' Customer Service and Taxpayer Advocate
officials. We reviewed our previous reports with
recommendations about notices and available
literature on customer service. We also reviewed
information from one of our ongoing reviews to
determine how three other tax agencies used
information obtained during taxpayers' calls about
notices.

To learn about the potential feasibility of
tracking information about notices from calls, we
discussed various ways of doing so, such as
potential modifications to existing systems, with
responsible IRS officials. We obtained information
about systems used by other tax agencies and
described in the literature to identify
established ways of collecting information from
telephone calls. In addition, we talked to the IRS
officials and obtained information from the
literature on the types of costs that would be
incurred in tracking information about notices
from calls.

We did our work at IRS' headquarters offices in
Washington, D.C., and New Carrollton, MD. We also
did work in IRS' Western Region, Northern
California District Office, and Fresno Service
Center because of the close proximity of our staff
in San Francisco. Finally, we did work at the
three other tax agencies in Springfield, IL;
Sacramento, CA; and Ottawa, Canada. Our work was
done between October 1999 and February 2000 in
accordance with generally accepted government
auditing standards.

On March 17, 2000, we met with representatives of
the Commissioner of Internal Revenue to obtain
comments on a draft of this report. IRS' written
comments are discussed at the end of this letter
and reprinted in appendix IV.

IRS Does Not Track Information About Notices From
Taxpayers Who Call IRS
IRS has no system to track information from
taxpayers who call about notices.  IRS officials
said that creating a tracking system has not been
as high a priority as modernizing IRS' computer
systems. To that end, IRS officials said they also
place a high priority on stabilizing existing
systems until the modernized computer systems are
implemented in the next 5 to 7 years.

Further, IRS has no existing system that links
information from its separate telephone and notice
systems. IRS counts the number of notices for
about 80 types of notices for individuals. IRS has
been issuing over 80 million notices in recent
years to an estimated 43 million taxpayers. IRS
also counts the number of telephone calls received
on its toll-free lines about such topics as tax
forms, tax law, tax refunds, and notices. IRS
knows that at least 20 million of these calls
involved notices, but not which notices or why
taxpayers called about them.

Without a systematic way to track information
about notices from taxpayers, IRS relies on
employees' recollection to identify notices that
are causing problems for taxpayers who visit or
call IRS when problems with notices occur. IRS has
no system that regularly compiles data from the
employees to identify which notices are causing
the most problems for taxpayers. Rather, this
method for identifying problem notices occurs on
an ad hoc basis.  IRS officials believe this
method identifies notices causing the most
problems.  However, IRS has not measured the cost-
effectiveness or representativeness of this method
for identifying problem notices.

Although IRS has not tracked information about
notices from taxpayers' calls, IRS has recognized
problems with its notices. In 1995 and 1996, IRS'
Notices Reengineering Project identified notices
that could be eliminated or consolidated. In
response to recommendations in the 1997 National
Performance Review (NPR) report,5 IRS took steps
to implement recommendations for improving
notices. For example, IRS created a senior-level
notice gatekeeper position to oversee and
coordinate notice-related activities. More
recently, IRS has been working on other
initiatives to improve notice operations. Appendix
II summarizes many of these IRS efforts.

Tracking Information About Notices From Taxpayers
Who Call IRS Could Be Useful
IRS officials said that tracking information about
notices during calls from taxpayers could be
useful in improving notices. IRS is placing a
greater emphasis on improving customer service and
reducing taxpayer burden. To meet these ends, IRS
officials said that knowing the reasons that
taxpayers call about notices would be worthwhile
information to gather.

These IRS officials also said that the usefulness
of the tracking would depend on the amount and
specificity of the information. For example,
knowing which notices generated the most calls
could be indicative of problems with the notices.
Knowing the specific reasons for the calls and
problems with the notices-such as confusing
instructions, incorrect information, or
unnecessary notices-also would be useful.

With enough specific information from tracking,
IRS could isolate the problem and potential
solutions or decide to study the problem and
solutions in a targeted fashion. Such actions
could help to reduce the burdens on taxpayers as
well as IRS' costs, particularly if IRS no longer
sent unnecessary notices or had to respond to
calls about confusing, incorrect, or unnecessary
notices.

Outside IRS, the concept of tracking information
from customers is well-established. We found this
to be true in our visits to three other tax
agencies as well as in our reviews of the NPR
report and the literature.

In our discussions with the three other tax
agencies6 regarding the usefulness of tracking
information about notices during calls from
taxpayers, we were told that these agencies have
found tracking to be useful. For example, these
agencies generally used the tracking to identify
why taxpayers called in order to isolate a
specific problem, such as with a particular
notice, that generated the call. These agencies
also used this information to identify ways to fix
the problem and thus reduce the need for taxpayers
to call. Specifically, the methods used for the
tracking and the uses of the information tracked
at these agencies were the following:

ï¿½    a study of a statistically valid sample of
calls to profile the specific nature of calls and
identify notices that created problems;
ï¿½    surveys of samples of callers to identify the
root causes of the need to call and the actions
that could address potential problems before they
occur; and
ï¿½    a computer coding system to identify problems
that were generating calls and to provide
information for improving customer service.

The NPR report pointed out that the best companies
in America handle customer problems by making it
easy for customers to complain when they are
dissatisfied. In fact, the NPR report recommended
that IRS create a system to track complaints from
taxpayers.7

Our review of selected literature showed that the
best companies viewed complaints as a valuable
source of information about their operations and
about problems that they can fix. When a complaint
leads an organization to understand and fix a
problem, overall performance can improve and costs
can be reduced. IRS has provided its managers in
Customer Service with a book that summarizes the
usefulness of capturing customer feedback.8 The
book states that outstanding customer care, among
other things, gathers sufficient data about the
call to improve market intelligence and elicit
feedback to help prevent any such call in the
future.  This philosophy seems to be common among
businesses that handle calls from customers.

Tracking Information About Notices From Taxpayers
Who Call IRS Would Be Feasible
IRS officials believed that tracking information
about notices from taxpayers who call would be
feasible. IRS officials identified at least three
existing systems that involve customer service
activities and could be modified to track at least
limited information about notices when taxpayers
call. One would track information from all
taxpayers who call about notices. The other two
systems would collect the information from samples
of taxpayers. The following summarizes each system
and possible modifications.

ï¿½    Integrated Case Processing. This
comprehensive computerized system, among other
things, provides the telephone assistor with
access to existing IRS databases on taxpayers'
accounts, which better equips the assistor to
address taxpayers' calls. This system also
provides a history of actions taken on each
account. The modification would be to add data
fields during system upgrades on why the taxpayer
called about a particular notice.

ï¿½    QRDB. IRS selects samples of calls to review
the quality of staff responses in serving the
taxpayer. Quality reviewers listen to these calls
and record the results on a checksheet. IRS enters
the results into a database that already has data
fields that could be used to record the type of
notice and reasons that taxpayers called. The
modification would be to revise the quality review
checksheet and procedures to collect information
about notices from the taxpayers in the review
samples.

ï¿½    Customer Satisfaction Survey. IRS does a
telephone survey with samples of taxpayers after
they finish their calls to the telephone
assistors. The survey attempts to assess
taxpayers' satisfaction with the service received
during calls. The survey already asks, through
electronic queries on the telephone, for their
satisfaction with calls about notices. The
modification to this survey would be to ask about
the type of notice and the problem with it.

Cost to Track Within Existing Systems
IRS has not studied the costs, including taxpayer
burden, of modifying these existing systems and
collecting information about notices from
taxpayers' calls.  Even so, IRS officials said
that these costs would not necessarily be
prohibitive if the modifications and collection
methods were fairly minor.  These officials
represented IRS' notice and telephone programs as
well as each of the three systems.

IRS officials had some comments about certain
potential costs from doing the tracking through
one of the three existing systems.  These
officials usually commented on the costs to modify
a system and collect the information rather than
the costs to later analyze the information to
identify any problems and develop solutions.9

In general, IRS officials believed that the
modification costs would be greater for the
Integrated Case Processing system. They pointed to
the need for computer programming changes to
collect and record the information about the
notice. Also, IRS would incur some costs to train
the telephone assistors in order to ensure
consistent collection of the information.

Modification costs for the QRDB and Customer
Satisfaction Survey systems would be less
extensive; at least a couple of items would be
added to both the reviewer checksheet and the
survey. IRS officials generally did not view these
costs to be high, particularly if the changes were
procedural in nature. In addition, IRS' office
responsible for the survey said reprogramming
would have to be done to add the questions to the
telephone system.

Such modifications would not necessarily require
much training for IRS employees. Some training
would be needed so that the (1) telephone
assistors would know how to probe for more
information, if necessary, and (2) quality
reviewers would know what to listen for when
taxpayers call about notices or how to
consistently record the information collected.

The cost of collecting the information would
depend on the number of calls involved in the
tracking, the amount of information collected, and
the amount of any extra time spent on the calls.
Statistically sampling from among the calls would
cost less than collecting the information from all
calls. If the sampling represented the universe of
calls, it could achieve the same end as collecting
information from all calls.

A longer call would add to the time that IRS
employees spend in collecting the information and
could potentially burden taxpayers in two ways.
First, the caller could feel burdened by the added
time. Second, a longer call-to the extent that the
existing number of telephone assistors would
handle fewer calls in a day-could limit or delay
access for other taxpayers who are trying to call
IRS for assistance.

IRS officials believed that using the Integrated
Case Processing system could lengthen the
telephone calls as the assistor records the
information collected from taxpayers. Using the
Customer Satisfaction Survey would not extend the
time spent with the assistor, but could require
the taxpayer to spend additional time afterwards
answering questions about notices during the
survey by pressing buttons on the telephone. Of
course, taxpayers could opt not to participate.
The QRDB would be unlikely to extend the call,
unless the assistor had to probe more than usual
to identify the specific problem with a specific
notice.

IRS Officials Have Concerns About Tracking
IRS officials raised concerns with modifying an
existing system for purposes of tracking in the
short term. First, the officials said that major
modifications to an existing system could create
instability in that system, causing problems
elsewhere in IRS. Second, the officials were
concerned that spending significant resources to
modify any existing system could disrupt IRS'
computer modernization effort, which is among IRS'
highest priorities. For both concerns, IRS
officials pointed to the Integrated Case
Processing system as one that would be vulnerable
to such instability and disruption.

As IRS undergoes computer modernization over the
next 5 to 7 years, IRS officials said that
developing the tracking capability could be done
with less instability and disruption through the
modernization effort than with short-term
modifications to an existing system. Although none
of the planned computer systems being developed
currently allow for a tracking capability, IRS
officials identified several planned systems that
could be enhanced at acceptable costs to track the
information (see app. III).

For example, one planned system, known as Customer
Relationship Management Core, is being designed to
provide a history of contacts-including notices
and telephone calls-with specific taxpayers. IRS
officials said that the cost-effectiveness of
adding the tracking capability to this or any
other planned system would have to be analyzed and
compared to the cost-effectiveness of other
computer modernization requirements.

Other Views on Feasibility and Costs
Our review of the three tax agencies and the
literature showed that tracking information from
taxpayers when they call is feasible. For example,
each of the three tax agencies, as previously
discussed, has found some feasible tracking
method, such as computer coding and surveys of
random samples of calls.

Similarly, the literature reported that many
companies have found tracking to be feasible and
discussed cost issues. For example, the literature
discussed the potentially high costs of tracking
extensive information and analyzing detailed root
causes of any problems identified by the tracking.

Ultimately, the extent to which tracking and
analysis are done depends on how the organization
views and uses the results and justifies the
costs. According to selected literature, if
tracking and analysis were viewed as investments
instead of expenses and the results were shared
across the organization, their cost-effectiveness
could become apparent. Sharing direct customer
information in this manner could significantly
contribute to the products and services that the
organization offers.

Conclusions
IRS has not tracked information about notices that
taxpayers provide during calls. IRS' efforts to
modernize its computer systems and stabilize
existing systems have been higher priorities.
However, the literature and three other tax
agencies we reviewed have found that tracking
information from customers is useful and feasible,
and IRS officials believe that such tracking could
be useful and feasible for improving notices.

For the short term, IRS has at least three
existing systems that could, with modifications,
make tracking information about notices feasible.
Beyond modification costs, other costs would be
incurred in extending the time spent on calls to
collect and compile the information. Collecting
limited information, such as the type of notice
and problem, from a random sample of calls rather
than all calls could reduce these costs. For the
long term, the costs to enhance one of the planned
systems that involve taxpayer contacts could be
acceptable. IRS officials also expressed concerns
about making major modifications that would create
instability to existing systems and disruptions to
IRS' computer modernization effort.

The benefits of tracking could be substantial
because of the large number of taxpayers who call
IRS about notices. If the information helps IRS to
correct specific problems with specific notices,
IRS could reduce the number of problem notices and
the need for some portion of the 20 million or
more annual calls about notices. The related
benefits would be lower administrative costs and
less burden on taxpayers who receive notices.

Recommendations
To help IRS' efforts to improve notices, we
recommend that the Commissioner of Internal
Revenue direct responsible staff to explore, as
soon as possible, the cost-effectiveness of
tracking information from taxpayers who call about
notices by modifying one of IRS' existing systems
in the short term.  IRS also should explore the
cost-effectiveness of doing such tracking by
enhancing one of the planned systems being
developed as part of IRS' long-term modernization
effort.

In determining the cost-effectiveness of doing the
tracking through both the existing and planned
systems, IRS should consider the gains to customer
service from improving the notices and the impacts
on other IRS systems and priorities.  To the
extent that cost-effectiveness is determined for
these existing and planned systems, IRS should
make the modifications and the enhancements as
soon as possible.

Agency Comments
On March 17, 2000, we met with officials from IRS'
Customer Service Division to discuss their
comments on this report. IRS' written comments are
reprinted in appendix IV.

IRS officials told us they agreed with our
recommendation to explore the cost-effectiveness
of modifying one of IRS' existing systems to track
feedback about notices from taxpayers who call
IRS.  After analyzing the costs to modify these
existing systems, IRS officials said that QRDB
would be used to begin collecting the data by
April 1, 2000.  They also said that QRDB is the
best system to use because it would require no
systemic changes and would have no impact on
taxpayers or telephone assistors.

IRS officials told us they generally agreed with
our recommendation that IRS explore the cost-
effectiveness of doing such tracking by enhancing
one of the planned systems being developed as part
of IRS' modernization effort.  IRS officials said
that all three future systems discussed in our
report would be excellent tools for quality
reviewers to use with QRDB to further identify
specific problems that taxpayers have with
notices.  They said that IRS would continue to
explore the possible uses of these systems as they
are developed.

IRS officials also told us they generally agreed
with our recommendation to consider customer
service and impacts on other IRS systems when
determining the cost-effectiveness of doing the
tracking.  IRS officials said they considered
these issues in choosing QRDB as the existing
system through which to do the tracking.  At our
March 17 meeting, IRS officials told us that as
IRS develops its planned systems, it also would
account for such considerations in determining the
cost-effectiveness of doing the tracking.

We are sending copies of this report to
Representative Charles B. Rangel, Ranking Minority
Member, House Committee on Ways and Means;
Representative William J. Coyne, Ranking Minority
Member, Subcommittee on Oversight, House Committee
on Ways and Means; and Senator William V. Roth,
Jr., Chairman, and Senator Daniel P. Moynihan,
Ranking Minority Member, Senate Committee on
Finance. 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 of
this report will be made available to others upon
request.

If you have any questions regarding this report,
please contact Tom Short or me at (202) 512-9110.
Key contributors to this assignment were Kathleen
Seymour and Rodney Hobbs.

Cornelia M. Ashby
Associate Director, Tax Policy and
  Administration Issues

_______________________________
1Another GAO team is visiting several outside tax
agencies as part of a review of IRS telephone
assistance and has learned that these entities
collect information from taxpayer calls.
Specifically, these agencies included Canada's
Department of Customs and Revenue, Illinois'
Department of Revenue, and California's Franchise
Tax Board.
2By "track" we mean, a systematic way for IRS to
collect and compile taxpayer information from
telephone calls.  By "information," we mean any
type of input that IRS receives during the calls,
such as comments or inquiries about a notice.
3Tax Administration: More Improvement Needed in
IRS Correspondence (GAO/GGD-94-118, June 1, 1994);
Tax Administration: IRS Notices Can Be Improved
(GAO-GGD-95-6, Dec. 7, 1994); and Tax
Administration: IRS Efforts to Improve Forms and
Publications (GAO/GGD-95-34, Dec. 7, 1994).
4IRS' Customer Service Division is responsible for
the notices and toll-free telephone services,
among other things. IRS' Taxpayer Advocate is
responsible for helping taxpayers resolve long-
standing tax problems as well as addressing
systemic problems with the tax system.
5Reinventing Service at the IRS, IRS Publication
2197 (Mar. 1998).
6As previously mentioned, these tax agencies
served Canada, Illinois, and California.
7IRS recently developed two systems to track
taxpayer complaints about IRS employees and long-
standing unresolved problems. To date, these
systems have not focused on complaints about
notices. IRS officials responsible for these
systems said many programming changes would be
necessary to specifically track information about
notices. Also, neither of these systems are part
of the Customer Service Division, which is
responsible for telephone services and notices.
8Michael Cusack, Online Customer Care: Applying
Today's Technology to Achieve World-Class Customer
Interaction (Milwaukee, WI, ASQ Quality Press,
Mar. 1998).
9The costs to collect the information from
taxpayers would be a function of how much
information is collected. In discussions with IRS
officials, we assumed that the systems would at
least track the specific notice and specific
problem or issue with that notice. In addition to
the amount of information collected, analysis
costs would be a function of other factors, such
as the method used and need for any follow-up
study or data collection to identify the root
causes or test possible solutions.

Appendix I
Previous GAO Reports on IRS Notices and Taxpayer
Inquiries
Page 17         GAO/GGD-00-54 Tracking IRS Notices
The following are our previous reports pertaining
to Internal Revenue Service (IRS) notices and
correspondence.

Tax Administration: More Improvement Needed in IRS
Correspondence (GAO/GGD-94-118, June 1, 1994). We
reported that IRS' responses to taxpayer letters
had continually been delayed, inaccurate,
incomplete, and confusing. IRS had made progress
in correcting these problems by adopting quality
and timeliness standards and by expanding quality
reviews of outgoing mail; however, some problems
persisted. We recommended, among other things,
that IRS clarify its

ï¿½    notices, letters, and publications to better
inform taxpayers of those situations that can be
handled by a telephone call and
ï¿½    procedures for responding to taxpayer
requests to ensure that their questions do not go
unanswered.

Tax Administration: IRS Notices Can Be Improved
(GAO/GGD-95-6, Dec. 7, 1994). We reported that IRS
annually sent millions of notices to taxpayers
about the status of their tax accounts. We
reviewed 47 of the most commonly used notices and
identified clarity concerns with 31. We also found
that IRS' ability to improve its notices was
adversely affected by limited computer programming
resources and higher priority programming
requests. Further, the lack of a system to track
the progress of proposed changes to notice
language limited IRS' ability to oversee
improvements to the clarity of notices. We
recommended changes to IRS' process for generating
and revising notices.

Tax Administration: IRS Efforts to Improve Forms
and Publications (GAO/GGD-95-34, Dec. 7, 1994). We
reported that providing taxpayers with easy-to-
read tax forms and publications was a difficult
task for several reasons. Because the tax code was
frequently revised, many publications must also be
revised annually under short time constraints. In
addition, taxpayers' comprehension levels can
vary. Generally, we found IRS' process for
developing and revising tax forms and publications
to be reasonable. IRS maintained a dialogue with
tax professionals and attempted to generate
feedback from taxpayers.

We recommended that IRS take additional steps to
identify the specific concerns of individual
taxpayers. Specifically, gathering information on
the nature of taxpayer questions through its toll-
free telephone system and soliciting input from
IRS field personnel who have more contact with
taxpayers would generate additional useful
feedback to IRS.

Appendix II
IRS Initiatives to Improve the Notices It Sends to
Taxpayers
Page 18         GAO/GGD-00-54 Tracking IRS Notices
IRS has engaged in a number of efforts to improve
its notices. These include a three-phase Notice-
Reengineering Project, a review on reinventing IRS
service to taxpayers, and ongoing initiatives
designed to improve notices and customer service.
The following summarizes each of these efforts.

Notice-Reengineering Project
The first phase of the Notice-Reengineering
Project was to reduce the number of notices
generated by 30 percent, beginning at the start of
the 1996 tax filing season. The analysis focused
on 44 high-volume notices that had generated about
106.7 million notices. In December 1995, IRS
reported that if the project's recommendations
were implemented, 51.8 million fewer notices would
be generated with near-term cost savings of $160.1
million.

The second phase looked at notices not analyzed in
the first report. IRS reported in May 1996 that if
all of the project's recommendations on these
other notices were implemented, the total
reduction in notice volume would be 3.6 million
notices, with cost savings of $10.9 million. The
team estimated that of the $10.9 million savings,
$1.4 million was related to issuing notices and
$9.5 million was related to resolving notice
inquiries.

The third phase examined notices and
correspondence that the first two teams did not
review. IRS reported in October 1996 that if all
of these recommendations were implemented, the
direct savings would total $23.9 million ($10.5
million related to issuing the notices and $13.4
million in resolution costs) and notice volume
would be reduced by 5.9 million notices.

Customer Service Task Force Report: Reinventing
Service at the IRS
The report from the IRS Customer Service Task
Force of the National Performance Review
identified over 200 actions that would improve
service to taxpayers, including 38 actions for
simplifying forms, notices, and correspondence and
11 actions for providing better telephone service.

IRS interviewed taxpayers and tax practitioners
and held focus groups to identify problems with
notices, revised and eliminated some notices, and
surveyed taxpayers to determine if the changes
were effective. IRS also created a notice
gatekeeper position as recommended in the report.
Further, IRS set up a plan for implementing the
report's recommendations, which resulted in some
of them being reprioritized. IRS is still working
to fully implement these recommendations.

IRS Initiatives to Improve Notices
The Office of the Notice Gatekeeper, which
coordinates notice-related activities, established
an action plan for several initiatives to improve
notices and the activities of the office. Updated
monthly, the action plan summarizes each
initiative and provides the names of responsible
employees, status changes, and near- and long-term
target completion dates. Following are some of the
February 2000 updated entries to indicate the
range of initiatives.

ï¿½    Finalize contracts for redesigning notices
that have not been redesigned, identifying notices
suitable for consolidation, and analyzing
suitability of sending notices that involve small
dollar amounts.
ï¿½    Hire staff to help eliminate notices that
were identified as suitable for elimination.
ï¿½    Resolve major impediments to providing
screens for "notice viewing," which would allow
telephone assistors to access on their computer
screens the actual notices and taxpayers'
historical records to help answer questions from
taxpayers.
ï¿½    Develop a system with word processing
capabilities to customize letters to taxpayers
when warranted.
ï¿½    Design and build Intranet and Internet Web
sites to serve as ready- reference sources for
taxpayers and IRS, answer frequently asked
questions, and make copies of the most current
version of each notice available on-line to
taxpayers.
ï¿½    Train new employees in IRS requirements for
notice clarity and notice design.
ï¿½    Develop survey questions to capture notice-
related customer satisfaction information.
ï¿½    Eliminate local (district) notices or
incorporate them into the national system of
notices, when appropriate, to be more consistent
in contacting taxpayers.
ï¿½    Set up an annual notice conference within IRS
to establish goals and timetables for the next
year and to resolve operational problems.
ï¿½    With contractor assistance, do comprehensive
analysis of the notice process, implement
identified process changes as appropriate,
determine whether organizational changes are
needed, and design revised structure.
ï¿½    Develop a notice management information
system that can eventually collect, trend, and
analyze notice workload data.

Appendix III
Existing and Planned IRS Systems That Could
Involve Tracking
Page 20         GAO/GGD-00-54 Tracking IRS Notices
IRS has systems in place, and planned, that might
be modified to track information about notices
from taxpayers who call IRS. IRS officials said
that although these systems were not specifically
designed to capture such information, it would be
feasible to modify them. Following are brief
summaries of the existing and planned systems.

Existing Systems
Integrated Case Processing. IRS' Integrated Case
Processing system provides a series of questions
and prompts to help telephone assistors work
through various kinds of taxpayer issues, as well
as make queries and update taxpayer accounts, with
assurance that the data will be reconciled among
the different databases. It is to have a call-
routing feature to route taxpayers' calls to the
next available assistor who would be most skilled
at addressing a taxpayer's question or issue. IRS
officials view Integrated Case Processing as a
temporary system to bridge current older systems
to the modern systems being developed. IRS plans
to deploy Integrated Case Processing to the
remaining Service Center customer service sites
after the 2000 filing season.

Quality Review Database (QRDB). Working in two
phases-review of telephone calls and review of
paper cases-QRDB consolidates Customer Service
quality reviews into one database at the
Philadelphia Customer Service call site. In the
quality review, IRS staff monitor and score
telephone assistors' responsiveness and accuracy
in responding to taxpayer inquiries for a
statistically projectable sample of taxpayers.
Managers can review on-line quality results on the
database. IRS is currently developing another
database to analyze the content of IRS assistors'
interactions with taxpayers in the sample. The
goal is to determine what factors drive taxpayer
demand for telephone assistance. IRS expects to
obtain its first results in June 2000.

Customer Satisfaction Survey. This is an ongoing
survey being done to measure taxpayer satisfaction
with IRS' toll-free lines, identify issues that
influence taxpayer satisfaction ratings, and
identify areas where improvements will have the
greatest impact on taxpayer satisfaction. When a
taxpayer calls an IRS toll-free line, he or she
may be notified at the end of the call that a
predetermined sampling pattern has selected this
call for the survey. If the taxpayer agrees, the
call is transferred to another person who asks
questions about the taxpayer's overall
satisfaction with 10 criteria, such as courtesy of
the IRS assistor, ease of getting through, or
completeness of information received. The survey
does not ask about taxpayer satisfaction with
notices.

Planned Systems
Correspondence and Document on Demand Imaging.
This system is to support the electronic
processing of taxpayer correspondence and selected
documents as requested from IRS service center
files and the federal records centers. Generally,
the imaging system will allow telephone assistors
to display an electronic image of correspondence
in an electronic case folder while servicing the
taxpayer. It will also reduce the manual effort
that is currently required to retrieve and handle
paper documents, such as tax returns. The imaging
system is to be built incrementally with a
completion date of 2005.

Customer Relationship Management Core. This system
is being designed around an universal case folder
that will capture information from each taxpayer
and track all transactions, such as notices,
forms, publications, and letters, that the
taxpayer receives until the case is closed. A
telephone  assistor would be able to pull up this
historical information each time the taxpayer
called in. It could also capture feedback for
management purposes. The project's completion is
scheduled between 2005 and 2007. It will have
components for IRS' Examination and Collection
Divisions that are to aid in resolving taxpayer
cases. The system is to be initially deployed in
Examination by May 2001, but initial deployment
has not yet been scheduled for Collection.

Customer Account Data Engine. This system is a
repository for tax account and tax return
information and will assist in tax administration.
It will incrementally replace the IRS Master Files
and Integrated Data Retrieval System that are
becoming obsolete. The new system will begin with
the simplest accounts and returns-those in the
Wage and Investment Business Operating
Division-and will be the foundation for many
future projects that need taxpayer account and
return data. Completion of the initial phase is
scheduled for 2005, with total system completion
by 2007.

Appendix IV
Comments From the Internal Revenue Service
Page 23         GAO/GGD-00-54 Tracking IRS Notices

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