The 1995 Tax Filing Season: IRS Performance Indicators Provide Incomplete
Information About Some Problems (Letter Report, 12/29/95, GAO/GGD-96-48).
Pursuant to a congressional request, GAO reviewed the Internal Revenue
Service's (IRS) performance during the 1995 tax filing season, focusing
on the: (1) processing of individual income tax returns and refunds; (2)
ability of taxpayers to reach IRS by telephone; and (3) new IRS computer
system for processing returns.
GAO found that: (1) of the 74 million refunds IRS issued as of June 16,
1995, 7 million were delayed for up to 8 weeks because of systematic
checks for questionable refund claims; (2) IRS delayed refunds on
returns with missing or invalid social security numbers (SSN) to
identify duplicate uses of the same SSN and fraud schemes; (3) although
IRS answered 11 percent more calls from taxpayers in the 1995 filing
season, the chance of reaching an IRS assistor was not very good; and
(4) IRS experienced numerous problems with its electronic image computer
system, including extensive downtime and slow processing rates, that
hampered productivity.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: GGD-96-48
TITLE: The 1995 Tax Filing Season: IRS Performance Indicators
Provide Incomplete Information About Some Problems
DATE: 12/29/95
SUBJECT: Personal income taxes
Tax refunds
Taxpayers
Fraud
Social security number
Telephone communications operations
Computerized information systems
Questionable payments
Tax returns
Information processing operations
IDENTIFIER: IRS 1040PC Program
IRS TeleFile Program
IRS Service Center Recognition/Image Processing System
Earned Income Tax Credit
IRS Electronic Filing System
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Cover
================================================================ COVER
Report to the Chairman, Subcommittee on Oversight, Committee on Ways
and Means, House of Representatives
December 1995
THE 1995 TAX FILING SEASON - IRS
PERFORMANCE INDICATORS PROVIDE
INCOMPLETE INFORMATION ABOUT SOME
PROBLEMS
GAO/GGD-96-48
The 1995 Filing Season
(268674)
Abbreviations
=============================================================== ABBREV
DDI - Direct Deposit Indicator
DPS - Document Processing System
EIC - Earned Income Credit
FMS - Financial Management Service
FTD - federal tax deposit
IRP - Information Returns Program
IRS - Internal Revenue Service
RPS - Remittance Processing System
SCRIPS - Service Center Recognition/Image Processing System
SSN - Social Security number
Letter
=============================================================== LETTER
B-259952
December 29, 1995
The Honorable Nancy L. Johnson
Chairman, Subcommittee on Oversight
Committee on Ways and Means
House of Representatives
Dear Chairman Johnson:
This report responds to your request that we assess the Internal
Revenue Service's (IRS) performance during the 1995 tax filing
season. Specifically, we discuss (1) the processing of individual
income tax returns and refunds, including information on IRS' efforts
to combat refund fraud; (2) the ability of taxpayers to reach IRS by
telephone; and (3) the performance of a new computer system for
processing returns. We provided information on the interim results
of our work in a February 1995 testimony\1 before the Subcommittee.
--------------------
\1 Tax Administration: IRS' Fiscal Year 1996 Budget Request and the
1995 Filing Season (GAO/T-GGD-95-77, Feb. 27, 1995).
RESULTS IN BRIEF
------------------------------------------------------------ Letter :1
IRS indicators show that its 1995 filing season goals were generally
met. For example, IRS received more individual income tax returns in
1995 than in 1994; answered 11 percent more telephone calls than
expected; issued refunds on average faster than its goal of 40 days;
and accurately filled 97 percent of taxpayers' orders for forms and
publications. However, those indicators do not provide a complete
assessment of the filing season. There were several serious problems
not obvious from the indicators: (1) IRS' efforts to combat fraud
generated much adverse publicity that might have been alleviated if
IRS had better forewarned taxpayers of potential refund delays; (2)
our tests and IRS data showed that taxpayers continued to have
serious problems trying to reach IRS by telephone; and (3) a new
document imaging system did not perform as expected, leading to
increased returns processing costs and lower-than-expected
productivity.
Of the 74 million refunds IRS issued as of June 16, 1995, over 7
million (10 percent) were delayed for up to 8 weeks because of
systematic checks for questionable refund claims that IRS initiated
in 1995. IRS delayed refunds on returns that were received with
missing or invalid Social Security numbers (SSN). IRS also delayed
refunds on many returns that had no SSN problems, with an emphasis on
returns claiming the Earned Income Credit (EIC), to allow staff time
to identify duplicate uses of the same SSN and fraud schemes.
Although IRS found many problem returns, it also delayed the refunds
of millions of taxpayers whose SSNs were found to be valid.
According to one of IRS' indicators, refunds from returns filed on
paper were received by taxpayers within an average of 36 days from
the date the return was signed--the same average number of days IRS
reported achieving in 1994. However, that result is misleading
because IRS excluded from its computation in 1995 all of the delayed
refunds, even if the refund was eventually determined to be valid.
In addition, while we support IRS' decision to delay refunds to
ensure their validity, we believe that some of the adverse publicity
that ensued might have been avoided if IRS had done a better job of
forewarning taxpayers.
Although IRS answered 11 percent more calls from taxpayers with tax
law, account, or procedural questions than it estimated it could
answer during the 1995 filing season, that indicator masks the fact
that IRS received many more calls than it was able to answer and that
a taxpayer's chances of reaching an IRS assistor during the 1995
filing season were not very good. We tested the telephone system's
accessibility by making 2,821 calls during two 2-week periods in the
1995 filing season. We succeeded in getting through to an IRS
assistor only 249 times (9 percent).
While most of IRS' computer systems performed without significant
problems during the 1995 filing season, a new system designed to scan
and produce an electronic image of certain tax returns and other
documents did not perform to the level that IRS had expected.
Throughout the 1995 filing season, IRS' processing centers reported
numerous problems with the system. Extensive downtime and
slower-than-expected processing rates limited system effectiveness
and hampered productivity.
OBJECTIVE, SCOPE, AND
METHODOLOGY
------------------------------------------------------------ Letter :2
Our objective was to assess IRS' performance during the 1995 filing
season.
To achieve our objective, we
interviewed IRS National Office officials and IRS officials in the
Atlanta, Austin, Cincinnati, Fresno, Kansas City, Memphis, and
Ogden service centers responsible for the various activities we
assessed;
tested the accessibility of IRS' toll-free telephone assistance and
forms-ordering telephone lines by placing calls from Atlanta,
Chicago, Cincinnati, Kansas City, New York, San Francisco, and
Washington, D.C. (appendix III contains more information on our
test methodology);
analyzed filing season-related data from various IRS sources,
including data on telephone accessibility, return filings,
return processing errors, refund fraud, and the results of steps
IRS took in 1995 to address the fraud problem;
reviewed IRS publications, notices, and forms to determine what
taxpayers were told about potential refund delays;
reviewed reports on computer system performance and attended weekly
meetings on computer system performance held by IRS' National
Office Command Center; and
reviewed relevant IRS internal audit reports.
We did our work from January through September 1995 in accordance
with generally accepted government auditing standards. We requested
comments on a draft of this report from the Commissioner of Internal
Revenue or her designee. On November 13, 1995, several IRS
officials, including the Assistant Commissioner for Taxpayer
Services, Director of Investigations (Tax Refund Fraud), Electronic
Filing Executive, Director of Tax Forms and Publications, and Senior
Program Analyst (Submission Processing), provided us with oral
comments. Another IRS official, the Chief of Taxpayer Services,
provided additional comments on November 30. IRS' comments are
summarized and evaluated on page 18 and incorporated in this report
where appropriate.
FILING SEASON GOALS WERE
GENERALLY MET, BUT SOME SERIOUS
PROBLEMS OCCURRED
------------------------------------------------------------ Letter :3
IRS uses various indicators to measure its filing season performance.
Because IRS' most important job during the filing season is to
process tax returns, two important workload indicators are (1) the
number of individual income tax returns received in total and (2) the
number of returns received through alternative filing methods that
IRS developed to help make the returns processing function more
efficient. According to IRS data, more individual income tax returns
were received in 1995 than in 1994, but the number received through
the alternative filing methods decreased.
Among other IRS filing season indicators are those related to
workload, such as the percent of scheduled tax assistance calls
answered; timeliness, such as the number of days needed to process
returns or issue refunds; and quality, such as the accuracy of IRS'
answers to taxpayer questions and IRS' processing of returns and
refunds. Those indicators show that IRS met or exceeded most of its
performance goals for the 1995 filing season. According to IRS data,
for example, (1) IRS' telephone assistors answered 11 percent more
calls than IRS anticipated and provided accurate answers to 91
percent of taxpayers' tax law questions; (2) 97 percent of taxpayers'
orders for tax forms and publications were filled accurately; (3) on
average, refunds on paper returns were processed and issued within 36
days; and (4) service centers met deadlines for processing tax
payments submitted with returns.
What IRS' indicators do not reveal are the difficulties IRS
experienced in the 1995 filing season. There were several serious
problems not obvious from the indicators: (1) IRS' efforts to combat
refund fraud took millions of taxpayers by surprise when closer
scrutiny of their returns resulted in refunds being delayed; (2) most
taxpayers who called IRS to ask questions could not get through; and
(3) IRS' implementation of a new tax return processing system fell
far short of expectations.
NUMBER OF RETURNS FILED
INCREASED, BUT USE OF
ALTERNATIVE FILING METHODS
DECLINED
---------------------------------------------------------- Letter :3.1
With one exception, as shown in figure 1, the number of individual
income tax returns filed has increased every year since fiscal year
1987.
Figure 1: Number of Individual
Income Tax Returns Filed in
Fiscal Years 1987 Through 1995
(See figure in printed
edition.)
Source: Data for fiscal years 1987 through 1994 are from IRS annual
reports. Data for 1995 are from IRS' Management Information System
for Top Level Executives.
While there was an increase in the overall number of returns filed in
1995, the number received through alternative filing methods
declined. IRS offers three alternatives--electronic filing,
TeleFile, and 1040PC--to the traditional filing of paper returns.\2
As shown in table 1, the use of electronic filing and 1040PC
decreased in 1995 compared with 1994, while the use of TeleFile
increased.
Table 1
Number of Individual Income Tax Returns
Received Through Alternative Filing
Methods in 1994 and 1995
Actual Actual Percent
filed filed change
Type of Return in 1994\a in 1995\a from 1994
------------------------------ ------------ ---------- ------------
Electronic 13,510,000 11,142,000 -17.5
TeleFile 519,000 680,000 31.0
1040PC 4,183,000 2,902,000 -30.6
Total 18,212,000 14,724,000 -19.2
----------------------------------------------------------------------
\a Data are current as of September 30, 1994, and September 29, 1995.
Numbers are rounded to the nearest thousand.
Source: IRS' Management Information System for Top Level Executives.
IRS attributes the drop in electronic filing to the various steps it
took in 1995 to deal with refund fraud. One of those steps was to
eliminate the direct deposit indicator (DDI).\3 Because the
elimination of the DDI increased the risk of the loan, lenders cut
their maximum loan amount and raised their fees. Some potential
electronic filers may have decided to file on paper when they found
they were unable to get a refund anticipation loan or were unwilling
to pay the additional fee. Other steps IRS took to deal with fraud,
some of which may have also contributed to the decline in electronic
filing, are discussed later.
The decline in 1040PCs resulted from a private tax preparation firm,
which was the largest user of 1040PCs, dropping out of the program.
For the 1995 filing season, IRS required that preparers provide
taxpayers with some type of descriptive printout or legend that
explained each line on the taxpayer's 1040PC return. The purpose of
the legend was to provide better supporting documentation than was
previously available to the taxpayers and was to be used as an aid in
doing things such as preparing state returns and completing financial
aid forms. According to an official of the tax preparation firm that
dropped out of the program, the firm chose to stop participating
rather than incur the extra cost associated with providing the
legend.
The growth in the third alternative, TeleFile, was due in part to its
availability to more taxpayers. In 1995, TeleFile was available to
certain taxpayers in 10 states--3 more states than in 1994.\4 Some of
the growth might also be due to improved accessibility. As we
discussed in our report on the 1994 filing season,\5 IRS experienced
an overload of the TeleFile system in 1994, and taxpayer
accessibility might have been higher had the system been able to
handle the number of calls. For the 1995 filing season, IRS took
several steps that increased accessibility. For example, IRS
increased the number of telephone lines from 144 to 336 and stopped
testing the use of voice signatures, which shortened the length of
calls. In August 1995, IRS' Internal Audit reported that the number
of busy signals received by taxpayers trying to use TeleFile in 1995
decreased dramatically from 1994 and that 87 percent of the taxpayers
using TeleFile in 1995 were able to access the system on the first
attempt. As a possible result of that improved accessibility, the
number of TeleFile filers in each of the seven states that were
involved in the program in 1994 increased in 1995.
--------------------
\2 Under electronic filing, returns are transmitted over
communications lines to an IRS service center, where they are
automatically edited and processed. Under TeleFile, certain
taxpayers who are eligible to file a Form 1040EZ are allowed to file
using a toll-free number on touch-tone telephones. Under the 1040PC
method, a filer uses personal computer software that produces tax
returns in an answer-sheet format. The 1040PC shows the tax return
line number and the data (dollar amount, name, etc.) on that line.
Only lines on which the taxpayer has made an entry are included on
the 1040PC.
\3 The DDI signaled that IRS would not reduce the taxpayer's refund
to pay another federal debt of the taxpayer. Financial institutions
used the DDI as a basis for making refund anticipation loans.
\4 IRS plans to make TeleFile available nationwide in 1996.
\5 Tax Administration: Continuing Problems Affect Otherwise
Successful 1994 Filing Season (GAO/GGD-95-5, Oct. 7, 1994).
OTHER INDICATORS SHOW THAT
IRS GENERALLY ACHIEVED ITS
PERFORMANCE GOALS
---------------------------------------------------------- Letter :3.2
As shown in table 2, IRS met or exceeded almost all of its other
performance goals for 1995. We did not assess the overall
appropriateness of those goals. However, as discussed in the next
section, the indicators for refund timeliness, number of tax
assistance calls answered, and returns processing cycle time masked
serious problems that occurred in 1995.
Table 2
IRS' Performance Goals for 1994 and 1995
and Related Accomplishments
Indicator Goal Accomplishment Goal Accomplishment
-------------- -------------- -------------- -------------- ----------------
Accuracy of Process 94.4 95.28 percent Process 93.0 93.42 percent
returns percent were processed percent were processed
processed by accurately accurately accurately accurately
Code and
Edit\a staff\b
Accuracy of Process 94.1 95.84 percent Process 94.0 93.93 percent
returns percent were processed percent were processed
processed by accurately accurately accurately accurately
data
transcribers\b
Service center Process 9,475 9,557 returns Process 9,800 10,837 returns
returns returns per were processed returns per were processed
processing staff year per staff year staff year per staff year
productivity\c
Returns 11 days Various types 11 days Various types of
processing of 1040s 1040s ranged
cycle time\d ranged between between 5 and 9
5 and 7 days days
Accuracy of Process 98.0 98.6 percent Process 97.0 99.5 percent
refunds on percent were processed percent were processed
paper returns accurately accurately accurately accurately
Timeliness of Issue within Issued within Issue within Issued within an
refunds on an average of an average of an average of average of 36
paper 40 days 36 days 40 days days
returns\e
Timeliness of Remittances Remittances Remittances Remittances
processing tax received 4/15 received 4/ received 4/17 received 4/17/
payments through 5/1/ 15/94 through through 5/2/ 95 through 5/2/
submitted with 94 were to be 5/1/94 were 95 were to be 95 were
returns\f deposited no deposited by deposited no deposited by 5/
later than 5/ 5/3/94 later than 5/ 3/95
2/94 3/95
Tax assistance Answer 98 Answered 35.5 Answer 100 Answered 39.2
calls percent of the million calls percent of the million calls
scheduled to 34.9 million (102 percent 35.4 million (111 percent of
be answered\g calls of schedule) calls schedule)
scheduled to scheduled to
be answered be answered
Accuracy of Answer 89 90 percent Answer 90 91 percent were
tax law percent were answered percent answered
assistance accurately accurately accurately accurately
Forms ordering Answer 98 Answered 7.5 Answer 100 Answered 7.2
calls percent of the million calls percent of the million calls
scheduled to 8.7 million (86.8 percent 7.3 million (98.3 percent of
be answered\g calls of schedule) calls schedule)
scheduled to scheduled to
be answered be answered
Accuracy of Process 96.5 96.2 percent Process 96.5 97.2 percent
processing percent were processed percent were processed
form orders accurately accurately accurately accurately
--------------------------------------------------------------------------------
\a Code and Edit staff prepare returns for computer entry by, among
other things, ensuring that all data are present and legible.
\b According to IRS, these two indicators for 1995 are not comparable
to the indicators in 1994 because they included forms 1040EZ (as well
as forms 1040 and 1040A in 1994 but not in 1995. Forms 1040EZ were
excluded in 1995 because they were to be processed via a new computer
system that would replace the work done by Code and Edit staff and
data transcribers.
\c Returns processing productivity is based on the number of weighted
returns processed, which includes all returns (whether processed
manually, through scanning equipment, or electronically). The
different types of returns are weighted to account for their
differing processing impacts. For example, a paper Form 1040 has a
higher weighting factor than a paper Form 1040EZ, which in turn has a
higher weighting factor than electronically processed returns.
\d Cycle time is the average number of days it takes service centers
to process returns.
\e This indicator is based on a sample of paper returns and is
calculated starting from the signature date on the return. As
discussed on page 13, refunds that were delayed due to IRS' closer
scrutiny of SSNs and EIC claims were not included in this
calculation.
\f For 1994, 9 out of 10 service centers met the May 2, 1994,
completion date. For 1995, the cutoff date of April 17 was used
because April 15 fell on a Saturday. For information on a test of an
alternative method of processing tax payments, known as lockboxes,
see appendix I.
\g The "calls scheduled to be answered" indicator is the number of
telephone calls IRS believes its call sites will be able to answer
with available resources. It does not reflect the number of calls
IRS expects to receive. This indicator is further discussed on pages
13 and 14.
Source: IRS data.
BETTER ADVANCE WARNING MIGHT
HAVE EASED ADVERSE REACTION
OVER REFUND DELAYS
---------------------------------------------------------- Letter :3.3
As shown in tables 3 and 4, the number of returns identified by IRS
as containing fraudulent refund claims and the amount of identified
fraudulent refunds that were issued before IRS could stop them have
increased significantly since 1990.
Table 3
Number of Detected Fraudulent Refunds in
Calendar Years 1990 Through 1995
Detected Total
Detected fraudulent fraudulent
fraudulent electronic returns
Year paper returns returns detected\b
------------------------- ----------------- ----------------- ---------------
1990 5,302 411 5,713
1991 5,422 5,746 11,168
1992 12,244 12,725 24,969
1993 51,883 25,957 77,840
1994 44,137 33,644 77,781
1995\a 31,830 27,411 59,241
================================================================================
Total\b 150,818 105,894 256,712
--------------------------------------------------------------------------------
\a Data for 1995 are through September 30, 1995.
\b Totals may not add due to rounding.
Source: IRS data.
Table 4
Amount of Detected, Deleted, and Issued
Fraudulent Refunds in Calendar Years
1990 Through 1995\b
(Dollars in millions)
Amount Amount Amount Amount Amount Amount
of of Amount of of Amount of of Amount
fraudul fraudul of fraudul fraudul of fraudul fraudul of
ent ent fraudul ent ent fraudul ent ent fraudul
refunds refunds ent refunds refunds ent refunds refunds ent
Ye detecte deleted refunds detecte deleted refunds detecte deleted refunds
ar d \a issued d \a issued d \a issued
-- ------- ------- ------- ------- ------- ------- ------- ------- -------
19 $15.9 $14.8 $1.1 $1.2 $0.5 $0.7 $17.1 $15.3 $1.8
90
19 32.3 30.7 1.6 10.7 2.6 8.1 42.9 33.3 9.6
91
19 33.2 30.9 2.3 33.6 22.5 11.1 66.8 53.4 13.4
92
19 82.8 73.0 9.8 54.0 29.1 24.9 136.8 102.1 34.7
93
19 90.7\c 81.5 9.2 69.8 35.9 33.9 160.5 117.4 43.1
94
19 66.5\d 56.5 10.0 58.3 21.5 36.8 124.8 78.0 46.8
9
5
\
b
To $321.4 $287.4 $34.0 $227.6 $112.1 $115.5 $548.9 $399.5 $149.4
t
a
l
\
e
-----------------------------------------------------------------------------------
\a A deleted fraudulent refund is one that IRS has stopped before the
refund is paid out.
\b Data for 1995 are through September 30, 1995.
\c This figure excludes two returns claiming refunds totaling $347
million.
\d This figure excludes seven returns claiming refunds totaling $315
million.
\e Totals may not add due to rounding.
Source: IRS data.
Because of concerns raised in several of our past products\6 and in
congressional hearings about those increases, IRS placed more
emphasis on reducing fraud in 1995. In addition to eliminating the
DDI, discussed earlier, those steps included closer scrutiny of SSNs
and of refunds involving the EIC--problem areas that IRS had
identified in the past. IRS' efforts generated much adverse
publicity when over 7 million taxpayers had their refunds delayed for
many weeks. Although IRS' decision seems prudent because of the
level of possible fraud involved, it seems that IRS could have
prevented some of the adverse reaction to those delays if it had done
a better job of forewarning taxpayers. On a related matter, the
methodology IRS used to measure refund timeliness in 1995 was flawed,
in our opinion, because it excluded those refunds that were delayed.
Inclusion of those refunds most likely would have increased the
average refund time beyond the 36 days reported by IRS.
--------------------
\6 Tax Administration: IRS Can Improve Controls Over Electronic
Filing Fraud (GAO/GGD-93-27, Dec. 30, 1992); Tax Administration:
Increased Fraud and Poor Taxpayer Access to IRS Cloud 1993 Filing
Season (GAO/GGD-94-65, Dec. 22, 1993); Tax Administration:
Electronic Filing Fraud (GAO/T-GGD-94-89, Feb. 10, 1994); IRS
Automation: Controlling Electronic Filing Fraud and Improper Access
to Taxpayer Data (GAO/T-AIMD/GGD-94-183, July 19, 1994); and Earned
Income Credit: Targeting to the Working Poor (GAO/GGD-95-122BR, Mar.
31, 1995).
IRS DELAYED MILLIONS OF
REFUNDS IN 1995
---------------------------------------------------------- Letter :3.4
In 1995, to better ensure the appropriateness of refund claims, IRS
increased its efforts to verify the accuracy of SSNs on tax
returns.\7
When IRS received a paper return with a missing SSN or an invalid
SSN (i.e., one that does not match the Social Security
Administration's records), it delayed the refund and, depending
on the circumstances, contacted the taxpayer in an attempt to
resolve the problem.
IRS delayed refunds for up to 8 weeks on other returns (both paper
and electronic), even if the returns had no missing or invalid
SSNs, to allow staff time to identify duplicate uses of the same
SSN and fraud schemes. Because most of the refund fraud cases
IRS identified in the past involved the EIC (about 90 percent of
the cases identified in 1994, for example), IRS concentrated
these efforts on returns claiming the EIC. Because the delay
only applied to that part of the refund attributable to the EIC,
some taxpayers received two checks--one for the non-EIC part of
their refund and a second, several weeks later, for the rest,
assuming IRS determined that the EIC claim was valid.
IRS added filters to the electronic filing system to prevent
returns with missing or invalid SSNs or with SSNs that already
had been used by another taxpayer from being filed
electronically.
As of the end of May 1995, IRS had (1) notified about 3 million
taxpayers whose returns had missing or invalid SSNs that their
refunds were being delayed, (2) delayed another 4 million refunds to
allow time to check for duplicate SSN use and fraudulent returns, and
(3) sent out about 4 million reject notices from the electronic
filing system because it had identified a missing, invalid, or
duplicate SSN.\8
--------------------
\7 For information on problems IRS had in implementing its efforts to
detect and deter refund fraud, see appendix II.
\8 Because an electronic return can be rejected for more than one
reason, the number of reject notices may be greater than the number
of returns rejected.
TAXPAYERS NOT ALERTED TO
POSSIBLE REFUND DELAYS IN
CERTAIN CIRCUMSTANCES
-------------------------------------------------------- Letter :3.4.1
IRS warned taxpayers that their refunds could be delayed if they
submitted a return with a missing or incorrect SSN. On the cover of
the instructions accompanying Form 1040, for example, IRS warned
taxpayers to check their SSNs and explained that "incorrect or
missing SSNs for you, your spouse, or dependents may delay your
refund." It then referred the reader elsewhere in the instructions
for details on how to get an SSN. IRS also issued several public
service announcements to alert taxpayers to the need for correct
SSNs.
However, IRS did not do very much to warn taxpayers that their
refunds might also be delayed even if their SSNs were correct. The
only warning in the Form 1040 tax package or Publication 17 (Your
Federal Income Tax)--the two IRS documents that most taxpayers would
rely on for such information--was a statement in both documents that
alerted potential electronic filers that "some refunds may be
temporarily delayed as a result of compliance reviews" to ensure that
the returns are accurate. Taxpayers who did not intend to file
electronically--about 90 percent of the filers--were not told
anything. Also, by advising only potential electronic filers of
possible "compliance reviews," IRS might have given the impression
that electronically filed returns are more subject to audit than
paper returns--not the kind of message that would help expand the use
of electronic filing.
Conversely, IRS prominently displayed, in both the Form 1040 tax
package and Publication 17, its customer-service standards for 1995.
One of those standards says, "If you file a complete and accurate tax
return and you are due a refund, your refund will be issued within 40
days if you file a paper return or within 21 days if you file
electronically." Thus, not only were most taxpayers not told that
their refunds might be delayed even if they filed a valid return, but
they were led to believe the opposite by IRS' customer-service
standard.
The refund delays generated much adverse reaction. Numerous news
articles during the filing season cited criticism from taxpayers,
executives of tax preparation services, an industry lobbying
organization, and members of Congress commenting on the problems they
observed during the 1995 filing season.
In July 1995, IRS' Internal Audit reported that it had advised
management in December 1994 of its concerns about IRS' decision not
to publicize the potential delay of EIC refunds. Internal Audit said
that IRS "could have jeopardized the public's trust and confidence"
and that "those who had already filed may have felt confused, misled,
disillusioned, and perhaps angry." Internal Audit also said that
advance publicity about delaying refunds might have also deterred
some unscrupulous filers.
We can understand IRS not wanting to disclose the details of its
plans, but we fail to see how any harm would have been caused by
simply alerting taxpayers to the possibility that their refunds might
be delayed even if there were no problems with their SSNs.
IRS' MEASURE OF REFUND
TIMELINESS DID NOT
REFLECT THE IMPACT OF
IRS' FRAUD CHECKS
-------------------------------------------------------- Letter :3.4.2
IRS' customer-service standard for issuing a refunds from returns
filed on paper is 40 days. To track its success in meeting that
standard, one of IRS' filing season indicators is "refund
timeliness." To measure refund timeliness, IRS takes several samples
of paper returns involving refunds and computes the elapsed time from
the date the taxpayer signed the return to the date the taxpayer
would have received the refund, allowing 2 days after issuance for
the refund to reach the taxpayer.
IRS' results for the 1995 filing season indicated that refunds on
paper returns were issued in an average of 36 days--the same as in
1994 and 4 days quicker than IRS' goal. That result is misleading,
however, because IRS excluded from the computation the over 7 million
refunds that were delayed because of IRS' fraud checks.
Because IRS' customer-service standard is predicated on the filing of
a complete and accurate return, we agree that IRS should have
excluded from its computation those refunds that were delayed because
of missing or invalid SSNs (about 3 million of the 7 million delayed
refunds). However, IRS did not identify any problems with the SSNs
associated with about 4 million delayed refunds, and those refunds
were eventually issued. Thus, consistent with IRS' standard, those
refunds should have been included in the computation of refund
timeliness. Using IRS data on the number of refunds in its refund
timeliness samples and the number of refunds excluded from the
samples--assuming that each of the excluded refunds was delayed 8
weeks, thus taking 56 more days to issue than the 36-day average--we
determined that inclusion of the excluded refunds would have
increased the average to 38 days. Such a result, in our opinion,
would have shown more correctly a drop in performance from the 36-day
average achieved in 1994.
ACCESSIBILITY TO IRS'
TOLL-FREE TELEPHONE LINES
CONTINUES TO BE A SERIOUS
PROBLEM
---------------------------------------------------------- Letter :3.5
An important indicator of filing season performance is how easily
taxpayers who have questions or who want to order forms and
publications are able to contact an IRS assistor on the telephone.
IRS assesses its performance in that area by estimating the number of
calls it expects to answer during the filing season (known as
"scheduled calls") and comparing that number with the number of calls
it actually answered. For the 1995 filing season, IRS answered 111
percent of the scheduled calls to its toll-free tax assistance
telephone line and 98 percent of the scheduled calls to its toll-free
forms ordering line. Because IRS' indicator is based on the number
of calls IRS expects to answer rather than the number it expects to
receive, the indicator masks the serious problems taxpayers have
encountered in the past and encountered again in 1995 in trying to
reach IRS by telephone.
In reports on past filing seasons, we discussed the difficulty
taxpayers had in reaching IRS by telephone (i.e., the "accessibility"
of IRS' telephone systems).\9 Although IRS answers millions of calls
each year, even more calls go unanswered. Many taxpayers receive
busy signals, are kept on hold for a long time, or simply give up.
Between January 1 and April 15, 1995, IRS received 236 million calls
for tax assistance but was able to answer only 19 million of those
calls. Our most recent report on telephone assistance accessibility
offers several recommendations to improve IRS' ability to answer more
taxpayer calls.\10
To determine whether accessibility was a problem during the 1995
filing season, we conducted two tests. One test was to determine the
accessibility of the toll-free assistance for taxpayers who have
questions about their accounts, the tax law, or IRS procedures. The
second test was to determine the accessibility of the toll-free
system that IRS tells taxpayers to call if they want copies of tax
forms and publications. Our test methodology is described in
appendix III along with (1) details on the results of our tests and
(2) our computations of accessibility using more global IRS data.
Results of both tests indicated that again this filing season
taxpayers had significant problems reaching IRS by telephone. For
example, of 2,821 calls we made to IRS' toll-free assistance number,
we succeeded in reaching an assistor 249 times--a 9-percent
accessibility rate. Although our test of the form ordering system
produced better results--a 50-percent accessibility rate--there was
still much room for improvement.
As in past years, our measure of accessibility is based on the
percent of incoming calls answered. We recognize that the number of
calls coming in does not equal the number of taxpayers seeking
assistance because many taxpayers are probably calling several times
in an attempt to reach an assistor. We have been working with
representatives from the Department of the Treasury and IRS to
develop a better way to measure IRS' performance in terms of the
number of taxpayers, but those efforts have not been completed.
--------------------
\9 Tax Administration: IRS' 1992 Filing Season Was Successful but
Not Without Problems (GAO/GGD-92-132, Sept. 15, 1992); Tax
Administration: Increased Fraud and Poor Taxpayer Access to IRS
Cloud 1993 Filing Season (GAO/GGD-94-65, Dec. 22, 1993); and Tax
Administration: Continuing Problems Affect Otherwise Successful 1994
Filing Season (GAO/GGD-95-5, Oct. 7, 1994).
\10 Telephone Assistance: Adopting Practices Used by Others Would
Help IRS Serve More Taxpayers (GAO/GGD-95-86, Apr. 12, 1995).
DOCUMENT IMAGING SYSTEM
FAILED TO MEET EXPECTATIONS
---------------------------------------------------------- Letter :3.6
With one significant exception, the computer systems IRS used to
process returns and remittances in 1995 generally performed without
major problems. The exception was a new document imaging system that
IRS used in 1995 to process several forms, including individual
income tax returns filed on Form 1040EZ.
To process tax returns more efficiently and economically, IRS intends
to move from a system that relies on labor-intensive data
transcription to one that relies on electronic data capture.
Electronic filing and TeleFile are steps in that direction. For
returns filed on paper, IRS plans to achieve its objective through
document imaging. The Service Center Recognition/Image Processing
System (SCRIPS) is the first of two planned document imaging
systems.\11
Under IRS' new organizational structure, to be implemented over the
next several years, paper tax returns are to be processed in only 5
of the 10 existing service centers. Those five sites are to be known
as submission processing centers. Because imaging is the process IRS
intends to use to capture data from all paper returns in the future,
SCRIPS was installed in only the five service centers that are to be
submission processing centers. Each of the five centers experienced
hardware and software problems with SCRIPS. Those problems included
hardware problems that kept documents from feeding properly into the
scanner and software problems that affected SCRIPS ability to
accurately capture name and address information. Two of the five
centers completely stopped 1040EZ processing on SCRIPS, and the other
three centers stopped processing for extended periods of time. Those
stoppages caused IRS to redirect some 1040EZ processing workload back
to its manual data entry system. In total, IRS was able to process
only about 56 percent of the expected 8.6 million forms 1040EZ on
SCRIPS that it had planned to process.
As a result of the problems with SCRIPS, IRS has not yet realized the
system's intended benefits. For instance, IRS had expected that
increased processing rates would result in lower labor costs.
However, IRS processed fewer forms 1040EZ per hour on SCRIPS in 1995
than it did in 1994 on the old system SCRIPS replaced. Thus, SCRIPS
has not yet achieved any savings in labor costs associated with
processing forms 1040EZ. In addition, IRS has postponed plans to
redistribute additional workload to SCRIPS and to introduce the final
form scheduled for SCRIPS. Appendix IV has additional information on
the effects of problems with SCRIPS.
Despite the many problems that limited SCRIPS effectiveness, IRS'
"processing cycle time" indicator, which measures the average number
of days it takes service centers to process returns, showed that
service centers processed returns faster in 1995 than IRS expected.
More specifically, IRS' data showed that the 10 service centers, in
total, processed individual income tax returns in 1995 within a range
of 5 to 9 days depending on the type of form (1040, 1040A, or 1040EZ)
and the processing systems used (manual data entry or SCRIPS). That
compares favorably with IRS' processing cycle time goal of 11 days.
However, that comparison is misleading because IRS' 11-day goal was
much higher than the 5- to 7-day cycle times the service centers had
achieved in 1994. Comparing IRS' 1995 cycle times to its 1994 cycle
times rather than to its goal for 1995 shows that the cycle times in
1995 worsened in many cases. In 1994, for example, none of the 10
service centers averaged longer than 9 days to process any type of
individual income tax return. In 1995, six centers took longer than
9 days, including four of the five centers that had SCRIPS.
Throughout the filing season, IRS officials worked with the SCRIPS
contractor to remedy the hardware and software problems. At the
conclusion of the filing season, they met to assess the cause of
these problems and determine the actions needed to be taken before
the next filing season. Among the actions being considered are
upgrades to key components of the system that are intended to improve
processing rates. We will continue to monitor IRS' efforts to
address SCRIPS problems and the effect of these efforts on IRS'
readiness for the 1996 filing season.
--------------------
\11 SCRIPS is to be followed by the Document Processing System (DPS),
which is intended to replace most of IRS' current labor intensive
data transcription operations. DPS is being designed to image data
from all types of returns as well as correspondence. Both SCRIPS and
DPS are designed to create a digital image of a paper-based document
and convert selected data into machine readable form, known as
optical character recognition.
CONCLUSIONS
------------------------------------------------------------ Letter :4
Although IRS' indicators point to a successful 1995 filing season,
there were several problems that are not obvious from those
indicators.
IRS' assertion that it issued refunds on paper returns in 1995 as
quickly as it did in 1994 (i.e., within an average of 36 days), masks
the fact that in 1995, unlike 1994, millions of taxpayers had valid
refunds delayed for up to 8 weeks. IRS chose to exclude those
refunds in computing the refund timeliness indicator, even if IRS
found no problem with the refund and eventually issued it, making the
indicator an inaccurate measure of timeliness in 1995. Also, while
we agree that IRS needs to ensure the validity of refund and EIC
claims, we believe that IRS could have avoided some of the adverse
reaction caused by the refund delays if it had done a better job
alerting taxpayers that even refunds on accurate returns might be
delayed. A related source of potential taxpayer confusion was the
apparent conflict between IRS' promise, via its customer-service
standards, to issue a refund within a certain number of days if the
taxpayer filed a complete and accurate return and IRS' decision to
delay certain refunds well beyond the promised time frame while it
verified that the returns were complete and accurate.
Likewise, IRS' ability to answer more calls than it estimated it
could answer means little to the many taxpayers whose calls to IRS
went unanswered or who gave up in frustration after receiving
numerous busy signals. By focusing on the number of calls IRS
expects to answer rather than the number of calls actually coming in
or the number of taxpayers trying to reach IRS, the telephone
assistance indicator provides a distorted picture of the
accessibility of IRS' telephone service. IRS is working to develop a
better measure of accessibility. Such a measure, once developed,
would be a more meaningful indicator of IRS' telephone service during
the filing season than the percent of scheduled calls indicator now
used.
Even though IRS reported success in meeting its returns- processing
time frames, it did not achieve that success by following its plan to
use the new SCRIPS equipment. IRS was only able to achieve its
overall goals by rescheduling some workload back to its old manual
data entry system. IRS has efforts under way to correct the SCRIPS
problems. If those problems cannot be resolved, the scheduling of
other forms on SCRIPS will be delayed even longer, resulting in
further lost benefits the system was intended to provide.
RECOMMENDATIONS TO THE
COMMISSIONER OF INTERNAL
REVENUE
------------------------------------------------------------ Letter :5
If IRS plans to continue validating SSNs and delaying refunds in
1996, we recommend that it adjusts its methodology for assessing
refund timeliness to include delayed refunds associated with validly
filed returns. Also after IRS develops a measure of taxpayer
assistance accessibility that focuses on the number of incoming calls
and/or the number of taxpayers calling for assistance, we recommend
that it includes that measure among its key filing season performance
indicators.
AGENCY COMMENTS AND OUR
EVALUATION
------------------------------------------------------------ Letter :6
We requested comments on a draft of this report from the Commissioner
of Internal Revenue or her designated representative. Responsible
IRS officials, including the Assistant Commissioner for Taxpayer
Services, Director of Investigations (Tax Refund Fraud), Electronic
Filing Executive, Director of Tax Forms and Publications, and Senior
Program Analyst (Submission Processing), provided IRS' comments in a
November 13, 1995, meeting. The Chief of Taxpayer Services provided
additional comments on November 30. IRS also provided a few factual
clarifications that we have incorporated in this report where
appropriate.
The Chief of Taxpayer Services noted that IRS has emphasized the
importance of having accurate SSNs on tax returns filed in 1995 by
including a message on the cover of all tax packages and through many
public service announcements. Our report acknowledges that fact.
However, our concern is with the lack of sufficient warning to
taxpayers that their refunds might still be delayed even if they had
accurate SSNs on their tax returns. The Chief acknowledged that
taxpayers who filed complete and accurate returns also had their
refunds delayed to allow IRS additional time to verify the claims
before issuing the refunds, and he said that IRS regretted any
inconvenience. Officials at the November 13 meeting mentioned that
there was a lot of discussion within IRS, before the 1995 filing
season, about how much IRS should divulge about its plans. They also
noted that by the time IRS had finalized its plans for 1995 it would
have been too late to make any changes to the tax packages and
Publication 17, which had already been printed. They said that even
if IRS had decided to tell taxpayers more, it would have been too
costly to reprint those documents.
IRS said that it plans to continue validating SSNs and delaying
refunds in 1996 but has revised its SSN-validation procedures and
criteria. Thus, it expects that taxpayers with valid SSNs will have
only a small chance of having their refunds delayed in 1996. Because
of those changes, IRS saw no need to revise its methodology for
assessing refund timeliness. We agree that IRS would not have to
revise its methodology if those changes have the expected result of
limiting the extent to which valid refunds are delayed. The
officials acknowledged, however, that if that result is not achieved,
the methodology would have to be adjusted. We will be monitoring the
impact of IRS' revised procedures during our assessment of the 1996
filing season.
The Chief of Taxpayer Services noted that IRS has been working with
us to develop appropriate measures and had proposed that the
accessibility of its toll-free telephone service be measured in three
ways: (1) the percentage of individual callers served; (2) the
number of attempts made by successful callers, expressed in the form
of a range; and (3) the disposition of all calls, whether they were
answered, received a busy signal, or were abandoned. Appendix III of
this report includes a discussion of IRS data on accessibility using
those three measures. The Chief said that IRS would continue working
with us to finalize these measures and that, given those continuing
discussions, IRS felt that our recommendation was premature. We
disagree. IRS has already developed measures, as indicated above,
and those measures represent reasonable indicators of the
accessibility of IRS' toll-free telephone service. Our continuing
discussions with IRS are not centered on the measures themselves but
on the reliability of the data used for those measures. Our
recommendation merely seeks a commitment from IRS that one or more of
those measures, once finalized, be included among IRS' key filing
season performance indicators. We do not believe it is premature to
seek that commitment.
Our draft report also included two proposed recommendations that were
intended to provide taxpayers with better information on potential
refund delays in 1996. We proposed that if IRS planned to continue
validating SSNs and delaying refunds in 1996, it (1) clearly alerts
taxpayers, in the 1040 tax package and Publication 17, to the
possibility that their refunds will be delayed even if there are no
problems with the SSNs provided on their returns and (2) reconciles
the inconsistency between those refund delays and IRS'
customer-service standard.
In commenting on the proposed recommendations, IRS said that the
problem we identified in 1995 with respect to adequately alerting
taxpayers should not recur in 1996 because of the aforementioned
changes to IRS' SSN-validation procedures and criteria. IRS has
however, revised its customer-service standard on refunds by
including a caveat to alert taxpayers that their refunds may be
delayed if their returns are selected for further review. The
revised standard has been included in the tax packages and
Publication 17 for tax year 1995 (those that taxpayers will use in
preparing returns to be filed in 1996). Assuming that IRS is correct
in believing that its revised procedures will cause few taxpayers
with valid SSNs to have their refunds delayed, we believe that
further action is unnecessary. Accordingly, we have deleted the two
proposed recommendations from our final report.
---------------------------------------------------------- Letter :6.1
We are sending copies of this report to various congressional
committees, the Secretary of the Treasury, the Commissioner of
Internal Revenue, the Director of the Office of Management and
Budget, and other interested parties.
Major contributors to this report are listed in appendix V. Please
contact me on (202) 512-9110 if you have any questions.
Sincerely yours,
Lynda D. Willis
Director, Tax Policy and
Administration Issues
PROCESSING TAX PAYMENTS THROUGH
LOCKBOXES
=========================================================== Appendix I
IRS envisions that by the year 2001, 90 percent of tax payment
processing will be done by lockboxes. Under this concept, which is
already being used for some types of tax payments, taxpayers are to
mail payments to a lockbox, which is a postal rental box serviced by
a commercial bank. The bank processes the payments and transfers the
funds to a federal government account. The payment and payer
information is then recorded on a computer tape and forwarded to IRS
where the tape is to be used to update taxpayers' accounts on IRS'
master file.
IRS conducted two lockbox tests during the 1995 filing season to
assess taxpayers' willingness to use different procedures for mailing
tax payments associated with their returns. For each test, IRS sent
special Form 1040 packages to specific taxpayers. These packages
included (1) mailing instructions that were different for each of the
two tests and (2) a payment voucher that could be scanned by optical
character recognition equipment.
One test package contained one return envelope with two different
tear-off address labels--one label addressed to the lockbox was to be
used for a return with a tax balance due, while the other label
addressed to the service center was to be used for a return with a
zero balance or with a refund due to the taxpayer. Taxpayers with
balance-due returns were instructed to include the return, payment,
and voucher in one envelope and to affix the label addressed to the
lockbox. The bank that serviced the lockbox separated the return
from the payment, deposited the payment, recorded the payment
information on a computer tape, and forwarded the return and the
computer tape to IRS for processing.
The other test package used two envelopes--one addressed to the
service center, the other addressed to the lockbox. All taxpayers
were instructed to send their returns in the envelope addressed to
the service center. Taxpayers who owed a balance were to use the
second envelope to send their payments and vouchers to the lockbox.
The bank processed the payment and voucher as described above.
As of mid-June 1995, IRS had not yet received the management
information needed to evaluate the two lockbox tests. However, IRS
had already made decisions to (1) continue testing the two-label
method in certain tax packages for the 1996 filing season, (2)
include a voucher inside every 1996 Form 1040 tax package (except
1040A and 1040EZ),\12 (3) instruct practitioners to send all returns
with remittances, no matter what 1040 tax form they are associated
with, to the lockbox, and (4) implement the two-envelope method in
all 1040 packages (with the possible exception of Forms 1040A and
1040EZ) starting with the 1997 filing season. According to an IRS
official, the purposes of including a standard voucher in tax
packages not included in the lockbox test are (1) to familiarize
taxpayers with the use of a voucher and (2) to lighten the workload
being processed through the old remittance processing system (RPS) at
service centers. IRS plans to use a newer system, RPSII, to scan the
scannable vouchers sent to the service centers from the test tax
packages.
According to an IRS official, the two-envelope method will not be
used for the 1996 filing season because IRS cannot easily determine
if the return inside the envelope is one that involves a refund.
That determination is important because IRS gives priority to refund
returns to help ensure that the return gets processed and the refund
gets issued before the government has to pay interest on the refund.
In the past, a service center knew a return did not involve a refund
if it opened the envelope and found a check inside. Under the
two-envelope system, the service center only receives the tax return
and thus has no quick way to isolate those returns involving payments
from those involving refunds. For the 1997 filing season, IRS is
considering redesigning the tax forms to help service centers more
easily identify the type of return received.
According to information obtained from IRS, the use of lockboxes to
process remittances associated with Forms 1040 in 1995 resulted in an
interest cost avoidance of about $44.3 million by getting money
deposited faster through the lockbox. This means that the Treasury
did not have to borrow this money to pay towards certain government
obligations. At the same time, according to IRS, it cost about $3.4
million to process those remittances through the lockboxes, leaving a
net savings of about $40.9 million. IRS expects that the amount of
interest cost avoidance will decrease each year as the lockboxes take
on higher volumes of remittances thereby slowing the banks'
productivity. As the program is expanded to all types of tax
packages, volumes at the lockbox will increase while average dollar
amount remitted will decrease. Bank costs associated with the larger
volumes are also expected to increase.
Treasury Financial Manual Bulletin No. 94-07, dated March 1, 1994,
provides that if the interest cost avoidance of a lockbox's
accelerated deposits is less than the cost charged by the lockbox,
the agency (in this case, IRS) is required to pay all lockbox bank
charges, other than those needed to maintain a regular bank account.
Otherwise Treasury's Financial Management Service (FMS) pays the
charges. Because the amount of interest cost avoidance resulting
from IRS' lockbox program has exceeded the related bank charges, FMS
has paid those charges. According to an IRS National Office official
responsible for the lockbox program, neither IRS nor FMS expects the
amount of interest cost avoidance in the future to fall below the
amount of bank charges.
--------------------
\12 According to an IRS official, forms 1040A and 1040EZ are being
excluded because historical data indicate that only 14 percent and 1
percent respectively of taxpayers who file those forms will have a
remittance.
IRS EFFORTS TO DETECT AND DETER
REFUND FRAUD
========================================================== Appendix II
In 1995, IRS expanded its efforts to combat refund fraud. Much of
what IRS did involved verifying SSNs, with an emphasis on returns
claiming the EIC. IRS was looking for missing SSNs, SSNs that did
not match the Social Security Administration's records, and SSNs that
had already been used on another return filed in 1995.
As we discussed in a June 1995 testimony\13 before the Senate Finance
Committee, the expanded procedures for selecting paper returns to
verify SSNs identified many problem returns, but some that should
have been selected for SSN verification were not. In total, IRS
identified approximately the volume of paper returns with invalid
SSNs that it had expected to handle during the filing season, but
volumes fluctuated widely among IRS service centers. For example,
one service center received about 360 percent of its expected volume,
while another received only 61 percent. As a result, service centers
used somewhat different criteria for determining which taxpayers
would be asked to verify SSNs and to provide additional evidence of
their EIC eligibility. Computer problems also occurred during the
filing season, which caused some returns not to be selected for SSN
verification when they should have been.
IRS also experienced some problems as it began checking for duplicate
SSNs. These problems included difficulties in constructing the
database to identify duplicate SSNs, poorly organized computer
listings that enforcement personnel found difficult to use, and
cumbersome procedures for coordinating the work of different IRS
service centers. IRS is analyzing the results of the 1995 initiative
and plans to make changes for 1996. Further automation of the
process is a primary goal.
We were not able to assess the success of IRS' initiatives. At the
time we completed our audit work, information was not yet available
on such things as the number of (1) duplicate SSNs identified and
resolved by IRS, (2) EIC claims adjusted or withdrawn after IRS
questioned a taxpayer about an SSN, or (3) erroneous SSNs corrected
as a result of IRS' efforts.
Some information was available, however, that sheds light on the
results of IRS' efforts. According to IRS:
As a result of the 6-to-8 week delay on EIC refunds, IRS was able
to stop an additional $6 million in fraudulent refund claims
that, in past years, would have been issued before IRS had
detected the fraud.
IRS had received 18.9 million EIC claims as of the end of September
1995, compared with 14.8 million claims at the same time in
1994. All of that increase was due to a legislative change that
made persons without qualifying children eligible for the credit
in 1995. IRS had expected to receive about 20 million claims in
1995, including about 5.3 million from persons without
qualifying children. EIC claims in 1995 totaled about $20.9
billion as of September 30 compared with about $15.2 billion as
of October 1, 1994. Only about 12 percent of that increase was
attributed to claims from taxpayers with no qualifying children.
As a result of IRS' scrutiny of EIC claims, 3.2 million
taxpayers received their refunds in two checks because the EIC
portion of their refund was temporarily delayed.
IRS tracked 400 returns that had been rejected by the electronic
filing system, and found, among other things, that 113 (28
percent) of the individuals involved subsequently filed on
paper, using the same SSN that had been rejected by the
electronic filing system, and were issued a refund.
--------------------
\13 Earned Income Credit: Noncompliance and Potential Eligibility
Revisions (GAO/T-GGD-95-179, June 8, 1995).
TELEPHONE ACCESSIBILITY
========================================================= Appendix III
To assess the ability of taxpayers to reach IRS by telephone to ask a
question about the tax law or their accounts or to order forms or
publications, we conducted two tests--one of IRS' toll-free telephone
assistance system and the other of IRS' toll-free form-ordering
system.
To conduct the tests, we placed telephone calls at various times
during each workday from January 30 through February 11 and from
April 3 through April 15, 1995. We made our calls from seven
metropolitan areas--Atlanta; Chicago; Cincinnati; Kansas City; New
York; San Francisco; and Washington, D.C. Each attempt to contact
IRS consisted of up to five calls at 1-minute intervals. If we
reached IRS during any of the five calls and made contact with an
assistor, we considered the attempt successful. If we reached IRS
during any of the five calls but were put on hold for more than 7
minutes without talking to an assistor, we abandoned the call, did
not dial again, and considered the attempt unsuccessful. If we
received a busy signal, we hung up, waited 1 minute, and then
redialed. If after four redials (five calls in total) we had not
reached IRS, we considered the attempt unsuccessful.
TOLL-FREE TELEPHONE ASSISTANCE
------------------------------------------------------- Appendix III:1
We tested the accessibility of the toll-free telephone assistance
system IRS tells taxpayers to call if they have a question about
their account, the tax law, or IRS procedures. Of 745 attempts to
contact an assistor, 249 (33 percent) were successful--87 on the
first call, 55 on the second call, and 107 after 3 to 5 calls. In
another 89 cases (12 percent), we got into IRS' system but were put
on hold for more than 7 minutes and thus hung up before making
contact with an assistor. The remaining 407 attempts (55 percent)
were aborted after we received busy signals on each of our 5
dialings. Our 745 attempts to contact an assistor required a total
of 2,821 calls to IRS' toll-free telephone number. Of those 2,821
calls, we succeeded in getting through to an IRS assistor 249
times--a 9-percent accessibility rate.
In conducting our test, we did not ask questions of the assistors
because it was not our intent to assess the accuracy of their
assistance. IRS does its own test of accuracy, and we have assured
ourselves in the past about the reliability of IRS' methodology.
IRS' test data for 1995 showed an accuracy rate of 90.1 percent as of
April 15, 1995. That compares with a rate of 89 percent for the same
period in 1994.
FORM-ORDERING SYSTEM
------------------------------------------------------- Appendix III:2
One way taxpayers can obtain tax forms and publications is to place
an order through IRS' telephone form-ordering system. The order will
then be filled by one of IRS' three forms distribution centers. To
determine the level of service IRS provides to taxpayers trying to
access this ordering system, we conducted another test using the same
procedures used for the first test.
Our results showed that the form-ordering system was much more
accessible than the toll-free telephone assistance system. However,
there was still much room for improvement. Of 484 attempts to
contact a distribution center representative, 443 (91.5 percent) were
successful--299 on the first call, 76 on the second call, and 68
after 3 to 5 calls--and 41 (8.5 percent) were aborted after five
dialings. We did not abandon any calls when placed on hold because
we were not held waiting for more than 7 minutes. Our 484 attempts
to contact a representative required 883 calls. Of those 883 calls,
we succeeded in getting through to an IRS representative 443 times--a
50-percent accessibility rate.
As with the first test, our intent was to determine how easy it was
to reach IRS over the telephone. We did not assess how well the
distribution centers filled orders for tax forms and publications
because (1) our checks in recent years showed that IRS was doing a
good job of filling orders, (2) IRS contracts for its own test of
distribution center performance, and (3) our prior review of the
contractor's methodology resulted in changes that have improved its
reliability.
The contractor measures the length of time from when an order is
placed until the contractor receives notification about that order
(either by full or partial receipt of the material ordered or
notification that the material has been back ordered). The
contractor also measures accuracy by comparing the items ordered with
those received. The contractor's results for the first part of the
fiscal year showed that (1) it took the distribution centers an
average of 16 days to fill an order, which is within IRS' stated time
frame of 9 to 21 days and (2) 97.9 percent of the orders were filled
correctly, which exceeded IRS' goal of 96.5 percent.
IRS' DATA ON ACCESSIBILITY
CONFIRMS OUR TEST RESULTS
------------------------------------------------------- Appendix III:3
We have been working with representatives from the Department of the
Treasury and IRS to develop a better way to measure the accessibility
of IRS' telephone service. Although there are still some issues to
be resolved, such as how to best measure the number of times a caller
had to dial before reaching an assistor, the data compiled by IRS for
1995 confirmed the results of our tests.
IRS summarized its data as follows:
"For the period January 1, 1995, to April 15, 1995, an estimated
46.9 million callers made 236.1 million call attempts to IRS for
assistance. This equates to an average of 5 attempts per
caller. We answered 19.2 million calls which represents 41
percent of the callers. Of the 19.2 million callers who
received an answer, 50 percent were answered within
approximately 1 attempt; 75 percent were answered within
approximately 5 attempts."
"Of the 236.1 million attempts, 19.2 million received an answer,
which represents 8 percent of the total attempts. The remaining
216.9 million call attempts either received busy signals or were
terminated by the callers because they did not want to wait in
queue for an assistor."
As shown in figure III.1, IRS' reported accessibility rate of 8
percent continued a downward trend since 1989 and was 13 percentage
points below 1994. However, the 1995 accuracy rate on answers to tax
law questions continued an upward trend.\14
Figure III.1: Comparison of
Toll-Free Telephone
Accessibility and Accuracy
During the 1989 Through 1995
Filing Seasons
(See figure in printed
edition.)
Source: IRS' Management Information System for Top Level Executives
and IRS' Telephone Data Reports.
--------------------
\14 In a July 1995 report, IRS' Internal Audit identified one area
where telephone assistors apparently had problems--at least early in
the filing season. Internal Audit made 92 test calls between January
10 and February 7 to assistors nationwide with questions about
changes to EIC eligibility that were effective with income tax
returns filed in 1995. In 28 (30 percent) of the 92 calls, according
to Internal Audit, assistors either incorrectly advised taxpayers
about their eligibility for EIC or advised them incorrectly on
related tax issues.
SERVICE CENTER RECOGNITION/IMAGE
PROCESSING SYSTEM (SCRIPS)
========================================================== Appendix IV
SCRIPS is a multimillion dollar system\15 designed to process income
tax returns filed on Form 1040EZ and other IRS documents\16 by
electronically scanning the document, capturing the data, and storing
an image of the scanned document. SCRIPS was tested in Cincinnati in
1994 and used in five processing centers--Austin, Cincinnati, Kansas
City, Memphis, and Ogden--in 1995. In conjunction with the
implementation of SCRIPS, IRS consolidated the processing of IRP
documents at the five SCRIPS centers and FTD coupons at four of the
five SCRIPS centers. IRS continued to process forms 1040EZ at all 10
service centers but planned to consolidate 1040EZ processing in the
five SCRIPS centers by 1996. IRS planned to start processing all
forms 941 received at the five SCRIPS centers in July 1995 and
redistribute 100 percent of the forms 941 workload from non-SCRIPS
centers by 1996.
IRS planned to process 76.4 million FTDs, 57.4 million IRP documents,
and 8.6 million forms 1040EZ on SCRIPS during the 1995 filing season.
IRS expected that SCRIPS would provide faster and more accurate
document processing, lower maintenance costs, reduce manual data
entry, lessen error correction, and minimize document storage
requirements. But, extensive downtime and slower-than-expected
processing rates during the filing season limited the effectiveness
of SCRIPS. The impact of these problems was most felt in the
processing of forms 1040EZ.
Some centers stopped 1040EZ processing on SCRIPS completely or for
extended periods of time. As a result, IRS was able to process only
about 56 percent of the expected 8.6 million forms 1040EZ on SCRIPS.
Although the centers were able to process the rest of the forms
1040EZ on their old systems, doing so required additional resources
and costs, and some centers reported that the average time it took to
process a return increased because of the SCRIPS problems.
Processing center officials told us of budget overruns as a result of
slower-than-expected SCRIPS processing times. IRS had scheduled 25.6
staff years for processing other-than-full-paid forms 1040EZ but used
66.5 staff years.\17 During the 1995 filing season, IRS processed 64
forms 1040EZ per hour, 28 percent slower than the 89 documents per
hour processed in 1994 on the systems that SCRIPS replaced.
An official at one processing center told us that as a result of the
problems with SCRIPS, the center had to (1) delay furloughing
seasonal staff, (2) work 2 additional weekends of overtime (about
18,000 additional overtime hours) to get returns processed within
established time frames, (3) reinstall old optical character
recognition equipment and add additional terminals at a cost of about
$4,300, and (4) train 163 additional employees on how to use the old
processing systems.
IRS' Internal Audit issued a report on IRS' 1994 SCRIPS test that
cited several factors that may have contributed to the problems
encountered in 1995.\18 Internal Audit found that (1) SCRIPS had not
been fully tested to meet output and storage requirements, (2) IRS
accepted the system without conducting required acceptance and
equipment testing, and (3) SCRIPS was not meeting contractual
requirements for capturing Form 1040EZ and IRP data accurately. Had
IRS conducted the proper testing, many of the problems encountered
during the 1995 filing season might have been identified and
corrected before system implementation.
At the conclusion of our audit work, IRS was assessing SCRIPS
performance to identify problem causes and needed corrective action.
In the meantime, IRS postponed plans to process Form 941 on SCRIPS
and redistribute 1040EZ workload from the five centers that do not
have SCRIPS. We will be monitoring IRS' efforts to improve SCRIPS
performance, especially as they affect IRS' readiness for the 1996
filing season.
--------------------
\15 SCRIPS is the first of two document imaging systems intended to
improve IRS' ability to capture data electronically and streamline
much of its paper-processing operations. IRS' estimate of the cost
to design, develop, and maintain SCRIPS through the year 2000 is $132
million. SCRIPS is to be followed by the Document Processing System,
which is intended to replace most of IRS' current labor intensive
data transcription operations. The Document Processing System is
being designed to image data from all types of individual and
business returns.
\16 Other documents include federal tax deposit (FTD) coupons;
Information Returns Program (IRP) documents, such as forms 1099 used
by banks and other third parties to report payments of interest,
dividends, etc.; and employer's quarterly federal tax returns (Form
941).
\17 "Other-than-full-paid" tax returns are those returns filed by
taxpayers who either were due a refund or did not pay the full amount
of tax owed at the time of filing. These returns comprised about 92
percent of the forms 1040EZ filed at the five submission processing
centers during the 1995 filing season.
\18 Interim Evaluation of the Service Center Recognition/Image
Processing System (SCRIPS) Pilot, IRS Internal Audit, Reference No.
054406, May 8, 1995.
MAJOR CONTRIBUTORS TO THIS REPORT
=========================================================== Appendix V
GENERAL GOVERNMENT DIVISION,
WASHINGTON, D.C.
David J. Attianese, Assistant Director, Tax Policy and
Administration Issues
Monika R. Gomez, Evaluator
Christopher E. Hess, Evaluator
KANSAS CITY REGIONAL OFFICE
Doris J. Hynes, Evaluator-in-Charge
H. Yong Meador, Evaluator
Marge Vallazza, Reports Analyst
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