Tax Administration:

IRS's 2008 Filing Season Generally Successful Despite Challenges, although IRS Could Expand Enforcement during Returns Processing

GAO-09-146: Published: Dec 12, 2008. Publicly Released: Jan 12, 2009.

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The tax filing season is when the Internal Revenue Service (IRS) has most of its contacts with taxpayers, answering questions and processing returns and refunds. The 2008 filing season was particularly challenging due to the unanticipated mandate to make economic stimulus payments. The filing season is also the start of IRS's efforts to ensure the newly filed returns are compliant with the tax laws. GAO was asked to assess IRS's performance, describe the costs and foregone revenue of administering the economic stimulus payments, and identify any opportunities for improving filing season compliance checks. GAO analyzed IRS performance data, reviewed IRS operations, and interviewed IRS officials.

IRS successfully processed150 million returns and issued 105million refundsfor $246 billion as of September 12, 2008. In addition, IRS issued 116 million stimulus payments totaling $94 billion. However, taxpayers' access to IRS's telephone assistors was substantially lower than last year because of an unanticipated increase in telephone call volume. Calls to IRS more than doubled to 118 million as many taxpayers had questions about the amount of their stimulus payment or its timing. IRS acted to answer the calls including shifting hundreds of staff from collection cases to telephone assistance. IRS took other actions such as adding features to its Web site that answered stimulus-related questions and likely diverted some calls. Regardless, taxpayers' ability to get through to IRS telephone assistors declined from about 81 percent of waiting callers getting through last year to about 57 percent from January through June 30 of this year. IRS expects the costs and foregone revenue associated with issuing the economic stimulus package (ESP) payments to reach about $960 million, of which $655 million is revenue foregone due to the shift of collections staff to telephone service. There are two areas where IRS does not use its current legal authority to automatically correct errors when processing tax returns. One involves eligibility for the child and dependent care credit by taxpayers who are "Married Filing Separately." Taxpayers in this filing status are not eligible for the credit, but IRS allows the credit to be claimed, issues refunds, and then audits taxpayers to try to recover the money. The second is that IRS does not use its existing legislative authority to verify earned income tax credit claims by noncustodial parents--in 2006, $91 million of claims were unverified. IRS has plans to study one option for verifying these claims, but is not planning to study another option, combining federal data on noncustodial parents and other taxpayer characteristics to automatically determine eligibility. Finally, there are two areas where IRS lacks legal authority, but has the technical ability to use automated error checks. IRS could prevent (1) individuals from deducting contributions to individual retirement accounts above the allowable limit and (2) individuals from violating the age requirements for such contributions.

Status Legend:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Matter for Congressional Consideration

    Matter: Given the potential for improving compliance now and in the future, Congress may wish to provide IRS with the authority to use math error checks to identify and correct returns with ineligible (1) IRA "catch-up" contributions, and (2) contributions to traditional IRAs from taxpayers over age 70-1/2.

    Status: Open

    Comments: Legislative searches done in February 2013 show that the Congress has not yet provided IRS with the authority to use these math error checks.

    Recommendations for Executive Action

    Recommendation: The Commissioner of Internal Revenue Service should direct the appropriate officials to assess the effectiveness of combining Federal Registry of Child Support Orders (FCR) and other data on taxpayer characteristics to verify the eligibility of Earned Income Tax Credit (EITC) claims from noncustodial parents.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: The IRS completed a study to test the accuracy of Federal Case Registry (FCR) and other related data for parents claiming the Earned Income Tax Credit (EITC) who were listed as noncustodial parents in FCR records. Study results showed that the available data were not accurate enough to justify using math error authority to automatically reject these claims, but could potentially be used to identify returns for further examination.

    Recommendation: The Commissioner of Internal Revenue Service should direct the appropriate officials to include information on math error notices to inform taxpayers that they may be eligible for the child and dependent care credit if they file under a different status, such as "Single," "Married Filing Jointly," "Head of Household," or "Qualifying Widow(er) with a dependent child.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: As of February 14, 2011, IRS reported it had changed its notice to taxpayers in January 2010 telling them that they may be eligible for the child and dependent care credits if their filing status is Single, Married Filing Jointly, Head of Household, or Qualifying Widow(er) with a dependent child.

    Recommendation: The Commissioner of Internal Revenue Service should direct the appropriate officials to use IRS's existing math error authority (MEA) to identify and correct child and dependent care credit claims on "Married Filing Separately" returns.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: As of February 14, 2011, IRS reported it had changed its computer programs in January 2010 to begin using math error authority to deny child and dependent care credits for taxpayers using "Married Filing Separately" filing status.

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