2009 Tax Filing Season:

IRS Met Many 2009 Goals, but Telephone Access Remained Low, and Taxpayer Service and Enforcement Could Be Improved

GAO-10-225: Published: Dec 10, 2009. Publicly Released: Jan 11, 2010.

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The Internal Revenue Service's (IRS) filing season is an enormous undertaking that includes processing tax returns, issuing refunds, and responding to taxpayer questions. IRS's efforts to ensure compliance begin during the filing season. GAO was asked to assess IRS's 2009 filing season performance, identify ways to reduce taxpayers' use of short-term, high-interest refund anticipation loans (RAL) offered by paid preparers or banks, and identify ways to enhance compliance during processing. GAO analyzed IRS performance data, reviewed IRS operations, interviewed IRS officials, and reviewed its compliance programs and relevant statutes.

IRS processed 139 million returns and issued $298 billion in refunds as of October 2, 2009. Electronic filing, which provides IRS with significant cost savings and taxpayers with faster refunds, increased to 68 percent of all returns filed. While taxpayers' access to telephone assistors was better than last year, it remained lower than in 2007 in part because of calls about tax law changes. Compared to 2005 through 2007, IRS reduced its goal for assistor answered calls in 2009 and set its 2010 goal at 71 percent. Despite heavy call volume, the accuracy of IRS responses to taxpayers' questions remained above 90 percent. IRS started a major data collection effort on why taxpayers call, but lacks a plan to analyze the data and improve telephone service. According to IRS, issuing refunds faster reduces taxpayers' use of RALs, high-interest loans made by paid tax preparers or banks in anticipation of a refund. Issuing refunds is a joint effort by IRS, Treasury's Financial Management Service, which checks for non-tax debt owed to the federal government, and the Automated Clearing House, which distributes funds. However, IRS has not coordinated extensively with them to expedite refunds. Further, IRS has not studied the use of debit cards for unbanked taxpayers, which could also reduce taxpayers' use of RALs by providing faster and more secure refunds. IRS automatically identifies and corrects select types of errors while processing tax returns. It could also correct tax returns that claim the Hope credit, a tax credit to help offset qualified education expenses, for longer than the number of years allowed. However, IRS lacks the authority to use prior years' tax return information for this purpose. Also, information reported by education institutions to taxpayers and IRS about qualifying educational expenses on the Form 1098-T is confusing for taxpayers and not useful for IRS. Many institutions report the total amount billed to students, but not what is actually paid after taking into account scholarships and grants. This results in some taxpayers under-claiming benefits, while others over-claim. Finally, because Form 1098-T can show the amount billed, which may not be the amount paid, IRS is unable to use the information to automatically verify taxpayers' claims for the credit through its computerized matching program.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: IRS updated its analysis plan for contact analytics in February 2011 to include information on the analysis process, including how it plans to identify and define the problem as well as generating possible solutions. GAO reviewed that plan and determined that it contained information that would allow an independent party to understand IRS's plans for collecting data and using contact analytics.

    Recommendation: Related to improving IRS's performance during the filing season, the Commissioner of Internal Revenue should develop as soon as possible an analysis plan for using the data IRS captures through Contact Analytics.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: Between fiscal year 2009 and 2012, IRS has been providing regular updates to the TAB in annual reports to Congress. In those updates, IRS reported it had been including the TAB guiding principles in IRS's strategic planning documents. In April 2013, IRS provided its final summary of implementation of the TAB, including taxpayer improvements. IRS has embedded the concept of improving taxpayer interactions into key documents including its strategic plans. In its strategic plan for fiscal years 2014 through 2017, IRS continues to emphasize taxpayer service. IRS neither agreed nor disagreed with our recommendation when made in 2010. IRS neither agreed nor disagreed with our recommendation when made in 2010. Between the regular updates that were provided to the Congress and continuing to explicitly providing language about improving taxpayer service including in its current strategic plan, IRS has implemented this recommendation.

    Recommendation: Related to improving IRS's performance during the filing season, the Commissioner of Internal Revenue should explicitly integrate the Taxpayer Assistance Blueprint (TAB) in strategic planning documents.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Closed - Implemented

    Comments: Although IRS did not update its 2006 RAL report to Congress, Treasury contracted with the Urban Institute for a report on RAL and RAC use which was issued in November 2010 and released to the public in February 2011. Furthermore, IRS reported that, consistent with the principle of this recommendation, it would assess the effectiveness of the debt indicator program and consider changes including its possible elimination. In August 2010, IRS announced it would no longer provide the debt indicator to return preparation companies. As a result, most banks stopped funding RALs in the 2011 filing season.

    Recommendation: To further improve refund timeliness and reduce reliance on RALs and refund anticipation checks (RACs), IRS should update and publicly release a report on RAL and RAC use.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  4. Status: Closed - Implemented

    Comments: IRS had reported that it agreed with the recommendation and already maintains a constant dialogue on issues. Further, over time, IRS, in conjunction with the Bureau of the Fiscal Service (formerly named the Financial Management Service), has issued refunds faster for a variety of reasons. In July 2014, IRS provided documentation that it holds both regular and ad hoc discussions with BFS regarding refund timeliness.

    Recommendation: To further improve refund timeliness and reduce reliance on RALs and RACs, IRS should work more proactively with Financial Management Service (FMS) and Automated Clearing House (ACH) to help improve refund timeliness.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  5. Status: Closed - Implemented

    Comments: IRS provided GAO with an update to the report's recommendations on 12/08/2010, stating it was exploring a range of alternatives to deliver refunds to unbaked taxpayers. On January 13, 2011, IRS announced a pilot program to provide low-and moderate-income taxpayers to receive federal tax refunds electronically through a Visa prepaid debit card for the 2011 Filing Season.

    Recommendation: To further improve refund timeliness and reduce reliance on RALs and RACs, IRS should determine the feasibility of offering debit cards for refunds.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  6. Status: Closed - Implemented

    Comments: In October 2012, IRS conducted reviews to determine the feasibility of using information reported on the Form 1098-T to better evaluate qualifying educational expenses, as GAO recommended in December 2009. Educational institutions use Form 1098-T to report information about qualifying education expenses to taxpayers and IRS. Based on its internal reviews, in October 2012, IRS determined that it was not feasible to use current information reported on the Form 1098-T in its compliance programs.

    Recommendation: To reduce taxpayer confusion and enhance compliance with the eligibility requirements for higher education benefits, IRS should determine the feasibility of using current information reported on Form 1098-T, such as school location and taxpayer identification number or social security number (SSN), in IRS's compliance programs.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  7. Status: Open

    Comments: IRS has not revised the Form 1098-T to improve the usefulness of the information being reported as GAO recommended in December 2009, but it has taken other steps towards improving information from educational institutions and tax filers. IRS identified problems with the accuracy of information reported by educational institutions on Form 1098-T; it is addressing these accuracy issues through outreach to educational institutions before it proceeds with making changes to the form. IRS also has changed Form 8863, which is used by taxpayers to claim higher education tax credits. The new version of Form 8863 for tax year 2012 requires taxpayers to provide additional information, such as the name and address of the educational institutions attended, and the student's year of school. IRS maintains that these changes will provide more flexibility in addressing discrepancies in a timely manner than would be afforded by matching Form 1098-T data to a taxpayer's return. However, changes are still needed to make the cost of attendance reported on Form 1098-T more useful to taxpayers and IRS. This can be accomplished by requiring that it reflect the amount actually paid to the educational institution after accounting for scholarships and grants, rather than give educational institutions the option of reporting either the amount billed or the amount paid. Because of budgetary constraints, this recommendation is unlikely to be implemented by IRS in the near future. GAO will keep this recommendation open and plans to update its status at least annually.

    Recommendation: To reduce taxpayer confusion and enhance compliance with the eligibility requirements for higher education benefits, IRS should revise Form 1098-T to improve the usefulness of information on qualifying education expenses.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  8. Status: Open

    Comments: Legislative searches show that, as of June 26, 2014, Congress has not extended IRS with math error authority (MEA) to use prior years' tax return information to automatically verify taxpayers' compliance with the limit on the number of years the Hope Scholarship Credit can be claimed. The Hope Scholarship Credit was expanded and renamed the American Opportunity Tax Credit (AOTC). The AOTC has been extended through December 31, 2017. Even with the change, Congress did not grant the additional MEA. However, GAO has provided technical assistance to the House Solutions Caucus in drafting legislative language for a bill on extending MEA to use prior years' returns for verifying compliance with limits on the credit. In addition, the Administration included MEA in its General Explanations of fiscal year 2015 Revenue Proposals (also known as the Treasury Green Book).

    Recommendation: Congress may wish to consider providing IRS with math error authority (MEA) to use prior years' tax return information to automatically verify taxpayers' compliance with the limit on the number of years the Hope credit can be claimed.

    Agency Affected: Congress

 

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