2009 Tax Filing Season: IRS Met Many 2009 Goals, but Telephone Access Remained Low, and Taxpayer Service and Enforcement Could Be Improved
Highlights
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
Matter for Congressional Consideration
| Matter | Status | Comments |
|---|---|---|
| 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. | As of August 22, 2018, Congress has not provided 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, now known as the American Opportunity Tax Credit (AOTC) can be claimed. The AOTC can be claimed by taxpayers for qualified tuition and related expenses for 4 years of postsecondary education. Under the Protecting Americans From Tax Hikes Act of 2015, IRS was granted MEA to disallow a claim for the AOTC if the taxpayer is not permitted to claim the credit due to prior fraudulent or reckless claims, or if the taxpayer omitted information relating to prior improper claims of the credit. IRS does not have authority to automatically deny an AOTC even if the taxpayer claims the credit for more than the 4 allowable years. GAO has in the past 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 has for many years included a revenue proposal in Treasury's Green Book to provide IRS with "correctable error authority" where the (1) information provided by the taxpayer does not match the information contained in government databases, (2) taxpayer has exceeded the lifetime limit for claiming the credit or deduction, or (3) taxpayer failed to include proper documentation with his or her return. If this revenue proposal was enacted, IRS would have the authority to deny claims for the AOTC if the taxpayer has already received the credit for 4 years. |
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Internal Revenue Service | 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. |
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.
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| Internal Revenue Service | 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. |
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.
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| Internal Revenue Service | 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. |
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.
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| Internal Revenue Service | 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. |
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.
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| Internal Revenue Service | To further improve refund timeliness and reduce reliance on RALs and RACs, IRS should determine the feasibility of offering debit cards for refunds. |
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.
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| Internal Revenue Service | 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. |
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.
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| Internal Revenue Service | 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. |
In 2009, we found the Form 1098-T Tuition Statement educational institutions provided to students was confusing to taxpayers and not useful for IRS enforcement. Educational institutions could report either the amount of payments received or the amount billed on the Form 1098-T. However, the amount billed may not account for scholarships or grants, which could overstate the amount that can be claimed as a credit. Further, IRS officials indicated that the form was not useful for enforcement efforts for the same reason. Therefore, we recommended IRS revise the Form 1098-T to improve the usefulness of information on qualifying education expenses. We highlighted this issue again in our 2011 report identifying fragmentation, overlap, and duplication (DOF) among federal programs and opportunities for cost savings and revenue enhancement and we reiterated this issue each year thereafter. IRS stated that legislative changes would be needed to revise the Form 1098-T to show the amount paid. Using language very similar to that in our 2009 report, the Administration proposed such changes to Congress in the Department of the Treasury's General Explanations of the Administration's Revenue Proposals for fiscal years 2014, 2015, and 2016. In December 2015, Congress enacted a requirement that educational institutions report only the aggregate amount of qualified tuition and related expenses actually paid to the educational institution during the calendar year (Section 212 of division Q of the Consolidated Appropriations Act, 2016-Public Law 114-113). In January 2016, we found IRS had revised the Form 1098-T consistent with this requirement
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