Input:
	Background

		Taxpayer Services and Tax Return Process

IRS uses multiple channels to provide customer service to taxpayers and  process tax returns:  Telephone service for tax law and account questions: Taxpayers can  speak with IRS staff to obtain information about their accounts throughout  the year or to ask basic tax law questions during the filing season.  Taxpayers can also listen to recorded tax information or use automated  services to obtain information on the status of refund processing as well  as account information such as balances due. Taxpayer access to  telephone assistance has declined for the past several years, and we  have made recommendations for IRS to improve its performance. For  example, in 2010, we recommended that IRS determine a customer  service telephone standard based on the quality of service provided by  comparable organizations and what matters most to the customer, and  resources required to achieve this standard. In 2014, we again reported  that IRS was missing an opportunity to improve its customer service by  not systematically comparing its telephone service to the best in business  in order to inform Congress about gaps in actual and desired service and  resources needed to improve the level of service provided to taxpayers.
Correspondence: Taxpayers may also use paper correspondence to  communicate with IRS, which includes responding to IRS requests for  information or data, providing additional information, or disputing a notice.  Assistors in IRS’s Accounts Management office respond to taxpayer  inquiries on a variety of tax law and procedural questions, and handle  complex account adjustments such as amended returns and duplicate  filings. IRS tries to respond to paper correspondence within 45 days of  receipt; otherwise, such correspondence is considered “overage.”  Minimizing overage correspondence is important because delayed  responses may prompt taxpayers to write again, call, or visit walk-in sites,  and IRS would be required to pay interest on refunds owed to taxpayers if  it did not process amended returns within 45 days.
Online services: IRS’s website is a low-cost method for providing  taxpayers with basic interactive tools to, for example, check refund status,  make payments, and apply for plans to pay taxes due in scheduled  payments (installment agreements). Taxpayers can use the website to  print forms, publications, and instructions, and can use IRS’s Interactive  Tax Assistant application to get answers to tax law questions without  calling or writing to IRS.
Face-to-face assistance: Face-to-face assistance remains an important  part of IRS’s service efforts, particularly for low-income taxpayers.  Taxpayers can receive face-to-face assistance at IRS’s walk-in sites or at  thousands of sites staffed by volunteer partners. At walk-in sites, IRS staff  provide services including answering basic tax law questions, reviewing  and adjusting taxpayer accounts, taking payments, authenticating  Individual Taxpayer Identification Number applicants, and assisting  identity theft victims. At sites staffed by volunteers, taxpayers can receive  free return preparation assistance as well as financial literacy information.
Tax return processing: IRS processes millions of paper and  electronically filed (e-filed) returns and issues billions of dollars in refunds  each year. A key step in the process is identifying and correcting millions  of errors that taxpayers make on their returns or that occur during  processing. IRS expends significant resources correcting errors and the  process can affect how long it takes IRS to issue refunds.

		Budget and Service Changes

IRS’s annual appropriations declined from a high of $12.1 billion in fiscal  year 2010 to $10.9 billion in fiscal year 2015, a reduction of about 10  percent. In our prior work, we reported that despite regularly realizing  efficiency gains, IRS was struggling to provide taxpayers access to  services, and IRS’s performance would likely continue to suffer unless it  made tough choices about what services to provide. For fiscal years  2014 and 2015, IRS implemented service initiatives that included  reducing or eliminating certain telephone and walk-in services, and  redirecting taxpayers toward other service channels such as IRS’s  website. See appendix II for more details on these service initiatives.

		Tax Law Changes

A major challenge for IRS is responding quickly, accurately, and  effectively to tax law changes, some of which can be extensive. For  example, IRS has been preparing to implement provisions of PPACA for  several years and carrying out these provisions has been a significant  undertaking. The 2015 filing season was the first that taxpayers were  required to report health care coverage information on their tax returns.  IRS began processing these returns in January 2015. Individuals could  purchase health insurance through state or federally-facilitated  marketplaces, and some of those who did so were eligible for the  premium tax credit (PTC), an advanceable, refundable tax credit  designed to help eligible individuals and families with low or moderate  income afford health insurance. Taxpayers can have the PTC paid in  advance to their insurance company, and those who do so must reconcile  the amount of advance PTC received with the PTC they are eligible for  based on their actual income reported on their tax return.

	IRS’s Customer Service Continued to Decline in 2015 and IRS Has Not Developed a Comprehensive Service Strategy

		IRS Reduced Resources for Answering Telephones and Correspondence in 2015 in Order to Meet Other Responsibilities

Overall, as mentioned above, annual fiscal year 2015 appropriations were  reduced by 10 percent compared to fiscal year 2010 (from $12.1 billion to  $10.9 billion), with appropriations for taxpayer services remaining level  with the previous year. However, resources allocated by IRS to taxpayer  services decreased in fiscal year 2015 from about $2.4 billion to $2.3  billion (or about 4.7 percent). IRS has statutory authority to supplement its  annual appropriations with user fee receipts from various services it  provides. IRS allocated approximately $45 million of user fee receipts to  taxpayer services—about 76 percent less than the $183 million it  allocated to taxpayer services in fiscal year 2014. See appendix III for  details on IRS resource allocation for taxpayer services.
IRS allocated most user fee receipts in fiscal year 2015 to fund  information technology (IT) investments to implement PPACA  requirements and other services, and support for mainframes and  servers, which can help IRS better respond to taxpayers in the future. IRS  officials also said they shifted user fee funds to combat identity theft- related refund fraud, strengthen cybersecurity, and implement tax  provisions from other recently enacted legislation such as the Foreign  Account Tax Compliance Act (FATCA).
As a result of these trends, IRS reduced staff answering both telephones  and correspondence by about 9 percent (from about 12,500 to 11,400  full-time equivalents (FTE)) between fiscal years 2014 and 2015 (see  figure 1). Moreover, IRS eliminated most overtime for IRS assistors until  after the end of the filing season, resulting in fewer total hours worked by  assistors to answer telephones and correspondence. Early in the 2015  filing season, IRS officials said they devoted a higher percentage of  assistor FTEs to answering correspondence than telephones to prevent a  growing inventory of correspondence that they estimated could have  taken over a year to work through if they did not take this action. IRS’s  action in fiscal year 2015 continues a trend of shifting more assistors to  answering correspondence; the percentage of FTEs used for working  correspondence cases increased from 32.6 to 45 percent between fiscal  years 2010 and 2015.

		IRS Provided Taxpayers with Poor Telephone Service and Encountered Difficulties in Answering Correspondence and Providing Other Assistance

Telephone: A reduction of about 34 percent in the number of assistors  answering telephone calls between fiscal years 2010 and 2015  contributed to the lowest level of telephone service in fiscal year 2015  compared to recent years. The number of calls from customers seeking to  speak to an assistor decreased about 6 percent (from about 54.3 million  to 51.1 million) between fiscal years 2010 and 2015. However, as figure 2  illustrates, IRS answered about 50 percent fewer calls from taxpayers  seeking an assistor (from about 36.7 million to about 18.2 million) during  the same period, while about 73 percent more calls were abandoned,  disconnected by IRS, or met with a busy signal (from about 32.4 million to  56.2 million).
Calls answered by assistors also took longer to complete with average  times of about 13.4 minutes, which is about 2 minutes more (a 13 percent  increase) compared to fiscal year 2010. While the increase in the length  of a call was small, in total IRS spent more than 476,000 additional hours  on telephone calls than it would have with average times from fiscal year  2010. According to IRS officials, IRS assistors are handling calls that are  more complex to resolve—including calls pertaining to PPACA and  identity theft—while IRS is diverting calls with less complex inquiries to  self-service options. IRS officials also noted that assistors are taking  additional time on the calls to explain self-service options to taxpayers,  while taxpayers can spend up to 15 seconds discussing issues with wait  times or disconnected calls, thus driving up time needed to complete  calls. To reduce call lengths, IRS officials said they are taking steps to  expand the authority of assistors to abate penalties rather than taking  time to request documentation from callers. These officials also said they  are studying the reduction or elimination of assistor-answered calls on tax  law questions. They are considering deploying subject-matter experts to  help assistors become more efficient and resolve issues from callers  more quickly.
IRS answered about 7 percent more calls using automated assistance  (from 35.1 million to 37.5 million) between fiscal years 2010 and 2015.  Answering as many calls as possible through automation is a significant  efficiency gain because IRS estimates that in 2015 it cost an average of  51 cents per call to provide an automated answer compared to an  average of about $55 per call with a live assistor, which was about an 85  percent increase from 2010. IRS implemented service changes in fiscal  year 2015 to drive demand for customer service from the telephone to  IRS’s website, such as directing taxpayers who met Online Payment  Agreement qualifications to apply for and set up installment payments  online instead of calling or visiting IRS. See appendix II for more details  on service changes launched in fiscal year 2015.
Figure 3 shows that a key indicator of taxpayer service, the level of  service (LOS)—defined as the percentage of people who want to speak  with an IRS assistor who were able to reach one—declined to about 38  percent in fiscal year 2015. While the IRS Commissioner characterized  this as “abysmal” service, it was in line with IRS’s projected LOS for fiscal  year 2015 and a decrease from last year when LOS was about 64  percent. IRS also experienced declines in LOS on many telephone lines  used to answer questions on taxpayer accounts, including those for  responding to identity theft inquiries and calls from tax practitioners (see  appendix IV for more details). Additionally, average wait times have  almost tripled from about 11 minutes to more than 30 minutes since fiscal  year 2010.
In spite of these challenges, the quality of telephone service provided by  IRS has remained consistently high since fiscal year 2010 with assistors  providing an accuracy rate of higher than 90 percent in answering both  account and tax law questions.
Correspondence: Figure 4 shows that the amount of correspondence  Accounts Management received and closed (or completed) slightly  decreased between fiscal years 2010 and 2015. During the same period,  the average time needed to close cases once they were assigned to an  assistor increased from about 35 to 47 days. However, this time has  decreased from its peak of 67.4 days in fiscal year 2013. According to  IRS officials, IRS implemented a new approach to managing inventory in  2014. This approach reduced the overall time needed to close cases by  balancing work between new correspondence receipts that are quick to  complete and overaged cases.
As shown in figure 5, the percentage of correspondence cases in IRS’s  inventory classified as “overage”—cases generally not processed within  45 days of receipt by IRS—has stayed close to 50 percent since fiscal  year 2013. However, this is more than double fiscal year 2010’s  overage rate. IRS officials stated that ongoing efforts to consolidate  correspondence scanning from 10 to 5 sites contributed to higher overage  rates in fiscal year 2015 compared to prior years. An increasing overage  rate could lead to increased interest paid to taxpayers who are owed  refunds.
The composition of correspondence cases received by IRS since fiscal  year 2010 has been changing, with a higher number of cases involving  identity theft and fewer cases involving amended returns and duplicate  filings (see appendix V for additional details). Despite these changes, IRS  reported that it maintained a high degree of accuracy when closing them.  In fiscal year 2015, IRS found that assistors correctly answered and  provided appropriate resolutions to correspondence cases about 89  percent of the time, which is comparable to customer accuracy scores in  prior years. During the same period, IRS assistors also maintained scores  of well above 90 percent for adhering to statutory, regulatory, and other  process requirements when making determinations on taxpayer  accounts.
Online: IRS has taken steps in recent years to increase online services to  help reduce calls and written correspondence from taxpayers, but  encountered security issues in 2015. For example, IRS’s Get Transcript  application allowed taxpayers to obtain a viewable and printable transcript  on IRS’s website. Use of this application increased about 49 percent  (from about 19 million to 28 million) between fiscal years 2014 and 2015.  However, IRS took the Get Transcript self-service web application offline  on May 21, 2015, because of significant security problems. In June 2015,  the IRS Commissioner testified that unauthorized third parties had gained  access to taxpayer information from the application. According to officials,  criminals used taxpayer-specific data such as Social Security information,  dates of birth, and street addresses acquired from non-IRS sources to  gain unauthorized access to information on approximately 100,000 tax  accounts. In August 2015, IRS updated this number to about 114,000,  and reported that an additional 220,000 accounts had been  inappropriately accessed, bringing the total to about 330,000 accounts.  IRS sent letters to affected taxpayers and offered them free credit  protection and Identity Protection Personal Identification Numbers. As of  November 2015, IRS officials said they were working with subject matter  experts to identify and review various authentication options for the Get  Transcript application and may have a new authentication process in  place for relaunching the application in spring 2016. Taxpayers still have  several options to request a transcript.
In spite of these challenges, IRS officials said they are developing an  online account access feature so taxpayers can view balance due, make  a payment, view payment status and history, and view account  transcripts. In 2015, IRS began development of an online account  application that will enable taxpayers to view their balance due. IRS is  aiming to make the online account access feature available to the public  in 2016.
In January 2015, we reported that IRS created a group aimed at  centralizing several prior ad-hoc efforts to authenticate taxpayers across  its systems, but did not have a plan to assess costs, benefits, and risks to  inform decisions about whether and how much to invest in various options  to enhance authentication. We recommended that IRS estimate and  document such costs, benefits, and risks. IRS agreed with this  recommendation, but as of October 2015, had yet to implement it. We  also found that IRS’s taxpayer authentication tools have limitations. For  example, identity thieves can easily find the information needed to falsely  obtain an e-file personal identification number, allowing them to bypass  some, if not all, of IRS’s current automatic checks. Moreover, a small  number of taxpayers receive Identity Protection Personal Identification  Numbers or undergo knowledge-based authentication, which uses  questions about personal information that only the taxpayer should know  to confirm taxpayers’ identities.
Authenticating a taxpayer online is one of several key steps needed for  IRS to enhance online services. In December 2011, we recommended  that IRS complete a strategy for providing online services, and further  expanded on that recommendation in April 2013. IRS agreed with those  recommendations and, in response, is developing a long-term strategy,  known as Service on Demand, in part to improve online services. In  September 2015, we reviewed IRS's Service on Demand strategy and  found that it implemented part of our April 2013 recommendation to link  investments in security to its long-term strategy for improving web  services. Specifically, we found that IRS incorporated investments in  security for enhanced web services, including for authentication  capabilities and taxpayer communication channels. This plan should help  to ensure that activities, core processes, and resources are aligned to  support the mission of providing better service to taxpayers and delivering  service more efficiently.
While IRS experienced security problems with Get Transcript, it continued  to build on progress in directing more taxpayers to other online resources.  IRS’s website received approximately 493 million visits in fiscal year  2015, which is about a 13 percent increase from the prior year. Use of  self-service tools, such as the Online Payment Agreement and Interactive  Tax Assistant applications, experienced substantial increases during the  same period. See appendix VI for additional information on uses of IRS’s  website.
Walk-in and volunteer sites: As a result of budget cuts, IRS officials  said IRS reduced staff devoted to face-to-face assistance at walk-in sites  and directed customers to self-service options. IRS reduced staff at walk- in sites by about 4 percent in fiscal year 2015 compared to the previous  year (from 1,938 to 1,867 FTEs). However, the percentage of customers  at walk-in sites waiting for longer than 30 minutes for service increased by  7 percentage points in fiscal year 2015 (from about 25 to 32 percent)  during the same period. IRS officials said that the FTE reductions were  the largest factor in the increase in wait time, but IRS staff must handle  tasks that require more time to complete as taxpayers move to self- service channels for simple tasks. IRS officials said they are taking steps  to better serve taxpayers with limited resources by testing appointment  scheduling at 44 walk-in sites. They determined that availability of  appointments significantly improved service availability, with fewer  customers at participating sites waiting more than 30 minutes for service.  Additionally, IRS made other service changes in fiscal year 2015 by  providing fewer forms, instructions, and publications at walk-in sites and  encouraging taxpayers to get them online instead. IRS also increased  promotion of electronic payment options, such as IRS’s Direct Pay  application and Facilitated Self Assistance kiosks. To promote these  options, IRS updated forms, publications, and outreach materials on its  website; IRS officials also said they used automated messages on the  telephone, signs at walk-in sites, social media posts, and added  information in notices sent to taxpayers. Consequently, total contacts at  walk-in sites for forms and payments in fiscal year 2015 decreased by  32.3 and 10.3 percent, respectively, compared to the previous year. See  appendix II for a full list of fiscal year 2015 service initiatives.
At the 12,057 partner sites staffed by volunteers in fiscal year 2015,  taxpayers could receive return preparation assistance as well as financial  literacy information. These sites prepared about 3.8 million tax returns in  fiscal year 2015—a 3 percent increase from the previous year. See  appendix VII for additional information on taxpayer use of walk-in and  volunteer site services.

		IRS Streamlined Its Processes for Handling Taxpayer Correspondence and Is Working to Implement a New Quality Review Process

IRS routes each piece of correspondence through several steps before it  reaches an assistor. To make the process more efficient, IRS officials  said that teams within the Wage and Investment division—which  oversees both Accounts Management and Submission Processing—have  been working to identify opportunities to improve IRS’s performance in  working and closing correspondence cases. According to IRS officials we  interviewed at Wage and Investment headquarters and Accounts  Management campuses, they formed individual teams to make  correspondence handling more accurate and timely, and have  coordinated reviews with IRS campuses to ensure that IRS staff  scanning correspondence into IRS’s systems code them correctly so  they are routed to the appropriate assistor; reviewed IRS’s efforts to consolidate scanning of correspondence  from 10 sites to 5, and identified opportunities to standardize work  processes and use resources more flexibly to address  correspondence backlogs;  identified significant differences in the procedures used at various  campuses when screening correspondence before scanning it into  IRS’s systems and are working to standardize such processes; and helped IRS fully implement its new inventory process across all  Accounts Management campuses by June 2014 and measure results  of the transition. As a result, average times for closing  correspondence cases once they reached an assistor have declined  since fiscal year 2013. IRS believes the new process will help it  reduce unnecessary follow-up contacts with taxpayers and manage  correspondence inventory in a strategic and logical manner.
IRS’s launching of its Get Transcript tool—one of the service initiatives  IRS implemented in fiscal year 2014—helped to drive down  correspondence. Specifically, the number of transcripts sent to  taxpayers via postal mail decreased about 50 percent (from about 3.3  million to 1.7 million) between fiscal years 2013 and 2014.
In February 2015, Accounts Management began a pilot to improve the  consistency and quality of reviews of correspondence and telephone work  at selected campuses. Under the pilot, called the Centralized Evaluative  Review (CER), a centralized team of technical reviewers perform monthly  reviews of assistors’ work, instead of the assistors’ immediate  supervisors. IRS believes CER will standardize reviews for assistors,  improve the rebuttal process for both assistors and supervisors, and  provide more opportunities for staff to receive one-on-one mentoring from  their supervisors.
We conducted discussion groups with 17 Accounts Management  managers overseeing assistors at four sites, including two sites  participating in the CER pilot (see appendix I for a detailed methodology  of how we conducted discussion groups with assistors and managers).  Front-line managers at the pilot sites told us the CER pilot shows  promise. Most (seven of nine) of the managers we spoke with at the two  campuses piloting CER said it was beneficial for a centralized group to  perform reviews rather than frontline supervisors. IRS is taking steps  toward implementing CER across all Accounts Management sites, such  as drafting an implementation document for CER that IRS officials intend  to update and use for nationwide implementation of CER once IRS  reaches an agreement with the union representing assistors nationwide.  As of November 2015, IRS is negotiating with the union. However, even if  IRS and the union ratify an agreement before the end of this year, IRS  officials expect to wait until after the 2016 filing season to expand CER to  other Accounts Management sites because of the difficulties in  implementing new projects during the filing season.

		IRS Does Not Have Adequate Controls to Ensure Assistors Consistently Send Accurate Correspondence to Taxpayers

Since fiscal year 2010, IRS assistors achieved customer accuracy scores  of 85 percent or higher when working correspondence cases. However,  they have made increasing numbers of errors in either not sending  required correspondence to taxpayers after closing a case, or sending  inaccurate information in that correspondence. The number of these  errors increased almost 200 percent from 1,165 to 3,377 errors found in  correspondence cases sampled by IRS between fiscal years 2010 and  2015. According to IRS officials, an analysis of these errors showed that  in fiscal year 2015, more than a third of these errors originated from  incorrect dates, amounts due, and other information, while another 20  percent originated from assistors failing to issue correspondence to  taxpayers.
Managers in our discussion groups concurred that IRS faced problems in  sending out accurate correspondence to taxpayers. About half (eight of  17) of the managers in our discussion groups said that a common issue  was that assistors did not send required correspondence at all. In  addition, seven of the 17 managers said assistors incorporated incorrect  information into correspondence to taxpayers. Failure to send  correspondence, or providing inaccurate information to taxpayers, may  spur taxpayers to write again to IRS about the same problem or call or  visit IRS, requiring additional time and resources to resolve cases by both  taxpayers and IRS.
IRS officials confirmed that assistors’ failure to send required  correspondence to taxpayers was one of the most common errors made  by assistors in recent years, likely stemming from a lack of attention  because assistors work too quickly to get through cases and do not  remember to send correspondence. In response, Accounts Management  took steps to enhance training and remind assistors of requirements for  sending outgoing correspondence with accurate and complete  information. For instance, in May 2014, Accounts Management developed  and distributed a job aid for providing quality and timely responses to  taxpayers and provided refresher training on outgoing correspondence at  some sites during fiscal year 2014 training. In 2015, Accounts  Management launched a communication campaign with flyers and other  visual and verbal reminders for assistors to send required  correspondence. Officials said they experienced reductions in errors after  the campaign, though as time passed such errors gradually increased. In  addition, IRS provided recommendations to Accounts Management sites  for targeting defects in outgoing correspondence. IRS officials said they  provided biweekly workshops where subject matter experts answered  questions and assistors shared lessons learned. Officials also said they  required assistors to use a checklist to confirm completion of every step  of the correspondence adjustments process including sending out  required correspondence if necessary. They said that at least one IRS  automated tool prompts assistors to send correspondence based on  actions taken on a correspondence case. Additionally, managers have  discretion to conduct 100 percent reviews of correspondence cases after  they are completed to ensure that assistors send required  correspondence.
IRS‘s Internal Revenue Manual (IRM) states that correspondence  soliciting additional information or responding to inquiries must be timely,  accurate, and professional, and address all issues based on information  provided by taxpayers. A quality response must also request additional  information as needed from the taxpayer and is written in language that  the taxpayer can understand. According to the IRM, responses to  taxpayers are “timely” if initiated within 30 days of the date IRS received  the inquiry. Such responses may include interim letters explaining when a  taxpayer can expect a final resolution on a case or a final response  describing action taken by IRS to resolve the case. As previously noted,  IRS generally classifies correspondence cases not processed within 45  days as “overage.” In addition, internal control standards state that  agency management should design appropriate types of control  activities—such as policies, procedures, techniques, and mechanisms— to achieve its stated objectives.
Accounts Management officials acknowledged they do not have adequate  controls in IRS’s systems to ensure assistors send out accurate and  complete correspondence to taxpayers when required before closing  cases. In fact, while IRS has implemented policies, procedures, and  mechanisms to help assistors send required correspondence with  accurate and complete information, such steps have not been sufficient in  helping IRS achieve its objective; between fiscal years 2014 and 2015,  the number of errors linked to outgoing correspondence rose about 29  percent (from 2,614 to 3,377), adding to the increasing number of errors  taking place since fiscal year 2010. IRS has not formally assessed the  feasibility of setting up such controls, but Accounts Management officials  noted it would be costly and difficult to build into IRS’s systems and not all  correspondence inventories require letters sent to taxpayers. Without  reviewing the feasibility of setting up adequate controls for consistently  sending accurate correspondence to taxpayers, IRS is missing an  opportunity to reduce errors in providing accurate and timely responses to  taxpayers and sufficiently address their issues.

		Treasury and IRS Have Not Developed a Comprehensive Customer Service Strategy with Measurable Performance Targets

Both Congress and the executive branch have taken steps to improve  customer service. The GPRA Modernization Act of 2010 (GPRAMA)  requires agencies to, among other things, establish a balanced set of  performance indicators to measure progress toward each performance  goal, including, as appropriate, customer service. Similarly, several  executive orders, presidential memorandums, and OMB guidance require  agencies to take steps to strengthen customer service and describe a  number of actions agencies can take to improve their customer service. In  our previous reports on the IRS filing season, we have described these  requirements at length and emphasized how important it is for IRS to take  those actions to ensure taxpayers are receiving quality customer service.  Additional background on executive orders and other guidance is  provided in appendix VIII.
In response to GPRAMA, executive orders, and other policies, Treasury  and IRS have taken steps to define customer service targets and align  them to Treasury’s and IRS’s strategic and performance plans. For  example, Treasury   incorporated strategic goals and objectives into its fiscal year 2014- 2017 strategic plan for fairly and effectively reforming and  modernizing federal tax systems, and improving efficiency,  effectiveness, and customer interaction, and outlined strategies to  achieve them; established performance measures linked to the strategic goals  outlined above, such as telephone level of service, taxpayer self- assistance rate, and percentage of individual returns processed established an agency priority goal to increase self-service options for  taxpayers, which complements OMB’s cross-agency priority goal to  improve customer service in part through utilizing technology.  incorporated a goal of delivering high-quality and timely service in its  fiscal year 2014-2017 strategic plan, along with strategic objectives,  such as tailoring service approaches to taxpayers to facilitate  voluntary compliance and providing timely service to taxpayers  through multiple channels, and strategies to achieve them; listed performance measures in its congressional justification that are  linked to Treasury’s performance plan, including telephone level of  service, taxpayer self-assistance rate, accuracy rates for responses  provided to callers and percentage of individual returns processed  electronically; and used its strategic plan, Taxpayer Assistance Blueprint, and other key  documents to develop its joint Small Business/Self-Employed Division  and Wage and Investment Concept of Operations (CONOPS) to  outline its vision for the future of taxpayer services. CONOPS also  includes high-level direction, specific initiatives, and work areas that  are intended to drive the achievement of its vision.
However, Treasury and IRS’s efforts fall short in several important areas:   Treasury does not list correspondence overage rates in its  performance plan. Handling correspondence is expensive; IRS  estimated that it cost about $818.7 million from October 1, 2014 through  June 30, 2015. In response to our December 2010 recommendation, IRS  started using a correspondence overage rate beginning in fiscal year  2011 to measure its timeliness in handling correspondence. However,  Treasury does not include correspondence overage rates as a  performance measure in its performance plan or annual financial report,  inhibiting its efforts to create a complete set of customer service  performance metrics for IRS. Further, Congress and other stakeholders— such as the Treasury Inspector General for Tax Administration (TIGTA)  and the National Taxpayer Advocate—do not have information readily  available to monitor IRS's performance in handling correspondence from  taxpayers.
IRS has not yet developed a comprehensive customer service  strategy incorporating appropriate levels of taxpayer services. In  December 2012, we recommended that IRS outline a strategy that lists  specific steps needed to attain appropriate levels of telephone and  correspondence service based on an assessment of time frames,  demand, capabilities, and resources. IRS intended the joint CONOPS,  which was released in July 2014, to illustrate how it wants to deliver  taxpayer services moving forward. The joint CONOPS articulates  compliance activities and services IRS believes are achievable within a 5- year period. It identifies 30 critical capabilities for IRS to strengthen or  develop, such as inventory planning, case management, and digital  account management. It also defined initiatives and work areas to help  IRS achieve its vision, such as using the Internet to submit documentation  to IRS and update and amend returns, improving correspondence case  management, and more accurately and quickly routing telephone calls to  resolve taxpayers’ issues. While the joint CONOPS outlined a target of  achieving about 90 percent closure of compliance cases within a filing  year, it did not define what IRS believes are the appropriate service levels  of telephone and correspondence. As a result, IRS is not able to fully  articulate the levels of telephone and correspondence service which it  believes are appropriate as it seeks to transition demand to self-service  channels.
IRS has not yet developed a telephone measure benchmarked to the  best in business or customer expectations. IRS requested about $186  million for fiscal year 2016 to help the agency reach its goal of increasing  telephone level of service to 80 percent in part by hiring more assistors  and investing in information technology (IT) improvements. IRS last  reached this level of service in fiscal year 2007. According to IRS officials,  they use a planning process and strategy designed to achieve the highest  level of service based on available resources and competing priorities,  including funding statutorily required responsibilities such as  implementing the Patient Protection and Affordable Care Act (PPACA)  and Foreign Account Tax Compliance Act (FATCA). This is in contrast to  our December 2014 recommendation, in which we recommended that  IRS set its level of service based on a comparison to private-sector  organizations providing a comparable or analogous service—or the “best  in the business”—to identify gaps between actual and desired  performance. In addition, IRS has not implemented our December 2010  recommendation to determine a customer service telephone standard  based on the quality of service provided by comparable organizations or  on what matters most to the customer. Treasury and IRS officials noted  that IRS faces budgetary and legislative challenges not experienced by  private sector organizations. IRS officials also believe that establishing a  standard measure for telephone service would give the impression that  IRS would plan to fail to deliver service to the standard in years where  funding for taxpayer services is reduced. However, by not comparing  customer service performance against the best in business or customer  expectations, IRS is missing opportunities to illustrate gaps between  actual and desired service, and provide additional information to  Congress about resources IRS believes are needed for taxpayer service.
IRS has not thoroughly examined all of the services provided via  telephone assistors to determine which services can be provided via  automated phone calls and online services. IRS has taken steps to  determine the service channels taxpayers prefer to use for tasks, such as  submitting documentation, obtaining updates on the status of a taxpayer  case, or setting up a payment plan. For example, in part due to our prior  work, IRS developed an automated telephone line and online tool that  enabled taxpayers to receive information on amended returns submitted  to IRS and locations of Volunteer Income Tax Assistance sites.  However, IRS has not fully assessed the services it provides on other  telephone lines to determine whether it can divert demand for services to  automated phone calls and online applications. For example, IRS has not  explored the costs and benefits of automating the process for ordering  IRS forms. IRS officials told us that these calls are answered by a  contractor who hires disabled individuals. Thus, they are reluctant to  change this option. However, automating such calls would free up  resources for services only IRS can provide, such as answering questions  about account information. Without a careful review of services provided  by telephone assistors and determining which services can be provided  through other channels, IRS is missing opportunities to reduce telephone  call volumes and effectively meet taxpayers’ needs for services at a lower  cost.
In October 2015, Treasury officials said they are not inclined to develop a  comprehensive strategy since IRS already has a sufficient number of  customer service performance goals. Further, in September 2015,  officials from IRS’s Planning, Programming and Audit Coordination office  said they were drafting an enterprise-wide CONOPS covering all IRS  operations with a goal of providing more efficient and effective taxpayer  services. They said they will define a more balanced view of customer  service that illustrates future use of telephone and correspondence  service as IRS expands its online services. They plan to release a draft of  the enterprise-wide CONOPS to Congress and other external  stakeholders in early 2016 and incorporate it into IRS’s strategic plan  beginning in spring 2016. However, IRS’s Planning, Programming and  Audit Coordination officials told us they did not envision the enterprise- wide CONOPS to incorporate specific goals for telephone and  correspondence performance in line with what customers would expect,  or resources needed to reach them. Without defining a comprehensive  strategy with specific goals for customer service tied to the best in  business and customer expectations, Treasury and IRS are not effectively  conveying to Congress the types and levels of customer service expected  by taxpayers and the capabilities and resources IRS requires to achieve  those levels.

	Opportunities Exist to Improve and Streamline Return Processing

		IRS Had Mixed Results Implementing New and Extended Tax Law Provisions

IRS opened the 2015 filing season on the earliest starting date since  2012, despite having to implement challenging initiatives. IRS was able to  both ensure compliance with FATCA and implement multiple tax law  changes that passed late in 2014. In spite of these challenges, IRS  officials and tax preparation industry stakeholders reported relatively few  problems processing returns, which IRS attributed primarily to significant  advance planning. To its credit, IRS was able to implement these  changes while processing about the same number of returns and refunds  as last year. Table 1 shows that IRS continues to see a decrease in  processing paper returns and an increase in electronic processing, which  has many benefits for taxpayers such as improved convenience, higher  accuracy rates, and faster refunds.
One area, however, where IRS did experience some problems was  verifying taxpayers’ Premium Tax Credit claims due to health insurance  marketplaces either not meeting the deadlines for providing IRS with  complete health care coverage information or submitting information that  was inaccurate. As we reported in July 2015, IRS had incomplete or  delayed marketplace data to verify claims at the time of return filing and  did not know whether these challenges were a single-year or an ongoing  problem. We concluded that, without complete and accurate information  from the marketplaces, IRS cannot effectively verify the amount of the  premium tax credit that taxpayers are eligible to receive, or the amount  that may have been paid on their behalf to an insurer in the form of an  advance premium tax credit. We found that IRS needed to strengthen  oversight of PPACA tax provisions for individuals and made several  recommendations designed to strengthen oversight of PTC provisions,  which IRS generally agreed to implement.

		IRS’s Refund Timeliness Performance Measure Does Not Include All Returns with Errors

IRS’s Primary Processing Units for  Correcting Errors  Errors can occur on tax returns because of  mistakes made by both taxpayers and IRS.  When processing returns, one of IRS’s  responsibilities is to correct these errors. IRS  generally does this in three processing units:  Error Resolution System—Corrects a wide  range of simple errors, such as missing  schedules or forms using Math Error  Authority.  Rejects—Corrects incomplete returns by  corresponding with taxpayers to request  information, such as missing forms.  Unpostables—Corrects returns that failed to  pass validity checks and cannot be recorded  (or posted) to the taxpayer’s account, such as  incidents associated with identity theft.
IRS has three units that correct errors—the Error Resolution System,  Rejects, and Unpostables (see sidebar). Errors can cause ripple effects  as returns move through processing and can significantly delay how long  it takes to process a return. For example, if a taxpayer did not include a  required tax form, examiners responsible for preparing the return for data  entry will send a letter to the taxpayer requesting the missing form. Once  the taxpayer submits the form, the return can be sent to the next unit for  data entry. For more details on how IRS processes returns and corrects  errors, see appendix IX.
When IRS has to correct errors, it takes longer to process a return and  can result in paying interest to the taxpayer, which is required if IRS takes  longer than 45 days after the filing deadline to issue a refund.  Consequently, as the number of errors increase, it may result in IRS  paying more interest. IRS officials said they do not collect complete  information on the reasons why IRS pays refund interest; however, they  do conduct quality reviews of those cases where IRS paid the largest  amounts of interest. These reviews show that multiple types of processing  delays resulted in large interest payments. IRS officials attribute a rise in  interest paid since 2011 in part to its filters catching more identity theft- related fraudulent returns. This causes delays as IRS takes additional  steps to authenticate the legitimate return and can take longer than 45  days. Figure 6 shows that the amount of interest IRS paid has generally  trended in the same direction as the total number of errors IRS  identified.
Even though millions of returns are corrected in the Error Resolution  System, Rejects, and Unpostables units, IRS excludes many of these  returns in its refund timeliness performance measure, which tracks the  percentage of refunds issued within 40 days or less. Instead, the  measure only includes paper-filed individual income tax returns and some  returns that contain errors. In 2011, we reported that this measure and  goal are outdated and have not significantly changed since 2003. We  recommended IRS develop a new refund timeliness measure and goal to  more appropriately reflect current capabilities. IRS officials said they  would reassess both. In July 2014, IRS reported that it had determined  not to develop a new refund timeliness measure, stating that  implementation of the Customer Account Data Engine 2 daily processing,  promotion of electronic filing, and newly implemented filters for identity  theft eliminated the need to change the measure. Since then, the  percent of returns processed electronically has increased from 78 percent  to 86 percent. Furthermore, in August 2015, IRS officials told us that  about 90 percent of refunds are issued within 21 days. These officials  expressed concern that focusing only on timeliness could jeopardize the  balance between quickly issuing refunds and ensuring that refunds are  accurate and issued to the correct individuals. It is important that IRS  issue refunds on time because when they are late, IRS is required to pay  interest and taxpayers’ refunds are delayed. We continue to reiterate  our prior recommendation that IRS develop a new refund timeliness  measure and goal. Without including electronically filed returns in either  the current measure or a separate one, IRS is not fully or accurately  reporting on its performance in issuing timely refunds and omitting returns  with errors further compounds these issues. As a result, IRS is not fully  monitoring opportunities to potentially improve how efficiently IRS  processes returns and issues refunds.

		IRS Has Not Undertaken a Comprehensive Evaluation of Its Return Processing Operations, Resulting in Missed Opportunities to Identify Savings and Efficiencies

We have previously reported that GPRAMA requires agencies to  establish a balanced set of performance indicators to be used in  measuring progress toward performance goals, including customer  service. In its fiscal year 2014-2017 strategic plan, IRS acknowledges  the importance of measuring customer satisfaction related to processing  tax returns. An IRS unit reviewed submission processing operations and  found opportunities to improve service delivery and improve the way  returns are processed. In a narrowly focused review in 2011, a team from  IRS’s Lean Six Sigma office identified 16 opportunities to improve  submission processing operations. In addition, IRS officials told us they  review processing operations and make incremental changes when  preparing for each filing season.
However, these reviews do not include comprehensive assessments of  long-term or potentially systemic inefficiencies in IRS’s return processing  operations. IRS officials said they do not have procedures to periodically  or regularly evaluate how they process returns. Such assessments are  important because the longer it takes IRS to process a return, the more  likely refunds could be delayed and increase interest paid by IRS.
During our current review, we found multiple opportunities for IRS to  generate savings and efficiencies in its return processing operations.  From our discussion groups with Submission Processing frontline staff  and managers at the three sites that process individual tax returns,  observations at a processing center, and interviews with senior officials,  we identified opportunities that could potentially improve processing  returns and reduce errors. For example, we found that:  IRS’s procedures result in premature correspondence with  taxpayers in certain instances. For returns filed on paper,  examiners who prepare returns for processing may prematurely  correspond with the taxpayer which contributes to delays in  processing. In our discussion groups, 8 of 16 tax examiners in the  error resolution and rejects units said there are restrictions on when  they can contact a taxpayer to correct an error. The IRM states that  tax examiners are generally allowed to correspond one time with  taxpayers when processing a return, though in certain limited  circumstances a second correspondence is permitted. These same  examiners said that for returns filed on paper, when examiners who  prepare returns for processing correspond with the taxpayer, others in  the error resolution system are prohibited from making additional  contact. For example, if a taxpayer did not include necessary  information for claiming a tax deduction or credit and an examiner  already corresponded with the taxpayer to request it, other examiners  would be unable to correspond with the taxpayer any further related to  that deduction or credit. In such a case, the return is suspended from  processing until the taxpayer responds. If the taxpayer does not reply  or provides incomplete information, then IRS processes the return  excluding the information in question and the taxpayer is notified of  the change. If the taxpayer disagreed with IRS’s resolution, then the  taxpayer would have to file an amended return, which takes additional  time and resources for the taxpayer as well as IRS. Ensuring that all  errors are identified to the fullest extent possible before corresponding  with the taxpayer would help IRS streamline processes and reduce  burden on taxpayers when attempting to correct their returns for  processing.
IRS is not collecting performance data about some of the errors  corrected during tax return processing. IRS does not estimate how  long it takes to process a return with or without an error and how long  it takes to resolve specific types of errors compared to others or how  many errors result from its employees incorrectly transcribing data. In  addition, IRS does not collect information on the percentage of  documents that will not post to a taxpayer’s account by type, such as  tax returns or payments. As we have previously reported, key  practices for managing for results include the use of performance  information to make the decisions necessary to improve  performance. By not collecting such data, IRS is limited in its ability  to monitor and improve processing tax returns. According to IRS  officials, this could be difficult to accomplish because IRS’s computing  systems are not set up to do so.
IRS frontline managers and staff who correct errors on individual  taxpayer returns identified weaknesses in their training. In  discussion groups with us, 20 of 32 frontline managers and staff  raised concerns about the quality of training. Some of the weaknesses  they identified included that training did not coincide with the work  they received, the trainers were not adequately prepared to teach,  and that training designed to improve interpreting certain sections of  the IRM was inadequate. The IRS Oversight Board reported similar  training concerns last year. Although IRS has provided more training  to tax examiners who correct errors, since 2010, performance  problems have persisted. For example, for the units that process  errors on individual taxpayer returns, accuracy ratings were below the  baseline performance standard half the time between fiscal year 2013  to June 30, 2015. IRS officials acknowledged the challenges in  providing timely training particularly given uncertainties in the level  and timing of appropriations which affects IRS’s ability to hire and  train before the filing season begins. In addition, officials explained  that individual business units assess their training needs every year  and conduct training accordingly. However, it is unclear the extent to  which the performance issues are the result of training gaps.

	IRS Redirected Resources to Core Services, but Could Improve Services and Compliance by Implementing Our Prior Recommendations

		IRS Redirected about $50 Million in Resources to Focus on Services Only IRS Can Provide

IRS eliminated or reduced some services in fiscal year 2014 and  redirected taxpayers to lower-cost channels to focus on core taxpayer  services that only IRS can provide (see appendix II for a full list of the  fiscal year 2014 service initiatives). As a result, some taxpayers would  have lost access to services previously provided and had to seek  assistance from other sources such as paid tax preparers. We estimated  IRS realized about $50 million that it shifted to core services after it spent  about $356,000 on implementing these initiatives. Figure 7 shows the  estimated resources realized by each initiative.
IRS said it redirected 515 assistor FTEs to answer telephone calls on  issues that only IRS could help resolve. It also redirected 160 walk-in site  FTEs to respond to questions about balances due to IRS, math errors,  refunds, identity theft, and other inquiries into taxpayers’ accounts. In  turn, according to IRS, this enabled it to provide a higher level of service  and lower wait times than expected for callers seeking live assistance in  fiscal year 2014. These actions are examples of the difficult tradeoffs that  we recommended IRS take to provide more timely telephone and  correspondence services. IRS’s actions also helped the agency move  toward its vision of transitioning taxpayer demand for assistance to lower  cost, self-service options.

		Implementing Our Prior Filing Season-Related Recommendations and Expanding Use of Math Error Authority Would Provide IRS with Multiple Benefits

IRS has made mixed progress addressing our prior filing season-related  recommendations. For example, IRS implemented one recommendation  from our 2014 filing season report by establishing performance measures  and plans for assessing the effectiveness of service initiatives. IRS also  implemented recommendations to improve web services, such as  identifying potential risks for interactive products in development and  summarizing mitigation plans needed to address such risks.
However, IRS has not fully implemented 21 other recommendations that  are intended to help increase transparency of its performance, reduce  taxpayer burden, and improve service and compliance. This includes a  recommendation on helping IRS have the information needed to weight  the potential risks, costs, and benefits of options for implementing a “Real  Time Tax” system to help improve verification of income tax returns by  matching third-party information to such returns before refunds are  issued. IRS can also take steps to implement our prior  recommendations on combating identity theft refund fraud to strengthen  present defenses against refund fraud while also developing new  strategies for both electronic and paper returns that stop such fraud at all  stages of return processing.
Our prior work also identified actions Congress could take to enhance  IRS’s Math Error Authority (MEA), which allows IRS in limited  circumstances to correct calculation errors and check for other obvious  noncompliance. Since 2008, we have raised five matters for Congress  to consider providing IRS with additional MEA. In November 2009, in  response to our suggestion, Congress acted to provide limited MEA for  correcting errors on First Time Homebuyer Tax Credit claims, but four  other matters on MEA remain open (see appendix X for details).
In fiscal years 2015 and 2016, the administration included legislative  proposals that would grant Treasury regulatory authority to expand the  IRS’s use of MEA, which is consistent with what we suggested in  February 2010. These proposals would allow IRS to correct  computational-based errors and incorrect use of tables provided by IRS  and would add a new category of correctable error 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 a deduction or credit, or (3) taxpayer has failed to  include documentation that is required by statute with his or her return.  This broader MEA, with appropriate safeguards, would give IRS the  flexibility to respond quickly as new uses for the authority emerge in the  future.
Expanding opportunities to use MEA is also important because it could  help IRS correct additional errors during return processing, which would  save resources by reducing delays in processing and the need for  burdensome audits. For example, Congress could address two matters  we previously suggested if it granted Treasury regulatory authority to  expand IRS’s use of MEA to correct errors in certain cases, such as  where the taxpayer has exceeded the lifetime limits for claiming a  deduction or credit. According to the Joint Committee on Taxation, by  doing so, the federal government could cumulatively save about $166  million between fiscal years 2015 and 2025.
We also identified actions Congress could take to reduce identity theft  refund fraud. In August 2014, we suggested that Congress consider  providing the Secretary of the Treasury with the regulatory authority to  lower the threshold for electronic filing of W-2s from 250 returns annually  to between 5 to 10 returns, as appropriate. By providing such authority,  Congress can help support IRS’s efforts to conduct more pre-refund  matching of W-2 information.

	Conclusions

The severe decline in IRS’s customer service in fiscal year 2015  underscores how important it is for IRS to urgently make tough decisions  to improve services. In light of IRS’s reduced budget and expanding  responsibilities, we have reported for several years that IRS needs to  dramatically revise its approach to customer service. While IRS’s fiscal  year 2014 service initiatives resulted in efficiency gains, they do not go far  enough, as evidenced by the extremely low level of service the agency  delivered in 2015. IRS needs a longer-term strategy to manage its  budgetary and workload environment. To that end, we are concerned that  Treasury and IRS do not believe that they need to develop a  comprehensive customer service plan to set targets for appropriate levels  of telephone and correspondence service based on service provided by  the best in business and customer expectations. We continue to believe  that implementing our previous recommendation would enable IRS to  make more informed requests to Congress about the resource  requirements to deliver desired levels of service.
IRS has taken noteworthy actions to improve customer service, such as  the Centralized Evaluative Review pilot, which shows promise to improve  correspondence and telephone work. There are also other opportunities  for Treasury and IRS to improve correspondence services and measure  performance, such as including performance targets for correspondence  in Treasury’s performance plan. This would enhance Congress’s  understanding of IRS’s customer service performance and challenges.
IRS continues to realize efficiencies in processing taxpayer returns  through e-file, however, without conducting performance evaluations of its  return processing, IRS is missing opportunities to reduce processing  delays that can contribute to refund interest paid to taxpayers. Identifying  efficiencies that both reduce common taxpayer errors and allow IRS to  more timely process new types of errors could save the government  money in interest paid. Examples of efficiencies we identified during our  observations at IRS sites include tracking information on errors it corrects  and identifying training needs that could improve performance for units  that process errors on individual taxpayer returns. Conducting  performance evaluations would likely enable IRS to find these and similar  opportunities to improve processes.

	Matter for Congressional Consideration

To improve taxpayer service amid declining budgets and increased  responsibilities, Congress should consider requiring the Secretary of the  Treasury to develop a comprehensive customer service strategy in  consultation with the Commissioner of Internal Revenue that (1)  determines appropriate telephone and correspondence levels of service,  based on service provided by the best in business and customer  expectations; and (2) thoroughly assesses which services IRS can shift to  self-service options.

	Recommendations for Executive Action

To improve performance management of taxpayer services, we  recommend that the Secretary of the Treasury update the Department’s  performance plan to include overage rates for handling taxpayer  correspondence as a part of Treasury’s performance goals.
To improve taxpayer service and gain efficiencies, we recommend that  the Commissioner of Internal Revenue take the following two actions:  1.  Assess the feasibility of setting up a control in IRS systems requiring  assistors to send out required correspondence to taxpayers prior to  closing a correspondence case.  2.  Periodically conduct performance evaluations of IRS return  processing operations to identify inefficiencies. The initial evaluation  could include, for example, assessing when to correspond with  taxpayers whose returns contain errors, collecting additional data on  errors that IRS corrects, and closing training gaps that are hindering  performance for units that process errors on individual taxpayer  returns.

	Agency Comments and Our Response

We provided a draft of this report to the Secretary of the Treasury and the  Commissioner of Internal Revenue. Treasury and IRS provided written  comments, which are reprinted in appendixes XI and XII, respectively.  IRS also provided technical comments which we incorporated where  appropriate.
Treasury neither agreed nor disagreed with our recommendation to  update the Department’s performance plan to include correspondence  overage rates as a part of Treasury’s goals. Treasury stated that it meets  regularly with IRS leadership to review progress toward goals and  strategy decisions and that it will continue to work with IRS to improve  managing and reporting its performance.
IRS agreed with both recommendations directed to it. Regarding our  recommendation to set up a control in IRS systems to require assistors to  send required correspondence before closing a case, IRS stated that it  would analyze its options for bolstering controls to address  correspondence concerns. For our recommendation to conduct periodic  performance evaluations of IRS return processing operations to identify  inefficiencies, IRS stated that it would consider opportunities for improving  existing processes that identify common errors requiring correction and/or  correspondence with taxpayers. IRS noted that its long-term vision for tax  administration is to modernize taxpayer service focusing on options to  meet taxpayers’ needs and preferences. This would include online tax  account access that would enable taxpayers to make adjustments such  as correcting errors. Finally, to further identify inefficiencies and improve  performance, IRS stated that it would review and improve employee  training where appropriate.
As agreed with your offices, unless you publically release its contents  earlier, we plan no further distribution of this report until 30 days from its  issuance date. At that time, we plan to send copies of this report to the  appropriate congressional committees. We will also send copies to the  Commissioner of Internal Revenue, the Secretary of the Treasury, and  other interested parties.
In addition, the report will be available at no charge on the GAO website  at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-9110 or mctiguej@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix XIII.

Appendix I: Objectives, Scope, and Methodology

Our objectives in this report were to  1.  assess how well the Internal Revenue Service (IRS) provided  customer service compared to its performance in prior years and  identify opportunities for IRS to streamline services,  2.  assess how well IRS processed individual income tax returns  compared to its performance in prior years and identify opportunities  for IRS to streamline processing, and   3.  determine what resources IRS realized from implementing service  initiatives and describe IRS's progress toward implementing our prior  filing season-related recommendations.
To answer the first and second objectives, we obtained and analyzed IRS documents and data, including  performance, budget, and workload data for return processing and  taxpayer services, and used this information to compare IRS’s  performance in 2015 to prior years (2010 through 2014) to identify  trends and anomalies; identified federal standards for evaluating customer service, such as  the Government Performance and Results Act Modernization Act and  executive orders, presidential memorandums and Office of  Management and Budget guidance to strengthen customer service,  and compared Department of the Treasury and IRS actions to those  standards;    visited IRS facilities in Austin to observe return processing and  assistors handling correspondence, and the Joint Operations Center  (which manages IRS’s telephone operations) in Atlanta to observe  assistors answering taxpayer calls and correspondence;   interviewed officials from IRS’s Wage and Investment division (which  is responsible for managing filing season operations) and external  stakeholders, including tax administration experts from major tax  preparation and software firms who interact with IRS on key aspects  of the filing season, to obtain contextual information about IRS’s  performance;  interviewed officials from the Department of the Treasury and IRS to  discuss goals and strategies to improve taxpayer services and steps  they have taken to measure performance in delivering such services;  conducted 10 discussion groups with IRS frontline staff and managers  located at five IRS campuses. Four of the discussion groups were  with assistors who answer telephone calls or respond to  correspondence or frontline managers who oversee the assistors’  work. The assistors and managers worked in Atlanta; Austin; Kansas  City, Missouri; and Philadelphia. Six of the groups were with tax  examiners in Austin; Fresno, California; and Kansas City, Missouri,  who are responsible for correcting errors and processing individual  taxpayer returns. To identify group participants, we asked IRS officials  for the contact information of staff located at each campus with the  responsibilities described above. We then contacted a select number  of assistors and tax examiners directly to schedule the meetings. We  conducted six discussion groups in person and four via conference  call. Each group contained four to seven participants. To encourage  participants to speak openly, we ensured that no senior IRS  management officials were present during the discussions, and we  separated staff and managers into different groups. At the beginning  of each group we explained that any comments and opinions provided  would be reported in summary form. We developed and administered  a standardized discussion guide to improve the quality of information  gathered. Our questions for assistors focused on their experiences  and suggestions, if any, for how IRS can more efficiently conduct its  correspondence and telephone processes. We discussed the benefits  and drawbacks of Centralized Evaluative Review at the campuses  that piloted it. We asked examiners about their experiences  processing returns with errors and what suggestions, if any, they had  for IRS to process such returns more efficiently.
To determine what resources IRS realized from implementing service  initiatives, we first calculated the total gross dollars IRS saved by  implementing each of the six service initiatives and redirected toward  other purposes. We determined this amount by multiplying full-time  equivalents (FTE) redirected by salaries and benefits per FTE using data  provided by IRS. Next, we calculated total costs of implementing each of  the service initiatives, then subtracted the amount from total gross dollars  saved to calculate IRS resources realized from implementing each of the  six initiatives in fiscal year 2014 dollars. IRS officials concurred with our  approach and calculations. To describe IRS’s actions to implement our  prior recommendations, we reviewed relevant documentation, including  IRS Joint Audit Management Enterprise System reports tracking IRS’s  actions to implement our recommendations, and obtained information  from IRS officials.
To identify data limitations and assess data reliability, we reviewed IRS  data and documentation, assessed documentation for data limitations,  and compared those results to our data reliability standards. We consider  the data presented in this report to be sufficiently reliable for our  purposes.

Appendix II: The Internal Revenue Service Implemented Service Initiatives in Fiscal Years 2014 and 2015

We reported in our prior work that the Internal Revenue Service (IRS)  was struggling to provide taxpayers access to services despite regularly  realizing efficiency gains, and that IRS’s performance would likely  continue to suffer unless it made tough choices about what services to  provide. Consistent with these findings, IRS implemented service  changes in fiscal years 2014 and 2015 by reducing or eliminating certain  telephone and walk-in services, and redirecting taxpayers toward other  service channels such as IRS’s website.
Fiscal year 2014 service changes:  1.  Limited telephone assistance to only basic tax law questions during  the filing season and reassigned assistors to work account-related  inquiries.   2.  Eliminated free return preparation and reduced other services at IRS’s  walk-in sites.  3.  Launched the “Get Transcript” tool, which allows taxpayers to obtain a  viewable and printable transcript on irs.gov, and redirected taxpayers  to automated tools for additional guidance.  4.  Redirected refund-related inquiries to automated services and did not  answer refund inquiries until 21 days after a tax return was filed  electronically or 6 weeks after a return was filed by paper (unless the  automated service directed the taxpayer to contact IRS).  5.  Limited access to the Practitioner Priority Service line to only those  practitioners working tax account issues.  6.  Limited live assistance and redirected requests for domestic employer  identification numbers to IRS’s online tool.
Fiscal year 2015 service changes:  1.  Redesigned notices to clearly state why the notice was issued; if a  response is required; what action, if any, is required; and inform  taxpayers about online resources and self-service tools as an  alternative to calling or writing the IRS.  2.  Expanded use of the Oral Statement Authority tool to reduce the  amount of written correspondence to resolve penalty relief requests.   3.  Directed taxpayers who meet the Online Payment Agreement  qualifications to use a tool online (and at kiosks where available) to  apply for and set up installment payment agreements instead of  calling or visiting IRS.  4.  Reduced the volume of IRS products at walk-in sites and community  outlets, including forms, instructions, and publications that are  available online at IRS.gov, and encouraged taxpayers to use  available online sources.  5.  Reduced the number of walk-in sites accepting payments by cash and  more heavily promoted electronic payment options, such as IRS  Direct Pay, as an alternative to such payments made at a walk-in site  or by mail.

Appendix III: Appropriated Resources, User Fees, and Other Resources for IRS Taxpayer Services, Fiscal Years (FY) 2010 through 2015

	Resources Available for Obligation New Appropriated Resources Pre-Filing Taxpayer Assistance and Education

Appendix IV: IRS Experienced Substantial Decreases in Levels of Service and Increased Average Wait Times among Many IRS Telephone Lines since Fiscal Year 2010

IRS changed the name of the product line from "Identity theft" in May 2013.  IRS merged the previous International and International-Employer Identification Number lines to this  combined product line on October 1, 2012.

	Average wait times (in minutes)

IRS changed the name of the product line from "Identity theft" in May 2013.

Appendix V: Receipts and Closures Changed for Selected Categories of Taxpayer Correspondence since Fiscal Year 2010, While Overage Rates for Most Categories Increased

Appendix VI: Use of IRS Website and Online Services Generally Increased since Fiscal Year 2010

Appendix VII: Services Offered at IRS Walk- in and Volunteer Sites, Fiscal Years (FY) 2010 through 2015

Appendix VIII: Executive Orders, Presidential Memorandums, and Office of Management and Budget Guidance Outlining Required Agency Actions on Customer Service

Executive orders require agencies to take steps to strengthen customer  service and presidential memorandums. Office of Management and  Budget (OMB) guidance describe a number of actions agencies can take  to improve their customer service. In our previous reports on the IRS filing  season, we have described these requirements at length and emphasized  how important it is for IRS to take those actions to ensure it is providing  the best taxpayer service possible while informing Congress about  resources needed to improve the level of service provided to taxpayers.
Executive Order 12862, Setting Customer Service Standards, was  issued in September 1993 and requires that all executive departments  and agencies that “provide significant services directly to the public  shall provide those services in a manner that seeks to meet the  customer service standard established” which is “equal to the best in  business.” A related presidential memorandum, issued in March  1995, also notes that customer service standards should reflect  customer views, and an OMB memorandum issued in March 2015  reemphasizes that agencies “must keep pace with the public's  expectations and transform its customer services by regularly  soliciting and acting on customer feedback, streamlining processes,  and delivering consistent quality across customer service channels.”  In addition, we have reported that performance data should be used  to identify and analyze the gap between an organization’s actual  performance and desired outcomes, including by setting performance  benchmarks to compare an organization with private organizations  that are thought to be the best in their field.
Executive Order 13571, Streamlining Service Delivery and Improving  Customer Service, was issued in April 2011 to strengthen customer  service and required agencies to develop and publish a customer  service plan, in consultation with OMB.
We identified other memorandums and guidance to agencies OMB  has issued since 1995 that describe a number of actions to improve  customer service, including setting, communicating, and using  customer service standards. For instance, in July 2014, to help  agency leadership focus on this issue, OMB issued guidance that  agencies include additional customer service information with their  fiscal year 2016 budget submissions.

Appendix IX: Internal Revenue Service’s Method for Processing Individual Tax Returns Is Complex

The Internal Revenue Service’s (IRS) method for processing returns is a  complex operation because multiple units are involved. Figure 9  illustrates the numerous steps IRS goes through to process both returns  and correct errors. Electronic returns move quickly to processing once  IRS receives them while paper returns must first go through multiple  additional steps. When returns are processed, IRS checks for errors and  quickly corrects those that it can and notifies the taxpayer of missing  documents when it cannot, such as a missing form or information return.  In certain instances, after IRS has tried to post the return to the taxpayer’s  account, it identifies that certain returns cannot post, such as identity theft  returns, and attempts to resolve these unpostable returns.

Appendix X: Open Filing Season-Related Matters for Congress and Recommendations to the Internal Revenue Service

The following tables present our prior matters for Congress and  recommendations to the Internal Revenue Service (IRS) related to IRS’s  filing season operations that had not been implemented as of October 20,  2015. The most recent information available on the status of matters and  recommendations for each GAO report listed in the tables below may be  found by clicking on the web link for each report.

Appendix XI: Comments from the Department of the Treasury

Appendix XII: Comments from the Internal Revenue Service

Appendix XIII: GAO Contact and Staff Acknowledgments

	Contact

	Staff Acknowledgments

In addition to the contact named above, Joanna Stamatiades, Assistant  Director, Erin Saunders Rath, Analyst-in-Charge, Lyle Brittain, Jehan  Chase, James Cook, Robert Gebhart, Shelby Kain, Kirsten B. Lauber,  Donna Miller, Mark Ryan, and Ardith Spence made key contributions to  this report.

Output:
Why GAO Did This Study

During tax filing season, IRS processes tax returns, issues refunds, and provides telephone, correspondence, online, and face-to-face services. GAO has reported that in recent years IRS has absorbed significant budget cuts and struggled to provide quality service. GAO was asked to report on the results of IRS's performance during the 2015 filing season. For this report, GAO assessed IRS's taxpayer service and individual income tax return processing. GAO also identified opportunities to streamline services and processes, among other issues.
GAO analyzed IRS documents and data, and observed operations at IRS processing and telephone sites. GAO compared IRS performance to prior years and its actions to federal standards for evaluating performance. GAO also interviewed IRS officials and external stakeholders, and conducted discussion groups with IRS frontline staff and managers.

What GAO Found

The Internal Revenue Service (IRS) provided the lowest level of telephone service during fiscal year 2015 compared to prior years, with only 38 percent of callers who wanted to speak with an IRS assistor able to reach one. This lower level of service occurred despite lower demand from callers seeking live assistance, which has fallen by 6 percent since 2010 to about 51 million callers in 2015. Over the same period, average wait times have almost tripled to over 30 minutes. IRS also struggled to answer correspondence in a timely manner and assistors increasingly either failed to send required correspondence to taxpayers or included inaccurate information in correspondence sent. IRS has taken steps to remind assistors to send correspondence, but does not have adequate controls to ensure that they send accurate correspondence before closing cases. GAO also found that the Department of the Treasury (Treasury) does not include correspondence performance goals in its performance plan, and therefore, does not have a complete set of measures to assess performance. The decline in service has coincided with a 10 percent reduction in IRS's annual appropriations, as well as resource allocation decisions by IRS to meet statutory responsibilities, such as implementing tax law changes and supporting information technology infrastructure.
More importantly, GAO found that Treasury and IRS have neither developed nor have any plans to develop a comprehensive customer service strategy to define appropriate service levels and benchmark to the best in business or customer expectations as GAO has previously recommended. Without such a strategy, Treasury and IRS can neither measure nor effectively communicate to Congress the types and levels of customer service taxpayers should expect, and the resources needed to reach those levels. Similarly, while IRS officials and stakeholders reported few problems with processing individual tax returns, GAO identified some inefficiencies related to tax processing, such as premature correspondence with taxpayers and inadequate training for frontline staff. These inefficiencies warrant further evaluation to determine if additional improvements are needed.

What GAO Recommends

Congress should consider requiring Treasury to develop a comprehensive customer service strategy in consultation with IRS. Treasury should update its performance plan to include goals for correspondence. IRS should assess the feasibility of a control to require assistors to send out required correspondence and evaluate return processing operations to identify inefficiencies.
Treasury neither agreed nor disagreed with GAO's recommendation to update its performance plan but said it would coordinate with IRS. IRS agreed with GAO's two other recommendations.