SUBJECT: Final Audit Report – The Internal Revenue Service Faces the Challenge of Increased Demands for Tax Return Preparation Assistance in the Future

Executive Summary

Objective and Scope

Background

Results

Conclusion

Appendix I – Detailed Objective, Scope, and Methodology

Appendix II – Major Contributors to This Report

Appendix III – Report Distribution List

Appendix IV – Management’s Response to the Draft Report

Executive Summary

The overall mission of the Internal Revenue Service (IRS) is to provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all. As part of this overall mission, the IRS wanted to provide world-class customer service to taxpayers who visited IRS offices during the 2000 Filing Season for return preparation assistance. During the 2000 Filing Season, IRS employees prepared tax returns for over 800,000 taxpayers who visited an IRS office. The number of tax returns prepared for taxpayers has been increasing significantly every year, and the number of taxpayers who asked for assistance this year is at a high level.

This audit report presents our evaluation of the tax return preparation service offered to taxpayers during the 2000 Filing Season. The overall objective of this review was to determine whether the IRS offered timely, quality service to taxpayers who visited a Walk-In office for tax return preparation assistance. We had previously evaluated the IRS’ efforts to prepare for walk-in assistance for the 2000 Filing Season and determined that return preparation was an area with high risk because a formal quality review system had not been established.

The IRS implemented a successful Tax Return Preparation Program during the 2000 Filing Season. During this review, we determined that Walk-In offices provided timely, quality service to more taxpayers than ever who visited IRS offices for return preparation assistance. However, the IRS had to deal with the problem of some Districts not preparing wait-time statistical reports.

The IRS has over 400 offices nationwide that taxpayers can visit to receive assistance with preparing tax returns. The number of taxpayers who used the tax return preparation service has increased significantly during the past 2 years. Some offices were straining to provide timely service this year because of limitations of computer equipment, office space, and employees. Because of huge increases in taxpayer demand and IRS resource limitations, the IRS should develop a strategy to determine the type and range of services to offer taxpayers next year during the 2001 Filing Season.

Providing timely service to taxpayers who visit offices for tax return preparation assistance is critical to a successful customer service Walk-In Program. The IRS has established a wait-time goal of 30 minutes for taxpayers who need a return prepared. To monitor wait-time on a nationwide basis, the IRS National Headquarters asked District Offices to report monthly on the achievement of wait-time goals. Seven Districts in one Region did not compile wait-time statistics during January and February 2000.

To improve tax return preparation assistance offered to taxpayers who visit Walk-In offices, we recommend that the IRS implement the following recommendations: develop a strategy to determine the type of tax return preparation assistance to offer taxpayers next filing season because of the significant increase in demand and follow up when District Offices do not compile wait-time statistics.

Management’s Response: IRS management agreed with our recommendations and has initiated corrective actions. Management’s complete response to the draft report is included as Appendix IV.

Objective and Scope

This report presents our evaluation of the Internal Revenue Service’s (IRS) tax return preparation assistance offered to taxpayers during the 2000 Filing Season. This audit is part of coverage scheduled in the Treasury Inspector General for Tax Administration’s Fiscal Year (FY) 2000 Audit Plan.

The overall objective of the audit was to determine whether the IRS offered timely, quality service to taxpayers who visited a Walk-In office for tax return preparation assistance during the 2000 Filing Season. To accomplish this overall objective, we determined whether:

• Walk-In office employees prepared the types of tax returns planned in the Customer Service FY 2000 Operating Guidelines.
• Sufficient computer hardware and software had been timely distributed and installed to prepare tax returns and support the Electronic Filing Program.
• Employees had been trained to accurately prepare tax returns, including electronically filed returns.
• Staffing was sufficient to ensure that taxpayers were offered timely tax return preparation assistance.
• Quality of the Tax Return Preparation Program was assessed and measured.
• Returns prepared by IRS employees in the Walk-In assistance area contained any significant error patterns.

The audit was conducted in 10 District Offices during February and March 2000 in accordance with Government Auditing Standards. We also contacted Regional Offices to secure information.

Details of our audit objective, scope, and methodology are presented in Appendix I. Major contributors to this report are listed in Appendix II.

Background

The overall mission of the IRS is to provide America’s taxpayers top quality service by helping them understand and meet their tax responsibilities and by applying the tax law with integrity and fairness to all. As part of this overall mission, the IRS wanted to provide world-class customer service to taxpayers who used walk-in assistance during the 2000 Filing Season for help in preparing their tax returns. During August and September 1999, we evaluated the IRS’ efforts to prepare for the 2000 Filing Season and found that a fundamentally sound approach was in place. We believed that if the IRS followed through with its plans, the 2000 Filing Season would be a success for the Walk-In Program.

We decided to focus this review exclusively on the Tax Return Preparation Program because the IRS had not established a formal Quality Review Program for the preparation of tax returns. The IRS has recognized that some taxpayers need to visit IRS offices to receive help in preparing their tax returns. Over 400 offices are available nationwide for taxpayers to visit during the filing season. More taxpayers than ever before are visiting IRS offices for tax return preparation assistance. During the 2000 Filing Season, the IRS prepared tax returns for over 800,000 taxpayers who visited an IRS office.

Results

The IRS offered taxpayers who visited a Walk-In office for tax return preparation assistance during the 2000 Filing Season a high quality and generally timely service. We visited 10 District Walk-In offices around the country during February and March 2000 to evaluate the tax return preparation service offered to taxpayers. Our analysis identified the following positive results.

Local District management was responsible for ensuring that employees working in Walk-In offices received adequate training. In the 10 Districts reviewed, we determined that employees had generally received sufficient training to enable them to accurately prepare tax returns. Training on Taxwise software, used to prepare and electronically file tax returns, was provided to employees using primarily a "train the trainer" approach. This is where selected employees from a particular location are provided formal training and they in turn train other employees at that location.

IRS Walk-In offices are generally staffed with a core contingent of permanent Customer Service Representatives and supplemented with employees temporarily assigned from other functions. A primary objective of Walk-In offices is to provide taxpayers timely service, and it is very important that a contingency plan is in place if unacceptable delays develop. All the offices we visited had a plan and were either using all the assistors that their physical space could accommodate or had back-up employees available if needed.

Our earlier review of readiness for the 2000 Filing Season identified that walk-in assistance needed a formal system of assessing the quality of return preparation. While corrective actions are being completed, individual offices use local systems to help maintain the quality of returns. The types of reviews varied from office to office, and the results of the reviews were not formally reported. However, the reviews were beneficial in that errors detected on individual returns were corrected.

IRS offices are providing quality tax return preparation service to taxpayers who visit Walk-In sites. We analyzed the IRS database that contains records of individual tax accounts and identified very few errors. Our analysis indicated that the IRS processed 103,000 tax returns prepared by IRS employees between January 1 and February 26, 2000. Of the 103,000 returns processed, only one-half of 1 percent contained an error that required notifying the taxpayer. There were errors in less than one-tenth of 1 percent of the returns filed electronically.

During 1999, the IRS purchased about 10,000 new computers to replace machines that were not century date change compliant. To bolster its Electronic Filing Program, the IRS allocated almost 1,000 of the new computers to the Walk-In Program. Electronic filing was expanded this year to 33 additional locations, bringing the total number of IRS offices that offer the service to over 200.

Districts expected that the new computers and the 2000 version of the Taxwise software would be distributed no later than December 1999 to allow time to train employees and prepare for the 2000 Filing Season. Unfortunately, some new computers were not delivered to Walk-In offices until January and February 2000 because modems had to be installed on the machines.

Also, Districts were somewhat disappointed with the Taxwise software. An updated version of Taxwise was not delivered to District Offices by the vendor until the second week of January 2000 because of last minute revisions for annual tax law changes requested by the IRS. This delay severely shortened the time for training and preparing for the 2000 Filing Season.

However, the Districts were able to successfully work through the problems associated with late equipment delivery and software concerns and offered taxpayers generally timely electronic filing service during the 2000 Filing Season. The disruptions in service that occurred this year were minor.

In summary, the IRS Walk-In offices we visited had a successful 2000 Filing Season, and over 800,000 taxpayers nationwide had tax returns prepared during the filing season. However, to achieve this success, the IRS had to overcome a significant increase in taxpayer demand for tax return preparation assistance and the non-compilation of wait-time statistics by seven Districts in one Region.

The Public’s Demand for Tax Return Preparation Service Has Increased Dramatically During the Past 2 Years

The volume of tax returns prepared for taxpayers who visit an IRS office for assistance has increased significantly during the past 2 years. During FY 1998, the IRS prepared about 650,000 tax returns for taxpayers. It prepared almost 900,000 tax returns for taxpayers during FY 1999 and, if the current pace continues, the total number of tax returns prepared during FY 2000 will be over 1 million.

In addition to providing quality customer service, one goal the IRS had for the 2000 Filing Season was to curb the increasing demand for tax return preparation at Walk-In offices. On a long term basis, the IRS would like to move the responsibility for preparing tax returns to well-supported volunteers. Of course, this goal will take many years to accomplish.

As a first step, the IRS established a policy for the 2000 Filing Season to limit the types of returns that would be prepared for taxpayers to the following:

• Form 1040 (with Schedules A, B, interest only, and R)
• Form 1040EZ
• Form 1040A
• Earned Income Tax Credit Schedule

During our visits to 10 District Offices, we confirmed that the policy of limiting tax return preparation to certain types of returns was properly implemented. With few exceptions, only the prescribed returns were prepared, and the rise in taxpayer demand has slowed. The rate of increase did drop from 1999 to 2000. Unfortunately, the increase in the number of taxpayers asking the IRS to prepare tax returns is still substantial.

The tax return preparation service offered to the public has been widely accepted and used. The number of taxpayers who used the service has increased significantly during the last 2 years. If the trend of increasing demand continues next year, the IRS may have difficulty satisfying the demand with timely service and additional resources will have to be added to the Tax Return Preparation Program. Some offices were straining to provide timely service this year because of limitations of computer equipment, office space, and employees. With substantial increases in volume again next year, the IRS may have to turn away some taxpayers who visit a Walk-In office.

1. We recommend that the Commissioner, Wage and Investment Division, implement an effective strategy to address the growing demand for tax return preparation service. This strategy should ensure that the IRS carefully considers the type of tax return preparation service to offer taxpayers next filing season because of the significant increase in demand. Next year, office facilities and available resources could easily be overwhelmed, particularly in smaller offices.

Management’s Response: IRS management has developed a strategy to address the growing demand for tax return preparation service. The strategy includes:

• Acquiring additional computers for return preparation in Walk-In offices.
• Expanding the number of volunteer sites co-located with IRS offices.
• Reducing return preparation wait-time by scheduling appointments.
• Adding approximately 700 new employees to Walk-In offices.
• Keeping the types of returns prepared in FY 2001 essentially the same as in FY 2000.

Wait-Time Statistics Were Not Compiled by Seven Districts

Providing timely service to taxpayers who visit IRS offices for return preparation assistance is critical to a successful Walk-In Assistance Program. The IRS has established a wait-time goal of 30 minutes for taxpayers who need a return prepared. If the number of taxpayers waiting for assistance increases to the point that timely service is jeopardized, Walk-In Coordinators should ask for additional employees from other offices to help with the backlog.

During the 2000 Filing Season, the National Headquarters requested that District Offices report monthly on wait-time statistics. Reports that show how long taxpayers have to wait for service are critical for monitoring the effectiveness of the Walk-In Assistance Program. This was a new reporting requirement started this year by the National Headquarters in an attempt to monitor wait-time in the Walk-In areas on a nationwide basis. The reporting requirement was outlined in the FY 2000 Walk-In Program Guidance document that was distributed to District Offices during October 1999. All the Districts were compiling wait-time statistics except for seven Districts in the IRS’ Western Region. At the time of our review, management had not completed wait-time reports for the months of January and February 2000.

These Districts took immediate corrective action as soon as we brought this to their attention, and wait-time reports were compiled and forwarded to the National Headquarters during March 2000.

1. We recommend that the Commissioner, Wage and Investment Division, follow up when District Offices do not comply with wait-time reporting requirements.

Management’s Response: The new organization alignment and leadership with end-to-end accountability for the Walk-In Assistance Program will address this issue.

Conclusion

The IRS implemented a successful Tax Return Preparation Program during the 2000 Filing Season. Taxpayers who visited IRS offices this year to have tax returns prepared received timely, quality service. We do have some concerns regarding the significant increase in taxpayer demand for tax return preparation assistance and the non-compilation of wait-time statistics by some Districts. However, none of our concerns significantly detracted from the overall success of the filing season this year. In fact, the number of taxpayers who use return preparation services offered by IRS offices is increasing substantially every year. The IRS may be challenged next year to provide timely service unless additional office space, equipment, and employees are allocated to the Program.

Detailed Objective, Scope, and Methodology

Our overall objective was to determine whether the Internal Revenue Service (IRS) offered timely, quality service to taxpayers who visited a Walk-In office for tax return preparation assistance during the 2000 Filing Season. We conducted audit tests in the following District Offices:

• Delaware/Maryland District Baltimore Headquarters
• Gulf Coast District New Orleans Headquarters
• Kansas/Missouri District St. Louis Headquarters
• Michigan District Detroit Headquarters
• New England District Boston Headquarters
• North/South Carolina District Greensboro Headquarters
• North Texas District Dallas Headquarters
• Pacific Northwest District Seattle Headquarters
• Rocky Mountain District Denver Headquarters
• South Florida District Ft. Lauderdale Headquarters

To accomplish our objective, we performed the following audit tests in the 10 District Offices visited:

1. Interviewed Walk-In employees and reviewed workload documentation to determine whether the following returns were being prepared for taxpayers:

• Form 1040 (with Schedules A, B, interest only, and R )
• Form 1040EZ
• Form 1040A
• Earned Income Tax Credit Schedule

1. Identified what other types of returns were being prepared.

1. Interviewed Walk-In employees and observed the office to determine what types of computers were being used in the Walk-In area and verified whether the hardware supported the Electronic Filing Program. If the hardware was received from another IRS office, determined if sensitive information was deleted from the machine.
2. Verified that current Taxwise software was installed on computers in the Walk-In area. Identified what types of returns can be electronically prepared.
3. Confirmed that communication lines adequately supported the transmission of electronic returns. Determined whether communication lines in outlying posts-of-duty could transmit electronic returns.

1. Identified employees who were assigned to the Walk-In area for tax return preparation duties.
2. Reviewed the FY 2000 Training Plan and training guidelines for Walk-In employees to determine recommended training classes for tax return preparation.
3. Determined whether employees preparing tax returns received adequate training. Reviewed documentation that was available in the District to confirm whether training was received (class rosters, electronic database records, etc.).

1. Reviewed wait-time reports prepared during the months of January and February to determine whether the 30-minute wait-time goal for tax return preparation was being achieved.
2. Determined whether a contingency plan had been developed to address situations where unacceptable delays occur. Determined whether a contact list of back-up employees was available to assist in meeting the 30-minute wait-time goal.

1. Interviewed Walk-In employees to determine the type of Tax Return Preparation Quality Review Program that had been implemented. Identified who performed the review, which tax returns were reviewed, and the sampling approach used.
2. Obtained local documentation of quality review results and specific identifying information (taxpayer name, social security number, tax period, etc.) for tax returns reviewed.
3. Determined how quality review results were compiled and whether any corrective actions had been taken as a result of the quality review.

1. Extracted from the Individual Masterfile (the IRS database that contains individual tax accounts) all 103,000 tax returns prepared by IRS employees from January 1 to February 26, 2000.
2. Computer analyzed notice codes, unpostable codes, and error reject indicators.
3. Identified any error trends or unusual situations that required corrective action.

Major Contributors to This Report

Walter E. Arrison, Associate Inspector General for Audit (Wage and Investment Income Programs)

Stanley Rinehart, Director

Stephen S. Root, Audit Manager

Tom J. Cypert, Senior Auditor

Jackie Nguyen, Senior Auditor

Susan A. Price, Senior Auditor

Gail Yorgason, Senior Auditor

Charles O. Ekunwe, Auditor

Cari D. Fogle, Auditor

George Franklin, Auditor

Report Distribution List

Commissioner, Wage and Investment Division W

Deputy Commissioner Operations C:DO

Director, Office of Program Evaluation and Risk Analysis M:OP

Director, Communications Assistance, Research and Education W:CAR

National Taxpayer Advocate C:TA

Director, Legislative Affairs CL:LA

Chief Counsel CC

Office of Management Controls M:CFO:A:M

Audit Liaison: Commissioner, Wage and Investment Division W

Management’s Response to the Draft Report

The response has been removed due to its size. To see the complete response, please go to the Adobe PDF version of the report on the TIGTA Public Web Page.