TREASURY INSPEcTOR GENERAL

TREASURY INSPEcTOR GENERAL

FOR TAX ADMINISTRATION

THE INTERNAL REVENUE SERVIcE cAN IMPROVE cUSTOMER

SERVIcE BY AccELERATING REFUND PAYMENTS

August 1999

Reference No. 093903

Executive Summary

The National Performance Review (NPR) and Executive Orders direct agencies to be customer-driven. When the directives are compared to current Internal Revenue Service (IRS) customer service practices, opportunities for improvement emerge. The IRS has made progress, but a slow-changing culture and the retention of traditional refund operating processes are barriers to its continuing progress.

During the 1997 filing season, IRS met or exceeded the IRS-set performance goals. More than 118 million tax returns were processed; over $95 billion in overpayments on 75 million returns were refunded; 103 million telephone calls were answered; and almost 7 million walk-in taxpayers were served. Also, a dramatic 19 percent increase in telephone access was achieved. Returns processing quality and accuracy also improved. At the same time, new legislation was implemented to prevent erroneous refunds.

While some areas require improvements, filing season audits showed that the individual programs were generally effective in meeting objectives and goals. This report presents an overall evaluation of the performance outcomes from a customer perspective.

Results

The audit focused on two critical success areas concerning filing season activities:

Increased Emphasis on Executive Branch and congressional Initiatives can Assist in Transforming the IRS Into a More customer-Driven Agency

The IRS aggressively implemented the Government Performance and Results Act of 1993 strategic planning requirements. However, the same tax administration-oriented Mission Statement has been used since 1984. This is at odds with the NPR, which focuses on customer-driven strategic planning. The IRS may have difficulty in communicating the change and converting to a customer-focused organization with a Mission Statement and Business Vision directed more to tax administration. Subsequent to the issuance of a draft of this report, the IRS changed the Mission Statement.

Improved customer Focus through complementary Goals can Improve Taxpayer Satisfaction and Reduce Operating costs

The IRS analyzed the cause-and-effect relationship between refund tax return processing and refund inquiry telephone volumes. However, the IRS delayed action for further study since focus group interviews showed that those taxpayers were "satisfied" with the 40 days taken to issue refunds on paper-filed returns. The IRS has also adopted an electronic filing goal strategy to not accelerate paper return refunds since faster refunds is the advertised incentive for taxpayers to file electronically.

Overall, the IRS is achieving higher levels of customer-driven service in accordance with Executive Orders and congressional NPR initiatives.

Summary of Recommendations

The IRS’ senior executives should evaluate how the Strategic Plan and Budget can be more integrated with the NPR direction for customer-driven strategic planning.

Responsible IRS functions should work together to accelerate refunds to satisfy customer needs and reduce costs. Several short-term, low-cost, non-reengineering changes could significantly reduce refund issuance time frames. This will require cooperating with other federal agencies, which is also in accordance with NPR initiatives. Long-term changes could further accelerate refund issuance and lower costs.

Management’s Response

The IRS Mission has changed. However, IRS management determined that the Restructuring and Reform Act of 1998 direction precludes any wholesale system changes. The law requires the IRS to:

"…establish a strategic plan to eliminate barriers, provide incentives and use competitive market forces to increase taxpayer use of electronic filing while maintaining processing times for paper returns at 40 days."

Some actions, which will not require significant changes, are being explored. The IRS is coordinating with the Financial Management Service to accelerate all paper check refund processing by 7 to 11 days. This affects paper refund checks for 7.4 million electronic filers and 65 million individual and business paper filers. The government will also save up to $150 million in interest payments.

Office of Audit comments

All efforts to improve refund processing time frames are beneficial. The proposed actions will benefit taxpayers and reduce government operating costs. If all contemplated actions are taken, up to 72.4 million taxpayers could get their refunds about two weeks faster. Additional opportunities to improve customer service are available; however, the IRS believes it is constrained by its electronic filing goals.

We disagree that the congress intended to prevent the IRS from improving on the 40-day refund period for paper returns. The Restructuring and Reform Act of 1998 legislative history does not support this interpretation. The 40-day refund is about double the time taken for electronic returns. The IRS e-file advertisements highlight the time difference between electronic filing and paper return refund processing.

The IRS needs to identify alternate strategies for increasing electronic filing rather than intentionally denying improved customer service to millions. Taxpayers may file on paper either for personal choice or because of financial constraints. Improved service should not be sacrificed so that the IRS can meet electronic filing goals. The audit demonstrated that significant time saving processes are achievable at minimal costs. The choice to not accelerate refund processing by IRS senior executives is a costly one to taxpayers and the government. The high costs alone for answering calls and making interest payments suggest that other strategies should be pursued.