TREASURY INSPECTOR GENERAL
FOR TAX ADMINISTRATION
THE INTERNAL REVENUE SERVICE NEEDS TO ENCOURAGE TAXPAYER USE, IMPROVE CUSTOMER SERVICE, AND ENHANCE COMPUTER CONTROLS OF THE 941 TELEFILE PROGRAM
Reference No. 2000020004
TeleFile is an Internal Revenue Service (IRS) voice response system that allows taxpayers to file tax returns using a touch-tone telephone. In 1997, the IRS expanded the Telefile System to allow a limited number of small business taxpayers to file the Employerís Quarterly Federal Tax Return (Form 941) through the 941 TeleFile System. In 1998, TeleFile was further expanded to allow small businesses nationwide to use the system. For the first six months of 1998, almost 460,000 Form 941 returns were filed using the 941 TeleFile System. TeleFile is an important initiative in the IRSí overall plans to increase electronic filing of tax returns. The IRS has a goal of 16 million employment tax returns being filed electronically by the year 2002.
The TeleFile Program is coordinated through the National Office and includes all of the activities that enable taxpayers to file tax returns using the Telefile System. The objective of this audit was to evaluate the effectiveness of the IRSí processes for ensuring that the 1998 941 TeleFile Program was successfully implemented.
The 941 TeleFile Program experienced a successful 1998 filing season, its first year of nationwide use (for the period January 1998 through the end of our fieldwork in November 1998). The IRS had effectively corrected prior audit findings, and ensured that Form 941 tax returns were accurately processed through the Telefile System and recorded on the taxpayersí accounts in the IRSí computer systems. However, to achieve the long-term goals of the 941 TeleFile Program, the IRS needs to:
The Internal Revenue Service Needs to Encourage Eligible Taxpayers to Use the 941 TeleFile Program
The customer feedback information gathered during the 1997 limited expansion should be used to increase 941 TeleFile Program participation. The IRS obtained information from taxpayers who chose not to use the 941 TeleFile System. This customer feedback showed that many taxpayers had not used the 941 TeleFile System either because they used a paid preparer or because they wanted a paper copy of the return. This information could have been used to focus the IRSí marketing efforts to address any taxpayer misconceptions about the system. During 1998, there was no significant increase in the percentage of eligible taxpayers who used the TeleFile Program. The IRS needs to focus its marketing efforts to encourage more taxpayers to use the 941 TeleFile System. This will enable the IRS to achieve its goal of 16 million electronically filed employment tax returns by the year 2002.
The Internal Revenue Service Needs to Provide Quality Customer Service to TeleFile Users
A more effective method for resolving taxpayer problems needs to be established. The IRS has not implemented a process for delivering effective one-stop customer service to taxpayers using the 941 TeleFile Program (correctly handling their questions or concerns during their first contact with the IRS). Taxpayers with questions regarding Form 941 TeleFile returns are instructed to contact a customer service call site. The call site representative will then either contact the TeleFile Coordinator to ask the question for the taxpayer or will instruct the taxpayer to contact the Coordinator directly.
Taxpayers should be informed when they are no longer eligible to participate in the 941 TeleFile Program. If a taxpayerís annual Form 941 liability exceeds a certain dollar criteria, then the taxpayer is no longer eligible to use the 941 TeleFile System. The IRS has no procedures to notify taxpayers of this and to suggest other electronic methods for filing the Form 941 returns.
The 941 TeleFile forms and instructions should be timely updated to reflect program changes. The 941 TeleFile tax package (which includes the forms and instructions mailed to taxpayers) was not timely updated to indicate that the IRS would accept returns with a higher balance due amount than had been accepted previously. Some taxpayers may not have used the 941 TeleFile System because of the incorrect instructions.
The Internal Revenue Service Needs to Improve 941 TeleFile Computer Controls to Prevent Taxpayers From Filing Multiple Returns and Allow the System to Verify a TeleFile Userís Filing History and Electronic Signature
The 941 TeleFile System should prevent multiple returns from being filed by a taxpayer. Normally, TeleFile returns are received at one processing site, with a backup site available to handle the excess volume. If both sites are receiving returns, and a taxpayer files a second (amended) return on the same day the first (original) return was filed, both returns could be accepted by TeleFile if the returns were processed at separate sites. The IRS would not be aware of the potential duplicate or amended return because data from the two sites are only merged and updated at the end of the day. When this occurs, TeleFile always processes the return received at the main processing site, and not the return from the backup site, even though the taxpayer may have intended otherwise. While this should not be a common occurrence, we performed some limited testing and identified several instances where a taxpayer filed more than one return on the same day. This is a systemic problem that will be compounded as the population of TeleFile users increases.
The look-back period could be used to ensure businesses are authenticated (i.e., verified) to use the 941 TeleFile System. The IRS requires taxpayers to be in business for at least 12 months before using the 941 TeleFile System. However, the existing 941 TeleFile System will accept and process returns from taxpayers, even though they are not authenticated to use the 941 TeleFile System. The IRS has a current process in place (the look-back period) that could be used to provide the IRS with more assurance that taxpayers have an established filing history when using the 941 TeleFile System.
The process for verifying the electronic signature of 941 TeleFile System users needs to be improved. There is not an effective process to ensure that returns filed using the 941 TeleFile System were actually filed by the taxpayers or their representatives. The process for verifying the electronic signatures of the taxpayers is incomplete because 1) only a sample of the electronic signatures are verified as correct, and (2) there are no procedures for following up on invalid signatures.
Summary of Recommendations
The IRS should analyze the customer feedback information gathered during the 1997 limited expansion to determine how 941 TeleFile Program participation can be increased. In addition, the IRS needs to ensure 941 TeleFile Program taxpayers are given quality customer service when resolving taxpayer problems with the 941 TeleFile Program. Also, the 941 TeleFile computer controls need to be enhanced to prevent duplicate Form 941 returns from being filed and to improve the process for verifying the filing history and electronic signature of taxpayers using the 941 TeleFile System.
Managementís Response: IRS management agreed with the conditions cited in the report and has designed and, in some instances, implemented actions to correct the problems. To improve its marketing effort to increase participation in the 941 TeleFile Program, the IRS has contracted with a vendor to develop a comprehensive marketing and communication strategy that will focus on the Form 941 products. In addition, the IRS has made several enhancements and clarifications to the 1998 TeleFile tax package to address customer feedback received in 1997 and 1998.
To ensure 941 TeleFile Program taxpayers are given quality customer service, the IRS will update the instructions for its telephone representatives to include additional program detail, processing guidelines, and questions and answers. In addition, the IRS tested an Employment Tax call site for small businesses this past filing season and, based on the favorable results, plans to request the establishment of the call site.
To prevent duplicate returns from being filed, the IRS has implemented a process to eliminate duplicate returns when multiple sites are used to process returns. To improve the process for verifying the identity of taxpayers using TeleFile, the IRS will redesign the return filing confirmation number to make it unique for each taxpayer.
Managementís complete response to the draft report is included as Appendix VI. (Note: the report recommendations were renumbered after management issued their response, and, therefore, do not correspond directly with the recommendation numbers shown in Appendix VI.)