The IRS has needed to deal with several challenges this tax filing season, including late tax law changes and an increase in the volume of telephone calls, according to a new report by the Government Accountability Office, but to ensure that the IRS can adequately enforce certain tax provisions, Congress should provide the IRS with math error authority to use tax return information from previous years to ensure that taxpayers do not improperly claim credits or deductions in excess of lifetime limits where applicable.
Late tax law changes in 2010 resulted in the IRS not being able to accept certain returns until mid-February 2011 because of the time it took to complete programming changes. According to officials from the IRS's Business Modernization Office, when the new Customer Account Data Engine (CADE) 2 and Modernized E-file (MeF) systems are fully implemented, the IRS will be able to reprogram its computers more efficiently.
The IRS's inability to accept certain returns until mid-February affected paid preparers and tax preparation software providers. Representatives from those groups told the GAO that some taxpayers believed that the delay applied to all tax returns and delayed filing their taxes as a result, effectively condensing the filing season. According to the IRS’s own data, the IRS received about 21 percent fewer returns through mid-February 2011 compared to mid-February 2010. Those same representatives also expressed some concerns about the new paid preparer registration process.
As of March 18, 2011, the IRS had processed about 73 million returns and issued about 65 million refunds totaling close to $193 billion, according to the report. The percentage of e-filed returns continues to grow, which remains important because it significantly reduces the IRS's costs and speeds refunds. For fiscal year 2009, the IRS reported that it costs 19 cents to process an e-filed return compared to $3.29 for a paper return.
Representatives for paid preparers and tax preparation software providers expressed some concerns to the GAO about the new paid preparer registration process. The IRS has rejected about 13 percent of e-filed returns for reasons such as incorrect personal identification numbers. According to IRS officials, when returns are rejected through the MeF system, taxpayers receive better information on why returns are rejected and the MeF allows taxpayers to submit additional documentation electronically, both of which reduce the IRS's costs.
The IRS lacks math error authority, or MEA, to review prior-year tax returns to verify compliance with lifetime limits on amounts that can be claimed. For example, the IRS does not have MEA to verify that the Residential Energy Credits claimed for 2009 and 2010 do not exceed the lifetime credit limit of $1,500. According to IRS officials, evidence exists that some taxpayers may be claiming Residential Energy Credits beyond the limit. Without MEA, IRS must ensure compliance through audits, which are time consuming for taxpayers and too costly to conduct in large numbers.
Total telephone call volume increased by nearly 13 percent this tax season compared to the volume during the same time period last year. Wait times to speak to an assistor averaged about 10 minutes, slightly longer than last year, according to the report. The number of visits to the IRS's Web site has increased by about 9 percent compared to visits during the same time period last year.
It is too early to tell the extent to which the various debit card offers are being accepted by taxpayers, the report noted. Both the IRS and Treasury officials said they will evaluate their programs after the filing season.
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