Appendix II

IRS Efforts to Detect and Deter Refund

Fraud

In 1995, IRS expanded its efforts to combat refund fraud. Much of what IRS did involved verifying SSNs, with an emphasis on returns claiming the EIC. IRS was looking for missing SSNS, SSNs that did not match the Social Security Administration's records, and SSNs that had already been used on another return filed in 1995.

As we discussed in a June 1995 testimony13 before the Senate Finance
Committee, the expanded procedures for selecting paper returns to verify
SSNS identified many problem returns, but some that should have been
selected for SSN verification were not. In total, IRS identified approximately
the volume of paper returns with invalid SSNs that it had expected to
handle during the filing season, but volumes fluctuated widely among IRS
service centers. For example, one service center received about
360 percent of its expected volume, while another received only
61 percent. As a result, service centers used somewhat different criteria
for determining which taxpayers would be asked to verify SSNs and to
provide additional evidence of their EIC eligibility. Computer problems also
occurred during the filing season, which caused some returns not to be
selected for SSN verification when they should have been.

IRS also experienced some problems as it began checking for duplicate SSNS. These problems included difficulties in constructing the database to identify duplicate SSNs, poorly organized computer listings that enforcement personnel found difficult to use, and cumbersome procedures for coordinating the work of different IRS Service centers. IRS is analyzing the results of the 1995 initiative and plans to make changes for 1996. Further automation of the process is a primary goal.

We were not able to assess the success of IRS' initiatives. At the time we
completed our audit work, information was not yet available on such
things as the number of (1) duplicate SSNs identified and resolved by IRS,
(2) EIC claims adjusted or withdrawn after IRS questioned a taxpayer about
an SSN, or (3) erroneous SSNs corrected as a result of IRS' efforts.

Some information was available, however, that sheds light on the results of IRS' efforts. According to IRS:

As a result of the 6-to-8 week delay on EIC refunds, IRS was able to stop an additional $6 million in fraudulent refund claims that, in past years, would have been issued before IRS had detected the fraud.

13Earned Income Credit: Noncompliance and Potential Eligibility Revisions (GAO/T-GGD-95-179, June 8, 1995).

Appendix II

IRS Efforts to Detect and Deter Refund
Fraud

IRS had received 18.9 million EIC claims as of the end of September 1995, compared with 14.8 million claims at the same time în 1994. All of that increase was due to a legislative change that made persons without qualifying children eligible for the credit in 1995. IRS had expected to receive about 20 million claims in 1995, including about 5.3 million from persons without qualifying children. EIC claims in 1995 totaled about $20.9 billion as of September 30 compared with about $15.2 billion as of October 1, 1994. Only about 12 percent of that increase was attributed to claims from taxpayers with no qualifying children. As a result of IRS' scrutiny of EIC claims, 3.2 million taxpayers received their refunds in two checks because the EIC portion of their refund was temporarily delayed. • IRS tracked 400 returns that had been rejected by the electronic filing system, and found, among other things, that 113 (28 percent) of the individuals involved subsequently filed on paper, using the same SSN that had been rejected by the electronic filing system, and were issued a refund.

Appendix III

Telephone Accessibility

Toll-Free Telephone
Assistance

To assess the ability of taxpayers to reach IRS by telephone to ask a question about the tax law or their accounts or to order forms or publications, we conducted two tests—one of IRS' toll-free telephone assistance system and the other of IRS' toll-free form-ordering system.

To conduct the tests, we placed telephone calls at various times during
each workday from January 30 through February 11 and from April 3
through April 15, 1995. We made our calls from seven metropolitan
areas-Atlanta; Chicago; Cincinnati; Kansas City; New York; San
Francisco; and Washington, D.C. Each attempt to contact IRS consisted of
up to five calls at 1-minute intervals. If we reached IRS during any of the
five calls and made contact with an assistor, we considered the attempt
successful. If we reached IRS during any of the five calls but were put on
hold for more than 7 minutes without talking to an assistor, we abandoned
the call, did not dial again, and considered the attempt unsuccessful. If we
received a busy signal, we hung up, waited 1 minute, and then redialed. If
after four redials (five calls in total) we had not reached IRS, we considered
the attempt unsuccessful.

We tested the accessibility of the toll-free telephone assistance system IRS
tells taxpayers to call if they have a question about their account, the tax
law, or IRS procedures. Of 745 attempts to contact an assistor, 249
(33 percent) were successful-87 on the first call, 55 on the second call,
and 107 after 3 to 5 calls. In another 89 cases (12 percent), we got into IRS'
system but were put on hold for more than 7 minutes and thus hung up
before making contact with an assistor. The remaining 407 attempts
(55 percent) were aborted after we received busy signals on each of our 5
dialings. Our 745 attempts to contact an assistor required a total of 2,821
calls to IRS' toll-free telephone number. Of those 2,821 calls, we succeeded
in getting through to an IRS assistor 249 times-a 9-percent accessibility

rate.

In conducting our test, we did not ask questions of the assistors because it
was not our intent to assess the accuracy of their assistance. IRS does its
own test of accuracy, and we have assured ourselves in the past about the
reliability of IRS' methodology. IRS' test data for 1995 showed an accuracy
rate of 90.1 percent as of April 15, 1995. That compares with a rate of
89 percent for the same period in 1994.

Appendix III
Telephone Accessibility

Form-Ordering
System

IRS' Data on
Accessibility Confirms
Our Test Results

One way taxpayers can obtain tax forms and publications is to place an order through IRS' telephone form-ordering system. The order will then be filled by one of IRS' three forms distribution centers. To determine the level of service IRS provides to taxpayers trying to access this ordering system, we conducted another test using the same procedures used for the first test.

Our results showed that the form-ordering system was much more
accessible than the toll-free telephone assistance system. However, there
was still much room for improvement. Of 484 attempts to contact a
distribution center representative, 443 (91.5 percent) were
successful-299 on the first call, 76 on the second call, and 68 after 3 to 5
calls and 41 (8.5 percent) were aborted after five dialings. We did not
abandon any calls when placed on hold because we were not held waiting
for more than 7 minutes. Our 484 attempts to contact a representative
required 883 calls. Of those 883 calls, we succeeded in getting through to
an IRS representative 443 times a 50-percent accessibility rate.

As with the first test, our intent was to determine how easy it was to reach IRS over the telephone. We did not assess how well the distribution centers filled orders for tax forms and publications because (1) our checks in recent years showed that IRS was doing a good job of filling orders, (2) IRS contracts for its own test of distribution center performance, and (3) our prior review of the contractor's methodology resulted in changes that have improved its reliability.

The contractor measures the length of time from when an order is placed until the contractor receives notification about that order (either by full or partial receipt of the material ordered or notification that the material has been back ordered). The contractor also measures accuracy by comparing the items ordered with those received. The contractor's results for the first part of the fiscal year showed that (1) it took the distribution centers an average of 16 days to fill an order, which is within IRS' stated time frame of 9 to 21 days and (2) 97.9 percent of the orders were filled correctly, which exceeded IRS' goal of 96.5 percent.

We have been working with representatives from the Department of the
Treasury and IRS to develop a better way to measure the accessibility of
IRS' telephone service. Although there are still some issues to be resolved,
such as how to best measure the number of times a caller had to dial

Appendix III

Telephone Accessibility

before reaching an assistor, the data compiled by IRS for 1995 confirmed the results of our tests.

IRS summarized its data as follows:

"For the period January 1, 1995, to April 15, 1995, an estimated 46.9 million callers made 236.1 million call attempts to IRS for assistance. This equates to an average of 5 attempts per caller. We answered 19.2 million calls which represents 41 percent of the callers. Of the 19.2 million callers who received an answer, 50 percent were answered within approximately 1 attempt; 75 percent were answered within approximately 5 attempts."

"Of the 236.1 million attempts, 19.2 million received an answer, which represents 8 percent of the total attempts. The remaining 216.9 million call attempts either received busy signals or were terminated by the callers because they did not want to wait in queue for an assistor."

As shown in figure III.1, IRS' reported accessibility rate of 8 percent continued a downward trend since 1989 and was 13 percentage points below 1994. However, the 1995 accuracy rate on answers to tax law questions continued an upward trend.14

"In a July 1995 report, IRS' Internal Audit identified one area where telephone assistors apparently had problems at least early in the filing season. Internal Audit made 92 test calls between January 10 and February 7 to assistors nationwide with questions about changes to EIC eligibility that were effective with income tax returns filed in 1995. In 28 (30 percent) of the 92 calls, according to Internal Audit, assistors either incorrectly advised taxpayers about their eligibility for EIC or advised them incorrectly on related tax issues.