Detailed Information on the
Internal Revenue Service Submission Processing Assessment

Improve program performance by seeking legislative changes to promote electronic filing, including greater authority to require electronically filed returns. Spring 2008 Update: Congress has not yet acted on the Administration's proposals to accelerate the increase in electronic filing and although the number of individual returns electronically filed continues to grow each year, the rate has slowed considerably and without legislation continued slow growth is expected. As a result, IRS now projects year to year growth to range from 4.3% to 5.5% through FY 2012. At the current growth rate, the IRS now projects the 80 percent electronic filing rate will not be achieved until sometime after 2015

Improve performance by setting goals by 2007 for reduced taxpayer filing burden resulting from the time and expense of preparing and filing their returns. Spring 2008 Update: The IRS Office of Research has continued to refine the Small Business Burden Model (SBBM) and is working with a preliminary version they plan to use to support burden reduction planning and evaluation, and develop baseline taxpayer burden estimates for businesses to complement the income tax compliance burden baseline estimates for individual taxpayers currently produced from the Individual Taxpayer Burden Model. New forms and updated instructions were published in January for 1120S corporations to be followed in January 2009 and successive months with Employment Tax Returns.

Employ technology and operational improvements to process returns and refunds more accurately and efficiently by providing a single electronic pipeline for capturing and processing data. Spring 2008 Update: In February 2008, the cost estimation process was completed for Modernized Submission Processing (MsP). In March 2008, MsP was submitted for consideration for Business System Modernization funding in FY 2010. IRS is currently in the process of preparing the necessary documentation for submission to Treasury during the upcoming FY 2010 budget cycle.

Implement emerging technology initiatives to improve the accuracy and timeliness of residual paper remittances. Spring 2008 Update: The Remittance Strategy - Paper Check Conversion (RS-PCC) was implemented for insolvency payments, in January 2008. RS-PCC was subsequently deployed for the processing of misdirected remittances at the three of the consolidated campuses in May and June 2008. Release 2 of RS-PCC, expanding the deployment to Taxpayer Assistance Centers and Revenue Officers groups, and add to the functionality for processing split payments, has been delayed due to resource limitations until early 2010.

Measure: Percent of business returns processed electronically

Explanation:The number of business returns processed electronically divided by the total number of business returns processed.

Measure: Percent of Individual Returns Processed Electronically

Explanation:The number of individual returns (1040s) processed electronically divided by the total number of individual returns processed.

Measure: Refund timeliness - Individual (paper) (%)

Explanation:Percentage of refunds issued within 40 days or fewer.

Measure: Individual Returns - Submission Processing Productivity (returns per FTE)

Explanation:The number of individual returns processed divided by the total number of FTE (staff) used in processing

Measure: Business Returns - Submission Processing Productivity (returns per FTE)

Explanation: The number of business returns processed divided by the total number of FTE (staff) used in processing.

Measure: Deposit Timeliness (interest lost)

Explanation:Lost opportunity cost (expressed as an estimate of unrealized interest) of money received by the IRS but not deposited by the next day, per $1 million of deposits. A constant interest rate of 8 percent is used to measure change based on performance. This measure includes both business and individual payments.

Measure: Percent of Tax Payments Processed Electronically

Explanation:The number of tax payments received electronically divided by the total number of tax payments received. This is based on the percentage of payments made electronically, not on the percentage of dollars paid electronically.

Is the program purpose clear?

Explanation: Submission Processing (SP) has program responsibility to receive and efficiently process and archive the nation's federal tax returns, payments, and information returns timely and accurately. IRS's overall mission includes enforcing the tax code with minimal burden on taxpayers. The Restructuring and Reform Act of 1998 mandates that IRS increase electronic filing (e-filing) to 80 percent by 2007.

Evidence: The Internal Revenue Code (26. U.S.C.) sets out the nation's tax system and provides the Secretary of the Treasury the authority to prescribe how returns would be filed. See also the IRS strategic plan (2005-2009 IRS Strategic Plan: www.irs.gov/pub/irs-utl/strategic_plan_05-09.pdf). IRS' legislative e-filing goal is set in section 2001 of the Restructuring and Reform Act of 1998 (P.L. 105-206).

Does the program address a specific and existing problem, interest, or need?

Explanation: The program is needed to process all federal tax returns, related documents and payments, inventories that grow incrementally each year. The program processes are reviewed and revised each year to incorporate changes in legislation and regulations.

Evidence: In 2004 SP processed a total of 224 million tax returns and 1.58 billion information returns (e.g., 1099 reports on interest earned) (see the Internal Revenue Service 2004 Data Book and May 2005, Document 6961 (www.IRS.gov)).

Is the program designed so that it is not redundant or duplicative of any other Federal, state, local or private effort?

Explanation: SP has responsibility to process all individual and business federal tax returns and payments and most information returns (paper and e-filed). It cooperates closely with Treasury's Financial Management Service (FMS) on payment and refund processing and the Social Security Administration (SSA) on certain information returns (e.g., W-2 wage reporting). It also cooperates with state tax agencies, routinely sharing information to minimize cases where taxpayers must report the same data to both the federal and state governments.

Evidence: No other entity processes federal tax returns other than certain excise taxes under the Tax and Trade Bureau's jurisdiction. In 2005, 36 percent of tax payments, representing more than 75 percent of all dollars paid, were made electronically through the FMS managed Electronic Federal Tax Payment System (EFTPS). In 2004, SSA processed 252 million W-2s used by IRS in tax administration.

Is the program design free of major flaws that would limit the program's effectiveness or efficiency?

Explanation: SP is moving from a traditional paper based filing system to much more efficient e-filing. Other than this shift to e-filing, there is no evidence that an alternative program design would be more efficient or effective. SP's program design makes sense under the current tax system. The Administration is committed to simplifying the tax system. This reform will likely lead to major changes in SP's program.

Evidence: SP performs an Annual Management Accountability Review to improve program effectiveness and efficiency. SP also performs annual testing of major e-file software packages to ensure program compatibility. See www.taxreformpanel.gov/ for information on the President's Tax Reform Panel.

Is the program design effectively targeted so that resources will address the program's purpose directly and will reach intended beneficiaries?

Explanation: The primary beneficiary of the program is the taxpayer through the expeditious issuance of refunds, settlement notices and deposit of payments. SP works to verify information on tax returns to limit inappropriate refunds. However, due to limitations in data available to IRS and in the timing of receiving data (e.g., third party income reports such as W-2s), SP is unable to stop many erroneous refunds. Based on IRS' recently completed tax gap study, approximately 13 percent of refund dollars (excluding earned income tax credit refunds) are paid in error.

Evidence: Information on refund error estimates comes from IRS Research based on their tax year 2001 National Research Program study of the tax gap.

Does the program have a limited number of specific long-term performance measures that focus on outcomes and meaningfully reflect the purpose of the program?

Explanation: SP has one primary long-term goal in IRS's strategic goals; "80% of all federal tax returns are filed electronically by 2007." This goal is mandated by statute and includes both tax returns and information returns (e.g., third party income reporting). E-filing serves as a proxy measure for SP's mission of processing returns efficiently and accurately. IRS processing of e-filed individual returns costs $2.15 less per return on average than paper returns and e-filed returns are far more accurate than paper filed returns. IRS plans to supplement this goal with a goal for reduced taxpayer burden by 2007.

Evidence: See IRS' FY 2007 Performance Budget for IRS' current strategic goals. IRS' legislative e-filing goal is set in section 2001 of the Restructuring and Reform Act of 1998 (P.L. 105-206). An internal IRS study concluded that the average cost for processing an e-filed individual return in 2001 was $0.56 while the average cost for a paper return was $2.71. IRS estimates error rates for e-filed returns are less than 1 percent, while paper return error rates are 5 percent.

Does the program have ambitious targets and timeframes for its long-term measures?

Explanation: IRS has two separate long term goals to measure different aspects of its 80 percent filing goal. These are Percent of Individual Returns Processed Electronically (the same as filed electronically) and Percent of Business Returns Filed Electronically. It also has a 63 percent long term goal for Percent of Tax Payments Processed Electronically. All three goals have ambitious targets starting in 2007. IRS does not have a measure for information returns because it has already surpassed the 80 percent goal.

Evidence: See measures tab for information on IRS long term goals. See also IRS' FY 2007 Performance Budget for IRS' current strategic goals. IRS receives 1.58 billion information returns per year (See May 2005, Document 6961 (www.IRS.gov)). Approximately 96 percent are received through electronic means (60 percent magnetic tape and 40 percent direct data transmission).

Does the program have a limited number of specific annual performance measures that can demonstrate progress toward achieving the program's long-term goals?

Explanation: In addition to the three goals mentioned in question 2.2, SP has goals for Business Returns - Submission Processing Productivity (returns per staff year), Individual Returns - Submission Processing Productivity (returns per staff year), Refund Timeliness, and Deposit Timeliness (interest lost). It also has a variety of internal measures of outputs, timeliness, processing accuracy and customer satisfaction.

Evidence: See measures tab for information on IRS annual performance measures. See also IRS' FY 2007 Performance Budget for IRS' current annual performance goals.

Does the program have baselines and ambitious targets for its annual measures?

Explanation: SP has ambitious annual targets for its long term goals (see question 2.2) and for its annual performance goals. Its targets for its annual measures call for continued e-file growth, continued improvements in efficiency and deposit timeliness and for maintaining the high rate of refund timeliness.

Evidence: See measures tab for information on IRS annual performance measures. See also IRS' FY 2007 Performance Budget for IRS' current annual performance goals.

Do all partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) commit to and work toward the annual and/or long-term goals of the program?

Explanation: SP works closely with other federal agencies, states and private sector entities to facilitate tax filing. Both IRS and SSA work to encourage e-filing of wage reports. IRS and FMS have complementary electronic payment goals and work together to ensure refunds are made promptly and correctly. IRS works with states to facilitate joint e-filing. Finally, IRS works with many private entities to promote e-filing, including the FreeFile Alliance which provided free e-filing to more than 5 million taxpayers in 2005 and accepts performance standards agreed to by IRS.

Evidence: See Treasury Congressional Submission for FMS' e-payment goals. Currently taxpayers in 37 states and the District of Columbia can e-file their federal and state returns in one transmission. IRS encourages e-file at its Volunteer Income Tax Assistance and Tax Counseling for the Elderly sites. See www.IRS.gov for links to the FreeFile Alliance (a consortium of private sector firms).

Are independent evaluations of sufficient scope and quality conducted on a regular basis or as needed to support program improvements and evaluate effectiveness and relevance to the problem, interest, or need?

Explanation: Both the General Accountability Office (GAO) and the Tax IG (TIGTA) do annual audits of the efficiency and effectiveness of the tax filing season and IRS's returns processing functions. In addition, the Electronic Tax Administration Advisory Committee submits an annual report to Congress on the status of the e-file program. The American Customer Satisfaction Results project annually surveys tax filers for information about their overall satisfaction. Finally, the recently completed IRS tax gap study provided information on SP's effectiveness in avoiding erroneous refunds.

Evidence: For examples of numerous GAO and Tax IG audits see GAO-04-1040, GAO-04-712, GAO 05-416T, and GAO-04-74 and TIGTA 2005-40-016. See Electronic Tax Administration Advisory Committee 2004 report (publication 3415). See www.thacsi.org/government/govt-04c.html for information on the American Customer Satisfaction Results report. Information on refund error estimates comes from IRS Research based on their tax year 2001 National Research Program study of the tax gap.

Are Budget requests explicitly tied to accomplishment of the annual and long-term performance goals, and are the resource needs presented in a complete and transparent manner in the program's budget?

Explanation: IRS has presented an integrated performance plan and budget for a number of years. It has worked to tie resource changes to expected performance changes. In FY 2006, it proposed to restructure its budget to improve this linkage by showing the full cost of each program activity. Prior to 2006 overhead activities were funded separately. Unfortunately this proposed new structure was rejected by the appropriations committees in FY 2006 and IRS reports it cannot track obligations for these fully costed programs quickly enough to use them in financial execution. However, IRS will continue to monitor and report the costs of these programs. IRS 2007 Budget is presented in the traditional structure, which does not show the full cost of programs. However its performance budget also includes tables detailing the full cost of each program. IRS' efforts to link budget and performance is further improved by tying resources and annual performance measures to IRS's new long term performance goals.

Evidence: See IRS' FY 2007 Congressional Submission for its integrated performance plan and Budget. While the budget structure does not report the full cost of programs, submission processing's full resources are reported in supplemental tables with clear performance information and a discussion of the impact of resource levels on its annual performance.

Has the program taken meaningful steps to correct its strategic planning deficiencies?

Explanation: IRS has a strategic plan, focuses resources on the highest priority problems, and explores ways to improve performance. It has recently added efficiency measures for SP and plans to move to cost based efficiency measures by 2008. It also plans to introduce taxpayer burden measures by 2007.

Evidence: SP works to continually identify and correct strategic planning deficiencies. It uses long term planning, annual budget and performance planning and regular performance reviews throughout the year. Reviews take place at all levels of the organization and take into account feedback from external parties such as the Tax IG. This process has been used to drive e-file growth which has in turn allowed IRS to close several processing centers and redirect savings to other programs.

Does the agency regularly collect timely and credible performance information, including information from key program partners, and use it to manage the program and improve performance?

Explanation: Performance information is available to SP management on a daily basis including receipts, production, inventories, and timeliness information. Weekly reports also compare work schedules to actual accomplishments. Local program managers meet daily using the information to quickly react to changes and address deficiencies. Data is also regularly provided by and shared with program partners such as SSA and FMS (see question 1.3) such as information on wage reports from SSA and data exchanges on refunds with FMS.

Evidence: Examples management changes made based on performance information include: - In 2005, IRS responded to increasing paper return inventories in some centers by shipping returns to lower inventory locations and changing procedures to speed processing. - IRS closely tracks paper processing to ensure refunds are sent timely to avoid interest charges.

Are Federal managers and program partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) held accountable for cost, schedule and performance results?

Explanation: Managers have formal commitments associated with specific program results in their annual performance plans, making them accountable for their site's performance. Annual work plans are prepared for each campus with management input. These work plans include forecasts from the national office and expected productivity/efficiency gains. Each manager's performance is evaluated against these commitments annually. Further, IRS has implemented a pay banding program to increase the linkage between pay and performance for its managers.

Evidence: Examples of manager commitments include: "I will meet returns and payment processing goals??and achieve business results goals??"

Are funds (Federal and partners') obligated in a timely manner and spent for the intended purpose?

Explanation: SP usually fully obligates it resources and follows its annual financial plans. This question has been given a lower weight than other questions in this section because SP is funded as part of an annual largely salaries and expenses account. This type of account does not typically have problems with obligating resources according to plans.

Evidence: IRS reports that its SP function typically obligates well over 99 percent of its resources each year.

Does the program have procedures (e.g. competitive sourcing/cost comparisons, IT improvements, appropriate incentives) to measure and achieve efficiencies and cost effectiveness in program execution?

Explanation: SP has several efficiency measures which are continually monitored during tax processing. The growth in e-filed returns has resulted in a reduction in the number of tax return processing centers from 10 to 8 and should allow further closures in coming years. Further, SP has implemented IT solutions to enhance efficiency such as using scanners to read some simpler paper returns. Finally competitive sourcing is being used to enhance productivity.

Evidence: See measures tab for information on SP's efficiency measures and e-file growth. See also IRS' FY 2007 Performance Budget for IRS' current annual performance goals. IRS estimates it saved $34 million in 2004 as a result of reducing the number of tax filing centers and 483 FTE as a result of using scanners. IRS is conducting a competitive sourcing study for SP files support activity.

Does the program collaborate and coordinate effectively with related programs?

Explanation: SP coordinates with related IRS, other federal and state programs and with the private sector.

Evidence: See question 2.5 for additional information on coordination efforts. Other examples of recent coordination include working with the Tax IG and other IRS programs to inform taxpayers about eligibility for child tax credits. SP also worked with the IRS Taxpayer Advocate Service to develop methods for handling taxpayers requesting extensions without a tax identification number while waiting for their identification number applications to be approved. Finally, SP provides weekly data on processing to IRS's telephone taxpayer service operations to help them predict workload.

Does the program use strong financial management practices?

Explanation: GAO reports that IRS "lacks reliable and timely cost information" needed to make management decisions (GAO-05-707T). In addition, based on IRS' recently completed tax gap study, approximately 13 percent of refund dollars (excluding earned income tax credit refunds) are paid in error.

Evidence: See GAO-05-707T. GAO reports that IRS' new administrative accounting system may eventually give it reliable cost information. However, it will take several years to accumulate enough data. GAO (IRS's auditor) reports material weaknesses related to 1) financial reporting, 2) unpaid assessments, 3) federal tax revenue and refunds, and 4) information security (GAO-05-103). Per GAO; "IRS continues to exhibit a strong commitment to addressing its ongoing financial management problems and has made improvements in recent years that have resulted in the closing of many recommendations. At the same time, the continued existence of the serious financial management weaknesses that gave rise to the remaining open recommendations represents a serious obstacle that IRS needs to overcome to achieve effective financial management" (Highlights of GAO-05-393). Information on refund error estimates comes from IRS Research based on their tax year 2001 National Research Program study of the tax gap.

Has the program taken meaningful steps to address its management deficiencies?

Explanation: SP works to continually identify and correct management flaws. It uses long term planning, annual budget and performance planning and regular performance reviews throughout the year. During peak tax return processing, performance information is continually monitored to ensure problems are identified and addressed quickly. Reviews take place at all levels of the organization and take into account feedback from external parties such as the Tax IG. The main management weakness identified in this section of the PART is ongoing problems with IRS' financial management, particularly the lack of "reliable and timely cost information" (see question 3.6). As GAO confirms (Highlights of GAO-05-393), IRS is working to address these problems by upgrading its financial systems. IRS's new Integrated Financial System (IFS) may eventually provide the sort of day to day which GAO reports that IRS currently lacks.

Evidence: One example of SP's efforts to improve management is the ongoing effort to take advantage of e-filing growth to reduce the number of tax return processing centers to maximize efficiency. SP is also using competitive sourcing and targeted IT investments to improve efficiency (see question 3.4).

Has the program demonstrated adequate progress in achieving its long-term performance goals?

Explanation: Electronic filing and payment percentages continue to increase enabling the reduction in the number of its tax return processing sites, however, the 80 percent long term goal for e-filing by 2007 included in the IRS Restructuring and Reform Act of 1998 is unobtainable without a significant increase in growth rates. The Administration has proposed several legislative changes to help increase e-filing but they have not yet been enacted.

Evidence: See measures tab for information on e-filing rates. Historically, the program has demonstrated growth in e-filing exceeding 10 percent per year for individual filing. SP has already achieved the 80 percent target for information returns (including those filed on magnetic media). IRS research predicts only 59 percent of individual returns will be e-filed in 2007 and only 63 percent in 2009 (see the latest IRS research e-file projections (6/2005) www.irs.gov/pub/irs-soi/04d6187.pdf ). See also the Electronic Tax Administration Advisory Committee 2004 report (publication 3415). See the Federal Receipts chapter in the FY 2007 Analytical Perspectives (www.omb.gov) for details on the Administration's legislative program.

Does the program (including program partners) achieve its annual performance goals?

Explanation: IRS met or exceeded its 2005 annual performance goals for SP.

Evidence: See measures tab for information on IRS annual performance measures. See also IRS' FY 2007 Performance Budget for IRS' current annual performance goals.

Does the program demonstrate improved efficiencies or cost effectiveness in achieving program goals each year?

Explanation: SP's efficiency measures show steady improvement since 2001. In addition, e-filing growth - averaging better than 10 percent per year -- leads directly to reductions in IRS processing costs.

Evidence: See measures tab for information on SP's efficiency gains. Individual Returns - Submissions Processing Productivity has increased from 12,668 in 2003 to 14,965 in 2005 (18 percent). Similarly, Business Returns - Submissions Processing Productivity has increased from 13,859 in 2003 to 17,946 in 2005 (29 percent). IRS estimates that every return converted from paper to e-filing saves the IRS $2.15 ($2.71 paper vs. $.56 e-file (2001 data)) in labor dollars.

Does the performance of this program compare favorably to other programs, including government, private, etc., with similar purpose and goals?

Explanation: Other tax processing organizations such as states process very different types of tax returns, so direct comparisons of filing costs are not meaningful. However, like IRS they are moving from predominately paper based filing to e-filing. The states are aggressively implementing e-filing including e-file mandates in many states. Thanks largely to states with e-filing mandates such as California and Michigan, state e-filing has been growing more quickly than Federal e-filing for the past few years. On average the states remain below IRS' 50 percent e-file rate for individual returns, but they are catching up.

Evidence: See Federation of Tax Administrators document B-06/05 (www.taxadmin.org/fta/rate/b-0605.pdf) for details on state e-filing growth rates.

Do independent evaluations of sufficient scope and quality indicate that the program is effective and achieving results?

Explanation: Available evaluations present a mixed picture of SP's success. External parties acknowledge that e-file has grown steadily despite the fact that IRS will not meet the legislative 80 percent goal by 2007. Further, IRS has succeeded in raising customer satisfaction according to the annual American Customer Satisfaction Results report. On the other hand, based on IRS' recently completed tax gap study, approximately 13 percent of refund dollars (excluding earned income tax credit refunds) are paid in error. GAO and the Tax IG report that IRS has had generally successful tax filing seasons but have noted some problems. For example, GAO has noted problems such as the accuracy of form K-1 data, the accuracy of social security numbers on wage statements, and poor compliance by federal agencies with information reporting requirements. The Tax IG has noted problems such as difficultly in implementing some tax law changes.

Evidence: See Electronic Tax Administration Advisory Committee 2004 report (publication 3415). According to the annual American Customer Satisfaction Results report, the satisfaction of all tax filers has risen from 51 in 1999 to 64 in 2004 (compared to 72 in 2004 for government in general) largely as a result of increased e-filing. Paper filers scored as 52 (compared with 48 in 1999). E-filers scored 78 (compared with 74 in 1999). See www.thacsi.org/government/govt-04c.html for information on the American Customer Satisfaction Results report. Information on refund error estimates comes from IRS Research based on their tax year 2001 National Research Program study of the tax gap. See GAO-04-1040, GAO-04-712, GAO 05-416T, and GAO-04-74 and TIGTA (Tax IG) 2005-40-016.