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scheduled calls to its toll-free forms ordering line. Because IRS' indicator is based on the number of calls IRS expects to answer rather than the number it expects to receive, the indicator masks the serious problems taxpayers have encountered in the past and encountered again in 1995 in trying to reach IRS by telephone.

In reports on past filing seasons, we discussed the difficulty taxpayers had in reaching IRS by telephone (i.e., the “accessibility" of IRS' telephone systems). Although IRS answers millions of calls each year, even more calls go unanswered. Many taxpayers receive busy signals, are kept on hold for a long time, or simply give up. Between January 1 and April 15, 1995, IRS received 236 million calls for tax assistance but was able to answer only 19 million of those calls. Our most recent report on telephone assistance accessibility offers several recommendations to improve IRS' ability to answer more taxpayer calls. 10

To determine whether accessibility was a problem during the 1995 filing season, we conducted two tests. One test was to determine the accessibility of the toll-free assistance for taxpayers who have questions about their accounts, the tax law, or IRS procedures. The second test was to determine the accessibility of the toll-free system that IRS tells taxpayers to call if they want copies of tax forms and publications. Our test methodology is described in appendix III along with (1) details on the results of our tests and (2) our computations of accessibility using more global IRS data.

Results of both tests indicated that again this filing season taxpayers had significant problems reaching IRS by telephone. For example, of 2,821 calls we made to IRS' toll-free assistance number, we succeeded in reaching an assistor 249 times-a 9-percent accessibility rate. Although our test of the form ordering system produced better results—a 50-percent accessibility rate-there was still much room for improvement.

As in past years, our measure of accessibility is based on the percent of incoming calls answered. We recognize that the number of calls coming in does not equal the number of taxpayers seeking assistance because many taxpayers are probably calling several times in an attempt to reach an

Tax Administration: IRS' 1992 Filing Season Was Successful but Not Without Problems
(GAO/GGD-92-132, Sept. 15, 1992); Tax Administration: Increased Fraud and Poor Taxpayer Access to
IRS Cloud 1993 Filing Season (GAO/GGD-94-65, Dec. 22, 1993); and Tax Administration: Continuing
Problems Affect Otherwise Successful 1994 Filing Season (GAO/GGD-95-5, Oct. 7, 1994).

1oTelephone Assistance: Adopting Practices Used by Others Would Help IRS Serve More Taxpayers (GAO/GGD-95-86, Apr. 12, 1995).

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Document Imaging System
Failed to Meet
Expectations

assistor. We have been working with representatives from the Department of the Treasury and IRS to develop a better way to measure IRS' performance in terms of the number of taxpayers, but those efforts have not been completed.

With one significant exception, the computer systems IRS used to process returns and remittances in 1995 generally performed without major problems. The exception was a new document imaging system that IRS used in 1995 to process several forms, including individual income tax returns filed on Form 1040EZ.

To process tax returns more efficiently and economically, IRS intends to move from a system that relies on labor-intensive data transcription to one that relies on electronic data capture. Electronic filing and TeleFile are steps in that direction. For returns filed on paper, IRS plans to achieve its objective through document imaging. The Service Center

Recognition/Image Processing System (SCRIPS) is the first of two planned document imaging systems."1

Under IRS' new organizational structure, to be implemented over the next
several years, paper tax returns are to be processed in only 5 of the 10
existing service centers. Those five sites are to be known as submission
processing centers. Because imaging is the process IRS intends to use to
capture data from all paper returns in the future, SCRIPS was installed in
only the five service centers that are to be submission processing centers.
Each of the five centers experienced hardware and software problems
with SCRIPS. Those problems included hardware problems that kept
documents from feeding properly into the scanner and software problems
that affected SCRIPS ability to accurately capture name and address
information. Two of the five centers completely stopped 1040EZ
processing on SCRIPS, and the other three centers stopped processing for
extended periods of time. Those stoppages caused IRS to redirect some
1040EZ processing workload back to its manual data entry system. In
total, IRS was able to process only about 56 percent of the expected
8.6 million forms 1040EZ on SCRIPS that it had planned to process.

"SCRIPS is to be followed by the Document Processing System (DPS), which is intended to replace most of IRS' current labor intensive data transcription operations. DPS is being designed to image data from all types of returns as well as correspondence. Both SCRIPS and DPS are designed to create a digital image of a paper-based document and convert selected data into machine readable form, known as optical character recognition.

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Conclusions

As a result of the problems with SCRIPS, IRS has not yet realized the
system's intended benefits. For instance, IRS had expected that increased
processing rates would result in lower labor costs. However, IRS processed
fewer forms 1040EZ per hour on SCRIPS in 1995 than it did in 1994 on the
old system SCRIPS replaced. Thus, SCRIPS has not yet achieved any savings
in labor costs associated with processing forms 1040EZ. In addition, IRS
has postponed plans to redistribute additional workload to SCRIPS and to
introduce the final form scheduled for SCRIPS. Appendix IV has additional
information on the effects of problems with SCRIPS.

Despite the many problems that limited SCRIPS effectiveness, IRS'
"processing cycle time" indicator, which measures the average number of
days it takes service centers to process returns, showed that service
centers processed returns faster in 1995 than IRS expected. More
specifically, IRS' data showed that the 10 service centers, in total,
processed individual income tax returns in 1995 within a range of 5 to 9
days depending on the type of form (1040, 1040A, or 1040EZ) and the
processing systems used (manual data entry or SCRIPS). That compares
favorably with IRS' processing cycle time goal of 11 days. However, that
comparison is misleading because IRS' 11-day goal was much higher than
the 5- to 7-day cycle times the service centers had achieved in 1994.
Comparing IRS' 1995 cycle times to its 1994 cycle times rather than to its
goal for 1995 shows that the cycle times in 1995 worsened in many cases.
In 1994, for example, none of the 10 service centers averaged longer than 9
days to process any type of individual income tax return. In 1995, six
centers took longer than 9 days, including four of the five centers that had
SCRIPS.

Throughout the filing season, IRS officials worked with the SCRIPS contractor to remedy the hardware and software problems. At the conclusion of the filing season, they met to assess the cause of these problems and determine the actions needed to be taken before the next filing season. Among the actions being considered are upgrades to key components of the system that are intended to improve processing rates. We will continue to monitor IRS' efforts to address SCRIPS problems and the effect of these efforts on IRS' readiness for the 1996 filing season.

Although IRS' indicators point to a successful 1995 filing season, there were several problems that are not obvious from those indicators.

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Recommendations to the Commissioner of Internal Revenue

IRS' assertion that it issued refunds on paper returns in 1995 as quickly as it
did in 1994 (i.e., within an average of 36 days), masks the fact that in 1995,
unlike 1994, millions of taxpayers had valid refunds delayed for up to 8
weeks. IRS chose to exclude those refunds in computing the refund
timeliness indicator, even if IRS found no problem with the refund and
eventually issued it, making the indicator an inaccurate measure of
timeliness in 1995. Also, while we agree that IRS needs to ensure the
validity of refund and EIC claims, we believe that IRS could have avoided
some of the adverse reaction caused by the refund delays if it had done a
better job alerting taxpayers that even refunds on accurate returns might
be delayed. A related source of potential taxpayer confusion was the
apparent conflict between IRS' promise, via its customer-service standards,
to issue a refund within a certain number of days if the taxpayer filed a
complete and accurate return and IRS' decision to delay certain refunds
well beyond the promised time frame while it verified that the returns
were complete and accurate.

Likewise, IRS' ability to answer more calls than it estimated it could answer
means little to the many taxpayers whose calls to IRS went unanswered or
who gave up in frustration after receiving numerous busy signals. By
focusing on the number of calls IRS expects to answer rather than the
number of calls actually coming in or the number of taxpayers trying to
reach IRS, the telephone assistance indicator provides a distorted picture
of the accessibility of IRS' telephone service. IRS is working to develop a
better measure of accessibility. Such a measure, once developed, would be
a more meaningful indicator of IRS' telephone service during the filing
season than the percent of scheduled calls indicator now used.

Even though IRS reported success in meeting its returns-processing time frames, it did not achieve that success by following its plan to use the new SCRIPS equipment. IRS was only able to achieve its overall goals by rescheduling some workload back to its old manual data entry system. IRS has efforts under way to correct the SCRIPS problems. If those problems cannot be resolved, the scheduling of other forms on SCRIPS will be delayed even longer, resulting in further lost benefits the system was intended to provide.

If IRS plans to continue validating SSNS and delaying refunds in 1996, we recommend that it adjusts its methodology for assessing refund timeliness to include delayed refunds associated with validly filed returns. Also after IRS develops a measure of taxpayer assistance accessibility that focuses on

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Agency Comments and Our Evaluation

the number of incoming calls and/or the number of taxpayers calling for assistance, we recommend that it includes that measure among its key filing season performance indicators.

We requested comments on a draft of this report from the Commissioner
of Internal Revenue or her designated representative. Responsible IRS
officials, including the Assistant Commissioner for Taxpayer Services,
Director of Investigations (Tax Refund Fraud), Electronic Filing
Executive, Director of Tax Forms and Publications, and Senior Program
Analyst (Submission Processing), provided IRS' comments in a
November 13, 1995, meeting. The Chief of Taxpayer Services provided
additional comments on November 30. IRS also provided a few factual
clarifications that we have incorporated in this report where appropriate.

The Chief of Taxpayer Services noted that IRS has emphasized the importance of having accurate SSNS on tax returns filed in 1995 by including a message on the cover of all tax packages and through many public service announcements. Our report acknowledges that fact. However, our concern is with the lack of sufficient warning to taxpayers that their refunds might still be delayed even if they had accurate SSNS on their tax returns. The Chief acknowledged that taxpayers who filed complete and accurate returns also had their refunds delayed to allow IRS additional time to verify the claims before issuing the refunds, and he said that IRS regretted any inconvenience. Officials at the November 13 meeting mentioned that there was a lot of discussion within IRS, before the 1995 filing season, about how much IRS should divulge about its plans. They also noted that by the time IRS had finalized its plans for 1995 it would have been too late to make any changes to the tax packages and Publication 17, which had already been printed. They said that even if IRS had decided to tell taxpayers more, it would have been too costly to reprint those documents.

IRS said that it plans to continue validating SSNs and delaying refunds in 1996 but has revised its SSN-validation procedures and criteria. Thus, it expects that taxpayers with valid SSNs will have only a small chance of having their refunds delayed in 1996. Because of those changes, IRS saw no need to revise its methodology for assessing refund timeliness. We agree that IRS would not have to revise its methodology if those changes have the expected result of limiting the extent to which valid refunds are delayed. The officials acknowledged, however, that if that result is not achieved, the methodology would have to be adjusted. We will be monitoring the