IRS performed well in 2008 tax filing season, IG says

The Internal Revenue Service used its modernized taxpayer database to process 30 million tax returns, or 21 percent of all individual tax returns filed, in the 2008 tax season as of July, the Treasury Inspector General for Tax Administration (TIGTA) said in a recent report. In 2007, the Customer Account Data Engine (CADE) processed 11.2 million tax returns, TIGTA said.

The most recent version of CADE successfully incorporated new requirements to accept and process tax return and tax account information, the auditors said. In addition to tax law changes, several new tax return forms and schedules were added to CADE’s capabilities, along with the enhanced ability to process taxpayer address changes, TIGTA said in a report published Oct. 30.

The CADE system also generated $44 billion in refunds in 2008, TIGTA noted.

The IRS plans to replace its legacy Master File of taxpayer accounts with CADE in a phased rollout, which will let the tax agency update taxpayer accounts, support account settlement and maintenance and process refunds daily, TIGTA said.

“CADE Release 3 is operating effectively to help the IRS provide these improved services to taxpayers,” said Michael Phillips, TIGTA’s deputy inspector general for audit. CADE is the foundation on which IRS would develop subsequent modernized systems to improve customer service and compliance, he said.

CADE also accurately and effectively processed 24 million payments totaling $18 billion to taxpayers required by the Economic Stimulus Act of 2008, TIGTA noted.

In a separate report released the same day, TIGTA said the IRS performed well during the 2008 filing season despite the challenges of late and unexpected tax legislation.

In December 2007, Congress passed legislation limiting the number of taxpayers subject to the Alternative Minimum Tax (AMT) in a process called the AMT patch, the report said. This action prompted the IRS to revise its tax forms, instructions, and publications to accommodate the legislation, according to TIGTA.

Also, as a result of the Economic Stimulus Act, the IRS had to quickly develop processes to both educate taxpayers on how to receive the stimulus payment and prepare employees on processing tax returns filed solely to obtain the payment, TIGTA said.

The IRS implemented these changes correctly with no significant delays in the processing of tax returns during the 2008 Filing Season, TIGTA said. The service processed nearly 84 percent more of the paper Forms 1040A, the simplified Individual Income Tax Return, during the 2008 season than it did the previous year. The incrase was due to returns filed by taxpayers not normally required to file so they could receive the economic stimulus payment, the auditors said.

In response to the report, the IRS said it plans to:

• Update computer programs to identify taxpayer returns where improper deductions may be claimed.

• Make sure that IRS employees are correctly addressing education “dual benefit” cases where taxpayers improperly try to claim both a tuition benefit and an education tax credit .

• Add a cautionary statement about sales tax deduction eligibility to a tax form. The statement would explain the sales tax deduction to taxpayers. 

About the Author

Mary Mosquera is a reporter for Federal Computer Week.

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