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IRS gets a C on its 2012 tax season preliminary report card

The final tax season grades aren't in yet, but a preliminary evaluation of the Internal Revenue Service's 2012 operations gives the agency a so-so review.

The IRS had to deal more returns this year -- through early April filings were up 2 percent over last year -- but it also encountered more problems early this year in processing the returns, noted The Treasury Inspector General for Tax Administration, or TIGTA, in a March 30 report.

TIGTA's examination of the filing season through March 3 revealed that:

  • Early season e-filers experienced delays. The IRS blamed problems with its computer program filters, including those created to identify tax fraud.

    The good news with the IRS' computer fraud detection effort is that when TIGTA did its review, the tax agency had identified more than 441,000 tax returns claiming $2.7 billion in fraudulent refunds and prevented the issuance of $2.6 billion (97 percent) of those fraudulent refunds.

IRS tax return fraud detection 2009-2011 (2)Click table for a larger view.

  • Budget cuts have directly cut into customer service, both face-to-face and via phone. The IRS anticipates it will have increased wait times and earlier ends to assistance options to avoid end-of-day overtime.

    As of March 3, IRS employees had answered 7.4 million toll-free calls upon which there was an average 16.3 minutes wait by the calling taxpayers.

    The agency also expects there will be frequent unexpected closures of small Taxpayer Assistance Centers due to unscheduled employee absences. And tax return preparation will only be provided on a limited number of days per week and only on a first-come, first-served basis.
  • During early filing season visits to volunteer tax help sites, TIGTA had nine tax returns prepared with a 44 percent accuracy rate. That was lower than the 60 percent accuracy rate the IRS oversight office reported during the same time period for the 2011 tax filing season.

Doing a meh job: TIGTA didn't provide the IRS with a specific grade. In fact, since this was an interim report, the tax inspector agency didn't even make any recommendations to the IRS on ways to do a better job. That will come later this year when TIGTA releases its final report on the full tax season.

But I'm giving the IRS a C on this early report card.

The middlin' grade is because the agency has had to deal with a lot this year -- tax law changes in four separate Congressional acts, plus related regulatory requirements to administer the laws -- and with fewer resources.

Doing more with less: The IRS' fiscal challenges have been cited by the National Taxpayer Advocate, who has warned that it is taxpayers who ultimately will pay for the IRS budget cuts.

They also were pointed out several times in testimony in late March by IRS Commissioner Douglas Shulman before the House Ways and Means Oversight Subcommittee and the House Appropriations Subcommittee on Financial Services and General Government.

"I'm pretty proud that while service is down, it hasn't degraded, you know, to a point where it could have gone, given the cuts," Shulman told lawmakers.

That's not to say that things can't be improved even with less money, which is the reality that the IRS and many other government operations are facing. But such adjustments, particularly within an agency that deals with more individual Americans than any other, take time.

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