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Tax Administration: Advance Tax Refund Program Was a Major Accomplishment, but Not Problem Free.

GAO-02-827 August 2, 2002

The Economic Growth and Tax Relief Reconciliation Act of 2001 applied a 10-percent income tax rate to the portion of an individual's income previously taxed at 15 percent. To stimulate the economy more rapidly than if taxpayers had to wait until their year 2001 return to realize the full impact of this rate reduction, the act provided for an advance tax refund in 2001. Between July and December 2001, the Internal Revenue Service (IRS), through the Department of the Treasury's Financial Management Service (FMS), mailed 86 million advance refund checks totaling $36.4 billion. IRS incurred costs of $104 million to administer the advance tax refund program, and FMS incurred costs of $34 million to issue checks. IRS expected to incur $12 million in additional costs during fiscal year 2002. Overall, IRS and FMS did a good job implementing the advance tax refund program. However, GAO identified many problems related to this program in 2001. The advance tax refunds and related rate reduction affected the 2002 tax filing season by increased errors due to questions concerning the tax credit. GAO found that an independent review of computer programming necessary to implement a major effort like the advance tax refund program might avoid potential problems in the future that could negatively affect taxpayers or create unnecessary work for IRS. Further, greater attention to the clarity of information in the tax return instructions when there has been a major change to the tax return might reduce the number of returns filed in error.
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Publication:General Accounting Office Reports & Testimony
Date:Sep 1, 2002
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