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

A letter report issued by the General Accounting Office with an abstract that begins "The Economic Growth and Tax Relief Reconciliation Act of 2001 replaced the 15-percent tax rate for individual taxpayers with a 10-percent rate. To stimulate the economy quickly, the act provided for an advance refund in 2001. Between July and December 2001, the Internal Revenue Service (IRS), working with the Department of the Treasury's Financial Management Service (FMS), mailed out 86 million advance refund checks totaling $36.4 billion. IRS spent $104 million to run the advance tax refund program, and FMS spent $34 million to issue checks; IRS expects to spend another $12 million during fiscal year 2002. Overall, GAO found that IRS and FMS did a good job carrying out the program. However, the advance refunds and related rate reduction led to increased errors during the 2002 tax-filing season because of taxpayer confusion about the tax credit. In GAO's view, an independent review of the computer programming used to carry out a major effort such as the advance tax refund program might help avoid future problems. At the same time, clearer tax return instructions might reduce the number of returns filed in error.