GAO reviewed the status of the Internal Revenue Service's (IRS) FedState Cooperative Program, focusing on: (1) potential program benefits to taxpayers, IRS, and the states; (2) conditions that may impede program success; and (3) states' concerns on the impact of IRS reorganization on the program.

GAO found that: (1) the potential benefits of the FedState program include increasing taxpayer compliance, reducing taxpayer burden, and improving the efficiency of tax administration functions; (2) the FedState joint electronic filing program reduces administrative costs for IRS and the states by detecting math errors and eliminating transcription errors; (3) taxpayer data tape exchanges enable IRS and the states to identify taxpayers who fail to file a return or who owe more taxes; (4) the state refund offset program allows IRS to levy state refunds to fulfill the federal tax debt; (5) IRS lacks a centralized, strategic plan for ensuring that the FedState program is achieving the agency's objectives; (6) IRS and the states do not have a system to monitor and assess the results of individual FedState projects; (7) IRS needs to establish performance-based criteria for the program so that district offices can make more informed decisions on resource allocations and program priorities; and (8) some states have expressed concern that the reorganization of IRS will have a negative impact on the FedState program.

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