Federal report praises IRS performance in 2002

WASHINGTON -- The Internal Revenue Service did a good job handling tax returns and refunds this year despite complications caused by tax law changes and the terrorist and anthrax attacks, a report commissioned by Congress finds.

The IRS, which should begin mailing next year's tax forms early next month, met most of its goals to provide better assistance to taxpayers on the phone, online and at walk-in offices, the General Accounting Office said Monday. The IRS processed about 131 million tax returns and about 99 million refunds for the 2002 filing season.

The GAO, the investigative arm of Congress, said extensive preparations, including updated computer systems and better trained staff, helped the IRS avoid major problems.

"A lot of taxpayers made mistakes and IRS managed to correct those mistakes in most cases without having to slow the processing down," said James White, the GAO's director of tax issues.

Also Monday, the IRS proposed a tax break on home sales for owners who divorce, become ill or are unemployed.

A homeowner now can avoid capital gains taxes on profits of up to $250,000 -- for couples, up to $500,000 -- in the sale of a primary residence. The homeowner must have lived in the home for two of the last five years.

The two-year residency requirement would be lifted for people who have encountered unforeseen circumstances, such as divorce, poor health, multiple births from a single pregnancy, job loss or damage to the home from disaster or terrorism.

Such homeowners would not be totally shielded from taxes, the IRS said.