Internal Revenue Service:

Assessment of Budget Justification for Fiscal Year 2011 Identified Opportunities to Enhance Transparency

GAO-10-687R, May 26, 2010

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The financing of the federal government depends importantly on the effectiveness of the Internal Revenue Service's (IRS) ability to administer the tax laws, including achieving its goals of providing taxpayer services to make voluntary compliance easier and enforcing tax laws to ensure everyone meets their obligations to pay taxes. The President requested $12.6 billion to fund IRS's fiscal year (FY) 2011 operations, including $5.8 billion for enforcement, $4.1 billion for operations support, and $2.3 billion for taxpayer services. Another $387 million is for IRS's Business Systems Modernization (BSM) program, IRS's ongoing effort to improve the agency's tax processing systems. In addition to its annual appropriation, IRS projects that it will also collect and have available to use about $339 million in offsetting collections, including user fees and reimbursable programs. IRS's Strategic Plan 2009-2013 guides budget and program decisions and emphasizes IRS's goals. It recognizes the increasing complexity of tax laws, changing business models, expanding use of electronic data and related security risks, accelerating growth in international tax activities, and growing human capital challenges. With all of these competing priorities for spending in IRS programs, limited resources make it important for Congress and other stakeholders to have sound and transparent information on how proposed spending is related to IRS achieving its goals and whether there are opportunities to revise its plans so that resources expended achieve maximum impact on desired service and enforcement results. Based on Congress' requests, our objectives were to (1) describe IRS's budget and staffing trends for FY 2007 through FY 2011, including funding from other budgetary resources; (2) assess the transparency of IRS's FY 2011 budget justification presentation; (3) assess efficiencies and savings projections in IRS's FY 2011 budget justification; (4) determine how program initiatives and legislative proposals in the budget justification could help IRS address the tax gap and improve taxpayer services; (5) compare the performance goals in the FY 2011 budget justification to performance of prior years; (6) determine whether there is an explicit connection between initiatives in the FY 2011 budget justification and IRS's strategic documents, including the Taxpayer Assistance Blueprint (TAB), the Advancing E-file Study, and the report, Reducing the Federal Tax Gap; (7) describe the justification for the proposed Business Systems Modernization (BSM) funding, including information security; and (8) highlight GAO's open matters for congressional consideration and recommendations for executive action that could result in potential savings or increased revenues.

The President's FY 2011 budget request for IRS is a 4 percent, or $487 million, increase over the FY 2010 appropriation. Total full time equivalents declined in FY 2008, but have since increased by an average of nearly 1 percent. Within the five appropriation accounts listed previously, IRS provides the total funding for each budget activity, but provides only descriptions of the program activities that comprise them. IRS requests over $247 million to fund initiatives aimed at reducing the tax gap by nearly $2 billion. The budget justification lists 33 performance measures IRS officials and other stakeholders use to evaluate the agency's progress toward its goals of improving service and compliance. The justification includes a comparison of IRS's performance to previous years. Of the six performance measures we reviewed, three were clearly linked to funding and three were not. This lack of consistency is important when goals reflect noteworthy changes from previous performance levels and funding is impacted. Although initiatives in IRS's justification are guided by strategic documents there is no clear link between initiatives in IRS's strategic documents and its budget. IRS's BSM program was initiated in FY 1999. IRS received about $3 billion for BSM between FY 1999 and FY 2010. The President is requesting $387 million for BSM for FY 2011, which if approved, would bring the total BSM funding to date to almost $3.4 billion. The cornerstone of this modernization effort has been the development of the Customer Account Data Engine (CADE). CADE was intended to replace the Individual Master File, which is the legacy system that contains the agency's repository of taxpayer information. Prompted by several challenges confronting CADE--including that the approach to develop the system was more complex and taking longer than initially anticipated--the IRS Commissioner initiated a study of IRS's information technology (IT) systems modernization efforts.

Status Legend:

Review Pending
Open
Closed - implemented
Closed - not implemented

Recommendations for Executive Action

Recommendation: To enhance the transparency of the IRS' budget request, the Commissioner of Internal Revenue should continue to closely monitor assistor call volumes and, if demand is projected to remain lower than original predictions, either increase the LOS target or redirect some or all of the requested increase in funding for telephone services to other priorities within the bounds of IRS's authority.