Internal Revenue Service:

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

GAO-10-687R: Published: May 26, 2010. Publicly Released: 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:

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  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • 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.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Not Implemented

    Comments: Since we made this recommendation, telephone demand has increased and level of service (LOS), planned and actual, have decreased. Based on these trends, the recommendation is no longer relevant.

    Recommendation: To enhance the transparency of the IRS' budget request, the Commissioner of Internal Revenue should explain in the budget justification noteworthy changes in performance goals that reflect changes from previous performance and describe the impact on funding.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: IRS made progress on this recommendation in the fiscal years 2013 and 2014 Congressional Budget Justifications by explaining significant changes to some performance goals, such as telephone level of service (LOS), including the relevant impact on funding. IRS budget officials noted that they plan to continue providing this type of information in future years. This information can help Congress better understand the extent to which funding could affect performance outcomes.

    Recommendation: To enhance the transparency of the IRS' budget request, the Commissioner of Internal Revenue should provide brief definitions of the performance measures that are included in the budget justification.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: In the fiscal year 2012 Congressional Budget Justification, the IRS included a brief definition of all the performance measures that are included in the budget justification, making the budget justification more reader friendly.

    Recommendation: To enhance the transparency of the IRS' budget request, the Commissioner of Internal Revenue should coordinate with Treasury and provide more information about possible costs or resource needs for legislative proposals in future budget justifications.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: In its FY 2012 budget justification, IRS implemented our recommendation and provided aggregate cost information for most of its legislative proposals. Now Congress and other stakeholders have additional information about what the proposals will cost when considering the request.

    Recommendation: To enhance the transparency of the IRS' budget request, the Commissioner of Internal Revenue should provide Congress with information comparing projected savings to actual savings in the year following the budget's implementation.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: In its FY 2012 budget justification, IRS reported that it saved approximately $1.6 million more than anticipated because of greater than expected electronic filing and was able to use those additional savings to increase telephone levels of service. Reporting on the actual savings achieved allows Congress and other stakeholders to have better information about what additional resources are available for use.

    Recommendation: To enhance the transparency of the Internal Revenue Services' (IRS) budget request, the Commissioner of Internal Revenue should provide additional information, which could be qualitative if necessary to avoid losing existing reprogramming flexibility, about the program activities in the budget justification to better indicate IRS's priorities.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: In its annual budget request, IRS provides funding information at the appropriation account and budget activity levels, but not the program activity level. According to IRS officials, due to current restrictions in appropriations law, providing dollar amounts for program activities could limit its flexibility to reprogram funds once a budget is adopted. However, based on our recommendation and inquiries from other external entities, IRS has begun to collect prior year obligation data for selected program activities, organizational entities, and areas of interest. Having this information increases Congress's ability to understand priorities and make more informed decisions about the use of resources.

    Recommendation: To enhance the transparency of the IRS' budget request, the Commissioner of Internal Revenue should make explicit linkages between initiatives and proposals in the budget and strategic documents.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: As a result of our recommendation, IRS added a table in the fiscal year 2014 Congressional Budget Justification showing the alignment of new initiatives to IRS strategic goals. IRS budget officials confirmed that they plan to continue to provide this information in future years. As a result of making these linkages more explicit, Congress and other stakeholders can better understand the priority that IRS is giving to its efforts to improve service and enforcement.

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