IRS Budget 2012:

Extending Systematic Reviews of Spending Could Identify More Savings Over Time

GAO-11-547: Published: Apr 11, 2011. Publicly Released: May 11, 2011.

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The financing of the federal government depends largely on the Internal Revenue Service's (IRS) efforts to collect taxes. These efforts focus on providing taxpayer services, such as electronic filing and telephone assistance, to make voluntary compliance easier and enforcing tax laws to ensure everyone meets their obligations to pay taxes. To fund IRS's 2012 operations, the President requested $13.3 billion spread over five appropriations, including $6 billion for enforcement, $4.6 billion for operations support, and $2.3 billion for taxpayer services. Because of the size of IRS's budget and the importance of its service and compliance programs for all taxpayers, Congress asked us to review the fiscal year 2012 budget justification for IRS. Special areas of interest included any new tax law enforcement and taxpayer service initiatives, the cost of implementing IRS's responsibilities under the Patient Protection and Affordable Care Act (PPACA), and any opportunities for savings. Based on your request our objectives were to: (1) describe IRS's budget and staffing trends for fiscal years 2008 through 2012; (2) assess IRS's process for identifying potential savings and how it used savings that were greater than projected; (3) describe new enforcement, taxpayer service and other initiatives in the fiscal year 2012 budget justification, including any estimates of return on investment (ROI); (4) assess any legislative proposals in the budget justification and how IRS reports their costs; (5) assess how the budget justification reports on the costs and performance of major information technology (IT) systems; (6) describe how 2012 PPACA costs are presented in the budget justification; and (7) document IRS's implementation of our budget recommendations from prior years' reports as well as highlight our open matters for Congress and recommendations to IRS with potential savings or revenues.

(1) The IRS fiscal year 2012 budget request is a 9.4 percent, or $1.14 billion, increase over fiscal year 2010 with most of the increases for the Enforcement and Operations Support appropriations. It is a 20 percent increase over 2008. The budget justification proposes a 6 percent increase in full time equivalent staff since 2010 and an 11 percent increase since 2008. (2) IRS projects $190 million in savings and efficiencies for fiscal year 2012, which includes a $75 million reduction in IT infrastructure spending. The IT savings resulted from a systematic review of IT systems and contracts and the use of leading practices in systems development. Although IRS looks for savings throughout the agency, these efforts are not as systematic as the IT review. IRS budget officials cited costs as the reason. IRS IT officials told us approximately five full time staff were dedicated to finding the IT savings. In addition to projecting savings for 2012, the budget justification for IRS reported on the amount of savings realized in 2010. According to IRS, realized savings in 2010 were about $5 million greater than originally projected but the budget justification did not specify how the additional savings were used. (3) The fiscal year 2012 budget justification includes 17 new enforcement, taxpayer service, and other initiatives with a total cost of approximately $839 million. The justification included ROI estimates for 6 of them, with an average ROI of 6.4 to 1. (4) The budget justification includes 21 legislative proposals which according to IRS, if enacted, could result in over $10 billion in savings or increased revenues over 10 years. IRS was able to report costs for 14 of these proposals, but the costs were aggregated. Cost information for each of the 14 proposals is available from IRS and could be more useful to the Congress when weighing the merits of each proposal. (5) IRS is requesting $2.67 billion for IT funding in fiscal year 2012; $2.3 billion of this funding is for Operations Support and the remaining amount is for BSM. Out of these appropriations, IRS funds about 155 IT systems, including 31 major systems. The justification summarizes cost and schedule performance information for BSM, but not other major IT systems. Without such summary information Congress lacks a high level indicator of performance for most of IRS's IT spending. (6) The total justification for PPACA in fiscal year 2012 is $473.4 million, or 42 percent of the fiscal year 2012 requested funding increase. These costs are spread over five program initiatives within the Enforcement, Operations Support, and Taxpayer Services appropriations. While the PPACA costs are easily identified by initiative, the total cost is not shown. The total can be calculated by adding the PPACA costs across the five initiatives. (7) IRS implemented several of our prior recommendations to improve its budget presentation, including comparing projected savings to actual savings. Several of our open matters for Congress or recommendations to IRS have the potential to increase revenue or savings if implemented. To improve the usefulness of the budget request for IRS, we recommend the Commissioner of Internal Revenue take the following four actions: (1) further expand efforts to systematically identify savings and efficiencies as part of its budget development process on a periodic, but not necessarily annual, basis; (2) report in its budget justification how savings beyond projections were used. The amount of explanation provided should correspond to the amount of the savings; (3 provide cost estimates for individual legislative proposals in future budget justifications; and (4)include measures of cost and schedule performance for major IT systems in Operations Support, such as it does for BSM.

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 improve the usefulness of the budget request for IRS, the Commissioner of Internal Revenue should provide cost estimates for individual legislative proposals in future budget justifications.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: On February 13, 2012, IRS provided cost estimates for individual legislative proposals in its fiscal year 2013 Congressional Budget Justification.

    Recommendation: To improve the usefulness of the budget request for IRS, the Commissioner of Internal Revenue should report in its budget justification how savings beyond projections were used. The amount of explanation provided should correspond to the amount of the savings.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: On February 13, 2012, IRS reported how savings beyond projections were used in its fiscal year 2013 Congressional Justification. Specifically, IRS reported that it realized $277.2 million and 960 full-time equivalents (FTEs) in actual savings for fiscal year 2011 - $86.5 million and 488 FTEs more than projected - and included explanations of how such savings were realized.

    Recommendation: To improve the usefulness of the budget request for IRS, the Commissioner of Internal Revenue should further expand efforts to systematically identify savings and efficiencies as part of its budget development process on a periodic, but not necessarily annual, basis.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: In preparing its fiscal year 2012 and 2013 budgets, IRS budget officials addressed our recommendation by examining base operations and identifying savings and efficiencies through reductions to full-time equivalents and other costs such as travel, training, consulting services, IT investments, and space optimization. Officials stated that they plan to continue these systematic reviews for the foreseeable future.

    Recommendation: To improve the usefulness of the budget request for IRS, the Commissioner of Internal Revenue should include measures of cost and schedule performance for major IT systems in Operations Support, such as it does for Business Systems Modernization (BSM).

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: On February 13, 2012, IRS provided measures of cost and schedule performance for major IT systems listed under Operations Support in its fiscal year 2013 Congressional Budget Justification.

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