Internal Revenue Service: Observations on IRS's Operations, Planning, and Resources

What GAO Found

The Internal Revenue Service’s (IRS) fiscal year 2015 appropriation ($10.9 billion) and staffing levels (81,279 full-time equivalents, or FTE) continue a decline that has occurred over several years and are now below fiscal year 2009 levels. Since fiscal year 2010, IRS’s annual appropriation has declined by $1.2 billion, and staffing has fallen by about 11,000 FTEs since fiscal year 2009 while the agency’s workload has increased for reasons such as a surge in identity theft related refund fraud and the implementation of key provisions of the Patient Protection and Affordable Care Act (PPACA). In response to budget cuts, IRS has taken steps to reduce staffing costs including extending a hiring freeze and limiting seasonal employment. According to the Commissioner of Internal Revenue, IRS may also furlough employees for 2 days later in fiscal year 2015. IRS is concerned about filing season performance, and anticipates it may face some challenges processing returns that claim the Premium Tax Credit—an advanceable, refundable tax credit designed to help eligible individuals and families with low or moderate income afford health insurance purchased through the Health Insurance Marketplace. As a result, IRS expects that some refunds may be delayed. IRS also projects significant declines in telephone level of service—only 38 percent of taxpayers who seek help from a live assistor will receive it and wait times will average almost one hour. IRS cites resource constraints and increased call volume as primary factors contributing to the decline in telephone performance.

IRS’s fiscal year 2016 budget request is $12.9 billion. This amount is almost $2 billion (18 percent) more than IRS’s fiscal year 2015 appropriation, and $667 million above the discretionary spending cap. About half of the requested increase is for operations support. The largest requested FTE increase is about 4,000 FTEs for enforcement.  The budget request includes $490 million and 2,539 FTEs to implement PPACA.

Additional funding is not the only solution to performance declines across IRS. Although resources are constrained, IRS has flexibility in how it allocates resources to ensure that limited resources are utilized as effectively as possible. This environment of constrained resources also highlights the importance of strategically managing operations to make tough choices about which services to continue providing and which services to cut. IRS has begun to plan more strategically. For example, in 2014 the agency established the Planning, Programming and Audit Oversight office to improve coordination of resource decision making and long-term strategic planning. This was, in part, a response to GAO’s June 2014 recommendation that IRS develop a long-term strategy to address operations amidst an uncertain budget environment. Further, IRS is developing a 6-year initiative to better understand how taxpayers want to interact with the agency. The initiative’s overall goal is to provide taxpayers with secure self-service options and to improve taxpayer service. GAO has previously recommended additional actions IRS could take to improve operations, plan more strategically, and improve revenue collection. These have included recommendations that IRS develop a long-term strategy to improve web services provided to taxpayers. As of February 2015, IRS officials reported that the agency does not have a separate online services strategy. Rather, this strategy is a key component of IRS’s Service on Demand strategy, which aims to deliver service improvements across different taxpayer interactions such as individual account assistance, refunds, identity theft, and billings and payments.

Why GAO Did This Study

GAO has reported that, in recent years, IRS has absorbed significant budget cuts and struggled to provide quality service. During the filing season, IRS processes millions of tax returns, issues refunds, and provides telephone and other services to millions of taxpayers. 

GAO’s objectives were to describe (1) trends in IRS’s budget and operations for fiscal years 2009 through 2015, including the 2015 filing season to date; (2) key aspects of the President’s fiscal year 2016 budget request for IRS; and (3) IRS’s actions to strategically manage operations.

To answer these objectives, GAO analyzed IRS data and documents, such as the fiscal year 2016 congressional justification, and interviewed IRS officials.