User Fees: Additional Guidance and Documentation Could Further Strengthen IRS's Biennial Review of Fees
GAO-12-193
Published: Nov 22, 2011. Publicly Released: Nov 22, 2011.
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Highlights
The President's fiscal year 2012 budget proposal requests $13.6 billion to fund the Internal Revenue Service (IRS), including $204 million in spending funded through user fee collections. Well-designed and well-implemented user fees can reduce taxpayer burden by funding portions of IRS services that provide special benefits to users beyond what is normally provided to the public. As such, GAO was asked to (1) describe the types and amounts of IRS user fees and how IRS collects and uses them, (2) assess how IRS sets and reviews existing user fees, and (3) assess how IRS identifies additional areas where new fees could be justified. GAO reviewed relevant laws, guidance, and literature on user fee design and implementation. GAO reviewed IRS documents and cost estimates and interviewed IRS officials in the Chief Financial Officer's (CFO) office and program divisions.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Internal Revenue Service | The Commissioner of Internal Revenue should include certain fees in the biennial review that were previously omitted. |
Starting with its fiscal year (FY) 2011 biennial review of user fees, the Internal Revenue Service (IRS) included the art valuation user fee, which it had not reviewed since 1996. In February 2013, IRS increased this fee to reflect full cost. In its FY 2013 biennial user fee review, IRS included the other two fees that were previously omitted -- reproduction of tax returns and special statistical studies.
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| Internal Revenue Service | The Commissioner of Internal Revenue should develop supplemental guidance or tools that provide more detailed information on data and assumptions to include in cost estimates. |
The Internal Revenue Service (IRS) has revised the Internal Revenue Manual (IRM) to provide better guidance on documenting assumptions and data used in cost estimates of user fees. Changes include clarifying what should be included in labor cost and listing cost activities in a more reader-friendly format. The revisions were implemented in November 2012 and were used to guide the fiscal year (FY) 2013 biennial review of user fees.
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| Internal Revenue Service | The Commissioner of Internal Revenue should better document the factors considered in setting and reviewing existing user fees. |
In January 2014, the Internal Revenue Service (IRS) implemented user fee rate changes for certain Installment Agreement and Offer In Compromise fees. IRS updated its fiscal year (FY) 2011 biennial review report with the factors considered in setting these fee rates. For other fees, IRS finalized the FY 2013 biennial review report in November 2014 and included factors considered in proposing fee changes or keeping fees the same. Factors were based on the cost of providing the service for which the fee is charged, such as how much the cost had changed or may change, and the potential effect on improving taxpayer compliance.
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| Internal Revenue Service | The Commissioner of Internal Revenue should better document the decisions made in setting and reviewing existing user fees. |
In August 2013, the Internal Revenue Service (IRS) updated its fiscal year (FY) 2011 biennial review report with the final decisions about user fee rates. For example, IRS documented the approval from Office of Management and Budget for changing certain Installment Agreement and Offer In Compromise fees. Also, for other fees, IRS documented who approved the fee change proposal or when it was communicated to the public.
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| Internal Revenue Service | The Commissioner of Internal Revenue should provide clear, specific, and direct guidelines for IRS employees and managers to follow in identifying potential fee opportunities. |
Beginning in February 2012, the Internal Revenue Service (IRS) included a new section in budget formulation guidance to business units requiring them to provide information about potential user fee opportunities. The guidance included a template to help business units consider appropriate fee opportunities. Also, in November 2012, IRS revised the Internal Revenue Manual (IRM) to include more specific guidance for identifying potential user fee opportunities. The memo from IRS's Chief Financial Officer initiating the Fiscal Year 2013 biennial review of user fees also instructed business unit commissioners to evaluate activities for potential new fees.
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Topics
Budget outlaysCollection proceduresCost analysisDocumentationFeesFinancial analysisFinancial managementInstallment paymentsTaxpayersUser feesCost estimates