Tax Administration

The Internal Revenue Service's (IRS) 1996 appropriation totaled $7.3 billion--$860 million less than what the President had requested and $160 million less than IRS' fiscal year 1995 appropriation. To cover the resulting labor cost shortfall, IRS reduced travel and overtime costs, cash awards, hours for seasonal staff, and the number of nonpermanent staff. IRS wanted to ensure that it had enough staff to process returns and issue refunds, so most of the cuts were absorbed by compliance programs. The 1996 filing season seems to be going more smoothly than last year's in some key respects. Most importantly, IRS is delaying fewer refunds this year while it validates social security numbers and earned income credit claims. Also, taxpayers appear to be having an easier time reaching IRS by telephone this year, and more taxpayers are using alternative filing methods. However, concerns still exist. For example, the percentage of calls IRS answers compared with the number it receives is still low. Also, IRS closed many walk-in sites this year. IRS is requesting nearly $8 billion for fiscal year 1997. The largest increases are for compliance initiatives and Tax Systems Modernization, two areas that have been plagued by problems in the past. GAO doubts whether IRS can make effective use of Tax Systems Modernization development funds at this time.