Tax Administration

Halfway through the 1997 tax season, nearly 25 percent more tax returns had been filed electronically than at the same time last year. Meanwhile, of some 21.6 million attempts by taxpayers to reach the Internal Revenue Service (IRS) by phone, IRS answered more than 52 percent of the calls as of February 1997--up from about 21 percent in 1996. Regarding the agency's fiscal year 1997 and IRS' fiscal year 1998 budget request, Congress may wish to consider the following issues as it continues its oversight and appropriations activities: Should the $36 million that IRS will not be using for systems development in fiscal year 1997 be rescinded? What level of funding is needed to make IRS' information systems century date compliant, and will those changes be made in time? Does IRS need all of the money it is requesting in fiscal year 1998 for the Distributed Input System/Remittance Processing System replacement project? What level of funding should Congress provide for developing new information systems, given the lack of any justification for the $131 request for fiscal year 1998 and the $1 billion investment account for fiscal years 1998 and 1999? What reliable, outcome-oriented performance measures should be put in place to guide Congress and IRS in deciding what resources should be given to IRS and how best to allocate them among IRS's different programs?

GAO noted that: (1) IRS' FY 1997 appropriation act and accompanying conference report indicated that Congress was concerned about, among other things, the level of taxpayer service and IRS' lack of progress in modernizing its systems; (2) in response to congressional concerns about taxpayer service, IRS added more staff this year to answer the telephone and revised its procedures for handling more complicated calls for assistance; (3) as a result, IRS answered 52 percent of taxpayers' call attempts during the first 2 months of this filing season, compared with 21 percent during the same period last year; (4) this filing season has also seen a large increase in electronic filing; (5) to respond to congressional concerns about modernization, IRS realigned its FY 1997 information system spending plans; (6) GAO's review of eight projects showed that the spending plans appeared to be consistent with congressional direction; (7) however, IRS has since cancelled projects that it had estimated would cost a total of $36 million in FY 1997, and decided not to start any new systems modernization efforts until at least the second quarter of FY 1998; (8) included in IRS' budget request for FY 1998 is $131 million for developmental information systems; (9) in addition, the administration is proposing a $1-billion capital account for information technology investments at IRS; (10) neither the $131 million nor the $1 billion is supported by the type of analysis required by the Clinger-Cohen Act, the Government Performance and Results Act (GPRA), and the Office of Management and Budget; (11) IRS' budget request also includes $84 million for its turn-of-the-century date conversion effort; (12) there is reason to question the sufficiency of that amount because IRS has not yet determined its total conversion needs; (13) IRS expects the funding limits it faces in FY 1997 and anticipates for FY 1998 to continue until at least 2002; (14) fiscal constraints as well as long-standing concerns about the efficiency of IRS operations make consensus on IRS strategic goals and the measures for assessing progress against those goals critically important; (15) in recent years, Congress has put in place a statutory framework for accomplishing this; and (16) this framework includes as its essential elements the Chief Financial Officers Act, the Clinger-Cohen Act, and GPRA.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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