Tax Administration

The Administration is requesting $8.3 billion and 102,000 full-time equivalent staff years for the Internal Revenue Service (IRS) in fiscal year 1999--an increase of about $500 million and 1,500 full-time equivalent staff years over 1998. The most critical goal the agency faces this year and next is to make its computer systems Year 2000 compliant. IRS projects that it will need additional funds beyond the amount already available to achieve its goal. Included in the fiscal year 1999 request is $323 million for the information technology investments account. Because $246.5 million of that request has not been justified using analytical data or a verifiable estimating method, Congress may want to consider reducing the request by that amount. The request also includes $103 million to improve customer service. IRS plans to provide better telephone service, improve customer service training, strengthen the Taxpayer Advocate's Office, make it easier to get answers in person, and improve the clarity of forms and notices. Each year, IRS submits detailed budget estimates to support the administration's budget request. The usefulness of this information for oversight purposes is limited, however. For example, the estimates do not provide the kind of information needed to determine how much of the administration's request is for taxpayer assistance rather than enforcement. Interim data on the 1998 filing season suggest that IRS continues to make progress in two important areas: the use of electronic filing and the ability of taxpayers to reach IRS by telephone.

GAO noted that: (1) the administration is requesting about $8.3 billion and 102,000 full-time equivalent (FTE) staff years for IRS in FY 1999; (2) this is an increase of about $500 million and 1,500 FTEs over IRS' proposed operating level for FY 1998; (3) the most critical issue IRS faces this year and next is the need to make its computer systems century date compliant; (4) the goal is to implement all year 2000 efforts by January 1999 to allow time for testing; (5) IRS' latest estimates indicate that additional funds will be needed for FY 1998 beyond the amount already available; (6) IRS is also refining its budget estimates for FY 1999 in light of more current information; (7) for FY 1999, the administration is requesting $323 million for IRS' Information Technology Investments Account; (8) when combined with the $325 million appropriated for this account last year, the request would increase the account's total to $648 million; (9) because $246.5 million of the request has not been justified on the basis of analytical data or derived using a verifiable estimating method, GAO believes that Congress should consider reducing the administration's request by that amount; (10) the administration's request also includes $103 million to enhance customer service; (11) IRS plans, among other things, to provide better telephone service, improve customer service training, strengthen the Taxpayer Advocate's Office, make it easier to get answers in person, and improve the clarity of forms and notices--all areas that are critical to good customer service and that need improvement; (12) each year, IRS submits detailed budget estimates to support the administration's budget request; (13) in GAO's opinion, several factors limit the utility of those budget estimates for oversight purposes; (14) interim data on the 1998 filing season indicate that IRS is continuing to make progress in two important areas--the use of electronic filing and the ability of taxpayers to reach IRS by telephone; and (15) although it is too soon to assess the results of IRS' new initiative to reduce Earned Income Credit noncompliance, GAO does have some observations on two aspects of that initiative.