Tax Administration

This testimony discusses the administration's fiscal year 2000 budget request for the Internal Revenue Service (IRS) and the status of the 1999 tax filing season. For next year, the administration is requesting $8.2 billion and nearly 98,000 full-time equivalent positions for IRS--about the same as for fiscal year 1999. Even so, there are differences in how IRS plans to spend its fiscal year 2000 funds. For example, the request includes about $197 million for three critical initiatives--organizational modernization, implementation of the IRS Restructuring and Reform Act of 1998, and customer service training. IRS' current five-year cost estimate to make its information systems Year 2000 compliant is $1.3 billion--$345 million higher than its estimate a year ago. IRS is requesting $1.46 billion for information systems in fiscal year 2000. IRS' plans for spending those funds are consistent with earlier GAO recommendations and congressional direction. For fiscal year 2001, IRS is also asking for an advance appropriation of $325 million for its multi-year capital account for systems modernization. The agency has not adequately justified that request in accordance with federal information technology investment requirements. With respect to the 1999 filing season, GAO found that the accessibility and quality of IRS' telephone service has deteriorated considerably since last year; the number of individual income tax returns filed electronically continues to rise, although fewer returns are being filed by telephone; many taxpayers have made mistakes with the new child tax credit; and many systems for processing returns and remittances have been doing a good job.

GAO noted that: (1) for FY 2000, the administration is requesting about $8.2 billion and 97,862 full-time equivalent positions for IRS; (2) the request includes about $197 million for three initiatives--organizational modernization, implementation of the IRS Restructuring and Reform Act of 1998, and customer service training; (3) GAO cannot comment on the reasonableness of the requested funding because IRS: (a) is still developing plans that could affect the costs associated with organizational modernization; and (b) did not provide GAO with sufficient detail to explain how some of the estimates were developed; (4) congressional oversight of IRS' FY 2000 operations could be made more complex because: (a) the FY 2000 budget request is formatted in a way that may not reflect IRS' organizational structure in FY 2000; and (b) many of the performance measures included in the FY 2000 budget request are new and two important measures have yet to be developed; (5) both of these situations are understandable because IRS: (a) has not finished planning for the organizational modernization; and (b) is in the initial stages of a major effort to develop a more balanced set of performance measures; (6) IRS' 5-year cost estimate to make its information systems year 2000 compliant is $1.3 billion; (7) changes in business requirements for one of IRS' replacement projects and a decision to upgrade or replace hardware and software for minicomputers/fileservers and personal computers account for some of the increase; (8) for FY 2000, IRS is requesting $250 million for its year 2000 efforts; (9) about $60 million of the $123.4 million allocated to the Century Date Change Project Office covers funding requests for various activities that have not yet been approved by IRS; (10) IRS is requesting $1.46 billion for information systems in FY 2000; (11) IRS' plans for spending those funds are consistent with GAO's prior recommendations and related congressional direction; (12) IRS is also requesting for FY 2001 an advance appropriation of $325 million for its multiyear capital account for systems modernization; (13) IRS has not adequately justified that request in accordance with federal information technology investment requirements; and (14) with respect to the 1999 filing season, preliminary data show that: (a) the accessibility and quality of IRS' telephone service has deteriorated considerably since last year, although accessibility has improved in recent weeks; and (b) the number of individual income tax returns filed electronically is continuing to increase, although fewer returns are being filed by telephone.

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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