Internal Revenue Service
Assessment of Budget Justification for Fiscal Year 2011 Identified Opportunities to Enhance Transparency Gao ID: GAO-10-687R May 26, 2010The financing of the federal government depends importantly on the effectiveness of the Internal Revenue Service's (IRS) ability to administer the tax laws, including achieving its goals of providing taxpayer services to make voluntary compliance easier and enforcing tax laws to ensure everyone meets their obligations to pay taxes. The President requested $12.6 billion to fund IRS's fiscal year (FY) 2011 operations, including $5.8 billion for enforcement, $4.1 billion for operations support, and $2.3 billion for taxpayer services. Another $387 million is for IRS's Business Systems Modernization (BSM) program, IRS's ongoing effort to improve the agency's tax processing systems. In addition to its annual appropriation, IRS projects that it will also collect and have available to use about $339 million in offsetting collections, including user fees and reimbursable programs. IRS's Strategic Plan 2009-2013 guides budget and program decisions and emphasizes IRS's goals. It recognizes the increasing complexity of tax laws, changing business models, expanding use of electronic data and related security risks, accelerating growth in international tax activities, and growing human capital challenges. With all of these competing priorities for spending in IRS programs, limited resources make it important for Congress and other stakeholders to have sound and transparent information on how proposed spending is related to IRS achieving its goals and whether there are opportunities to revise its plans so that resources expended achieve maximum impact on desired service and enforcement results. Based on Congress' requests, our objectives were to (1) describe IRS's budget and staffing trends for FY 2007 through FY 2011, including funding from other budgetary resources; (2) assess the transparency of IRS's FY 2011 budget justification presentation; (3) assess efficiencies and savings projections in IRS's FY 2011 budget justification; (4) determine how program initiatives and legislative proposals in the budget justification could help IRS address the tax gap and improve taxpayer services; (5) compare the performance goals in the FY 2011 budget justification to performance of prior years; (6) determine whether there is an explicit connection between initiatives in the FY 2011 budget justification and IRS's strategic documents, including the Taxpayer Assistance Blueprint (TAB), the Advancing E-file Study, and the report, Reducing the Federal Tax Gap; (7) describe the justification for the proposed Business Systems Modernization (BSM) funding, including information security; and (8) highlight GAO's open matters for congressional consideration and recommendations for executive action that could result in potential savings or increased revenues.
The President's FY 2011 budget request for IRS is a 4 percent, or $487 million, increase over the FY 2010 appropriation. Total full time equivalents declined in FY 2008, but have since increased by an average of nearly 1 percent. Within the five appropriation accounts listed previously, IRS provides the total funding for each budget activity, but provides only descriptions of the program activities that comprise them. IRS requests over $247 million to fund initiatives aimed at reducing the tax gap by nearly $2 billion. The budget justification lists 33 performance measures IRS officials and other stakeholders use to evaluate the agency's progress toward its goals of improving service and compliance. The justification includes a comparison of IRS's performance to previous years. Of the six performance measures we reviewed, three were clearly linked to funding and three were not. This lack of consistency is important when goals reflect noteworthy changes from previous performance levels and funding is impacted. Although initiatives in IRS's justification are guided by strategic documents there is no clear link between initiatives in IRS's strategic documents and its budget. IRS's BSM program was initiated in FY 1999. IRS received about $3 billion for BSM between FY 1999 and FY 2010. The President is requesting $387 million for BSM for FY 2011, which if approved, would bring the total BSM funding to date to almost $3.4 billion. The cornerstone of this modernization effort has been the development of the Customer Account Data Engine (CADE). CADE was intended to replace the Individual Master File, which is the legacy system that contains the agency's repository of taxpayer information. Prompted by several challenges confronting CADE--including that the approach to develop the system was more complex and taking longer than initially anticipated--the IRS Commissioner initiated a study of IRS's information technology (IT) systems modernization efforts.
RecommendationsOur 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.
Director: James R. White Team: Government Accountability Office: Strategic Issues Phone: (202) 512-5594GAO-10-687R, Internal Revenue Service: Assessment of Budget Justification for Fiscal Year 2011 Identified Opportunities to Enhance Transparency
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United States Government Accountability Office:
GAO:
May 2010:
Correspondence to Congressional Requesters:
Internal Revenue Service:
Assessment of Budget Justification for Fiscal Year 2011 Identified
Opportunities to Enhance Transparency:
GAO-10-687R:
United States Government Accountability Office:
Washington, DC 20548:
May 26, 2010:
The Honorable Richard J. Durbin:
Chairman:
The Honorable Susan Collins:
Ranking Member:
Subcommittee on Financial Services and General Government:
Committee on Appropriations:
United States Senate:
The Honorable John Lewis:
Chairman:
The Honorable Charles W. Boustany, Jr.
Ranking Member:
Subcommittee on Oversight:
Committee on Ways and Means:
House of Representatives:
The financing of the federal government depends importantly on the
effectiveness of the Internal Revenue Service's (IRS) ability to
administer the tax laws, including achieving its goals of providing
taxpayer services to make voluntary compliance easier and enforcing
tax laws to ensure everyone meets their obligations to pay taxes. The
President requested $12.6 billion to fund IRS's fiscal year (FY) 2011
operations, including $5.8 billion for enforcement, $4.1 billion for
operations support, and $2.3 billion for taxpayer services. Another
$387 million is for IRS's Business Systems Modernization (BSM)
program, IRS's ongoing effort to improve the agency's tax processing
systems. In addition to its annual appropriation, IRS projects that it
will also collect and have available to use about $339 million in
offsetting collections, including user fees and reimbursable programs.
IRS's Strategic Plan 2009-2013 guides budget and program decisions and
emphasizes IRS's goals. It recognizes the increasing complexity of tax
laws, changing business models, expanding use of electronic data and
related security risks, accelerating growth in international tax
activities, and growing human capital challenges. With all of these
competing priorities for spending in IRS programs, limited resources
make it important for Congress and other stakeholders to have sound
and transparent information on how proposed spending is related to IRS
achieving its goals and whether there are opportunities to revise its
plans so that resources expended achieve maximum impact on desired
service and enforcement results.
Budget transparency refers to the disclosure of relevant fiscal
information in a timely and systematic manner. It recognizes that the
trade-offs inherent in a budget should be made clear, salient, and
understandable to budget decision makers and the public. Our prior
work has emphasized the importance of transparency in federal
agencies' budget presentations and its critical role in congressional
oversight.[Footnote 1] However, budget transparency and detailed
presentation must be balanced against the need for flexibility and
discretion to focus on the more significant or important components of
a budget.
Based on your requests, our objectives were to:
(1) describe IRS's budget and staffing trends for FY 2007 through FY
2011, including funding from other budgetary resources;
(2) assess the transparency of IRS's FY 2011 budget justification
presentation;
(3) assess efficiencies and savings projections in IRS's FY 2011
budget justification;
(4) determine how program initiatives and legislative proposals in the
budget justification could help IRS address the tax gap and improve
taxpayer services;
(5) compare the performance goals in the FY 2011 budget justification
to performance of prior years;
(6) determine whether there is an explicit connection between
initiatives in the FY 2011 budget justification and IRS's strategic
documents, including the Taxpayer Assistance Blueprint (TAB), the
Advancing E-file Study, and the report, Reducing the Federal Tax Gap;
(7) describe the justification for the proposed Business Systems
Modernization (BSM) funding, including information security; and:
(8) highlight GAO's open matters for congressional consideration and
recommendations for executive action that could result in potential
savings or increased revenues.
To address these objectives, we compared IRS's appropriations from FY
2007 through FY 2010 to the President's FY 2011 budget request;
reviewed and analyzed various documents, including supporting budget
and strategic planning documents; and interviewed IRS officials. Our
BSM work was based, in part, on our annual report on IRS's expenditure
plan.[Footnote 2] Based on previous tests of the major data systems
IRS uses to prepare its budget request, we determined the data in
those systems were sufficiently reliable for our purposes. We
conducted this performance audit from January 2010 through May 2010 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides that reasonable basis. For a more
detailed discussion of our scope and methodology, see enclosure I.
On May 14, 2010, we briefed Senate and House committee staff
separately on our observations of IRS's FY 2011 budget request. This
report transmits updated materials we used at the briefings, which are
reprinted in enclosure II.
Background:
The President's FY 2011 budget request for IRS is detailed in a series
of documents. Among them are two key documents: (1) the Congressional
Budget Justification, which provides a detailed justification of
proposed IRS spending, and (2) the President's Appendix for the
Department of the Treasury, which, among other things, includes
proposed text of appropriations language, describes IRS appropriations
in detail, and provides summary-level object classification, or
account level, information as prescribed by the Office of Management
and Budget (OMB).
In general, there are three levels to IRS's budget presentation.
First, there are the five IRS appropriation accounts, including
Taxpayer Services, Enforcement, Operations Support, BSM, and Health
Insurance Tax Credit Administration (HITCA). The second level includes
the budget activities for each appropriation account, which divide the
appropriation accounts into more basic functions. For example, for the
Taxpayer Services appropriation there are two budget activities, Pre-
filing Taxpayer Assistance and Education as well as Filing and Account
Services. For each budget activity there are multiple program
activities. For example, in the Filing and Account Services budget
activity there are currently eight program activities, such as
Submission Processing, Electronic Tax Administration, and the Joint
Operations Center, IRS's central call routing center.
IRS's budget presentation also includes program initiatives and
legislative proposals. Program initiatives are actions that IRS is
proposing to achieve its goals and are based on its existing
legislative authority. In the FY 2011 budget, there are eight new
program initiatives, one of which is to improve telephone level of
service.
Summary:
In summary, we made the following major points:
* The President's FY 2011 budget request for IRS is a 4 percent, or
$487 million, increase over the FY 2010 appropriation. About 51
percent of the increase is for enforcement initiatives. In addition to
its FY 2011 budget request, IRS funding includes multi-year
appropriation balances carried forward from pervious years. IRS also
has budget authority to use amounts collected from user fees and
reimbursable programs.
* IRS provides funding information at the appropriation account and
budget activity levels, and for new initiatives, but only descriptions
of the program activities. OMB guidance indicates that agencies should
provide funding information for program activities in the
justification when possible. However, according to IRS officials, due
to current restrictions in appropriations law, providing dollar
amounts for program activities would limit its flexibility to
reprogram funds once the budget is adopted.[Footnote 3] Still, IRS
could provide additional qualitative information that could highlight
new program activities or those that are proposed for either expansion
or reduction to increase transparency and demonstrate the agency's
priorities to congressional decision makers.
* The budget request includes $191 million in projected savings to
offset increases from pay raises and inflation; however, actual
savings may differ substantially. In the year following the budget's
implementation, IRS does not provide Congress and other stakeholders a
comparison of actual savings to the original projections. This may be
challenging as factors may change and data may be initially incomplete
since savings may take several years to fully realize. However,
without such information, the extent to which IRS realized all or part
of its $191 million projection is unknown.
* Under the proposed budget request, over $247 million is for program
initiatives aimed at reducing the tax gap by nearly $2 billion and
$45.9 million is for program initiatives to increase access to IRS
telephone assistors and improve IRS's Web site. IRS has provided some
return on investment (ROI) projections since FY 2008, and officials
are considering options to collect actual ROI data, as we previously
recommended.[Footnote 4] Further, the FY 2011 budget justification
cites 24 legislative proposals that target the tax gap and could
generate nearly $26 billion over the next 10 years. While Treasury has
projected revenues for the proposals if adopted, the budget
justification does not provide Congress with an indication of the
costs or resource needs associated with implementing any of the
proposals--information that could lead to more informed congressional
decision making.
* The budget justification includes 33 performance measures used to
evaluate the agency's progress toward important goals; however, IRS
does not provide even brief definitions for the measures, which could
improve clarity and assist users in the interpretation of results.
Further, while IRS links funding to substantive changes in some
performance measures, it does not do so for others. When applicable,
these linkages could help Congress determine how funding contributes
to operational goals and how targets align with resources.
- President's budget requests $20.9 million to achieve a 75 percent
Customer Service Representative Level of Service (LOS) target for FY
2011. However, based in part on a 14 percent decrease in assistor call
volumes during the FY 2010 filing season, IRS is already achieving a
75 percent LOS without the $20.9 million. Should assistor call volume
remain lower than anticipated, IRS has the opportunity to either
increase the LOS target or redirect funding to other priorities.
* IRS does not make explicit and transparent linkages between
initiatives in the budget justification and its strategic documents,
which direct and prioritize the use of resources to improve taxpayer
service and enforcement. Congress and others have expressed
considerable interest in IRS's strategies, and we have previously
noted the importance of linking goals in strategic plans with cross-
cutting initiatives. IRS officials agreed that such linkages could be
more explicit.
* The budget requests $387 million in funding for the BSM program, a
47 percent increase from FY 2010. About $152.1 million of the $387
million request is to begin implementing the new Customer Account Data
Engine (CADE 2), IRS's new strategy for managing individual taxpayer
accounts. The budget requests $39.1 million to continue the
development of Modernized Electronic Filing (MeF), which has benefits
to taxpayers and IRS, such as providing a format that improves IRS's
ability to provide taxpayers more timely information on the status of
their returns.
* Several of our open matters for congressional consideration or
recommendations for executive action have the potential to increase
revenues or savings by $3.9 billion if implemented. Details on
selected open matters and recommendations are provided in enclosure
III.
Conclusions:
The budget justification may be the single most important policy
document because it is where policy objectives are reconciled and
depicted in concrete terms. As a result, its transparency is critical.
Budget transparency is most effective when it is balanced with the
flexibility to focus on significant components of the budget and not
minute details. While IRS's current budget justification clearly
emphasizes such things as where the agency seeks funding for new
program initiatives and highlights their projected ROI, opportunities
exist to enhance the transparency of IRS's budget request, thus
increasing the utility of the document for Congress and other budget
decision makers as well as accountability to the public. This report
makes seven recommendations, most of which are aimed at increasing the
transparency of IRS's budget while striking the necessary balance.
Recommendations for Executive Action:
To enhance the transparency of IRS's budget request, we recommend the
Commissioner of Internal Revenue to direct agency officials to:
* provide additional information, which could be qualitative if
necessary to avoid losing existing reprogramming flexibility, about
the program activities in the budget justification to better indicate
IRS's priorities;
* provide Congress with information comparing projected savings to
actual savings in the year following the budget's implementation;
* coordinate with Treasury and provide more information about possible
costs or resource needs for legislative proposals in future budget
justifications;
* provide brief definitions of the performance measures that are
included in the budget justification;
* explain in the budget justification noteworthy changes in
performance goals that reflect changes from previous performance and
describe the impact on funding;
* continue to closely monitor assistor call volumes and, if demand is
projected to remain lower than original predictions, either increase
the LOS target or redirect some or all of the requested increase in
funding for telephone services to other priorities within the bounds
of IRS's authority; and:
* make explicit linkages between initiatives and proposals in the
budget and strategic documents.
Agency Comments and Our Evaluation:
IRS's Chief Financial Officer provided comments on our report via
email on May 21, 2010. She stated that IRS disagreed with our first
recommendation to provide additional information about the program
activities in the budget justification. She stated that the budget
justification already provides detailed information about funding
increases and presents performance measures used to evaluate IRS's
progress towards its goals. We agree that IRS provides information
about requested funding increases, which are often for new
initiatives. However, as our report notes, there is no crosswalk
showing how the funding increases would translate into changes in
budget categories, including program activities. Further, decreases in
program activities are not indicated. Similarly, performance data is
not linked to program activities and does not provide sufficient
information to indicate the agency's priorities or when a program is
being expanded or reduced. Because the budget activities can be as
large as $5 billion, providing additional information, qualitative if
necessary, would help the Congress or other stakeholders make more
informed decisions about IRS's use of resources.
Regarding our remaining six recommendations, IRS generally agreed with
each of them. However, for half of these the Chief Financial Officer
stated she was unclear as to what specific additional information was
needed in the justification to address the recommendation.
* Regarding our recommendation that the budget justification describe
noteworthy changes in performance goals that reflect changes from
previous performance and describe the impact on funding, she stated
that IRS already provides in each initiative request for additional
funds the increases to performance measures. IRS does describe
expected results for its new initiatives, such as return on investment
projections. However, as we reported, not all performance measures,
which are listed separately from initiatives in the budget
justification, were linked to funding. Without an explanation of the
changes to performance goals, especially when the changes are
noteworthy, Congress does not know the extent to which funding could
affect performance outcomes.
* Regarding our recommendation about the requested funding increase
for telephone LOS, she stated that IRS already monitors call volumes
and reallocates resources as needed. We agree that IRS officials
monitor call volumes; however, our recommendation was specific to
either redirect some or all of the requested funding increase or
increase the LOS goal should call volume remain lower than anticipated.
* Regarding our recommendation that IRS make explicit linkages between
initiatives and proposals in the budget and strategic documents, she
stated that IRS already does this, but that they would consider
expanding upon it in the future. As we reported, there is no clear
link between IRS's strategic documents and its budget justification.
Making these linkages more explicit would allow Congress and other
stakeholders to better understand the priority that IRS is giving to
its efforts to improve service and enforcement.
We plan to send copies of this report to the Chairman and Ranking
Members of other Senate and House committees and subcommittees that
have appropriation, authorization, and oversight responsibilities for
IRS. We are also sending copies to the Commissioner of Internal
Revenue, the Secretary of the Treasury, the Chairman of the IRS
Oversight Board, and the Director of the Office of Management and
Budget. Copies are also available at no charge on the GAO Web site at
[hyperlink, http://www.gao.gov].
If you or your staffs have any questions or wish to discuss the
material in this report further, please contact me at (202) 512-9110
or WhiteJ@gao.gov.
Contact points for our offices of Congressional Relations and Public
Affairs may be found on the last page of this report. GAO staff
members who made major contributions to this report are listed in
enclosure IV.
Signed by:
James R. White:
Director, Tax Issues:
Strategic Issues:
Enclosures:
I: Scope and Methodology:
II: Updated Briefing for Senate and House Committees:
III: Selected Open Matters for Congressional Consideration and
Recommendations for Executive Action with a Potential Financial Impact
for IRS as of March 31, 2010:
IV: GAO Contact and Staff Acknowledgments:
[End of section]
Enclosure I: Scope and Methodology:
To assess the President's fiscal year (FY) 2011 budget request for the
Internal Revenue Service (IRS), we analyzed IRS's budget justification
and supporting documents. To address our eight objectives, which were
previously cited, we did the following.
(1) We compared IRS's appropriations from FY 2007 through FY 2010 to
the budget request for FY 2011, and identified and examined funding
and other changes and reasons for changes via IRS interviews and
documentation reviews.
(2) We evaluated the budget presentation to identify opportunities for
enhanced transparency, confirming requirements with officials in the
Department of the Treasury. We also reviewed Office of Management and
Budget (OMB) guidelines and previous GAO work.
(3) We interviewed IRS officials, checked for savings resource plans,
and used OMB and GAO guidance to analyze the efficiencies and savings
estimates provided in the budget justification.
(4) We determined how initiatives and proposals in the budget
justification could help IRS address the tax gap and improve taxpayer
services by applying GAO's Budget Justification Review framework,
which is a guide to review and evaluate an agency's budget request.
Additionally, we analyzed return on investment (ROI) calculations and
compared investments with expected returns, and used prior GAO work
and OMB guidance to identify information IRS could provide to enhance
its legislative proposals. We also met with officials in the
Department of the Treasury to gain a broader understanding of their
revenue proposals in the General Explanations of the Administration's
FY 2011 Revenue Proposals and how certain proposals were highlighted
in IRS's justification.
(5) We compared IRS's FY 2011 performance goals in the budget
justification to performance and goals in previous years and examined
the extent to which changes in performance were linked to changes in
requested funding.
(6) We analyzed IRS's strategic documents, such as Phase 1 of the
Advancing E-File Study, the Taxpayer Assistance Blueprint (TAB), Phase
1 and Phase 2, and the Reducing the Federal Tax Gap report. We also
interviewed officials and other stakeholders on the consistency
between initiatives in IRS's strategic documents and those in the
budget justification.
(7) To provide information on Business Systems Modernization (BSM)
funding and information security, we relied primarily on our recent
BSM expenditure plan review, but also interviewed cognizant IRS
officials and reviewed various documents, particularly pertaining to
the new Customer Account Data Engine (CADE 2).[Footnote 5]
(8) Our open matters for congressional consideration and
recommendations for executive action came from our GAO High Risk and
Other Major Government Challenges: Major Cost Saving Opportunities Web
page and were reconciled to our public open recommendations database.
[Footnote 6] We interviewed IRS and internal stakeholders to determine
the status of our open matters and recommendations and their possible
impact on IRS's budget.
We also interviewed officials at IRS's National Office, including
officials in the Office of the Chief Financial Officer; the Office of
Research, Analysis, and Statistics; the Modernization, Information
Technology, and Security Services; and the headquarters of the Wage
and Investment Division in Atlanta. Based on previous tests of the
major data systems IRS uses to prepare its budget request, we
determined the data in those systems were sufficiently reliable for
our purposes.
We conducted this performance audit from January 2010 to May 2010 in
accordance with generally accepted government auditing standards.
Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our
findings and conclusions based on our audit objectives.
[End of Enclosure I]
Enclosure II: Updated Briefing for Senate and House Committees:
IRS's Budget and Staffing Trends, FY 2007 through FY 2011:
Our Objective:
Describe IRS's budget and staffing trends for FY 2007 through FY 2011,
including funding from other budgetary resources.
For more information, contact James White at (202) 512-9110
orwhitej@gao.gov.
FY 2011 Budget Request for IRS Is $12.6 billion, a 4 Percent Increase
Over the FY 2010 Budget:
The President's FY 2011 budget request is a 4 percent increase over
its FY 2010 appropriation (see table 1). The increase includes $454.7
million for program changes and $32.4 million for pay raises and
inflation adjustments. About 51 percent of the increase is for
enforcement initiatives, such as addressing offshore tax evasion and
noncompliance among corporate and high-wealth taxpayers.
Funding for IRS's BSM program is proposed to increase by 47 percent in
FY 2011 and funding for HITCA is proposed to increase by 22 percent in
FY 2011.
Table 1: FY 2007 through FY 2011 Appropriated and Proposed Funding
(Dollars in Millions):
Budget trends for each IRS appropriation account, from FY 2007 through
FY 2011, are shown below.
Appropriation: Enforcement;
FY 2007 enacted: $4,686;
FY 2008 enacted[A]: $4,780;
FY 2009 enacted[B]: $5,117;
FY 2010 enacted: $5,504;
FY 2011 requested: $5,797.
Appropriation: Taxpayer Services;
FY 2007 enacted: $2,138;
FY 2008 enacted[A]: $2,191;
FY 2009 enacted[B]: $2,293;
FY 2010 enacted: $2,279;
FY 2011 requested: $2,322.
Appropriation: Operations Support;
FY 2007 enacted: $3,545;
FY 2008 enacted[A]: $3,841;
FY 2009 enacted[B]: $3,867;
FY 2010 enacted: $4,084;
FY 2011 requested: $4,108.
Appropriation: BSM;
FY 2007 enacted: $213;
FY 2008 enacted[A]: $267;
FY 2009 enacted[B]: $230;
FY 2010 enacted: $264;
FY 2011 requested: $387.
Appropriation: HITCA;
FY 2007 enacted: $15;
FY 2008 enacted[A]: $15;
FY 2009 enacted[B]: $15;
FY 2010 enacted: $16;
FY 2011 requested: $19.
Appropriation: Total;
FY 2007 enacted: $10,597;
FY 2008 enacted[A]: $11,095;
FY 2009 enacted[B]: $11,523;
FY 2010 enacted: $12,146;
FY 2011 requested: $12,633.
Source: IRS data.
Note: Dollars are nominal and not adjusted for inflation and numbers
may not add due to rounding.
[A] FY 2008 includes supplemental funding of $202.1 million for
Economic Stimulus payments.
[B] FY 2009 excludes $118 million the Department of the Treasury
received to implement the American Recovery and Reinvestment Act
(Recovery Act), Pub. L. No. 111-5, 123 Stat. 115 (Feb. 17, 2009).
[End of table]
Total Full Time Equivalents (FTEs) Have Increased Since FY 2007:
Total FTEs declined in FY 2008, but have since increased by an average
of nearly 1 percent (see table 2). FTEs for Taxpayer Services have
decreased since FY 2009, in part due to efficiency savings generated
from electronic filing.
Table 2: IRS FY 2007 through FY 2010 FTEs and FY 2011 Projected FTEs:
Appropriation funding FTEs: Enforcement;
FY 2007: 48,307;
FY 2008: 47,596;
FY 2009: 48,952;
FY 2010: 51,200;
FY 2011 projected: 52,863.
Appropriation funding FTEs: Taxpayer Services;
FY 2007: 31,557;
FY 2008: 31,949;
FY 2009: 32,622;
FY 2010: 31,206;
FY 2011 projected: 30,668.
Appropriation funding FTEs: Operations Support;
FY 2007: 12,890;
FY 2008: 12,495;
FY 2009: 12,267;
FY 2010: 12,316;
FY 2011 projected: 12,384.
Appropriation funding FTEs: BSM;
FY 2007: 317;
FY 2008: 358;
FY 2009: 333;
FY 2010: 333;
FY 2011 projected: 489.
Appropriation funding FTEs: HITCA;
FY 2007: 17;
FY 2008: 17;
FY 2009: 15;
FY 2010: 15;
FY 2011 projected: 15.
Appropriation funding FTEs: Total;
FY 2007: 93,088;
FY 2008: 92,415;
FY 2009: 94,189;
FY 2010: 95,070;
FY 2011 projected: 96,419.
Source: IRS data.
[End of table]
IRS's Total Resources Available for Obligation Include Budget
Authority to Use Funding from User Fees and Reimbursable Programs:
In addition to annual appropriations, IRS funding includes multi-year
appropriation balances carried forward from previous years. Congress
also provided IRS with budget authority to use offsetting collections
from:
* user fees, such as enrolled agent, offer-in-compromise, installment
agreement, and other service fees; and;
* reimbursable programs, such as providing training and support to
other government agencies.
As shown in table 3, user fees account for $194 million, or 1.5
percent, of the total funding available to IRS. Reimbursable programs
account for $145 million, or 1.1 percent, of the total. Combined,
these two resources account for $339 million, or 2.6 percent, of the
total.
Table 3: IRS Total Resources Available for Obligation for FY 2011
(Dollars in Millions):
Appropriation account: Enforcement;
Budget amounts requested: $5,797;
Carryover balance: $0;
User fees: $0;
Reimbursable programs: $62;
Total: $5,859.
Appropriation account: Taxpayer Services;
Budget amounts requested: $2,322;
Carryover balance: $8;
User fees: $127;
Reimbursable programs: $34;
Total: $2,491.
Appropriation account: Operations Support;
Budget amounts requested: $4,108;
Carryover balance: $65[A];
User fees: $67;
Reimbursable programs: $49;
Total: $4,289.
Appropriation account: BSM;
Budget amounts requested: $387;
Carryover balance: $144[A];
User fees: $0;
Reimbursable programs: $0;
Total: $531.
Appropriation account: HITCA;
Budget amounts requested: $19;
Carryover balance: $0;
User fees: $0;
Reimbursable programs: $0;
Total: $19.
Appropriation account: Total;
Budget amounts requested: $12,633;
Carryover balance: $217;
User fees: $194;
Reimbursable programs: $145;
Total: $13,189.
Source: FY 2011 President's Budget, Appendix for the Department of the
Treasury.
[A] This is the amount in the budget justification. IRS officials
confirmed that the amount reported in the President's Appendix, $67
million, was an error due to rounding.
[B] This is the amount in the President's Appendix. IRS officials
confirmed that the amount reported in the justification, $32 million,
was an error.
[End of table]
Table 4 shows the balances that IRS projects to carry forward into FY
2012. Of the appropriations projected to be carried forward, $226
million, or 76 percent, is devoted to BSM. BSM appropriations are
available for 3 years.
Table 4: IRS Projected Balances Carried Forward to FY 2012 (Dollars in
Millions):
Balance carried forward to FY 2011:
Appropriations: $217[A];
User fees: $205.
Inflow (new budget authority):
Appropriations: $12,633;
User fees: $218.
Outflow (new obligations or account transfers):
Appropriations: -$12,551;
User fees: -$194.
Balance carried forward to FY 2012:
Appropriations: $299;
User fees: $229.
Source: FY 2011 President's Budget, Appendix for the Department of the
Treasury.
[A] This is the total carryover balance in table 3. IRS officials
confirmed that the total reported in the President's Appendix, $219
million, was an error due to rounding.
[End of table]
User fee collections are available for use for a variety of purposes
until expended to supplement IRS's appropriation accounts and
therefore can be carried forward to future years. The user fee
carryover balance for FY 2012 is projected to increase from $143
million in FY 2009 and $205 million in FY 2010.
Budget Presentation:
Our Objective:
Assess the transparency of IRS's FY 2011 budget justification
presentation.
What GAO Recommends:
IRS should provide additional information, which could be qualitative
if necessary to avoid losing existing reprogramming flexibility, about
the program activities in the budget justification to better indicate
IRS's priorities.
For more information, contact James White at (202) 512-9110
orwhitej@gao.gov.
IRS's Justification Does Not Show Priorities at the Program Activity
Level:
Within the five appropriation accounts listed previously, IRS provides
the total funding for each budget activity, but provides only
descriptions of the program activities that comprise them. For
example, as shown in table 5, IRS identifies 17 different program
activities within the Exam and Collections budget activity and
provides brief descriptions of each of them. However, IRS does not
report how the $5 billion will be distributed among the 17 program
activities, some of which are likely to have substantive funding.
Table 5: Enforcement Budget Request for FY 2011 (Dollars in Millions):
Budget activities under Enforcement Appropriations Account:
Investigations;
FY 2011 request: $652.
5 program activities, including Criminal Investigations and
International Investigations;
FY 2011 request: No funding data provided.
Budget activities under Enforcement Appropriations Account: Exam and
Collections;
FY 2011 request: $4,975.
17 program activities, including various payment and reporting
compliance programs, international exams and collections programs, and
appeals and litigation programs;
FY 2011 request: No funding data provided.
Budget activities under Enforcement Appropriations Account: Regulatory;
FY 2011 request: $171.
5 program activities, including General Legal Services, Rulings and
Agreements, and Office of Professional Responsibility;
FY 2011 request: No funding data provided.
Budget activities under Enforcement Appropriations Account: Total;
FY 2011 request: $5,797.
Note: Numbers may not add due to rounding.
[End of table]
OMB guidance indicates that agencies should provide funding
information for program activities in the justification when
possible.[Footnote 7] As we have previously reported, program-level
information increases Congress's ability to understand priorities and
make more informed decisions about the use of resources.[Footnote 8]
IRS officials told us that due to current restrictions in the
appropriations act, providing dollar amounts for program activities
would limit IRS's flexibility to reprogram funds once the budget is
adopted.[Footnote 9] However, additional information about priorities
could be provided without listing dollar amounts. For example, IRS
could provide qualitative information that highlights new program
activities or those that are proposed for either expansion or
reduction.
Efficiencies and Savings Projections:
Our Objective:
Assess efficiencies and savings projections in IRS's FY 2011 budget
justification.
What GAO Recommends:
IRS should provide Congress with information comparing projected
savings to actual savings in the year following the budget's
implementation.
For more information, contact James White at (202) 512-9110 or
whitej@gao.gov.
IRS's Justification Includes Proposed Efficiencies and Savings
Projections of $191 Million:
IRS proposes to reduce costs by $191 million through efficiencies and
savings, such as:
* reducing costs through process improvements in Information
Technology (IT) infrastructure ($75 million);
* reducing nonrecurring, one-time costs associated with the FY 2010
enforcement initiatives ($33 million);
* improving the effectiveness of existing acquisition practices and
reducing the cost of contracts ($25 million);
* increasing electronic filing, leading to fewer returns filed on
paper ($23 million). IRS proposes to reinvest $3 million of this
savings to fund one-time separation costs associated with the closure
of the Atlanta submission processing site; and;
* eliminating selective mailings of forms and publications ($20
million).
The proposal also includes other savings, such as reducing printing,
travel and training, amounting to $15 million. Savings included in the
budget justification are targeted to offset increases in non-pay
inflation, pay, and benefits.
IRS's Justification Does Not Report How Actual Savings Compare to
Projected Savings:
IRS does not provide Congress and other stakeholders a comparison of
actual savings to original projections in the year following the
budget's implementation. IRS officials said they employ a conservative
approach to projecting savings and noted that the economy,
legislation, or assumptions used to project savings may change. For
these reasons, IRS's conservative approach is consistent with our
guidance on projecting savings.[Footnote 10]
OMB guidance suggests that agencies determine whether anticipated
benefits or costs of programs have been realized.[Footnote 11] We
acknowledge that this may be challenging as factors may change and
data may be initially incomplete since savings may take several years
to be fully realized. However, without actual savings information,
Congress and other stakeholders will not know whether IRS realized all
or part of the $191 million in savings it projected for FY 2011 and
the extent to which funding is available or needed for other uses.
Also, by understanding the reasons for discrepancies between projected
and actual savings, IRS might be able to improve the accuracy of
future savings projections.
Program Initiatives and Legislative Proposals:
Our Objective:
Determine how program initiatives and legislative proposals in the
budget justification could help IRS address the tax gap and improve
taxpayer services.
What GAO Recommends:
IRS should coordinate with Treasury and provide more information about
possible costs or resource needs for legislative proposals in future
budget justifications.
For more information, contact James White at (202) 512-9110
orwhitej@gao.gov.
Program Initiatives Aim to Address the Tax Gap and Improve Taxpayer
Services:
IRS requests over $247 million to fund initiatives aimed at reducing
the tax gap by nearly $2 billion (see table 6). Tax law enforcement
has been on our high-risk list for many years.[Footnote 12] While we
did not assess the efficacy of the specific initiatives in the
proposed budget, we have previously stated that multiple strategies
are needed to address the tax gap and IRS should continue to pursue a
wide range of initiatives. Further, the three biggest initiatives are
addressing known areas of noncompliance. However, our past compliance
work indicates that not all strategies are successful.[Footnote 13]
Thus, it is important to compare results with initial projections to
determine the effectiveness of the initiatives.
Table 6: Program Initiatives, Costs, and Expected Benefits, Including
ROI:
Program initiative: Address business and individual international
compliance;
Costs ($/FTE): $121.1 million/781 FTE;
Expected benefits/ROI[A]: 4,864 additional examinations and $812.2
million in additional revenue. Projected ROI: 8.0 to 1.
Program initiative: Reduce the reporting compliance tax gap;
Costs ($/FTE): $77.7 million/700 FTE;
Expected benefits/ROI[A]: 305,600 additional audits and $659.6 million
in additional revenue. Projected ROI: 10.0 to 1.
Program initiative: Reduce the nonfiling and underpayment tax gap;
Costs ($/FTE): $38.2 million/406 FTE;
Expected benefits/ROI[A]: 166,500 additional case closures and $474.4
million in additional revenue. Projected ROI: 14.2 to 1.
Program initiative: Support for increased enforcement activities;
Costs ($/FTE): $5 million/65 FTE;
Expected benefits/ROI[A]: Help taxpayers resolve issues faster,
improve customer satisfaction. No projected ROI.
Program initiative: Maintain Recovery Act staffing;
Costs ($/FTE): $5.5 million/31 FTE;
Expected benefits/ROI[A]: Extend IRS staffing resources received in
the Recovery Act to administer ongoing Recovery Act bond provisions.
No projected ROI.
Source: IRS data.
[A] Expected benefits are estimates determined by IRS.
[End of table]
The budget request includes $45.9 million to fund initiatives aimed at
increasing telephone level of service and improving the IRS.gov Web
site (see table 7). (The telephone, or Customer Service
Representative, level of service initiative is discussed in greater
detail later in this report.) Our recent filing season report
highlighted deterioration in telephone service and the importance of
improving IRS's Web site to provide a very low cost alternative for
answering taxpayers' questions.[Footnote 14]
Table 7: Program Initiatives, Costs, and Expected Benefits:
Program initiative: Improve IRS.gov;
Costs ($/FTE): $25 million/0 FTE;
Expected benefits[A]: Replace infrastructure that has reached its end-
of-life or end of support period; allow IRS.gov to meet changing needs
and rising customer expectations, and increase customer satisfaction;
and establish user experience standards and techniques to make
improvements to the content and applications in the new Web
environment.
Program initiative: Increase Telephone Level of Service (LOS);
Costs ($/FTE): $20.9 million/0 FTE;
Expected benefits[A]: Improve access to IRS telephone assistors and
help address the increasing demand for services.
Source: IRS data.
[A] Expected benefits are estimates determined by IRS. Unlike
enforcement-related initiatives, IRS has not developed ROI data for
taxpayer services initiatives in the FY 2011 budget justification.
[End of table]
IRS Is Considering Options for Collecting Actual ROI Data:
Beginning in FY 2008, IRS provided ROI information about projected
costs and potential revenues of new enforcement initiatives. In the FY
2011 budget justification, IRS provided actual ROI data from its
combined enforcement programs from FY 2002 through FY 2009. IRS is
also considering options to collect actual ROI data to compare with
projections, as we previously recommended.[Footnote 15] However, IRS
has yet to provide ROI data for existing enforcement programs.
[Footnote 16] Such ROI information provides important benchmarks
against which to assess the effectiveness of new initiatives.
IRS's Justification Does Not Provide Estimates for Costs or Resource
Needs for Legislative Proposals:
IRS's FY 2011 budget justification includes 24 legislative proposals
provided by the Department of the Treasury that aim to reduce the tax
gap and could generate nearly $26 billion over the next 10 years.
[Footnote 17] Our past work is directly tied to 3 of these legislative
proposals, as shown in table 8. We did not evaluate each legislative
proposal, and some may be more effective than others. As previously
stated, it is important to compare actual results with initial
projections to determine the effectiveness of any adopted proposals.
According to OMB guidance, agencies should include estimates of the
costs of implementing or administering any proposed legislation in
their budget justifications; however, IRS does not provide such
information in its justification.[Footnote 18] Further, without any
information on the administrative costs of implementing the proposals,
Congress is left at a disadvantage when weighing proposals.
Table 8: Selected Legislative Proposals from the FY 2011 Budget
Justification Consistent with Prior GAO Recommendations and Their
Projected Revenue, FY 2011 through FY 2020 (Dollars in Millions):
Selected proposals: Require information reporting on payments to
corporations[A];
Projected revenue: $9,154.
Selected proposals: Increase certainty with respect to worker
classification[B];
Projected revenue: $7,343.
Selected proposals: Require information reporting for rental property
expense payments[C];
Projected revenue: $3,120.
Source: Department of the Treasury, General Explanations of the
Administration's Fiscal Year 2011 Revenue Proposals (Washington, D.C.:
February 2010).
[A] See GAO, Tax Gap: IRS Could Do More to Promote Compliance by Third
Parties with Miscellaneous Income Reporting Requirements, GAO-09-238
(Washington, D.C.: January 2009). This proposal was recently enacted
the Patient Protection and Affordable Care Act, Pub. L. No. 111-148, §
9006, 124 Stat. 119 (Mar. 23, 2010).
[B] See GAO, Employee Misclassification: Improved Coordination,
Outreach, and Targeting Could Better Ensure Detection and Prevention,
GA0-09-717 (Washington, D.C.: August 2009).
[C] See GAO, Tax Gap: Actions That Could Improve Rental Real Estate
Reporting Compliance, GAO08-956 (Washington, D.C.: August 2008).
[End of table]
Developing precise cost estimates for legislative proposals may be
premature, particularly for proposals early in design However, in
these cases other meaningful information could still be provided, such
as a preliminary, approximate cost estimate or a description of
resource needs (e.g., new information systems, additional staff, or
specialized training). When costs are expected to be nominal, such
information would be useful as well.
IRS Performance Goals:
Our Objective:
Compare the performance goals in the FY 2011 budget justification to
performance of prior years.
What GAO Recommends:
IRS should provide brief definitions of the performance measures that
are included in the budget justification.
For more information, contact James White at (202) 512-9110
orwhitej@gao.gov.
IRS's Justification Includes Selected Performance Measures:
The budget justification lists 33 performance measures IRS officials
and other stakeholders use to evaluate the agency's progress toward
its goals of improving service and compliance. The justification
includes a comparison of IRS's performance to previous years.
Performance measures showing noteworthy variations in performance are
in table 9.
Table 9: Selected IRS Performance Measure Trends, FY 2009 through FY
2011:
Performance measure: Customer service representative level of service
(LOS);
Definition (not included in budget justification)[A]: Number of toll-
free callers that either speak to a CSR or receive automated
informational messages divided by the total number of attempted calls;
FY 2009 actual: 70.0%;
FY 2010 planned: 71.0%;
FY 2011 planned: 75.0%.
Performance measure: Customer contacts resolved per year;
Definition (not included in budget justification)[A]: Number of
customer contacts resolved in relation to staff years expended;
FY 2009 actual: 12,918;
FY 2010 planned: 9,398;
FY 2011 planned: 10,181.
Performance measure: Percent of individual returns processed
electronically;
Definition (not included in budget justification)[A]: Percentage of
electronically filed individual tax returns divided by the total
individual returns filed;
FY 2009 actual: 65.9%;
FY 2010 planned: 70.2%;
FY 2011 planned: 81.0%.
Performance measure: Taxpayer self-assistance rate;
Definition (not included in budget justification)[A]: Percentage of
taxpayer assistance requests resolved using self-assisted automated
services;
FY 2009 actual: 69.3%;
FY 2010 planned: 61.3%;
FY 2011 planned: 62.7%.
Performance measure: Automated underreporter (AUR) efficiency;
Definition (not included in budget justification)[A]: Total number of
cases closed divided by the total FTEs;
FY 2009 actual: 1,905;
FY 2010 planned: 1,868;
FY 2011 planned: 1,945.
Performance measure: Tax-Exempt/Government Entity (TE/GE)
determination case closures;
Definition (not included in budget justification)[A]: Number of
closures in the Employee Plans or Exempt Organizations Determination
programs;
FY 2009 actual: 96,246;
FY 2010 planned: 140,465;
FY 2011 planned: 99,491.
Source: IRS and other data.
[A] We obtained the definitions from
http://www.treas.gov/irsob/measures/.
[End of table]
IRS's Justification Lacks Definitions for Performance Measures:
Definitions for IRS's performance measures are not included in the
budget justification and must be obtained from other sources. Our
previous work indicates that a key attribute of a successful
performance measure is that it is clearly stated and the name and
definition are consistent with the methodology used to calculate it.
[Footnote 19]
According to IRS officials, definitions were omitted from the budget
justification based on concerns about the length of the document, but
brief definitions could be added. Measures that do not provide clear
information about program performance might lead to misinterpretation
of results or expectations as well as failure to take proper action to
resolve performance problems.
Half of Performance Measures Reviewed Were Linked to Funding in FY
2011 Justification:
What GAO Recommends:
IRS should explain in the budget justification noteworthy changes in
performance goals that reflect changes from previous performance and
describe the impact on funding.
In addition, IRS should continue to closely monitor assistor call
volumes and, if demand is projected to remain lower than original
predictions, either increase the LOS target or redirect some or all of
the requested increase in funding for telephone services to other
priorities within the bounds of IRS's authority.
Of the six performance measures we reviewed, three were clearly linked
to funding and three were not. This lack of consistency is important
when goals reflect noteworthy changes from previous performance levels
and funding is impacted. Those that were linked to funding include:
Customer Service Representative LOS - The FY 2011 LOS target is a 5.6
percent increase over 71 percent in FY 2010. IRS projects that an
additional $20.9 million will enable it to achieve a 75 percent LOS
goal. This improvement is linked to an increase of $11.9 million
(without which the LOS target would be 72 percent) and a $9 million
reallocation from the Taxpayer Advocate Service and the Low Income Tax
Credit, Tax Counseling for the Elderly, and Volunteer Income Tax
Assistance programs (without which the target would be 74 percent).
Percent of Individual Returns Processed Electronically - The FY 2011
target is a 15.4 percent increase over 70.2 percent in FY 2010. IRS
projects that increased electronic filing will generate a savings of
$22.8 million as a result of the enactment of the Worker,
Homeownership, and Business Assistance Act of 2009.[Footnote 20]
AUR Efficiency - The FY 2011 target is a 4.1 percent increase over
1,868 cases closed in FY 2010. IRS is requesting an investment of
$10.6 million and 116 FrEs for the AUR program and projects that an
additional 234,000 individual return audits will generate $225.7
million in revenue once new hires reach their full potential in FY
2013.
Three performance measures not linked to funding are: (1) Customer
Contacts Resolved Per Staff Year; (2) Taxpayer Self-Assistance Rate;
and (3) TE/GE Determination Case Closures.
According to IRS and Treasury officials, performance measures that
focus on assisted rather than automated services are more easily
linked to the budget justification. However, clear linkages between
performance goals and funding can help determine how funded activities
contribute to operational goals and specific measures. These linkages
can also illustrate how targets align with funding and how efficiently
resources are used. As the budget currently reads, Congress does not
know the extent to which funding will affect performance outcomes.
However, according to IRS officials, changes to performance measures
may not impact funding in all cases. In these circumstances, IRS could
provide a brief explanation of the performance change, indicating that
funding was not a factor.
Opportunity to Revise Performance Target or Redirect Funds:
When funding is clearly linked to performance measures, it facilitates
the ability of management to monitor and take action when
circumstances change. IRS projects that $20.9 million will enable it
to achieve a 75 percent LOS target for FY 2011. However, based in part
on a 14 percent decrease in calls answered by live assistors during
the FY 2010 filing season, IRS is already achieving a 75 percent LOS
without the $20.9 million. Should assistor call volumes remain lower
than anticipated, IRS has the opportunity to either increase the LOS
target or redirect some or all of the requested funding to other
priorities within the bounds of IRS's authority. IRS budget officials
told us that any decision to revise the target or redirect funding
would be an executive management decision.
Strategic Documents:
Our Objective:
Determine whether there is an explicit connection between initiatives
in the FY 2011 budget justification and IRS's strategic documents,
including the Taxpayer Assistance Blueprint (TAB); the Advancing E-
File Study; and the report, Reducing the Federal Tax Gap.
What GAO Recommends:
IRS should make explicit linkages between initiatives and proposals in
the budget and strategic documents.
For more information, contact James White at (202) 512-9110 or whitej@
gao.gov.
IRS's Justification Does Not Make Explicit Linkages between
Initiatives in the Budget and Its Strategic Documents:
Although initiatives in IRS's justification are guided by strategic
documents such as the TAB; the Advancing E-File Study; and the report,
Reducing the Federal Tax Gap, there is no clear link between
initiatives in IRS's strategic documents and its budget.
According to OMB guidance and our previous work, it is important to
link goals communicated in strategic plans with cross-cutting
initiatives, such as those listed in IRS's TAB.[Footnote 21] Further,
Congress has expressed considerable interest in strategic documents,
particularly TAB, in improving service and enforcement.
According to IRS, its strategic documents provide guiding principles
that resonate throughout the budget. Table 10 shows how IRS's
strategic documents inform several initiatives in the FY 2011 budget
justification. The TAB, for example, lists more than 50 initiatives
for service improvement. IRS goes as far as noting those initiatives
that are funded and those that are not and need additional funding to
be operational. This information, even presented at a higher level, is
not linked or clearly presented in the justification. IRS officials
agreed that such linkages could be more explicit.
Table 10: Linkages among Selected IRS Strategic Documents and the FY
2011 IRS Budget Justification:
IRS strategic document: Taxpayer Assistance Blueprint: Provides a plan
for improving service to taxpayers and guidance for IRS budget and
resource allocation decisions;
Related initiatives in the FY 2011 budget justification:
* Improve IRS.gov;
* Increase telephone LOS.
IRS strategic document: Advancing E-File Study: Collects, synthesizes,
and analyzes data on the IRS electronic file program to help IRS meet
the congressionally set goal of an 80 percent electronic file rate;
Related initiatives in the FY 2011 budget justification:
* 81% electronic filing goal (increased 1 percent from the Advancing E-
File Study goal).
IRS strategic document: Reducing the Federal Tax Gap: Outlines steps
that IRS will take to increase voluntary compliance and reduce the tax
gap;
Related initiatives in the FY 2011 budget justification:
* Reduce the tax gap;
* Continue migration from aging tax administration system.
Source: IRS data.
[End of table]
Without an explicit and transparent connection between IRS's strategic
documents and the budget request, Congress and other stakeholders may
not be able to understand the priority that IRS is giving to its
efforts to improve service and enforcement.
Business Systems Modernization (BSM):
Our Objective:
Describe the justification for the proposed BSM funding, including
information security.
For more information, contact James White at (202) 512-9110 or
whitej@gao.gov or David Powner at (202) 512-9286 or pownerd@gao.gov.
The President Requests $387 Million in FY 2011 for IRS's BSM Program:
IRS's BSM program was initiated in FY 1999. IRS received about $3
billion for BSM between FY 1999 and FY 2010. The President is
requesting $387 million for BSM for FY 2011, which if approved, would
bring the total BSM funding to date to almost $3.4 billion. The
cornerstone of this modernization effort has been the development of
the Customer Account Data Engine (CADE). CADE was intended to replace
the Individual Master File, which is the legacy system that contains
the agency's repository of taxpayer information. Prompted by several
challenges confronting CADE”including that the approach to develop the
system was more complex and taking longer than initially anticipated”
the IRS Commissioner initiated a study of IRS's IT systems
modernization efforts. The results of the study led IRS to refocus and
accelerate the completion of the modernized taxpayer account database
that had been part of CADE. The resulting strategy is referred to as
CADE 2.[Footnote 22]
About $152.1 Million Is Requested for CADE 2:
In addition to its $40 million request to fund the implementation of
tax law changes and the operations and maintenance of the current
CADE, IRS requests $152 million to begin migration of 140 million
individual taxpayer accounts into CADE 2, which will serve as the new
central repository of tax account information for individual taxpayers.
During the 2009 filing season, CADE processed about 40 million returns
on a daily processing cycle and issued 35 million refunds. This
accounted for about 29 percent of all returns processed. The remaining
returns were processed by legacy systems on a weekly processing cycle.
Daily processing allows IRS to:
* process returns between 1 and 8 days faster than the weekly
processing of legacy systems;
* provide direct deposit refunds to individual taxpayers who file
electronically in fewer than 10 days”on average 5 days faster than
with legacy systems, reducing taxpayers' reliance on refund
anticipation loans; and;
* have more up-to-date account information to resolve account issues
and make account adjustments.
By the 2012 filing season, IRS plans to have completed the initial
phase of CADE 2. In this initial phase, CADE 2 is expected to create a
modernized taxpayer database and move the processing of individual
taxpayer accounts from a weekly to a daily cycle. At that time, IRS
expects to continue to use current CADE to process about 40 million
returns on a daily cycle and begin processing the remaining 100
million returns that currently are processed on the legacy system on a
daily cycle as well.
About $39.1 Million Is to Continue the Development and Implementation
of Modernized Electronic Filing (MeF):
The budget requests funding to continue development and deployment of
the MeF, which is a Web-based platform that provides a standard filing
structure for all IRS return types. Since 2004, IRS has made many
corporate and individual tax forms available on the MeF platform. FY
2011 funding will allow IRS to start moving the 94X series of forms,
which includes annual and quarterly filings, to the MeF platform. When
implemented, IRS projects that more than 8 million 94X forms will be
filed through MeF.
Some of the key benefits of MeF for tax preparers and taxpayers
include error checking to ensure the accuracy of the tax return;
explanations for rejected returns; and the ability to submit all
necessary supporting documentation with tax returns. Some key benefits
for IRS include eliminating the need to manually match paper tax
return-related documents with electronically filed tax returns; making
tax return data needed for compliance purposes available sooner; and
offering tools and help-desk capabilities to provide more timely
information to taxpayers on the status of their return.
About $155.7 Million Is for Remaining BSM Activities:
IRS's FY 2011 budget justification also includes for BSM:
* $70.2 million to fund the staffing for IRS's BSM plan;
* $38.5 million to develop, test, deploy, operate, and monitor systems
in support of BSM projects, such as CADE 2 and MeF;
* $37 million to continue support of IRS's Architecture, Integration,
and Management program that provides the necessary technical framework
and direction for IRS's modernization effort; and;
* $10 million to fund a Management Reserve account to cover
unanticipated costs.
Security Weaknesses Are Still a Risk for BSM:
In November 2009 and March 2010, we reported that IRS continued to
make progress in correcting previously reported information security
weaknesses.[Footnote 23] However, previously and newly identified
weaknesses in internal controls over information security continue to
place IRS systems at risk. In addition, although IRS informed us that
it had corrected about 40 percent of the previously reported
weaknesses, we found that it had not fully implemented the remedial
actions for at least a third of those that it considered corrected”
while IRS has developed and implemented a process to address
deficiencies in its information security policies, procedures, and
practices, it did not sufficiently verify whether remedial actions
were implemented or effective in mitigating the vulnerability. In
written comments on our report, IRS stated that improving information
security continues to be a priority and noted accomplishments made
during FY 2009.
Open Matters for Congressional Consideration and Recommendations for
Executive Action:
Our Objective:
Highlight GAO's open matters for congressional consideration and
recommendations for executive action that could result in potential
savings or increased revenues.
For more information, contact James White at (202) 512-9110
orwhitej@gao.gov.
Selected Open Matters for Congressional Consideration and
Recommendations for Executive Action Could Result in $3.9 Billion in
Potential Revenues or Savings:
The GAO High, Risk and Other Major Government Challenges: Major Cost-
Saving Opportunities Web site:
(http://www.gao.gov/highrisk/opportunities/) cites reports with
matters or recommendations. The Tax Gap section of the Web site refers
to selected GAO products that include 36 open matters or
recommendations that, if implemented, could result in $3.9 billion in
increased revenues, increased savings, or an indirect financial
benefit. Projected financial benefits computed by the Department of
the Treasury are shown in table 11. A full list, with additional
information, is shown in enclosure III.
Table 11: Selected Open Matters for Congressional Consideration or
Recommendations for Executive Action with a Projected Potential
Financial Impact that Could Increase Savings or Increase Revenues if
Implemented:
Text of matter for congressional consideration or recommendation for
executive action: To provide clarity for which taxpayers with rental
real estate activity must report expense payments on information
returns and to provide greater information reporting, Congress may
wish to consider amending the Internal Revenue Code to make all
taxpayers with rental real estate activity subject to the same
information reporting requirements as other taxpayers operating a
trade or business. (GAO-08-956);
Potential financial impact: $3.1 billion over 10 years;
Management area: Improving rental real estate compliance.
Text of matter for congressional consideration or recommendation for
executive action: If the Acting Commissioner of Internal Revenue
determines that none of the options suggested in the report would be
cost effective and no other remedies are viable, then the Treasury
Secretary should inform Congress of this and provide Treasurys opinion
about whether the AEITC should be retained. (GAO-07-1110);
Potential financial impact: Almost $760 million over the next 10 years;
Management area: Addressing noncompliance with advance earned income
tax credit.
Source: GAO data with potential financial impact from the Department
of the Treasury's General Explanations of the Administration's FY 2011
Revenue Proposals (Washington, D.C.: February 2010).
[End of table]
Regarding the 36 open matters or recommendations with a potential
financial impact:
* 5 matters require congressional action and 31 recommendations
require IRS executive action;
* the matters and recommendations come from 14 different reports that
span from FY 2006 through FY 2009;
* 20 are enforcement-related that could reduce the tax gap and 16 are
taxpayer services-related that could improve tax administration; and;
* 16 are expected to increase tax revenues, 9 are expected to increase
both savings to IRS and tax revenues, and 11 are expected to have an
indirect financial impact by creating opportunities for action, such
as through the results of additional research, but not solely as a
result of implementing the matter or recommendation.
[End of Enclosure II]
Enclosure III: Selected Open Matters for Congressional Consideration
and Recommendations for Executive Action with a Potential Financial
Impact for IRS, as of March 31, 2010:
The following two tables contain our selected open matters and
recommendations. Open matters refer to instances where congressional
action is needed for implementation and open recommendations are
instances where IRS executive action would be required. These open
matters and recommendations are organized by their potential impact on
IRS's Enforcement or Taxpayer Services appropriations. The tables
include 36 open matters and recommendations. These matters and
recommendations are grouped by report and sorted in reverse
chronological order, which spans from FY 2009 to FY 2006.
For each open matter and recommendation, information is included
regarding the potential financial impact the matter or recommendation
could have once adopted or implemented. When possible, the potential
financial impact was quantified into a specific dollar amount.
However, for most of the open matters and recommendations, a specific
dollar amount was not available. Nevertheless, these recommendations
are categorized by type of potential financial impact, including a
potential for increased savings, increased revenues, increased savings
and revenues, or an indirect financial benefit. Indirect financial
benefits may lead to potential financial impacts by creating
opportunities for further action, such as through the results of
additional research, but not solely as a result of implementing the
matter or recommendation. Additional information on each matter and
recommendation includes the management area that the report falls
under and the title of the applicable report and the report number,
which is prefaced by the fiscal year in which the report was issued.
Table 1: Selected Enforcement-related Open Matters for Congressional
Consideration or Recommendations for Executive Action with a Potential
Financial Impact That Could Reduce the Tax Gap if Implemented:
Matter for congressional consideration or recommendation for executive
action: To improve IRS's guidance to its examiners auditing the real-
estate tax deduction, the Commissioner of Internal Revenue should
revise the guidance to indicate that evidence of deductibility should
not rely on mortgage escrow statements, Forms 1098, and canceled
checks (which can be evidence of payment), and may require more than
reliance on a real-estate tax bill. (To see the current status of this
recommendation view: http://www.gao.gov/products/GAO-09-
521#recommendations);
Potential financial impact: Increase revenue;
Management area: Improving real estate tax compliance;
Title of report (fiscal year-GAO report number): Real Estate Tax
Deduction: Taxpayers Face Challenges in Determining What Qualifies;
Better Information Could Improve Compliance; (09-521).
Matter for congressional consideration or recommendation for executive
action: To improve IRS's guidance to its examiners auditing the real-
estate tax deduction, the Commissioner of Internal Revenue should
revise the guidance to require examiners to ask taxpayers to
substantiate the deductibility of the amounts claimed whenever they
are examining the real-estate tax deduction and they have reason to
believe that taxpayers have claimed nondeductible charges that are
large, unusual, or questionable. (To see the current status of this
recommendation view: http://www.gao.gov/products/GAO-09-
521#recommendations);
Potential financial impact: Increase revenue;
Management area: Improving real estate tax compliance;
Title of report (fiscal year-GAO report number): Real Estate Tax
Deduction: Taxpayers Face Challenges in Determining What Qualifies;
Better Information Could Improve Compliance (09-521).
Matter for congressional consideration or recommendation for executive
action: The Commissioner of the Internal Revenue Service should
determine why U.S. withholding agents and Qualified Intermediaries
report billions of dollars in funds flowing to unknown jurisdictions
and to unidentified recipients. Based on this determination, IRS
should take appropriate steps to recover any withholding taxes that
should have been paid and to better ensure that U.S. taxes are
withheld when account owners do not properly identify themselves. (To
see the current status of this recommendation view:
http://www.gao.gov/products/GAO-08-99#recommendations);
Potential financial impact: Increase revenue;
Management area: Improving withholding on income paid to offshore
recipients;
Title of report (fiscal year-GAO report number): Tax Compliance:
Qualified Intermediary Program Provides Some Assurance That Taxes on
Foreign Investors Are Withheld and Reported, but Can Be Improved (08-
99).
Matter for congressional consideration or recommendation for executive
action: To provide clarity for which taxpayers with rental real estate
activity must report expense payments on information returns and to
provide greater information reporting, Congress may wish to consider
amending the Internal Revenue Code to make all taxpayers with rental
real estate activity subject to the same information reporting
requirements as other taxpayers operating a trade or business. (To see
the current status of this recommendation view:
http://www.gao.gov/products/GAO-08-956#recommendations);
Potential financial impact: $3.1 billion over 10 years;
Management area: Improving rental real estate compliance;
Title of report (fiscal year-GAO report number): Tax Gap: Actions That
Could Improve Rental Real Estate Reporting Compliance (08-956).
Matter for congressional consideration or recommendation for executive
action: If Congress judges that the Oregon paid preparer regulatory
regime is likely to account for at least a modest portion of the
higher accuracy of Oregon federal tax returns and could be implemented
nationwide at a favorable cost compared to the potential benefits of
improved accuracy, it may wish to consider adopting a similar regime
nationwide. In light of the uncertainty about the extent to which
Oregon's regime improves tax return accuracy, if Congress enacts
national paid preparer legislation, it may wish to also require IRS to
evaluate its effectiveness. (To see the current status of this
recommendation view: http://www.gao.gov/products/GAO-08-
781#recommendations);
Potential financial impact: Increase revenue;
Management area: Improving accuracy of paid tax-return preparers;
Title of report (fiscal year-GAO report number): Tax Preparers:
Oregon's Regulatory Regime May Lead to Improved Federal Tax Return
Accuracy and Provides a Possible Model for National Regulation (08-
781).
Matter for congressional consideration or recommendation for executive
action: To provide better monitoring and more detailed guidance on
collection actions to be pursued against egregious payroll tax
offenders, to strengthen existing collection tools, and to develop
additional enforcement tools to effectively identify potential levy
sources, the Commissioner of Internal Revenue should develop a process
to monitor collection actions taken by revenue officers against
egregious payroll tax offenders to ensure collection actions
appropriately utilize all available collection tools contained in the
Internal Revenue Manual. (To see the current status of this
recommendation view: http://www.gao.gov/products/GAO-08-
617#recommendations);
Potential financial impact: Indirect financial benefit;
Management area: Unpaid payroll taxes;
Title of report (fiscal year-GAO report number): Tax Compliance:
Businesses Owe Billions in Federal Payroll Taxes (08-617).
Matter for congressional consideration or recommendation for executive
action: To provide better monitoring and more detailed guidance on
collection actions to be pursued against egregious payroll tax
offenders, to strengthen existing collection tools, and to develop
additional enforcement tools to effectively identify potential levy
sources, the Commissioner of Internal Revenue should review current
case prioritization and assignment practices to determine if IRS's
enforcement and collection procedures could be enhanced by requiring,
to the maximum extent feasible, businesses with egregious payroll tax
debt and the responsible owners/officers with a Trust Fund Recovery
Penalty (TFRP) assessment be treated as a single unified and
coordinated collection effort assigned to a single revenue officer.
(To see the current status of this recommendation view:
http://www.gao.gov/products/GAO-08-617#recommendations);
Potential financial impact: Indirect financial benefit;
Management area: Unpaid payroll taxes;
Title of report (fiscal year-GAO report number): Tax Compliance:
Businesses Owe Billions in Federal Payroll Taxes (08-617).
Matter for congressional consideration or recommendation for executive
action: To provide better monitoring and more detailed guidance on
collection actions to be pursued against egregious payroll tax
offenders, to strengthen existing collection tools, and to develop
additional enforcement tools to effectively identify potential levy
sources, the Commissioner of Internal Revenue should develop and
implement procedures to expeditiously file a Notice of Federal Tax
Lien against property as soon as possible after payroll tax debt is
identified (including cases in the queue awaiting assignment) and
ensure liens are filed on both businesses with unpaid payroll taxes
and owners/officers assessed a TFRP. (To see the current status of
this recommendation view: http://www.gao.gov/products/GAO-08-
617#recommendations);
Potential financial impact: Indirect financial benefit;
Management area: Unpaid payroll taxes;
Title of report (fiscal year-GAO report number): Tax Compliance:
Businesses Owe Billions in Federal Payroll Taxes (08-617).
Matter for congressional consideration or recommendation for executive
action: To provide better monitoring and more detailed guidance on
collection actions to be pursued against egregious payroll tax
offenders, to strengthen existing collection tools, and to develop
additional enforcement tools to effectively identify potential levy
sources, the Commissioner of Internal Revenue should develop and
implement procedures to monitor and report on revenue officers'
compliance with the new TFRP assessment time frames to ensure revenue
officers are making TFRP determinations and assessments in a timely
manner. (To see the current status of this recommendation view:
http://www.gao.gov/products/GAO-08-617#recommendations);
Potential financial impact: Increase revenue;
Management area: Unpaid payroll taxes;
Title of report (fiscal year-GAO report number): Tax Compliance:
Businesses Owe Billions in Federal Payroll Taxes (08-617).
Matter for congressional consideration or recommendation for executive
action: To provide better monitoring and more detailed guidance on
collection actions to be pursued against egregious payroll tax
offenders, to strengthen existing collection tools, and to develop
additional enforcement tools to effectively identify potential levy
sources, the Commissioner of Internal Revenue should develop
performance goals and measures that specifically evaluate the
accumulation of unpaid payroll taxes by businesses (especially
egregious businesses with over 20 quarters of payroll tax debt), the
extent and timeliness of TFRP assessments, and the effectiveness of
actions taken to collect unpaid payroll taxes and TFRP assessments.
(To see the current status of this recommendation view:
http://www.gao.gov/products/GAO-08-617#recommendations);
Potential financial impact: Indirect financial benefit;
Management area: Unpaid payroll taxes;
Title of report (fiscal year-GAO report number): Tax Compliance:
Businesses Owe Billions in Federal Payroll Taxes (08-617).
Matter for congressional consideration or recommendation for executive
action: To provide better monitoring and more detailed guidance on
collection actions to be pursued against egregious payroll tax
offenders, to strengthen existing collection tools, and to develop
additional enforcement tools to effectively identify potential levy
sources, the Commissioner of Internal Revenue should work with states
that have developed procedures for matching financial accounts to tax
debts to evaluate the potential for IRS to either develop and
implement similar measures or partner with states that currently have
that tool to leverage their efforts to assist revenue officers in
identifying a business's leviable assets. (To see the current status
of this recommendation view: http://www.gao.gov/products/GAO-08-
617#recommendations);
Potential financial impact: Increase revenue;
Management area: Unpaid payroll taxes;
Title of report (fiscal year-GAO report number): Tax Compliance:
Businesses Owe Billions in Federal Payroll Taxes (08-617).
Matter for congressional consideration or recommendation for executive
action: The Commissioner of Internal Revenue should extend the use of
return on investment (ROI) in future budget proposals to include major
enforcement programs. (To see the current status of this
recommendation view: http://www.gao.gov/products/GAO-08-
567#recommendations);
Potential financial impact: Indirect financial benefit;
Management area: Improving accuracy of paid tax-return preparers;
Title of report (fiscal year-GAO report number): Internal Revenue
Service: Fiscal Year 2009 Budget Request and Interim Performance
Results of IRS's 2008 Tax Filing Season (08-567).
Matter for congressional consideration or recommendation for executive
action: The Commissioner of Internal Revenue should develop a plan to
require a single identification number for paid preparers, including
the feasibility of options, benefits, and costs of those options, as
well as their usefulness for enforcement and research on paid preparer
behavior. (To see the current status of this recommendation view:
http://www.gao.gov/products/GAO-08-567#recommendations);
Potential financial impact: Increase savings and revenue;
Management area: Improving accuracy of paid tax-return preparers;
Title of report (fiscal year-GAO report number): Internal Revenue
Service: Fiscal Year 2009 Budget Request and Interim Performance
Results of IRS's 2008 Tax Filing Season (08-567).
Matter for congressional consideration or recommendation for executive
action: In order to provide IRS with additional flexibility in
combating offshore tax evasion schemes, Congress may wish to make an
exception to the 3-year civil statute of limitations assessment period
for taxpayers involved in offshore financial activity. Similar to
Congress's approach to unreported listed transactions, Congress may
wish to establish a process wherein IRS would identify the types of
offshore activity to which a statute exception would apply. (To see
the current status of this recommendation view:
http://www.gao.gov/products/GAO-07-237#recommendations);
Potential financial impact: Increase revenue;
Management area: Extending time for examinations of taxpayers with
offshore financial activity;
Title of report (fiscal year-GAO report number): Tax Administration:
Additional Time Needed to Complete Offshore Tax Evasion Examinations
(07-237).
Matter for congressional consideration or recommendation for executive
action: The Acting Commissioner of Internal Revenue should analyze
whether any of the following options could cost effectively and
significantly reduce Advanced Earned Income Tax Credit (AEITC)
noncompliance: (1) sending potentially noncompliant AEITC recipients
soft notices, such as to nonfilers whose Forms W-2 show that they
received AEITC and filers who misreported the amount they received or
whose SSN and name do not match; (2) requiring employers to verify the
SSN of employees seeking AEITC; or (3) requiring employers to submit
Form W-5 to IRS and IRS creating and maintaining a database for these
forms. (To see the current status of this recommendation view:
http://www.gao.gov/products/GAO-07-1110#recommendations);
Potential financial impact: Increase savings and revenue;
Management area: Addressing noncompliance with advance earned income
tax credit;
Title of report (fiscal year-GAO report number): Advance Earned Income
Tax Credit: Low Use and Small Dollars Paid Impede IRS's Efforts to
Reduce High Noncompliance (07-1110).
Matter for congressional consideration or recommendation for executive
action: To better identify the costs and implementation issues as well
as the likelihood for these or other options to reduce AEITC
noncompliance, where practical, the Acting Commissioner of Internal
Revenue should test the options suggested in the report to make a more
fully informed judgment about whether any would be worthwhile. (To see
the current status of this recommendation view:
http://www.gao.gov/products/GAO-07-1110#recommendations);
Potential financial impact: Increase savings and revenue;
Management area: Addressing noncompliance with advance earned income
tax credit;
Title of report (fiscal year-GAO report number): Advance Earned Income
Tax Credit: Low Use and Small Dollars Paid Impede IRS's Efforts to
Reduce High Noncompliance (07-1110).
Matter for congressional consideration or recommendation for executive
action: If the Acting Commissioner of Internal Revenue determines that
none of the options suggested in the report would be cost effective
and no other remedies are viable, then the Treasury Secretary should
inform Congress of this and provide Treasury's opinion about whether
the AEITC should be retained. (To see the current status of this
recommendation view: http://www.gao.gov/products/GAO-07-
1110#recommendations);
Potential financial impact: Almost $900 million over the next 10 years;
Management area: Addressing noncompliance with advance earned income
tax credit;
Title of report (fiscal year-GAO report number): Advance Earned Income
Tax Credit: Low Use and Small Dollars Paid Impede IRS's Efforts to
Reduce High Noncompliance (07-1110).
Matter for congressional consideration or recommendation for executive
action: Congress may wish to consider requiring IRS to periodically
adjust for inflation, and round appropriately, the fixed dollar
amounts of the civil penalties to account for the decrease in real
value over time and so that penalties for the same infraction are
consistent over time. (To see the current status of this
recommendation view: http://www.gao.gov/products/GAO-07-
1062#recommendations);
Potential financial impact: Increase revenue;
Management area: Adjusting civil penalties for inflation;
Title of report (fiscal year-GAO report number): Tax Compliance:
Inflation Has Significantly Decreased the Real Value of Some Penalties
(07-1062).
Matter for congressional consideration or recommendation for executive
action: The Secretary of the Treasury should ensure that the tax gap
strategy includes (1) a segment on improving sole proprietor
compliance that is coordinated with broader tax gap reduction efforts
and (2) specific proposals that constitute an integrated package. (To
see the current status of this recommendation view:
http://www.gao.gov/products/GAO-07-1014#recommendations);
Potential financial impact: Indirect financial benefit;
Management area: Improving sole proprietors' compliance;
Title of report (fiscal year-GAO report number): Tax Gap: A Strategy
for Reducing the Gap Should Include Options for Addressing Sole
Proprietor Noncompliance (07-1014).
Matter for congressional consideration or recommendation for executive
action: The Commissioner of Internal Revenue should conduct necessary
research to determine the extent to which paid preparers live up to
their responsibility to file accurate and complete tax returns based
on information they obtain from their customers. In conducting this
research, the Commissioner should consider whether the methodology we
used would provide IRS with a more complete understanding of paid
preparers' performance. (To see the current status of this
recommendation view: http://www.gao.gov/products/GAO-06-
563T#recommendations);
Potential financial impact: Indirect financial benefit;
Management area: Improving accuracy of paid tax-return preparers;
Title of report (fiscal year-GAO report number): Paid Tax Return
Preparers: In a Limited Study, Chain Preparers Made Serious Errors (06-
563T).
[End of table]
Source: GAO High Risk and Other Major Government Challenges: Major
Cost-Saving Opportunities Web site
(http://www.gao.gov/highrisk/opportunities/tax_gap/civil-
settlements.php); and GAO's Open Recommendations Database Web site
(http://gao.gov/recommendations/).
Table 2: Selected Taxpayer Services-related Open Matters for
Congressional Consideration or Recommendations for Executive Action
That Have a Potential Financial Impact That Could Improve Tax
Administration if Implemented:
Matter for congressional consideration or recommendation for executive
action: To enhance IRS's guidance to help individual taxpayers comply
in claiming the correct real-estate tax deduction, the Commissioner of
Internal Revenue should place a stronger disclaimer early in the
guidance to alert taxpayers to the need to check whether all charges
on their real-estate tax bill are deductible. (To see the current
status of this recommendation view: http://www.gao.gov/products/GAO-09-
521#recommendations);
Potential financial impact: Increase revenue;
Management area: Improving real estate tax compliance;
Title of report (fiscal year-GAO report number): Real Estate Tax
Deduction: Taxpayers Face Challenges in Determining What Qualifies;
Better Information Could Improve Compliance (09-521).
Matter for congressional consideration or recommendation for executive
action: To enhance IRS's guidance to help individual taxpayers comply
in claiming the correct real-estate tax deduction, the Commissioner of
Internal Revenue should clarify that real-estate tax bills may be
insufficient evidence of deductibility when bills include
nondeductible charges that are not clearly stated. (To see the current
status of this recommendation view: http://www.gao.gov/products/GAO-09-
521#recommendations);
Potential financial impact: Increase revenue;
Management area: Improving real estate tax compliance;
Title of report (fiscal year-GAO report number): Real Estate Tax
Deduction: Taxpayers Face Challenges in Determining What Qualifies;
Better Information Could Improve Compliance (09-521).
Matter for congressional consideration or recommendation for executive
action: To enhance IRS's guidance to help individual taxpayers comply
in claiming the correct real-estate tax deduction, the Commissioner of
Internal Revenue should provide information or a worksheet on steps to
take to get information about whether bills include nondeductible
charges and about what those charges are. (To see the current status
of this recommendation view: http://www.gao.gov/products/GAO-09-
521#recommendations);
Potential financial impact: Increase revenue;
Management area: Improving real estate tax compliance;
Title of report (fiscal year-GAO report number): Real Estate Tax
Deduction: Taxpayers Face Challenges in Determining What Qualifies;
Better Information Could Improve Compliance (09-521).
Matter for congressional consideration or recommendation for executive
action: To help ensure that individual taxpayers are getting the best
information and assistance possible from third parties on how to
comply with the real-estate tax deduction, the Commissioner of
Internal Revenue should reach out to mortgage services to discuss
adding disclaimers to their annual statements that some charges may
not be deductible. (To see the current status of this recommendation
view: http://www.gao.gov/products/GAO-09-521#recommendations);
Potential financial impact: Increase revenue;
Management area: Improving real estate tax compliance;
Title of report (fiscal year-GAO report number): Real Estate Tax
Deduction: Taxpayers Face Challenges in Determining What Qualifies;
Better Information Could Improve Compliance (09-521).
Matter for congressional consideration or recommendation for executive
action: To help ensure that individual taxpayers are getting the best
information and assistance possible from third parties on how to
comply with the real-estate tax deduction, the Commissioner of
Internal Revenue should reach out to local governments to explore
options for clarifying charges on the local tax bills or adding
disclaimers to these bills that some charges may not be deductible.
(To see the current status of this recommendation view:
http://www.gao.gov/products/GAO-09-521#recommendations);
Potential financial impact: Increase revenue;
Management area: Improving real estate tax compliance;
Title of report (fiscal year-GAO report number): Real Estate Tax
Deduction: Taxpayers Face Challenges in Determining What Qualifies;
Better Information Could Improve Compliance (09-521).
Matter for congressional consideration or recommendation for executive
action: To help ensure that individual taxpayers are getting the best
information and assistance possible from third parties on how to
comply with the real-estate tax deduction, the Commissioner of
Internal Revenue should reach out to tax-preparation software firms
and other tax preparers to ensure that they are alerting taxpayers
that some local charges are not deductible and that they are aware of
any enhancements to IRS's guidance. (To see the current status of this
recommendation view: http://www.gao.gov/products/GAO-09-
521#recommendations);
Potential financial impact: Increase revenue;
Management area: Improving real estate tax compliance;
Title of report (fiscal year-GAO report number): Real Estate Tax
Deduction: Taxpayers Face Challenges in Determining What Qualifies;
Better Information Could Improve Compliance (09-521).
Matter for congressional consideration or recommendation for executive
action: To learn more about where tax noncompliance is most likely,
the Commissioner of Internal Revenue should, if such local governments
are identified, obtain and use the information, including uses such as
compliance research focused on nondeductible charges;
outreach to such local governments to help them determine which
charges are deductible charges and help affected taxpayers correctly
compute the deduction;
targeted outreach to the tax-preparation and mortgage-servicer
industries, and targeted examinations of the real-estate tax deduction
in the localities. (To see the current status of this recommendation
view: http://www.gao.gov/products/GAO-09-521#recommendations);
Potential financial impact: Increase revenue;
Management area: Improving real estate tax compliance;
Title of report (fiscal year-GAO report number): Real Estate Tax
Deduction: Taxpayers Face Challenges in Determining What Qualifies;
Better Information Could Improve Compliance (09-521).
Matter for congressional consideration or recommendation for executive
action: To help increase electronic filing and allow IRS to better
target its efforts, the Commissioner of Internal Revenue should direct
the appropriate officials to require tax software companies, as soon
as practical, to include a software identification number that
specifically identifies the software package used to prepare tax
returns, which can be used in IRS research efforts. (To see the
current status of this recommendation view:
http://www.gao.gov/products/GAO-09-297#recommendations);
Potential financial impact: Increase savings and revenue;
Management area: Enhancing electronic filing and improving accuracy of
paid preparers;
Title of report (fiscal year-GAO report number): Tax Administration:
Many Taxpayers Rely on Tax Software and IRS Needs to Assess Associated
Risks (09-297).
Matter for congressional consideration or recommendation for executive
action: To help increase electronic filing and allow IRS to better
target its efforts, the Commissioner of Internal Revenue should direct
the appropriate officials to ensure that, as part of the second phase
of IRS's Advancing E-file Study, surveys ask taxpayers the effect of
tax software pricing changes and the opportunity to file for free
using online tax forms on IRS's Web site on their decision to either
file or not file tax returns electronically. (To see the current
status of this recommendation view: http://www.gao.gov/products/GAO-09-
297#recommendations);
Potential financial impact: Indirect financial benefit;
Management area: Enhancing electronic filing and improving accuracy of
paid preparers;
Title of report (fiscal year-GAO report number): Tax Administration:
Many Taxpayers Rely on Tax Software and IRS Needs to Assess Associated
Risks (09-297).
Matter for congressional consideration or recommendation for executive
action: To help increase electronic filing and allow IRS to better
target its efforts, the Commissioner of Internal Revenue should direct
the appropriate officials, to the extent possible, study the effect of
the 2009 pricing changes and the opportunity to file for free using
online tax forms on IRS's Web site on taxpayers' use of tax software
and electronic filing rates. (To see the current status of this
recommendation view: http://www.gao.gov/products/GAO-09-
297#recommendations);
Potential financial impact: Indirect financial benefit;
Management area: Enhancing electronic filing and improving accuracy of
paid preparers;
Title of report (fiscal year-GAO report number): Tax Administration:
Many Taxpayers Rely on Tax Software and IRS Needs to Assess Associated
Risks (09-297).
Matter for congressional consideration or recommendation for executive
action: To help increase electronic filing and allow IRS to better
target its efforts, the Commissioner of Internal Revenue should direct
the appropriate officials to determine if tax software companies that
are authorized to participate in online filing are adhering to
advisory security and privacy standards for the 2009 filing season.
(To see the current status of this recommendation view:
http://www.gao.gov/products/GAO-09-297#recommendations);
Potential financial impact: Indirect financial benefit;
Management area: Enhancing electronic filing and improving accuracy of
paid preparers;
Title of report (fiscal year-GAO report number): Tax Administration:
Many Taxpayers Rely on Tax Software and IRS Needs to Assess Associated
Risks (09-297).
Matter for congressional consideration or recommendation for executive
action: To help increase electronic filing and allow IRS to better
target its efforts, the Commissioner of Internal Revenue should direct
the appropriate officials to assess the extent to which the reliance
on tax software creates significant risks to tax administration,
particularly in the areas of tax return accuracy, the security and
privacy of taxpayer information, and the reliability of electronic
filing. (To see the current status of this recommendation view:
http://www.gao.gov/products/GAO-09-297#recommendations);
Potential financial impact: Indirect financial benefit;
Management area: Enhancing electronic filing and improving accuracy of
paid preparers;
Title of report (fiscal year-GAO report number): Tax Administration:
Many Taxpayers Rely on Tax Software and IRS Needs to Assess Associated
Risks (09-297).
Matter for congressional consideration or recommendation for executive
action: The Acting Commissioner of Internal Revenue should direct the
appropriate officials to determine actions needed to require software
vendors to include bar codes on printed individual income tax returns
and the cost of those actions. (To see the current status of this
recommendation view: http://www.gao.gov/products/GAO-08-
38#recommendations);
Potential financial impact: Increase savings and revenue;
Enhancing electronic filing;
Title of report (fiscal year-GAO report number): Tax Administration:
2007 Filing Season Continues Trend of Improvement, but Opportunities
to Reduce Costs and Increase Tax Compliance Should be Evaluated (08-
38).
Matter for congressional consideration or recommendation for executive
action: The Acting Commissioner of Internal Revenue should direct the
appropriate officials to determine the benefits, in terms of
processing costs and improved enforcement, of having all return
information available electronically. (To see the current status of
this recommendation view: http://www.gao.gov/products/GAO-08-
38#recommendations);
Potential financial impact: Increase savings and revenue;
Management area: Enhancing electronic filing;
Title of report (fiscal year-GAO report number): Tax Administration:
2007 Filing Season Continues Trend of Improvement, but Opportunities
to Reduce Costs and Increase Tax Compliance Should be Evaluated (08-
38).
Matter for congressional consideration or recommendation for executive
action: The Acting Commissioner of Internal Revenue should direct the
appropriate officials to determine how much electronic filing would
have to increase, either through electronic filing mandates or bar
coding, for the benefits of transcribing all remaining paper returns
to exceed the costs. (To see the current status of this recommendation
view: http://www.gao.gov/products/GAO-08-38#recommendations);
Potential financial impact: Increase savings and revenue;
Management area: Enhancing electronic filing;
Title of report (fiscal year-GAO report number): Tax Administration:
2007 Filing Season Continues Trend of Improvement, but Opportunities
to Reduce Costs and Increase Tax Compliance Should be Evaluated (08-
38).
Matter for congressional consideration or recommendation for executive
action: Given the efficiencies to be gained, Congress may wish to
mandate electronic filing by paid tax preparers meeting criteria such
as a threshold number of returns filed. (To see the current status of
this recommendation view:
http://www.gao.gov/products/GAO-07-27#recommendations;
Potential financial impact: Increase savings and revenue;
Management area: Enhancing electronic filing;
Title of report (fiscal year-GAO report number): Tax Administration:
Most Filing Season Services Continue to Improve, but Opportunities
Exist for Additional Savings (07-27).
Source: GAO High Risk and Other Major Government Challenges: Major
Cost-Saving Opportunities Web site
(http://www.gao.gov/highrisk/opportunities/tax_gap/civil-
settlements.php); and GAO's Open Recommendations Database Web site
(http://gao.gov/recommendations/).
[End of table]
[End of Enclosure III]
Enclosure IV: GAO Contact and Staff Acknowledgments:
GAO Contact: James R. White, (202) 512-9110 or WhiteJ@gao.gov:
In addition to the contact named above, Libby Mixon, Assistant
Director; Sabine Paul, Assistant Director; Amy Bowser; Charles Fox;
Carol Henn; Tom Gilbert; John Mackey; Paul Middleton; Karen O'Conor;
Neil Pinney; Justin Reed; Cynthia Saunders; Joanna Stamatiades;
Jessica Thomsen; and Kan Wang made key contributions to this report.
[End of Enclosure IV]
Footnotes:
[1] GAO, Executive Guide: Effectively Implementing the Government
Performance and Results Act, [hyperlink,
http://www.gao.gov/products/GAO/GGD-96-118] (Washington, D.C.: June
1996).
[2] GAO, Business Systems Modernization: Internal Revenue Service's
Fiscal Year 2010 Expenditure Plan, [hyperlink,
http://www.gao.gov/products/GAO-10-539] (Washington, D.C.: May 10,
2010).
[3] See, for example, the Financial Services and General Government
Appropriations Act, 2010, Pub. L. No. 111-117, div. C, title VI, §
608, 123 Stat. 3034, 3202 (Dec. 16, 2009), which restricts IRS from
reprogramming funds within its appropriation accounts for various
reasons without committee approval.
[4] GAO, Internal Revenue Service: Review of the Fiscal Year 2010
Budget Request, [hyperlink, http://www.gao.gov/products/GAO-09-754]
(Washington, D.C.: June 3, 2009).
[5] GAO, Business Systems Modernization: Internal Revenue Service's
Fiscal Year 2010 Expenditure Plan, [hyperlink,
http://www.gao.gov/products/GAO-10-539] (Washington, D.C.: May 10,
2010).
[6] For the GAO High Risk and Other Major Government Challenges: Major
Cost Saving Opportunities Web site see [hyperlink,
http://www.gao.gov/highrisk/] and for the public open recommendations
database see [hyperlink, http://www.gao.gov/recommendations/].
[7] Office of Management and Budget Circular A-11, Part 2 Preparation
and Submission of Budget Estimates (Washington, D.C.: November 2009).
[8] GAO, Army Corps of Engineers: Budget Formulation Process
Emphasizes Agencywide Priorities, but Transparency of Budget
Presentation Could Be Improved, [hyperlink,
http://www.gao.gov/products/GA0-10-453] (Washington, D.C.: Apr. 2,
2010).
[9] IRS is restricted from reprogramming funds within its
appropriation accounts without committee approval, if, among other
reasons, the reprogramming will augment existing programs, projects,
or activities in excess of $5 million or 10 percent, whichever is
less. See, for example, the Financial Services and General Government
Appropriations Act, 2010, Pub. L. No. 111-117, div. C, title VI, §
608, 123 Stat. 3034, 3202 (Dec. 16, 2009).
[10] GAO, GAO Cost Estimating and Assessment Guide, [hyperlink,
http://www.gao.gov/products/GAO-09-3SP] (Washington, D.C.: March 2009).
[11] Office of Management and Budget Circular A-94, Guidelines and
Discount Rates for Benefit-Cost Analysis of Federal Programs
(Washington, D.C.: Oct. 29, 1992).
[12] Our high-risk list is available at: [hyperlink,
http://www.gao.gov/highrisk/].
[13] GAO, High-Risk Series: An Update, [hyperlink,
http://www.gao.gov/products/GAO-09-271] (Washington, D.C.: January
2009).
[14] GAO, Tax Administration: Interim Results of IRS's 2009 Filing
Season, [hyperlink, http://www.gao.gov/products/GAO-09-640]
(Washington, D.C.: June 2009).
[15] GAO, Internal Revenue Service: Review of the Fiscal Year 2010
Budget Request, GAO-09-754 (Washington, D.C.: June 3, 2009).
[16] GAO, Internal Revenue Service: Fiscal Year 2009 Budget Request
and Interim Performance Results of IRS's 2008 Tax Filing Season,
[hyperlink, http://www.gao.gov/products/GAO-08-567] (Washington, D.C.:
Mar. 13, 2008).
[17] Treasury selects certain legislative proposals from its General
Explanations of the Administration's FY 2011 Revenue Proposals, or
"Green Book," to highlight proposals in IRS's justification that are
related to improving tax administration or reducing the tax gap.
[18] Office of Management and Budget Circular A-11, Part 2 Preparation
and Submission of Budget Estimates (Washington, D.C.: November 2009).
[19] GAO, Tax Administration: IRS Needs to Further Refine Its Tax
Filing Season Performance Measures, [hyperlink,
http://www.gao.gov/products/GAO-03-143] (Washington, D.C.: Nov. 22,
2002).
[20] Pub. L. No. 111-92, 123 Stat. 2984, 2996 (Nov. 6, 2009). Section
17 requires any tax return preparer responsible for 10 or more tax
returns in a calendar year to file electronically.
[21] GAO, Agencies' Strategic Plans Under GPRA: Key Questions to
Facilitate Congressional Review, [hyperlink,
http://www.gao.gov/products/GAO/GGD-10.1.16] (Washington, D.C.: May
1997); GAO, 2009 Tax Filing Season: IRS Met Many 2009 Goals, but
Telephone Access Remained Low, and Taxpayer Service and Enforcement
Could Be Improved, [hyperlink, http://www.gao.gov/products/GA0-10-225]
(Washington, D.C.: Dec. 10, 2009).
[22] We have an ongoing review on IRS's implementation of CADE 2,
including its implication on future legacy system budgets.
[23] GAO, Information Security: IRS Needs to Continue to Address
Significant Weaknesses, [hyperlink,
http://www.gao.gov/products/GAO-10-355] (Washington, D.C.: Mar. 19,
2010); GAO, Financial Audit: IRS's Fiscal Years 2009 and 2008
Financial Statements, [hyperlink, http://www.gao.gov/products/GAO-10-
176] (Washington, D.C.: Nov. 10, 2009).
[End of section]
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