Through such improvements, IRS expected to better enable taxpayers to comply with the tax laws. Compliance and Collection Declines

The first area of risk involves the declines in compliance and collection programs. As part of our ongoing work for the House Ways and Means Subcommittee on Oversight, we identified large and pervasive declines across the compliance and collection programs, except for returns processing, between fiscal years 1996 and 2001. For example, individual and corporate audit productivity as measured by cases closed per unit of staff time declined 31 and 47 percent, respectively, while field and telephone collection productivity declined over 20 percent. A significant decline in voluntary compliance would undermine IRS’s modernization effort. Performance Management Risks

As noted, IRS has made progress in revamping its performance management system. In addition to having comparable measures to gauge performance, IRS needs to do more and better evaluations of its business practices so that it can determine the factors that affect program performance and identify ways to more effectively use resources and improve service. IRS’s current method of producing financial statements is not a workable long-term solution to meeting its financial reporting responsibilities for two basic reasons. Appendix: Overview of Trends in Tax Administration

Overall, since the mid-1990s IRS has seen increased workload, decreased staffing, and significant changes in the allocation of resources between taxpayer assistance programs and its compliance and collection programs.
What GAO Found

In light of the fourth anniversary of the Internal Revenue Service (IRS) Restructuring and Reform Act of 1998, which established Congress' expectation that IRS modernize to better meet taxpayer needs, GAO gave an overview of IRS's current performance and resources and then assessed the progress that IRS has made modernizing and the risks to continued progress. Overall, IRS has seen increased workload, decreased staffing, and significant changes in the allocation of resources between taxpayer assistance programs and its compliance and collection programs. Between 1995 and 2001, IRS's workload, measured by returns filed, increased by 10 percent while aggregate staffing declined by 14 percent. Over the same time, there was a significant internal reallocation of resources with a disproportionate decline in compliance and collection program staffing to accommodate more emphasis on taxpayer service, such as telephone assistance, and to information systems operation and investment. Electronic filing of returns increased but not enough to reduce paper returns sufficiently to free significant processing resources for use elsewhere. The reallocation of resources shows signs of beginning to produce more accurate service for taxpayers, but the compliance and collection programs have seen large and pervasive declines in performance indicators such as audit rates, collection cases closed, enforcement actions such as liens and levies, and raw productivity.