	IRS’s Fiscal Year 2004 Budget Request Includes Compliance, Taxpayer Service, and Information Systems as Priorities

For fiscal year 2004, IRS is requesting $10.4 billion, an increase of 5.3  percent over fiscal year 2003 requested levels, and 100,043 FTEs. As shown in  figure 1, $166 million of the enhancements would be funded from internal  savings with the remainder funded from the budget increase. Current Projections and Recent History Raise Questions about Whether IRS Will Realize Some Priority Resource Reallocations

Revised projections developed since the 2004 budget request was prepared  raise questions about IRS’s ability to achieve all the savings projected and  shift resources to compliance as planned. For example:   IRS still is reviewing its procedures to identify ways to make tax return  processing more efficient. This includes (1) $429  million for the agency’s multiyear capital account that funds contractor  costs for the BSM program and (2) about $1.67 billion and 7,735 staff years  for information systems, of which $1.62 billion is for operations and  maintenance. In preparing its fiscal year 2004 budget request for the  operations and maintenance of information systems, IRS began to  implement an information technology portfolio management process  patterned after the one used for the BSM program. However, until IRS fully  implements planned process improvements, its ability to develop  supportable information systems budget requests will remain limited. In response to our recommendations, IRS  developed an enterprise architecture. Interim Results of IRS’s 2003 Filing Season Show Improvement over Previous Years

IRS’s filing season performance through mid-March has improved  compared to recent years, based on data we reviewed in five key filing  season activities—paper and electronic processing, telephone assistance,  IRS’s Web site, and walk-in assistance. For example, telephone access has  improved, and IRS’s Web site has seen increased use. While we cannot  quantify the connection between these results and IRS’s ongoing systems  modernization efforts, the improvement in filing season performance, in  part, represents a payoff from systems modernization. Concluding Observations

As the examples of improved telephone access and the Brookhaven  Processing Center closing show, IRS is beginning to realize payoffs from  the ongoing systems modernization investments and wider management  improvements. Although IRS has not succeeded in reallocating staff to one  of its priority needs, compliance, there will likely be increased potential for  such reallocation as modernization proceeds. This will present Congress, in  its oversight and appropriations roles, with significant opportunities to  weigh in on IRS’s overall strategy for better accomplishing its mission.
Why GAO Did This Study

The Internal Revenue Service (IRS) is responsible for collecting virtually all of the funds that pay for the federal government. For 2003, IRS expects to process 130 million individual income tax returns, issue 99 million refunds, receive 100 million telephone calls, and assist 4 million taxpayers face-to-face at IRS and volunteer offices. Most of these interactions with taxpayers occur during the January through April tax filing season. GAO was asked by the Subcommittee on Oversight, House Committee on Ways and Means, to assess the likelihood of IRS allocating more resources to a key priority, compliance; whether proposed spending on computer systems is justified; and filing season performance.

What GAO Found

IRS is requesting $10.4 billion and 101,043 FTEs, a dollar increase of about 5 percent over the fiscal year 2003 request. The 2004 budget request, like other recent requests, identifies compliance as one of IRS's top priorities for additional resources. IRS intends to fund some program enhancements from the requested budget increase and internal savings. Several factors, including lowered savings projections since the budget request was prepared, raise questions about IRS's ability to achieve all the savings and shift resources to compliance as planned. IRS's recent history raises the same questions, in part, because unbudgeted expenses, such as pay raises, have absorbed budget increases. IRS is requesting $2.1 billion in information technology. This includes $429 million for the agency's multiyear capital account that funds contractor costs for the Business Systems Modernization program, and $1.67 billion for information systems, primarily for operations and maintenance. In response to GAO's recommendation last year, IRS has begun to implement an information technology management process patterned after its systems modernization program. Until the process is fully implemented, IRS will have limited ability to develop supportable information systems budget requests. IRS's 2003 filing season performance has improved over last year. For example, IRS's telephone access has improved and the Web site has seen increased use. Such improvements represent a payoff from IRS's ongoing systems modernization investments and wider management improvements. Although IRS has not succeeded in reallocating staff to one of its priority needs, compliance, there will likely be increased potential for such reallocation as modernization proceeds. This will present Congress, in its oversight and appropriations roles, with significant opportunities to weigh in on IRS's overall strategy for better accomplishing its mission.