This statement is based on (1) our review of the administration’s fiscal year 1999 budget request for IRS and supporting documentation, including IRS’ February 2, 1998, budget estimates, which provide details behind the administration’s request; (2) interim results of our review of the 1998 tax return filing season; (3) our past work on IRS information systems and performance measures; and (4) our ongoing reviews of the Taxpayer Advocate’s Office, IRS’ efforts to reduce noncompliance associated with the Earned Income Credit (EIC), and IRS’ efforts to make its information systems Year 2000 compliant. Our statement makes the following points: • The most critical issue facing IRS this year and next is the need to make its computer systems century-date compliant. • As shown in appendix I, the administration’s fiscal year 1999 budget request for IRS totals $8.339 billion and 102,013 full-time equivalent (FTE) staff years, which are increases of $534 million (6.8 percent) and 1,462 FTEs (1.5 percent) over IRS’ proposed operating level for fiscal year 1998.Included in the fiscal year 1999 request is $323 million for the information technology investments account. Because $246.5 million of that request has not been justified on the basis of analytical data or derived using a verifiable estimating method, we believe that Congress should consider reducing the administration’s request by that amount. • Also included in the fiscal year 1999 budget request is $103 million and 1,024 FTEs to enhance customer service. • Data on the first 2 1/2 months of the 1998 filing season indicate that IRS is continuing to make progress in two important areas—the use of electronic filing and the ability of taxpayers to reach IRS by telephone. Although it is too soon to assess the results of this initiative, we do have some observations on two aspects of the initiative—special assistance being provided to EIC claimants and IRS efforts to develop a baseline measure of EIC compliance. IRS’ goal is to implement all Year 2000 efforts by January 1999. IRS’ latest estimates indicate that additional funds will be needed for fiscal year 1998. IRS officials are also refining their estimates for fiscal year 1999 in light of more current information. Smaller amounts are to be used to, among other things, strengthen the Taxpayer Advocate’s Office; create citizen advocacy panels; make it easier for taxpayers to get answers in person; and improve the clarity of notices, forms, and publications. Various Factors Diminish the Value of IRS’ Budget Estimates for Oversight Purposes

Each year, IRS submits detailed budget estimates to support the administration’s budget request.
Why GAO Did This Study

Pursuant to a congressional request, GAO discussed the administration's fiscal year (FY) 1999 budget request for the Internal Revenue Service (IRS) and the status of the 1998 tax return filing season.

What GAO Found

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