	Background

		IRS Budget Structures

Funding requests for IRS are organized by appropriation account, which  aligns broadly with its strategic goals to (1) deliver high-quality and timely  service to reduce taxpayer burden, and encourage voluntary compliance;  and (2) effectively enforce the law to ensure compliance with tax  responsibilities and combat fraud. 3. IRS’s fiscal year 2016 appropriations increased by $290 million. In its fiscal year 2017 CJ, IRS explained how requests for increased  funding were linked to appropriations accounts, but it did not provide this  information for the amount requested to maintain current funding levels. IRS linked each requested program increase to a future state theme and  included details on how much of the requested increase would be funded  by each of the four appropriation accounts. However, IRS did not provide data on how much it is currently spending  in support of each theme. According to  officials, IRS is working to develop such data, but officials cited technical  challenges with data availability and comparability as well as challenges  identifying spending for specific themes, some of which are worded  broadly. Such  information is important to ensure transparency on the current funding  levels to assist Congress in making informed budget decisions. IRS Used Its Flexibility to Spend User Fee Revenue to Fund Priorities

		IRS Allocated User Fees as Part of Its Broader Budget Execution Process

IRS has permanent, indefinite authority to obligate user fee collections. Additionally, for fiscal year  2016, IRS was directed to wait 30 days following the submission of the  user fee spend plan to Congress before obligating these funds. As shown in table 3 and the sidebar, both  the amount and allocation of user fee funds shifted between fiscal years  2011 and 2016. As we reported in June 2015, IRS management decided to allocate more  user fee funds to Operations Support in fiscal year 2015, in part because  of changes in the amount appropriated to its accounts and the cost of  implementing mandates, such as the Patient Protection and Affordable  Care Act (PPACA), which is largely funded by user fee revenue and  Operations Support funds. For fiscal year 2016, planned user fee obligations ($509  million) account for about 4 percent of IRS’s total obligations ($12,374  million). IRS Changed Reporting of Major IT Investments, but Treasury Lacked Controls to Detect Errors in Reporting Certain IT Spending Data

		IRS Reported the Fiscal Year 2017 President’s Budget Request of $2.8 Billion for IT Spending Differently Than in Prior Years

IT is a significant portion—about 21 percent—of the total IRS budget  request for fiscal year 2017. The President requested $2.8 billion for  IRS’s IT investments in fiscal year 2017, an increase of about 15 percent. IRS and Treasury review and  monitor the information before the Capital Investment Plan and the  Summary of Capital Investments reports are generated. According to federal internal control standards,  ongoing monitoring should occur in the course of normal operations. As  a result of our recommendation that IRS implement internal controls to  ensure the accuracy of information on major IT investments reported in  the annual CJ, IRS took additional steps when preparing the fiscal year  2017 CJ. Such  errors could negatively affect Congress’s ability to obtain accurate  information on IT investments needed to inform future budget decisions  and oversight. For fiscal year 2017, IRS did not make clear  how spending by themes relates to appropriation accounts and how this  advances IRS’s priorities; this linkage is important to the clarity and  transparency of IRS’s budget presentation. Appropriations staff told us  this information would help them make informed budget and oversight  decisions. Recommendations for Executive Action

To enhance the budget process and to improve transparency, we  recommend that the Commissioner of Internal Revenue, to the extent  feasible, ensure that the CJ includes data by appropriation account on the  amount of funding requested to maintain current services for each future  state theme. In written  comments reproduced in Appendix IV, IRS agreed with the  recommendation related to the presentation of data in the Congressional  Justification. IRS has adopted  a new, more strategic, approach to identify  and select budget program priorities based on  future state themes for the fiscal year 2017  budget request. As part of its planning  process, IRS prioritized a subset of 5  objectives for action as part of the 19  objectives identified in the IRS 2014-2017  Strategic Plan.
Why GAO Did This Study

Funding the federal government depends largely upon IRS's ability to collect taxes, including providing taxpayer services that make voluntary compliance easier and enforcing tax laws to ensure compliance with tax responsibilities. For fiscal year 2017, the President requested $12.3 billion in appropriations for IRS; the request is almost $1 billion (9 percent) more than IRS's fiscal year 2016 appropriation.
Because of the size of IRS's budget and the importance of its service and compliance programs for all taxpayers, GAO was asked to review the fiscal year 2017 budget request for IRS. In March 2016, GAO reported interim information on IRS's budget. This report assesses (1) the extent to which IRS's fiscal year 2017 CJ presents data on requested funding levels by appropriation accounts and in alignment with agency priorities, (2) IRS's management and allocation of user fees, and (3) the costs and reporting of IRS's IT investments. GAO reviewed the fiscal year 2017 CJ, documentation on IRS's vision for the future state, IRS budget plans, IT investment reports, and IRS budget data for fiscal years 2011 to 2017, interviewed IRS officials, and met with congressional appropriations staff to discuss the information they want included in the CJ.

What GAO Found

Congressional justification data . The Internal Revenue Service (IRS) has taken steps to manage its budget more strategically but did not make linkages between priorities and appropriations accounts. IRS prioritized a subset of its 19 strategic objectives for action and established six themes that represent its “future state” vision for tax administration. In the fiscal year 2017 congressional justification (CJ), IRS linked requests for increased funding to themes and included details on how much would be funded by each appropriation account. However, IRS did not provide data on how much it spends in support of each theme or the amount of funding needed to maintain current levels by theme. IRS is working to develop such data, but officials cited challenges with data availability and tracking spending by themes. Such information would provide transparency on the current funding levels which assist Congress in making informed budget decisions.
User fee spending . IRS has permanent, indefinite authority to obligate and spend user fee collections, which it obligates as part of its budget execution process. IRS's user fee spend plan must be approved by both the Department of the Treasury (Treasury) and the Office of Management and Budget. IRS was directed to wait 30 days following the submission of the user fee spend plan to Congress before obligating funds. As seen in the table, planned user fee spending increased more than $220 million (79 percent) between fiscal years 2011 and 2016. Of the $509 million planned user fee obligations in fiscal year 2016, the largest amounts are for the Patient Protection and Affordable Care Act ($204 million) and the Foreign Account Tax Compliance Act ($62 million).
Information technology data . The President's budget requested $2.8 billion for IRS's information technology (IT) investments which accounted for 21 percent of IRS's budget request for fiscal year 2017. Instead of presenting its IT investment data in its CJ, IRS moved them to a Treasury website. This is consistent with other Treasury bureaus and was intended to provide time for an enhanced data review process. However, despite the review process, Treasury did not detect an error which resulted in IRS underreporting its total IT investments by about $4 million. According to federal internal control standards, ongoing monitoring should occur in the course of normal operations. Data errors could negatively affect Congress's ability to make budget decisions and provide oversight.

What GAO Recommends

GAO recommends that IRS ensure the CJ includes data on the amount of funding requested to maintain current services for each future state theme, and that Treasury ensure the accuracy of Treasury-generated IRS IT investment reports. IRS and Treasury agreed with the recommendations.