	IRS’s Budget Request Continues to Shift Priority from Taxpayer Service to Enforcement, but the Short- and Long-term Impacts on Taxpayers Are Unclear

IRS’s fiscal year 2006 budget request reflects a continuing shift in priorities  by proposing reductions in taxpayer service and increases in enforcement  activities. Because of budget constraints  and the progress IRS has made improving the quality of taxpayer services,  this is an opportune time to reconsider the menu of services IRS offers. IRS Is Proposing $39 Million Less for Taxpayer Service, but the Impact on Taxpayers Is Unclear

The budget request provides some detail on how IRS plans to absorb cost  increases in the taxpayer service budget. Table 3 provides further detail  on how IRS is proposing to reduce funding and resources for taxpayer  service. Cuts in selected  services could be offset by the new and improved services. In particular, the BSM program remains at high risk  and has a long history of significant cost overruns and schedule delays. BSM is critical to  supporting IRS’s taxpayer service and enforcement goals. Since our testimony before this subcommittee on last year’s budget  request, IRS has deployed initial phases of several modernized systems  under its BSM program. IRS has also identified, and is addressing,  other major management challenges in areas such as requirements,  contract, and program management. It is too early to tell what effect the budget reductions will ultimately have  on the BSM program. However, the significant adjustments that IRS is  making to the program to address these reductions are not without risk,  could potentially impact future budget requests, and will delay the  implementation of certain functionality that was intended to provide  benefit to IRS operations and the taxpayer. There are risks associated  with this decision. The BSM program is based on visions and strategies developed in 2000 and  2001. The age of these plans, in conjunction with the significant delays  already experienced by the program and the substantive changes brought  on by budget reductions, indicate that it is time for IRS to revisit its long- term goals, strategy, and plans for BSM. According to  this official, IRS is redefining and refocusing the BSM program, and he  expects this effort to be completed by the end of this fiscal year. Although progress has been made in  implementing best practices in the development of the IT operations and  maintenance budget, until these actions are completely implemented IRS  will not be able to ensure that its request is adequately supported. So Far This Filing Season IRS Has Generally Maintained or Improved Performance, Including Telephone Accuracy, with Less Funding

Results to date show IRS has generally maintained or improved its 2005  filing season performance in key areas compared to last year despite a  decrease in the 2005 budget for taxpayer service. However, because the filing season is not over, the extent to  which IRS will achieve efficiency gains and the full impact of reductions on  taxpayers in this or future filing seasons is not yet known. Although CSR level of service is about the same as last year, down one  percentage point, there are other indications of slippage in telephone  access.
Why GAO Did This Study

The Internal Revenue Service (IRS) has been shifting its priorities from taxpayer service to enforcement and its management of Business Systems Modernization (BSM) from contractors to IRS staff. Although there are sound reasons for these adjustments, they also involve risks. With respect to the fiscal year 2006 budget request, GAO assessed (1) how IRS proposes to balance its resources between taxpayer service and enforcement programs and the potential impact on taxpayers, (2) the status of IRS's efforts to develop and implement the BSM program, and (3) the progress IRS has made in implementing best practices in developing its Information Technology (IT) operations and maintenance budget. For the 2005 filing season, GAO assessed IRS's performance in processing returns and providing taxpayer service.

What GAO Found

IRS's fiscal year 2006 budget request of $10.9 billion proposes increased funding for enforcement, but reduced funding for taxpayer service and BSM. However, the potential impact of these changes on taxpayers in either the short- or long-term is unclear, because IRS has not provided details of proposed taxpayer service reductions, and although it is developing longterm goals, they are not yet finalized. Because of the proposed reductions and new and improved taxpayer services in recent years, this is an opportune time to examine the menu of services IRS provides. It may be possible to maintain the overall level of service to taxpayers by offsetting reductions in some areas with new and improved service in other areas. Taxpayers and IRS are seeing some payoff from the BSM program, with the deployment of initial phases of several modernized systems in 2004. Nevertheless, the BSM program continues to be high-risk, in part, because projects have incurred significant cost increases and schedule delays and the program faces major challenges in areas such as human capital and requirements management. As a result of budget reductions and other factors, IRS has made major adjustments. It is too early to tell what effect these adjustments will have on the program, but they are not without risk and could potentially impact future budgets. Further, the BSM program is based on strategies developed years ago, which, coupled with the delays and changes brought on by budget reductions, indicates that it is time for IRS to revisit its long-term goals, strategy, and plans for BSM. Because of these challenges, IRS is redefining and refocusing the BSM program. IRS has generally maintained or improved its filing season performance in 2005. Processing is more efficient, the accuracy of answers provided by telephone assistors is improved, and telephone access is relatively comparable to last year. This is particularly noteworthy, because IRS received less funding for taxpayer service in 2005 than it spent in 2004. Because the filing season is not over, the full impact on taxpayers and IRS operations is not yet known. However, there are indications of slippage in telephone access such as more abandoned calls and longer wait times.