Taxpayer Services. According to the fiscal year 2015  congressional justification for IRS, the IRS strategic plan guides program  and budget decisions and supports the Department of the Treasury Fiscal  Year 2014 to 2017 Strategic Plan and the Agency Priority Goal of  expanding the availability and improving the quality of customer service  options. These  cuts reduced IRS’s budget to below fiscal year 2009 funding levels. For fiscal year 2015, the President  requested $12.5 billion for IRS, an increase of 10.5 percent ($1.2 billion)  over fiscal year 2014 appropriations. Between fiscal years 2009 and  2013, telephone level of service—the percentage of callers seeking live  assistance and receiving it—fluctuated between 61 percent and 74  percent. Reduced travel and training. IRS Has No Long-Term Strategy to Address an Uncertain Budget Environment

IRS does not outline a framework for how it should operate in an  uncertain budget environment in either its fiscal year 2009 through 2013  strategic plan or its fiscal year 2014 goals and objectives included in the  fiscal year 2015 congressional justification for IRS. Second, in  May 2014, OMB generally required a 2 percent reduction in agencies’  fiscal year 2016 budget submission. 13576 and OMB guidance,  agencies are to develop strategies for operating effectively and efficiently  in an uncertain budget environment. Comparing projected ROI to actual ROI is consistent with project  management concepts, internal control standards, OMB guidance, and  our prior work on performance management. We have recognized that  calculating actual ROI is challenging and existing data may not be  complete. However, IRS does  not use this actual ROI information for resource allocation decisions  because the data do not reflect marginal ROI, nor do they include the  indirect effects of IRS enforcement activities on voluntary compliance. These limitations are critical concerns, which is why  we recommended in 2012 that IRS develop estimates of marginal direct  revenue and marginal direct costs within each enforcement program. Creating such a roadmap will help ensure that IRS effectively  provides taxpayers with services to make voluntary compliance easier  and to enforce the tax laws, so that taxpayers fulfill their tax  responsibilities. Because ROI provides insights on the productivity of a program and is  one important factor in making resource allocation decisions, we  recommend IRS  calculate actual ROI for implemented initiatives, compare the actual  ROI to projected ROI, and provide the comparison to budget decision  makers for initiatives where IRS allocated resources; and use actual ROI calculations as part of resource allocation decisions. Regarding our recommendation  to develop a long-term strategy to address operations amidst an uncertain  budget environment, IRS noted that it is conducting a review of its budget  base to ensure resources are aligned with IRS Strategic Goals,  Objectives, and Priorities, and will adjust its fiscal year 2015 budget as a  result of this review. Regarding our ROI recommendations, IRS agreed  that ROI is one of several factors relevant to making resource allocation  decisions. Appendix I: Objectives, Scope, and Methodology

We were asked to review the President’s fiscal year 2015 budget request  for the Internal Revenue Service (IRS). To assess IRS’s strategy to address the budget cuts, including  sequestration, we summarized IRS’s budget, staffing, performance, and  workload trends for fiscal years 2009 through 2015. We also interviewed IRS officials in IRS offices of  Corporate Budget and Information Technology and the NTA. To assess any new use of ROI analysis, we reviewed the fiscal year 2015  congressional justification to identify IRS’s projected and actual ROI;  obtained data from IRS to determine the new initiatives by projected  revenue, cost, and type; and summarized projected ROI by type for new  enforcement initiatives and actual ROI for IRS’s three enforcement  programs—Examination, Collection, and Automated Underreporter.
Why GAO Did This Study

The financing of the federal government depends largely upon the 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 2015, the President requested a $12.5 billion budget for IRS, a 10.5 percent increase over the fiscal year 2014 budget.
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 2015 budget request for IRS. (In April 2014, GAO reported interim information on IRS's budget.) Among other things, this report assesses IRS's (1) strategy to address budget cuts and (2) use of ROI analysis. To conduct this work, GAO reviewed the fiscal year 2015 budget justification, IRS and OMB budget guidance, and IRS workload and performance data from fiscal years 2009 to 2015. GAO also interviewed IRS officials and the National Taxpayer Advocate.

What GAO Found

Since fiscal year 2010, the Internal Revenue Service (IRS) budget has declined by about $900 million. As a result, funding is below fiscal year 2009 levels.
Staffing has also declined by about 10,000 full-time equivalents since fiscal year 2010, and performance has been uneven. For example, between fiscal years 2009 and 2013, the percentage of callers seeking live assistance and receiving it fluctuated between 61 percent and 74 percent. IRS took some steps to address budget cuts, such as reduced travel and training.
IRS's strategic plan does not address managing budget uncertainty, although there are several indicators that funding will be constrained for the foreseeable future. For example, in May 2014, the Office of Management and Budget (OMB) generally required a 2 percent reduction in agencies' fiscal year 2016 budget submission. OMB guidance also requires agencies to develop strategies for operating in an uncertain budget environment. According to IRS, extensive senior leadership turnover has contributed to the lack of a long-term strategy. Without a strategy, IRS may not be able to operate effectively and efficiently in an uncertain budget environment.
For fiscal year 2015, IRS calculated projected return on investment (ROI) for most of its enforcement initiatives. However, due to limitations—such as estimating the indirect effect coverage has on voluntary compliance—IRS does not calculate actual ROI or use it for resource decisions. These limitations are important, which is why GAO recommended in 2012 that IRS explore developing such estimates. Given that these limitations could take time to address, GAO demonstrated how IRS could use existing ROI data to review disparities across different enforcement programs to inform resource allocation decisions. Comparing projected and actual ROI is consistent with OMB guidance. While not the only factor in making resource decisions, actual ROI could provide useful insights on the productivity of a program.

What GAO Recommends

GAO recommends that IRS (1) develop a long-term strategy to manage uncertain budgets, and (2) calculate actual ROI for implemented initiatives, compare actual ROI to projected ROI, and use the data to inform resource decisions. IRS agreed with GAO's recommendations, noting that it initiated a review of its base budget to ensure resources are aligned with its strategic plan and ROI is one of several factors relevant to making resource allocation decisions.