This raises the question about IRS’s ability to increase  enforcement staffing as planned in 2005. IRS is Asking For Significantly More For Enforcement in 2005

IRS’s fiscal year 2005 budget request is $10.7 billion, up $489.8 million or  4.8 percent from the amount appropriated for fiscal year 2004. IRS’s  request identifies a total of $750.3 million of new proposed spending— $377.3 million for new initiatives, primarily enforcement, and $373 million  to maintain current operations (such as salary increases included in the  budget). IRS plans to fund the additional spending from three sources— budget increases, program reductions, and internal savings. The major enforcement initiatives include:    $90.2 million and 874 Full Time Equivalents (FTEs) to target  noncompliance by small business and self-employed taxpayers by hiring  field examination and collection, automated collection and service center- based compliance staff;    $65 million and 260 FTEs for additional criminal investigation resources to  combat corporate fraud, increase tax enforcement, and enhance criminal  investigation capabilities by hiring additional criminal investigators and  special agents to focus on corporate financial fraud, general tax  enforcement, improve forensic electronic evidence capabilities and  increase special agent support staff;    $36 million and 207 FTEs to combat corporate abusive tax shelters by  devoting more resources to reviewing offshore transactions;    $15.5 million and 175 FTEs to increase individual taxpayer compliance by  focusing on the full spectrum of individual taxpayer noncompliance,  including nonfilers, nonpayers of tax owed, and more tax assessments on  underreported income; and    $15.1 million and 144 FTEs to combat diversions of charitable assets and  stop abusive transactions in the tax-exempt area by focusing on terrorism  funding and civil fraud by charities, and targeting tax avoidance strategies  by charities. Despite budget requests that were almost fully funded and despite  achieving some savings, the number of skilled enforcement staff actually  declined. As shown in figure 1, the number of revenue agents (those who audit  complex returns), revenue officers, (those who do field collection work),  and special agents (those who performed criminal investigations) has  decreased over 21 percent between 1998 and 2003. The declines in enforcement staff have been associated with declines in  enforcement efforts. Other IRS Priorities Have Consumed Recent Budget Increases and Savings

Priorities other than enforcement, including unbudgeted expenses and  taxpayer service, have consumed IRS’s budget increases and savings over  the last few years. IRS’s Information Technology Budget Includes Funding For BSM and Information Systems

IRS is requesting about $1.93 billion (including 7,385 staff years) in  information technology (IT) resources for fiscal year 2005. This includes  (1) $285 million for the agency’s multiyear capital account that funds  contractor costs for the Business Systems Modernization (BSM) program  and (2) about $1.64 billion for information systems, of which $1.55 billion  (including 7,137 staff years) are for operations and maintenance. IRS has made progress in implementing investment management best  practices in developing and supporting its information systems budget  request. Until IRS implements  the capital planning and investment control guidance and the activity- based cost model and incorporates them into the preparation of its  information systems budget request, the agency will not be able to ensure  that the information systems operations and maintenance request is  adequately supported. Interim Results Of IRS’s 2004 Filing Season Show Improvement Except In Telephone Accuracy

IRS’s filing season performance through mid-March has improved in most  areas compared to recent years, based on data we reviewed on five key  filing season activities—paper and electronic processing, telephone  assistance, IRS’s Web site, and walk-in assistance. However, the accuracy  of tax law answers provided by IRS telephone staff declined. The following sections will address IRS’s  specific performance in key areas. Use of IRS’s Walk-in Assistance Sites Continues to Decline

The number of taxpayers receiving assistance at IRS walk-in sites  continued to decline. However,  cost overruns and schedule delays associated with on-going BSM projects,  along with planned reductions to the BSM project portfolio mean that  many of these benefits will not be realized in the short term.
Why GAO Did This Study

Effective tax administration requires a combination of quality customer service to help those who want to comply, and effective enforcement measures against those who do not. For the last few years, we have been reporting on improvements in taxpayer service and declines in enforcement. With respect to IRS's fiscal year 2005 budget request, the Subcommittee asked GAO to assess whether (1) IRS will be able to allocate more resources to enforcement, and (2) Business Systems Modernization (BSM) and other technology efforts will deliver cost savings and efficiencies in the immediate future. For the 2004 filing season performance, GAO was asked to assess IRS's performance in processing returns and providing assistance to taxpayers.

What GAO Found

IRS is requesting $10.7 billion in fiscal year 2005, 4.8 percent over 2004. This includes $377.3 million, primarily for additional enforcement staff, and $373 million for increased costs of maintaining current operations--funded from three sources--the budget increase, program reductions and internal savings. The request for more enforcement staff follows similar requests in IRS's past five budgets. Despite budget requests that were almost fully funded and despite realizing some savings in prior years, the number of most skilled enforcement staff declined by over 21 percent between 1998 and 2003 because of other priorities, including unbudgeted expenses. This history, and the expectation of unbudgeted costs in 2005, raises questions about whether IRS will be able to increase enforcement staff as planned. IRS's request also includes about $1.93 billion in information technology-- $285 million for BSM contractor costs and about $1.64 billion for information systems. Most BSM projects have experienced cost overruns and schedule delays postponing benefits expected under BSM. IRS reduced its BSM budget request to focus on fewer projects and is implementing plans to respond to known deficiencies. IRS has made progress in implementing investment management best practices for developing and supporting its information systems budget request. However, until IRS fully implements the improvements, its ability to develop supportable budget requests for information systems operations and maintenance will be limited. IRS's reported 2004 filing season performance in key areas improved, with the exception of the accuracy of tax law responses provided over the telephones to taxpayers, which declined. Also, the number of taxpayers seeking assistance at IRS's walk-in assistance sites declined as did the number of tax returns prepared at those sites.