	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 Reductions in Taxpayer Service and BSM and Increases in Enforcement

IRS is requesting $10.9 billion, which includes just over a 1 percent  decrease for taxpayer service, a 2 percent decrease for BSM, and nearly an  8 percent increase for enforcement, as shown in table 1. Table 3 provides further detail  on how IRS is proposing to reduce funding and resources for taxpayer  service. This opens up the possibility of maintaining the overall level of taxpayer  service but with a different menu of service choices. 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. BSM Program Has History of Cost Increases and Schedule Delays and Is High Risk

The BSM program has a long history of significant cost increases and  schedule delays, which, in part, has led us to report this program as high-  risk since 1995. 3). 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. 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. In our assessment of IRS’s fiscal year 2003 budget request, we reported that  the agency did not develop its information systems operations and  maintenance request in accordance with the investment management  approach used by leading organizations. The recent release of IFS included an activity- based cost module, but IRS does not currently have historical cost data to  populate this module. 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.
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) 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.

What GAO Found

IRS's fiscal year 2006 budget request of $10.9 billion is an increase of 3.7 percent over last year's enacted levels. This includes an 8 percent increase for enforcement, and a 1 percent and 2 percent decrease 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 long-term 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 such as on IRS's Web site. 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. Likewise, IRS has made progress in implementing best practices that would improve its budget development and support for its IT operations and maintenance request. In particular, the recent release of a modernized financial management system included a cost module. However, at this time, historical data is not yet available for IRS to use this module in formulating its IT operations and maintenance request.