	IRS Has Improved Taxpayer Service but Enforcement and BSM Remain High Risk

IRS has made noticeable progress in improving taxpayer service since  passage of RRA 98. Tax law enforcement is also high risk because past declines in IRS’s  enforcement activities threatened to erode taxpayer compliance. Modernization has encountered a  long history of continuing delays and design difficulties and the impact of  these problems on IRS’s operations led GAO to designate IRS’s systems  modernization as a high-risk area in 1995 and it remains so today. Future deliveries of  additional functionality of deployed systems and the implementation of  other BSM projects are expected to have a significant impact on IRS’s  taxpayer services and enforcement capability as well as its efforts to  continue to improve its financial management. Continued Progress Depends on IRS Addressing Resource Constraints and Realizing Efficiency and Systems Improvements

For IRS to build on the gains made since passage of RRA 98, the agency  must address numerous challenges related to resource management. IRS  faces budgetary constraints that may be addressed in part through the  development of goals for assessing performance and to help in making  budget decisions, looking for opportunities to enhance its funding, and  leveraging the resources of nonfederal partners. IRS also faces the  challenges of improving efficiency in taxpayer service and tax law  enforcement, developing useful cost accounting tools, and improving  productivity. Finally, IRS faces information systems challenges in both  BSM and systems security shortfalls. Current examples of resource  enhancers—user fees and private debt collection—may provide useful  models for IRS and Congress to consider. However, as we also noted earlier, there  have been concerns raised about the quality of service at both walk-in and  volunteer sites. Generally, as indicated in the budget, the menu of taxpayer services that  IRS provides covers assistance, outreach, and processing. Targeting Enforcement Could Make More Efficient Use of Resources

Multiple enforcement strategies could help IRS reduce the tax gap. For any given set of tax  policies, IRS’s efforts to reduce the tax gap and ensure appropriate levels  of compliance will need to be based on a balanced approach of providing  service to taxpayers and enforcing the tax laws. Accurate Cost Information Would Help IRS Make Resource Allocation Decisions

Managing a federal agency as large and complex as IRS requires managers  to constantly weigh the relative costs and benefits of different approaches  to achieving the goals mandated by the Congress. Productivity Improvements Could Help Offset Budget Cuts

IRS needs to make the most use of its available resources and a key to this  is improved productivity. Additional Management Improvements Needed for BSM Success

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.
Why GAO Did This Study

Since the passage of the IRS Restructuring and Reform Act of 1998 (RRA 98), the Internal Revenue Service (IRS) has faced the challenge of managing its resources to simultaneously improve service to taxpayers, assure taxpayers' compliance with the tax laws, and modernize its antiquated information systems. As requested, this statement provides our assessment of IRS's current performance in the areas of taxpayer service, tax law enforcement, and systems modernization. Looking ahead, this statement also describes the challenges that IRS faces in addressing resource constraints as well as realizing efficiency and information systems improvements.

What GAO Found

IRS's most noticeable progress has been in IRS's taxpayer service, which has been of special concern to the Congress. Since the passage of RRA 98, improvements in access to IRS by telephone, the accuracy of answers given to taxpayer inquiries, and the growth of IRS's Web site, which now provides a variety of services, have been noteworthy accomplishments. IRS experienced declines in enforcement staffing after 1998, but recently stopped the declines and begun to show increases. Despite this, enforcement remains a high risk area because of the continued need to improve enforcement and make progress towards reducing the tax gap. IRS has made significant progress in establishing management controls and acquiring infrastructure as part of the BSM program, as well as significant progress in addressing financial management issues. However, BSM remains at risk because of the scope and complexity of modernization activities and the need for better management capacity to avoid repeating the program's history of schedule delays and cost overruns. Looking ahead, continuing the progress described above depends on IRS addressing resource constraints and realizing efficiency and systems improvements. We highlight several such opportunities: (1) developing long-term goals would help IRS and Congress assess agency performance and make budget decisions, (2) considering additional funding enhancements such as user fees and private debt collection which may help mitigate budget constraints, (3) leveraging nonfederal partners such as states to assist with tax law enforcement and volunteers to help provide taxpayer service, (4) prioritizing taxpayer service activities could help IRS minimize the impact of budget cuts, (5) targeting enforcement resources could help IRS make more efficient use of available resources and help the agency make progress towards reducing the tax gap, (6) creating the necessary systems to enable IRS to develop accurate cost accounting information would help IRS make resource allocation decisions, (7) developing and using better productivity data would help IRS make productivity improvements and thereby make better use of available resources, (8) making needed management improvements would help IRS bring planned new information systems on-line in a timely and cost-effective manner, and (9) making needed improvements to assure information systems security would reduce vulnerabilities.