	Tax Administration: IRS’ Fiscal Year 1996 and 1997 Budget Issues and the 1996 Filing Season

Madam Chairman and Members of the Subcommittee: We are pleased to be here today to participate in the Subcommittee’s inquiry into the Internal Revenue Service’s (IRS) financial condition for 1996, the status of the 1996 filing season, and the administration’s fiscal year 1997 budget request for IRS. Overview of IRS’ Financial Condition in Fiscal Year 1996

IRS’ fiscal year 1996 appropriation was $7.3 billion. That amount was about $860 million less than the President requested for fiscal year 1996 and about $160 million less than IRS’ fiscal year 1995 appropriation. On June 30, 1995, IRS announced a hiring freeze. Because IRS’ cost-cutting measures for fiscal year 1996 focused on seasonal and nonpermanent staff, these two programs were significantly affected. Statistics on the number of notices sent to taxpayers in 1996 concerning SSN problems and refund delays indicate that IRS is indeed delaying fewer refunds. Telephone Accessibility

For the past several years, taxpayers have had difficulty reaching IRS by telephone. In this regard, IRS is requesting an additional $29 million for Cyberfile, an electronic filing system. (2) does IRS have reliable data on the revenue generated by its enforcement activities?
Why GAO Did This Study

GAO examined the Internal Revenue Service's (IRS) financial condition, focusing on the: (1) status of the 1996 filing season; and (2) IRS fiscal year (FY) 1997 budget request.

What GAO Found

GAO found that: (1) the FY 1996 appropriation for IRS was $7.3 billion, $860 million less than the President requested and $160 million less than the FY 1995 IRS appropriation; (2) to mitigate the funding shortfall, IRS initiated a hiring freeze and reduced its travel and overtime costs, cash awards, hours for seasonal staff, and nonpermanent staff; (3) IRS is delaying fewer refunds in 1996 and validating taxpayers' social security numbers and earned income credit claims; (4) taxpayers are having an easier time contacting IRS by telephone, with the accessibility rate increasing 9 percent over 1995; (5) IRS is requesting a budget increase of $647 million for FY 1997 to develop certain compliance initiatives and correct weaknesses in the Tax Systems Modernization Program (TSM); and (6) IRS is having problems ensuring data accuracy for revenue generated by its enforcement activities and correcting TSM managerial and technical weaknesses.