	The FY 2009 Budget Request Proposes to Maintain Taxpayer Service at Recent Levels and Increase Enforcement

The President’s budget request is proposing to maintain taxpayer service  levels with fewer staff by realizing efficiency gains; it also proposes to  increase enforcement by adding staff. The President’s FY 2009 budget  request of $11.4 billion for IRS is 4.3 percent more than the FY 2008  enacted budget and represents an increase of less than 1 percent for  taxpayer service and 7 percent for enforcement, as shown in table 1. In order to maintain taxpayer service at recent levels despite a decrease in  real spending and staffing, IRS expects to realize efficiency gains. The budget request for IRS’s enforcement programs includes  nonlegislative and legislative initiatives. The revenue expected from IRS’s enforcement initiatives is modest  compared to the net tax gap, which was last estimated at $290 billion for  tax year 2001. If IRS were to fall behind in its hiring efforts, it  would not need all $226 million of the funding for staff for FY 2009  initiatives. Although the budget request for IRS provides performance measure data,  it does not provide ROI analyses for programs or activities other than the  new initiatives. We  recently reported that while IRS has continued to make progress in  implementing BSM projects and improving modernization management  controls and capabilities, challenges and risks remain, and further  improvements are needed. When  we asked about the impact of this reduction on its operations, IRS told us  that the proposed funding level will allow it to continue developing and  delivering its primary modernization projects but did not provide details  on how plans to deliver specific projects or benefits to taxpayers would be  affected. However, the agency has yet  to develop long-term plans for completing BSM and consolidating and  retiring legacy systems. IRS Estimates the Cost of Implementing the Economic Stimulus Legislation May Be Up to a Total of $767 Million and Expects Declines in Some Taxpayer Services

The Economic Stimulus Act of 2008 is resulting in a significant workload  increase not anticipated in the FY 2008 budget. As part of the legislation,  IRS received $202 million in a supplemental appropriation. As part of the legislation, IRS received a supplemental appropriation of  $202 million to help fund its costs for implementing the stimulus package. IRS is expecting 2.4 million additional telephone calls in March and April  with questions for IRS assistors about the economic stimulus legislation. IRS  originally estimated that the revenue foregone by shifting ACS staff to be  up to $681 million. Because of the increased call volume,  IRS expects its assistor level of service to drop from 82 percent (the 2008  goal) to as low as 74 percent—the lowest level since 2002. IRS is already  experiencing some declines in telephone service.
Why GAO Did This Study

The fiscal year 2009 budget request for the Internal Revenue Service (IRS) is a road map for how IRS plans to allocate resources and achieve ambitious goals for improving enforcement, improving taxpayer service, increasing research, and continuing to invest in modernized information systems. One complicating factor in implementing IRS's plans in the immediate future is the recent passage of the Economic Stimulus Act of 2008, which creates additional, unanticipated workload for IRS. GAO was asked to (1) assess how the President's budget request for IRS allocates resources and justifies proposed initiatives; (2) determine the status of IRS's efforts to develop and implement its Business Systems Modernization (BSM) program; and (3) determine the total costs of administering the economic stimulus legislation. To meet these objectives, GAO drew upon and updated recently issued reports.

What GAO Found

The President's fiscal year 2009 budget request for IRS is $11.4 billion, 4.3 percent more than last year's enacted amount. The request proposes to maintain taxpayer service at recent levels, in part by realizing efficiency gains from electronic filing, despite a decrease in staffing. It also proposes a 7 percent increase in enforcement spending, including spending for 21 legislative and nonlegislative initiatives. The legislative proposals are projected to cost $23 million in fiscal year 2009, funding that IRS would not need if the proposals are not enacted. Similarly, if IRS were to fall behind in its proposed enforcement hiring efforts, it would not need all $226 million of the associated funding. IRS justified its nonlegislative enforcement initiatives with return on investment (ROI) analyses, which are useful, despite limitations, for making resource allocation decisions. The budget request does not provide ROI information for activities that constitute a large part of the budget request--activities other than the proposed initiatives. The request for BSM is over $44 million lower than the fiscal year 2008 enacted amount. IRS said this funding level will allow it to continue its primary modernization projects, but it did not describe how specific projects or benefits to taxpayers would be affected. IRS has continued to make progress in implementing BSM projects and improving modernization management controls and capabilities. However, further improvements are needed. For example, the agency has yet to develop long-term plans for completing BSM and consolidating and retiring legacy systems. IRS estimated that the costs of implementing the economic stimulus legislation may be up to a total of $767 million--including a $202 million supplemental appropriation. In addition to the supplemental appropriation, IRS is reallocating hundreds of collections staff to answering taxpayer telephone calls, resulting in up to $565 million in foregone enforcement revenue. In addition, IRS expects some deterioration in telephone service because of the increased call volume. For example, IRS is expecting its assistor level of service to drop to as low as 74 percent compared to its goal of 82 percent.