IRS 2017 BUDGET

IRS Could Improve 

Presentation of 

Budget Data in Its 

Congressional 

Justification

Report to the Subcommittee on 

Financial Services and General 

Government, Committee on 

Appropriations, U.S. Senate

July 2016

GAO-16-695

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-16-695, a report to the 

Subcommittee on Financial Services and 

General Government, Committee on 

Appropriations, U.S. Senate.

July 2016

IRS 2017 BUDGET

IRS Could Improve Presentation of Budget 

Data in Its Congressional Justification

What GAO Found

Congressional justification data. The Internal Revenue Service (IRS) has 

taken steps to manage its budget more strategically but did not make linkages 

between priorities and appropriations accounts. IRS prioritized a subset of its 19 

strategic objectives for action and established six themes that represent its 

“future state” vision for tax administration. In the fiscal year 2017 congressional 

justification (CJ), IRS linked requests for increased funding to themes and 

included details on how much would be funded by each appropriation account. 

However, IRS did not provide data on how much it spends in support of each 

theme or the amount of funding needed to maintain current levels by theme. IRS 

is working to develop such data, but officials cited challenges with data 

availability and tracking spending by themes. Such information would provide 

transparency on the current funding levels which assist Congress in making

informed budget decisions.

User fee spending. IRS has permanent, indefinite authority to obligate and 

spend user fee collections, which it obligates as part of its budget execution 

process. IRS’s user fee spend plan must be approved by both the Department of 

the Treasury (Treasury) and the Office of Management and Budget. IRS was 

directed to wait 30 days following the submission of the user fee spend plan to 

Congress before obligating funds. As seen in the table, planned user fee 

spending increased more than $220 million (79 percent) between fiscal years 

2011 and 2016. Of the $509 million planned user fee obligations in fiscal year 

2016, the largest amounts are for the Patient Protection and Affordable Care Act

($204 million) and the Foreign Account Tax Compliance Act ($62 million).

User Fee Funding Obligated by IRS Appropriation Account, Fiscal Year 2011 through 2015 

Actuals, and 2016 Planned (Dollars in Millions) 

Appropriation account FY 2011 FY 2012 FY 2013 FY 2014

FY 

2015

FY 2016

(planned)

Taxpayer Services $129 $175 $191 $183 $45 $103

Operations Support 54 132 184 222 393 396

Business Systems 

Modernization 89 - - - - -

Enforcement 13 19 20 15 21 10

Total obligated $285 $326 $395 $420 $459 $509

Source: GAO analysis of IRS data. │ GAO-16-695

Notes: FY=fiscal year. 

Information technology data. The President’s budget requested $2.8 billion for 

IRS’s information technology (IT) investments which accounted for 21 percent of 

IRS’s budget request for fiscal year 2017. Instead of presenting its IT investment 

data in its CJ, IRS moved them to a Treasury website. This is consistent with 

other Treasury bureaus and was intended to provide time for an enhanced data 

review process. However, despite the review process, Treasury did not detect an

error which resulted in IRS underreporting its total IT investments by about $4 

million. According to federal internal control standards, ongoing monitoring 

should occur in the course of normal operations. Data errors could negatively 

affect Congress’s ability to make budget decisions and provide oversight.

View GAO-16-695. For more information, 

contact James R. McTigue, Jr. at (202) 512-

9110 or mctiguej@gao.gov. 

.

Why GAO Did This Study

Funding the federal government 

depends largely upon IRS’s ability to 

collect taxes, including providing 

taxpayer services that make voluntary 

compliance easier and enforcing tax 

laws to ensure compliance with tax 

responsibilities. For fiscal year 2017, 

the President requested $12.3 billion in 

appropriations for IRS; the request is 

almost $1 billion (9 percent) more than 

IRS’s fiscal year 2016 appropriation.

Because of the size of IRS’s budget

and the importance of its service and 

compliance programs for all taxpayers, 

GAO was asked to review the fiscal 

year 2017 budget request for IRS. In 

March 2016, GAO reported interim 

information on IRS’s budget. This 

report assesses (1) the extent to which 

IRS’s fiscal year 2017 CJ presents 

data on requested funding levels by 

appropriation accounts and in 

alignment with agency priorities, (2) 

IRS’s management and allocation of 

user fees, and (3) the costs and 

reporting of IRS’s IT investments. GAO 

reviewed the fiscal year 2017 CJ, 

documentation on IRS’s vision for the 

future state, IRS budget plans, IT

investment reports, and IRS budget 

data for fiscal years 2011 to 2017, 

interviewed IRS officials, and met with 

congressional appropriations staff to 

discuss the information they want 

included in the CJ.

What GAO Recommends

GAO recommends that IRS ensure the 

CJ includes data on the amount of 

funding requested to maintain current 

services for each future state theme, 

and that Treasury ensure the accuracy 

of Treasury-generated IRS IT 

investment reports. IRS and Treasury 

agreed with the recommendations.
Page i GAO-16-695 IRS 2017 Budget

Letter 1

Background 3

IRS Did Not Fully Link Future State Themes to Appropriation 

Accounts in Its 2017 Congressional Justification 8

IRS Used Its Flexibility to Spend User Fee Revenue to Fund 

Priorities 11

IRS Changed Reporting of Major IT Investments, but Treasury 

Lacked Controls to Detect Errors in Reporting Certain IT 

Spending Data 16

Conclusions 20

Recommendations for Executive Action 21

Agency Comments and Our Evaluation 21

Appendix I Internal Revenue Service Funding and Full-Time Equivalents Data 

from Fiscal Year 2011 through 2017 23

Appendix II Summary of the Internal Revenue Service’s Major Information 

Technology Investments 25

Appendix III Our Open Budget-Related Recommendations to the Internal Revenue 

Service 28

Appendix IV Comments from the Internal Revenue Service 31

Appendix V GAO Contact and Staff Acknowledgments 33

Tables

Table 1: IRS Allocation of $290 Million Increase in Appropriations 

from Fiscal Years 2015 to 2016 (Dollars in Millions) 7

Table 2: IRS Fiscal Year 2016 Allocation of User Fee Revenue 

(Dollars in Millions) 12

Contents
Page ii GAO-16-695 IRS 2017 Budget

Table 3: User Fee Funds Obligated by IRS Appropriation Account, 

Fiscal Year 2011 through 2015 Actuals, and 2016 

Planned (Dollars in Millions) 14

Table 4: IRS User Fee Carryover Balances from Fiscal Year 2011 

through 2015 Actuals and 2016 Estimates (Dollars in 

Millions) 16

Table 5: Internal Revenue Service (IRS) Funding, Fiscal Years 

2011 through 2016 Enacted and 2017 Requested (Dollars 

in Millions) 23

Table 6: Internal Revenue Service (IRS) Full-Time Equivalents 

(FTE), Fiscal Years 2011 through 2015 Actual, 2016 

Enacted, and 2017 Requested 24

Table 7: Major IT Investments (Dollars in Millions) 25

Figures

Figure 1: Cybersecurity Funding at IRS, Fiscal Years 2014 

Estimated, 2015 Actual, 2016 Enacted, and 2017 

Requested (Dollars in Millions) 8

Figure 2: IRS’s Fiscal Year 2017 Requested Increase by Program 

and Appropriation Account (Dollars in Millions) 10

Figure 3: Information Technology Investments, Fiscal Years 2011 

through 2015 Actual, 2016 Enacted, and 2017 Requested 

(Dollars in Millions) 17

Figure 4: Major Information Technology Investments by Funding 

Source, Fiscal Year 2017 Requested (Dollars in Millions) 18
Page iii GAO-16-695 IRS 2017 Budget

Abbreviations

CJ congressional justification

FTE full-time equivalent

IRS Internal Revenue Service

IT information technology

OMB Office of Management and Budget

PPACA Patient Protection and Affordable Care Act

SPIKE SharePoint Investment Knowledge Exchange

Treasury Department of the Treasury

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Page 1 GAO-16-695 IRS 2017 Budget

441 G St. N.W.

Washington, DC 20548

July 21, 2016

The Honorable John Boozman

Chairman

The Honorable Christopher A. Coons

Ranking Member

Subcommittee on Financial Services

 and General Government

Committee on Appropriations

United States Senate

Funding the federal government depends largely upon the Internal 

Revenue Service’s (IRS) ability to collect taxes—in fiscal year 2015, IRS 

collected about $3.3 trillion (before tax refunds of $403 billion), or 93 

percent of total federal government receipts. IRS’s mission is to provide 

taxpayers top-quality services by helping them understand and meet their 

tax responsibilities, and to enforce the law with integrity and fairness. For 

fiscal year 2017, the President requested $12.3 billion in annual 

appropriations for IRS, about $1 billion (9 percent) more than fiscal year 

2016 enacted levels.1 In March 2016, we reported that IRS’s fiscal year 

2016 appropriation increased by $290 million to $11.2 billion over fiscal 

year 2015 levels, with the increases being targeted to improve taxpayer 

service, combat identity theft, and improve cybersecurity.2 In that report, 

we also reported that IRS appropriations remain about 7 percent below 

fiscal year 2011 levels. Full-time equivalent staff members funded by 

annual appropriations declined by 12,000 between fiscal year 2011 and 

fiscal year 2016, a 13 percent reduction. We also reported that these 

declines have contributed to fluctuations in taxpayer service and longer 

wait times on the phones than taxpayers have historically experienced.

Because of the size of IRS’s budget and the importance of its service and 

compliance programs for all taxpayers, you asked us to review the fiscal 

year 2017 budget request for IRS. In this report, we assess (1) the extent 

 1

For IRS budget and full-time equivalent data, see appendix I.

2

GAO, Internal Revenue Service: Preliminary Observations on the Fiscal Year 2017 

Budget Request and 2016 Filing Season Performance, GAO-16-459R (Washington, D.C.: 

Mar. 8, 2016).

Letter
Page 2 GAO-16-695 IRS 2017 Budget

to which IRS’s fiscal year 2017 congressional justification (CJ) presents 

data on requested funding levels by appropriation accounts and in

alignment with agency priorities, (2) IRS’s management and allocation of 

user fees, and (3) the costs and reporting of IRS’s information technology 

investments.

To assess the extent to which the CJ provides data on funding levels by 

appropriation accounts and agency priorities, we reviewed IRS 

documentation on the implementation of the future state vision and on the 

process used to prioritize requested program increases—the future state 

is IRS’s vision for the future of tax administration to help IRS more

efficiently and effectively implement its mission. We reviewed the CJs

from fiscal years 2013 through 2017 for spending and staffing data, and 

for changes to the budget presentation. During a meeting with 

appropriations staff from both the majority and the minority, we discussed 

their needs for obtaining information to make appropriations decisions as 

IRS makes changes in its budget presentation. To describe IRS’s user 

fee funding, we reviewed IRS’s authority to collect and obligate user fees, 

the President’s budget requests from fiscal years 2013 through 2017, and 

IRS budget and planning documents.3 To assess the costs of IRS’s 

information technology (IT) investments, we reviewed congressional 

justifications, capital investment plans and summaries, and IRS data for 

fiscal years 2011 to 2017. We analyzed reported cost and schedule data 

for major IT investments and interviewed Department of the Treasury 

(Treasury) officials to assess the accuracy of these data and the 

procedures used to report information to Congress. We compared data 

reported in the fiscal year 2016 CJ and the fiscal year 2017 capital 

investment plan and summary, and assessed the extent to which IRS 

reporting complied with federal internal control standards.4 As applicable 

for each objective, we interviewed IRS Corporate Budget and IT officials,

and reviewed data collection procedures. We determined that the data 

used in this report were sufficiently reliable for our purposes. 

 3

The President’s budget request for fiscal year 2013 contains actual data from fiscal year 

2011. The President’s budget request for fiscal year 2014 contains actual data for fiscal 

year 2012.

4

GAO, Standards for Internal Control in the Federal Government, GAO-14-704G 

(Washington, D.C.: September 2014).
Page 3 GAO-16-695 IRS 2017 Budget

We conducted this performance audit from December 2015 to July 2016 

in accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

Funding requests for IRS are organized by appropriation account, which 

aligns broadly with its strategic goals to (1) deliver high-quality and timely 

service to reduce taxpayer burden, and encourage voluntary compliance; 

and (2) effectively enforce the law to ensure compliance with tax 

responsibilities and combat fraud. IRS funds its IT investments from its 

Operations Support and Business Systems Modernization appropriation 

accounts. IRS’s four appropriation accounts and the fiscal year 2016 

appropriations are as follows:5

• Enforcement ($4.86 billion): Funds activities such as determining and 

collecting owed taxes, providing legal and litigation support, and 

conducting criminal investigations.

• Operations Support ($3.75 billion): Funds activities including rent and 

facilities expenses, IRS-wide administration activities, and IT 

maintenance and security.

• Taxpayer Services ($2.33 billion): Funds taxpayer service activities 

and programs, including prefiling assistance and education, filing and 

account services, and taxpayer advocacy services.

 5

In addition to the amount appropriated to these four accounts, IRS supplements its 

budgetary resources through collections, such as user fees, which are not appropriated 

annually. Also, in addition to the appropriations for these four accounts, $290 million was 

appropriated for “measurable improvements in the customer service representative level 

of service rate, to improve the identification and prevention of refund fraud and identity 

theft, and to enhance cybersecurity to safeguard taxpayer data” to be transferred to the 

Enforcement, Operations Support, or Taxpayer Services accounts. Pub. L. No. 114-113, 

div. E, § 113, 129 Stat. 2242, 2430 (Dec. 18, 2015). The amounts listed here reflect those 

transfers. 

Background

IRS Budget Structures
Page 4 GAO-16-695 IRS 2017 Budget

• Business Systems Modernization ($290 million): Funds the planning 

and capital asset acquisition of IT to modernize IRS business 

systems.

In support of the President’s budget request, agencies submit CJs to 

Congress to explain the request by outlining agency goals and objectives 

for the coming fiscal year, and providing detailed descriptions of activities 

at the program, project, and activity level. Agencies are to prepare the 

justifications in accordance with the Office of Management and Budget’s 

(OMB) Circular A-11 which provides guidance on materials required for 

the agency’s request and reflects the needs of the Congress for providing 

effective oversight.6

Since 2014, IRS has undertaken a multiyear effort to develop a vision for 

the future state of tax administration to fulfill its mission more efficiently 

and effectively. To focus this effort, IRS narrowed 19 existing objectives 

to a core set of objectives that were used to develop six future state 

themes:

1. Facilitate voluntary compliance by empowering taxpayers with secure 

innovative tools and support.

2. Understand noncompliant taxpayer behavior and develop approaches 

to deter and change it.

3. Leverage and collaborate with external stakeholders.

4. Cultivate a well-equipped, diverse, skilled, and flexible workforce.

5. Select highest value work, using data analytics and a robust feedback 

loop.

6. Drive more agility, efficiency, and effectiveness in IRS operations.

These future state themes are in addition to Treasury’s department-wide 

focus on strengthening cybersecurity and eliminating identity theft. IRS 

reported that it adopted a new, more strategic approach to identify and 

select budget program priorities based on the future state themes.

 6

Office of Management and Budget, Circular No. A-11, Preparation, Submission, and 

Execution of the Budget, (Washington, D.C.: June 2015).

Future State
Page 5 GAO-16-695 IRS 2017 Budget

A user fee is charged to beneficiaries of certain goods or services 

provided by the federal government.7 In general, a user fee is related to a 

voluntary transaction or request for government goods or services above 

and beyond what is normally provided to the public. Although IRS 

services and operations are primarily funded through annual 

appropriations, IRS has the authority to supplement its appropriations 

with other resources, such as user fees. Until 1995, IRS user fee 

collections were deposited into the Treasury’s general fund. In 1995, 

Congress granted IRS authority to retain and obligate up to $119 million 

in user fee revenue to supplement its annual appropriation.8 In 2005, 

Congress removed the limit of $119 million and IRS was permitted to 

retain and obligate user fees that were implemented after September 30, 

1994, or the portion of the fee that has been increased since September 

30, 1994, for those fees that existed prior to that date.9 For example, fees 

for installment agreements—monthly payment plans for taxes owed—

were established after September 30, 1994, and therefore IRS retains the 

full amount of the fee collected. However, the fee for enrolling as an 

actuary is divided between IRS and the general fund of the Treasury 

because this user fee existed prior to September 30, 1994.

In fiscal year 2016, IRS expects to collect about $422 million in user fee 

revenue from sources such as installment agreements (about $155 

million) and income verification express services (about $51 million). IRS 

deposits user fees that it is authorized to retain into its Miscellaneous 

Retained Fees Fund—an estimated $411 million in fiscal year 2016—

before transferring funds to an appropriation account to be obligated. For 

fiscal year 2016, planned user fee obligations ($509 million) account for 

about 4 percent of IRS’s total obligations ($12,374 million). IRS’s user fee

funds are available until expended (no-year funds) and funds that are not 

obligated in the fiscal year in which they are collected are carried over to 

the next fiscal year.

 7

GAO, A Glossary of Terms Used in the Federal Budget Process, GAO-05-734SP 

(Washington, D.C.: September 2005).

8

Pub. L. No. 103-329, title 1, § 3, 108 Stat. 2382, 2388–2389 (Sept. 30, 1994).

9

Pub. L. No. 109-115, div. A, title II, § 209, 119 Stat. 2396, 2439 (Nov. 30, 2005).

User Fees
Page 6 GAO-16-695 IRS 2017 Budget

IT comprises a significant portion of IRS’s budget and plays a critical role 

in enabling IRS to carry out its mission and responsibilities. IRS’s fiscal 

year 2016 appropriations include about $2.5 billion for IT investments; this 

represents 20 percent of the total IRS budget.10 IRS relies on IT systems 

to process tax returns, account for tax revenues collected, send bills for 

taxes owed, issue refunds, assist in the selection of tax returns for audit, 

and provide telecommunications services for all business activities, 

including providing taxpayers with toll-free access to tax information, 

among other things.

IRS’s fiscal year 2016 appropriations increased by $290 million. IRS is 

required by law to allocate these funds across three areas: customer 

service representative level of service, cybersecurity, and identity theft 

prevention.11 IRS plans to use this funding to invest in (1) increased 

telephone level of service, including reduced wait times and improved 

performance on IRS’s Taxpayer Protection Program/Identity Theft Toll 

Free Line; (2) cybersecurity, including network security improvements, 

protection from unauthorized access, and enhanced insider threat 

detection; and (3) identity theft refund fraud prevention. As shown in table 

1, cybersecurity was allocated almost one-third of the funding, solely from 

the Operations Support appropriation account. This funding includes $7 

million (50 additional full-time equivalents) to maintain the cybersecurity 

workforce.

 10Total IT investments ranged from 19 to 21 percent of total budgetary resources from 

fiscal years 2011 to 2017.

11Consolidated Appropriations Act, 2016, Pub. L. No. 114-113, div. E, § 113, 129 Stat. 

2242, 2430 (Dec. 18, 2015). 

Information Technology 

and Appropriations 

Increases
Page 7 GAO-16-695 IRS 2017 Budget

Table 1: IRS Allocation of $290 Million Increase in Appropriations from Fiscal Years 2015 to 2016 (Dollars in Millions)

Appropriation account

Areas of increase

Taxpayer Services Cybersecurity

Identity Theft

Prevention

Total 

(percentage)

Taxpayer Services 176.6 — 0.2 176.8 

(61.0%)

Operations Support 1.8 95.4 11.0 108.2 

(37.3%)

Enforcement — — 4.9 4.9 

(1.7%)

Total (percentage) 178.4 

(61.5%)

95.4 

(32.9%)

16.1 

(5.6%) 

290.0

(100.0%)

Source: GAO analysis of Internal Revenue Service (IRS) data. | GAO-16-695

Note: Numbers may not sum to totals because of rounding.

Cybersecurity efforts are intended to protect taxpayer information and 

IRS’s systems, services, and data from internal and external cyberrelated threats. Cybersecurity funding increased by 58 percent from fiscal 

years 2015 to 2016, primarily from increased appropriations as shown in 

figure 1. 
Page 8 GAO-16-695 IRS 2017 Budget

Figure 1: Cybersecurity Funding at IRS, Fiscal Years 2014 Estimated, 2015 Actual, 

2016 Enacted, and 2017 Requested (Dollars in Millions)

Note: IRS officials said that the fiscal year 2014 amount is an estimate because it did not track 

cybersecurity costs separately from identity theft prevention and refund fraud until fiscal year 2015.

The President’s fiscal year 2017 budget also requests cybersecurity funds 

provided through a Treasury Cybersecurity Enhancement Account, which 

is intended to bolster Treasury’s overall cybersecurity posture. The 

request includes $62 million for IRS, including $54.7 million to directly 

support IRS cybersecurity efforts by securing data, improving continuous 

monitoring, and other initiatives.

IRS’s Senior Executive Team recognized that the 19 strategic objectives 

listed in the 2014-2017 IRS Strategic Plan were too broad a set of 

priorities for IRS future state vision. In January 2015, the Senior 

Executive Team agreed on six enterprise themes to support the future 

state vision that aligned with a subset of the strategic objectives and were 

informed by the needs of the business units.

IRS modified its approach to prioritizing programs and initiatives for 

requested funding increases in fiscal year 2017. In January 2015, the 

Office of Planning, Programming and Audit Oversight asked the operating 

IRS Did Not Fully Link 

Future State Themes 

to Appropriation 

Accounts in Its 2017 

Congressional 

Justification
Page 9 GAO-16-695 IRS 2017 Budget

divisions to submit program increase proposals they believed necessary 

for IRS to achieve its priorities. This office reviewed the proposals to 

ensure they aligned with IRS’s strategic plan and submitted them to the 

Senior Executive Team for consideration. The Senior Executive Team 

prioritized the proposed program increases through a voting process to 

ensure that they aligned with IRS’s strategy and resource needs.

According to IRS officials, funding increases were requested for fewer 

programs as a result of this new approach. Specifically, in the fiscal year 

2017 CJ, increases were requested for 14 programs, whereas in the fiscal 

year 2016 CJ, increases in 25 programs were requested. 

In its fiscal year 2017 CJ, IRS explained how requests for increased 

funding were linked to appropriations accounts, but it did not provide this 

information for the amount requested to maintain current funding levels. 

IRS linked each requested program increase to a future state theme and 

included details on how much of the requested increase would be funded 

by each of the four appropriation accounts.12 Figure 2 shows each of the 

14 program increase requests organized by theme or focus area, with 

funding requested broken out by appropriation account. Including data on 

the appropriation account provides additional transparency and improves 

the quality of the information available to Congress for budget 

deliberations.

 12IRS only listed program increases under three of the six themes in the fiscal year 2017 

CJ.
Page 10 GAO-16-695 IRS 2017 Budget

Figure 2: IRS’s Fiscal Year 2017 Requested Increase by Program and Appropriation Account (Dollars in Millions)

However, IRS did not provide data on how much it is currently spending 

in support of each theme. As a result, it is unclear what amount of funding 

would be required to maintain current levels by theme. According to 

officials, IRS is working to develop such data, but officials cited technical 

challenges with data availability and comparability as well as challenges 
Page 11 GAO-16-695 IRS 2017 Budget

identifying spending for specific themes, some of which are worded 

broadly. 

OMB Circular A-11 requires that an agency prepare justifications in 

concise, specific terms and cover all programs and activities of the 

agency. Additionally, the guidance specifies that an agency should 

consult with relevant congressional appropriations committees to confirm 

their support for modifications to the CJ’s format. In adopting a new 

approach by prioritizing a subset of objectives, IRS modified how its 

budget data were organized, but did not clarify how spending by themes 

relates to appropriation accounts. Congressional appropriations’ staff 

from both the majority and minority with whom we spoke told us they 

wanted more information on base spending by theme and account. Such 

information is important to ensure transparency on the current funding 

levels to assist Congress in making informed budget decisions. 

IRS has permanent, indefinite authority to obligate user fee collections. 

This authority allows the agency flexibility in the use of these funds. While 

IRS does not need congressional approval of its user fee spend plan, it 

must obtain approval from Treasury and OMB. Additionally, for fiscal year 

2016, IRS was directed to wait 30 days following the submission of the 

user fee spend plan to Congress before obligating these funds.13

IRS’s Chief Financial Officer has oversight responsibilities for the initial 

assessment, updates, collection, and review of user fees. While the Chief 

Financial Officer does not provide the services for which user fees are 

charged, the office is responsible for ensuring that user fees are 

appropriately collected, deposited, and reported.14 As seen in table 2, IRS 

 13161 Cong. Rec. H10135 (Dec. 17, 2015).

14GAO-12-193.

IRS Used Its 

Flexibility to Spend 

User Fee Revenue to 

Fund Priorities

IRS Allocated User Fees 

as Part of Its Broader 

Budget Execution Process 
Page 12 GAO-16-695 IRS 2017 Budget

plans to allocate $509 million of user fee revenues in fiscal year 2016 

across three appropriation accounts. This represents 4 percent of IRS’s 

total obligations in fiscal year 2016 ($12.37 billion).

Table 2: IRS Fiscal Year 2016 Allocation of User Fee Revenue (Dollars in Millions)

Appropriation Account

Taxpayer 

Services Enforcement

Operations 

Support Total

Patient Protection and Affordable Care Act Information 

Technology - - $203.5 $203.5

Foreign Account Tax Compliance Act - - 62 $62

eRecords Management - - 52 $52

Health Coverage Tax Credit 19.6 0.7 27.7 $48

Level of Service 40 $40

Achieving a Better Life Experience Act - - 30 $30

Submission Processing 20 - - $20

Recurring IT Needs - - 19.5 $19.5

Online Services 12 - - $12

Return Preparer Program - 9.2 - $9.2

E-Authentication Contract 8 - - $8

Photocopy Program 3.9 - - $3.9

Office of Personnel Management Investigative Rate 

Increase - - 1 $1

Historical Easement Fee - 0.2 - $0.2

Total $103.5 $10.2 $395.7 $509.3

Source: GAO analysis of IRS data. │ GAO-16-695

Note: Numbers may not sum to totals because of rounding. User fees under the Return Preparer 

Program and the Photocopy Program are applied only towards the reimbursement of the costs of 

managing those two programs respectively. The Historical Easement Fee is required to be used to 

fund enforcement compliance with that specific requirement. 26 U.S.C. § 170(f)(13)(C). 

IRS allocates user fee revenues as part of its budget execution process 

and began planning for fiscal year 2016 allocations in April 2015. IRS 

allocates user fee revenue to fund agency priorities for which other 

funding was unavailable, but does not generally consider the source of 
Page 13 GAO-16-695 IRS 2017 Budget

funds when making these decisions.15 Budget officials briefed members 

of the Senior Executive Team and the IRS Commissioner multiple times 

between September 2015 and January 2016, including on preliminary 

estimates of user fee spending. According to IRS officials, IRS sends a 

draft of the user fee spend plan to Treasury within 30 days of its budget 

being enacted and finalizes the plan within 60 days. However, IRS began 

fiscal year 2016 operating under a continuing resolution until December, 

so the user fee spend plan was submitted to Congress in February 

2016.16

In May 2016, IRS announced that it is revising a number of existing user 

fees to more closely match the cost of providing the service and 

implementing new user fees for some additional services as a result of its 

2015 Biennial Fee Review. Agencies are required to review, on a biennial 

basis, the fees, royalties, rents, and other charges for services and things 

of value and make recommendations on revising those charges to reflect 

costs incurred.17 IRS expects total annual user fee revenue to increase by 

$128 million when the fees are fully implemented. Officials said they plan 

to continue their current policy regarding how user fee revenue is 

allocated.

According to IRS officials, the planning process for allocating user fee 

revenue has been consistent between fiscal years 2011 and 2016. 

However, according to IRS officials, changes in appropriation levels and 

the cost of implementing mandates has resulted in a shift in how user fee 

revenue has been allocated. As shown in table 3 and the sidebar, both 

the amount and allocation of user fee funds shifted between fiscal years 

2011 and 2016. 

 15User fees under the Return Preparer Program and the Photocopy Program are applied 

only towards the reimbursement of the costs of managing those two programs 

respectively. The Historical Easement Fee is required to be used to fund enforcement 

compliance with that specific requirement. 26 U.S.C. § 170(f)(13)(C). In fiscal year 2016, 

this totaled $13.3 million.

16For more information about continuing resolutions, see GAO, Continuing Resolutions: 

Uncertainty Limited Management Options and Increased Workload in Selected Agencies, 

GAO-09-879 (Washington, D.C.: Sept. 24, 2009).

1731 U.S.C. § 902(a)(8). Also, see OMB Circular A-25, § 8(e).

IRS Officials Cited Change 

in Appropriations and Cost 

of Implementing Mandates 

for Shift in User Fee 

Allocations
Page 14 GAO-16-695 IRS 2017 Budget

Table 3: User Fee Funds Obligated by IRS Appropriation Account, Fiscal Year 2011 through 2015 Actuals, and 2016 Planned 

(Dollars in Millions) 

Appropriation account

Fiscal year

2011 2012 2013 2014 2015

2016

(planned)

Taxpayer Services $129 $175 $191 $183 $45 $103

Operations Support 54 132 184 222 393 396

Business Systems Modernization 89 - - - - -

Enforcement 13 19 20 15 21 10

Total obligated $285 $326 $395 $420 $459 $509

Source: GAO analysis of IRS data. │ GAO-16-695

As we reported in June 2015, IRS management decided to allocate more 

user fee funds to Operations Support in fiscal year 2015, in part because 

of changes in the amount appropriated to its accounts and the cost of 

implementing mandates, such as the Patient Protection and Affordable 

Care Act (PPACA), which is largely funded by user fee revenue and 

Operations Support funds.18 Of the $1.6 billion spent on PPACA 

implementation between fiscal years 2010 and 2015, $465 million was 

user fee revenue (29 percent) and $467 million was annually appropriated 

Operations Support funds (29 percent).19 The fiscal year 2015 

appropriation for Operations Support was $161 million (4.2 percent) less 

than fiscal year 2014, while Taxpayer Services was not reduced during 

that time frame. In fiscal year 2015, IRS obligated $210 million in user fee 

revenue and $154 million from the Operations Support account for 

PPACA implementation.

 18GAO, IRS 2016 Budget: IRS Is Scaling Back Activities and Using Budget Flexibilities to 

Absorb Funding Cuts, GAO-15-624 (Washington, D.C.: June 24, 2015).

19The remaining PPACA funding between fiscal years 2010 and 2015 was from the 

Department of Health and Human Services Health Insurance Reform Implementation 

Fund ($559 million, 34 percent), Taxpayer Services ($77 million, 5 percent), and 

Enforcement ($53 million, 3 percent).

User Fee Allocations

Of the $509 million in user fee revenue IRS 

plans to allocate in fiscal year 2016, about 

$296 million (58 percent) is planned for 

implementing mandates required by the:

• Patient Protection and Affordable Care 

Act Information Technology ($203.5 

million),

• Foreign Account Tax Compliance Act 

($62 million), and 

• Achieving a Better Life Experience Act

($30 million).

Source: GAO analysis of IRS data. │ GAO-16-695
Page 15 GAO-16-695 IRS 2017 Budget

In addition to changes in the allocation of user fee funds across 

appropriation accounts, IRS has also changed the amount it retains and 

the amount it carries over to the next fiscal year. The amount of user fee 

revenue that IRS collected and retained increased from $324 million in 

fiscal year 2011 to $391 million in fiscal year 2015. As previously 

mentioned, IRS is implementing changes to user fees which it expects to 

generate an additional $128 million annually, all of which IRS is 

authorized to retain and spend. In fiscal year 2011, user fee obligations 

($285 million) accounted for 2.2 percent of IRS’s total obligations 

($12,777 million). For fiscal year 2016, planned user fee obligations ($509 

million) account for about 4 percent of IRS’s total obligations ($12,374 

million). 

These changes in the amount of funds that IRS retains and obligates 

have also affected the amount it carries over from one fiscal year to the 

next. As seen in table 4, IRS’s carryover balance has declined in recent 

years from about $327 million at the end of fiscal year 2011 to about $93 

million planned for the end of fiscal year 2016. This is potentially 

significant because, as we have previously reported, carryover balances 

can help agencies to sustain operations in the event of a sharp downturn 

in user fee collections or other events (see sidebar). However, this is less 

of consideration for programs that could also be funded through annual 

appropriations, as is the case with IRS. In briefings to the Senior 

Executive Team and to the IRS Commissioner, officials identified the low 

carryover balance from fiscal year 2016 to 2017 as a key risk because it 

decreases the funds available for future fiscal years. As part of budget 

deliberations, officials considered the tradeoffs between spending funds 

on priorities in the current budget year and maintaining a reserve for 

future years.

Carryover Balances 

IRS can carry over any unexpended fee 

collections—those funds left over after IRS 

transfers fee collections to supplement its 

appropriations—for use in subsequent years. 

We have suggested that carryovers are one 

way agencies can establish reserves to 

sustain operations in the event of a sharp 

downturn in user fee collections or other 

events. See GAO-08-386SP for additional 

information on user fee design.

Source: Pub. L. No. 103-329, title 1, § 3, 108 Stat. 2382, 

2388–2389 (Sept. 30, 1994) and GAO. │ GAO-16-695
Page 16 GAO-16-695 IRS 2017 Budget

Table 4: IRS User Fee Carryover Balances from Fiscal Year 2011 through 2015 Actuals and 2016 Estimates (Dollars in 

Millions) 

Fiscal year

2011 2012 2013 2014 2015 2016 (estimated)

Carryover balance, end of year 326.6 352.9 311.9 261.8 193.1 93.0

Source: IRS. │ GAO-16-695

IT is a significant portion—about 21 percent—of the total IRS budget 

request for fiscal year 2017. The President requested $2.8 billion for 

IRS’s IT investments in fiscal year 2017, an increase of about 15 percent. 

This includes a $391 million (65 percent) increase for non-major IT 

investments and a $33 million (2 percent) decrease for major IT 

investments as shown in figure 3.20

 20Treasury guidance defines a major investment as one that costs $10 million in either the 

current year or budget year, costs $50 million over the 5-year period extending from the 

prior year through 2 years after the budget year, or meets other specific criteria 

established by Treasury or OMB, such as having significant program or policy 

implications. OMB has instructed agencies not to categorize IT capital planning and Chief 

Information Officer function investments as major IT investments.

IRS Changed 

Reporting of Major IT 

Investments, but 

Treasury Lacked 

Controls to Detect 

Errors in Reporting 

Certain IT Spending 

Data

IRS Reported the Fiscal 

Year 2017 President’s 

Budget Request of $2.8 

Billion for IT Spending 

Differently Than in Prior 

Years
Page 17 GAO-16-695 IRS 2017 Budget

Figure 3: Information Technology Investments, Fiscal Years 2011 through 2015 Actual, 2016 Enacted, and 2017 Requested 

(Dollars in Millions)

Note: Numbers may not sum to totals because of rounding. 

IT investments are funded through the Operations Support and the 

Business Systems Modernization appropriation accounts and user fees. 

These investments generally support (1) day-to-day operations (which 

include operations and maintenance, as well as development, 

modernization, and enhancements to existing systems); and (2) 

modernization efforts in support of IRS’s goals. For IRS’s 23 major IT 

investments, the amount requested for fiscal year 2017 is $1.8 billion, 

which is funded primarily through the Operations Support appropriation 

account as shown in figure 4.21

 21See appendix II for a summary of IRS’s major IT investments. 
Page 18 GAO-16-695 IRS 2017 Budget

Figure 4: Major Information Technology Investments by Funding Source, Fiscal

Year 2017 Requested (Dollars in Millions)

In previous years, IRS reported data on its IT investments in the CJ in a 

Summary of Capital Investments and Portfolio of Major Investments. The 

Summary of Capital Investments listed major and non-major IT 

investment totals and major IT investments by funding source. The 

Portfolio of Major Investments included a comprehensive list and 

description of major IT investments. For fiscal year 2017, IRS moved the 

Summary of Capital Investments from the CJ to a link on Treasury’s 

website that was accessible 30 days following the release of the 

President’s budget.22 This website also includes a Capital Investment 

Plan, similar to the Portfolio of Major Investments. 

Treasury provides capital investment information on its website for each 

Treasury bureau. Treasury is required to submit a Capital Investment 

Plan to Congress no later than 30 days following the submission of the 

President’s budget.23 According to IRS and Treasury officials, Treasury 

 22http://www.treasury.gov/about/budget-performance/pages/summary-of-capitalinvestments.aspx. 

23Consolidated Appropriations Act, 2016, Pub. L. No. 114-113, div. E, § 123, 129 Stat. 

2242, 2432 (Dec. 18, 2015). 
Page 19 GAO-16-695 IRS 2017 Budget

asked IRS to move the capital investment information from the CJ to a 

separate website to give Treasury additional time to review the data to 

improve reliability. According to IRS officials, this approach also 

eliminated the possibility of administrative errors in transcribing data from 

one database to another. While the move delayed the availability of the 

IRS information, the timing was consistent with capital investment 

reporting by other Treasury bureaus.

In the fiscal year 2017 IRS Summary of Capital Investments, Treasury 

reported the non-major IT investment total inaccurately for the 3 fiscal 

years presented (fiscal years 2015 actual, 2016 enacted, and 2017 

requested). Treasury underreported the amounts by about $4 million (less 

than 1 percent) in each fiscal year. Consequently, Treasury also reported 

the IT total for major and non-major IT investments inaccurately. 

According to IRS and Treasury officials, this discrepancy was the result of 

an error introduced during the 30-day Treasury review process. IRS 

enters IT investment information into Treasury’s SharePoint Investment 

Knowledge Exchange (SPIKE) system.24 IRS and Treasury review and 

monitor the information before the Capital Investment Plan and the 

Summary of Capital Investments reports are generated. According to IRS 

officials, for fiscal year 2017, Treasury took a more active role in 

reviewing the information submitted by IRS on IT investments. During the 

review process, manual adjustments in SPIKE caused an error that 

resulted in two rows of non-major IT investments being excluded from the 

non-major IT total. 

We asked IRS about the discrepancy, and IRS approached Treasury with 

the issue and Treasury subsequently corrected the error in SPIKE and 

revised the Summary of Capital Investments on Treasury’s website. 

Stronger internal controls could help prevent such mistakes, such as 

effective monitoring of Treasury-generated IRS information technology 

investment reports. According to federal internal control standards, 

ongoing monitoring should occur in the course of normal operations. 

Monitoring should be performed continually and be ingrained in the 

agency’s operations. It includes regular management and supervisory 

 24SPIKE is Treasury’s capital planning portfolio management tool. SPIKE is used to 

generate data for the Capital Investment Plan and the Summary of Capital Investments.

Treasury Lacked Controls 

to Detect Errors in 

Reporting Certain IT 

Spending Data
Page 20 GAO-16-695 IRS 2017 Budget

activities, comparisons, reconciliations, and other actions people take in 

performing their duties.25 According to Treasury officials, Treasury is 

aware of the need to reduce manual corrections by making improvements 

to SPIKE, but has yet to take steps to fully ensure that such errors will not 

occur in future budget cycles.

In June 2015, we reported on a separate ongoing monitoring internal 

control issue which resulted in IRS providing inaccurate data on actual 

obligations to date for major IT investments in its fiscal year 2016 CJ.26 As 

a result of our recommendation that IRS implement internal controls to 

ensure the accuracy of information on major IT investments reported in 

the annual CJ, IRS took additional steps when preparing the fiscal year 

2017 CJ. This included performing an operational review to examine the 

existing procedures. In addition, for the fiscal year 2017 IT investment 

reports, IRS implemented processes to ensure accurate and reliable data 

such as comparing its IT data maintained on control charts to the data it 

enters in SPIKE. IRS performed this reconciliation individually for each IT 

investment. However, IRS reported that it did not review the Summary of 

Capital Investments generated by Treasury in its entirety for accuracy 

after it was generated from SPIKE.

Without effectively monitoring IT investment information, Treasury risks 

continued errors in the information it reports on its IT investments. Such 

errors could negatively affect Congress’s ability to obtain accurate 

information on IT investments needed to inform future budget decisions 

and oversight.

IRS intended to improve its budget process by aligning its spending 

priorities with themes supporting its future state vision, but the effort 

remains a work in progress. For fiscal year 2017, IRS did not make clear 

how spending by themes relates to appropriation accounts and how this 

advances IRS’s priorities; this linkage is important to the clarity and 

transparency of IRS’s budget presentation. Appropriations staff told us 

this information would help them make informed budget and oversight 

 25GAO, Standards for Internal Control in the Federal Government, GAO-14-704G 

(Washington, D.C.: September 2014).

26See GAO-15-624. For other budget-related recommendations that remain open, see 

appendix III.

Conclusions
Page 21 GAO-16-695 IRS 2017 Budget

decisions. While IRS faces data challenges that may limit its ability to fully 

link funding requests to appropriation accounts, providing these linkages 

to the extent feasible will improve transparency and provide Congress 

with information to assist in making informed decisions. Additionally, 

accurate and timely budget data are key to effective congressional 

oversight. Since IT is such a significant portion—about 21 percent—of the 

total budget request for IRS, it is particularly important to have robust 

controls in place to ensure the data’s accuracy.

To enhance the budget process and to improve transparency, we 

recommend that the Commissioner of Internal Revenue, to the extent 

feasible, ensure that the CJ includes data by appropriation account on the 

amount of funding requested to maintain current services for each future 

state theme.

As Treasury works with IRS to improve the quality and accuracy of 

budget data, we recommend that the Secretary of the Treasury ensure 

sufficient controls are in place to make certain that the information 

technology investment reports generated from SPIKE are accurate. This 

includes, for example, taking steps to reduce the need for manual 

corrections to the data.

We provided a draft of this report to the Commissioner of Internal 

Revenue and the Secretary of the Treasury for comment. In written 

comments reproduced in Appendix IV, IRS agreed with the 

recommendation related to the presentation of data in the Congressional 

Justification. IRS plans to provide a robust description of planed activities 

and outcomes for funding requested to maintain current services. Given 

IRS’s emphasis on the future state, budget data on the amount requested 

to maintain current services for each theme is particularly valuable. In a 

separate email response, Treasury agreed with the recommendation 

related to information technology internal controls. Treasury noted that it 

plans to implement improvements to SPIKE in the next few months that 

would address our recommendation by avoiding the need for manual 

corrections moving forward. IRS and Treasury also provided technical 

comments which were incorporated as appropriate.

We are sending copies of this report to the Chairman and Ranking 

Members of other Senate and House committees and subcommittees that 

have appropriation, authorization, and oversight responsibilities for IRS. 

Recommendations for 

Executive Action

Agency Comments 

and Our Evaluation
Page 22 GAO-16-695 IRS 2017 Budget

We are also sending copies to the Commissioner of Internal Revenue, the 

Secretary of the Treasury, and other interested parties. In addition, the 

report is available at no charge on the GAO website at 

http://www.gao.gov.

If you or your staff have any questions about this report, please contact 

me at (202) 512-9110 or mctiguej@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this report. GAO staff who made key contributions to this

report are listed in appendix V.

James R. McTigue, Jr. 

Director, Tax Issues 

Strategic Issues
Page 23 GAO-16-695 IRS 2017 Budget

Table 5: Internal Revenue Service (IRS) Funding, Fiscal Years 2011 through 2016 Enacted and 2017 Requested (Dollars in 

Millions)

Appropriations 

account

Fiscal year 

2011 

enacted 

dollars

Fiscal year 

2012 

enacted 

dollars

Fiscal year 

2013 

enacted 

dollarsa

Fiscal year 

2014 

enacted 

dollars

Fiscal year 

2015 

enacted 

dollars

Fiscal year 

2016 

enacted 

dollarsb

Fiscal year 

2017 

requested 

dollars 

below 

capc

Fiscal year 

2017 total

requested 

dollars

Dollar 

change 

fiscal year 

2016 

enacted 

compared 

to fiscal 

year 2017 

requested

Percent 

change 

fiscal year 

2016 

enacted 

compared 

to fiscal 

year 2017 

requested

Enforcement 5,493 5,299 4,949 5,022 4,860 4,865 4,985 5,216 351 7.2

Operations

Support 4,057 3,947 3,801 3,799 3,638 3,747 4,031 4,314 567 15.1

Taxpayer 

Services 2,293 2,240 2,136 2,157 2,157 2,333 2,406 2,406 73 3.1

Business 

Systems 

Modernization 263 330 313 313 290 290 343 343 53 18.4

Health Insurance 

Tax Credit 

Administrationd 15 0 0 0 0 0 0 0 0 0.0

Total annually 

appropriated 

resources 12,122 11,817 11,199 11,291 10,945 11,235 11,765 12,280 1,045 9.3

Other resources, 

such as user 

fees 655 695 855 815 1,031 1,139 965 965 -175 -15.3

Total budgetary 

resource 

funding 12,777 12,512 12,053 12,106 11,976 12,374 12,730 13,245 871 7.0

Source: Congressional budget justifications for IRS, fiscal years 2013 through 2017. | GAO-16-695

Notes: Dollars are nominal and not adjusted for inflation, and numbers may not add due to 

rounding.

a

Fiscal year 2013 enacted represents the operating level after applying across-the-board 

rescission and reductions required by sequestration.

b

The Consolidated Appropriations Act of 2016, division E, section 113, gave IRS authority to 

allocate the $290 million to the Taxpayer Services, Operations Support, and Enforcement 

accounts.

c

Congress passes cap adjustments to allow additional funding above discretionary spending 

limits for certain activities that are expected to generate benefits that exceed cost.

d

In fiscal year 2012 and thereafter, amounts appropriated for Health Insurance Tax Credit 

Administration, which had been a separate account, were moved to the Taxpayer Services 

appropriation.

Appendix I: Internal Revenue Service

Funding and Full-Time Equivalents Data 

from Fiscal Year 2011 through 2017
Page 24 GAO-16-695 IRS 2017 Budget

Table 6: Internal Revenue Service (IRS) Full-Time Equivalents (FTE), Fiscal Years 2011 through 2015 Actual, 2016 Enacted, 

and 2017 Requested 

Appropriations 

account

Fiscal 

year 

2011 

actual

Fiscal 

year 

2012 

actual

Fiscal 

year 

2013 

actual

Fiscal 

year 

2014 

actual

Fiscal 

year 

2015 

actual

Fiscal 

year 2016 

enacted

Fiscal year 

2017 

requested 

below capa

Fiscal year 

2017 total 

requested 

FTE 

change 

fiscal year 

2016 

enacted 

compared 

to fiscal 

year 2017 

requested

Percent 

change 

fiscal year 

2016 

enacted 

compared 

to fiscal 

year 2017 

requested

Enforcement 49,920 47,189 44,174 42,119 39,708 38,840 39,141 41,028 2,188 5.6

Operations 

Support 12,103 11,499 11,610 11,652 10,614 11,922 12,013 12,250 328 2.8

Taxpayer 

Servicesb 31,574 30,236 29,646 28,535 27,476 30,370 31,056 31,056 686 2.3

Business 

Systems 

Modernization 309 562 451 337 309 440 469 469 29 6.6

Total FTEs 

funded with 

annual 

appropriations 93,906 89,486 85,881 82,643 78,107 81,572 82,679 84,803 3,231 4.0

FTEs funded 

with other 

resources, such 

as user fees 1,003 2,185 1,884 2,118 2,685 1,533 2,219 2,219 686 44.7

Total FTEs 94,909 91,671 87,765 84,761 80,792 83,105 84,898 87,022 3,917 4.7

Source: Congressional budget justifications for IRS, fiscal years 2013 through 2017. | GAO-16-695

a

Congress passes cap adjustments to allow additional funding above discretionary spending 

limits for certain activities that are expected to generate benefits that exceed cost.

b

The administrative resources for the Health Insurance Tax Credit Administration were moved 

to the Taxpayer Services appropriation.
Appendix II: Summary of the Internal Revenue 

Service’s Major Information Technology 

Investments

Page 25 GAO-16-695 IRS 2017 Budget

In the fiscal year 2017 Capital Investment Plan, the Internal Revenue 

Service (IRS) did not report life-cycle costs of its major information 

technology (IT) investments since most investments were considered 

ongoing with an undetermined useful life. Instead, IRS provided total 

anticipated outlays for the investments through fiscal year 2021. 

Table 7: Major IT Investments (Dollars in Millions)

Investment name and description 

Start date 

of 

investment 

Actual 

obligated

dollars to 

fiscal year 

2015

Fiscal year 

2016 

enacted 

dollars

Fiscal year 

2017 

requested 

dollars

Total 

anticipated 

outlay 

dollars to

fiscal year 

2021

Account Management Services

Enhances customer support by providing applications that 

enable IRS employees to access, validate, and update 

individual taxpayer accounts on demand. 2009 135.4 15.0 17.8 242.3

Achieving A Better Life Experience

Implements provisions of the Achieving A Better Life Experience 

(ABLE) Act related to the receipt and processing of information 

returns for ABLE accounts. 2016 0.0 30.0 6.0 84.0

Affordable Care Act Administration

Encompasses the planning, development, and implementation 

of IT systems needed to support IRS’s tax administration 

responsibilities associated with the Patient Protection and 

Affordable Care Act. 2010 1,341.2 303.2 258.3 2,979.6

Customer Account Data Engine 2

Provides timely access to authoritative individual taxpayer 

account information and enhances IRS’s ability to address 

security, financial material weaknesses, and long-term 

architectural planning and viability. 2009 932.4 135.3 137.4 1,779.6

e-Services

Comprises several web-based, self-assisted services that allow 

authorized individuals to do business with IRS electronically. 1999 195.3 9.3 9.5 253.4

Electronic Fraud Detection System 

Detects fraud at the time that tax returns are filed in order to 

eliminate the issuance of fraudulent tax refunds. The investment 

is expected to fully retire in 2018 so the anticipated outlay 

amount is only to fiscal year 2018. 1996 143.9 13.1 13.3 183.8

Enterprise Case Management

Provides a consistent approach to case management across 

IRS. 2016 4.1 30.1 41.9 280.4

Event Driven Architecture

Provides the infrastructure to enable online taxpayer services 

and electronic filing options. 2016 0.0 4.4 34.6 103.6

Appendix II: Summary of the Internal 

Revenue Service’s Major Information 

Technology Investments
Appendix II: Summary of the Internal Revenue 

Service’s Major Information Technology 

Investments

Page 26 GAO-16-695 IRS 2017 Budget

Investment name and description 

Start date 

of 

investment 

Actual 

obligated

dollars to 

fiscal year 

2015

Fiscal year 

2016 

enacted 

dollars

Fiscal year 

2017 

requested 

dollars

Total 

anticipated 

outlay 

dollars to

fiscal year 

2021

Foreign Account Tax Compliance Act

Implements provisions of the Foreign Account Tax Compliance 

Act regarding financial institutions reporting to IRS information 

about financial accounts held by U.S. taxpayers, or foreign 

entities in which U.S. taxpayers hold a substantial ownership 

interest. 2011 122.2 89.1 27.5 594.6

Health Coverage Tax Credit

Encompasses the planning, development, and implementation 

of IT systems needed to support IRS’s tax administration 

responsibilities associated with the Health Coverage Tax Credit 2015 0.0 24.9 6.4 55.3

Individual Master File

Represents the authoritative data source for individual tax 

account data, supporting other IRS information systems and 

providing a critical component of IRS’s ability to process tax 

returns. 1970 108.0 13.6 13.8 192.8

Integrated Customer Communication Environment

Includes several projects that are intended to simplify voluntary 

compliance using telephone applications, Internet, and other 

computer technology 1992 509.1 11.7 11.9 582.2

Integrated Data Retrieval System

Provides for systemic review, consistency in case control, 

alleviates staffing needs, issues notices to taxpayers, and 

allows taxpayers to see status of refunds. 1973 233.4 16.3 16.5 334.4

Integrated Financial System

Provides budget, payroll, accounts payable/receivable, general 

ledger functions, and financial reporting; also used to manage 

budgets by fiscal year. 2001 437.7 2.8 4.2 462.3

Integrated Submission and Remittance Processing System 

Processes paper tax returns, and updates tax forms to comply 

with tax law changes. 1998 164.2 11.1 11.3 233.8

IRS End User Systems and Services

Supports products and services necessary for daily functions for 

IRS employees at headquarters and field sites. 2002 1,081.7 213.8 193.4 2,291.2

IRS Main Frames and Servers Services and Support

Supports the design, development, and deployment of server 

storage infrastructures, software, databases, and operating 

systems. 1970 5,127.8 417.0 468.2 8,213.8

IRS Telecommunications Systems and Support

Supports IRS’s broad and local network infrastructure such as 

servers, and switches for voice, data, and video servicing of IRS 

sites. 2001 1,578.5 276.2 286.0 3,336.1
Appendix II: Summary of the Internal Revenue 

Service’s Major Information Technology 

Investments

Page 27 GAO-16-695 IRS 2017 Budget

Investment name and description 

Start date 

of 

investment 

Actual 

obligated

dollars to 

fiscal year 

2015

Fiscal year 

2016 

enacted 

dollars

Fiscal year 

2017 

requested 

dollars

Total 

anticipated 

outlay 

dollars to

fiscal year 

2021

IRS.gov - Portal Environment

Provides web-based services to internal and external users, 

such as IRS employees and other government agencies, 

taxpayers, and business partners. 1996 627.7 60.6 68.9 1,046.0

Modernized e-File

Provides a secure web-based platform for electronic tax filing of 

individual and business tax and information returns by 

registered Electronic Return Originators. 2001 488.1 54.7 60.1 853.8

Return Review Program

Aims to maximize detection of fraud, including identity theft 

fraud, at the time that tax returns are filed to eliminate issuance 

of questionable refunds. This investment replaces the Electronic 

Fraud Detection System. 2010 192.6 91.9 92.9 816.3

Service Center Recognition/Image Processing System

Provides a data capture, management, and image storage 

system using high-speed scanning and digital imaging to 

convert data from the 940, 941, K-1, and paper returns from 

Information Returns Processing into an electronic format. 1991 177.4 10.5 17.8 250.5

Web Applications

Provides online tools for taxpayers, such as Where’s My Refund 

and Get Transcript; supports search function and design of 

IRS.gov. 2015 13.2 19.2 23.3 211.6

Source: IRS Fiscal Year 2017 Capital Investment Plan. | GAO-16-695

.
Appendix III: Our Open Budget-Related 

Recommendations to the Internal Revenue 

Service

Page 28 GAO-16-695 IRS 2017 Budget

Report Recommendations Benefit Status

GAO-12-603 

June 8, 2012

Develop a quantitative measure of 

scope

At a minimum, develop a quantitative 

measure of scope for its major 

information technology (IT) 

investments, in order to have 

complete information on the 

performance of these investments.

A quantitative measure of 

scope is a good practice 

as it provides an 

objective measure of 

whether an investment 

delivered the functionality 

that was paid for.

The Internal Revenue Service’s (IRS) position 

on this recommendation has changed over 

time. IRS agreed with the recommendation we 

made in June 2012, but stated it had other 

methods in place to document delivered 

functionality of a project throughout the lifecycle. However, these methods did not 

provide a quantitative measure of 

performance. In responding to a related report 

we issued in April 2014, IRS maintained its 

position and therefore did not take action to 

address the recommendation. In the 

December 2015 quarterly report on 

information technology to Congress, however, 

IRS proposed a solution for one investment: 

specifically, it listed specific “scope elements” 

for the Return Review Program investment 

and identified the elements it had implemented 

to date. In addition, during our recent review of 

IRS’s major IT investments, we found that IRS 

had developed a quantitative measure of 

scope for two investments, although we noted 

that the measure could be improved by 

accounting for the work performed by IRS staff 

in accordance with best practices 

(GAO-16-545). The measure used in the 

quarterly report to Congress and the one we 

noted during our June 2016 review are 

positive steps. Similar, continued efforts by 

IRS would help fully address our 

recommendation to develop a quantitative 

measure of scope for all major IT investments.

GAO-13-835

September 26, 

2013

Further refine updates to the Patient 

Protection and Affordable Care Act 

(PPACA) cost estimate

Improve the accuracy and credibility of 

future updates to the PPACA cost 

estimate by taking the following 

actions to more closely follow best 

practices outlined in the GAO Cost 

Guide:

• Use earned value management to 

capture actual costs and use 

them as a basis for future 

updates.

• Explain why variances occurred 

between the current estimate and 

previous estimates.

• Conduct future risk and 

uncertainty analyses consistent 

Developing a cost 

estimate that meets 

additional best practices, 

will foster accountability, 

improve insight, and 

provide objective 

information.

IRS agreed with all of the actions 

recommended, except using earned value 

management and validating the PPACA cost 

estimate by preparing a second, independent 

cost estimate, in part because of cost and 

burden. In February 2015, IRS released 

version 3 of the PPACA cost estimate, which 

reflects best practices to a greater extent. 

However, four elements of this 

recommendation remain open. IRS improved 

the variance from the prior estimate, but IRS 

has not improved its practices related to the 

use of earned value management, risk and 

uncertainty analysis, or validating the 

estimate. IRS released version 4 of the cost 

estimate in April 2016 and we will continue to 

monitor IRS’s progress.

Appendix III: Our Open Budget-Related 

Recommendations to the Internal Revenue 

Service
Appendix III: Our Open Budget-Related 

Recommendations to the Internal Revenue 

Service

Page 29 GAO-16-695 IRS 2017 Budget

Report Recommendations Benefit Status

with best practices, and develop 

and document plans to address 

risks.

• Validate the original cost estimate 

by preparing a second, 

independent cost estimate.

GAO-14-605

June 12, 2014

Develop a long-term strategy

Develop a long-term strategy to 

address operations amidst an 

uncertain budget environment. As part 

of the strategy, IRS should take steps 

to improve its efficiency, including

• Reexamine programs, related 

processes, and organizational 

structures to determine whether 

they are effectively and efficiently 

achieving IRS’s mission.

• Streamline or consolidate 

management or operational 

processes and functions to make 

them more cost effective.

Developing a long-term 

strategy will enhance 

budget planning and 

improve decision making 

and accountability.

IRS agreed with our recommendation and is 

taking steps to implement it. IRS has adopted 

a new, more strategic, approach to identify 

and select budget program priorities based on 

future state themes for the fiscal year 2017 

budget request. As part of its planning 

process, IRS prioritized a subset of 5 

objectives for action as part of the 19 

objectives identified in the IRS 2014-2017 

Strategic Plan. Operating division officials 

submitted requests for resources that they 

thought were necessary to achieve the five 

priority objectives, and they identified 

initiatives that were the highest priority to IRS. 

To guide IRS toward the future state concept 

and assess progress along the way, IRS has 

identified enterprise goals, but as of May 

2016, these goals were still under 

development.

GAO-14-605

June 12, 2014

Enhance calculation and use of actual 

return on investment (ROI) data

Calculate actual ROI for implemented 

initiatives, compare the actual ROI to 

projected ROI, and provide the 

comparison to budget decision 

makers for initiatives where IRS 

allocated resources.

Use actual ROI calculations as part of 

resource allocation decisions.

Enhanced calculation of 

ROI provides greater 

insight on the productivity 

of a program and can 

inform decision making.

While IRS agreed that having actual ROI data 

for implemented initiatives would be useful, it 

did not believe it was feasible to produce such 

estimates, as we recommended in June 2014. 

However, we maintain that IRS should be able 

to provide some information on past initiatives, 

such as whether funds requested were used in 

the manner originally proposed. As of July 

2015, IRS officials reported there is no

timeline for full implementation. In June 2016, 

IRS officials confirmed that they do not isolate 

the revenue attributable to a specific initiative, 

but pointed to other efforts to help manage 

IRS’s budget, including establishing the Office 

of Planning Programming, and Audit 

Coordination intended to improve investment 

planning processes in the future. While these 

other efforts are intended to help IRS act more 

strategically, they are not directly linked to 

ROI.

IRS's Research, Analysis, and Statistics 

Division has begun to estimate marginal direct 

revenues and marginal costs attributable to 

specific compliance projects. The estimates 

are necessary inputs to establish a measure of 

ROI, which in turn can guide resource 
Appendix III: Our Open Budget-Related 

Recommendations to the Internal Revenue 

Service

Page 30 GAO-16-695 IRS 2017 Budget

Report Recommendations Benefit Status

allocation decisions within the correspondence 

exam program. IRS plans to use these 

estimates to inform future examination plans 

as we recommended in June 2014, but 

considerable work remains in this long-term 

effort. In July 2015, IRS officials reported there 

is no timeline for full implementation. In June 

2016, IRS officials confirmed that projected 

revenue will be considered in investment 

decision making as part of fiscal year 2018 

enterprise planning guidance, but did not 

report any progress in using actual ROI data.

Source: GAO analysis of IRS data. | GAO-16-695
Appendix IV: Comments from the Internal Revenue Service

Page 31 GAO-16-695 IRS 2017 Budget

Appendix IV: Comments from the Internal 

Revenue Service
Appendix IV: Comments from the Internal Revenue Service

Page 32 GAO-16-695 IRS 2017 Budget
Appendix V: GAO Contact and Staff 

Acknowledgments

Page 33 GAO-16-695 IRS 2017 Budget

James R. McTigue, Jr. (202) 512-9110, mctiguej@gao.gov

In addition to the individual named above, the following staff made key 

contributions to this report: Thomas Gilbert, Assistant Director; Melissa 

King, Analyst-in-Charge; Charles Fox; Robert Gebhart; Carol Henn; 

Laurie King; Edward Nannenhorn; Sabine Paul; Bradley Roach; Robert 

Robinson; Cynthia M. Saunders; Andrew J. Stephens; and Elwood White.

Appendix V: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(100515)
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